As filed with the Securities and Exchange Commission on September 10, 1999

Registration No. 333-

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

--------------

FORM S-4

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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CYBERNET INTERNET SERVICES INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)

Delaware 7375 51-0384117
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation or
organization)

Stefan-George-Ring 19-23
D-81929 Munich
Germany
+49-89-993-150
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)

Andreas Eder
Chairman of the Board of Directors,
President and Chief Executive Officer
Cybernet Internet Services International, Inc.
Stefan-George-Ring 19-23
81929 Munich, Germany
+49-89-993-150
(Name, address, including zip code, and telephone number,
including area code, of agent for service)

--------------

Copies To:

Michael H. Chanin, Esq.
Powell, Goldstein, Frazer & Murphy LLP
1001 Pennsylvania Ave., NW
Washington, DC 20004
(202) 347-0066

Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.

If the securities being registered on this Form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. [_]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

CALCULATION OF REGISTRATION FEE

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Proposed Proposed
Title of each class of Amount maximum maximum Amount of
securities to be to be offering price aggregate registration
registered registered per note offering price fee
- --------------------------------------------------------------------------------

14.0% Senior Notes due
2009.................. $150,000,000 100% $150,000,000 $41,700
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(f) under the Securities Act of 1933, as amended.

The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in the prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION DATED SEPTEMBER __, 1999

[CYBERNET LOGO APPEARS HERE]

OFFER TO EXCHANGE
any and all outstanding
14.0% Senior Notes due 2009
($150,000,000 aggregate principal amount outstanding)
for
14.0% Senior Notes due 2009
of

CYBERNET INTERNET SERVICES INTERNATIONAL, INC.

-----------
TERMS OF EXCHANGE OFFER

. Expires 5:00 p.m., New York City time, , 1999, unless extended.

. Not subject to any other condition other than that the Exchange Offer does
not violate applicable law or any applicable interpretation of the Staff
of the Securities and Exchange Commission.

. All Outstanding Notes that are validly tendered and not validly withdrawn
will be exchanged.

. Tenders of Outstanding Notes may be withdrawn any time prior to 5:00 p.m.,
New York City time, on the date of the expiration of the Exchange Offer.

. The exchange of Notes will not be a taxable exchange for U.S. federal
income tax purposes.

. We will not receive any proceeds from the Exchange Offer.

. The terms of the Exchange Notes to be issued are substantially similar to
the Outstanding Notes, except for transfer restrictions and registration
rights relating to the Outstanding Notes.

. We intend to list the Exchange Notes on the Luxembourg Stock Exchange.

-----------
See "Risk Factors" beginning on page 18 for a discussion of certain matters
that should be considered by prospective investors.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the notes or passed upon the adequacy
or accuracy of the disclosures in this prospectus. Any representation to the
contrary is a criminal offense.

-----------

The date of this prospectus is , 1999.

TABLE OF CONTENTS

Page
----

Currency and Financial Statement Presentation............................ ii
Information Regarding Forward-Looking Statements......................... ii
Summary.................................................................. 1
Risk Factors............................................................. 18
Use of Proceeds.......................................................... 38
Exchange Rate Information................................................ 39
Price Range of Common Stock and Dividend Policy.......................... 40
The Exchange Offer....................................................... 41
Capitalization........................................................... 48
Selected Consolidated Financial and Operating Data....................... 49
Unaudited Pro Forma Consolidated Financial Statements.................... 51
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 56
Quantitative and Qualitative Disclosures About Market Risk............... 72
Business................................................................. 73
Information Regarding Significant Subsidiaries........................... 90
Management............................................................... 91
Related Party Transactions............................................... 98
Stock Ownership of Principal Beneficial Owners and Management............ 99
Description of the Exchange Notes........................................ 101
Description of Material Indebtedness..................................... 136
Certain United States Federal Income Tax Consequences.................... 137
Plan of Distribution..................................................... 142
Legal Matters............................................................ 143
Independent Accountants.................................................. 143
Available Information.................................................... 143
Listing and General Information.......................................... 144
Glossary of Terms........................................................ 146
Index to Financial Statements............................................ F-1

The Exchange Offer is not being made to, nor will we accept surrenders for
exchange from, holders of Outstanding Notes in any jurisdiction in which the
Exchange Offer or the acceptance thereof would not be in compliance with the
securities or blue sky laws of such jurisdiction.

No dealer, salesperson or other individual has been authorized to give any
information or make any representation not contained in this prospectus in
connection with the offering covered by this prospectus. If given or made, such
information or representation must not be relied upon as having been authorized
by the Company. This prospectus does not constitute an offer or a solicitation
in any jurisdiction where, or to any person to whom, it is unlawful to make
such offer or solicitation. Neither the delivery of this prospectus, nor any
distribution of securities made hereunder shall under any circumstances, create
any implication that there has not been any change in the facts set forth in
this prospectus or in the affairs of the Company since the date hereof.

The securities may not be offered or sold in or into the United Kingdom
except in circumstances that do not constitute an offer to the public within
the meaning of the Public Offers of Securities Regulations 1995. All applicable
provisions of the Financial Services Act 1986 must be complied with in respect
of anything done in relation to securities in, from or otherwise involving the
United Kingdom.

We confirm, having made all reasonable inquiries, that this prospectus
contains all information which is material in the context of the exchange of
the Notes, that the information contained herein is true and accurate in all
material respects and is not misleading in any material respect, that the
opinions and intentions expressed herein are honestly held and that there are
no other facts the omission of which would make any of such information or the
expression of any such opinions or intentions misleading in any material
respect. The Company accepts responsibility accordingly.

CURRENCY AND FINANCIAL STATEMENT PRESENTATION

In this prospectus, unless otherwise specified or unless the context
otherwise requires, all references to "Deutsche Marks," "DM" and "Pfennigs" are
to the lawful currency of the Federal Republic of Germany, all references to
"Lire," "Lira" and "Lit." are to the lawful currency of Italy, all references
to "Austrian Schillings" and "ATS" are to the lawful currency of Austria, all
references to "Euro" and "(Euro)" are to the lawful currency of the countries
of the European Monetary Union, and all references to "U.S. dollars," "dollars"
and "$" are to the lawful currency of the United States. Amounts stated in
dollars, unless otherwise indicated, have been translated from Deutsche Marks,
Lire, Austrian Schillings or Euro at assumed rates solely for convenience and
should not be construed as representations that the Deutsche Mark, Lira,
Austrian Schilling or Euro amounts actually represent such dollar amounts or
could be converted into dollars at the rate indicated or any other rate. Except
as otherwise indicated in this prospectus, such dollar amounts have been
translated from Euro to Deutsche Marks at the rate of (Euro)1.00 = DM 1.9558,
from Euro to Lire at the rate of (Euro)1.00 = Lit. 1,936.27, from Euro to
Austrian Schillings at the rate of (Euro)1.00 = ATS 13.7603 and from dollars to
Euro at the rate of $1.00 = (Euro)0.9363, the noon buying rate in The City of
New York for cable transfers in foreign currencies as certified by the Federal
Reserve Bank of New York for customs purposes (the "Noon Buying Rate") on
August 3, 1999. You should read "Exchange Rate Information" for information
regarding recent rates of exchange between the U.S. dollar and the Deutsche
Mark, between the U.S. dollar and the Austrian Schilling, between the U.S.
dollar and the Lira and between the U.S. dollar and the Euro.

Unless otherwise indicated, financial information in this prospectus has been
prepared in accordance with generally accepted accounting principles in the
United States.

INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains or incorporates by reference forward-looking
statements. These statements can often be identified by the use of forward-
looking terminology such as "estimate," "project," "believe," "expect," or
"anticipate" or the negative of such terms or other variations on such or
comparable terms, or by discussions of strategy that involve risks and
uncertainties. These forward-looking statements include statements concerning:

(1) the strategies for our business;

(2) our anticipated growth of the communications and information services
industry;

(3) our plans to devote significant management time and capital resources
to our business;

(4) our expectations as to funding capital requirements;

(5) our anticipated dates on which we will begin to provide certain
services or reach specific milestones in our business strategies; and

(6) other expectations, beliefs, future plans, anticipated development and
other matters that are not historical facts.

You should be aware that these forward-looking statements are not historical
facts and are subject to risks and uncertainties, including financial,
regulatory environment, changes and growth in the Internet and
telecommunications industry and the general economy, changes in product and
services offerings, risks associated with our limited operating history,
managing rapid growth, acquisitions and strategic investments, dependence on
effective information and billing systems and trend projections. Any of these
factors could cause actual events or results to differ materially from those
expressed or implied by the statements. We cannot assure that such results
expressed or implied by the statements will be achieved, or that, if achieved,
such results will be indicative of the results in subsequent periods. The most
important factors that could prevent us from achieving our stated goals include
the risks that we will not:

(1) achieve and sustain profitability from the creation and implementation
of our Internet Protocol based communications network;

(2) overcome significant early operating losses;

(3) produce sufficient capital to fund our business strategies;

(4) enhance financial and management controls;

(5) attract and retain additional qualified management and other personnel;

(6) negotiate peering agreements; and

(7) make acquisitions necessary to expand our network, products and
services and to implement our strategies.

For a discussion of certain of these factors, see Risk Factors beginning on
page 18.

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES OFFERED HEREBY,
THROUGH PORTAL OR OTHERWISE, AT LEVELS WHICH MIGHT NOT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH STABILIZATION, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
YOU SHOULD READ "PLAN OF DISTRIBUTION" FOR A DESCRIPTION OF THESE ACTIVITIES.

GLOSSARY

This prospectus contains a number of technical and industry-related terms
that may not be easily understandable by all readers. We have provided
definitions for certain of these terms in a glossary which begins on page 146
of this prospectus.

iii

SUMMARY

This summary highlights some information from this prospectus. It may not
contain all of the information that may be important to you. For a more
complete understanding of the Exchange Offer, we encourage you to read the
entire prospectus and the documents we have referred you to.

We began our operations 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 Cybernet Internet
Services International, Inc., a Delaware corporation ("Cybernet Delaware"), and
the Delaware corporation is the surviving entity of the merger. On June 30,
1999, we consummated our acquisition of all of the issued and outstanding
capital stock of Flashnet S.p.A. ("Flashnet"), a leading Internet Service
Provider ("ISP") based in Rome, Italy. The terms "Company," "Cybernet," "we,"
"us" and "our," as used in this prospectus, refer to Cybernet Delaware and its
subsidiaries as a combined entity, except where its use is such that it is
clear that such term means only Cybernet Delaware.

The Exchange Offer

On July 8, 1999 we completed a private offering of 150,000 Units (the
"Units"), each consisting of $1,000 principal amount of our 14.0% Senior Notes
due 2009 (the "Outstanding Notes" or "Senior Notes") and one Warrant (a
"Warrant") to purchase 30.2310693 shares of our common stock (the "Unit
Offering"). On the same day, we entered into a registration rights agreement
with the initial purchasers in the Unit Offering in which we agreed, among
other things, to deliver to you this prospectus and to complete this Exchange
Offer within 180 days of the issuance of the Outstanding Notes. You cannot
tender the Warrants issued as part of the Unit Offering for exchange. You
should read the discussion under the heading "Summary Description of the
Exchange Notes" and "Description of the Exchanges Notes" for further
information regarding the registered notes.

We believe that the notes issued in this Exchange Offer (the "Exchange Notes"
and, together with the Outstanding Notes, the "Notes") may be resold by you
without compliance with the registration and prospectus delivery provisions of
the Securities Act of 1933, as amended, subject to certain conditions. You
should read the discussion under the headings "Summary of the Terms of Exchange
Offer" and "The Exchange Offer" for further information regarding the Exchange
Offer and resale of the Notes.

The Company

Through our subsidiaries, we are a leading provider of Internet
communications services and solutions in Germany, Austria, Italy and
Switzerland targeting small- and medium-sized enterprises. Our Internet
protocol ("IP") solutions are based on a core product offering consisting of
Internet connectivity and value-added services. Such value-added services
include virtual private networks ("VPNs"), web-hosting, co-location, security
solutions, electronic commerce, Intranet/Extranet and workflow solutions. We
offer consulting, design and installation, training, technical support, and
operation and monitoring of IP-based systems. We market our products and
services primarily to small- and medium-sized enterprises in Europe because we
believe that they represent an underserved and sizeable market. Companies in
this market are characterized by a lack of internal technical resources,
rapidly expanding communications needs and a high propensity to utilize third-
party outsourcing. We are recognized as a provider of high quality Internet
connectivity services and solutions to

enterprises and as one of Germany's leading Internet access providers.
Recently, IT Services, a leading German computer magazine, ranked us number one
among German ISPs in terms of infrastructure, international outlook and
customer service.

Our mission is to become a leading European provider of IP-based
communications services and network-based business solutions. We intend to
continue to focus on small- and medium-sized enterprises in Europe,
offering a full portfolio of advanced communications products, including
Internet access and value-added services.

We believe that our capabilities in Internet, telecommunications and systems
integration services differentiate us from many of our competitors who offer
some, but not all, of the products and services that we offer. We approach and
win business customers by offering and designing a full range of services and
solutions for mission critical communications needs, such as electronic
commerce solutions, Intranets and VPNs. This enables us to work directly with
different levels of our customers' organizations, to participate in the design
of customers' systems and to offer additional network and communications
services as our customers' businesses grow and their needs change. By basing
our solutions upon product modules, we are able to meet our customers'
individual needs at competitive prices, while realizing higher margins by
reducing costs through standardization. Also, as a result of the high quality
of our services and the value-added nature of our solutions, we believe that we
experience higher customer retention rates and that we are less vulnerable to
pricing pressures than many of our competitors in the telecommunications and
Internet industries.

We sell our services and solutions primarily through our direct sales force.
Most of our sales people are based in regional offices and are supported by
specialized technical and commercial assistance from our customer care centers
in Munich, Vienna, Zurich and Trento. We complement our direct sales effort
with an extensive reseller and referral network of over 100 companies and by
forming marketing alliances with technology leaders such as Hewlett-Packard,
Microsoft, Network Associates and Sun Microsystems. While our reseller
arrangements begin with sales of our basic product offerings, such as
connectivity, they can lead to direct sales by us of more complex solutions,
such as security solutions or VPNs.

We operate a geographically distributed IP network based upon leased lines.
Our network is spread over six countries and consists of network nodes equipped
primarily with Cisco and Ascend routers connected to a redundant high-
performance backbone infrastructure. We help corporate customers reduce
telecommunications costs by offering Internet connectivity through dedicated
lines at more than 56 directly owned Points of Presence ("POPs"). We also offer
a system of dial-in nodes with ISDN or analog modem ports to smaller
enterprises, employees and affiliates of corporate customers. These nodes
permit local dial-in access throughout Germany, Italy and Switzerland and most
of Austria. Flashnet owns 20 of these POPs for dedicated lines (which can also
accommodate dial-in traffic) and has access to more than 300 dial-in access
nodes. Recently, we reorganized our dial-in network in Germany by concentrating
multiple dial-in access nodes into larger access points called "Virtual POPs,"
which use a Public Switched Telephone Network ("PSTN") to aggregate traffic. We
expect this will generate operating efficiencies, in that there will be fewer
overall nodes to service. We are expanding our network across Germany, Austria,
Italy and Switzerland by installing additional POPs and replacing dial-in
access nodes with Virtual POPs.

We also plan to add digital circuit switching capabilities to our network to
offer voice telecommunications services to our customers, capture more revenues
from dial-in traffic and provide termination services to other carriers.

We have increased our revenues from $0.3 million in 1996 to $8.6 million in
1998 ($17.4 million pro forma for acquisitions, including Flashnet). As of
March 31, we provided services to approximately 10,800 business customers, an
increase from approximately 200 customers at December 31, 1996. The majority of
these customers are small- to medium-sized enterprises. We also provide
services to larger

companies and organizations such as BASF Corporation, German Parcel,
Commerzbank, Hewlett-Packard, Start Media Plus, DaimlerChrysler Aerospace
Dornier, BMW Financial Services, Raiffeisenbank, Zuegg, Honeywell, Lauda Air,
Modern Times, Amadeus, Lufthansa and News. As of March 31, 1999, including
customers obtained through resellers, Flashnet had approximately 1,600 business
customers and 38,000 residential customers, including large organizations such
as Nokia Italia, ERG, Avis, Ferrovie dello Stato (Italian Railways) and the
Italian Parliament.

Our management team consists of individuals with extensive Internet,
Information Technology ("IT") and telecommunications expertise. Andreas Eder,
co-founder and Chief Executive Officer, previously held various positions at
Siemens-Nixdorf Information Systems and The Boston Consulting Group. Dr.
Alessandro Giacalone, Chief Operating Officer, previously headed the European-
Industry Computer Research Center and established it as a leading German ISP.
He was also a Professor of Computer Science at the State University of New York
at Stony Brook. Robert Eckert, our Chief Financial Officer, was previously with
Netsource A/S, Swisscom International, and General Electric (USA). Walter
Franz, who is principally responsible for our network, was director of network
operations for MCI/WorldCom in Germany and also worked for MFS
Telecommunications and Motorola. In addition, we have recruited individuals at
various managerial levels from leading industry participants such as
AT&T/Unisource, British Telecommunications and Deutsche Telekom. Our policy is
to retain the key executives of the companies we acquire. To this end, we
typically structure our acquisitions to give such executives an equity
participation in the future success of our Company. We have retained most of
the key managers in our acquisitions.

Business Strategy

Our objective is to become a leading provider of communications services and
network-based business solutions to small- to medium-sized enterprises in
Europe. We currently offer a full-service portfolio of advanced communications
products including Internet access and value-added services, as well as
switched voice services. The principal elements of our business strategy are as
follows:

Target Small- to Medium-Sized Business Enterprises. We focus on small- to
medium-sized enterprises. In Germany, we focus on companies that typically have
revenues between (Euro)25 million and (Euro)500 million. According to
Statistisches Bundesamt, a German government agency, such companies generate
45% of Germany's total corporate revenues. In other countries, the revenues of
small- to medium-sized enterprises as a portion of total corporate revenues
vary. We believe that this customer segment is underserved and has substantial
and increasing communications needs. Small- to medium-sized enterprises
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 IT, tourism, retail, finance, government, media and
advertising. For many of these industries, utilization of the Internet has
become essential. In certain markets, we also serve high-end residential
customers.

Initiate Long-Term Relationships with Customers Through Local Coverage and at
an Early Stage. Unlike some of our competitors, we use strong local management
teams to address the needs of our customers. Most of our sales people are based
in regional offices and are supported by specialized technical and commercial
assistance from our offices in Munich, Vienna, Zurich and Trento. This strategy
allows us to initiate close relationships with our customers at an early stage
of their Internet service requirements, engage in strategic discussions with
senior management about their communications requirements, participate in the
design of their systems, 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. This also enables us to offer
additional solutions to our customers without having to compete primarily on
price.

VPNs, security solutions, electronic commerce solutions and Intranet and
workflow solutions. As technology evolves, we intend to broaden our product
offering to include additional services, solutions and innovations that have
proven reliable and effective. In June 1999, we started offering voice
services. Our ability to offer voice services will allow us to provide one-stop
shopping for integrated voice and data solutions. We believe IP technology and
IP applications will be the primary platform and interface for business, data
and voice communications in the future.

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, Microsoft, Network
Associates, and Sun Microsystems. We are expanding our direct sales force and
regional offices to increase our local coverage. We currently have 19 sales
offices (seven in Germany, one in Austria, nine in Italy and two in
Switzerland), and we plan to increase this number. We intend to expand our
reseller and referral arrangements to increase sales of our basic connectivity
services and to enhance our marketing alliances to obtain more potential
customer contacts.

Control Our Network. We consider it strategically important to control and
operate our own network infrastructure. This will enable us to: (i) maximize
revenues by offering total communications services, including broad band and
voice services; (ii) achieve the highest levels of service quality and
reliability; and (iii) reduce transmission costs. This involves:

. optimizing the configuration of our IP network by concentrating
international access at a few select locations where the cost of global
access can be minimized; concentrating network planning and management
in one central location; and planning the network's redundancy on a pan-
European basis rather than on a local basis;

. establishing up to nine large-scale data centers to enhance our co-
location and housing service offering;

. acquiring up to nine carrier grade digital circuit switches to be
installed in key cities; and

. leasing transmission capacity on a long-term basis, acquiring backbone
capacity or constructing our own infrastructure in selected locations to
transport high bandwidth data and voice services over all available
transmission protocols (including alternative long-haul transmission
such as microwave).

Accelerate Growth in Europe Through Targeted Acquisitions. To date, we have
successfully integrated three acquisitions. We have recently acquired three
additional companies which we are in the process of integrating. We will seek
to acquire additional Internet-related companies to strengthen our presence in
other European countries while continuing to grow internally. We look for
strategically and culturally compatible companies to add to our strong
management, enhance our technical expertise and enhance our customer base in
our current coverage area and bordering countries.

Acquisitions

Since we began business in 1996, we have acquired six companies, through
which we have expanded our technical capabilities, attracted additional talent,
entered new markets and increased our customer base:

. Cybernet E-Commerce. In September 1997, we acquired 100% of Artwise GmbH
("Artwise") which was later renamed Cybernet E-Commerce GmbH & Co.
("Cybernet E-Commerce"), a German company which has provided us with
expertise in Intranet messaging and workflow solutions and established
our presence in the Ulm region of Germany;

. Eclipse. 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;

. Open:Net. 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 Cybernet E-
Commerce;

. Vianet. In December 1998, we acquired 100% of Vianet Telekommunikations
A.G. ("Vianet"), a leading Austrian ISP through which we entered the
Austrian market and significantly increased our customer base;

. Sunweb. In May 1999, we acquired 51% and an option to purchase the
remaining 49% of Sunweb Internet Services SIS AG ("Sunweb"), through
which we established a presence in Switzerland and acquired substantial
additional expertise in switched voice services; and

. Flashnet. In June 1999, we acquired 100% of Flashnet, a leading Italian
ISP, through which we gained access to all major business centers in
Italy.

Recent Developments

Flashnet Acquisition. On June 30, 1999, we purchased all of the issued and
outstanding capital stock of Flashnet for a purchase price consisting of Lit.
41.0 billion ($22.6 million) in cash and 301,290 newly issued shares of our
common stock, a total purchase price valued at Lit. 54.2 billion ($29.9
million) as of May 14, 1999, the contract date. The selling stockholders
consisted of: (i) two affiliates of 3i, an English investment group, which
together owned 42.6% of Flashnet's stock, on a fully diluted basis, and which
received their portion of the purchase price in cash; and (ii) members of
Flashnet's management and their affiliates who owned the remaining stock and
received a combination of Cybernet stock and cash. Among this latter group of
selling stockholders were the President, Managing Director, Sales Director and
two technical directors, all of whom have agreed to continue as employees under
long-term contracts with customary covenants not to compete.

Headquartered in Rome, Flashnet is the third largest ISP in Italy, offering
business and residential customers dedicated lines, dial-in and satellite
access to the Internet, web-hosting, co-location services, electronic commerce,
VPNs and a variety of other services. It maintains a customer care center which
is available 24 hours per day to business customers and 18 hours per day to
residential customers. In 1998, Flashnet had revenues of Lit. 8.3 billion ($4.6
million).

Founded in 1994 as a division of a computer distribution group, Flashnet
originally focused on the residential market and built a clientele which
totaled approximately 38,000 residential customers as of March 31, 1999. Over
the last 20 months, it has shifted its marketing focus to businesses and has
already developed a business customer base consisting of approximately 1,600
customers as of March 31, 1999.

Flashnet owns 20 POPs for dedicated lines and has access to more than 300
dial-in access nodes which can also accommodate dial-in traffic. The POPs
interconnect with each other through leased lines. In Rome, Flashnet has
international access through primary links with MCI/WorldCom, Global One and
Ebone. Most of Flashnet's network equipment is manufactured by Cisco.

The table below summarizes certain operating and financial results of
Flashnet:

December 31, March 31,
1998 1999
------------ ---------

Operating Data
Residential Customers(/1/)............................... 31,556 38,269
Business Customers(/1/).................................. 1,096 1,625
------ ------
Total Customers........................................ 32,652 39,894

- --------
(1)Including customers obtained through resellers.

Year or Six Months Ended
-------------------------------------------
December 31, June 30, December 31, June 30,
1998 1999 1998 1999
------------ -------- ------------ --------
Lit. Lit. $ $
------------ -------- ------------ --------
(millions) (thousands)

Financial Data (US GAAP)
Net Sales.......................... 8,334 7,662 4,597 4,352
EBITDA............................. (2,354) (101) (1,298) (57)
EBIT............................... (3,011) (543) (1,661) (308)
Net Income......................... (2,366) (850) (1,305) (483)
Stockholders' deficit/(1)/......... (533) 417 (294) 251

- --------
(1) At period end.

Unit Offering. On July 8, 1999, we sold 150,000 Units consisting of 14.0%
Senior Notes due 2009 and Warrants to purchase an aggregate of 4,534,604 shares
of our common stock (representing approximately 15% of our issued and
outstanding capital stock on a fully diluted basis at that time). The net
proceeds of the Unit Offering were $145,500,000. Of that amount, $57,466,076
was used to purchase U.S. government securities pledged to an escrow agent to
secure payment of the first six interest payments on the Senior Notes, and
$22,374,264 was used to repay an interim loan (the "Interim Loan") incurred to
finance the cash portion of the acquisition price for Flashnet.

Discount Notes Offering. On August 26, 1999, we sold (the "Discount Notes
Offering") $50,002,183 in aggregate initial accreted value of our 13.0%
Convertible Senior Subordinated Discount Notes due 2009 (the "Discount Notes").
Each Discount Note was sold at an initial accreted value of $534.78, a
substantial discount from its principal amount at maturity of $1,000. There
will not be any accrual of cash interest on the Discount Notes prior to August
15, 2004 or payment of cash interest prior to February 15, 2005. Holders of the
Discount Notes may convert the Discount Notes at their option into our common
stock at any time after August 26, 2000. The number of shares of our common
stock issuable upon conversion of the Discount Notes is equal to the accreted
value of the Discount Notes being converted on the date of conversion divided
by $25.00, subject to adjustment under certain events. If the market price of
our common stock exceeds certain prices at any time after August 26, 2000, the
Discount Notes will automatically convert into shares of our common stock at
the same conversion ratio. The net proceeds of the Discount Notes Offering were
$47,502,074, which we intend to use for capital expenditures and general
corporate purposes.

PIK Notes Offering. On August 26, 1999, we sold (the "PIK Notes Offering")
(Euro)25 million aggregate principal amount of our 13.0% Convertible Senior
Subordinated Pay-In-Kind Notes due 2009 (the "PIK Notes"). We will pay interest
on the PIK Notes in the form of additional notes issued under the pay-in-kind
feature through August 15, 2004. From that date to maturity interest will
accrue and will be paid in cash. Holders of the PIK Notes and any additional
notes issued under the pay-in-kind feature may convert both types of notes at
their option into our common stock at any time after August 26, 2000. The
number of shares of our common stock issuable upon conversion of these notes is
equal to the principal value of the notes being converted divided by $25.00,
subject to adjustment under certain circumstances. The net proceeds of the PIK
Notes Offering were (Euro)23,750,000, which we intend to use for capital
expenditures and general corporate purposes.

General Information

Our principal executive offices are located at Stefan-George-Ring 19-23,
81929 Munich, Germany, telephone number: +49-89-993-150, and our registered
address in the United States is Corporation Services Company, 1013 Centre Road,
Wilmington, Delaware 19805.

Summary of the Terms of the Exchange Offer

This Exchange Offer relates to the exchange of up to $150,000,000 aggregate
principal amount of Outstanding Notes for an equal aggregate principal amount
of Exchange Notes. The Exchange Notes will be our obligations and are entitled
to the benefits of the indenture relating to the Outstanding Notes. The form
and terms of the Exchange Notes are identical in all material respects to the
form and terms of the Outstanding Notes except that the Exchange Notes have
been registered under the Securities Act of 1933, and therefore are not subject
to restrictions on transfer and are not entitled to the benefits of the
registration rights granted under the registration rights agreement, executed
as a part of the Unit Offering, dated July 8, 1999, among our Company and the
initial purchasers set forth therein.

Registration Rights..... On July 8, 1999, we and the initial purchasers agreed
that you, as a holder of the Outstanding Notes, would
be entitled to exchange your Outstanding Notes for
registered Exchange Notes with substantially
identical terms. This Exchange Offer is intended to
fulfill that agreement. After the Exchange Offer is
complete, you will no longer be entitled to any
exchange or registration rights with respect to your
Outstanding Notes (unless certain conditions are
met). See "The Exchange Offer--General." In such
event, you will continue to hold the Outstanding
Notes and will be entitled to all the rights and
subject to all the limitations applicable to the
Outstanding Notes under the indenture governing the
Outstanding Notes, except to the extent such rights
or limitations by their terms terminate or cease to
have further effectiveness as a result of the
Exchange Offer. All Outstanding Notes will continue
to be subject to certain restrictions on transfer.

The Exchange Offer...... We are offering to exchange $1,000 principal amount
of 14.0% Senior Notes due 2009 which have been
registered under the Securities Act of 1933 for each
$1,000 principal amount of our 14.0% Senior Notes due
2009 which were issued in the Unit Offering. In order
to be exchanged, an Outstanding Note must be properly
tendered and accepted. All Outstanding Notes that are
validly tendered and not validly withdrawn will be
exchanged.

As of this date, there are $150 million in aggregate
principal amount of Senior Notes outstanding.

We will issue registered Exchange Notes on or
promptly after the expiration of the Exchange Offer.

Resale of the Exchange
Notes.................. Based on an interpretation by the Staff of the
Securities and Exchange Commission set forth in no-
action letters issued to third parties, including
"Exxon Capital Holdings Corporation" (available
May 13, 1988), "Morgan Stanley & Co. Incorporated"
(available June 5, 1991), "Mary Kay Cosmetics, Inc."
(available June 5, 1991) and "Warnaco, Inc."
(available October 11, 1991), we believe that the
Exchange Notes issued in the Exchange Offer may be
offered for resale, resold and otherwise transferred
by you without compliance with the registration and
prospectus delivery provisions of the Securities Act
of 1933 provided that:

. you are acquiring the Exchange Notes issued in the
Exchange Offer in the ordinary course of business;

. you are not participating, do not intend to
participate, and have no arrangement or
understanding with any person to participate, in
the distribution of the Exchange Notes issued to
you in the Exchange Offer;

. you are not a broker-dealer who purchased such
Outstanding Notes directly from us for resale
pursuant to Rule 144A or any other available
exemption under the Securities Act of 1933; and

. you are not an "affiliate" (as such term is
defined in Rule 405 of the Securities Act of 1933)
of our Company.

If our belief is inaccurate and you transfer any
Exchange Note issued to you in the Exchange Offer
without delivering a prospectus meeting the
requirements of the Securities Act of 1933 or without
an exemption from registration of your Exchange Notes
from such requirements, you may incur liability under
the Securities Act of 1933. We do not assume or
indemnify you against such liability, but we do not
believe that any such liability should exist.

Each broker-dealer that is issued Exchange Notes in
the Exchange Offer for its own account in exchange
for Notes which were acquired by such broker-dealer
as a result of market-making or other trading
activities, must acknowledge that it will deliver a
prospectus meeting the requirements of the Securities
Act of 1933, in connection with any resale of the
Exchange Notes issued in the Exchange Offer. The
letter of transmittal states that by so acknowledging
and by delivering a prospectus, such broker-dealer
will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities
Act of 1933. A broker-dealer may use this prospectus
for an offer to resell, resale or other retransfer of
the Exchange Notes issued to it in the Exchange
Offer. We have agreed that, for a period of 180 days
after the consummation of the Exchange Offer, we will
make this prospectus and any amendment or supplement
to this prospectus available to any such broker-
dealer for use in connection with any such resales.
We believe that no registered holder of the
Outstanding Notes is an "affiliate" (as such term is
defined in Rule 405 of the Securities Act of 1933) of
our Company.

Expiration of Exchange
Offer.................. The Exchange Offer will expire at 5:00 p.m., New York
City time, on , 1999, unless we decide to extend
the expiration date in which case the term
"expiration date" means the latest date and time to
which the Exchange Offer is extended.

Accrued Interest on the
Exchange Notes and the
Outstanding Notes...... The Exchange Notes will bear interest from July 8,
1999. Holders of Outstanding Notes whose Notes are
accepted for exchange will be deemed to have waived
the right to receive any payment in respect of
interest on such Outstanding Notes accrued from July
8, 1999 to the date of the issuance of the Exchange
Notes. Consequently, holders who exchange their
Outstanding Notes for Exchange Notes will receive the
same interest payment on January 1, 2000 (the first
interest payment date

with respect to the Outstanding Notes and the
Exchange Notes) that they would have received had
they not accepted the Exchange Offer.

Termination of the
Exchange Offer......... We may terminate the Exchange Offer if we determine
that our ability to proceed with the Exchange Offer
could be materially impaired due to any legal or
governmental action, new law, statute, rule or
regulation or any interpretation of the Staff of the
Securities and Exchange Commission of any existing
law, statute, rule or regulation. We do not expect
any of the foregoing conditions to occur, although
there can be no assurance that such conditions will
not occur. Holders of Outstanding Notes will have
certain rights against our Company under the
registration rights agreement executed as part of the
Unit Offering should we fail to consummate the
Exchange Offer.

Procedure for Tendering
Outstanding Notes...... If you are a holder of an Outstanding Note and you
wish to tender your Note for exchange pursuant to the
Exchange Offer, you must transmit to The Bank of New
York, as exchange agent, on or prior to the
expiration date:

either

. a properly completed and duly executed letter of
transmittal, which accompanies this prospectus, or
a facsimile of the letter of transmittal, together
with the Outstanding Notes and all other documents
required by the letter of transmittal, to the
exchange agent at the address set forth on the
cover page of the letter of transmittal; or

. a computer-generated message transmitted by means
of the Automated Tender Offer Program system of
The Depository Trust Company ("DTC") and received
by the exchange agent and forming a part of a
confirmation of book entry transfer in which you
acknowledge and agree to be bound by the terms of
the letter of transmittal;

and, either

. a timely confirmation of book-entry transfer of
your Outstanding Notes into the exchange agent's
account at DTC pursuant to the procedure for book-
entry transfers described in this prospectus under
the heading "The Exchange Offer--Procedures for
Tendering," must be received by the exchange agent
on or prior to the expiration date; or

. the documents necessary for compliance with the
guaranteed delivery procedures described below.

By executing the letter of transmittal, each holder
will represent to us that, among other things, (1)
the Exchange Notes to be issued in the Exchange Offer
are being obtained in the ordinary course of business
of

the person receiving such Exchange Notes whether or
not such person is the holder, (2) neither the holder
nor any such other person has an arrangement or
understanding with any person to participate in the
distribution of such Exchange Notes, and (3) neither
the holder nor any such other person is an
"affiliate" (as such term is defined in Rule 405 of
the Securities Act of 1933) of our Company.

Special Procedures for
Beneficial Owners...... If you are a beneficial owner of Outstanding Notes
that are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and
you wish to tender such Outstanding Notes in the
Exchange Offer, you should promptly contact such
person in whose name your Outstanding Notes are
registered and instruct such person to tender on your
behalf. If you, as such beneficial holder, wish to
tender on your own behalf you must, prior to
completing and executing the letter of transmittal
and delivering your Outstanding Notes, either make
appropriate arrangements to register ownership of the
Outstanding Notes in your name or obtain a properly
completed bond power from the registered holder. The
transfer of record ownership may take considerable
time.

Guaranteed Delivery
Procedures............. If you wish to tender your Outstanding Notes and time
will not permit your required documents to reach the
exchange agent by the expiration date, or the
procedure for book-entry transfer cannot be completed
on time or certificates for registered notes cannot
be delivered on time, you may tender your Outstanding
Notes pursuant to the procedures described in this
prospectus under the heading "The Exchange Offer--
Guaranteed Delivery Procedures."

Withdrawal Rights....... You may withdraw the tender of your Outstanding Notes
at any time prior to 5:00 p.m., New York City time,
on the expiration date.

Acceptance of
Outstanding Notes and
Delivery of Exchange
Notes.................. Subject to certain conditions (as summarized above in
"Termination of the Exchange Offer" and described
more fully under "The Exchange Offer--Termination"),
we will accept for exchange any and all Outstanding
Notes which are properly tendered in the Exchange
Offer prior to 5:00 p.m., New York City time, on the
expiration date. The Exchange Notes issued pursuant
to the Exchange Offer will be delivered promptly
following the expiration date.

Certain U.S. Federal
Income Tax
Consequences........... The exchange of the Notes will generally not be a
taxable exchange for United States federal income tax
purposes. We believe you will not recognize any
taxable gain or loss or any interest income as a
result of such exchange. You will, however, have to
include interest on the Exchange Notes in gross
income to the same extent as on the Outstanding
Notes.

Use of Proceeds......... We will not receive any proceeds from the issuance of
the Exchange Notes pursuant to the Exchange Offer. We
will pay all expenses incident to the Exchange Offer.

Exchange Agent.......... The Bank of New York is serving as exchange agent in
connection with the Exchange Offer. The exchange
agent can be reached by registered or certified mail,
overnight service or hand delivery at 101 Barclay
Street, Bond Redemption Unit, 7E, New York, New York
10286, Attention: Enrique Lopez, Reorganization
Department. For more information with respect to the
Exchange Offer, the telephone number for the exchange
agent is (212) 815-2742 and the facsimile number for
the exchange agent is (212) 815-6339.

Summary Description of the Exchange Notes

The form and terms of the Exchange Notes will be substantially the same as
the form and terms of the Outstanding Notes except that::

(1) the Exchange Notes have been registered under the Securities Act of
1933 and, therefore, will not bear legends restricting the transfer
thereof; and

(2) the holders of the Exchange Notes, except for limited instances, will
not be entitled to further registration rights under the registration
rights agreement.

The Exchange Notes will evidence the same debt as the Outstanding Notes and
will be entitled to the benefits of the indenture under which the Outstanding
Notes were issued.

Issuer.................. Cybernet Internet Services International, Inc.

Notes Offered........... $150,000,000 aggregate principal amount of 14.0%
Senior Notes due 2009.

Maturity Date........... July 1, 2009.

Interest Payment
Dates.................. January 1 and July 1, beginning on January 1, 2000.

Ranking................. The Exchange Notes will be senior unsecured (except
to the extent described in "Escrow Account" below)
debt. They will rank senior in right of payment to
all our future subordinated debt and equally in right
of payment to all our existing and future senior
debt. Because Cybernet Delaware conducts its business
principally through its subsidiaries, existing and
future debt and other liabilities and commitment of
its subsidiaries, including trade payables, will be
effectively senior to the Exchange Notes.

Escrow Account.......... Concurrently with the completion of the Unit
Offering, we purchased, pledged and transferred to an
escrow agent, for your benefit, U.S. Government
Securities in such amounts as will be sufficient upon
scheduled interest and principal payments of such
securities to provide for the payment in full of the
first six scheduled interest payments on the Notes
(excluding any amount due under tax gross-up
provisions of the Notes). We used approximately $57
million to acquire these government securities. We
pledged these government securities to the escrow
agent for your benefit, as holders of the Notes, and
deposited them into an escrow account held by the
escrow agent for the benefit of the trustee under the
indenture governing the Notes (the "Senior Notes
Indenture") and holders of the Notes, in accordance
with an escrow agreement. We may use the funds in the
escrow account to pay interest payments on the Notes
to you. After payment of the first six interest
payments, if the maturity date of the Notes has not
been accelerated, any amounts remaining in the escrow
account will be returned to us. If the maturity date
of the Notes accelerates before the sixth interest
payment date, the amount remaining in the escrow
account will be paid to the trustee, who can use the
remaining amount to pay any amounts owing on the
Notes as provided in the Senior Notes Indenture.
Before such

disbursement, any uninvested funds contained in the
escrow account will be invested in cash equivalents.
You should read "Description of the Notes--Escrow
Account" for a further discussion of the escrow
arrangement.

Optional Redemption..... We may redeem the Exchange Notes, in whole or in
part, at any time on or after July 1, 2004, at the
redemption prices set forth in this prospectus, plus
accrued and unpaid interest, liquidated damages and
additional amounts due under tax gross-up provisions
of the Exchange Notes, if any, to the redemption
date.

We may also redeem all but not just a portion of the
Exchange Notes at any time, if changes in certain tax
laws impose certain withholding taxes on amounts
payable on the Exchange Notes. If we decide to do
this, we must pay holders a price equal to par value
plus accrued interest and the other amounts described
in the section "Description of the Exchange Notes--
Redemption for Taxation Reasons."

Change of Control....... Upon a change of control, (as defined in the Senior
Notes Indenture) each holder of the Exchange Notes
may require us to repurchase all or a portion of its
Exchange Notes at a purchase price equal to 101% of
the aggregate principal amount thereof, plus accrued
and unpaid interest thereon, liquidated damages and
additional amounts due under tax gross-up provisions
of the Exchange Notes, if any, to the date of
repurchase. For a discussion of the circumstances
that would constitute a change of control please see
"Description of the Exchange Notes" in this
prospectus.

Withholding Taxes;
Additional Amounts..... Unless required by law, all our payments in respect
of the Exchange Notes will be made without
withholding or deduction for or on account of any
taxes imposed by or within any relevant taxing
jurisdiction. Subject to certain exceptions and
limitations, we will be required to pay any
additional amounts as may be necessary in order that
the net amounts received by you after any withholding
or deduction in respect of any such taxes required by
law shall equal the respective amounts of principal
and interest that would have been received in respect
of the Exchange Notes in the absence of such
withholding or deduction.

Certain Covenants....... The Senior Notes Indenture contains covenants that,
among other things, limit our ability and the ability
of certain of our subsidiaries to:

. incur certain additional indebtedness;

. pay dividends on, redeem or repurchase our capital
stock or make certain investments;

. issue or sell capital stock of certain of our
subsidiaries;

. engage in transactions with affiliates;

. create certain liens;

. sell assets;

. guarantee indebtedness;

. restrict dividend or other payments to us; and

. consolidate, merge or transfer all or
substantially all our assets and the assets of our
subsidiaries on a consolidated basis.

These covenants are subject to important exceptions
and qualifications, which are described under
"Description of the Exchange Notes" in this
prospectus.

Exchange Offering;
Registration Rights.... Under the registration rights agreement executed as
part of the Unit Offering, we have agreed to:

. file a registration statement within 90 days after
the issue date of the Outstanding Notes enabling
noteholders to exchange the privately placed notes
for publicly registered notes with substantially
identical terms;

. use our best efforts to cause the registration
statement to become effective within 150 days
after the issue date of the Outstanding Notes;

. consummate the Exchange Offer within 30 days after
the Securities and Exchange Commission declares
the registration statement effective; and

. use our best efforts to file a shelf registration
statement for the resale of the Notes if we cannot
complete an Exchange Offer within the time periods
listed above in certain other circumstances.

The interest rate on the Notes will increase if we do
not comply with our obligations under the
registration rights agreement. See "The Exchange
Offer."

Trustee, Escrow Agent
and Paying Agent....... The Bank of New York.

Listing................. We expect the Notes to be eligible for trading in the
PORTAL market. We intend to apply to list the
Exchange Notes on the Luxembourg Stock Exchange.

You should read "Description of the Exchange Notes" for additional
information concerning the securities being offered.

Consequences of Failure to Exchange

Untendered Outstanding Notes that are not exchanged for Exchange Notes
pursuant to the Exchange Offer will remain restricted securities. Outstanding
Notes will continue to be subject to the following restrictions on transfer:
(1) Outstanding Notes may be resold only if registered pursuant to the
Securities Act of 1933, if an exemption from registration is available under
the Securities Act of 1933, or if neither such registration nor an exemption is
required by law; (2) Outstanding Notes shall bear a legend restricting transfer
in the absence of registration or an exemption from registration; and (3) a
holder of Outstanding Notes who desires to sell otherwise dispose of all or any
part of its Outstanding Notes under an exemption from registration under the
Securities Act of 1933, if requested by us, must deliver to us an opinion of
independent counsel experienced in Securities Act matters, reasonably
satisfactory in form and substance to us, that such an exemption is available.

Risk Factors

See "Risk Factors" for a discussion of factors you should carefully consider
before deciding to invest in the Exchange Notes. Risk Factors begin on page 18.

Summary Consolidated Financial and Operating Information

The summary historical consolidated financial and operating data as of and
for the years ended December 31, 1996, 1997 and 1998 and the six months ended
June 30, 1998 and 1999 have been derived from our audited Consolidated
Financial Statements included elsewhere in this prospectus. The pro forma
consolidated financial data has been derived from our unaudited Pro Forma
Consolidated Financial Statements included elsewhere in this prospectus. The
financial data set forth below has been prepared in accordance with generally
accepted accounting principles in the United States ("US GAAP"). The unaudited
interim financial statements contained in this prospectus include all
adjustments, consisting of normal recurring adjustments, that management
considers necessary for a fair presentation of the financial position and
results of operations for the interim periods.

The historical consolidated financial data set forth below should be read in
conjunction with our Consolidated Financial Statements and the notes thereto
included elsewhere in this prospectus. The pro forma consolidated financial
data set forth below should be read in conjunction with our unaudited Pro Forma
Consolidated Financial Statements and the notes thereto included elsewhere in
this prospectus.

Results of operations for the periods presented are not necessarily
indicative of results of operations for future periods. Our development and
expansion activities, including acquisitions, during the periods shown below,
may significantly affect the comparability of this data from one period to
another. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

Years ended December 31, Six months ended June 30,
--------------------------------- ----------------------------
Pro forma Pro forma
1996 1997 1998 1998/(1)/ 1998 1999 1999/(1)/
----- ------ ------- --------- ------- -------- ---------
(in thousands, except per share data)

Statement of Operations
Data:
Revenue
Internet Projects...... $ 217 $1,598 $ 5,139 $ 6,206 $ 1,863 $ 2,459 $ 2,891
Network Services....... 91 716 3,495 11,184 1,489 5,994 9,869
----- ------ ------- -------- ------- -------- --------
Total revenues......... 308 2,314 8,634 17,390 3,352 8,453 12,760
Cost of revenues
Internet Projects...... 237 1,495 4,699 5,500 1,438 2,056 2,369
Network Services....... 119 866 4,067 8,949 1,747 6,534 9,199
Depreciation and
amortization/(2)/..... 7 171 1,674 2,050 332 1,545 1,675
----- ------ ------- -------- ------- -------- --------
Total cost of
revenues.............. 363 2,532 10,440 16,499 3,517 10,135 13,243
Gross profit (loss)..... (55) (218) (1,806) 891 (165) (1,682) (483)
Operating expenses:
General and
administrative
expenses.............. 263 482 1,576 3,512 655 3,770 3,995
Marketing expenses..... 165 1,188 3,844 5,536 1,608 5,147 6,272
Research and
development........... 179 280 2,941 3,858 821 2,146 2,264
Depreciation and
amortization/(3)/..... 22 116 880 5,011 272 1,228 2,733
----- ------ ------- -------- ------- -------- --------
Total operating
expenses.............. 629 2,066 9,241 17,917 3,356 12,291 15,264
----- ------ ------- -------- ------- -------- --------
Operating loss.......... (684) (2,284) (11,047) (17,026) (3,521) (13,973) (15,747)
Interest income
(expense), net......... (2) (39) (43) (267) (94) 319 272
----- ------ ------- -------- ------- -------- --------
Loss before taxes and
minority interest..... (686) (2,323) (11,090) (17,293) (3,615) (13,654) (15,475)
Income tax benefit..... 402 1,339 6,173 6,753 2,008 5,302 5,258
Minority interest...... -- -- 145 145 -- 103 103
----- ------ ------- -------- ------- -------- --------
Net loss................ $(284) $ (984) $(4,772) $(10,395) $(1,607) $ (8,249) $(10,114)
===== ====== ======= ======== ======= ======== ========
Basic and diluted loss
per share............. $(.12) $ (.12) $ (.30) $ (.64) $ (.11) $ (.44) $ (.53)
===== ====== ======= ======== ======= ======== ========

Six months
Years ended December 31, ended June 30,
---------------------------------- ------------------
Pro forma Pro forma
1996 1997 1998 1998/(1)/ 1999 1999/(1)/
----- ------- ------- --------- ------- ---------
(in thousands)

Other Financial and
Operating Data:
Number of Network
Services
customers/(4)/......... 166 4,061 6,923 42,391 /(5)/ 10,830 50,724 /(5)/
EBITDA/(6)/............. $(655) $(1,997) $(8,493) $(9,965) $(5,898) $(11,339)
Capital
expenditures/(7)/...... 552 1,708 6,034 8,713 6,587 na
Ratio of earnings to
fixed charges/(8)/..... -- -- -- -- -- --

December 31, June 30,
-------------------- -----------------
1996 1997 1998 1998 1999
----- ------ ------- ------- --------
(in thousands)

Balance Sheet Data:
Working capital
(deficiency)/(9)/............ $ 339 $ 891 $37,751 $(4,065) $(11,562)
Total assets................. 2,211 12,617 79,445 19,569 96,786
Long-term debt/(10)/......... -- 42 1,383 40 1,711
Total stockholders' equity... 1,790 8,908 67,359 8,631 58,046

- --------
(1) Pro forma statement of operations and balance sheet data are based on the
unaudited Pro Forma Consolidated Financial Statements included elsewhere in
this prospectus. The pro forma balance sheet is based on the historical
balance sheet of the Company and reflects the acquisition of Flashnet and
the Interim Loan incurred to fund such acquisition. The pro forma statement
of loss for the year ended December 31, 1998 is based on the historical
statement of loss adjusted as if the Open:Net, Vianet and Flashnet
acquisitions were completed on January 1, 1998, and the pro forma statement
of loss for the six months ended June 30, 1999 is based on the historical
statements of loss adjusted as if the Flashnet acquisition and the Interim
Loan incurred to fund such acquisition had been completed on January 1,
1999. The pro forma data does not purport to represent what our financial
position or results of operations would have been had these acquisitions
been made on such dates.
(2) Represents depreciation and amortization of capitalized costs related to
investments in product development, designing our network (including
related software) and building network capacity (including related
personnel and consulting costs).
(3) Represents depreciation of property and equipment and amortization of
acquired goodwill.
(4) Number of customers as of December 31, 1996, 1997 and 1998; and March 31,
1999.
(5) Includes 32,652 and 39,894 Flashnet customers (of which 1,096 and 1,625
were business customers and 31,556 and 38,269 were residential customers)
as at December 31, 1998 and March 31, 1999, respectively.
(6) We define EBITDA as loss before interest, income taxes, minority interest,
depreciation and amortization. EBITDA is included because management
believes it is a useful indicator of a company's ability to incur and
service debt. EBITDA should not be considered as a substitute for operating
earnings, net income, cash flow or other statements of operations or cash
flow data computed in accordance with US GAAP or as a measure of our
results of operations or liquidity. Funds depicted by this measure may not
be available for management's discretionary use (due to covenant
restrictions, debt service payments and other commitments). Because all
companies do not calculate EBITDA identically, the presentation of EBITDA
contained herein may not be comparable to other similarly entitled measures
of other companies.
(7) Pro forma capital expenditures for the six months ended June 30, 1999 was
not available.
(8) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of losses before income taxes and minority interest, plus fixed
charges. Fixed charges consist of interest expense. Earnings were
insufficient to cover fixed charges by $(684), $(2,284), $(10,893),
$(13,590), $(16,862) and $(15,364) for the years ended December 31, 1996,
1997 and 1998, for the six months ended June 30, 1999, the year ended
December 31, 1998 pro forma and the six months ended June 30, 1999 pro
forma, respectively.
(9) We define working capital as total current assets less total current
liabilities.
(10) Long-term debt includes obligations under capital lease agreements.

RISK FACTORS

You should consider carefully the risks described below and other information
in this prospectus before making an investment decision. The risks and
uncertainties described below are not the only ones facing us. Additional risks
and uncertainties not presently known to us or that we may currently deem
immaterial may also impair our business operations.

If any of the following events identified in the following risk factors
actually occur, they could materially adversely affect our business, financial
condition and results of operations.

This prospectus also contains forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of a variety of
factors, including the risks identified below and elsewhere in this prospectus.
See "Information Regarding Forward-Looking Statements."

We Have a History of Losses and Cannot Be Certain We Will Achieve Positive
Cash Flow

For the years ended December 31, 1996, 1997 and 1998, we had net losses
before taxes of $685,627, $2,323,247 and $11,090,260, respectively. For the six
months ended June 30, 1999, we had a net loss before taxes of approximately
$13,654,000. In addition, we had an accumulated deficit of approximately
$14,685,000 as of June 30, 1999. We are likely to continue to incur significant
additional losses in the intermediate term.

Although we have experienced revenue growth on an annual basis, with revenues
increasing from $307,673 to $2,314,021 and to $8,633,528 for the years ended
December 31, 1996, 1997 and 1998, respectively, and increasing from
approximately $3,332,000 to approximately $8,453,000 for the six months ended
June 30, 1998 and 1999, we cannot be certain that revenues will continue at
their current level or will increase in the future.

We have not achieved profitability on a quarterly or annual basis to date. We
anticipate that we will continue to incur significant additional losses in the
intermediate term while we expend substantial amounts on network
infrastructure, sales and marketing and business development. Even thereafter,
we cannot be certain that we will achieve or sustain positive cash flow or
profitability from our operations. Our net losses and negative cash flow from
operating activities are likely to continue even longer than we currently
anticipate if:

. we do not establish and maintain a customer base that generates
sufficient revenue;

. prices for our products or services decline faster than we have
anticipated;

. we do not remain competitive in the innovation and quality of our
products;

. we do not attract and retain qualified personnel;

. we do not reduce our termination costs as we expand our network by
negotiating competitive interconnection rates and peering arrangements;
or

. we do not obtain necessary governmental approvals, rights-of-way and
operator licenses.

Our ability to achieve our objectives is subject to financial, competitive,
regulatory, legal, technical and other factors, many of which are beyond our
control.

Our Limited Operating History Makes it Difficult to Assess Our Past
Performance and Future Prospects

We commenced significant operations in 1996. Accordingly, you have limited
historical operating and financial information on which to base your evaluation
of our performance and our prospects. Moreover, we have acquired six companies
since we commenced significant operations, which limits the comparability of
our operating and financial information from period to period.

You should consider our prospects in light of the substantial risks,
expenses, uncertainties and difficulties frequently encountered by companies in
the new and rapidly evolving markets for Internet products and services. Such
risks include the possibility that:

. we will be unable to increase and sustain levels of interest in our
products and services by the small- and medium-sized corporations we are
targeting;

. we will fail to sell our products successfully through our direct sales
force;

. our competitors will develop services or products similar or superior to
our own;

. market prices for our products and services will fall as a result of
competition or other factors;

. we will be unable to identify, attract, motivate and retain qualified
personnel; and

. we will fail to fully integrate with our existing operations the
technology and operations of any of the businesses that we acquire.

As we are currently entering the telecommunications business, you should also
consider the risks that we will fail to, among other things:

. obtain and retain necessary licenses and regulatory approvals to deploy
our network and provide telecommunications services in our target
markets;

. enter into and implement on a timely basis interconnection agreements
with the incumbent operators in our target markets; and

. obtain and use telephone numbers, carrier selection codes and other
rights and privileges necessary to compete effectively.

We cannot be sure that we will be successful in addressing such risks, and
the failure to do so could have a material adverse impact on our business,
financial condition and results of operation and our ability to pay principal
and interest on the Notes when due.

We Are Substantially Leveraged

We have a substantial amount of debt as a result of offering $150 million of
Senior Notes, approximately $50 million of Discount Notes and (Euro) 25 million
of PIK Notes. Subject to restrictions in the Senior Notes Indenture, the
indenture governing the Discount Notes (the "Discount Notes Indenture") and the
indenture governing the PIK Notes (the "PIK Notes Indenture" and collectively
with the Senior Notes Indenture and the Discount Notes Indenture the
"Indentures"), we may borrow even more money for working capital, capital
expenditures, research and development, acquisitions or other general corporate
purposes. We are considering offering additional debt securities in the future.

The following table shows certain important credit statistics and (i)
reflects the acquisition of Flashnet, and (ii) assumes the completion of the
Unit Offering, the Discount Notes Offering and the PIK Notes Offering as of the
date or at the beginning of the period specified below and applied the net
proceeds of the Unit Offering, the Discount Notes Offering and the PIK Notes
Offering as intended all as of June 30, 1999.

At June 30, 1999
(As Adjusted)
----------------
(in thousands
except ratio)

Total debt..................................................... $176,879
Stockholders equity............................................ $118,036
Total debt to equity ratio..................................... 1.5x

The following table shows interest expense and the excess of fixed charges
over earnings for the six month period ended June 30, 1999 as if the same
events had occurred on January 1, 1999.

For the Six
Months Ended
June 30, 1999
-------------
(in
thousands)

Interest expense.................................................. $15,658
Excess of fixed charges over earnings............................. $10,003

Our high level of debt could have important consequences for you. In
particular, some or all of the following factors may reduce the amount of money
available to us to finance our operations and other business activities, or may
place us at a competitive disadvantage:

. a significant portion of the net proceeds of the Unit Offering has been
set aside for the payment of interest on the Senior Notes;

. beginning in the fourth year following issuance of the Units, we will
need to use a large portion of the money earned by our subsidiaries to
pay interest on the Senior Notes and, beginning in the sixth year
following issuance of the Discount Notes and the PIK Notes, we will need
to use a large portion of the money earned by our subsidiaries to pay
interest on the Discount Notes and the PIK Notes;

. we may have difficulty borrowing money in the future for working
capital, capital expenditures, research and development, acquisitions,
implementation of our business strategies or other purposes;

. the covenants included in the Indentures may restrict our ability to
expand or pursue certain business opportunities;

. we may have more indebtedness than certain of our competitors;

. our debt level may reduce our flexibility to adjust rapidly to changing
market conditions, including increased competition in the Internet
services and telecommunications industries;

. our debt level may reduce our ability to invest in new and developing
technologies; and

. our debt level may make us more vulnerable to downturns in general
economic conditions or in our industries and to changing market
conditions and regulations.

We expect to obtain all or most of the money to pay our expenses and to pay
the principal and interest on the Senior Notes, the Discount Notes and the PIK
Notes, except as described in the paragraph below, from the operations of our
subsidiaries. Our ability to meet our obligations thus depends on the future
performance of our subsidiaries. This in turn depends on successful
implementation of our strategy and on financial, business, economic,
competitive, regulatory, technical and other factors. We cannot control many of
these factors, such as economic conditions in the markets where our
subsidiaries operate, pressure from competitors, regulatory developments and
changes in technology.

We cannot be certain that our subsidiaries will earn enough money to allow us
to pay the principal and interest on the Senior Notes, the Discount Notes and
the PIK Notes, and to meet our other obligations. If we do not have enough
money to do so, we may be required to obtain additional equity capital, to
refinance all or part of our existing debt or to borrow more money. Our ability
to refinance our debt or to borrow more money will depend on our financial
condition at the time, the restrictions in the agreements governing our debt
and other factors, including general market and economic conditions. If such
additional equity or debt financing or refinancing is not possible, we could be
forced to dispose of assets at unfavorable prices. In addition, we could
default on our obligation to make payments on the Senior Notes, the Discount
Notes or the PIK Notes.

We Must Depend on Our Subsidiaries to Repay Our Debts; Ranking of the Senior
Notes, Discount Notes and PIK Notes and Structural Subordination

Cybernet Delaware intends to loan or contribute a portion of the proceeds of
the Unit Offering, the Discount Notes Offering and the PIK Notes Offering
(collectively, the "Private Offerings") to its subsidiaries. Cybernet
Delaware's cash flow and consequent ability to service its debt obligations, is
dependent upon its ability to receive

cash from its subsidiaries. Such subsidiaries are separate legal entities and
have no obligation to pay amounts due under the Senior Notes, the Discount
Notes and PIK Notes or to make funds available for such payments. In addition,
applicable law of the jurisdictions in which these subsidiaries are organized
or contractual or other obligations to which they are subject may limit their
ability to pay dividends or make payments on intercompany loans, including
those made with the proceeds of the Private Offerings. All of Cybernet
Delaware's subsidiaries are restricted from paying dividends unless they meet
the statutory financial requirements in their respective jurisdictions of
organization. Vianet does not currently meet the statutory requirements for
payment of dividends and our other subsidiaries may be similarly restricted.
Although the Indentures currently limit the ability of such subsidiaries to
enter into consensual restrictions on their ability to pay dividends and make
other payments, such limitations are subject to a number of significant
qualifications and exceptions and the subsidiaries may agree to such
restrictions in certain circumstances. Furthermore, the payment of interest and
principal on inter-company loans and advances as well as the payment of
dividends by these subsidiaries may be subject to taxes.

The Discount Notes and the PIK Notes are subordinated to all senior
indebtedness of Cybernet Delaware, including indebtedness under the Senior
Notes. Therefore, in the event of bankruptcy, liquidation or reorganization of
Cybernet Delaware, the assets of Cybernet Delaware will be available to pay
obligations on the Discount Notes and the PIK Notes only after all senior
indebtedness has been paid in full. Creditors of Cybernet Delaware's
subsidiaries will have a prior claim to the assets of such subsidiaries before
claims of holders of Cybernet Delaware's indebtedness, including the Senior
Notes, the Discount Notes and the PIK Notes. Accordingly, the Senior Notes, in
addition to the Discount Notes and the PIK Notes, will effectively be
subordinated in right of payment to all existing and future indebtedness and
other liabilities, including trade payables, of these subsidiaries, except to
the extent that Cybernet Delaware is recognized as a creditor as a result of
any parent-subsidiary loans. Cybernet Delaware may, however, contribute, rather
than loan, all of the proceeds of the Private Offerings to its subsidiaries. If
Cybernet Delaware is recognized as a creditor because it has made one or more
parent-subsidiary loans, its claims would still be subordinated with respect to
any assets of the subsidiary pledged to secure other indebtedness and any
indebtedness of such subsidiary senior to that held by Cybernet Delaware.
Moreover, Cybernet Delaware may decide to contractually subordinate some or all
of any proceeds of the Private Offerings that it loans to its subsidiaries. The
subordinated nature of such loans may have an adverse effect on the ability of
our subsidiaries to pay amounts owed and, therefore, on Cybernet Delaware's
ability to make payment on the Senior Notes, the Discount Notes, and the PIK
Notes. In addition, in the event of a bankruptcy of one or more of such
subsidiaries, we cannot assure you that any of these inter-company loans will
be respected under applicable bankruptcy law. The bankruptcy laws of the
jurisdictions in which our subsidiaries are organized differ significantly from
those applicable in the United States. Although the Indentures currently limit,
the ability of such subsidiaries to incur indebtedness and to issue Preferred
Stock in the future, there are certain significant qualifications and
exceptions to this limitation. Accordingly, the subsidiaries may continue to
incur a substantial amount of indebtedness and issue Preferred Stock under
certain circumstances.

The Indentures Contain Restrictive Covenants

Each of the Indentures contains a number of covenants that will impose
significant operating and financial restrictions on us and limit the discretion
of our management with respect to certain business matters. These covenants,
among other things, will limit or prohibit us from incurring additional debt,
making investments, paying dividends to our stockholders, creating liens,
selling assets, engaging in mergers or consolidations, prepaying subordinated
indebtedness, repurchasing or redeeming capital stock, entering into certain
transactions with affiliates and capitalizing on business opportunities.

The limitations in the Indentures are subject to a number of important
qualifications and exceptions. In particular, while the Indentures restrict our
ability to incur additional indebtedness by requiring compliance with a
specified leverage ratio, each nevertheless permits us and our subsidiaries to
incur substantial additional indebtedness to finance the design, development,
construction, acquisition, transportation, installation or integration of
equipment, inventory or network assets used in our business or the acquisition
of capital stock of a company principally engaged in a similar business.

Failure to comply with the covenants and restrictions in the Indentures or in
any other financing agreements we may execute could trigger defaults under such
agreements even if we are able to pay our debt. Such defaults could result in a
default on the Senior Notes, the Discount Notes or the PIK Notes and could
delay or preclude payment of principal or interest on the Senior Notes, the
Discount Notes or the PIK Notes.

We Will Need Additional Capital in the Future

As we continue to develop and expand our business and deploy our network, we
will require significant capital to fund our capital expenditures and working
capital needs, as well as our debt service requirements and cash flow deficits.
In particular, we expect to incur significant capital expenditures to make
acquisitions and to lease transmission capacity on a long-term basis, acquire
backbone capacity or construct our own infrastructure in selected locations in
order to transport high bandwidth data and voice services over all available
transmission protocols.

The actual amounts and timing of our future capital requirements may vary
significantly from our estimates. In addition, we continually reevaluate our
business plan in our rapidly changing industry. Accordingly, it is likely that
our plan will change in material respects in the intermediate term. Any such
change could result in a need for additional financing. Our revenues and costs
are dependent on factors that are not within our control, such as advances in
technology, increased competition, regulatory development, fluctuation in
interest or currency exchange rates, the demand for our services and various
factors such as the ability to obtain necessary rights-of-way in constructing
the network. Due to the uncertainty of these factors, our actual revenues and
costs may vary from expected amounts, possibly to a material degree, and such
variations are likely to affect our future capital requirements.

We are considering offering additional debt or equity securities in the
future. We may need to seek even more capital sooner than we expect if:

. our development plans or projections change or prove to be inaccurate;

. we cannot achieve a sufficient customer base and level of traffic;

. cost overruns occur in connection with the development of the network;

. we cannot obtain interconnection agreements as we expand our network;

. technological advances render significant portions of our network
investments obsolete or unprofitable; or

. competition reduces prices of our products or services faster than we
expect.

We intend to evaluate acquisition opportunities and strategic alliances on an
ongoing basis as they arise and we may require additional financing if we elect
to pursue any such opportunities. Such additional financing may not be
available on acceptable terms or at all. Moreover, our substantial indebtedness
as a result of the Private Offerings and other possible future debt financings
may adversely affect our ability to raise additional funds. An inability to
obtain financing could require us to delay or abandon plans for parts of our
network, acquisition opportunities, or strategic alliances.

We May Have Difficulty Establishing and Maintaining Interconnection Agreements
and Peering Relationships

If the incumbent operators deny us interconnection or fail to grant us
interconnection for sufficient capacity on acceptable terms, we will have to
use refile or resale agreements to terminate such traffic through other
carriers that have interconnection arrangements with those incumbent operators.
Termination through refile or resale agreements is significantly more expensive
than termination through our own interconnection and could render our services
noncompetitive.

