-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GzV4LuYi9lsz56jeL0u/BpmuuU4wsjt1SzgaXMuFUyNN7bZwlE7IpsTac1BoLvx0 DR0GYMv+lISrvfoRxZP82g== 0000928385-99-001081.txt : 19990403 0000928385-99-001081.hdr.sgml : 19990403 ACCESSION NUMBER: 0000928385-99-001081 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CYBERNET INTERNET SERVICES INTERNATIONAL INC CENTRAL INDEX KEY: 0001070658 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-25677 FILM NUMBER: 99583627 BUSINESS ADDRESS: STREET 1: POWELL GOLDSTEIN FRAZER & MURPHY STREET 2: 1001 PENNSYLVANIA AVE NW CITY: WASHINGTON STATE: DC ZIP: 20004 BUSINESS PHONE: 2026247235 MAIL ADDRESS: STREET 1: POWELL GOLDSTEIN FRAZER & MURPHY STREET 2: 1001 PENNSYLVANIA AVE NW CITY: WASHINGTON STATE: DC ZIP: 20004 10-K405 1 FORM 10-K - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------- FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NO. __________ -------------------- CYBERNET INTERNET SERVICES INTERNATIONAL, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) -------------------- DELAWARE 51-0384117 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) STEFAN - GEORGE - RING 19-23 81929 MUNICH, GERMANY (ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) -------------------- 49-89-993-150 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) -------------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, $.001 PAR VALUE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting common equity held by non- affiliates of the registrant on March 15, 1999, based upon the closing price of the Common Stock on The Nasdaq OTC Bulletin Board for such date, was approximately $409,269,340. The number of outstanding shares of the registrant's Common Stock as of March 15, 1999, was approximately 19,034,798 shares. DOCUMENTS INCORPORATED BY REFERENCE Portions of (a) the Registrant's Proxy Statement for the 1999 Annual Meeting of Shareholders are incorporated by reference in Part III hereof, and (b) the Form S-1 declared effective on December 2, 1998, located under Securities and Exchange Commission File No. 333-63755 are incorporated by reference in Part IV hereof. The Index of Exhibits filed with this Report begins on page E-1. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS
Page ---- PART I................................................................................................................... 1 ITEM 1. BUSINESS....................................................................................................... 1 ITEM 2. PROPERTIES..................................................................................................... 15 ITEM 3. LEGAL PROCEEDINGS.............................................................................................. 16 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS............................................................ 16 PART II.................................................................................................................. 17 ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.......................................... 17 ITEM 6. SELECTED FINANCIAL DATA........................................................................................ 19 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.......................... 21 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..................................................... 21 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................................................................... 21 ITEM 9. CHANGES IN, AND DISAGREEMENTS WITH, ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE ELECTED FINANCIAL DATA.. 21 PART III................................................................................................................. 22 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............................................................. 22 ITEM 11. EXECUTIVE COMPENSATION......................................................................................... 22 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................................................. 23 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................................................. 23 PART IV.................................................................................................................. 23 ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K............................................... 23 SIGNATURES.............................................................................................................. 26 INDEX TO FINANCIAL STATEMENTS........................................................................................... F-1 INDEX TO EXHIBITS....................................................................................................... E-1
PART I ITEM 1. BUSINESS Forward-Looking Statements Statements contained in this Form 10-K that are not historical fact are "forward-looking statements". These statements can often be identified by the use of forward-looking terminology such as "estimate," "project," "believe," "expect," "may," "will," "should," "intends," or "anticipate" or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. We wish to caution the reader that these forward-looking statements, such as statements relating to the timing, costs and scope of construction of new facilities, the acquisition of, or investments in, existing businesses, the revenue and profitability levels of such businesses, and other matters contained in this Form 10-K regarding matters that are not historical facts, are only predictions. No assurance can be given that plans for the future will be consummated or that the future results indicated, whether expressed or implied, will be achieved. While sometimes presented with numerical specificity, these plans and projections and other forward-looking statements are based upon a variety of assumptions, which we consider reasonable, but which nevertheless may not be realized. Because of the number and range of the assumptions underlying our projections and forward- looking statements, many of which are subject to significant uncertainties and contingencies that are beyond our reasonable control, some of the assumptions inevitably will not materialize, and unanticipated events and circumstances may occur subsequent to the date of this Form 10-K. Therefore, our actual experience and results achieved during the period covered by any particular projections or forward-looking statements may differ substantially from those projected. Consequently, the inclusion of projections and other forward-looking statements should not be regarded as a representation by us or any other person that these plans will be consummated or that estimates and projections will be realized, and actual results may vary materially. There can be no assurance that any of these expectations will be realized or that any of the forward- looking statements contained herein will prove to be accurate. The Company Through our subsidiaries, we are a leading provider of Internet communications services and solutions, primarily to medium-sized corporations in Germany, Austria and Northern Italy. We have also contracted to acquire a majority interest in a company through which we will expand to Switzerland. Our Internet protocol ("IP") solutions are based on a core product offering which includes Internet connectivity, virtual private networks ("VPNs"), web-hosting, co-location, security solutions, electronic commerce, Intranet/Extranet and workflow solutions. We offer consulting, complete design and installation, training, technical support, and operation and monitoring of IP-based systems. We market our products and services primarily to medium-sized corporations throughout Europe, because we believe that they represent an underserved and sizeable market with a lack of internal technical resources, rapidly expanding communications needs and a high propensity to utilize third-party outsourcing. We operate a geographically distributed IP network, currently based upon leased lines. Our network is spread over six countries and consists primarily of Cisco routers and Ascend nodes connected to a redundant high-performance backbone infrastructure. The network helps corporate customers reduce telecommunications costs by offering Internet connectivity through dedicated leased lines at more than 100 Points of Presence ("POPs"). We also offer a system of dial-up nodes with ISDN or analog modem ports to smaller enterprises, employees and affiliates of corporate customers. These nodes permit local dial- up access by the entire population of Germany and a majority of the populations of Austria and Northern Italy. When we complete our Swiss acquisition, we will also offer local dial-up access to the entire population of Switzerland. We are currently in the process of reorganizing our dial-up network in Germany and plan to establish virtual POPs, which use the public switched telephone network to aggregate traffic, and we expect that these virtual POPs will generate operating efficiencies because of the fewer locations to service. The Company's operations began with the formation of Cybernet Internet Dienstleistungen AG ("Cybernet AG"), a privately held German stock company. Cybernet AG was organized in December, 1995, and commenced significant operations in 1996. On September 17, 1997, Cybernet AG was acquired by Cybernet Internet Services International, Inc., a Utah corporation, organized on September 27, 1983 ("Cybernet Utah"). At the time that it acquired Cybernet AG, Cybernet Utah had no material business activities, assets or liabilities. Effective November 18, 1998, Cybernet Utah was merged into the Company, and the Company is the surviving entity of the merger. Unless the context otherwise requires, the term "Company" or "Cybernet" refers to Cybernet Internet Services International, Inc., its consolidated subsidiaries and its Utah and German predecessors. Industry Background The Internet is a global network of multiple private and public networks that use standardized communication protocols to communicate with each other. The Internet was started in 1969 by the U.S. Department of Defense's Advanced Research Projects Agency (ARPANET) to enable scientists at universities to share information and to develop a network secure enough to withstand a nuclear attack. Use of the Internet has grown rapidly since its initial commercialization in the early 1990's. International Data Corporation ("IDC"), a market research organization, has estimated that the number of Internet users worldwide will grow from approximately 68.7 million in 1997 to approximately 319.8 million by the end of 2002, a compounded annual rate of 36.0%. Consumers and companies in the U.S. have spearheaded adoption of the Internet. While other regions of the world have been slower to accept the Internet, its use is becoming a standard communications tool worldwide. The Internet is experiencing rapid growth rates in Europe. According to IDC, the number of Internet users reached 16.8 million in 1997 and is expected to reach 82.0 million in 2002. Datamonitor, a market research organization, estimates that the number of externally hosted commercial web sites in Europe will increase from 221,700 in 1997 to 981,900 in 2000, while the number of VPNs will expand from 100 in 1997 to 27,900 in 2000. We believe that the growing numbers of externally hosted web sites and VPNs reliably predict a corresponding growth in Internet traffic. We expect this projected growth to be fueled by a number of factors, including the large and growing installed base of advanced personal computers, faster and PAGE 2 cheaper access to the Internet, improvements in network architectures, increasing numbers of network-enabled applications, and the emergence of compelling content and commerce-enabling technologies. The following table provides information about current and projected Internet usage in Europe and the United States.
- ---------------------------------------------------------------------------------------------------------- EUROPE UNITED STATES - ---------------------------------------------------------------------------------------------------------- 1997 2002/e/ 1997 2002/e/ - ---------------------------------------------------------------------------------------------------------- Internet users (mm) 16.8 82.0 38.7 135.9 - ---------------------------------------------------------------------------------------------------------- Population (mm) 386.0 388.4 267.9 279.5 - ---------------------------------------------------------------------------------------------------------- Internet users as a percent of population 4.4% 21.1% 14.4% 48.6% - ---------------------------------------------------------------------------------------------------------- PC's with internet access 19.7% 57.1% 36.3% 84.3% - ----------------------------------------------------------------------------------------------------------
Sources: IDC Corporation; population figures provided by the US Bureau of the Census. Corporate Internet Users. The Internet has become an important commerce medium and represents a significant opportunity for businesses to interact in new and different ways with a large number of customers, employees, suppliers and partners. As use of the Internet grows, businesses are increasing the breadth and depth of their Internet product and service offerings. Pioneering Internet-based businesses have developed Internet products and services in areas such as finance, insurance, media, tourism, retail and advertising. Other businesses have begun to use the Internet for an expanding variety of applications, ranging from corporate publicity and advertising, to sales, distribution, customer service, employee training and communication with business partners. Increasingly, Internet operations are becoming mission- critical for many of these enterprises. To ensure the reliability of their Internet operations, enterprises are requiring that these operations have 24 hours a day, 7 days a week performance, scalability and expert management. Connectivity Services and Value-Added Services. Corporations utilize two types of Internet services: connectivity and value-added services. Connectivity services provide access to the Internet, while value-added services consist of products such as web hosting, VPNs, security solutions and systems integration that improve the internal and external operations of a company. According to Datamonitor, the European corporate Internet connectivity market consisted of 1.2 million accounts which generated total revenues of $919 million in 1997. Datamonitor estimates that corporate connectivity revenues will grow to $2.6 billion in 2000, a compounded annual rate of 41.8%, while the number of accounts will increase to 3.0 million in 2000, a compounded annual growth rate of 35.3%. In 1997, European Internet value-added services generated $287 million, according to Datamonitor. Additionally, they estimate that revenues from value- added services will increase to $1.7 billion in 2000, a compounded annual growth rate of 80.7%. In 1997, revenues from hosting services and VPNs were $76 million, 26.5% of total European revenues from value-added services. In 2000, they are expected to be $722 million, 43.2% of such revenues, a compounded annual growth rate of 111.8%. PAGE 3 Internet Usage in Europe. Internet usage varies significantly between European regions. Northern European countries generally have a higher level of market penetration and service usage than countries in Southern Europe, which currently presents a growth opportunity. The following table summarizes certain information about revenues from Internet connectivity and Internet hosting and VPNs in European countries.
Connectivity Hosting and VPN ------------ --------------- - --------------------------------------------------------------------------------------------------------------------------- 1997 2000E Compounded 1997 2000E Compounded (USD mm) (USD mm) Change (%) p.a. (USD mm) (USD mm) Change (%) p.a. - --------------------------------------------------------------------------------------------------------------------------- Finland 17 42 35.2% 1 20 171.4% - --------------------------------------------------------------------------------------------------------------------------- France 94 383 59.7% 3 92 213.0% - --------------------------------------------------------------------------------------------------------------------------- Germany 447 1,084 34.4% 16 184 125.7% - --------------------------------------------------------------------------------------------------------------------------- Italy 30 169 77.9% 5 50 115.4% - --------------------------------------------------------------------------------------------------------------------------- Netherlands 28 85 44.8% 6 42 91.3% - --------------------------------------------------------------------------------------------------------------------------- Spain 35 136 57.2% 2 31 49.3% - --------------------------------------------------------------------------------------------------------------------------- Sweden 31 67 29.3% 4 34 104.1% - --------------------------------------------------------------------------------------------------------------------------- United 154 381 35.2% 16 146 109.0% Kingdom - --------------------------------------------------------------------------------------------------------------------------- Other (*) 83 272 48.5% 23 123 74.9% - --------------------------------------------------------------------------------------------------------------------------- Total 919 2,619 41.8% 76 722 111.8% - ---------------------------------------------------------------------------------------------------------------------------
(*) Other includes Austria, Belgium, Ireland, Norway, Portugal and Switzerland. Source: Datamonitor. We consider Germany to be the most important connectivity market in Europe in terms of revenues, with a highly developed consumer and on-line business customer base. As the chart above shows, in 1997, the German connectivity market had revenues of $447 million, 48.6% of total European connectivity revenues. It is estimated that in 2000, Germany will generate connectivity revenues of $1.1 billion, 41.4% of total European connectivity revenues. Italy currently has a relatively low Internet penetration level. The Internet connectivity market in Italy is very fragmented, with a large number of small providers. We expect that PAGE 4 connectivity revenues in Italy will grow at one of the fastest rates in Europe, particularly Northern Italy, because much of Italian business is concentrated in that area. Business Strategy Our objective is to become a leading provider of communications services and network-based business solutions to medium-sized corporate customers throughout Europe, offering a full-service portfolio of advanced communications products including Internet, data and switched voice services. The principal elements of our business strategy are as follows: Initiate Long-Term Relationships With Customers at an Early Stage. We address the Internet communications needs of our customers at early stages. In pursuing this strategy, we are able to engage in strategic discussions with senior management about their communications requirements, influence the design of their services and solutions and establish the basis for long-term relationships at different levels of our customers' organizations. We are then in a position to provide our customers with additional services as their requirements increase or change over time. We believe that our approach of providing a full range of high quality value- added services ensures higher customer retention rates. This enables us to offer additional solutions to our customers without having to compete primarily on price. Expand Services Offering. We intend to leverage our strong relationships with existing corporate customers by providing additional network services, including switched voice, managed bandwidth and VPNs, as the customers' communication needs increase. Because we establish multiple contacts at different levels of our customers' organizations, we believe that we are better able to determine when a customer's communications solution should be changed or upgraded. In addition, it is our goal to broaden our product offering as technology evolves with new services, solutions, and innovations which have proven reliable and effective. Expand Sales Channels. We are currently pursuing growth opportunities through various sales channels. These include trained direct sales representatives with strong technical backgrounds, an extensive reseller program and marketing alliances with technology leaders like Hewlett- Packard Company, Microsoft Corporation, Network Associates, Inc. and Sun Microsystems, Inc. We are expanding our direct sales force and regional offices to increase our local coverage. We currently have 8 sales offices (five in Germany, one in Austria, and two in Italy). When we complete our Swiss acquisition, we will also have two in Switzerland. We plan to increase the total number. We intend to expand our reseller and referral arrangements to increase sales of our basic connectivity services, and enhance our marketing alliances to obtain more customer introductions. PAGE 5 Target Medium-Sized Corporate Customers. We focus on medium-sized corporate customers with revenues between Euros 25 million and 500 million. According to Statistisches Bundesamt, a German government agency, such companies generate 45% of Germany's total corporate revenues. We believe that this customer segment is underserved and has substantial and increasing communications needs. Medium-sized corporations typically lack the technical resources to build and maintain extensive communications systems and, as a consequence, they outsource many services and solutions to third parties. We focus in particular on network intensive industries, such as Information Technology, tourism, service, retail, finance, government, media, advertising and manufacturing. Build Network Capabilities. We intend to develop our own fiber-optic network to enhance the quality of our service to customers, a factor crucial to long-term success in our industry. By constructing and owning our own network, we expect to increase the reliability and quality of our services, respond more quickly to the growth needs of our target customers, and reduce our operating costs. These plans depend upon our ability to raise substantial additional financing. It is likely that this would require us to sell debt and/or equity securities in private or public offerings. We cannot be certain that we will be able to effect such offerings. Accelerate Growth in Europe Through Targeted Acquisitions. To date, we have successfully integrated three acquisitions, we have recently acquired one additional company which we are in the process of integrating and we have agreed to acquire one more company. We will seek to acquire additional Internet-related companies to build our presence in other European countries, while continuing to grow internally. In each acquisition, we look for strategically and culturally compatible companies to add to our strong management, increase our technical expertise, and increase our customer base in our current coverage area and bordering countries. Maintain Cybernet's Flexible International Organization. Our corporate organization is decentralized, flexible and entrepreneurial. Our management team includes German, Italian, Austrian, British and American nationals with substantial international experience in the Internet, IT services and telecommunications industries. Our corporate culture encourages teamwork, accessibility, employee empowerment and initiative. Our decentralized management structure and use of advanced IP based communications technologies enable us to communicate effectively and react quickly to market opportunities. We believe that our corporate organization and culture give us a competitive advantage in addressing local needs of our clients, integrating acquisitions, and recruiting, motivating and retaining skilled employees. PAGE 6 Acquisitions Since we began operations in 1996, we have acquired four companies, through which we have expanded our technical capabilities, attracted additional talent, entered new markets and increased our customer base. In September, 1997, we acquired 100% of Artwise GmbH ("Artwise"), a German company which provided us with expertise in Intranet messaging and workflow solutions and established our presence in the Ulm region of Germany. In December, 1997, we acquired 66% of Eclipse s.r.l. ("Eclipse"), an ISP based in Trento, Italy, through which we established our presence in Northern Italy. In August, 1998, we acquired 100% of Open:Net Internet Solutions GmbH ("Open:Net"), an ISP through which we increased our penetration of the southwest German market serviced by Artwise. In December, 1998, we acquired 100% of Vianet Telekommunikations AG ("Vianet"), a leading Austrian ISP through which we established our presence in Austria and significantly increased our customer base. Most recently, in February 19, 1999, we agreed to acquire 51% with an option to purchase the remaining 49% of Sunweb Internet Services SIS AG ("Sunweb"), through which we will establish a presence in Switzerland and acquire substantial additional expertise in switched voice services. Products and Services We offer a comprehensive range of communications services, network solutions and business solutions to corporations in Germany, Austria, and Northern Italy and will soon be offering those services and solutions in Switzerland. We currently offer or plan to offer the following principal services and solutions: Communications Services - ----------------------- . Connectivity. We offer a variety of connectivity solutions, including Internet access, third-party software and hardware implementation and configuration services, in bundled and unbundled packages. We offer leased line connectivity at speeds ranging from 64 Kbps to multiples of 2 Mbps. We also provide both analog and ISDN dial-up Internet access, which is available to the entire population of Germany, and to a majority of the populations of Austria and Northern Italy. When we complete our Swiss acquisition, we will also offer local dial-up access to the entire population of Switzerland. Our selection of third-party software products includes electronic mail, news and other solutions that permit customers to navigate and utilize the Internet and give remote access to mobile personnel operating outside traditional office settings. . National and International Roaming. We provide access to the Internet at local phone tariffs as users travel. Outside the countries in which we operate, roaming is offered in cooperation with more than 350 international ISPs and telecommunications companies which have joined the Global Reach Internet Connection(TM). . Voice Services. We intend to offer switched voice services to corporate customers. These plans depend upon our acquiring and installing the necessary switching equipment and negotiating interconnection agreements with carriers. PAGE 7 Network Solutions - ----------------- . Virtual Private Networks. Many companies today have private data communication networks, which are often referred to as corporate networks. These networks are used to transfer proprietary data between offices and use relatively expensive leased lines to connect various locations. Our VPNs utilize the Internet as a cost effective alternative to corporate networks to provide secure transmission of data and voice and offer secure remote access. In addition, our VPN products are often the basis for Intranet and Extranet services. We offer these products in conjunction with hardware, software, and firewall solutions. We believe that few of our competitors offer similar Europe-wide VPN capabilities. . Security Solutions. Corporate networks and systems need to be protected against unauthorized access and use. We currently offer a comprehensive set of third-party supplied security products, including encryption and firewalls. We add value to this software by providing services such as security consulting, installation support, on-the-job training of customers' system administrators, hotline support (24 hours a day, 7 days a week) and security audits. To assure the security of communication and business transactions between users of networks, we integrate state-of-the-art software, technologies and standards. We offer these security solutions as stand alone products or as part of broader solutions, such as a VPN or Intranet. Business Solutions - ------------------ . Co-Location. We offer co-location solutions to customers who have the resources to manage their own servers and websites and who prefer not to share a server with others. Customers receive the benefits of having their servers housed in one of our data centers, full-time connection to the Internet, direct access to our high-speed network, uninterrupted power supply, regular back-up and 24 hours a day, 7 days a week monitoring and technical support. . Application and Web-Site Hosting. We offer shared server application and web-site hosting services, which permit corporations to market themselves and their products on the Internet without having to invest in technology infrastructure and operations staff. Such customers receive sufficient bandwidth to meet their needs and the benefits of having their systems housed in one of our data centers. Applications on our servers, which our customers can access, include shop and mall systems, payment systems, publishing systems, HTML based chat services, and video conferencing. . Electronic Commerce. Electronic commerce is the execution of commercial transactions on the Internet. We design and implement dedicated electronic commerce systems or any component part which a customer may require, such as shopping or mall, credit verification and payment handling verification. These systems are based on our electronic commerce platform which integrates systems and technologies of third-party vendors, such as Brokat, Hewlett-Packard Company, Intershop, Microsoft Corporation, SAP Aktiengesellschaft, Sun Microsystems, Inc., VeriFone, Inc. and others. For customers reluctant to undertake an investment in a proprietary electronic commerce solution, we maintain our own electronic commerce system, which we provide on a lease basis. Through working arrangements with content providers and media companies, we also assist customers utilizing electronic commerce for retail and wholesale sales to targeted groups on the Internet. This enables a customer to PAGE 8 establish a distribution channel for products or a channel for purchasing, and to determine whether to invest in a dedicated system. . Intranet and Workflow Solutions. Internet technologies can be utilized in a customer's internal information technology system. We offer Intranet and workflow solutions that enhance the capabilities, efficiencies and functionality of our customers' systems, speed the development of new applications, reduce the cost of developing and maintaining applications, and allow the integration of existing systems and databases. Thus, instead of replacing their systems, customers can preserve their investment and upgrade their systems with our enhanced solutions. Our Intranet platform integrates basic dial-up and leased line connectivity with IP-based VPNs and a communications infrastructure that includes facsimile, voice mail, e-mail and enhanced security solutions. Sales and Marketing We believe that our sales and marketing program enables us to effectively market our comprehensive range of products and services to corporate customers. We tailor our marketing approach as follows: . to our principal target market of middle-sized corporations, we offer customized solutions at competitive prices by designing systems that integrate modular elements of proven functionality, effectiveness and reliability; . to some larger customers with more specialized needs, we offer more sophisticated technical services and individualized solutions; . to customers with basic service needs, we provide services which require minimal customization and installation, such as Internet connectivity. Direct Sales. Currently, our direct sales force consists of 27 sales - ------------ representatives located in 8 offices in Munich, Stuttgart, Hamburg, Frankfurt, Ulm, Vienna (Austria), Trento and Bolzano in Italy. When we complete our Swiss acquisition, we will have two additional sales representatives in Zurich and Lausanne, Switzerland. We are in the process of expanding that direct sales force and opening additional sales offices. We are also increasing our local presence and enhancing client coverage by shifting more of our direct sales representatives from our headquarters to our regional offices, where they will be closer to customers. Our direct sales force is organized as follows: . Ten representatives in our regional offices, responsible for marketing our modular solutions to middle-sized corporations located in their regions; . Thirteen project sales representatives, based in our Munich headquarters, responsible for marketing sophisticated technical projects to larger corporations and providing support to our regional offices; . Four telesales representatives, responsible for selling basic services such as connectivity and providing leads to our regional and project sales representatives. PAGE 9 Our sales force has a strong technical background and a detailed understanding of the differing needs of the customers in the regions it serves. It is knowledgeable about our main targeted industry segments, particularly Information Technology, tourism, service, retail, finance, government and media and advertising and manufacturing. Channel Sales. Our channel sales groups develop relationships with - ------------- resellers of our products and services and maintains marketing alliances. In Germany, our three-person channel sales group works with a network of more than 100 resellers in Germany, primarily software suppliers, systems integrators and ISPs, through whom we offer basic services, such as Internet connectivity, that can be delivered with a minimum of customization and installation. Direct sales people in Austria and Italy also develop reseller relationships. We also utilize our reseller relationships to gain direct access to customers for the sale of additional products and services. Our marketing alliances with a select group of companies provide a strong mutual referral program, which we believe will enable us to cost effectively acquire new customers, benefit from association with well-known partners and increase our brand awareness. We currently have marketing alliances with Hewlett-Packard Company, Microsoft Corporation, Network Associates, Inc., Sun Microsystems, Inc. and others. We intend to conduct our operations and marketing under the "Cybernet" brand name, although subsidiaries' brand names are used for transition periods after acquisitions. We have undertaken public relations efforts to raise the awareness and visibility of the "Cybernet" name in our target markets. We present ourselves as "The Communication People," providing connectivity, value- added solutions and superior customer service. Technology and Network Operations IP Network. We operate a geographically distributed IP based network linking five countries (Germany, Austria, Italy, Hungary and Luxembourg) and consisting primarily of Cisco routers and Ascend nodes connected to a redundant high performance backbone infrastructure. Our backbone network is currently based on leased lines and includes fourteen nodes in Germany, seven nodes in Austria, six nodes in Italy and single nodes in Luxembourg and Budapest. When we complete our Swiss acquisition, our network will cover Switzerland, where we will have an additional node. We interconnect our nodes at speeds ranging from 2 Mbps to 45 Mbps. We lease our lines from major telecommunications carriers and backbone operators, such as Deutsche Telekom AG, Hermes Europe Rail Tel B.V. and Telecom Italia, Spa. Our IP network is designed to offer reliability, scalability and speed, while at the same time representing an efficient cost base. We achieve reliability and fault tolerance by utilizing a redundant, multiple ring design and backbone nodes with redundant routing equipment, thereby minimizing the risk of single points of failure. We derive scalability from a hierarchical multi- layer architecture that permits growth of network locations without major infrastructure changes. We offer our customers transmission speeds at bandwidths ranging from 2Mbps to 45Mbps. We offer access through dedicated leased lines which can connect at more than 100 POPs, that we own or lease. Transmission speeds on leased lines range from 64Kbps to multiples of 2 Mbps. We also offer dial-up Internet access through Ascend and Cisco nodes equipped with ISDN or analog modem ports that provide local dial-up access to all of the population of PAGE 10 Germany and a majority of the population of Austria and Northern Italy. When we complete our Swiss acquisition, we will also offer local dial-up access to the entire population of Switzerland. We are currently in the process of reorganizing our dial-up network in Germany and intend to establish virtual POPs, using the public switched telephone network to aggregate traffic, with the objective of improving operating efficiencies. Peering and Transit Relationships. Peering is an agreement between ISPs, which provides for free exchange of Internet traffic between parties to the agreement. We have entered into peering agreements with local Internet service providers in each of the countries in which we operate. We have peering agreements with more than 25 ISPs in Germany and with the principal ISPs in Austria, and Italy. Our main peering points are in Frankfurt, Munich, Trento and Vienna. We also peer directly through leased lines connected to our peering partners. We plan to enter into additional peering agreements in order to establish a direct presence in most European peering centers and to reduce transit costs. We have entered into global transit agreements pursuant to which we have purchased the right to route traffic across the networks maintained by Ebone, Inc., Swisscom AG and AT&T Corporation/Unisource Worldwide, Inc. This provides our customers with the ability to communicate with the European countries in which we are not present, and with the rest of the world. Data Centers. We currently operate Data Centers in Munich, Frankfurt, Vienna and Trento. Our main Data Center in Munich has a capacity of 300 square meters. Network Management. We have set up a Network Operations Center (NOC) in Munich that monitors the performance of our network 24 hours a day, 7 days a week. Our NOC can identify network problems on a real-time basis and take the necessary corrective measures. Customers We currently provide services and solutions to approximately 11,000 customers, an increase from approximately 4,300 as of December 31, 1997, approximately 3,000 as of June 30, 1997, and approximately 1,460 as of December 31, 1996. While our target market is the medium-sized businesses, we also provide services and solutions to prominent larger businesses. Customer Service We provide high quality customer service and support in order to enhance the strength of our brand name, increase customer retention rates and generate new customer referrals. Our customer services are organized into technical support and call center groups. Our technical support group consists of technicians in our Munich NOC and our team of field engineers. The NOC-based technicians respond to customer requests on a 24 hours a day, 7 days a week basis, diagnosing customers' problems and providing immediate assistance. We believe that our centralized technical support operations improve the quality and consistency of our support, achieve scalability in our resources and benefit from economies of scale. Our team of field engineers is available to visit our customers' premises, as necessary. PAGE 11 Our call center provides complete information and specifications about each of our products and advises our customers on service and solutions related questions. We are in the process of installing an integrated billing system for Internet and switched voice services and expect that it will be fully operational in mid-1999. We have licensed the Kenan Systems billing platform and have adapted it to our requirements. Kenan Systems Corporation, a subsidiary of Lucent Technologies, Inc., is a leading provider of billing solutions to the telecommunications industry. This system will allow us to provide a single bill to our customers for all the different services they are purchasing from us, thereby simplifying their internal operations and reducing our costs. Our billing system will be managed in our central offices in Munich. Competition The business of providing Internet connectivity, services and solutions is highly competitive and there are no substantial barriers to entry. We believe that competition will intensify in the future and our ability to successfully compete depends on a number of factors including, market presence; the capacity, reliability and security of our network; the pricing structure of our services; our ability to adapt our products and services to new technological developments and principal market and economic trends. Our competitors consist of ISPs, telecommunications carriers, and system integrators/computer manufacturers. Because few of our competitors in any of these groups provide all of the products, services and solutions that we provide, we believe that we are well positioned to compete in our market. ISPs. We strive to differentiate ourselves from other ISPs by offering a full range of services and solutions which business customers are likely to require in connection with their use of the Internet. Most of our ISP competitors offer fewer services and focus on connectivity. However, some competitor ISPs have greater resources and larger communications and network infrastructures than we do. In Germany, these competitors include: European Computer Industry Research Centre GmbH, Nacamar Ltd., PSINet, Inc., UUNet Technologies, Inc. and Xlink. In Austria, they include Eunet Multimedia Network Services AG and Netway Austria AG; and in Italy, they include I-Net. Telecommunications carriers. Many telecommunications carriers are large organizations and do not typically provide Internet services as their main product. We compete with these organizations by focusing on the Internet and offering flexible decision making and execution, responsive customer service, recognized technical expertise, and high quality products. Our main carrier competitors in Germany are: Mannesmann Arcor AG, Deutsche Telekom AG; O.tel.o GmbH; and Viag Interkom GmbH & Co.KG. In Austria, our principal carrier competitors are Cybertron Marchfeld, Telekom Austria and United Telecom Austria AG; and in Italy, they are Infostrada, Telecom Italia, S.p.A., and Wind. When we begin to offer switched voice services, we will compete directly with carriers, including large carriers such as Mannesman Arcor AG, Deutsche Telekom AG and Viag Interkom GmbH & Co.KG in that PAGE 12 market segment. Most of these competitors are significantly larger and have substantially greater market presence, financial, technical, operational, marketing and other resources and experience than us. In addition, carriers have greater resources to engage in various forms of price competition, such as bundling Internet services with other telecommunications services, thereby offering lower prices for either the telecommunications or Internet services. Increased price competition could force us to reduce our prices, resulting in lower profit margins. In addition, increased competition for new customers could result in increased sales and marketing expenses and related customer acquisition costs and could materially adversely affect our profitability. Major System Integrators and Computer Manufacturers. Major systems integrators and computer manufacturers, such as Andersen Consulting, L.L.P. and International Business Machine Corporation, provide information technology solutions to their clients and have expanded their offerings to include Internet-related products and solutions. Many of these companies have established customer relationships and recognized technical expertise, and some have significantly greater resources than we have. However, most do not offer connectivity services and solutions. We compete with these companies by offering a more complete Internet-related service and product line than they offer. In addition, some system integrators and computer manufacturers utilize our connectivity services and solutions to complement their own line of products and services. Research and Development Our future success will depend, in part, on our ability to offer services that incorporate leading technology, address the increasingly sophisticated and varied needs of current and prospective customers and respond to technological advances and emerging industry standards and practices on a timely and cost effective basis. The market for our services is characterized by rapidly changing and unproven technology, evolving industry standards, changes in customer needs, emerging competition and frequent introductions of new services. We cannot assure that future advances in technology will be beneficial to, or compatible with, our business or that we will be able to incorporate such advances on a cost effective and timely basis into our business. Moreover, technological advances may have the effect of encouraging certain of our current or future customers to rely on in-house personnel and equipment to furnish the services we currently provide. In addition, keeping pace with technological advances may require substantial expenditures and lead time. The Company incurred $187,130, $279,698, and $2,940,865 in research and development expenses during the years ended December 31, 1996, 1997, and 1998, respectively. Intellectual Property Rights We have applied to the European Union for a trademark for the name "Cybernet". In addition, we rely on a combination of copyright, service mark and trade secret laws and contractual restrictions to establish and protect certain proprietary rights in our products and services. We have no patented technology that would preclude or inhibit competitors from entering our market. We have entered into confidentiality and invention assignment agreements with our employees, and non-disclosure agreements with our suppliers, distributors and appropriate customers in order to limit access to and disclosure of our proprietary information. PAGE 13 We cannot assure you that these contractual arrangements or the other steps we have taken to protect our intellectual property will prove sufficient to prevent misappropriation of our technology or to deter independent third-party development of similar technologies. The laws of the countries where we operate may not protect our products, services or intellectual property rights to the same extent as do the laws of the United States. To date, we have not been notified that our products infringe the proprietary rights of third parties, but we cannot assure you that third parties will not claim infringement by us with respect to current or future products. We expect that participants in our markets will be increasingly subject to infringement claims as the number of products and competitors in our industry segment grows. Any such claim, whether meritorious or not, could be time consuming, result in costly litigation, cause product installation delays or require us to enter into royalty or licensing agreements. Such royalty or licensing agreements might not be available on terms acceptable to us, or at all. As a result, any such claim could have a material adverse effect upon our business, results of operations and financial condition. Regulatory Environment in the Internet-related Markets of the Company Our Internet operations are not currently subject to direct regulation by governmental agencies in the countries in which we operate (other than regulations applicable to businesses generally). In 1997, Germany enacted the Information and Communication Services Act which releases Internet access providers from liability for third-party content, in certain circumstances, and establishes a legal framework for Internet commerce with respect to the identification of service providers, data privacy and price indications on the Internet. A number of other legislative and regulatory proposals are under consideration with respect to Internet user privacy, infringement, pricing, quality of products and services and intellectual property ownership. There is also a PAGE 14 controversial international discussion regarding the application of value added taxes in the Internet environment. The adoption of new laws could have a material adverse effect on our business, result of operations and financial condition. Regulation and Regulatory Authorities in the Telecommunications Market Effective January 1, 1998, all of the countries in which we operate have abolished the monopoly rights of incumbent carriers to provide fixed-line voice telephone services to the public. As a result, competitive telecommunications markets are now developing for long distance and international telephone services. Competition for local telephone service has been much slower to develop. All of the countries in which we operate have enacted legislation and regulations and have established regulatory authorities for the telecommunications industry. The purpose of this regulation is to ensure (i) a wide range of high-quality, telecommunications services to private individuals and businesses; (ii) reliable services to the entire population at affordable prices; (iii) absence of interference with personal and intellectual property rights in telecommunications traffic; and (iv) effective competition in the provision of telecommunications services. The regulatory authorities have various powers, including the authority to grant and revoke licenses, assign and supervise frequencies, impose universal services obligations, control network access and interconnection, and approve or review the tariffs and tariff-related general business terms and conditions of market-dominant providers. In each of the countries in which we operate, providing telecommunications services and related facilities requires a license. Different classes of licenses are required for different services offered and facilities operated. We have obtained a "class 4 license" (voice telephone services based upon self-operated telecommunications networks) for Germany. Geographically this license covers the entire Federal Republic of Germany and is valid indefinitely. We have not yet obtained similar licenses for Italy, Switzerland or Austria or a license for the construction and operation of a network, all of which we will require to expand our business as we currently plan. Employees At December 31, 1998, we had a total of approximately 175 employees organized as follows: 70 in sales and marketing; 74 in research and development and engineering, and 31 in administration. We have 133 employees in Germany, 22 in Austria and 20 in Italy. There are no collective bargaining agreements in effect. We believe that relations with our employees are good. ITEM 2. PROPERTIES We lease the real estate where our business offices and certain nodes containing servers, routers and other equipment are located. Our largest leasehold property is our main office in Munich with approximately 20,450 square feet (1,900 square meters). Other leasehold PAGE 15 properties for our regional offices are located in Neu-Ulm, Frankfurt, Stuttgart, Berlin and Hamburg, Germany, Vienna, Austria, Trento, and Bolzano, Italy. In addition, we lease approximately 2,500 square meters for our planned Hamburg Data Center, and 250 square meters for our new Trento Data Center. We believe that none of these leases is critical to operations and that relocation of any of the leased premises would be feasible on acceptable terms, if necessary. We lease dedicated telephone lines from telecommunications carriers and resellers. Assets relating to our operations, including servers and routers, are leased or owned. ITEM 3. LEGAL PROCEEDINGS On December 1, 1997, Technischer Uberwachungsdrenst Osterreich (TUV) filed an action against Vianet alleging a technical malfunction of certain Cisco routers installed and programmed by Vianet. The alleged malfunction is said to have resulted in substantially increased telephone charges to TUV. Trial counsel to Vianet has estimated the maximum amount which could be claimed by TUV as approximately $132,000. In December 1998 we applied for and received a class 4 telecommunications license from Germany's Regulierungsbehoerde fur Telekommunikation und Post and paid a fee of 3,000,000 DM. The European Community regulations set the maximum fee that can be charged as the actual cost incurred by a government agency to administer its regulations. We filed an action in a German court to recover a portion of the fee paid for our license because we believe the fee charged exceeded the amount chargeable under European Community regulations in effect in 1998. It is not possible to predict the outcome of our action. The Company is not involved in any other legal proceedings which the Company believes would, if adversely determined, have a material adverse effect upon its business, financial condition or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS At a special meeting held on November 16, 1998, shareholder action was taken by the sole existing shareholder of the Company to approve the merger with Cybernet Internet Services International, Inc., a Utah corporation, and the adoption of our 1998 Stock Incentive Plan and 1998 Outside Director Stock Option Plan. At a November 16, 1998 annual meeting of shareholders of Cybernet Internet Services International, Inc., a Utah corporation, the shareholders authorized the following transactions: . Merger of Cybernet Internet Services International, Inc., a Utah corporation with Cybernet Internet Services International, Inc., a Delaware corporation; and PAGE 16 . Acquisition of all of the outstanding stock of Vianet for a consideration of 7.5 million Deutsche Marks and 300,000 shares of common stock of the Company. Each transaction was approved with 11,222,668 (or 51% of the outstanding shares) votes in favor, 31 votes against, no abstentions and 10,805,472 Broker Nonvotes. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET INFORMATION Our Common Stock is traded on The Nasdaq OTC Bulletin Board (the "Bulletin Board") under the symbol "ZNET" and on the Neuer Markt of the Frankfurt Stock Exchange under the securities identification number (WKN) 906623. The following table sets forth for the periods indicated the high and low bid prices for the Common Stock as reported each quarterly period in 1997 and 1998 on the Bulletin Board and the Neuer Markt and the Berlin and Munich Stock Exchanges. The prices are inter dealer prices, do not include retail mark up, mark down or commission and may not necessarily represent actual transactions. The closing price of the Common Stock on the Bulletin Board on December 30, 1998 was $36.87 per share. As of March 15, 1999 the Company had 127 registered shareholders of record.
