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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) November 23, 1999
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PSINet Inc.
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(Exact name of registrant as specified in its charter)
New York 0-25812 16-1353600
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
510 Huntmar Park Drive, Herndon, Virginia 20170
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (703) 904-4100
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(Former name or former address, if changed since last report)
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Item 2. Acquisition or Disposition of Assets
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PSINet Inc. previously reported in our Form 8-K dated August 22, 1999 and
filed on August 24, 1999 that we had entered into a definitive agreement to
acquire Transaction Network Services, Inc. ("TNI"). We also filed a Form 8-K
dated August 22, 1999 and filed on September 16, 1999 which included, among
other items, unaudited pro forma consolidated financial information for PSINet
as of and for the six months ended June 30, 1999 and for the twelve months ended
December 31, 1998.
On November 23, 1999, we acquired TNI. As of the closing date, the
aggregate consideration to be paid to TNI shareholders consisted of
approximately $340.8 million in cash and approximately 7.6 million shares of
PSINet common stock, which represents an aggregate value of up to approximately
$687.0 million, assuming a price per share of PSINet common stock of $45.719. In
addition, we assumed approximately 463,000 common stock options representing an
aggregate value of approximately $13.0 million. Additionally, principal and
interest outstanding under TNI's revolving credit facility, in the amount of
$52.1 million, was repaid as a condition to closing. The source of the cash
consideration for the TNI merger will be, and the cash for the repayment of the
TNI revolving credit facility obligation was, from cash on hand.
This Form 8-K includes unaudited pro forma consolidated financial
information for PSINet as of September 30, 1999 and for the year ended December
31, 1998 and for the nine months ended September 30, 1999, which information is
being filed as an Exhibit to this Form 8-K. This Form 8-K also incorporates by
reference audited consolidated financial statements of TNI for the year ended
December 31, 1998 and unaudited consolidated financial statements of TNI for the
nine months ended September 30, 1999 which are included in TNI's Annual Report
on Form 10-K for the year ended December 31, 1998 and TNI's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1999, respectively.
Some of the information included in or incorporated by reference in this
Form 8-K may contain forward-looking statements, such as information relating to
the effects of acquisitions. Such statements can be identified by the use of
forward-looking terminology such as "believes," "expects," "may," "will,"
"should," or "anticipates" or similar words, or by discussions of strategy that
involve risks and uncertainties. Another form of forward-looking statement can
be characterized by an assumption (using terminology such as "as if" or "gives
effect to") that an event occurs at the beginning of a financial period
presented, with a corresponding effect throughout the period, even though the
event had actually occurred after the beginning of such period or has not yet
actually occurred at all. Any such forward-looking statements may discuss our
future expectations or contain projections of our results of operations or
financial condition or expected benefits to us resulting from acquisitions or
other transactions. We cannot assure you that the future results indicated,
whether expressed or implied, will be achieved. For a discussion of the risk
factors that could cause our actual results to differ materially from those
contained in any forward-looking statement, you should read "Risk Factors"
included as Exhibit 99.1 to our Form 10-Q for the quarterly period ended
September 30, 1999 and our other periodic reports and documents filed with the
Securities and Exchange Commission.
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Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
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(a) Financial Statements of Businesses Acquired
Financial statements of Transaction Network Services, Inc., or TNI, for
the year ended December 31, 1998 are incorporated herein by reference to
Item 8 of TNI Annual Report on Form 10-K for the year ended December 31,
1998 (File No. 0-23856). Financial statements of TNI for the three and
nine months ended September 30, 1999 are incorporated herein by
reference to Item 1 of TNI's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999 (File No. 0-23856).
(b) Pro Forma Financial Information
Unaudited Pro Forma Consolidated Financial Information of PSINet Inc.
is included in Exhibit 99.1 to this Report on Form 8-K.
(c) Exhibits.
Exhibit 3.1 Restated Certificate of Incorporation dated
November 9, 1999.
Exhibit 10.1 Fifth Amendment and Waiver dated as of
November 19, 1999, to the Credit Agreement,
dated as of September 29, 1998, among PSINet,
the Lenders party thereto, The Chase Manhattan
Bank, as Administrative Agent, Fleet National
Bank, as Syndication Agent, and The Bank of
New York, as Documentation Agent.
Exhibit 10.2 Sixth Amendment dated as of November 23, 1999,
to the Credit Agreement, dated as of September
29, 1998, among PSINet, the Lenders party
thereto, The Chase Manhattan Bank, as
Administrative Agent, Fleet National Bank, as
Syndication Agent, and The Bank of New York,
as Documentation Agent.
Exhibit 23.1 Consent of Arthur Andersen LLP.
Exhibit 99.1 PSINet Inc. Unaudited Pro Forma Consolidated
Financial Information.
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SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: December 1, 1999 PSINET INC.
By: /s/ Edward D. Postal
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Edward D. Postal
Executive Vice President and
Chief Financial Officer
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Name Location
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<S> <C> <C>
3.1 Restated Certificate of Incorporation Filed herewith.
dated November 9, 1999.
10.1 Fifth Amendment and Waiver dated as of Filed herewith.
November 19, 1999, to the Credit
Agreement, dated as of September 29, 1998,
among PSINet, the Lenders party thereto,
The Chase Manhattan Bank, as
Administrative Agent, Fleet National Bank,
as Syndication Agent, and The Bank of New
York, as Documentation Agent.
10.2 Sixth Amendment dated as of November 23, Filed herewith.
1999, to the Credit Agreement, dated as of
September 29, 1998, among PSINet, the
Lenders party thereto, The Chase Manhattan
Bank, as Administrative Agent, Fleet
National Bank, as Syndication Agent, and
The Bank of New York, as Documentation
Agent.
23.1 Consent of Arthur Andersen LLP. Filed herewith.
99.1 PSINet Inc. Unaudited Pro Forma Filed herewith.
Consolidated Financial Information.
</TABLE>
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EXHIBIT 3.1
RESTATED
CERTIFICATE OF INCORPORATION
OF
PSINET INC.
Under Section 807 of the Business Corporation Law
The undersigned, being the Executive Vice President and Chief
Financial Officer of PSINet Inc. (the "Corporation"), in order to restate the
Certificate of Incorporation of the Corporation in accordance with Section 807
of the Business Corporation Law of New York (the "Business Corporation Law"),
hereby certifies:
FIRST: The name of the Corporation is PSINet Inc.
SECOND: The Certificate of Incorporation of the Corporation was filed
by the Department of State of the State of New York on October 21, 1988 under
the name Graphic Specialty Finishers, Inc.
The text of this Certificate of Incorporation is hereby restated,
without amendment or change, to read as herein set forth in full, as follows:
FIRST: The name of the Corporation is PSINet Inc.
SECOND: The purpose for which the Corporation was formed was to
engage in any lawful act or activity for which corporations may be organized
under the Business Corporation Law, and it was not formed to engage in any act
or activity requiring the consent or approval of any state official, department,
board, agency or other body without such consent or approval first being
obtained.
THIRD: The office of the Corporation in the State of New York is
located in the County of Rensselaer.
FOURTH: The Corporation is authorized to issue two classes of shares
to be designated, respectively, Common Stock ("Common Stock") and Preferred
Stock ("Preferred Stock"). The total number of shares of capital stock that the
Corporation is authorized to issue is Five Hundred Thirty Million (530,000,000).
The total number of shares of Common Stock that the Corporation shall have
authority to issue is Five Hundred Million (500,000,000). The total number of
shares of Preferred Stock that the Corporation shall have authority to issue is
Thirty Million (30,000,000). The Common Stock and the Preferred Stock shall have
a par value of $.01 per share. Except as otherwise provided elsewhere in this
Certificate of Incorporation, the Corporation is authorized to make a
distribution of shares of any class or series to the holders of the same or any
other class or series of shares. The Preferred Stock may be issued from time to
time in one or more series, each of such series, to the extent not inconsistent
with the provisions of this Certificate of Incorporation pertaining to capital
stock, to have such designations, relative rights, preferences and limitations
as are stated and expressed in this Paragraph FOURTH and in the resolution or
resolutions providing for the issue of such series adopted by the Board of
Directors of the Corporation as hereinafter provided. Except as otherwise
provided in this Certificate of Incorporation, authority is hereby expressly
granted to the Board of Directors, to
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the extent not inconsistent with the provisions of this Certificate of
Incorporation pertaining to capital stock, and subject to the limitations set
forth in Section 502(b) of the Business Corporation Law, to establish and
designate one or more series of Preferred Stock and to fix the variations in the
relative rights, preferences and limitation of each such series, including
without limitation:
1. The number of shares to constitute such series and the distinctive
designation thereof;
2. The dividend rate, if any, to which such shares shall be entitled
and the restrictions, limitations and conditions upon the payment of
such dividends, whether dividends shall be cumulative, the date or
dates from which dividends (if cumulative) shall accumulate and the
dates on which dividends (if declared) shall be payable;
3. Whether or not the shares of such series shall be redeemable and,
if so, the terms, limitations and restrictions with respect to such
redemption, including without limitation the manner of selecting
shares for redemption if less than all shares are to be redeemed, and
the amount, if any, in addition to any accrued dividends thereon,
which the holders of shares of such series shall be entitled to
receive upon the redemption thereof, which amount may vary at
different redemption dates and may be different with respect to shares
redeemed through the operation of any purchase, retirement or sinking
fund and with respect to shares otherwise redeemed;
4. The amount in addition to any accrued dividends thereon which the
holders of shares of such series shall be entitled to receive upon the
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, which amount may vary at different dates and may vary
depending on whether such liquidation, dissolution or winding up is
voluntary or involuntary;
5. Whether or not the shares of such series shall be subject to the
operation of a purchase, retirement or sinking fund and, if so, the
terms, limitations and restrictions with respect thereto, including,
without limitation, whether such purchase, retirement or sinking fund
shall be cumulative or non-cumulative, the extent to and the manner in
which such fund shall be applied to the purchase, retirement or
redemption of the shares of such series or to other corporate purposes
and the terms and provisions relative to the operation thereof;
6. Whether or not the shares of such series shall have conversion
privileges and, if so, prices or rates of conversion and the method,
if any, of adjusting the same;
7. Whether or not the shares of such series shall have voting
powers, whether full or limited, or be without voting powers; and
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8. Any other relative rights, preferences and limitations thereof as
shall not be inconsistent with this Paragraph FOURTH.
Series A Junior Participating Preferred Stock
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The Corporation is hereby authorized to establish a series of Preferred
Stock of the Corporation of the designation and number of shares, and having the
relative rights, preferences and limitations thereof (in addition to the
provisions set forth in this Certificate of Incorporation which are applicable
to the Preferred Stock of all classes and series) as follows:
Section 1. Designation of Series of Preferred Stock and Amount. There shall
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be a series of Preferred Stock, par value $.01 per share, of the Corporation
which shall be designated as "Series A Junior Participating Preferred Stock,"
par value $.01 per share, and the number of shares constituting such series
shall be one million (1,000,000). Such number of shares may be increased or
decreased by resolution of the Board of Directors; provided that no decrease
shall reduce the number of shares of Series A Junior Participating Preferred
Stock to a number less than that of the shares then outstanding plus the number
of shares issuable upon exercise of outstanding rights, options or warrants or
upon conversion of outstanding securities issued by the Corporation.
Section 2. Dividends and Distributions.
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(A) Subject to the prior and superior rights of the holders of any shares
of any series of Preferred Stock ranking prior and superior to the Series A
Junior Participating Preferred Stock with respect to dividends, the holders of
shares of Series A Junior Participating Preferred Stock, in preference to the
holders of shares of Common Stock, par value $.01 per share, of the Corporation
and any other stock of the Corporation ranking junior to the Series A Junior
Participating Preferred Stock, shall be entitled to receive, when, as and if
declared by the Board of Directors out of funds legally available for the
purpose, quarterly dividends payable in cash on the first day of January, April,
July and October in each year (each such date being referred to herein as a
"Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or fraction of a share of
Series A Junior Participating Preferred Stock in an amount per share (rounded to
the nearest cent) equal to, subject to the provision for adjustment hereinafter
set forth, 1,000 times the aggregate per share amount of all cash dividends and
1,000 times the aggregate per share amount (payable in kind) of all non-cash
dividends or other distributions, other than a dividend or distribution payable
in shares of Common Stock or a subdivision of the outstanding shares of Common
Stock (by reclassification or otherwise), declared on the Common Stock since the
immediately preceding Quarterly Dividend Payment Date, or, with respect to the
first Quarterly Dividend Payment Date, since the first issuance of any share or
fraction of a share of Series A Junior Participating Preferred Stock. In the
event the Corporation shall at any time after May 8, 1996 (the "Rights
Declaration Date") (i) declare or pay any dividend on the Common Stock payable
in shares of Common Stock, (ii) subdivide the outstanding shares of Common
Stock, or (iii) combine the outstanding shares of Common Stock into a smaller
number of shares, then in each such case the amount to which holders of shares
of Series A Junior Participating Preferred Stock were entitled immediately prior
to such event under the preceding sentence shall be adjusted by multiplying such
amount by a fraction the numerator of which is the number of shares of Common
Stock
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outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
(B) The Corporation shall declare a dividend or distribution on the Series
A Junior Participating Preferred Stock as provided in paragraph (A) above
concurrently with any declaration by it of a dividend or distribution on the
Common Stock (other than a dividend or distribution payable in shares of Common
Stock) and in no event shall the Corporation declare a dividend or distribution
on the Common Stock (other than a dividend or distribution payable in shares of
Common Stock) without concurrently declaring such a dividend or distribution on
the Series A Junior Participating Preferred Stock.
(C) Accrued but unpaid dividends shall not bear interest. Dividends paid
on the shares of Series A Junior Participating Preferred Stock in an amount less
than the total amount of such dividends at the time accrued and payable on such
shares shall be allocated pro rata on a share-by-share basis among all such
shares at the time outstanding. The Board of Directors may fix a record date for
the determination of holders of shares of Series A Junior Participating
Preferred Stock entitled to receive payment of a dividend or distribution
declared thereon, which record date shall be no more than 50 days prior to the
date fixed for the payment thereof.
Section 3. Liquidation, Dissolution or Winding Up.
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(A) In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, no distribution shall be made (i)
to the holders of Common Stock or of shares of any other stock ranking junior
(either as to dividends or upon liquidation, dissolution or winding up) to the
Series A Junior Participating Preferred Stock unless, prior thereto, the holders
of shares of Series A Junior Participating Preferred Stock shall have received
per share, the amount of $1,000, plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared, to the date of
such payment, provided that the holders of shares of Series A Junior
Participating Preferred Stock shall be entitled to receive an aggregate amount
per share, subject to the provision for adjustment hereinafter set forth, equal
to 1,000 times the aggregate amount to be distributed per share to holders of
shares of Common Stock (the "Series A Liquidation Preference"), or (ii) to the
holders of shares of stock ranking on a parity upon liquidation, dissolution or
winding up with the Series A Junior Participating Preferred Stock, except
distributions made ratably on the Series A Junior Participating Preferred Stock
and all such parity stock in proportion to the total amounts to which the
holders of all such shares are entitled upon such liquidation, dissolution or
winding up. Following the payment of the full amount of the Series A Liquidation
Preference, holders of Series A Junior Participating Preferred Stock and holders
of shares of Common Stock shall share pari passu on a per share basis in the
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remaining assets of the Corporation.