If we are unable to preserve our existing peering arrangements or to obtain
additional ones, this could increase our costs, and limit our ability to
compete effectively with other European IP backbone providers that have better
peering arrangements. The dominance of national ISPs is driving industry
peering practice. The basis on which large national ISPs make peering available
is becoming more limited as the provision of Internet access and related
services expands. Recently, companies that previously offered peering have cut
back by establishing new, more restrictive criteria for peering or have
eliminated peering relationships entirely.

We have negotiated peering arrangements with several IP backbone providers
and several European ISPs. If increasing requirements associated with
maintaining peering with these ISPs develop, we may have to comply with those
additional requirements in order to continue these peering relationships.

Our ability to obtain and maintain peering arrangements with other European
ISPs and with U.S. ISPs is critical to our ability to exchange traffic with
those ISPs without having to pay transit costs. However, we cannot be certain
that we will be able to negotiate additional peer status with U.S. ISPs or with
European IP backbone providers or that we will be able to terminate traffic on
their networks at favorable prices. In particular, major U.S. ISPs require
almost all European ISPs and IP backbone providers to pay a transit fee to
exchange traffic.

We Are Dependent on Our Key Personnel

Our success depends upon the continued efforts of our senior management team
and our technical, marketing and sales personnel. Such employees may
voluntarily terminate their employment with us at any time. We maintain no key
man life insurance policies. Our success also depends on our ability to
attract, train, retain and motivate additional highly skilled and qualified
managerial, technical, marketing and sales personnel. Competition for qualified
employees and personnel in the Internet and telecommunications industries in
Europe is intense. Only a limited number of persons have the required knowledge
and experience in the particular sectors and countries in which we operate. The
process of hiring employees with the combination of skills and attributes
required to carry out our strategy can be extremely challenging and time-
consuming. We cannot assure you that we will be able to retain existing
personnel or to identify and hire new qualified personnel. If we were to lose
the services of our key personnel or were unable to attract additional
qualified personnel, this could materially adversely affect our business,
financial condition and results of operations.

We Are Dependent on Our Suppliers

We are dependent on third-party suppliers for our leased-line connections and
bandwidth. Info AG, a potential competitor, and Deutsche Telekom, a competitor,
are our primary providers of network and switching capacity. We also depend
upon telecommunications carriers, which are often our competitors, to provide
telecommunications services and lease physical space to us for routers, modems
and other equipment. We have few long-term contracts with such suppliers. Most
of these suppliers are not subject to any contractual restrictions that
prohibit them from competing with us. Moreover, any failure or delay of any
network provider to deliver bandwidth to us or to provide operations,
maintenance and other services with respect to such bandwidth on a timely or
adequate basis could adversely affect us. If these suppliers change their
pricing structures, we may be adversely affected.

We are also dependent on certain third-party suppliers of hardware
components. Although we attempt to maintain a number of vendors for each
product, certain components which we use in providing our network services are
currently available from only one source. For example, routers are currently
available only from Cisco. A failure by a supplier to deliver quality products
to us on a timely basis or our inability to develop alternate sources if and as
required could result in delays which could have a material adverse effect on
us. Moreover, we cannot be sure that we will be able to obtain such supplies on
the scale we require at an affordable cost or at all. Neither can we be certain
that our suppliers will not enter into

exclusive arrangements with our competitors or stop selling their products or
components to us at commercially reasonable prices or at all. Any failure of
our sole or limited-source suppliers to provide products or components that
comply with its standards could have a material adverse effect on us. Our
remedies against suppliers who fail to deliver products to us on a timely basis
are restricted by contractual liability limitations in supply agreements and
purchase orders and, in many cases, by practical considerations relating to our
desire to maintain good relationships with suppliers. Finally, as our suppliers
revise and upgrade their equipment technology, we may encounter difficulties in
integrating the new technology into our network.

We Are Subject to Risks as We Make Acquisitions and Engage in Strategic
Alliances

As part of our business strategy, we may acquire, make investments in, or
enter into strategic alliances with companies in complementary businesses, so
as to optimize our market presence in the regions we presently serve and expand
into other European countries. Any such future acquisitions, investments or
strategic alliances would involve risks, such as

. incorrect assessment of the value, strengths and weaknesses of
acquisition and investment opportunities;

. underestimating the difficulty of integrating the operations and
personnel of newly acquired companies;

. the potential disruption of our ongoing business, including possible
diversions of resources and management time;

. the potential inability to maintain uniform standards, controls,
procedures and policies; and

. the threat of impairing relationships with employees and customers as a
result of changes in management or ownership.

We cannot assure you that we will be successful in overcoming these risks.
Moreover, we cannot be certain that any desired acquisition, investment or
strategic alliance could be made in a timely manner or on terms and conditions
acceptable to us. Neither can we assure that we will be successful in
identifying attractive acquisition candidates. We expect that competition for
such acquisitions may be significant. Competition for Internet companies is
based on a number of factors including price, terms and conditions, size,
access to capital, and ability to offer cash, stock or other forms of
consideration. We may compete with other companies with similar acquisition
strategies, many of which may be larger and have greater financial and other
resources than we have.

An additional risk associated with acquisitions is that many attractive
acquisition candidates do not have audited financial statements and have
varying degrees of internal controls. Although we may believe that the
available financial information for a particular business is reliable, we
cannot guarantee that a subsequent audit would not reveal matters of
significance, including with respect to liabilities, contingent or otherwise.
We expect that, from time to time in the future, we will enter into acquisition
agreements, the pro forma effect of which is not known and cannot be predicted.
Our completion of such acquisitions may have a material impact on the financial
information set forth in this prospectus.

We have recently acquired or agreed to acquire a number of Internet-related
companies. Certain of these companies incurred net losses prior to their
acquisition. We believe that after eliminating redundant network architecture
and administrative functions and further integrating the operations of these
companies with our own, we will be able to realize cost savings on our
consolidated operations. However, we cannot assure you that our integration of
the operations of these companies will be accomplished successfully. Our
inability to improve the operating performance of these companies or to
integrate successfully their businesses could have a material adverse effect on
us.

We May Have Difficulty Managing Our Rapid Growth

Our growth strategy has placed and will continue to place a significant
strain on our customer support, sales and marketing, administrative resources,
network and operations and management and billing systems. Such a strain on our
administrative and operational capabilities could adversely affect the quality
of our services and our ability to collect revenues. To manage our growth
effectively, we will have to enhance further the efficiency of our operational
support, other back office systems and financial systems and controls and
expenditures on administrative expenses. Management is currently in the process
of addressing certain weaknesses in our systems of internal controls, which
have been identified by our auditors, and in our customer support services. We
have also recently undertaken measures to address inefficiencies in the control
of our administrative expenditures. We cannot assure you that we will be able
to develop and maintain adequate internal operating, administrative and
financial systems, and procedures and controls or that measures undertaken or
to be undertaken to reduce administrative expenses as a percentage of total
revenues will in fact result in such reductions.

Managing our growth will become even more challenging as we expand our target
markets and our product and service offerings. We believe that establishing and
maintaining brand identity for our products and services is a critical aspect
of attracting and expanding our customer base. Promotion and enhancement of our
brands will depend largely on our success in continuing to provide high quality
Internet communications services, solution and product support. We cannot
guarantee that we will be able to maintain those levels of quality. If we are
unable to do so or otherwise fail to promote and maintain our brands, or if we
incur excessive expenses in an attempt to improve our services or promote and
maintain our brands, then our business, results of operations and financial
condition could be materially and adversely affected.

In addition, as we continue to grow we will have to expand and train our
employee base to handle the increased volume and complexities of our business.
We cannot assure you that we will be able to attract, train and manage
sufficient personnel to keep pace with our growth.

We Have Experienced Difficulties in Collecting Certain Accounts Receivable

We have recently experienced difficulties in collecting some of our accounts
receivable, primarily at Cybernet AG and at Flashnet. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources--Working Capital." We have instituted various
measures which we expect will facilitate collection of these receivables,
including realignment of sales force compensation schemes, pre-contract credit
evaluations for both business and residential customers and assignment of
direct responsibility to managers at the subsidiary level for reductions in
receivables balances. However, we cannot assure you that these or other
measures we may take will result in a reduction in receivables balances or that
we will not continue to experience such collection difficulties in the future.
Our inability successfully to collect on such accounts may have a material
adverse impact on our business, results of operations and financial condition.

We Are Subject to Risks as a Result of the International Scope of Our
Operations

We may face certain risks because we conduct an international business
including:

. regulatory restrictions or prohibitions on the provision of our
services;

. tariffs and other trade barriers;

. difficulties in staffing and managing foreign operations;

. longer payment cycles;

. problems in collecting accounts receivable;

. political risks; and

. potentially adverse tax consequences of operating in multiple
jurisdictions, including the imposition or increase in withholding taxes
on remittances and other payments by subsidiaries.

We cannot assure you that such factors will not have an adverse effect on our
future operations and, consequently, on our business, financial condition and
results of operations. In addition, an adverse change in laws or administrative
practices in countries within which we operate could have a material adverse
effect on us.

We Are Subject to Foreign Exchange Rate Risks

The proceeds from the Unit Offering and the Discount Notes Offering were in
U.S. dollars, but many of the costs and expenses of implementing our business
strategies will be in Euros and, to a lesser extent, in Swiss Francs.
Therefore, the extent to which we can apply such proceeds to these costs and
expenses will be subject to currency exchange rate fluctuations.

The principal and interest due on the Senior Notes and the Discount Notes is
payable in U.S. dollars. However, our revenues will largely be in Euros and, to
a lesser extent, in Swiss Francs. Accordingly, our ability to pay the interest
and principal when due on the Senior Notes and the Discount Notes will be
dependent to a significant extent on the future exchange rate of the Euro
against the U.S. dollar.

We May Not Have the Financial Resources to Repurchase the Senior Notes, the
Discount Notes or the PIK Notes as Required on a Change of Control

Upon the occurrence of a change of control (as defined in the Indentures), we
will be required to make an offer to purchase all of the outstanding Senior
Notes, Discount Notes and PIK Notes at a price equal to 101% of the accreted
value or principal amount, as applicable, of the Senior Notes, Discount Notes
and PIK Notes, plus accrued and unpaid interest, if any, to the date of
repurchase. In such an event, we cannot be certain that we would have
sufficient assets to satisfy our obligations under the Senior Notes, Discount
Notes and PIK Notes and any other indebtedness then outstanding. Our failure to
repurchase the Senior Notes, Discount Notes and PIK Notes upon a change of
control due to inadequate financial resources in such instance would result in
a default under the Indentures.

There Are Questions About Certain Actions Taken by Our Predecessor

In 1996, the good standing of our predecessor, Cybernet Utah, was revoked by
the State of Utah for failure to pay excise taxes. This occurred prior to any
transaction with Cybernet AG and at a time when the predecessor company had
officers, directors and management who, with the exception of one individual,
are and were unaffiliated with our officers, directors and management. In 1997,
the State of Utah reinstated our predecessor company's good standing, based
upon certain actions which were taken by its Board of Directors. These actions
were taken without prior approval of shareholders but were ratified by
shareholders before consummation of the transaction with Cybernet AG. There is
a degree of uncertainty as to whether the shareholders' subsequent ratification
suffices to authorize the actions of the predecessor's Board of Directors. We
believe it is unlikely that anyone would challenge these actions of our
predecessor company and our legal counsel has advised us that, even if someone
did, such actions are unlikely to be properly attributable to us, the successor
company, and such actions are unlikely to give anyone the ability to
successfully pursue a remedy against us, in each case in such a way as to have
a material adverse effect on us. Nevertheless, we cannot assure you that such a
challenge will not be made and, if successful, that it would not have a
material adverse effect on our business, results of operations and financial
condition.

There Are Questions About Service of Process and Enforcement of Judgments

We are a Delaware corporation maintaining a registered agent in Delaware, and
process may be served at the address of the registered agent. However, most of
our assets are located outside the United States. Most of our officers and
directors are not residents of the United States, and a substantial portion of
their assets is located outside the United States. As a result, it may not be
possible for investors to effect service of process in the United States upon
such non-resident officers and directors or to enforce in jurisdictions outside
the United

States judgments obtained against us or our directors and officers. This
applies to any action, including civil actions based on the U.S. federal
securities laws. In addition, awards for punitive damages in actions brought in
the United States or elsewhere may be unenforceable in Germany.

There May be Questions About Our Status Under German Law

We are a Delaware corporation in good standing the existence of which is
legally recognized under state and federal law in the United States. Since
incorporating in Delaware in November 1998, our Board of Directors has included
a U.S. resident and we have held shareholders' and directors' meetings in the
United States. In May 1999, we established an office in the United States and
elected a U.S. resident as our Secretary and a U.S. citizen as our Chief
Financial Officer. However, most of our day-to-day activities have been managed
from Europe and we did not maintain a U.S. office before May 1999. The
possibility exists that a German court might view precedents so as to refuse to
recognize our existence as a U.S. corporation in the period between our
November 1998 incorporation and the establishment of our U.S. office on the
grounds that we were required to maintain more contact with the United States
during that period. If such a challenge to our status as a U.S. corporation
were successfully brought under German law, contracts into which we entered
during that period might be void and Cybernet might be treated as if it were a
general partnership under German law. Acting for and on behalf of Cybernet, our
management could be held personally liable for our actions and liabilities and
may, as a consequence, be entitled to be indemnified by Cybernet. We have been
advised by our German counsel that our contacts with the United States were
sufficient at all times and that it is likely that a German court would
conclude that we were at all times recognizable as a Delaware corporation under
German law. However, the possibility exists that a German court might read
certain precedents to the contrary. We cannot assure you that such a challenge
to our status under German law would not be made or that, if made, such
challenge would not be successful. The implications of a successful challenge
are uncertain but would likely have a material adverse effect on our business,
results of operations and financial condition.

Sales of Shares by Our Shareholders Could Depress Our Stock Price.

The market price of our common stock could drop as a result of sales of a
large number of our shares or warrants or a substantial amount of our
convertible debt securities in the public market after the Exchange Offer and
after registration of our convertible debt securities. The perception that such
sales may occur could have the same effect. The price of the Notes would also
likely be adversely affected by decreases in the price of our common stock.

As of August 2, 1999, our executive officers and directors owned, directly or
indirectly, approximately 9% of our common stock and approximately 17% of our
Series A Non-Voting Preferred Stock. Our Series A Non-Voting Preferred Stock is
convertible in various amounts over time into common stock and all of it is
convertible by January 1, 2001. In addition, executive officers and directors
hold options to purchase an aggregate of 300,000 shares of common stock
exercisable starting on December 28, 1999. Assuming conversion of all these
shares and exercise of all these warrants, these officers and directors would
hold approximately 11.14% of our common stock.

In addition, Holger Timm owns, either directly or indirectly through a
company controlled by him, shares of common stock, Series A Non-Voting
Preferred Stock and Series B Voting Preferred Stock which in the aggregate and
assuming conversion of all the Series A Non-Voting Preferred Stock into Voting
Stock, would constitute approximately 27% of our voting shares.

One Shareholder Controls a Large Block of Cybernet Stock and His Interests May
Conflict with Yours

Holger Timm, a former director of Cybernet who resigned on December 2, 1998,
directly or indirectly, holds approximately 12% of the common stock of
Cybernet, 100% of the Series B Voting Preferred Stock and 58.1% of the Series A
Non-Voting Preferred Stock, which is convertible, over time, into our common
stock. As a result, assuming conversion of all the Series A Non-Voting
Preferred Stock into Voting Stock, Mr. Timm

would hold approximately 27% of our voting shares. Mr. Timm is the controlling
shareholder and an executive officer of the company which owns 40% of the
investment bank which served as the underwriter in our December 1998 public
offering of common stock, for which services such investment bank received
approximately $3 million in fees. Mr. Timm is also a principal shareholder and
executive officer of one of our customers, Cybermind, which is itself a
principal shareholder of the Company. Mr. Timm has the power to influence
actions requiring shareholder approval (including amendments to our Certificate
of Incorporation and By-laws and approving mergers and sales of all or
substantially all of our assets). We can offer no assurance that the interests
of Mr. Timm will not conflict with your interests. See "Stock Ownership of
Principal Beneficial Owners and Management."

We Are Subject to Certain Anti-Takeover Provisions Which May Delay or Prevent
a Change of Control

Certain provisions of the Delaware General Corporation Law (the "DGCL") and
our Certificate of Incorporation and By-Laws may delay, discourage or prevent a
future takeover or change in control of Cybernet unless such takeover or change
in control is approved by our Board of Directors. Such provisions may also make
the removal of directors and management more difficult, may discourage bids for
our common stock at a premium over the market price and may adversely affect
the market price, the voting and other rights of the holders of our common
stock.

In particular, we are subject to the anti-takeover provisions of Section 203
of the DGCL, which prohibits us from engaging in a "business combination" with
an "interested stockholder" for a period of three years after the date of the
transaction in which such person became an interested stockholder, unless the
business combination is approved in a prescribed manner.

In addition, our Certificate of Incorporation provides that the Board of
Directors must be divided into three classes of directors serving staggered
terms and that all stockholder actions must be effected at a duly called
meeting and not by written consent. Either of these provisions could have the
effect of discouraging a third party from making a tender offer or otherwise
attempting to gain control of Cybernet. Our Certificate of Incorporation also
places certain restrictions on who may call a special meeting of stockholders.

In addition, our Board of Directors has the authority to issue up to
50,000,000 shares of undesignated preferred stock, of which 4,793,440 shares
were issued and outstanding at August 2, 1999, and to determine the price,
rights, preferences, and privileges of those shares without any further vote or
actions by the stockholders. The rights of the holders of our common stock are
subject to, and may be adversely affected by, the rights of all present and any
future holders of Preferred Stock. The issuance of additional shares of
Preferred Stock may provide desirable flexibility in connection with possible
acquisitions and may serve other corporate purposes but such issuance could
make it more difficult for a third party to acquire a majority of the
outstanding voting stock of Cybernet.

The Internet Services Market Is New and Uncertain and It May Be Difficult to
Retain Customers

The market for Internet connectivity services and related software products
and services is in an early stage of growth, particularly in the European
markets in which we operate. As a consequence, current and future competitors
are likely to introduce competing Internet connectivity services, online
services and products, and it is difficult to predict the rate at which the
market will grow or at which new or increased competition will result in market
saturation. For example, certain companies have recently introduced free
Internet access services in support of their other product and service
offerings. If demand for Internet services fails to grow, or grows more slowly
than anticipated, our business, results of operations and financial condition
could be materially adversely affected.

The immature nature of the market for Internet access services may also
adversely affect our ability to retain new customers, as customers may
discontinue our services after an initial trial period. During each fiscal
period we typically acquire new customers for our products and services, while
seeking to renew service

agreements with existing customers. The sales and marketing expenses associated
with attracting new customers are substantial. Our ability to improve operating
margins will depend, in significant part, on our ability to retain customers.
While we continue to invest significant resources in our telecommunication
infrastructure and customer support resources, we cannot be certain that these
investments will improve customer retention. Since the Internet market is new
and the utility of available services is not well understood by many new and
potential customers, we are unable to predict future customer retention rates.
Any deterioration in customer retention rates or increased costs associated
with retaining customers could have a material adverse effect on our business,
results of operations and financial condition.

We Are Dependent on the Internet

Our products and services are targeted toward users of the Internet, which
has experienced rapid growth. Evolving industry standards, frequent new product
and service introductions and demand and market acceptance for recently
introduced products and services are subject to a high level of uncertainty, as
is typical in the case of a new and rapidly evolving industry characterized by
quickly changing technology. While we believe that Europeans will adopt this
new technology with the same enthusiasm that the people in the United States
have, we cannot be certain that the European market will develop to the same
extent.

In addition, critical issues concerning the commercial use of the Internet
remain unresolved and may impact the growth of Internet use, especially in the
business and geographic markets we target. Despite growing interest in the many
commercial uses of the Internet, many businesses have been deterred from
purchasing Internet access services for a number of reasons, including, among
others:

. lack of availability of cost-effective, high-speed options;

. inconsistent quality of service;

. a limited number of local access points for corporate users;

. inability to integrate business applications on the Internet;

. the need to deal with multiple and frequently incompatible vendors;

. inadequate protection of the confidentiality of stored data and
information moving across the Internet; and

. a lack of tools to simplify Internet access and use.

In particular, a perceived lack of security of commercial data, such as
credit card numbers, has significantly impeded commercial exploitation of the
Internet to date, and we cannot be certain that encryption or other
technologies will be developed to satisfactorily address these security
concerns. Capacity constraints caused by growth in the use of the Internet may
also, unless resolved, impede further expansion in the use of the Internet to
the extent that users experience delays, transmission errors and other
difficulties. Further, the adoption of the Internet for commerce and
communications replaces more established means of communication and requires
the understanding and acceptance of a new way of conducting business and
exchanging information. Some businesses may be unwilling to commit themselves
to learning this new way of conducting business until it is proved.

We Are Subject to Security and Fraud Risks

Despite our efforts to implement network security measures, such as limiting
physical and network access to our routers, our Internet infrastructure is
vulnerable to computer viruses, break-ins and similar disruptive problems
caused by customers, employees or other Internet users. Computer viruses,
break-ins or other disruptive or security problems could lead to interruptions,
delays or cessation in service to our Internet customers. Further, such
inappropriate or unauthorized use of the Internet could also potentially
jeopardize the security of confidential information stored in the computer
systems of our customers and other parties connected to the Internet, which may
deter potential customers and give rise to uncertain liability to users

whose security or privacy has been violated. The security and privacy concerns
of existing and potential customers may inhibit the growth of the Internet
service industry in general and our customer base and revenues in particular. A
significant security breach could result in a loss of customers, damage to our
reputation, direct damages, costs of repair and detection and other expenses.
In addition, our revenues for any given period may be adversely affected by
fraud or debt collection problems that we experience. The occurrence of any of
the foregoing events could have a material adverse effect on our business,
results of operations and financial condition.

We May Be Hurt by System Failures

Our success is largely dependent upon our ability to deliver high speed,
uninterrupted access to the Internet. Any system failure that causes
interruptions in our operations could have a material adverse effect on us. Our
telecommunications network is carried primarily on lines leased from Deutsche
Telekom. Failures in this or any other telecommunications network we rely on
would result in customers' receiving no or diminished access to the Internet.
We also currently lease the properties where our POPs are located. Any
relocation that may be required as a result of expired or changing lease terms
may result in increased costs or temporary disruption of service. We seek to
upgrade our POPs regularly to reduce congestion and improve efficiency.
However, any such future difficulties could cause a loss of customers or slow
the growth of new customers and could, therefore, have a material adverse
effect on our business, results of operations and financial condition.

Our operations are dependent on our ability to protect our computer equipment
and the information stored in its data centers, access nodes and POPs against
damage by fire, natural disaster, power loss, telecommunications failures,
unauthorized invasion and other catastrophic events. We believe we have taken
appropriate measures to reduce the risk of interruption in our operations.
However, we cannot assure you that these measures are sufficient. Any damage or
failure that causes interruptions in our operations could have a material
adverse effect on our business, results of operations and financial condition.

We Could Be Held Liable for Information Disseminated Over Our Network

The law relating to liability of ISPs for information and materials carried
on or disseminated through their networks is not completely settled. A number
of lawsuits have sought to impose such liability for material deemed to be
socially harmful. In particular, one lower court in Germany, where we presently
have the majority of our operations, recently found the manager of an ISP
liable for the contents of materials transmitted after the ISP failed to remove
the offending material from its news-server, despite requests from government
authorities. The law relating to the regulation and liability of information
carried or disseminated by ISPs is also undergoing a process of development in
other European countries.

The possibility that courts could impose liability for information or
material carried on or disseminated through our network could require us to
take measures to reduce our exposure to such liability. Such measures may
require us to spend substantial resources or to discontinue certain product or
service offerings. Any of these actions could have a material adverse effect on
our business, operating results and financial condition.

Due to the increasing use of the Internet, it is possible that additional
laws and regulations may be adopted with respect to the Internet covering
issues such as user privacy, pricing, taxes, defamation, obscurity,
intellectual property protection, consumer protection technology export and
other controls. Changes in the regulatory environment relating to the Internet
services industry, including regulatory changes that directly or indirectly
affect telecommunication costs or increase the likelihood or scope of
competition, could have a material adverse effect on our business, results of
operations and financial condition.

We Are Subject to Regulation

Currently, few laws or regulations are directly applicable to activities or
commerce on the Internet. However, a number of legislative and regulatory
proposals are under consideration and may be adopted in various jurisdictions
with respect to issues such as Internet user privacy, infringement, pricing,
taxes, quality of

products and services and intellectual property rights. It is uncertain how
existing laws will be applied to the Internet in areas such as intellectual
property (including copyrights, trademarks and trade secrets), obscenity and
defamation. The adoption of new laws or the adaptation of existing laws to the
Internet may decrease the growth in the use of the Internet, which could in
turn decrease the demand for our products and services, increase our cost of
doing business or otherwise have a material adverse effect on our business,
result of operations and financial condition.

The European telecommunications industry, which we plan to enter, is subject
to a significant degree of regulation. Our ability to operate networks and
provide services in Germany, Austria, Italy and Switzerland is dependent upon
our ability to obtain appropriate licenses, registrations and other
authorizations or permissions from governmental authorities in each
jurisdiction in which we operate and on those licenses and other authorizations
remaining in force. Such licenses generally contain clauses pursuant to which
we may be fined or our license may be revoked in certain circumstances. Such
revocation may be on very short notice. The revocation of any of our licenses
would force us to stop operating in the relevant country. In some cases, the
licenses we receive may be of fixed duration and we must comply with
regulations and technical requirements prescribed by the jurisdiction in which
we obtained such licenses in order to maintain them. We have no guarantees that
we will be able to obtain, maintain or renew the licenses, authorizations and
registrations we need to provide telecommunications services or that such
licenses and other authorizations will be issued or renewed on terms or with
fees that are commercially viable. The loss, or substantial limitations of, or
the failure to obtain, licenses, authorizations or registrations could have a
material adverse effect on our business.

The recent liberalization of the European telecommunications market, induced
by legislation of the European Union ("EU") and the introduction of the World
Trade Organization Basic Telecom Agreement, has significantly reduced the
regulatory barriers to entry in the markets in which we operate or intend to
operate. However, national regulatory frameworks which are fully consistent
with the policies and requirements of the EU and the World Trade Organization
have only recently been, or are still being, implemented in certain EU member
states and Switzerland, respectively. These nations are in the early stages of
providing for and adapting to a liberalized telecommunications market. As a
result, in these markets, we and other new entrants may encounter more
protracted and difficult procedures to obtain licenses and negotiate
interconnection agreements. We cannot assure you that further alterations to
the regulatory frameworks, which may place our operations and competitive
position at a disadvantage, will not be made in the future. In particular,
German regulatory authorities have indicated to Deutsche Telekom, the dominant
telecommunications provider in Germany, that it will be allowed to take
additional costs into account when determining fees, subject to regulatory
approval. Although the regulatory authority denied Deutsche Telekom's first
application for higher prices on the basis that Deutsche Telekom had not
demonstrated higher costs, we cannot assure you that the regulatory authorities
will continue to reach such conclusions in the future. We also cannot assure
you that such fees, which tend to be favorable for new entrants providing long
distance and international voice telephony services, will remain at their
current levels. See also "Business--Regulation."

Many of the countries in which we intend to establish facilities and provide
services lack the level of experience the United States has with regulation of
a competitive telecommunications market. In Germany and many of the other
Western European countries in which we operate or intend to operate the markets
for public switched services were virtually closed to competition until January
1, 1998. Prior to that time, few entities other than the incumbent operators
had the right to provide public voice telephony services or installed public
networks. As a result, few pro-competitive regulations and regulators existed
to enforce laws and regulations against the incumbent operators. The limited
experience of legislators, regulators and courts with the implementing of a
competitive regulatory regime, combined with continued full or partial
government ownership of the incumbent operators, as discussed below, could slow
or even undermine the movement to competitive telecommunications markets in
these countries.

As a result, we may be incorrect in our assumptions that:

. each European country where we intend to establish networks and provide
services will enact and enforce, on a timely basis, the measures
necessary to ensure that new entrants such as Cybernet can compete
fairly with the incumbent operators; and

. we will be allowed to provide and expand our services in these European
countries as set forth in our business plans.

We cannot assure you, with respect to any country in which we operate or plan
to operate, that future changes in the law, regulation, or government will not
have a material adverse effect on Cybernet.

We Are Subject to Intellectual Property Risks

Legal standards relating to the validity, enforceability and scope of
protection of intellectual property rights in Internet-related industries are
uncertain and still evolving, and we cannot be certain as to the future
viability or value of any of our intellectual property rights or those of other
companies within the IT industry. We cannot assure you that the steps we have
taken to protect our intellectual property rights will be adequate or that
third parties will not infringe or misappropriate our proprietary rights. Any
such infringement or misappropriation, should it occur, could have a material
adverse effect on our business, results of operations and financial condition.
Furthermore, we cannot be certain that our business activities will not
infringe the proprietary rights of others or that such other parties will not
assert infringement claims against us. We anticipate that we may be subject to
claims in the ordinary course of our business, including claims of alleged
infringement of the trademarks and other intellectual property rights of third
parties due to the dissemination of our content or the provision of access by
our online services to content made available by third parties. Such claims and
any resultant litigation, should it occur, could subject us to significant
liability for damages and could result in invalidation of our proprietary
rights and, even if not meritorious, could be time-consuming and expensive to
defend, and could result in the diversion of management time and attention, any
of which could have a material adverse effect on our business, results of
operations and financial condition.

We regard substantial elements of our products and services as proprietary
and we attempt to protect them by relying on trademark, service mark, trade
dress, copyright and trade secret laws and restrictions on disclosure and
transfer of title. We also enter into confidentiality agreements with our
employees, suppliers, distributors, consultants, vendors and customers and
license agreements with third parties and generally seek to control access to
and distribution of our technology, documentation and other proprietary
information. We are pursuing the registration of our service marks in the EU
but we currently have no patents or applications for patents pending for our
products or services. Effective service mark, copyright and trade secret
protection may not be available in every country in which our products and
services are distributed or made available. We cannot assure you that the steps
we have taken to protect our proprietary rights will be adequate or that third
parties will not infringe or misappropriate our copyrights, service marks,
trade dress and similar proprietary rights.

We Are Dependent on Our Billing and Information Systems

As we add additional services, sophisticated back office information and
processing systems become more and more vital to our growth and our ability to:

. manage and monitor traffic along our network;

. track service provisioning, traffic faults and repairs;

. effect least cost routing;

. achieve operating efficiencies;

. monitor costs;

. bill and receive payments from customers; and

. reduce credit exposure.

We have purchased from Kenan Systems ("Kenan") a new billing system which we
have installed and are integrating into our German operations and which we are
beginning to implement in Italy. We cannot

assure you that this system will be successfully implemented on a timely basis
or at all, or that it will perform as expected. We also cannot assure you that
this transition will not cause delays or interruptions in our monitoring and
billing activities.

The billing system we are acquiring will require enhancements and ongoing
investments, particularly as traffic volume increases. We may encounter
difficulties in enhancing our systems or integrating new technology into our
systems in a timely and cost-effective manner. Implementation of that system in
Germany did cause some delay in our processing of customer invoices and we
cannot assure that its implementation in other countries will not cause similar
delays. Such difficulties could have a material adverse effect on our ability
to operate efficiently and provide adequate customer service.

We Are Subject to Risks Associated with Converting to the Euro

On January 1, 1999, 11 of the 15 EU member 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 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 this 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. Any of the
above could have a material adverse effect on us and our ability to make
payments under the Senior Notes, the Discount Notes and the PIK Notes.

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 operations and our ability to meet
our obligations under the Senior Notes, the Discount Notes and the PIK Notes.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Conversion to the Euro."

We Are Subject to Certain Risks Associated with the Year 2000

The Year 2000 problem results from the fact that many existing computer
programs and systems have used 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 recently completed, or are in the process of completing, a number of
acquisitions and have therefore had less of an opportunity to identify and
address any Year 2000 issues such companies may have.

Although we have taken significant steps to identify and remedy the Year 2000
problem, we cannot assure you that our operations will not be materially
adversely affected. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Year 2000."

We Are Subject to the Risks Associated with Rapid Industry Changes

Changes in the Internet Services Industry

The Internet services industry in which we operate is characterized by
rapidly changing technology, evolving industry standards, emerging competition
and frequent new service, software and other product innovations. We cannot
guarantee that we will be able to identify new service opportunities
successfully and develop and bring new products and services to market in a
timely and cost-effective manner, or that products, software and services or
technologies developed by others will not render our products and services non-
competitive or obsolete. In addition, we cannot provide any assurance that our
product or service developments or enhancements will achieve or sustain market
acceptance or be able to address effectively the compatibility and
interoperability issues raised by technological changes or new industry
standards.

As Internet-related industries evolve, we may be required to develop or
acquire additional technological capabilities. In particular, there is
substantial uncertainty as to the transmission media for future ISPs.
Currently, we provide access to Internet services primarily through analog
telephone lines and ISDN lines. Several companies have recently introduced, on
an experimental basis, delivery of Internet access services through cable
television lines. If the Internet becomes accessible by cable modem, or if
screen based telephones, television or other consumer electronic devices or
customer requirements change the way Internet access is provided, we will need
to develop new services or modify our existing services to accommodate these
developments. This pursuit of technological advances may require substantial
time and expense and we cannot be certain that we will succeed in adapting our
business to handle such requirements. Failure to do so could have a material
adverse effect on our business, results of operations and financial condition.

Changes in the Telecommunications Industry

The European telecommunications industry which we are entering is also
changing rapidly due to, among other factors:

. market liberalization;

. continuing privatization of incumbent operators;

. significant technological advancements;

. introductions of new products and services utilizing new technologies;

. increased availability of transmission capacity;

. expansion of telecommunications infrastructure;

. increased use of the Internet for voice and data transmission; and

. the globalization of economies and trade.

These factors are likely to continue to affect our markets and may have
unforeseen effects which could have a material adverse effect on us. In
particular, if the continued growth we anticipate in the demand for voice and
IP services were not to occur or we were precluded from servicing this
anticipated demand, we might not be able to generate sufficient revenues in the
next few years to fund our working capital requirements. Even if these factors
turn out as anticipated, we cannot be sure that our strategy will be successful
in this rapidly evolving market. In addition, further changes may happen at any
time that could significantly affect our operations.

Our success will depend substantially on our ability to predict which of the
many possible current and future networks, products and services will be
important to finance, establish and maintain. In particular, as we further
expand and develop our network, we will become increasingly exposed to the
risks associated with the relative effectiveness of our technology and
equipment. The cost of implementation of emerging and future technologies could
be significant, and we cannot be certain that we will select appropriate
technology and equipment or that we will obtain such new technology on a timely
basis or on satisfactory terms. We may choose new technologies that prove to be
inadequate or incompatible with technologies of our customers, providers of
transmission capacity or other carriers. As new technologies develop, we may be
forced to implement such new technologies at substantial cost to remain
competitive. In addition, competitors may implement new technologies before we
do, allowing such competitors to provide lower priced or enhanced services and
superior quality compared to those we provide. The failure to obtain effective
technology and equipment may hinder our ability to provide competitive products
and services, and may adversely affect the viability of our operations and
could have a material adverse impact on our business.

The Markets in Which We Operate Are Highly Competitive

Competition in the Internet Services Market

The Internet services market is extremely competitive and we expect
competition in this market to intensify in the future. We believe that our
ability to compete successfully depends on a number of factors including:

. our market presence;

. our image and reputation;

. our technical expertise;

. the capacity, reliability, latency and security of our network
infrastructure;

. the functionality, performance and quality of our services;

. our ability to provide customization and customer support;

. the variety of services we offer;

. the pricing and quality of products and services offered by competitors
and suppliers;

. the timing of our introductions of new products and services and of
those of our competitors;

. our ability to support industry standards; and

. industry and general economic trends.

Many new start-up businesses as well as existing businesses in different
industries have been drawn by the tremendous growth and potential market size
of the Internet services market. Our current and prospective competitors
include:

. ISPs such as European Computer Industry Research Centre, Xlink, PSInet,
UUNet Technologies, EUnet and Nacamar in Germany; EUnet Multimedia
Network Services, Netway Austria and Cybertron in Austria; and I-Net in
Italy; as well as numerous smaller, regional ISPs in each country;

. established online services such as America Online and CompuServe;

. major systems integrators and computer manufacturers such as Andersen
Consulting and IBM;

. telecommunications companies such as Mannesmann Arcor, Deutsche Telekom
and Viag Interkom in Germany; Telekom Austria and United Telecom Austria
in Austria; and Infostrada, Telecom Italia and Wind in Italy;

. cable operators such as Deutsche Telekom and Primacom; and

. value-added resellers of computer, network and peripheral equipment.

Many of these current and prospective competitors have greater market
presence, engineering and marketing capabilities, brand recognition and
financial, technological, personnel and other resources than we do. As a
result, such competitors may be able to develop and expand their communications
and network infrastructures more quickly, to adapt more swiftly to new or
emerging technologies and changes in customer requirements, to take advantage
of acquisition and other opportunities more readily, and to devote greater
resources to the marketing and sale of their products and services than we can.

Prices for IP services are currently relatively high in Europe. However, the
U.S. market for IP services has been experiencing downward pressure on prices
and certain companies have recently introduced free Internet access services in
Europe in support of their other product and service offerings. As competition
increases, we anticipate comparable price decreases in the European IP market
over the next few years. As a result of an increase in the number of
competitors, and vertical and horizontal integration in the industry, we
currently encounter and expect to continue to encounter significant pricing
pressure. We cannot be certain that we will be able to offset the adverse
effect on revenues of any necessary price reductions by increasing the number
of our customers, generating higher revenue from enhanced services, reducing
costs or otherwise. We cannot assure you that IP service prices will not
decline more quickly than our IP transmission or termination costs. If this
were to occur, it could have a material adverse effect on our gross profit
margins.

Competition affects not only the price of our products and services but also
our ability to attract and retain effective, knowledgeable salespeople.
Furthermore, advances in technology as well as changes in the marketplace and
the regulatory environment occur constantly and we cannot predict the effect
that ongoing or future developments may have on us or on the pricing of our
products and services. In addition, we believe that Internet access services
businesses are likely to encounter consolidation in the near future, which
could result in increased price and other competition. This could result in an
erosion of our market share and could prevent us from becoming profitable. In
summary, we cannot be certain that we will have the financial resources,
technical expertise or marketing and support capabilities to compete
successfully in the Internet services market.

Competition in the European Telecommunications Market

Competition in the European telecommunications market, which we are entering,
is intense and is based primarily on price. The opening of the market to
alternative operators, combined with technological advances, has resulted in
significant reductions in retail and wholesale prices for voice services.
Prices declined significantly during 1998 and we expect prices to continue to
decline. While decreasing prices fuel growing demand for bandwidth, they

also narrow gross profit margins on long distance voice traffic. Our ability to
compete successfully in this environment will significantly depend on our
ability to generate high traffic volumes from our customers while keeping our
cost of services low. We cannot assure you that we will be able to do this.

In all of the countries in which Cybernet currently offers its services we
compete with the incumbent operators (Deutsche Telekom in Germany, Austria
Telecom in Austria, Telecom Italia in Italy and Swisscom in Switzerland ). In
all of these countries, the incumbent operators virtually control all access to
local networks and have significant operational economies, including a large
national network and existing operating agreements with other incumbent
operators.

Many of our competitors have greater financial resources and would be in a
better position than we would be to withstand the adverse effect on gross
profit margins caused by price decreases, particularly those competitors that
already own infrastructure and have interconnection or peering arrangements and
thus enjoy a lower cost base than we do. Unless and until we are able to reduce
our cost base, we may not be able to compete on the basis of price if market
prices are reduced below a certain level. Inability to price our services
competitively may in turn cause us to lose customers.

There Is No Established Market for the Senior Notes

The Senior Notes are a new issue of securities for which there is currently
no trading market. We cannot assure you as to:

. the liquidity of any market for the Senior Notes that may develop;

. your ability as a holder of the Senior Notes to sell the Senior Notes;
or

. the price at which you would be able to sell any of your Senior Notes.

The initial purchasers of the Senior Notes have advised us that they intend
to make a market in the Senior Notes. The initial purchasers are not obligated,
however, to make a market, and any such market-making may be discontinued at
any time at the sole discretion of the initial purchasers and without notice.
Moreover, the liquidity of the trading market in the Senior Notes may be
adversely affected by changes in the overall market for high-yield securities
and by changes in our financial performance or prospects or in the prospects
for companies in our industry in general. Accordingly, we cannot assure you as
to the development or liquidity of any market for the Senior Notes. If a market
for any of such securities were to develop, they could trade at prices that may
be higher or lower than those reflected by their offering price depending on
many factors, including prevailing interest rates, our operating results and
the market for similar securities. Historically, the market for such securities
has been subject to disruptions that have caused substantial volatility in the
prices of similar securities. If a market for the Senior Notes were to develop,
we cannot be certain that such a market would not be subject to similar
disruptions.

Dilution

At June 30, 1999, the net tangible book value of our common stock was $0.95
per share. After giving effect to the Private Offerings, and assuming that all
Warrants offered in the Unit Offering were exercised at June 30, 1999 at an
exercise price per share of $22.278, and that all notes offered in the Discount
Notes Offering and in the PIK Notes Offering were converted at June 30, 1999 at
the conversion price of $25.00, the adjusted pro forma net tangible book value
per share would have been $6.71 as of June 30, 1999.

We Do Not Expect to Pay Dividends

The Company does not anticipate paying cash dividends in the foreseeable
future. See "Price Range of Common Stock and Dividend Policy."

USE OF PROCEEDS

We will not receive any cash proceeds from the issuance of the Exchange Notes
offered hereby. In consideration for issuing the Exchange Notes contemplated
herein, we will receive in exchange Outstanding Notes in like principal amount.
The Outstanding Notes surrendered in exchange for the Exchange Notes will be
retired and canceled and cannot be reissued. Accordingly, issuance of the
Exchange Notes will not result in any change in the Indebtedness (as defined on
page 127) of our Company.

The net proceeds from the Unit Offering were approximately $144,800,000,
after deducting underwriting discounts and commissions and estimated fees and
expenses. We used $57,466,076 of the net proceeds to purchase the U.S.
government securities which have been pledged with the escrow agent to assure
payment of the first six interest payments on the Notes. We also used
$22,374,264 to repay the Company's Interim Loan. We plan to use the remaining
net proceeds of approximately $65 million for capital expenditures and general
corporate purposes. The net proceeds from the Discount Notes Offering and the
PIC Notes Offering were approximately $47,000,000 and (Euro)23,000,000,
respectively.

Although we intend to use the proceeds of the Private Offerings for capital
expenditures and general corporate purposes, the amount of proceeds to be
applied for various purposes is likely to change as our current plans and the
assumption underlying them change or prove to be inaccurate. For example, we
may determine to use a portion of the proceeds to acquire companies that are
complementary to our business, although we currently have no formal commitments
or agreements to do so. Accordingly, we can provide no assurance that the
remaining net proceeds of the Unit Offering will be applied for capital
expenditures and general corporate purposes.

Pending utilization of the remaining net proceeds of the Unit Offering, we
intend to invest such proceeds in short-term investment grade securities and
other financial instruments.

EXCHANGE RATE INFORMATION

The following tables set forth, for the periods indicated, certain
information concerning the Noon Buying Rate for Deutsche Marks, Italian Lire,
Austrian Schillings and Euro, expressed in Deutsche Marks, Italian Lire,
Austrian Schillings and Euro, respectively, per dollar. Such rates are provided
solely for the convenience of the reader and should not be construed as a
representation that Deutsche Marks, Italian Lire, Austrian Schillings or Euro
amounts actually represent such dollar amounts or that such Deutsche Marks,
Italian Lire, Austrian Schillings or Euro amounts could have been, or could be,
converted into dollars at that rate or at any other rate. We did not use such
rates in the preparation of the combined financial statements of the Company
included elsewhere in this prospectus. On the tables for the Deutsche Mark,
Italian Lira and Austrian Schilling, the columns entitled "Average Rate"
represent the average Noon Buying Rates on the last business day of each month
during the relevant period. As of January 1, 1999, the Deutsche Mark, the
Italian Lira and the Austrian Schilling began trading at fixed rates against
the Euro.

Deutsche Mark Exchange Rate Average Period-
Year Ended December 31, Rate High Low End Rate
- --------------------------- -------- -------- -------- --------

1995........................................ 1.4261 1.5612 1.3565 1.4345
1996........................................ 1.5070 1.5655 1.4354 1.5387
1997........................................ 1.7394 1.8810 1.5413 1.7991
1998........................................ 1.7588 1.8542 1.6060 1.6670

Italian Lira Exchange Rate Average Period-
Year Ended December 31, Rate High Low End Rate
- -------------------------- -------- -------- -------- --------

1995........................................ 1,628.95 1,736.25 1,569.00 1,584.00
1996........................................ 1,538.37 1,602.00 1,496.00 1,519.00
1997........................................ 1,712.15 1,840.75 1,515.70 1,769.00
1998........................................ 1,737.19 1,827.60 1,592.00 1,654.00

Austrian Schilling Exchange Rate Average Period-
Year Ended December 31, Rate High Low End Rate
- -------------------------------- -------- -------- -------- --------

1995........................................ 9.8733 10.9845 9.5903 10.0810
1996........................................ 10.6002 11.0070 10.1000 10.8340
1997........................................ 12.2386 13.2330 10.8400 12.6340
1998........................................ 12.1940 13.0160 11.3230 11.6040

Euro Exchange Rate Period-
Month End 1999(a) High Low End Rate
- ------------------ -------- -------- --------

January 31........................................... 0.8794 0.8466 0.8794
February 28.......................................... 0.9114 0.8819 0.9095
March 31............................................. 0.9332 0.9079 0.9252
April 30............................................. 0.9466 0.9223 0.9466
May 28............................................... 0.9595 0.9270 0.9595
June 30.............................................. 0.9713 0.9509 0.9699
July 31.............................................. 0.9863 0.9329 0.9351
August 31............................................ 0.9607 0.9239 0.9486

- --------
(a) On August 3, 1999, the Noon Buying Rate was $1.00 = (Euro)0.9363 and the
Euro was fixed to the Deutsche Mark at (Euro)1.00 = DM 1.9558, to the
Italian Lira at (Euro)1.00 = Lit. 1,936.27 and to the Austrian Schilling at
(Euro)1.00 = ATS 13.7603.

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

Price Range Of Common Stock

Our common stock is traded on the OTC Bulletin Board under the symbol "ZNET"
and on the Neuer Markt of the Frankfurt Stock Exchange under the Symbol "CYN."
Our common stock also trades on the Freiverkehr of the Berlin and Munich Stock
Exchanges under the securities identification number WP-Kenn-Nr. 906 623. Our
principal foreign trading market is the Neuer Markt. As of August 2, 1999, the
Company had 169 registered stockholders of record. The closing price of the
common stock on the OTC Bulletin Board and the Neuer Markt on August 18, 1999
was $17.1875 per share and (Euro)17.0000 per share, respectively.

The following tables set forth for the periods indicated the high and low bid
prices for the common stock as reported each quarterly period in 1997 and 1998
and each monthly period in 1999 on the OTC Bulletin Board and the Neuer Markt.
The prices are inter-dealer prices, do not include retail mark up, mark down or
commission and may not necessarily represent actual transactions.

OTC BULLETIN BOARD

High Low
1997 ------------ ------------

Third Quarter/(1)/............................ $ 11.250 $ 9.310
Fourth Quarter................................ $ 16.250 $ 7.750

High Low
1998 ------------ ------------

First Quarter................................. $ 34.500 $ 11.500
Second Quarter................................ $ 28.750 $ 20.000
Third Quarter................................. $ 29.875 $ 18.000
Fourth Quarter................................ $ 37.250 $ 13.000

High Low
1999 ------------ ------------

January....................................... $ 47.000 $ 29.625
February...................................... $ 43.875 $ 33.500
March......................................... $ 36.000 $ 26.500
April......................................... $ 27.750 $ 23.000
May........................................... $ 24.000 $ 20.000
June.......................................... $ 20.000 $ 16.000
July.......................................... $ 21.750 $ 14.500
August........................................ $ 18.000 $ 14.000
- --------
(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.

NEUER MARKT OF THE FRANKFURT STOCK EXCHANGE

High Low
1998 ------------ ------------

Fourth Quarter (beginning December 9, 1998)... (Euro)33.029 (Euro)24.900

High Low
1999 ------------ ------------

January....................................... (Euro)41.200 (Euro)26.600
February...................................... (Euro)39.900 (Euro)31.400
March......................................... (Euro)32.500 (Euro)24.500
April......................................... (Euro)24.700 (Euro)21.650
May........................................... (Euro)23.400 (Euro)20.300
June.......................................... (Euro)19.500 (Euro)16.400
July.......................................... (Euro)19.800 (Euro)14.200
August........................................ (Euro)17.450 (Euro)13.300

Dividend Policy

The Company has never paid dividends on its common stock.

THE EXCHANGE OFFER

General

In connection with the Unit Offering, we entered into a registration rights
agreement with the initial purchases, Lehman Brothers International (Europe)
and Morgan Stanley & Co. International Limited and agreed to (i) file within 90
days, and use our best efforts to cause to be declared effective within 150
days, of the date of the original issuance of the Outstanding Notes a
registration statement of which this prospectus is a part with respect to a
registered offer to exchange the Outstanding Notes for the Exchange Notes with
terms substantially identical in all material respects to the Outstanding
Notes, and (ii) use our reasonable best efforts to cause the Exchange Offer to
be consummated on or before 30 days after the date on which the registration
statement is declared effective by the Securities and Exchange Commission.

In the event that (i) we are not permitted to file the registration statement
or to consummate the Exchange Offer on account of changes in law or the
applicable interpretations of the Staff of the SEC, (ii) any holder that is a
"qualified institutional buyer" (as defined in Rule 144A under the Securities
Act of 1933) notifies our Company at least 20 business days prior to the
consummation of the Exchange Offer that (a) applicable law or SEC policy
prohibits us from participating in the Exchange Offer, (b) such holder may not
resell the Exchange Notes acquired by it in the Exchange Offer to the public
without delivering a prospectus and that this prospectus is not appropriate or
available for such resales by such holder, or (c) such holder is a broker-
dealer and holds Notes acquired directly from us or one of our affiliates,
(iii) the Exchange Offer is not for any other reason consummated within 180
days after the original issuance of the Outstanding Notes, (iv) any holder
(other than a broker-dealer that is the beneficial owner (as defined in Rule
13d-3 under the Securities Exchange Act of 1934) of Exchange Notes received by
such broker-dealer in the Exchange Offer) is not eligible to participate in the
Exchange Offer, or in the case of any holder that participates in the Exchange
offer, such holder does not receive Exchange Notes on the date of the exchange
that may be sold without restriction under federal securities laws (other than
due solely to the status of such holder as an affiliate of our Company within
the meaning of the Securities Act or due to the requirement that such holder
deliver a copy of this prospectus in connection with any resale of the Exchange
Notes), or (v) the Exchange Offer has been completed and in the opinion of
counsel for the initial purchasers a registration statement must be filed and a
prospectus must be delivered by the initial purchasers in connection with any
offering or sale of "Transfer Restricted Securities" (as defined in the
registration rights agreement), then we will use our best efforts to file,
within 90 days of the earliest to occur of the preceding events, a shelf
registration statement pursuant to the Securities Act with respect to the
resale of the Outstanding Notes and to keep the shelf registration statement
effective until the second anniversary (unless extended pursuant to the terms
of the registration rights agreement) of the issuance of the Outstanding Notes.

In the event that (i) neither the registration statement of which this
prospectus is a part nor the shelf registration statement is filed with the SEC
on or prior to the 90th day following the date of original issuance of the
Outstanding Notes, (ii) neither the registration statement nor the shelf
registration statement is declared effective on or prior to the 150th day
following the date of original issuance of the Outstanding Notes, (iii) the
Exchange Offer is not consummated on or before 30 days after the 150th day
following the date of original issuance of the Outstanding Notes, or (iv) (a)
the registration statement is filed and declared effective but thereafter,
ceases to be effective or fails to be usable for its intended purpose at any
time prior to the time that the Exchange Offer is consummated and is not
declared effective within 5 business days thereafter, or (b) the shelf
registration statement is filed and declared effective but thereafter ceases to
be effective or fails to be usable for its intended purpose at any time during
the period ending on the second anniversary of the issuance of the Outstanding
Notes (unless extended pursuant to the terms of the registration rights
agreement) and is not declared effective again within five business days
thereafter, the interest rate borne by the Outstanding Notes shall be increased
by one-half of one percent per annum following such 90-day period in the case
of clause (i) above, following such 150-day period in the case of clause (ii)
above, following such 30-day period in the case of clause (iii) above, or
commencing on the day the applicable registration statement ceases to be
effective or usable for its intended purpose without being declared effective
again within 5 business days in the case of

clause (iv) above. The aggregate amount of such increase from the original
interest rate pursuant to these provisions will in no event exceed 1.5 percent
per annum. Upon (w) the filing of the registration statement or the shelf
registration statement for the Exchange Offer after the 90-day period described
in clause (i) above, (x) the effectiveness of the registration statement or
shelf registration statement after the 150-day period described in clause (ii)
above, (y) the consummation of the Exchange Offer after the 30-day period
described in clause (iii) above, or (z) the effectiveness or usability of the
registration statement which had ceased to remain effective or be usable, or
the effectiveness or usability of the shelf registration statement which had
ceased to remain effective or be usable, the interest rate borne by the
Outstanding Notes from the date of such filing, effectiveness, usability or the
day before the date of consummation, as the case may be, will be reduced to the
original interest rate if we are otherwise in compliance with such
requirements.

Upon the terms and subject to the conditions set forth in this prospectus and
in the accompanying letter of transmittal, we will accept all Outstanding Notes
validly tendered prior to 5:00 p.m., New York City time, on the expiration
date. We will issue $1,000 principal amount of Exchange Notes in exchange for
each $1,000 principal amount of Outstanding Notes accepted in the Exchange
Offer. Holders may tender some or all of their Outstanding Notes pursuant to
the Exchange Offer in denominations of $1,000 and integral multiples thereof.

Based on no-action letters issued by the Staff of the SEC to third parties,
we believe that the Exchange Notes issued pursuant to the Exchange Offer in
exchange for Outstanding Notes may be offered for resale, resold and otherwise
transferred by any holder thereof (other than (i) a broker-dealer who purchased
such Outstanding Notes directly from us to resell pursuant to Rule 144A or any
other available exemption under the Securities Act, or (ii) a person that is an
"affiliate" (as such term is defined in Rule 405 of the Securities Act) of our
Company) without compliance with the registration and prospectus delivery
requirements of the Securities Act, provided that the holder is acquiring the
Exchange Notes in its ordinary course of business and is not participating and
does not intend to participate, and has no arrangements or understanding with
any person to participate, in the distribution of the Exchange Notes. Holders
of Outstanding Notes wishing to accept the Exchange Offer must represent to us
that such conditions have been met.

Each broker-dealer that receives Exchange Notes in exchange for Outstanding
Notes held for its own account, as a result of market-making or other trading
activities, must acknowledge that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such
Exchange Notes. The letter of transmittal states that by so acknowledging and
by delivering a prospectus, such broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act. This
prospectus, as it may be amended or supplemented from time to time, may be used
by such broker-dealer in connection with resales of Exchange Notes received in
exchange for Outstanding Notes. We have agreed that, for a period of 180 days
after the consummation of the Exchange Offer, we will make this prospectus and
any amendment or supplement to this prospectus available to any such broker-
dealer for use in connection with any such resale. See "Plan of Distribution."

As of the date of this prospectus, $150 million aggregate principal amount of
the Outstanding Notes is outstanding. In connection with the issuance of the
Outstanding Notes, we arranged for the Outstanding Notes initially purchased by
qualified institutional buyers to be issued and transferable in book-entry form
through the facilities of DTC, acting as depositary. The Exchange Notes will
also be issuable and transferable in book-entry form through DTC.

This prospectus, together with the accompanying letter of transmittal, is
being sent to all registered holders as of , 1999.

We shall be deemed to have accepted validly tendered Outstanding Notes when,
as and if we have given oral or written notice thereof to the exchange agent.
See "--Exchange Agent." The exchange agent will act as agent for the tendering
holders of Outstanding Notes for the purpose of receiving Exchange Notes from
us and delivering Exchange Notes to such holders.

If any tendered Outstanding Notes are not accepted for exchange because of an
invalid tender or the occurrence of certain other events set forth herein,
certificates for any such unaccepted Outstanding Notes will be returned,
without expenses, to the tendering holder thereof as promptly as practicable
after the expiration date.

Holders of Outstanding Notes who tender in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions
in the letter of transmittal, transfer taxes with respect to the exchange of
Outstanding Notes pursuant to the Exchange Offer. We will pay all charges and
expenses, other than certain applicable taxes, in connection with the Exchange
Offer. See "--Fees and Expenses."

Expiration Date; Extensions; Amendments

The term "expiration date" shall mean _________, 1999 unless we, in our sole
discretion, extend the Exchange Offer, in which case the term "expiration date"
shall mean the latest date to which the Exchange Offer is extended.

In order to extend the expiration date, we will notify the exchange agent of
any extension by oral or written notice and will mail to the record holders of
Outstanding Notes an announcement thereof, each prior to 9:00 a.m., New York
City time, on the next business day after the previously scheduled expiration
date. Such announcement may state that we are extending the Exchange Offer for
a specified period of time.

We reserve the right (i) to delay acceptance of any Outstanding Notes, to
extend the Exchange Offer or to terminate the Exchange Offer and to refuse to
accept Outstanding Notes not previously accepted, if any of the conditions set
forth herein under "--Termination" shall have occurred and shall not have been
waived by us (if permitted to be waived by us), by giving oral or written
notice of such delay, extension or termination to the exchange agent, and (ii)
to amend the terms of the Exchange Offer in any manner deemed by us to be
advantageous to the holders of the Outstanding Notes. Any such delay in
acceptance, extension, termination or amendment will be followed as promptly as
practicable by oral or written notice thereof. If the Exchange Offer is amended
in a manner determined by us to constitute a material change, we will promptly
disclose such amendment in a manner reasonably calculated to inform the holders
of the Outstanding Notes of such amendment.

Without limiting the manner by which we may choose to make public
announcements of any delay in acceptance, extension, termination or amendment
of the Exchange Offer, we shall have no obligation to publish, advertise, or
otherwise communicate any such public announcement, other than by making a
timely release to the Dow Jones News Service.

Interest on the Exchange Notes

The Exchange Notes will bear interest from July 8, 1999, payable semiannually
on January 1 and July 1 of each year commencing on January 1, 2000, at the rate
of 14.0% per annum. Holders of Outstanding Notes whose Outstanding Notes are
accepted for exchange will be deemed to have waived the right to receive any
payment in respect of interest on the Outstanding Notes accrued from July 8,
1999 until the date of the issuance of the Exchange Notes. Consequently,
holders who exchange their Outstanding Notes for Exchange Notes will receive
the same interest payment on January 1, 2000 (the first interest payment date
with respect to the Outstanding Notes and the Exchange Notes) that they would
have received had they not accepted the Exchange Offer.

Procedures for Tendering

To tender in the Exchange Offer, a holder must complete, sign and date the
letter of transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the letter of transmittal, and deliver such letter of
transmittal or such facsimile, together with the Outstanding Notes (unless such

tender is being effected pursuant to the procedure for book-entry transfer
described below) and any other required documents, to the exchange agent prior
to 5:00 p.m., New York City time, on the expiration date.

Any financial institution that is a participant in DTC's Book-Entry Transfer
Facility system may make book-entry delivery of the Outstanding Notes by
causing DTC to transfer such Outstanding Notes into the exchange agent's
account in accordance with DTC's Automated Tender Offer Program.

DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH ITS PROCEDURES DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.

The tender by a holder of Outstanding Notes will constitute an agreement
between such holder and us in accordance with the terms and subject to the
conditions set forth herein and in the letter of transmittal.

Delivery of all documents must be made to the exchange agent at its address
set forth herein. Holders may also request that their respective brokers,
dealers, commercial banks, trust companies or nominees effect such tender for
such holders.

The method of delivery of Outstanding Notes and the letters of transmittal
and all other required documents to the exchange agent is at the election and
risk of the holders. Instead of delivery by mail, it is recommended that
holders use an overnight or hand delivery service. In all cases, sufficient
time should be allowed to assure timely delivery. No letter of transmittal or
Outstanding Notes should be sent to us.

Only a holder of Outstanding Notes may tender such Outstanding Notes in the
Exchange Offer. The term "holder" with respect to the Exchange Offer means any
person in whose name Outstanding Notes are registered on our books or any other
person who has obtained a properly completed bond power from the registered
holder, or any person whose Outstanding Notes are held of record by DTC who
desires to deliver such Outstanding Notes by book-entry transfer at DTC.

Any beneficial holder whose Outstanding Notes are registered in the name of
his broker, dealer, commercial bank, trust company or other nominee and who
wishes to tender should contact such registered holder promptly and instruct
such registered holder to tender on his behalf. If such beneficial holder
wishes to tender on his own behalf, such beneficial holder must, prior to
completing and executing the letter of transmittal and delivering his
Outstanding Notes, either make appropriate arrangements to register ownership
of the Outstanding Notes in such holder's name or obtain a properly completed
bond power from the registered holder. The transfer of record ownership may
take considerable time.

Signatures on a letter of transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Securities Exchange Act of 1934, unless the Outstanding Notes
tendered pursuant thereto are tendered (i) by a registered holder who has not
completed the box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the letter of transmittal, or (ii) for the account of an
eligible institution.

If the letter of transmittal is signed by a person other than the registered
holder of any Outstanding Notes listed therein, such Outstanding Notes must be
endorsed or accompanied by appropriate bond powers which authorize such person
to tender the Outstanding Notes on behalf of the registered holder, in either
case signed as the name of the registered holder or holders appears on the
Outstanding Notes.

If the letter of transmittal or any Outstanding Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing and, unless waived by
us, evidence satisfactory to us of their authority to so act must be submitted
with the letter of transmittal.

All the questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the tendered Outstanding Notes will be
determined by us in our sole discretion, which determinations will be final and
binding. We reserve the absolute right to reject any and all Outstanding Notes
not validly tendered or any Outstanding Notes of which our acceptance would, in
the opinion of our counsel, be unlawful. We also reserve the absolute right to
waive any irregularities or conditions of tender as to particular Outstanding
Notes. Our interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the letter of transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Outstanding Notes must be cured within such time as
we shall determine. Neither our Company, the exchange agent nor any other
person shall be under any duty to give notification of defects or
irregularities with respect to tenders of Outstanding Notes nor shall any of
them incur any liability for failure to give such notification. Tenders of
Outstanding Notes will not be deemed to have been made until such
irregularities have been cured or waived. Any Outstanding Notes received by the
exchange agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned without cost by
the exchange agent to the tendering holder of such Outstanding Notes unless
otherwise provided in the letter of transmittal, as soon as practicable
following the expiration date.

In addition, we reserve the right in our sole discretion to (a) purchase or
make offers for any Outstanding Notes that remain outstanding subsequent to the
expiration date, or, as set forth under "--Termination," to terminate the
Exchange Offer, and (b) to the extent permitted by applicable law, purchase
Outstanding Notes in the open market, in privately negotiated transactions or
otherwise. The terms of any such purchases or offers may differ from the terms
of the Exchange Offer.

By tendering, each holder of Outstanding Notes will represent to us that,
among other things, the Exchange Notes acquired pursuant to the Exchange Offer
are being obtained in the ordinary course of business of the person receiving
such Exchange Notes, whether or not such person is the holder, that neither the
holder nor any other person has an arrangement or understanding with any person
to participate in the distribution of the Exchange Notes and that neither the
holder nor any such other person is an "affiliate" (as such term is defined in
Rule 405 of the Securities Act) of our Company.

Guaranteed Delivery Procedures

Holders who wish to tender their Outstanding Notes and (i) whose Outstanding
Notes are not immediately available, or (ii) who cannot deliver their
Outstanding Notes, the letter of transmittal, or any other required documents
to the exchange agent prior to the expiration date, or if such holder cannot
complete the procedure for book-entry transfer on a timely basis, may effect a
tender if:

(a) the tender is made through an eligible institution;

(b) prior to the expiration date, the exchange agent receives from such
eligible institution a properly completed and duly executed "notice of
guaranteed delivery" in the form accompanying this prospectus (by facsimile
transmission, mail or hand delivery) or a properly transmitted agent's
message setting forth the name and address of the holder of the Outstanding
Notes, the certificate number or numbers of such Outstanding Notes and the
principal amount of Outstanding Notes tendered, stating that the tender is
being made thereby, and guaranteeing that, within five business days after
the expiration date, the letter of transmittal (or facsimile thereof),
together with the certificate(s) representing the Outstanding Notes to be
tendered in proper form for transfer or a book-entry confirmation and any
other documents required by the letter of transmittal, will be deposited by
the eligible institution with the exchange agent; and

(c) such properly completed and executed letter of transmittal (or
facsimile thereof), together with the certificate(s) representing all
tendered Outstanding Notes in proper form for transfer (or confirmation of
a book-entry transfer into the exchange agent's account at DTC of
Outstanding Notes delivered electronically) and all other documents
required by the letter of transmittal are received by the exchange agent
within five business days after the expiration date.

Withdrawal of Tenders

Except as otherwise provided herein, tenders of Outstanding Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the expiration
date unless previously accepted for exchange.