1997 ---- High Low ---- --- First Quarter................................................. $ 3.125 $0.0625 Second Quarter................................................ $13.625 $0.0625 Third Quarter/1/.............................................. $11.25 $9.312 Fourth Quarter................................................ $16.25 $7.75
- ------------------ /1/ On September 17, 1997, Cybernet Utah, the Company's predecessor, acquired Cybernet AG. Prior to that date. Cybernet Utah had no material business activities, assets or liabilities. Accordingly, stock prices for the period prior to September 17, 1997 do not relate to the business in which the Company is presently engaged. PAGE 17
1998 ---- High Low ---- --- First Quarter................................................. $34.50 $11.5 Second Quarter................................................ $28.75 $20.0 Third Quarter................................................. $29.875 $18.0 Fourth Quarter................................................ $37.25 $14.0
Neuer Markt/1/ Berlin/1/ Munich/1/ ----------- ------ ------ High Low High Low High Low ---- --- ---- --- ---- --- 1998 Fourth Quarter (from December 9, 1998).... $38.67 $29.13 $38.16 $13.27 $37.99 $13.02 Third Quarter............ 31.71 16.86 31.43 16.74 Second Quarter........... 29.14 21.94 28.86 21.26 First Quarter............ 25.71 12.63 25.14 12.57
/1/ For purposes of this table, prices in DeutscheMarks have been converted to dollars at the rate of 1.75 DM for each dollar, and prices in Euros have been converted at the rate of 1.17 Euros for each dollar. COMMON STOCK DIVIDEND POLICY We have never declared or paid cash dividends on our Common Stock. We currently intend to retain all of our earnings, if any, for use in our business and do not anticipate paying any cash dividends on our common stock in the foreseeable future. USE OF PROCEEDS On December 2, 1998 the SEC declared effective the Company's registration statement on Form S-1. Pursuant to that registration statement the Company sold 1.8 million shares of common stock at a price of $27 per share (an aggregate price of $48.6 million) in an offering for which the principal underwriter was Berliner Effektenbank A.G., Berlin. The underwriting discount amounted to $2.916 million. Holger Timm, a principal shareholder of the Company, and a former director of the Company, is the controlling shareholder of a financial institution which owns 40% of Berliner Effektenbank A.G. Berlin. Expenses paid to others in connection with the offering were approximately $1,308,000. Net proceeds of the Offering to the Company were approximately $44.41 million. Between closing of the Offering on December 9, 1998 and December 31, 1998 approximately $1.76 million was used to pay for a license required to become a Class 4 telecommunications carrier in Germany. The remainder was invested in low risk, high liquidity short term investments. PAGE 18 RECENT SALES OF UNREGISTERED SECURITIES During the year ended December 31, 1998, we sold shares of Common Stock as follows:
- ------------------------------------------------------------------------------------------------------------- Securities Sold Purchasers Consideration Exemption - --------------------------------- Date Number of Shares Class of Stock - ------------------------------------------------------------------------------------------------------------- August 58,825 Thomas Egner All the Shares of Section 4(2) 1998 Common Stock Uwe Hagenmeier Open:Net (in connection Markus Kress with the Open: Net Oliver Schaeffer acquisition) - ------------------------------------------------------------------------------------------------------------- May 1998 700,000 Private Placement Investors $12,600,000 Regulation S Common Stock - ------------------------------------------------------------------------------------------------------------- December 28, 300,000 All the shares of Vianet Section 4(2) 1998 Common Stock Tristan Libischer (in connection with Alexander Wiesmueller Vianet acquisition) - -------------------------------------------------------------------------------------------------------------
In addition, between May 31, 1998 and December 31, 1998, most of the 1,400,000 shares of Series C Preferred Stock were converted to the same number of shares of Common Stock by the holders thereof, except for 3,590 shares that remained outstanding on December 31, 1998 but were converted in the first quarter of 1999. On February 19, 1999, we entered into an agreement to purchase 51% of the issued and outstanding stock of Sunweb Internet Services AG, a corporation organized under the laws of Switzerland for a consideration of 1,477,000 CHF and 25,000 shares of Common Stock, payable to Messrs. Juerg Heim and Marco Samek. ITEM 6. SELECTED FINANCIAL DATA The selected consolidated Statement of Operations data and Balance Sheet data as of and for the years ended December 31, 1996, 1997, and 1998 set forth below has been derived from the financial statements of the Company, which have been audited by Schitag Ernst & Young AG, independent auditors. Business acquisitions made by the Company during the periods for which selected financial data is presented below materially affect the comparison of such data from period to period. The selected consolidated financial data should be read in conjunction with the Company's consolidated financial statements and notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this document. PAGE 19
Years ended December 31, --------------------------------------------------------- 1996 1997 1998 (in thousands, except per share data) Statement of Operations Data: Revenue Internet Projects........ $ 217 $ 1,598 $ 5,139 Network Services......... 91 716 3,495 ------ ------- -------- Total revenue................ 308 2,314 8,634 Cost of Revenues Internet Projects........ 237 1,495 4,699 Network Services......... 119 866 4,067 Depreciation and Amortization......... 7 171 1,674 ------ ------- -------- Total cost of revenues....... 363 2,532 10,440 Gross profit (loss)...... (55) (218) (1,806) General and administrative expenses............. 263 482 1,576 Marketing expenses....... 165 1,188 3,844 Research and development. 179 280 2,941 Depreciation and amortization......... 22 116 880 ------ ------- -------- 629 2,066 9,241 Interest expense, net.... 2 39 43 ------ ------- -------- Loss before taxes and minority interest.... (686) (2,323) (11,090) Income tax benefit....... 402 1,339 6,173 Minority interest........ ----- ----- 145 Net loss................. $ (284) $ (984) $ (4,772) ====== ======= ======== Basic and diluted loss per share............ $ (.12) $ (.12) $ (.30) Balance Sheet Data: Working capital.......... $ 339 $ 891 $ 37,751 Total assets............. 2,211 12,617 79,445 Long-term debt(1)........ ----- 42 1,383 Total stockholders' equity............... 1,790 8,908 67,359
- ---------------------------------- (1) Including lease obligations PAGE 20 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion is based on our consolidated financial statements included elsewhere in this annual report. Such financial statements have been prepared in accordance with US GAAP. This section contains forward-looking statements that involve inherent risks and uncertainties. Actual results may differ materially from those contained in such forward-looking statements. See "Forward Looking Statements" in Item 1, Part I. Through our subsidiaries, we are a leading provider of Internet communications services and solutions, primarily to medium-sized corporations in Germany, Austria, Northern Italy and Switzerland. Our Internet protocol solutions are based on a core product offering which includes Internet connectivity, virtual private networks, web-hosting, co-location, security solutions, electronic commerce, Intranet/Extranet and workflow solutions. We offer consulting, complete design and installation, training, technical support, and operation and monitoring of IP-based systems. Between the commencement of our operations in 1995 and December 1997, we concentrated our operations entirely in Germany. During that period we built up our technical capabilities by investing in personnel and research and development and by acquiring Artwise in September, 1997. During the same period we established our German network. Beginning in December 1997 we began to expand our operations outside Germany through the acquisition of Eclipse in Northern Italy and Vianet in Austria. We further strengthened our presence in Germany through the acquisition of Open:Net. Based principally on leased lines, our network now consists primarily of Cisco routers and Ascend nodes connected to a redundant high performance backbone infrastructure that offers Internet connectivity through dedicated leased lines at more than 100 POPs. It also offers a system of dial-up nodes with ISDN or analog modem ports which permits local dial up access to the entire population of Germany and a majority of the population of Austria and Northern Italy. When we complete our acquisition of 51% of Sunweb it will also offer local dial-up access to the entire population of Switzerland. We market our products and services primarily to medium-sized corporations throughout Europe with revenues between Euros 25 million and 500 million. We believe that this customer segment is underserved and has substantial and increasing communications needs. Medium-sized corporations typically lack the technical resources to build and maintain extensive communications systems and, as a consequence, they outsource many services and solutions to third parties. In particular, we focus on network intensive industries, such as Information Technology, tourism, service, retail, finance, government, media, advertising and manufacturing. After accounting for acquisition of Vianet, we currently provide services and solutions to approximately 11,000 customers, an increase from approximately 4,300 as of December 31, 1997, and approximately 1,460 as of December 31, 1996. No single customer accounted for more than 3% of our revenues in 1998. While our target market is the medium-sized businesses, we also provide services and solutions to prominent larger businesses. We have experienced high rates of revenue growth since commencing significant operations in 1996. Revenues increased from $307,673 in 1996 to $2,314,021 in 1997 and $8,633,528 in 1998. Our revenue growth has been generated through internal growth and by acquisitions. We anticipate that these rates of revenue growth will continue in the near future as we continue internal growth, and seek additional acquisition candidates. 21 We classify our revenues into two categories, revenues from Internet Projects and revenues from Network Services. Internet Project revenues result from consulting, installation fees, training of customer employees and hardware and software sales. Among other things this category includes the installation of VPNs, websites, e-commerce solutions and customer servers in our Data Centers. Internet project revenues depend on the number, size and complexity of projects initiated by new and existing customers. Internet Projects typically are completed within three months. Internet Project related revenues are recognized upon completion and customer acceptance of the related project. Although we typically initiate relationships with customers through Internet Projects we also perform such projects for existing customers who require additional services or upgrades. In most cases, after completion of an Internet Project we derive a recurring stream of revenues from the ongoing management and monitoring of the services and solutions we have set up. We classify these recurring revenues as Network Services revenues which include recurring connectivity, maintenance and usage charges. Approximately 80% of Network Services revenues are from connectivity charges and the remainder is derived from fees for maintenance of VPNs, co-location and hosting services. Revenues from Network Services are recognized when provided to customers. 22 Year Ended December 31, 1998 As Compared To The Year Ended December 31, 1997 Results of Operations Revenues Total revenues increased by 273.1% from $2,314,021 in 1997 to $8,633,528 in 1998. Internet Project revenues increased by 221.6% from $1,597,869 in 1997 to $5,139,110 in 1998 and represented 69.1% and 59.5% of our total revenues in 1997 and 1998, respectively. Network Services revenues increased by 387.9% from $716,152 in 1997 to $3,494,418 in 1998. In 1998, Network Services represented 40.5% of total revenues as compared to 30.9% in 1997. The primary reason for this shift is that our recurring revenues grow as we expand our customer base. We expect this trend to continue. Revenues from existing operations, accounted for 34.1% of Internet Project revenues in 1998 compared with 57.1% in 1997. Revenues from existing operations accounted for 23.7% of the growth in Internet Projects from year to year. This growth is attributable to new customers and additional sales to existing customers. Revenues from acquired companies represented 65.9% of Internet Project revenues in 1998 compared with 42.9% in 1997, and accounted for 76.3% of the growth in Internet Projects revenues from year to year. In 1998 these revenues include a full year of operations of Artwise and Eclipse and three months of operations of Open:Net. Network Services revenues increased by 387.9% from $716,152 in 1997 to $3,494,418 in 1998 and represented 30.9% and 40.5% of total revenues in 1997 and 1998, respectively. Revenues from existing operations represented 78.3% of Network Services revenues in 1998 compared with 100.0% in 1997. These revenues accounted for 72.7% of the growth in Network Services revenues from year to year. Revenues from acquired companies represented 21.7% of Network Services revenues in 1998. Acquired companies did not contribute any Network Services revenues in 1997. Revenues from acquired companies accounted for 27.3% of the growth in Network Services revenues from year to year. In 1998 these revenues include a full year of operations of Artwise and Eclipse and three month of operations of Open:Net. We derived $7,692,555 or 89.1% of total revenues in 1998 from our operations in Germany and $940,973 or 10.9% of total revenues from our operations in Italy. On December 28, 1998, we acquired Vianet, our Austrian subsidiary, which had revenues of approximately $3.1 million in 1998. Future operating results will include Vianet revenues in Austria and revenues from Sunweb, a Swiss company 51% of which we have agreed to acquire. 23 Our total number of customers increased by 74.4% to approximately 7,400 at December 31, 1998 from 4,300 at December 31, 1997. No single customer accounted for more than 3% of our revenues in 1998. Costs of Revenues Total costs of revenues increased 312.4% from $2,531,787 in 1997 to $10,440,008 in 1998. Costs of revenues as a percentage of revenues increased from 109.4% in 1997 to 120.9% in 1998. Cost of revenues mainly consists of (i) telecommunications expenses, (ii) personnel costs, (iii) cost of hardware and software sold, (iv) amortization of product development costs, and (v) service and consulting expenses. Telecommunications expenses mainly represent the cost of transporting Internet traffic from our customer's location through a local telecommunications carrier to one of our access nodes and the cost of leasing lines to interconnect our backbone nodes. The cost of our Internet Projects revenues increased by 214.2% from $1,495,234 in 1997 to $4,698,557 in 1998. This increase primarily resulted from increased purchases of hardware and software, that was installed at customer sites, and the costs of additional personnel. Cost of Internet Projects as a percentage of revenues decreased from 93.5% in 1997 to 91.4% in 1998. This decrease is primarily attributable to a reduction in training and seminar expenditures, partially offset by an increase in purchases of hardware and software. The cost of our Network Services revenues increased by 370.0% from $865,357 in 1997 to $4,067,513 in 1998. This increase primarily consisted of additional leased line expenses. Cost of Network Services as a percentage of related revenues decreased from 120.8% in 1997 to 116.4% in 1998. This decrease is primarily attributable to a decline in personnel costs as a percentage of revenues and a reduction in purchased Internet Services due to the development of our own network. These decreases were partially offset by additional leased line expenses. Depreciation and amortization, included in Costs of Revenues, increased from $171,196 in 1997 to $1,673,938 in 1998 as a result of new investments in product development from year to year. We have capitalized certain costs associated with designing the network, including related software. We have also capitalized investments made in building network capacity, including related personnel and consulting costs. These costs appear in our balance sheet under product development cost and are amortized over a period not exceeding four years. General and Administrative Expenses General and administrative expenses increased 227.1% from $481,700 in 1997 to $1,575,758 in 1998. General and administrative expenses consist principally of salaries and other personnel costs for our administrative staff, office rent and depreciation of office equipment. The increase in our general and administrative expenses reflects the costs of building a corporate infrastructure to support our anticipated growth and the addition of general and administrative expenses of companies acquired in 1997 and 1998. As a percentage of revenues, 24 general and administrative expenses decreased from 20.8% in 1997 to 18.3% in 1998. Marketing Expenses Marketing expenses increased by 223.4% from $1,188,634 in 1997 to $3,844,232 in 1998. Marketing expenses consist principally of salaries of our sales force and advertising and communication expenditures. Higher marketing expenses reflect an increase in salary expense resulting from our larger sales force and an increase in advertising and communication expenses reflecting our drive to improve public awareness of our brand. As a percentage of revenues, our marketing expenses decreased from 51.4% in 1997 to 44.5% in 1998. Research and Development Research and development expenses increased 951.4% from $279,698 in 1997 to $2,940,865 in 1998. Research and development expenses consist principally of personnel costs of employees working on product development, consulting costs and certain overhead items. The development of our modular products and the related pricing research which we conducted in 1998 is reflected in the higher personnel costs included in research and development. The personnel utilized for this purpose include our own marketing force and the portion of their time which was devoted to product development is included in research and development. We also incurred consulting expenses in 1998 while researching the viability of certain telecommunications services that we plan to offer in the future. As a percentage of revenues, research and development increased from 12.1% in 1997 to 34.1% in 1998. Depreciation and Amortization Depreciation and amortization expense, increased from $115,899 in 1997 to $879,978 in 1998. This increase reflects increased depreciation of capital expenditures for property and equipment purchased to build the corporate infrastructure necessary to support our anticipated growth, and increased amortization of goodwill related to our 1997 and 1998 acquisitions. Goodwill represents the excess of the purchase price of companies we purchased over the fair value of the tangible assets of those companies. Goodwill is amortized over 10 years. Interest Income and Expense Interest expense increased 398.7% from $39,550 in 1997 to $197,243 in 1998 as a result of new capital lease obligations which we undertook in 1998 to finance acquisitions of computer equipment. Interest income in 1998 was earned on excess cash balances resulting from the proceeds of our 1998 equity offerings. 25 Income Taxes We recorded income tax benefits of $1,339,407 in 1997 and $6,172,645 in 1998, arising principally from incurred operating losses. Under the current German tax code, these net operating losses may be carried forward indefinitely and used to offset our future taxable earnings. Year Ended December 31, 1997 As Compared To The Year Ended December 31, 1996 Results of Operations Revenues Total revenues increased by 652.1% from $307,673 in 1996 to $2,314,021 in 1997, principally because 1997 was a full year of operation while 1996 involved substantial start up and initial marketing activities. Revenues from Internet Projects represented 70.6% and 69.1% of total revenues in 1996 and 1997, respectively, and increased by 635.3% from $217,296 in 1996 to $1,597,869 in 1997. Revenues from Network Services represented 29.4% and 30.9% of total revenues in 1996 and 1997, respectively, and increased by 692.4% from $90,377 in 1996 to $716,152 in 1997. Revenues from existing operations represented 57.1% of Internet Project revenues in 1997 compared with 100.0% in 1996. These revenues accounted for 50.4% of the growth in Internet Projects revenues from year to year. Revenues from acquired companies represented 42.9% of Internet Project revenues in 1997. These revenues accounted for 49.6% of the growth in Internet Projects revenues from year to year. These revenues include the results of operations of Artwise for four months in 1997. Our total number of customers increased by 194.5% in 1997 to 4,300 customers from 1,460 in 1996. No single customer accounted for more than 7% of our revenues in 1997. Costs of Revenues Total costs of revenues increased 597.2% from $363,120 in 1996 to $2,531,787 in 1997. Costs of revenues as a percentage of revenues decreased from 118.0% in 1996 to 109.4% in 1997. The cost of our Internet Projects revenues increased 530.8% from $237.037 in 1996 to $1,495,234 in 1997. This increase primarily resulted from increased personnel costs, training and seminars, and purchases of software that was installed at customer sites. Cost of Internet 26 Projects as a percentage of related revenues decreased from 109.1% in 1996 to 93.6% in 1997. This decrease is primarily attributable to a reduction of free lance staff costs. The cost of our Network Services revenues increased by 625.4% from $119,297 in 1996 to $865,357 in 1997. This increase primarily consisted of increased personnel costs and the cost of additional leased lines. Cost of Network Services as a percentage of related revenues decreased from 132.0% in 1996 to 120.8% in 1997. This decrease is primarily due to a decline in purchased Internet services and leased line expenses as a percentage of revenues and was partially offset by additional personnel costs. General and Administrative Expenses General and administrative expenses increased 83.0% from $263,175 to $481,700 in 1997. Increases in our general and administrative expenses reflect the costs of building a corporate infrastructure, which will support our future growth. It also reflects the impact of the addition of general and administrative expenses of companies acquired in 1997. As a percentage of revenues, general and administrative expenses decreased from 85.5% in 1996 to 20.8% in 1997. Marketing Expenses Marketing expenses increased by 621.8% from $164,669 in 1996 to $1,188,634 in 1997. Increases in our marketing expenses are attributable primarily to increased salaries reflecting our efforts to build a larger sales force and larger advertising and communication expenses in our drive to improve public awareness of our brand name. As a percentage of revenues, our marketing expenses decreased from 53.5% in 1996 to 51.4% in 1997 due to a reduction of free lance staff costs and merchandising costs. These reductions were partially offset by higher personnel costs and advertising and communication expenses. Research and Development Research and development expenses increased 56.3% from $178,994 in 1996 to $279,698 in 1997 primarily as a result of increased personnel costs. As a percentage of revenues, our research and development decreased from 58.2% in 1996 to 12.1% in 1997 due to the growth of our revenues. Depreciation and Amortization Depreciation and amortization, increased from $21,263 in 1996 to $115,899 in 1997, reflecting increased capital expenditures in property, plant and equipment. The increase in goodwill amortization from 1996 to 1997 is due to goodwill additions generated by the 1997 acquisitions. 27 Interest Income and Expense Interest expense increased from $2,079 in 1996 to $39,550 in 1997, principally due to the higher level of overdrafts and short term borrowings in 1997 compared to 1996. These overdrafts were used to fund the Company's working capital requirements. Income Taxes We recorded income tax benefits of $401,849 in 1996 and $1,339,407 in 1997, arising principally from operating losses incurred. Under the current German tax code, these net operating losses may be carried forward indefinitely and used to offset our future taxable earnings. Quarterly results of operations Our quarterly results are subject to seasonality. We typically experience an increased level of project sales in the last fiscal quarter. We also typically experience a slowdown in the first fiscal quarter as our customers refrain from making IT investment decisions until the completion of Cebit, a major European trade show. Liquidity and Capital Resources Since our inception, we have financed our operations and growth primarily from the proceeds of private and public sales of equity securities. Total net proceeds of equity offerings in the three years ended December 31, 1998 amounted to approximately $67,661,000. Additionally, in 1998, our subsidiaries financed the acquisition of certain equipment with capital lease obligations. Our working capital, defined as the excess of our current assets over our current liabilities, was $37,750,651 at December 31, 1998 compared to $891,027 at December 31, 1997 and $339,353 at December 31, 1996. Cash and cash equivalents amounted to $42,875,877 at December 31, 1998 compared with $2,238,909 at December 31, 1997 and $27,889 at December 31, 1996. The increase in cash and cash equivalents primarily resulted from the proceeds of our first public equity offering in December 1998 and our private placements in May 1998 and June 1997. Operating activities used cash of $550,703, $1,518,962 and $10,335,128 in each of the three years ended December 31, 1996, 1997 and 1998, respectively. The large increase in cash used in 1998 results from the significant loss before taxes for the year ended December 31, 1998 as we increased expenditures for marketing and research and development. Investing activities used cash of $1,351,894, $4,703,943 and $9,928,634 in each of the three years ended December 31, 1996, 1997 and 1998, respectively. The large increase in 1998 results from the business acquisitions in 1998 and the increase in expenditures for property and equipment. Expenditures for property and equipment, consisted principally of purchases of 28 computer hardware and other expenditures related to our Internet backbone and equipment necessary to support our anticipated growth. Financing activities provided cash of $2,084,784, $8,644,256 and $60,010,168 in each of the three years ended December 31, 1996, 1997 and 1998, respectively. The large increase in 1998 results principally from our December 1998 public equity offering which generated $44,977,376 in net proceeds and the May 1998 private equity offering which generated $12,600,000 in proceeds. In June 1997, we completed a private placement which generated $8,070,427 in net proceeds. At December 31, 1998 we had available combined cumulative tax loss carryforwards of approximately $20,230,048 most of which relate to our German operations. Under current German tax law, these tax loss carryforwards have no expiration date. We have not provided any valuation allowance against the deferred tax asset related to these loss carryforwards. However, if we were unable to generate sufficient taxable income in the future or if the current tax law were changed, a valuation allowance would be required to be established through a charge to income. In March 1999, the German government passed new tax legislation which reduced the corporate income tax rate from 45% to 40%. The impact of recalculating the deferred tax assets and liabilities using the new rate is required to be recorded in the first quarter of 1999 and is estimated to be approximately $522,000. We believe that our cash and cash equivalents will provide adequate liquidity to fund our normal operating activities over the next twelve months and in the intermediate term. However, our strategic plan is to continue to seek additional acquisitions and to enhance our capabilities in both IP and other communications services through significant capital expenditures. These strategic initiatives will be initially financed from the portion of the proceeds of the December 1998 public equity offering which exceeds our normal operating requirements and may require additional private or public offerings of debt or equity securities. 29 Year 2000 The commonly referred to Year 2000 problem results from the fact that many existing computer programs and systems use only two digits to identify the year in the date field. These programs were designed and developed without considering the impact of a change in the century designation. If not corrected, computer applications that use a two-digit format could fail or create erroneous results in any computer calculation or other process involving the Year 2000 or a later date. We have identified two main areas of Year 2000 risk for our IT systems: . our internal computer systems or embedded chips could be disrupted or fail, causing an interruption or decrease in productivity in our operations; and . computer systems or embedded chips of third parties including (without limitation) financial institutions, suppliers, vendors, landlords, customers, suppliers of communications services and others could be disrupted or fail, causing an interruption or decrease in our ability to continue our operations. We have evaluated our state of readiness for the Year 2000 issue. With regard to our internal IT systems, we have concluded that substantially all of those systems are Year 2000 compliant. Our personnel tested and analyzed our systems in the course of regular quality control and research development. We did not require significant additional expenses to do this evaluation. We have also instituted procedures to assure that IT systems installed in 1999 will be Year 2000 compliant. With regard to third parties, we make sure newly acquired IT systems will be Year 2000 compliant. In addition, we have been assured by all major suppliers, vendors and customers that the following existing IT and other systems, upon which we rely for products and services and for internal operations, are Year 2000 compliant: . the Cisco routers we use in connection with leased telephone line communications; . the Ascend routers we use in connection with telephone dial-up communications; . Sun Workstations, our main Internet servers; . the Microsoft software we use in our internal office operations; . our network facilities supplied by Info AG; . our global transit facilities supplied by AT&T Unisource; . our leased telephone lines supplied by Deutsche Telekom AG; . the electric power to our main offices and several of its nodes, supplied by Stadtwerke Munich. Based on those assurances, we believe that the IT systems utilized in our principal network, backbone and internal operations will meet Year 2000 requirements. We do not anticipate significant interruptions of billings or service to customers or disruptions of internal operations attributable to the Year 2000 problem. We have plans to complete the integration of operations of newly acquired subsidiaries into our current IT system during 1999. Compliance with Year 2000 issues on a company-wide basis will not require acceleration of planned expenditures for the purpose of remediation. We are now determining whether suppliers of secondary significance to our business, such as local suppliers of telephone service and electric power, are Year 2000 compliant. Some of these subsidiary systems are non-essential, as they duplicate systems that we have determined will operate in the Year 2000 environment. We anticipate completing our inquiries regarding secondary systems during the first quarter of 1999. Based on our experience to date, we do not anticipate that we will be required to incur significant additional operating expenses or to invest heavily to obtain Year 2000 compliance for these systems. To date, the only costs in connection with our Year 2000 evaluation have been limited to internal staff 30 costs, which have been expensed as incurred. The financial information contained in this prospectus includes such costs, which are not material. To respond to our customers' inquiries we are in the process of developing a report to inform our customers about the effect of Year 2000 problem on our products and services. We anticipate utilizing an outside consultant to prepare such report at a cost estimated to be 50,000 DM. Because we believe that our systems are Year 2000 compliant, we have not developed a theoretical worst case analysis or a contingency plan to deal with such a contingency. With respect to non-IT systems, our operations do not depend in a significant manner on such embedded technology. All of our desk-type computers and telephones are Year 2000 compliant. Our offices' climate control, elevators [and monitor alarms] have embedded systems. Our operations do not depend on elevators for access to the principal offices. We are in the process of evaluating whether the embedded systems at our other facilities are Year 2000 compliant. Accordingly, we have not developed formal contingency plans in this regard. Conversion to the Euro On January 1, 1999, 11 of the 15 EU member countries (the "participating countries") adopted the Euro as their common legal currency, at which time their respective individual currencies became irrevocably fixed at a rate of exchange to the Euro, and the Euro became a currency in its own right. Presently, the following 11 currencies are subject to the Euro conversion: The Austrian Shilling, the Belgian Franc, the Dutch Guilder, the Finnish Markka, the French Franc, the Deutsche Mark, the Irish Punt, the Italian Lira, the Luxembourg Franc, the Portuguese Escudo and the Spanish Peseta. From January 1, 1999 until January 1, 2002 (the "transition period"), the Euro will exist in electronic form only and the participating countries' individual currencies will persist in tangible form as legal tender in fixed denominations of the Euro. During the transition period, we must manage transactions with our customers and our third party vendors in both the Euro and the participating countries' respective individual currencies. This may cause significant logistical problems. We may incur increased operational costs and may have to modify or upgrade our information systems in order to: . convert individual currencies to Euro; . convert individual currencies of participating countries into each other; . execute conversion calculations utilizing six-digit exchange rates and other prescribed requirements; . accommodate the new Euro currency symbol; and . permit pricing, advertising, billing, accounting, internal financial calculations, sales and other transactions or practices to be effected simultaneously in Euro and the participating countries' respective individual currencies. Changes in pricing denominations for products once sold and advertised in an individual currency and now sold and advertised in the Euro could cause material billing errors and complications. Fluctuations in the business cycles of a participating country or a failure on any participating country's part to comply with EC directives could have negative economic effects on other participating countries, including countries in which we operate. Additionally, the participating countries' pursuant of a single monetary policy may adversely affect the particular economies of markets in which we conduct business. Any of the above could have a material adverse effect on Cybernet. We have been selecting and purchasing our computer and operational systems in an attempt to ensure that our ability to transact business will not be impaired by complications resulting from the introduction of the Euro. While we believe that our systems have not been adversely impacted by the Euro conversion, we cannot guarantee that we will be able to avoid the accounting, billing and logistical difficulties that might result from the introduction of the Euro. In addition, we cannot be sure that we, our third-party suppliers or our customers will be able to implement the necessary protocols successfully. If we, our third-party vendors, customers or any others with whom we must interact or interconnect, fail to adapt and modify our procedures and systems to accommodate the Euro conversion, this could materially adversely affect our results of operation. 31 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company does not utilize market-risk-sensitive instruments, such as derivative financial instruments. Its primary market risk is in the area of interest rate and foreign currency exchange rate risks. The Company is exposed to typical interest rate risks insofar as changes of future interest rates will lead to changes in interest income and expense. However, the Company currently does not have any significant fixed rate debt and maintains its cash balances in deposits at banks and highly liquid short term investments, such as money market mutual funds. The Company does not use interest rate sensitive instruments to hedge this interest rate risk exposure, because it believes the exposure of its operating results to changes in interest rates is insignificant. All of the Company's revenues are denominated in currencies other than the U.S. Dollar. However, the Company has chosen the U.S. Dollar as its reporting currency. Approximately 89% of the Company's revenues in 1998 were denominated in Deutsche Mark and as such, the majority of its foreign exchange rate exposure relates to changes in the exchange rate between the Deutsche Mark and United States Dollar. The Company estimates that a ten percent adverse change in the exchange rate between the United States Dollar and the Deutsche Mark would have increased the Company's reported net loss for 1998 by approximately $530,300. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this item appears beginning on page F-1 of this report. PAGE 32 ITEM 9. CHANGES IN, AND DISAGREEMENTS WITH, ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item is incorporated by reference to information to be included under the captions "Election of Directors," "Executive Officers" and "Compliance with Section 16(a) of the Securities Exchange Act of 1934" in the Company's Proxy Statement for the 1999 Annual Meeting of Stockholders. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is incorporated by reference to information to be included under the captions "Election of Directors Director Compensation" and "Compensation Committee Interlocks and Insider Participation," "Executive Compensation," and "Compensation Committee Report on Executive Compensation" in the Company's Proxy Statement for the 1999 Annual Meeting of Stockholders. PAGE 33 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is incorporated by reference to information to be included under the caption "Beneficial Ownership of Common Stock" in the Company's Proxy Statement for the 1999 Annual Meeting of Stockholders. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is incorporated by reference to information to be included under the caption "Election of Directors Compensation Committee Interlocks and Insider Participation" in the Company's Proxy Statement for the 1999 Annual Meeting of Stockholders. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K a. Documents filed as a part of this report. 1. FINANCIAL STATEMENTS See Index to Financial Statements on page F-1. 2. FINANCIAL STATEMENT SCHEDULE The following consolidated financial statement schedule of Cybernet Internet Services International, Inc. is included in Item 14(d) and presented as a separate section of this Report: Schedule II Valuation and Qualifying Accounts: page F-19. All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. 3. EXHIBITS Listed below are all of the Exhibits filed as part of this report. Certain Exhibits are incorporated by reference from documents previously filed by the Company with the Securities and Exchange Commission pursuant to Rule 12b-32 under the Securities Exchange Act of 1934, as amended. PAGE 34