(B) In the event the Corporation shall at any time (i) declare or pay
any dividend on the Common Stock payable in shares of Common Stock, (ii)
subdivide the outstanding shares of Common Stock, or (iii) combine the
outstanding shares of Common Stock into a smaller number of shares of Common
Stock, then in each such case the aggregate amount to which holders of shares of
Series A Junior Participating Preferred Stock were entitled immediately prior to
such event under the proviso in clause (i) of paragraph (A) of this Section 3
shall be adjusted by multiplying such amount by a fraction the numerator of
which is the number of shares of
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Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding immediately
prior to such event.
(C) In the event there are not sufficient assets available to permit
payment in full of the Series A Liquidation Preference and the liquidation
preferences of all other series of Preferred Stock, if any, which rank on a
parity with the Series A Junior Participating Preferred Stock, then such
remaining assets shall be distributed ratably to the holders of such parity
shares (including the Series A Junior Participating Preferred Stock) in
proportion to their respective liquidation preferences.
Section 4. Voting Rights. The holders of shares of Series A Junior
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Participating Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth and
except as otherwise provided herein or in the Certificate of Incorporation or as
required by law, each share of Series A Junior Participating Preferred Stock
shall entitle the holder thereof to 1,000 votes on all matters submitted to a
vote of the shareholders of the Corporation. In the event the Corporation shall
at any time after the Rights Declaration Date (i) declare or pay any dividend on
the Common Stock payable in shares of Common Stock, (ii) subdivide the
outstanding shares of Common Stock, or (iii) combine the outstanding shares of
Common Stock into a smaller number of shares, then in each such case the number
of votes per share to which holders of shares of Series A Junior Participating
Preferred Stock were entitled immediately prior to such event shall be adjusted
by multiplying such number by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) Except as otherwise provided herein or in the Certificate of
Incorporation or in any other Certificate of Amendment creating a new series of
Preferred Stock or any similar stock, and except as otherwise required by law,
the holders of shares of Series A Junior Participating Preferred Stock and the
holders of shares of Common Stock shall vote together as one class on all
matters submitted to a vote of shareholders of the Corporation.
(C) Except as set forth herein or as otherwise provided by law, holders of
Series A Junior Participating Preferred Stock shall have no special voting
rights and their consent shall not be required (except to the extent they are
entitled to vote with holders of Common Stock as set forth herein) for taking
any corporate action.
Section 5. Certain Restrictions and Limitations.
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(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Junior Participating Preferred Stock as provided in
Section 2 are in arrears, thereafter and until all accrued and unpaid dividends
and distributions, whether or not declared, on shares of Series A Junior
Participating Preferred Stock outstanding shall have been paid in full, the
Corporation shall not:
(i) declare or pay dividends on, make any other distributions on, or
redeem or purchase or otherwise acquire for consideration any shares of
stock ranking junior
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(either as to dividends or upon liquidation, dissolution or winding up) to
the Series A Junior Participating Preferred Stock;
(ii) declare or pay dividends on or make any other distributions on
any shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Junior
Participating Preferred Stock, except dividends paid ratably on the Series
A Junior Participating Preferred Stock, and all such parity stock on which
dividends are payable or in arrears in proportion to the total amounts to
which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration shares
of any stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Junior
Participating Preferred Stock provided that the Corporation may at any time
redeem, purchase or otherwise acquire shares of any such parity stock in
exchange for shares of any stock of the Corporation ranking junior (either
as to dividends or upon dissolution, liquidation or winding up) to the
Series A Junior Participating Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any shares of
Series A Junior Participating Preferred Stock or any shares of stock
ranking on a parity with the Series A Junior Participating Preferred Stock,
except in accordance with a purchase offer made in writing or by
publication (as determined by the Board of Directors) to all holders of
such shares upon such terms as the Board of Directors, after consideration
of the respective annual dividend rates and other relative rights and
preferences of the respective series and classes, shall determine in good
faith will result in fair and equitable treatment among the respective
series or classes.
(B) The Corporation shall not permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) of this Section 5,
purchase or otherwise acquire such shares at such time and in such manner.
Section 6. Reacquired Shares. Any shares of Series A Junior Participating
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Preferred Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and canceled promptly after the acquisition thereof.
All such shares shall upon their cancellation become authorized but unissued
shares of Preferred Stock and may be reissued as part of a new series of
Preferred Stock to be created by resolution or resolutions of the Board of
Directors, subject to the conditions and restrictions on issuance set forth
herein.
Section 7. Consolidation, Merger, etc. If the Corporation shall enter
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into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are converted into, exchanged for or changed into
other stock or securities, cash and/or any other property, then in any such
event the shares of Series A Junior Participating Preferred Stock shall at the
same time be similarly converted into, exchanged for or changed into an amount
per share (subject to the provision for adjustment hereinafter set forth) equal
to 1,000 times the aggregate amount of stock, securities, cash and/or any other
property (payable in kind), as the case may be, into which or for which each
share of Common Stock is converted, changed or exchanged. In
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the event the Corporation shall at any time after the Rights Declaration Date
(i) declare any dividend on Common Stock payable in shares of Common Stock, (ii)
subdivide the outstanding Common Stock, or (iii) combine the outstanding Common
Stock into a smaller number of shares, then in each such case the amount set
forth in the preceding sentence with respect to the conversion, exchange or
change of shares of Series A Junior Participating Preferred Stock shall be
adjusted by multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that are
outstanding immediately prior to such event.
Section 8. No Redemption. The shares of Series A Junior
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Participating Preferred Stock shall not be redeemable.
Section 9. Ranking. The Series A Junior Participating Preferred
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Stock shall rank senior to the Common Stock and junior to all other series of
the Corporation's Preferred Stock as to the payment of dividends and the
distribution of assets upon liquidation, dissolution or winding up of the
Corporation, unless the terms of any such series shall provide otherwise.
Section 10. Fractional Shares. Series A Junior Participating
---------- -----------------
Preferred Stock may be issued in fractions of a share which shall entitle the
holder, in proportion to such holder's fractional shares, to exercise voting
rights, receive dividends, participate in distributions and to have the benefit
of all other rights of holders of Series A Junior Participating Preferred Stock.
Section 11. Amendment. The Certificate of Incorporation of the
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Corporation shall not be further amended in any manner which would materially
alter or change the powers, preferences or special rights of the Series A Junior
Participating Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of not less than a majority of the then
outstanding shares of Series A Junior Participating Preferred Stock, voting
separately as a class.
6 3/4% Series C Cumulative Convertible Preferred Stock
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The Corporation is hereby authorized to establish a series of Preferred
Stock of the Corporation of the designation and number of shares, and having the
relative rights, preferences and limitations thereof (in addition to the
provisions set forth in this Certificate of Incorporation which are applicable
to all classes and series of Preferred Stock) as set forth in the following
Sections 1 through 13 and in Exhibit A at the end of this Paragraph FOURTH and
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made a part hereof.
Section 1. Designation, Amount and Par Value. The series of preferred
---------------------------------
stock shall be designated as the 6 3/4% Series C Cumulative Convertible
Preferred Stock (the "Series C Preferred Stock"), and the number of shares so
designated shall be 9,200,000 (each registered holder of shares of Series C
Preferred Stock, a "Holder" and together with all other Holders, the "Holders").
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Each share of Series C Preferred Stock shall have a par value of $.01 per share.
As used in this Section 1 and the immediately following Sections 2 through 13,
all references to a "Section" or "Sections" shall be to any one or more of this
Section 2 and such Sections 2 through 13, as appropriate, and not to any other
provision of this Certificate of Incorporation.
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Section 2. Dividends.
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2.1 Holders of Series C Preferred Stock will be entitled to receive,
when, as and if declared by the Board of Directors, out of funds legally
available therefor, dividends on the Series C Preferred Stock at a rate per
annum equal to 6 3/4% of the Liquidation Preference per share.
(a) All dividends will be cumulative, whether or not earned or
declared and payable quarterly out of assets legally available therefor, on
August 15, November 15, February 15, and May 15 of each year, commencing August
15, 2002 (each such date being referred to herein as a "Dividend Payment Date").
---------------------
Dividends on the Series C Preferred Stock will accrue from May 15, 2002 (or
earlier if the Deposit Account is terminated, in which event dividends will
accrue from the last Deposit Payment Date). Each distribution in the form of a
dividend shall be payable in arrears to Holders of record as they appear on the
stock books of the Corporation on each record date as established by the Board
of Directors of the Corporation (the "Dividend Payment Record Date") not more
----------------------------
than 60 nor less than ten days preceding a Dividend Payment Date.
(i) Dividends payable on the Series C Preferred Stock for each
full dividend period will be computed by dividing the annual dividend rate
by four. Dividends payable on the Series C Preferred Stock for any period
less than a full dividend period will be computed on the basis of a 360-day
year consisting of twelve 30-day months.
(ii) The Series C Preferred Stock will not be entitled to any
dividend, whether payable in cash, property or securities, in excess of the
full accumulated and unpaid dividends.
(iii) No interest, or sum of money in lieu of interest, will be
payable in respect of any accumulated and unpaid dividends.
(b) Dividends, to the extent declared by the Corporation's Board of
Directors, may, at the option of the Corporation, be paid in cash, by delivery
of fully paid and nonassessable shares of Common Stock, or a combination thereof
(subject, in each case, to applicable law). If the Corporation elects to pay
dividends in shares of Common Stock, the number of shares of Common Stock to be
distributed will be calculated by dividing such payment by 95% of the Market
Value as of the Dividend Payment Record Date.
2.2(a) Subject to this Section 2.2, no dividends may be declared
or paid or funds set apart for the payment of dividends on any Parity Securities
for any period, unless:
(i) full cumulative dividends on the Series C Preferred Stock
shall have been or contemporaneously are declared and paid in full through
the immediately preceding Dividend Payment Date; and
(ii) if the dividend on the Parity Securities is declared as
payable in cash, a sum in cash is set apart for the next succeeding payment
on the Series C Preferred Stock at the next succeeding Dividend Payment
Date.
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If full dividends are not so paid, the Series C Preferred Stock will
share dividends pro rata with any Parity Securities.
(b) No dividends may be paid or set apart for payment on Parity
Securities or Junior Securities, except dividends:
(i) on Junior Securities payable in additional shares of Junior
Securities; and
(ii) on Parity Securities payable in additional shares of Parity
Securities or Junior Securities;
provided, however, that, notwithstanding the provisions of Sections 2.2(a)(ii),
2.2(b)(i) and 2.2(b)(ii), whether or not full dividends have been or will be
paid on the shares of the Series C Preferred Stock, the Corporation shall be
entitled to declare and pay cash dividends on Parity Securities and Junior
Securities to the extent that:
(1) the funds for such cash dividend payments are derived,
directly or indirectly, from the proceeds of an offering of Parity
Securities or Junior Securities with respect to which such cash
dividends are to be paid (or a concurrent offering of related
securities); and
(2) provided that in connection with such offering it is
disclosed to the purchasers of such Parity Securities or Junior
Securities, as the case may be, in an offering memorandum, prospectus,
or similar communication, that a portion of the proceeds thereof may
be used for the payment of cash dividends on such securities (any
transaction in which the Corporation obtains the right to make cash
dividend payments on Parity Securities or Junior Securities pursuant
to clauses 2.2(b)(1) and 2.2(b)(2) being referred to as a "Self-
----
Funding Event").
--------------
(c) No Junior Securities or Parity Securities may be purchased,
redeemed or otherwise acquired for any consideration nor may funds be set apart
for payment with respect thereto if full cumulative and unpaid dividends have
not been paid or declared on the Series C Preferred Stock through the
immediately preceding Dividend Payment Date terminating on or prior to the date
of such purchase, redemption or acquisition or contemporaneously paid or
declared a sum sufficient for payment thereof set apart for such payment;
provided that, notwithstanding the foregoing:
(i) cash dividends may be paid on Parity Securities and Junior
Securities to the extent permitted by Section 2.2(b); and
(ii) the Corporation may purchase, redeem or otherwise acquire
for consideration or set aside funds for those purposes with respect to any
Parity Securities or Junior Securities by conversion into or exchange for
or out of the net proceeds of the substantially concurrent sale (other than
to a Subsidiary of the Corporation) of other Parity Securities or Junior
Securities, as the case may be, of the Corporation.
<PAGE>
-10-
(d) Notwithstanding the foregoing, if full dividends have not been
declared and paid or set apart on the Series C Preferred Stock and any other
Parity Securities, dividends may be declared and paid on the Series C Preferred
Stock and such other Parity Securities so long as the dividends are declared and
paid pro rata so that the amounts of dividends declared per share on the Series
C Preferred Stock and such other Parity Securities will in all cases bear to
each other the same ratio that accrued and unpaid dividends per share on the
shares of the series C Preferred Stock and such other Parity Securities bear to
each other; provided, that if such dividends are paid in cash on the other
Parity Securities, dividends will also be paid in cash on the Series C Preferred
Stock.
(e) (i) Except as provided in Clause (ii) of this Section 2.2(e),
the Holders of shares of the Series C Preferred Stock at the close of business
on a Dividend Payment Record Date will be entitled to receive the dividend
payment on those shares on the corresponding Dividend Payment Date
notwithstanding the subsequent conversion thereof or the Corporation's default
in payment of the dividend due on that Dividend Payment Date.
(ii) Holders of shares called for redemption on a Redemption
Date which falls between the Dividend Payment Record Date and the Dividend
Payment Date will be entitled to receive such dividend on such Redemption
Date and will not be entitled to such payment pursuant to Clause (i) of
this Section 2.2(e).
(iii) Except as provided in Clauses (i) and (ii) of this Section
2.2(e), the Corporation shall make no payment or allowance for unpaid
dividends, whether or not in arrears, on converted shares or for dividends
on the shares of Common Stock issued upon conversion.
3. Ranking.
-------
3.1. The Series C Preferred Stock will, with respect to dividend
distributions and distributions upon the liquidation, winding-up or dissolution
of the Corporation, rank:
(a) senior to all classes of Common Stock and to each series of
preferred stock existing on April 30, 1999 and each other class of capital stock
or series of preferred stock issued by the Corporation, which is established
after April 30, 1999, the terms of which do not expressly provide that such
class or series will rank senior to or on a parity with the Series C Preferred
Stock as to dividend distributions and distributions upon the liquidation,
winding-up or dissolution of the Corporation (collectively referred to as the
"Junior Securities");
-----------------
(b) subject to certain conditions, on a parity with any class of
capital stock or series of preferred stock issued by the Corporation, which is
established after April 30, 1999 by the Board of Directors, the terms of which
expressly provide that such class or series will rank on a parity with the
Series C Preferred Stock as to dividend distributions and distributions upon the
liquidation, winding-up or dissolution of the Corporation (collectively referred
to as the "Parity Securities"); and
-----------------
(c) subject to certain conditions, junior to each class of
capital stock or series of preferred stock issued by the Corporation, which is
established after April 30, 1999 by the Board of Directors, the terms of which
expressly provide that such class or series will rank
<PAGE>
-11-
senior to the Series C Preferred Stock as to dividend distributions and
distributions upon liquidation, winding-up or dissolution of the Corporation
(collectively referred to as the "Senior Securities").