To withdraw a tender of Outstanding Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the exchange
agent at its address set forth herein or holders must comply with the
appropriate procedures of DTC's Automated Tender Offer Program System prior to
5:00 p.m., New York City time, on the expiration date and prior to acceptance
for exchange thereof by us. Any such notice of withdrawal must (i) specify the
name of the person having deposited the Outstanding Notes to be withdrawn, (ii)
identify the Outstanding Notes to be withdrawn (including the certificate
number or numbers and principal amount of such Outstanding Notes), (iii) be
signed by the person depositing the Outstanding Notes in the same manner as the
original signature on the letter of transmittal by which such Outstanding Notes
were tendered (including any required signature guarantees) or be accompanied
by documents of transfers sufficient to permit the trustee with respect to the
Outstanding Notes to register the transfer of such Outstanding Notes into the
name of the depositor withdrawing the tender, and (iv) specify the name in
which any such Outstanding Notes are to be registered, if different from that
of the depositor. If the Outstanding Notes have been tendered pursuant to the
procedure for book-entry transfer described above, any notice of withdrawal
must specify the name and number of the account at DTC to be credited with the
withdrawn Outstanding Notes and otherwise comply with the procedures of the
facility. All questions as to the validity, form and eligibility (including
time of receipt) for such withdrawal notices will be determined by us, and our
determination shall be final and binding on all parties. Any Outstanding Notes
so withdrawn will be deemed not to have been validly tendered for purposes of
the Exchange Offer and no Exchange Notes will be issued with respect thereto
unless the Outstanding Notes so withdrawn are validly tendered. Any Outstanding
Notes which have been tendered but which are not accepted for exchange will be
returned to the holder thereof without cost to such holder or in the case of
Outstanding Notes tendered by book-entry transfer into the exchange agent's
account at DTC according to the procedures described above, those Outstanding
Notes will be credited to an account maintained with DTC for Outstanding Notes.
as soon as practicable after withdrawal, rejection of tender or termination of
the Exchange Offer. Properly withdrawn Outstanding Notes may be tendered by
following one of the procedures described above under "--Procedures for
Tendering" at any time prior to the expiration date.

Termination

Notwithstanding any other term of the Exchange Offer, we will not be required
to accept for exchange, or exchange Exchange Notes for, any Outstanding Notes
not therefore accepted for exchange, and may terminate or amend the Exchange
Offer as provided herein before the acceptance of such Outstanding Notes if:
(i) any action or proceeding is instituted or threatened in any court or by or
before any governmental agency with respect to the Exchange Offer, which, in
our reasonable judgment, might materially impair our ability to proceed with
the Exchange Offer, or (ii) any law, statute, rule or regulation is proposed,
adopted or enacted, or any existing law, statute, rule or regulation is
interpreted by the Staff of the SEC or court of competent jurisdiction in a
manner, which, in our reasonable judgment, might materially impair our ability
to proceed with the Exchange Offer.

If we determine that we may terminate the Exchange Offer, as set forth above,
we may (i) refuse to accept any Outstanding Notes and return any Outstanding
Notes that have been tendered to the holders thereof, (ii) extend the Exchange
Offer and retain all Outstanding Notes tendered prior to the expiration of the

Exchange Offer, subject to the rights of such holders of tendered Outstanding
Notes to withdraw their tendered Outstanding Notes, or (iii) waive such
termination event with respect to the Exchange Offer and accept all properly
tendered Outstanding Notes that have not been withdrawn. If such waiver
constitutes a material change in the Exchange Offer, we will disclose such
change by means of a supplement to this prospectus that will be distributed to
each registered holder of Outstanding Notes, and we will extend the Exchange
Offer for a period of five to ten business days, depending upon the
significance of the waiver and the manner of disclosure to the registered
holders of the Outstanding Notes, if the Exchange Offer would otherwise expire
during such period.

Exchange Agent

The Bank of New York, the trustee under the Senior Notes Indenture, has been
appointed as exchange agent for the Exchange Offer. Questions and requests for
assistance and requests for additional copies of this prospectus or of the
letter of transmittal should be directed to the exchange agent addressed as
follows:

By Mail or Hand Delivery: The Bank of New York
101 Barclay Street
Bond Redemption Unit, 7E New York, New
York 10286

Facsimile Transmission: (212) 815-6339

Confirm by Telephone: (212) 815-2742

Fees and Expenses

The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by us. The principal solicitation for tenders pursuant to the Exchange
Offer is being made by mail. Additional solicitations may be made by officers
and regular employees of our Company and our affiliates in person, by telegraph
or telephone.

We will not make any payments to brokers, dealers or other persons soliciting
acceptances of the Exchange Offer. We, however, will pay the exchange agent
reasonable and customary fees for its services and will reimburse the exchange
agent for its reasonable out-of-pocket expenses in connection therewith. We may
also pay brokerage houses and other custodians, nominees and fiduciaries the
reasonable out-of-pocket expenses incurred by them in forwarding copies of this
prospectus, letters of transmittal and related documents to the beneficial
owners of the Outstanding Notes and in handling or forwarding tenders for
exchange.

The expenses to be incurred in connection with the Exchange Offer, including
fees and expenses of the exchange agent and trustee and accounting and legal
fees, will be paid by us.

We will pay all transfer taxes, if any, applicable to the exchange of
Outstanding Notes pursuant to the Exchange Offer. If, however, certificates
representing Exchange Notes or Outstanding Notes for principal amounts not
tendered or accepted for exchange are to be delivered to, or are to be
registered or issued in the name of, any person other than the registered
holder of the Outstanding Notes tendered, or if tendered Outstanding Notes are
registered in the name of any person other than the person signing the letter
of transmittal, or if a transfer tax is imposed for any reason other than the
exchange of Outstanding Notes pursuant to the Exchange Offer, then the amount
of any such transfer taxes (whether imposed on the registered holder or any
other person) will be payable by the tendering holder. If satisfactory evidence
of payment of such taxes or exemption therefrom is not submitted with the
letter of transmittal, the amount of such transfer taxes will be billed
directly to such tendering holder.

CAPITALIZATION

The following table sets forth our cash and capitalization as of June 30,
1999 (i) on an actual basis, and (ii) as adjusted as if the Unit Offering had
occurred on such date and the maintenance of the net proceeds received from the
Unit Offering (other than the portion thereof used to repay the Interim Loan)
as cash pending application of the proceeds as contemplated in the Unit
Offering offering memorandum and to give effect to the offering of the
$50,002,183 Discount Notes and, the (Euro)25,000,000 PIK Notes, as if they had
occurred on such date and the maintenance of the net proceeds received from the
Discount Notes Offering and the PIK Notes Offering as cash pending application
as described in "Use of Proceeds." See "Description of Material Indebtedness."
This table should be read in conjunction with the Consolidated Financial
Statements and notes thereto, "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and "Use of Proceeds" included
elsewhere in this prospectus. Other than as described herein, there has been no
material change in the capitalization of the Company since June 30, 1999.

At June 30, 1999
----------------------
As adjusted
for the
Acquisitions,
the Unit
Offering, the
Notes
Actual Offerings
------- -------------

Cash:
Cash and restricted cash.......................... $14,974 $223,357/(1)/
======= ========
Debt:
Overdrafts and short-term borrowings.............. 23,018 644
Current Portion long-term debt and capital lease
obligations...................................... 1,173 1,173
Long-term debt.................................. 104 104
Capital lease obligations....................... 1,316 1,316
Notes offered in Unit Offering(/2/)............. -- 96,940
Notes offered in August 19, 1999 Notes
Offering....................................... -- 35,000
PIK Notes....................................... 26,700
Notes offered in the August 23 Notes Offerings.. -- 15,002
------- --------
Total debt.................................... $25,611 $176,879
------- --------
Shareholders Equity:
Common Stock $.001 par value, 50,000,000 shares
authorized, 20,729,988 issued and outstanding.. $ 21 $ 21
Preferred stock $.001 par value, 50,000,000
shares authorized, 6,360,000 shares issued and
outstanding.................................... 5 5
Warrants(/2/)................................... -- 53,060
Additional paid in capital...................... 79,335 86,265
Accumulated deficit............................. (14,685) (14,685)
Cumulative translation adjustment............... (6,630) (6,630)
------- --------
Total shareholders equity..................... $58,046 $118,036
------- --------
Total Capitalization.......................... $83,657 $294,915
======= ========

- --------
(1) Reflects the approximate net proceeds of the Unit Offering of $144,500 less
the $22,374 thereof used to repay the Interim Loan. Restricted cash
reflects $57,466 of the net proceeds of the Unit Offering used to purchase
U.S. Government Securities and fund the first six scheduled interest
payments on the Senior Notes. Also reflects the estimated net proceeds of
$72,361 from the Discount Notes Offering and the PIK Notes Offering.
(2) Approximately $53,060 has been allocated to the Warrants based on a
valuation using the Black-Scholes Option Valuation model.

SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA

The selected consolidated financial data as of and for the years ended
December 31, 1996, 1997, and 1998, set forth below, is derived from our audited
Consolidated Financial Statements included elsewhere in this prospectus. The
selected consolidated financial data as of and for the six months ended June
30, 1998 and 1999 set forth below, is derived from our unaudited Interim
Financial Statements included elsewhere in this prospectus. The pro forma
consolidated financial data for the year ended December 31, 1998 and as of and
for the six months ended June 30, 1999, set forth below, is derived from our
unaudited Pro Forma Consolidated Financial Statements included elsewhere in
this prospectus. The financial data set forth below has been prepared in
accordance with US GAAP. The unaudited Interim Financial Statements included in
this prospectus include all adjustments, consisting of normal recurring
adjustments, that management considers necessary for a fair presentation of the
financial position and results of operations for the interim periods.

The information set forth below should be read in conjunction with our
audited Consolidated Financial Statements, our unaudited Interim Financial
Statements and our unaudited Pro Forma Consolidated Financial Statements, and
the related notes thereto included elsewhere in this prospectus. Historical and
pro forma results of operations presented herein are not necessarily indicative
of results of operations for future periods. Our development and expansion
activities, including acquisitions, during the periods set forth below
significantly affect the comparability of this information from one period to
another. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

Years ended December 31, Six months ended June 30,
---------------------------------- ----------------------------
Pro forma Pro forma
1996 1997 1998 1998 /(1)/ 1998 1999 1999 /(1)/
----- ------ ------- ---------- ------- ------- ----------
(in thousands, except per share data)

Statement of Operations
Data:
Revenue
Internet Projects...... $ 217 $1,598 $ 5,139 $ 6,206 $ 1,863 $ 2,459 $ 2,891
Network Services....... 91 716 3,495 11,184 1,489 5,994 9,869
----- ------ ------- ------- ------- ------- --------
Total revenue.......... 308 2,314 8,634 17,390 3,352 8,453 12,760
Cost of revenues
Internet Projects...... 237 1,495 4,699 5,500 1,438 2,056 2,369
Network Services....... 119 866 4,067 8,949 1,747 6,534 9,199
Depreciation and
amortization /(2)/.... 7 171 1,674 2,050 332 1,545 1,675
----- ------ ------- ------- ------- ------- --------
Total cost of
revenues.............. 363 2,532 10,440 16,499 3,517 10,135 13,243
Gross profit (loss)..... (55) (218) (1,806) 891 (165) (1,682) (483)
Operating expenses:
General and
administrative
expenses.............. 263 482 1,576 3,512 695 3,770 3,995
Marketing expenses..... 165 1,188 3,844 5,536 1,608 5,147 6,272
Research and
development........... 179 280 2,941 3,858 821 2,146 2,264
Depreciation and
amortization /(3)/.... 22 116 880 5,011 272 1,228 2,733
----- ------ ------- ------- ------- ------- --------
Total operating
expenses.............. 629 2,066 9,241 17,917 3,356 12,291 15,264
----- ------ ------- ------- ------- ------- --------
Operating loss.......... (684) (2,284) (11,047) (17,026) (3,521) (13,973) (15,747)
Interest income
(expense), net......... (2) (39) (43) (267) (94) 319 272
----- ------ ------- ------- ------- ------- --------
Loss before taxes and
minority interest..... (686) (2,323) (11,090) (17,293) (3,615) (13,654) (15,475)
Income tax benefit..... 402 1,339 6,173 6,753 2,008 5,302 5,258
Minority interest...... -- -- 145 145 -- 103 103
----- ------ ------- ------- ------- ------- --------
Net loss................ $(284) $ (984) $(4,772) (10,395) $(1,607) $(8,249) $(10,114)
===== ====== ======= ======= ======= ======= ========
Basic and diluted loss
per share............. $(.12) $ (.12) $ (.30) $ (.64) $ (.11) $ (.44) $ (.53)
===== ====== ======= ======= ======= ======= ========

Six months ended
Years ended December 31, June 30,
----------------------------------- -------------------
Pro forma Pro forma
1996 1997 1998 1998 /(1)/ 1999 1999 (/1/)
----- ------- ------- ---------- ------- ----------
(in thousands, except number of customers data and
ratios)

Other Financial and
Operating Data:
Number of Network
Services customers
/(4)/.................. 166 4,061 6,923 42,391 /(5)/ 10,830 50,724 /(5)/
EBITDA /(6)/............ $(655) $(1,997) $(8,493) $(9,965) $(5,898) $(11,339)
Capital expenditures
/(7)/.................. 552 1,708 6,034 8,713 6,587 na
Ratio of earnings to
fixed charges /(8)/.... -- -- -- -- -- --

December 31, June 30,
---------------------- -----------------
1996 1997 1998 1998 1999
------- ------ ------- ------- --------
(in thousands)

Balance Sheet Data:
Working capital (deficiency) /(9)/... $ 339 $ 891 $37,751 $(4,065) $(11,562)
Total assets......................... 2,211 12,617 79,445 19,569 96,786
Long-term debt /(10)/................ -- 42 1,383 40 1,711
Total stockholders' equity........... 1,790 8,908 67,359 8,631 58,046

- --------
(1) Pro forma statement of operations and balance sheet data are based on the
unaudited Pro Forma Consolidated Financial Statements included elsewhere
in this prospectus. The pro forma balance sheet is based on the historical
balance sheet of the Company adjusted as if the acquisition of Flashnet
and the Interim Loan incurred to fund such acquisition had been completed
on June 30, 1999. The pro forma statement of loss for the year ended
December 31, 1998 is based on the historical statement of loss adjusted as
if the Open:Net, Vianet and Flashnet acquisitions were completed on
January 1, 1998 and the pro forma statement of loss for the six months
ended June 30, 1999 is based on the historical statements of loss adjusted
as if the Flashnet acquisition and the Interim Loan incurred to fund such
acquisition had been completed on January 1, 1999. The pro forma data does
not purport to represent what our financial position or results of
operations would have been had these acquisitions been made on such dates.
(2) Represents depreciation and amortization of capitalized costs related to
investments in product development, designing our network (including
related software) and building network capacity (including related
personnel and consulting costs).
(3) Represents depreciation of property and equipment and amortization of
acquired goodwill.
(4) Number of customers as of December 31, 1996, 1997, and 1998, and March 31,
1999.
(5) Includes 32,652 and 39,894 Flashnet customers (of which 1,096 and 1,625
were business customers and 31,556 and 38,269 were residential customers)
at December 31, 1998 and March 31, 1999, respectively.
(6) We define EBITDA as loss before interest, income taxes, minority interest,
depreciation and amortization. EBITDA is included because management
believes it is a useful indicator of a company's ability to incur and
service debt. EBITDA should not be considered as a substitute for
operating earnings, net income, cash flow or other statements of
operations or cash flow data computed in accordance with US GAAP or as a
measure of our results of operations or liquidity. Funds depicted by this
measure may not be available for management's discretionary use (due to
covenant restrictions, debt service payments and other commitments).
Because all companies do not calculate EBITDA identically, the
presentation of EBITDA contained herein may not be comparable to other
similarly entitled measures of other companies.
(7) Pro forma capital expenditures for the six months ended June 30, 1999 was
not available.
(8) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of losses before income taxes and minority interest, plus fixed
charges. Fixed charges consist of interest expense. Earnings were
insufficient to cover fixed charges by $(684), $(2,284), $(10,893),
$(13,690), $(16,862) and $(15,364) for the years ended December 31, 1996,
1997 and 1998, for the six months ended June 30, 1999, the year ended
December 31, 1998 pro forma and the six months ended June 30, 1999 pro
forma, respectively.
(9) We define working capital as total current assets less total current
liabilities.
(10) Long-term debt includes obligations under capital lease agreements.

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

The following unaudited Pro Forma Consolidated Financial Statements are based
on our Consolidated Financial Statements contained elsewhere in this
prospectus. The accompanying unaudited Pro Forma Consolidated Statements of
Loss for the year ended December 31, 1998 and the six months ended June 30,
1999, are based on the historical consolidated financial statements of the
Company contained elsewhere in this prospectus, adjusted as if the acquisitions
of Open:Net, Vianet and Flashnet, collectively referred to as the
"Acquisitions," had occurred on January 1, 1998. These unaudited Pro Forma
Consolidated Financial Statements do not include the results of operations of
Sunweb due to the relative insignificance of the amounts involved nor do they
reflect the Discount Notes Offering, the PIK Notes Offering or application of
the proceeds therefrom.

The unaudited Pro Forma Consolidated Financial Statements combine the
historical financial position and results of the Company with the historical
financial position and results of the Acquisitions, prior to the dates the
Company made such acquisitions, using the purchase method of accounting. The
Pro Forma Consolidated Statements of Loss presented are not necessarily
indicative of the operating results that would have been achieved had such
transactions occurred at the dates indicated above. These statements are based
on the assumptions set forth in the notes to such statements and should be read
in conjunction with the related financial statements and notes thereto of the
Company, Open:Net, Vianet and Flashnet included elsewhere in this prospectus.

The accounting adjustments reflected in the accompanying unaudited Pro Forma
Consolidated Financial Statements reflect estimates made by the Company and
assumptions which the Company believes to be reasonable. The Company believes
that no significant uncertainties should affect the pro forma adjustments and
considers the impact of any such uncertainties to be immaterial.

PRO FORMA CONSOLIDATED STATEMENTS OF LOSS

Year ended December 31, 1998
(unaudited)

Historical Pro Forma
Company Acquisitions as Adjusted
---------- ------------ -----------
(in thousands, except per share
data)

Revenue
Internet Projects.................. $ 5,139 $ 1,067(a) $ 6,206
Network Services................... 3,495 7,689(a) 11,184
---------- -------- ----------
Total revenues....................... 8,634 8,756 17,390
Cost of revenues
Internet Projects.................. 4,699 801(b) 5,500
Network Services................... 4,067 4,882(b) 8,949
Depreciation and amortization...... 1,674 376(b) 2,050
---------- -------- ----------
Total cost of revenues........... 10,440 6,059 16,499
---------- -------- ----------
Gross profit (loss).................. (1,806) 2,697 891
General and administrative expenses.. 1,576 1,936(c) 3,512
Marketing expenses................... 3,844 1,692(c) 5,536
Research and development expenses.... 2,941 917(c) 3,858
Depreciation and amortization........ 880 4,131(c)(d) 5,011
---------- -------- ----------
Total operating expenses......... 9,241 8,676 17,917
---------- -------- ----------
Operating loss....................... (11,047) (5,979) (17,026)
Interest expense..................... 197 234(e) 431
Interest income...................... 154 10(e) 164
---------- -------- ----------
Loss before taxes and minority inter-
est................................. (11,090) (6,203) (17,293)
Income tax benefit................... 6,173 580(f) 6,753
Minority interest.................... 145 -- 145
---------- -------- ----------
Net loss............................. $ (4,772) $ (5,623) $ (10,395)
========== ======== ==========
Basic and diluted loss per share..... $ (0.30) $ (0.64)
========== ==========
Number of shares used to compute
earnings per share.................. 16,012,653 339,887(g) 16,352,540
========== ======== ==========

PRO FORMA CONSOLIDATED STATEMENTS OF LOSS

Six months ended June 30, 1999
(unaudited)

Historical Pro Forma
Company Acquisitions as Adjusted
------------- ------------- -------------
(in thousands, except per share data)

Revenue
Internet Projects......... $ 2,459 $ 432(a) $ 2,891
Network Services.......... 5,994 3,875(a) 9,869
------------- ---------- -------------
Total revenues.............. 8,453 4,307 12,760
Cost of revenues
Internet Projects......... 2,056 313(b) 2,369
Network Services.......... 6,534 2,665(b) 9,199
Depreciation and amortiza-
tion..................... 1,545 130(b) 1,675
------------- ---------- -------------
Total cost of revenues.. 10,135 3,108 13,243
------------- ---------- -------------
Gross (loss)................ (1,682) 1,199 (483)
General and administrative
expenses................... 3,770 225(c) 3,995
Marketing expenses.......... 5,147 1,125(c) 6,272
Research and development ex-
penses..................... 2,146 118(c) 2,264
Depreciation and amortiza-
tion....................... 1,228 1,505(c)(d) 2,733
------------- ---------- -------------
Total operating ex-
penses................. 12,291 2,973 15,264
------------- ---------- -------------
Operating loss.............. (13,973) (1,774) (15,747)
Interest expense............ 64 47 (e) 111
Interest income............. 383 0 383
------------- ---------- -------------
Loss before taxes........... (13,654) (1,821) (15,475)
Minority interest income
(expense).................. 103 0 103
Income tax benefit.......... 5,302 (44)(f) 5,258
------------- ---------- -------------
Net loss.................... $ (8,249) $ (1,865) $ (10,114)
============= ========== =============
Basic and diluted loss per
share...................... $ (.44) $ (.53)
============= =============
Number of shares used to
compute loss per share..... 18,917,582 301,290 (g) 19,218,872
============= ========== =============

NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

(All dollar amounts in thousands, unless otherwise indicated)

(a) Includes the revenues of the Acquisitions for the periods prior to their
respective acquisition dates as follows.

Vianet Open:Net Flashnet Total
------ -------- -------- -----

1998 Pro Formas
Internet Projects.......................... -- 461 606 1,067
Network Services........................... 3,123 372 4,194 7,689
1999 Pro Formas
Internet Projects.......................... -- -- 432 432
Network Services........................... -- -- 3,875 3,875

(b) Includes the cost of revenues of the Acquisitions for the periods prior to
their respective acquisition dates as follows.

Vianet Open:Net Flashnet Total
------ -------- -------- -----

1998 Pro Formas
Internet Projects.......................... -- 242 559 801
Network Services........................... 1,682 215 2,985 4,882
Depreciation and amortization.............. 88 22 266 376
1999 Pro Formas
Internet Projects.......................... -- -- 313 313
Network Services........................... -- -- 2,665 2,665
Depreciation and amortization.............. -- -- 130 130

(c) Includes the operating expenses of the Acquisitions for the periods prior
to their respective acquisition dates as follows.

Vianet Open:Net Flashnet Total
------ -------- -------- -----

1998 Pro Formas
General and administrative expenses........ 420 26 1,490 1,936
Marketing expenses......................... 741 310 641 1,692
Research and development expenses.......... 259 178 480 917
Depreciation and amortization.............. 75 27 112 214
1999 Pro Formas
General and administrative expenses........ -- -- 225 225
Marketing expenses......................... -- -- 1,125 1,125
Research and development expenses.......... -- -- 118 118
Depreciation and amortization.............. -- -- 118 118

(d)Represents the amortization of goodwill and other intangible assets arising
from the Acquisitions.

Vianet Open:Net Flashnet Total
------ -------- -------- -----

1998 Pro Formas
Amortization................................. 766 168 2,983 3,917
1999 Pro Formas
Amortization................................. -- -- 1,387 1,387

Amortization is calculated on a straight line basis using the following
useful lives.

Goodwill.......................................................... 10 years
Customer base..................................................... 5 years
Management contracts.............................................. 3 years

The calculation and allocation of the purchase price was as follows:

Vianet Open:Net Flashnet Total
------ -------- -------- -------

Purchase price....................... $4,483 $2,541 $25,963 $32,987
Less: net assets acquired............ (37) 130 (1,784) (1,691)
------ ------ ------- -------
Excess of purchase price over net as-
sets acquired....................... $4,520 $2,411 $27,747 $34,678

Allocated to:

Goodwill..................................... $2,063 $2,299 $27,747 $32,109
Customer base................................ 1,945 112 -- 2,057
Management contracts......................... 512 -- -- 512
------ ------ ------- -------
$4,520 $2,411 $27,747 $34,678
====== ====== ======= =======

In addition to the cash of $4,483 (of which $4,125 was paid in the first
quarter of 1999), the purchase price for Vianet includes 225,000 shares of
common stock of the Company which were placed with a trustee to be released
annually over a five year period. Of these shares, 150,000 are to be released
in 30,000 share increments as long as the owner of these shares remains an
employee of the Company. The remaining 75,000 shares are to be released
annually over a five year period in 15,000 share increments. The 150,000 shares
as to which release will be made so long as the owner thereof remains an
employee of the Company are being treated as contingent consideration and,
accordingly, will be recorded as an additional cost of the acquisition when the
shares are released by the trustee.

(e) Includes interest income and expense of the Acquisitions for the periods
prior to their respective acquisition dates as follows:

Vianet Open:Net Flashnet Total
------ -------- -------- -----

1998 Pro Formas
Interest expense............................ 3 8 223 234
Interest income............................. -- -- 10 10
1999 Pro Formas
Interest expense............................ -- -- 47 47
Interest income............................. -- -- -- --

(f) The income tax adjustment represents Vianet income tax expense of $4 and
Flashnet income benefit of $584 for 1998 and a Flashnet income tax expense
of $44 for 1999.

(g) Weighted average shares outstanding for the purposes of calculating pro
forma basic and diluted loss per share is as follows:

1998 1999
---------- ----------

Historical weighted average shares................. 16,012,653 20,428,698
Shares issued in connection with certain of the
Acquisitions and not reflected in historical
weighted average shares;
Open: Net acquisition............................ 38,597 --
Flashnet acquisition............................. 301,290 301,290
---------- ----------
16,352,540 20,729,988
========== ==========

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 prospectus. The discussion of the results of
operations of Vianet, with respect to the fiscal years ended 1998 and 1997, is
based on financial statements included elsewhere in this prospectus. 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 "Risk Factors" and "Information Regarding
Forward-Looking Statements."

Overview

General

We have experienced substantial rates of revenue growth since commencing
significant operations in 1996. Our revenues have grown from $307,673 in 1996
to $2,314,021 in 1997 and to $8,633,528 in 1998 (approximately $17,390,000 in
1998 on a pro forma basis). This revenue growth has been generated both
internally, as we have significantly expanded our customer base, and through
acquisitions.

Since 1996, we have acquired six companies:

. Cybernet E-Commerce. In September 1997, we acquired 100% of Artwise,
which was later renamed Cybernet E-Commerce, the financial results of
which are included in our Consolidated Financial Statements from the
date of that acquisition.

. Eclipse. In December 1997, we acquired 66% of Eclipse, but did not
include the financial results of that company's operations in our
Consolidated Financial Statements until 1998 because its 1997 financial
results from the date of that acquisition were immaterial to our
consolidated results.

. Open:Net. In August 1998, we acquired 100% of Open:Net, the financial
results of which are included in our Consolidated Financial Statements
from the date of that acquisition.

. Vianet. In December 1998, we acquired 100% of Vianet but did not include
the financial results of that company's operations in our Consolidated
Financial Statements until the first quarter of 1999 because the 1998
financial results from the date of that acquisition were immaterial to
our consolidated results. We have, however, included below a discussion
of Vianet's results of operations for its fiscal years 1998 and 1997.

. Sunweb. In May 1999, we acquired 51% of Sunweb. Because that acquisition
occurred in May 1999, the financial results of that company's operations
are not included in our Consolidated Financial Statements for 1998 nor
in our results of operations for the three months ended on March 31,
1999.

. Flashnet. In June 1999, we acquired 100% of Flashnet, a leading Italian
ISP through which we gained access to all major business centers in
Italy.

Our recent acquisition history limits the comparability of the historical
financial information discussed herein.

The following table sets forth, for the periods indicated, the items of our
Consolidated Statements of Loss expressed as a percentage of total revenues:

Percent of Total Revenues
------------------------------------------
Six months
Years ended December 31, ended June 30,
-------------------------- ---------------
1996 1997 1998 1998 1999
-------- -------- -------- ------- -------

Revenue
Internet Projects.................. 70.6% 69.1% 59.5% 55.6% 29.1%
Network Services................... 29.4% 30.9% 40.5% 44.4% 70.9%
Total Revenues................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of Revenues
Internet Projects.................. 77.0% 64.6% 54.4% 42.9% 24.3%
Network Services................... 38.8% 37.4% 47.1% 52.1% 77.3%
Depreciation and amortization...... 2.2% 7.4% 19.4% 9.9% 18.3%
Total cost of revenues........... 118.0% 109.4% 120.9% 104.9% 119.9%
Gross loss......................... -18.0% -9.4% -20.9% -4.9% -19.9%
Operating Expenses
General and administrative
expenses.......................... 85.5% 20.8% 18.3% 19.5% 44.6%
Marketing expenses................. 53.5% 51.4% 44.5% 48.0% 60.9%
Research and development........... 58.2% 12.1% 34.1% 24.5% 25.4%
Depreciation and amortization...... 6.9% 5.0% 10.2% 8.1% 14.5%
Total operating expenses......... 204.1% 89.3% 107.1% 100.1% 145.4%
Operating loss..................... -222.1% -98.7% -128.0% -105.0% -165.3%
Interest expense................... -0.7% -1.7% -2.3% -3.2% -0.8%
Interest income.................... -- -- 1.8% 0.4% 4.5%
Loss before taxes and minority
interest.......................... -222.8% -100.4% -128.5% -107.8% -161.5%
Income tax benefit................. 130.6% 57.9% 71.5% 59.9% 62.7%
Net loss before minority interest.. -92.2% -42.5% -57.0% -47.9% -98.8%
Minority interest.................. -- -- 1.7% -- 1.2%
Net loss........................... -92.2% -42.5% -55.3% -47.9% -97.6%

Revenues

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 our customers' employees and
hardware and software sales resulting from, for example, the installation of
VPNs, websites, e-commerce solutions and customer servers in our data centers.
Internet Project revenues for any particular project depend upon its size and
complexity. An Internet Project is typically completed within three months and
the related revenues are recognized upon completion and customer acceptance of
the related project.

In most cases, after completion of an Internet Project, we derive recurring
revenues from the ongoing management and monitoring of the services and
solutions we have set up. We record these recurring revenues under Network
Services revenues. Network Services revenues are primarily derived from
recurring connectivity charges and include maintenance and usage charges
related to VPNs, co-location and hosting services. Network Services revenues
also result from eight affinity groups with which we have specific contractual
arrangements. These affinity groups act as resellers of our connectivity
services and their members become our customers. The customers who came to us
through affinity groups tend to be smaller customers. The majority of our
Network Services revenues are from connectivity charges. We recognize these
revenues when the services are provided to our customers. Revenues from Network
Services in 1998 constituted 40.5% of our total revenues

compared with 30.9% for 1997. We expect Network Services revenues to continue
to increase as a percentage of total revenues as we grow our customer base and
thereby create a larger portion of recurring revenues. In 1998, Flashnet had
total revenues of Lit. 8,334,043 thousand ($4,597,003). We also expect that our
acquisition of Flashnet, which has relatively less Internet Project revenues,
will contribute to this shift.

We currently encounter and expect to continue to encounter significant
downward pressure on the prices of our products and services. We expect that
these price declines will dampen revenues for the second quarter.

The table below summarizes the revenues and customer evolution for Internet
Projects and Network Services for the years ended December 31, 1996, 1997 and
1998, respectively and the three months ended March 31, 1999:

As at and
for the
As at and for the three
years ended December months
31, ended
--------------------- March 31,
1996 1997 1998 1999
------ ------ ------ ---------

Internet Projects
Internet Project Customers(a)................ 12 49 122 19
Internet Project Revenues ($'000)............ 217 1,598 5,139 1,392
Average Internet Project Revenue per Customer
($)......................................... 18,108 32,610 42,124 73,274
Network Services
Network Services Business Customers
Number of Customers(b)...................... 166 2,120 3,077 6,095
Average Number of Customers(c).............. 83 1,143 2,599 5,994
Churn Percentage(d)......................... N/A 4.8% 0.8% 0.4%
Revenues ($'000)............................ 91 659 2,680 2,279
Average Revenues per Customer(e)($)......... 1,093 577 1,031 380
Network Services Affinity Group Customers
Number of Customers(b)...................... -- 1,941 3,846 4,735
Average Number of Customers(c).............. -- 971 2,894 4,291
Revenues ($'000)............................ -- 57 814 183
Average Revenues per Customer(e)($)......... -- 58 281 43
Total Network Services Customers
Number of Customers(b)...................... 166 4,061 6,923 10,830
Average Number of Customers(c).............. 83 2,114 5,492 10,285
Revenues ($'000)............................ 91 716 3,494 2,462
Average Revenues per Customer(e)($)......... 1,093 339 636 239

- --------
(a) Represents aggregate customers during the relevant period.
(b) Number of customers at end of relevant period.
(c) Calculated as the arithmetic average of beginning-of-period and end-of-
period customers. The beginning of period customers for the three months
ended March 31, 1999 include 2,816 Network Services Business Customers of
Vianet (not included in number of customers as of December 31, 1998).
(d) Calculated as the number of customers lost during the period as a
percentage of the average number of customers for the period.
(e) Calculated as revenues for the period divided by average number of
customers for the period.

Cost of Revenues

Cost of revenues consists principally of (i) telecommunications expenses,
(ii) personnel costs, (iii) cost of hardware and software sold, (iv)
amortization of product development costs, (v) depreciation of network
infrastructure, and (vi) service and consulting expenses. Telecommunications
expenses mainly represent the cost of transporting Internet traffic from our
customers' locations through a local telecommunications carrier to

one of our access nodes and the cost of leasing lines to interconnect our
backbone nodes. Like our revenues, we classify our cost of revenues (other than
depreciation and amortization costs) according to whether they are incurred in
connection with Internet Projects or with Network Services. Additionally, we
include in our cost of revenues certain depreciation and amortization of
capitalized costs related to investments in product development, designing our
network (including related software), and building network capacity (including
related personnel and consulting costs). These costs are amortized over a
period not exceeding four years. As we develop our network capacity, we expect
to record increased costs for depreciation and amortization of network
infrastructure.

In 1998, Flashnet's cost of revenues was Lit. 6,615,614 thousand ($3,649,129)
representing 79.4% of its revenues, a lower percentage than our own. We
therefore expect that in 1999 our acquisition of Flashnet will have a positive
effect on our gross margin.

General and Administrative Expenses

General and administrative expenses consist principally of salaries and other
personnel costs for our administrative staff, office rent and utilities. In
1998, Flashnet's general and administrative expenses were Lit. 2,586,000
thousand ($1,426,421), representing approximately 31.0% of revenues. This is
approximately equal to the relationship between our general and administrative
expenses and revenues.

Marketing Expenses

Marketing expenses consist principally of salaries of our sales force and
advertising and communication expenditures. As we continue to grow our sales
force and to increase brand awareness, we anticipate that marketing expenses
will continue to increase. In 1998, Flashnet had marketing expenses of Lit.
1,114,000 thousand ($614,475) representing 13.4% of revenues.

Research and Development

Research and development expenses consist principally of personnel costs of
employees working on the development of new products and services, consulting
costs and certain overhead items associated with these activities. In 1998,
Flashnet had research and development expenses of Lit. 834,000 thousand
($460,029) representing 10.0% of revenues compared to 34.1% for Cybernet.

Depreciation and Amortization

Depreciation and amortization expense consists of depreciation of capital
expenditures for property and equipment purchased to build the corporate
infrastructure necessary to support our anticipated growth as well as
amortization of goodwill related to our acquisitions. Goodwill represents the
excess of the purchase price of companies we purchased over the fair value of
the tangible assets and identifiable intangible assets of those companies and
is amortized over 10 years. This expense in our income statement does not
include the depreciation and amortization described under "--Cost of Revenues"
above.

Interest Expense and Income

Interest expense consists principally of interest associated with capital
lease obligations which we undertook in 1998 to finance the purchase of
computer equipment. Interest income consists of interest earned on excess cash
balances, including those resulting from the proceeds of our 1998 equity
offerings. Our interest expense and income will increase significantly in
future periods as a result of interest accruing on the Senior Notes, the
Discount Notes and the PIK Notes and interest generated by the escrow account
created in connection with the issuance of the Senior Notes, respectively.

Income Taxes

Our income tax benefits result largely from the operating losses of our
German subsidiaries. Under current German law, the tax benefit resulting from
these losses can be carried forward indefinitely.

Other Comprehensive Loss: Foreign Currency Translation Adjustments

Foreign currency translation adjustments result from the translation of the
assets and liabilities of our international subsidiaries from their local
reporting currency 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. Accordingly, we recognize unrealized foreign exchange gains with
respect to non-U.S. dollar-denominated assets when the value of the U.S. dollar
decreases with respect to these other currencies and unrealized foreign
exchange losses when the relative value of the U.S. dollar increases.

Results of Operations--Six Months Ended June 30, 1998 Compared to the Six
Months Ended June 30, 1999

Revenues

Total revenues increased 152.1% from $3,352,487 in first half of 1998 to
$8,452,353 in first half of 1999. Internet Project revenues increased 32.0%
from $1,863,075 in the first half of 1998 to $2,458,547 for the same time
period in 1999 while Network Services revenues increased 302.4% from $1,489,412
to $5,993,805. First half Network Services revenues represented 70.9% of total
revenues in 1999, as compared with 44.4% in 1998. The relative higher increase
in revenues from Network Services is partially a result of expansion of our
customer base, which provides us with a stream of recurring revenues. Although
the Company has focused on building these recurring revenues from Network
Services, building relations with Internet Project customers remains a
continuing strategy. In addition, we consolidated $1,901,219 of Vianet revenues
and (for the second quarter only) $120,256 of Sunweb revenues in the first half
of 1999. Vianet's revenues are derived principally from Network Services.
Excluding the impact of consolidating Vianet's, Open:Net's and Sunweb's
revenues, Network Services revenues in the first half of 1999 would have
increased 174.0% from the first half of 1998.

Cost of Revenues

Cost of revenues increased 188.3% from $3,515,654 in the first half of 1998
to $10,134,196 in the first half of 1999. Cost of revenues for Internet
Projects increased 42.9% from $1,438,477 to $2,055,656. Cost of revenues for
Network Services increased 274.3% from $1,745,699 to $6,533,928. A portion of
this increase in Network Services costs reflects the consolidation of Vianet
(even though Vianet's cost of revenues as a percentage of revenues was lower
than our own). Excluding Vianet, our cost of revenues increased approximately
164%, due to expenditures for personnel and expenses associated with the
expansion of our network, including leasing additional lines to provide the
increased capacity we will require as our business grows. The shift in
percentage cost of revenues from Internet Projects to Network Services in the
first half of 1999 is the result of our continued investment in Network
Services infrastructure. This investment included leased line costs, costs of
newly hired personnel for network deployment and management and network
facilities and equipment.

While total revenues increased, increases in cost of revenues caused gross
margins to decline from $(163,167) in the first half of 1998 to $(1,681,843) in
the first half of 1999. Cost of revenues as a percentage of total revenues
increased from 104.9% in the first six months of 1998 to 120.0% in the same
time period for 1999. This is principally due to our investment in Network
Services infrastructure, discussed above. We expect to see improvement in our
gross margin generally and Network Service in particular as we expand our
customer base and increase revenues per account and are thereby able to spread
the costs of product and network development over a larger revenue base. We
also expect our gross margin to improve over time as a result of our strategy
to construct our own infrastructure, including the replacement of leased
transmission facilities with owned facilities and the purchase of domestic and
international transmission capability as a telecommunications operator (rather
than as a purchaser at retail prices).

General and Administrative Expenses

General and administrative expenses increased 475.8% from $654,685 in the
first half of 1998 to $3,769,986 in the first half of 1999. These expenses
constituted 44.6% of revenues in the first half of 1999, compared to 19.5% for
the same period in 1998. Several factors contributed to this increase
including: the

addition of personnel to develop and manage information systems and internal
services as well as the addition of senior management at the Cybernet AG level
to oversee our international operations; the centralizing of our IT group;
general office equipment purchases and relocation expenses at Sunweb; and, to a
lesser extent, certain accounting reallocations and the impact of consolidating
Open:Net, Vianet and Sunweb in the first half of 1999. Open:Net, Vianet and
Sunweb together incurred general and administrative expenses of $507,714. We
have recently undertaken certain measures, including a hiring freeze in our
German operations and at Sunweb
on all non-sales force employee additions until revenues improve, with the
expectation that over the next several fiscal quarters, such measures will help
to decrease the proportion of general and administrative expenses to our total
revenues.

Marketing Expenses

Marketing expenses increased 220.1% from $1,607,852 in the first half of 1998
to $5,147,291 in first half of 1999, principally as a result of substantial
investments in marketing activities, including trade fairs, product literature
and related expenditures. These investments have also included consolidating
the various local brands that we have acquired. This increase also reflects the
impact of consolidating Open:Net, Vianet and Sunweb in the first half of 1999,
which together incurred marketing expenses of $651,584. Although we expect
marketing expenses to decrease as a percentage of revenues over time, we plan
to increase the amount we spend to establish our trade name locally and
internationally.

Research and Development

Research and development expenditures increased 161.4% from $820,921 in the
first half of 1998 to $2,146,090 in the first half of 1999. This reflects an
increase in personnel hired to develop new products and services, especially
our e-commerce solutions for which 19 people were hired in the first half of
1999.

Depreciation and Amortization

Depreciation and amortization increased 351.3% from $272,052 in the first six
months of 1998 to $1,227,757 in the first half of 1999. This increase is
attributable to the additional amortization of the goodwill arising from the
acquisition of Open:Net and Vianet in 1998 and to our investments in computer
hardware and software and facilities and depreciation of our billing system.

Interest Expense and Income

Interest expense decreased 39.3% from $105,584 in the first six months of
1998 to $64,066 in the same period of 1999. Our interest income increased from
$11,701 in the first six months of 1998 to $383,431 in the same period of 1999.
This increase is principally a result of interest earned on cash proceeds from
our December 1998 private equity offering. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources--Cash Flow."

Other Comprehensive Loss: Foreign Currency Translation Adjustments

Foreign currency translation adjustments resulted in a gain of $12,619 in the
first half of 1998 and a loss of $7,624,064 in the first half of 1999. The
decrease in 1999 over 1998 is a result of the strengthening of the U.S. dollar
in the first six months of 1999 in relation to the Deutsche Mark.

Results of Operations--Year Ended December 31, 1998 As Compared To The Year
Ended December 31, 1997

Revenues

Total revenues increased by 273.1% from $2,314,021 in 1997 to $8,633,528 in
1998. In 1998, Network Services represented 40.5% of total revenues as compared
to 30.9% in 1997. The relative shift from Internet Project revenues to Network
Services revenues is primarily a result of the fact that we have expanded our
customer base and have thereby created a larger recurring revenue base. It also
results from the fact that a larger proportion of the revenues from the
companies we have acquired are Network Services revenues.

Our revenue growth has been generated through our acquisitions as well as
internal growth of our existing business. The chart below sets forth our
revenues from existing operations compared to our revenues from acquired
companies for both Internet Projects and Network Services in 1998, pro forma as
if the acquisitions of Open:Net, Vianet and Flashnet had occurred on January 1,
1998.

Pro Forma for Year Ended December 31, 1998

Revenues from Revenues from
Existing Operations Acquired Companies
------------------- ------------------

Internet Projects Revenues............ 59.3% 20.9%
Network Services Revenues............. 40.7% 79.1%

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. Average Internet Project revenues per customer
increased from $32,610 in 1997 to $42,124 in 1998 reflecting our transition
from smaller to medium-sized customers as our reputation and brand awareness
have improved. This has resulted in an increase in average revenues per
customer.

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. Our total number of customers increased by 70.5% in
1998 to 6,923 customers from 4,061 in 1997. No single customer accounted for
more than 6% of our revenues in 1998. A substantial number of our smaller
Network Services customers belongs to affinity groups with which we began
forming relationships in our prior years. Excluding affinity group members, we
provided Network Services to 3,077 customers as of December 31, 1998, compared
to 2,120 customers as of December 31, 1997. The addition of 977 new customers
(which includes affinity group customers) produced 55.9% of Network Services
revenues. We derived the remaining 44.1% from existing customers. Average
revenues per Network Services customer increased from $339 in 1997 to $636 in
1998 (from $577 to $1,031, excluding affinity group customers) reflecting the
transition of our customer base to larger enterprises and the provision of
services in addition to connectivity.

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. Vianet, our Austrian subsidiary, which we acquired on December 28, 1998,
and whose results are not included in the Company's results of operations for
the year ended December 31, 1998, had revenues of approximately $3.2 million in
1998.

Cost of Revenues

Total cost of revenues increased by 312.4% from $2,531,787 in 1997 to
$10,440,008 in 1998. Cost of revenues as a percentage of revenues increased
from 109.4% in 1997 to 120.9% in 1998.

The costs of our Internet Project 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 and the costs of additional
personnel. Costs of Internet Projects as a percentage of Internet Project
revenues decreased from 93.6% in 1997 to 91.4% in 1998. This decrease is
primarily attributable to a reduction in training and seminar expenditures,
partially offset by the increase in purchases of hardware and software.

The costs 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 to provide the increased capacity we will require as our
business grows. Costs of Network Services revenues 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 associated with these
revenues and a reduction in purchased Internet services due to the development
of our own network.

Depreciation and amortization included in cost of revenues increased by
877.8% from $171,196 in 1997 to $1,673,938 in 1998 as a result of new
investments in project development from year to year. We have capitalized
certain investments associated with designing the network (including related
software) and with building network capacity (including related personnel and
consulting costs) and 1998 was the first year to include a full year of
depreciation for these investments.

General and Administrative Expenses

General and administrative expenses increased by 227.1% from $481,700 in 1997
to $1,575,758 in 1998. The increase in our general and administrative expenses
reflects not only the costs of building a corporate infrastructure to support
our anticipated growth but also the impact of the addition of general and
administrative expenses of companies acquired in 1997 and 1998. As a percentage
of total revenues, 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. These 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 local and international
awareness of our brand. As a percentage of total revenues, our marketing
expenses decreased from 51.4% in 1997 to 44.5% in 1998.

Research and Development

Research and development expenses increased by 951.4% from $279,698 in 1997
to $2,940,865 in 1998. 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 not only members of our research and development
staff, but also members of our marketing force, and we include in research and
development expenses the portion of our marketing force personnel's time
devoted to product development. We also incurred consulting expenses in 1998
not incurred in 1997 while researching the viability of certain
telecommunications services that we plan to offer in the future. These
consulting expenses amounted to $554,005. As a percentage of revenues, research
and development expenses increased from 12.1% in 1997 to 34.1% in 1998.

Depreciation and Amortization

Depreciation and amortization expense increased by 659.3% from $115,899 in
1997 to $879,978 in 1998. This increase reflects increased depreciation of
capital expenditures on property and equipment purchased in order to build the
corporate infrastructure necessary to support our anticipated growth. This
expense also reflects increased amortization of goodwill related to our 1997
and 1998 acquisitions. Most of these investments were not capitalized until
1997, and because we had a full year of depreciation for 1998, depreciation and
amortization expenses for 1998 are significantly greater than they were in
1997.

Net goodwill in connection with the 1997 acquisitions of Cybernet E-Commerce
and Eclipse amounted to $1,322,566 at December 31, 1997 and net goodwill
including the 1998 acquisitions of Open:Net and Vianet amounted to $6,504,576
at December 31, 1998. We amortize goodwill over 10 years. In 1999, we will
begin depreciating additional goodwill of approximately $30 million which will
be added to our balance sheet as a result of the Flashnet acquisition.

Interest Expense and Income

Interest expense increased by 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. We earned

interest income in 1998 of $154,296 on excess cash balances resulting from the
proceeds of our 1998 equity offering. We had no interest income in 1997.

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 from our operating
subsidiaries in Germany. Under the current German tax code, these net operating
losses may be carried forward indefinitely and used to offset our future
taxable earnings.

Other Comprehensive Loss: Foreign Currency Translation Adjustments

Foreign currency translation adjustments resulted in a gain in 1998 of
$1,204,589 and a loss in 1997 of $210,211 in 1997. The 1998 gain is a result of
the weakening of the U.S. dollar in 1998 in relation to the Deutsche Mark.

Results of Operations--Year Ended December 31, 1997 As Compared To The Year
Ended December 31, 1996

Revenues

Total revenues increased by 652.1% from $307,673 in 1996 to $2,314,021 in
1997. This revenue growth is primarily a result of the fact that 1997 was a
full year of operations while 1996 was primarily devoted to start-up and
initial marketing activities.

Revenues from Internet Projects increased by 635.3% from $217,296 in 1996 to
$1,597,869 in 1997 and represented 70.6% and 69.1% of total revenues in 1996
and 1997, respectively. Average revenues per customer increased from $18,108 in
1996 to $32,610 in 1997. The increase in average revenues per customer reflects
our transition from small- to medium-sized customers.

Revenues from Network Services increased by 692.4% from $90,377 in 1996 to
$716,152 in 1997 and represented 29.4% and 30.9% of total revenues in 1996 and
1997, respectively. Our total number of customers increased by 2,346.4% in 1997
to 4,061 customers from 166 in 1996. No single customer accounted for more than
10% of our revenues in 1997. In 1997 we added 1,941 new customers by
establishing relationships with affinity groups. This addition of new customers
allowed us to obtain additional revenues with relatively low incremental cost.
Excluding affinity group members, we provided Network Services to 2,120
customers as of December 31, 1997, compared to 166 customers as of December 31,
1996. The addition of 2,009 new customers (which includes affinity group
customers) represented 97.0% of Network Services revenues. The remaining 3.0%
was derived from existing customers. Average revenues per customer decreased
from $1,093 in 1996, our first year of operation, to $339 in 1997. This
decrease occurred in part because 1997 was the first year in which we
contracted with affinity group customers. These customers typically produce
lower average Network Services revenues than our business customers.

Costs of Revenues

Total costs of revenues increased by 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 costs of our Internet Projects revenues increased by 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. Costs of
Internet 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 freelance staff costs utilized to design websites during our first year of
operations.

The costs of our Network Services revenues increased by 625.4% from $119,297
in 1996 to $865,357 in 1997. This increase primarily resulted from increased
personnel costs and the cost of additional leased lines. Costs 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.

Depreciation and amortization, included in costs of revenues, increased by
2,422.8% from $6,786 in 1996 to $171,196 in 1997 as a result of new investments
in product development and establishing our network from year to year.

General and Administrative Expenses

General and administrative expenses increased by 83.0% from $263,175 in 1996
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
freelance staff costs. These reductions were partially offset by higher
personnel costs and advertising and telecommunications expenses.

Research and Development

Research and development expenses increased by 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 as significant
operations commenced.

Depreciation and Amortization

Depreciation and amortization increased by 445.1% 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 arising from the 1997 acquisitions.

We had no net goodwill at December 31, 1996. At December 31, 1997, net
goodwill in connection with the acquisitions of Artwise and Eclipse amounted to
$1,322,566.

Interest Expense and Income

Interest expense increased by 1,802.4% 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. We incurred these overdrafts to fund our
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 from our operating
subsidiaries in Germany. Under the current German tax code, these net operating
losses may be carried forward indefinitely and used to offset our future
taxable earnings.

Other Comprehensive Loss: Foreign Currency Translation Adjustments

Foreign currency translation adjustments resulted in a loss of $210,211 in
1997 and a loss of $5,089 in 1996.

Vianet--Results of Operations--Year Ended December 31, 1998 As Compared To The
Year Ended December 31, 1997

Vianet is an Austrian ISP acquired by our Company on December 28, 1998. We
accounted for the acquisition using the purchase method of accounting. Because
Vianet's results of operations subsequent to the acquisition date were
immaterial to our consolidated financial results, we did not include them in
our 1998 Consolidated Financial Statements.

We provide below a discussion of Vianet's results of operations for the year
ended December 31, 1998 as compared to the year ended December 31, 1997. The
financial statements on which this discussion is based have been prepared in
accordance with US GAAP.

Total Revenues

Total revenues include payment for systems integration and consulting
projects, the basic connectivity fee that is paid at the beginning of each
three month period and current usage fees which are invoiced monthly after the
relevant month. The prepaid connectivity fee is recorded under deferred income
and recognized as revenue after the service is provided. System integration and
consulting projects are billed and paid upon completion. Total revenues
increased by 37.3% from ATS 27,390,233 ($2,125,949) in 1997 to ATS 37,617,683
($2,919,773) in 1998. The revenue growth was generated by Vianet's increased
customer base.

Costs of Products Sold

Costs of products sold consist primarily of telecommunications fees, licenses
and marketing. Costs of products sold increased by 37.5% from ATS 12,403,754
($962,743) in 1997 to ATS 17,051,503 ($1,323,487) in 1998. These costs
increased because increased usage by the growing customer base required
upgrades to the network infrastructure for current and future needs.

Research and Development

Research and development costs consist principally of personnel costs,
consulting costs and allocated overhead costs. Vianet had no research and
development costs in 1997 and ATS 1,282,625 ($99,554) of such costs in 1998.
This increase in costs of research and development resulted from activities
related to the enhancement of existing services, the addition of value-added
products and billing flexibility.

General and Administrative

General and administrative costs increased by 39.0% from ATS 14,787,656
($1,147,774) in 1997 to ATS 20,558,892 ($1,595,720) in 1998. This increase in
general and administrative costs resulted from growth in the size of Vianet.
General and administrative costs include primarily salaries and other personnel
costs of Vianet's administrative staff, office rent and other overhead
expenses.

Interest Income and Expense

Interest income decreased by 57.2% from ATS 20,972 ($1,628) in 1997 to ATS
8,966 ($696) in 1998. This decrease resulted from lower bank balances. Interest
income is primarily attributable to short term interest earned on bank
balances. Interest expense increased by 3.0% from ATS 86,212 ($6,692) in 1997
to ATS 88,803 ($6,893) in 1998. This increase resulted from increased short-
term borrowing. Interest expense is primarily attributable to Vianet's
overdraft facility.

Income Taxes

Vianet received a tax benefit of ATS 4,940 ($383) in 1998 and had income tax
expenses of ATS 193,116 ($14,989) in 1997.

Liquidity and Capital Resources

Overview

Since our inception, we have financed our operations and growth primarily
from the proceeds of private and public sales of equity and debt securities.
Total net proceeds of equity offerings in the three years ended December 31,
1998 amounted to approximately $67,660,706. Additionally, in 1998, our
subsidiaries financed the acquisition of certain equipment with capital lease
obligations. Total net proceeds from the Unit Offering in July 1999, and from
the Discount Notes Offering and the PIK Notes Offering in August 1999, were
approximately $216,861,000.

Cash Flow

Operating activities used cash of $569,685, $1,432,432 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 resulted from increased expenditures
for marketing and research and development. For the six months ended June 30,
1999, operating activities used $11,334,499, compared to $3,133,178 for the
comparable period in 1998. This is principally the result of our net loss in
1999.

Investing activities used cash of $1,532,912, $4,790,473 and $9,928,634 in
each of the three years ended December 31, 1996, 1997 and 1998, respectively.
The large increase in 1998 resulted from the business acquisitions and the
increase in expenditures for property and equipment in that year. Expenditures
for property and equipment consisted principally of purchases of computer
hardware and other expenditures related to our Internet backbone and equipment
necessary to support our anticipated growth. For the six months ended June 30,
1999, investing activities used cash of $36,039,454, compared to $1,452,738 for
the comparable period in 1998. This increase in use of cash represents
primarily our deferred cash payment for the Vianet acquisition, the acquisition
of Flashnet, and purchases of property and equipment.

Net cash provided by financing activities was $2,084,784, $8,644,161 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. In addition, in 1996, we received $2,012,903 in equity investments
from our founders. For the six months ended June 30, 1999, net cash provided by
financing activities was $23,805,141, compared to net cash used of $2,698,286
for the comparable period in 1998. This increase is primarily attributable to
the Interim Loan used to finance the Flashnet acquisition Subsequent to June
30, 1999 the Company received approximately $216,861,000 of proceeds from notes
issued to investors; of which approximately $22,374,000 was used to pay off the
Interim Loan and $57,466,076 was placed in an escrow account to fund the first
six interest payments on the Senior Notes.

Working Capital

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 working capital, cash and cash equivalents resulted primarily from the
proceeds of our first public equity offering in December 1998 and our private
placements in May 1998 and June 1997.

On June 30, 1999, our working capital, defined as the excess of our current
assets over our current liabilities, was $(11,562,266), as compared to
$37,750,651 on December 31, 1998. The decrease in working capital resulted from
an increase in short-term borrowings (including the Interim Loan), an increase
in trade accounts payable and other accrued liabilities, as well as an increase
in accrued personnel costs and the current portion of long-term capital lease
obligations. These decreases were only partially offset by increases in cash
and accounts receivable. Our balance sheet as of June 30, 1999, reflects
$7,463,206 for net accounts receivable compared to $3,248,754 on December 31,
1998 and $4,048,784 on March 31, 1999. This increase is attributable to the
large increase in sales (and therefore average accounts receivable balances)
but also collection difficulties at Cybernet AG and at Flashnet, whose balance
sheet was first consolidated on June 30, 1999. We have instituted various
measures which we expect will facilitate collection of these receivables
including realignment of sales force compensation schemes, pre-contract credit
evaluations for both business and residential customers and assignment of
direct responsibility to managers at the subsidiary-level for reductions in
receivables balances.

Credit Arrangements

As of June 30, 1999, the Company had short-term unsecured overdraft
facilities under which the Company and its subsidiaries could borrow up to DM
1,194,445 ($652,267). These facilities are denominated in Deutsche Marks (in
the amount of DM 200,000 ($109,217)), Italian Lire (in the amount of DM 814,202
($444,623)), Austrian Schillings (in the amount of DM 142,140 ($77,621)) and
Swiss Francs (in the amount of DM 38,103 ($20,807)). The interest rates
fluctuate based upon current lending rates. The weighted average borrowing rate
on these facilities was 8.1% as of June 30, 1999. In addition, certain of the
Company's banks provide overdraft protection exceeding the limits specified in
these agreements. As of June 30, 1999, the Company and its subsidiaries had
used DM 835,768 ($456,400). In addition, as of June 30, 1999, the Company had
long-term capitalized lease obligations of DM 3,041,153 ($1,660,729). Amounts
expressed in Deutsche Marks in this paragraph have been translated for
convenience purposes into U.S. dollars at the rate of DM 1.83122 = $1.00 (the
rate implied by the August 3, 1999 Noon Buying Rate of the Euro to the U.S.
dollar).

On June 30, 1999, the Company borrowed (Euro)21,860,554 ($23,347,809) in an
Interim Loan from Lehman Commercial Paper Inc., an affiliate of Lehman Brothers
Inc. and Lehman Brothers International (Europe), and Morgan Stanley Senior
Funding, Inc., an affiliate of Morgan Stanley & Co. Incorporated and Morgan
Stanley & Co. International Limited. The proceeds of the Interim Loan were used
to fund the purchase of Flashnet, the total purchase price of which was valued
as of May 14, 1999, the contract date, at Lit. 54.2 billion ($29.9 million)
consisting of Lit 41.0 billion ($22.6 million) in cash and 301,290 shares of
Cybernet common stock. The Interim Loan was repaid with part of the proceeds of
the Unit Offering on July 12, 1999.

Capital Expenditures

For the six months ended June 30, 1999, capital expenditures totaled
$6,586,968, compared to $1,221,112 for the comparable period in 1998. We funded
these capital expenditures primarily from net cash provided by financing
activities. The major investments by the Company in the first half of 1999
included investments in (i) a class 4 national telecommunications license for
the German market at a cost of DM 3,000,000 ($1,638,256), (ii) progress
payments on the installation of a new billing system totalling approximately
DM 4,705,000 ($2,569,332), (iii) the expansion of leased-line POP's at a cost
of approximately DM 1,700,000 ($928,345) and (iv) various computer and
technical equipment at a cost of approximately DM 1,600,000 ($873,737). We have
budgeted approximately $45.0 million in capital expenditures for the remainder
of 1999. We expect to use these amounts to install carrier grade digital
circuit switches and related equipment in order to offer voice services to our
customers, to build data centers and office infrastructure and for transmission
facilities (including alternative long-haul transmission capabilities) and
related equipment. We also expect to use a portion of these budgeted amounts
for the continued roll-out of our billing system.

We have also entered into long-term data and voice communications agreements
with several vendors. These agreements enable us and our customers to access
data networks necessary for the use of our products

and services. The minimum payments under these contracts are for an aggregate
of $1,382,228, $84,806, $84,806, $84,806, $16,139 and $80,693 in 1999, 2000,
2001, 2002, 2003 and thereafter, respectively.

Although we expect that the net proceeds of the Private Offerings, together
with internally generated funds, will provide sufficient funds for us to expand
our business as planned and to fund operating cash requirements and capital
expenditures through mid-2000, we are considering offering additional debt
securities in the immediate future. The amount of our future capital
requirements will depend upon many factors including performance of our
business, future acquisitions, the rate and manner in which and the extent to
which it leases, acquires or constructs backbone capacity, increases in
staffing levels and customer growth. These requirements will also depend upon
many factors that are not within our control, including competitive conditions,
governmental and regulatory developments and capital costs. If future sources
of funds prove to be insufficient to fund our growth and operations in the
manner and at the rate currently anticipated, then some or all of our
development and expansion plans could be delayed or abandoned or we could be
required to seek additional funds earlier than currently anticipated, including
from additional debt or equity financings. See "Risk Factors--We Will Need
Additional Capital in the Future."

Valuation Allowance

At December 31, 1998, we had available combined net operating losses carried
forward of approximately $20,230,048, most of which relate to our German
operations. Under the current German tax code, these net operating losses may
be carried forward indefinitely and used to offset our future taxable earnings.
We have not provided any valuation allowance against the deferred tax asset
related to these losses carried forward. However, if we were unable to generate
sufficient taxable income in the future or if the tax law were changed, we
would have to establish a valuation allowance 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 recorded in the first
quarter of 1999 was approximately $550,000.

Seasonality

Our quarterly results are subject to seasonality. We typically experience an
increased level of Internet Project sales in the last fiscal quarter. We also
typically experience a slowdown in the first fiscal quarter in Internet Project
sales because customers refrain from making IT investment decisions until the
completion of CeBit, a major European trade show, which takes place in the
Spring. Network Services results do not typically exhibit the same level of
seasonal variation.

Foreign Currency

Most of our revenues and a significant portion of our expenses are
denominated in Deutsche Marks instead of the dollar, our reporting currency. As
we expand our operations into other European countries (particularly Italy
following the acquisition of Flashnet), we expect that we will continue to
generate revenues in currencies other than the dollar. All of our revenues and
an increasing portion of our expenses continue to be denominated in currencies
other than the currency in which we report our results. Therefore, our reported
results will continue to be impacted by exchange rate movements of these
currencies against the dollar. The funds available from the Unit Offering and
the Discount Notes Offering were denominated in U.S. dollars and interest
payments on the Senior Notes and the Discount Notes will be made in U.S.
dollars. As a result, we will be exposed to foreign exchange risks, and our
results of operations likely will be affected by fluctuations in the value of
the local currencies in which we transact business. We do not currently engage
in hedging transactions, however, we may consider entering into such
transactions to reduce the risk of our exposure to currency fluctuations,
including any such fluctuations which may result from having significant
dollar-denominated liabilities after the offering of the Senior Notes and the
Discount Notes.

Year 2000

We have identified two main areas of risk related to the Year 2000 problem
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

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 have tested and analyzed our
systems in the course of regular quality control and research development. We
did not spend significant capital on this evaluation. To date, the only costs
in connection with our Year 2000 evaluation have been limited to internal staff
costs, which have been expensed as incurred. The financial information
contained in this prospectus includes such costs, which are not material. Based
on our experience to date, we do not anticipate that we will be required to
incur significant additional operating expenses or to invest material amounts
to obtain Year 2000 compliance. To respond to our customers' inquiries, we are
in the process of developing a report to inform our customers about the effect
of the Year 2000 problem on our products and services. We anticipate utilizing
an outside consultant to prepare this report at a cost estimated to be DM
50,000 ($26,748).

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 Corporation 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; and

. 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 compliant operations and have
instituted procedures to assure that IT systems installed in 1999 will be Year
2000 compliant. We do not expect compliance with the Year 2000 problem on a
Company-wide basis to require acceleration of planned expenditures for the
purpose of remediation. Because we believe that substantially all our material
systems are Year 2000 compliant, we have not developed a theoretical worst case
analysis or a contingency plan to deal with such a contingency.

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 secondary 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 third quarter of 1999.

With respect to non-IT systems, our operations do not depend in a significant
manner on embedded technology. All of our desk-top computers and telephones are
Year 2000 compliant. Our offices' climate control systems, elevators and
monitor alarms do have embedded systems. However, our operations do not depend
upon 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 Schilling, 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 continue 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

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 participating countries or a failure on any participating country's part to
comply with EU directives could have negative economic effects on other
participating countries, including countries in which we operate. Additionally,
the participating countries' pursuit 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 us and our ability to make
payments under the Senior Notes, the Discount Notes and the PIK Notes.

While we believe that our systems have not been adversely impacted by the
Euro conversion and we believe that we are substantially Euro-compliant, 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 operations and our ability to meet our obligations under the Senior
Notes, the Discount Notes and the PIK Notes.

QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK

We do not utilize market-risk-sensitive instruments, such as derivative
financial instruments. Our primary market risk is in the area of interest rate
and foreign currency exchange rate fluctuations.

We maintain our cash balances in deposits at banks and in highly liquid
short-term investments, such as money market mutual funds, therefore lowering
our exposure to interest income risks.

As a result of our Unit Offering in July 1999 and Discount Notes Offering in
August 1999, we have a substantial amount of debt in U.S. dollars. While our
reporting currency is U.S. dollars, our functional currency is the Deutsche
Mark and significant fluctuations in the U.S. dollar to Deutsche Mark exchange
rate could have an adverse impact on the amount of Deutsche Marks required to
satisfy this debt. We estimate that a 10% increase in the exchange rates
between the Deutsche Mark and the U.S. dollar would increase the Deutsche Mark
amount required to settle the debt outstanding from the Unit Offering and the
Discount Notes Offering by approximately $20,000,000.

All of our revenues and a significant portion of our expenses are denominated
in currencies other than our reporting currency, the U.S. dollar. Approximately
89% of our revenues in 1998 were denominated in Deutsche Mark and, as such, the
majority of our foreign exchange rate exposure relates to the translation of
our Deutsche Mark financial statements into U.S. dollars which is impacted by
changes in the exchange rates between the Euro and the U.S. dollar. We prepared
a sensitivity analysis to assess the impact of exchange rate fluctuations on
our 1998 operating results. Based on this analysis, we estimated that a ten
percent adverse change in the exchange rates between the Deutsche Mark and the
U.S. dollar would have increased our reported net loss for 1998 by
approximately $530,300. Our analysis also indicated that a ten percent decrease
in the exchange rate between the U.S. dollar and the Deutsche Mark would result
in a decrease of our June 30, 1999 net assets of approximately $5,230,000.

We have not entered into any derivative hedging instruments to reduce the
risk of exchange rate fluctuations.

