Network 1 Agrees to Acquire CyberCash Assets in Bankruptcy Court Proceeding

Mar 02 2001

RESTON, Va. -- CyberCash Inc. and Network 1 Financial Corp. scrapped their planned merger and restructured the deal under a Chapter 11 bankruptcy proceeding.

CyberCash said the companies terminated their previous agreement because CyberCash wasn't able to raise the necessary financing. Under the new asset-purchase agreement, Network 1 will acquire all of CyberCash's operating assets under a proceeding begun Friday in bankruptcy court in Delaware.

The Nasdaq Stock Market halted trading in CyberCash stock Friday morning for additional information. Earlier, shares were halted for news and last traded at 78 cents, up three cents or 4.2%.

CyberCash, a provider of electronic-payment services, said it will continue serving its customers, which include more than 27,500 Internet merchants and more than 100,000 software users. The company said it also will continue marketing and sales activities to generate new business.

The proposed transaction is subject to numerous conditions as well as approval by the bankruptcy court.

Dan Lynch, CyberCash's chief executive officer, said the merger with Network 1 was the key to the company becoming profitable.

"Unfortunately, the financial markets have dried up and we have been held up just short of the finish line, without the funds to close and execute the plan," Mr. Lynch said in a written statement Friday. "We are making this move now to ensure that CyberCash's obligations can be satisfied and to maximize any residual value for the company's stockholders."

John Karnes, CyberCash's financial chief, said the company will cut 38 of about 138 jobs remaining in its U.S. operations, effective Friday. However, Mr. Karnes said the job cuts won't interrupt sales or service.

In a separate statement, Network 1 Financial, a privately held Internet and electronic-payment service provider, said the company plans to provide uninterrupted service to CyberCash clients, while "shoring up" the CyberCash technology and integrating it with its own services.

CyberCash initially was created to develop Internet payment products for consumers, but the company eventually shifted to providing payment-acceptance products for Internet merchants. The company also offers risk management and Internet fraud-detection tools to merchants.

The merger with Network 1 was proposed in mid-December. The new company, to be known as CyberCash, was to serve both Internet and bricks-and-mortar merchants with electronic-payment technology. The companies expected the new entity to report more than $100 million in revenue during its first year, and to have positive cash flow in the third quarter of this year.

Under the terms of the deal, Network 1 shareholders were to receive CyberCash shares representing 50% of the merged company. The deal, valued at about $45 million, was expected to close in the first quarter, and carried a $2.2 million breakup fee.

Network 1, employs 120 people and reported revenue of $23.6 million in 2000. The employee-owned company is based in McLean, Va., and has offices in Atlanta and San Antonio, Texas. Copyright 2001, Reuters News Service