-----------------
3.2. Except as otherwise provided herein (including, without
limitation, Section 8.3 hereof), the Corporation is entitled to amend this
Certificate of Incorporation to authorize one or more additional series of
preferred stock, file certificates of amendment to this Certificate of
Incorporation, and issue without restriction, from time to time, any series of
Junior Securities, Parity Securities or Senior Securities.
4. Conversion.
----------
4.1.(a) Each Holder of Series C Preferred Stock shall have the
right, at its option, at any time and from time to time to convert, subject to
the terms and provisions of this Section 4, any or all of such Holder's shares
of Series C Preferred Stock into shares of Common Stock. In such case, the
shares of Series C Preferred Stock shall be converted into such number of fully
paid and nonassessable shares of Common Stock (subject to Section 630 of the
Business Corporation Law) as is equal, subject to Section 4.6, to the product of
the number of shares of Series C Preferred Stock being so converted multiplied
by the quotient of (i) the Liquidation Preference divided by (ii) the Conversion
Price then in effect, except that with respect to any share which shall be
called for redemption such right shall terminate at the close of business on the
second Business Day preceding the Redemption Date unless the Corporation shall
default in making the payment due upon redemption thereof.
(b) The conversion right of a Holder of Series C Preferred Stock
shall be exercised by the Holder by the surrender of the certificates
representing shares to be converted to the Transfer Agent accompanied by the
Conversion Notice.
(i) Immediately prior to the close of business on the
Conversion Date, each converting Holder of Series C Preferred Stock shall
be deemed to be the Holder of record of Common Stock issuable upon
conversion of such Holder's Series C Preferred Stock notwithstanding that
the share register of the Corporation shall then be closed or that
certificates representing such Common Stock shall not then be actually
delivered to such person.
(ii) Upon notice from the Corporation, each Holder of Series C
Preferred Stock so converted shall promptly surrender to the Transfer Agent
certificates representing the shares so converted (if not previously
delivered), duly endorsed in blank or accompanied by proper instruments of
transfer.
(iii) On any Conversion Date, all rights with respect to the
shares of Series C Preferred Stock so converted, including the rights, if
any, to receive notices, will terminate, except the rights of Holders
thereof to:
(1) receive certificates for the number of shares of
Common Stock into which such shares of Series C Preferred Stock have
been converted;
<PAGE>
-12-
(2) the payment in cash or shares of Common Stock or a
combination thereof (subject, in each such case, to applicable law) of
any accumulated and unpaid dividends accrued thereon pursuant to and
subject to the terms of Section 4.2 hereof; and
(3) exercise the rights to which they are entitled as
Holders of Common Stock.
(c) If the Conversion Date shall not be a Business Day, then such
conversion right shall be deemed exercised on the next Business Day.
4.2. When shares of Series C Preferred Stock are converted pursuant
to this Section 4, all accumulated and unpaid dividends (if declared) on the
Series C Preferred Stock so converted to (and not including) the Conversion Date
may, at the Corporation's option, be paid,
(a) in cash;
(b) in a number of fully paid and nonassessable shares of Common
Stock equal to the quotient of (i) the amount of accumulated and unpaid
dividends payable to the Holders of Series C Preferred Stock hereunder,
divided by (ii) 95% of the Market Value for the period ending on the
Conversion Date; or
(c) a combination thereof (subject, in the case of each of clauses
(a), (b) and (c), to applicable law).
4.3. The Conversion Price shall be subject to adjustment if any Conversion
Price Adjustment Event described in Section 4.3(a) occurs. The adjustment will
be accomplished from time to time as described in Section 4.3(b).
(a) In case the Corporation shall at any time or from time to time
after the Issuance Date:
(i) make a redemption payment or pay a dividend (or other
distribution) payable in shares of Common Stock to all holders of any class
of Capital Stock of the Corporation (other than (A) the issuance of shares
of Common Stock in connection with the payment in redemption for, of
dividends on, or the conversion of the Series C Preferred Stock or the
issuance of shares of Common Stock pursuant to the Deposit Agreement or (B)
to all holders of Series C Preferred Stock based upon the number of shares
of Common Stock into which Series C Preferred Stock is then convertible);
(ii) make any issuance to all holders of shares of Common Stock of
rights, options or warrants entitling them to subscribe for or purchase
shares of Common Stock or securities convertible into or exchangeable for
shares of Common Stock at less than Market Value as of the date of
conversion or exchange; provided, however, that no adjustment shall be made
with respect to such a distribution to the extent the Holders of shares of
Series C Preferred Stock would be entitled to receive such rights, options
or warrants upon conversion at any time of shares of Series C Preferred
Stock into Common Stock; and provided, further, that if such rights,
options or warrants are only exercisable
<PAGE>
-13-
upon the occurrence of certain triggering events, then the Conversion Price
will not be adjusted until such triggering events occur;
(iii) make any subdivision, combination or reclassification of any
class of Common Stock;
(iv) make any distribution consisting exclusively of cash (excluding
any cash distributed upon a merger or consolidation to which Section
4.3(a)(vi) applies) to all holders of shares of any class of Common Stock
(which distribution is not also being made to the Holders of the Series C
Preferred Stock based on the number of shares of Common Stock into which
the Series C Preferred Stock is then convertible unless the Common Stock
does not share pro rata in such distribution) in an aggregate amount that,
combined together with (1) all other such all cash distributions made
within the then-preceding 12 months in respect of which no adjustment has
been made and (2) any cash and the fair market value of other consideration
paid or payable in respect of any tender offer by the Corporation or any of
its Subsidiaries for shares of any class of Common Stock concluded within
the then-preceding 12-months in respect of which no adjustment has been
made, exceeds 15% of the Corporation's Market Capitalization on the record
date of such distribution;
(v) complete a tender or exchange offer made by the Corporation or
any of its Subsidiaries for shares of any class of Common Stock that
involves an aggregate consideration that, together with (1) any cash and
other consideration payable in a tender or exchange offer by the
Corporation or any of its Subsidiaries for shares of any class of Common
Stock expiring within the then-preceding 12-months in respect of which no
adjustment has been made and (2) the aggregate amount of any such all-cash
distributions referred to in (iv) above to all holders of shares of any
class of Common Stock within the then-preceding 12-months in respect of
which no adjustments have been made, exceeds 15% of the Corporation's
Market Capitalization just prior to the expiration of such tender offer; or
(vi) make a distribution to all holders of any class of Common Stock
(which distribution is not also being made to the holders of the Series C
Preferred Stock based on the number of shares of Common Stock into which
the Series C Preferred Stock is then convertible unless the Common Stock
does not share pro rata in such distribution) consisting of evidences of
indebtedness, shares of capital stock other than Common Stock or assets,
including securities, but excluding those dividends, rights, options,
warrants and distributions referred to in clauses (i) through (v) above
(other than in connection with a merger effected solely to reflect a change
in the jurisdiction of incorporation of the Corporation).
(b) If any Conversion Price Adjustment Event occurs, the Corporation
will calculate the adjustment to the Conversion Price as follows for each
specific event. In the following descriptions, the variables have the following
definitions:
"C" equals the total number of shares of Series C Preferred
Stock outstanding at the time of the Conversion Price Adjustment
Event;
<PAGE>
-14-
"U" equals the number of shares of Common Stock underlying rights
options, or warrants issued to all holders of Common Stock pursuant to
Section 4.3(a)(ii) entitling such holders to subscribe for or purchase
shares of Common Stock or securities convertible into or exchangeable
for shares of Common Stock issued in the Conversion Price Adjustment
Event;
"X" equals the total number of shares of Common Stock outstanding
immediately prior to the Conversion Price Adjustment Event (not
including unexercised options, warrants or rights);
"Y" equals the total number of shares of Common Stock outstanding
immediately after the Conversion Price Adjustment Event (not including
unexercised options, warrants or rights);
"Z" equals the total number of shares of Common Stock outstanding
at the time of the Conversion Price Adjustment Event;
"Cash" equals any distribution consisting exclusively of cash
(excluding any cash distributed upon a merger or consolidation to
which section 4.5 applies) to all holders of shares of Common Stock in
an aggregate amount that, combined together with (1) all other such
all-cash distributions made within the then-preceding 12-months in
respect of which no adjustment has been made and (2) any cash and the
fair market value of other consideration paid or payable in respect of
any tender offer by the Corporation or any of its Subsidiaries for
shares of any class of Common Stock concluded within the then-
preceding 12-months in respect of which no adjustment has been made
pursuant to Section 4.3(a)(iv);
"ExP" equals the exercise price or other consideration to be paid
by the holder upon the exercise of or conversion of "U';
"MC" equals market capitalization;
"MV" equals market value per share of the Common Stock as of the
date of conversion or exchange of "U';
"#Sh" equals the number of shares of Common Stock receiving the
distribution contemplated in Section 4.3(a)(vi) or subject to the
tender offer contemplated in Section 4.3(a)(v);
"TOff" equals the aggregate consideration that, together with
( I ) any cash and other consideration payable in a tender or exchange
offer by the Corporation or any of its Subsidiaries for shares of
Common Stock expiring within the then-preceding 12-months in respect
of which no adjustment has been made and (2) the aggregate amount of
any such all-cash distributions referred to in section 4.3(a)(iv) to
all holders of shares of Common Stock within the then-preceding
12-months in respect of which no adjustments have been made;
"TOff/S" equals the tender offer price per share;
<PAGE>
-15-
"TPur" equals the number of shares purchased in the tender offer;
"Value" equals the aggregate fair market value of the
distribution described in Section 4.3(a)(vi), as determined in good
faith by the Board of Directors of the Corporation;
"CP" equals the Conversion Price immediately prior to the
Conversion Price Adjustment Event;
"ACP" equals the Conversion Price immediately after the
Conversion Price Adjustment Event;
(i) In the case of a Conversion Price Adjustment Event
described in Sections 4.3(a)(i) or 4.3(a)(iii), the Conversion Price
in effect immediately before such event shall be adjusted pursuant to
the following formula: X/Y multiplied by CP=ACP.
(ii) In the case of a Conversion Price Event described in
Section 4.3(a)(ii), the Conversion Price in effect immediately before
such event shall be adjusted pursuant to the following formula:
X/(X+U((MV-ExP)/MV)) multiplied by CP=ACP. If any options, warrants or
other rights of the nature described in Section 4.3(a)(ii) ("Rights")
------
expire without exercise or conversion, the Conversion Price will be
readjusted to the Conversion Price which would otherwise be in effect
had the adjustment made upon the issuance of such Rights been made on
the basis of delivery of only the number of shares of Common Stock
actually delivered upon the exercise or conversion of such Rights.
(iii) In the case of a Conversion Price Adjustment Event
described in Section 4.3(a)(iv), the Conversion Price in effect
immediately before such event shall be adjusted pursuant to the
following formula: CP-((Cash-15%MC)/C)=ACP. There will be no
adjustment to the Conversion Price pursuant to Clause 4.3(a)(iv) if
(Cash-15% MC) is less than or equal to zero.
(iv) In the case of a Conversion Price Adjustment Event
described in Section 4.3(a)(v), and if the tender offer price or
exchange offer price per share is greater than Market Value, the
Conversion Price in effect immediately before such event shall be
adjusted pursuant to the following formula: CP-((TPur multiplied by
(TOff/S-MV))/(#SH-TPur))=ACP. There will be no adjustment to the
Conversion Price pursuant to Clause 4.3(a)(v) if TOff/S is less than
or equal to Market Value or if TPur multiplied by TOff/S is less than
15% MC.
(v) In the case of a Conversion Price Adjustment Event
described in Section 4.3(a)(vi), the Conversion Price in effect
immediately before such event shall be adjusted pursuant to the
following formula: CP-(Value/#SH)=ACP.
An adjustment made pursuant to this Section 4.3 shall become effective: (x) in
the case of a Conversion Price Adjustment Event described in Section 4.3(a)(i),
(ii), (iv) or (vi), immediately following the close of business on the record
date for the determination of holders of Common
<PAGE>
-16-
Stock entitled to participate in such event; or (y) in the case of a Conversion
Price Adjustment Event described in Section 4.3(a)(iii), the close of business
on the day upon which such corporate action becomes effective; or (z) in the
case of a Conversion Price Adjustment Event described in Section 4.3(a)(v), the
close of business on the day of the completion of such tender offer or exchange
offer.
(c) Notwithstanding anything herein to the contrary, no adjustment
under this Section 4.3 need be made to the Conversion Price unless such
adjustment would require an increase or decrease of at least 1% of the
Conversion Price then in effect. Any lesser adjustment shall be carried forward
and shall be made at the time, if ever, of and together with the next subsequent
adjustment required pursuant to this Section 4.3, which, together with any
adjustment or adjustments so carried forward, shall amount to an increase or
decrease of at least 1% of such Conversion Price.
(d) Notwithstanding anything to the contrary contained in this
Certificate of Incorporation, no Conversion Price adjustment will be made as a
result of the issuance of Common Stock on conversion of or in payment of a
dividend on the Series C Preferred Stock or pursuant to the Deposit Agreement.
(e) Each event requiring adjustment to the Conversion Price shall
require only a single adjustment even though more than one of the adjustment
clauses set forth in Section 4.3(a), Section 4.4 or Section 4.5 may be
applicable to such event.
(f) If the Corporation shall take a record of the holders of any
class of its Capital Stock for the purpose of entitling them to receive a
dividend or other distribution or shall take any other action which would
otherwise constitute a Conversion Price Adjustment Event, and shall thereafter
and before the distribution to stockholders thereof legally abandon its plan to
pay or deliver such dividend or distribution or abandon such other action, then
thereafter no adjustment in the Conversion Price then in effect shall be
required by reason of the taking of such record or such other action.
(g) Upon any increase or decrease in the Conversion Price, then, and
in each such case, the Corporation promptly shall deliver to each registered
Holder of Series C Preferred Stock a certificate signed by an authorized officer
of the Corporation, setting forth in reasonable detail the event requiring the
adjustment and the method by which such adjustment was calculated and specifying
the increased or decreased Conversion Price then in effect following such
adjustment.
(h) The Corporation reserves the right to make such reductions in the
Conversion Price in addition to those required in the foregoing provisions as it
considers to be advisable in order that any event treated for Federal income tax
purposes as a dividend of stock or stock rights will not be taxable to the
recipients. In the event the Corporation elects to make such a reduction in the
Conversion Price, the Corporation will comply with the requirements of Rule 14e-
1 under the Exchange Act, and any other securities laws and regulations
thereunder if and to the extent that such laws and regulations are applicable in
connection with the reduction of the Conversion Price.
<PAGE>
-17-
4.4. In the event that, after the Issuance Date, the Corporation
distributes rights or warrants (other than those referred to in Section
4.3(a)(ii)) pro rata to all holders of shares of Common Stock, so long as any
such rights or warrants have not expired or been redeemed by the Corporation,
the Holder of any Series C Preferred Stock surrendered for conversion will be
entitled to receive upon such conversion, in addition to the shares of Common
Stock then issuable upon such conversion (the "Conversion Shares"), a number of
-----------------
rights or warrants to be determined as follows:
(a) if such conversion occurs on or prior to the date for the
distribution to the holders of rights or warrants of separate certificates
evidencing such rights or warrants (the "Distribution Date"), the same
-----------------
number of rights or warrants to which a holder of a number of shares of
Common Stock equal to the number of Conversion Shares is entitled at the
time of such conversion in accordance with the terms and provisions
applicable to the rights or warrants; and
(b) if such conversion occurs after such Distribution Date, the
same number of rights or warrants to which a holder of the number of shares
of Common Stock into which such Series C Preferred Stock was convertible
immediately prior to such Distribution Date would have been entitled on
such Distribution Date in accordance with the terms and provisions of and
applicable to the rights or warrants.