BUSINESS

We began our operations with the formation of 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 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 Cybernet Delaware, and the Delaware
corporation is the surviving entity of the merger. On June 30, 1999, we
consummated our acquisition of all of the issued and outstanding capital stock
of Flashnet, a leading ISP based in Rome, Italy. The terms "Company,"
"Cybernet," "we," "us" and "our" refer to Cybernet Delaware and its
subsidiaries as a combined entity, except where its use is such that it is
clear that such term means only Cybernet Delaware.

Overview

Through our subsidiaries, we are a leading provider of Internet
communications services and solutions in Germany, Austria, Italy and
Switzerland targeting small- to medium-sized enterprises. Our IP solutions are
based on a core product offering consisting of Internet connectivity and value-
added services. Such value-added services include VPNs, web-hosting, co-
location, security solutions, electronic commerce, Intranet/Extranet and
workflow solutions. We offer consulting, design and installation, training,
technical support, and operation and monitoring of IP-based systems. We market
our products and services primarily to small- and medium-sized enterprises in
Europe because we believe that they represent an underserved and sizeable
market. Companies in this market are characterized by a lack of internal
technical resources, rapidly expanding communications needs and a high
propensity to utilize third-party outsourcing. We are recognized as a provider
of high quality Internet connectivity services and solutions to enterprises and
as one of Germany's leading Internet access providers. Recently, IT Services, a
leading German computer magazine, ranked us number one among German ISPs in
terms of infrastructure, international outlook and customer service.

Our mission is to become a leading European provider of IP-based
communications services and network-based business solutions. We intend to
continue to focus on small- and medium-sized enterprises in Europe, offering a
full portfolio of advanced communications products, including Internet access
and value added services, as well as data and switched voice services.

We sell our services and solutions primarily through our direct sales force.
Most of our sales people are based in regional offices and are supported by
specialized technical and commercial assistance from our customer care centers
in Munich, Vienna, Zurich, Rome and Trento. We complement our direct sales
effort with an extensive reseller and referral network of over 100 companies
and by forming marketing alliances with technology leaders such as Hewlett-
Packard, Microsoft, Network Associates, Sun Microsystems and Nokia Italia.
While our reseller arrangements begin with sales of our basic product
offerings, such as connectivity, they can lead to direct sales by us of more
complex solutions, such as security solutions or VPNs.

We operate a geographically distributed IP network based upon leased lines.
Our network is spread over six countries and consists of network nodes equipped
primarily with Cisco and Ascend routers connected to a redundant high-
performance backbone infrastructure. We help corporate customers reduce
telecommunications costs by offering Internet connectivity through dedicated
lines at 56 directly owned Points of Presence ("POPs"). We also offer a system
of dial-in nodes with ISDN or analog modem ports to smaller enterprises,
employees and affiliates of corporate customers. These nodes permit local dial-
in access throughout Germany, Italy and Switzerland and most of Austria.
Flashnet owns 20 of these POPs for dedicated lines (which can also accommodate
dial-in traffic) and has access to more than 300 dial-in access nodes.
Recently, we reorganized our dial-in network in Germany by concentrating
multiple dial-in access nodes into larger access points called "Virtual POPs,"
which use a Public Switched Telephone Network ("PSTN") to aggregate traffic. We
expect this will generate operating efficiencies, in that there will be fewer
overall nodes to service. We are expanding our network across Germany, Austria,
Italy and Switzerland by installing additional POPs and replacing dial-in
access nodes with Virtual POPs.

We also plan to add digital circuit switching capabilities to our network to
offer switched voice telecommunications services to our customers, capture more
revenues from dial-in traffic and provide termination services to other
carriers by layering switched voice capability onto our expanded leased line
network. For these purposes, we require: (i) licenses to offer voice telephone
services in Germany, Austria, Italy and Switzerland; (ii) up to nine carrier
grade digital circuit switches; (iii) a billing system capable of capturing the
necessary data and generating invoices to our customers; and (iv)
interconnection agreements with incumbent operators and other
telecommunications carriers. In Germany, we have: (i) obtained a license to
offer voice telephone services in the entire country; (ii) ordered six Nortel
DMS-100 switches; (iii) installed the Kenan billing system; and (iv) begun
negotiations for an interconnection agreement with both Deutsche Telekom and
Telecom Italia. In order to enable us to begin offering voice telephone service
before our own switched voice network starts operating in the fourth quarter of
1999, we have entered into an interim agreement with a third-party carrier. In
Austria and Switzerland, we have begun the process of obtaining
telecommunications licenses. In Italy, our subsidiary Flashnet has a license to
provide voice services throughout the entire country.

We have increased our revenues from $0.3 million in 1996 to $8.6 million in
1998 ($17.4 million pro forma for acquisitions, including Flashnet). As of
March 31, 1999, we provided services to approximately 10,800 business
customers, an increase from approximately 200 customers at December 31, 1996.
The majority of these customers are small- to medium-sized enterprises. We also
provide services to larger companies and organizations such as BASF
Corporation, German Parcel, Commerzbank, Hewlett-Packard, Start Media Plus,
DaimlerChrysler Aerospace Dornier, BMW Financial Services, Raiffeisenbank,
Zuegg, Honeywell, Lauda Air, Modern Times, Amadeus, Lufthansa and News. As of
March 31, 1999, Flashnet had approximately 1,600 business customers and 38,000
residential customers, including large organizations such as Nokia Italia, ERG,
Avis, Ferrovie dello Stato (Italian Railways) and the Italian Parliament.

Our management team consists of individuals with extensive Internet, IT and
telecommunications expertise. Andreas Eder, co-founder and Chief Executive
Officer, previously held various positions at Siemens-Nixdorf Information
Systems and The Boston Consulting Group. Dr. Alessandro Giacalone, Chief
Operating Officer, previously headed the European-Industry Computer Research
Center and established it as a leading German ISP. He was also a Professor of
Computer Science at the State University of New York at Stony Brook. Robert
Eckert, our Chief Financial Officer, was previously with Netsource A/S,
Swisscom International, and General Electric (USA). Walter Franz, who is
principally responsible for our network, was director of network operations for
MCI/WorldCom in Germany and also worked for MFS Telecommunications and
Motorola. In addition, we have recruited individuals at various managerial
levels from leading industry participants such as AT&T/Unisource, British
Telecommunications and Deutsche Telekom. Our policy is to retain the key
executives of the companies we acquire. To this end, we typically structure our
acquisitions to give such executives an equity participation in the future
success of our Company. We have retained most of the key managers in our
acquisitions.

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, Advanced
Research Projects Agency (ARPANET) to enable scientists at universities to
share information and to develop a secure network. Use of the Internet has
grown rapidly since its initial commercialization in the early 1990s.
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 compound annual rate of 36.0%. Consumers and companies in the
United States have spearheaded the 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 has become an important commercial 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 performance, scalability
and expert management 24 hours a day, 7 days a week.

Companies generally 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.

The Internet is experiencing rapid growth rates in Europe. According to IDC,
the number of Internet users in Europe reached 16.8 million in 1997 and is
expected to reach 82.0 million in 2002. Datamonitor, another market research
organization, estimates that the number of externally hosted commercial
websites 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 websites 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 and increased
availability of bandwidth, resulting in faster and 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.

Europe lags the U.S. in terms of total Internet users, Internet users as a
percentage of population, and personal computers ("PCs") with Internet access.
An historical comparison reveals that Europe is between one and two years
behind the U.S. when the selected indicators are considered. We expect
European Internet usage to follow historical U.S. growth rates and achieve
current U.S. levels within one to two years. The following table provides
information about current and projected Internet usage in Europe and the
United States.

Europe United States
------------ --------------------------
1997 2002E 1995 1996 1997 2002E
----- ----- ----- ----- ----- -----

Internet users (millions)........... 16.8 82.0 9.7 23.2 38.7 135.9
Population (millions)............... 386.0 388.4 263.0 265.4 267.9 279.5
Internet users as a percent of
population......................... 4.4% 21.1% 3.7% 8.7% 14.4% 48.6%
PCs with internet access............ 19.7% 57.1% 11.5% 23.8% 36.3% 84.3%

- --------
Sources: IDC Corporation; population and Internet users as a percent of
population are based upon population figures provided by the U.S.
Bureau of the Census.

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 we believe currently
presents a growth opportunity. The following table summarizes certain
information and estimates about revenues from Internet connectivity and from
Internet hosting and VPNs in European countries.

Connectivity Hosting and VPN
--------------------------------------------- ---------------------------------------------
Anticipated Anticipated
1997 2000E Change 1997 2000E Change
($ in millions) ($ in millions) (%) per annum ($ in millions) ($ in millions) (%) per annum
--------------- --------------- ------------- --------------- --------------- -------------

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 Kingdom.......... 154 381 35.2% 16 146 109.0%
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.

Datamonitor reports that the European corporate Internet connectivity market
consisted of 1.2 million accounts and generated total revenues of $919 million
in 1997. It estimates that corporate connectivity revenues will grow to $2.6
billion in 2000, a compound annual growth rate of 41.8%.

Datamonitor also reports that in 1997, European Internet value-added services
generated revenues of $287 million. It estimates that revenues from value-added
services will increase to $1.7 billion in 2000, a compound 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 compound annual growth
rate of 111.8%.

We consider Germany to be the most important connectivity market in Europe in
terms of revenues, with a highly developed consumer and business on-line
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 many small providers. We
expect that connectivity revenues in Italy will grow at one of the fastest
rates in Europe, particularly northern and central Italy, because much of
Italian business is concentrated in that area. We believe our acquisition of
Flashnet will permit us to take advantage of this growth opportunity.

Business Strategy

According to Statistisches Bundesamt, a German government agency, such
companies generate 45% of Germany's total corporate revenues. In other
countries, the revenues of small- to medium-sized enterprises as a portion of
total corporate revenues vary. We believe that this customer segment is
underserved and has substantial and increasing communications needs. Small- to
medium-sized enterprises 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 IT, tourism, retail, finance, government, media
and advertising. For many of these industries, utilization of the Internet has
become essential. In certain markets, we also serve high-end residential
customers.

Initiate Long-Term Relationships with Customers Through Local Coverage and at
an Early Stage. Unlike some of our competitors, we use strong local management
teams to address the needs of our customers. Most of our sales people are based
in regional offices and are supported by specialized technical and commercial
assistance from our offices in Munich, Vienna, Zurich, Rome and Trento. This
strategy allows us to initiate close relationships with our customers at an
early stage of their Internet services requirements, engage in strategic
discussions with senior management about their communications requirements,
participate in the design of their systems, 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.
This also enables us to offer additional solutions to our customers without
having to compete primarily on price.

Develop Total Communications Offering. We currently offer both Internet
connectivity services and modular Internet business solutions to our customers.
Our modular solutions include web-hosting and -housing, VPNs, security
solutions, electronic commerce solutions and Intranet and workflow solutions.
As technology evolves, we intend to broaden our product offering to include
additional services, solutions and innovations that have proven reliable and
effective. In June 1999, we started offering voice services. Our ability to
offer voice services will allow us to provide one-stop shopping for integrated
voice and data solutions. We believe IP technology and IP applications will be
the primary platform and interface for business data and voice communications
in the future.

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, Microsoft, Network
Associates, and Sun Microsystems. We are expanding our direct sales force and
regional offices to increase our local coverage. We currently have 19 sales
offices (seven in Germany, one in Austria, nine in Italy and two in
Switzerland), and we plan to increase this 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 potential customer
contacts.

. optimizing the configuration of our IP network, by concentrating
international access at a few select locations where the cost of global
access can be minimized; concentrating network planning and management
in one central location; and planning the network's redundancy on a pan-
European basis rather than on a local basis;

. establishing up to nine large-scale data centers to enhance our co-
location and housing service offering;

. acquiring up to nine carrier grade digital circuit switches to be
installed in key cities; and

. leasing transmission capacity on a long-term basis, acquiring backbone
capacity, or constructing our own infrastructure in selected locations,
to transport high bandwidth data and voice services over all available
transmission protocols (including alternative long-haul transmission
media such as microwave).

Accelerate Growth in Europe Through Targeted Acquisitions. To date, we have
successfully integrated three acquisitions. We have recently acquired three
additional companies which we are in the process of integrating. We will seek
to acquire additional Internet-related companies to strengthen our presence in
other European countries, while continuing to grow internally. We look for
strategically and culturally compatible companies to add to our strong
management, enhance our technical expertise, and enhance our customer base in
our current coverage area and bordering countries.

Products and Services

We currently offer a comprehensive range of Internet connectivity services,
network solutions and business solutions to enterprises in Germany, Austria,
Italy, and Switzerland and have started to offer voice services.

Connectivity Services

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 dedicated line connectivity at speeds
ranging from 64 Kbps to multiples of 2 Mbps. We offer Internet connectivity to
our corporate customers through dedicated lines at our 56 directly owned POPs.

We also provide both analog and ISDN dial-in Internet access throughout
Germany, Italy and Switzerland as well as throughout most of Austria. In
Germany, Italy and Switzerland dial-in service allows our customers to dial
into one nation-wide number to access the Internet at local telephone rates.
Our dial-in services in Austria utilize dial-in access nodes, each of which has
its own dial-in number. We have seven such dial-in access nodes in Austria. At
present, we offer our dial-in service through third party telephone networks.
As we introduce our interconnection and switching capabilities, we plan to
offer dial-in access at a cost approximating that of a local call and also to
charge the customer for telephone minutes. Outside the countries in which we
operate, we offer roaming at local call rates in cooperation with more than 350
international ISPs and telecommunications companies which have joined the
Global Reach Internet Connection.

We offer third-party software products such as 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. We also provide router services such as router renting,
configuration, supervision and maintenance. Overall, we are able to offer
customers a full portfolio of services with managed connectivity. Our principal
connectivity services include:

Product Name Characteristics
------------ ---------------

Personal Connect, Office Single user dial-up services, with dynamic IP address and
Connect, Call & Surf, access speeds of up to 64 Kbps. Selection of usage-based
Call-to-Intranet or flat rate tariffs, including dial-in telephony costs
(except Personal Connect and Office Connect).

Business Connect, Call & Multi user dial-up service for workgroups, with multiple
Surf for Workgroups, IP addresses and access speeds of up to 128 Kbps.
Call-to-Intranet for Services provided via Local Area Networks ("LANs") with
Workgroups Ascend Pipeline 50/75 routers. Selection of usage-based
or flat rate tariffs, including dial-in telephony costs
(except Business Connect).

Business Line, Campus Leased line service for workgroups, with multiple IP
Line addresses and access speeds of up to 2 Mbps. Service
provided via LANs and Cisco 16xx routers. Selection of
usage-based and flat rate tariffs.

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 with the added benefit of secure
remote access. In addition, our VPN products are often the basis for Intranet
services (connectivity of branch offices, teleworkers and mobile workforce) and
Extranet services (connectivity of business partners, suppliers and customers)
services. We offer these products in conjunction with additional hardware and
software solutions, as well as continuous operation and maintenance, customer
care and billing services. Flashnet offers a product called ALL IN ONE, an all
inclusive solution including combinations of data transmission, Internet access
and voice-over IP, representing the ideal platform to build VPNs for customers.

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, firewall and
authentication packages. 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 VPNs or Intranets. Our
principal security solutions include:

Product Name Characteristics
------------ ---------------

Firewall 1, Gauntlet Third-party firewall software tailored to customer
requirements.

ACE / Server, SecurID Third-party authentication hardware and software.
Token

Idea@Exchange--Secure Third-party software for encryption of electronic mail
Messaging traffic tailored to customer requirements.

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, with full-time connection to the Internet,
direct access to our high-speed network, uninterrupted power supply, regular
back-up and monitoring and technical support 24 hours a day, seven days a week.
Our principal co-location services include:

Product Name Characteristics
------------ ---------------

Server Housing Flexible service offering ranging from simple co-location
to dedicated ports and back-up facilities.

Rent-a-Server Rental of various high-end server types.

Application and Website Hosting. We offer shared server application and
website hosting services, which permit corporations to market themselves and
their products on the Internet without having to invest in independent
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 continuously maintained data centers. Applications
on our servers, which our customers can access, include shop and mall systems,
payment systems, publishing systems 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
shop 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,
Intershop, Microsoft, SAP, Sun Microsystems, VeriFone 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 establish a distribution channel for products or a channel for purchasing,
and to determine whether to invest in a dedicated system. Our principal
electronic commerce services include:

Product Name Characteristics
------------ ---------------

Online Shopping-- Online shopping site hosted by Cybernet on a low cost
Cybernet Shop Hosting monthly rental basis, which is based on shop software
from Intershop and Beans, among others. Administration is
conducted via Internet.

Online Shopping-- Full license online shopping customized by Cybernet,
Cybernet Shop License based on Intershop, Microsoft Site Server and Openshop,
Model among others. Integration of an inventory control system
is possible.

Online Shopping-- Complex shop or mall applications, tailored to customer
Cybernet Shop and Mall requirements. Integration of an inventory control system
and/or special modules (e.g., customer retention) is
possible.

Imperia Website management system which facilitates the
administration and creation of new websites.

Digital Order Business-to-business system for the digital integration
of procurement processes, hosted on a Cybernet platform.

Auction Server Hosted module for on-line live auctions, providing
different auction rules and methods.

PictureBase Hosted on-line database to present, sell and archive
digital pictures through the Internet. Integration of
electronic payment is possible.

Intranet and Workflow Solutions. Internet technologies can be utilized in a
customers' 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-in and leased line connectivity with IP-based VPNs and a
communications infrastructure that includes facsimile, voice mail, electronic
mail and enhanced security solutions. Our principal Intranet and workflow
solutions include:

Product Name Characteristics
------------ ---------------

Faxination--Unified Third-party hardware and software which transforms
Messaging Server messages and documents from one medium into another
(e.g., fax to electronic mail, electronic mail to voice).
Service accessible via PSTN line.

Teleworkx Bundle of Cybernet and third-party hardware and software
targeted at teleworkers.

Intranet Access Control Third-party software which grants secure and controlled
access for teleworkers to the Intranet.

Voice Services

Since June 1999, we have been offering switched voice services to our IP-
based customers, as well as value-added and integrated solutions combining
switched voice solutions and IP solutions. We also envision offering wholesale
services to other carriers on a case-by-case basis.

Initially, pending completion of our own interconnect arrangements, these
services will be offered in co-operation with a third-party telecommunications
operator. As we complete the implementation of our own voice switching
capabilities and leased line network, we anticipate capturing more dial-up
revenues and reducing our transmission costs.

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 medium-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; and

. to customers with basic service needs, we provide services which require
minimal customization and installation, such as Internet connectivity.

Flashnet provides consumer customers in Italy with dial-in access services
that are delivered through an easy to implement Internet kit. Flashnet also
simplifies customer payment by issuing rechargeable cards. We believe that
Flashnet is the first ISP in Italy to implement use of this payment method.

Direct Sales. Currently, our direct sales force consists of approximately 81
sales representatives located in 19 offices in Cologne, Frankfurt, Dusseldorf,
Berlin, Munich, Stuttgart, Hamburg, Vienna, Trento, Rome, Milan, Bologna,
Venice, Florence, Padua, Verona, Zurich and Lausanne. 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 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 IT,
tourism, retail, finance, government, media and advertising.

Channel Sales and Partnerships. Our channel sales group develops
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, 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. In addition, we 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 acquire new
customers cost effectively, benefit from association with well-known partners
and increase our brand awareness. We currently have marketing alliances with
Hewlett-Packard, Microsoft, Network Associates, Sun Microsystems and others. In
Italy, Flashnet uses a network of approximately 240 computer stores (Flashnet
Points) as its primary means of marketing to consumer customers.

We intend to conduct our operations and marketing under the Cybernet brand
name, although we use subsidiary brand names 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

Overview

The IP network of an ISP consists of a number of access nodes linked by owned
or leased lines. Access nodes are used to provide our customers with access to
our network either through dedicated lines or regular telephone lines (dial-in
access). The IP traffic generated at each access node is carried through our
backbone network to points of traffic exchange, where traffic is exchanged with
other providers' networks. These points of traffic exchange can be of two
types: peering points or transit points. Peering points provide for the free
exchange of traffic pursuant to agreements between ISPs. Transit points provide
global connectivity which we purchase from international carriers.

IP Network

We currently operate a geographically distributed IP based network in six
countries (Germany, Switzerland, Austria, Italy, Hungary and Luxembourg)
consisting of network nodes equipped primarily with Cisco and Ascend routers
connected to a redundant high-performance backbone infrastructure. The network
nodes are connected primarily by leased lines and include fourteen POPs in
Germany, 26 POPs in Italy, seven POPs in Austria and three POPs in Switzerland,
and a single POP in Luxembourg and Budapest. We lease our lines from major
telecommunications carriers and backbone operators, such as Deutsche Telekom,
Telecom Italia, Swisscom, Telekom Austria and Hermes Europe Rail Tel. We also
operate two microwave links that connect Munich with Innsbruck and the Italian
border at speeds of 34 Mbps. Our network nodes are interconnected at E-1 to DS3
speeds. We offer our dedicated line customers direct access to our POPs at
bandwidths ranging from 64 kbps to DS3. We have at present approximately 475
customers using dedicated line access. We believe our network is recognized as
one of Germany's most extensive and highest quality Internet networks. In 1999,
we expect to expand our network to include POPs in eleven additional cities in
Germany, and seven cities in Switzerland. We intend to acquire or enter into
long-term leases for backbone capacity or construct our own infrastructure in
selected locations in order to transport high bandwidth data and voice services
over all available transmission protocols, at lower costs than using leased
lines.

Our IP network is designed to offer reliability, scalability and high
transmission speed to our customers. We achieve reliability by operating a
fault tolerant network through our redundant backbone in Germany, Austria,
Switzerland and Northern Italy, which is based on a hierarchical multiple ring
design. We include back-up routers in our access nodes to attain further
redundancy, and thereby minimize the risk of single points of failure. To
ensure constant worldwide connectivity, we use multiple global access
providers. In Italy, Flashnet's extensive network is based on a star design and
achieves redundancy through back-up leased lines. We derive scalability from a
hierarchical multi-layer architecture that offers the opportunity to add
network locations without major infrastructure changes. We offer transmission
capacities ranging from 64 kbps to DS3 and intend to upgrade parts of our
network to STM-1 capacity in the near future. In addition, our network includes
cache servers in the major POPs to reduce the delivery time of regularly
requested information and reduce bandwidth needs for international traffic.

We offer dial-in Internet access through dial-in nodes with analog and ISDN
ports that provide coverage throughout Germany, Italy and Switzerland and
throughout most of Austria. In Germany, we have completed our BELT project,
which enables us to offer local dial-in connections to our customers throughout
the country with a single dial-in number. We have achieved this by
concentrating multiple dial-in access nodes into four larger access points
called virtual POPs, using the PSTN to aggregate traffic. We expect that these
virtual POPs will generate operating efficiencies, because there will be fewer
locations we will be required to service. We already offer local dial-in access
through a single dial-in number in Switzerland and Italy. In Austria, our
dial-in customers can access our network through seven telephone numbers.

Peering and Transit Relationships. We have entered into peering agreements
with major ISPs 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, Italy and Switzerland. Our main peering points
are in Frankfurt, Munich, Milan, Rome, Trento, Vienna and Zurich. We also peer
directly through leased lines connected to some of our peering partners, such
as Deutsche Telekom. 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. By the end of 1999, we expect to connect to peering
points in France, Belgium, The Netherlands and the United Kingdom. Recently,
some ISPs have restricted peering agreements by implementing restrictive
criteria for small ISPs. We believe that our size and growth prospects will
allow us to maintain and extend our existing agreements.

We have entered into global transit agreements pursuant to which we have
purchased the right to route traffic across the networks maintained by Ebone,
Global One, Swisscom, AT&T Corporation/Unisource and MCI Worldcom. This
provides our customers with the ability to communicate with those European
countries in which we are not present, and with the rest of the world.
Frankfurt, Munich, Vienna and Zurich currently serve as our global access
points.

Network Management

The effective functioning of our network is one of the key elements of our
operations. We have developed network management capabilities to offer reliable
and cost efficient communications services and to deliver high quality services
to our customers. Our Network Operations Centers ("NOCs") in Munich, Vienna,
Zurich and Trento, monitor the performance of our network and our international
links 24 hours a day and seven days a week. Our NOCs have the capability to
identify network problems on a real-time basis. Our technical support groups
are equipped to take the necessary corrective measures quickly. By the second
quarter of 2001, we intend to centralize our NOCs in a single facility in
Munich.

Data Centers

We house servers in our data centers that are linked to our network. We
currently operate data centers in Munich, Frankfurt, Vienna and Rome. Our main
data center in Munich has a capacity of 300 square meters. We intend to
establish additional data centers in Dusseldorf, Frankfurt, Hamburg, Munich,
Vienna, Trento, Rome, Milan and Zurich. These data centers will be co-located
with certain of our IP nodes (POPs) and switching facilities, and we expect
some of them to be operational in the fourth quarter of 1999 and all of them to
be operational by the third quarter of 2000. We have already signed leases for
the facilities in Hamburg, Frankfurt, Trento, Milan, Rome and Munich. Each of
these facilities will be approximately 2,000 square meters in size. We are
designing these facilities to house transmission, IP routing and switching
equipment, and to offer hosting, co-location, facilities management and
interconnection services to our corporate customers, ISPs and
telecommunications carriers. Each facility will offer uninterruptible power
supply and back-up generators, air-conditioning, constant monitoring and
physical security to ensure a high quality of service with minimal
interruptions.

Switched Voice

We intend to expand our revenues in the fourth quarter of 1999 by adding
digital circuit switching capabilities to our network. Until we finalize the
installation of our switches and negotiate interconnection agreements, we will
be able to offer switched voice services using a third-party provider. We are
installing carrier grade Nortel DMS-100 voice switches in Germany, Italy,
Austria and Switzerland. In Germany, we have obtained a class 4 license, which
is necessary to offer telephony services. We expect to interconnect with
Deutsche Telekom at multiple points of interconnection, thereby minimizing our
interconnection costs in the German market. Our subsidiary Flashnet has a
telephony license to offer voice services throughout Italy and we are currently
in negotiations with Telecom Italia for an interconnection agreement. We have
applied for national licenses to offer switched services and started the
process of entering into interconnection agreements in Switzerland and Austria.
We expect our switched network to start operating in the first quarter of 2000
and be fully operational by the end of that year. We have recently completed
the installation of our integrated billing system through which we expect to be
able to provide a single bill to our German customers for voice

and IP services. Over time, we plan to centralize our billing and provide
integrated bills to the customers in all of the countries we service.

Customers

As of March 31, 1999, we provided network services to 10,830 business
customers (including customers served through affinity groups), as compared to
6,923 as of December 31, 1998, 4,061 as of December 31, 1997 and 166 as of
December 31, 1996. As of March 31, 1999, we had 4,735 affinity group customers,
as compared to 3,846 as of December 31, 1998, and 1,941 as of December 31,
1997. At year-end 1996, we had no affinity group customers. During the three
months ended March 31, 1999, we completed Internet Projects for 19 customers,
as compared to 122 customers in 1998, 49 customers in 1997 and 12 customers in
1996.

While our target market is the small- and medium-sized corporations, we also
provide services and solutions to prominent larger businesses. Through our
subsidiary Flashnet, we also serve consumer customers in Italy. As of March 31,
1999, Flashnet had 1,625 business customers and 38,269 residential customers,
as compared to 1,096 business customers and 31,556 residential customers as of
December 31, 1998.

Our customers include businesses in IT, tourism, service, retail, finance,
government, media and advertising and manufacturing. Following is a list of
certain business groups in each of seven selected industry groups to which we
provided services and solutions as of December 31, 1998.

* Information Technology * Finance

CompuNet AXA Nordstern Colonia
Cyberlab Interactive HypoVereinsbank
Hogatex BMW Leasing
Info AG Commerzbank
InstallShield Software GE Capital Finance
Prism Software Engineering VR--Leasing
CompuServe Interactive Service
Internet Consulting * Government
Swissdata
Federal YZK Office
* Travel and Tourism Regulierungsbehoerde fur
Telekommunikation und Post
Frosch Touristik Bundesdruckerei
START AMADEUS Ministerium fur Wissenschaft
START Media Plus Stadtwerke Karlsruhe
Lauda Air
* Media and Advertising
* Retail
Finanzen-Verlag
Eddie Bauer Media Consulting
F.W. Woolworth Co. ORF Modern Times
Suzuki Auto
Tengelmann * Manufacturing
Wrigley
Zuegg Bayer
Daimler Chrysler Aerospace
Hugo Matthaes Druckerei
Nokia Italia

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
field engineers. The NOC-based technicians respond to customer requests 24
hours a day, seven days a week, 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 field engineers are available to visit our customers' premises, as
necessary.

Our call center provides complete information and specifications about each
of our products and advises our customers on service and solutions related
questions.

We have purchased and installed and are in the process of implementing an
integrated billing system for Internet and switched voice services and are in
the process of introducing this new system to our customers. We have licensed
the Kenan billing platform and have adapted it to our requirements.
Implementation of this system caused some delay in our processing of customer
invoices in the first quarter of 1999. We do not expect those problems to
recur. Kenan, a subsidiary of Lucent Technologies, is a leading provider of
billing solutions to the telecommunications industry. Initially, this system
will allow us to provide a single bill to our German customers for all the
different services they are purchasing from us, thereby simplifying their
internal operations and reducing our costs. In the year 2000, we intend to
adopt the use of this integrated billing system on a Company-wide basis and to
manage it from our central offices in Munich.

Acquisitions

Since we began business in 1996, we have acquired six companies through which
we have expanded our technical capabilities, attracted additional talent,
entered new markets and increased our customer base:

. Cybernet E-Commerce. In September 1997, we acquired 100% of Artwise
which was later renamed Cybernet E-Commerce, a German company which
provided us with expertise in Intranet messaging and workflow solutions
and established our presence in the Ulm region of Germany;

. Eclipse. In December 1997, we acquired 66% of Eclipse, an ISP based in
Trento, Italy, through which we established our presence in Northern
Italy;

. Open:Net. In August 1998, we acquired 100% of Open:Net, an ISP through
which we increased our penetration of the southwest German market
serviced by Artwise;

. Vianet. In December 1998, we acquired 100% of Vianet, a leading Austrian
ISP through which we entered the Austrian market and significantly
increased our customer base;

. Sunweb. In May 1999, we acquired 51% and an option to purchase the
remaining 49% of Sunweb, through which we established a presence in
Switzerland and acquired substantial additional expertise in switched
voice services; and

. Flashnet. In June 1999, we acquired 100% of Flashnet, a leading Italian
ISP through which we gained access to all major business centers in
Italy.

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 carrier, 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; Nacamar; PSINet; UUNet Technologies; and Xlink. In Austria, they
include Cybertron, EUnet Multimedia Network Services and Netway Austria; and in
Italy, they include I-Net.

Telecommunications carriers

Many telecommunications carriers are large organizations and do not 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,
Deutsche Telekom and Viag Interkom. In Austria, our principal carrier
competitors are Telekom Austria, United Telecom and Tele.ring. And in Italy,
they are Infostrada, Telecom Italia and Wind.

When we begin to offer voice services, we will compete directly with
carriers, including large carriers such as Mannesman Arcor, Deutsche Telekom
and Viag Interkom in that 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 we
do. 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
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 and IBM, provide IT 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 fact, some system integrators and
computer manufacturers utilize our connectivity services and solutions to
complement their own lines 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 you that future advances in technology will be
beneficial to, or compatible with, our business or that we will be able to
incorporate into our business such advances on a cost effective and timely
basis. 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.

Intellectual Property Rights

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. In this regard, we have
applied to the EU for a trademark registration for the name "Cybernet." 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
consultants, vendors, suppliers, distributors and appropriate customers in
order to limit access to and disclosure of our technology, documentation and
other proprietary information. 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 in which 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
are claimed to 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 materially
adversely affect our business, results of operations and financial condition.

Regulation

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 controversy regarding the application of value-added taxes in the Internet
environment. The adoption of new laws could materially adversely affect 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 abolished
the monopoly rights of incumbent operators 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) the absence of interference with personal and intellectual
property rights in telecommunications traffic; and (iv) effective competition
in the provision of telecommunications services.

In each of the countries in which we operate, providing telecommunications
services and related facilities requires a license. 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 the countries in which we operate, 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) in Germany. Geographically this license covers the
entire Federal Republic of Germany and is valid indefinitely. We have not yet
obtained similar licenses for Switzerland or Austria, which we will require to
expand our business as we currently plan. In Italy, our subsidiary Flashnet has
a license which permits us to offer voice telephone services in the entire
country. We have also obtained a "class 3 license" in Germany which permits us
to operate cables, radio links and other telecommunications-related
infrastructure throughout Germany.

When we enter the switched voice telephony market, our ability to provide
viable services will depend in significant part upon our ability to secure and
maintain interconnection agreements with the incumbent operators and other
facilities-based providers in our target markets. We will need interconnection
to complete calls that originate on our network but terminate outside our
network or originate elsewhere and terminate on our network. The cost of
interconnecting will be a critical factor in determining whether services on
our network can be offered on a competitive basis.

Each of the countries in which we have operations has market-dominant
providers which are legally required to offer essential services such as
transmission, switching and operational interface to networks such as the one
we plan. Market-dominant operators of telecommunications facilities are
obligated to provide interconnection on a non-discriminatory basis and at cost-
related prices. If the terms and conditions of obligatory interconnection
cannot be agreed upon, the regulatory regimes of the countries in which we
operate provide for administrative proceedings which permit regulatory
authorities to set the conditions for interconnection.

In two decisions dated September 12 and October 2, 1997, the German Post
Ministry set the average interconnection price in Germany (the average fees
Deutsche Telekom may charge for origination and termination of voice services
from or into the network of other network operators) at 2.7 Pfennigs per minute
(for each delivery and receipt) until January 1, 2000. Deutsche Telekom has
filed suit seeking a higher average fee. Moreover, the German regulatory
authority (the "Regulatory Authority") has indicated to Deutsche Telekom that
it will be allowed to take additional costs into account when determining fees
subject to approval, if "atypical traffic" (still to be defined) occurs and
Deutsche Telekom provides evidence of the corresponding additional costs in
individual cases. However, Deutsche Telekom's first application for higher
prices because of such a typical traffic was denied by the Regulatory Authority
on the basis that Deutsche Telekom had not demonstrated the higher costs
resulting from such traffic. In order to assert these additional costs, we
understand that Deutsche Telekom has submitted an application to the Regulatory
Authority to supplement the interconnection fees currently in effect. We cannot
assure you that these additional costs will not be implemented until after the
Regulatory Authority has responded to this application.

Another potential consequence of the implementation of the concept of
"atypical traffic" is that Deutsche Telekom may offer interconnection on
modified conditions. We understand that Deutsche Telekom intends to force
competitors to install additional points of interconnection where traffic
originating from or terminating in an area defined by Deutsche Telekom exceeds
a specified volume. In addition, we understand that Deutsche Telekom intends to
seek certain other surcharges to interconnection rates. If approved by the
Regulatory Authority, these provisions would likely result in additional
infrastructure costs and higher interconnection rates for us.

Subscriber Line Charges

We rely upon Deutsche Telekom for leased lines so as to obtain direct access
to customers. Although the rates which Deutsche Telekom may charge for such
lines have been established by the Regulatory Authority and the ruling of the
Regulatory Authority purports to establish rates which will be in effect until
March 31, 2001, the ruling has been appealed to a court. Any possible increase
in these rates of the rental charge could impede our business development.

Internet Access Charges

T-Online, an ISP owned by Deutsche Telekom, has announced its intention to
charge Internet subscribers a flat rate that is significantly lower than the
rate charged by competitor ISPs. The District Court (Landgericht) Hamburg
enjoined T-Online from offering this rate because the telecommunications law
forbids market dominant providers from bundling services. However, this court
decision is not final and we cannot anticipate the final outcome of this issue.
If T-Online is permitted to charge the proposed rate, our ability to market
Internet access services might be adversely affected.

Employees

At the end of March 1999, we had a total of approximately 197 employees
organized as follows: 79 in sales and marketing, 85 in technical and
operational personnel and 33 in administration. There are no collective
bargaining agreements in effect. We believe that relations with our employees
are good.

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 2,000 square
meters. Other leasehold properties for our regional offices are located in Ulm,
Neu-Ulm, Frankfurt, Dusseldorf, Berlin, Munich, Stuttgart, Hamburg, Vienna,
Trento, Rome, Milan, Florence, Padua, Verona, Zurich, Lausanne and an
administrative office is located in Washington, D.C. In addition, we lease
approximately 3,500 square meters for our planned facility in Frankfurt, 2,500
square meters for our planned facility in Hamburg and 600 square meters for our
new Trento Data Center, and are planning to lease additional space in
Dusseldorf, Munich, Vienna and Zurich.

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.

Legal Proceedings

In December 1998, we applied for and received a class 4 telecommunications
license from Germany's Regulierungsbehoerde fur Telekommunikation und Post. The
fee for this license was DM 3,000,000. The EU regulations set the maximum fee
that can be charged at 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 EC regulations in effect in 1998 and
prevailed in that action in the court of first instance. The decision is
subject to appeal and it is not possible to predict the ultimate outcome of our
action.

We are not involved in any other legal proceedings which we believe would, if
adversely determined, have a material adverse effect upon our business,
financial condition or results of operations.

INFORMATION REGARDING SIGNIFICANT SUBSIDIARIES

The following table sets forth certain information pertaining to Cybernet's
significant subsidiaries.

Country of %
Company Name in Full Registration Activity Ownership
- -------------------- ------------ -------- ---------

Cybernet AG/(1)/ Germany Internet services 100
Flashnet S.p.A./(2)/ Italy Internet services 100

- --------
(1) Net loss arising out of ordinary activities, after tax and for the
financial year ended December 31, 1998 amounted to DM 8,514,505
($4,649,647) and the net loss arising out of ordinary activities, after
tax, for the first quarter of 1999 amounted to DM 5,283,378 ($2,885,175).
No dividends have been received from Cybernet AG in the course of 1998 or
1999. Cybernet AG has no reserves as of December 31, 1998 as they are not
required for German corporations or under US GAAP. It has an issued share
capital of DM 3,200,000, all of which shares are credited as fully paid.
(2) Net loss after tax for the year ended December 31, 1998 amounted to Lit.
2,365,503 thousand ($1,304,796) and net loss after tax for the first
quarter of 1999 amounted to Lit. 833,163 thousand ($459,567). Flashnet had
an issued share capital of 2,182,857 shares as of March 31, 1999.

MANAGEMENT

Executive Officers and Directors

The following table sets forth the names, ages and positions of our executive
officers and directors:

Name Age Position
---- --- --------

Andreas Eder................. 39 Co-founder, Chairman of the Board of
Directors, President, Chief Executive
Officer, and Head of the Management Board of
Cybernet AG
Dr. Alessandro Giacalone..... 48 Director, Chief Operating Officer and Member
of the Management Board of Cybernet AG
Robert Eckert................ 38 Chief Financial Officer and Treasurer
Dr. Hubert Besner............ 36 Director and Member of the Management Board
of Cybernet AG
Christian Moosmann........... 37 Member of the Management Board of Cybernet AG
Timon Lutze.................. 42 Managing Director and Member of the
Management Board of Cybernet AG
Robert Fratarcangelo......... 61 Director and Secretary
G.W. Norman Wareham.......... 46 Director
R. Walter Franz.............. 37 Director of Network Operations of Cybernet AG
Tristan Libischer............ 30 Director, Co-Founder of Vianet and Member of
the Management Board of Vianet
Jurg Heim.................... 35 Co-Founder of Sunweb, Chief Executive Officer
of Subweb and Member of the Management Board
of Sunweb
Marco Samek.................. 27 Co-Founder of Sunweb, Chief Operational
Officer of Sunweb and Member of the
Management Board of Sunweb
Roberto Loro................. 33 Co-Founder of Eclipse, Director of Marketing
Division of Eclipse and Member of the
Management Board of Eclipse
Stefano Longano.............. 37 Co-Founder of Eclipse and Member of the
Management Board of Eclipse
Patrizia Loro................ 31 Manager of Eclipse and Member of the
Management Board of Eclipse

Andreas Eder
Mr. Eder, a co-founder of Cybernet AG, has been Chairman, President, Chief
Executive Officer and Head of the Management Board of Cybernet AG since its
formation in December 1995 and has been Chairman of our Board of Directors,
President and Chief Executive Officer since we acquired Cybernet AG in 1997.
Before founding Cybernet AG, Mr. Eder held management positions with The Boston
Consulting Group from April 1991 to October 1995 and Siemens-Nixdorf
Information Systems from April 1986 to March 1991. Mr. Eder holds a Master
Degree in Business Administration from the University of Munich.

Dr. Alessandro Giacalone

Dr. Giacalone has been our Chief Operating Officer and member of the
Management Board of Cybernet AG since October 1997 and a Director since
February 1999. From September 1994 to May 1997, Dr. Giacalone was Managing
Director of the European Computer-Industry Research Centre ("ECRC") in Munich
and, from 1990 to September 1994, he was Research Group Leader at the ECRC. At
the ECRC, he built a commercial Internet service enterprise which was the
second such enterprise in Germany. This project

was completed by the end of 1996. Between 1984 and 1990, he was an Assistant
Professor of Computer Science at the State University of New York. Dr.
Giacalone graduated in Computer Science from the University of Pisa and holds
Masters and Doctorate degrees in Computer Science from Brown University.

Robert Eckert

Mr. Eckert joined the Company as Chief Financial Officer and Treasurer in May
1999. From September 1998 to May 1999, Mr. Eckert was the Chief Financial
Officer of NetSource ASA, a pan-European reseller of telecommunications
services. From July 1997 to August 1998, Mr. Eckert was the Director of
International Business Development and from 1995 to July 1997, he was the
Finance Director at Swisscom International. From 1987 to 1994, Mr. Eckert was
with the General Electric Company (USA) where he held several finance positions
in various countries and business groups. He holds a BA in International
Business and Marketing from Northeastern University in the USA and an MBA from
INSEAD in France.

Dr. Hubert Besner

Dr. Besner is one of our Directors and a member of the Management Board of
Cybernet AG and has served in these capacities since February 1996. From April
1994 to the present, he has been a partner in the law firm of Besner Kreifels
Weber in Munich. From January 1992 to March 1994, he was the head of the legal
department of Schneider, a German real estate development company. He is
currently a Director of Marine Shuttle Operations, a member of the Supervisory
Board of Schuller Industsrieentsorgung, Typhoon Networks and IPO Beteiligungen,
and is the head of the Supervisory Board of PIPECAD Integrierte Softwaresyteme.
Dr. Besner received his First State Exam in law from Ludwig-Maximilians-
Universitat in 1986 and his Doctorate Degree magna cum laude from Ludwig-
Maximilians-Universitat in 1988.

Christian Moosmann

Mr. Moosmann has been a member of the Management Board of Cybernet AG since
August 1997. Before joining Cybernet AG, he held management positions with ECRC
from March 1995 to June 1997 and with Siemens Devision ZFE Central Research and
Development Division from June 1990 to February 1995. He holds a degree in
Accounting from the University of Rosenheim.

Timon Lutze

Since March 1999, Mr. Lutze has served as a member of the Management Board of
Cybernet AG and as Managing Director, responsible for the areas of marketing,
sales and production. From November 1998 to March 1999, Mr. Lutze was sales
director of Cybernet AG. From October 1997 to March 1998, Mr. Lutze was head of
the operational division of Telekommunication Multimedia Consult. From April
1996 to September 1997, Mr. Lutze was the sales director of Alcatel Mobile
Communications Division. From May 1993 to April 1996, Mr. Lutze held various
positions with Alcatel in Germany. Mr. Lutze graduated from the German Armed
Forces University with degrees in Aerospace Engineering and Data Processing.

Robert Fratarcangelo

Since May 1999, Mr. Fratarcangelo has been our Secretary, and he has been one
of our Directors since September 1997. Since September 1996, he has been the
President and Chief Executive Officer of Criminal Investigative Technologies,
Inc. From 1993 to 1996, Mr. Fratarcangelo was a District Manager at EMC/2/ in
Massachusetts. From 1988 to 1993, Mr. Fratarcangelo was Vice President, Federal
Sales at Teradata and Digital Communications Associates. Previously, Mr.
Fratarcangelo held various positions at IBM. Mr. Fratarcangelo has a Bachelors
Degree in Political Science from the State University of New York.

G.W. Norman Wareham

Mr. Wareham has been one of our Directors since May 1997. Mr. Wareham is a
director of ZMAX Corporation and has served in this capacity since September
1996. He has been the President of Wareham

Management Ltd. since May 1996. Mr. Wareham is currently a director and officer
of Aquaplan, British Brasses, Solar Energy, Viper Resources and WattMonitor and
has served in these capacities since May 1997, December 1998, December, 1997,
November 1998 and December 1998, respectively. Since June 1998 and February
1997, respectively, Mr. Wareham has been a director of two Canadian public
companies, Anthian Resources and Orko Gold. From June 1995 to January 1996, Mr.
Wareham was an accountant with the certified general accounting firm of Wanzel,
Sigmund, & Overes. From April 1993 to February 1995, Mr. Wareham served as
President and Chief Executive Officer of Transatlantic Financial, a private
investment banking company. From August 1986 to March 1993, Mr. Wareham was the
proprietor of Wareham & Company, providing accounting and management consulting
services.

R. Walter Franz

Mr. Franz is our Director of Network Operations and has served in this
capacity since joining us in January 1999. From January 1997 to January 1999,
Mr. Franz was Director of Operations in Germany at MCI/Worldcom. From January
1995 to January 1997, Mr. Franz was Manager of Operations at MFS
Telecommunications. From June 1989 to December 1994, Mr. Franz worked for
Motorola where he was responsible for implementation of the infrastructure
necessary to support Motorola's European computer network.

Tristan Libischer

Mr. Libischer has been one of our Directors since February 1999. He is co-
founder of Vianet and has been a Managing Director of Vianet since September
1994. From February 1992 to August 1994, Mr. Libischer held various positions
with BARK. From November 1990 to January 1992, Mr. Libischer was a senior
consultant and sales engineer with 3C Group.

Jurg Heim

Mr. Heim, a co-founder and member of the Management Board of Sunweb, has
served as Chief Executive Officer of Sunweb since its formation in March 1998.
From October 1997 to March 1998, Mr. Heim was a Systems Engineer of data and
intellectual property services at Netcom Services. Mr. Heim was head of Systems
Administration at Telepax Communications from February 1988 to March 1994. Mr.
Heim holds an Electronic Installation degree in Informatik Telephonie.

Marco Samek

Mr. Samek, a co-founder of Sunweb, has served as Chief Operational Officer
and as a member of the Management Board of Sunweb since its formation in March
1998. Since December 1997, Mr. Samek has also been a principal of Framenet EDP.
He was a Systems Engineer of Internet Services at Newtelco from August 1997 to
April 1998. From January 1996 to April 1997, Mr. Samek was Chief Systems
Engineer in the multimedia company Decatron. Mr. Samek has a technical degree
in Communications from Technikum Winterhur College.

Roberto Loro

Mr. Loro, a co-founder of Eclipse, has served as Director of the Marketing
Division of Eclipse and member of the Management Board of Eclipse since April
1998 and before that, he was Director of Project Development there since
January 1992. Previously, he performed various software, IT and mathematics
consulting assignments for a variety of public and private organizations. Mr.
Loro holds a Mathematics degree from the University of Trento.

Stefano Longano

Mr. Longano is a co-founder of Eclipse and has been a member of the
Management Board of Eclipse since April 1998. From January 1996 to March 1998,
Mr. Longano was technical director of Eclipse. From January 1991 to December
1995, he was a senior scientist and project manager for European projects at
the Laboratory of Information and Communication Technologies of the University
of Trento. He holds a Masters Degree in Physics from the University of Trento.

Patrizia Loro

Ms. Loro has been a member of the Management Board of Eclipse since April
1998 and a manager of Eclipse since January 1995. From March 1993 to December
1997, Ms. Loro was Managing Director and a major shareholder of Centro Servizi
Agiendali Sas. Since 1990, Ms. Loro has held various positions in accounting in
several companies. She attended economics courses at the University of Trento
and Italian Tax Code classes in Milan.

Except for a sibling relationship between Roberto and Patrizia Loro, no
family relationship exists between any director or executive officer and any
other director or executive officer.

Board Composition

We currently have six directors. In accordance with the terms of our
Certificate of Incorporation, the Board of Directors will be divided into three
classes: Class A, whose term will expire at the annual meeting of stockholders
to be held in 2002; Class B, whose term will expire at the annual meeting of
stockholders to be held in 2000; and Class C, whose term will expire at the
annual meeting of stockholders to be held in 2001. The Class A directors are
Dr. Besner and Mr. Fratarcangelo, the Class B directors are Dr. Giacalone and
Mr. Wareham, and the Class C directors are Messrs. Eder and Libischer. At each
annual meeting of stockholders after the initial classification, the successors
to directors whose terms will then expire will be elected to serve from the
time of election and qualification until the third annual meeting following
election. Any additional directorships resulting from an increase in the number
of directors will be distributed among the three classes so that, as nearly as
possible, each class will consist of one-third of the directors. Directors may
be removed for cause by the affirmative vote of the holders of a majority of
all outstanding voting shares of Cybernet entitled to vote generally, voting
together as a single class.

Board Committees

The Board of Directors has three committees: an Executive Committee, an Audit
Committee and a Compensation Committee. The Executive Committee consists of Mr.
Eder, Dr. Besner and Dr. Giacalone. The Audit Committee consists of Messrs.
Fratarcangelo and Wareham. The Audit Committee reviews our accounting
processes, financial controls and reporting systems, as well as our selection
of independent auditors and the scope of the audits to be conducted.

The Compensation Committee consists of Dr. Besner, Mr. Fratarcangelo, and Mr.
Wareham. It reviews executive compensation and organization structure. The
Compensation Committee also administers our Stock Option Plan. Prior to the
creation of the Compensation Committee in November 1998, all decisions
concerning salaries, incentives and other forms of compensation of our
directors, officers and other employees were made by the whole Board of
Directors.

Director Compensation

Directors, who are not also employees ("Outside Directors"), receive $15,000
annually (the "Annual Director Fee") and are reimbursed for out-of-pocket
expenses incurred in connection with their service on the Board. Each Outside
Director may elect to receive his Annual Director Fee in cash, stock options or
a combination thereof. The value of the stock options is determined pursuant to
the Black-Scholes method and the options are fully vested at the date of grant.

Employment Contracts

Our executive officers are appointed by the Board of Directors and serve
until their successors are elected or appointed.

We have entered into employment agreements with each of the following
officers and directors on the following material terms.

Andreas Eder. On March 1, 1999, we entered into an employment agreement with
Mr. Eder to serve as President and Chief Executive Officer. The agreement
provides for a three-year term and an annual base salary of approximately
$125,716 per year. It also permits Mr. Eder to earn an annual bonus of up to
approximately $41,906 if certain performance standards established by the
Compensation Committee are achieved. We may terminate the agreement if Mr. Eder
should suffer a "disability" or for "cause."

Upon Mr. Eder's death, we are obligated to pay to his estate an amount equal
to his base salary for the period ended 12 months after his death. If Mr. Eder
resigns or we terminate his employment as a result of a "disability" or for
"cause," we are obligated to pay his base salary through the date of
termination.

Under the agreement, "disability" is defined as: (a) any mental or physical
disability which the Board of Directors deems in good faith would preclude Mr.
Eder from performing his duties; or (b) a mental or physical disability which
lasts for a period of 60 consecutive days or for 90 days in any six-month
period and which the Board of Directors elects to treat as permanent in nature.
The agreement defines "cause" as any material breach of its terms by Mr. Eder
or the commission of a felony or a crime involving moral turpitude.

Alessandro Giacalone. On March 1, 1999, we entered into an employment
agreement with Dr. Giacalone to serve as Chief Operating Officer on the same
terms as described above with respect to Mr. Eder.

Tristan Libischer. On December 28, 1998, Vianet entered into an employment
agreement with Mr. Libischer to serve as a member of the Management Board of
Vianet. The agreement is for a five-year term beginning January 1, 1999,
provides for an annual base salary of approximately $100,573 and permits
Mr. Libischer to earn an annual bonus of approximately $33,524 if certain
performance standards established by the Management Board of Vianet are
achieved.

Vianet may terminate the agreement for "good cause." "Good cause" is defined
as a gross breach of duty, the inability to properly conduct the affairs of
Vianet or a vote of no confidence at an annual meeting of Vianet.

Mr. Libischer is not entitled to severance pay if his employment is
terminated for good cause or if he resigns prematurely without the permission
of the Management Board of Vianet. If Mr. Libischer is unable to perform his
duties due to illness or accident, Vianet is required to pay his full base
salary for a maximum of six months and 49% of his base salary for another three
months. If Mr. Libischer leaves Vianet in the middle of a fiscal year, any
bonus earned will be paid on a pro-rata basis.

Robert Eckert. Mr. Eckert entered into an employment agreement with the
Company to serve as Chief Financial Officer which will become effective when
Mr. Eckert receives his working permit from the German governmental
authorities. The agreement is for a three-year term and provides for a base
salary of approximately $114,000. The agreement also provides for a bonus of up
to approximately $46,000 if certain performance standards established by the
Compensation Committee are achieved. Mr. Eckert will also receive an option to
purchase 100,000 shares of Cybernet's common stock pursuant to Cybernet's
Incentive Plan (as defined). In the event Mr. Eckert is unable to work due to
illness or other reasons, the Company is obligated to pay Mr. Eckert his base
salary for six months. In the event of Mr. Eckert's death, the Company is
obligated to pay Mr. Eckert's heirs his base salary for six months.

Christian Moosmann. On March 15, 1999, Cybernet AG entered into an employment
agreement with Mr. Moosmann to serve as a member of the Management Board of
Cybernet AG. The agreement is for a three-year term and requires the parties to
negotiate any extension of the agreement at least 12 months prior to the
expiration of the agreement. The agreement provides for an annual base salary
of approximately $100,573 and permits Mr. Moosmann to earn an annual bonus of
up to approximately $39,112 if certain performance standards established by the
Management Board of Cybernet AG are achieved.

In the event Mr. Moosmann is unable to work due to illness or other reasons,
Cybernet AG is obligated to pay Mr. Moosmann his base salary for six months. In
the event of Mr. Moosmann's death, Cybernet AG is obligated to pay Mr.
Moosmann's heirs his base salary for six months.

Pursuant to the terms of his employment agreement, as of March 12, 1999, Mr.
Moosmann was granted options to purchase 20,000 shares of Cybernet common stock
at an exercise price of $31.41 per share. The options vest over a three-year
period on each anniversary of the grant date in increments of approximately
one-third.

Timon Lutze. On March 15, 1999, Cybernet AG entered into an employment
agreement with Mr. Lutze to serve as a member of the Management Board of
Cybernet AG. The agreement provides for an annual base salary of approximately
$111,748 and permits Mr. Lutze to earn an annual bonus of up to approximately
$39,112 if certain performance standards established by the Management Board of
Cybernet AG are achieved. Mr. Lutze also received an option to purchase 30,000
shares of Cybernet common stock at an exercise price of $31.41 per share. The
options vest over a three-year period on each anniversary of the grant date in
increments of approximately one-third. Otherwise the terms are the same as
those described above with respect to Mr. Moosmann.

Jurg Heim. Sunweb has entered into an employment agreement with Mr. Heim for
a term expiring on March 31, 2001. The agreement provides for a base
compensation of approximately $98,115, in addition to certain management
bonuses and an option to purchase 15,000 shares of Cybernet's common stock if
Sunweb meets specified performance goals for 1999.

Marco Samek. Sunweb has entered into an employment agreement with Mr. Samek
on the same terms as described above for Mr. Heim.

Summary Compensation Table

Our compensation program for executive management includes base salaries,
annual performance-based incentive bonus plans and stock option plans. The
compensation of each executive officer was established by the Board of
Directors acting upon the recommendations of the Compensation Committee.

The following table sets forth the annual long-term and other compensation
for our Chief Executive Officer and our other two most highly compensated
executive officers during the last fiscal year, as well as the total annual
compensation paid to each individual for the three previous fiscal years.

Summary Compensation Table

Annual Long-Term
Compensation Compensation
--------------- ------------
Securities
Underlying All Other
Fiscal Options Compensation
Name and Principal Position Year Salary ($)/(1)/ SARs (#) ($)
- --------------------------- ------ --------------- ------------ ------------

Andreas Eder............................................. 1998 $96,135 100,000/(3)/ N/A
Chairman of the Board, President, Chief Executive 1997 65,066/(2)/ 0 N/A
Officer, and Head of the Management Board of Cybernet AG 1996 N/A/(2)/ N/A/(2)/ N/A

Alessandro Giacalone..................................... 1998 125,716 100,000/(3)/ N/A
Director, Chief Operating Officer, and Member of 1997 31,429/(2)/ 0 N/A
Management Board of Cybernet AG 1996 N/A/(2)/ N/A/(2)/ N/A

Rudolf Strobl............................................ 1998 96,163 0 $251,433/(4)/
Former Member of Management 1997 70,616/(2)/ 0 N/A
Board of Cybernet AG 1996 N/A/(2)/ N/A/(2)/ N/A

- --------
(1) Each of the persons listed has or had an employment contract with us
calling for the payment of an annual bonus if certain performance standards
are achieved. No bonus was paid in the years listed.
(2) Messrs. Eder and Strobl became executive officers of Cybernet in connection
with our acquisition of Cybernet AG in September 1997. As a result, the
information presented for fiscal 1997 represents payments made from the
time of such acquisition through December 31, 1997 and no information is
presented for fiscal 1996. Dr. Giacalone joined the Company in October
1997.
(3) Represents shares of Cybernet's common stock subject to an option granted
to the named executive on December 27, 1998.
(4) The amount indicated was paid to Mr. Strobl in December 1998 as severance
pay in connection with the termination of his employment agreement. Mr.
Strobl's employment terminated on December 31, 1998.

Option/SAR Grants in Last Fiscal Year

The following table provides information on options to purchase Cybernet's
common stock that were granted to two of the above named executives during
fiscal 1998. Mr. Strobl received no option grants in fiscal 1998.

Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation
Individual Grants for Option Term
------------------------- ---------------------
Percent of
Number of Total
Securities Options/SARs
Underlying Granted to Exercise
Options/SARs Employees or Base
Granted in Fiscal Price Expiration
Name (#) Year ($/Sh) Date 5% ($) 10% ($)
- ---- ------------ ------------ -------- ---------- ---------- ----------

Andreas Eder........... 100,000 14.6% $32.04 12/27/08 $2,015,000 $5,016,000
Chairman of the Board,
President, Chief
Executive Officer, and
Head of the Management
Board of Cybernet AG

Alessandro Giacalone... 100,000 14.6% 32.04 12/27/08 2,015,000 5,106,000
Director, Chief
Operating Officer, and
Member of the
Management Board of
Cybernet AG

Indemnification of Directors and Officers

Our Certificate of Incorporation limits the liability of our directors and
executive officers to the maximum extent permitted by Delaware law. Delaware
law provides that directors of a corporation will not be personally liable for
monetary damages for breach of their fiduciary duties as directors, except
liability for (i) breach of their duty of loyalty to the corporation or its
stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) unlawful payments
of dividends or unlawful stock repurchases or redemptions, or (iv) any
transaction from which the director derived an improper personal benefit. Such
limitation of liability does not apply to liability arising under the federal
or state securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.

We have also secured insurance on behalf of each officer, director, employee
or other agent for any liability arising out of claims under applicable
securities laws against such persons and us, and on behalf of directors and
officers with respect to other claims.

At present, there is no pending litigation or proceeding involving any of our
directors or officers in which indemnification is required or permitted, and we
are not aware of any threatened litigation or proceeding that may result in a
claim for such indemnification.

Stock Incentive Plan

We maintain the Cybernet Internet Services International, Inc. 1998 Stock
Incentive Plan (the "Incentive Plan"). The Board of Directors has reserved
2,000,000 shares of Cybernet's common stock for issuance pursuant to awards
that may be made under the Incentive Plan, subject to adjustment as provided
therein. The number of shares of common stock associated with any forfeited
stock incentive are added back to the number of shares that can be issued under
the Incentive Plan. No participant may be granted during any one year period
rights to shares of common stock under options and stock appreciation rights
which, in the aggregate, exceed 100,000 shares of common stock. On November 19,
1998 and December 27, 1998, the Compensation Committee granted options to 97
employees to purchase a total of 685,000 shares of common stock in varying
amounts.

The Incentive Plan allows for the grant of incentive stock options, non-
qualified stock options, stock appreciation rights, stock awards, dividend
equivalent rights, performance units and phantom shares. The exercise price of
an incentive stock option may not be less than the fair market value of the
common stock on the date of the grant (or less than 110% of the fair market
value if the participant controls more than 10% of the voting power of Cybernet
or a subsidiary thereof). Non-qualified stock options may be made exercisable
at a price equal to, less than or more than the fair market value of the common
stock on the date that the option is awarded. The term of an incentive stock
option may not exceed ten years from the date of grant. However, any incentive
stock option granted to a participant who controls more than 10% of the voting
power of Cybernet or a subsidiary thereof will not be exercisable after the
expiration of five years following the date the option is granted.

RELATED PARTY TRANSACTIONS

Dr. Besner, one of our Directors, is a partner with the law firm of Besner
Kreifels Weber, which represents us and to which we paid fees of approximately
$98,303 during fiscal 1998.

In November 1998, Mr. Timm, one of our principal stockholders and a former
Director who resigned on December 2, 1998, advanced an interest free loan to us
for approximately $1,396,849. We repaid the loan in December 1998.

In December 1998, we paid $2,916,000 in underwriting fees to an investment
bank that is 40% owned by a company of which Mr. Timm is Head of the Managing
Board, President, Chief Executive Officer and a principal stockholder. These
underwriting fees were paid in connection with a best efforts all or nothing
public offering of our common stock.

We provide Internet connectivity services to Cybermind Interactive Europe
("Cybermind"), a principal stockholder of Cybernet, pursuant to a standard
service contract. In 1998, Cybermind paid us approximately $68,200 for such
services. Mr. Timm is Chief Executive Officer and Head of the Managing Board,
as well as the principal stockholder, of Cybermind.

STOCK OWNERSHIP OF PRINCIPAL
BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information as of August 2, 1999, regarding
beneficial ownership of Cybernet's common stock, Series A Preferred Stock and
Series B Voting Preferred Stock by (i) each stockholder known by us to be the
beneficial owner of more than five percent of the outstanding shares of common
stock or Series B Voting Preferred Stock, as the case may be; (ii) each of our
directors with respect to the equity securities held by such director; (iii)
each of our executive officers named in the Summary Compensation Table with
respect to the equity securities held by such executive officer; and (iv) all
of our current executive officers and directors as a group with respect to the
equity securities held by such executive officers and directors. Stock
ownership information has been furnished to us by such beneficial owners or is
based upon filings made by such owners with the Securities and Exchange
Commission. As of August 2, 1999, there were 20,957,148 shares of Cybernet
common stock, 923,440 shares of Series A Preferred Stock and 3,870,000 shares
of Series B Voting Preferred Stock issued and outstanding.