- ------------------------------------------------------------------------------------------------- Exhibit Description Number of Exhibit Location - ------- ----------- -------- - ------------------------------------------------------------------------------------------------- 2.1 Agreement and Plan of Merger between Incorporated by reference from Exhibit the Registrant and Cybernet Internet 2.1 to the Company's Registration Services International, Inc., a Utah Statement on Form S-1 declared corporation, dated as of October 9, 1998 effective on December 2, 1998, located under Securities and Exchange Commission File No. 333-63755 ("December 1998 Registration Statement") - ------------------------------------------------------------------------------------------------- 3.1 Certificate of Incorporation Incorporated by reference from Exhibit 3.1 to the December 1998 Registration Statement - ------------------------------------------------------------------------------------------------- 3.2 Bylaws Incorporated by reference from Exhibit 3.2 to the December 1998 Registration Statement - ------------------------------------------------------------------------------------------------- 4.1 Certificate of Incorporation See Exhibit 3.1 Above - ------------------------------------------------------------------------------------------------- 4.2 Bylaws See Exhibit 3.2 Above - ------------------------------------------------------------------------------------------------- 10.1 Sale and Assignment of Shares in Incorporated by reference from Exhibit Open:Net Internet Solutions GmbH 10.2 to the December 1998 Registration Statement - ------------------------------------------------------------------------------------------------- 10.2 Stock Purchase Agreement (Vianet) Incorporated by reference from Exhibit 10.4 to the December 1998 Registration Statement - ------------------------------------------------------------------------------------------------- 10.3 Pooling Agreement (Vianet) 10.3.1 Libischer Filed herewith 10.3.2 Wiesmueller Filed herewith - ------------------------------------------------------------------------------------------------- 10.4 Stock Purchase Agreement (SunWeb) Filed herewith - ------------------------------------------------------------------------------------------------- 10.5 Employment Agreement (Andreas Eder) Filed herewith - ------------------------------------------------------------------------------------------------- 10.6 Employment Agreement (Alessandro Filed herewith Giacalone) - ------------------------------------------------------------------------------------------------- 10.7 Employment Agreement (Christian Filed herewith Moosmann) - ------------------------------------------------------------------------------------------------- 10.8 Employment Agreement (Timon Lutze) Filed herewith - ------------------------------------------------------------------------------------------------- 10.9 Employment Agreement (Tristan Libischer) Filed herewith - ------------------------------------------------------------------------------------------------- 10.10 Employment Agreement (Alexander Filed herewith Wiesmueller) - ------------------------------------------------------------------------------------------------- 10.11 Lease Munich Headquarter Incorporated by reference from Exhibit 10.13 to the December 1998 Registration Statement - -------------------------------------------------------------------------------------------------
PAGE 35
- ------------------------------------------------------------------------------------------------- Exhibit Description Number of Exhibit Location - ------- ----------- -------- - ------------------------------------------------------------------------------------------------- 10.12 Lease Data Center in [Hamburg] Filed herewith - ------------------------------------------------------------------------------------------------- 10.13 1998 Stock Incentive Plan Incorporated by reference from Exhibit 10.18 to the December 1998 Registration Statement - ------------------------------------------------------------------------------------------------- 10.14 1998 Outside Directors' Stock Option Incorporated by reference from Exhibit Plan 10.19 to the December 1998 Registration Statement - ------------------------------------------------------------------------------------------------- 10.15 Ebone Agreement Incorporated by reference from Exhibit 10.16 to the December 1998 Registration Statement - ------------------------------------------------------------------------------------------------- 21. Subsidiaries of the Company Filed herewith - ------------------------------------------------------------------------------------------------- 27 Financial Data Schedule Filed herewith - -------------------------------------------------------------------------------------------------
b. Reports on Form 8-K. None. PAGE 36 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. CYBERNET INTERNET SERVICES INTERNATIONAL, INC. March 30, 1999 /s/ Andreas Eder By: _________________________________________ Chairman of the Board of Directors, Chief Executive Officer and President PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
Signature Title Date --------- ----- ---- /s/ Andreas Eder _________________________________ Chairman of the Board March 30, 1999 Andreas Eder of Directors, Chief Executive Officer /s/ Dr. Alessandro Giacalone _________________________________ Director and Chief March 30, 1999 Dr. Alessandro Giacalone Operating Officer /s/ Tristan Libischer _________________________________ Director March 30, 1999 Tristan Libischer /s/ Dr. Hubert Besner _________________________________ Director March 30, 1999 Dr. Hubert Besner /s/ G.W. Norman Wareham _________________________________ Director March 30, 1999 G.W. Norman Wareham
PAGE 37
Signature Title Date --------- ----- ---- /s/ Robert Fratarcangelo _________________________________ Director March 30, 1999 Robert Fratarcangelo /s/ Christian Moosmann _________________________________ Principal Financial March 30, 1999 Christian Moosmann and Accounting Officer
PAGE 38 INDEX TO FINANCIAL STATEMENTS
Page ------ CYBERNET INTERNET SERVICES INTERNATIONAL, INC. Independent Auditors' Report.................................................................................. F- 2 Consolidated Balance Sheets December 31, 1998, 1997 and 1996.................................................. F- 3 Consolidated Statements of Loss and Comprehensive Loss years ended December 31, 1998, 1997 and 1996........... F- 4 Consolidated Statements of Cash Flows years ended December 31, 1998, 1997 and 1996............................ F- 5 Consolidated Statements of Shareholders' Equity years ended December 31, 1996, 1997 and 1998.................. F- 6 Notes to Consolidated Financial Statements.................................................................... F- 7
F-1 REPORT OF INDEPENDENT AUDITORS To the Board of Directors and Shareholders Cybernet Internet Services International, Inc.: We have audited the accompanying consolidated balance sheets of Cybernet Internet Services International, Inc. and its subsidiaries ("the Company") as of December 31, 1998, 1997 and 1996, and the related consolidated statements of loss and comprehensive loss, cash flows and changes in shareholders' equity for each of the three years then ended. Our audits also included the financial statements schedule listed in the Index at Item 14(a). These financial statements and Schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 1998, 1997 and 1996, and the consolidated results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. Schitag Ernst & Young Deutsche Allgemeine Treuhand AG Munich, Germany March 12, 1999 F-2 CYBERNET INTERNET SERVICES INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEETS
December 31, ------------------------------------------ 1996 1997 1998 ------------ ------------- ------------- ASSETS Cash and cash equivalents....................................... $ 27,889 $ 2,238,909 $42,875,877 Short-term investments (Note 4)................................. 453,698 817,913 112,503 Accounts receivable -- trade, net of allowance for doubtful accounts of $15,164, $ 33,417 and $ 361,393 at December 31, 1996, 1997 and 1998, respectively................................................... 183,513 1,130,981 3,248,754 Other receivables............................................... 84,675 285,432 1,793,153 Prepaid expenses and other assets............................... 10,607 59,906 423,114 ---------- ----------- ----------- Total current assets....................................... 760,382 4,533,141 48,453,401 Property and equipment, net (Note 5)............................ 630,760 2,284,793 7,970,300 Product development costs, net.................................. 426,996 2,818,069 5,742,793 Goodwill, net................................................... -- 1,322,566 6,504,576 Deferred income taxes (Note 12)................................. 392,977 1,652,809 8,166,171 Other assets.................................................... -- 5,679 2,607,488 ---------- ----------- ----------- TOTAL ASSETS......................................................... $2,211,115 $12,617,057 $79,444,729 ========== =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Overdrafts and short-term borrowings (Note 8)................... $ 71,881 $ 413,625 $ 287,097 Trade accounts payable.......................................... 226,379 1,373,901 3,346,372 Other accrued liabilities....................................... 40,953 480,228 1,072,877 Deferred purchase obligations (Note 3).......................... -- 980,693 4,482,967 Current portion long term debt and capital lease obligations.................................................... -- -- 924,670 Accrued personnel costs......................................... 81,816 393,667 588,767 ---------- ----------- ----------- Total current liabilities.................................. 421,029 3,642,114 10,702,750 Long-term debt (Note 9)......................................... -- 41,691 66,829 Capital lease obligations....................................... -- -- 1,315,737 Minority Interest............................................... -- 24,937 -- SHAREHOLDERS' EQUITY Common stock $.001 par value, 50,000,000 shares authorized, 5,160,000, 14,681,891 and 18,762,138 shares issued and outstanding at December 31, 1996, 1997 and 1998, respectively................................... 5,160 14,682 18,762 Preferred stock $.001 par value, 50,000,000 shares authorized, 6,360,000 7,760,000 and 6,360,000 issued and outstanding at December 31, 1996, 1997 and 1998, respectively.................................... 6,360 7,760 6,360 Subscription receivable......................................... -- (735,000) (19,210) Additional paid in capital...................................... 2,065,899 11,102,257 72,794,936 Accumulated deficit............................................. (287,196) (1,271,036) (6,435,676) Other comprehensive income (loss)............................... (137) (210,348) 994,241 ---------- ----------- ----------- Total shareholders' equity...................................... 1,790,086 8,908,315 67,359,413 ---------- ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........................... $2,211,115 $12,617,057 $79,444,729 ========== =========== ===========
See accompanying notes to consolidated financial statements F-3 CYBERNET INTERNET SERVICES INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
Years ended December 31, ----------------------------------------- 1996 1997 1998 ----------- ------------- ------------- Revenue Internet Projects........................................... $ 217,296 $ 1,597,869 $ 5,139,110 Network Services............................................ 90,377 716,152 3,494,418 ---------- ----------- ------------ Total revenues................................................... 307,673 2,314,021 8,633,528 Cost of revenues: Internet Projects........................................... 237,037 1,495,234 4,698,557 Network Services............................................ 119,297 865,357 4,067,513 Depreciation and amortization............................... 6,786 171,196 1,673,938 ---------- ----------- ------------ Total cost of revenues........................................... 363,120 2,531,787 10,440,008 ---------- ----------- ------------ Gross loss....................................................... (55,447) (217,766) (1,806,480) General and administrative expenses.............................. 263,175 481,700 1,575,758 Marketing expenses............................................... 164,669 1,188,634 3,844,232 Research and development expenses................................ 178,994 279,698 2,940,865 Depreciation and amortization.................................... 21,263 115,899 879,978 ---------- ----------- ------------ 628,101 2,065,931 9,240,833 Interest expense................................................. 2,079 39,550 197,243 Interest income.................................................. -- -- 154,296 ---------- ----------- ------------ Loss before taxes and minority interest.......................... (685,627) (2,323,247) (11,090,260) Income tax benefit............................................... 401,849 1,339,407 6,172,645 ---------- ----------- ------------ Net loss before minority interest................................ (283,778) (983,840) (4,917,615) Minority interest................................................ -- -- 144,925 Net loss......................................................... (283,778) (983,840) (4,772,690) Other comprehensive loss: Foreign currency translation adjustments.................... (5,089) (210,211) 1,204,589 ---------- ----------- ------------ Comprehensive loss............................................... $ (288,867) $(1,194,051) $ (3,568,101) ========== =========== ============ Basic and diluted loss per share................................. $(.12) $(.12) $(.30) ========== =========== ============ Number of shares used to compute earnings per share.............. 2,465,782 8,342,297 16,012,653 ---------- ----------- ------------
See accompanying notes to consolidated financial statements F-4 CYBERNET INTERNET SERVICES INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, ------------------------------------------ 1996 1997 1998 ------------ ------------ -------------- Cash Flows from Operating Activities: Net loss.......................................................................... $ (283,778) $ (983,840) $(4,772,690) Adjustments to reconcile net income to net cash provided by operating activities: Minority interest................................................................. -- -- (144,925) Deferred tax credit............................................................... (401,849) (1,348,932) (6,172,645) Depreciation and amortization..................................................... 47,031 200,565 2,553,916 Provision for losses on accounts receivable....................................... 15,456 33,417 120,862 Changes in operating assets and liabilities: Trade accounts receivable......................................................... (203,112) (475,300) (1,295,646) Other receivables................................................................. (69,583) (136,141) (1,424,697) Prepaid expenses and other current assets......................................... (10,847) (32,120) (310,176) Trade accounts payable............................................................ 231,490 (401,835) 1,027,728 Other accrued expenses and liabilities............................................ 40,826 1,377,685 16,748 Accrued personnel costs........................................................... 83,663 247,539 66,397 ----------- ----------- ------------ Total changes in operating assets and liabilities............................ 72,437 579,828 (1,919,646) ----------- ----------- ------------ Net cash used in operating activities........................................ (550,703) (1,518,962) (10,355,128) Cash Flows from Investing Activities: Purchase of short-term investments................................................ (727,693) (7,280,037) (104,654) Proceeds from sale of short term investments...................................... 304,470 6,931,035 810,063 Purchase of property and equipment................................................ (552,104) (1,707,843) (6,033,959) Product development costs......................................................... (576,567) (2,377,782) (3,865,930) Acquisition of businesses, net of cash acquired................................... -- (269,316) (734,154) ----------- ----------- ------------ Net cash used in investing activities........................................ (1,551,894) (4,703,943) (9,928,634) Cash Flows from Financing Activities: Proceeds from issue of common stock, net.......................................... 2,012,903 8,070,427 57,577,376 Repayment of subscription receivable.............................................. -- -- 715,790 Proceeds from borrowings.......................................................... 71,881 700,000 2,092,163 Repayments of borrowings.......................................................... -- (126,266) (375,161) ----------- ----------- ------------ Net cash provided by financing activities.................................... 2,084,784 8,644,161 60,010,168 ----------- ----------- ------------ Net (decrease) increase in cash and cash equivalents.............................. (17,813) 2,421,256 39,746,406 Cash and cash equivalents at beginning of year.................................... 49,143 27,889 2,238,909 Translation adjustments........................................................... (3,441) (210,236) 890,562 ----------- ----------- ------------ Cash and cash equivalents at end of year.......................................... $ 27,889 $ 2,238,909 $ 42,875,877 =========== =========== ============ Supplemental disclosure of noncash investing and financing activities: Acquisitions (Note 3): Fair value of assets acquired................................................... -- $ 2,230,146 $ 8,800,013 Less: Cash acquired................................................................ -- 182,550 129,564 Deferred purchase obligation................................................. -- -- 4,482,965 Cash paid.................................................................... -- 451,866 863,718 Stock issued................................................................. -- 1,051,322 1,677,223 ----------- ----------- ------------ Liabilities assumed............................................................. -- $ 544,408 $ 1,646,543 =========== =========== ============ Stock dividend -- -- (391,950) Other supplemental cash flow disclosures: Cash paid for interest....................................................... (2,079) (39,550) (197,243) Cash paid for taxes.......................................................... -- 16,550 11,457
See accompanying notes to consolidated financial statements F-5
Common Stock Preferred Stock ---------------------------- --------------------------- Subscription Shares Amounts Shares Amount Receivable ------------ -------------- ------------- ------------- ------------- Balance January 1, 1996..................... 161,250 $ 161 6,360,000 $ 6,360 -- Issuance of shares for cash........... 4,998,750 4,999 Net loss.............................. -- -- Currency translation adjustment....... -- ---------- ------- ---------- ------- ------------ Balance December 31, 1996............. 5,160,000 $ 5,160 6,360,000 $ 6,360 -- Issuance of shares in reverse acquisition......................... 9,521,891 9,522 Issuance of shares for cash........... 1,400,000 1,400 (735,000) Currency translation adjustment....... Net loss.............................. ---------- ------- ---------- ------- ------------ Balance December 31, 1997............. 14,681,891 $14,682 7,760,000 $ 7,760 $(735,000) Conversion of preferred stock......... 1,400,000 1,400 (1,400,000) (1,400) Stock dividend........................ 21,775 22 Issuance of shares for Artwise acquisition.......................... 72,620 72 Issuance of shares for cash........... 700,000 700 Payment of subscription receivable.... 715,790 Issuance of shares for cash........... 1,800,000 1,800 Issuance of shares for Open:Net acquisition.......................... 58,825 59 Issuance of shares for Eclipse acquisition.......................... 27,000 27 Currency translation adjustment....... Net loss.............................. ---------- ------- ---------- ------- ------------ Balance December 31, 1998............. 18,762,111 $18,762 6,360,000 $ 6,360 $ (19,210) ========== ======= ========== ======= ============
Additional Accumulated Other Total Paid-In Accumulated Comprehensive Stockholders' Capital Deficit Income (Loss) Equity ------------------ ------------------- -------------------------- -------------- Balance January 1, 1996..................... $ 57,995 $ (3,418) $ 4,952 $ 66,050 Issuance of shares for cash........... 2,007,904 2,012,903 Net loss.............................. (283,778) (283,778) Currency translation adjustment....... (5,089) (5,089) ----------- ----------- ---------- ----------- Balance December 31, 1996............. $ 2,065,899 $ (287,196) $ (137) $ 1,790,086 Issuance of shares in reverse acquisition......................... 232,331 241,853 Issuance of shares for cash........... 8,804,027 8,070,427 Currency translation adjustment....... (210,211) (210,211) Net loss.............................. (983,840) (983,840) ----------- ----------- ---------- ----------- Balance December 31, 1997............. $11,102,257 $(1,271,036) $ (210,348) $ 8,908,315 Conversion of preferred stock......... -- Stock dividend........................ 391,928 (391,950) -- Issuance of shares for Artwise acquisition.......................... 1,052,919 1,052,991 Issuance of shares for cash........... 12,599,300 12,600,000 Payment of subscription receivable.... 715,790 Issuance of shares for cash........... 44,975,576 44,977,376 Issuance of shares for Open: Net acquisition.......................... 1,677,223 1,677,282 Issuance of shares for Eclipse acquisition.......................... 995,733 995,760 Currency translation adjustment....... 1,204,589 1,204,589 Net loss.............................. (4,772,690) (4,772,690) ----------- ----------- ---------- ----------- Balance December 31, 1998............. $72,794,936 $(6,435,676) $ 994,241 $67,359,413 =========== =========== ========== ===========
F-6 CYBERNET INTERNET SERVICES INTERNATIONAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation Cybernet Internet Services International, Inc. ("the Company") (formerly known as New Century Technologies Corporation) was incorporated under the laws of the State of Utah on September 27, 1983. The Company changed its state of incorporation to Delaware in November 1998. Effective September 16, 1997 the Company acquired Cybernet Internet Dienstleistungen AG ("Cybernet AG"), a German stock corporation which offers a variety of Internet related telecommunication and systems integration services to corporate customers. Cybernet AG was founded in December 1995, and commenced significant operations in 1996. The acquisition has been accounted for as a reverse acquisition whereby the Company is considered to be the acquiree even though legally it is the acquiror. Accordingly, the accompanying financial statements present the historical financial statements of Cybernet AG from January 1, 1996, through the acquisition date of September 16, 1997 and the consolidated financial statements of the Company and Cybernet AG since that date. Since the fair value of the net assets of the Company were equal to their net book value on September 16, 1997, the assets and liabilities of the Company remained at their historical cost following the acquisition. 2. Summary of Significant Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts of all majority- owned subsidiaries of the Company. All significant intercompany investments, accounts, and transactions have been eliminated. Foreign Currency The assets and liabilities for the Company's international subsidiaries are translated into U.S. dollars using current exchange rates at the balance sheet dates. Statement of operations items are translated at average exchange rates prevailing during the period. The resulting translation adjustments are recorded in the foreign currency translation adjustment account in equity. Foreign currency transaction gains or losses are included in net earnings (loss). Revenue Recognition The Company offers Internet telecommunication and systems integration products and network access services. Telecommunication and system integration products consist of the development of customized business solutions, installation of hardware and software and production support. Ongoing network services consist of monthly user fees for network access and related services. Revenues from telecommunication and systems integration products are recognized upon completion of the related project and customer acceptance. Revenues from ongoing network access services are recognized when provided to customers. Property and Equipment Property and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful life of the asset, which ranges from 4 years (computer equipment and software) to 10 years (leasehold improvements and furniture and fixtures). Product Development Costs The Company capitalizes costs incurred related to the development of products that will be sold to customers. Costs capitalized include direct labor and related overhead and third party costs related to establishing network systems. All costs in the development process are classified as research and development and expensed as incurred until technological feasibility has been established. Once technological feasibility has been established, which is defined as completion of a working model, such costs are capitalized until the individual products are commercially available. Amortization, which began in 1997, is calculated using the greater of (a) the ratio that current gross revenues for a product bear to the total of current and anticipated future revenues for that product or (b) the straight-line method over four years. The carrying value of product development costs is regularly reviewed by the Company and a loss recognized F-7 when the net realizable value falls below the unamortized cost. No such losses have been recognized to date. Accumulated amortization amounted to $75,494 and $1,016,700 at December 31, 1997 and 1998 respectively. Advertising Costs Advertising costs are expensed as incurred. Advertising expense was $49,906, $226,763 and $609,948 in the years ended December 31, 1996, 1997 and 1998. Cash and Cash Equivalents The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Short Term Investments In accordance with Statement of Financial Accounting Standard ("SFAS") No. 115 "Accounting for Certain Investments in Debt and Equity Securities" available- for-sale securities are carried at fair value, with unrealized gains and losses reported as a separate component of stockholder's equity. Realized gains and losses and declines in value judged to be other than temporary on available-for-sale securities are included in other income. The Company has classified all debt and equity securities as available-for-sale. Income Taxes The Company accounts for income taxes using the liability method. Under this method, deferred income taxes are recognized for temporary differences between financial statement and income tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the period that includes the enactment date. Deferred tax assets are reduced by a valuation allowance when the Company cannot make the determination that it is more likely than not that some portion or all of the related tax asset will be realized. Fair Value of Financial Instruments The carrying value of financial instruments such as cash, accounts receivable, short term investments and accounts payable approximate their fair value based on the short-term maturities of these instruments. The carrying value of bank debt approximates fair value based on quoted market prices for the same or similar issues as well as the current rates offered to the Company. Note 4 contains a detail of short-term investments held by the Company. Substantially all of the Company's cash is deposited in a local German bank. Short term investments are comprised of investments in highly liquid mutual funds. Credit risk in connection with accounts receivable is minimized by the diverse nature of the Company's customer base. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Goodwill Goodwill, which represents the excess of purchase price over fair value of net assets acquired, is amortized on a straight-line basis over 10 years. Accumulated amortization totaled $18,693 and $312,436 at December 31, 1997 and 1998, respectively. The Company assesses the recoverability of goodwill by determining whether the amortization of the related balance over its remaining life can be recovered through reasonably expected undiscounted future cash flows. Management evaluates the amortization period to determine whether later events and circumstances warrant revised estimates of the amortization period. F-8 Stock Compensation The Company accounts for its stock option compensation under Accounting Principles Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). The Company presents all disclosures required by Statement of Financial Accounting Standards No. 123 ("Statement 123") in Note 11. Comprehensive Income In 1998, the Company adopted Financial Accounting Standards Board Statement 130 "Reporting Comprehensive Standards" ("Statement 130"), which requires the disclosure of the Company's comprehensive income. Comprehensive income is defined as all changes in shareholders' equity exclusive of transactions with owners such as capital investments and dividends. All prior periods have been restated to conform with the reporting requirements of Statement 130. Segment Disclosures In 1998, the Company adopted Financial Accounting Standards Board Statement 131 "Disclosures About Segments of an Enterprise and Related Information" ("Statement 131"), which requires disclosures of certain financial information of the Company's business operating segments. All prior periods have been restated to conform with the disclosure requirements of Statement 131. Reclassifications Certain prior year amounts in the consolidated financial statements have been reclassified to conform to the current year presentation. 3. Business Acquisitions On September 16, 1997, the Company acquired all of the outstanding shares of the common stock of Cybernet AG in exchange for the issuance of 5,160,000 shares of common stock of the Company, 1,200,000 shares of Series A preferred stock of the Company and 5,160,000 shares of Series B preferred stock of the Company, such shares representing the outstanding shares of the Company at that date. Generally accepted accounting principles require that the Company be considered the acquired company for financial statement purposes (a reverse acquisition) even though the entity will continue to be called Cybernet Internet Services International, Inc. Therefore, the acquisition has been recorded as a recapitalization of Cybernet AG. The effects of the reverse acquisition have been reflected for all share amounts in the accompanying financial statements. The Company had no operations at the time of the reverse acquisition. Effective September 16, 1997, the Company acquired 100% of the outstanding shares of Artwise GmbH ("Artwise"), for a total consideration of DM 1,710,040 ($954,263). DM 475,000 ($265,067) of the purchase price was paid in cash with the remainder settled in exchange for the issuance of 72,620 shares of the common stock of the Company in February, 1998. The shares issued in February 1998, which were recorded as additional goodwill, were partially contingent upon the achievement of certain financial goals by Artwise for the year ended December 31, 1997. The acquisition has been accounted for using the purchase method of accounting and accordingly the accompanying financial statements reflect Artwise's results of operations from September 16, 1997. Goodwill recorded in connection with the acquisition of Artwise, of DM 1,507,493 ($841,188), is being amortized over 10 years. Effective December 11, 1997, the Company acquired 66% of the outstanding shares of Eclipse s.r.l. ("Eclipse"), for a total consideration of DM 982,763 ($548,386). DM 334,764 ($186,799) of the purchase price was paid in cash with the remainder to be settled in exchange for the issuance of 27,000 shares of the common stock of the Company in 1999. The acquisition has been accounted for using the purchase method of accounting. Eclipse's results of operations for the period December 11, 1997 through December 31, 1997 are not included in the accompanying financial statements due to immateriality. Eclipse's results of operations for the full year 1998 are included in the results of operations of Cybernet Inc. for the year ended December 31, 1998. Goodwill recorded in connection with the acquisition of Eclipse, of DM 909,418 ($507,459), is being amortized over 10 years. Effective August 15, 1998, the Company acquired 100% of the outstanding shares of Open:Net Internet Solutions GmbH ("Open:Net") for a total consideration of DM 4,251,093 ($2,540,091). DM 1,445,000 ($863,718) of the purchase price was paid in cash with the remainder settled in exchange for the issuance of 58,825 shares of the common stock of the Company. The acquisition has been accounted for using the purchase method of accounting and as such the accompanying financial statements reflect F-9 Open: Net's results of operations for the period August 15, 1998 through December 31, 1998. Goodwill recorded in connection with the acquisition of Open:Net, of DM 3,520,178 ($2,298,341) is being amortized over 10 years. Effective December 28, 1998, the Company acquired 100% of the outstanding shares of Vianet Internet Dienstleistungen AG ("Vianet") for a cash payment of DM 7,500,000 ($4,482,965) and 300,000 shares of the common stock of the Company which is to be issued to the selling shareholders of Vianet in increments of 60,000 shares over five years contingent upon the continued employment of the individuals. The acquisition has been accounted for using the purchase method of accounting. The value of the 300,000 shares will be added to the cost of acquiring the Company when the shares are issued to the selling shareholders. Vianet's results of operations subsequent to December 28, 1998 are not included in the accompanying financial statements due to immateriality. Goodwill recorded in connection with the acquisition of Vianet, amounting to DM 3,449,307 ($2,061,750), is being amortized over 10 years. The following unaudited pro forma consolidated results of operations for the years ended December 31, 1997 and 1998 assume the acquisitions described above occurred as of January 1, 1997:
Years ended December 31, --------------------------------- 1997 1998 --------------- ---------------- Revenue............................... $ 7,467,666 $12,589,528 Net loss.............................. (2,065,929) (6,068,365) Basic and diluted loss per share...... $ (.21) $ (.38)
4. Short-Term Investments Short-term investments at cost, which represents the cost to purchase the securities, consist of the following:
December 31, -------------------------------- 1996 1997 1998 --------- --------- ---------- BHF Bank Accugeld Fund............ $453,698 $ -- $ 112,503 BHF Bank US Dollar Plus Fund...... -- 802,759 -- Commerzbank Geld Market Fund...... -- 15,154 -- -------- -------- -------- $453,698 $817,913 $112,503 ======== ======== ========
At December 31, 1996, 1997 and 1998 the estimated fair value of short-term investments approximated cost. Proceeds from the sale of available for sale securities in 1996, 1997 and 1998 were $263,751, $6,931,035, $810,063, respectively. The Company did not recognize any gains on the sales of short-term investments in 1996, 1997 or 1998. 5. Property and Equipment Property and equipment consist of the following:
December 31, ---------------------------------------- 1996 1997 1998 ----------- ------------ ------------- Computer equipment and software................... $444,695 $1,942,485 $ 7,274,601 Leasehold improvements............................ 30,452 75,796 425,786 Furniture and fixtures............................ 201,606 478,504 1,979,873 -------- ---------- ----------- 676,753 2,496,785 9,680,260 Less accumulated depreciation and amortization.... (45,993) (211,992) (1,709,960) -------- ---------- ----------- Net property and equipment........................ $630,760 $2,284,793 $ 7,970,300 ======== ========== -----------
F-10 6. Leases The Company leases facilities and equipment under long-term operating leases. Future minimum payments under non-cancellable operating leasing with initial terms of one year or more are as follows:
Year ending December 31 1999........................ $2,105,459 2000........................ 1,749,784 2001........................ 1,575,547 2002........................ 940,702 2003........................ 635,797 Thereafter.................... 2,167,557 ---------- $9,174,846 ==========
The Company's rental expense under operating leases in the years ended December 31, 1996, 1997 and 1998 totaled approximately $56,508, $176,687 and $1,068,645 respectively. The Company has financed the acquisition of certain computer equipment through capital lease agreements with interest rates ranging from 5% to 8%. At December 31, 1998, the gross value of assets under capital leases is $2,580,307 and related accumulated depreciation was $609,520. The Company had no capital lease obligations at December 31, 1996 or 1997. Future minimum lease payments in connection with these leases are as follows:
Year ending December 31 1999................................ $ 892,984 2000................................ 892,984 2001................................ 176,536 2002................................ 171,871 2003................................ 133,646 ---------- $2,268,021 ========== Less: Interest Portion................... (165,273) ========== $2,102,748 ==========
7. Commitments The Company has entered into long term data and voice communications agreements with several vendors. The agreements enable the Company and its customers to access data networks necessary for the use of its products and services. The minimum payments under these agreements aggregate $1,382,228, $84,806, $84,806, $84,806, $16,139 and $80,693 in 1999, 2000, 2001, 2002, 2003 and thereafter, respectively. 8. Overdrafts and Short-Term Borrowings Overdrafts represent temporary overdrafts of bank balances. The overdrafts are not subject to formal agreements with the banks and generally are not subject to interest. As of December 31, 1998, the Company had formal short-term unsecured overdraft facilities under which the Company and its subsidiaries could borrow up to DM 463,340 ($276,952). In addition, to these forward overdraft facilities, certain of the Company's banks provided overdraft protection exceeding the limits specified in the agreements. The facilities are denominated in Deutsche Mark as to DM 200,000, in Italian Lire as to DM 121,200 and in Austrian Schilling as to DM 142,140. The interest rate fluctuates based on current lending rates and was 8.25% and 9.75 % at December 31, 1997 and 1998, respectively. As of December 31, 1998, DM 480,313 ($287,097) of the overdraft facility was used and DM 121,093 ($72,381) was available. F-11 9. Long-Term Debt Long-term debt consists of the following:
Years ended December 31, --------------------------------------------- 1997 1998 --------------------- ---------------------- Note payable, 5.15 % interest, due in monthly installments of principal and interest through 2001.................... $ 41,691 $ -- Note payable, 3.75% interest, due in quarterly installments of principal and interest through January -- 41,626 2005...................................................... Note payable, 6.2% interest, due in monthly installments of principal and interest through June 1999............... -- 5,039 Note payable, 6.6% interest, due in monthly installments of principal and interest through December 2002........... -- 39,409 -------------------- ---------------------- 41,691 86,074 Less current portion -- (19,245) --------------------- ---------------------- Long-term portion $ 41,691 $ 66,829 ===================== ======================