In the event the Holders of the Series C Preferred Stock are not entitled to
receive such rights or warrants pursuant to Section 4.4(a) or 4.4(b), the
Conversion Price will be subject to adjustment upon any declaration or
distribution of such rights or warrants pursuant to and subject to the terms of
Section 4.3(b)(ii), above.
4.5.(a) In case of:
(i) any capital reorganization or reclassification or similar
change (to which Section 4.3(a) does not apply) of outstanding shares of
Common Stock (other than a change in par value, or from par value to no par
value, or from no par value to par value); or
(ii) any consolidation or merger of the Corporation with or into
another Person (other than a consolidation or merger in which the
Corporation is the resulting or surviving Person and which does not result
in any reclassification or change of outstanding Common Stock or in
connection with a merger effectuated solely to reflect a change in the
jurisdiction of incorporation of the Corporation; provided that any such
reincorporation merger does not also result in a reclassification or change
of Common Stock such that the Common Stock that holders of Series C
Preferred Stock would have received had they converted prior to such merger
is different from shares of Common Stock received by the holders of Common
Stock in such reincorporation merger); or
(iii) any sale, transfer or other disposition to another Person
of all or substantially all of the assets of the Corporation (other than
the sale, transfer, assignment or distribution of shares of capital stock
or assets to a Subsidiary) computed on a
<PAGE>
-18-
consolidated basis (any of the events described in Section 4.5(a) being
referred to in this Section 4.5 as a "Transaction"),
-----------
then the adjustment described in Section 4.5(b) will be made.
(b) Each share of Series C Preferred Stock then outstanding shall,
without the consent of any Holder of Series C Preferred Stock (except as
expressly required by applicable law), become convertible only into the kind and
amount of shares of stock or other securities (of the Corporation or another
issuer), cash or other property receivable upon such Transaction by a holder of
the number of shares of Common Stock into which such share of Series C Preferred
Stock could have been converted immediately prior to such Transaction after
giving effect to any adjustment event.
(c) The provisions of this Section 4.5 and any equivalent thereof in
any such certificate similarly shall apply to successive Transactions. The
provisions of this Section 4.5 shall be the sole right of Holders of Series C
Preferred Stock in connection with any Transaction and, except as expressly
provided by applicable law and Section 8.3, such Holders shall have no separate
vote thereon.
4.6. In the case of any distribution by the Corporation to its
stockholders of substantially all of its assets, each Holder of Series C
Preferred Stock will participate pro rata in such distribution based on the
number of shares of Common Stock into which such Holders' shares of Series C
Preferred Stock would have been convertible immediately prior to such
distribution.
4.7. If, as a result of any Conversion Price Adjustment Event, a
Holder of the Series C Preferred Stock becomes entitled to receive upon
conversion shares of two or more classes of Capital Stock, the Corporation shall
determine the reasonable allocation of the adjusted Conversion Price between the
classes of Capital Stock. After such allocation, the Conversion Price of each
class of Capital Stock shall thereafter be subject to adjustment on terms
comparable to the Series C Preferred Stock in this Article 4.
4.8. The Corporation shall at all times reserve and keep available
for issuance upon the conversion of the Series C Preferred Stock, such number of
its authorized but unissued shares of Common Stock as will from time to time be
sufficient to permit the conversion of all outstanding shares of Series C
Preferred Stock, and shall take all action required to increase the authorized
number of shares of Common Stock if at any time there shall be insufficient
authorized but unissued shares of Common Stock to permit such reservation or to
permit the conversion of all outstanding shares of Series C Preferred Stock.
4.9. The issuance or delivery of certificates for Common Stock upon
the conversion of shares of Series C Preferred Stock shall be made without
charge to the converting Holder of shares of Series C Preferred Stock for such
certificates or for any documentary stamp or similar tax in respect of the
issuance or delivery of such certificates or the securities represented thereby,
and such certificates shall be issued or delivered in the respective names of,
or in such names as may be directed by, the Holders of the shares of Series C
Preferred Stock converted; provided, however, that the Corporation shall not be
required to pay any tax which
<PAGE>
-19-
may be payable in respect of any transfer involved in the issuance and delivery
of any such certificate in a name other than that of the Holder of the shares of
Series C Preferred Stock converted, and the Corporation shall not be required to
issue or deliver such certificate unless or until the Person or Persons
requesting the issuance or delivery thereof shall have paid to the Corporation
the amount of such tax or shall have established to the reasonable satisfaction
of the Corporation that such tax has been paid.
5. Optional Redemption.
-------------------
5.1.(a) The Corporation may, at its option and to the extent
permitted by applicable law, redeem the Series C Preferred Stock at a Redemption
Price equal to premium of 101.929% of the Liquidation Preference (plus any
accumulated and unpaid dividends, if any, whether or not declared, to the
Redemption Date (the "Provisional Redemption Date")) on or after November 15,
---------------------------
2000 but prior to May 15, 2002 (the "Provisional Redemption"), if the Trading
----------------------
Price of the Series C Preferred Stock equals or exceeds $124.74 per share for 20
Trading Days within any 30 Trading Day period. In addition to the payments
required by the preceding sentence, if the Deposit Account has not previously
been terminated, in the event of any Provisional Redemption, holders of Series C
Preferred Stock will also receive any funds remaining in the Deposit Account
allocable to those shares of Series C Preferred Stock which are redeemed in such
circumstances (but not the Additional Payment described in the next sentence).
If the Deposit Account has been terminated, and the Corporation then undertakes
a Provisional Redemption, holders of Series C Preferred Stock that the
Corporation calls for redemption, will, in addition to the payments required by
the second preceding sentence, also receive a payment (the "Additional Payment")
------------------
in an amount equal to the present value of the aggregate value of the dividends
that would thereafter have been payable on the Series C Preferred Stock (whether
or not declared) from the Provisional Redemption Date to May 15, 2002 (the
"Additional Period"). The present value will be calculated using the bond
-----------------
equivalent yield on U.S. Treasury notes or bills having a term nearest in length
to that of the Additional Period as the day immediately preceding the date on
which a notice of Provisional Redemption is mailed. If the Deposit Account has
been terminated, the Corporation will be obligated to make the Additional
Payment on all Series C Preferred Stock that it has called for Provisional
Redemption, whether or not those shares of Series C Preferred Stock are
converted into shares of Common Stock prior to the Provisional Redemption Date.
Except as provided in the immediately preceding paragraph, the Corporation
may not redeem the Series C Preferred Stock prior to May 15, 2002.
<PAGE>
-20-
(b) Beginning on May 15, 2002, the Series C Preferred Stock may be
redeemed, during the twelve-month periods commencing on May 15 of the years
indicated below, at the following Redemption Prices per share, plus in each case
all accumulated and unpaid dividends (whether or not declared) to the Redemption
Date:
Redemption Premium
Year Per Share
---- ---------
2002..................... 103.857%
2003..................... 102.893%
2004..................... 101.929%
2005..................... 100.964%
2006 and thereafter...... 100%
(c) The Corporation may effect any redemption (whether pursuant to
Section 5.1(a) or 5.1(b) in whole or in part. at the option of the Corporation,
in cash, by delivery of fully paid and nonassessable shares of Common Stock or a
combination thereof (subject, in each case, to applicable law), upon not less
than 20 days' notice nor more than 60 days' notice delivered to holders of
Series C Preferred Stock
(d) In the event that fewer than all the outstanding shares of the
Series C preferred Stock are to be redeemed, the shares to be redeemed will be
determined pro rata or by lot, except that the Corporation may redeem such
shares held by any Holder of fewer than 100 shares (or shares held by Holders
who would hold fewer than 100 shares as a result of such redemption), as may be
determined by the Corporation.
(e) If the Corporation elects to pay the Redemption Price in respect
of any shares of Series C Preferred Stock in shares of Common Stock, the number
of shares of Common Stock to be distributed in respect of such shares of Series
C Preferred Stock will be calculated by dividing the aggregate Redemption Price
in respect of such shares of Series C Preferred Stock payable to any Holder by
95% of the Market Value of the Common Stock as of the Redemption Notice Date.
(f) From and after the applicable Redemption Date (unless the
Corporation shall be in default of payment of the Redemption Price), dividends
on the shares of the Series C Preferred Stock to be redeemed on such Redemption
Date shall cease to accumulate, such shares shall no longer be deemed to be
outstanding, and all rights of the Holders thereof as stockholders of the
Corporation (except the right to receive the Redemption Price) will cease.
5.2. If any dividends on the Series C Preferred Stock are in
arrears, no shares of the Series C Preferred Stock will be redeemed unless all
outstanding shares of the Series C Preferred Stock are simultaneously redeemed.
<PAGE>
-21-
5.3. In the event the Corporation shall elect to redeem shares of
the Series C Preferred Stock pursuant to Section 5.1 hereof, the Corporation
must provide the Holders with the Redemption Notice as described in Section 5.
l(a) or 5. l(b), as applicable, and:
(a) (i) On or before any Redemption Date, each Holder of shares of
Series C Preferred Stock to be redeemed shall surrender the certificate or
certificates representing such shares of Series C Preferred Stock (properly
endorsed or assigned for transfer, if the Corporation shall so require and the
Redemption Notice shall so state), to the Corporation or the Redemption Agent
(if appointed) in the manner and at the place designated in the Redemption
Notice.
(ii) On the first Business Day following the Redemption Date,
the Corporation or the Redemption Agent, as applicable, shall pay or
deliver to the Holder, whose name appears on such certificate or
certificates as the registered owner thereof, the full Redemption Price due
such Holder in cash, in fully paid and nonassessable shares of Common Stock
or in a combination thereof (subject. in each case, to applicable law).
(iii) The shares represented by each certificate to be
surrendered shall be automatically (and without any further action of the
Corporation or the Holder) canceled as of the Redemption Date whether or
not certificates for such shares are returned to the Corporation and
returned to the status of authorized but unissued shares of preferred stock
of no series.
(iv) If fewer than all the shares represented by any such
certificate are to be redeemed, a new certificate shall be issued
representing the unredeemed shares, without costs to the Holder, together
with the amount of cash, if any, in lieu of fractional shares to the extent
the Corporation is legally and contractually entitled to pay cash for said
fractional shares. If the Corporation is not entitled to pay cash for
fractional shares, it shall pay cash to the Holder for the fractional
shares when it becomes legally and contractually able to pay such cash.
(b) If a Redemption Notice shall have been given as provided in
Section 5.1, dividends on the shares of Series C Preferred Stock so called for
redemption shall cease to accrue, such shares shall no longer be deemed to be
outstanding, and all rights of the Holders thereof as stockholders of the
Corporation with respect to shares so called for redemption (except for the
right to receive from the Corporation the Redemption Price (plus accumulated and
unpaid dividends, (whether or not declared), if any, to the Redemption Date or
the right, if any, to receive payments from the Deposit Account)) shall cease
(excluding any right to receive the dividend payment on shares called for
redemption where the Redemption Date falls between the Dividend Payment Record
Date and the Dividend Payment Date) either (i) from and after the Redemption
Date (unless the Corporation shall default in the payment of the Redemption
Price, in which case such rights shall not terminate at such time and date) or
(ii) if the Corporation shall so elect and state in the Redemption Notice, from
and after the time and date (which date shall be the Redemption Date or an
earlier date not less than 20 days after the date of mailing of the Redemption
Notice) on which the Corporation shall irrevocably deposit in trust for the
Holders of the shares to be redeemed with a designated Redemption Agent as
paying agent sufficient to pay at the office of such paying agent, on the
Redemption Date, the Redemption Price (plus
<PAGE>
-22-
accumulated and unpaid dividends, if any, to the Redemption Date). Any money or
shares of Common Stock so deposited with such Redemption Agent which shall not
be required for such redemption shall be returned to the Corporation forthwith.
Subject to applicable escheat laws, any moneys or shares of Common Stock so set
aside by the Corporation and unclaimed at the end of one year from the
Redemption Date shall revert to the general funds of the Corporation, after
which reversion the Holders of such shares so called for redemption shall look
only to the general funds of the Corporation for the payment of the Redemption
Price (plus accumulated and unpaid dividends (whether or not declared), if any,
to the Redemption Date) without interest. Any interest accrued on funds held by
the Redemption Agent shall be paid to the Corporation from time to time.
(c) If any Holder whose shares of Series C Preferred Stock are called
for redemption pursuant to this Article 5 fails to surrender the certificate
representing such shares (or fails to arrange for the appropriate book-entry
transfer if a global certificate has been issued), such Holder shall not be
entitled to receive payment of the Redemption Price until the certificate has
been surrendered for cancellation or the appropriate book-entry transfer is
made. Such Holder will not be entitled to receive any interest on the Redemption
Price.
6. Change of Control.
-----------------
6.1.(a) Notwithstanding Section 4, in the event of a Change of
Control, Holders shall, if the Market Value at such time is less than the
Conversion Price, have a one time option, upon not less than 30 days' notice nor
more than 60 days' notice, to convert all of their outstanding shares of Series
C Preferred Stock into shares of Common Stock at an adjusted Conversion Price
equal to the greater of:
(i) the Market Value as of the Change of Control date; and
(ii) $38.73.
(b) In lieu of issuing the shares of Common Stock issuable upon
conversion in the event of a Change of Control, the Corporation may, at its
option, make a cash payment equal to the Market Value of such Common Stock
otherwise issuable.
6.2. The foregoing provision is not waivable by the Corporation.
7. Liquidation Preference.
----------------------
7.1. Upon any voluntary or involuntary liquidation, dissolution or
winding-up of the Corporation, Holders of the Series C Preferred Stock will be
entitled to be paid, out of assets of the Corporation available for
distribution, the Liquidation Preference per share plus an amount in cash equal
to all accumulated and unpaid dividends thereon to the date fixed for
liquidation, dissolution or winding-up (including an amount equal to a prorated
dividend for the period from the last dividend payment date to the date fixed
for liquidation, dissolution or winding-up), before any distribution is made on
any Junior Securities, including, without limitation, the Common Stock.
<PAGE>
-23-
7.2. If, upon any voluntary or involuntary liquidation, dissolution
or winding-up of the Corporation, the amounts payable with respect to the Series
C Preferred Stock and all other Parity Securities are not paid in full, the
Holders of the Series C Preferred Stock and the Parity Securities will share
equally and ratably in any distribution of assets of the Corporation in
proportion to the full distributable amounts to which they are entitled.
7.3. After payment of the full amount of the Liquidation Preference
and accumulated and unpaid dividends to which they are entitled, the Holders of
shares of the Series C Preferred Stock will not be entitled to any further
participation in any distribution of assets of the Corporation or have any right
or claim to any of the Corporation's remaining assets.
7.4. Neither the sale, conveyance, exchange or transfer (for cash,
shares of stock, securities or other consideration) of all or substantially all
of the property or business of the Corporation (other than in connection with
the dissolution, liquidation or winding up of its business) nor the merger or
consolidation of the Corporation with or into any other corporation will be
deemed to be a dissolution, liquidation, or winding-up, voluntary or
involuntary, of the Corporation.