Name Shares Beneficially Owned
- ---- ---------------------------------------
Series A Series B
Non-Voting Voting
Common Preferred Preferred
Executive Officers and Directors Stock Stock Stock
- -------------------------------- --------- ---------- ---------

Andreas Eder................... 1,573,081/(1)/ 133,313/(1)/ 0
Stefan-George-Ring 19
81929 Munich, Germany

Alessandro Giacalone........... 318,600/(2)/ 27,000 0
Stefan-George-Ring 19
81929 Munich, Germany

Tristan Libischer.............. 150,000 0 0
Mariannengasse 14
1090 Vienna, Austria

Hubert Besner.................. 1,261/(3)/ 0 0
Widenmayerstrasse 41
80538 Munich, Germany

G.W. Norman Wareham............ 0 0 0
1177 West Hastings Street
Suite 1818
Vancouver, B.C., Canada V6E
2K3

Robert Fratarcangelo........... 0 0 0
10842 Oak Crest
Fairfax, Virginia 22030

All executive officers and
directors as a group (10
persons)...................... 2,202,242 173,813 0

Principal Stockholders Other
Than Executive Officers
and Directors

Rudolf Strobl.................. 474,117 40,179 0
Gleiwitzerstrasse 15
81929 Munich, Germany

Holger Timm.................... 2,462,175/(4)/ 536,625/(5)/ 3,870,000/(6)/
Trabner Strasse 12
14193 Berlin, Germany

Cybermind Interactive Europe... 1,440,000 450,000 3,870,000
Am Borsigturm 48
13507 Berlin, Germany

Approximate
Name Percentage of Class
- ---- -----------------------------------------------------------
Percentage of Percentage of
Series A Series B
Percentage of Non-Voting Voting
Common Preferred Preferred Voting
Executive Officers and Directors Stock Stock Stock Distribution/(7)/
- -------------------------------- ------------- ------------- ------------- -----------------

Andreas Eder................... 7.5% 14.4% * 6.3%
Stefan-George-Ring 19
81929 Munich, Germany

Alessandro Giacalone........... 1.5% 2.9% * 1.3%
Stefan-George-Ring 19
81929 Munich, Germany

Tristan Libischer.............. * * * *
Mariannengasse 14
1090 Vienna, Austria

Hubert Besner.................. * * * *
Widenmayerstrasse 41
80538 Munich, Germany

G.W. Norman Wareham............ * * * *
1177 West Hastings Street
Suite 1818
Vancouver, B.C., Canada V6E
2K3

Robert Fratarcangelo........... * * * *
10842 Oak Crest
Fairfax, Virginia 22030

All executive officers and
directors as a group (10
persons)...................... 10.5% 19.4% * 8.9%

Principal Stockholders Other
Than Executive Officers
and Directors

Rudolf Strobl.................. 2.2% 4.4% * 1.9%
Gleiwitzerstrasse 15
81929 Munich, Germany

Holger Timm.................... 11.7% 58.1% 100.0% 25.5%/(8)/
Trabner Strasse 12
14193 Berlin, Germany

Cybermind Interactive Europe... 6.8% 48.7% 100.0% 21.4%
Am Borsigturm 48
13507 Berlin, Germany

- --------
* Indicates less than 1% beneficial ownership
(1) Includes 333,027 shares of common stock and 28,223 shares of Series A Non-
voting Preferred Stock held by Mr. Eder's spouse. She has sole investment
and sole voting power over all shares held by her, and Mr. Eder disclaims
beneficial ownership of any of the shares held by her. Includes 169,200
shares of common stock and 10,800 shares of Series A Preferred Stock
subject to an agreement

between Andreas Eder and Dave Morton, an employee of the Company, by which
Mr. Morton has the option to acquire, (a) 25% of the total number of shares
starting on January 1, 1999 and ending June 30, 1999, (b) 25% of the total
number of shares starting on January 1, 2000 and ending June 30, 2000, and
(c) 50% of the total number of shares starting on January 1, 2001, and
ending June 30, 2001 and (B) 98,700 shares of common stock and 6,300 shares
of Series A Preferred Stock subject to an agreement between Andreas Eder and
Todd Ferguson, an employee of the Company or its subsidiary, by which Mr.
Ferguson has the option to acquire such shares at the same price and under
terms as for Mr. Morton. Does not include options to purchase 100,000 shares
of common stock under the Company's Incentive Plan, which begin to become
exercisable on December 28, 1999.
(2) Does not include options to purchase 100,000 shares of common stock under
the Company's Incentive Plan which begin to become exercisable on December
28, 1999.
(3) Includes 1,261 shares of common stock held by Dr. Besner's spouse who has
sole voting and investment power with respect to such shares. Dr. Besner
disclaims beneficial ownership of any of the shares held by her.
(4) Mr. Timm can be deemed to control Cybermind as a result of his position as
Chief Executive Officer and Head of the Managing Board and principal
shareholder. Includes 1,290,000 shares of common stock held by Cybermind
after the conversion of the Series B Preferred. Does not include an
aggregate of 637,200 shares of common stock sold by Mr. Timm to Alessandro
Giacalone, Christian Moosmann, Frank Lutze and Hans Bergbreiter pursuant
to stock purchase agreements dated April 8, 1997 (the "April 8 Stock
Purchase Agreements"). Also, does not include an aggregate of 54,000
shares of Series A Preferred Stock sold by Mr. Timm to the same
individuals pursuant to the April 8 Stock Purchase Agreements. Each of the
April 8 Stock Purchase Agreements involved an employee purchaser and
provides that, subject to certain conditions, the securities sold shall
revert to Mr. Timm if the purchaser's employment terminates for any reason
except termination without cause by us or one of our subsidiaries, or if
we or one of our subsidiaries breaches our employment agreement with such
buyer. If such shares were included as beneficially owned by Mr. Timm for
purposes of this chart, he would be deemed to hold 14.7% of the common
stock of Cybernet (27.9% of Voting Distribution).
(5) Includes 450,000 shares of Series A Non-Voting Preferred Stock held by Mr.
Timm indirectly through Cybermind. For an explanation of Mr. Timm's
relationship to Cybermind, see Footnote 4 above.
(6) Reflects shares of Series B Voting Preferred Stock held by Mr. Timm
indirectly through Cybermind. For an explanation of Mr. Timm's
relationship to Cybermind, see Footnote 4 above.
(7) For purposes of this column, the percentages were calculated by adding the
number of shares of common stock outstanding to 100% of the Series B
Voting Preferred. It does not take into account the Series A Non-Voting
Preferred Stock that is not presently convertible or options granted to
directors, employees or management that have not been exercised.
(8) Assuming conversion of the remaining Series A Non-Voting Preferred Stock,
Mr. Timm would control approximately 27.1% of the voting securities of
Cybernet.

100

DESCRIPTION OF THE EXCHANGE NOTES

General

The Outstanding Notes were issued under the Senior Notes Indenture dated July
8, 1999 between the Company and The Bank of New York, as trustee (the
"Trustee"). The Exchange Notes will be issued under the Senior Notes Indenture,
which will be qualified under the United States Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"), upon the effectiveness of the registration
statement of which this prospectus is a part. The form and terms of the
Exchange Notes are the same in all material respects as the form and terms of
the Outstanding Notes, except that the Exchange Notes will have been registered
under the Securities Act of 1933 and, therefore, will not bear legends
restricting transfer thereof other than those relating to the offer and sale of
Exchange Notes in the United Kingdom. The Exchange Notes will evidence the same
debt as the Outstanding Notes and will be treated as a single class under the
Senior Notes Indenture with any Outstanding Notes that remain outstanding. The
Outstanding Notes and Exchange Notes are herein collectively referred to as the
"Notes."

The following summary of certain provisions of the Senior Notes Indenture
does not purport to be complete and is qualified in its entirety by reference
to the Senior Notes Indenture, including the definitions therein of certain
terms used below. The definitions of certain terms used in the following
summary are set forth below under "--Certain Definitions." All references
herein to principal of, premium, if any, interest, and/or Additional Amounts,
if any, shall be deemed to include Liquidated Damages, if any. For purposes of
this "Description of the Exchange Notes," the term "Company" is used to refer
specifically to Cybernet Internet Services International, Inc.

The Company expects to make an application to list the Exchange Notes on the
Luxembourg Stock Exchange after the Separation Date. If and so long as the
Exchange Notes are listed on the Luxembourg Stock Exchange, the Company will
maintain a special agent or, as the case may be, a paying and transfer agent in
Luxembourg. See "Listing and General Information."

Ranking

The Notes will be general unsecured (except to the extent described under "--
Escrow Account") obligations of the Company and will rank senior in right of
payment to all future Indebtedness of the Company that is, by its terms or by
the terms of the agreement or instrument governing such Indebtedness, expressly
subordinated in right of payment to the Notes and pari passu in right of
payment with all existing and future unsecured liabilities of the Company that
are not so subordinated.

The Company is a holding company with limited assets and operates its
business through Subsidiaries. Any right of the Company and its creditors,
including Holders of the Notes, to participate in the assets of any of the
Company's Subsidiaries upon any liquidation or administration of any such
Subsidiary will be subject to the prior claims of the creditors of such
Subsidiary. The claims of creditors of the Company, including holders of the
Notes, will be effectively subordinated to all existing and future third party
indebtedness and liabilities, including trade payables, of the Company's
Subsidiaries. At June 30, 1999, the Company's Subsidiaries had total
liabilities of $16,200,635 million reflected on the Company's balance sheet.
The Company and its Subsidiaries may incur other debt in the future, including
secured debt.

The Notes will not be entitled to any security (except to the extent
described under "--Escrow Account") and will not be entitled to the benefit of
any guarantees, except under the circumstances described under "--Certain
Covenants--Limitation on Issuances of Guarantees of Indebtedness by Restricted
Subsidiaries."

Principal, Maturity and Interest

The Notes will be limited in aggregate principal amount to $350 million and
will mature on July 1, 2009. The Notes will bear interest at the rate of 14.0%
per annum payable semi-annually in arrears on each July 1 and

101

January 1 (each, an "Interest Payment Date"), commencing on January 1, 2000 to
the Person in whose name each Note (or any predecessor Note) is registered at
the close of business on the preceding June 15 or December 15, as the case may
be. Interest will be computed on the basis of a 360-day year of twelve 30-day
months. The Company may issue additional Notes ("Additional Notes") from time
to time after the Unit Offering, subject to the provisions of the Senior Notes
Indenture described below under "--Certain Covenants" and applicable law. The
Notes offered hereby and any Additional Notes subsequently issued under the
Senior Notes Indenture would be treated as a single class for all purposes
under the Senior Notes Indenture, including, without limitation, waivers,
amendments, redemptions and offers to purchase. Principal of, and premium, if
any, interest, and Additional Amounts, if any, on the Notes will be payable at
the office or agency of the Company maintained for such purpose within the City
and State of New York or, at the option of the Company, payment of interest and
Additional Amounts, if any, may be made by check mailed to the holders of the
Notes at their respective addresses set forth in the register of holders of
Notes; provided that all payments with respect to Notes the holders of which
have given wire transfer instructions to the Company will be required to be
made by wire transfer of immediately available funds to the accounts specified
by the holders thereof. Until otherwise designated by the Company, the
Company's office or agency in New York will be the office of the Trustee
maintained for such purpose. The Notes are currently represented by a global
Note in registered, global form without interest coupons. The global Note shall
be exchanged by the Company (with authentication by the Trustee) for one or
more Definitive Notes (the "Definitive Notes"), if (a) DTC (i) has notified the
Company that it is unwilling or unable to continue as, or ceases to be, a
clearing agency registered under the Exchange Act, and (ii) a successor to DTC
registered as a clearing agency under the Exchange Act is not able to be
appointed by the Company within 90 days of such notification, or (b) at any
time at the option of the Company. If an Event of Default occurs and is
continuing, the Company shall, at the request of the Holder thereof, exchange
all or part of a global Note for one or more Definitive Notes (with
authentication by the Trustee); provided, however, that the principal amount of
such Definitive Notes and such global Note after such exchange shall be $1,000
or integral multiples thereof. The Notes will be issued in minimum
denominations of $1,000 principal amount and integral multiples thereof. If the
Exchange Notes are listed on the Luxembourg Stock Exchange, the Company will
appoint Kredietbank S.A. Luxembourgeoise, or such other Person located in
Luxembourg as an additional paying and transfer agent. Upon the issuance of
Definitive Notes, Holders will be able to receive principal of, and interest
and Additional Amounts, if any, on the Notes and will be able to transfer
Definitive Notes at the Luxembourg office of such paying and transfer agent,
subject to the right of the Company to mail payments in accordance with the
terms of the Senior Note Indenture.

Escrow Account

Concurrently with the consummation of the Unit Offering, pursuant to an
escrow agreement relating to the Notes (the "Escrow Agreement"), the Company
purchased, pledged and transferred to the Escrow Agent, for the benefit of the
Holders of the Notes, U.S. Government Securities (the "Pledged Securities") in
such amounts as will be sufficient upon scheduled interest payments of such
securities to provide for the payment in full of the first six scheduled
interest payments on the Notes (excluding, in each case, any Additional
Amounts). The Company used approximately $57 million of the net proceeds of the
Unit Offering to acquire the U.S. Government Securities. The Pledged Securities
were pledged to the Escrow Agent for the benefit of the Holders of the Notes
and deposited in the Escrow Account held by the Escrow Agent for the benefit of
the Trustee and the Holders of the Notes in accordance with the Escrow
Agreement. The Escrow Agreement provides, among other things, that funds may be
disbursed from the Escrow Account for interest payments on the Notes. The
Escrow Agent has been instructed to cause any uninvested funds in the Escrow
Account to be invested, pending disbursement, in cash equivalents (as provided
in the Escrow Agreement). Interest earned on the Pledged Securities and any
such cash equivalents will be added to the Escrow Account.

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Under the Escrow Agreement, the Company has granted to the Trustee, for the
benefit of the Holders of the Notes, a first priority and exclusive security
interest in the Escrow Collateral. The Escrow Agreement provides that the
Trustee may foreclose on the Escrow Collateral upon acceleration of the
maturity of the relevant series of Notes. Under the terms of the Senior Notes
Indenture, the proceeds of the Escrow Collateral will be applied, first, to
amounts owing to the Trustee in respect of fees and expenses of the Trustee,
and second, to amounts owing on the Notes as provided in the Senior Notes
Indenture. The ability of Holders to realize upon the Escrow Collateral may be
subject to certain bankruptcy law limitations in the event of the bankruptcy of
the Company.

Upon payment in full of the first six scheduled interest payments (including
any Additional Amounts), if no Default has occurred and is continuing, the
Escrow Collateral will be released to the Company.

Mandatory Redemption

The Company will not be required to make mandatory redemptions or sinking
fund payments prior to maturity of the Notes.

Optional Redemption

Except as described below and in the following paragraph or under "--
Redemption for Taxation Reasons," the Notes will not be redeemable at the
Company's option prior to July 1, 2004. From and after July 1, 2004, the Notes
will be subject to redemption at the option of the Company, in whole or in
part, upon not less than 30 nor more than 60 days' prior notice published in a
leading newspaper having a general circulation in New York (which is expected
to be The Wall Street Journal) and in Frankfurt (which is expected to be the
Frankfurter Allgemeine Zeitung) (and if and so long as the Exchange Notes are
listed on the Luxembourg Stock Exchange and the rules of such Stock Exchange
shall so require, a newspaper having a general circulation in Luxembourg (which
is expected to be the Luxemburger Wort)) or, in the case of Definitive Notes,
mailed by first-class mail to the registered address of each Holder of the
Notes (and, if and so long as the Exchange Notes are listed on the Luxembourg
Stock Exchange and the rules of such Stock Exchange shall so require, published
in a newspaper having a general circulation in Luxembourg (which is expected to
be the Luxemburger Wort)), at the redemption prices (expressed as a percentage
of principal amount) set forth below, plus accrued and unpaid interest and
Additional Amounts, if any, to the applicable redemption date (and, in the case
of Definitive Notes, subject to the right of Holders of record on the relevant
record date to receive interest and Additional Amounts, if any, due on the
relevant interest payment date in respect thereof), if redeemed during the
twelve-month period beginning on July 1 of each of the years indicated below:

Year Redemption Price
---- ----------------

2004..................................................... 110.000%
2005..................................................... 106.667%
2006..................................................... 103.333%
2007 and thereafter...................................... 100.000%

In the case of any partial redemption, selection of the Notes for redemption
will be made by the Trustee in compliance with the requirements of the
principal securities exchange, if any, on which the Notes are listed or, if
such Notes are not so listed or such exchange prescribes no method of
selection, on a pro rata basis, by lot or by such other method as the Trustee
in its sole discretion shall deem to be fair and appropriate, although no Note
of $1,000 in original principal amount or less shall be redeemed in part. If
any Note is to be redeemed in part only, the notice of redemption relating to
such Note shall state the portion of the principal amount thereof to be
redeemed. A new Note in principal amount equal to the unredeemed portion
thereof will be issued and delivered to the Depositary, or, in the case of
Definitive Notes, issued in the name of the Holder thereof in each case upon
cancellation of the original Note. On

103

and after the redemption date, interest will cease to accrue on the Notes or
portions thereof called for redemption.

Redemption for Taxation Reasons

The Notes may be redeemed, at the option of the Company, in whole but not in
part, at any time upon giving not less than 30 nor more than 60 days' notice to
the Holders (which notice shall be irrevocable), at a redemption price equal to
the principal amount thereof, together with accrued and unpaid interest to the
date fixed by the Company for redemption (a "Tax Redemption Date") and all
Additional Amounts (see "--Withholding Taxes"), if any, then due and which will
become due on the Tax Redemption Date as a result of the redemption or
otherwise, if the Company determines that, as a result of (i) any change in, or
amendment to, the laws or treaties (or any regulations or rulings promulgated
thereunder) of the Federal Republic of Germany (or any political subdivision or
taxing authority thereof) affecting taxation which becomes effective on or
after the Issue Date, or (ii) any change in or new or different position
regarding the application, administration or interpretation of such laws,
treaties, regulations or rulings (including a holding, judgment or order by a
court of competent jurisdiction), which change, amendment, application or
interpretation becomes effective on or after the Issue Date, the Company is, or
on the next Interest Payment Date would be, required to pay Additional Amounts,
and the Company determines that such payment obligation cannot be avoided by
the Company taking reasonable measures.

Notwithstanding the foregoing, no such notice of redemption shall be given
earlier than 90 days prior to the earliest date on which the Company would be
obligated to make such payment or withholding if a payment in respect of the
Notes were then due. Prior to the publication or, where relevant, mailing of
any notice of redemption of the Notes pursuant to the foregoing, the Company
will deliver to the Trustee an opinion of an independent tax counsel of
recognized international standing to the effect that the circumstances referred
to above exist. The Trustee shall accept such opinion as sufficient evidence of
the satisfaction of the conditions precedent described above, in which event it
shall be conclusive and binding on the Holders.

Prescription

Claims against the Company for the payment of principal of, or interest, or
Additional Amounts, if any, on the Notes will become void unless presentation
for payment is made (where so required in the Senior Notes Indenture) within a
period of 10 years, in the case of principal, or Additional Amounts, if any, or
five years, in the case of interest, from the applicable original payment date
therefor.

Certain Covenants

Limitation on Indebtedness

(a) The Company will not, and will not permit any of its Restricted
Subsidiaries to, Incur any Indebtedness; provided, however, that if no Default
or Event of Default shall have occurred and be continuing at the time, or would
occur as a consequence of the Incurrence of any such Indebtedness, the Company
may Incur Indebtedness if immediately thereafter the ratio of (i) the aggregate
principal amount of Indebtedness of the Company and its Restricted Subsidiaries
on a consolidated basis outstanding as of the Transaction Date to (ii) the pro
forma Consolidated Cash Flow for the preceding two full fiscal quarters
multiplied by two, determined on a pro forma basis as if any such Indebtedness
had been Incurred and the proceeds thereof had been applied at the beginning of
such two fiscal quarters, would be greater than zero and less than or equal to
6.0 to 1.

(b) Notwithstanding the foregoing, (except for Indebtedness under subsection
(vii) below) the Company and (except for Indebtedness under subsections (v),
(vi), (x) and (xii) below) any Restricted Subsidiary may Incur each and all of
the following:

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(i) Indebtedness (other than Acquired Indebtedness) in an aggregate
principle amount at any one time outstanding not to exceed (Euro)100.0
million Incurred to finance the cost (provided that such Indebtedness is
Incurred at any time on or before, or within 90 days following, the
incurrence of such cost) (including the cost of design, development,
construction, acquisition, transportation, installation or integration) of
equipment, inventory or network assets used in the Permitted Business or
Equity Interests of (A) a Restricted Subsidiary that owns principally such
assets from a Person other than the Company or a Restricted Subsidiary of
the Company or (B) any Person that is principally engaged in the Permitted
Business, that would become a Restricted Subsidiary and owns principally
such assets; provided that (x) any such Indebtedness of a Restricted
Subsidiary must be Incurred under one or more Credit Facilities, under one
or more Capitalized Leases or from the vendor of the equipment, inventory
or network assets acquired with the proceeds of such Indebtedness, (y) the
amount of such Indebtedness of the Company or any Restricted Subsidiary may
not exceed the Fair Market Value of the assets so acquired and (z) the
amount of any such Indebtedness permitted to be Incurred to acquire Equity
Interests pursuant to clauses (A) or (B) shall be reduced by the amount of
any Acquired Indebtedness Incurred in such acquisition;

(ii) Indebtedness of any Restricted Subsidiary owing to and held by the
Company, Indebtedness of the Company owing to and held by any Restricted
Subsidiary or Indebtedness of any Restricted Subsidiary owing to and held
by any other Restricted Subsidiary; provided that any subsequent issuance
or transfer of any Capital Stock or any other event which results in any
such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any
subsequent transfer of such Indebtedness (other than to the Company or
another Restricted Subsidiary) shall be deemed, in each case, to constitute
the Incurrence of such
Indebtedness not permitted by this clause (ii); and provided, further, that
Indebtedness of the Company owing to and held by a Restricted Subsidiary
must be unsecured and subordinated in right of payment to the Notes;

(iii) Indebtedness issued in exchange for, or the net proceeds of which
are used to refinance or refund, then outstanding Indebtedness of the
Company or a Restricted Subsidiary, other than Indebtedness Incurred under
clauses (ii), (iv), (vii), (viii), (x) and (xii) of this paragraph, and any
refinancings thereof in an amount not to exceed the amount so refinanced or
refunded (plus premiums, accrued interest, and reasonable fees and
expenses); provided that such new Indebtedness shall only be permitted
under this clause (iii) if (A) in case the Notes are refinanced in part or
the Indebtedness to be refinanced or refunded is pari passu with the Notes,
such new Indebtedness, by its terms or by the terms of any agreement or
instrument pursuant to which such new Indebtedness is issued or remains
outstanding, is expressly made pari passu with, or subordinate in right of
payment to, the remaining Notes, (B) in case the Indebtedness to be
refinanced is subordinated in right of payment to the Notes, such new
Indebtedness, by its terms or by the terms of any agreement or instrument
pursuant to which such new Indebtedness is issued or remains outstanding,
is expressly made subordinate in right of payment to the Notes at least to
the extent that the Indebtedness to be refinanced or refunded is
subordinated to the Notes, (C) the Stated Maturity of such new
Indebtedness, determined as of the date of Incurrence of such new
Indebtedness, is no earlier than the Stated Maturity of the Indebtedness
being refinanced or refunded and (D) such new Indebtedness, determined as
of the date of Incurrence of such new Indebtedness, has a Weighted Average
Life to Maturity which is not less than the remaining Weighted Average Life
to Maturity of the Indebtedness to be refinanced or refunded; and provided
further that in no event may Indebtedness of the Company be refinanced or
refunded by means of any Indebtedness of any Restricted Subsidiary pursuant
to this clause (iii);

(iv) Indebtedness (A) in respect of performance, surety or appeal bonds
or letters of credit supporting Trade Payables, in each case provided in
the ordinary course of business, (B) under Currency Agreements and Interest
Rate Agreements; provided that such agreements (x) are designed solely to
protect the Company or the Restricted Subsidiary, as the case may be,
against fluctuations in foreign currency exchange rates or interest rates
and (y) do not increase the Indebtedness of the obligor outstanding at any
time other than as a result of fluctuations in foreign currency exchange
rates or interest rates or by reason of fees, indemnities and compensation
payable thereunder, and (C) arising from agreements providing for

105

indemnification, adjustment of purchase price or similar obligations, or
from Guarantees or letters of credit, bankers' acceptances, surety bonds or
performance bonds securing any obligations of the Company or any of its
Restricted Subsidiaries pursuant to such agreements, in any case Incurred
in connection with the disposition of any business, assets or Restricted
Subsidiary of the Company (other than Guarantees of Indebtedness Incurred
for the purpose of financing such acquisition by the Person acquiring all
or any portion of such business, assets or Restricted Subsidiary), in a
principal amount not to exceed the gross proceeds actually received by the
Company or any Restricted Subsidiary in connection with such disposition;

(v) Indebtedness, to the extent that the net proceeds thereof are
promptly (A) used to repurchase Notes tendered in a Change of Control Offer
or (B) deposited to defease all of the Notes as described under "--Legal
Defeasance and Covenant Defeasance;"

(vi) Indebtedness of the Company represented by the Notes;

(vii) Indebtedness represented by a Guarantee of the Notes and Guarantees
of other Indebtedness of the Company by a Restricted Subsidiary in each
case permitted by and made in accordance with the "Limitation on Issuances
of Guarantees of Indebtedness by Restricted Subsidiaries" covenant;

(viii) Indebtedness under one or more Credit Facilities (which shall be
in addition to any such Indebtedness incurred under one or more Credit
Facilities under clause (b)(i) above) in an aggregate principal amount at
any one time outstanding not to exceed the greater of (x) (Euro)50.0
million and (y) 80% of Eligible Accounts Receivable at such time;

(ix) Acquired Indebtedness; provided that the aggregate amount of such
Acquired Indebtedness of the Person that is to become a Restricted
Subsidiary, or to be merged or consolidated with or into the Company or any
Restricted Subsidiary in the contemplated transaction, or to be assumed by
the Company or a Restricted Subsidiary in connection with an Asset
Acquisition, outstanding at the time of such transaction does not exceed
the Fair Market Value of the equipment, inventory, network assets and Cash
Equivalents of any Restricted Subsidiary so acquired or that are acquired
in such Asset Acquisition, as the case may be;

(x) Indebtedness of the Company not to exceed, at any one time
outstanding, the sum of (A) 2.00 times the Net Cash Proceeds received from
the issuance and sale, other than to a Subsidiary, of Equity Interests
(other than Redeemable Stock and excluding any Equity Interests issued in
connection with the Unit Offering) of the Company, less (I) the amount of
such proceeds used to make Restricted Payments as provided in clause (C)(2)
of the first paragraph or clauses (iii) or (iv) of the second paragraph of
the "Limitation on Restricted Payments" covenant and (II) if such proceeds
are used to consummate a transaction pursuant to which the Company Incurs
Acquired Indebtedness, one-half of the amount of such Acquired Indebtedness
so Incurred and (B) the Fair Market Value of any Permitted Assets acquired
by the Company in exchange for Equity Interests of the Company issued after
the Issue Date; provided, however, that in determining the Fair Market
Value of any such Permitted Assets so acquired, if the estimated Fair
Market Value of such Permitted Assets exceeds (x) (Euro)2.0 million, then
the Fair Market Value of such Permitted Assets will be determined by a
majority of the Board of Directors, which determination will be evidenced
by a resolution thereof, and (y) (Euro)10.0 million, then the Company will
deliver to the Trustee a written appraisal as to the fair market value of
such Permitted Assets prepared by an internationally recognized investment
banking or public accounting firm (or, if no such investment banking or
public accounting firm is qualified to prepare such an appraisal, by an
internationally recognized appraisal firm); and provided further that such
Indebtedness (other than the Indebtedness Incurred under one or more Credit
Facilities, under one or more Capitalized Leases or from the vendor of
assets, property or services acquired with the proceeds of such
Indebtedness) does not mature prior to the Stated Maturity of the Notes and
the Weighted Average Life to Maturity of such Indebtedness is longer than
that of the Notes;

(xi) Indebtedness outstanding as of the Issue Date; and

106

(xii) Unsecured Indebtedness of the Company (in addition to Indebtedness
permitted under clauses (i) through (xi) above) in an aggregate principal
amount outstanding at any one time not to exceed (Euro)200.0 million.

(c) For purposes of determining any particular amount of Indebtedness under
this "Limitation on Indebtedness" covenant, Guarantees, Liens or obligations
with respect to letters of credit supporting Indebtedness otherwise included in
the determination of such particular amount shall not be included; provided,
however, that the foregoing shall not in any way be deemed to limit the
provisions of the "Limitation on Issuances of Guarantees of Indebtedness by
Restricted Subsidiaries" covenant. For purposes of determining compliance with
this "Limitation on Indebtedness" covenant, (A) in the event that an item of
Indebtedness meets the criteria of more than one of the types of Indebtedness
described in the above clauses, the Company, in its sole discretion, shall
classify such item of Indebtedness and only be required to include the amount
and type of such Indebtedness in one of such clauses and (B) the principal
amount of Indebtedness issued at a price that is less than the principal amount
thereof shall be equal to the amount of the liability in respect thereof
determined in conformity with US GAAP.

(d) For purposes of determining compliance with any Euro-denominated
restriction on the Incurrence of Indebtedness, the Euro-equivalent principal
amount of Indebtedness denominated in a non-Euro currency shall be calculated
based on the relevant currency exchange rate in effect on the date such
Indebtedness was Incurred, in the case of term Indebtedness, or first
committed, in the case of revolving credit Indebtedness; provided that if such
Indebtedness is Incurred to refinance other Indebtedness denominated in a non-
Euro currency, and such refinancing would cause the applicable Euro-denominated
restriction to be exceeded if calculated at the relevant currency exchange rate
in effect on the date of such refinancing, such Euro-denominated restriction
shall be deemed not to have been exceeded so long as the principal amount of
such refinancing Indebtedness does not exceed the principal amount of such
Indebtedness being refinanced. The principal amount of any Indebtedness
incurred to refinance other Indebtedness, if Incurred in a different currency
from the Indebtedness being refinanced, shall be calculated based on the
currency exchange rate applicable to the currencies in which such refinancing
Indebtedness is denominated that is in effect on the date of such refinancing.

Limitation on Restricted Payments

The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, (i) declare or pay any dividend or make any
distribution on account of any Equity Interest in the Company or any Restricted
Subsidiary to the holders thereof, including any dividend or distribution
payable in connection with any merger or consolidation (other than (A)
dividends or distributions payable solely in Equity Interests (other than
Redeemable Stock) of the Company, (B) dividends or distributions made only to
the Company or a Restricted Subsidiary and (C) pro rata dividends or
distributions of Capital Stock of a Restricted Subsidiary held by Persons other
than the Company or a Restricted Subsidiary), (ii) purchase, redeem, retire or
otherwise acquire for value any Equity Interests of the Company, an
Unrestricted Subsidiary or a Restricted Subsidiary (other than any such Equity
Interests owned by the Company or any Restricted Subsidiary), (iii) make any
principal payment or redeem, purchase, repurchase, defease, or otherwise
acquire or retire for value, in each case, prior to any scheduled repayment, or
maturity, any Indebtedness of the Company that is subordinated in right of
payment to the Notes, or (iv) make any Investment, other than a Permitted
Investment, in any Person (all such payments or any other actions described in
clauses (i) through (iv) above being collectively referred to as "Restricted
Payments") unless, at the time of, and after giving effect to, the proposed
Restricted Payment:

(A) no Default or Event of Default shall have occurred and be continuing;

(B) the Company could Incur at least (Euro)1.00 of additional
Indebtedness under paragraph (a) of the "Limitation on Indebtedness"
covenant; and

107

(C) the aggregate amount expended for all Restricted Payments (the amount
so expended, if other than in cash, to be determined in good faith by the
Board of Directors, whose determination shall be conclusive and evidenced
by a Board Resolution) after the Issue Date is less than the sum of (1) 50%
of the aggregate amount of the Consolidated Net Income (or, if the
Consolidated Net Income is a loss, 100% of the amount of such loss) accrued
on a cumulative basis during the period (taken as one accounting period)
beginning on the first day of the fiscal quarter beginning immediately
following the Issue Date and ending on the last day of the last fiscal
quarter preceding the Transaction Date for which reports have been filed
with the Commission or provided to the Trustee pursuant to the "Provision
of Financial Statements and Reports" covenant, plus (2) 100% of the
aggregate Net Cash Proceeds received by the Company after the Issue Date
from the issuance and sale of its Equity Interests (other than Redeemable
Stock and excluding any Equity Interests issued in connection with the Unit
Offering) to a Person (other than a Subsidiary of the Company), except to
the extent that such Net Cash Proceeds are used (I) to purchase, redeem or
otherwise retire Equity Interests or Indebtedness as set forth below in
clause (iii) or (iv) of the immediately succeeding paragraph or (II) to
Incur Indebtedness pursuant to clause (x) of paragraph (b) of the
"Limitation on Indebtedness" covenant, plus (3) the aggregate amount by
which Indebtedness (other than any Indebtedness subordinated in right of
payment to the Notes) of the Company or any Restricted Subsidiary is
reduced on the Company's balance sheet upon the conversion or exchange
(other than by a Subsidiary of the Company) subsequent to the Issue Date
into Equity Interests (other than Redeemable Stock and less the amount of
any cash, or the fair value of property, distributed by the Company or any
Restricted Subsidiary upon such conversion or exchange), plus (4) without
duplication of any amount included in the calculation of Consolidated Net
Income, in the case of repayment of, or return of capital with respect to,
any Investment constituting a Restricted Payment (including the
redesignation of Unrestricted Subsidiaries as Restricted Subsidiaries) made
after the Issue Date, an amount equal to the lesser of (x) the repayment
of, or the return of capital with respect to, such Investment and (y) the
cost of such Investment, in either case less the cost of the disposition of
such Investment and net of taxes.

The foregoing provisions shall not prohibit: (i) the payment of any dividend
within 60 days after the date of declaration thereof if, at said date of
declaration, such payment would comply with the provisions of the Senior Notes
Indenture; (ii) the redemption, repurchase, defeasance or other acquisition or
retirement for value of Indebtedness that is subordinated in right of payment
to the Notes including premium, if any, and accrued and unpaid interest, with
the proceeds of, or in exchange for, Indebtedness Incurred under clause (iii)
of paragraph (b) of the "Limitation on Indebtedness" covenant; (iii) the
repurchase, redemption or other acquisition of Equity Interests in the Company
in exchange for, or out of the Net Cash Proceeds of, a substantially concurrent
offering of Equity Interests (other than Redeemable Stock and excluding any
Equity Interests issued in connection with the Unit Offering) in the Company to
any Person (other than a Subsidiary); (iv) the repurchase, redemption or other
acquisition of Indebtedness of the Company which is subordinated in right of
payment to the Notes in exchange for, or out of the Net Cash Proceeds of, a
substantially concurrent offering of Equity Interests (other than Redeemable
Stock and excluding any Equity Interests issued in connection with the Unit
Offering) in the Company to any Person (other than a Subsidiary); (v)
repurchases of Equity Interests of the Company from employees of the Company or
any of its Restricted Subsidiaries deemed to occur upon exercise of stock
options if such Equity Interests represent a portion of the exercise price of
such options, provided that any payments made pursuant to this clause (v) may
not exceed in the aggregate (Euro)5.0 million in any fiscal year of the
Company; (vi) Investments in any Person (the primary business of which is
related, ancillary or complementary to the business of the Company and its
Restricted Subsidiaries on the date of such Investment); provided that the
aggregate amount of Investments made pursuant to this clause (vi) does not
exceed the sum of (a) (Euro)25.0 million, plus (b) the amount of Net Cash
Proceeds received by the Company after the Issue Date from the issuance and
sale of its Equity Interests (other than Redeemable Stock and excluding any
Equity Interests issued in connection with the Unit Offering) to a Person
(other than a Subsidiary of the Company), except to the extent that such Net
Cash Proceeds are used (I) to make Restricted Payments pursuant to clause
(C)(2) of the first paragraph or clauses (iii) or (iv) of the second paragraph
of the "Limitation on Restricted Payments" covenant or (II) to Incur
Indebtedness pursuant to clause (x) of

108

paragraph (b) of the "Limitation on Indebtedness" covenant, plus (c) the
aggregate amount by which Indebtedness (other than any Indebtedness
subordinated in right of payment to the Notes) of the Company or any Restricted
Subsidiary is reduced on the Company's balance sheet upon the conversion or
exchange (other than by a Subsidiary of the Company) subsequent to the Issue
Date into Equity Interests (other than Redeemable Stock and less the amount of
any cash, or the fair value of property, distributed by the Company or any
Restricted Subsidiary upon such conversion or exchange); and (vii) Investments
acquired in exchange for Capital Stock (other than Redeemable Stock) of the
Company; provided that, in the case of clauses (ii) through (vii), no Default
or Event of Default shall have occurred and be continuing or occur as a
consequence of the actions or payments set forth therein.

Each Restricted Payment permitted pursuant to the immediately preceding
paragraph (other than the Restricted Payments referred to in clauses (ii) and
(vii) thereof and the Net Cash Proceeds from any issuance of Equity Interests
referred to in clauses (iii) and (iv) thereof) shall be included in calculating
whether the conditions of clause (C) of the first paragraph of this "Limitation
on Restricted Payments" covenant have been met with respect to any subsequent
Restricted Payments. In the event the proceeds of an issuance of Equity
Interests (other than Redeemable Stock and excluding any Equity Interests
issued in connection with the Unit Offering) of the Company are used for the
redemption, repurchase or other acquisition of the Notes, then the Net Cash
Proceeds of such issuance shall be included in clause (C) of the first
paragraph of this "Limitation on Restricted Payments" covenant only to the
extent such proceeds are not used for such redemption, repurchase or other
acquisition of the Notes.

Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries

The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any consensual encumbrance or restriction of any kind on the ability
of any Restricted Subsidiary to (i) pay dividends or make any other
distributions permitted by applicable law on any Equity Interests of such
Restricted Subsidiary owned by the Company or any other Restricted Subsidiary,
(ii) pay any Indebtedness owed to the Company or any other Restricted
Subsidiary, (iii) make loans or advances to the Company or any other Restricted
Subsidiary or (iv) transfer any of its property or assets to the Company or any
other Restricted Subsidiary.

The foregoing provisions shall not prohibit any encumbrances or restrictions:
(i) existing under or by reason of any agreement in effect on the Issue Date,
and any amendments, supplements, extensions, refinancings, renewals or
replacements of such agreements; provided that the encumbrances and
restrictions in any such amendments, supplements, extensions, refinancings,
renewals or replacements are no more restrictive than those encumbrances or
restrictions that are then in effect and that are being amended, supplemented,
extended, refinanced, renewed or replaced; (ii) existing under or by reason of
applicable law; (iii) existing with
respect to any Restricted Subsidiary acquired by the Company or any Restricted
Subsidiary after the Issue Date, or the property or assets of such Restricted
Subsidiary, and existing at the time of such acquisition and not incurred in
contemplation thereof, which encumbrances or restrictions are not applicable to
any Person or the property or assets of any Person other than such Person or
the property or assets of such Person so acquired; (iv) in the case of clause
(iv) of the first paragraph of this "Limitation on Dividend and Other Payment
Restrictions Affecting Restricted Subsidiaries" covenant, (A) that restrict in
a customary manner the subletting, assignment or transfer of any property or
asset that is, or is subject to, a lease, purchase mortgage obligation,
license, conveyance or contract or similar property or asset, (B) existing by
virtue of any transfer of, agreement to transfer, option or right with respect
to, or Lien on, any property or assets of the Company or any Restricted
Subsidiary not otherwise prohibited by the Senior Notes Indenture or (C)
arising or agreed to in the ordinary course of business, not relating to any
Indebtedness, and that do not, individually or in the aggregate, materially
detract from the value of property or assets of the Company or any Restricted
Subsidiary to the Company or any Restricted Subsidiary; (v) with respect to a
Restricted Subsidiary and imposed pursuant to an agreement that has been
entered into for the sale or disposition of all or substantially all of the
Capital Stock in, or property and assets of, such Restricted Subsidiary;
provided that such restriction shall terminate if such

109

transaction is abandoned or if such transaction is not consummated within six
months of the date such agreement was entered into; or (vi) contained in the
terms of any Indebtedness or any agreement pursuant to which such Indebtedness
was issued if (A) the encumbrance or restriction applies only in the event of a
payment default or a default with respect to a financial covenant contained in
such Indebtedness or agreement, (B) the encumbrance or restriction is not
materially more disadvantageous to the holders of the Notes than is customary
in comparable financings (as determined by the Board of Directors) and (C) the
Board of Directors determines that any such encumbrance or restriction will not
materially affect the Company's ability to make principal or interest payments
on the Notes. Nothing contained in this "Limitation on Dividend and Other
Payment Restrictions Affecting Restricted Subsidiaries" covenant shall prevent
the Company or any Restricted Subsidiary from creating, incurring, assuming or
suffering to exist any Liens otherwise permitted in the "Limitation on Liens"
covenant that limit the right of the debtor to dispose of the assets securing
such Indebtedness.

Limitation on the Issuance and Sale of Capital Stock of Restricted
Subsidiaries

The Company will not, and will not permit any Restricted Subsidiary, directly
or indirectly, to issue, transfer, convey, sell, lease or otherwise dispose of
any shares of Capital Stock (including options, warrants or other rights to
purchase shares of such Capital Stock) of such Restricted Subsidiary or any
other Restricted Subsidiary to any Person (other than (i) to the Company or a
Wholly Owned Restricted Subsidiary and (ii) issuances of director's qualifying
shares of Capital Stock of foreign Restricted Subsidiaries, in each case, to
the extent required by applicable law), unless (A) the Net Cash Proceeds from
such issuance, transfer, conveyance, sale, lease or other disposition are
applied in accordance with the provisions of the "Limitation on Asset Sales"
covenant, (B) immediately after giving effect to such issuance, transfer,
conveyance, sale, lease or other disposition, such Restricted Subsidiary would
no longer constitute a Restricted Subsidiary and (C) any Investment in such
Person remaining after giving effect to such issuance, transfer, conveyance,
sale, lease or other disposition would have been permitted to be made under the
"Limitation on Restricted Payments" covenant if made on the date of such
issuance, transfer, conveyance, sale, lease or other disposition (valued as
provided in the definition of "Investment").

Limitation on Transactions with Shareholders and Affiliates

The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, enter into, renew or extend any transaction or series
of transactions (including, without limitation, the purchase, sale, lease or
exchange of property or assets, or the rendering of any service) with any
direct or indirect holder (or any Affiliate of such holder) of 5% or more of
any class of Capital Stock of the Company or with any Affiliate of the Company
or any Restricted Subsidiary, unless (i) such transaction or series of
transactions is on terms that are no less favorable to the Company or such
Restricted Subsidiary than could reasonably be obtained in a comparable arm's-
length transaction with a Person that is not such a holder or Affiliate, (ii)
if such transaction or series of transactions involves aggregate consideration
in excess of (Euro)2.5 million, the Company shall
have delivered to the Trustee a resolution set forth in an Officers'
Certificate adopted by a majority of the Board of Directors, including a
majority of the independent, disinterested directors, approving such
transaction or series of transactions, and certifying that such transaction or
series of transactions comply with clause (i) above and (iii) if such
transaction or series of transactions involves aggregate consideration in
excess of (Euro)7.5 million, the Company shall have delivered to the Trustee a
written opinion as to the fairness to the Company or such Restricted Subsidiary
of such transaction or series of transactions from a financial point of view
from an internationally recognized investment banking firm (or, if an
investment banking firm is generally not qualified to give such an opinion, by
an internationally recognized appraisal firm or accounting firm).

The foregoing limitation does not limit and will not apply to (i) any
transaction between the Company and any of its Restricted Subsidiaries or
between Restricted Subsidiaries; (ii) the payment of reasonable and customary
regular fees to directors of the Company who are not employees of the Company;
(iii) the payment of dividends, distributions or other amounts by the Company
or any Restricted Subsidiary permitted by the

110

"Limitation on Restricted Payments" covenant; (iv) issuances of Equity
Interests (other than Redeemable Stock) on terms consistent with the
requirements of clause (i) of the preceding paragraph; and (v) any payments or
other transactions pursuant to tax-sharing agreements between the Company and
any other Person with which the Company files a consolidated tax return or with
which the Company is part of a consolidated group for tax purposes.

Limitation on Liens

The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, create, incur, assume or suffer to exist any Lien
(other than Permitted Liens) on any asset or property of the Company or any
Restricted Subsidiary without making effective provisions for all of the Notes
and all other amounts due under the Senior Notes Indenture to be directly
secured equally and ratably with (or, if the obligation or liability to be
secured by such Lien is subordinated in right of payment to the Notes, prior
to) the obligation or liability secured by such Lien; provided that any Lien
which is granted to secure the Notes under this covenant shall be discharged at
the same time as the discharge of the Lien that gave rise to the obligation to
so secure the Notes.

Limitation on Asset Sales

The Company will not, and will not permit any Restricted Subsidiary to, make
any Asset Sale unless (i) the Company or the Restricted Subsidiary, as the case
may be, receives consideration at the time of such Asset Sale at least equal to
the Fair Market Value of the assets sold or disposed of and (ii) at least 75%
of the consideration received for such Asset Sale consists of cash or Cash
Equivalents or Replacement Assets or the assumption of Indebtedness which ranks
equal in right of payment with the Notes.

The Company shall, or shall cause the relevant Restricted Subsidiary to,
apply the Net Cash Proceeds from an Asset Sale within 360 days of the receipt
thereof to (A) permanently prepay, repay or purchase unsubordinated
Indebtedness of the Company or any Restricted Subsidiary providing a Guarantee
pursuant to the "Limitation on Issuances of Guarantees by Restricted
Subsidiaries" covenant or Indebtedness of any other Restricted Subsidiary, in
each case owing to a Person other than the Company or any of its Restricted
Subsidiaries, and elect to permanently reduce the commitments thereunder by the
amount of such Indebtedness prepaid, repaid or purchased, (B) invest in
Replacement Assets or (C) in any combination of prepayment, repayment, purchase
and reinvestment permitted by the foregoing clauses (A) and (B).

The Senior Notes Indenture provides that any Net Cash Proceeds from the Asset
Sale that are not invested as provided and within the time period set forth in
the second paragraph of this "Limitation on Asset Sales" covenant will be
deemed to constitute "Excess Proceeds." If at any time the aggregate amount of
Excess Proceeds exceeds (Euro)5.0 million, the Company shall, within 15
business days thereafter, make an offer to all holders of Notes (an "Asset Sale
Offer") to purchase on a pro rata basis the maximum principal amount of Notes,
that is an integral multiple of $1,000 that may be purchased out of the Excess
Proceeds at an offer price in cash in an amount equal to 100% of the
outstanding principal amount thereof, plus accrued and unpaid interest thereon
plus Additional Amounts, if any, to the date fixed for the closing of such
offer (and, in the case of Definitive Notes, subject to the right of a holder
of record on the relevant record date to receive interest due on the relevant
interest payment date and Additional Amounts, if any, in respect thereof), in
accordance with the procedures set forth in the Senior Notes Indenture. The
Company will commence an Asset Sale Offer by publishing and mailing the notice
required pursuant to the terms of the Senior Notes Indenture, with a copy to
the Trustee. To the extent that the aggregate amount of Notes tendered pursuant
to an Asset Sale Offer is less than the Excess Proceeds, subject to applicable
law, the Company may use any remaining Excess Proceeds for general corporate
purposes. If the aggregate principal amount of Notes surrendered by holders
thereof exceeds the amount of Excess Proceeds, the selection of such Notes for
purchase will be made by the Trustee in the same manner as the Notes are
redeemed, as described under "--Optional Redemption." Upon completion of any
such Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero.

111

The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder and will
comply with the applicable laws of any non-U.S. jurisdiction in which an Asset
Sale Offer is made, in each case, to the extent such laws or regulations are
applicable in connection with the repurchase of the Notes pursuant to an Asset
Sale Offer. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of the Senior Notes Indenture, the
Company will comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations described in such Senior
Notes Indenture by virtue thereof.

Limitation on Issuances of Guarantees of Indebtedness by Restricted
Subsidiaries

The Company will not permit any Restricted Subsidiary, directly or
indirectly, to guarantee, assume or in any other manner become liable with
respect to any Indebtedness of the Company unless (i) such Restricted
Subsidiary simultaneously executes and delivers a supplemental indenture to the
Senior Notes Indenture providing for a Guarantee of all of the Company's
obligations under the Notes and the Senior Notes Indenture on terms
substantially similar to the guarantee of such Indebtedness, except that if the
Indebtedness is by its express terms subordinated in right of payment to the
Notes, any such assumption, Guarantee or other liability of such Restricted
Subsidiary with respect to such Indebtedness shall be subordinated in right of
payment to such Restricted Subsidiary's assumption, Guarantee or other
liability with respect to the Notes substantially to the same extent as such
Indebtedness is subordinated to the Notes and (ii) such Restricted Subsidiary
waives, and will not in any manner whatsoever claim or take the benefit or
advantage of, any rights of reimbursement, indemnity or subrogation or any
other rights against the Company or any other Restricted Subsidiary as a result
of any payment by such Restricted Subsidiary under its Guarantee; provided that
any Restricted Subsidiary may guarantee Indebtedness of the Company under a
Credit Facility if such Indebtedness is Incurred in accordance with the
"Limitation on Indebtedness" covenant; and provided further that this paragraph
shall not be applicable to any Guarantee of any Restricted Subsidiary that
existed at the time such Person became a Restricted Subsidiary and was not
incurred in connection with, or in contemplation of, such Person becoming a
Restricted Subsidiary.

Notwithstanding the foregoing, any Guarantee of all of the Company's
obligations under the Notes and the Senior Notes Indenture by a Restricted
Subsidiary may provide by its terms that it will be automatically and
unconditionally released and discharged upon (i) any sale, exchange or
transfer, to any Person not an Affiliate of the Company, of all of the
Company's and each Restricted Subsidiary's Equity Interests in, or all or
substantially all of the assets of, such Restricted Subsidiary (which sale,
exchange or transfer is not prohibited by the Senior Notes Indenture), or (ii)
the release or discharge of the guarantee which resulted in the creation of
such Guarantee, except a discharge or release by or as a result of payment
under such guarantee.

Business of the Company; Restriction on Transfers of Existing Business

The Company will not, and will not permit any Restricted Subsidiary to, be
principally engaged in any business or activity other than a Permitted
Business. In addition, the Company and any Restricted Subsidiary will not be
permitted, directly or indirectly, to transfer to any Unrestricted Subsidiary
(i) any of the licenses, permits or authorizations used in the Permitted
Business of the Company or any Restricted Subsidiary or (ii) any material
portion of the "property and equipment" (as such term is used in the Company's
consolidated financial statements) of the Company or any Restricted Subsidiary
used in the licensed service areas of the Company or any Restricted Subsidiary.

Restriction on Sale/Leaseback Transactions

The Company will not, and will not permit any Restricted Subsidiary to, enter
into any Sale/Leaseback Transaction with respect to any property unless (a) the
Company or such Restricted Subsidiary would be entitled to (i) Incur
Indebtedness in an amount equal to the Attributable Debt with respect to such
Sale/Leaseback Transaction pursuant to the "Limitation on Indebtedness"
covenant and (ii) create a Lien on

112

such property securing such Attributable Debt without equally and ratably
securing the Notes pursuant to the "Limitation on Liens" covenant, (b) the net
cash proceeds received by the Company or any Restricted Subsidiary in
connection with such Sale/Leaseback Transaction are at least equal to the fair
value (as determined in good faith by the Board of Directors) of such property
and (c) the transfer of such property is permitted by, and the Company applies
the proceeds of such transaction in compliance with, the "Limitation on Asset
Sales" covenant.

Provision of Financial Statements and Reports

The Company will file on a timely basis with the Commission, to the extent
such filings are accepted by the Commission and whether or not the Company has
a class of securities registered under the Exchange Act, (i) all annual and
quarterly financial statements and other financial information that would be
required to be contained in a filing with the Commission on Forms 10-K and 10-Q
(which financial statements shall be prepared in accordance with US GAAP),
including a "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and, with respect to the annual financial information, a
report thereon by the Company's certified independent accountants and (ii) all
current reports that would be required to be filed with the Commission on Form
8-K, in each case, if the Company had a class of securities registered under
the Exchange Act, whether or not the Company has such a class of securities
registered under the Exchange Act. Such quarterly financial information shall
be filed with the Commission within 45 days following the end of each fiscal
quarter of the Company, and such annual financial information shall be
furnished within 90 days following the end of each fiscal year of the Company.
Such annual financial information shall include the geographic segment
financial information required to be disclosed by the Company under Item 101(d)
of Regulation S-K under the Securities Act. The Company will also be required
(a) to file with the Trustee, and provide to each holder, without cost to such
holder, copies of such reports and documents within 15 days after the date on
which the Company files such reports and documents with the Commission or the
date on which the Company would be required to file such reports and documents
if the Company were so required, and (b) if filing such reports and documents
with the Commission is not accepted by the Commission or is prohibited under
the Exchange Act, to supply, at the Company's cost, copies of such reports and
documents to any prospective holder promptly upon request. In addition, if and
so long as the Exchange Notes are listed on the Luxembourg Stock Exchange and
the rules of such stock exchange shall require, copies of all reports and
information described above will be available during normal business hours at
the office of the listing agent in Luxembourg.

Limitation on Investment Company Activities.

The Company will not, and will not permit any of its Restricted Subsidiaries
or controlled Affiliates to, conduct its business in a fashion that would cause
the Company to be required to register as an "investment company" (as that term
is defined in the Investment Company Act of 1940, as amended (the "Investment
Company Act")), or otherwise to become subject to regulation under the
Investment Company Act. For purposes of establishing the Company's compliance
with this provision, any exemption which is or would become available under
Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act will be
disregarded.

Repurchase of Notes upon a Change of Control

Upon the occurrence of a Change of Control, the Company will make an offer to
purchase all or any part (equal to $1,000 in principal amount and integral
multiples thereof) of the Notes pursuant to the offer described below (the
"Change of Control Offer") at a price in cash (the "Change of Control Payment")
equal to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest, thereon to the date of repurchase, plus Additional Amounts, if any,
to the date of repurchase (and in the case of Definitive Notes, subject to the
right of holders of record on the relevant record date to receive interest due
on the relevant interest payment date and Additional Amounts, if any, in
respect thereof). The Senior Notes Indenture provides that within 30 days
following any Change of Control, the Company will publish notice of such in a
leading newspaper having a general circulation in New York (which is expected
to be The Wall Street Journal) and in Frankfurt (which is

113

expected to be the Frankfurter Allgemeine Zeitung) (and if and so long as the
Exchange Notes are listed on the Luxembourg Stock Exchange and the rules of
such stock exchange shall so require, a newspaper having a general circulation
in Luxembourg (which is expected to be the Luxemburger Wort)) or, in the case
of Definitive Notes, mail a notice to each holder (and if and so long as the
Exchange Notes are listed on the Luxembourg Stock Exchange and the rules of
such stock exchange shall so require, a newspaper having a general circulation
in Luxembourg (which is expected to be the Luxemburger Wort)), with a copy to
the Trustee, with the following information: (i) a Change of Control Offer is
being made pursuant to the covenant entitled "Repurchase of Notes upon a Change
of Control" and all Notes properly tendered pursuant to such Change of Control
Offer will be accepted for payment; (ii) the purchase price and the purchase
date, which will be no earlier than 30 days nor later than 60 days from the
date such notice is published, or where relevant, mailed, except as may be
otherwise required by applicable law (the "Change of Control Payment Date");
(iii) any Note not properly tendered will remain outstanding and continue to
accrue interest; (iv) unless the Company defaults in the payment of the Change
of Control Payment, all Notes accepted for payment pursuant to the Change of
Control Offer will cease to accrue interest on the Change of Control Payment
Date; (v) holders electing to have any Notes purchased pursuant to a Change of
Control Offer will be required to surrender the Notes, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Notes completed, to
the relevant Paying Agent and at the address specified in the notice prior to
the close of business on the third business day preceding the Change of Control
Payment Date; (vi) holders will be entitled to withdraw their tendered Notes
and their election to require the Company to purchase such Notes; provided that
the Paying Agent receives, not later than the close of business on the last
business day of the offer period, a facsimile transmission or letter setting
forth the name of the holder, the principal amount of Notes tendered for
purchase, and a statement that such holder is withdrawing his tendered Notes
and his election to have such Notes purchased; and (vii) holders whose Notes
are being purchased only in part will be issued new Notes equal in principal
amount to the unpurchased portion of the principal amount of the Notes
surrendered, which unpurchased portion must be equal to $1,000 in principal
amount or an integral multiple thereof.

The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder and will
comply with the applicable laws of any non-U.S. jurisdiction in which a Change
of Control Offer is made, in each case, to the extent such laws or regulations
are applicable in connection with the repurchase of the Notes pursuant to a
Change of Control Offer. To the extent that the provisions of any securities
laws or regulations conflict with the provisions of the Senior Notes Indenture,
the Company will comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations contained in the Senior
Notes Indenture by virtue thereof. The provisions relating to the Company's
obligation to make an offer to repurchase the Notes as a result of a Change of
Control may be waived or modified with the written consent of the holders of a
majority in principal amount of the Notes.

The Senior Notes Indenture provides that on the Change of Control Payment
Date, the Company will, to the extent permitted by law, (i) accept for payment
all Notes or portions thereof properly tendered pursuant to the Change of
Control Offer, (ii) deposit with each Paying Agent an amount equal to the
aggregate Change of Control Payment in respect of all Notes or portions thereof
so tendered and (iii) deliver, or cause to be delivered, to the Trustee for
cancellation the Notes so accepted together with an Officers' Certificate
stating that such Notes or portions thereof have been tendered to and purchased
by the Company. The Senior Notes Indenture provides that the Paying Agent will
promptly either (x) pay to the holder against presentation and surrender (or,
in the case of partial payment, endorsement) of the Global Notes or (y) in the
case of Definitive Notes, mail to each holder of Notes the Change of Control
Payment for such Notes, and the Trustee will promptly authenticate and deliver
to the holder of the Global Notes a new Global Note or Notes or, in the case of
Definitive Notes, mail to each holder a new Definitive Note, as applicable,
equal in principal amount to any unpurchased portion of the Notes surrendered,
if any; provided, however, that each new Definitive Note will be in a principal
amount of $1,000 or an integral multiple thereof. The Company will publicly
announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.

114

If the Company is unable to repay all of its Indebtedness that contains
restrictions prohibiting the repurchase of the Notes or is unable to obtain the
consents of the holders of Indebtedness, if any, of the Company outstanding at
the time of a Change of Control whose consent would be so required to permit
the repurchase of Notes, then the Company will be unable to fulfil its
repurchase obligations to holders of the Notes, thereby resulting in a breach
of the "Repurchase of Notes upon a Change of Control" covenant. Such breach
will constitute an Event of Default under the Senior Notes Indenture if it
continues for a period of 30 consecutive days after written notice is given to
the Company by the Trustee or the holders of at least 25% in aggregate
principal amount of the Notes outstanding. In addition, the failure by the
Company to repurchase Notes at the conclusion of the Change of Control Offer
will constitute an Event of Default without any waiting period or notice
requirements.

There can be no assurances that the Company will have sufficient funds
available at the time of any Change of Control to make any debt payment
(including repurchases of Notes) required by the foregoing covenant (as well as
may be contained in other securities of the Company which might be outstanding
at the time). The above covenant requiring the Company to repurchase the Notes
will, unless the consents referred to above are obtained, require the Company
to repay all Indebtedness then outstanding which by its terms would prohibit
such Note repurchase, either prior to or concurrently with such Note
repurchase.

The existence of a holder's right to require the Company to repurchase such
holder's Notes upon the occurrence of a Change of Control may deter a third
party from seeking to acquire the Company in a transaction that would
constitute a Change of Control.

Consolidation, Merger and Sale of Assets

The Company will not consolidate with, merge with or into, or sell, convey,
transfer, lease or otherwise dispose of all or substantially all of its
property and assets (as an entirety or substantially an entirety in one
transaction or in a series of related transactions) to, any Person or permit
any Person to merge with or into the Company and the Company will not permit
any of its Restricted Subsidiaries to enter into any such transaction or series
of transactions if such transaction or series of transactions, in the
aggregate, would result in the sale, assignment, conveyance, transfer, lease or
other disposition of all or substantially all of the properties and assets of
the Company or the Company and its Restricted Subsidiaries, taken as a whole,
to any other Person or Persons, unless: (i) the Company will be the continuing
Person, or the Person (if other than the Company) (the "Surviving Entity")
formed by such consolidation or into which the Company is merged or that
acquired or leased such property and assets of the Company will be a
corporation organized and validly existing under the laws of the United States
of America, any state thereof or the District of Columbia and shall expressly
assume, by a supplemental indenture, executed and delivered to the Trustee, all
of the obligations of the Company with respect to the Notes and under the
Senior Notes Indenture and the Escrow Agreement; (ii) immediately after giving
effect to such transaction, no Default or Event of Default shall have occurred
and be continuing; (iii) immediately after giving effect to such transaction on
a pro forma basis, the Company, or any Person becoming the successor obligor of
the Notes, shall have a Consolidated Net Worth equal to or greater than the
Consolidated Net Worth of the Company immediately prior to such transaction;
(iv) immediately after giving effect to such transaction on a pro forma basis
the Company, or any Person becoming the successor obligor of the Notes, as the
case may be, could Incur at least (Euro)1.00 of Indebtedness under the first
paragraph of the "Limitation on Indebtedness" covenant; (v) the Company
delivers to the Trustee an Officers' Certificate (attaching the arithmetic
computations to demonstrate compliance with clauses (iii) and (iv) above) and
an opinion of counsel, in each case stating that such consolidation, merger or
transfer and such supplemental indenture complies with the Senior Notes
Indenture; and (vi) the Company shall have delivered to the Trustee an opinion
of tax counsel reasonably acceptable to the Trustee stating that (A) holders
will not recognize income, gain or loss for U.S. federal or German income tax
purposes as a result of such transaction, (B) any payment of principal,
redemption price or purchase price of, premium (if any) and interest on the
Notes by the Company to a holder after the consolidation, merger, conveyance,
transfer or lease of assets will be exempt from the Taxes described under "--
Withholding Taxes" and (C) no other taxes on income (including taxable capital
gains) will be payable

115

under the tax laws of the Relevant Taxing Jurisdiction (as defined in "--
Withholding Taxes") by a holder who is or who is deemed to be a non-resident of
the Relevant Taxing Jurisdiction in respect of the acquisition, ownership or
disposition of the Notes, including the receipt of principal of, premium and
interest paid pursuant to such Notes.

Events of Default

The following constitute "Events of Default" under the Senior Notes
Indenture: (a) default for 30 days or more in the payment when due of interest
on the Notes or Additional Amounts, if any, with respect to the Notes;
(b) default in the payment of principal of (or premium, if any, on) any Note
when the same becomes due and payable at maturity, upon acceleration,
redemption or otherwise; (c) default in the payment of principal or interest on
Notes required to be purchased pursuant to an Asset Sale Offer as described
under "Limitation on Asset Sales" or pursuant to a Change of Control Offer as
described under "Repurchase of Notes upon a Change of Control;" (d) failure to
perform or comply with the provisions described under "Consolidation, Merger
and Sale of Assets;" (e) default in the performance of or breach of any other
covenant or agreement of the Company in the Senior Notes Indenture or the
Escrow Agreement or under the Notes and such default or breach continues for a
period of 30 consecutive days after written notice by the Trustee or the
holders of 25% or more in aggregate principal amount of the Notes; (f) a
default occurs on any other Indebtedness of the Company or any Restricted
Subsidiary if (i) either (x) such default is a failure to pay principal of such
Indebtedness when due after any applicable grace period or (y) as a result of
such default, the maturity of such Indebtedness has been accelerated prior to
its scheduled maturity and such default has not been cured within the shorter
of 30 days and the applicable grace period, and such acceleration has not been
rescinded, and (ii) the principal amount of such Indebtedness, together with
the principal amount of any other Indebtedness of the Company and its
Restricted Subsidiaries that is also in default as to principal, or the
maturity of which has also been accelerated, aggregates (Euro)5.0 million or
more; (g) failure to pay final judgments and orders against the Company or any
Restricted Subsidiary (not covered by insurance) aggregating in excess of
(Euro)5.0 million (treating any deductibles, self-insurance or retention as not
so covered), which final judgments remain unpaid, undischarged and unstayed for
a period in excess of 30 consecutive days following entry of the final judgment
or order that causes the aggregate amount for all such final judgments or
orders outstanding and not paid, discharged or stayed to exceed (Euro)5.0
million; (h) a court having jurisdiction in the premises enters a decree or
order for (A) relief in respect of the Company or any of its Significant
Subsidiaries in an involuntary case under any applicable bankruptcy, insolvency
or other similar law now or hereafter in effect, (B) appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official of
the Company or any of its Significant Subsidiaries or for all or substantially
all of the property and assets of the Company or any of its Significant
Subsidiaries or (C) the winding up or liquidation of the affairs of the Company
or any of its Significant Subsidiaries and, in each case, such decree or order
shall remain unstayed and in effect for a period of 30 consecutive days; (i)
the Company or any of its Significant Subsidiaries (A) commences a voluntary
case under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or consents to the entry of an order for relief in an
involuntary case under any such law, (B) consents to the appointment of or
taking possession by a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of the Company or any of its Significant
Subsidiaries or for all or substantially all of the property and assets of the
Company or any of its Significant Subsidiaries or (C) effects any general
assignment for the benefit of creditors; or (j) the Company challenges the Lien
on the Escrow Collateral under the Escrow Agreement prior to such time as the
Escrow Collateral is to be released to the Company, or the Escrow Collateral
shall become subject to any Lien other than the Lien under the Escrow
Agreement.

If an Event of Default (other than an Event of Default specified in clauses
(h) or (i) above) occurs and is continuing under the Senior Notes Indenture,
the Trustee or the Holders of at least 25% in aggregate principal amount of the
Notes then outstanding, by written notice to the Company, may declare the
principal of, premium, if any, interest and other monetary obligations
(including Additional Amounts, if any) on all the then outstanding Notes to be
immediately due and payable. Upon such a declaration, such principal of,
premium, if any, interest and other monetary obligations on the Notes shall be
immediately due and payable. In the event of a declaration of acceleration
because an Event of Default set forth in clause (f) above has

116

occurred and is continuing, such declaration of acceleration shall be
automatically rescinded and annulled if the event of default triggering such
Event of Default pursuant to clause (f) shall be remedied or cured by the
Company and/or the relevant Restricted Subsidiaries or waived by the holders of
the relevant Indebtedness within 60 days after the declaration of acceleration
with respect thereto. If an Event of Default specified in clauses (h) or (i)
above occurs, the principal of, premium, if any, accrued interest and other
monetary obligations on the Notes then outstanding shall ipso facto become and
be immediately due and payable without any declaration or other act on the part
of the Trustee or any holder. Holders of at least a majority in principal
amount of the outstanding Notes by written notice to the Company and to the
Trustee, may waive all past defaults and rescind and annul a declaration of
acceleration and its consequences if (i) all existing Events of Default, other
than the nonpayment of the principal of, premium, if any, interest and other
monetary obligations on the Notes that have become due solely by such
declaration of acceleration, have been cured or waived and (ii) the rescission
would not conflict with any judgment or decree of a court of competent
jurisdiction. For information as to the waiver of defaults, see "--Amendment,
Supplement and Waiver."

Holders of the Notes may not enforce the Senior Notes Indenture or the Notes
except as provided in the Senior Notes Indenture. Subject to certain
limitations, holders of a majority in principal amount of the then outstanding
Notes may direct the Trustee in its exercise of any trust or power. The Senior
Notes Indenture provides that the Trustee thereunder may withhold from holders
of the Notes notice of any continuing Default (except a Default relating to the
payment of principal, premium, if any, interest and Additional Amounts, if any)
if it determines that withholding notice is in their interest. The Senior Notes
Indenture further provides that the Trustee thereunder shall have no obligation
to accelerate the Notes if in the best judgment of the Trustee acceleration is
not in the best interest of the holders.

The Senior Notes Indenture requires that the Company will deliver annually an
Officers' Certificate to the Trustee certifying that a review has been
conducted of the activities of the Company and the Company's performance under
the Senior Notes Indenture and that the Company has fulfilled all obligations
thereunder or, if there has been a default in the fulfillment of any such
obligation, specifying each such default and the nature and status thereof. The
Company will also be obligated to notify the Trustee of any default or defaults
in the performance of any covenants or agreements under the Senior Notes
Indenture within five business days of becoming aware of any such default.

No Personal Liability of Directors, Officers, Employees and Stockholders

No director, officer, employee, incorporator or stockholder of the Company
shall have any liability for any obligations of the Company under the Notes or
Senior Notes Indenture or for any claim based on, in respect of, or by reason
of such obligations or their creation. Each holder of the Notes by accepting a
Note waives and releases all such liability. The waiver and release are part of
the consideration for issuance of the Notes. Such waiver and release may not be
effective to waive liabilities under the U.S. federal securities laws, and it
is the view of the Commission that such a waiver is against public policy.