10. Stockholders' Equity Common Stock The Company is authorized to issue 50,000,000 shares of Common Stock. Holders of Common Stock are entitled to one vote per share on all matters submitted to a vote of stockholders. The Common Stock is not redeemable and has no conversion or preemptive rights. Preferred Stock The Company is authorized to issue 50,000,000 shares of Preferred Stock with relative rights, preferences and limitations determined at the time of issuance. As of December 31, 1998, the Company has issued and outstanding Series A and B Preferred Stock. Substantially all of the Company's previously issued Series C Preferred Stock was converted to Common Stock in 1998. Series A Preferred Stock The holders of the Series A Preferred Stock are entitled to receive dividends at a rate equal to $0.01 per share per annum before any dividends are paid or set apart for payment upon any other series of Preferred Stock of the Company, other than Series B or Series C Preferred Stock, or on the Common Stock of the Company. Commencing with the fiscal year beginning on January 1, 1998, the dividend on the Series A Preferred Stock will be paid for each fiscal year within five months of the end of each fiscal year, subject to the availability of surplus or net profits therefor. The dividends on the Series A Preferred Stock are not cumulative. The holders of the Series A Preferred Stock are not entitled to vote. The shares of Series A Preferred Stock may be redeemed by the Company at any time after January 1, 2000, at a redemption price of one share of the Common Stock of the Company for each share of Series A Preferred Stock plus any unpaid dividends earned thereon; provided that all and not less than all of the shares of Series A Preferred Stock are so redeemed and provided further that if the Company has not redeemed the Series A Preferred Stock by December 31, 2001, a holder of Series A Preferred Shares may at any time commencing January 1, 2002, require the Company to purchase all of the shares of the Series A Preferred Stock held by him for a purchase price of $3.00 per share plus any dividends earned but unpaid on such shares. A holder of Series A Preferred Stock may convert each share held by him into one share of the Common Stock of the Company; provided, however, that (1) no conversion may occur prior to January 1, 1999; (2) no more than 25% of the Series A Preferred Shares held by the holder may be converted prior to January 1, 2000; (3) no more than an additional 25% of the Series A Preferred Shares held by the holder may be converted prior to January 1, 2001; (4) the remainder of the Series A Preferred Shares held by the holder F-12 may be converted commencing January 1, 2001; and (5) any conversion may not be for less than all of the Series A Preferred Shares held by the converting shareholder eligible for conversion at the time of the notice. Upon the liquidation, dissolution or winding up, whether voluntary or involuntary, of the Company, the holders of the Series A Preferred Stock will be entitled to be paid the sum of $3.00 per share plus an amount equal to any unpaid accrued dividends before any amount is paid to the holder of any other series of Preferred Stock, other than the Series B Preferred Stock or the Series C Preferred Stock, or to the Common Stock of the Company. After payment of these amounts to the holders of the Series A Preferred Stock, the remaining assets of the Company will be distributed to the holders of the Common Stock. Series B Preferred Stock The holders of the Series B Preferred Stock are entitled to receive dividends at a rate equal to $0.01 per share per annum before any dividends are paid or set apart for payment upon any other series of Preferred Stock of the Company other than the Series C Preferred Stock or on the Common Stock of the Company. Commencing with the fiscal year beginning on January 1, 1998, the dividend on the Series B Preferred Stock will be paid for each fiscal year within five months of the end of each fiscal year, subject to the availability of surplus or net profits therefor. The dividends on the Series B Preferred Stock will not be cumulative. The holders of the Series B Preferred Stock are entitled to one vote per share. The shares of Series B Preferred Stock may be redeemed by the Company at any time after January 1, 2000, at a redemption price of one share of the Common Stock of the Company for each share of Series B Preferred Stock plus any unpaid dividends earned thereon through the date of redemption; provided that all and not less than all of the shares of Series B Preferred Stock are so redeemed. A holder of Series B Preferred Stock may convert each share held by him into one share of the Common Stock of the Company provided, however, that (1) no conversion may occur prior to January 1, 1999; (2) no more than 25% of the Series B Preferred Shares held by the holder may be converted prior to January 1, 2000; (3) no more than an additional 25% of the Series B Preferred Shares held by the holder may be converted prior to January 1, 2001; (4) the remainder of the Series B Preferred Shares held by the holder may be converted commencing January 1, 2001; and (5) any conversion may not be for less than all of the Series B Preferred Shares held by the converting shareholder eligible for conversion at the time of the notice. Upon the liquidation, dissolution or winding up, whether voluntary or involuntary, of the Company, the holders of the Series B Preferred Stock will be entitled to be paid the sum of $3.00 per share plus an amount equal to any unpaid accrued dividends before any amount is paid to the holder of any other series of Preferred Stock other than the Series C Preferred Stock or to the Common Stock of the Company. After payment of these amounts to the holders of the Series B Preferred Stock, the remaining assets of the Company will be distributed to the holders of the Common Stock. Series C Preferred Stock The holders of the Series C Preferred Stock are entitled to receive dividends at a rate equal to $0.56 per annum, and no more, before any dividends are paid or set apart for payment upon any other series of Preferred Stock or on the Common Stock of the Company. Dividends will begin to accrue on January 1, 1998. Commencing with the fiscal year beginning on January 1, 1998, the dividend on the Series C Preferred Stock will be paid for each fiscal year within five months of the end of each fiscal year, subject to the availability of surplus or net profits therefor. The dividends of the Series C Preferred Stock are cumulative. The holders of the Series C Preferred Stock are not entitled to receive notice of or to vote on any matter that is the subject of a vote of the stockholders of the Company, except as otherwise required by the laws of the State of Delaware. The shares of Series C Preferred Stock may be redeemed by the Company at any time at a redemption price of 100% of the $7.00 purchase price paid to the Company for such shares plus any unpaid accrued dividends thereon so long as prior to the date of redemption the Company has offered to exchange each share of Series C Preferred Stock for (a) one share of the Company's Common Stock, plus (b) one warrant ("Warrant") to purchase the number of shares of Common Stock equal in the aggregate to one-half the number of shares of Common Stock received in the exchange, which Warrant will be exercisable at any time through the first anniversary of the date of issuance of the Warrant at a purchase price equal to $8.00 per share and a registration statement is in effect registering the issuance of the Common Stock and Warrants. F-13 A holder of Series C Preferred Stock may convert each share held by him into one share of the Common Stock of the Company anytime after July 31, 1998; provided, however, that any conversion be of all the Series C Preferred Shares held by the shareholder. In July 1998, holders of 1,400,000 shares of Series C Preferred Stock (representing the entire amount outstanding) converted their shares into 1,400,000 shares of the Company's Common Stock. Prior to the conversion holders of Series C Preferred Stock received a stock dividend in Common Stock of the Company in lieu of a cash dividend. The stock dividend was valued at the closing price of the Common Stock on the date the dividend was declared. 11. Stock Option Plan The Company has adopted a stock option plan ("Stock Option Plan") which provides for the grant of options to key employees and members of the Board of Directors to purchase shares of the Company's common stock. The Company has elected to follow APB 25 and related interpretations in accounting for its Stock Option Plan. Under APB 25, as long as the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. The Company has reserved 2,000,000 shares of common stock for issuances under the Stock Option Plan. During the year ended December 31, 1998, the Company granted 285,000 stock options with an exercise price of $31.96 per share and 400,000 stock options with an exercise price of $32.04. All options granted have 10 year terms and vest over three years. All options were still outstanding at December 31, 1998. No options were issued during the years ended December 31, 1996 and 1997. None of the options outstanding at December 31, 1998 were exercisable. Pro forma information regarding net income and earnings per share is required by Statement 123 as if the Company had accounted for its employee stock options under the fair value method of that statement. The fair value for these options was estimated at the date of grant using the Black-Scholes option pricing model using a risk-free interest rate of 4.5%, an expected common stock price volatility factor of 0.8, a weighted-average expected life of the options of 5 years, and a expected dividend yield of 0%. The fair value of the options granted in 1998 using the Black-Scholes model was $13,320,000. Had the Company determined compensation cost for this plan in accordance with Statement 123, the value of the options granted would have been amortized over the option vesting period. The Company's pro forma loss and pro forma basic and diluted earnings per share for 1998 would have been $4,995,690 and $(.31), respectively. 12. Provision for Income Taxes The Company's principal operations are currently located in Germany. Pretax (loss) for the years ended December 31, 1996, 1997 and 1998 was generated in the following jurisdictions:
December 31, ------------------------------------------------------------ 1996 1997 1998 ------------------ ------------------ -------------------- Germany................. $(685,627) $(2,303,448) $(10,655,410) Other................... -- (19,799) (434,850) --------- ----------- ------------ $(685,627) $(2,323,247) $(11,090,260) ========= =========== ============
The components of the provision for income taxes, substantially all of which relates to Germany, are as follows:
December 31, ------------------------------------------------------------- 1996 1997 1998 ------------------- ------------------- ------------------- Current.......................... $ -- $ 9,525 $ -- Deferred......................... (401,849) (1,348,932) (6,172,645) --------- ----------- ----------- Income tax benefit............... $(401,849) $(1,339,407) $(6,172,645) ========= =========== -----------
F-14 The Company has net deferred tax assets as of December 31, 1996, 1997 and 1998 as follows:
December 31, ------------------------------------ 1996 1997 1998 --------- ----------- ------------ Deferred tax assets $692,694 $3,454,606 $11,695,379 Net operating losses................. -------- ---------- ----------- 692,694 3,454,606 11,695,379 ======== ========== =========== Deferred tax liabilities Product development costs............ 251,038 1,625,857 3,315,814 Depreciation and amortization........ 44,195 175,454 212,148 Other................................ 4,484 486 1,246 -------- ---------- ----------- 299,717 1,801,797 3,529,208 ======== ========== =========== Net deferred tax assets................... $392,977 $1,652,809 $ 8,166,171 ======== ========== ===========
As of December 31, 1998, the Company and its subsidiaries had available combined cumulative tax loss carryforwards of approximately $20,230,048 million substantially all of which relates to Germany. Under German tax laws, these loss carryforwards have an indefinite life. The tax loss carryforwards have been generated during the establishment of the Company's operations. Management believes that the Company will generate sufficient future taxable income to realize the entire deferred tax asset and that the realization of the $8,166,171 net deferred tax asset is more likely than not. However, if the Company is unable to generate sufficient taxable income in the future through operating results a valuation allowance will be required to be established through a charge to income. A reconciliation of income taxes determined using the United States statutory federal income tax rate of 35% to actual income taxes provided is as follows:
December 31, ------------------------------------------ 1996 1997 1998 ----------- ------------- -------------- Income tax benefit at statutory rate....... $(239,969) $ (813,136) $ (3,881,591) Higher foreign tax rates................... (157,694) (529,793) (2,528,579) Other...................................... (4,186) 3,522 237,525 --------- ----------- ------------ Income tax benefit......................... $(401,849) $(1,339,407) $( 6,172,645) ========= =========== ============
13. Earnings Per Share The following table sets forth the computation of basic and diluted earnings per share:
December 31, --------------------------------------- 1996 1997 1998 ----------- ----------- ------------- Numerator: Net loss-numerator for basic and diluted loss per share.............. $ (283,778) $ (983,840) $(4,772,690) ========== ========== =========== Denominator: Denominator for basic and diluted loss per ========== 8,342,297 16,012,653 share -- weighted average shares outstanding....................... 2,465,782 ========== =========== ========== Basic and diluted loss per share.......................................... $ (.12) $ (.12) $ (.30) ========== ========== ===========
The denominator for diluted earnings per share excludes the convertible preferred stock and stock options because the inclusion of these items would have an anti-dilutive effect. The Company's preferred stock is described in Note 10 and the Company's stock options are described in Note 11. 14. Related Party Transaction On May 30, 1997, a principal shareholder of Cybernet AG advanced Cybernet AG an interest free loan of DM 1.5 million ($837,895) due July 31, 1997. On October 7, 1997, Cybernet AG repaid the loan. The Company paid DM 17,250 ($11,345), DM 169,804 ($97,470) and DM 173,013 ($98,303) to a law firm for legal services where one of the members of the board of directors is a partner in the years ended December 31, 1996, 1997 and 1998, respectively. In November 1998, one of the members of the Board of Directors of Cybernet Inc. and a principal Shareholder advanced an interest free loan to Cybernet Inc. of DM 2.5 million ($1,494,322). The Company repaid the loan in December 1998. In December 1998, the Company paid $2,916,000 in underwriting fees in connection with the public sale of equity, to an investment bank in which one of the Company's principal shareholders and a former member of the Company's Board of Directors is a significant shareholder. F-15 15. Segment information The Company evaluates performance and allocates resources based on the operating profit of its subsidiaries. The accounting policies of the reportable segments are the same as those described in the Summary of Significant Accounting Policies in Note 2. The Company operates in one line of business, which is providing international Internet backbone and access services and network business solutions for corporate customers. The Company's reportable segments are divided by country since each country's operations are managed and evaluated separately. The Company does not have any intercompany sales between its subsidiaries. Information concerning the Company's geographic locations is summarized as follows:
December 31, ------------------------------------------ 1996 1997 1998 ----------- ------------- -------------- Revenues: Germany........................ $ 307,673 $ 2,314,021 $ 7,692,555 US............................. -- -- -- Other.......................... -- -- 940,973 --------- ----------- ------------ Total.......................... $ 307,673 $ 2,314,021 $ 8,633,528 ========= =========== ============ Cost of revenues: Germany........................ $ 363,120 $ 2,531,787 $ 9,609,699 US............................. -- -- -- Other.......................... -- -- 830,309 --------- ----------- ------------ Total.......................... $ 363,120 $ 2,531,787 $ 10,440,008 ========= =========== ============ General and Administrative Expenses: Germany........................ $ 263,175 $ 481,700 $ 1,341,077 US............................. -- -- 186,345 Other.......................... -- -- 48,336 --------- ----------- ------------ Total.......................... $ 263,175 $ 481,700 $ 1,575,758 ========= =========== ============ Marketing Expenses: Germany........................ $ 164,669 $ 1,188,634 $ 3,708,831 US............................. -- -- -- Other.......................... -- -- 135,401 --------- ----------- ------------ Total.......................... $ 164,669 $ 1,188,634 $ 3,844,232 ========= =========== ============ Research and Development: Germany........................ $ 178,994 $ 279,698 $ 2,642,140 US............................. -- -- -- Other.......................... -- -- 298,725 --------- ----------- ------------ Total.......................... $ 178,994 $ 279,698 $ 2,940,865 ========= =========== ============ Depreciation and Amortization: Germany........................ $ 21,263 $ 115,899 $ 721,677 US............................. -- -- 108,976 Other.......................... -- -- 49,325 --------- ----------- ------------ Total.......................... $ 21,263 $ 115,899 $ 879,978 ========= =========== ============ Interest Expense: Germany........................ $ 2,079 $ 39,550 $ 180,496 US............................. -- -- 3,006 Other.......................... -- -- 13,741 --------- ----------- ------------ Total.......................... $ 2,079 $ 39,550 $ 197,243 ========= =========== ============ Interest Income: Germany........................ $ -- $ -- $ 30,581 US............................. -- -- 123,715 Other.......................... -- -- -- --------- ----------- ------------ Total.......................... $ -- $ -- $ 154,296 ========= =========== ============ Loss before Taxes: Germany........................ $(685,627) $(2,323,247) $(10,480,794) US............................. -- -- (174,612) Other.......................... -- -- (434,854) ------------ Total.......................... $(685,627) $(2,323,247) $(11,090,260) ========= =========== ============ Income tax benefit: Germany........................ $ 401,849 $ 1,339,407 $ 6,172,645 US............................. -- -- -- Other.......................... -- -- -- Total.......................... $ 401,849 $ 1,339,407 $ 6,172,645 ========= =========== ============ Total Assets: Germany........................ $2,211,115 $12,343,057 $28,686,897 US............................. -- -- 47,688,998 Austria........................ -- -- 1,556,895 Other.......................... -- 274,000 1,511,939 ---------- ----------- ----------- Total.......................... $2,211,115 $12,617,057 $79,444,729 ========== =========== ===========
F-16 The Company's property, plant and equipment by geographic location and capital expenditures by geographic area are as follows:
December 31, ----------------------------------- Long lived assets: 1996 1997 1998 --------- ----------- ----------- Germany.................... $630,760 $2,208,781 $6,334,809 US......................... -- -- -- Austria.................... -- -- 699,511 Other...................... -- 76,012 935,980 -------- ---------- ---------- Total...................... $630,760 $2,284,793 $7,970,300 ======== ========== ==========
December 31, ----------------------------------- Capital Expenditures: 1996 1997 1998 --------- ----------- ----------- Germany................... $552,104 $1,707,843 $5,097,077 US........................ -- -- -- Other..................... -- -- 936,882 -------- ---------- ---------- Total..................... $552,104 $1,707,843 $6,033,959 ======== ========== ==========
16. Recent Pronouncements In March 1998, the AICPA issued SOP 98-1 "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use". This standard requires that computer software costs meeting the criteria for internal-use software be expensed as incurred in the preliminary project stage and capitalized thereafter. Amounts capitalized are required to be amortized on a straight line basis over the estimated useful life of the software. The standard is effective for fiscal years beginning after December 15, 1998. Earlier application is permitted. The Company does not expect the impact of this new statement on the Company's consolidated balance sheet or results of operations to be material. In April 1998, the AICPA issued SOP 98-5 "Reporting on the Costs of Start-Up- Activities". This standard requires costs of start-up-activities and organization costs to be expensed as incurred. The standard is effective for fiscal years beginning after December 15, 1998. Earlier application is encouraged. The Company does not expect the impact of this new statement on the Company's consolidated balance sheet or results of operations to be material. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133. "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). This statement establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. The statement also requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. SFAS No. 133 is effective for fiscal years beginning after June 15, 1999 and cannot be applied retroactively. The Company does not expect the impact of this new statement on the Company's consolidated balance sheets or results of operations to be material. F-17 17. Subsequent Events In February 1999, the Company entered into a stock purchase agreement providing for the purchase of 51% of the outstanding stock of Sunweb Internet Services SIS AG ("Sunweb"), an Internet service provider located in Switzerland, for total consideration CHF 1,477,000 ($1,024,182) and 25,000 shares of common stock of the Company. The Stock Purchase Agreement also contains provisions for put and call options for the sellers and buyers, respectively, for the remaining 49% of the outstanding stock of Sunweb. The purchase price per the agreement for the remaining 49% of the shares is based on a multiple of Sunweb's net profit or loss before taxes. The put and call options both expire on December 31, 2001. In March 1999, the German government passed new tax legislation which reduced the corporate income tax rate from 45% to 40%. In accordance with accounting principles generally accepted in the United States of America, the Company's deferred tax assets and liabilities related to Germany are calculated using 45%, the rate in effect at December 31, 1998. The impact of remeasuring the deferred tax assets and liabilities using the new rate is required to be recorded in the period the rate is enacted. The impact on net income of the corporate tax rate reduction is estimated to be approximately $522,000 and will be recorded in the first quarter of 1999. F-18
Schedule II Balance at beginning Charged to costs Write-Offs net of Balance at end of of period and expenses Recoveries period ------------------- ---------------- ----------------- ----------------- For the year ended December 31, 1996 Allowance for doubtful accounts 0.00 15,164.00 0.00 15,164.00 other assets For the year ended December 31, 1997 Allowance for doubtful accounts 15,164.00 18,253.00 0.00 33,417.00 other assets For the year ended December 31, 1998 Allowance for doubtful accounts 33,417.00 327,976.00 0.00 361,393.00 other assets
F-19 EXHIBIT INDEX
- ------------------------------------------------------------------------------------------------------- Exhibit Description Number of Exhibit Location - ------------- ---------------------------------------- ---------------------------------------------- 2.1 Agreement and Plan of Merger between Incorporated by reference from Exhibit the Registrant and Cybernet Internet 2.1 to the Company's Registration Services International, Inc., a Utah Statement on Form S-1 declared corporation, dated as of October 9, 1998 effective on December 2, 1998, located under Securities and Exchange Commission File No. 333-63755 ("December 1998 Registration Statement") - ------------------------------------------------------------------------------------------------------- 3.1 Certificate of Incorporation Incorporated by reference from Exhibit 3.1 to the December 1998 Registration Statement - ------------------------------------------------------------------------------------------------------- 3.2 Bylaws Incorporated by reference from Exhibit 3.2 to the December 1998 Registration Statement - ------------------------------------------------------------------------------------------------------- 4.1 Certificate of Incorporation See Exhibit 3.1 Above - ------------------------------------------------------------------------------------------------------- 4.2 Bylaws See Exhibit 3.2 Above - ------------------------------------------------------------------------------------------------------- 10.1 Sale and Assignment of Shares in Incorporated by reference from Exhibit Open:Net Internet Solutions GmbH 10.2 to the December 1998 Registration Statement - ------------------------------------------------------------------------------------------------------- 10.2 Stock Purchase Agreement (Vianet) Incorporated by reference from Exhibit 10.4 to the December 1998 Registration Statement - ------------------------------------------------------------------------------------------------------- 10.3 Pooling Agreement (Vianet) 10.3.1 Libischer Filed herewith 10.3.2 Wiesmueller Filed herewith - ------------------------------------------------------------------------------------------------------- 10.4 Stock Purchase Agreement (SunWeb) Filed herewith - ------------------------------------------------------------------------------------------------------- 10.5 Employment Agreement (Andreas Eder) Filed herewith - ------------------------------------------------------------------------------------------------------- 10.6 Employment Agreement (Alessandro Filed herewith Giacalone) - ------------------------------------------------------------------------------------------------------- 10.7 Employment Agreement (Christian Moosmann) Filed herewith - ------------------------------------------------------------------------------------------------------- 10.8 Employment Agreement (Timon Lutze) Filed herewith - ------------------------------------------------------------------------------------------------------- 10.9 Employment Agreement (Tristan Libischer) Filed herewith - ------------------------------------------------------------------------------------------------------- 10.10 Employment Agreement (Alexander Filed herewith Wiesmueller) - ------------------------------------------------------------------------------------------------------- 10.11 Lease Munich Headquarter Incorporated by reference from Exhibit 10.13 to the December 1998 Registration Statement - -------------------------------------------------------------------------------------------------------
E-1
- ------------------------------------------------------------------------------------------------------- Exhibit Description Number of Exhibit Location - ------------- ---------------------------------------- ----------------------------------------------- 10.12 Lease Data Center in [Hamburg] Filed herewith - ------------------------------------------------------------------------------------------------------- 10.13 1998 Stock Incentive Plan Incorporated by reference from Exhibit 10.18 to the December 1998 Registration Statement - ------------------------------------------------------------------------------------------------------- 10.14 1998 Outside Directors' Stock Option Incorporated by reference from Exhibit Plan 10.19 to the December 1998 Registration Statement - ------------------------------------------------------------------------------------------------------- 10.15 Ebone Agreement Incorporated by reference from Exhibit 10.16 to the December 1998 Registration Statement - ------------------------------------------------------------------------------------------------------- 21. Subsidiaries of the Company Filed herewith - ------------------------------------------------------------------------------------------------------- 27 Financial Data Schedule Filed herewith - ------------------------------------------------------------------------------------------------------- E-2
EX-10.3.1 2 EXHIBIT 10.3.1 Exhibit 10.3.1 POOLING TRUST AGREEMENT THIS POOLING TRUST AGREEMENT (this "Agreement") is made on December 28, 1998 between Tristan Libischer ("Beneficiary") and Dr. Thomas Herndl ("Pooling Trustee"). BACKGROUND The Beneficiary and Alexander Wiesmuller (collectively, the "Vianet Stockholders") are the holders of all the issued and outstanding capital stock of Vianet EDV Dienstleistungs AG, an Austrian corporation ("Vianet"), consisting of 1,000,000 shares of voting common stock, par value 1 ATS (the "Vianet Stock"). The Vianet Stockholders and Cybernet Internet Services International, Inc., ("Cybernet") entered into a Stock Purchase Agreement as of June 17, 1998 (the "Stock Purchase Agreement") providing for that the Vianet Stockholders will sell to Cybernet and Cybernet will purchase from the Vianet Stockholders all of the Vianet Stockholders' right, title and interest in the Vianet Stock. At the Closing of the Stock Purchase Agreement (the "Closing") the Pooling Trustee will receive 150,000 shares of the common voting stock, par value $0.001 of Cybernet (the "Trust Stock"), to be issued to the Beneficiary as part of the consideration for the Vianet Stock. Furthermore, the Stock Purchase Agreement provides that the Beneficiary will have executed a pooling trust agreement with the Pooling Trustee providing that the Cybernet shares making up a part of the Purchase Price shall be held by the Pooling Trustee and not sold until released by the Pooling Trustee, that twenty percent (20%) of such Cybernet shares shall be released on the first anniversary of the Closing Date, that twenty percent (20%) of such Cybernet shares shall be released on the second anniversary of the Closing date, that twenty percent (20%) of such Cybernet shares shall be released on the third anniversary of the Closing date, that twenty percent (20%) of such Cybernet shares shall be released on -2- the fourth anniversary of the Closing date and that twenty percent (20%) of such Cybernet shares shall be released on the fifth anniversary of the Closing date. Furthermore, the Stock Purchase Agreement provides that the Trust Stock received by the Pooling Trustee on behalf of the Beneficiary and to the extent as not released by the Pooling Trustee (as provided in Section 2 below) will be retransferred from the Pooling Trustee to Cybernet if (i) the Employment Agreement (as enclosed in Exhibit 1) with the Beneficiary is terminated by Vianet or Cybernet for cause according to Section 75 para 4 of the Austrian Stock Corporation Act ("Aktiengesetz") or Section 27 of the Austrian Employment Act ("Angestelltengesetz") or (ii) the Beneficiary resigns. AGREEMENT In consideration of the above and the mutual agreements hereinafter set forth, the parties agree as follows: 1. Fiduciary Relationship. The Pooling Trustee will receive on the Closing ---------------------- date and hold thereafter in trust for the Beneficiary the Trust Stock and all funds and dividends it receives in connection therewith, and will account for and remit all such funds and dividends to the Beneficiary, as applicable. The Fiduciary Relationship is entered into with respect to the obligations of the Beneficiary towards Cybernet in accordance with the Stock Purchase Agreement. 2. Release and Transfer of Trust Stock to the Beneficiary. Subject to the ------------------------------------------------------ retransfer of the Trust Stock to Cybernet as provided in section 3 hereinafter, the Trust Stock to be held by the Pooling Trustee shall be released and transferred to the Beneficiary at the earliest as follows: - Twenty percent (20%) of the Trust Stock on the first anniversary of the Closing date, - an additional twenty percent (20%) of the Trust Stock on the second anniversary of the Closing date, -3- - an additional twenty percent (20%) of the Trust Stock on the third anniversary of the Closing date, - an additional twenty percent (20%) of the Trust Stock on the fourth anniversary of the Closing date, and - the remainder of the Trust Stock on the fifth anniversary of the Closing date. 3. Retransfer of Trust Stock to Cybernet. Promptly following receipt of a ------------------------------------- notice from Cybernet that (i) the Employment Agreement (as enclosed in Exhibit 1) with the Beneficiary has been terminated by Vianet or Cybernet for cause according to Section 75 para 4 of the Austrian Stock Corporation Act ("Aktiengesetz") or Section 27 of the Austrian Employment Act ("Angestelltengesetz") or (ii) the Beneficiary has resigned (accompanied by evidence of the termination or resignation reasonably satisfactory to the Pooling Trustee) the Trust Stock held by the Pooling Trustee and to the extent as not released by the Pooling Trustee (as provided in Section 2 above) will be retransferred from the Pooling Trustee to Cybernet 4. Duties of the Pooling Trustee. The Pooling Trustee shall forward any and ----------------------------- all information received from Cybernet regarding the Trust Stock to the Beneficiaries. Except as mutually agreed upon by the parties the Pooling Trustee is not obliged to make efforts to any investigations, research or any other kind of obtaining information with respect to the Trust Stock or Cybernet. The Pooling Trustee shall ask for instructions of the Beneficiary before acting as shareholder, including but without limitation to meeting of shareholders. 5. Liability of the Pooling Trustee. Any Liability of the Pooling Trustee -------------------------------- under this Agreement will be limited in all respects solely to gross negligence or willful misconduct on its part. The Pooling Trustee will not be liable for any actions taken or omitted upon the advice of counsel or upon a reasonable interpretation of any instructions or documents provided to it by Cybernet or the Beneficiary that it reasonably believes to be genuine or duly authorized. The Pooling Trustee may decline to act if it is in doubt as to its duties under this Agreement and will not be liable for such failure to act -4- 6. Indemnification of the Pooling Trustee. The Beneficiary agrees to -------------------------------------- indemnify the Pooling Trustee in respect of, and hold the Pooling Trustee harmless from and against, any and all damages, fines, fees, penalties, deficiencies, losses and expenses (including but without limitation to interest, court costs, fees of attorneys, accountants and other experts or other expenses of litigation or other proceedings) suffered, incurred or sustained by the Pooling Trustee, resulting from, arising out of or relating to the Trust Stock. 7. Reimbursement of Expenses. The Pooling Trustee will be entitled to be ------------------------- reimbursed for expenses incurred in performing the obligations hereunder. 8. Term and Termination. The term of this Agreement shall commence on the -------------------- date of this Agreement and will continue for an indefinite period of time. The Beneficiary and Cybernet or the Pooling Trustee may terminate this Agreement with or without cause on thirty (30) days notice to the other. Upon termination of this Agreement for any reason, the Pooling Trustee will promptly transfer the Trust Stock to any Pooling Trustee as jointly named by the Beneficiaries and Cybernet. 9. Confidentiality. During the Term of this Agreement the parties will --------------- maintain in confidence, and will not use to the detriment of another party any written, oral, or other information obtained in confidence from another party in connection with this Agreement, unless (a) such information is already known to such party or to others not bound by a duty of confidentiality or such information becomes publicly available through no fault of such party, (b) the use of such information is necessary or appropriate in making any filing or obtaining any consent or approval required for the consummation of the transactions contemplated hereby, or (c) the furnishing or use of such information is required by legal proceedings. 10. Notice. All notices, requests, demands and other communications required ------ or permitted hereunder must be in writing and deemed given and effective when personally delivered or sent by facsimile with confirmation of receipt or when deposited in the mail with postage prepaid to the party to which the same is directed at the following addresses (or at such other addresses as will be given in writing by the parties to one another): -5- If to the Beneficiary: Mr. Tristan Libischer Mariannengasse 14, 1090 Wien, Austria Tel. 43-1-404020 Fax 43-1-4040240 If to the Pooling Trustee: Dr. Thomas Herndl Tulpengasse 2, 1080 Wien, Austria Tel. 43-1-4027844 Fax 43-1-402784455 If to Cybernet: Cybernet Internet Services International; Inc. Attn.: Mr. Andreas Eder Stefan-George-Ring 19, 81929 Munich, Germany Tel: 49-89-993150 Fax: 49-89-99315199 With a copy to: Besner Kreifels Weber Attn.: Dr. Hubert Besner Widenmayerstr. 41, 80538 Munich, Germany Tel: 49-89-2199920 Fax: 49-89-21999233 11. Actions by the Beneficiary and Cybernet. Any action or remedy of the ---------------------------------------- Beneficiary and Cybernet under this Agreement, including without limitation, modifications, amendments, supplements or termination, must be exercised jointly by the Beneficiary and Cybernet. -6- 12. Miscellaneous. ------------- (a) Assignment. The Pooling Trustee may not assign any rights or ---------- delegate any duties it has assumed hereunder without the prior written consent of the other party. This Agreement is personal to the Pooling Trustee. (b) Governing Law and Choice of Forum. This Agreement will be governed --------------------------------- by and construed in accordance with the internal laws of Austria. The parties agree that any appropriate court located in Munich will have exclusive jurisdiction of any case or controversy arising under or in connection with this Agreement and will be a proper forum in which to adjudicate such case or controversy. The parties expressly consent to personal jurisdiction and venue in such courts. (c) Entire Agreement/Amendment. This Agreement embodies the entire -------------------------- agreement of the parties hereto relating to the subject matter hereof and supersedes all oral agreements, and to the extent inconsistent with the terms hereof, all other written agreements. This Agreement may not be modified, amended, supplemented or terminated except by a written instrument executed by the Pooling Trustee, the Beneficiary and Cybernet. (d) Severability. Each of the covenants and agreements herein above ------------ contained will be deemed separate, severable and independent covenants, and in the event that any covenant will be declared invalid by any court of competent jurisdiction, such invalidity will not in any manner affect or impair the validity or enforceability of any other part or provision of such covenant or of any other covenant contained herein. (e) Captions and Section Headings. Captions and section headings used ----------------------------- herein are for convenience only and are not a part of this Agreement and will not be used in construing it. (f) Fax Execution. This Agreement may be executed by delivery of ------------- executed signature pages by fax and such fax execution will be effective for all purposes. -7- EXECUTED AS OF DECEMBER 28, 1998. /s/ Tristan Libischer --------------------- [Tristan Libischer] /s/ Dr. Thomas Herndl --------------------- [Dr. Thomas Herndl] EX-10.3.2 3 EXHIBIT 10.3.2 Exhibit 10.3.2 POOLING TRUST AGREEMENT THIS POOLING TRUST AGREEMENT (this "Agreement") is made on December 28, 1998 between Alexander Wiesmuller ("Beneficiary") and Dr. Thomas Herndl ("Pooling Trustee"). BACKGROUND The Beneficiary and Tristan Libischer (collectively, the "Vianet Stockholders") are the holders of all the issued and outstanding capital stock of Vianet EDV Dienstleistungs AG, an Austrian corporation ("Vianet"), consisting of 1,000,000 shares of voting common stock, par value 1 ATS (the "Vianet Stock"). The Vianet Stockholders and Cybernet Internet Services International, Inc., ("Cybernet") entered into a Stock Purchase Agreement as of June 17, 1998 (the "Stock Purchase Agreement") providing for that the Vianet Stockholders will sell to Cybernet and Cybernet will purchase from the Vianet Stockholders all of the Vianet Stockholders' right, title and interest in the Vianet Stock. At the Closing of the Stock Purchase Agreement (the "Closing") the Pooling Trustee will receive 150,000 shares of the common voting stock, par value $0.001 of Cybernet (the "Trust Stock"), to be issued to the Beneficiary as part of the consideration for the Vianet Stock. Furthermore, the Stock Purchase Agreement provides that the Beneficiary will have executed a pooling trust agreement with the Pooling Trustee providing that the Cybernet shares making up a part of the Purchase Price shall be held by the Pooling Trustee and not sold until released by the Pooling Trustee, that twenty percent (20%) of such Cybernet shares shall be released on the first anniversary of the Closing Date, that twenty percent (20%) of such Cybernet shares shall be released on the second anniversary of the Closing date, that twenty percent (20%) of such Cybernet shares shall be released on the third anniversary of the Closing date, that twenty percent (20%) of such Cybernet shares shall be released on -2- the fourth anniversary of the Closing date and that twenty percent (20%) of such Cybernet shares shall be released on the fifth anniversary of the Closing date. Furthermore, the Stock Purchase Agreement provides that the Trust Stock received by the Pooling Trustee on behalf of the Beneficiary and to the extent as not released by the Pooling Trustee (as provided in Section 2 below) will be retransferred from the Pooling Trustee to Cybernet if (i) the Employment Agreement (as enclosed in Exhibit 1) with the Beneficiary is terminated by Vianet or Cybernet for cause according to Section 75 para 4 of the Austrian Stock Corporation Act ("Aktiengesetz") or Section 27 of the Austrian Employment Act ("Angestelltengesetz") or (ii) the Beneficiary resigns. AGREEMENT In consideration of the above and the mutual agreements hereinafter set forth, the parties agree as follows: 1. Fiduciary Relationship. The Pooling Trustee will receive on the Closing ---------------------- date and hold thereafter in trust for the Beneficiary the Trust Stock and all funds and dividends it receives in connection therewith, and will account for and remit all such funds and dividends to the Beneficiary, as applicable. The Fiduciary Relationship is entered into with respect to the obligations of the Beneficiary towards Cybernet in accordance with the Stock Purchase Agreement. 