8. Voting Rights.
-------------
8. 1. Holders of the Series C Preferred Stock have no voting rights
except as provided by law or as set forth herein.
8.2. If dividends on the Series C Preferred Stock are in arrears and
unpaid for six quarterly periods, the Holders of the Series C Preferred Stock
voting separately as a class with the shares of any other preferred stock or
preference securities having similar voting rights will be entitled at the next
regular or special meeting of stockholders of the Corporation to elect two
directors of the Corporation. Such voting rights will continue only until such
time as the dividend arrearage on the Series C Preferred Stock has been paid in
full.
8.3. The affirmative vote or consent of the Holders of at least 66-
2/3% of the outstanding Series C Preferred Stock will be required for:
(a) the issuance of any class of Senior Securities or security
convertible into Senior Securities or evidencing a right to purchase any
shares or any class or series of Senior Securities; and
(b) amendments to the Corporation's Certificate of Incorporation
that would affect adversely the rights of Holders of the Series C Preferred
Stock; provided, however, that any issuance of shares of Parity Securities,
including the issuance of additional shares of Series C Preferred Stock,
will not, by itself, be deemed to adversely affect the rights of holders of
the Series C Preferred Stock.
In all such cases each share of Series C Preferred Stock shall be entitled to
one vote.
8.4. Notwithstanding any provision hereof to the contrary
(including, without limitation, Section 8.3),
<PAGE>
-24-
(a) the creation, authorization or issuance of any shares of
Junior Securities, Parity Securities or Senior Securities; or
(b) an increase or decrease in the amount of authorized capital
stock of any class, including any preferred stock (other than, with respect
to an increase, Series C Preferred Stock),
shall not in either case, require the consent of the Holders of the Series C
Preferred Stock unless otherwise required by applicable law and shall not be
deemed to affect adversely the rights, preferences, privileges or voting rights
of Holders of shares of the Series C Preferred Stock.
9. No Personal Liability of Directors, Officers, Employees, Incorporators
----------------------------------------------------------------------
and Stockholders.
----------------
9.1. Subject to applicable law, no director, officer, employee,
incorporator or stockholder of the Corporation or any of its Affiliates, as
such, shall have any liability for any obligations of the Corporation and any of
its Affiliates under the Series C Preferred Stock or this Certificate of
Incorporation or for any claim based on, in respect of, or by reason of, such
obligations or their creation. To the extent permitted by applicable law, each
Holder of the Series C Preferred Stock waives and releases all such liability.
The waiver and release are part of the consideration for issuance of the Series
C Preferred Stock.
10. Amendment Supplement and Waiver.
-------------------------------
10.1. Unless otherwise expressly required by applicable law, without
the consent of any Holder of the Series C Preferred Stock, the Corporation may
amend or supplement this Certificate of Incorporation to cure any ambiguity,
defect or inconsistency, to provide for uncertificated Series C Preferred Stock
in addition to or in place of certificated Series C Preferred Stock, to provide
for the assumption of the Corporation's obligations to Holders of the Series C
Preferred Stock in the case of a merger or consolidation, to make any change
that would provide any additional rights or benefits to the Holders of the
Series C Preferred Stock or that does not adversely affect the legal rights of
any such Holder under this Certificate of Incorporation.
11. Certain Definitions.
-------------------
Set forth below are certain defined terms used in this Paragraph
FOURTH.
11.1. "Affiliate" of any specified Person means any other Person
---------
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as used with respect to any
person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such person,
whether through the ownership of voting securities, by agreement or otherwise;
provided that no individual, other than a director of the Corporation or an
officer of the Corporation with a policy making function, shall be deemed an
Affiliate of the Corporation or any of its Subsidiaries, solely by reason of
such individual's
<PAGE>
-25-
employment, position or responsibilities by or with respect to the Corporation
or any of its Subsidiaries.
11.2. "Business Day" means any day other than a Legal Holiday.
------------
11.3. "Capital Stock" means any and all shares, of corporate stock
-------------
whether common or preferred.
11.4. "Change of Control" means (a) the first day any "person or
-----------------
group" as such terms are used in Sections 13(d); and 14(d) of the Exchange Act,
is or becomes a "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under
the Exchange Act, except that a person will be deemed to have beneficial
ownership of all shares that such person has the right to acquire, whether such
right is exercisable immediately or only after the passage of time) directly or
indirectly, of more than 50% of the Corporation's outstanding Common Stock; (b)
the first day, during any period of two consecutive years, on which a majority
of the members of the Board of Directors of the Company are not Continuing
Directors; (c) any transaction or series of transactions, pursuant to which the
Corporation consolidates with or merges with or into any person, or conveys,
transfers or leases all or substantially all, computed on a consolidated basis,
of its assets to any Person, or any corporation consolidates with or merges into
or with the Corporation, in any such event pursuant to a transaction in which
the Corporation's outstanding Common Stock is changed into or exchanged for
cash, securities or other property, other than any such transaction where the
Corporation's Common Stock is not changed or exchanged at all, except to the
extent necessary to reflect a change in the jurisdiction of incorporation of the
Corporation or where no "person" or" group" owns, immediately after such
transaction, directly or indirectly, more than 50% of the total outstanding
voting stock of the surviving corporation; or (d) the Corporation is liquidated
or dissolved or adopts a plan of liquidation or dissolution. The good faith
determination of the Corporation's Board of Directors or a duly authorized
committee thereof, based upon the advice of outside counsel, of the beneficial
ownership of securities of the Corporation within the meaning of Rules 13d-3 and
13d-5 under the Exchange Act will be conclusive, absent contrary controlling
precedent or contrary written interpretation published by the SEC.
11.5. "Common Stock" means the common stock, $.01 par value per share
------------
of the Corporation.
11.6. "Corporation" means PSINet Inc., a New York corporation, and
-----------
any successor thereof.
11.7. "Continuing Director" means, as of any date of determination,
-------------------
any member of the Board of Directors of the Corporation: (a) who was a member of
such Board of Directors two years prior to such date; or (b) whose nomination
for election or election to such Board of Directors was approved by an
affirmative vote of a majority of the directors then still in office who were
members of such Board two years prior to such date or whose nomination for
election or election was previously so approved.
11.8. The "Conversion Date" shall be the date the Transfer Agent
---------------
receives the Conversion Notice.
<PAGE>
-26-
11.9. The "Conversion Notice" is written notice from the Holder to
-----------------
the Corporation stating that the Holder elects to convert all or a portion of
the shares of Series C Preferred Stock represented by certificates delivered to
the Transfer Agent contemporaneously, which notice shall be substantially in the
form of Exhibit A at the end of this Paragraph FOURTH.
---------
11.10. The "Conversion Price" shall initially be $62.3675, subject to
----------------
adjustment as set forth in Section 4.3.
11. 11. "Conversion Price Adjustment Events" are any of those events
----------------------------------
specified in Section 4.3(a).
11.12. "Deposit Account" means that certain deposit account
---------------
established pursuant to the Deposit Agreement.
11.13. "Deposit Agreement" means the Deposit Agreement, with respect
-----------------
to the Series C Preferred Stock, between the Corporation and Wilmington Trust
Corporation.
11.14. "Dividend Payment Date" is as defined in Section 2.1, above.
---------------------
11.15. "Dividend Payment Record Date" is as defined in Section 2.1.
----------------------------
above.
11.16. "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
11.17. "Holder" means a Person in whose name shares of Capital Stock
------
is registered.
11.18. "Issuance Date" means the date on which the Series C Preferred
-------------
Stock is originally issued under this Certificate of Amendment.
11.19. "Junior Security" is as defined in Section 3. 1.
---------------
11.20. "Legal Holiday" means a Saturday, a Sunday or a day on which
-------------
banking institutions in the City of New York or at a place payment is to be
received are authorized by law, regulation or executive order to remain closed.
If a payment date is a Legal Holiday at a place of payment, payment may be made
at that place on the next succeeding day that is not a Legal Holiday, and no
interest shall accrue for the intervening period.
11.21. "Liquidation Preference" means $50.00 per share of Series C
----------------------
Preferred Stock.
11.22. "Market Capitalization" means the product of the then-current
---------------------
Market Value times the total number of shares of Common Stock then outstanding.
11.23. "Market Value" means, as of any date, the average of the daily
------------
closing price for the five consecutive trading days ending on such date. The
closing price for each day shall be the last sales price or in case no such
reported sales take place on such day, the average of the last reported bid and
asked price, in either case, on the principal national securities
<PAGE>
-27-
exchange on which the shares of Common Stock are admitted to trading or listed,
or if not listed or admitted to trading on such exchange, the representative
closing bid price as reported by the Nasdaq National Market, or other similar
organization if the Nasdaq National Market is no longer reporting such
information, or if not so available, the fair market price as determined, in
good faith, by the Board of Directors of the Corporation.
11.24. "Officer" means, with respect to any Person, the Chairman of
-------
the Board, the Chief Executive Officer, the President, the Chief Operating
Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer,
Controller, Secretary or any Vice-President of such Person.
11.25. "Parity Security" is as defined in Section 3.1.
---------------
11.26. "Person" means any individual, corporation, partnership, joint
------
venture, association, joint-stock corporation, trust, limited liability company
or unincorporated organization.
11.27. "Redemption Agent" means that Person, if any, appointed by the
----------------
Corporation to hold funds deposited by the Corporation in trust to pay to the
Holders of shares to be redeemed.
11.28. "Redemption Date" means that certain date set forth in the
---------------
Redemption Notice on which date the redemption of the Series C Preferred Stock
is completed.
11.29. "Redemption Notice" means that notice to be given by the
-----------------
Corporation to the Holders notifying the Holders as to the redemption, in whole
or in part, of the Series C Preferred Stock pursuant to Section 4 hereof. The
Redemption Notice shall include the following information: (i) the Redemption
Date and the time of day on such date; (ii) the total number of shares of Series
C Preferred Stock to be redeemed and, if fewer than all the shares held by such
Holder are to be redeemed, the number of such shares to be redeemed from such
Holder; (iii) the Redemption Price (whether to be paid in cash or shares of
Common Stock); (iv) the place or places where certificates for such shares are
to be surrendered for payment of the Redemption Price and delivery of
certificates representing shares of Common Stock (if the Corporation so
chooses); (v) that dividends on the shares to be redeemed will cease to accrue
on such Redemption Date unless the Corporation defaults in the payment of the
Redemption Price; and (vi) the name of any bank or trust Corporation, if any,
performing the duties of Redemption Agent.
11.30. "Redemption Notice Date" means the date the Redemption Notice
----------------------
is first mailed or delivered to any Holder.
11.31. "Redemption Price" means that price established for redemption
----------------
of the Series C Preferred Stock established in Section 5.1 hereof.
11.32. "SEC" means the Securities and Exchange Commission.
---
11.33. "Securities Act" means the Securities Act of 1933, as amended.
--------------
<PAGE>
-28-
11.34. "Self Funding Event" is as defined in Section 2.2.
------------------
11.35. "Series C Preferred Stock" means the Series C Preferred Stock
------------------------
authorized in this Article FOURTH.
11.36. "Senior Securities" is as defined in Section 3.1.
-----------------
11.37. "Subsidiary" means, with respect to any Person, any
----------
corporation, association or other business entity of which more than 50% of the
total voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers or
trustees thereof is at the time owned or controlled, directly or indirectly, by
such person or one or more of the other Subsidiaries of such Person or a
combination thereof.
11.38. "Trading Day" means any day on which the Series C Preferred
-----------
Stock is traded on the Nasdaq National Market or any other exchange on which the
Series C Preferred Stock is, at the time, principally traded or quoted.
11.39. "Trading Price" means, on any specified Trading Day, the last
-------------
reported sales price of the Series C Preferred Stock on the Nasdaq National
Market or any other exchange on which the Series C Preferred Stock is, at the
time, principally traded or quoted.
11.40. The "Transfer Agent" shall be as established pursuant to
--------------
Article 12 hereof.
12. Transfer Agent and Registrar.
----------------------------
The duly appointed Transfer Agent and registrar for the Series C
Preferred Stock shall be First Chicago Trust Company of New York. The
Corporation may, in its sole discretion, remove the Transfer Agent in accordance
with the agreement between the Corporation and the Transfer Agent; provided that
the Corporation shall appoint a successor transfer agent who shall accept such
appointment prior to the effectiveness of such removal.
13. Other Provisions.
----------------
13.1. With respect to any notice to a Holder of shares of the Series
C Preferred Stock required to be provided hereunder, neither failure to mail
such notice, nor any defect therein or in the mailing thereof, to any particular
Holder shall affect the sufficiency of the notice or the validity of the
proceedings referred to in such notice with respect to the other Holders or
affect the legality or validity of any distribution, rights, warrant,
reclassification, consolidation, merger, conveyance, transfer, dissolution,
liquidation or winding up, or, except as otherwise expressly provided by
applicable law, the vote upon any such action. Any notice which was mailed in
the manner herein provided shall be conclusively presumed to have been duly
given whether or not the Holder receives the notice.
13.2. Shares of Series C Preferred Stock issued and reacquired will
be retired and canceled promptly after reacquisition thereof and, upon
compliance with the applicable law, will have the status of authorized but
unissued shares of preferred stock of the Corporation undesignated as to series
and may with any and all other authorized but unissued shares of
<PAGE>
-29-
preferred stock of the Corporation be designated or redesignated and issued or
reissued, as the case may be, as part of any series of preferred stock of the
Corporation.
13.3. In the Corporation's discretion, no fractional shares of Common
Stock or securities representing fractional shares of Common Stock will be
issued upon conversion, redemption, or as dividends payable on the Series C
Preferred Stock. Any fractional interest in a share of Common Stock resulting
from conversion, redemption, or dividend payment will be paid in cash based on
the last reported sale price of the Common Stock on the Nasdaq National Market
(or any national securities exchange or authorized quotation system on which the
Common Stock is then listed) at the close of business on the trading day next
preceding the date of conversion redemption or Dividend Payment Date, as
applicable or such later time as the Corporation is legally and contractually
able to pay for such fractional shares.
13.4. All notices periods referred to herein shall commence on the
date of the mailing of the applicable notice.
13.5. Notwithstanding any provision of this Paragraph FOURTH to the
contrary, the nonassessability of each share of Series C Preferred Stock and
each share of Common Stock issuable in respect thereof shall be subject to
Section 630 of the Business Corporation Law.
<PAGE>
-30-
EXHIBIT A
NOTICE OF CONVERSION
AT THE ELECTION OF HOLDER
(To be executed by the registered Holder in order
to convert shares of Series C Preferred Stock)
The undersigned hereby elects to convert the number of 6 3/4% Series C
Cumulative Convertible Preferred Stock of PSINet Inc. (the "Corporation")
indicated below, into the number of shares of the Corporation's common stock,
par value $.01 per share (the "Common Stock"), indicted below, as of the date
written below. If shares are to be issued in the name of a person other than the
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto and is delivering herewith such certificates and opinions as reasonably
requested by the Corporation in connection therewith. No fee will be charged to
the Holder for any conversion, except for such transfer taxes, if any.
