Cybernet AG

» see cybernet.de as it lived, on the wayback machine

~ the obituary ~

Cybernet sold leased lines and virtual private networks to German companies with a few hundred employees and no network engineer of their own. The German operating company, Cybernet Internet-Dienstleistungen AG, was organized in Munich in December 1995 and started doing real business the following year. Its own homepage called it "The Communication People", a tagline for a company whose actual product was a wire.

The strange part sits above the wire. The Munich ISP was owned by a Delaware holding company with a long name, assembled in November 1998 by merging a Delaware entity organized that September into a Utah shell that had been sitting there since 1983. That holding company filed with the SEC and traded on the OTC Bulletin Board, and it kept its shares on the Neuer Markt in Frankfurt until June 2002. The business was in Bavaria, the legal identity was in Delaware, and by the end the registered office was a tower on Burrard Street in Vancouver.

Revenue went 7.8 million euros in 1998, then 20.9, then 35.8, then 39.1 in 2001, which was the top. In that same 2001 the operating loss was 80.2 million euros and the net loss was 134.6 million. The staff went from about 225 at the end of 2001 to about 48 at the end of 2002. The three German data centers were sold off to stop them draining cash. The accounts for 2002 showed a stockholders' deficiency of 138 million euros and a note saying there was substantial doubt the company could continue.

~ the case file ~

~ the coupon ~

In 1999 the company raised about $225 million of public debt, and the piece that killed it was $150 million of senior notes paying 14 percent, due 1 July 2009, sold in thousand-dollar units with a warrant attached for about thirty shares at $22.278 each. Fourteen percent was the price of borrowing against a European business ISP in 1999, and nobody signing it expected to be paying it in 2003.

The indenture required an escrow account covering the first six interest payments. The sixth one went out on 1 July 2002, 4.7 million euros, and the escrow was then empty. The next coupon was due 2 January 2003 and the company did not pay it. It filed an 8-K the same day saying so, and noting it had thirty days before that became an event of default. On Friday 24 January it paid, with eight days to spare. That was the last coupon it ever made.

~ the proxy war ~

Everything that mattered at the top of this company happened on one day. On 12 March 2002 the shareholders met, a settlement agreement was signed between the company, MFC Bancorp, Andreas Eder and Paolo di Fraia, termination agreements were dated, and Michael J. Smith became President, Chief Executive and a Class C director. Smith was already the President and Chief Executive of MFC Bancorp, which by then held 25.9 percent of the stock. On the same date the company signed a credit facility for up to 7 million euros with MFC Merchant Bank.

That is the whole arc of a contested proxy fight compressed into one calendar square: the lender's man took the chair, and the executive the shareholders group had been fighting kept his shares and lost his job. Eder's employment formally ended on 27 July 2002. He still held 1,642,765 shares, 6.2 percent, in a stock that traded as low as five cents in the last quarter of that year. Smith signed the filings that followed from the Vancouver address, and the last one, in December 2003, was signed by a different director and recorded Smith's own resignation.

~ who answered at cybernet.de ~

The company's death certificate is dated 22 December 2003. The brand's is earlier and you can read it off the archive. The last homepage that calls itself Cybernet is from 28 November 2002, about ten kilobytes, title "Cybernet - The Communication People - Home". From February 2003 the domain stops serving a site and starts bouncing visitors to a page on psineteurope.de headed, in German, information about the acquisition of the internet services divisions of Cybernet AG. By November 2003 cybernet.de simply serves PSINet Europe's own homepage. Customers who typed the old address got the new owner's menu and a language picker.

So the operating business was gone first and the legal shell outlived it by a year, which is the normal order for this kind of ending and still reads strangely. What the 8-K of 22 December actually says is that a notice of default had arrived on the 14 percent bonds, that after considering its options the company as of today ceased operations, and that it had paid the secured bondholder all of its cash and assets. Two directors resigned in the next sentence, Smith among them, and a third director signed the form. It took four sentences and one signature to close a company that had once raised $225 million.

I was nineteen in 2003 and on a Turkish ISP connection that I did not choose, in a country where this company never sold anything. Cybernet's customers were German firms buying bandwidth with a contract and a service level, and that market has no consumer memory attached to it at all. Nobody misses a leased line. The only reason the name is recoverable at all is that a Delaware registrant has to keep filing, so the whole arc is sitting on the SEC's servers in public: the 1999 bond issue, the missed coupon, the proxy settlement, and the four sentences at the end.

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