2. Release and Transfer of Trust Stock to the Beneficiary. Subject to the ------------------------------------------------------ retransfer of the Trust Stock to Cybernet as provided in section 3 hereinafter, the Trust Stock to be held by the Pooling Trustee shall be released and transferred to the Beneficiary at the earliest as follows: - Twenty percent (20%) of the Trust Stock on the first anniversary of the Closing date, - an additional twenty percent (20%) of the Trust Stock on the second anniversary of the Closing date, -3- - an additional twenty percent (20%) of the Trust Stock on the third anniversary of the Closing date, - an additional twenty percent (20%) of the Trust Stock on the fourth anniversary of the Closing date, and - the remainder of the Trust Stock on the fifth anniversary of the Closing date. 3. Retransfer of Trust Stock to Cybernet. Promptly following receipt of a ------------------------------------- notice from Cybernet that (i) the Employment Agreement (as enclosed in Exhibit 1) with the Beneficiary has been terminated by Vianet or Cybernet for cause according to Section 75 para 4 of the Austrian Stock Corporation Act ("Aktiengesetz") or Section 27 of the Austrian Employment Act ("Angestelltengesetz") or (ii) the Beneficiary has resigned (accompanied by evidence of the termination or resignation reasonably satisfactory to the Pooling Trustee) the Trust Stock held by the Pooling Trustee and to the extent as not released by the Pooling Trustee (as provided in Section 2 above) will be retransferred from the Pooling Trustee to Cybernet 4. Duties of the Pooling Trustee. The Pooling Trustee shall forward any and ----------------------------- all information received from Cybernet regarding the Trust Stock to the Beneficiaries. Except as mutually agreed upon by the parties the Pooling Trustee is not obliged to make efforts to any investigations, research or any other kind of obtaining information with respect to the Trust Stock or Cybernet. The Pooling Trustee shall ask for instructions of the Beneficiary before acting as shareholder, including but without limitation to meeting of shareholders. 5. Liability of the Pooling Trustee. Any Liability of the Pooling Trustee -------------------------------- under this Agreement will be limited in all respects solely to gross negligence or willful misconduct on its part. The Pooling Trustee will not be liable for any actions taken or omitted upon the advice of counsel or upon a reasonable interpretation of any instructions or documents provided to it by Cybernet or the Beneficiary that it reasonably believes to be genuine or duly authorized. The Pooling Trustee may decline to act if it is in doubt as to its duties under this Agreement and will not be liable for such failure to act -4- 6. Indemnification of the Pooling Trustee. The Beneficiary agrees to -------------------------------------- indemnify the Pooling Trustee in respect of, and hold the Pooling Trustee harmless from and against, any and all damages, fines, fees, penalties, deficiencies, losses and expenses (including but without limitation to interest, court costs, fees of attorneys, accountants and other experts or other expenses of litigation or other proceedings) suffered, incurred or sustained by the Pooling Trustee, resulting from, arising out of or relating to the Trust Stock. 7. Reimbursement of Expenses. The Pooling Trustee will be entitled to be ------------------------- reimbursed for expenses incurred in performing the obligations hereunder. 8. Term and Termination. The term of this Agreement shall commence on the -------------------- date of this Agreement and will continue for an indefinite period of time. The Beneficiary and Cybernet or the Pooling Trustee may terminate this Agreement with or without cause on thirty (30) days notice to the other. Upon termination of this Agreement for any reason, the Pooling Trustee will promptly transfer the Trust Stock to any Pooling Trustee as jointly named by the Beneficiaries and Cybernet. 9. Confidentiality. During the Term of this Agreement the parties will --------------- maintain in confidence, and will not use to the detriment of another party any written, oral, or other information obtained in confidence from another party in connection with this Agreement, unless (a) such information is already known to such party or to others not bound by a duty of confidentiality or such information becomes publicly available through no fault of such party, (b) the use of such information is necessary or appropriate in making any filing or obtaining any consent or approval required for the consummation of the transactions contemplated hereby, or (c) the furnishing or use of such information is required by legal proceedings. 10. Notice. All notices, requests, demands and other communications required ------ or permitted hereunder must be in writing and deemed given and effective when personally delivered or sent by facsimile with confirmation of receipt or when deposited in the mail with postage prepaid to the party to which the same is directed at the following addresses (or at such other addresses as will be given in writing by the parties to one another): -5- If to the Beneficiary: Mr. Alexander Wiesmuller Mariannengasse 14, 1090 Wien, Austria Tel. 43-1-404020 Fax 43-1-4040240 If to the Pooling Trustee: Dr. Thomas Herndl Tulpengasse 2, 1080 Wien, Austria Tel. 43-1-4027844 Fax 43-1-402784455 If to Cybernet: Cybernet Internet Services International; Inc. Attn.: Mr. Andreas Eder Stefan-George-Ring 19, 81929 Munich, Germany Tel: 49-89-993150 Fax: 49-89-99315199 With a copy to: Besner Kreifels Weber Attn.: Dr. Hubert Besner Widenmayerstr. 41, 80538 Munich, Germany Tel: 49-89-2199920 Fax: 49-89-21999233 11. Actions by the Beneficiary and Cybernet. Any action or remedy of the ---------------------------------------- Beneficiary and Cybernet under this Agreement, including without limitation, modifications, amendments, supplements or termination, must be exercised jointly by the Beneficiary and Cybernet. -6- 12. Miscellaneous. ------------- (a) Assignment. The Pooling Trustee may not assign any rights or ---------- delegate any duties it has assumed hereunder without the prior written consent of the other party. This Agreement is personal to the Pooling Trustee. (b) Governing Law and Choice of Forum. This Agreement will be governed --------------------------------- by and construed in accordance with the internal laws of Austria. The parties agree that any appropriate court located in Munich will have exclusive jurisdiction of any case or controversy arising under or in connection with this Agreement and will be a proper forum in which to adjudicate such case or controversy. The parties expressly consent to personal jurisdiction and venue in such courts. (c) Entire Agreement/Amendment. This Agreement embodies the entire -------------------------- agreement of the parties hereto relating to the subject matter hereof and supersedes all oral agreements, and to the extent inconsistent with the terms hereof, all other written agreements. This Agreement may not be modified, amended, supplemented or terminated except by a written instrument executed by the Pooling Trustee, the Beneficiary and Cybernet. (d) Severability. Each of the covenants and agreements herein above ------------ contained will be deemed separate, severable and independent covenants, and in the event that any covenant will be declared invalid by any court of competent jurisdiction, such invalidity will not in any manner affect or impair the validity or enforceability of any other part or provision of such covenant or of any other covenant contained herein. (e) Captions and Section Headings. Captions and section headings used ----------------------------- herein are for convenience only and are not a part of this Agreement and will not be used in construing it. (f) Fax Execution. This Agreement may be executed by delivery of ------------- executed signature pages by fax and such fax execution will be effective for all purposes. -7- EXECUTED AS OF DECEMBER 28, 1998. /s/ Alexander Wiesmuller ------------------------ [Alexander Wiesmuller] /s/ Dr. Thomas Herndl --------------------- [Dr. Thomas Herndl] EX-10.4 4 EXHIBIT 10.4 Exhibit 10.4 CERTIFIED TRANSLATION FROM GERMAN --------------------------------- STOCK PURCHASE AGREEMENT ------------------------ between Mr Jurg Heim, residing in Tramstrasse 193, 8050 Zurich, Switzerland Mr Marco Samek, residing in Zelgistr. 30, 8046 Zurich, Switzerland - in the following referred to as the "Sellers", individually or collectively - and Cybernet Internet Services International, Inc. a corporation incorporated under the law of Delaware, U.S.A. Stefan-George-Ring 19-23, 81929 Munich - in the following referred to as the "Buyer" - the following STOCK PURCHASE AGREEMENT is signed: PRELIMINARY REMARK The Sellers hold all stock in the Sunweb Internet Services Internet SIS AG (in the following referred to as "Sunweb AG") which is based in Zurich and has a registered and liberalized stock capital totalling CHF 500,000.00 (Swiss francs, five hundred thousand), which prior to the closing - will be increased to CHF 1,100,000.00 (Swiss Francs, one million one hundred thousand), divided into 1,100 registered shares of stock at CHF 1,000.00 (in the following referred to as "Sunweb stock"). 2 The Sellers intend to sell the Sunweb stock to the Buyer and the Buyer intends to acquire the Sunweb stock from the Sellers according to the terms and conditions of this Stock Purchase Agreement (in the following referred to as "Agreement"), with 560 shares of the Sunweb stock to be sold immediately and 540 shares of Sunweb stock to be sold for a specified period of time as put and call options by way of unilateral statements by the Sellers or the Buyer. SECTION 1 SALE AND PURCHASE OF 560 SHARES OF SUNWEB STOCK 1.1 Sale and purchase. The Sellers hereby sell to the Buyer and the Buyer ------------------ hereby buys from the Sellers a total of 560 shares of Sunweb stock, i.e.: Mr Jurg Heim 280 shares of Sunweb stock Mr Marco Samek 280 shares of Sunweg stock 1.2 Remuneration. At the closing (as stated in 2.1 below) the Sellers shall ------------- receive a remuneration for the sale and transfer of the 560 shares of Sunweb stock of CHF 1,477,000 (Swiss francs, a million four hundred forty- six thousand) and 25,000 shares of common stock with a par value of US$ 0.001 of the Buyer's (in the following referred to as "Cybernet stock"). The 25,000 shares of Cybernet stock will be issued to the pooling trustee (as stated in section 2.2. b) below), i.e. 12,500 shares of Cybernet stock in favour of Jurg Heim and 12,500 shares of Cybernet stock in favour of Marco Samek. 1.3 Transfer of Stock, Payment. At the closing 560 shares of Sunweb stock will --------------------------- be transferred and surrendered from the Sellers to the Buyer. The Buyer will transfer and surrender i) 25,000 shares of Cybernet stock to the pooling trustee and ii) the Sellers will be handed a cheque for CHF 1,477,000 (Swiss francs, a million four hundred forty-six thousand). 1.4 Funding of Sunweb AG. At the closing the Buyer shall sign an agreement with --------------------- Sunweb AG for the funding of further investments, working capital and liabilities by the Buyer (in the following referred to as "funding"). The amount of funding is governed by a business plan, which Sunweb AG and the Buyer shall establish prior to the closing, and is granted as a loan bearing an interest rate of (8%) per year. 3 SECTION 2 CLOSING OF 560 SHARES OF SUNWEB STOCK 2.1 Closing. To perform the transactions provided for in this Agreement -------- concerning the 560 shares of Sunweb stock, on March 31, 1999, or on some other mutually agreed date, a closing (in the following referred to as "closing") shall be held in the Buyer's office rooms (in the following referred to as "closing date"). 2.2 Closing Criteria for the Buyer. To perform the transactions contemplated by -------------------------------- this Agreement, the Sellers shall meet the criteria below at the closing: a) Transactions. The Sellers shall transfer and surrender 560 shares of ------------- Sunweb stock to the Buyer. The Sellers have issued all statements required for the transfer of Sunweb stock to become effective. b) Pooling Trust Agreement. The Sellers signed a pooling trust agreement ------------------------ (in the following referred to as "pooling trust agreement") with Mr Michael Ebinger, lawyer and notary, (in the following referred to as pooling trustee) according to Exhibit 1to the effect that the 25,000 shares of Cybernet stock are held by the pooling trustee for the Sellers and thus may not be sold until released by the pooling trustee. The release by the pooling trustee shall be performed in the order of thirty-three percent (33%) one year after the closing date, in the order of further thirty-three percent (33%) two years after the closing date and in the order of the remaining thirty-four percent (34 %) three years after the closing date. c) Consents and Approvals. All approvals or consents from third parties ----------------------- required for the performance of transactions have been obtained. d) Representations and Warranties. The representations and warranties of ------------------------------- Sellers contained in this Agreement will be true, correct and complete as of the closing date. e) No Action. No suit, action, temporary injunction or other action before ---------- any court or regulatory authority will be pending or threatened which would obstruct consummation of any of the transactions contemplated by this Agreement, cause any of the transactions 4 contemplated by this Agreement to be rescinded following consummation or adversely affect the assets or the operation of Sunweb AG or of Sunweb GmbH (as stated under 5.1 below). f) Due Diligence Review. The Buyer completed the diligence review of Sunweb --------------------- AG and Sunweb GmbH which had to be completed by March 31, 1999 to his satisfaction. g) Business Plan. Sunweb AG and the Buyer will have established the -------------- business plan ("business plan")by March 31, 1999. h) Employment Agreements with Jurg Heim and Marco Samek. Sunweb AG executed ----------------------------------------------------- Employment Agreements with Mr Jurg Heim and Mr Marco Samek which run for at least three years providing for a basic salary of CHF 150,000 each and a management bonus of up to CHF 30,000 per year of 30,000 options to Cybernet stock at the price valid on the day preceding the signing of this Agreement plus another 15,000 shares of options to Cybernet stock in early 2000, if Sunweb AG realizes turnover proceeds of more than CHF 4,000,000 (four million) in the fiscal year from January 1 to December 31, 1999 i) realizing the profit defined in the business plan or ii) not exceeding the loss. i) Framenet GmbH Agreements. All agreements of Framenet GmbH, the subject ------------------------- of which are the services of Sunweb AG or Sunweb GmbH, have been transferred to Sunweb AG or Sunweb GmbH. Where this is not possible, new equivalent agreements were signed by Sunweb AG. 2.3 Buyer's Criteria for the Sellers. The Sellers require that, at the closing, --------------------------------- the Buyer meet the following criteria for the performance of the transactions contemplated by this Agreement: a) Transactions. The Buyer shall i) transfer and hand over 25,000 shares of ------------- Cybernet stock to the pooling trustee and i) a cheque for CHF 1,477,000 to the Sellers. The Buyer made all representations required for the transfer of Cybernet shares. b) Consents and Approvals. All third party consents or approvals required ----------------------- to perform the transactions have been received. 5 c) Warranties. The Buyer's warranties contained in this Agreement are ----------- correct and complete as of the closing date. d) No Action. No suit, action, temporary injunction or other action before ---------- any court or regulatory authority will be pending or threatened which would obstruct consummation of any of the transactions contemplated by this Agreement, cause any of the transactions contemplated by this Agreement to be rescinded following consummation or adversely affect the assets or the business of the Buyer. e) Due Diligence Review. The Sellers completed the diligence review of --------------------- Sunweb AG and Sunweb GmbH which had to be completed by March 31, 1999 to their satisfaction. g) Employment Agreements with Jurg Heim and Marco Samek. Sunweb AG ------------------------------------------------------ executed Employment Agreements with Mr Jurg Heim and Mr Marco Samek which run for at least three years providing for a basic salary of CHF 150,000 each and a management bonus of up to CHF 30,000 per year of 30,000 options to Cybernet stock at the price valid on the day preceding the signing of this Agreement plus another 15,000 shares of options to Cybernet stock in early 2000, if Sunweb AG realizes turnover proceeds of more than CHF 4,000,000 (four million) in the fiscal year from January 1 to December 31, 1999 i) realizing the profit defined in the business plan or ii) not exceeding the loss. h) Funding. Sunweb AG and the Buyer signed an Agreement governing the -------- funding. 2.4 Board of Directors of Sunweb AG. Immediately after the closing, Mr Maurus -------------------------------- Duelli will resign his post as Member of the Board of Directors of Sunweb AG and will appoint Mr Andreas Eder as a Member of the Board of Directors of Sunweb AG. 6 SECTION 3 SALE AND PURCHASE OF 540 SHARES OF SUNWEB STOCK 3.1 Purchase and Sale. In accordance with the put option of sections 3.2 and ------------------ 3.3 below the Sellers hereby sell a total of 540 shares of Sunweb stock to the Buyer, i.e. Mr Jurg Heim 270 shares of Sunweb stock Mr Marco Samek 270 shares of Sunweb stock 3.2 Sellers' Put Option. The Sellers may produce the put option in accordance -------------------- with section 3.1 above by a written statement to the Buyer. The written statement shall be submitted to the Sellers within one month after receipt of the financial statement of Sunweb AG (as specified under section 3.5 below) for the years 1999, 2000 or 2001 ending December 31. Prior to the receipt of the relevant financial statement of Sunbweb AG by the Sellers, the put option may not be produced. 3.3 The Buyer's Call Option. The Buyer may produce the put option according to ------------------------ section 3.1 above by a written statement to the Buyer. The written statement shall be submitted to the Sellers within one month after receipt of the financial statement of Sunweb AG (as stated in section 3.5 below) by December 31, 2001. Prior to receipt of the financial statement of Sunweb AG for the year ending December 31, 2001 by the Sellers, the put option cannot be produced. 3.4 Remuneration. For the option closing (as indicated in section 4.1 below), ------------- the Sellers, as remuneration for the sale and transfer of 540 shares of Sunweb stock, receive a number of Cybernet stock to be determined according to 3.5 below. The Cybernet stock is issued to the pooling trustee, i.e. fifty percent (50%) of the Cybernet stock in favour of Jurg Heim and fifty percent (50%) of Cybernet stock in favour of Marco Samek. 3.5 Stock Formula. The remuneration is based on the relevant financial -------------- statement of Sunweb AG for the fiscal year ending December 31, which precedes an efficient option statement according to the preceding section 3.2 or 3.3. The relevant financial statement shall be produced and audited in accordance with the General Accepted Accounting Principles (in the following referred to as "GAAP"). Subsidiaries of Sunweb AG shall be included according to the GAAP consolidation principles. The turnover proceeds specified in 7 the relevant financial statement shall dependent upon the net profit or net loss (before income taxes) be multiplied by a factor determined in the scheme attached to exhibit 2. This basic price will then have to be multiplied by 49% to account for the whole enterprise, resulting in the equivalent of the 540 shares of Sunweb stock. This equivalent shall be divided by the price of the Cybernet stock. The closing price at the Frankfurt Stock Exchange which immediately follows receipt of a valid option statement according to sections 3.2 or 3.3 above by the Sellers or the Buyer shall be the qualifying price. The number of Cybernet stock established in this way constitutes the remuneration for the 540 shares of Sunweb stock according to section 3.4 above. 3.6 Transfer of Stock. At the option closing 540 shares of Sunweb stock shall ------------------ be transferred and handed over from the Sellers to the Buyer. The Buyer shall transfer and hand over the number of shares of Cybernet stock determined according to section 3.5 above to the pooling trustee. 3.7 Securing the Option Exercise. At the closing date the Sellers, in order to ------------------------------ safeguard their option exercise, shall transfer their 540 shares of Sunweb stock to Mr Michael Ebinger, lawyer and notary (in the following referred to as "escrow" agent") with the irrevocable instruction to handle exclusively the 540 shares of Sunweb stock according to the requirements of this Agreement. SECTION 4 CLOSING OF 540 SHARES OF SUNWEB STOCK 4.1 Option Closing. The parties shall hold a closing (in the following referred --------------- to as "closing" )in the office rooms of the Buyer's to complete the transactions provided in this Agreement concerning the 540 shares of Sunweb stock. The option closing shall take place on a day agreed jointly by the parties (in the following referred to as "option closing date"), in any case within one month after occurrence of the put option according to section 3.2. or 3.3 above. 4.2 Buyer's Criteria for the Option Closing. The Sellers shall meet the ---------------------------------------- following Buyer's criteria in order to perform the transactions contemplated by this Agreement. 8 a) Transactions. The escrow agent shall transfer and hand over 540 shares ------------- of Sunweb stock to the Buyer. The escrow agent shall make all the necessary statements to make the transfer of Sunweb activities successful. b) Pooling Trust Agreement. The Sellers signed a pooling trust agreement ------------------------ with the pooling trustee in accordance with exhibit 1, to the effect that the number of shares of Cybernet stock determined according to section 3.5 above are held on behalf of the Buyers and thus Cybernet shares of stock may not be sold until released by the pooling trustee. The release by the pooling trustee shall be based on a volume of thirty-three percent (33%) one year after the option closing date, to be followed by a volume of another thirty-three percent (33%) two years after the option closing date and the remaining volume of thirty-four percent (34%) three years after the option closing date. c) Consents and Approvals. All consents and approvals by third parties ----------------------- required to complete the transactions have been received. d) No Action. No suit, action, temporary injunction or other action before ---------- any court or regulatory authority will be pending or threatened which would obstruct consummation of any of the transactions contemplated by this Agreement, cause any of the transactions contemplated by this Agreement to be rescinded following consummation or adversely affect the assets or the operation of Sunweb AG or its subsidiaries. 4.3 Sellers' Criteria for the Option Closing. To perform the transactions ----------------------------------------- provided for in this Agreement, the Buyer shall meet the Sellers' criteria below at the closing: a) Transactions. The Buyer shall transfer and surrender the number of ------------- Cybernet shares of stock determined according to section 3.5 to the pooling trustee. The Buyer has issued all statements required for the transfer of Cybernet shares of stock to become effective. b) Consents and Approvals. All third party approvals and consents required ----------------------- for the performance of transactions have been obtained. 9 c) No Action. No suit, action, temporary injunction or other action before ---------- any court or regulatory authority will be pending or threatened which would obstruct consummation of any of the transactions contemplated by this Agreement, cause any of the transactions contemplated by this Agreement to be rescinded following consummation or adversely affect the assets or the operation of Sunweb AG. SECTION 5 REPRESENTATIONS AND WARRANTIES OF THE SELLERS The Sellers represent and warrant to the seller: 5.1 Corporate Organization and Good Standing. The corporation was duly ----------------------------------------- incorporated under the laws of Switzerland on October 7, 1998 via public charter issued by the notary lic. iur. Michael Ebinger (document No. 55/1998) and registered in the Commercial Register of the Canton of Zurich, corporation number CH-020.3.021.274 -6 on November 13, 1998. Sunweb AG has been validly existing with by-laws as of October 7, 1998 (document No. 55/1998 of the notary lic. iur. Michael Ebinger); these by-laws are complete, there are no subsidiary agreements concerning the corporate organization and standing, except for the stockholders' binding agreement of October 8, 1998. Profit distributions have not been performed and decided since the establishment of the corporation. With the exception of Sunweb GmbH ("Sunweb GmbH") - registered in the Commercial Register of the Canton of Zurich, corporation number CH-020.4.018.318-8, the shares of which amount to a par value of CHF 20,000 in total and are held by Sunweb AG - Sunweb AG has no subsidiaries. 5.2 Capital Structure. The entire authorized capital stock of Sunweb AG is CHF ------------------ 500,000.00 and will be increased to CHF 1,100,000.00 prior to the closing and will then be divided up into 1100 shares of par value common stock of CHF 1,000 each. Sunweb AG neither issued any other shares of stock nor any other shares nor rights to Sunweb AG nor is it under a duty to issue stock or other shares or rights to Sunweb AG. The Sunweb shares of stock are validly issued, fully paid and are not subject to any obligations calling for additional payments. The Sunweb shares of stock are not subject to any strains, subquotas, restrictions on disposal nor any other strings. The Sellers are entitled to unlimited disposal of Sunweb stock. 10 5.3 Interim Financial Statements. Attached as Exhibit 3 are the interim ----------------------------- financial statements of Sunweb AG as of December 31, 1998 and of Sunweb GmbH of December 31, 1998 (the interim financial statements).These interim financial statements are true and complete to the personal knowledge of the Sellers and correctly reflect the financial position and the business results of Sunweb AG and Sunweb GmbH as of the respective dates and for the specified period of time to the personal knowledge of the Sellers. The market value of the individual assets corresponds at least to their balance sheet value. Sunweb AG and Sunweb GmbH have no other liabilities, nor any threatened ones than those shown or covered by reserves. Sunweb AG and Sunweb GmbH are the owners of the assets contained in the interim financial statements and of the assets acquired since the respective date, except for those sold after the respective date in the course of correct business transactions. Sunweb AG and Sunweb GmbH own these assets which are without limitation and free from the rights of third parties. 5.4 No Material Adverse Effect on Business. In the period leading up to the --------------------------------------- closing date no material adverse effect of the operations of Sunweb AG and Sunweb GmbH shall occur. In the period leading up to the closing date Sunweb AG and Sunweb GmbH will exclusively engage in normal business affairs. 5.5 Filings, Consents and Approvals. In order to sign this Agreement and to -------------------------------- perform the transactions provided in this Agreement and to continue to manage the affairs of Sunweb AG and Sunweb GmbH, no filings, consents or approvals other than those shown in Exhibit 4 are required. 5.6 Noncontravention. Neither the signing of this Agreement nor the execution ----------------- of the transaction provided in this Agreement will: 1) Cause a material adverse effect on the operation of Sunweb AG and Sunweb GmbH, their assets or their agreements with third parties. 2) Violate any provisions of the certificate of incorporation or the by-laws of Sunweb GmbH; or 2) Violate any law or other provisions or any orders from courts or regulatory authorities. 11 5.7 Litigation. Sunweb AG and Sunweb GmbH are not party to any litigation. To ----------- the Sellers' knowledge there are not any disputes threatened. 5.8 Material Agreements. All material agreements concerning Sunweb AG and -------------------- Sunweb GmbH are attached in Exhibit 5 as true and complete photocopies. With the exception of the agreements attached as exhibit 5, Sunweb AG and Sunweb GmbH are not party to 1) Agreements governing the purchase, sale, leasing or rent of material assets; 2) Long-term debt relationships of any kind, particularly no rental or licensing agreements; 3) Agreements with profit- or turnover-related remuneration, royalties etc. or commercial agents' or similar agreements; 4) Employment or consulting agreements; 5) Loan or credit arrangements and guaranties, sureties or similar obligations. Sunweb AG and Sunweb GmbH are not liable for any sureties covering third party obligations; 6) Agreements or obligations concerning the restriction of the operation of Sunweb AG or Sunweb GmbH; 7) Agreements or commitments outside the ordinary course of business; 8) Agreements concerning a joint venture, the establishment of a corporation or comparable agreements; or 9) Agreements to act on behalf of Sunweb AG. The agreements attached as Exhibit 5 are valid and there are no material violations concerning the agreements attached as Exhibit 5. Agreement terminations or cancellations by third parties, in particular with respect to the signing and execution of this Agreement are not to be expected. 12 5.9 Intellectual Property. Exhibit 6 contains a true and complete list of the ---------------------- intellectual property ("intellectual property") which is owned and used by Sunweb AG and Sunweb GmbH. Exhibit 6 further contains true and complete copies of all licensing agreements connected to the intellectual property, in as far as Sunweb AG or Sunweb GmbH are the licensor or licensee. The use of intellectual property by Sunweb AG or Sunweb GmbH, in particular after signing and executing this Agreement, does not violate the rights of any third parties. With the exception of the agreements shown as Exhibit 6, Sunweb AG and Sunweb GmbH have no obligations to pay licensing fees. 5.10 Permissions by Regulatory Authorities.Sunweb AG and Sunweb GmbH have -------------------------------------- received all permissions under public and private law as well as franchises and/or licences to conduct their operations as is currently being done. There are no procedures, neither against Sunweb AG nor against Sunweb GmbH, before administrative authorities or investigative procedures by authorities pending or to be expected. 5.11 Taxes.Sunweb AG and Sunweb GmbH filed all income tax returns correctly and ------ as scheduled and paid all due taxes or established adequate reserves for taxes. Apart from those, Sunweb AG and Sunweb GmbH have no arrears in taxes and carry no tax risk. The payments payable to staff members for taxes or social services were correctly determined, charged and transferred. 5.12 Employees. Exhibit 7 contains true and complete copies including the names ---------- and addresses of all employment and consulting agreements signed with Sunweb AG and Sunweb GmbH. Further employments, other agreements, pension plans or pension assurances, shop agreements or obligations from operations do not exist. Employees' vacation entitlements dating from the period before January 1, 1999 do not exist. 5.13 Insurance Policies. Set forth in Exhibit 8 is a true and complete list of ------------------- all insurance policies of Sunweb AG and Sunweb GmbH. 5.14 Agreements with Stockholders. Except for the agreements listed in Exhibit ----------------------------- 9 there are no agreements or contracts between Sunweb GmbH and the Sellers or persons close to them and affiliated enterprises respectively. 13 SECTION 6 REPRESENTATIONS AND WARRANTIES OF THE BUYER The Buyer represents and warrants to the Sellers: 6.1 Corporation. The Buyer is a corporation duly incorporated under the law of ------------ the State of Delaware, validly existing and in Good Standing. Except for Cybernet Internet-Dienstleistungen AG, Germany, its subsidiaries and Vianet Telekommunikation AG, Osterreich, the Buyer has no subsidiaries. 6.2 Capitalization. The entire authorized share capital consists of 50,000,000 --------------- shares of common stock with a par value of USD 0.001 and 50,000,000 shares of preferred stock. At the moment of signing this Agreement, of the shares of common stock, 119,062,138 are issued and outstanding, of the shares of preferred stock, 6,360,000. According to the Buyer's stock option plan, at the moment of signing this Agreement approximately 700,000 options are issued. 6.3 Corporate Rights. In terms of his corporate situation the Buyer is entitled ----------------- and authorized to sign this Agreement and execute the transactions included in this Agreement. The Board of Directors of the Buyer has consented to the conclusion of this Agreement and to the transactions to be executed under this Agreement. 6.4 (Interim) Financial Statements. Exhibit 10 contains the audited financial ------------------------------- statements of the Buyer for the years ending December 31, 1996 and 1997 (the "financial statements") and a non-audited interim financial statement for the period ending September 30, 1998 (the "interim financial statement"). The (interim) financial statements are in accordance with GAAP and present fairly the financial condition of the Buyer as of the respective dates indicated. In the period from September 30, 1998 to the closing date no material adverse effect on the Buyer's operations have occurred. In the period from September 30, 1998 to the closing date the Buyer has exclusively engaged in the normal conduct of affairs. 6.5 Noncontravention. The signing of this Agreement and the performance of the ----------------- transaction provided in this Agreement will: 14 1) Have no material adverse effect on the Buyer's operations, his assets or his agreements with third parties; 2) Violate provisions of the articles or certificate of incorporation or of the by-laws of the Buyer Or 3) Violate any law or any other provision or regulation of any court or governmental or regulatory authority; 6.6 Litigation. The Buyer is not party to any dispute. And the Buyer does not ----------- know of any disputes threatened. 6.7 Filings, Consents and Approvals. Except for any filings required by -------------------------------- applicable laws and those shown in Exhibit 11, no filings, consents or approvals are required for the Buyer's signing of this Agreement and his consummation of the transactions contemplated by this Agreement. SECTION 7 LEGAL CONSEQUENCES OF WARRANTY VIOLATIONS 7.1 Restitution in Kind or Compensation. Whenever warranties, representations, ------------------------------------- obligations or agreements are misrepresented or violated, the party which violated or misrepresented the warranties, assurances, obligations or agreements contained in this Agreement shall place the other party including Sunweb AG or Sunweb GmbH, if a misrepresentation or violation was committed by the Sellers in the position the other party, if necessary Sunweb AG or Sunweb GmbH, would hold, had the warranty or representation been right or had it not been violated or had the obligations been fulfilled. At the other party's discretion this duty of restitution shall be performed by way of restitution in kind or by compensation. 7.2 Indemnification from Liabilities. Regardless of the provision of the --------------------------------- preceding section 1. The Sellers shall indemnify Sunweb AG and Sunweb GmbH in respect of claims from liabilities in connection with misrepresentations or violations of the preceding warranties or representations. 15 7.3 Statute of Limitations. The parties may raise any claims arising from the ----------------------- preceding items 7.1 and 7.2 within one year from the closing date, furthermore claims from the performance of an external tax audit with Sunweb AG or Sunweb GmbH within six months from the receipt of the valid advice based on such an external tax audit. To meet the deadline, it will suffice, if the other party is informed in writing about the claims. After receipt of such a communication, a one-year period of limitation shall start. 7.4 Legal Claims. By the regulation of the preceding sections 7.1 to 7.3 any ------------- legal claims will neither be restricted nor excluded. SECTION 8 SELLERS' PROHIBITION OF COMPETITION 8.1 Object and Length of Prohibition of Competition. The Sellers undertake to ------------------------------------------------ refrain for the period of three years from the closing date from engaging in any competition in the existing area of activity, both in terms of space and subject matter, of Sunweb AG and Sunweb GmbH, with it or the Buyer, particularly from directly or indirectly participating in competitive enterprises, from entering in the services of a competitive enterprise or promoting such an enterprise directly or indirectly by advice or action. An area of activity in terms of space, as defined by this prohibition of competition are the Federal Republic of Germany, Austria and Switzerland, subject matter, as defined by this prohibition of competition are telecommunication services and solutions. Compliance with the prohibition of competition shall be deemed performed after payment of the purchase price. The capital interest in enterprises quoted on the stock exchange, as far as participation is less than one percent (1%) will not be affected by the above prohibition of competition. 8.2 Legal Consequences of Violations. In the event of any violation of the --------------------------------- above prohibition of competition the Seller who commits the violation shall pay a contractual penalty of CHF 100,000 to the Buyer. If the violation is continued by the Seller despite a written warning notice, a contractual penalty of CHF 20,000.00 shall be paid for each further fraction of a month of violation. The Buyer's rights to compensation of any further damage and to refraining from any conduct contrary to the regulation shall not be affected. 16 SECTION 9 MISCELLANEOUS 9.1 Several Buyers. Any statements made in connection with this Agreement by --------------- the Sellers vis-a-vis the Buyer can only be made by producing an effect on all Sellers. For the commitments arising from this Agreement the Sellers are liable collectively. 9.2 Effectiveness of Representations. Each party may rely on the --------------------------------- representations and warranties of the other party. This rule shall apply regardless of the audits made or omitted by one party. 9.3 Termination. This Agreement may be terminated prior to the closing under ------------ the following conditions exclusively. 1) By mutual agreement of the parties. 2) By the Buyer, if there has been a breach of any material representation, warranty, commitment or agreement set forth in this Agreement that is not remedied within ten business days after notice of such breach is given by the Buyer. 3) By the Sellers, if there has been a breach of any material representation, warranty, commitment or agreement set forth in this Agreement that is not remedied within ten business days after notice of such breach is given by the seller. 4) By the Buyer or the Sellers, if the closing is not concluded later than June 30, 1999, unless the parties fail to extend this deadline with mutual agreement. However, the party responsible for the failure to meet the deadline, is unable to terminate this Agreement. 5) By the Buyer or Sellers, if any permanent injunction or other order of a governmental entity of competent authority preventing the consummation of the transactions contemplated by this Agreement has become final and nonappealable. 