Conversion calculations:
________________________________________________________________________________
Date to Effect Conversion
________________________________________________________________________________
Number of shares of Series C Preferred Stock to be Converted
________________________________________________________________________________
Number of shares of Common Stock to be Issued
________________________________________________________________________________
Application Conversion Price
________________________________________________________________________________
Signature
________________________________________________________________________________
Name
________________________________________________________________________________
By:
________________________________________________________________________________
Address
<PAGE>
-31-
FIFTH: A. The Board of Directors shall consist of not less than three
(3) persons nor more than nine (9) persons, the exact number to be fixed from
time to time only by the Board of Directors pursuant to a resolution adopted by
a majority vote of the directors then in office. No decrease in the number of
directors constituting the Board of Directors or change in the restrictions and
qualifications for directors shall shorten the term of any incumbent director.
B. Notwithstanding anything to the contrary in the Amended and Restated
By-laws of the Corporation, directors shall be classified, with respect to the
period for which they shall severally hold office, into two classes, each class
consisting of at least three (3) directors and to be as nearly equal in number
as possible. Each director shall hold office, subject to the transitional
provisions described below, for a period expiring at the second annual meeting
of shareholders following the first annual meeting of shareholders of the
Corporation at which directors of such class have been elected and until such
director's successor is elected and qualified.
C. Subject to the rights of holders of any series of Preferred Stock then
outstanding and except as otherwise provided by Section 706(d) of the New York
Business Corporation Law, any or all of the directors hereafter elected may be
removed only for cause at any annual or special meeting of the shareholders by
vote of the shareholders entitled to vote thereon. Except as may otherwise be
provided by law, for purposes of this paragraph, "cause" shall mean any one of
the following: (i) a director is judicially declared to be of unsound mind; (ii)
a director is convicted of an offense punishable by imprisonment for a term of
more than one year; (iii) a director breaches or fails to perform the statutory
duties of that director's office and the breach or failure constitutes self-
dealing, willful misconduct or recklessness; or (iv) within 60 days after notice
of his or her election, a director does not accept the office either in writing
or by attending a meeting of the Board of Directors and fulfilling any other
requirements of qualification that the Amended and Restated By-laws or this
Certificate of Incorporation may provide.
D. Subject to the rights of holders of any series of Preferred Stock then
outstanding, newly created directorships resulting from an increase in the
number of directors and vacancies occurring in the Board of Directors for any
reason, may be filled only by a majority vote of the remaining directors then in
office, though less than a quorum. A director elected to fill a newly created
directorship or a vacancy in accordance with the first sentence of this
paragraph shall hold office until the next annual meeting of shareholders, and
until such director's successor has been elected and qualified.
E. Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, the affirmative vote of the holders in respect of
at least two-thirds of the outstanding shares of the capital stock of the
Corporation entitled to vote in the election of directors shall be required to
alter, amend, or adopt any provision inconsistent with or to repeal this
Paragraph FIFTH.
SIXTH: A. Special meetings of the shareholders may be called by the
Chariman of the Board of Directors or by the President, and shall be called by
the Chairman of the Board or by the Secretary at the request in writing of a
majority of the Board of Directors. The shareholders shall not be entitled to
call a special meeting of the shareholders except when such right is expressly
granted by statute and not permitted to be modified by this Certificate of
Incorporation
<PAGE>
-32-
or the Amended and Restated By-laws. Such meetings shall be held at such time as
may be fixed in the call and stated in the notice of meeting. Any such written
request shall state the purpose or purposes of the proposed meeting.
B. The shareholders shall not be entitled to propose any amendment to
this Certificate of Incorporation. No proposal for a shareholder vote on any
other matter shall be submitted by a shareholder to the Corporation's
shareholders unless the shareholder submitting such proposal has submitted to
the Secretary of the Corporation a written notice setting forth with
particularity (i) the name and business address of the shareholder submitting
such proposal and all persons acting in concert with such shareholder; (ii) the
name and address of the persons identified in clause (i), as they appear on the
Corporation's books (if they so appear); (iii) the class and number of shares of
the Corporation beneficially owned by the persons identified in clause (i); (iv)
a description of the proposal containing all material information relating
thereto, including, without limitation, the reasons for submitting such
proposal; and (v) such other information as the Board of Directors reasonably
determines is necessary or appropriate to enable the Board of Directors and
shareholders of the Corporation to consider such proposal. The written notice of
a shareholder proposal shall be delivered to the Secretary of the Corporation,
at the principal office of the Corporation, not later than (i) with respect to a
shareholder proposal to be submitted at an annual meeting of shareholders, sixty
days prior to the date one year from the date of the immediately preceding
annual meeting of shareholders, and (ii) with respect to a shareholder proposal
to be submitted at a special meeting of shareholders, the close of business on
the tenth day following the date on which notice of such meeting is first given
to shareholders. The presiding officer at any shareholders meeting may determine
that any shareholder proposal was not permissible under or was not made in
accordance with the procedures prescribed in this Section or is otherwise not in
accordance with law, and if he should so determine, he shall so declare at the
meeting and the shareholder proposal shall be disregarded.
C. Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, the affirmative vote of the holders in respect of
at least two-thirds of the outstanding shares of the capital stock of the
Corporation entitled to vote in the election of directors shall be required to
alter, amend, or adopt any provision inconsistent with or to repeal this
Paragraph SIXTH.
SEVENTH: The Secretary of State of New York is hereby designated as the
agent of the Corporation upon whom process in any action or proceeding against
the Corporation may be served; the post office address to which the Secretary of
State shall mail a copy of any such process so served is:
510 Huntmar Park Drive
Herndon, Virginia 20170
Attn: President
EIGHTH: No director of the Corporation shall be held personally liable to
the Corporation or its shareholders for damages for any breach of duty in his
capacity as a director occurring after authorization of this Paragraph EIGHTH by
the shareholders, unless a judgment or other final adjudication adverse to him
establishes that (1) his acts or omissions were in bad
<PAGE>
-33-
faith or involved intentional misconduct or a knowing violation of law, or (2)
he personally gained in fact a financial profit or other advantage to which he
was not legally entitled, or (3) his acts violated section 719 of the Business
Corporation Law. Any repeal of this Paragraph EIGHTH, or any amendment of this
Paragraph EIGHTH insofar as it would in any way enlarge the liability of any
director of the Corporation, shall be ineffective with respect to any acts or
omissions occurring prior to the date of such repeal or amendment.
NINTH: No holder of any shares of any class of stock in the Corporation
shall, by reason of holding such shares, have any preemptive or preferential
right to purchase, receive or subscribe to any shares of any class of stock in
the Corporation, or of securities convertible into or warrants or other rights
to purchase any class of stock of the Corporation, whether now or hereafter
authorized and whether issued for cash or other considerations or by way of
dividend.
TENTH: The Amended and Restated By-laws of the Corporation or any of them
may be amended or repealed, in any respect, and new by-laws may be adopted, at
any time, either (i) by the affirmative vote of the holders in respect of at
least two-thirds of the outstanding shares of the capital stock of the
Corporation entitled to vote in the election of directors or (ii) by the
affirmative vote of a majority of the directors present at a meeting of the
Board of Directors, in each case, in accordance with the terms of the Amended
and Restated By-laws. Any by-law adopted by the Board may be amended or repealed
by the affirmative vote of the holders in respect of at least two-thirds of the
outstanding shares of the capital stock of the Corporation entitled to vote in
the election of directors at any annual or special meeting. Notwithstanding
anything contained in this Certificate of Incorporation to the contrary, the
affirmative vote of the holders in respect of at least two-thirds of the shares
of the capital stock of the Corporation entitled to vote in the election of
directors shall be required to alter, amend, or adopt any provision inconsistent
with, or to repeal this Paragraph TENTH.
This Restated Certificate of Incorporation was authorized by the unanimous
affirmative vote of the members of the Board of Directors of the Corporation at
a meeting duly called and held on October 27, 1999.
<PAGE>
-34-
IN WITNESS WHEREOF, the undersigned has signed this Restated Certificate of
Incorporation this 9th day of November, 1999.
/s/ David N. Kunkel
-------------------
David N. Kunkel
Vice Chairman and
Executive Vice President
<PAGE>
Exhibit 10.1
FIFTH AMENDMENT AND WAIVER dated as of November 19,
1999 (this "Amendment"), to the Credit Agreement, dated
---------
as of September 29, 1998 (as amended, supplemented or
otherwise modified from time to time, the "Credit
------
Agreement"), among PSINET INC., a corporation organized
---------
under the laws of the State of New York (the
"Borrower"), the several banks and other financial
--------
institutions and entities from time to time parties
thereto (the "Lenders"), THE CHASE MANHATTAN BANK, as
-------
administrative agent (the "Administrative Agent") for
--------------------
the Lenders, Fleet National Bank, as syndication agent
for the Lenders, and The Bank of New York as
documentation agent for the Lenders.
WHEREAS, pursuant to the Credit Agreement, the Lenders have agreed to
make certain loans to the Borrower; and
WHEREAS the Borrower has requested that certain provisions of the
Credit Agreement be modified in the manner provided for in this Amendment, and
the Lenders are willing to agree to such modifications as provided for in this
Amendment.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Defined Terms. Capitalized terms used and not defined herein shall
--------------
have the meanings given to them in the Credit Agreement, as amended hereby.
2. Amendments to the Credit Agreement.
----------------------------------
(a) Section 1.01 of the Credit Agreement is hereby amended by
inserting the following definition in its appropriate alphabetical order:
"TNS Merger" means the merger of Transaction Network Services, Inc.
----------
("TNS") into a wholly-owned Subsidiary of the Borrower pursuant to the
Agreement and Plan of Merger dated August 22, 1999 among the Borrower,
PSINet Shelf I Inc. and TNS as amended by an amendment thereto dated
October 14, 1999; provided that in connection therewith (i) the
shareholders of TNS receive cash consideration not in excess of
$355,000,000 and (ii) the outstanding Indebtedness of TNS assumed by
the Borrower and the Subsidiaries does not exceed $70,000,000."
(b) Section 6.04 of the Credit Agreement is hereby amended by deleting
"and (iv)" therein and substituting the following therefor:
"(iv) the TNS Merger may be consummated and (v)"
<PAGE>
(c) Section 6.05 of the Credit Agreement is hereby amended by deleting
"and" at the end of clause (k) thereof and inserting the following before the
period at the end of clause (l) thereof:
"; (m) so long as both before and after giving effect thereto, the
Borrower would be in pro forma compliance with the covenants set forth
in Section 6.12, the TNS Merger"
3. Waiver. The Lenders hereby expressly waive for a period of sixty days
------
from the date hereof any breach of and any rights or remedies in connection with
any breach of the Credit Agreement as a result of the failure of the Loan
Parties to pledge, as required by Section 5.13 of the Credit Agreement or
otherwise, shares of capital stock or Indebtedness of Significant Subsidiaries
which were formed or which became Significant Subsidiaries on or after January
1, 1999; provided, that (i) the Loan Parties shall use their reasonable efforts
-------- ----
to promptly pledge such shares of capital stock and Indebtedness to the
Collateral Agent and (ii) all such shares of capital stock and Indebtedness
required to be pledged but for this waiver are pledged to the Collateral Agent
within 60 days from the date hereof.
4. No Other Amendments or Waivers; Confirmation. Except as expressly
---------------------------------------------
amended, waived, modified and supplemented hereby, the provisions of the Credit
Agreement are and shall remain in full force and effect.
5. Representations and Warranties. The Borrower hereby represents and
-------------------------------
warrants to the Administrative Agent and the Lenders as of the date hereof as
follows:
(a) No Default or Event of Default has occurred and is continuing.
(b) The execution, delivery and performance by the Borrower of this
Amendment have been duly authorized by all necessary corporate and other action
and do not and will not require any registration with, consent or approval of,
notice to or action by, any person (including any governmental agency) in order
to be effective and enforceable. The Credit Agreement as amended by this
Amendment constitutes the legal, valid and binding obligation of the Borrower,
enforceable against it in accordance with its terms, subject only to the
operation of the Bankruptcy Code and other similar statutes for the benefit of
debtors generally and to the application of general equitable principles.
(c) All representations and warranties of the Borrower contained in
the Credit Agreement (other than representations or warranties expressly made
only on and as of the Effective Date) are true and correct as of the date
hereof.
6. Effectiveness. This Amendment shall become effective only upon the
--------------
satisfaction in full of the following conditions precedent: The Administrative
Agent shall have received counterparts hereof, duly executed and delivered by
the Borrower and the Required Lenders; and
7. Expenses. The Borrower agrees to reimburse the Administrative Agent
---------
for its out-of-pocket expenses in connection with this Amendment, including the
reasonable fees, charges and disbursements of Cravath, Swaine & Moore, counsel
for the Administrative Agent.
-2-
<PAGE>
8. Governing Law; Counterparts. (a) This Amendment and the rights and
-----------------------------
obligations of the parties hereto shall be governed by, and construed and
interpreted in accordance with, the laws of the State of New York.
(b) This Amendment may be executed by one or more of the parties to this
Amendment on any number of separate counterparts, and all of said counterparts
taken together shall be deemed to constitute one and the same instrument. This
Amendment may be delivered by facsimile transmission of the relevant signature
pages hereof.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their respective proper and duly authorized
officers as of the day and year first above written.
PSINET INC.
by
/s/ Ed Postal
----------------
Name: Ed Postal
Title: Chief Financial Officer
THE CHASE MANHATTAN BANK,
individually and as Administrative Agent,
by
/s/ Tracey Navin Ewing
-------------------------
Name: Tracey Navin Ewing
Title: Vice President
FLEET NATIONAL BANK,
individually and as Syndication Agent,
by
/s/ Christine Campanelli
---------------------------
Name: Christine Campanelli
Title: Vice President
THE BANK OF NEW YORK,
individually and as Documentation Agent,
by
/s/ Gerry Granovsky
----------------------
Name: Gerry Granovsky
Title: Vice President
BANKBOSTON, N.A.,
by
/s/ Michael Ashton
---------------------
Name: Michael Ashton
Title: Vice President
-4-
<PAGE>
Exhibit 10.2
SIXTH AMENDMENT dated as of November 23, 1999
(this "Amendment"), to the Credit Agreement, dated as
---------
of September 29, 1998 (as amended, supplemented or
otherwise modified from time to time, the "Credit
------
Agreement"), among PSINET, INC., a corporation
---------
organized under the laws of the State of New York (the
"Borrower"), the several banks and other financial
--------
institutions and entities from time to time parties
thereto (the "Lenders"), THE CHASE MANHATTAN BANK, as
-------
administrative agent (the "Administrative Agent") for
--------------------
the Lenders, Fleet National Bank, as syndication agent
for the Lenders, and The Bank of New York as
documentation agent for the Lenders.
WHEREAS, pursuant to the Credit Agreement, the Lenders have agreed to
make certain loans to the Borrower; and
WHEREAS the Borrower has requested that certain provisions of the
Credit Agreement be modified in the manner provided for in this Amendment, and
the Lenders are willing to agree to such modifications as provided for in this
Amendment.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Defined Terms. Capitalized terms used and not defined herein shall
have the meanings given to them in the Credit Agreement, as amended hereby.