Legal Defeasance and Covenant Defeasance

The obligations of the Company under the Senior Notes Indenture will
terminate (other than certain obligations) and will be released upon payment in
full of all of the Notes. The Company may, at its option and at any time, elect
to have all of its obligations discharged with respect to the outstanding Notes
("Legal Defeasance") and cure all then existing Events of Default except for
(i) the rights of holders of outstanding Notes to receive payments in respect
of the principal of, premium, if any, interest and Additional Amounts, if any,
on such Notes when such payments are due or on the redemption date solely out
of the trust created pursuant to the Senior Notes Indenture, (ii) the Company's
obligations with respect to Notes concerning issuing temporary Notes, or, where
relevant, registration of such Notes, mutilated, destroyed, lost or stolen
Notes and the maintenance of an office or agency for payment and money for
security payments held in trust, (iii) the rights, powers, trusts, duties and
immunities of the Trustee, and the Company's obligations in connection
therewith and (iv) the Legal Defeasance provisions of the Senior Notes
Indenture. In addition, the Company

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may, at its option and at any time, elect to have the obligations of the
Company released with respect to certain covenants that are described in the
Senior Notes Indenture ("Covenant Defeasance"), and thereafter any omission to
comply with such obligations shall not constitute a Default with respect to the
Notes. In the event Covenant Defeasance occurs, certain events (not including
non-payment on other indebtedness, bankruptcy, receivership, rehabilitation and
insolvency events) described under "Events of Default" will no longer
constitute an Event of Default with respect to the Notes.

In order to exercise either Legal Defeasance or Covenant Defeasance with
respect to the Notes,

(i) the Company must irrevocably deposit, or cause to be irrevocably
deposited, with the Trustee, in trust, for the benefit of the holders of
the Notes, cash in U.S. dollars, U.S. Government Securities or a
combination thereof and, in such amounts as will be sufficient, in the
opinion of an internationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, interest and
Additional Amounts, if any, due on the outstanding Notes on the stated
maturity date or on the applicable redemption date, as the case may be, of
such principal, premium, if any, interest and Additional Amounts, if any,
due on the outstanding Notes;

(ii) in the case of Legal Defeasance, the Company shall have delivered to
the Trustee (A) an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that, subject to customary assumptions
and exclusions, (1) the Company has received from, or there has been
published by, the U.S. Internal Revenue Service a ruling or (2) since the
Issue Date, there has been a change in the applicable U.S. federal income
tax law, in either case to the effect that, and based thereon such opinion
of counsel in the United States shall confirm that, subject to customary
assumptions and exclusions, the holders of the outstanding Notes will not
recognize income, gain or loss for U.S. federal income tax purposes as a
result of such Legal Defeasance and will be subject to U.S. federal income
tax on the same amounts, in the same manner and at the same times as would
have been the case if such Legal Defeasance had not occurred and (B) an
opinion of counsel in the Federal Republic of Germany reasonably acceptable
to the Trustee to the effect that (1) holders will not recognize income,
gain or loss for German income tax purposes as a result of such Legal
Defeasance and will be subject to German income tax on the same amounts, in
the same manner and at the same times as would have been the case if such
Legal Defeasance had not occurred and (2) payments from the defeasance
trust will be free and exempt from any and all withholding and other income
taxes of whatever nature imposed or levied by or on behalf of the German
government or any political subdivision thereof or therein having the power
to tax;

(iii) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee (A) an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that, subject to customary
assumptions and exclusions, the holders of the outstanding Notes will not
recognize income, gain or loss for U.S. federal income tax purposes as a
result of such Covenant Defeasance and will be subject to such tax on the
same amounts, in the same manner and at the same times as would have been
the case if such Covenant Defeasance had not occurred and (B) an opinion of
counsel in the Federal Republic of Germany reasonably acceptable to the
Trustee to the effect that (1) holders will not recognize income, gain or
loss for German income tax purposes as a result of such Covenant Defeasance
and will be subject to German income tax on the same amounts, in the same
manner and at the same times as would have been the case if such Covenant
Defeasance had not occurred and (2) payments from the defeasance trust will
be free and exempt from any and all withholding and other income taxes of
whatever nature imposed or levied by or on behalf of the German government
or any political subdivision thereof or therein having the power to tax;

(iv) no Default or Event of Default shall have occurred and be continuing
with respect to certain Events of Default on the date of such deposit;

(v) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under any material
agreement or instrument to which the Company is a party or by which the
Company is bound;

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(vi) the Company shall have delivered to the Trustee an opinion of
counsel to the effect that, as of the date of such opinion and subject to
customary assumptions and exclusions following the deposit, the trust funds
will not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally under
any applicable German law or U.S. federal or state law, and that the
Trustee has a perfected security interest in such trust funds for the
ratable benefit of the holders;

(vii) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of defeating, hindering, delaying or defrauding any creditors of the
Company or others; and

(viii) the Company shall have delivered to the Trustee an Officers'
Certificate and an opinion of counsel in the United States (which opinion
of counsel may be subject to customary assumptions and exclusions) each
stating that all conditions precedent provided for or relating to the Legal
Defeasance or the Covenant Defeasance, as the case may be, have been
complied with.

Satisfaction and Discharge

The Senior Notes Indenture will be discharged and will cease to be of further
effect as to all Notes issued thereunder when either (i) all such Notes
theretofore authenticated and delivered (except lost, stolen or destroyed Notes
which have been replaced or paid and Notes for whose payment money has
theretofore been deposited in trust and thereafter repaid to the Company) have
been delivered to the Trustee for cancellation, or (ii) (A) all such Notes not
theretofore delivered to the Trustee for cancellation have become due and
payable by reason of the making of a notice of redemption or otherwise or will
become due and payable within one year and the Company has irrevocably
deposited or caused to be deposited with the Trustee as trust funds in trust an
amount of money sufficient to pay and discharge the entire indebtedness on the
Notes not theretofore delivered to the Trustee for cancellation for principal,
premium, if any, and accrued and unpaid interest and Additional Amounts, if
any, to the date of maturity or redemption; (B) no Default with respect to the
Senior Notes Indenture or the Notes shall have occurred and be continuing on
the date of such deposit or shall occur as a result of such deposit and such
deposit will not result in a breach or violation of, or constitute a default
under, any other instrument to which the Company is a party or by which it is
bound; (C) the Company has paid, or caused to be paid, all sums payable by it
under the Senior Notes Indenture; and (D) the Company has delivered irrevocable
instructions to the Trustee under the Senior Notes Indenture to apply the
deposited money toward the payment of such Notes at maturity or the redemption
date, as the case may be. In addition, the Company must deliver an Officers'
Certificate and an opinion of counsel to the Trustee stating that all
conditions precedent to satisfaction and discharge have been satisfied.

Withholding Taxes

All payments made by the Company on the Notes (whether or not in the form of
Definitive Notes) will be made without withholding or deduction for, or on
account of, any present or future taxes, duties, assessments or governmental
charges of whatever nature (collectively, "Taxes") imposed or levied by or on
behalf of Germany, or any jurisdiction in which the Company or any Surviving
Entity is organized or is otherwise resident for tax purposes or any political
subdivision thereof or any authority having power to tax therein or any
jurisdiction from or through which payment is made (each, a "Relevant Taxing
Jurisdiction"), unless the withholding or deduction of such Taxes is then
required by law. If any deduction or withholding for, or on account of, any
Taxes of any Relevant Taxing Jurisdiction, shall at any time be required on any
payments made by the Company with respect to the Notes, including payments of
principal, redemption price, interest or premium, the Company will pay such
additional amounts (the "Additional Amounts") as may be necessary in order that
the net amounts received in respect of such payments by the holders of the
Notes or the Trustee, as the case may be, after such withholding or deduction,
equal the respective amounts which would have been received in respect of such
payments in the absence of such withholding or deduction; except that no such
Additional Amounts will be payable with respect to:

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(i) any payments on a Note held by or on behalf of a holder or beneficial
owner who is liable for such Taxes in respect of such Note by reason of the
holder or beneficial owner having some connection with the Relevant Taxing
Jurisdiction (including being a citizen or resident or national of, or
carrying on a business or maintaining a permanent establishment in, or
being physically present in, the Relevant Taxing Jurisdiction) other than
by the mere holding of such Note or enforcement of rights thereunder or the
receipt of payments in respect thereof;

(ii) any Taxes that are imposed or withheld as a result of a change in
law after the Issue Date where such withholding or imposition is by reason
of the failure of the holder or beneficial owner of the Note to comply with
any request by the Company to provide information concerning the
nationality, residence or identity of such holder or beneficial owner or to
make any declaration or similar claim or satisfy any information or
reporting requirement, which is required or imposed by a statute, treaty,
regulation or administrative practice of the Relevant Taxing Jurisdiction
as a precondition to exemption from all or part of such Taxes;

(iii) except in the case of the winding up of the Company, any Note
presented for payment (where presentation is required) in the Relevant
Taxing Jurisdiction; or

(iv) any Note presented for payment (where presentation is required) more
than 30 days after the relevant payment is first made available for payment
to the holder.

Such Additional Amounts will also not be payable where, had the beneficial
owner of the Note been the holder of the Note, he would not have been entitled
to payment of Additional Amounts by reason of clauses (i) to (iv) inclusive
above.

Upon request, the Company will provide the Trustee with documentation
satisfactory to the Trustee evidencing the payment of Additional Amounts.
Copies of such documentation will be made available to the holders upon
request.

The Company will pay any present or future stamp, court or documentary taxes,
or any other excise or property taxes, charges or similar levies which arise in
any jurisdiction from the execution, delivery or registration of the Notes or
any other document or instrument referred to therein, or the receipt of any
payments with respect to the Notes, excluding any such taxes, charges or
similar levies imposed by any jurisdiction outside of the Federal Republic of
Germany, the United States of America or any jurisdiction in which a Paying
Agent is located, other than those resulting from, or required to be paid in
connection with, the enforcement of the Notes or any other such document or
instrument following the occurrence of any Event of Default with respect to the
Notes.

Amendment, Supplement and Waiver

Except as provided in the next two succeeding paragraphs, the Senior Notes
Indenture and the Notes issued thereunder may be amended or supplemented with
the consent of the holders of at least a majority in principal amount of the
Notes then outstanding (including consents obtained in connection with a tender
offer or exchange offer for the Notes), and any existing Default or Event of
Default and its consequences or compliance with any provision of the Senior
Notes Indenture or the Notes may be waived with the consent of the holders of a
majority in principal amount of the outstanding Notes (including consents
obtained in connection with a tender offer or exchange offer for such Notes).

The Senior Notes Indenture provides that without the consent of each holder
affected, an amendment or waiver may not (with respect to any Notes held by a
non-consenting holder of the Notes): (i) reduce the principal amount of the
Notes whose holders must consent to an amendment, supplement or waiver, (ii)
reduce the principal of or change the fixed maturity of any such Note or alter
or waive the provisions with respect to the redemption of such Notes, (iii)
reduce the rate of or change the time for payment of interest on any Note, (iv)
waive a Default in the payment of principal of, or premium, if any, interest or
Additional Amounts, if any, on the Notes (except a rescission of acceleration
of such Notes by the holders of at least a majority in aggregate principal
amount of such Notes and a waiver of the payment default that resulted from
such acceleration with respect to such Notes), or in respect of a covenant or
provision contained in the Senior Notes

120

Indenture which cannot be amended or modified without the consent of all
holders, (v) make any Note payable in money other than that stated in such
Notes, (vi) make any change in the provisions of the Senior Notes Indenture
relating to waivers of past Defaults or the rights of holders of such Notes to
receive payments of principal of, or premium, if any, interest or Additional
Amounts, if any, on such Notes, (vii) make any change in the amendment and
waiver provisions in the Senior Notes Indenture, (viii) make any change in the
provisions of the Senior Notes Indenture described under "--Withholding Taxes"
that adversely affects the rights of any holder of the Notes, (ix) amend the
terms of the Notes or the Senior Notes Indenture in a way that would result in
the loss of an exemption from any of the Taxes described thereunder or an
exemption from any obligation to withhold or deduct Taxes as described
thereunder unless the Company agrees to pay Additional Amounts, if any, in
respect thereof, (x) modify the provisions of the Escrow Agreement or the
Senior Notes Indenture relating to the Escrow Collateral in any manner adverse
to the holders or release the Escrow Collateral from the Lien under the Escrow
Agreement or permit any other obligation to be secured by the Escrow Collateral
or (xi) impair the right of any holder of the Notes to receive payment of
principal of, interest and Additional Amounts, if any, on such holder's Notes
on or after the due dates therefor or to institute suit for the enforcement of
any payment on or with respect to such holder's Notes.

The Senior Notes Indenture provides that, notwithstanding the foregoing,
without the consent of any holder of Notes, the Company and the Trustee
together may amend or supplement the Senior Notes Indenture or the Notes (i) to
cure any ambiguity, omission, defect or inconsistency, (ii) to provide for
uncertificated Notes in addition to or in place of certificated Notes, or to
provide for additional forms of global Notes containing transfer and other
restrictions and which comply with applicable U.S. securities and other laws,
(iii) to comply with the covenant relating to mergers, consolidations and sales
of assets, (iv) to provide for the assumption of the Company's obligations to
holders of such Notes, (v) to make any change that would provide any additional
rights or benefits to the holders of the Notes or that does not adversely
affect the legal rights under the Senior Notes Indenture of any such holder,
(vi) to add covenants for the benefit of the holders or to surrender any right
or power conferred upon the Company, (vii) to comply with requirements of the
Commission in order to effect or maintain the qualification of the Senior Notes
Indenture under the Trust Indenture Act or (viii) to execute and deliver any
documents necessary or appropriate to release Liens or any Escrow Collateral as
permitted by the Escrow Agreement.

The consent of the holders is not necessary under the Senior Notes Indenture
to approve the particular form of any proposed amendment. It is sufficient if
such consent approves the substance of the proposed amendment.

Notices

Notices regarding the Notes in global form will be published in a leading
newspaper having a general circulation in New York (which is expected to be The
Wall Street Journal) and in Frankfurt (which is expected to be the Frankfurter
Allgemeine Zeitung) (and, if and so long as the Exchange Notes in global form
are listed on the Luxembourg Stock Exchange and the rules of such stock
exchange shall so require, a leading daily newspaper having a general
circulation in Luxembourg (which is expected to be the Luxemburger Wort)).
Notices regarding the Definitive Notes will be published in a leading daily
newspaper having a general circulation in Luxembourg (which is expected to be
the Luxemburger Wort)) and mailed to holders by first-class mail at their
respective addresses as they appear on the registration books of the Registrar.
Notices given by publication will be deemed given on the first date on which
publication is made and notices given by first-class mail, postage prepaid,
will be deemed given five calendar days after mailing.

Concerning the Trustee

The Senior Notes Indenture contains certain limitations on the rights of the
Trustee, should it become a creditor of the Company, to obtain payment of
claims in certain cases, or to realize on certain property received in respect
of any such claim as security or otherwise. The Trustee will be permitted to
engage in other transactions; provided, however, if it acquires any conflicting
interest it must eliminate such conflict within 90 days, apply to the
Commission for permission to continue or resign.

121

The Senior Notes Indenture provides that the Holders of a majority in
principal amount of the outstanding Notes issued thereunder will have the right
to direct the time, method and place of conducting any proceeding for
exercising any remedy available to the Trustee, subject to certain exceptions.
The Senior Notes Indenture provides that in case an Event of Default shall
occur (which shall not be cured), the Trustee will be required, in the exercise
of its power, to use the degree of care of a prudent person in the conduct of
his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Senior Notes
Indenture at the request of any Holder of such Notes, unless such Holder shall
have offered to the Trustee security and indemnity satisfactory to it against
any loss, liability or expense.

Governing Law

The Senior Notes Indenture and the Notes and the rights and duties of the
parties thereunder are governed by, and construed in accordance with, the laws
of the State of New York.

Enforceability of Judgments

Since most of the operating assets of the Company and its Subsidiaries are
outside the United States, any judgment obtained in the United States against
the Company or a Subsidiary, including judgments with respect to the payment of
principal, premium, if any, interest, Additional Amounts, if any, redemption
price and any purchase price with respect to the Notes, may not be collectible
within the United States.

The Company has been informed by its German counsel, Besner Kreifels Weber,
that, subject to certain exceptions, the laws of the Federal Republic of
Germany permit an action to be brought in a court of competent jurisdiction in
the Federal Republic of Germany permitting the enforcement of a judgment of a
United States federal court or a court of the State of New York sitting in the
Borough of Manhattan in the City of New York awarding claims under the terms
and conditions of the Notes and the Senior Notes Indenture. In granting
permission to enforce the United States or New York State court ruling, the
respective German court would not substantively re-examine or re-litigate the
case on the merits of the subject matter thereof.

The said exception to permission of enforcement of United States and New York
State court judgments provide, among other things, that a judgment may not be
enforced in Germany, if:

. such judgment is not final and remains subject to appeal or any other
form of contestation in the United States,

. the court having rendered such judgment is not the court of competent
jurisdiction pursuant to German international law,

. the judgment contradicts an earlier final and enforceable judgment
rendered in Germany or abroad on the same subject matter,

. the enforcement of such judgment would contradict essential principles
of German law and German ordre public (which especially excludes the
enforcement of judgments with a penal or revenue character).

Certain Definitions

Set forth below is a summary of certain of the defined terms used in the
Senior Notes Indenture. Reference is made to the Senior Notes Indenture for the
full definition of all terms as well as any other capitalized term used herein
for which no definition is provided. For purposes of the Senior Notes
Indenture, unless otherwise specifically indicated, the term "consolidated"
with respect to any Person refers to such Person consolidated with its
Restricted Subsidiaries, and excludes from such consolidation any Unrestricted
Subsidiary as if such Unrestricted Subsidiary were not an Affiliate of such
Person. For purposes of the following definitions and the Senior Notes
Indenture generally, all calculations and determinations shall be made in
accordance with US GAAP and shall be based upon the consolidated financial
statements of the Company and its subsidiaries prepared in accordance with US
GAAP.

"Acquired Indebtedness" is defined to mean Indebtedness of a Person existing
at the time such Person becomes a Restricted Subsidiary or is merged or
consolidated with or into the Company or any Restricted

122

Subsidiary or assumed in connection with an Asset Acquisition by the Company or
a Restricted Subsidiary and not incurred in connection with, or in anticipation
of, such Person becoming a Restricted Subsidiary, such merger or consolidation
or such Asset Acquisition; provided that Indebtedness of such Person which is
redeemed, defeased, retired or otherwise repaid at the time of or immediately
upon the consummation of the transactions by which such Person becomes a
Restricted Subsidiary or is merged or consolidated with or into the Company or
any Restricted Subsidiary or such Asset Acquisition shall not be Indebtedness.

"Affiliate" is defined to mean, as applied to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person, is defined to mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.

"Asset Acquisition" is defined to mean (i) any capital contribution (by means
of transfers of cash or other property to others or payments for property or
services for the account or use of others, or otherwise) by the Company or any
Restricted Subsidiary to any other Person, or any acquisition or purchase of
Equity Interests of any other Person by the Company or any Restricted
Subsidiary, in either case pursuant to which such Person shall become a
Restricted Subsidiary or shall be consolidated, merged with or into the Company
or any Restricted Subsidiary or (ii) an acquisition by the Company or any of
its Restricted Subsidiaries of the property and assets of any Person (other
than the Company or any of its Restricted Subsidiaries) that constitute
substantially all of an operating unit or line of business of such Person or
which is otherwise outside the ordinary course of business.

"Asset Sale" is defined to mean any sale, transfer or other disposition
(including by way of merger, consolidation or sale-leaseback transactions) in
one transaction or a series of related transactions by the Company or any of
its Restricted Subsidiaries to any Person (other than the Company or any of its
Restricted Subsidiaries) of (i) all or any of the Equity Interests in any
Subsidiary, (ii) all or substantially all of the property and assets of an
operating unit or line of business of the Company or any of its Restricted
Subsidiaries or (iii) any other property and assets of the Company or any of
its Restricted Subsidiaries outside the ordinary course of business (including
the receipt of proceeds paid on account of the loss of or damage to any
property or asset and awards of compensation for any asset taken by
condemnation, eminent domain or similar proceedings). For the purposes of this
definition, the term "Asset Sale" shall not include (a) any transaction
consummated in compliance with "--Consolidation, Merger and Sale of Assets" and
the creation of any Lien not prohibited by the "Limitation on Liens" covenant;
provided, however, that any transaction consummated in compliance with such "--
Consolidation, Merger and Sale of Assets" description involving a sale,
conveyance, assignment, transfer, lease or other disposal of less than all of
the properties or assets of the Company and the Restricted Subsidiaries shall
be deemed to be an Asset Sale with respect to the properties or assets of the
Company and Restricted Subsidiaries that are not so sold, conveyed, assigned,
transferred, leased or otherwise disposed of in such transaction; (b) sales of
property or equipment that has become worn out, obsolete or damaged or
otherwise unsuitable for use in connection with the business of the Company or
any Restricted Subsidiary, as the case may be; (c) sales of telecommunications
network capacity of the Company or any Restricted Subsidiary including sales of
indefeasible rights of use of or transfers of dark fiber optic transmission
cable, in each case in the ordinary course of business; and (d) any transaction
consummated in compliance with the "Limitation on Restricted Payments"
covenant. In addition, solely for purposes of the "Limitation on Asset Sales"
covenant, any sale, conveyance, transfer, lease or other disposition of any
property or asset, whether in one transaction or a series of related
transactions, involving assets with a Fair Market Value not in excess of
(Euro)1.0 million in any fiscal year shall be deemed not to be an "Asset Sale."

"Attributable Debt" is defined to mean, in respect of a Sale/Leaseback
Transaction, as at the time of determination, the present value (discounted at
the interest rate borne by the Notes, compounded annually) of the total
obligations of the lessee for rental payments during the remaining term of the
lease included in such Sale/Leaseback Transaction (including any period for
which such lease has been extended).

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"Board of Directors" is defined to mean the Board of Directors of the
Company.

"Board Resolution" is defined to mean a duly authorized resolution of the
Board of Directors.

"Capital Stock" is defined to mean, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) in equity of such Person, including, without
limitation, if such Person is a partnership, partnership interests (whether
general or limited) and any other interest or participation that confers on a
Person the right to receive a share of the profits and losses of, or
distributions of assets of, such partnership.

"Capitalized Lease" is defined to mean, as applied to any Person, any lease
of any property (whether real, personal or mixed) of which the discounted
present value of the rental obligations of such Person as lessee, in conformity
with US GAAP, is required to be capitalized and reflected as a liability on the
balance sheet of such Person; and "Capitalized Lease Obligation" is defined to
mean, at the time any determination thereof is to be made, the discounted
present value of the rental obligations under such lease.

"Cash Equivalents" is defined to mean, (a) securities issued or directly and
fully guaranteed or insured by the U.S. government or any agency or
instrumentality thereof or by the German government or any agency or
instrumentality thereof having maturities of not more than 360 days from the
date of acquisition; (b) overnight bank deposits or certificates of deposit,
eurodollar time deposits and bankers' acceptances with maturities of 360 days
or less from the date of acquisition, in each case with any commercial bank
having capital and surplus in excess of $500 million and outstanding debt rated
at least "A" or the equivalent thereof by S&P or Moody's; provided, however,
that securities deposited in the Escrow Account may have a Stated Maturity as
late as July 1, 2002; (c) repurchase obligations with a term of not more than
seven days for underlying securities of the types described in clauses (a) and
(b) entered into with any financial institution meeting the qualifications
specified in clause (b) above; (d) commercial paper rated at least A-1 or P-1,
or the equivalent thereof by S&P or Moody's, respectively, and in each case
maturing within 360 days after the date of acquisition and (e) direct
obligations of, or obligations fully and unconditionally guaranteed by, any
member of the European Community rated at least "AAA" or the equivalent thereof
by both S&P and Moody's.

"Change of Control" is defined to mean such time as (i) a "person" or "group"
(within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act) (other
than a Permitted Holder) becomes the ultimate "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act) of more than 35% of the total voting power
of the then outstanding Voting Stock of the Company on a fully diluted basis,
provided that the relevant threshold in the case of Cybermind Interactive
Europe and Holger Timm shall be 40%; (ii) individuals who at the beginning of
any period of two consecutive calendar years constituted the Board of Directors
(together with any directors who are members of the Board of Directors on the
date hereof and any new directors whose election by the Board of Directors or
whose nomination for election by the Company's stockholders was approved by a
vote of at least two-thirds of the members of the Board of Directors then still
in office who either were members of the Board of Directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the members of such
Board of Directors then in office; (iii) the sale, lease, transfer, conveyance
or other disposition (other than by way of merger or consolidation), in one or
a series of related transactions, of all or substantially all of the assets of
the Company to any such "person" or "group" (other than to a Restricted
Subsidiary); or (iv) the merger or consolidation of the Company with or into
another corporation or the merger of another corporation with or into the
Company with the effect that immediately after such transaction any such
"person" or "group" of persons or entities shall have become the beneficial
owner of securities of the surviving corporation of such merger or
consolidation representing a majority of the total voting power of the then
outstanding Voting Stock of the surviving corporation.

"Commission" is defined to mean the United States Securities and Exchange
Commission, as from time to time constituted, or, if at any time after the
execution of the Indenture such commission is not existing and

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performing the duties now assigned to it under the Trust Indenture Act, then
the body performing such duties at such time.

"Consolidated Cash Flow" is defined to mean with respect to any Person for
any period, the (i) Consolidated Net Income of such Person for such period
plus, to the extent deducted in computing such Consolidated Net Income (and
without duplication), Consolidated Fixed Charges, (ii) any provision for taxes
(other than taxes (either positive or negative) attributable to extraordinary
and nonrecurring gains or losses or sales of assets), (iii) any amount
attributable to depreciation and amortization expense and (iv) all other non-
cash items reducing Consolidated Net Income (excluding any non-cash charge to
the extent that it requires or represents an accrual of, or reserve for, cash
charges in any future period), less all non-cash items increasing Consolidated
Net Income (excluding any items which represent the reversal of an accrual of,
or reserve for, anticipated cash charges at any prior period), all as
determined on a consolidated basis for such Person and its Restricted
Subsidiaries in accordance with US GAAP; provided, however, that there shall be
excluded therefrom the Consolidated Cash Flow (if positive) of any Restricted
Subsidiary (calculated separately for such Restricted Subsidiary in the same
manner as provided above) that is subject to a restriction which prevents the
payment of dividends or the making of distributions to the Company or another
Restricted Subsidiary to the extent of such restriction.

"Consolidated Fixed Charges" is defined to mean, with respect to any Person
for any period, Consolidated Interest Expense plus dividends declared and
payable on Preferred Stock.

"Consolidated Interest Expense" is defined to mean with respect to any Person
for any period, the aggregate amount of interest in respect of Indebtedness
(including capitalized interest, amortization of original issue discount on any
Indebtedness and the interest portion of any deferred payment obligation)
calculated in accordance with US GAAP; all commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing; the net costs associated with Interest Rate Agreement, and interest
on Indebtedness that is Guaranteed or secured by such Person or any of its
Restricted Subsidiaries, less the principal component of rentals in respect of
Capitalized Lease Obligations paid, accrued or scheduled to be paid or to be
accrued by such Person and its Restricted Subsidiaries during such period;
excluding, however, any amount of such interest of any Restricted Subsidiary to
the extent the net income of such Restricted Subsidiary is excluded in the
calculation of Consolidated Net Income pursuant to the last proviso of such
definition.

"Consolidated Net Income" is defined to mean, for any period, the net income
(or loss) of the Company and its consolidated Restricted Subsidiaries
determined in accordance with US GAAP; provided, however, that there will not
be included in such Consolidated Net Income: (i) any net income (loss) of any
Person if such Person is not a Restricted Subsidiary, except that (a) subject
to the limitations contained in clauses (iv), (v) and (vi) below, the Company's
equity in the net income of any such Person for such period will be included in
such Consolidated Net Income up to the aggregate amount of cash actually
distributed by such Person during such period to the Company or a Restricted
Subsidiary as a dividend or other distribution (subject, in the case of a
dividend or other distribution to a Restricted Subsidiary, to the limitations
contained in clause (iii) below) and (b) the Company's equity in a net loss of
any such Person (other than an Unrestricted Subsidiary) for such period will be
included in determining such Consolidated Net Income to the extent such loss
has been funded with cash from the Company or a Restricted Subsidiary; (ii) any
net income (loss) of any Person acquired by the Company or a Subsidiary in a
pooling of interests transaction for any period prior to the date of such
acquisition; (iii) any net income (but not loss) of any Restricted Subsidiary
if such Subsidiary is subject to restrictions, directly or indirectly, on the
payment of dividends or the making of distributions by such Restricted
Subsidiary, directly or indirectly, to the Company, except that (a) subject to
the limitations contained in clauses (iv), (v) and (vi) below, the Company's
equity in the net income of any such Restricted Subsidiary for such period will
be included in such Consolidated Net Income up to the aggregate amount of cash
that could have been distributed by such Restricted Subsidiary during such
period to the Company or another Restricted Subsidiary as a dividend (subject,
in the case of a dividend to another Restricted Subsidiary, to the limitation
contained in this clause) and (b) the Company's equity in a net loss of any
such Restricted

125

Subsidiary for such period will be included in determining such Consolidated
Net Income; (iv) any gain (loss) realized upon the sale or other disposition of
any property, plant or equipment of the Company or its consolidated Restricted
Subsidiaries (including pursuant to any Sale/Leaseback Transaction) which is
not sold or otherwise disposed of in the ordinary course of business and any
gain (loss) realized upon the sale or other disposition of any Capital Stock of
any Person; (v) any extraordinary gain or loss; and (vi) the cumulative effect
of a change in accounting principles.

"Consolidated Net Worth" is defined to mean, at any date of determination,
stockholders' equity as set forth on the most recently available quarterly or
annual consolidated balance sheet of such Person and its Restricted
Subsidiaries (which shall be as of a date not more than 90 days prior to the
date of determination), less any amounts attributable to Redeemable Stock or
any equity security convertible into or exchangeable for Indebtedness, the cost
of treasury stock and the principal amount of any promissory notes receivable
from the sale of Equity Interests in the Company or any of its Restricted
Subsidiaries, each item to be determined in conformity with US GAAP (excluding
the effects of foreign currency exchange adjustments under Financial Accounting
Standards Board Statement of Financial Accounting Standards No. 52).

"Credit Facilities" is defined to mean one or more senior credit agreements,
senior loan agreements or similar senior facilities with banks or other
institutional lenders providing for revolving credit loans, term loans,
receivables financing (including through the sale of receivables to such
lenders or to special purpose entities formed to borrow from such lenders
against such receivables) or letters of credit, in each case, as amended,
restated, modified, renewed, refunded, replaced or refinanced in whole or in
part from time to time.

"Cumulative Consolidated Cash Flow" is defined to mean, for the period
beginning on the Issue Date through and including the end of the last fiscal
quarter (taken as one accounting period) preceding the date of any proposed
Restricted Payment, Consolidated Cash Flow of the Company and its Restricted
Subsidiaries for such period determined on a consolidated basis in accordance
with US GAAP.

"Cumulative Consolidated Fixed Charges" is defined to mean, for the period
beginning on the Issue Date through and including the end of the last fiscal
quarter (taken as one accounting period) preceding the date of any proposed
Restricted Payment, Consolidated Fixed Charges of the Company and its
Restricted Subsidiaries for such period determined on a consolidated basis in
accordance with US GAAP.

"Currency Agreement" is defined to mean any foreign exchange contract,
currency swap agreement and any other arrangement or agreement designed to
provide protection against fluctuations in currency values.

"Default" is defined to mean any event that is, or after notice or passage of
time or both would be, an Event of Default.

"Eligible Accounts Receivable" is defined to mean the accounts receivables
(net of any reserves and allowances for doubtful accounts in accordance with US
GAAP) of any Person that are not more than 60 days past their due date and that
were entered into in the ordinary course of business on normal payment terms as
shown on the most recent consolidated balance sheet of such Person filed with
the Commission, all in accordance with US GAAP.

"Equity Interests" is defined to mean Capital Stock and all warrants, options
or other rights to acquire Capital Stock (but excluding any debt security that
is convertible into, or exchangeable for, Capital Stock).

"Escrow Account" is defined to mean the account established by the Escrow
Agent pursuant to the terms of the Escrow Agreement for the deposit of the U.S.
Government Securities purchased by, or purchased at the direction of, the
Company with a portion of the net proceeds from the Unit Offering.

"Escrow Agent" is defined to mean The Bank of New York, as escrow agent under
the Escrow Agreement.

126

"Escrow Agreement" is defined to mean the Escrow Agreement relating to the
Notes dated as of the date of the Senior Notes Indenture, among the Escrow
Agent, the Trustee and the Company, governing the disbursement of funds from
the Escrow Account.

"Escrow Collateral" is defined to mean all funds and securities in the Escrow
Account and the proceeds thereof.

"Exchange Act" is defined to mean the United States Securities Exchange Act
of 1934, as amended, or any successor statute, and the rules and regulations
thereunder.

"Fair Market Value" is defined to mean, with respect to any asset or
property, the price (after taking into account any liabilities relating to such
assets) which could be negotiated in an arm's-length free market transaction,
for cash, between a willing seller and a willing and able buyer, neither of
which is under any compulsion to complete the transaction; provided, however,
that the Fair Market Value of any such asset or assets shall be determined
conclusively by the Board of Directors acting in good faith, which
determination shall be evidenced by a resolution of such Board delivered to the
Trustee.

"Guarantee" is defined to mean any obligation, contingent or otherwise, of
any Person directly or indirectly guaranteeing any Indebtedness or other
obligation in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof) of any other Person; provided that
the term "Guarantee" shall not include endorsements for collection or deposit
in the ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning.

"Incur" is defined to mean, with respect to any Indebtedness, to incur,
create, issue, assume, Guarantee or otherwise become liable for or with respect
to, or become responsible for, the payment of, contingently or otherwise, such
Indebtedness, including an Incurrence of Indebtedness by reason of the
acquisition of more than 50% of the Equity Interests in any Person; provided
that none of the accrual of interest, the payment of interest in the form of
additional Indebtedness or the accretion of original issue discount shall be
considered an Incurrence of Indebtedness.

"Indebtedness" is defined to mean, with respect to any Person at any date of
determination (without duplication), (i) all indebtedness of such Person,
whether or not contingent (A) in respect of borrowed money, (B) evidenced by
bonds, debentures, notes or other similar instruments or letters of credit or
other similar instruments (including reimbursement obligations with respect
thereto), (C) representing the balance deferred and unpaid of the purchase
price of property or services, which purchase price is due more than six months
after the date of placing such property in service or taking delivery and title
thereto or the completion of such services, except Trade Payables, (D)
representing Capitalized Lease Obligations, (ii) all Indebtedness of other
Persons secured by a Lien on any asset of such Person, whether or not such
Indebtedness is assumed by such Person; provided that the amount of such
Indebtedness shall be the lesser of (A) the fair market value of such asset at
such date of determination and (B) the amount of such Indebtedness, (iii) all
Indebtedness of other Persons Guaranteed by such Person to the extent such
Indebtedness is Guaranteed by such Person, (iv) the maximum fixed redemption or
repurchase price of Redeemable Stock of such Person at the time of
determination and (v) to the extent not otherwise included in this definition,
obligations under Currency Agreements and Interest Rate Agreements. The amount
of Indebtedness of any Person at any date shall be the outstanding balance at
such date of all unconditional obligations as described above and, with respect
to contingent obligations, the maximum liability upon the occurrence of the
contingency giving rise to the obligation; provided that (x) the amount
outstanding at any time of any Indebtedness issued with original issue discount
is the face amount of such Indebtedness less the remaining unamortized portion
of the original issue discount of such Indebtedness at such time as determined
in conformity with US GAAP, (y) money borrowed and set aside at the time of the
Incurrence of any Indebtedness for the sole purpose of prefunding the payment
of interest on such Indebtedness (and which is pledged in favor of the holders
of such Indebtedness pending such application) shall not be deemed to be
"Indebtedness" so long as such money is held to secure the

127

payment of such interest and (z) Indebtedness shall not include any liability
for federal, state, local or other taxes.

"Interest Rate Agreement" is defined to mean any interest rate swap
agreement, interest rate cap agreement, interest rate insurance, and any other
arrangement or agreement designed to provide protection against fluctuations in
interest rates.

"Investment" in any Person is defined to mean any direct or indirect advance,
loan or other extension of credit (including, without limitation, by way of
Guarantee or similar arrangement but excluding advances to customers in the
ordinary course of business that are, in conformity with US GAAP, recorded as
accounts receivable on the balance sheet of such Person or its Restricted
Subsidiaries) or capital contribution to (by means of any transfer of cash or
other tangible or intangible property to another Person or any payment for any
property or services for the account or use of another Person), or any purchase
or acquisition of Equity Interests, bonds, notes, debentures, or other similar
instruments issued by any other Person. For purposes of the definition of
"Unrestricted Subsidiary," the "Limitation on Restricted Payments" covenant and
the "Limitation on Issuance and Sale of Capital Stock of Restricted
Subsidiaries" covenant described above, (i) "Investment" shall include (a) the
Fair Market Value of the assets (net of liabilities) of any Restricted
Subsidiary of the Company at the time that such Restricted Subsidiary of the
Company is designated an Unrestricted Subsidiary and shall exclude the Fair
Market Value of the assets (net of liabilities) of any Unrestricted Subsidiary
at the time that such Unrestricted Subsidiary is designated a Restricted
Subsidiary of the Company and (b) the Fair Market Value, in the case of a sale
of Equity Interests in accordance with the "Limitation on the Issuance and Sale
of Capital Stock of Restricted Subsidiaries" covenant such that a Person no
longer constitutes a Restricted Subsidiary, of the remaining assets (net of
liabilities) of such Person after such sale, and shall exclude the Fair Market
Value of the assets (net of liabilities) of any Unrestricted Subsidiary at the
time that such Unrestricted Subsidiary is designated a Restricted Subsidiary of
the Company and (ii) any property transferred to or from an Unrestricted
Subsidiary shall be valued at its Fair Market Value at the time of such
transfer.

"Issue Date" is defined to mean the date on which the Notes are originally
issued under the Senior Notes Indenture.

"Lien" is defined to mean any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind in respect of an asset, whether or not
filed, recorded or otherwise perfected under applicable law (including, without
limitation, any conditional sale or other title retention agreement or lease in
the nature thereof, any sale with recourse against the seller or any Affiliate
of the seller, or any option or other agreement to sell or give any security
interest).

"Moody's" is defined to mean Moody's Investors Service, Inc. and its
successors.

"Most Recent Balance Sheet" is defined to mean, with respect to any Person,
the most recent consolidated balance sheet of such Person reported on by an
internationally recognized firm of independent accountants without
qualification as to scope.

"Net Cash Proceeds" is defined to mean, (a) with respect to any Asset Sale,
the proceeds of such Asset Sale in the form of cash or Cash Equivalents,
including payments in respect of deferred payment obligations (to the extent
corresponding to the principal, but not interest, component thereof) when
received in the form of cash or Cash Equivalents (except to the extent such
obligations are financed or sold with recourse to the Company or any Restricted
Subsidiary of the Company) and proceeds from the conversion of other property
received when converted to cash or Cash Equivalents, net of (i) brokerage
commissions and other fees and expenses (including fees and expenses of counsel
and investment bankers) related to such Asset Sale, (ii) taxes paid or payable
as a result thereof (after taking into account any available tax credits or
deductions and any tax sharing agreements), (iii) payments made to repay
Indebtedness or any other obligation outstanding at the time of such Asset Sale
that either (A) is secured by a Lien on the property or assets sold or (B) is
required to be

128

paid as a result of such sale and (iv) appropriate amounts to be provided by
the Company or any Restricted Subsidiary of the Company as a reserve against
any liabilities associated with such Asset Sale, including, without limitation,
pension and other post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification obligations
associated with such Asset Sale, all as determined in conformity with US GAAP;
provided that such amounts which cease to be held as reserves shall be deemed
Net Cash Proceeds and (b) with respect to any issuance or sale of Equity
Interests (other than Redeemable Stock and excluding any Equity Interests
issued in connection with the Unit Offering), the proceeds of such issuance or
sale in the form of cash or Cash Equivalents, including payments in respect of
deferred payment obligations (to the extent corresponding to the principal, but
not interest, component thereof) when received in the form of cash or Cash
Equivalents (except to the extent (1) such obligations are financed, directly
or indirectly, with money borrowed from the Company or any Restricted
Subsidiary or otherwise financed or sold with recourse to the Company or any
Restricted Subsidiary or (2) the purchase of the Equity Interests is otherwise
financed, directly or indirectly, by the Company or any Restricted Subsidiary,
including through funds contributed, extended, guaranteed or otherwise advanced
by the Company or any Affiliate) and proceeds from the conversion of other
property received when converted to cash or Cash Equivalents, net of attorneys'
fees, accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees incurred in connection
with such issuance or sale and net of taxes paid or payable as a result
thereof.

"Officers' Certificate" is defined to mean a certificate signed on behalf of
the Company by two officers of the Company, one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer of the Company that meets the requirements set
forth in the Senior Notes Indenture.

"Permitted Assets" is defined to mean, with respect to any Person, assets
used in the Permitted Business (or Equity Interests of a Person that becomes a
Restricted Subsidiary, the assets of which consist principally of such
Permitted Assets) that are purchased or acquired by the Company or a Restricted
Subsidiary after the Issue Date.

"Permitted Business" is defined to mean the business of (i) operating an
Internet connectivity or internet enhancement service as it may exist from time
to time, including, without limitation, providing dial up or dedicated internet
service, web hosting or co-location services, security solutions, configuration
services, electronic commerce, intranet solutions, data backup and restoral,
business content and collaboration or consulting services with respect to the
foregoing (including, without limitation, any business conducted by the Issuer
or any Restricted Subsidiary on the Issue Date), (ii) transmitting or providing
services relating to the transmission of, voice, video or data through owned or
leased transmission facilities, (iii) constructing, creating, developing,
providing or marketing communications-related network equipment, products,
software and other devices for use in an Internet or telecommunications
business, or (iv) evaluating, participating in or pursuing any other activity
or opportunity that is primarily related to those identified in clause (i),
(ii) or (iii) above. A good faith determination by a majority of the Board of
Directors as to whether a business meets the requirements of this definition
shall be conclusive, absent manifest error.

"Permitted Holder" is defined to mean Andreas Eder, Alessandro Giacalone and
any Affiliate of the foregoing Persons.

"Permitted Investment" is defined to mean (i) an Investment in a Restricted
Subsidiary or a Person which will, upon the making of such Investment, become a
Restricted Subsidiary or be merged or consolidated with or into or transfer or
convey all or substantially all its assets to, the Company or a Restricted
Subsidiary; (ii) payroll, travel and similar advances to cover matters that are
expected at the time of such advance ultimately to be treated as expenses in
accordance with US GAAP; (iii) stock, obligations or securities received (a) in
satisfaction of judgments or (b) in settlement of debts, or as a result of
foreclosure, perfection or enforcement of any Lien, in each case under this
clause (b) arising in the ordinary course of business and not in contemplation
of the acquisition of such stock, obligations or securities; (iv) Investments
in Cash Equivalents; (v) Investments made as a result of the receipt of noncash
consideration from any Asset Sale made in

129

compliance with the "Limitation on Asset Sales" covenant; (vi) Investments in
negotiable instruments held for collection, lease, utility and workers'
compensation, performance and other similar pledges or deposits, and other
pledges or deposits permitted under the "Limitation on Liens" covenant; (vii)
obligations under Interest Rate Agreements or Currency Agreements; provided
that such agreements (a) are designed solely to protect the Company or the
Restricted Subsidiary, as the case may be, against fluctuations in foreign
currency exchange rates or interest rates and (b) do not increase the
Indebtedness of the obligor outstanding at any time other than as a result of
fluctuations in foreign currency exchange rates or interest rates or by reason
of fees, indemnities and compensation payable thereunder; (viii) Investments
made in the ordinary course of business and on ordinary business terms in the
Permitted Business in consortia formed to construct transmission infrastructure
for use primarily in the Permitted Business, provided such Investment entitles
the Company to rights of way or rights of use on such transmission
infrastructure; and (ix) any Investment in Pledged Securities.

"Permitted Liens" is defined to mean (i) Liens for taxes, assessments,
governmental charges or claims that are being contested in good faith by
appropriate legal proceedings promptly instituted and diligently conducted and
for which a reserve or other appropriate provision, if any, as shall be
required in conformity with US GAAP shall have been made; (ii) statutory Liens
of landlords and carriers, warehousemen, mechanics, suppliers, materialmen,
repairmen or other similar Liens arising in the ordinary course of business and
with respect to amounts not yet delinquent or being contested in good faith by
appropriate legal proceedings promptly instituted and diligently conducted and
for which a reserve or other appropriate provision, if any, as shall be
required in conformity with US GAAP shall have been made; (iii) Liens incurred
or deposits made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security or
other similar legislation and other insurance-related obligations (including,
without limitation, pledges or deposits securing liability to insurance
carriers under insurance or self-insurance arrangements); (iv) easements,
rights-of-way, municipal and zoning ordinances and similar charges,
encumbrances, title defects or other irregularities that do not materially
interfere with the ordinary course of business of the Company or any of its
Restricted Subsidiaries; (v) Liens (including extensions and renewals thereof)
upon real or personal property of a Restricted Subsidiary purchased or leased
after the Issue Date; provided that (a) such Lien is created solely for the
purpose of securing Indebtedness Incurred by such Restricted Subsidiary in
compliance with the "Limitation on Indebtedness" and "Limitation on Issuances
of Guarantees of Indebtedness by Restricted Subsidiaries" covenants (1) to
finance the cost of the item of property or assets subject thereto and such
Lien is created prior to, at the time of or within six months after the later
of the acquisition and the Incurrence of such Indebtedness or (2) to refinance
any Indebtedness of a Restricted Subsidiary previously so secured, (b) the
principal amount of the Indebtedness secured by such Lien does not exceed 100%
of such cost and (c) any such Lien shall not extend to or cover any property or
assets other than such item of property or assets; (vi) any interest or title
of a lessor in the property subject to any Capitalized Lease or operating lease
of a Restricted Subsidiary which, in each case, is permitted under the Senior
Notes Indenture; (vii) Liens on property of, or on Equity Interests in or
Indebtedness of, any Person existing at the time such Person becomes, or
becomes a part of, any Restricted Subsidiary; provided that such Liens were not
created, incurred or assumed in contemplation of such transaction and do not
extend to or cover any property or assets of the Company or any Restricted
Subsidiary other than the property or assets so acquired; (viii) Liens arising
from the rendering of a final judgment or order against the Company or any
Restricted Subsidiary of the Company that does not give rise to an Event of
Default; (ix) Liens encumbering customary initial deposits and margin deposits
and other Liens that are either within the general parameters customary in the
industry or incurred in the ordinary course of business, in each case, securing
Indebtedness under Interest Rate Agreements and Currency Agreements; (x) Liens
arising out of conditional sale, title retention, consignment or similar
arrangements for the sale of goods entered into by the Company or any of its
Restricted Subsidiaries in the ordinary course of business in accordance with
the past practices of the Company and its Restricted Subsidiaries prior to the
Issue Date; (xi) Liens existing on the Issue Date or securing the Notes or any
Guarantee of the Notes; (xii) Liens granted after the Issue Date on any assets
or Equity Interests in the Company or its Restricted Subsidiaries created in
favor of the holders; (xiii) Liens with respect to the assets of a Restricted
Subsidiary granted by such Restricted Subsidiary to the Company or another
Restricted Subsidiary to secure Indebtedness owing to the Company or such
Restricted Subsidiary and Incurred in

130

compliance with clause (ii) of paragraph (b) of the "Limitation on
Indebtedness" covenant; (xiv) Liens created in connection with the incurrence
of any Indebtedness permitted to be Incurred under clause (iii) of paragraph
(b) of the "Limitation on Indebtedness" covenant; provided that the
Indebtedness which it refinances is secured by similar Liens; (xv) Liens
securing Indebtedness under Credit Facilities incurred in compliance with
clause (viii) of paragraph (b) of the "Limitation on Indebtedness" covenant;
(xvi) Liens incurred or deposits made to secure the performance of tenders,
bids, leases, subleases, licenses, sublicenses, obligations for utilities,
statutory or regulatory obligations, bankers' acceptances, letters of credit,
surety and appeal bonds, government or other contracts, completion guarantees,
performance and return-of-money bonds and other obligations of a similar nature
incurred in the ordinary course of business (exclusive of obligations for the
payment of borrowed money); (xvii) Liens in favor of customs and revenue
authorities arising as a matter of law to secure payment of customs duties in
connection with the importation of goods; (xviii) Liens created to secure
Attributable Debt in connection with Sale/Leaseback Transactions permitted to
be entered into by the "Restriction on Sale/Leaseback Transactions" covenant;
and (xix) Liens with respect to the Escrow Account (or any similar escrow
account established in connection with the issuance of any Additional Notes or
any other notes which are pari passu with the Notes) arising under the Escrow
Agreement (or any similar escrow agreement established in connection with the
issuance of any Additional Notes or any other notes which are pari passu with
the Notes).

"Pledged Securities" is defined to mean the U.S. Government Securities
purchased by the Company and deposited in the Escrow Account (or any similar
escrow account established in connection with the issuance of any Additional
Notes).

"Preferred Stock" is defined to mean, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) which is preferred as to the payment of dividends
or distributions, or as to the distribution of assets upon any voluntary or
involuntary liquidation or dissolution of such Person, over Equity Interests of
any other class in such Person.

"Pro forma Consolidated Cash Flow" is defined to mean with respect to any
Person for any period, the Consolidated Cash Flow of such Person for such
period calculated on a pro forma basis to give effect to any Asset Sale or
Asset Acquisition (including acquisitions of other Persons by merger,
consolidation or purchase of Equity Interests) during such period as if such
Asset Sale or Asset Acquisition had taken place on the first day of such period
and income (or losses) ceased to accrue or accrued, as the case may be,
therefrom from such date.

"Redeemable Stock" is defined to mean, with respect to any Person, any
Capital Stock which by its terms (or by the terms of any security into which it
is convertible or for which it is exchangeable) or upon the happening of any
event (i) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise, (ii) is convertible or exchangeable for Indebtedness
or Redeemable Stock or (iii) is redeemable or must be purchased, upon the
occurrence of certain events or otherwise, by such Person at the option of the
holder thereof, in whole or in part, in each case on or prior to the first
anniversary of the Stated Maturity of the Notes; provided, however, that any
Capital Stock that would not constitute Redeemable Stock but for provisions
thereof giving holders thereof the right to require such Person to purchase or
redeem such Capital Stock upon the occurrence of an "asset sale" or "change of
control" occurring prior to the first anniversary of the Stated Maturity of the
Notes shall not constitute Redeemable Stock if (x) the "asset sale" or "change
of control" provisions applicable to such Capital Stock are not more favorable
to the holders of such Capital Stock than the terms applicable to the Notes and
described under the "Limitation on Asset Sales" covenant and "--Repurchase of
Notes upon a Change of Control" and (y) any such requirement only becomes
operative after compliance with such terms applicable to the Notes including
the purchase of any Notes tendered pursuant thereto.

"Replacement Assets" is defined to mean any property, plant or equipment of a
nature or type that are used or usable in the Permitted Business (as determined
in good faith by the Board of Directors, whose determination shall be evidenced
by a Board Resolution).

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"Restricted Subsidiary" is defined to mean, at any time, any direct or
indirect Subsidiary of the Company that is then not an Unrestricted Subsidiary.

"S&P" is defined to mean Standard & Poor's Ratings Services, a division of
the McGraw-Hill Companies, and its successors.

"Sale/Leaseback Transaction" is defined to mean an arrangement relating to
property now owned or hereafter acquired whereby the Company or a Restricted
Subsidiary transfers such property to a Person and the Company or a Restricted
Subsidiary leases it from such Person, other than leases between the Company
and a Wholly Owned Restricted Subsidiary or between Wholly Owned Restricted
Subsidiaries.

"Securities Act" is defined to mean the United States Securities Act of 1933,
as amended, or any successor statute, and the rules and regulations thereunder.

"Share Capital" is defined to mean, at any time of determination, the stated
capital of the Equity Interests (other than Redeemable Stock) and additional
paid-in capital of the Company as set forth on the Most Recent Balance Sheet of
the Company at such time.

"Significant Subsidiary" is defined to mean, at any time of determination,
any Restricted Subsidiary that, together with its Subsidiaries, (i) for the
most recent fiscal year of the Company, accounted for more than 10% of the
consolidated revenues of the Company and its Restricted Subsidiaries or (ii) as
of the end of such fiscal year, was the owner of more than 10% of the
consolidated assets of the Company and its Restricted Subsidiaries, all as set
forth on the most recently available consolidated financial statements of the
Company for such fiscal year.

"Stated Maturity" is defined to mean, (i) with respect to any debt security,
the date specified in such debt security as the fixed date on which the final
installment of principal of such debt security is due and payable and (ii) with
respect to any scheduled installment of principal of or interest on any debt
security, the date specified in such debt security as the fixed date on which
such installment is due and payable.

"Subsidiary" is defined to mean, with respect to any Person (i) any
corporation, association or other business entity of which more than 50% of the
outstanding Voting Stock is at the time of determination owned, directly or
indirectly, by such Person or one or more other Subsidiaries of such Person and
(ii) any partnership, joint venture, limited liability company or similar
entity of which (A) more than 50% of the capital accounts, distribution rights,
total equity and voting interests or general or limited partnership interests,
as applicable, are owned or controlled, directly or indirectly, by such Person
or one or more of the other Subsidiaries of that Person or a combination
thereof whether in the form of membership, general, special or limited
partnership or otherwise and (B) such Person or any Restricted Subsidiary of
such Person is a controlling general partner, co-venturer, manager or similar
position or otherwise controls such entity.

"Trade Payables" is defined to mean any accounts payable or any other
indebtedness or monetary obligation to trade creditors created, assumed or
Guaranteed by the Company or any of its Restricted Subsidiaries arising in the
ordinary course of business in connection with the acquisition of goods and
services.

"Transaction Date" is defined to mean, with respect to the Incurrence of any
Indebtedness by the Company or any of its Restricted Subsidiaries, the date
such Indebtedness is to be Incurred and, with respect to any Restricted
Payment, the date such Restricted Payment is to be made.

"Unrestricted Subsidiary" is defined to mean (i) any Subsidiary of the
Company which at the time of determination is an Unrestricted Subsidiary (as
designated by the Board of Directors in the manner provided below) and (ii) any
Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate
any Subsidiary of the Company (including any newly acquired or newly formed
Subsidiary of the Company) to be an Unrestricted Subsidiary unless such
Subsidiary, or any of its Subsidiaries, owns any Equity Interests or
Indebtedness of, or owns or holds any Lien on any property of, the Company or
any Restricted Subsidiary;

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provided that (a) the Company certifies in an Officers' Certificate that such
designation complies with the covenants described under "Limitation on
Restricted Payments," (b) such Subsidiary is not party to any agreement,
contract, arrangement or understanding with the Company or any Restricted
Subsidiary of the Company unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to the Company or such
Restricted Subsidiary than those that might reasonably be obtained in a
comparable arm's-length transaction at the time from Persons who are not
Affiliates of the Company, (c) neither the Company nor any of its Restricted
Subsidiaries has any direct or indirect obligation (1) to subscribe for
additional Equity Interests in such Subsidiary or any Subsidiary of such
Subsidiary or (2) to maintain or preserve such Subsidiary's financial condition
or to cause such Subsidiary to achieve any specified levels of operating
results and (d) such Subsidiary and its Subsidiaries have not at the time of
designation, and do not thereafter, Incur any Indebtedness other than
Unrestricted Subsidiary Indebtedness. The Board of Directors may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary of the Company; provided
that immediately after giving effect to such designation (x) the Company could
Incur (Euro)1.00 of additional Indebtedness under the first paragraph of the
"Limitation on Indebtedness" covenant described above on a pro forma basis
taking into account such designation and (y) no Default or Event of Default
shall have occurred and be continuing. Any such designation by the Board of
Directors shall be evidenced to the Trustee by promptly filing with the Trustee
a copy of the resolution of the Board of Directors giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing provisions.

"Unrestricted Subsidiary Indebtedness" is defined to mean Indebtedness of any
Unrestricted Subsidiary (i) as to which neither the Company nor any Restricted
Subsidiary is directly or indirectly liable (by virtue of the Company or any
such Restricted Subsidiary being the primary obligor on, guarantor of, or
otherwise liable in any respect to, such Indebtedness), and (ii) which, upon
the occurrence of a default with respect thereto, does not result in, or permit
any holder of any Indebtedness of the Company or any Restricted Subsidiary to
declare, a default on such Indebtedness of the Company or any Restricted
Subsidiary or cause the payment thereof to be accelerated or payable prior to
its Stated Maturity.

"US GAAP" is defined to mean, at any date of determination, generally
accepted accounting principles as in effect in the United States of America
which are applicable at the date of determination and which are consistently
applied for all applicable periods.

"U.S. Government Securities" is defined to mean direct obligations of, or
obligations guaranteed by, the United States of America for the payment of
which obligations or guarantee the full faith and credit of the United States
is pledged and are not callable or redeemable at the option of the issuer
thereof.

"Voting Stock" is defined to mean with respect to any Person, Capital Stock
of any class or kind ordinarily entitled to vote for the election of directors
thereof at a meeting of Stockholders called for such purpose, without the
occurrence of any additional event or contingency.

"Weighted Average Life to Maturity" is defined to mean, at any date of
determination with respect to any Indebtedness, the quotient obtained by
dividing (i) (a) the sum of the products of the number of years from such date
of determination to the dates of each successive scheduled principal payment
of, or redemption or similar payment with respect to, such Indebtedness
multiplied by (b) the amount of such principal payment, by (ii) the sum of all
such principal payments.

"Wholly Owned Restricted Subsidiary" is defined to mean any Restricted
Subsidiary all of the outstanding voting Equity Interests (other than
directors' qualifying shares) of which are owned, directly or indirectly, by
the Company.

Exchange Offer and Registration Rights

The Company entered into a registration rights agreement with the initial
purchasers in connection with the Unit Offering (the "Registration Rights
Agreement"), pursuant to which the Company agreed to file with

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the SEC, subject to the provisions described below, a registration statement
(the "Exchange Offer Registration Statement") on an appropriate form permitting
registration of the Exchange Notes and to permit resales of Exchange Notes held
by broker-dealers as contemplated by the Registration Rights Agreement. The
Registration Rights Agreement provides that unless the Exchange Offer would not
be permitted by applicable law or SEC policy, the Company will (i) file the
Exchange Offer Registration Statement with the SEC on or prior to 90 days after
the Issue Date, (ii) use its best efforts to cause the Exchange Offer
Registration Statement to be declared effective by the SEC within 150 days
after the Issue Date, (iii) (A) file all pre-effective amendments to such
Registration Statement as may be necessary in order to cause such Registration
Statement to become effective, (B) file, if applicable, a post-effective
amendment to such Registration Statement pursuant to Rule 430A under the
Securities Act and (C) cause all necessary filings in connection with the
registration and qualifications of the Exchange Notes to be made under the blue
sky laws of such jurisdictions as are necessary to permit consummation of the
Exchange Offer and (iv) use its best efforts to cause the Exchange Offer to be
consummated on or prior to 30 days after the date on which the Exchange Offer
Registration Statement is declared effective by the SEC.

For purposes of the foregoing, "Transfer Restricted Securities" means each
Note until the earliest to occur of (i) the date on which such Note has been
exchanged by a person other than a broker-dealer for Exchange Notes in the
Exchange Offer, (ii) following the exchange by a broker-dealer in the Exchange
Offer of such Note for one or more Exchange Notes, the date on which such
Exchange Notes are sold to a purchaser who receives from such broker-dealer on
or prior to the date of such sale a copy of the prospectus contained in the
Exchange Offer Registration Statement, (iii) the date on which such Note has
been effectively registered under the Securities Act and disposed of in
accordance with a shelf registration statement (the "Shelf Registration
Statement") or (iv) the date on which such Note is eligible for distribution to
the public pursuant to Rule 144 under the Securities Act.

Under existing SEC interpretations, the Exchange Notes would, in general, be
freely transferable after the Exchange Offer without further registration under
the Securities Act; provided, however, that in the case of broker-dealers
participating in the Exchange Offer, a prospectus meeting the requirements of
the Securities Act must be delivered by such broker-dealers in connection with
resales of the Exchange Notes. The Company has agreed, for a period of 180 days
after consummation of the Exchange Offer, to make available a prospectus
meeting the requirements of the Securities Act to any such broker-dealer for
use in connection with any resale of any Exchange Notes acquired in the
Exchange Offer. A broker-dealer that delivers such a prospectus to purchasers
in connection with such resales will be subject to certain of the civil
liability provisions under the Securities Act and will be bound by the
provisions of the Registration Rights Agreement (including certain
indemnification rights and obligations).

Holders of Notes that desire to exchange such Notes for Exchange Notes in the
Exchange Offer will be required to make certain representations, including
representations that (i) any Exchange Notes to be received by it will be
acquired in the ordinary course of its business, (ii) it has no arrangement
with any person to participate in the distribution (within the meaning of the
Securities Act) of the Exchange Notes and (iii) it is not an "affiliate," as
defined in Rule 405 of the Securities Act, of the Company, or if it is an
affiliate, it will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable.

If the holder is not a broker-dealer, it will be required to represent that
it is not engaged in, and does not intend to engage in, the distribution of the
Exchange Notes. If the holder is a broker-dealer that will receive Exchange
Notes for its own account in exchange for Notes that were acquired as a result
of market-making activities or other trading activities, it will be required to
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes.

The Company has agreed to pay all expenses incident to the Exchange Offer and
will indemnify the initial purchasers in the Unit Offering against certain
liabilities, including liabilities under the Securities Act.

134

If (i) the Company is not permitted to file the Exchange Offer Registration
Statement or to consummate the Exchange Offer because the Exchange Offer is not
permitted by applicable law or SEC policy, (ii) any holder of Transfer
Restricted Securities that is a "qualified institutional buyer" (as defined in
Rule 144A under the Securities Act) notifies Cybernet at least 20 business days
prior to the consummation of the Exchange Offer that (a) applicable law or
Commission policy prohibits the holder from participating in the Exchange
Offer, (b) such holder may not resell the Exchange Notes acquired by it in the
Exchange Offer to the public without delivering a prospectus and the prospectus
contained in the Exchange Offer Registration Statement is not appropriate or
available for such resales by such holder or (c) such holder is a broker-dealer
and holds Notes acquired directly from the Company or an affiliate of the
Company, (iii) the Exchange Offer is not for any other reason consummated
within 180 days of the Issue Date or (iv) the Exchange Offer has been completed
and, in the opinion of counsel for the initial purchasers, a Registration
Statement must be filed and a prospectus must be delivered by the initial
purchasers in connection with any offering or sale of Transfer Restricted
Securities, the Company will use its best efforts to: (A) file a Shelf
Registration Statement within 90 days of the earliest to occur of (i) through
(iv) above and (B) cause the Shelf Registration Statement to be declared
effective with respect to each series of Notes by the SEC on or prior to the
150th day after such obligation arises. Cybernet shall use its best efforts to
keep such Shelf Registration Statement continuously effective, supplemented and
amended to ensure that it is available for resales of Notes by the holders of
Transfer Restricted Securities entitled to this benefit and to ensure that such
Shelf Registration Statement conforms and continues to conform with the
requirements of the Registration Rights Agreement, the Securities Act and the
policies, rules and regulations of the SEC, as announced from time to time,
until the second anniversary of the Issue Date; provided, however, that during
such two-year period the holders of Notes may be prevented or restricted by the
Company from effecting sales pursuant to the Shelf Registration Statement as
more fully described in the Registration Rights Agreement. A holder of Notes
that sells its Notes pursuant to the Shelf Registration Statement generally
will be required to be named as a selling security holder in the related
prospectus and to deliver a prospectus to purchasers, will be subject to
certain of the civil liability provisions under the Securities Act in
connection with such sales and will be bound by the provisions of the
Registration Rights Agreement that are applicable to such holder (including
certain indemnification and contribution obligations).

If (i) the Company fails to file with the SEC any of the Registration
Statements required by the Registration Rights Agreement on or before the date
specified therein for such filing, (ii) any of such Registration Statements is
not declared effective by the Commission on or prior to the date specified for
such effectiveness in the Registration Rights Agreement (the "Effectiveness
Target Date"), (iii) the Exchange Offer has not been consummated within 30 days
after the Effectiveness Target Date with respect to the Exchange Offer
Registration Statement or (iv) any Registration Statement required by the
Registration Rights Agreement is filed and declared effective but thereafter
ceases to be effective or fails to be usable for its intended purpose without
being succeeded within five business days by a post-effective amendment to such
Registration Statement that cures such failure and that is itself immediately
declared effective (each such event referred to in clauses (i) through (iv)
above, a "Registration Default"), additional cash interest ("Liquidated
Damages") shall accrue to each holder of the affected Notes commencing upon the
occurrence of such Registration Default in an amount equal to 0.50% per annum
of the principal amount of Notes held by such holder. The amount of Liquidated
Damages will increase by an additional 0.50% per annum of the principal amount
of the Notes with respect to each subsequent 90-day period (or portion thereof)
until all Registration Defaults have been cured, up to a maximum rate of
Liquidated Damages of 1.50% per annum of the principal amount of the Notes. All
accrued Liquidated Damages will be paid to holders by the Company in the same
manner as interest is paid pursuant to the Senior Notes Indenture. Following
the cure of all Registration Defaults relating to any particular Transfer
Restricted Securities, the accrual of Liquidated Damages with respect to such
Transfer Restricted Securities will cease.

The summaries herein of certain provisions of the Senior Notes Indenture and
the Registration Rights Agreement do not purport to be complete and are subject
to, and are qualified in their entirety by reference to, all the provisions of
the Senior Notes Indenture and the Registration Rights Agreement, copies of
which will be made available upon request to the Company.

135

DESCRIPTION OF MATERIAL INDEBTEDNESS

On August 26, 1999, we sold $50,002,183 in aggregate initial accreted value
of our 13.0% Convertible Senior Subordinated Discount Notes due 2009. Each
Discount Note was sold at an initial accreted value of $534.78, a substantial
discount from its principal amount at maturity of $1,000. There will not be any
accrual of cash interest on the Discount Notes prior to August 15, 2004 or
payment of cash interest prior to February 15, 2005. Holders of the Discount
Notes may convert the Discount Notes at their option into our common stock at
any time after August 26, 2000. The number of shares of our common stock
issuable upon conversion of the Discount Notes is equal to the accreted value
of the Discount Notes being converted on the date of conversion divided by
$25.00, subject to adjustment under certain events. If the market price of our
common stock exceeds certain prices at any time after August 26, 2000, the
Discount Notes will automatically convert into shares of our common stock at
the same conversion ratio. The net proceeds of the Discount Notes Offering were
$47,502,074, which we intend to use for capital expenditures and general
corporate purposes.