17 9.4 Effect of Termination. In the event of the termination of this Agreement as ---------------------- provided in section 9.3, this Agreement will be of no further effect. This does not apply to claims for compensation of one party against the other party according to section 7 above. Upon termination of this Agreement each party will, upon request by either party, surrender all documents, work papers and documents. This does not apply to cases where compensation claims have to be raised. 9.5 Mutual Assistance. The parties shall provide mutual assistance to the best ------------------ of their abilities, also after the closing date, after the take-over of the operations of Sunweb AG and Sunweb GmbH. Furthermore, the Sellers and the Buyer are committed to give all information and participate in all transactions and legal acts as are required to execute this Agreement. The Sellers shall refrain from any action that could have an adverse effect on the right of Sunweb AG or Sunweb GmbH to conduct the corporation "Sunweb", with or without additions. 9.6 Costs and Fees. Each party shall bear its costs and fees incurred in --------------- connection with this Agreement, in particular those related to advisers. 9.7 Public Announcements. Any public announcements in connection with this --------------------- Agreement shall exclusively be given by mutual agreement of the parties. 9.8 Confidentiality. The parties are committed to observe absolute secrecy ---------------- concerning the conclusion and the contents of this Agreement, unless the furnishing of such information is required by law or the provisions of this Agreement. 9.10 Written Form. Any amendments to this Agreement must be made in writing. ------------- 9.11 Entire Agreement. This Agreement, the exhibits attached hereto and the ----------------- other transaction documents contain the entire agreement between the parties with respect to the subject matter thereof. This Agreement supersedes all written and oral declarations of intent given by the parties in connection with any contract negotiations, even if such declarations deviate from the contents of this Agreement. 9.12 Severability. In the event that any provision of this Agreement would be ------------- or would become fully or partially invalid or unenforceable, the remaining provisions in the 18 Agreement will not be affected. The invalid or unenforceable provision shall be deemed to be replaced by an agreed provision that comes as close as possible to the purpose of the invalid and unenforceable provision, in particular in terms of the desired economic purpose. The same shall apply to any gap in this Agreement. 9.13 Notices. All notices or communications in connection with this Agreement -------- shall be made in writing and will be deemed given if sent by post, courier, personal delivery or fax (to be followed by despatch by post, courier or personal delivery) to the following addresses. To the Sellers: Sunweb Internet Services AG Birchstrasse 230, CH-8050 Zurich Phone: 41-1-3064646 Fax: 41-1-3003635 With a copy to: lic. iur. Michael Ebinger Vorstadt 32, Postbox 4209, CH-6304 Zug Phone: 41-41-720702 Fax: 41-41-7290705 To the Buyer: Cybernet Internet Services International, Inc. Attn. Mr Andreas Eder Stefan-George-Ring 19-23, D-81929 Munich Phone: 49-89-993150 Fax: 49-89-99315199 With a copy to: Besner Kreifels Weber Attn. Dr. Hubert Besner Widenmayerstr. 41 D-80538 Munich Phone: 49-89-2199920 Fax: 49-89-21999233 9.14 Headings. The headings contained in this Agreement are for reference --------- purposes only and will not affect in any way the meaning or interpretation of this Agreement. 9.15 Assignment. The Agreement may not be assigned by any party without the ----------- consent of the other party. 19 9.16 Governing Law, Jurisdiction. This Agreement shall be governed by Swiss ---------------------------- law, unless the application of other law is mandatory. The place of jurisdiction for all disputes, if correctly agreed, shall be Zurich. 9.17 Signing and Faxing of Counterparts. This Agreement may also become ----------------------------------- effective, by signing the Agreement's signature page and exchanging it by fax(to be followed by despatch by post, courier or personal delivery). Zurich/Munich, this day of February 19, 1999 SELLERS: BUYER: Cybernet Internet Services International, Inc. /s/ Jurg Heim) /s/ Andreas Eder - -------------------- -------------------- (Jurg Heim) (Andreas Eder) President /s/ Marco Samek - -------------------- -------------------- (Marco Samek) EX-10.6 5 EXHIBIT 10.6 Exhibit 10.5 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT made effective as of the 1st day of March , 1999, by and between Cybernet Internet Services International, Inc., a Delaware corporation (the "Corporation"), and Andreas Eder (the "Employee"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Employee desires to be employed by the Corporation as President and Chief Executive Officer upon the terms and conditions hereinafter set forth, and the Corporation desires that the Employee be so employed. NOW THEREFORE, in consideration of the premises and the mutual covenants and agreements hereinafter set forth, the parties, intending to be legally bound, agree as follows: I. Term of Employment. Subject to the terms and conditions of this ------------------ Employment Agreement, the Corporation hereby employs the Employee as President and Chief Executive Officer, and the Employee hereby agrees to serve the Corporation in such capacity for the period commencing on the date hereof (the "Effective Date") and ending on the third anniversary of the Effective Date (the "Employment Period"), unless sooner terminated as hereinafter provided. 2. Scope of Duties. The Employee shall serve as President and Chief --------------- Executive Officer of the Corporation, subject to the direction and control of the Board of Directors of the Corporation (the "Board"). In such capacity, the Employee shall have the customary powers, responsibilities and authority of presidents of corporations of the size, type, and nature of the Corporation as it exists from time to time. The Employee shall undertake such other duties as the Board from time to time shall reasonably designate, including, without limitation, serving as a consultant to affiliates of the Corporation and serving on the Board. 3. Time to be Devoted to Employment. Except during vacation periods or -------------------------------- absences due to temporary illness, the Employee shall devote all of his professional and business time, attention, and energies to his duties and responsibilities hereunder as is reasonable to insure the Corporation's proper conduct. In performing such services, the Employee shall use his best efforts to promote the interests of the Corporation pursuant to and in accordance with reasonable business policies and procedures, as fixed from time to time by the Board. The Employee covenants and agrees that he will faithfully adhere to and fulfill such policies, consistent with this Agreement, as are established from time to time by the Board. Nothing contained herein shall prevent or be construed as preventing the Employee from holding or purchasing up to five percent (5%) of any class of stock or securities of a corporation which is listed on a national securities exchange or regularly traded in the over-the- counter market, or making other investments or participating in business ventures not involving telecommunication services and solutions, provided that such investments and business ventures do not conflict with his duties or obligations to the Corporation as provided in this Employment Agreement. 4. Compensation. As total compensation for all services to be rendered by ------------ the Employee during the Employment Period, the Employee shall receive a salary at the rate of Two Hundred Twenty-Five Thousand Deutsch Mark (DM 225,000) per annum ("Base Salary"), which Base Salary shall be subject to federal, state, and other tax withholdings, and which shall be paid monthly in arrears or on such other basis as other employees of the Corporation generally are paid and which shall be subject to applicable US-taxes or taxes in the Employee's country of residence. In addition the Employee shall receive a bonus salary up to Seventy- Five Thousend Deutsch Marks (DM 75.000) per annum ("Bonus Salary") according to the bonus scheme (the "Bonus Salary Scheme") as approved from time to time by the Board of Directors. 5. Fringe Benefits. The Employee shall be entitled to participate in any and --------------- all fringe benefits and/or plans made available to other executives of the Corporation (to the extent 2 the Employee qualifies therefor under the specific terms and conditions of each such benefit or plan), including, without limitation, dental/medical insurance and employee benefit plans which are or which may become available generally to senior management of the Corporation. The Employee shall be entitled to 30 working days vacation during each year of the Employment Period, to be taken at such time or times as the reasonable needs of the Corporation's business shall allow. 6. Reimbursement of Expenses. The Corporation shall reimburse the Employee ------------------------- for all reasonable expenses incurred in connection with the promotion of the business of the Corporation, including expenses for travel, entertainment, and similar expenses incurred by the Employee on the Corporation's behalf; provided, however, no such reimbursement shall be made except upon the presentation by the Employee of an itemized account or other evidence of those expenses for which reimbursement then is being sought, all in form reasonably satisfactory to the Corporation. 7. Termination of Employment. The Employee's employment shall terminate upon ------------------------- the Employee's resignation or death, and may be terminated by the Board on account of the Employee's Disability (as defined below) or for Cause (as defined below). (a) If the Employee dies during the term of his employment hereunder, the Corporation shall be obligated to pay to the Employee's estate all earned but unpaid Base Salary through the date of his death and for an additional period of twelve months after his death. (b) If the Employee shall become physically or mentally disabled ("Disability") during the term of this Employment Agreement such that (i) in the Board's good faith judgement, he is permanently incapable of properly performing each of the duties customarily performed by him hereunder, or (ii) such Disability lasts for a period of 60 consecutive days or for 90 days in any six- month period and the Corporation elects to treat such Disability as being permanent in nature, then the Corporation shall be obligated to pay to the 3 Employee all earned but unpaid Base Salary due to the Employee hereunder through the date of such termination. (c) If the Employee is terminated for Cause or the Employee resigns, the Employee shall be entitled to receive only his Base Salary through the date of termination. (d) As used herein, "Cause" shall mean: i) the willful failure by the Employee to substantially perform his duties hereunder (including, without limitation, the Employee's refusal to carry out the directives of the Board provided that such directives do not offend against a law), for reasons other than death or disability; ii) a material breach of this Employment Agreement by the Employee (including, without limitation, the breach of any provision of Sections 8 and/or 9 hereof); iii) the willful engaging by the Employee in misconduct materially injurious to the Corporation; iv) a breach of the Employee's duty of loyalty to the Corporation or any act of dishonesty or fraud with respect to the Corporation; or v) the commission of a felony, a crime involving moral turpitude or other act causing material harm to the Corporation's standing and reputation. 4 8. Disclosure of Information. ------------------------- (a) All memoranda, notes, records, and other documents made or compiled by the Employee or made available to him during the term of his employment concerning the business of the Corporation or any affiliate of the Corporation (for purposes of this Section 8, the "Corporation"), shall be the Corporation's property and shall be delivered to the Corporation on the termination of the Employee's employment. The Employee shall not use for himself or others, or divulge to others, any proprietary or confidential information of the Corporation obtained by him as a result of his employment, unless authorized by the Corporation. For purposes of this Section 8, the term "proprietary or confidential information" shall mean all information which is known only to the Employee or to the Employee and the employees, former employees, consultants, or others in a confidential relationship with the Corporation, and relates to specific matters such as trade secrets, customers, potential customers, vendor lists, pricing and credit techniques, research and development activities, private processes, business plans, technical information, books and records, and any other information which the Corporation is obligated to keep confidential pursuant to the Corporation's contractual obligations to third parties, as they may exist from time to time, which the Employee may have acquired or obtained by virtue of work heretofore or hereafter performed for or on behalf of the Corporation, or which he may acquire or may have acquired knowledge of during the performance of said work, and which is not in the public domain. (b) In the event of a breach or a threatened breach by the Employee of the provisions of this Section 8, the Corporation shall be entitled to an injunction, without being required to post any bond, restraining the Employee from disclosing, in whole or in part, the aforementioned proprietary or confidential information of the Corporation, or from rendering any services to any person, firm, corporation, association, or other entity to whom such proprietary or confidential information, in whole or in part, has been disclosed or is threatened to be disclosed. Nothing contained herein shall be construed as prohibiting the Corporation from pursuing any other remedies available to the Corporation for such breach or threatened breach, 5 including the recovery of damages from the Employee. 9. Restrictive Covenants. --------------------- (a) In light of the unique and valuable services it is expected the Employee will render to the Corporation, the Employee's knowledge of the business of the Corporation and proprietary information relating to the business of the Corporation and similar knowledge regarding the Corporation it is expected the Employee will obtain during the course of his employment with the Corporation, and in consideration of this Agreement and the compensation to be received by the Employee hereunder, the Employee agrees that for so long as he is employed by the Corporation and for a period of one year thereafter (the "Covenant Period"), he will not compete, directly or indirectly, with the Corporation or any of its subsidiaries now owned or hereafter acquired (for purposes of this Section 9, the "Corporation") or, directly or indirectly (except as permitted by Section 3 hereof), own, manage, operate, control, loan money to, or participate in the ownership, management, operation or control of, or be connected with as a director, officer, employee, partner, consultant, agent, independent contractor or otherwise, or acquiesce in the use of his name in, any other business or organization which competes, directly or indirectly, with the Corporation, in any geographical area in which the Corporation is then conducting business or any geographical area in which, to the knowledge of the Employee, the Corporation plans to conduct business within a six (6) month period. (b) During the Covenant Period, the Employee will not, directly or indirectly, either individually or on behalf of any other person or entity (i) solicit customers, suppliers, or other business relations of the Corporation for the purpose of interfering with or encouraging them to terminate their relationship with the Corporation, or (ii) encourage other employees (full-time or part-time) of the Corporation to terminate their employment with the Corporation. (c) It is acknowledged and agreed that the restrictions contained in this Section 9, including, without limitation, the time periods and the geographical areas of the 6 restrictions, are fair and reasonable and do not place any undue hardship on the Employee, and are reasonably required for the protection of the goodwill, the business, and the interests of the Corporation and its officers, directors, and other employees. (d) It is the desire and intent of the parties that the provisions of this Section 9 shall be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, if any particular provision of this Section 9 shall be adjudicated to be invalid or unenforceable, such provision shall be deemed amended to delete therefrom the portion thus adjudicated to be invalid or unenforceable. Such deletion shall apply only with respect to the operation of such provisions of this Section 9 in the particular jurisdiction in which such adjudication is made. In addition, if the scope of any restriction contained in this Section 9 is too broad to permit enforcement thereof to its fullest extent, then such restriction shall be enforced to the maximum extent permitted by law, and the Employee hereby consents and agrees that such scope may be judicially modified in any proceeding brought to enforce such restriction. (e) In the event of a breach or threatened breach by the Employee of the provisions of this Section 9, the Corporation shall be entitled to an injunction and such other equitable relief as may be necessary or desirable to enforce the restrictions contained herein. Nothing herein contained shall be construed as prohibiting the Corporation from pursuing any other remedies available for such breach or threatened breach or any other breach of this Employment Agreement. 10. Representations. --------------- (a) The Employee represents and warrants to the Corporation that (i) the execution, delivery and performance of this Employment Agreement by the Employee does not and will not conflict with, breach, violate or cause a default under any contract, agreement, instrument, order, judgment or decree to which the Employee is a party or by which he is 7 bound, (ii) the Employee is not a party to or bound by any employment agreement, non-compete agreement or confidentiality agreement with any other person or entity, and (iii) upon the execution and delivery of this Employment Agreement by the Employee, this Employment Agreement shall be the valid and binding obligation of the Employee, enforceable against him in accordance with its terms. (b) The Corporation represents and warrants to the Employee that (i) the execution, delivery, and performance of this Employment Agreement by the Corporation does not and will not conflict with, breach, violate or cause a default under any contract, agreement, instrument, order, judgment or decree to which the Corporation is a party or by which he is bound, and (ii) upon the execution and delivery of this Employment Agreement by the Corporation, this Employment Agreement shall be the valid and binding obligation of the Corporation, enforceable against it in accordance with its terms. 11. Miscellaneous. ------------- (a) Notices. All notices required or permitted to be given under the ------- provisions of this Employment Agreement shall be in writing and delivered personally or by certified or registered mail, return receipt requested, postage prepaid, to the following persons at the following addresses, or to such other persons at such other addresses as any party may request by notice in writing to the other party to this Employment Agreement. If to the Employee: Mr. Andreas Eder Max-Emanuel-Str. 25 82319 Starnberg, Germany 8 If to the Corporation: Cybernet Internet Services International, Inc. Stefan-George-Ring 19-23 81929 Munich, Germany (b) Successors and Assigns. This Employment Agreement shall be ---------------------- binding upon the successors and assigns of the Corporation, and shall inure to the benefit of and be enforceable by and against its successors and assigns. This Employment Agreement is personal in nature and may not be assigned or transferred by the Employee without the prior written consent of the Corporation. (c) Entire Agreement. This instrument contains the entire understanding ---------------- and agreement between the parties relating to the subject matter hereof, and neither this Employment Agreement nor any provision hereof may be waived, modified, amended, changed, discharged, or terminated, except by an agreement in writing signed by the party against whom enforcement of any waiver, modification, change, amendment, discharge, or termination is sought. (d) Counterparts. This Employment Agreement may be executed ------------ simultaneously in counterparts, each of which shall be deemed an original, and all of which counterparts shall together constitute a single agreement. (e) Illegality. If any one or more of the provisions of this Employment ---------- Agreement shall be invalid, illegal, or unenforceable in any respect, the validity, legality, and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. (f) Captions. The captions of the sections hereof are for convenience -------- only 9 and shall not control or affect the meaning or construction of any of the terms or provisions of this Employment Agreement. (g) Governing Law. This Employment Agreement shall be governed by and ------------- construed in accordance with the laws of the Federal Republic of Germany, without giving any effect to any doctrine pertaining to the conflict of laws. The parties hereto irrevocably (i) submit to the jurisdiction of any German state or federal court in any action or proceeding arising out of or relating to this Employment Agreement, (ii) agree that all claims with respect to such action or proceeding shall be heard and determined in such a German state or federal court, and (iii) waive, to the fullest extent possible, the defense of an inconvenient forum. The parties hereby consent to and grant any such court jurisdiction over the persons of such parties and over the subject matter of any such dispute and agree that delivery or mailing of process or other papers in connection with any such action or proceeding in the manner provided in Section 11 hereof or in such other manner as may be permitted by law, shall be valid and sufficient service thereof. IN WITNESS WHEREOF, the parties hereto have set their hands and executed this Employment Agreement on the day and year first above written. CYBERNET INTERNET SERVICES INTERNATIONAL INC. By: /s/ Alessandro Giacalone ------------------------------- Chief Operating Officer /s/ Andreas Eder ------------------------------- Andreas Eder 10 EX-10.7 6 EXHIBIT 10.7 Exhibit 10.6 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT made effective as of the 1st day of March , 1999, by and between Cybernet Internet Services International, Inc., a Delaware corporation (the "Corporation"), and Dr. Alessandro Giacalone (the "Employee"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Employee desires to be employed by the Corporation as Chief Operational Officer upon the terms and conditions hereinafter set forth, and the Corporation desires that the Employee be so employed. NOW THEREFORE, in consideration of the premises and the mutual covenants and agreements hereinafter set forth, the parties, intending to be legally bound, agree as follows: I. Term of Employment. Subject to the terms and conditions of this ------------------ Employment Agreement, the Corporation hereby employs the Employee as Chief Operational Officer, and the Employee hereby agrees to serve the Corporation in such capacity for the period commencing on the date hereof (the "Effective Date") and ending on the third anniversary of the Effective Date (the "Employment Period"), unless sooner terminated as hereinafter provided. 2. Scope of Duties. The Employee shall serve as Chief Operational Officer of --------------- the Corporation, subject to the direction and control of the Board of Directors of the Corporation (the "Board"). In such capacity, the Employee shall have the customary powers, responsibilities and authority of an officer of corporations of the size, type, and nature of the Corporation as it exists from time to time. The Employee shall undertake such other duties as the Board from time to time shall reasonably designate, including, without limitation, serving as a consultant to affiliates of the Corporation and serving on the Board. 3. Time to be Devoted to Employment. Except during vacation periods or -------------------------------- absences due to temporary illness, the Employee shall devote all of his professional and business time, attention, and energies to his duties and responsibilities hereunder as is reasonable to insure the Corporation's proper conduct. In performing such services, the Employee shall use his best efforts to promote the interests of the Corporation pursuant to and in accordance with reasonable business policies and procedures, as fixed from time to time by the Board. The Employee covenants and agrees that he will faithfully adhere to and fulfill such policies, consistent with this Agreement, as are established from time to time by the Board. Nothing contained herein shall prevent or be construed as preventing the Employee from holding or purchasing up to five percent (5%) of any class of stock or securities of a corporation which is listed on a national securities exchange or regularly traded in the over-the- counter market, or making other investments or participating in business ventures not involving telecommunication services and solutions, provided that such investments and business ventures do not conflict with his duties or obligations to the Corporation as provided in this Employment Agreement. 4. Compensation. As total compensation for all services to be rendered by ------------ the Employee during the Employment Period, the Employee shall receive a salary at the rate of Two Hundred Twenty-Five Thousand Deutsch Mark (DM 225,000) per annum ("Base Salary"), which Base Salary shall be subject to federal, state, and other tax withholdings, and which shall be paid monthly in arrears or on such other basis as other employees of the Corporation generally are paid and which shall be subject to applicable US-taxes or taxes in the Employee's country of residence. In addition the Employee shall receive a bonus salary up to Seventy- Five Thousend Deutsch Marks (DM 75.000) per annum ("Bonus Salary") according to the bonus scheme (the "Bonus Salary Scheme") as approved from time to time by the Board of Directors. 5. Fringe Benefits. The Employee shall be entitled to participate in any and --------------- all fringe benefits and/or plans made available to other executives of the Corporation (to the extent 2 the Employee qualifies therefor under the specific terms and conditions of each such benefit or plan), including, without limitation, dental/medical insurance and employee benefit plans which are or which may become available generally to senior management of the Corporation. The Employee shall be entitled to 30 working days vacation during each year of the Employment Period, to be taken at such time or times as the reasonable needs of the Corporation's business shall allow. 6. Reimbursement of Expenses. The Corporation shall reimburse the Employee ------------------------- for all reasonable expenses incurred in connection with the promotion of the business of the Corporation, including expenses for travel, entertainment, and similar expenses incurred by the Employee on the Corporation's behalf; provided, however, no such reimbursement shall be made except upon the presentation by the Employee of an itemized account or other evidence of those expenses for which reimbursement then is being sought, all in form reasonably satisfactory to the Corporation. 7. Termination of Employment. The Employee's employment shall terminate upon ------------------------- the Employee's resignation or death, and may be terminated by the Board on account of the Employee's Disability (as defined below) or for Cause (as defined below). (a) If the Employee dies during the term of his employment hereunder, the Corporation shall be obligated to pay to the Employee's estate all earned but unpaid Base Salary through the date of his death and for a period of twelve months after his death. (b) If the Employee shall become physically or mentally disabled ("Disability") during the term of this Employment Agreement such that (i) in the Board's good faith judgement, he is permanently incapable of properly performing each of the duties customarily performed by him hereunder, or (ii) such Disability lasts for a period of 60 consecutive days or for 90 days in any six- month period and the Corporation elects to treat such Disability as being permanent in nature, then the Corporation shall be obligated to pay to the 3 Employee all earned but unpaid Base Salary due to the Employee hereunder through the date of such termination. (c) If the Employee is terminated for Cause or the Employee resigns, the Employee shall be entitled to receive only his Base Salary through the date of termination. (d) As used herein, "Cause" shall mean: i) the willful failure by the Employee to substantially perform his duties hereunder (including, without limitation, the Employee's refusal to carry out the directives of the Board provided that such directives do not offend against a law), for reasons other than death or disability; ii) a material breach of this Employment Agreement by the Employee (including, without limitation, the breach of any provision of Sections 8 and/or 9 hereof); iii) the willful engaging by the Employee in misconduct materially injurious to the Corporation; iv) a breach of the Employee's duty of loyalty to the Corporation or any act of dishonesty or fraud with respect to the Corporation; or v) the commission of a felony, a crime involving moral turpitude or other act causing material harm to the Corporation's standing and reputation. 4 8. Disclosure of Information. ------------------------- (a) All memoranda, notes, records, and other documents made or compiled by the Employee or made available to him during the term of his employment concerning the business of the Corporation or any affiliate of the Corporation (for purposes of this Section 8, the "Corporation"), shall be the Corporation's property and shall be delivered to the Corporation on the termination of the Employee's employment. The Employee shall not use for himself or others, or divulge to others, any proprietary or confidential information of the Corporation obtained by him as a result of his employment, unless authorized by the Corporation. For purposes of this Section 8, the term "proprietary or confidential information" shall mean all information which is known only to the Employee or to the Employee and the employees, former employees, consultants, or others in a confidential relationship with the Corporation, and relates to specific matters such as trade secrets, customers, potential customers, vendor lists, pricing and credit techniques, research and development activities, private processes, business plans, technical information, books and records, and any other information which the Corporation is obligated to keep confidential pursuant to the Corporation's contractual obligations to third parties, as they may exist from time to time, which the Employee may have acquired or obtained by virtue of work heretofore or hereafter performed for or on behalf of the Corporation, or which he may acquire or may have acquired knowledge of during the performance of said work, and which is not in the public domain. (b) In the event of a breach or a threatened breach by the Employee of the provisions of this Section 8, the Corporation shall be entitled to an injunction, without being required to post any bond, restraining the Employee from disclosing, in whole or in part, the aforementioned proprietary or confidential information of the Corporation, or from rendering any services to any person, firm, corporation, association, or other entity to whom such proprietary or confidential information, in whole or in part, has been disclosed or is threatened to be disclosed. Nothing contained herein shall be construed as prohibiting the Corporation from pursuing any other remedies available to the Corporation for such breach or threatened breach, 5 including the recovery of damages from the Employee. 9. Restrictive Covenants. --------------------- (a) In light of the unique and valuable services it is expected the Employee will render to the Corporation, the Employee's knowledge of the business of the Corporation and proprietary information relating to the business of the Corporation and similar knowledge regarding the Corporation it is expected the Employee will obtain during the course of his employment with the Corporation, and in consideration of this Agreement and the compensation to be received by the Employee hereunder, the Employee agrees that for so long as he is employed by the Corporation and for a period of one year thereafter (the "Covenant Period"), he will not compete, directly or indirectly, with the Corporation or any of its subsidiaries now owned or hereafter acquired (for purposes of this Section 9, the "Corporation") or, directly or indirectly (except as permitted by Section 3 hereof), own, manage, operate, control, loan money to, or participate in the ownership, management, operation or control of, or be connected with as a director, officer, employee, partner, consultant, agent, independent contractor or otherwise, or acquiesce in the use of his name in, any other business or organization which competes, directly or indirectly, with the Corporation, in any geographical area in which the Corporation is then conducting business or any geographical area in which, to the knowledge of the Employee, the Corporation plans to conduct business within a six (6) month period. (b) During the Covenant Period, the Employee will not, directly or indirectly, either individually or on behalf of any other person or entity (i) solicit customers, suppliers, or other business relations of the Corporation for the purpose of interfering with or encouraging them to terminate their relationship with the Corporation, or (ii) encourage other employees (full-time or part-time) of the Corporation to terminate their employment with the Corporation. (c) It is acknowledged and agreed that the restrictions contained in this Section 9, including, without limitation, the time periods and the geographical areas of the 6 restrictions, are fair and reasonable and do not place any undue hardship on the Employee, and are reasonably required for the protection of the goodwill, the business, and the interests of the Corporation and its officers, directors, and other employees. (d) It is the desire and intent of the parties that the provisions of this Section 9 shall be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, if any particular provision of this Section 9 shall be adjudicated to be invalid or unenforceable, such provision shall be deemed amended to delete therefrom the portion thus adjudicated to be invalid or unenforceable. Such deletion shall apply only with respect to the operation of such provisions of this Section 9 in the particular jurisdiction in which such adjudication is made. In addition, if the scope of any restriction contained in this Section 9 is too broad to permit enforcement thereof to its fullest extent, then such restriction shall be enforced to the maximum extent permitted by law, and the Employee hereby consents and agrees that such scope may be judicially modified in any proceeding brought to enforce such restriction. (e) In the event of a breach or threatened breach by the Employee of the provisions of this Section 9, the Corporation shall be entitled to an injunction and such other equitable relief as may be necessary or desirable to enforce the restrictions contained herein. Nothing herein contained shall be construed as prohibiting the Corporation from pursuing any other remedies available for such breach or threatened breach or any other breach of this Employment Agreement. 10. Representations. --------------- (a) The Employee represents and warrants to the Corporation that (i) the execution, delivery and performance of this Employment Agreement by the Employee does not and will not conflict with, breach, violate or cause a default under any contract, agreement, instrument, order, judgment or decree to which the Employee is a party or by which he is 7 bound, (ii) the Employee is not a party to or bound by any employment agreement, non-compete agreement or confidentiality agreement with any other person or entity, and (iii) upon the execution and delivery of this Employment Agreement by the Employee, this Employment Agreement shall be the valid and binding obligation of the Employee, enforceable against him in accordance with its terms. (b) The Corporation represents and warrants to the Employee that (i) the execution, delivery, and performance of this Employment Agreement by the Corporation does not and will not conflict with, breach, violate or cause a default under any contract, agreement, instrument, order, judgment or decree to which the Corporation is a party or by which he is bound, and (ii) upon the execution and delivery of this Employment Agreement by the Corporation, this Employment Agreement shall be the valid and binding obligation of the Corporation, enforceable against it in accordance with its terms. 11. Miscellaneous. ------------- (a) Notices. All notices required or permitted to be given under the ------- provisions of this Employment Agreement shall be in writing and delivered personally or by certified or registered mail, return receipt requested, postage prepaid, to the following persons at the following addresses, or to such other persons at such other addresses as any party may request by notice in writing to the other party to this Employment Agreement. If to the Employee: Dr. Alessandro Giacalone Am Lohholz 3 85614 Kirchseeon 8 If to the Corporation: Cybernet Internet Services International, Inc. Stefan-George-Ring 19-23 81929 Munich, Germany (b) Successors and Assigns. This Employment Agreement shall be binding ---------------------- upon the successors and assigns of the Corporation, and shall inure to the benefit of and be enforceable by and against its successors and assigns. This Employment Agreement is personal in nature and may not be assigned or transferred by the Employee without the prior written consent of the Corporation. (c) Entire Agreement. This instrument contains the entire understanding ---------------- and agreement between the parties relating to the subject matter hereof, and neither this Employment Agreement nor any provision hereof may be waived, modified, amended, changed, discharged, or terminated, except by an agreement in writing signed by the party against whom enforcement of any waiver, modification, change, amendment, discharge, or termination is sought. (d) Counterparts. This Employment Agreement may be executed ------------ simultaneously in counterparts, each of which shall be deemed an original, and all of which counterparts shall together constitute a single agreement. (e) Illegality. If any one or more of the provisions of this Employment ---------- Agreement shall be invalid, illegal, or unenforceable in any respect, the validity, legality, and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. (f) Captions. The captions of the sections hereof are for convenience -------- only 9 and shall not control or affect the meaning or construction of any of the terms or provisions of this Employment Agreement. (g) Governing Law. This Employment Agreement shall be governed by and ------------- construed in accordance with the laws of the Federal Republic of Germany, without giving any effect to any doctrine pertaining to the conflict of laws. The parties hereto irrevocably (i) submit to the jurisdiction of any German state or federal court in any action or proceeding arising out of or relating to this Employment Agreement, (ii) agree that all claims with respect to such action or proceeding shall be heard and determined in such a German state or federal court, and (iii) waive, to the fullest extent possible, the defense of an inconvenient forum. The parties hereby consent to and grant any such court jurisdiction over the persons of such parties and over the subject matter of any such dispute and agree that delivery or mailing of process or other papers in connection with any such action or proceeding in the manner provided in Section 11 hereof or in such other manner as may be permitted by law, shall be valid and sufficient service thereof. IN WITNESS WHEREOF, the parties hereto have set their hands and executed this Employment Agreement on the day and year first above written. CYBERNET INTERNET SERVICES INTERNATIONAL INC. By: /s/ Andreas Eder ------------------------------------ President and Chief Executive Officer /s/ Alessandro Giacalone ------------------------------------ Alessandro Giacalone 10 EX-10.8 7 EXHIBIT 10.8 Exhibit 10.7 CERTIFIED TRANSLATION FROM GERMAN Contract of Employment between Cybernet Internet-Dienstleistungen Aktiengesellschaft (hereinafter referred to as "Cybernet AG") Stefan-George-Ring 19-23, 81929 Munchen, represented by the Chairman of the Supervisory Board, Dr. Hubert Besner and Mr. Christian Moosmann SchubertstraBe 12c, 85591 Vaterstetten on the basis of the decision of the Supervisory Board and in amendment to the contract of Employment, dated 25 July 1997, the following Contract of Employment is concluded: (S) 1 Tasks 1. Mr. Christian Moosmann is appointed to the Board of Directors of CYBERNET AG for three years following the decision of the Supervisory Board of 15. March 1999. The appointment is valid from 15. March 1999. Mr. Christian Moosmann represents CYBERNET AG together with another member of the Board of Directors or with an executive of the company holding a general power of attorney. 