2. Amendments to the Credit Agreement.
(a) Section 1.01 of the Credit Agreement is hereby amended by:
(i) inserting the following definition in its appropriate
alphabetical order:
"`Additional High Yield Notes' means high yield notes issued by the
---------------------------
Borrower in a single issuance prior to January 31, 2000 on terms
(other than pricing terms) which, taken as a whole, are no less
favorable to the Lenders than the terms of the 1998 High Yield Notes
and which do not mature in whole or part, and in respect of which no
regularly scheduled amortization of principal is required, earlier
than the date which is six months subsequent to the Maturity Date,
including the Indebtedness represented thereby and refinancings of
such Indebtedness; provided that (i) any such refinancing Indebtedness
shall not have a greater outstanding principal amount, an earlier
maturity date, or a decreased weighted
<PAGE>
average life than the Additional High Yield Notes refinanced and (ii)
the proceeds of such refinancing Indebtedness shall be used solely to
repay the Additional High Yield Notes refinanced thereby and fees and
expenses in connection therewith";
(b) Section 6.01 of the Credit Agreement is hereby amended by:
(i) deleting the period at the end of subsection (xii)
thereof and substituting therefor "; and";
(ii) inserting the following after subsection 6.01(xii)
thereof:
"(xiii) the Additional High Yield Notes with an aggregate initial
public offering price or purchase price not to exceed $1,550,000,000
(or the equivalent thereof on the date of issuance in any foreign
currency); provided that the proceeds of such Additional High Yield
Notes shall be used by the Borrower to finance the design,
development, acquisition, construction or improvement of real or
personal property, tangible or intangible (including, without
limitation, IRUs), used or to be used in connection with a
Telecommunications Business."
(c) Section 6.08 of the Credit Agreement is hereby amended by:
(i) deleting the period at the end of subsection (xvi) thereof
and substituting therefor "; and";
(ii) inserting the following after subsection (xvi):
"(xvii) the purchase of any of the Additional High Yield Notes
pursuant to any offer to purchase required to be made by the Borrower
upon the occurrence of a "Change of Control" (as defined in the
indenture or indentures relating to the Additional High Yield Notes);
provided that no such purchase shall be made unless, immediately prior
thereto, (x) all outstanding Loans, accrued interest thereon and other
amounts payable under this Agreement have been paid in full and (y)
all outstanding Letters of Credit have been cash collateralized in
accordance with the provisions of Section 2.04(j) (regardless of
whether any demand for cash collateral has been made thereunder)."
(d) Section 6.12 of the Credit Agreement is hereby amended by
deleting "$100,000,000" from clause (c) thereof and substituting "$125,000,000"
therefor.
-2-
<PAGE>
3. No Other Amendments; Confirmation. Except as expressly amended,
--------------------------------------
waived, modified and supplemented hereby, the provisions of the Credit Agreement
are and shall remain in full force and effect.
4. Representations and Warranties. The Borrower hereby represents and
-----------------------------------
warrants to the Administrative Agent and the Lenders as of the date hereof as
follows:
(a) No Default or Event of Default has occurred and is continuing.
(b) The execution, delivery and performance by the Borrower of this
Amendment have been duly authorized by all necessary corporate and other action
and do not and will not require any registration with, consent or approval of,
notice to or action by, any person (including any governmental agency) in order
to be effective and enforceable. The Credit Agreement as amended by this
Amendment constitutes the legal, valid and binding obligation of the Borrower,
enforceable against it in accordance with its terms, subject only to the
operation of the Bankruptcy Code and other similar statutes for the benefit of
debtors generally and to the application of general equitable principles.
(c) All representations and warranties of the Borrower contained in
the Credit Agreement (other than representations or warranties expressly made
only on and as of the Effective Date) are true and correct as of the date
hereof.
5. Effectiveness. This Amendment shall become effective only upon the
------------------
satisfaction in full of the following conditions precedent:
(a) the Administrative Agent shall have received counterparts hereof,
duly executed and delivered by the Borrower and the Required Lenders; and
(b) The Borrower shall have paid to the Administrative Agent on
behalf of each Lender that duly executes and delivers a counterpart hereof on or
prior to November 23, 1999 a fee equal to 0.125 percent of the aggregate amount
of the outstanding Loans and Commitments of such Lender under the Credit
Agreement.
6. Expenses. The Borrower agrees to reimburse the Administrative Agent
-------------
for its out-of-pocket expenses in connection with this Amendment, including the
reasonable fees, charges and disbursements of Cravath, Swaine & Moore, counsel
for the Administrative Agent.
7. Governing Law; Counterparts. (a) This Amendment and the rights and
--------------------------------
obligations of the parties hereto shall be governed by, and construed and
interpreted in accordance with, the laws of the State of New York.
(b) This Amendment may be executed by one or more of the parties to this
Amendment on any number of separate counterparts, and all of said counterparts
taken together shall be deemed to constitute one and the same instrument. This
Amendment may be delivered by facsimile transmission of the relevant signature
pages hereof.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their respective proper and duly authorized
officers as of the day and year first above written.
PSINET INC.
by
/s/ Michael J. Malesardi
---------------------------
Name: Michael J. Malesardi
Title: VP and Controller
THE CHASE MANHATTAN BANK, individually and as
Administrative Agent,
by
/s/ Tracey Navin Ewing
-------------------------
Name: Tracey Navin Ewing
Title: Vice President
FLEET NATIONAL BANK,
individually and as Syndication Agent,
by
/s/ Christine Campbell
-------------------------
Name: Christine Campbell
Title: Vice President
THE BANK OF NEW YORK,
individually and as Documentation Agent,
by
/s/ James Whitaker
---------------------
Name: James Whitaker
Title: Vice President
BANK BOSTON,
by
/s/ Michael Ashton
---------------------
Name: Michael Ashton
Title: Vice President
-4-
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the incorporation by
reference in this 8-K of our reports dated February 10, 1999, included in
Transaction Network Services, Inc.'s Form 10-K for the year ended December 31,
1998, into PSINet Inc.'s previously filed Registration Statements on Form S-8
(Nos. 33-98314, 33-98316, 33-98318, 33-98320, 33-99464, 33-99466, 33-99470,
333-04008 and 333-82811), on Form S-4 (Nos. 333-68385, 333-51491 and 333-79351)
and on Form S-3 (No. 333-48663).
ARTHUR ANDERSEN LLP
Vienna, Virginia
November 22, 1999
<PAGE>
EXHIBIT 99.1
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated balance sheet as of September
30, 1999 and the unaudited pro forma consolidated statements of operations for
the year ended December 31, 1998 and for the nine months ended September 30,
1999, which we refer to as the Pro Forma Financial Information, present the pro
forma effect of our acquisition of TNI and other acquisitions described below
since January 1, 1998.
The objective of Pro Forma Financial Information is to provide investors
with information about the continuing impact of particular completed or
probable transactions by indicating how the transactions might have affected
historical financial statements had they occurred at an earlier date.
On November 23, 1999, we acquired TNI. Under the terms of our agreement to
acquire TNI, the aggregate consideration to be paid to TNI shareholders consists
of approximately $340.8 million in cash and approximately 7.6 million shares of
PSINet common stock and the assumption of approximately 463,000 common stock
options, which represents an aggregate value of approximately $700.0 million,
assuming a price per share of PSINet common stock of $45.719. Additionally,
principal and interest outstanding under TNI's revolving credit facility, in the
amount of $52.1 million, was repaid as a condition to closing. The source of the
cash consideration for the TNI merger and the cash for the repayment of the TNI
revolving credit facility obligation was from cash on hand. TNI shareholders
elected to receive cash, PSINet stock, or both cash and stock, subject to
certain adjustments. The actual consideration to be paid is not materially
different from the amounts included in the Pro Forma Financial Information
presented herein.
<PAGE>
In addition to the TNI merger, PSINet has made the following other
acquisitions subsequent to December 31, 1997 (through November 18, 1999):
<TABLE>
<CAPTION>
DATE OF
NAME OF ACQUIRED COMPANY ACQUISITION PRINCIPAL MARKET
------------------------ ----------- -------------------
<S> <C> <C>
Internet Prolink S.A.......................... 1/98* Switzerland
iSTAR internet inc. ("iSTAR")................. 2/98 Canada
Interactive Telephony Limited................. 4/98* Jersey, Channel Isl
Interactive Networx GmbH ("INX").............. 5/98 Germany
ioNET Internetworking Services ("ioNET")...... 6/98 U.S.
LinkAge Online Limited ("LinkAge")............ 6/98 Hong Kong
SCII-CalvaPro................................. 6/98* Sub-Sahara Africa
INTERLOG Internet Services, Inc.
("Interlog")................................. 7/98 Canada
Rimnet Corporation ("Rimnet")................. 8/98 Japan
TWICS Co., Ltd................................ 9/98* Japan
Hong Kong Internet & Gateway Services......... 9/98* Hong Kong
iNet, Inc. ("iNet")........................... 9/98 Korea
Tokyo Internet Corporation ("Tokyo
Internet")................................... 10/98 Japan
The Unix Group B.V............................ 10/98* Netherlands
AsiaNet Limited............................... 11/98* Hong Kong
Spider Net Limited............................ 12/98* Hong Kong
Huge Net Limited.............................. 12/98* Hong Kong
Planete.net S.A.R.L. ("Planete.net").......... 2/99 France
Satelnet S.A. ("Satelnet").................... 2/99 France
Telelinx Ltd. ("Telelinx").................... 2/99 U.K.
Horizontes Internet Ltda ("Horizontes")....... 4/99 Brazil
Wavis Equipamentos de Informatica Ltda
("Openlink")................................. 4/99 Brazil
Sao Paulo On-Line Ltda ("STI")................ 5/99 Brazil
Internet de Mexico S.A. de C.V. ("Internet de
Mexico")..................................... 5/99 Mexico
Datanet S.A. de C.V. ("Datanet").............. 5/99 Mexico
The Internet Company ("TIC").................. 5/99 Switzerland
Caribbean Internet Service Corp.
("Caribenet")................................ 6/99 U.S. (Puerto Rico)
The Internet Access Company ("TIAC").......... 6/99 U.S.
Argentina On-Line S.A. ("Argentina On-Line").. 6/99* Argentina
CSO.net Telecom Services GmhH ("CSO.net")..... 6/99* Austria
Intercomputer, S.A. and Intercomputer Soft,
S.A. ("Intercomputer")....................... 7/99 Spain
ABAFoRUM S.A.................................. 7/99* Spain
Netwing EDV-Dienstleistungs GmbH.............. 7/99* Austria
Global Link................................... 7/99* Hong Kong
Netsystem S.A................................. 8/99* Argentina
Domain Acesso e Servicos Internet Ltda........ 8/99* Brazil
Netline Communicaciones S.A................... 8/99* Chile
Sinfonet, S.A................................. 8/99* Panama
Vision Network Limited........................ 9/99* Hong Kong
Servnet Servicos de Informatica e Communicacao
Ltda......................................... 9/99* Brazil
Elender Informatikai ("Elender").............. 9/99 Hungary
Infase Comunicaciones, S.L.................... 9/99* Spain
Internet Network Technologies................. 9/99* U.S.
Site Internet Ltda............................ 9/99* Brazil
TotalNet Inc. ("TotalNet").................... 9/99 Canada
Terzomillennio Sr.L........................... 9/99* Italy
Orbinet Telecommunications, Inc............... 9/99* Panama
ZebraNet, Inc................................. 10/99* U.S.
SPIN GmbH..................................... 10/99* Switzerland
Zircon........................................ 10/99* Australia
Mlink Internet, Inc........................... 10/99* Canada
Netup......................................... 11/99* Chile
Lyceum........................................ 11/99* U.S.
Telalink Corporation.......................... 11/99* U.S.
</TABLE>
- ------------
*Due to the immaterial nature of the acquired companies' financial position and
results of operations to PSINet's consolidated financial position and
consolidated results of operations, the following unaudited Pro Forma
Consolidated Statements of Operations for the year ended December 31, 1998 and
the nine months ended September 30, 1999 do not include the pro forma effect
for these acquisitions. The results of operations from the acquisitions are
included in PSINet's historical operations from the respective dates of
acquisition, and acquisitions consummated prior to September 30, 1999 are
included in the historical balance sheet of PSINet.
<PAGE>
On September 10, 1998, TNI acquired from AT&T Corp. the right to provide
services under certain customer service contracts and certain related equipment
relating to AT&T's Transaction Access Service for approximately $64.3 million
in cash, which materially changed TNI's business. For accounting and reporting
purposes, the TAS Acquisition was considered to be an acquisition of a
business.
The following Unaudited Pro Forma Consolidated Balance Sheet at September
30, 1999 presents, on a pro forma basis, PSINet's consolidated financial
position assuming the acquisition of TNI had occurred on September 30, 1999.
The following Unaudited Pro Forma Consolidated Statement of Operations for
the year ended December 31, 1998 presents, on a pro forma basis, PSINet's
consolidated results of operations assuming each of the following had occurred
on January 1, 1998:
(1) the acquisition of TNI:
(2) the TAS Acquisition, assuming that the TAS operations were conducted
under TNI's Communications Services Agreement with AT&T and assuming
the elimination of certain AT&T costs allocated to TAS; and
(3) PSINet's acquisitions of iSTAR, INX, ioNET, LinkAge, Interlog, Rimnet,
Inet and Tokyo Internet and the acquisitions of Planete.net, Satelnet,
TeleLinx, Horizontes, Openlink, STI, Internet de Mexico, Datanet, TIC,
Caribenet, TIAC, Intercomputer, Elender and TotalNet.
The following Unaudited Pro Forma Consolidated Statement of Operations for
the nine months ended September 30, 1999 presents, on a pro forma basis,
PSINet's consolidated results of operations assuming each of the following had
occurred on January 1, 1998:
(1) the acquisition of TNI; and
(2) those of our Other Acquisitions which were consummated during 1999.
The acquisition of TNI will be accounted for as a purchase business
combination and, accordingly, the purchase price of TNI has been preliminary
allocated to tangible assets acquired and liabilities assumed, based upon their
respective fair values, with the excess allocated to intangible assets to be
amortized over the estimated economic lives of the intangible assets. The
consolidated retained deficit reflected in the Unaudited Pro Forma Consolidated
Balance Sheet includes the non-recurring write-off of acquired in-process
research and development associated with the acquisition of TNI. We have
recently engaged an independent third party to determine the allocation of the
total purchase price of our acquisition of TNI and those of our Other
Acquisitions which were consummated during 1999. The preliminary evaluation for
TNI indicates there are the following intangible assets present: existing
technology including software, patents, unpatented technology and know-how,
tradenames, customer contracts and relationships, existing workforce and
goodwill, with useful lives from five to fifteen years, and approximately $35.0
million of purchased in-process research and development. To the extent that a
different portion of the purchase price is allocated to in-process research and
development, a different charge against operating results would be recognized
in the fourth quarter of 1999, the period in which the TNI merger was
completed. Such charge could be material.
3
<PAGE>
Each of the Other Acquisitions and the TAS Acquisition was paid for in cash
and has been accounted for as a purchase business combination and, accordingly,
the purchase price has been allocated to tangible assets acquired and
liabilities assumed, based upon their respective fair values, with the excess
allocated to intangible assets to be amortized over the estimated economic
lives of the intangible assets from the respective dates of acquisition. For
the Other Acquisitions consummated during 1999, we have recorded a preliminary
purchase price allocation and management does not believe the final allocation
will be materially different.
The Pro Forma Financial Information is not intended to be indicative of the
results which would actually have been obtained had the transactions described
above occurred on the dates indicated or which may be obtained in the future.
