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Cyras: Crisis? What Crisis?

Light Reading
News Analysis
Light Reading
9/6/2000

Steve Pearse, former CEO of Cyras Systems Inc., was by all accounts ramping the company up for an initial public offering. Two weeks ago, he raised a $150 million round of debt, and last week he launched a high-profile press tour that included one-on-one interviews with Light Reading and BusinessWeek and a personal photo session and dinner with the editors of Red Herring magazine.

Then last Friday, he quit.

Cyras officials say Pearse, who lives in Boston, could no longer support the long commute to Silicon Valley, where Cyras is based. Pearse is corroborating the story.

One can only imagine how many lawyers and late-night public-relations sessions were involved in scripting the party line. But so far, everybody is sticking to the story, and it appears to be in everybody's best interest: The investors, Pearse, and the employees have a lot at stake in a public offering. According to company officials, Pearse will remain a shareholder and will help the company in an "advisory capacity."

As one former Cyras engineer put it, the question now is "What does it do to the IPO?"

"Everything is on plan," said Alnoor Shivji, the president and founder of Cyras who is assuming Pearse's CEO title. "We have always planned to do an IPO by the end of the year." Shivji said that "the company has some explaining to do" to customers and investors, but he is reassuring everybody that the company's success still depends on executing the product delivery, which is on track for this year.

According to one Wall Street analyst who spoke under condition of anonymity, it's likely that Cyras would hurry along the IPO by the end of the year, because hesitating will exaggerate any of the questions that have arisen from Pearse's departure.

Credit Suisse First Boston, the bank that issued the last round of debt, has nothing to gain by disparaging the company, since the success of the debt offering hinges on a blockbuster IPO. The venture capitalists (VCs) behind Cyras are certainly not about to question the management at this late stage in the game, when they are so close to cashing in on their investment.

As for the product? By all accounts, it's still considered solid but most likely needs some serious work to be finished and carrier ready, which takes time and money. Similar situations haven't stopped other companies, such as Corvis Corp. (Nasdaq: CORV), from going public. The Cyras product, a high-capacity Sonet switch called K2, is being tested by a handful of carrier customers, all unnamed. One former Cyras engineer, who spoke to Light Reading under condition of anonymity, said the product was impressive but noted that the management team had "consistently underestimated how long it would take to finish things."

Indeed, skepticism about the company's claims has grown, following Pearse's departure. "If the CFO quits, there's a revenue problem. If the CEO quits, there's a product problem," said one Wall Street analyst who tracks the company, asking not to be named.

-- R. Scott Raynovich, executive editor, Light Reading http://www.lightreading.com

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