2. Mr. Christian Moosmann is responsible for the areas Finance and Administration. He executes the business transactions in accordance with the laws, the Articles of Association of CYBERNET AG, the Rules of Procedure for the Board of Directors and the decisions taken by the Annual General Meeting and of the Supervisory Board. He requires the prior approval of the Supervisory Board for the business management transactions listed in Annex 1. 3. Mr. Christian Moosmann will dedicate his expertise and his working capacity exclusively to CYBERNET AG. The acceptance of any other professional activity, whether paid or honorary, must be approved in advance by the Supervisory Board. (S) 2 Duration of the Contract 1. This contract is concluded for the duration of three years and begins with effect from 15 March 1999. An ordinary termination of contract during this period is excluded. 2. The parties to the contract will negotiate an extension to the contractual agreement at the latest 12 months before the termination of the contract. Page2 (S) 3 Remuneration 1. Mr. Christian Moosmann receives as remuneration for his services an annual basic salary of DM 180,000 gross. This basic salary is paid in twelve equal parts minus the statutory deductions at the end of each calendar month, for the last time for the full month in which this contract expires. 2. Mr. Christian Moosmann receives a bonus of up to DM 70,000 gross if certain annual targets are reached. The annual targets and the corresponding bonus are established by the Supervisory Board and the Board of Directors to the 31.12. of each business year for the following year; for the year 1999 to 30.04 99. The bonus is respectively paid to 30.04. for the previous business year minus the statutory deductions. 3. In addition, CYBERNET AG pays half the health insurance contributions made by Mr. Christian Moosmann. 4. In the event of illness or on other inability to work grounds, the salary will continue to be paid for six months in accordance with the above Section 1. Payments made by the statutory or private health insurance schemes will be offset. 5. In the case of the death of Mr. Christian Moosmann, the salary will be paid jointly, in accordance with the afore-mentioned Page 3 Section 1, for six months to the widow and the children undergoing further educational training. 6. Mr. Christian Moosmann is reimbursed commensurately the expenses incurred on behalf of CYBERNET AG in accordance with the regulations valid for the Board of Directors of CYBERNET AG analogous to the travel expenses guidelines. 7. A top end medium-sized company car will be made available to Mr. Christian Moosmann also for private use analogous to the company car regulations attached hereto in Annex 2 of CYBERNET AG. 8. Mr. Christian Moosmann can participate to a total of 20,000 options in the option program of Cybernet Internet Services International, Inc., in accordance with Annex 3. The options to 20,000 shares of common stock in Cybernet Internet Services International, Inc. are accorded from 12. March 1999, the quotation on the Frankfurt Securities market on that day determines the basic price. The 'vesting period' is staggered over three years in installments, i.e. 6,666 options are exercisable after one year in post, further 6,666 after two years and the remaining 6,667 after three years. Further details will be set out in an 'options award'. Page 4 (S) 4 Vacation 1. Mr. Christian Moosmann has an annual vacation entitlement of 30 working days to be taken in periods and coordinated with the other members of the Board of Directors. 2. If Mr. Christian Moosmann cannot take the vacation either in full or in part for business or other reasons (e.g. illness) before the end of the year, the entitlement remains valid. 3. If the vacation entitlement cannot be taken due to termination of the contract of employment, either in full or in part, it similarly has to be compensated. (S) 5 Secrecy Mr. Christian Moosmann is enjoined, also after the termination of the contract of employment, to maintain complete secrecy concerning all operating and commercial matters of CYBERNET AG towards unauthorized third parties. Mr. Christian Moosmann is in particular forbidden to use privately, to allow to be used or to reveal matters concerning CYBERNET AG, for example business secrets or other information. Page 5 (S) 6 Copyright, Handing Over of Documentation 1. All documents, documentation and other working results, which Mr. Christian Moosmann generates himself in the exercising of his duties or acquires for CYBERNET AG are the sole property of CYBERNET AG. CYBERNET AG solely is entitled to all industrial property rights to them in the widest possible scope. The regulations in the Employee Inventions Act remain unaffected. 2. Upon termination of the contract of employment, Mr. Christian Moosmann has to hand over immediately all documentation concerning CYBERNET AG and other working results including all copies and duplicates and other data media in his possession. Mr. Christian Moosmann is not entitled under any cause in law to retain these objects and documentation duly belonging to CYBERNET AG. (S) 7 Final Provisions 1. Should any provision in this contract be invalid, the validity of the remaining provisions is not affected by this fact. The parties are obliged to replace the invalid provision by a valid one which as closely as possible approximates the economic success sought after in the invalid provision. Page 6 2. Amendments or supplements to this contract must be made in writing to be valid. This applies equally to changes in the afore-mentioned clause concerning the written form. Munich, 16. March 1999 Cybernet Internet-Dienstleistungen Aktiengesellschaft represented by the Chairman of the Supervisory Board, Dr. Hubert Besner (signed) Mr. Christian Moosmann (signed) Annexes 1-3 Page 7 Annex 1 Board of Directors measures which require the prior approval of the Supervisory Board a) The endorsement of the annual budget including the Investment and Financial Plans as well as the sub-plans on which they are based and including the planned financial statement and planned profit and loss. b) Business transactions and measures, which concern the corporate structure or the principles of the corporate strategy or which lead to an essential change in corporate development, in particular the inclusion, discontinuation or substantial restrictions of business branches or product lines c) Sale and / or transmission of the whole business operation or important components of the business operation as well as leasing of the whole business operation or important components thereof d) Acquisition, sale and collateral encumbrance of real estate or similar property rights e) Individual investments, which exceed the sum of DM 1 million f) Take-up and award of loans and availment of credits which exceed DM 500,000 Page 8 g) Guarantee and surety undertakings which exceed DM 500,000 h) Entering into bill commitments which exceed DM 500,000 i) Award or increase of pension commitments to employees as well as enactment or change to a corporate pension scheme j) Acquisition and sale of companies or parts of such as well as foundation and dissolution of subsidiary companies and regional offices k) Conclusion, change or termination of contracts with silent partners l) Conclusion, change or termination of contracts concerning corporate bodies, pools and strategic partnerships m) Give reasons for completion, amendment or termination of lease, rent, leasing or other permanent debt relationships as well as annual payment obligations for the company of over DM 500,000 n) Execution of business transactions or measures with shareholders or persons closely associated with them (directly or indirectly) Page 9 o) Execution of business transactions or measures which are the subject of industrial property rights or other immaterial laws of property to the extent that the contractual scope exceeds DM 500,000 p) Execution of business transactions or measures of all kinds to the extent they constitute annual payment obligations for the company to third parties of over DM 500,000 q) Execution of business transactions or measures which go beyond the usual business operations of the company or which have been declared to require approval by a decision of the Supervisory Board Page 10 EX-10.9 8 EXHIBIT 10.9 Exhibit 10.8 CERTIFIED TRANSLATION FROM GERMAN Contract of Employment between Cybernet Internet-Dienstleistungen Aktiengesellschaft (hereinafter referred to as "Cybernet AG") Stefan-George-Ring 19-23, 81929 Munchen, represented by the Chairman of the Supervisory Board, Dr. Hubert Besner and Mr. Timon Lutze WiesenstraBe 12, 71732 Tamm on the basis of the decision of the Supervisory Board and in amendment to the contract of Employment, dated 18 November 1998, the following Contract of Employment is concluded: Section 1 TASKS 1. Mr. Timon Lutze is appointed to the Board of Directors of CYBERNET AG for three years following the decision of the Supervisory Board of 15. March 1999. The appointment is valid from 15. March 1999. Mr. Timon Lutze represents CYBERNET AG together with another member of the Board of Directors or with an executive of the company holding a general power of attorney. 2. Mr. Timon Lutze is responsible for the areas Marketing, Sales and Production. He executes the business transactions in accordance with the laws, the Articles of Association of CYBERNET AG, the Rules of Procedure for the Board of Directors and the decisions taken by the Annual General Meeting and of the Supervisory Board. He requires the prior approval of the Supervisory Board for the business management transactions listed in Annex 1. 3. Mr. Timon Lutze will dedicate his expertise and his working capacity exclusively to CYBERNET AG. The acceptance of any other professional activity, whether paid or honorary, must be approved in advance by the Supervisory Board. Section 2 DURATION OF THE CONTRACT 1. This contract is concluded for the duration of three years and begins with effect from 15 March 1999. An ordinary termination of contract during this period is excluded. 2. The parties to the contract will negotiate an extension to the contractual agreement at the latest 12 months before the termination of the contract. Page 2 Section 3 REMUNERATION 1. Mr. Timon Lutze receives as remuneration for his services an annual basic salary of DM 200,000 gross. This basic salary is paid in twelve equal parts minus the statutory deductions at the end of each calendar month, for the last time for the full month in which this contract expires. 2. Mr. Timon Lutze receives a bonus of up to DM 70,000 gross if certain annual targets are reached. The annual targets and the corresponding bonus are established by the Supervisory Board and the Board of Directors to the 31.12. of each business year for the following year; for the year 1999 to 30.04 99. The bonus is respectively paid to 30.04. for the previous business year minus the statutory deductions. 3. In addition, CYBERNET AG pays half the health insurance contributions made by Mr. Timon Lutze. 4. In addition, CYBERNET AG will pay the premiums for a direct insurance in the sum of maximum DM 284 per month. 5. In the event of illness or on other inability to work grounds, the salary will continue to be paid for six months in accordance with the above Section 1. Payments made by the statutory or private health insurance schemes will be offset. Page 3 6. In the case of the death of Mr. Timon Lutze , the salary will be paid jointly, in accordance with the afore-mentioned Section 1, for six months to the children from the first marriage each to DM 1,000, gross, the remaining payments to the widow. 7. Mr. Timon Lutze is reimbursed commensurately the expenses incurred on behalf of CYBERNET AG in accordance with the regulations valid for the Board of Directors of CYBERNET AG analogous to the travel expenses guidelines. During the first three months of the employment, the hotel stay in Munich is included. The move from Tamm to Munich will be organized and carried out by CYBERNET AG, in addition real estate agency fees are reimbursed to a total of two net monthly rental payments. 8. A top end medium-sized company car will be made available to Mr. Timon Lutze - - also for private use - analogous to the company car regulations attached hereto in Annex 2 of CYBERNET AG. 8. Mr. Timon Lutze can participate to a total of 30,000 options in the option program of Cybernet Internet Services International, Inc., in accordance with Annex 3. The options to 30,000 shares of common stock in Cybernet Internet Services International, Inc. are accorded from 12. March 1999, the quotation on the Frankfurt Securities market on that day determines the basic price. The "vesting period" is staggered over three years in installments, i.e. 10,000 options are exercisable after one year in post, further 10,000 after two years and the remaining 10,000 after three years. Further details will be set out in an "options award". Page 4 Section 4 VACATION 1. Mr. Timon Lutze has an annual vacation entitlement of 30 working days to be taken in periods and coordinated with the other members of the Board of Directors. 2. If Mr. Timon Lutze cannot take the vacation either in full or in part for business or other reasons (e.g. illness) before the end of the year, the entitlement remains valid. 3. If the vacation entitlement cannot be taken due to termination of the contract of employment, either in full or in part, it similarly has to be compensated. Section 5 SECRECY Mr. Timon Lutze is enjoined, also after the termination of the contract of employment, to maintain complete secrecy concerning all operating and commercial matters of CYBERNET AG towards unauthorized third parties. Mr. Timon Lutze is in particular forbidden to use privately, to allow to be used or to reveal matters concerning CYBERNET AG, for example business secrets or other information. Page 5 Section 6 COPYRIGHT, HANDING OVER OF DOCUMENTATION 1. All documents, documentation and other working results, which Mr. Timon Lutze generates himself in the exercising of his duties or acquires for CYBERNET AG are the sole property of CYBERNET AG. CYBERNET AG solely is entitled to all industrial property rights to them in the widest possible scope. The regulations in the Employee Inventions Act remain unaffected. 2. Upon termination of the contract of employment, Mr. Timon Lutze has to hand over immediately all documentation concerning CYBERNET AG and other working results including all copies and duplicates and other data media in his possession. Mr. Timon Lutze is not entitled under any cause in law to retain these objects and documentation duly belonging to CYBERNET AG. Section 7 FINAL PROVISIONS 1. Should any provision in this contract be invalid, the validity of the remaining provisions is not affected by this fact. The parties are obliged to replace the invalid provision by a valid one which as closely as possible approximates the economic success sought after in the invalid provision. 2. Amendments or supplements to this contract must be made in writing to be valid. This applies equally to changes in the afore-mentioned clause concerning the written form. Page 6 Munich, 16. March 1999 Cybernet Internet-Dienstleistungen Aktiengesellschaft represented by the Chairman of the Supervisory Board, Dr. Hubert Besner (signed) /s/ Timon Lutze - ------------------------ Mr. Timon Lutze Annexes 1-3 Page 7 ANNEX 1 Board of Directors measures which require the prior approval of the Supervisory Board a) The endorsement of the annual budget including the Investment and Financial Plans as well as the sub-plans on which they are based and including the planned financial statement and planned profit and loss. b) Business and measures, which concern the corporate structure or the principles of the corporate strategy or which lead to an essential change in corporate development, in particular the inclusion, discontinuation or important restrictions of business branches or product lines c) Sale and / or transmission of the whole business operation or important components of the business operation as well as leasing of the whole business operation or important components thereof d) Acquisition, sale and collateral encumbrance of real estate or similar property rights e) Individual investments, which exceed the sum of DM 1 million f) Take-up and award of loans and availment of credits which exceed DM 500,000 Page 8 g) Guarantee and surety undertakings which exceed DM 500,000 h) Entering into bill commitments which exceed DM 500,000 i) Award or increase of pension commitments to employees as well as enactment or change to a corporate pension scheme j) Acquisition and sale of companies or parts of such as well as foundation and dissolution of subsidiary companies and regional offices k) Conclusion, change or termination of contracts with silent partners l) Conclusion, change or termination of contracts concerning corporate bodies, pools and strategic partnerships m) Give reasons for completion, amendment or termination of lease, rent, leasing or other permanent debt relationships as well as annual payment obligations for the company of over DM 500,000 n) Execution of business transactions or measures with shareholders or persons closely associated with them (directly or indirectly) o) Execution of business transactions or measures which are the subject of industrial property rights or other immaterial laws of property to the extent that the contractual scope exceeds DM 500,000 Page 9 p) Execution of business transactions or measures of all kinds to the extent they constitute annual payment obligations for the company to third parties of over DM 500,000 q) Execution of business transactions or measures which go beyond the usual business operations of the company or which have been declared to require approval by a decision of the Supervisory Board Page 10 EX-10.10 9 EXHIBIT 10.10 Exhibit 10.9 CERTIFIED TRANSLATION FROM GERMAN EMPLOYMENT CONTRACT signed between VIANET telecommunications AG, 1090 Vienna, Mariannengasse 14 (in the following referred to as the "Company") on the one hand and Mr Tristan Libischer, 1040 Wien, Mollwaldplatz 2/13 (in the following referred to as "Member of the Board of Directors" ["Vorstandsmitglied"]) on the other hand in the following way: 1. Appointment and term: 1.1. In its decision of December 28, 1998, the Supervisory Board of the Company appointed Mr Libischer Member of the Board of Directors of the Company. Mr Libischer accepted the appointment. The appointment shall be effective from January 1, 1999. 1.2 This contract shall be signed for the duration of the employment of Mr Libischer as Member of the Board of Directors of the Company and shall end as early as five years from his valid appointment, on October 14, 2003. 2. Area of activity, function: 2.1 The Member of the Board of Directors has the title of "director" ["Vorstandsdirektor"] and is entitled to collectively - either together with another Member of the Board of Directors who is authorized to represent the Company collectively or with a holder of a "prokura" general commercial power of attorney - represent the Company and sign for it. 2.2 The activity of the Member of the Board of Directors is based on the relevant legal regulations, the statutes of the Company, the binding decisions by the Supervisory Board of 2 the Company, the internal regulations of the Board of Directors, and the contract of employment. 2.3 The Member of the Board of Directors has to dedicate his full working capacity to the Company. In fulfilling this task, the Member of the Board of Directors shall act with the care of a proper and scrupulous executive. 3. Remuneration: 3.1 As remuneration for his activity, the Member of the Board of Directors shall be paid an annual gross amount of DEM 180,000, payable in 14 equal partial amounts at the beginning of each month and in addition on June 1 and December 1 of each year. 3.2 With the remuneration of 3.1, all services by the Member of the Board of Directors provided beyond the normal working time applicable to employees of the Company shall be covered. 3.3 Any remuneration increases granted after January 1, 1999 in conjunction with the collectively agreed salary increases for employees of the Company affect the remuneration level according to 3.1 through the change rate that is applicable for the highest remuneration payable under the collective agreement. 3.4 In addition to the regular remuneration according to 3.1 the Member of the Board of Directors shall be paid a management bonus of DEM 60,000.00. The management bonus shall be determined on the basis of a catalogue of objectives, which the Supervisory Board has to determine yearly in advance, and which shall be dependent upon the level of achievement of objectives. The management bonus comes due after the annual general meeting which decides on the result of the relevant fiscal year. If an annual general meeting concerning a fiscal year does not take place by June 30 of the successive fiscal year, the Supervisory Board, no later than by that date, shall determine the amount of profit to be shared and set the date when it comes due. If the Member of the Board of Directors leaves the Company during a fiscal year, the bonus shall be paid on a pro-rata basis. 3 3.5 If the Member of the Board of Directors is unable to perform his duty due to illness or accident, the Company shall continue to pay the full remuneration to which the Member of the Board of Directors is entitled according to 3.1 for the duration of a maximum of 6 months and 49% of the remuneration for another three months. 4. Additional services: 4.1 The Company provides a company vehicle for the Member of the Board of Directors, which the Member of the Board of Directors may use for private purposes too. 4.2 The Member of the Board of Directors is entitled to the acquisition of an additional health insurance by the Company. 4.3 The Member of the Board of Directors shall fully bear the taxes imposed on the tangible value of the remuneration attributable to the private use of the car and the health insurance. 4.4 The Member of the Board of Directors is entitled to claim reasonable expenses connected to his position plus a remuneration of the travel expenses. The Member of the Board of Directors is entitled to use first class rail on business journeys by train, the sleeping-car (two-bed) at night, and business class for air travel. The choice of the proper type of transport shall be made according to economic criteria. For overnight stays hotels of the four-star category may be chosen. Furthermore, cash expenses incurred in connection with service commitments shall be reimbursed against receipt. 5. Vacation: 5.1 The Member of the Board is entitled to an annual vacation of 36 work days, with Saturdays being regarded as work days. 5.2 In choosing the start of his vacation the Member of the Board of Directors should also consider the interests of the Company. 4 6. Social insurance contributions: Social insurance contributions shall be fully borne by the Company up to a maximum of DM 13,000.00 per year. 7. Severance pay: 7.1 It is noted that since September 27, 1994,the Member of the Board of Directors has been in the service of Vianet EDV Dienstleistungs GesmbH, a legal predecessor of the Company. The appointment as Member of the Board of Directors of the Company was not accompanied by severance pay. Upon termination of the employee's status employment, the Member of the Board of Directors is entitled to severance pay according to the provisions of the Employees' Law. The calculation of the entitlement to severance pay is based on the period of Company service beginning on September 24, 1994 and on the last receipt of salary according to 3.1 and on the average of the bonuses paid in the last three years according to 3.4 7.2 An entitlement to a remuneration does not exist, if the Member of the Board of Directors is dismissed due to a gross breach of duty according to (S) 75 Abs. 4 AktG (Corporation Law)and the employment contract is cancelled prematurely by applying the content of (S) 27 AngG (Employees' Law)or if the Member of the Board of Directors resigns his post prematurely without good cause and without the permission of the Supervisory Board. If the employment ends due to the death of the Member of the Board of Directors, the eligible survivors according to (S) 23 Abs 6 AngG shall receive half the severance pay specified under 7.1. 8. Prohibition of competition 8.1 Without the permission of the Supervisory Board responsible for the relevant line of business of the Company, the Member of the Board of Directors may neither operate a trade nor do business for his or someone else's account. Nor may he participate in another commercial company as a personally liable shareholder. 8.2 If the Member of the Board of Directors violates this prohibition, the Company may claim compensation. In such a case the Company may demand that the business the Member of the Board of Directors did for his own account shall be deemed done for the Company's account and that the 5 consideration received for business done for someone else's account shall be returned or that the claim for remuneration shall be assigned. 8.3 The claims of the Company shall become statute-barred three months from the moment where the other members of the Board of Directors and of the Supervisory Board learn about the act that gives rise to the commitment to pay compensation. Notwithstanding such knowledge, they become statute- barred within five years after their origination. 9. Business which requires approval: The Member of the Board of Directors takes note of item 8 of the statutes of the Company as amended, which provide analogously with (S) 95 Abs 5 AktG that the following business transactions require the approval of the Supervisory Board: a) the acquisition and sale of interest ((S) 228 HGB Commercial Code)as well as the acquisition, the sale and the closure of enterprises and operations; b) the acquisition, the sale and encumbrances on land; c) the establishment and closure of branches; d) investments that exceed the acquisition costs of ATS 5,000,000.00 individually and of ATS 20,000,000.00 totally in one business year; e) the taking of bonds, loans and credits which exceed ATS 5,000,000.00 individually and ATS 20,000,000.00 totally in a business year; f) the granting of loans and credits unless they are part of the usual operations; part of usual operations is indeed the granting of loans and credits that do not exceed ATS 500,000.00 in each case; g) the opening and closing of lines of business and types of production; h) the definition of general principles of business policy. 6 i) the definition of principles regarding the granting of profit and turnover participations and pension assurances for senior employees according to (S) 80 Abs. 1 AktG; j) the granting of a "prokura" general power of attorney 10. Removal from office and termination of employment contract: 10.1 The Supervisory Board may revoke the appointment of a Member of the Board of Directors for good cause. Good cause shown shall be gross breach of duty, inability to engage in a proper conduct of affairs and vote of no- confidence by the annual general meeting, unless the vote of no-confidence was due to clearly non-objective causes. 10.2 In the case of removal from office the Company shall be entitled to cancel the employment contract prematurely, if grounds attributable to the Member of the Board of Directors exist which entitle the Company to a dismissal according to the content of (S) 27 AngG. 11. Final provisions: 11.1 Unless otherwise provided by Corporation Law, the statutes of the Company, the internal regulations for the Board of Directors and the employment contract, the provisions of Corporation Law as amended shall apply. 11.2 For all matters which are dependent upon the length of employment, October 15, 1998 shall be deemed the start of Company service, unless expressly provided otherwise in the contract. 11.3 Amendments to this contract must be made in writing and require the approval of the Supervisory Board as far as the Company is concerned. All fees and levies incurred in connection with the preparation of this employment contract shall be paid by the Company. 11.4 The invalidity of individual clauses of this contract shall not affect the validity of the other provisions. Any invalid provision, in the sense of a contract-amending interpretation, shall be replaced by a provision that comes as close as possible to the economic purpose of the invalid provision. 7 11.5 This contract is subject to Austrian law. For any disputes arising from this contractual relationship the competent court for commercial cases in the Innere Stadt district of Vienna shall have exclusive jurisdiction. Munich, December 28, 1998 Signatures: illegible /s/ Libisher EX-10.11 10 EXHIBIT 10.11 Exhibit 10.10 CERTIFIED TRANSLATION FROM GERMAN EMPLOYMENT CONTRACT signed between VIANET telecommunications AG, 1090 Vienna, Mariannengasse 14 (in the following referred to as the "Company") on the one hand and Mr Alexander Wiesmuller, born on November 24, 1968, 2381 Laab im Walde, Georg Hogn-Gasse 17 (in the following referred to as "Member of the Board of Directors" ["Vorstandsmitglied"]) on the other hand in the following way: 1. Appointment and term: 1.1. In its decision of December 28, 1998, the Supervisory Board of the Company appointed Mr Wiesmuller Member of the Board of Directors of the Company. Mr Wiesmuller accepted the appointment. The appointment shall be effective from January 1, 1999. 1.2 This contract shall be signed for the duration of the employment of Mr Wiesmuller as Member of the Board of Directors of the Company and shall end as early as five years from his valid appointment, on October 14, 2003. 2. Area of activity, function: 2.1 The Member of the Board of Directors has the title of "director" ["Vorstandsdirektor"] and is entitled to collectively - either together with another Member of the Board of Directors who is authorized to represent the Company collectively or with a holder of a "prokura" general commercial power of attorney - represent the Company and sign for it. 2.2 The activity of the Member of the Board of Directors is based on the relevant legal regulations, the statutes of the 2 Company, the binding decisions by the Supervisory Board of the Company, the internal regulations of the Board of Directors, and the contract of employment. 2.3 The Member of the Board of Directors has to dedicate his full working capacity to the Company. In fulfilling this task, the Member of the Board of Directors shall act with the care of a proper and scrupulous executive. 3. Remuneration: 3.1 As remuneration for his activity, the Member of the Board of Directors shall be paid an annual gross amount of DEM 180,000, payable in 14 equal partial amounts at the beginning of each month and in addition on June 1 and December 1 of each year. 3.2 With the remuneration of 3.1, all services by the Member of the Board of Directors provided beyond the normal working time applicable to employees of the Company shall be covered. 3.3 Any remuneration increases granted after January 1, 1999 in conjunction with the collectively agreed salary increases for employees of the Company affect the remuneration level according to 3.1 through the change rate that is applicable for the highest remuneration payable under the collective agreement. 3.4 In addition to the regular remuneration according to 3.1 the Member of the Board of Directors shall be paid a management bonus of DEM 60,000.00. The management bonus shall be determined on the basis of a catalogue of objectives, which the Supervisory Board has to determine yearly in advance, and which shall be dependent upon the level of achievement of objectives. The management bonus comes due after the annual general meeting which decides on the result of the relevant fiscal year. If an annual general meeting concerning a fiscal year does not take place by June 30 of the successive fiscal year, the Supervisory Board, no later than by that date, shall determine the amount of profit to be shared and set the date when it comes due. 3 If the Member of the Board of Directors leaves the Company during a fiscal year, the bonus shall be paid on a pro-rata basis. 3.5 If the Member of the Board of Directors is unable to perform his duty due to illness or accident, the Company shall continue to pay the full remuneration to which the Member of the Board of Directors is entitled according to 3.1 for the duration of a maximum of 6 months and 49% of the remuneration for another three months. 4. Additional services: 4.1 The Company provides a company vehicle for the Member of the Board of Directors, which the Member of the Board of Directors may use for private purposes too. 4.2 The Member of the Board of Directors is entitled to the acquisition of an additional health insurance by the Company. 4.3 The Member of the Board of Directors shall fully bear the taxes imposed on the tangible value of the remuneration attributable to the private use of the car and the health insurance. 4.4 The Member of the Board of Directors is entitled to claim reasonable expenses connected to his position plus a remuneration of the travel expenses. The Member of the Board of Directors is entitled to use first class rail on business journeys by train, the sleeping-car (two-bed) at night, and business class for air travel. The choice of the proper type of transport shall be made according to economic criteria. For overnight stays hotels of the four-star category may be chosen. Furthermore, cash expenses incurred in connection with service commitments shall be reimbursed against receipt. 5. Vacation: 5.1 The Member of the Board is entitled to an annual vacation of 36 work days, with Saturdays being regarded as work days. 5.2 In choosing the start of his vacation the Member of the Board of Directors should also consider the interests of the Company. 4 6. Social insurance contributions: Social insurance contributions shall be fully borne by the Company up to a maximum of DM 13,000.00 per year. 7. Severance pay: 7.1 It is noted that since September 27, 1994,the Member of the Board of Directors has been in the service of Vianet EDV Dienstleistungs GesmbH, a legal predecessor of the Company. The appointment as Member of the Board of Directors of the Company was not accompanied by severance pay. Upon termination of the employee's status employment, the Member of the Board of Directors is entitled to severance pay according to the provisions of the Employees' Law. The calculation of the entitlement to severance pay is based on the period of Company service beginning on September 24, 1994 and on the last receipt of salary according to 3.1 and on the average of the bonuses paid in the last three years according to 3.4 7.2 An entitlement to a remuneration does not exist, if the Member of the Board of Directors is dismissed due to a gross breach of duty according to (S) 75 Abs. 4 AktG (Corporation Law)and the employment contract is cancelled prematurely by applying the content of (S) 27 AngG (Employees' Law)or if the Member of the Board of Directors resigns his post prematurely without good cause and without the permission of the Supervisory Board. If the employment ends due to the death of the Member of the Board of Directors, the eligible survivors according to (S) 23 Abs 6 AngG shall receive half the severance pay specified under 7.1. 8. Prohibition of competition 8.1 Without the permission of the Supervisory Board responsible for the relevant line of business of the Company, the Member of the Board of Directors may neither operate a trade nor do business for his or someone else's account. Nor may he participate in another commercial company as a personally liable shareholder. 8.2 If the Member of the Board of Directors violates this prohibition, the Company may claim compensation. In such a case the Company may demand that the business the Member of 5 the Board of Directors did for his own account shall be deemed done for the Company's account and that the consideration received for business done for someone else's account shall be returned or that the claim for remuneration shall be assigned. 8.3 The claims of the Company shall become statute-barred three months from the moment where the other members of the Board of Directors and of the Supervisory Board learn about the act that gives rise to the commitment to pay compensation. Notwithstanding such knowledge, they become statute-barred within five years after their origination. 9. Business which requires approval: The Member of the Board of Directors takes note of item 8 of the statutes of the Company as amended, which provide analogously with (S) 95 Abs 5 AktG that the following business transactions require the approval of the Supervisory Board: a) the acquisition and sale of interest ((S) 228 HGB Commercial Code)as well as the acquisition, the sale and the closure of enterprises and operations; b) the acquisition, the sale and encumbrances on land; c) the establishment and closure of branches; d) investments that exceed the acquisition costs of ATS 5,000,000.00 individually and of ATS 20,000,000.00 totally in one business year; e) the taking of bonds, loans and credits which exceed ATS 5,000,000.00 individually and ATS 20,000,000.00 totally in a business year; f) the granting of loans and credits unless they are part of the usual operations; part of usual operations is indeed the granting of loans and credits that do not exceed ATS 500,000.00 in each case; g) the opening and closing of lines of business and types of production; h) the definition of general principles of business policy. 6 i) the definition of principles regarding the granting of profit and turnover participations and pension assurances for senior employees according to (S) 80 Abs. 1 AktG; j) the granting of a "prokura" general power of attorney 10. Removal from office and termination of employment contract: 10.1 The Supervisory Board may revoke the appointment of a Member of the Board of Directors for good cause. Good cause shown shall be gross breach of duty, inability to engage in a proper conduct of affairs and vote of no- confidence by the annual general meeting, unless the vote of no-confidence was due to clearly non-objective causes. 10.2 In the case of removal from office the Company shall be entitled to cancel the employment contract prematurely, if grounds attributable to the Member of the Board of Directors exist which entitle the Company to a dismissal according to the content of (S) 27 AngG. 11. Final provisions: 11.1 Unless otherwise provided by Corporation Law, the statutes of the Company, the internal regulations for the Board of Directors and the employment contract, the provisions of Corporation Law as amended shall apply. 11.2 For all matters which are dependent upon the length of employment, October 15, 1998 shall be deemed the start of Company service, unless expressly provided otherwise in the contract. 11.3 Amendments to this contract must be made in writing and require the approval of the Supervisory Board as far as the Company is concerned. All fees and levies incurred in connection with the preparation of this employment contract shall be paid by the Company. 11.4 The invalidity of individual clauses of this contract shall not affect the validity of the other provisions. Any invalid provision, in the sense of a contract-amending interpretation, shall be replaced by a provision that comes as close as possible to the economic purpose of the invalid provision. 7 11.5 This contract is subject to Austrian law. For any disputes arising from this contractual relationship the competent court for commercial cases in the Innere Stadt district of Vienna shall have exclusive jurisdiction. Munich, December 28, 1998 Signatures: illegible /s/ Wiesmuller EX-10.12 11 EXHIBIT 10.12 Exhibit 10.12 TENANCY AGREEMENT between Deutsche Immobilien Fonds plc Valentinskamp 20 20354 Hamburg - Landlord - and Cybernet Internet-Dienstleistungen AG Stefan-George-Ring 19 81929 Munchen - Tenant - - -------------------------------------------------------------------------------- PRELIMINARY STATEMENT The landlord has constructed buildings (Airport Centre) on the property at Langenhorner Chaussee/Corner of Flughafenstrasse consisting of office, service, hall and cellar space, as well as parking, traffic and green areas. Having stated this in advance, the parties agree to the following: INDEX OF CONTENTS