On August 26, 1999, we sold (Euro)25 million aggregate principal amount of
our 13.0% Convertible Senior Subordinated Pay-In-Kind Notes due 2009. We will
pay interest on the PIK Notes in the form of additional notes issued under the
pay-in-kind feature through August 15, 2004. From that date to maturity
interest will accrue and will be paid in cash. Holders of the PIK Notes and any
additional notes issued under the pay-in-kind feature may convert both types of
notes at their option into our common stock at any time after August 26, 2000.
The number of shares of our common stock issuable upon conversion of these
notes is equal to the principal value of the notes being converted divided by
$25.00, subject to adjustment under certain circumstances. The net proceeds of
the PIK Notes Offering were (Euro)23,750,000, which we intend to use for
capital expenditures and general corporate purposes.

136

CERTAIN UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES

The following summary describes the material United States federal income tax
consequences of the acquisition, ownership and disposition of the Exchange
Notes as of the date hereof. Except where noted, it deals only with the
Exchange Notes held as capital assets and does not deal with special
situations, such as those of dealers in securities or currencies, financial
institutions, tax-exempt entities, life insurance companies, persons holding
Exchange Notes as a part of a hedging, integrated, conversion or constructive
sale transaction or a straddle or holders of Exchange Notes whose "functional
currency" is not the U.S. dollar. Furthermore, the discussion below is based
upon the provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), and regulations, rulings and judicial decisions thereunder as of the
date hereof, and such authorities may be repealed, revoked or modified so as to
result in United States federal income tax consequences different from those
discussed below. Likewise, this summary does not address the federal income tax
consequences of the acquisition of Exchange Notes as an asset separate from the
Warrants. Persons considering the acquisition, ownership or disposition of the
Exchange Notes should consult their own tax advisors concerning the United
States federal income tax consequences in light of their particular situations
as well as any consequences arising under the laws of any other taxing
jurisdiction.

As used herein, a "U.S. Holder" means a holder of an Exchange Note that is
(i) a citizen or resident of the United States, (ii) a corporation or
partnership created or organized in or under the laws of the United States or
any political subdivision thereof, (iii) an estate the income of which is
subject to United States federal income taxation regardless of its source or
(iv) a trust (X) that is subject to the supervision of a court within the
United States and the control of one or more United States persons as described
in section 7701(a)(30) of the Code or (Y) that has a valid election in effect
under applicable U.S. Treasury regulations to be treated as a United States
person. A "Non-U.S. Holder" is a holder of an Exchange Note that is not a U.S.
Holder.

Exchange Offer

An exchange of Outstanding Notes for Exchange Notes pursuant to the Exchange
Offer will not be a taxable event for U.S. federal income tax purposes. The
Exchange Notes received by a Holder pursuant to the Exchange Offer generally
will be treated as a continuation of the Outstanding Notes in the hands of such
Holder. A U.S. Holder must continue to include original issue discount ("OID")
on the Exchange Notes and will have the same tax basis and holding period in
the Exchange Notes as the Outstanding Notes.

Payments of Interest

Except as described below under "Original Issue Discount," interest on an
Exchange Note will generally be taxable to a U.S. Holder as ordinary income at
the time it is paid or accrued in accordance with the U.S. Holder's method of
accounting for tax purposes.

Sale, Exchange and Retirement of Notes

A U.S. Holder's tax basis in a Note will, in general, be the U.S. Holder's
cost therefor increased by OID.

Upon the sale, exchange, retirement or other disposition of an Exchange Note,
a U.S. Holder will recognize gain or loss equal to the difference between the
amount realized upon the sale, exchange, retirement or other disposition (less
any accrued qualified stated interest not previously included in income, which
will be taxable as such) and the adjusted tax basis of the Exchange Note.
Generally, such gain or loss will be capital gain or loss. Capital gains of
individuals derived in respect of capital assets held for more than one year
are eligible for reduced rates of taxation. The deductibility of capital losses
is subject to limitations.

137

Applicable High Yield Discount Obligations

The Exchange Notes are "applicable high yield discount obligations"
("AHYDOs"), as defined in the Code, because (i) the yield to maturity on the
Notes exceeds the "applicable federal rate" in effect at the time of their
issuance (the "AFR") plus five percentage points and (ii) the Notes have
"significant OID" as that term is defined in the Code. Accordingly, the Company
will not be allowed to take a deduction for interest (including OID) accrued on
the Notes for U.S. federal income tax purposes until such time as the Company
actually pays such interest (including OID). Moreover, because the yield to
maturity on the Notes exceeds the sum of the AFR and 6% (such excess shall be
referred to hereinafter as the "Disqualified Yield"), the deduction for
interest (including OID) accrued on the Notes will be permanently disallowed
for U.S. federal income tax purposes to the extent such interest or OID is
attributable to the Disqualified Yield on the Notes ("Dividend-Equivalent
Interest"). For purposes of the dividends received deduction, such Dividend-
Equivalent Interest will be treated as a dividend to the extent it is deemed to
have been paid out of the Company's current or accumulated earnings and
profits. Accordingly, a U.S. Holder of the Notes that is a corporation will be
entitled, subject to applicable limitations, to take a dividends received
deduction with respect to any Dividend-Equivalent Interest received by such
corporate holder on such Note.

Original Issue Discount

The Exchange Notes will be issued with OID in an amount equal to the
difference between the principal amount of the Exchange Notes and the issue
price of the Exchange Notes which was established by allocating the purchase
price between Notes and Warrants issued in the Unit Offering. U.S. Holders
should be aware that they generally must include OID in gross income in advance
of the receipt of cash attributable to that income.

The amount of OID includible in income by a U.S. Holder of an Exchange Note
is the sum of the "daily portions" of OID with respect to the Exchange Note for
each day during the taxable year or portion of the taxable year in which such
U.S. Holder held such Exchange Note ("accrued OID"). The daily portion is
determined by allocating to each day in any "accrual period" a pro rata portion
of the OID allocable to that accrual period. The "accrual period" for an
Exchange Note may be 6 months or less and may vary in length over the term of
the Exchange Note, provided that each scheduled payment of principal or
interest occurs on the first day or the final day of an accrual period. The
amount of OID allocable to any accrual period is an amount equal to the excess,
if any, of (a) the product of the Exchange Note's adjusted issue price at the
beginning of such accrual period and its yield to maturity (determined on the
basis of compounding at the close of each accrual period and properly adjusted
for the length of the accrual period) over (b) the sum of any stated interest
allocable to the accrual period. OID allocable to a final accrual period is the
difference between the amount payable at maturity (other than a payment of
stated interest) and the adjusted issue price at the beginning of the final
accrual period. The "adjusted issue price" of an Exchange Note at the beginning
of any accrual period is equal to its issue price increased by the accrued OID
for each prior accrual period. Under these rules, a U.S. Holder will have to
include in income increasingly greater amounts of OID in successive accrual
periods. The Company is required to provide information returns stating the
amount of OID accrued on Notes held of record by persons other than
corporations and other exempt holders.

U.S. Holders may elect to treat all interest on any Exchange Note as OID and
calculate the amount includible in gross income under the constant yield method
described above. For the purposes of this election, interest includes stated
interest, acquisition discount, OID, de minimis OID and unstated interest. The
election is to be made for the taxable year in which the U.S. Holder acquired
the Exchange Note, and may not be revoked without the consent of the IRS. U.S.
Holders should consult with their own tax advisors about this election.

In the event Exchange Notes are held by a related foreign person (within the
meaning of the Code), the Company generally may not deduct OID attributable to
such Exchange Notes until paid.

138

Non-U.S. Holders

Under present United States federal income and estate tax law, and subject to
the discussion below concerning backup withholding:

(a) payments of principal or interest (including OID) on an Exchange Note
owned by a Non-U.S. Holder will not be subject to U.S. withholding tax
provided (i) that the beneficial owner does not actually or constructively
own 10% or more of the total combined voting power of all classes of stock
of the Company entitled to vote within the meaning of section 871(h)(3) of
the Code and the regulations thereunder, (ii) the beneficial owner is not a
controlled foreign corporation that is related to the Company through stock
ownership, (iii) the beneficial owner is not a bank whose receipt of
interest on an Exchange Note is described in section 881(c)(3)(A) of the
Code and (iv) the beneficial owner satisfies the statement requirement
(described generally below) set forth in section 871(h) and section 881(c)
of the Code and the regulations thereunder;

(b) gain realized by a Non-U.S. Holder upon the sale, exchange,
retirement or other disposition of an Exchange Note will not be subject to
U.S. withholding tax; and

(c) an Exchange Note beneficially owned by an individual who at the time
of death is a Non-U.S. Holder will not be subject to United States federal
estate tax as a result of such individual's death, provided that such
individual does not actually or constructively own 10% or more of the total
combined voting power of all classes of stock of the Company entitled to
vote within the meaning of section 871(h)(3) of the Code and provided that
the interest payments with respect to such Exchange Note would not have
been, if received at the time of such individual's death, effectively
connected with the conduct of a United States trade or business by such
individual. However, Warrants and Warrant Shares held by an individual Non-
U.S. Holder at the time of death will be included in such holder's gross
estate for United States federal estate tax purposes, unless an applicable
estate tax treaty provides otherwise.

To satisfy the requirement referred to in (a)(iv) above, the beneficial owner
of such Exchange Note, or a financial institution holding the Exchange Note on
behalf of such owner, must provide, in accordance with specified procedures, a
paying agent of the Company with a statement to the effect that the beneficial
owner is not a United States person. Currently, these requirements will be met
if (1) the beneficial owner provides his name and address, and certifies, under
penalties of perjury, that he is not a United States person (which
certification may be made on an IRS W-8 (or successor form)) or (2) a financial
institution holding the Exchange Note on behalf of the beneficial owner
certifies, under penalties of perjury, that such statement has been received by
it and furnishes a paying agent with a copy thereof. Under recently finalized
Treasury regulations (the "Final Regulations"), the statement requirement
referred to in (a)(iv) above may also be satisfied with other documentary
evidence for interests paid after December 31, 2000 with respect to an offshore
account or through certain foreign intermediaries.

If a Non-U.S. Holder cannot satisfy the requirements of the "portfolio
interest" exception described in (a) above, payments interest (including OID)
made to such Non-U.S. Holder will be subject to a 30% withholding tax unless
the beneficial owner of the Note provides the Company or its paying agent, as
the case may be, with a properly executed (1) IRS Form 1001 (or successor form)
claiming an exemption from or reduction in withholding under the benefit of a
tax treaty or (2) IRS Form 4224 (or successor form) stating that interest paid
on the Note is not subject to withholding tax because it is effectively
connected with the beneficial owner's conduct of a trade or business in the
United States. Under the Final Regulations, Non-U.S. Holders will generally be
required to provide IRS Form W-8 in lieu of IRS Form 1001 and IRS Form 4224,
although alternative documentation may be applicable in certain situations.

139

If a Non-U.S. Holder of an Exchange Note is engaged in a trade or business in
the United States and if interest on the Exchange Note or gain realized on the
sale, exchange or other disposition of the Exchange Note is effectively
connected with the conduct of such trade or business, the Non-U.S. Holder,
although exempt from the withholding tax discussed above, will be subject to
United States federal income tax on such interest (including OID) on a net
income basis in the same manner as if it were a U.S. Holder. In addition, if
such Non-U.S. Holder is a foreign corporation, it may be subject to a branch
profits tax equal to 30% (or lesser rate under an applicable treaty) of its
effectively connected earnings and profits for the taxable year, subject to
adjustments.

Any gain or income realized upon the sale, exchange, retirement or other
disposition of an Exchange Note generally will not be subject to United States
federal income tax unless (i) such gain or income is effectively connected with
a trade or business in the United States of the Non-U.S. Holder, or (ii) in the
case of a Non-U.S. Holder who is an individual, such individual is present in
the United States for 183 days or more in the taxable year of such sale,
exchange, retirement or other disposition, and certain other conditions are
met.

Special Rules may apply to certain Non-U.S. Holders, such as "controlled
foreign corporations," "passive foreign investment companies" and "foreign
personal holding companies," that are subject to special treatment under the
Code. Such entities should consult their own tax advisors to determine the U.S.
federal, state, local and other tax consequences that may be relevant to them.

Information Reporting and Backup Withholding

In general, information reporting requirements will apply to certain payments
of principal and interest (including OID) paid on the Exchange Notes and to the
proceeds of the sale of an Exchange Note made to U.S. Holders other than
certain exempt recipients (such as corporations). A 31% backup withholding tax
will apply to such payments if the U.S. Holder fails to provide a taxpayer
identification number or certification of foreign or other exempt status or
fails to report in full dividend and interest income.

In general, information reporting and backup withholding will not apply with
respect to payments made on the Exchange Notes by the Company or any paying
agent to Non-U.S. Holders if a statement described in (a)(iv) under "Non-U.S.
Holders" has been received (and the payor does not have actual knowledge that
the beneficial owner is a United States person). On and before December 31,
2000, information reporting and backup withholding will not apply to dividends
paid to a Non-U.S. Holder at an address outside the United States (unless the
payer has knowledge that the payee is a U.S. person). After December 31, 2000,
however, a Non-US Holder will be subject to back-up withholding unless
applicable certification requirements are met.

In addition, backup withholding and information reporting will not apply if
payments of the principal and interest (including OID) on an Exchange Note are
paid or collected by a foreign office of a custodian, nominee or other foreign
agent on behalf of the beneficial owner of such Exchange Note, or if a foreign
office of a broker (as defined in applicable Treasury regulations) pays the
proceeds of the sale of an Exchange Note, to the owner thereof. If, however,
such nominee, custodian, agent or broker is, for United States federal income
tax purposes, a United States person, a controlled foreign corporation or a
foreign person that derives 50% or more of its gross income for certain periods
from the conduct of a trade or business in the United States, or, for taxable
years beginning after December 31, 2000, a foreign partnership in which one or
more United States persons, in the aggregate, own more than 50% of the income
or capital interests in the partnership or which is engaged in a trade or
business in the United States, such payments will not be subject to backup
withholding but will be subject to information reporting, unless (1) such
custodian, nominee, agent or broker has documentary evidence in its records
that the beneficial owner is not a United States person and certain other
conditions are met or (2) the beneficial owner otherwise establishes an
exemption.

Payments of principal and interest (including OID) on an Exchange Note paid
to the beneficial owner by a United States office of a custodian, nominee or
agent, or the payment by the United States office of a broker of the proceeds
of sale of an Exchange Note will be subject to both backup withholding and
information reporting

140

unless the beneficial owner provides the statement referred to in (a)(iv) above
and the payor does not have actual knowledge that the beneficial owner is a
United States person or otherwise establishes an exemption.

Any amounts withheld under the backup withholding rules will be allowed as a
refund or a credit against such holder's United States federal income tax
liability provided the required information is furnished to the IRS.

141

PLAN OF DISTRIBUTION

Based on positions taken by the Staff of the Commission set forth in no-
action letters issued to Exxon Capital Holding Corp. and Morgan Stanley & Co.
Inc., among others, we believe that the Exchange Notes issued pursuant to the
Exchange Offer in exchange for Outstanding Notes may be offered for resale,
resold and otherwise transferred by holders thereof (other than any holder
which is (i) an "affiliate" of our Company within the meaning of Rule 405 under
the Securities Act of 1933, (ii) a broker-dealer who acquired Notes directly
from our Company, or (iii) broker-dealers who acquired Notes as a result of
market-making or other trading activities) without compliance with the
registration and prospectus delivery provisions for the Securities Act of 1933
provided that such Exchange Notes are acquired in the ordinary course of such
holders' business, and such holders are not engaged in, and do not intend to
engage in, and have no arrangement or understanding with any person to
participate in, and have no arrangement or understanding with any person to
participate in, a distribution of such Exchange Notes, provided that broker-
dealers ("Participating Broker-Dealers") receiving Exchange Notes in the
Exchange Offer will be subject to a prospectus delivery requirement with
respect to resales of such Exchange Notes. To date, the Staff of the Commission
has taken the position that Participating Broker-Dealers may fulfill their
prospectus delivery requirements with respect to transactions involving an
exchange of securities such as the exchange pursuant to the Exchange Offer
(other than a resale of an unsold allotment from the sale of the Outstanding
Notes to the Initial Purchasers thereof) with the prospectus contained in the
registration statement of which this prospectus is a part. Pursuant to the
registration rights agreement entered into in connection with the Unit
Offering, we have agreed to permit Participating Broker-Dealers and other
persons, if any, subject to similar prospectus delivery requirements to use
this prospectus in connection with the resale of such Exchange Notes. We have
agreed that, for a period of 180 days after the Exchange Offer has been
consummated, we will make this prospectus, and any amendment or supplement to
this prospectus, available to any broker-dealer that requests such documents in
the Letter of Transmittal.

Each holder of Outstanding Notes who wishes to exchange its Outstanding Notes
for Exchange Notes in the Exchange Offer will be required to make certain
representations to us as set forth in "The Exchange Offer". In addition, each
holder who is a broker-dealer and who receives Exchange Notes for its own
account in exchange for Outstanding Notes that were acquired by it as a result
of market-making activities or other trading activities, will be required to
acknowledge that it will deliver a prospectus in connection with any resale by
it of such Exchange Notes.

Holders who tender Outstanding Notes in the Exchange Offer with the intention
to participate in a distribution of the Exchange Notes may not rely upon the
Exxon Capital Holdings Corp., the Morgan Stanley & Co. Inc. or similar no-
action letters.

We will not receive any proceeds from any sale of Exchange Notes by broker-
dealers. Exchange Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or at negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from any
such broker-dealer and/or the purchasers of any such Exchange Notes. The Letter
of Transmittal states that by acknowledging that it will deliver and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act of 1933.

We have agreed to pay all expenses incidental to the Exchange Offer other
than commissions and concessions of any brokers or dealers and will indemnify
holders of the Outstanding Notes (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act of 1933, as set
forth in the registration rights agreement entered into in connection with the
Unit Offering.

142

LEGAL MATTERS

Certain legal matters with respect to the Exchange Notes will be passed upon
for Cybernet by Powell, Goldstein, Frazer & Murphy LLP, Washington, D.C.
Certain matters of German law with respect to the Exchange Notes will be passed
upon for Cybernet by Besner Kreifels Weber, Munich, Germany.

INDEPENDENT ACCOUNTANTS

Our consolidated financial statements at December 31, 1998, 1997 and 1996,
and for each of the years then ended and the financial statements of Open:Net
at December 31, 1997 and for the year then ended appearing elsewhere in this
prospectus have been audited by Schitag Ernst & Young, AG, independent
accountants.

The financial statements of Vianet at December 31, 1997 and 1998, and for
each of the three years in the period ended December 31, 1998 appearing in this
prospectus have been audited by Ernst & Young, Wirtschaftsprufungs-Und,
Steuerberatungsgesellschaft MBH, independent accountants.

The financial statements of Flashnet at December 31, 1998 and for the year
then ended appearing in this prospectus have been audited by Grant Thornton
S.p.A., independent accountants.

AVAILABLE INFORMATION

We have filed with the Commission a Registration Statement on Form S-4 under
the Securities Act of 1933 with respect to the Exchange Notes offered hereby.
This prospectus, which forms a part of the Registration Statement, does not
contain all the information set forth in the Registration Statement, certain
parts of which have been omitted in accordance with the rules and regulations
of the Commission. For further information with respect to our Company and the
Exchange Notes, reference is made to the Registration Statement. Statements
contained in this prospectus as to the contents of certain documents are not
necessarily complete, and, in each instance, reference is made to the copy of
the document filed as an exhibit to the Registration Statement, and each such
statement is qualified in its entirety by such reference.

Cybernet is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended. In accordance with those requirements,
Cybernet is required to file reports, proxy statements and other information
with the Securities and Exchange Commission. Reports, proxy statements and
other information filed with the Securities and Exchange Commission may be
inspected without charge and copied at prescribed rates at the public reference
facilities maintained by the Securities and Exchange Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Regional Offices of the
Securities and Exchange Commission located at Suite 1400, Citicorp Center, 500
West Madison Street, Chicago, Illinois 60661-2551 and Room 1300, 7 World Trade
Center, New York, New York 10048. Information on the operation of the Public
Reference Room may be obtained by calling the Securities and Exchange
Commission at 1-800-SEC-0330. In addition, such reports, proxy statements and
other information can be inspected on the Securities and Exchange Commission's
website at http://www.sec.gov. In addition, Cybernet intends to furnish its
stockholders with annual reports containing financial statements audited by its
independent certified public accountants.

If and so long as the Notes are listed on or admitted for trading on an
internationally recognized stock exchange and the rules of such exchange shall
so require, copies of the information described above will also be available in
such places and for such times as the rules of such stock exchange may require.

143

LISTING AND GENERAL INFORMATION

1. Listing: Application will be made to list Exchange Notes on the Luxembourg
Stock Exchange. The legal notice relating to the issue of the Exchange Notes
and the Certificate of Incorporation of the Company will be registered prior
to the listing with the Registrar of the District Court in Luxembourg
(Greffier en Chef du Tribunal d'Arrondissement de et a Luxembourg), where
such documents are available for inspection and where copies thereof can be
obtained upon request. As long as the Exchange Notes are listed on the
Luxembourg Stock Exchange, an agent for making payments on, transfers and
conversions of the Exchange Notes will be maintained in Luxembourg.

2. Authorizations: The Company has obtained all necessary consents, approvals
and authorizations in connection with the issue of the Notes. The issue of
the Notes was authorized by resolutions of the Board of Directors of the
Company passed on May 26, 1999.

3. Material Change: Except as disclosed in this prospectus, there has been no
significant change in the financial or trading position of the Company and
its subsidiaries since June 30, 1999 and no material adverse change in the
financial position or prospects of the Company and its subsidiaries since
June 30, 1999.

4. Litigation: Neither the Company nor any of its subsidiaries is involved in
any litigation or arbitration proceedings which may have, or have had during
the 12 months preceding the date of this Exchange Offer, a material adverse
effect on the financial position of the Company and its subsidiaries, nor,
so far as any of them is aware, is any such proceeding pending or
threatened.

5. Auditors: The Company's consolidated balance sheets 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 have been audited by Schitag Ernst & Young in
accordance with United States generally accepted auditing standards. Schitag
Ernst & Young have given and not withdrawn their written consent to the
issuer of this prospectus to the inclusion in it of their reports in the
form and context in which they are included.

6. Documents Available: Copies (and certified English translations where the
documents are not in English) of the following documents may be inspected at
the specified office of Kredietbank S.A. in Luxembourg for so long as the
Exchange Notes are listed on the Luxembourg Stock Exchange:

. Certificate of Incorporation of the Company;

. a copy of the reports of the independent accountants and the audited
consolidated financial statements of the Company and its
subsidiaries for the three years ended December 31, 1998;

. the purchase agreement relating to the Notes;

. the Senior Notes Indenture under which the Notes are issued (which
includes the form of the Global Note and Definitive Notes);

. the Escrow Agreement; and

. such other documents as the rules and regulations of such stock
exchange may require.

In addition, copies of the most recent consolidated financial statements of
the Company for the preceding financial year, and any quarterly interim
financial statements published by the Company, will be available at the
specification of the Kredietbank S.A. in Luxembourg for as long as the
Exchange Notes are listed on the Luxembourg Stock Exchange. The Company
does not prepare non-consolidated financial statements for public release.

144

7. Clearing Systems: The Notes will be cleared, either directly or indirectly,
through The Depository Trust Company, Euroclear and/or Cedel Bank. Relevant
trading information is set forth below:

CUSIP for Outstanding Notes...................................... 232503AC7
ISIN for Outstanding Notes....................................... US232503AC64
CUSIP for Exchange Notes.........................................
ISIN for Exchange Notes..........................................

8. Accounts: The Company prepares annual consolidated balances sheets,
consolidated statements of loss and comprehensive loss, consolidated
statements of cash flows and consolidated statements of shareholders' equity
and quarterly consolidated balance sheets, consolidated statements of loss
and comprehensive loss and consolidated statements of cash flows.

9. Exchange Notes: Application will be made to list the Exchange Notes on the
Luxembourg Stock Exchange. The Exchange Notes will be accepted for clearance
through the accounts of the Euroclear Operator and Cedel Bank and they will
have a new common code and a new common ISIN number, which will be
transmitted to the Luxembourg Stock Exchange. All documents prepared in
connection with the Exchange Offer will be available at the office of the
special agent in Luxembourg and all necessary actions and services in
respect of the Exchange Offer may be done at the office of the special agent
in Luxembourg. The special agent appointed for these purposes is Kredietbank
S.A. Luxembourgeoise, 43, Boulevard Royal, L-2955 Luxembourg.

All notices relating to the Exchange Offer will be published in accordance
with the notice provisions of the Senior Notes Indenture. See "Description
of the Notes--Notices." So long as the Exchange Notes are listed on the
Luxembourg Stock Exchange and the rules of such stock exchange shall
require, prior to the commencement of the Exchange Offer, notice of the
Exchange Offer will be given to the Luxembourg Stock Exchange and will be
published in a newspaper having a general circulation in Luxembourg (which
is expected to be the Luxemburger Wort). Such notice will, among other
things, provide details of the conditions to the Exchange Offer and the
commencement and expected completion dates of the Exchange Offer. So long
as the Exchange Notes are listed on the Luxembourg Stock Exchange and the
rules of such stock exchange shall require, notice of the results of the
Exchange Offer will be given to the Luxembourg Stock Exchange and will be
published in a newspaper having a general circulation in Luxembourg (which
is expected to be the Luxemburger Wort), in each cash, as promptly as
practicable following the completion of the Exchange Offer. Similar notice
will also be provided in connection with the payment of Liquidated Damages
and the declaration of the effective date of interest rates.

145

GLOSSARY OF TERMS

Set forth below are definitions of some of the terms used in this prospectus.

Backbone..................... A centralized high-speed network that
interconnects smaller, independent networks.

Bandwidth.................... A measure of the amount of information which
can move through a communications medium in a
given amount of time; the capacity of a
telecommunications circuit/network to carry
voice, data and video information. Typically
measured in kb/s and Mb/s.

Caching...................... Temporary storage or replication of Web server
content at one or more locations throughout the
Internet to provide a quicker response to a
local browser request.

CGI.......................... Custom Gateway Interface.

Co-Location.................. Housing of a server owned and maintained by
another.

DS-3 or T-3.................. A data communications circuit capable of
transmitting data at 45 Mb/s. Equivalent to 28
T-1's of data capacity. Currently used only by
business/institutions and carriers for high-end
applications.

E-1.......................... The European counterpart to T1 which transmits
at 2.0448 Mb/s.

Electronic mail or e-mail.... An application that allows a user to send or
receive text messages to or from any other user
with an Internet address, commonly termed an e-
mail address.

Ethernet..................... A common method of networking computers in a
LAN. Ethernet will handle about 10 Mb/s and can
be used with almost any kind of computer.

Extranet..................... A company Website that is made available to
external customers or organizations for
electronic commerce.

FDDI......................... Fiber Distributed Data Interface. A standard
for transmitting data on fiber-optic cables at
a rate of 100 Mb/s.

Firewall..................... A gateway between two networks that buffers and
screens all information and prevents
unauthorized traffic from passing between such
networks.

Frame relay.................. A communications standard that is optimized for
efficient switching of variable-length data
packets.

Host......................... A computer with direct access to the Internet.

Internet..................... A global collection of interconnected computer
networks which use a specific communications
protocol.

Intranet..................... A TCP/IP based network and Website which is
securely isolated from the Internet and serves
the internal needs of a company or institution.

146

IP or Internet Protocol...... Network protocols that allow computers with
different architectures and operating systems
software to communicate with other computers on
the Internet.

ISDN or Integrated Services
Digital Network.............. An information transfer standard for
transmitting digital voice and data over
telephone lines at speeds up to 128 Kb/s

ISPs or Internet Service
Providers.................... Companies formed to provide access to the
Internet to consumer and business customers via
local networks.

Kbps or Kilobits per
second....................... A transmission rate. One kilobit equals 1,024
bits of information.

LAN or Local Area Network.... A data communications network designed to
interconnect personal computers, workstations,
minicomputers, file servers and other
communications and computing devices within a
localized environment.

Leased Lines................. Telecommunications lines dedicated to a
particular customer along predetermined routes.

Mbps or Megabits per
second....................... A transmission rate. One megabit equals 1,024
kilobits.

MMDS......................... Microwave Multipoint Distribution Service.

Modem........................ A device for transmitting digital information
over an analog telephone line.

Network...................... A collection of distributed computers which
share data and information through inter-
connected lines of communication.

NOC or Network Operations
Center....................... Facility where we monitor and manage our
network.

Peering...................... The commercial practice under which nationwide
ISPs exchange each other's traffic, in most
cases without the payment of settlement
charges.

POPs or Points-of-Presence... An interlinked group of modems, routers and
other computer equipment, located in a
particular city or metropolitan area, that
allows a nearby subscriber to access the
Internet through a local telephone call or by
using a short-distance permanent data circuit.

Protocol..................... A formal description of message formats and the
rules two or more machines must follow in order
to communicate.

Router....................... A device that receives and transmits data
packets between segments in a network or
different networks.

Server....................... Software that allows a computer to offer a
service to another computer. Other computers
contact the server program by means of matching
client software. The term also refers to the
computer on which server software runs.

STM-1........................ A data communication circuit capable of
transmitting data at 155 Mb/s.

147

VPN or Virtual Private
Network...................... A network capable of providing the tailored
services of a private network (i.e., low
latency, high throughput, security and
customization) while maintaining the benefits
of a public network (i.e., ubiquity and
economies of scale).

WAN or Wide Area Network..... A data communications network designed to
interconnect personal computers, workstations,
mini computers, file servers and other
communications and computing devices across a
broad geographic region.

Web or World Wide Web........ A network of computer servers that uses a
special communications protocol to link
different servers throughout the Internet and
permits communication of graphics, video and
sound.

Web-hosting/housing.......... A service in which websites are housed on third
party computers and maintained online using the
Internet.

Websites or Webpages......... A site located on the Web, written in the HTML
or SGML language.

148

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 the Consolidated Financial Statements.......................... F- 7
Consolidated Balance Sheets December 31, 1998 and June 30, 1999
(unaudited)............................................................ F-21
Consolidated Statements of Loss and Comprehensive Loss six months ended
June 30, 1998 and 1999 (unaudited)..................................... F-22
Consolidated Statements of Cash Flows six months ended June 30, 1998 and
1999 (unaudited)....................................................... F-23
Notes to the Consolidated Unaudited Interim Financial Statements
(unaudited)............................................................ F-24
VIANET TELEKOMMUNIKATIONS AG
Independent Auditors' Report............................................ F-27
Balance Sheets December 31, 1998 and 1997............................... F-28
Statements of Operations and Retained Earnings years ended December 31,
1998, 1997 and 1996.................................................... F-29
Statements of Cash Flows years ended December 31, 1998, 1997 and 1996... F-30
Notes to the Financial Statements....................................... F-31
OPEN:NET NETZWERKDIENSTE GMBH
Independent Auditors' Report............................................ F-36
Balance Sheet Year Ended December 31, 1997.............................. F-37
Profit and Loss Statements year ended December 31, 1997 and eight months
ended August 31, 1998 (unaudited)...................................... F-38
Notes to the Financial Statements....................................... F-39
FLASHNET S.P.A.
Independent Auditors' Report............................................ F-42
Balance Sheet December 31, 1998......................................... F-43
Statement of Loss for the year ended December 31, 1998.................. F-44
Statement of Stockholders' Deficit year ended December 31, 1998......... F-45
Statement of Cash Flows year ended December 31, 1998.................... F-46
Notes to the Financial Statements....................................... F-47
Balance Sheets March 31, 1999 and 1998 (unaudited)...................... F-54
Statement of Loss three months ended March 31, 1999 and 1998
(unaudited)............................................................ F-55
Statement of Stockholders' Deficit three months ended March 31, 1999 and
1998 (unaudited)....................................................... F-56
Statement of Cash Flows three months ended March 31, 1999 and 1998
(unaudited)............................................................ F-57
Notes to the Financial Statements (unaudited)........................... F-58

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. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements 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.

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............... 178,994 279,698 2,940,865
Depreciation and amortization.......... 21,263 115,899 879,978
---------- ----------- ------------
Total operating expenses........... 628,101 2,065,931 9,240,833
---------- ----------- ------------
Operating loss......................... (683,548) (2,283,697) (11,047,313)
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 earn-
ings 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 loss 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........... 28,049 287,095 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........................... (569,685) (1,432,432) (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................ (557,585) (2,464,312) (3,865,930)
Acquisition of businesses, net of cash
acquired................................ -- (269,316) (734,154)
---------- ---------- -----------
Net cash used in investing
activities........................... (1,532,912) (4,790,473) (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

CYBERNET INTERNET SERVICES INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

Common Stock Preferred Stock
------------------ ------------------
Additional Accumulated Other Total
Subscription Paid-In Accumulated Comprehensive Stockholders'
Shares Amounts Shares Amount Receivable Capital Deficit Income (Loss) Equity
---------- ------- ---------- ------ ------------ ----------- ----------- ----------------- -------------

Balance
January 1,
1996............ 161,250 $ 161 6,360,000 $6,360 $ 57,995 $ (3,418) $ 4,952 $ 66,050
Issuance of
shares for
cash............ 4,998,750 4,999 2,007,904 2,012,903
Net loss......... (283,778) (283,778)
Currency
translation
adjustment...... (5,089) (5,089)
---------- ------- ---------- ------ --------- ----------- ----------- --------- -----------
Balance
December 31,
1996........... 5,160,000 $ 5,160 6,360,000 $6,360 -- $ 2,065,899 $ (287,196) $ (137) $ 1,790,086
Issuance of
shares in
reverse
acquisition.... 9,521,891 9,522 232,331 241,853
Issuance of
shares for
cash........... 1,400,000 1,400 (735,000) 8,804,027 8,070,427
Currency
translation
adjustment..... (210,211) (210,211)
Net loss........ (983,840) (983,840)
---------- ------- ---------- ------ --------- ----------- ----------- --------- -----------
Balance
December 31,
1997........... 14,681,891 $14,682 7,760,000 $7,760 $(735,000) $11,102,257 $(1,271,036) $(210,348) $ 8,908,315
Conversion of
preferred
stock.......... 1,400,000 1,400 (1,400,000) (1,400)
Stock dividend.. 21,775 22 391,928 (391,950)
Issuance of
shares for
Artwise
acquisition.... 72,620 72 1,052,919 1,052,991
Issuance of
shares for
cash........... 700,000 700 12,599,300 12,600,000
Payment of
subscription
receivable..... 715,790 715,790
Issuance of
shares for
cash........... 1,800,000 1,800 44,975,576 44,977,376
Issuance of
shares for
Open:Net
acquisition.... 58,852 59 1,677,223 1,677,282
Issuance of
shares for
Eclipse
acquisition.... 27,000 27 995,733 995,760
Currency
translation
adjustment..... 1,204,589 1,204,589
Net loss........ (4,772,690) (4,772,690)
---------- ------- ---------- ------ --------- ----------- ----------- --------- -----------
Balance
December 31,
1998........... 18,762,138 $18,762 6,360,000 $6,360 $ (19,210) $72,794,936 $(6,435,676) $ 994,241 $67,359,413
========== ======= ========== ====== ========= =========== =========== ========= ===========

See accompanying notes to consolidated financial statements

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 September 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

F-7

CYBERNET INTERNET SERVICES INTERNATIONAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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 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.

F-8

CYBERNET INTERNET SERVICES INTERNATIONAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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.

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

F-9

CYBERNET INTERNET SERVICES INTERNATIONAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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 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 Telekommunikations 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.

F-10

CYBERNET INTERNET SERVICES INTERNATIONAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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 short-term investments
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
======== ========== ===========

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
==========

F-11

CYBERNET INTERNET SERVICES INTERNATIONAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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 established short-term unsecured
overdraft facilities under which the Company and its subsidiaries could borrow
up to DM 463,340 ($276,952). 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 342,247 ($204,571) of the overdraft facility was used and DM 121,093
($72,381) was available.

F-12

CYBERNET INTERNET SERVICES INTERNATIONAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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 2005..................................... -- 41,626
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. Shareholders 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. 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.

F-13

CYBERNET INTERNET SERVICES INTERNATIONAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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 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

F-14

CYBERNET INTERNET SERVICES INTERNATIONAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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.

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 Incentive Plan

In 1998 the Company adopted a stock incentive plan ("Stock Incentive Plan")
which provides for the grant of a variety of stock award instruments to key
employees and members of the Board of Directors.

The Company has reserved 2,000,000 shares of common stock for issuances under
the Stock Incentive 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 pursuant to the Stock
Incentive Plan. All options granted have 10 year terms and vest over three
years. All options were still outstanding at December 31, 1998. None of the
options outstanding at December 31, 1998 were exercisable.

The Company has elected to follow APB 25 and related interpretations in
accounting for the stock options granted under the Stock Incentive 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. 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

F-15

CYBERNET INTERNET SERVICES INTERNATIONAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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)
Others................................. -- (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)
========= =========== ===========

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
Net operating losses...................... $692,694 $3,454,606 $11,695,379
-------- ---------- -----------
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.

F-16

CYBERNET INTERNET SERVICES INTERNATIONAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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 share -- weighted average shares
outstanding.......................... 2,465,782 8,342,297 16,012,653
========== ========== ===========
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.

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.

F-17

CYBERNET INTERNET SERVICES INTERNATIONAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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
======== ========== ===========

F-18

CYBERNET INTERNET SERVICES INTERNATIONAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31,
-------------------------------------
1996 1997 1998
---------- ----------- ------------

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
========== =========== ============

The Company's property, plant and equipment by geographic location and
capital expenditures by geographic area are as follows:

December 31,
------------------------------
1996 1997 1998
-------- ---------- ----------

Long lived assets:
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,
------------------------------
1996 1997 1998
-------- ---------- ----------

Capital Expenditures:
Germany..................................... $552,104 $1,707,843 $5,097,077
US.......................................... -- -- --
Other....................................... -- -- 936,882
-------- ---------- ----------
Total....................................... $552,104 $1,707,843 $6,033,959
======== ========== ==========

F-19

CYBERNET INTERNET SERVICES INTERNATIONAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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.

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 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-20

CYBERNET INTERNET SERVICES INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS

December 31, June 30,
1998 1999
------------ -----------
(unaudited)
-----------
(in thousands)

ASSETS
Cash and cash equivalents............................ $42,876 $14,974
Short-term investments............................... 112 482
Accounts receivable, net of allowance for doubtful
accounts of $810 and $361 for June 30, 1999 and
December 31, 1998 respectively...................... 3,249 7,436
Other receivables.................................... 1,793 1,459
Prepaid expenses and other assets.................... 423 1,116
------- -------
Total current assets............................... 48,453 25,467
Property and equipment, net.......................... 7,970 14,429
Product development costs, net....................... 5,743 4,992
Goodwill, net........................................ 6,505 35,805
Deferred income taxes................................ 8,166 12,251
Other assets......................................... 2,608 3,842
------- -------
TOTAL ASSETS....................................... $79,445 $96,786
======= =======
LIABILITIES AND SHAREHOLDERS EQUITY
LIABILITIES
Overdrafts and short-term borrowings................. $ 287 $23,018
Trade accounts payable............................... 3,346 8,105
Other accrued liabilities............................ 1,073 3,622
Deferred purchase obligations........................ 4,483 2
Current portion long term debt and capital lease
obligations......................................... 925 1,173
Accrued personnel costs.............................. 589 1,109
------- -------

Total current liabilities............................ 10,703 37,029
Long-term debt....................................... 67 104
Capital lease obligations............................ 1,316 1,607
Minority interest.................................... -- --
SHAREHOLDERS EQUITY
Common stock $.001 par value, 50,000,000 shares
authorized, 20,729,988 shares issued and outstanding
at June 30, 1999 and 18,762,138 issued and
outstanding at December 31, 1998.................... 19 21
Preferred stock $.001 par value, 50,000,000 shares
authorized, 4,793,440 shares issued and outstanding
at June 30, 1999 and 6,360,000 issued and
outstanding at December 31, 1998.................... 6 5
Subscription receivable.............................. (19) --
Additional paid in capital........................... 72,795 79,335
Accumulated deficit.................................. (6,436) (14,685)
Other Comprehensive income (loss).................... 994 (6,630)
------- -------
Total shareholders equity.......................... 67,359 58,046
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY.......... $79,445 $96,786
======= =======

See accompanying notes to consolidated financial statements

F-21

CYBERNET INTERNET SERVICES INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS

(unaudited)

Six months ended June 30,
--------------------------
1998 1999
------------ ------------
(in thousands,
except per share data)
--------------------------

Revenue
Internet Projects................................. $ 1,863 $ 2,459
Network Services.................................. 1,489 5,994
------------ ------------
Total revenues.................................. 3,352 8,453
Cost of revenues:
Internet Projects................................. 1,438 2,056
Network Services.................................. 1,747 6,534
Depreciation and amortization..................... 332 1,545
------------
Total cost of revenues.......................... 3,517 10,135
------------ ------------
Gross loss........................................ (165) (1,682)
General and administrative expenses............... 655 3,770
Marketing expenses................................ 1,608 5,147
Research and development.......................... 821 2,146
Depreciation and amortization..................... 272 1,228
------------ ------------
Total operating expenses........................ 3,356 12,291
Interest expense.................................. 106 64
Interest income................................... 12 383
------------ ------------
Loss before taxes and minority interest........... (3,615) (13,654)
Income tax benefit................................ 2,008 5,302
------------ ------------
Net loss before minority interest................. (1,607) (8,352)
Minority interest................................. -- 103
Net loss.......................................... (1,607) (8,249)
Other comprehensive loss:
Foreign currency translation adjustments.......... 12 (7,624)
------------ ------------
Comprehensive loss................................ (1,595) (15,873)
------------ ------------
Basic and diluted loss per share.................. $ (0.11) $ (0.44)
============ ============
Number of shares used to compute earnings per
share............................................ 14,765,777 18,917,582
============ ============

See accompanying notes to consolidated financial statements

F-22

CYBERNET INTERNET SERVICES INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

Six months
ended June 30,
------------------
1998 1999
-------- --------
(in thousands)
------------------

Cash Flows from Operating Activities:
Net loss.................................................. $ (1,607) $ (8,249)
Adjustments to reconcile net income to net cash provided
by operations:
Deferred tax credit...................................... (1,101) (5,309)
Depreciation and amortization............................ 338 2,772
Provision for losses on accounts receivable.............. 25 651
Changes in operating assets and liabilities:
Trade accounts receivable................................ (462) (1,759)
Other receivables........................................ (310) 139
Prepaid expenses and other assets........................ (751) (1,943)
Trade accounts payable................................... 1,134 1,757
Other accrued expenses and liabilities................... (547) 517
Accrued personnel costs.................................. 148 80
-------- --------
Total changes in operating assets and liabilities....... (788) (1,209)
-------- --------
Net cash used in operating activities.................... (3,133) (11,344)
Cash Flows from Investing Activities:
Purchase of short term investments........................ -- (403)
Proceeds from sale of short term investments.............. 395 --
Purchase of property and equipment........................ (1,221) (6,587)
Product development costs................................. (626) (686)
Acquisition of businesses, net of cash acquired........... -- (24,192)
Payment of deferred purchase obligations.................. -- (4,172)
-------- --------
Net cash used in investing activities.................... (1,452) (36,040)
Cash Flows from Financing Activities:
Proceeds from issue of common stock, net.................. 724 --
Proceeds from borrowings.................................. 1,975 23,805
-------- --------
Repayment of borrowings
Net cash provided by financing activities................ 2,699 23,805
-------- --------
Net (decrease) increase in cash and cash equivalents...... (1,886) (23,579)
Cash and cash equivalents at beginning of period.......... 1,239 42,876
Translation adjustments................................... 788 (4,323)
-------- --------
Cash and cash equivalents at end of period................ $ 141 $ 14,974
======== ========
Supplemental disclosure of non-cash investing and
financing activities:
Acquisitions (Note 5):
Fair value of assets acquired............................ -- $ 34,344
Less:
Cash Acquired........................................... -- 73
Cash paid............................................... -- 22,850
Stock issued............................................ -- 4,626
-------- --------
Liabilities assumed....................................... -- $ 6,795
======== ========

See accompanying notes to consolidated financial statements

F-23

CYBERNET INTERNET SERVICES INTERNATIONAL, INC.

NOTES TO THE CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

1.Basis of Presentation

The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles ("GAAP") for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by GAAP for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation of financial position
and results of operations have been included. Operating results for the six
month period end June 30, 1999 are not necessarily indicative of results to be
expected for the year ended December 31, 1999. For further information, refer
to the Consolidated Financial Statements and notes thereto included in the
Company's annual report of Form 10-K for the year ended December 31, 1998.

2.Earnings Per Share

The following table sets forth the computation of basic and diluted earnings
per share:

June 30
----------------------
1998 1999
---------- ----------

Numerator:
Net loss-numerator for basic and diluted loss per
share (U.S. dollars in thousands).................... $ 1,607 $ 8,249
Denominator:
Denominator for basic and diluted loss per share --
weighted average shares outstanding.................. 14,765,777 18,917,582
Basic and diluted loss per share...................... $ (0.11) $ (0.44)

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.

3.Segment information

The Company evaluates performance and allocates resources based on the
operating profit of its subsidiaries. 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 inter-company
sales between its subsidiaries. Information concerning the Company's geographic
locations is summarized as follows:

June 30
----------------
1998 1999
------- --------
(in thousands)
----------------

Revenues
Germany....................................................... $ 2,908 $ 5,455
US............................................................ -- --
Other......................................................... 444 2,998
------- --------
Total......................................................... $ 3,352 $ 8,453
Cost of Revenues
Germany....................................................... $ 3,168 $ 8,159
US............................................................ -- 9
Other......................................................... 348 1,967
------- --------
Total......................................................... $ 3,516 $ 10,135

F-24

June 30
------------------
1998 1999
-------- --------
(in thousands)
------------------

General and Admin Exp.
Germany................................................... $ 565 $ 2,605
US........................................................ 53 570
Other..................................................... 37 595
-------- --------
Total..................................................... $ 655 $ 3,770
Marketing Expenses
Germany................................................... 1,559 3,851
US........................................................ -- 243
Other..................................................... 49 1,053
-------- --------
Total..................................................... 1,608 5,147
Research & Development
Germany................................................... 788 1,622
US........................................................ -- --
Other..................................................... 33 524
-------- --------
Total..................................................... 821 2,146
Depreciation & Amortization
Germany................................................... 272 933
US........................................................ -- 138
Other..................................................... -- 157
-------- --------
Total..................................................... 272 1,228
Interest Expense
Germany................................................... 97 16
US........................................................ -- 9
Other..................................................... 9 39
-------- --------
Total..................................................... 106 64
Interest Income
Germany................................................... (12) (10)
US........................................................ -- (373)
Other..................................................... -- --
-------- --------
Total..................................................... (12) (383)
Loss before Taxes
Germany................................................... 3,532 11,723
US........................................................ 53 597
Other..................................................... 27 1,334
-------- --------
Total..................................................... 3,612 13,654
Income Tax Benefit
Germany................................................... (2,007) (5,305)
US........................................................ -- --
Other..................................................... -- 3
-------- --------
Total..................................................... $ (2,007) $ (5,302)

F-25

4.Income Taxes

In March 1999 the German government passed new tax legislation which reduced
the corporate income tax rate from 45% to 40%. Accordingly, the Company's
deferred tax assets and liabilities related to Germany were re-measured using
40% in the first quarter of 1999. The impact of re-measuring the deferred tax
assets and liabilities using the new rate was recorded as a reduction in the
income tax benefit of approximately $550,000 for the quarter ended March 31,
1999.

5.Business Acquisitions

Effective April 13, 1999, the Company acquired 51% of the outstanding shares
of Sunweb Internet Services SIS AG ("Sunweb") for a total consideration of DM
2,865,550 ($1,513,201). DM 1,806,957 ($954,193) of the purchase price was paid
in cash with the remainder settled in exchange for the issuance of 25,000
shares of the 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 expire on December 31, 2001. The acquisition has been accounted for
using the purchase method of accounting and as such the accompanying financial
statements reflect Sunweb's results of operations for the period April 13, 1999
through June 30, 1999. Goodwill recorded in connection with the acquisition of
Sunweb, amounting to DM 2,674,512 ($1,412,320), is being amortized over 10
years.

Effective June 25, 1999, the Company acquired 100% of the outstanding shares
of Flashnet S.p.A. ("Flashnet") for a total consideration of DM 49,166,828
($25,963,367). DM 41,464,040 ($21,895,781) of the purchase price was paid in
cash with the remainder settled in exchange for the issuance of 301,290 shares
of the common stock of the Company. The acquisition has been accounted for
using the purchase method of accounting. Flashnet's results of operations
subsequent to June 25, 1999 are not included in the accompanying financial
statements due to immateriality. Goodwill recorded in connection with the
acquisition of Flashnet, amounting to DM 52,544,954 ($27,747,243), is being
amortized over 10 years.

The following unaudited pro forma consolidated results of operations for the
six months ended June 30, 1998 and 1999 assume the acquisitions of Open:Net,
Vianet and Flashnet had occurred as of January 1, 1998. The unaudited pro forma
consolidated results of operations do not include the results of operations of
Sunweb due to the relative insignificance of the amounts involved.

Six months ended June 30,
--------------------------
1998 1999
------------ ------------

Revenue............................................ $ 7,036,873 $ 12,760,400
Net loss........................................... 2,893,699 10,114,041
Basic and diluted loss per share................... $ (0.19) $ (0.49)

6.Stockholders Equity

In June 1999, holders of 276,560 shares of Series A Preferred Stock converted
their shares into 276,560 shares of the Company's Common Stock. Also in June
1999, holders of 1,290,000 shares of Series B Preferred Stock converted their
shares into 1,290,000 shares of the Company's Common Stock.

7.Subsequent events

On July 1, 1999, the Company sold 150,000 units consisting of 14.0% Senior
Notes due 2009 and warrants to purchase 4,534,604 shares of Common Stock. The
net proceeds of the unit offering were approximately $144 million.

F-26

REPORT OF INDEPENDENT AUDITORS

To the Shareholder
VIANET Telekommunikations AG

We have audited the accompanying balance sheets of VIANET Telekommunikations
AG as of December 31, 1996, 1997 and 1998 and the related statements of
operations and retained earnings and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of VIANET Telekommunikations AG
as of December 31, 1996, 1997 and 1998 and the results of their operations and
their cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States of America.

By Ernst & Young
Wirtschaftsprutungs-und
Steuerberatungs gesellschaft mbH

(Gerd Haberfehlner)
(Edith Schmit)
February 12, 1999

F-27

VIANET TELEKOMMUNIKATIONS AG

BALANCE SHEET

Years ended December 31,
---------------------------------
1996 1997 1998
--------- ---------- ----------
(all amounts in ATS)

ASSETS
Current Assets
Cash and cash equivalents................. 655,174 100,025 1,524,978
Recoverable taxes and other receivables
(Note 2)................................. 130,747 126,087 45,184
Trade accounts receivable (Note 3)........ 2,943,991 5,573,461 7,927,150
Inventories (Note 4)...................... 109,099 37,404 111,111
Prepaid expenses (Note 5)................. 135,770 246,373 593,997
--------- ---------- ----------
Total current assets.................... 3,974,781 6,083,350 10,202,420
Deposits and Other Assets................... 170,000 241,846 407,300
Fixed Assets (Note 6)
Leasehold improvements.................... 219,220 219,220 383,998
Office furniture and equipment (Note 15).. 2,745,313 6,470,090 12,079,314
--------- ---------- ----------
2,964,533 6,689,310 12,463,311
Accumulated depreciation.................. (669,029) (1,952,565) (3,787,592)
--------- ---------- ----------
2,295,504 4,736,745 8,675,719
Deferred tax asset (Note 12)................ 18,899 4,739
--------- ---------- ----------
TOTAL ASSETS................................ 6,459,184 11,061,941 19,290,177
========= ========== ==========
LIABILITIES AND SHAREHOLDERS EQUITY
Current Liabilities
Accounts payable.......................... 3,103,262 5,911,889 7,075,048
Current portion of obligations under
capital leases (Note 15)................. 976,858
Overdraft (Note 7)........................ 634,636 794,768
Accrued expenses (Note 8)................. 938,000 1,906,500 2,120,100
Corporate tax (Note 12)................... 7,500 139,200
Other payables............................ 1,069,554 1,015,162 1,744,845
Deferred income (Note 9).................. 841,983 953,178 4,747,993
--------- ---------- ----------
Total Current Liabilities............... 5,960,299 10,560,565 17,459,612
Deferred tax liability (Note 12)............ 26,024
Obligations under capital lease (Note 15)... 1,944,448
Accrued employee benefits (Note 10)......... 25,000 61,000 322,000
--------- ---------- ----------
TOTAL LIABILITIES........................... 5,985,299 10,647.589 19,726,060
--------- ---------- ----------
Shareholders Equity (Deficit) (Note 11)
Share capital............................. 250,000 250,000 750,000
Retained earnings (Accumulated deficit)... 223,885 164,352 (1,185,883)
--------- ---------- ----------
473,885 414,352 (435,883)
--------- ---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY... 6,459,184 11,061,941 19,290,177
========= ========== ==========

See accompanying notes to financial statements

F-28

VIANET TELEKOMMUNIKATIONS AG

STATEMENTS OF OPERATIONS AND RETAINED EARNINGS

Years ended December 31,
----------------------------------
1996 1997 1998
---------- ---------- ----------
(all amounts in ATS)

Total revenues............................ 16,174,241 27,390,233 37,617,683
Costs and Expenses
Costs of products sold.................. 8,588,569 12,403,754 17,051,503
Research and development................ 0 0 1,282,625
General and administrative expenses..... 7,513,498 14,787,656 20,558,892
---------- ---------- ----------
16,102,067 27,191,410 38,893,020
---------- ---------- ----------
Operating profit (loss)................... 77,174 198,823 (1,275,337)
Interest income........................... 23,389 20,972 8,966
Interest expense.......................... (3,726) (86,212) (88,803)
---------- ---------- ----------
19,663 (65,240) (79,837)
---------- ---------- ----------
Income (loss) before income taxes......... 91,837 133,583 (1,355,175)
Provision for income taxes (Note 12)...... 3,899 (193,116) 4,940
---------- ---------- ----------
NET INCOME (LOSS)......................... 95,736 (59,533) (1,350,235)
Retained earnings, beginning.............. 128,149 223,885 164,352
---------- ---------- ----------
Retained earnings (Accumulated deficit),
ending................................... 223,885 164,352 (1,185,883)
========== ========== ==========

See accompanying notes to financial statements

F-29

VIANET TELEKOMMUNIKATIONS AG

STATEMENTS OF CASH FLOWS

Years ended December 31,
----------------------------------
1996 1997 1998
---------- ---------- ----------
(all amounts in ATS)

Cash Flows from Operating Activities
Net income (loss)......................... 95,736 (59,533) (1,350,235)
Adjustments to reconcile net earnings to
net cash provided by operating
activities:
Depreciation............................. 499,165 1,283,536 2,060,230
Deferred taxes........................... (18,899) 44,923 (30,763)
Change in accounts receivable,
recoverable taxes and other
receivables............................. (145,264) (2,624,810) (2,272,786)
Change in deposits and other assets...... -- (71,846) (165,454)
Change in inventories.................... 34,781 71,695 (73,707)
Change in prepaid expenses............... (12,004) (110,603) (347,624)
Change in accounts payable, accrued
expenses and other current liabilities.. 1,624,620 4,001,630 6,023,057
---------- ---------- ----------
Net cash provided by operating
activities............................ 2,078,135 2,534,992 3,842,718
Investing Activities
Expenditures for property, plant and
equipment............................... (2,059,575) (3,724,777) (3,077,897)
---------- ---------- ----------
Net cash (used in) investing
activities............................ (2,059,575) (3,724,777) (3,077,897)
Financing Activities
Increase share capital................... -- -- 500,000
Change in overdraft...................... -- 634,636 160,132
---------- ---------- ----------
-- 634,636 660,132
(Decrease) Increase in cash and cash
equivalents............................... 18,560 (555,149) 1,424,953
Cash and cash equivalents at beginning of
year...................................... 636,614 655,174 100,025
---------- ---------- ----------
Cash and Cash Equivalents at End of Year... 655,174 100,025 1,524,978
========== ========== ==========

See accompanying notes to financial statements

F-30

VIANET TELEKOMMUNIKATIONS AG

NOTES TO THE FINANCIAL STATEMENTS

As of December 31, 1998

Note 1. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying financial statements have been prepared in accordance with
United States generally accepted accounting principles ("U.S. GAAP"). The
Company maintains its financial records in accordance with the Austrian
Commercial Code, which represents generally accepted accounting principles in
Austria ("Austrian GAAP"). Generally, accepted accounting principles in Austria
vary in certain significant respects from U.S. GAAP. Accordingly, the Company
has recorded certain adjustments in order that these financial statements be in
accordance with U.S. GAAP.

Business

VIANET EDV Dienstleistungs Gesellschaft mbH, an Austrian limited liability
company, was established in 1994. As of September 30, 1998 VIANET EDV
Dienstleistungs Gesellschaft mbH was legally transformed into VIANET
Telekommunikations AG, an Austrian joint-stock company ("the Company"). The
share capital of the Company was increased to ATS 1,000,000, of which ATS
750,000 has been paid in. The Company provides Internet services and
connections.

Cash & Cash Equivalents

Highly-liquid investments, with an original maturity of three months or less
from the date of purchase, are classified as cash equivalents.

Inventories

Inventories are valued at the lower of cost or market, with cost determined
on an actual basis.

Property, Plant and Equipment

The Company records fixed assets at cost less accumulated depreciation.
Depreciation, which begins when assets are placed in service, is calculated on
a straight-line basis over the estimated service lives.

Revenue Recognition

The Company's revenues consist of the basic fee that is paid three months in
advance and current fees which are invoiced after the relevant period. Prepaid
amounts are deferred under deferred income and are released into revenue over
the period of three months. Current fees are recognized as income immediately.

Fair Value of Financial Instruments

The carrying value of financial instruments such as cash, accounts receivable
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.

Estimates

The preparation of the 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
disclosures 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.

F-31

VIANET TELEKOMMUNIKATIONS AG

NOTES TO THE FINANCIAL STATEMENTS--(Continued)

Note 2. Recoverable Taxes and Other Receivables

Recoverable taxes and other receivables consist of (in ATS):

1996 1997 1998
--------- ---------- ----------

Capital gains tax receivable.............. 41,150 8,646 --
Value added tax........................... 26,998 38,310 29,860
Employee loans............................ 40,000 40,000 14,861
Other..................................... 22,599 39,131 463
--------- ---------- ----------
130,747 126,087 45,184
========= ========== ==========

Note 3. Trade Accounts Receivable

Total amount of accounts receivable is as follows (in ATS):

1996 1997 1998
--------- ---------- ----------

Trade accounts receivable--domestic....... 3,542,557 7,419,133 10,360,528
Provision for bad debts................... (598,566) (1,845,672) (2,433,378)
--------- ---------- ----------
2,943,991 5,573,461 7,927,150
========= ========== ==========

Provisions for bad debts were made for accounts receivable on a specific risk
of collection.

Note 4. Inventory

Inventory consists of hardware devices which are sold to customers. At
December 31, 1997 and 1998, there was no need to record a provision for
obsolete goods.

Note 5. Prepaid Expenses

Prepaid expenses consist principally of prepaid telecommunication fees,
licenses and rent expenses for a trade fair site.

Note 6. Fixed Assets

The range of estimated useful lives for different asset categories are as
follows:

Leasehold investments.............. 10 years
Hardware equipment................. 4-8 years
Office equipment................... 4-8 years
Intangible assets.................. 4-7 years

In the year of acquisition depreciation is provided for a full year basis
when acquisition is in the first half of the year or with a half year rate when
acquisition is in the second half of the year.

Intangible assets relate to EDP software and amount to ATS 36.232,00.

Note 7. Overdraft

Overdrafts represent temporary overdrafts of bank balances. The overdrafts
are not subject to formal agreements and at December 31, 1998 and 1997 carried
interest rates of 7.5% and 14%, respectively.

F-32

VIANET TELEKOMMUNIKATIONS AG

NOTES TO THE FINANCIAL STATEMENTS--(Continued)

Note 8. Accrued Expenses

Accrued expenses consist of the following (in ATS):

1996 1997 1998
------- --------- ---------

Unused holidays................................. 111,300 187,600 363,300
Telecommunication fees.......................... 469,000 435,500 --
Professional fees............................... 137,700 629,000 622,000
Lawsuits........................................ -- -- 200,000
Warranties...................................... -- 210,000 210,000
Payroll taxes................................... -- 224,400 419,500
Services not yet invoiced and other accruals.... 230,000 230,000 305,300
------- --------- ---------
948,000 1,906,500 2,120,100
======= ========= =========

Note 9. Deferred Income

The Company is an Internet provider and concludes contracts with various
private and business customers. Amounts on invoices consist of two parts: the
basic fee which is required to be paid three months in advance and current fees
which are invoiced on a current basis. Prepaid amounts are deferred under
deferred income.

1996 1997 1998
------- ------- ---------

Deferred revenue................................... 841,983 953,178 4,747,993

Note 10. Accrued Employee Benefits

According to Austrian labor law, employees are entitled to receive a
termination payment in case of termination of the employment contract by the
employer or upon retirement. The calculation of the amount due depends on the
service time and compensation of the employee. The amount ranges from two
months compensation for three months of services to 12 months compensation for
services of 25 years or longer.

The Company has recorded a provision for termination payments amounting to
ATS 61,000 and ATS 322,000 at December 31, 1997 and 1998, respectively. The
provision was calculated according to Austrian Commercial Code prescribing
application of a discounting method (discount rate 6%, retirement age 55/60 for
women/men).

Note 11. Shareholders Equity

The Company is a joint-stock company under Austrian law.

As of December 31, 1998 the Company's common stock of ATS 1,000,000 has been
paid up to an amount of ATS 750,000.

Dividends may only be declared and paid from the accumulated retained
earnings (after deduction of certain reserves) shown in the Company's annual
Austrian statutory unconsolidated accounts. Such amounts differ from the total
of retained earnings as shown in the accompanying financial statements in
accordance with U.S. GAAP. As of December 31, 1998, the Company's Austrian
statutory unconsolidated accounts reflected no accumulated earnings available
for distribution, and accordingly, the Company's ability to pay dividends in
the future will depend on the future earnings of the Company.

F-33

VIANET TELEKOMMUNIKATIONS AG

NOTES TO THE FINANCIAL STATEMENTS--(Continued)

Note 12. Provision for Income Taxes

The components of the provisions for income taxes are as follows (in ATS):

1996 1997 1998
------- ------- --------

Current.......................................... 15,000 148,193 25,823
Deferred......................................... (18,899) 44,923 (30,763)
------- ------- --------
Income tax (benefit)............................. (3,899) 193,116 (4,940)
======= ======= ========

The components of the Company's deferred tax assets and liabilities are as
follows:

1996 1997 1998
------- ------- --------

Deferred tax assets
Net operating loss............................. 55,283 -- --
Accrued employee benefits...................... 8,500 20,740 109,480
------- ------- --------
63,783 20,740 109,480
======= ======= ========
Deferred tax liability
Depreciation................................... 44,899 46,764 104,741
------- ------- --------
Net deferred tax asset (liability)............... 18,899 (26,024) 4,739
======= ======= ========

A reconciliation of income taxes using the Austrian statutory federal income
tax rate of 34% to actual income taxes provided is as follows:

1996 1997 1998
------- ------- --------

Income tax at statutory rate..................... 31,225 45,418 (457,319)
Permanent differences............................ (31,438) 166,409 351,248
Other............................................ (3,686) (18,711) 101,131
------- ------- --------
(3,899) 193,116 (4,940)
======= ======= ========

Permanent differences mainly consist of non-deductible entertainment costs
and non-deductible car costs.

Note 13. Commitments

The Company leases certain equipment under operating leases. The commitment
to future minimum lease payments is:

1999............................. ATS 591,725
2000............................. ATS 75,798

Rent expense for operating leases approximated ATS 868,402, ATS 747,484.56
and ATS 535,563.42 for the years ended December 31, 1998, 1997 and 1996,
respectively.

F-34

VIANET TELEKOMMUNIKATIONS AG

NOTES TO THE FINANCIAL STATEMENTS--(Continued)

Note 14. Contingencies

TUV Technischer Uberwachungsdienst Osterreich (TUV) filed a lawsuit against
the Company on December 1, 1997. TUV claimed ATS 210,000 for technical
malfunction of Cisco Routers which were installed and programmed by the
Company. TUV claims that the malfunction resulted in substantially increased
telephone charges. The Company has been advised by its outside counsel that TUV
could claim up to ATS 1,535,000. The company believes that the lawsuit can be
settled for a maximum amount of ATS 250,000 from which an amount of ATS 210,000
has been accrued. During the financial year 1998 no changes occurred in this
matter.

Note 15. Finance Lease

The Company has entered into a capital lease arrangement for the financing of
certain computer equipment. Future minimum lease payments are as follows (in
ATS):

1999........................................................... ATS 1,120,524
2000........................................................... ATS 1,120,524
2001........................................................... ATS 933,770
-------------
ATS 3,174,818
Less amount representing interest.............................. ATS 253,513
-------------
Present value of future minimum lease payments................. ATS 2,921,305
=============
Thereof noncurrent obligations................................. ATS 1,944,448
=============

The net book value of computer equipment under capital lease included in
fixed assets at December 31, 1998 was ATS 2,917,327.

Note 16. Change of Ownership

Effective December 28, 1998, 100% of the Company's outstanding share capital
was acquired by Cybernet Internet Services International, Inc.

F-35

INDEPENDENT AUDITORS REPORT

To the Management and Shareholders
of OPEN:NET Netzwerkdienste GmbH, Ulm

We have audited the accompanying balance sheet of OPEN:NET Netzwerkdienste
GmbH as of December 31, 1997 and the related profit and loss statement for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in Germany and 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 statements 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 financial position of OPEN:NET Netzwerkdienste GmbH
at December 31, 1997 and the results of operations for the year then ended, in
conformity with accounting principles generally accepted in Germany.