Preliminary Statement (S) 1 Rented property (S) 2 Utilisation of rented property, competing surety (S) 3 Term of tenancy (S) 4 Rent and ancillary costs (S) 5 Safeguarding standard of value (S) 6 Insurance (S) 7 Structural arrangement and alterations (S) 8 Liability, maintenance and repair of rented property (S) 9 Access to rented premises by landlord (S) 10 Termination of tenancy agreement (S) 11 Security of rent (S) 12 Sub-letting (S) 13 Exceptional right of notice (S) 14 Concluding provisions (S) 15 Jurisdiction
Appendix: 1 - Composition of rent 2 - Surety (obligatory submission) 3 - Direct debit mandate (specimen) 4 - Description of business 5 - Description of building 6 - Planning documents 2 (S) 1 Rented Property 1. The landlord lets to the tenant 1 section of the building in the Airport Centre comprising office, service, hall and outside spaces of the part of the building N/O, as well as 16 exterior parking places (rented property). General spaces such as, for example, foyer and lift outer offices are proportionally let. The Airport Centre and the rented property are known to the tenant. 2. The site, dimension and layout of the rented property are evident from the attached planning documents that have been signed by both parties [Plan Nr. 1,2,3 and 4 in Appendix 6], as well as the description of the building (Appendix 5), which are component parts of this agreement. The rented building spaces are as agreed and are coloured red in the planning documents, and the rented parking places and outside spaces are bordered green. 3. The landlord reserves the right to make any alterations to the entire Airport Centre plan. (S) 2 Utilisation of the Rented Premises, Competing Surety 1.a. The tenant may only utilise the rented premises for general office, service and storage purposes in line with the description of the business (Appendix 4) which is a part of this agreement. The outside areas may not be used for storage purposes. 3 Delivery of storage material through the entrance area may only be used for products whose size and nature remain within the context of an office enterprise. Any change in the use to which the rented premises are put must have prior written agreement from the landlord. The latter may not raise any objection to the declared change if it has no detrimental economic or other effect on him. Any concession - if not expressly set forth - will only be granted on the understanding that there is no official objection from the authorities. The tenant will meet the costs of any special requirements, activities or products (i.e. easily inflammable products, water-endangering material, activities involving service, exhibition, training, or air-conditioning etc.) as well as their associated installation or official, occupational or insurance related conditions arising as a result. The tenant will be responsible for the cost of providing the necessary authorisation for his business undertaking, and for fulfilling any associated obligations or conditions. b. The tenant may not store or process any dangerous materials (i.e. explosives or poisons), or undertake any dangerous activity which would in any way increase the insurance risk on the property or infringe any official regulations, such as the development plan. No objects may be dumped or stored and no work undertaken by the tenant outside the rented premises, such as on the ancillary rented areas, areas and premises shared with other tenants, as well as on the delivery areas. Vehicles belonging to the tenant, or those belonging to any of the tenant's visitors or employees may only be parked on the appointed spaces. Other vehicles may only stop on the premises for the time required for loading and unloading. Exits have to be kept free in accordance with the stipulations of the authorities. The tenant is obliged to point out to his visitors on all large occasions (training courses, among other occasions) that they must only park their vehicles on the rented parking spaces or outside the Airport Centre. In case of non-compliance with these conditions 4 the landlord, without prejudicing his rights, is entitled to claim appropriate compensation from the tenant. 2. Any important alteration to the tenancy agreement on the part of the tenant (i.e. change of legal structure, business licence, relocation of firm's principal office, etc.) has immediately to be put in writing to the landlord. 3. The tenant will use the sanitary facilities available on the particular floor used in common with other tenants, if there are no available rented facilities on the premises for his sole use. 4. The landlord does not provide any competing surety for the tenant's sphere of business. 5. The tenant is aware that gas-driven vehicles may not be parked on parking spaces rented by him. (S) 3 Rental term 1. The tenancy agreement starts from 01.02.1999 (commencement of tenancy). It has a term of 10 years. The agreement terminates on 31.01.2009. A single right of notice is granted to the tenant on the expiry of 5 years on condition that prior notice by registered letter is received by the landlord by 31.01.2003 the latest (12 months before the lapse of the 5th year). The date of postage will be the deciding factor in determining correct compliance. On expiry of the agreed rental term the agreement is then extended by 5 years at a time in each case, unless one of the parties has given one year's notice as agreed in the terms of the contract. 5 Section 568 of the German Civil Code does not apply. 2. The property will be handed over to the tenant in a condition ready for use. "Ready for use" is understood by both parties to mean complete identification with the planning documents and the building description, so that the occupancy of the premises by the tenant is possible, as well as his agreed utilisation of the premises according to Section 2 Nr. 1 of this agreement. Any deficiencies in the condition of the premises or any residual work that has still to be completed - this also applies to outside areas - , and which does not significantly affect the tenant's immediate occupancy or utilisation of the premises, shall not constitute interference with the "ready for use" condition in the strict meaning of this agreement. On the day the property is ready for use it will be handed over to the tenant for his use. The parties to the agreement will make a binding transfer record of any possible deficiencies in the property and will determine any residual work that has still to be undertaken. This must be immediately rectified or carried out by the landlord within an agreed time- limit. The tenant must also allow any corrective work to be carried out during office hours. The landlord will make the property available to the tenant by 01.02.1999 (ready-for-use date) apart from any residual work outside which may be dependent on the weather. In the case of any delay in making the property ready for use caused by the tenant's request for changes to the agreement after having already signed it, the terms of the tenancy agreement stand and therewith the obligatory rental payment from the time when payment would have been due without the requested changes. The landlord is not responsible for delays in occupancy caused in particular by strikes, lockouts, war, acts of God, fire or by the office of employment officially designated "bad weather days". 6 (S) 4 Rent and Ancillary Costs 1. The monthly lump sum rent for the property (Appendix 1) is 34.194,50 DM ( in words: Thirty-four thousand one hundred and ninety- four 50/100 Deutsche Mark) as well as the advance payment for ancillary costs and VAT at the relevant legal amount, which hereafter will be called the gross rental. The tenant has given an assurance that he is entitled to full input tax deduction. If this should change, and therewith the preconditions for the landlord's turnover tax option be cancelled, according to Section 9 Paragraph 2 of the Turnover Tax Law, the landlord is then no longer bound to discount the turnover tax, with the consequence that the erstwhile gross rental has in future to be paid in lump sum. If the absence of the prerequisite option should only become known later, the landlord is entitled afterwards to correct the invoices, that have already been issued, in such a way that the erstwhile paid agreed gross rental subsequently corresponds to the lump monthly rental. The right to compensation is reserved in the absence of the prerequisite option. The landlord can oblige the tenant to produce an appropriate confirmation to this effect from his accountant. In each case the gross rental has to be paid in advance into an account designated by the landlord by the 3rd working day of each month, free of postage and extra charges. Punctual payment is determined by the date of receipt by the landlord. Late payments carry agreed charges of 4 % above the Deutsche Bundesbank's current bank rate, as well as 10.- DM for costs incurred. The right is reserved to enforce compensation for further damage caused by late payment. The tenant will provide the landlord with a direct debit authorisation for the gross rental at least one month prior to the start of the rental agreement in accordance with the specimen Appendix 3 of this agreement. 2. Rent and VAT are payable from 01.02.1999. Ancillary costs and VAT have to be paid from the date when the property is ready for use as laid out in Section 3 Nr. 2 of this contract. 7 3. The accruing ancillary costs have to be paid separately by the tenant. The following applies in detail: a. In so far as the landlord does not provide/cause the disposal of all the tenants' refuse, the tenant will be responsible for all his own refuse disposal or will pay the dues for clearance of his refuse directly to the authorities. The tenant undertakes to use only closed containers for the disposal of refuse. The tenant will respect the Dual System in the disposal of refuse. The disposal point for refuse containers is to be agreed with the landlord in each case prior to the positioning of a container. The disposal of domestic waste is undertaken by the landlord at the moment because of conditions stipulated by the public authorities, and the costs will be passed on to the individual tenants. All other kinds of rubbish must be disposed of by the tenant according to the legal conditions set out by the local authorities, and the required refuse collection payments to be paid by the tenant directly to the local authorities. The tenant undertakes to provide only enclosed containers should he dispose of the refuse himself. The landlord reserves the right to dispose of the rubbish in a similar way to the above-named kinds of refuse should the local authority's conditions change. b. The tenant will pay the charges and costs for his electricity, heating and other energy supplies, directly to the energy suppliers, as well as meter charges and installation costs. c. The cost of running central heating and warm water is shared by the tenant in proportion to the square metre space he rents in the N/O building. It is a precondition that all tenants in the N/O building have agreed to such a method of calculation and have renounced any form of meter installation for this purpose. The tenant is aware that a shared distribution of heating charges is imposed, in line with standard rates, if any tenant should so desire such a system. The tenant agrees with the landlord to dispense with the installation of energy supply meters, and consents to have the costs of central heating and warm water supplies calculated by square metre office 8 space. At the same time the tenant agrees to allow the heating costs to be calculated according to standard rates if any fellow tenant should so desire. d. The tenant will bear his share of the cost of running and maintaining the property, in so far as it arises, especially for: general energy supply, lighting for exterior premises, basement garages, parking allotment; refuse disposal; use of the canal; cleaning of streets, footpaths, parking facilities and facades, as well as the care and cleaning of other fixed outside spaces, including clearing away snow and ice; cleaning of sanitary facilities, foyer, stairwell and windows; eliminating any vermin; chimney sweep; caretaker; local rates; maintenance, servicing and repair of sanitary facilities and heating (including authorised technical control inspections), ventilation and electrical installations, windows, doors and gateways, drainage collection facilities (including rainwater reservoirs), annexes to parking building, basement parking facilities, barriers, parking guides, smoke-alarm and security fittings, transformers, lightning protectors, lifts, emergency-call installations, fire-alarm systems, sprinklers, and barrier and video installations, the code-card system, the security lighting, the roofing, the smoke- and heat-extractor systems, the hydrants and fire extinguishers, the blinds, the warm water and supply apparatus, the building security (fire, storm, mains water, extended coverage, general purpose glass-surfacing) as well as building and property liability; maintenance, care and layout of green areas, hydro-culture and the shared building, streets and exterior areas; traffic safety; locking-up and guards; porters/doormen; administration of property ( the latter in the sum of 4 % of rent, also when the administration is carried out by the tenant himself). The tenant does not have to contribute to his share of repairs, in so far as they exceed in entirety the amount per annum of 10 % of the annual gross rent ((S) 4 Nr. 1). e. If the charges and costs under c. and d. are directly apportioned to the tenant, they will be charged accordingly in this way; otherwise the tenant will be charged proportionally. The measure used in deciding proportional costs is based on the tenant's share of the entire rented property or section of the building. The measure used in deciding the share of the parking building costs or the basement 9 garage is based on the tenant's share of parking lots in the parking building or basement garage. The measure used in the distribution of costs for proportionally rented general areas is based on the tenant's share of these areas. The landlord can alter the distributive system after at his considered discretion, if this leads to a more scientific apportionment of costs. The landlord is entitled to demand from the tenant a monthly advance payment for all likely ancillary costs, in so far as they are not directly payable by the tenant. The calculations are made annually for the calendar year. If the rental agreement should terminate during a settlement period, the settlement will not be interim, but only in the context of the general settlement. In this way the settlement for the advance against ancillary costs will be made. Any compensation payments must be made when the following rent is due. The vouchers for the respective ancillary cost settlements can be inspected by the tenant in the offices of the landlord during normal office hours within 5 weeks following dispatch of the ancillary cost settlement. The landlord reserves the right to regularly review the monthly ancillary cost advance payments, and, if required, on the basis of a proven rise in costs, to change the amounts due, as well as to demand individual advance payments for larger ancillary costs, which have also to be paid on the next due date of rental payment. The advance payment of ancillary costs is due from the tenant on the first date of occupancy and at the moment amounts to 6.817,90 DM ( in words: six thousand eight hundred and seventeen 90/100 Deutsche Mark) per month plus VAT at the standard rate. If, after concluding this tenancy agreement, there are any subsequent public or other ancillary costs due that relate to the tenant's business or to the rented property, the landlord is entitled to demand these sums from the tenant from the date of occupancy. 4. As far as the rent and ancillary demands are concerned, neither settlement rights, rent reduction rights, or retention rights can be justified by the tenant, unless such claims are uncontested or legally recognised. 10 5. The tenant can only exercise a possible right to withhold settlement, or claim a reduction in rent pending a legally recognised counter claim, if the landlord has been advised of this in writing at least one month before payment in question is due. 6. If the tenant is in arrears in the payment of rent, ancillary costs and/or VAT, any settlement payments are at first calculated on the basis of the amounts overdue, and then on costs, interests and other incidental dues that have arisen. (S) 5 Safeguarding Standard of Value 1. The rent, in line with (S) 4 Nr. 1, rises or falls according to the general cost of living index after 12 months, and is calculated from the start of the rental. The measure is the monthly standard of living price index for all households in Germany as calculated by the Federal Office for Statistics in Wiesbaden. The parties agree to use the general standard of living price index as a yardstick from the month of the start of the tenancy on the basis of 1991 = 100. 2. If the rent should have changed on the basis of the foregoing index clause, the clause will, after each lapse of 12 months, be reapplied, according to the provisions of the foregoing paragraph, and the rent readjusted. 3. The parties to this agreement recognise that this index clause has to be approved by the appropriate state central bank. The approval has to be obtained by the landlord. If the state central bank should not approve the index, the parties to the agreement are obliged to seek an alternative solution that comes closest to the desired aim. 4. If the standard of living price index 1991 = 100 cannot be determined any more, then a transition should be made on the basis of the next published price index and each subsequent one, and otherwise proceed 11 as above. (S) 6 Insurance 1. The usual building insurance terms (fire, storm, mains water, extended coverage, etc.) and building and landowner liability will be concluded by the landlord, and at the tenant's expense. 2. Subsequent continuous installations, improvements or re-constructions of the property carried out by the tenant are not covered by the building's insurance as indicated in the planning documents and building description, unless a written statement to this effect has been received by the landlord from the tenant before the above alterations have taken place, with the request that the insurance be correspondingly adjusted. The tenant is obliged to provide evidence of the cost of the installations, improvements and re-constructions. The landlord is entitled to choose an expert, at the tenant's cost, to evaluate these said alterations. The additional insurance for the respective installations, improvements or re-constructions of the property by the building liability insurance is only applicable after the landlord has been provided with the appropriate written cover note for the said insurance. The tenant will pay the costs of the resulting additional insurance. 3. The tenant is obliged to take out normal compulsory insurance for all risks relating to his business, such as business liability insurance, loss of profits insurance, insurance against burglary and theft, as well as for possible non-exclusive office utilisation of the property, and environmental liability insurance, and to maintain these insurance policies for the duration of the rental agreement. It is also the duty of the tenant to insure himself sufficiently against all damage from newly introduced fixtures, fittings and other matters. The landlord is entitled to see relevant written evidence by the insurer of the continued validity of these insurance policies. 12 4. The tenant should note that, in the context of his business liability insurance, he can also take out an exemption liability vis-a-vis his landlord. (S) 7 Building Structure and Alterations 1. The rented property is constructed according to the attached planning documents. The landlord reserves the right to undertake structural alterations to the rented property, if officially or legally obliged to do so, for the purposes of improvement, or due to commercial time lapse or to carry out non-depreciating structural alterations and that do not diverge from the planning documents and building description. 2. Any alteration requests on the part of the tenant with regard to the development and alteration of the rented property during the construction period will only be considered by the landlord if these requests do not significantly or, in particular, structurally alter the rented property, and do not exceed the estimated expenditure. In so far as the alteration requests by the tenant lead to an increase in expenditure or a lengthier construction time, the landlord will accede to further alteration requests, so long as the character of the rented property remains essentially unaffected by the alterations, and the tenant takes on the additional costs, including the further loss of rent occasioned by the extension to the time limit that was agreed between the parties. The tenant is responsible for any additional planning and engineering costs that arise as a result of alteration requests. 13 3. The tenant is entitled to install and equip the interior of the rented property to his liking and at his expense. Significant structural alterations, however, require the prior written consent of the landlord. The necessary local authority approval has to be obtained directly by the tenant where possible. The tenant must, in every case, pay for the planning and approval costs. 4. The tenant is entitled to undertake any structural alterations within the rented property during the term of his tenancy which he considers necessary for the running of his business and for which he must pay, so long as these alterations do not affect the structure of the building, or impinge on the cabling or piping of the rented property, or essentially alter the character of the building. Before such alterations are undertaken relevant plans must be shown, and the written consent of the landlord obtained. The landlord will agree to such alterations if the rented property thereby suffers no detrimental economic or other consequences. The tenant will bear all costs which arise from his initiated building alterations, as well as the further maintenance and repair costs, including the prior approval costs and the revision plan costs, which the landlord must receive immediately after completion of the relevant alterations. The tenant will absolve the landlord of any possible liability relating to the structural alterations undertaken. This includes compensation by the tenant to the landlord for the loss of any warranty claims against the builders. Structural alterations may require an officially submitted change in the utilisation to which building is put. The tenant must bear the costs connected with the utilisation change, no matter whether they have arisen from the structural alterations or from compliance with local authority rules. 5. Any changes to the outer appearance of the rented property - especially to the outer facades, window structure, fixed outside spaces and green areas - require the prior written consent of the landlord, who will use his discretion. This also applies to installations of fitted alarm and/or fire equipment. 14 6. The landlord will mark out, with his own designated registration signs, the parking lots rented by the tenant, and for which the tenant has to pay. 7. The landlord has set up an individual company signpost in front of every property entrance. The tenant is entitled to affix his sign or company logo on the provided space in consultation with the landlord. The cost of the inscription will be charged to the tenant. The tenant is not allowed any outside advertising. (S) 8 Liability, Maintenance of Rented Property 1. The tenant is obliged to treat the rented property with consideration and care and keep it in workable order. Damage to the rented property, or any necessary work that has to be undertaken in keeping with the management of property, has to be reported to the landlord immediately either in writing or by fax. 2. The tenant has a duty to safeguard traffic on the site of the rented property and is responsible for all culpable injuries. He absolves the landlord from any third party claims arising from a breach of these traffic obligations. The tenant is liable to the landlord for all damage caused at the start and during the rental occupancy occasioned by visitors and guests, persons contracted by the tenant (i.e. craftsmen, delivery men etc.) as well as by any sub-tenants and their ancillary staff. In particular the tenant is liable for any damage arising from careless procedure with water and gas- piping, as well as electrical light and energy-cabling, doors, windows or gateways that are left open, insufficient precaution against damage by frost, or caused by inattention to duty of one of the tenants in the face of his contractual, official or legal obligations 15 (lighting, obligation to strew sand or salt, etc.). The tenant will have to prove that he is not guilty of any culpable neglect. The tenant will inform the landlord immediately of the loss of any keys to the property locking mechanism, and for which he, the tenant, must bear the cost for any damage arising therefrom. In the case of damage not covered by the building insurance or the liability of the property owner, the landlord will only be liable for damage caused by intent or gross negligence. The landlord is not liable for damage arising from the tenant's utilisation of the rented property, or arising from defects in the rented property, unless it was caused by the landlord by intent or gross neglect. The tenant will absolve the landlord from all third party responsibility which a third party claims against the landlord for deficiencies in the rented property, unless these were caused by the landlord with intent or by gross neglect. 3. The tenant is obliged to carry out cosmetic repairs ( e.g. interior painting, carpeting, floor and floor-covering, inner and outer doors) on a 3-year rotational basis, so as to preserve the rented property in an appropriately groomed condition. Furthermore, the tenant is obliged to bear the care and cost of seeing that doors, windows, blinds, electric and sanitary appliances, locks, fire extinguishers, water taps, wash basins, drainage sinks, and similar installations, including the supply and disposal systems are kept in constant good working order, and also to bear the care and cost of immediately replacing broken glass panes, mirrors or other glass objects and lighting installations in the rented property. The tenant is further obliged to keep the outside traffic and parking areas in constant workable condition. The tenant is likewise liable for all damage to rented parking lots and their surroundings, e.g. soiling of the ground and wall through leaking oil, soot and exhaust pollution. The tenant is obliged to undertake necessary maintenance measures with the help of skilled personnel. For other small repairs the tenant has to bear the individual cost up to 500 DM plus statutory VAT at the most, however, up to an amount in accordance with (S) 4 Nr.3 d. The parties agree that this amount, in each case, applies to the 1 January of a calendar year, and is increased the 16 following year in line with the percentage rise in the total cost of living index as set out in the above (S) 5 Nr.1 and 2. 4. The tenant is responsible for the cleanliness of the rented property. The care of the green areas as well as the cleaning and maintenance of the fixed outer areas of the Airport Centre are carried out by the landlord or his appointee. The tenant must see that these areas are freely accessible while this work is being carried out. 5. In the event of a deficiency in the rented property or a disturbance in the running of the building or a fault in the technical equipment, the tenant can only claim compensation or reduction of rent if the landlord can be shown to have caused the deficiency by intent or through gross negligence. This applies to all claims made by the tenant arising from Section 538 Paragraph 1 of the German Civil Code. It has to be emphasised again that the tenant has an obligation, in accordance with (S) 6 of this contract, to take out insurance against damage to his own property that he has introduced into the rented property. 6. The tenant is aware that the Airport Centre, as described in the preliminary statement, is also used by other tenants. If necessary, and after consultation with the tenants, house regulations will be drawn up, which will also comprise part of this contract, and which will define the rights and duties of individual tenants. 7. The landlord may, without the agreement of the tenant, undertake structural measures which develop, preserve or improve the property or the rented area, or which are necessary to prevent imminent danger to the property, or the necessary elimination of damage. Improvements and structural alterations to the rented property, which may not be necessary but only useful, can be undertaken with the consent of the tenant, provided these undertakings do not significantly affect him. 17 8. The installation of heavy equipment (machinery etc.) obliges the tenant to inquire from the landlord whether the floor can sustain such a weight. The tenant must regularly and carefully ensure that the permissible weight-load for each floor, as indicated in the description of the building, is not exceeded. If these warnings are ignored the tenant is liable for all consequent damage, and is obliged to absolve the landlord from any possible claims by third parties arising therefrom. 9. Reduction of rent and compensation claims against the landlord by the tenant for damages, harmful effects or disturbances to the building's accesses, which are beyond his control, or for works undertaken in accordance with the above paragraph Nr.7, or for building construction by third parties outside the precincts, are out of the question. (S) 9 Access to Rented Premises by the Landlord 1. The landlord or his appointee can, after prior agreement with the tenant, enter the rented property during office hours to ascertain the necessity of possible improvements, as well as to undertake repair and maintenance work. The tenant is entitled to supply an escort for such inspections or repair work. The tenant, herewith, already declares his agreement to the undertaking of any such necessary work to the supply mains on behalf of other fellow tenants of the rented property. This agreement is already, herewith, given by the tenant for the eventuality that fellow tenants may also have to undertake necessary work on their supply mains. In case of danger caused by delay, the landlord may enter the rented premises at any time of the day or night, or obtain entry to them. Access to the roof exit, supply installations and inside yards etc. has to be guaranteed at all times. 2. If the landlord wishes to sell the property he can, after consulting with the tenant beforehand, have access to the rented property at the customary times. The tenant has to give his express permission for entry on Sundays or on holidays. 18 3. If the rental agreement has been terminated, or if it has not been extended at the latest by 12 months prior to the expiry date, the previous paragraph, regarding entry to the premises by the landlord with a new interested customer, correspondingly applies. (S) 10 Termination of Rental Contract 1. On expiry of the rental contract the rented property has to be repossessed in a properly renovated and maintained condition, and all keys surrendered. The obligation is not dependent on whether a rotational renovation was due at the time or not. If the tenant has not carried out the obligatory renovation work by the end of the rental agreement, the landlord can have the work done at the tenant's expense without the necessity of a period of grace. In this case the tenant is liable for any damage incurred by the landlord arising from delayed work (especially loss of rent). As a deviation from the above ruling, the landlord can demand compensation in cash for the duly claimed renovation, should the renovation work have to be nullified through fresh reconstruction soon after termination of the rental agreement. 2. Equipment (e.g. shelving, communications, alarm systems etc.), including advertising effects which the tenant has installed in the rented property, can or must be removed at the request of the landlord. If the tenant takes the equipment with him, he must bear the cost of restoring the premises to their earlier condition, should the landlord requires him to do so. 3. In case the tenant has undertaken structural alterations, the landlord can 19 at his discretion, on the termination of the rental agreement, demand free restoration of the property's earlier condition, or the reimbursement of the costs incurred in undertaking this work. Compensation for the expenditure incurred in any structural alteration undertaken by the tenant is absolutely ruled out, no matter whether the landlord requests restoration or not. If structural alterations are not removed, they become the property of the landlord without any indemnity or adjusted settlement being paid to the tenant. 4. The objects installed by the landlord will remain in the rented property on termination of the rental agreement. 5. The return of the rented property before termination of the rental agreement requires the express written consent of the landlord. (S) 11 Security of Rent 1. The tenant is obliged, at the latest 2 weeks before occupying the rented property, to procure the absolute guarantee of a savings bank or a big bank resident in Germany, corresponding to Appendix 2 of this rental agreement, in sum of 3 month's rent, plus the advance against ancillary charges and VAT at the standard rate, which will cover the entire payment obligations of the tenant in this tenancy agreement. If improvements for the tenant have to be undertaken by the landlord, the guarantee has to be handed in before the improvements are undertaken. The landlord will inform the tenant of the date when the work will start. The guarantor is obliged to transmit payment on the landlord's first request. The guarantor relinquishes the enforcement of the landlord as well as the guarantor, in accordance with the law for waiving the defence of failure to pursue remedies, especially in the pleas of voidability, of being subject to offsetting and of failure to pursue remedies ((S) (S) 768, 770,771 of the German Civil Code) as well as the option of a deposit. The landlord is entitled but not obliged, to satisfy his claim through the guarantee. 20 2. If the guarantee is not procured within the given time limit, the rented property cannot be occupied. The tenant will have to cover for the for the resulting delays; he will not be absolved from his obligation to pay rent as set out in (S) 4 Nr.1. If the tenant delays procuring the guarantee, the landlord can require the tenant to replace the guarantee with an interest-free cash deposit for the same amount. 3. If the landlord should make use of the guarantee, the tenant is obliged, at the landlord's first request, to complete the guarantee again. 4. In case there should be an alteration in the amount of the rent, or in the advance monthly ancillary payment, or in the standard rate of VAT, the alteration has to be securely met within one month of its coming into force. 5. The obligatory guarantee ends with the return of the surety bond by the landlord to the guarantor. This return will take place when, on termination of the rental agreement, all the tenant's payment obligations, as specified in the tenancy agreement, have been met. 6. The above surety conditions have to be correspondingly met when a cash deposit is made ((S) 11 Nr.2 Sentence 3). (S) 12 Sub-Letting 1. The tenant can sub-let part or whole of the rented property, provided the landlord gives prior written consent, and the sub-tenant uses the rented property particularly in keeping with (S) 2 Nr.1 of this tenancy agreement, and passes on all the obligations contained in this tenancy agreement to the sub-tenant. When sub-letting, the tenant is fully liable, including the payment of rent. The landlord has to point out that he will not agree to a sub-tenant, or a third party usage, if the third party does not hold themselves 21 responsible for using the rented property, subject to a rental agreement with the tenant, solely for turnover which does not excluding input tax deduction. The landlord will, however, only withhold his consent to sub- letting for important considerations. If permission has been refused, the tenant is not entitled to any right of termination in accordance with Section 549 Paragraph 1 of the German Civil Code. 2. The tenant herewith assigns to the landlord the right to have rental payments made by the sub-tenant directly to the landlord. (S) 13 Exceptional Right of Notice The landlord can terminate the rental agreement immediately without recourse to notice if a. the tenant is in arrears with the rent, or a substantial part of it, for two successive months, or is in arrears with the rent for the amount of one sum over a period exceeding two deadlines and amounting to two month's rent. b. the tenant or sub-tenant, in spite of written warning, utilises the rented property for purposes contrary to those set out in the tenancy agreement, or relinquishes it to unauthorised third parties; c. if the tenant's assets have been subject to bankruptcy or composition proceedings have been opened, or if an adjudication order has been dismissed for lack of assets; d. the tenant in spite of written warnings annoys other tenants significantly; 22 e. the necessary official approval for the tenant's business is not obtained or is withdrawn. Notice can only be given if the tenant has been warned of this in writing and yet continues to operate contrary to the contractual agreement. If the tenant is responsible for the termination of the agreement he is liable to the landlord for all losses caused by the termination, especially those of rent, ancillary costs and VAT. (S) 19 Sentence 3 KO remains unaffected. For the duration of this liability the tenant absolves the landlord from all third party claims arising from the notice of termination according to (S) 13. In this case the landlord is obliged to resume his letting activities and interview suitable new tenants. (S) 14 Concluding Provisions 1. In the event of a sale of the rented property, the liability of the landlord, as set out in Section 571 Paragraph 2 of the German Civil Code, is out of the question. 2. The present contract comprises, together with the Appendices 1-6, all agreements. Any alterations or additions to this contract have to be agreed in writing. This also applies to the setting aside of the written form itself. Verbal collateral agreements are not affected. If a present or future item in this contract is, or shall prove to be, partly or wholly unworkable, null or inoperable, the validity of the rest of the contract is unaffected thereby. The same applies if after conclusion of the contract a loophole in it has to be further amended. The parties to the contract will replace the unworkable or null condition or loophole, with a legally and commercially effective alternative condition, which reflects the general purpose of the contract. 3. The contractual parties mutually undertake at all times to make every endeavour and declaration necessary to satisfy the legal written requirements, especially relating to the conclusion of supplementary 23 and amended contracts, and until then not to prematurely terminate the tenancy agreement under the pretence of invoking the non-compliance of the legal written form. The contractual parties are agreed that any non- compliance with the written form that deviates from Section 125 Clause 2 of the German Civil Code does not affect the validity of the contract. (S) 15 Jurisdiction Jurisdiction and place of performance is Hamburg. Hamburg............................ /s/ Alessandro Giacalone /s/ [illegible] ____________________________ _________________________ Cybernet Deutsche Immobilien Fonds Internet-Dienstleistungen AG Aktiengesellschaft -Tenant - - Landlord - /s/ Christian Moosmann ____________________________ Cybernet Internet-Dienstleistungen AG 24 EX-21 12 EXHIBIT 21 EXHIBIT 21 SUBSIDIARIES
Direct or Indirect Percentage Owned - - - - - - - - - - - - - - - - - - - - - - - - - - - Cybernet Internet Dienstleistungen AG Germany Direct 100% Vianet EDV Dienstleistungs GmbH Austria Direct 100% Eclipse s.p.a. Italy Indirect 66% Cybernet Internet Beteiligungs GmbH Germany Indirect 100% Open:Net Internet Solutions GmbH Germany Indirect 100% Cybernet E-Commerce GmbH & Co. KG Limited Partnership Germany Indirect 100% [SunWeb Internet Services AG] Switzerland Direct 51%
EX-27 13 FINANCIAL DATA SCHEDULE
5 12-MOS 12-MOS DEC-31-1998 DEC-31-1997 JAN-01-1998 JAN-01-1997 DEC-31-1998 DEC-31-1997 42,875,877 2,238,909 112,503 817,913 3,610,147 1,164,398 (361,393) (33,417) 0 0 48,453,401 4,533,141 9,680,260 2,496,785 (1,709,960) (211,992) 79,444,729 12,617,057 10,702,750 3,642,114 1,382,566 41,691 0 0 6,360 7,760 18,762 14,682 67,334,291 8,885,873 79,444,729 12,617,057 8,633,528 2,314,021 8,633,528 2,314,021 10,440,008 2,531,787 10,440,008 2,531,787 9,240,833 2,065,931 0 0 197,243 39,550 (11,090,260) (2,323,247) 6,172,645 1,339,407 (4,772,690) (983,840) 0 0 0 0 0 0 (4,772,690) (983,840) (0.30) (0.12) (0.30) (0.12)
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