Accounting principles generally accepted in Germany vary in certain
significant respects from accounting principles generally accepted in the
United States of America to the extent summarized on page F-35-36 of the
financial statements.

/s/ Schitag Ernst & Young

Deutsche Allgemeine Treuhand AG
Wirtschaftsprufungsgesellschaft
Munich, Germany
November 10, 1998

F-36

OPEN:NET NETZWERKDIENSTE GmbH, Ulm

BALANCE SHEET
As of December 31, 1997

DM DM
---------- ----------

ASSETS
A. Fixed Assets
I. Intangible Assets
1. Franchises, trademarks, patents, licenses, and
similar rights and licenses to such rights..... 10,337.00
II. Tangible Assets
1. Other equipment, furniture and fixtures........ 130,152.10
B. Current Assets
I. Inventories
1. Work in process................................ 20,000.00
II. Receivables and Other Assets.
1. Trade accounts receivable due after one year DM
0.00........................................... 476,206.02
2. Other assets due after one year DM 0.00........ 15,942.01 492,198.53
----------
III. Checks, cash on hand, Federal Bank and postal
giro balances, and cash in banks............... 3,191.45
C. Prepaid Expenses and Deferred Charges............. 27,600.00
----------
683,429.08
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
A. Equity
I. Stated Capital................................. 50,000.00
II. Retained Earnings.............................. 5,958.98
B. Accruals
1. Tax accruals................................... 2,700.00
2. Other accruals................................. 38,400.00 41,100.00
----------
D. Liabilities
1. Liabilities due to banks due within one year:
DM 38,211.17................................... 182,181.78
2. Trade accounts payable due within one year: DM
116,257.44..................................... 116,257.44
3. Other liabilities due within one year: DM
287,930.88 thereof due to shareholders DM
136,718.71 thereof for taxes DM 66,352.50
thereof for social security DM 18,892.52....... 287,930.88 586,370.10
---------- ----------
683,429.08
==========

F-37

OPEN:NET NETZWERKDIENSTE GmbH, Ulm

PROFIT AND LOSS STATEMENTS

(Unaudited)
Eight Months
Ended Year ended
August 31 December 31
1998 1997
DM DM
------------ ------------

1. Sales........................................ 1,748,006.37 1,776,454.36
2. Increase/Decrease in work in process......... (20,000.00) 4,600.00
3. Other operating income....................... 9,516.80 35,519.77
------------ ------------
1,737,523.25 1,816,574.13
4. Cost of materials
a) Cost of raw materials, supplies,
production materials and purchased goods.. 613,652.18 628,704.51
5. Personnel expenses
a) Wages and salaries........................ 616,478.27 486,678.69
b) Social security, pension and other benefit
costs thereof for pensions DM 1,816.50 and
DM 9,909.25............................... 97,388.82 61,240.67
------------ ------------
713,867.09 547,919.36
6. Depreciation and amortization
a) on intangible assets and tangible fixed
assets.................................... 66,434.57 72,182.42
7. Other operating expenses..................... 772,177.36 535,918.88
8. Other interest and similar income............ 3.29 203.11
9. Interest and similar expenses................ 5,836.51 15,854.63
------------ ------------
10. Result from ordinary operations.............. (434,441.17) 16,197.44
11. Taxes on income.............................. 9,020.00 10,334.75
------------ ------------
12. Net income for the year...................... (443,461.17) 5,862.69
------------ ------------
13. Profit/Loss carry-forward from prior year.... 5,958.98 96.29
------------ ------------
14. Retained Earnings............................ (437,502.19) 5,958.98
============ ============

F-38

OPEN:NET NETZWERKDIENSTE GmbH, Ulm

NOTES TO THE FINANCIAL STATEMENTS

General

The annual financial statements of OPEN: NET Netzwerkdienste GmbH have been
prepared in accordance with Section 242 and subsequent sections and Section 264
and subsequent sections of the German Commercial Code (HGB) as well as in
accordance with the relevant provisions of the Limited Liability Companies Law
(GmbHG). The Company is subject to the requirements for small companies.

The financial statement classifications remained unchanged. The profit and
loss statement was prepared in accordance with the total costs method and in
accordance with Sec. 275 of the German Commercial Code.

The company makes full use of the footnote disclosures exemptions for
smallsized corporations set forth in Sec. 288 of the commercial trade code.

Accounting and Valuation Methods

The following accounting and valuation methods, which remained unchanged in
comparison to the previous year, were used for preparing the financial
statements.

Acquired intangible and tangible assets are capitalized at acquisition cost
and, if they have a limited life, are reduced by ordinary depreciation in
accordance with their useful lives. To the extent permissible under the tax
law, the declining-balance method, otherwise the straight-line method is used.

Low-value assets of a value up to DM 800.00 are fully depreciated in the year
of acquisition with their immediate disposal being assumed. Depreciation on
additions to tangible assets is generally recognized proportionally based on
the month of acquisition. For movable assets, the simplification rule as
defined in R 44 Para. 2 of the Income Tax Guideline (EStR) is used.

Receivables and other assets are stated at their nominal value. All
foreseeable valuation risks are provided for via adequate specific allowances.
General credit risk is provided for through a general allowance.

Other accruals take into account all contingent liabilities and anticipated
losses from pending transactions.

Liabilities are recorded at their repayment value.

Explanations to the Balance Sheet

Fixed Assets

The roll-forward of the individual fixed asset positions including current-
year depreciation is disclosed under "Roll-Forward of Fixed Assets".

F-39

OPEN:NET NETZWERKDIENSTE GmbH, Ulm

NOTES TO THE FINANCIAL STATEMENTS--(Continued)

Fixed Assets Rollforward

Acquisition and Production Cost Accumulated Depreciation Net Book V
------------------------------------------ ---------------------------------------- ----------
01.01.97 Additions Disposals 31.12.97 01.01.97 Additions Disposals 31.12.97 31.12.97
DM DM DM DM DM DM DM DM DM
---------- ---------- --------- ---------- --------- --------- --------- ---------- ----------

Fixed Assets
I. Intangible Assets
I. Franchises,
trademarks,
patents, licenses
and similar rights
and licenses to
such rights........ 5,147.36 10,374.99 0.00 15,522.35 1,358.36 3,826.99 0.00 5,185.35 10,337.00
---------- ---------- ---- ---------- --------- --------- ---- ---------- ----------
II. Tangible Assets
3. Other equipment,
furniture and
fixtures............ 107,558.07 121,852.43 0.00 229,410.50 30,903.07 68,355.43 0.00 99,258.50 130,152.00
========== ========== ==== ========== ========= ========= ==== ========== ==========
112,705.43 132,227.42 0.00 244,932.85 32,261.43 72,182.42 0.00 104,443.85 140,489.00
========== ========== ==== ========== ========= ========= ==== ========== ==========

Receivables and Other Assets

Other assets include corporate income tax refunds and VAT deductible in 1998.

Tax and other accruals

Tax accruals relate to trade tax on income for 1997.

Other accruals were set up for outstanding vacation and tax consultant fees.

Liabilities due to banks

Liabilities with remaining terms of more than 5 years amount to DM 26,760.00.

Other Liabilities

Other Liabilities include payables due to shareholders, VAT payables,
outstanding invoices and commissions.

The payables due to shareholders amount to DM 136,718.73.

Contingent Liabilities and Other Financial Obligations

There are no contingent liabilities. Other financial obligations amount to DM
52,425.00.

Explanations to the Profit and Loss Statement

Other Operating Expenses

Other expenses primarily contain expenses for premises and equipment, sales
commissions and external services.

F-40

OPEN:NET NETZWERKDIENSTE GmbH, Ulm

NOTES TO THE FINANCIAL STATEMENTS--(Continued)

Other Disclosures

Management

General Managers during the financial year were:

Thomas Egner

Uwe Hagenmeier

Martin Heimann (until January 28, 1997)

Roland Lohmiller (until January 28, 1997)

Recommendation on the Appropriation of Retained Earnings

In agreement with the shareholders management recommends the carry forward
the retained earnings of DM 5,958.98 to the next financial year.

Significant Differences between Generally Accepted Accounting Principles in
Germany and the United States of America

Generally accepted accounting principles in Germany ("German GAAP") vary in
certain respects from generally accepted accounting principles in the United
States of America ("US GAAP"). The significant differences between the
accounting principles applied and those which would be applied under US GAAP
are summarized below:

Cash Flow Statements

Statements of cash flows are required to be presented under US GAAP. Cash
flow statements are not required by German GAAP.

Special accelerated depreciation

Special accelerated depreciation for tax purposes has been recorded in the
accounts and deducted from the book value of fixed assets. Under US GAAP,
accelerated depreciation would not be recorded in the financial statements.

Capitalization of Interest Cost

In application of FAS-51 and under the provisions of FAS-34 certain interest
costs, if material, have to be capitalized and added to the acquisition cost of
assets which require a certain time to get ready for their intended use. German
GAAP does not allow for the capitalization of interest related to constructed
assets.

Gunzburg, August 1998

The management
OPEN NET Netzwerkdienste GmbH

F-41

INDEPENDENT AUDITOR'S REPORT

The Chairman of the Board
Flashnet S.p.A.
Via della Pisana 280/A
Rome, Italy

We have audited the accompanying balance sheet of Flashnet S.p.A. (an Italian
Company) as of December 31, 1998, and the related statements of loss,
stockholders' deficit, and cash flows for the year then ended, expressed in
Italian Lire. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. 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
statements presentation. We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Flashnet S.p.A as of December
31, 1998, and the results of its operations and its cash flows for the year
then ended, in conformity with accounting principles generally accepted in the
United States of America.

May 14, 1999

Grant Thornton S.p.A.
Rome, Italy

F-42

FLASHNET S.p.A.

BALANCE SHEET
DECEMBER 31, 1998
(amounts in thousands of ITL)

ASSETS
Current assets
Cash............................................................. 32,034
Accounts receivable, net of allowance for doubtful accounts of
50,000 (Note 2.c)............................................... 4,499,540
Inventories (Notes 2.d and 3).................................... 174,770
Deferred income taxes (Notes 2.i and 14)......................... 964,301
Prepaid cable rentals............................................ 530,294
Other current assets............................................. 301,985
----------
Total current assets........................................... 6,502,924
Property, plant, and equipment (Notes 2.e and 4)................... 3,647,901
Other assets (Note 5).............................................. 1,288,611
----------
Total Assets................................................... 11,439,436
==========
LIABILITIES AND STOCKHOLDERS DEFICIT
Current liabilities
Bank overdraft................................................... 716,437
Accounts payable................................................. 4,966,300
Current maturities of long-term debt............................. 365,995
Deferred income (Note 2.j)....................................... 2,774,708
Other current liabilities (Note 6)............................... 1,626,158
----------
Total current liabilities...................................... 10,449,598
Long-term liabilities
Obligations under capital leases (Note 7)........................ 628,885
Severance indemnities (Notes 2.g and 8).......................... 94,344
Bonds payable (Note 9)........................................... 800,000
----------
Total Liabilities.............................................. 11,972,827
----------
Stockholders' deficit..............................................
Common stock, par value ITL 1,000, authorized 2,297,142 shares,
issued, and outstanding 2,182,857 shares (Note 10).............. 2,182,857
Additional paid-in capital....................................... 983,891
Accumulated deficit (Notes 2.h and 11)........................... (3,700,139)
----------
Total Stockholders Deficit..................................... (533,391)
----------
Total Liabilities and Stockholders Deficit..................... 11,439,436
==========

See accompanying notes.

F-43

FLASHNET S.p.A.

STATEMENT OF LOSS
FOR THE YEAR ENDED DECEMBER 31, 1998
(amounts in thousands of ITL)

Net sales........................................................... 8,334,043
Cost of sales....................................................... (6,615,614)
----------
Gross profit........................................................ 1,718,429
Operating expenses.................................................. (4,562,098)
----------
Loss from operations................................................ (2,843,669)
Other income (expense)
Interest expense, net............................................. (369,914)
Penalties and interest on late payment of payroll taxes........... (358,780)
Rent income....................................................... 42,000
Others............................................................ 149,691
----------
Total other income (expense).................................... (537,003)
----------
Loss before income taxes............................................ (3,380,672)
Income taxes (Notes 2.i and 14)..................................... 1,015,169
----------
Net loss............................................................ (2,365,503)
==========

See accompanying notes.

F-44

FLASHNET S.p.A.

STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1998
(amounts in thousands of ITL)

Additional
Common paid-in Accumulated
Total stock capital deficit
---------- --------- ---------- -----------

Beginning balance............... (434,636) 900,000 (1,334,636)
Sale of stock................... 2,200,000 282,857 1,917,143
Stock split..................... 1,000,000 (1,000,000)
Shareholders contribution of
additional paid-in capital..... 66,748 66,748
Net loss for the period......... (2,365,503) (2,365,503)
---------- --------- ---------- ----------
Ending balance.................. (533,391) 2,182,857 983,891 (3,700,139)
========== ========= ========== ==========

See accompanying notes.

F-45

FLASHNET S.p.A.

STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
(amounts in thousands of ITL)

Cash flows from operating activities
Net loss.................................................... (2,365,503)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization.............................. 656,685
Change in assets and liabilities
Increase in accounts receivable........................... (2,320,596)
Decrease in inventories................................... 24,663
Increase in deferred tax asset--current................... (388,590)
Increase in deferred tax asset--noncurrent................ (728,197)
Increase in other current assets.......................... (201,760)
Increase in accounts payable.............................. 2,237,870
Increase in deferred income............................... 1,379,045
Increase in other current liabilities..................... 885,468
Increase in severance indemnities, net.................... 62,313
----------
Net cash used in operating activities.................... (758,602)
----------
Cash flows from investing activities
Purchase of property, plant, and equipment................. (1,487,740)
Payment to purchase the assets of Venezia Net Srl, net of
cash acquired............................................. (85,500)
Increase in other assets................................... (16,152)
----------
Net cash used in investing activities.................... (1,589,392)
----------
Cash flows from financing activities
Decrease in bank overdraft................................. (338,985)
Proceeds from sale of common stock......................... 2,200,000
Proceeds from issuance of bonds............................ 800,000
Proceeds from contribution of additional paid-in capital... 66,748
Principal payments under capital lease obligation.......... (366,041)
----------
Net cash provided by financing activities................ 2,361,722
Net change in cash and cash equivalents...................... 13,728
Cash and cash equivalents--beginning of period............... 18,306
----------
Cash and cash equivalents--end of period..................... 32,034
==========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest................................................... 118,727
Income taxes............................................... 87,045
Supplemental schedule of noncash investing and financing
activities:
1. Capital lease obligations of ITL 648,231 were incurred when the Company
entered into 10 leases for new telephone and computer equipment and
vehicles.
2. Additional capital stock was issued as a result of the stock splits
described in Note 11.
3. The Company purchased the assets of Venezia Net Srl for ITL 85,500. In
conjunction with the acquisition, liabilities were assumed as follows:
Fair value of assets acquired ........................... 150,528
Cash paid to acquire the assets.......................... (85,500)
----------
Liabilities assumed.................................... 65,028
==========

See accompanying notes.

F-46

FLASHNET S.p.A.

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998

1. General

Flashnet S.p.A., the "Company", was established in Italy in 1995, and is
mainly involved in providing internet and long-distance telephone services.

2. Summary of Significant Accounting Policies

a. Basis of Financial Statements presentation

The company maintains its accounting records in Italian Liras ("ITL") and
prepares its statutory financial statements in confirmity with accounting
principles generally accepted in Italy.

The accompanying financial statements have been restated in order to comply
with accounting principles generally accepted in the United States of America,
for consolidation purposes. The main adjustments have been made to reflect the
provisions of FAS-13 (Accounting for Leases), and SOP 98-1 (Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use).

All information contained in the accompanying financial statements and
related notes are expressed in thousands of ITL ("ITL/000"), unless differently
indicated.

b. Statements of cash flows

For purposes of the statement of cash flows, cash equivalents include time
deposits, certificate of deposits, and all highly liquid debt instruments with
original maturities of three months or less.

c. Accounts receivable

Accounts receivable are reported at net realizable value. Net realizable
value is equal to the gross amount of receivable less an allowance for doubtful
accounts, based on an estimate of the collectibility of individual accounts and
prior years' bad debt experience.

d. Inventories

Inventories are stated at the lower of cost, determined by the FIFO method,
or market.

e. Property, plant, and equipment

Depreciation is computed using the straight line method for both financial
reporting and income tax purposes.

Maintenance and repairs are charged to operations when incurred. Betterment
and renewals are capitalized. When property, plant, and equipment is sold or
otherwise disposed of, the asset account and related accumulated depreciation
account are relieved and any gain or loss is included in operations.
The useful lives of property, plant, and equipment for purposes of computing
depreciation are:

Computer and telephone equipment ............................... 8.5 years
Office furniture and equipment.................................. 3-8 years
Vehicles........................................................ 4 years

Property, plant, and equipment costing less than ITL 1,000,000 is entirely
expensed in the year of acquisition.

F-47

FLASHNET S.p.A.

NOTES TO FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1998

g. Severance indemnities

Under Italian Law, all employees are entitled to receive severance
indemnities upon termination of their employment, based on salary paid and
increase in cost of living. The severance indemnities accrue approximately at
the rate of 1/13.5 of the gross salaries paid during the year, and are
revaluated applying a cost of living factor established by the Italian
Government.

h. Retained Earnings

Italian corporations are required, under Italian Business Law, to appropriate
to a legal reserve not less than 1/20 of the net income for the period, until
the legal reserve reaches an amount equal to 1/5 of the capital stock. The
legal reserve is not available for distribution.

i. Income taxes

Income taxes are accounted for by the asset/liability approach in accordance
with FASB Statement 109. Deferred taxes arising from taxable temporary
differences and deductible temporary differences are included in the tax
expense in the income statement and in the deferred tax balances in the balance
sheet. Deferred tax assets are subject to reduction by a valuation account if
evidence indicates that it is more likely than not that some or all the
deferred tax assets will not be realized. Income taxes attributable to items
charged or credited directly to shareholders' equity, are charged or credited
to that component of shareholders' equity.

j. Deferred income

The Company collects in advance the subscriptions as provider of Internet
services from customers, and allocates the related revenues based on time
remaining to the end of the contract. Deferred income represents the unearned
portion at the balance sheet date.

k. Goodwill

Goodwill represents the excess of the cost of companies acquired over the
fair value of its net assets at dates of acquisition, and is being amortized on
the straight-line method over five years. The carrying amount of goodwill is
reviewed if the facts and circumstances suggest that it may be impaired.
Negative operating results, negative cash flows from operations, among other
factors, could be indicative of the impairment of goodwill. If this review
indicates that goodwill will not be recoverable, the Company's carrying value
of goodwill would be reduced.

l. Research and development costs and advertising costs

Research and development costs and advertising costs, are charged to
operations when incurred and are included in operating expenses.

3. Inventories

Inventories at December 31, 1998 consist of;

ITL/000
-------

Finished goods....................................................... 174,770
Less: allowance for obsolete inventory............................... 0
-------
174,770
=======

F-48

FLASHNET S.p.A.

NOTES TO FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1998

4. Property, Plant, and Equipment

Following is a summary of property, plant, and equipment at cost, less
accumulated depreciation at December 31, 1998:

ITL/000
---------

Telephone and computer equipment (owned).......................... 2,111,169
Telephone and computer equipment (leased)......................... 1,454,404
Office furniture and equipment.................................... 283,929
Leasehold improvements............................................ 445,339
Vehicles (leased)................................................. 184,870
---------
4,479,711
Less: accumulated depreciation (831,810)
---------
3,647,901
=========

Depreciation expense charged to operations for the year ended December 31,
1998 was ITL/000 525,270.

5. Other Assets

Other assets at December 31, 1998 consist of:

ITL/000
---------

Goodwill (net of accumulated amortization of ITL/000 456,416).... 278,527
Deferred income taxes............................................ 991,374
Others........................................................... 18,710
---------
1,288,611
=========

Amortization of goodwill charged to operations for the year ended December
31, 1998 was ITL/000 131,416.

6. Other Current Liabilities

Other current liabilities at December 31, 1998 consist of:

ITL/000
---------

Provision for penalties and interest on late payment of payroll
taxes.......................................................... 358,780
Income taxes payable............................................ 101,619
Payroll taxes payable........................................... 679,613
Salaries payable................................................ 116,076
VAT payable..................................................... 98,584
Others.......................................................... 271,486
---------
1,626,158
=========

7. Obligations under Capital Leases

The Company is the lessee of computer and telephone equipment and five
vehicles under capital leases expiring in various years through October 2003.
The assets and liabilities under capital leases are recorded at the fair value
of the leased property, which approximates the present value of the minimum
lease payments.

F-49

FLASHNET S.p.A.

NOTES TO FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1998

Depreciation of the assets under capital lease is included in depreciation
expense for the period and is based on the assets estimated useful life.
Accumulated depreciation of as of December 31, 1998 was ITL/000 241,657.

Minimum future lease payments as of December 31, 1998 for each of the next
five years and in the aggregate are:

ITL/000
---------

Year ending December 31:
1999............................................................ 555,536
2000............................................................ 483,909
2001............................................................ 204,843
2002............................................................ 20,438
2003............................................................ 16,174
Subsequent to December 31, 2003................................... 0
---------
Total minimum lease payments...................................... 1,280,900
Less: amount representing interest................................ (286,020)
---------
Present value of minimum lease payments........................... 994,880
=========

The above payments are computed using the interest rate in effect at December
31, 1998; actual payments may vary because of changes in applicable rates.

All leases provide for purchase options at the expiration of the lease; the
minimum future lease payments above, include the payments required to exercise
the purchase options.

8. Severance Indemnities

The amount shown in the financial statements represents the actual liability
at the balance sheet date. Following is detail of changes during the year ended
December 31, 1998:

ITL/000
-------

Balance--December 31, 1997.......................................... 32,030
Severance indemnities expense for the year.......................... 72,232
Indemnities paid during the year.................................... (9,918)
------
Balance--December 31, 1998.......................................... 94,344
======

Severance indemnities expense for the year ended December 31, 1998 includes
the following components:

ITL/000
-------

Indemnities accrued for the year..................................... 71,494
Revaluation of indemnities accrued at December 31, 1997.............. 738
------
72,232
======

F-50

FLASHNET S.p.A.

NOTES TO FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1998

9. Bonds Payable

Bonds payable consist of 800,000, 5% unsecured convertible bonds, face value
ITL 1,000 per bond, payable in quarterly installments from December 31, 2001 to
December 31, 2003. The bonds are convertible in 114,285 common shares (7-for-
1), par value ITL 1,000 per share.

Maturities as of December 31, 1998 for each of the next 5 years and in the
aggregate are:

ITL/000
-------

Year ending December 31:
1999............................................................... 0
2000............................................................... 0
2001............................................................... 120,000
2002............................................................... 400,000
2003............................................................... 400,000
-------
920,000
=======

Interest expense for the year ended December 31, 1998 was ITL/000 14,696.

10. Capital Stock

On August 5, 1998, the Stockholders approved:

a) A 1000-for-1 stock split, thereby increasing the number of issued and
outstanding shares from 900 to 900,000, and decreasing the par value of
each share from ITL 1,000,000 to ITL 1,000.

b) To increase the Company's capital stock from ITL 900,000,000 to ITL
1,182,857,000, issuing 282,857 additional shares of the Company's ITL
1,000 par value common stock, at a price of ITL 7,777.7817 per share.

c) A 1.84541073-for-1 stock split of the Company's ITL 1,000 par value
common stock. As a result of the split, 1,000,000 additional shares were
issued, additional paid-in capital was reduced from ITL 1,917,143,000 to
ITL 917,143,000, and common stock was increased from ITL 1,182,857,000
to ITL 2,182,857,000.

d) A capital contribution of ITL 66,748,000 as additional paid-in capital.

11. Accumulated Deficit

As described in Note 2.i, Italian corporations are required to maintain a
legal reserve that is not available for distribution, and only the
unappropriated retained earnings resulting from the statutory financial
statements prepared in accordance with Italian GAAP are available for
distribution.

Accumulated deficit as of December 31, 1998 consists of:

ITL/000
----------

Legal reserve (restricted)....................................... 175
Net loss for the period--Italian GAAP basis...................... (1,207,286)
Increase in accumulated deficit due to US GAAP adjustments....... (2,493,028)
----------
(3,700,139)
==========

F-51

FLASHNET S.p.A.

NOTES TO FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1998

12. Business combinations

On November 26, 1998, the Company acquired the assets of Venezia Net S.r.l.
in a business combination accounted for as a purchase. Venezia Net S.r.l. is
primarily engaged in providing internet services. The results of operations of
Venezia Net S.r.l. are included in the accompanying financial statements since
the date of acquisition. The total cost of the acquisition was ITL/000 94,477,
which exceeded the fair value of the net assets of Venezia Net S.r.l. by
ITL/000 84,943. As indicated in Note 2.k, the excess is being amortized on the
straight-line method over five years.

13. Related-Party Transactions

The Company sells Internet services, purchases part of its computer
equipment, and leases part of its office to a minority stockholder. The Company
is also indebted with two minority stockholders because of the bonds and
related interest, described in Note 9. Following is a summary of transactions
and balances at December 31, 1998:

ITL/000
-------

Purchases from stockholder........................................... 375,092
=======
Sales to stockholder................................................. 57,410
=======
Rent income.......................................................... 42,000
=======
Interest on bonds.................................................... 14,696
=======
Due from stockholder (included in accounts receivable)............... 351,641
=======
Bonds payable........................................................ 800,000
=======

14. Income Taxes

Income tax expense for the year ended December 31, 1998 consists of:

ITL/000
---------

Current........................................................... (101,618)
Deferred.......................................................... 1,116,787
---------
1,015,169
=========

The following temporary differences gave rise to the current and noncurrent
deferred tax asset at December 31, 1998:

ITL/000
-------

Service income deferred for financial accounting purposes......... 964,301
-------
Total Deferred Tax Asset--Current................................. 964,301
=======
Lease capitalized for financial accounting purposes but expensed
for tax purposes................................................. (83,007)
Intangible assets expensed for financial accounting purposes and
deferred for tax purposes........................................ 839,381
Net operating loss carryforward................................... 235,000
-------
Total Deferred Tax Asset--Noncurrent.............................. 991,374
=======

F-52

FLASHNET S.p.A.

NOTES TO FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1998

15. Research and Development Costs

Research and development costs charged to operations for the year ended
December 31, 1998 were ITL/000 834,041.

16. Commitments and Contingencies

a. At December 31, 1998, the Company is contingently liable for penalties
and interest relating to late payment of payroll taxes. Accordingly, a
provision of ITL/000 358,780 has been charged to operations in the
accompanying financial statements.

b. The Company leases office space under operating leases expiring in
various years through January 2004. Minimum future rental payments under
non-cancelable operating leases having remaining terms in excess of 1
year as of December 31, 1998 for each of the next 5 years and in the
aggregate are:

ITL/000
---------

Year ending December 31:
1999............................................................. 344,252
2000............................................................. 344,252
2001............................................................. 344,252
2002............................................................. 344,252
2003............................................................. 57,780
Subsequent to December 31, 2003.................................. 1,050
---------
Total minimum future rental payments............................. 1,435,838
=========

Rental expense under operating leases for the year ended December 31, 1998
was ITL/000 118,820.

17. Subsequent Events

On April 9, 1999, the Stockholders approved:

a. To increase the Company's capital stock from ITL 2,182,857,000 to ITL
2,690,937,000, issuing 427,080 additional shares of the Company's ITL
1,000 par value common stock, at a price of ITL 4,214.667 par share.

b. To issue at no cost 171,428 warrants to purchase 171,428 shares of the
Company's common stock, ITL 1,000 par value, at ITL 7,000.0233 per
share. On the same date the Stockholders authorized the issuance of
171,428 additional shares of the Company's ITL 1,000 par value common
stock, that were reserved for that purpose. The warrants are exercisable
through December 31, 2001.

F-53

FLASHNET S.p.A.

BALANCE SHEETS
MARCH 31, 1999 AND 1998
(amounts in thousands of ITL)
(unaudited)

1999 1998
---------- ----------

ASSETS
Current assets
Cash................................................. 45,333 21,563
Accounts receivable (Note 2.c and 3)................. 5,886,650 2,127,182
Inventories (Notes 2.d and 4)........................ 489,895 197,190
Deferred income taxes (Notes 2.i and 13)............. 993,775 517,243
Prepaid cable rentals................................ 200,808 53,096
Other current assets................................. 403,341 61,276
---------- ----------
Total current assets............................... 8,019,802 2,977,550
Property, plant, and equipment (Notes 2.e and 5)....... 3,962,956 2,304,606
Other assets (Note 6).................................. 1,611,896 856,432
---------- ----------
Total Assets....................................... 13,594,654 6,138,588
========== ==========
LIABILITIES AND STOCKHOLDERS DEFICIT
Current liabilities
Bank overdraft....................................... 534,966 1,089,447
Accounts payable..................................... 7,585,701 2,999,429
Current maturities of long-term debt................. 401,217 220,614
Deferred income (Note 2.j)........................... 2,886,431 1,267,735
Other current liabilities (Note 7)................... 1,995,149 1,209,351
---------- ----------
Total current liabilities.......................... 13,403,464 6,786,576
Long-term liabilities
Obligations under capital leases (Note 8)............ 623,106 516,395
Severance indemnities (Notes 2.g and 9).............. 134,638 38,867
Bonds payable (Note 10).............................. 800,000 0
---------- ----------
Total Liabilities.................................. 14,961,208 7,341,838
---------- ----------
Stockholders deficit
Common stock, par value ITL 1,000 in 1999 and ITL
1,000,000 in 1998, authorized 2,297,142 shares in
1999 and 900 shares in 1998, issued and outstanding
2,182,857 shares in 1999 and 900 shares in 1998..... 2,182,857 900,000
Additional paid-in capital........................... 983,891 0
Accumulated deficit (Notes 2.h and 11)............... (4,533,302) (2,103,250)
---------- ----------
Total Stockholders Deficit......................... (1,366,554) (1,203,250)
---------- ----------
Total Liabilities and Stockholders Deficit......... 13,594,654 6,138,588
========== ==========

See accompanying notes.

F-54

FLASHNET S.p.A.

STATEMENTS OF LOSS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(amounts in thousands of ITL)
(unaudited)

Net sales............................................. 3,174,987 1,243,465
Cost of sales......................................... (2,735,912) (1,129,140)
----------- ----------
Gross profit.......................................... 439,075 114,325
Operating expenses.................................... (1,510,442) (815,964)
----------- ----------
Loss from operations.................................. (1,071,367) (701,639)
----------- ----------
Other income (expense)
Interest expense, net .............................. (113,646) (104,334)
Penalties and interest on late payment of payroll
taxes.............................................. (11,341) (222,547)
Rent income......................................... 10,500 10,500
Others.............................................. 13,185 9,119
----------- ----------
Total other income (expense)...................... (101,302) (307,262)
----------- ----------
Loss before income taxes.............................. (1,172,669) (1,008,901)
Income taxes (Notes 2.i and 13)....................... 339,506 240,287
----------- ----------
Net loss.............................................. (833,163) (768,614)
=========== ==========

See accompanying notes.

F-55

FLASHNET S.p.A.

STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(amounts in thousands of ITL)
(unaudited)

Additional
Common paid-in Accumulated
Total stock capital deficit
---------- --------- ---------- -----------

Balance, Jan. 1, 1998 ITL/000.... (434,636) 900,000 (1,334,636)
Net loss for the period ......... (768,614) (768,614)
---------- --------- ------- ----------
Balance, Mar. 31, 1998 ITL/000... (1,203,250) 900,000 (2,103,250)
========== ========= ======= ==========
Balance, Jan. 1, 1999 ITL/000.... (533,391) 2,182,857 983,891 (3,700,139)
Net loss for the period ......... (833,163) (833,163)
---------- --------- ------- ----------
Balance, Mar. 31, 1999 ITL/000... (1,366,554) 2,182,857 983,891 (4,533,302)
========== ========= ======= ==========

See accompanying notes.

F-56

FLASHNET S.p.A.

STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(amounts in thousands of ITL)
(unaudited)

1999 1998
---------- --------

Cash flows from operating activities
Net loss................................................ (833,163) (768,614)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization.......................... 208,548 111,937
Change in assets and liabilities
(Increase) decrease in accounts receivable............ (1,387,110) 51,762
(Increase) decrease in inventories.................... (315,125) 2,243
(Increase) decrease in deferred tax asset-current..... (29,474) 58,468
(Increase) decrease in deferred tax asset-noncurrent.. (360,032) (298,755)
Decrease in other current assets...................... 228,130 516,147
Increase in accounts payable.......................... 2,619,401 270,999
Increase (decrease) in deferred income................ 111,723 (127,928)
Increase in other current liabilities................. 368,991 468,661
Increase in severance indemnities, net................ 40,294 6,836
---------- --------
Net cash provided by operating activities............ 652,183 291,756
---------- --------
Cash flows from investing activities.....................
Purchase of property, plant, and equipment.............. (343,545) (240,668)
---------- --------
Net cash used in investing activities................ (343,545) (240,668)
---------- --------
Cash flows from financing activities.....................
(Decrease) increase in bank overdraft................... (181,471) 34,025
Principal payments under capital lease obligations...... (113,868) (81,856)
---------- --------
Net cash used in financing activities................ (295,339) (47,831)
---------- --------
Net change in cash and cash equivalents.................. 13,299 3,257
Cash and cash equivalents--beginning of period........... 32,034 18,306
---------- --------
Cash and cash equivalents--end of period................. 45,333 21,563
========== ========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest.............................................. 28,643 9,174
Income taxes.......................................... 0 0
Supplemental schedule of noncash investing and financing
activities:
The following capital obligations were incurred when
the Company entered into new leases for new telephone
and computer equipment................................ 143,311 106,175

See accompanying notes.

F-57

FLASHNET S.p.A.

NOTES TO FINANCIAL STATEMENTS
March 31, 1999 and 1998
(unaudited)

1. General

Flashnet S.p.A., the "Company", was established in Italy in 1995, and is
mainly involved in providing internet and long-distance telephone services.

2. Summary of Significant Accounting Policies

a. Basis of Financial Statements presentation

The Company maintains its accounting records in Italian Liras ("ITL") and
prepares its statutory financial statements in conformity with accounting
principles generally accepted in Italy. The accompanying financial statements
have been restated in order to comply with accounting principles generally
accepted in the United States of America, for consolidation purposes. The main
adjustments have been made to reflect the provisions of FAS-13 (Accounting for
Leases), and SOP 98-1 (Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use).

All information contained in the accompanying financial statements and
related notes are expressed in thousands of ITL ("ITL/000"), unless otherwise
indicated.

b. Statement of cash flows

For purposes of the statement of cash flows, cash equivalents include time
deposits, certificate of deposits, and all highly liquid debt instruments with
original maturities of three months or less.

c. Accounts receivable

d. Inventories

Inventories are stated at the lower of cost, determined by the FIFO method,
or market.

e. Property, plant, and equipment

The cost of property, plant, and equipment is depreciated over the estimated
useful lives of the related assets. Leasehold improvements are depreciated over
the lesser of the term of the related lease or the estimated useful lives of
the assets. Depreciation is computed using the straight line method for both
financial reporting and income tax purposes.

The useful lives of property, plant, and equipment for purposes of computing
depreciation are:

Computer and telephone equipment................................. 8.5 years
Office furniture and equipment................................... 3-8 years
Vehicles......................................................... 4 years

Property, plant, and equipment costing less than ITL 1,000,000 is entirely
expensed in the year of acquisition.

F-58

FLASHNET S.p.A.

NOTES TO FINANCIAL STATEMENTS--(Continued)
March 31, 1999 and 1998
(unaudited)

g. Severance indemnities

h. Retained Earnings

i. Income taxes

j. Deferred income

The Company collects in advance the subscriptions as provider of internet
services from customers, and allocates the related revenues based on time
remaining to the end of the contract. Deferred income represents the unearned
portion at the balance sheet date.

k. Goodwill

I. Research and development costs and advertising costs

Research and development costs and advertising costs, are charged to
operations when incurred and are included in operating expenses.

3. Accounts Receivable

Following is a summary of accounts receivable at March 31, 1999 and 1998:

1999 1998
--------- ---------

Trade accounts............................... ITL/000 5,936,650 2,177,182
Less: allowance for doubtful accounts........ (50,000) (50,000)
--------- ---------
ITL/000 5,886,650 2,127,182
========= =========

F-59

FLASHNET S.p.A.

NOTES TO FINANCIAL STATEMENTS--(Continued)
March 31, 1999 and 1998
(unaudited)
4. Inventories

Inventories at March 31, 1999 and 1998 consist of:

1999 1998
---------- ---------

Finished goods............................. ITL/000 489,895 197,190
Less: allowance for obsolete inventory..... 0 0
---------- ---------
ITL/000 489,895 197,190
========== =========

5. Property, Plant, and Equipment

Following is a summary of property, plant, and equipment at cost, less
accumulated depreciation at March 31, 1999 and 1998:

1999 1998
---------- ---------

Telephone and computer equipment (owned)... ITL/000 2,327,829 1,387,880
Telephone and computer equipment (leased).. 1,597,715 1,097,218
Office furniture and equipment............. 377,630 147,301
Leasehold improvements..................... 477,990 58,633
Vehicles (leased).......................... 185,403 0
---------- ---------
4,966,567 2,691,032
Less: accumulated depreciation............. (1,003,611) (386,426)
---------- ---------
ITL/000 3,962,956 2,304,606
========== =========

Depreciation expenses charged to operations for the three months ended March
31, 1999 and 1998, was ITL/000 171,801 and ITL/000 79,437, respectively.

6. Other Assets

Other assets at March 31, 1999 and 1998 consist of:

1999 1998
---------- ---------

Goodwill (net of accumulated amortization
of ITL/000 493,163 in 1999 and ITL/000
357,500 in 1998).......................... ITL/000 241,780 292,500
Deferred income taxes...................... 1,351,406 561,932
Others..................................... 18,710 2,000
---------- ---------
ITL/000 1,611,896 856,432
========== =========

Amortization of goodwill charged to operations for the three months ended
March 31, 1999 and 1998, was ITL/000 36,747 and ITL/000 32,500, respectively.

F-60

FLASHNET S.p.A.

NOTES TO FINANCIAL STATEMENTS--(Continued)
March 31, 1999 and 1998
(unaudited)

7. Other Current Liabilities

Other current liabilities at March 31, 1999 and 1998 consist of:

1999 1998
--------- ---------

Provision for penalties and interest on late
payment of payroll taxes..................... ITL/000 370,121 222,547
Income taxes payable.......................... 71,031 22,967
Payroll taxes payable......................... 656,738 449,682
Salaries payable.............................. 147,419 42,146
VAT payable................................... 101,407 158,655
Others........................................ 648,433 313,354
--------- ---------
ITL/000 1,995,149 1,209,351
========= =========

8. Obligations Under Capital Leases

The Company is the lessee of computer and telephone equipment and five
vehicles under capital leases expiring in various years through December 2003.
The assets and liabilities under capital leases are recorded at the fair value
of the leased property, which approximates the present value of the minimum
lease payments.

Minimum future lease payments as of March 31, 1999 for each of the next five
years and in the aggregate are:

Year ending March 31:
1999...................................................... ITL/000 585,557
2000...................................................... 451,600
2001...................................................... 196,200
2002...................................................... 49,805
2003...................................................... 19,148
Subsequent to March 31, 2003.............................. 0
---------
Total minimum lease payments.............................. 1,302,310
Less: amount representing interest........................ (277,987)
---------
Present value of minimum lease payments................... ITL/000 1,024,323
=========

The above payments are computed using the interest rate in effect at December
31, 1998; actual payments may vary because of changes in applicable rates.

All leases provide for purchase options at the expiration of the lease; the
minimum future lease payments above, include the payments required to exercise
the purchase options.

F-61

FLASHNET S.p.A.

NOTES TO FINANCIAL STATEMENTS--(Continued)
March 31, 1999 and 1998
(unaudited)

9. Severance Indemnities

The amount shown in the financial statements represents the actual liability
at the balance sheet date. Following is detail of changes during the three
months ended March 31, 1999 and 1998:

1999 1998
------- ------

Balance--beginning of period........................ ITL/000 94,344 32,030
Severance indemnities expense for the period........ 42,474 10,244
Indemnities paid during the period.................. (2,180) (3,407)
------- ------
Balance--end of period.............................. ITL/000 134,638 38,867
======= ======

Severance indemnities expense for the three months ended March 31, 1999 and
1998, includes the following components:

1999 1998
------ ------

Revaluation of indemnities accrued at the beginning
of the year ....................................... ITL/000 616 232
Indemnities accrued for the period.................. 41,858 10,012
------ ------
ITL/000 42,474 10,244
====== ======

10. Bonds Payable

Maturities as of March 31, 1999 for each of the next 5 years and in the
aggregate are:

Year ending March 31:
1999....................................................... ITL/000 0
2000....................................................... 0
2001....................................................... 220,000
2002....................................................... 400,000
2003....................................................... 300,000
-------
ITL/000 920,000
=======

Interest expense for the three months ended March 31, 1999 and 1998 was
ITL/000 9,864 and ITL/000 -0-, respectively.

11. Accumulated Deficit

Accumulated deficit as of March 31, 1999 and 1998 consists of:

1999 1998
---------- ----------

Legal reserve (restricted)................. ITL/000 175 175
Net loss of prior periods-Italian GAAP
basis..................................... (1,207,286) (66,748)
Net loss for the period--Italian GAAP
basis..................................... (772,995) (987,066)
Increase in accumulated deficit due to US
GAAP adjustments.......................... (2,553,196) (1,049,611)
---------- ----------
ITL/000 (4,533,302) (2,103,250)
========== ==========

F-62

FLASHNET S.p.A.

NOTES TO FINANCIAL STATEMENTS--(Continued)
March 31, 1999 and 1998
(unaudited)

12. Related Party Transactions

The Company sells internet services, purchases part of its computer
equipment, and leases part of its office to a minority stockholder.

The Company is also indebted with two minority stockholders because of the
bonds and related interest, described in Note 9.

Following is a summary of transactions and balances at March 31, 1999 and
1998:

1999 1998
------- -------

Purchases from stockholder......................... ITL/000 71,022 60,966
======= =======
Sales to stockholder............................... 82,193 14,085
======= =======
Rent income........................................ 10,500 10,500
======= =======
Interest on bonds.................................. 9,864 0
======= =======
Due from stockholder (included in accounts
receivable)....................................... 613,898 514,524
======= =======
Due to stockholder (included in accounts payable).. 144,734 173,419
======= =======
Bonds payable...................................... ITL/000 800,000 0
======= =======

13. Income Taxes

Income tax expense for the three months ended March 31, 1999 and 1998
consists of:

1999 1998
------- -------

Current............................................. ITL/000 (50,000) 0
Deferred............................................ 389,506 240,287
------- -------
ITL/000 339,506 240,287
======= =======

The following temporary differences gave rise to the current and noncurrent
deferred tax asset at March 31, 1999 and 1998:

1999 1998
--------- -------

Service income deferred for financial
accounting purposes........................... ITL/000 993,775 517,243
--------- -------
Total Deferred Tax Asset--Current.............. ITL/000 993,775 517,243
========= =======

1999 1998
--------- -------

Lease capitalized for financial accounting
purposes but expensed for tax purposes........ ITL/000 (94,152) (39,578)
Intangible assets expensed for financial
accounting purposes and deferred for tax
purposes...................................... 970,558 363,278
Net operating loss carryforward................ 475,000 238,232
--------- -------
Total Deferred Tax Asset--Noncurrent....... ITL/000 1,351,406 561,932
========= =======

F-63

FLASHNET S.p.A.

NOTES TO FINANCIAL STATEMENTS--(Continued)
March 31, 1999 and 1998
(unaudited)

14. Research and Development Costs

Research and development costs charged to operations for the three months
ended March 31, 1999 and 1998 were ITL/000 113,504 and ITL/000 212,639.

15. Commitments and Contingencies

a) At March 31, 1999, the Company is contingently liable for penalties and
interest relating to late payment of payroll taxes. The accompanying
financial statements at March 31, 1999, include a provision of ITL/000
370,121 with regards to such contingency.

b) The Company leases office space under operating leases expiring in
various years through January 2004. Minimum future rental payments under
non-cancelable operating leases having remaining terms in excess of 1
year as of March 31, 1999 for each of the next 5 years and in the
aggregate are:

Year ending March 31:
1999................................................... ITL/000 344,252
2000................................................... 344,252
2001................................................... 344,252
2002................................................... 272,634
2003................................................... 43,598
Subsequent to March 31, 2003............................. 788
---------
Total minimum future rental payments..................... ITL/000 1,349,776
=========

Rental expense under operating leases for the three months ended March 31,
1999 and 1998 was ITL/000 102,155 and ITL/000 61,144, respectively.

16. Subsequent Events

On April 9, 1999, the Stockholders approved:

a) To increase the Company's capital stock from ITL 2,182,857,000 to ITL
2,609,937,000, issuing 427,080 additional shares of the Company's ITL
1,000 par value common stock, at a price of ITL 4,214.667 per share.

b) To issue, at no-cost, 171,428 warrants to purchase 171,428 shares of the
Company's common stock, ITL 1,000 par value, at ITL 7,000.0233 per
share. On the same date the Stockholders authorized the issuance of
171,428 additional shares of the Company's ITL 1,000 par value common
stock, that were reserved for that purpose. The warrants are exercisable
through December 31, 2001.

F-64

Head Office of the Company

Stefan-George-Ring 19-23
D-81929 Munich
Germany

Auditors to the Company

Schitag Ernst & Young
Deutsche Allgemeine Treuhand AG
Eschersheimer Landstrasse 14
D-60322 Frankfurt
Germany

Trustee

The Bank of New York
101 Barclay Street
New York, New York 10286
U.S.A.

Principal Paying Agent

The Bank of New York
101 Barclay Street
New York, New York 10286
U.S.A.

Legal Advisors to the Company

as to U.S. law

as to German law

Powell, Goldstein, Frazer & Murphy Besner Kreifels Weber
LLP 41 Widenmayerstrasse
1001 Pennsylvania Ave, NW D-80538 Munich
Washington, DC 20004 Germany
U.S.A.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

YOU SHOULD DIRECT ALL TENDERED OUTSTANDING NOTES, EXECUTED LETTERS OF
TRANSMITTAL AND OTHER RELATED DOCUMENTS TO THE EXCHANGE AGENT. YOU SHOULD
DIRECT ALL QUESTIONS AND REQUESTS FOR ASSISTANCE AND REQUEST FOR ADDITIONAL
COPIES OF THIS PROSPECTUS, THE LETTER OF TRANSMITTAL AND OTHER RELATED
DOCUMENTS TO THE EXCHANGE AGENT.

The exchange agent for this exchange offer is:

The Bank of New York

By Registered or Certified
Mail: By Facsimile Transmission: By Hand or Overnight Delivery:
The Bank of New York (For Eligible Institutions Only) The Bank of New York
101 Barclay Street (212) 815-6339 101 Barclay Street
Bond Redemption Unit, 7E Bond Redemption Unit, 7E
New York, New York 10286 To Confirm by Telephone or For New York, New York 10286
Attention: Enrique Lopez Information Call: Attention: Enrique Lopez
Reorganization Department (212) 815-2742 Reorganization Department

(YOU SHOULD PROMPTLY SEND ORIGINALS OF ALL DOCUMENTS SUBMITTED BY FACSIMILE
BY HAND, OVERNIGHT COURIER, OR REGISTERED OR CERTIFIED MAIL.)

---------------

UNTIL , 2000 (180 DAYS AFTER THE COMMENCEMENT OF THIS EXCHANGE OFFER),
ALL DEALERS EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT
PARTICIPATING IN THIS EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS.

---------------

OFFER TO EXCHANGE ANY AND ALL
OUTSTANDING
14.0% SENIOR NOTES
DUE 2009
FOR
14.0% SENIOR NOTES
DUE 2009

[CYBERNET LOGO APPEARS HERE]

---------------

PROSPECTUS

---------------

Dated , 1999

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS

Item 20. Indemnification of Directors and Officers

Section 145 of the Delaware General Corporation Law permits indemnification
of directors, officers, employees and agents of corporations for liabilities
arising under the Securities Act of 1933, as amended.

The registrant's Certificate of Incorporation and By-laws provide for
indemnification of the registrant's directors and officers to the fullest
extent permitted by Section 145 of the Delaware General Corporation Law.

Statutory Provisions

Section 102(b)(7) of the Delaware General Corporation Law enables a
corporation in its certificate of incorporation to eliminate or limit the
personal liability of members of its Board of Directors to the corporation or
its stockholders for monetary damages for violations of a director's fiduciary
duty of care. The provision would have no effect on the availability of
equitable remedies, such as an injunction or rescission, for breach of
fiduciary duty. In addition, no provision may eliminate or limit the liability
misconduct or knowingly violating a law, paying an unlawful dividend or
approving an illegal stock repurchase, or obtaining an improper personal
benefit.

Section 145 of the Delaware General Corporation Law empowers a corporation to
indemnify any person who was or is a party to or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that he is or was a director, officer, employee or agent of the corporation,
against expenses (including attorney's fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with the
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. No indemnification shall
be made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation unless and only to the
extent that the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for expenses which the court shall deem proper. Additionally, a
corporation is required to indemnify its directors and officers against
expenses to the extent that the directors or officers have been successful on
the merits or otherwise in any action, suit or proceeding or in defense of any
claim, issue or matter.

An indemnification can be made by the corporation only upon a determination
that indemnification is proper in the circumstances because the party seeking
indemnification has met the applicable standard of conduct as set forth in the
Delaware General Corporation Law. The indemnification provided by the Delaware
General Corporation Law shall not be deemed exclusive of any other rights to
which those seeking indemnification may be entitled under any bylaw, agreement,
vote of stockholders or disinterested directors, or otherwise. A corporation
also has the power to purchase and maintain insurance on behalf of any person,
whether or not the corporation would have the power to indemnify him against
such liability. The indemnification provided by the Delaware General
Corporation Law shall, unless otherwise provided when authorized or ratified,
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of the heirs, executors and administrators
of the person.

The Company's Charter Provision

Our Company's Certificate of Incorporation limits a director's liability for
monetary damages to our Company and our stockholders for breaches of fiduciary
duty except under the circumstances outlined in the Delaware General
Corporation Law as described above under "Statutory Provisions."

Our Company's Certificate of Incorporation extends indemnification rights to
the fullest extent authorized by the Delaware General Corporation Law to
directors and officers involved in any action, suit or proceeding where the
basis of the involvement is the person's alleged action in an official capacity
or in any other capacity while serving as a director or officer of our Company.

II-1

Item 21. Exhibits.

Exhibit
Number Description
------- -----------

1.1* Amended Underwriting Agreement (Incorporated by reference as Exhibit
1.1 to the Form S-1/A Registration Statement filed with the Commission
on November 25, 1998).

1.2** Purchase Agreement dated July 1, 1999 by and among the Company, Lehman
Brothers International (Europe) and Morgan Stanley & Co. International
Limited relating to the Company's $150,000,000 in Units comprised of
14% Senior Notes due 2009 and Warrants.
1.3** Purchase Agreement dated as of August 19, 1999 by and between the
Company and Morgan Stanley & Co. International Limited relating to the
Company's ^25,000,000 Convertible Senior Subordinated Pay-In-Kind
Notes due 2009.

1.4** Purchase Agreement dated as of August 19, 1999 by and between the
Company and Morgan Stanley & Co. International Limited relating to the
Company's $35,000,000 13.0% Convertible Senior Subordinated Discount
Notes due 2009.

1.5** Purchase Agreement dated as of August 23, 1999 by and between the
Company and Morgan Stanley & Co. International Limited relating to the
Company's $15,002,183 13.0% Convertible Senior Subordinated Discount
Notes due 2009.

3.1* Certificate of Incorporation. (Incorporated by reference as Exhibit
3.1 to the Form S-1 Registration Statement filed with the Commission
on September 18, 1998).

3.2* Bylaws (Incorporated by reference as Exhibit 3.2 to the Form S-1
Registration Statement filed with the Commission on September 18,
1998).

4.1** Unit Agreement dated as of July 8, 1999 by and among the Company,
Lehman Brothers International (Europe) and Morgan Stanley & Co.
International Limited.

4.2** Indenture dated as of July 8, 1999 by and between the Company and The
Bank of New York, relating to the Company's notes contained in the
Units.

4.3** Collateral Agreement dated as of July 8, 1999 by and among the
Company, Lehman Brothers International (Europe) and Morgan Stanley &
Co. International Limited, relating to the Unit Agreement.

4.4** Registration Rights Agreement dated as of July 8, 1999 by and among
the Company, Lehman Brothers International (Europe) and Morgan Stanley
& Co. International Limited, relating to the Company's notes contained
in the Units.

4.5** Warrant Agreement, dated as of July 8, 1999 by and among Cybernet
Internet Services International, Inc., Lehman Brothers International
(Europe) and Morgan Stanley & Co. International Limited, relating to
the Company's warrants contained in the Units.

5.1*** Opinion of Powell, Goldstein, Frazer & Murphy LLP.

8.1*** Opinion of Schitag Ernst & Young re tax matters.

10.1* Sale and Assignment of Business Shares of the Artwise GmbH Software
Losugen dated September 18, 1997 by and among Mr. Stefan
Heiligensetzer, Mr. Frank Marchewicz, Mr. Rolf Strehle, Mr. Gerhard
Schonenberger, Mr. Lothar Bernecker, Artwise GmbH Software Solutions,
Cybernet Internet--Dienstleistungen AG and Cybernet Internet--
Beteiligungs GmbH (Incorporated by reference as Exhibit 10.1 to the
Form S-1 Registration Statement filed with the Commission on September
18, 1998).

10.2* Sale and Assignment of Shares in OpenNet Internet Solutions GmbH dated
August 12, 1998 by and among Mr. Thomas Egner, Mr. Uwe Hagenmeier, Mr.
Markus Kress, Mr. Oliver Schaffer, Cybernet Internet Dienstleistungen
AG, and Cybernet Internet--Beteiligungs GmbH (Incorporated by
reference as Exhibit 10.2 to the Form S-1 Registration Statement filed
with the Commission on September 18, 1998).

II-2

Exhibit
Number Description
------- -----------

10.3* Private Agreement for the Sale of Company Shareholdings and Increase
of Share Capital dated December 4, 1997 by and among Cybernet Internet
Dienstleistung ag, Mr. Robert Loro, Stefano Longano, Domenico Loro,
Angelo Longano, Emma Pontara, Maria Teresa Francesconi and Mauro
Longano (Incorporated by reference as Exhibit 10.3 to the Form S-1
Registration Statement filed with the Commission on September 18,
1998).

10.4* Stock Purchase Agreement dated June 17, 1998 among the Company,
Tristan Libischer, and Alexander Wiesmuller (Incorporated by reference
as Exhibit 10.4 to the Form S-1 Registration Statement filed with the
Commission on September 18, 1998).

10.5* Stock Purchase Agreement, dated June 11, 1997, among the Company,
Cybermind Interactive Europe AG, Rudolf Strobl, Roland Manger, Thomas
Schulz, Andreas Eder, and Holger Timm (Incorporated by reference as
Exhibit 10.5 to the Form S-1 Registration Statement filed with the
Commission on September 18, 1998).

10.6* Pooling and Trust Agreement dated August 18, 1997 among Cybermind
Interactive Europe AG, Andreas Eder, Roland Manger, Thomas Schulz,
Rudolf Strobl, Holger Timm, and Dr. Hurbert Besner, as trustee
(Incorporated by reference as Exhibit 10.6 to the Form S-1
Registration Statement filed with the Commission on September 18,
1998).

10.7* Pooling and Trust Agreement dated August 1, 1998 between Stefan
Heiligensetzer and Dr. Hubert Besner, as trustee (Incorporated by
reference as Exhibit 10.7 to the Form S-1 Registration Statement filed
with the Commission on September 18, 1998).

10.7.1* Schedule of Additional Artwise Pooling Agreements, referencing
agreements of Mr. Marchewicz, Mr. Strehle, Mr. Schonenberger and Mr.
Bernecker (Incorporated by reference as Exhibits 10.7 and 10.7.1 to
the Form S-1 Registration Statement filed with the Commission on
September 18, 1998).

10.8* Consulting Agreement dated December 15, 1997 between Cybernet
Internet--Dienstleistungen AG and Eiderdown Trading Ltd. (Incorporated
by reference as Exhibit 10.8 to the Form S-1 Registration Statement
filed with the Commission on September 18, 1998).

10.9* Employment Contract dated February 23, 1998 between Cybernet
Internet--Dienstleistungen Aktiengesellschaft and Andreas Eder
(Incorporated by reference as Exhibit 10.9 to the Form S-1
Registration Statement filed with the Commission on September 18,
1998).

10.10* Employment Contract dated May 15, 1997 between Cybernet Internet--
Dienstleistungen Aktiengesellschaft and Alessondro Giacalone
(Incorporated by reference as Exhibit 10.10 to the Form S-1
Registration Statement filed with the Commission on September 18,
1998).

10.11* Employment Contract dated April 28, 1997 between Cybernet Internet
Dienstleistungen AG and Christian Moosmann (Incorporated by reference
as Exhibit 10.11 to the Form S-1 Registration Statement filed with the
commission on September 18, 1998).

10.12* Employment Contract dated February 23, 1998 between Cybernet
Internet--Dienstleistungen Aktiengesellschaft and Rudolf Strobl
(Incorporated by reference as Exhibit 10.12 to the Form S-1
Registration Statement filed with the Commission on September 18,
1998).

10.13* Sublease for business premises office dated February 29, 1996 between
KG Bayerische Hausbau GmbH and Co. and Cybernet AG.i.G. (Incorporated
by reference as Exhibit 10.13 to the Form S-1 Registration Statement
filed with the Commission on September 18, 1998).

10.14* Full Amortization leasing Agreement No. 13 00 00 for Hard- and
Software with purchase, extension and return options between CyberNet
Internet--Dienstleistungen AG and Miller Leasing Miete GMbH dated
January 22, 1998 (Incorporated by reference as Exhibit 10.14 to the
Form S-1 Registration Statement filed with the Commission on September
18, 1998).

II-3

Exhibit
Number Description
------- -----------

10.15* Agreement on the use of Data Communication Installations of Info AG
dated July 29, 1996 between Info AG and CyberNet Internet--
Dienstleistungen Ag (Incorporated by reference as Exhibit 10.15 to
the Form S-1 Registration Statement filed with the Commission on
September 18, 1998).

10.15.1*** Agreement of Use, dated December 19, 1997, between Info AG and
Cybernet Internet--Dienstleistungen AG.

10.16* Ebone Internet Access Contract dated February 26, 1997 between
Ebone Inc. and Cybernet AG (Incorporated by reference as Exhibit
10.16 to the Form S-1 Registration Statement filed with the
Commission on September 18, 1998).

10.17* Agreement, undated, between feratel International GmbH and Cybernet
Internet--Dienstleistungen AG (Incorporated by reference as Exhibit
10.17 to the Form S-1 Registration Statement filed with the
Commission on September 18, 1998).

10.18* Cybernet Internet Services International, Inc. 1998 Stock Incentive
Plan (Incorporated by reference as Exhibit 10.18 to the Form S-1/A
Registration Statement filed with the Commission on November 5,
1998).

10.19* Cybernet Internet Services International, Inc. 1998 Outside
Directors' Stock Option Plan (Incorporated by reference as Exhibit
10.19 to the Form S-1/A Registration Statement filed with the
Commission on November 5, 1998).

10.20* Agreement and Plan of Merger, dated October 9, 1998, between the
Company, a Utah corporation, and Cybernet Internet Services
International, Inc., a Delaware corporation (Incorporated by
reference as Exhibit 2.1 to the Form S-1/A Registration Statement
filed on November 5, 1998).

10.23** Registration Rights Agreement dated August 26, 1999 by and between
the Company and Morgan Stanley & Co. International Limited relating
to the Company's ^25,000,000 Convertible Senior Subordinated Pay-
In-Kind Notes due 2009.

10.24** Indenture dated August 26, 1999 by and between the Company and The
Bank of New York relating to the Company's ^25,000,000 Convertible
Senior Subordinated Pay-In-Kind Notes due 2009.

10.26** Registration Rights Agreement dated August 26, 1999 by and between
the Company and Morgan Stanley & Co. International Limited relating
to the company's $35,000,000 13.0% Convertible Senior Subordinated
Discount Notes due 2009

10.27** Registration Rights Agreement dated August 26, 1999 by and between
the Company and Morgan Stanley & Co. International Ltd. relating to
the company's $15,002,183 13.0% Convertible Senior Subordinated
Discount Notes due 2009.

10.28** Indenture dated August 26, 1999 by and between the Company and The
Bank of New York relating to the company's $35,000,000 and
$15,002,183 13.0% Convertible Senior Subordinated Discount Notes
due 2009.

12.1*** Statements re computation of ratios.

21.1** Subsidiaries.

23.1** Consent of Schitag Ernst & Young.

23.2** Consent of Ernst & Young, Wirtschaftsprufungs-Und,
Steuerberatungsellschaft MBH.

23.3** Consent of Grant Thornton S.p.A.

24.1 Power of Attorney (included in the signature page hereto).

25.1** Statement of Eligibility of Trustee.

27.1** Financial Data Schedule.

- --------
* Previously filed
** Filed herewith
*** To be filed by amendment

II-4

Item 22. Undertakings.

The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:

(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement.

(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;

provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
registration statement is on Form S-3, Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the registration
statement.

(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement related to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination
of the offering.

(4) If the registrant is a foreign private issuer, to file a post-effective
amendment to the registration statement to include any financial statements
required by Rule 3-19 of this chapter at the start of any delayed offering
or throughout a continuous offering. Financial statements and information
otherwise required by Section 10(a)(3) of the Act need not be furnished,
provided, that the registrant includes in the prospectus, by means of a
post-effective amendment, financial statements required pursuant to this
paragraph (a)(4) and other information necessary to ensure that all other
information in the prospectus is at least as current as the date of those
financial statements. Notwithstanding the foregoing, with respect to the
registration statements on Form F-3, a post-effective amendment need not be
filed to include financial statements and information required by Section
10(a)(3) of the Act or Rule 3-19 of this chapter if such financial
statements and information are contained in periodic reports filed with or
furnished to the Commission by the registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are incorporated
by reference in the Form F-3.

Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In

II-5

the event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.

The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant
to Item 4, 10(b), 11, or 13 of this form, within one business day of
receipt of such request, and to send the incorporated documents by first
class mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.

The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.

II-6

SIGNATURES

Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed by the undersigned, thereunto
duly authorized, in the City of Munich, Germany, on September 10, 1999.

Cybernet Internet Services
International, Inc.

/s/ Andreas Eder
By: ___________________________________
Andreas Eder
Chairman of the Board of Directors,
President and Chief Executive
Officer

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each of the persons whose signature
appears below appoints and constitutes Robert Fratarcangelo and Andreas Eder,
and each of them, his true and lawful attorney-in-fact and agent, each acting
alone, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to execute any and all
amendments (including post-effective amendments) to the within registration
statement, and to file the same, together with all exhibits thereto and all
other documents in connection therewith, with the Securities and Exchange
Commission and such other agencies, offices and persons as may be required by
applicable law, granting unto each said attorney-in-fact and agent, each acting
alone, full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that each said attorney-in-fact and agent, each acting alone may
lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.

Signature Title Date

/s/ Andreas Eder Chairman of the Board of September 10,
- ---------------------------- Directors, President and 1999
Andreas Eder Chief Executive Officer
(Principal Executive
Officer)

/s/ Robert Eckert Chief Financial Officer and September 10,
- ---------------------------- Treasurer (Principal 1999
Robert Eckert Financial and Accounting
Officer)

/s/ Dr. Alessandro Director and Chief September 10,
Giacalone Operating Officer 1999
- ----------------------------
Dr. Alessandro Giacalone

/s/ Robert Fratarcangelo Director and Secretary September 10,
- ---------------------------- 1999
Robert Fratarcangelo

/s/ Dr. Hubert Besner Director September 10,
- ---------------------------- 1999
Dr. Hubert Besner

/s/ Tristan Libischer Director September 10,
- ---------------------------- 1999
Tristan Libischer

/s/ G. W. Norman Wareham Director September 10,
- ---------------------------- 1999
G. W. Norman Wareham

II-7

EXHIBIT INDEX

Exhibit
Number Description
------- -----------

1.1* Amended Underwriting Agreement (Incorporated by reference as Exhibit
1.1 to the Form S-1/A Registration Statement filed with the Commission
on November 25, 1998).

3.1* Certificate of Incorporation. (Incorporated by reference as Exhibit
3.1 to the Form S-1 Registration Statement filed with the Commission
on September 18, 1998).

3.2* Bylaws (Incorporated by reference as Exhibit 3.2 to the Form S-1
Registration Statement filed with the Commission on September 18,
1998).

4.1** Unit Agreement dated as of July 8, 1999 by and among the Company,
Lehman Brothers International (Europe) and Morgan Stanley & Co.
International Limited.

4.2** Indenture dated as of July 8, 1999 by and between the Company and The
Bank of New York, relating to the Company's notes contained in the
Units.

4.3** Collateral Agreement dated as of July 8, 1999 by and among the
Company, Lehman Brothers International (Europe) and Morgan Stanley &
Co. International Limited, relating to the Unit Agreement.

5.1*** Opinion of Powell, Goldstein, Frazer & Murphy LLP.

8.1*** Opinion of Schitag Ernst & Young re tax matters.

Exhibit
Number Description
------- -----------

10.15.1*** Agreement of Use, dated December 19, 1997, between Info AG and
Cybernet Internet--Dienstleistungen AG.

10.24** Indenture dated August 26, 1999 by and between the Company and The
Bank of New York relating to the Company's ^25,000,000 Convertible
Senior Subordinated Pay-In-Kind Notes due 2009.

12.1*** Statements re computation of ratios.

21.1** Subsidiaries.

23.1** Consent of Schitag Ernst & Young.

23.2** Consent of Ernst & Young, Wirtschaftsprufungs-Und,
Steuerberatungsellschaft MBH.

23.3** Consent of Grant Thornton S.p.A.

24.1 Power of Attorney (included in the signature page hereto).

25.1** Statement of Eligibility of Trustee.

27.1** Financial Data Schedule.

- --------
* Previously filed
** Filed herewith
*** To be filed by amendment