The pro forma adjustments are based upon available information and assumptions
that PSINet believes are reasonable in the circumstances. The Unaudited Pro
Form Consolidated Statements of Operations do not give effect to any potential
cost savings and synergies that could result from the acquisitions included
therein. The Pro Form Financial Information should be read in conjunction with
PSINet's consolidated financial statements and notes thereto, and TNI's
consolidated financial statements and notes thereto which are incorporated by
reference herein.
4
<PAGE>
PSINET INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1998
(In thousands of U.S. dollars, except per share amounts)
<TABLE>
<CAPTION>
Transaction
Network Transaction
Services, Access
PSINet Inc. Inc. Service, Inc. Other
Consolidated Consolidated Acquisition Acquisitions
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Revenue................... $ 259,636 $101,906 $40,259 $119,829
Operating costs and
expenses:
Data communications and
operations............. 199,372 68,361 24,749 69,789
Sales and marketing..... 57,026 3,895 -- 15,350
General and
administrative......... 45,288 8,579 -- 28,879
Depreciation and
amortization........... 63,424 10,783 3,402 10,130
Charge for acquired in-
process R&D............ 70,800 -- -- --
--------- -------- ------- --------
Total operating costs
and expenses......... 435,910 91,618 28,151 124,148
--------- -------- ------- --------
Income (loss) from
operations............... (176,274) 10,288 12,108 (4,319)
Interest expense.......... (63,914) (1,205) (2,566) (3,301)
Interest income........... 19,638 1,532 -- 298
Other income (expense),
net...................... 6,833 -- -- (685)
Non-recurring arbitration
charge................... (49,000) -- -- --
--------- -------- ------- --------
Income (loss) before
income taxes, equity in
earnings of affiliate and
minority interest........ (262,717) 10,615 9,542 (8,007)
Income tax benefit
(expense)................ 848 (4,425) (3,698) (1,680)
Equity in earnings of
unconsolidated
affiliate................ -- 356 -- --
Minority interest in net
loss of consolidated
subsidiary............... -- 319 -- --
--------- -------- ------- --------
Net income (loss)......... (261,869) 6,865 5,844 (9,687)
Return to preferred
shareholders............. (3,079) -- -- --
--------- -------- ------- --------
Net income (loss)
available to common
shareholders............. $(264,948) $ 6,865 $ 5,844 $ (9,687)
========= ======== ======= ========
Basic and diluted loss per
share.................... $ (5.32)
=========
Shares used in computing
basic and diluted loss
per share................ 49,806
=========
</TABLE>
5
<PAGE>
PSINET INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1998
(In thousands of U.S. dollars, except per share amounts)
<TABLE>
<CAPTION>
Adjustments Pro Forma
----------- ---------
<S> <C> <C>
Revenue........................ $ -- $ 521,630
Operating costs and expenses:
Data communications and
operations.................. -- 362,271
Sales and marketing.......... -- 76,271
General and administrative... -- 82,746
Depreciation and
amortization................ 89,668(a) 177,407
Charge for acquired in-
process R&D................. -- 70,800
-------- ---------
Total operating costs and
expenses.................. 89,668 769,495
-------- ---------
Income (loss) from operations.. (89,668) (247,865)
Interest expense............... 2,909(b) (68,077)
Interest income................ -- 21,468
Other income (expense), net.... -- 6,148
Non-recurring arbitration
charge........................ -- (49,000)
-------- ---------
Income (loss) before income
taxes, equity in earnings of
affiliate and minority
interest...................... (86,759) (337,326)
Income tax benefit (expense)... 8,123(f) (832)
Equity in earnings of
unconsolidated affiliate...... -- 356
Minority interest in net loss
of consolidated subsidiary.... -- 319
-------- ---------
Net income (loss).............. (78,636) (337,483)
Return to preferred
shareholders.................. -- (3,079)
-------- ---------
Net income (loss) available to
common shareholders........... $(78,636) $(340,562)
======== =========
Basic and diluted loss per
share......................... $ (5.91)
=========
Shares used in computing basic
and diluted loss per share.... 7,800(c) 57,606
======== =========
</TABLE>
6
<PAGE>
PSINET INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 1999
(In thousands of U.S. dollars, except per share amounts)
<TABLE>
<CAPTION>
Transaction
Network
PSINet Inc. Services, Inc. Other
Consolidated Consolidated Acquisitions
------------ -------------- ------------
<S> <C> <C> <C>
Revenue................................ $ 369,268 $126,954 $35,890
Operating costs and expenses:
Data communications and operations... 259,873 80,075 20,835
Sales and marketing.................. 68,032 5,162 3,440
General and administrative........... 47,318 9,469 6,967
Depreciation and amortization........ 102,796 14,017 2,698
Impairment of assets................. -- 919 --
--------- -------- -------
Total operating costs and
expenses.......................... 478,019 109,642 33,940
--------- -------- -------
Income (loss) from operations.......... (108,751) 17,312 1,950
Interest expense....................... (120,850) (3,051) (577)
Interest income........................ 32,541 1,253 145
Other income (expense), net............ (796) -- (300)
Gain (loss) on sale of investments..... (632) -- --
--------- -------- -------
Income (loss) before income taxes,
equity in earnings of affiliate and
minority interest..................... (198,488) 15,514 1,218
Income tax benefit (expense)........... 750 (5,842) (803)
Equity in earnings of unconsolidated
affiliate............................. -- 93 --
Minority interest in net loss (income)
of consolidated subsidiary............ -- (128) --
--------- -------- -------
Net income (loss)...................... (197,738) 9,637 415
Return to preferred shareholders....... (11,202) -- --
--------- -------- -------
Net income (loss) available to common
shareholders.......................... $(208,940) $ 9,637 $ 415
========= ======== =======
Basic and diluted loss per share....... $ (3.48)
=========
Shares used in computing basic and
diluted loss per share................ 60,105
=========
</TABLE>
7
<PAGE>
PSINET INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
For the Nine Months Ended September 30, 1999
(In thousands of U.S. dollars, except per share amounts)
<TABLE>
<CAPTION>
Pro
Adjustments Forma
----------- ---------
<S> <C> <C>
Revenue....................... $ -- $532,112
Operating costs and expenses:
Data communications and
operations................. -- 360,783
Sales and marketing......... -- 76,634
General and administrative.. -- 63,754
Depreciation and
amortization............... 50,435 (d) 169,946
Impairment of assets........ -- 919
-------- ---------
Total operating costs and
expenses................. 50,435 672,036
-------- ---------
Income (loss) from
operations................... (50,435) (139,924)
Interest expense.............. 2,698 (e) (121,780)
Interest income............... -- 33,939
Other income (expense), net... -- (1,096)
Gain (loss) on sale of
investments.................. -- (632)
-------- ---------
Income (loss) before income
taxes, equity in earnings of
affiliate and minority
interest..................... (47,737) (229,493)
Income tax benefit (expense).. 5,842 (f) (53)
Equity in earnings of
unconsolidated affiliate..... -- 93
Minority interest in net loss
(income) of consolidated
subsidiary................... -- (128)
-------- ---------
Net income (loss)............. (41,895) (229,581)
Return to preferred
shareholders................. -- (11,202)
-------- ---------
Net income (loss) available to
common shareholders.......... $(41,895) $(240,783)
======== =========
Basic and diluted loss per
share........................ $ (3.55)
=========
Shares used in computing basic
and diluted loss per share... 7,800 (c) 67,905
======== =========
</TABLE>
8
<PAGE>
PSINET INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
For the Year Ended December 31, 1998
and the Nine Months Ended September 30, 1999
NOTE 1 PRO FORMA ADJUSTMENTS
The pro forma adjustments outlined below present separate adjustments
related to the acquisition of TNI and the adjustments related to the other
transactions reflected in the Unaudited Pro Forma Consolidated Statements of
Operations.
The purchase price of each acquisition has been allocated to tangible assets
acquired and liabilities assumed, based upon their respective fair values, with
the excess allocated to intangible assets to be amortized over the estimated
economic lives of the intangible assets of up to 15 years from the respective
dates of acquisition.
We have recently engaged an independent third party to determine the
allocation of the total purchase price of TNI. Until the study is complete,
preliminary estimates have been used in the development of the Pro Forma
Financial Information, including an estimate of the amount of acquired in-
process research and development that will result from this acquisition. As of
the acquisition announcement date, TNI was in the process of working on five
key projects which had not yet been determined to be technologically feasible
and which have no alternative future use, which would give rise to such a
charge. The five key research and development projects include:
. Next Generation Excel C2 Switch. This is a project to develop a major
software enhancement for controlling an Excel switch. Although TNI
purchases the Excel switch, TNI is responsible for writing the software
that controls it. This project is expected to allow TNI to enter new
markets because the software under development may allow the same piece
of hardware to process both outbound and inbound calls. The material
technology risk associated with this project is that the product may not
be capable of supporting the large volume of business that it must be
equipped to handle. This project, under current plans, is expected to be
completed in the second quarter of 2000.
. Outdial. This is a project under development in Ireland for application
in the United Kingdom. This product is designed to give TNI's network
access controllers the ability to originate calls. This technology is
designed to allow TNI to force the host (credit card processor) to call
a merchant's terminal for batch verification rather than the merchant
remembering to dial. This project is expected to allow TNI to enter new
markets because the software allows the same piece of hardware to
receive both outbound and inbound calls. The material technology risk
associated with this project is that the product may not be capable of
supporting the large volume of business that it must be equipped to
handle. This project, under current plans, is expected to be completed
in the second quarter of 2000.
. Next Generation Terminal Adaptor. This is a project under development
designed to increase the speed and connectivity of an ATM terminal. This
project is expected to allow TNI to strengthen its market share by
offering customers more features from the same piece of equipment. The
material technology risk associated with the project is that the product
may not be capable of supporting the large volume of business that it
must be equipped to handle. This project, under current plans, is
expected to be completed in the fourth quarter of 1999.
. Fraud Engine Update. This is a project under development designed to
update the system by which a telephone company verifies the billability
of a long distance call originating from a pay phone. This project is
expected to allow TNI to gain more market share through the introduction
of a more reliable product to market. The material technology risk
associated with this project is that this product is based on an
entirely new design and is currently unproven. This project, under
current plans, is expected to be completed in the first quarter of 2000.
9
<PAGE>
. Local Number Portability. This is a project that is designed to allow
TNI to house the database against which a telephone company verifies the
billability of a long distance call originating from a pay phone in
Australia. This project is expected to open a new market for TNI. The
material technology risk associated with this project is that the
product may not be capable of supporting the large volume of business
that it must be equipped to handle. This project, under current plans,
is expected to be completed in the first quarter of 2000.
If none of these projects is successfully developed, our sales and
profitability may be adversely affected in future periods. However, the failure
of any particular individual project in-process would not have a material
impact on PSINet's financial condition or results of operations. Additionally,
the failure of any particular individual project in-process could impair the
value of other intangible assets acquired.
For purposes of this Pro Forma Financial Information, we have attributed the
excess of the purchase price over the acquired net tangible assets for TNI of
approximately $696.7 million to other intangible assets in accordance with the
preliminary valuation; these include: existing technology including software,
patents, unpatented technology and know-how ($68.0 million), tradenames ($37.0
million), customer contracts and relationships ($50.0 million), existing
workforce ($3.0 million) and goodwill ($503.7 million), with useful lives from
five to 15 years, and $35.0 million to purchased in-process research and
development. To the extent that a portion of the purchase price of TNI is
allocated among the other intangible assets in different proportions, the
adjustment for amortization expense for the twelve months ended December 31,
1998 and for the nine months ended September 30, 1999 would be different. For
every $1.0 million change in the amount allocated to purchased in-process
research and development, annual amortization expense reflected in the pro
forma consolidated statement of operations would change by $67,000.
For the Year Ended December 31, 1998
(a) Reflects the increase in amortization resulting from the allocation of
the purchase price to the acquired net tangible and intangible assets
(principally tradename, customer relationships, goodwill, assembled workforce
and existing technology, including software, patents, unpatented technology and
know-how) relating to the acquisitions included herein. The assigned lives of
the acquired intangible assets range from three to 15 years.
<TABLE>
<CAPTION>
Amortization
---------------------------
(thousands of U.S. dollars)
<S> <C> <C>
TNI merger................................. $54,816
Other acquisitions......................... 34,852
-------
$89,668
=======
(b) Reflects the following:
<CAPTION>
Interest
---------------------------
(thousands of U.S. dollars)
<S> <C> <C>
Interest expense avoided through assumed
repayment of the TNI revolving credit
facility as of January 1, 1998............ $(3,737)
Other...................................... 828
-------
$(2,909)
=======
</TABLE>
(c) Basic and diluted loss per share are computed using net loss available
to common shareholders divided by the weighted average number of shares of our
common stock that were outstanding during the periods presented and assumes
that the issuance of approximately 7,800,000 shares of our common stock in
connection with the acquisition of TNI had occurred on January 1, 1998. Because
all common stock equivalents are antidilutive, basic and diluted loss per share
are the same for all periods presented.
10
<PAGE>
For the Nine Months Ended September 30, 1999
(d) Reflects the increase in amortization resulting from the allocation of
the purchase price to the acquired net tangible and intangible assets
(principally tradename, customer relationships, goodwill, assembled workforce
and existing technology, including software, patents, unpatented technology and
know-how) relating to the acquisitions included herein. The assigned lives of
the acquired intangible assets range from three to 15 years.
<TABLE>
<CAPTION>
Amortization
---------------------------
(thousands of U.S. dollars)
<S> <C>
TNI merger...................................... $41,112
Other acquisitions.............................. 9,323
-------
$50,435
=======
(e) Reflects the following:
<CAPTION>
Interest
---------------------------
(thousands of U.S. dollars)
<S> <C>
Interest expense avoided through assumed
repayment of the TNI revolving credit facility
as of January 1, 1998.......................... $(2,794)
Other........................................... 96
-------
$(2,698)
=======
</TABLE>
(f) Reversal of tax expense recorded by TNI and TAS as a result of
availability to offset TNI and TAS taxable income with PSINet taxable losses
for the periods presented.
11
<PAGE>
PSINET INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
As of September 30, 1999
(In thousands of U.S. dollars)
<TABLE>
<CAPTION>
Transaction Transaction
Network Network
Services, Services,
PSINet Inc. Inc. Inc.
Consolidated Consolidated Adjustments Pro Forma
------------ ------------ ----------- ----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash $ 494,143 $ 27,241 $(351,250)(a)
equivalents...........
(62,811)(f) $ 107,323
Restricted cash and
short-term
investments........... 137,450 -- -- 137,450
Short-term investments
and marketable
securities............ 1,079,210 125 -- 1,079,335
Accounts receivable,
net................... 65,460 30,015 -- 95,475
Prepaid expenses....... 14,490 -- -- 14,490
Other current assets... 39,706 8,738 -- 48,444
---------- -------- --------- ----------
Total current assets... 1,830,459 66,119 (414,061) 1,482,517
Property, plant and
equipment, net......... 790,423 44,207 -- 834,630
Goodwill and other
intangibles, net....... 544,806 85,852 (85,852)(b)
661,735 (b) 1,206,541
Other assets and
deferred charges....... 133,767 5,145 -- 138,912
---------- -------- --------- ----------
Total assets........... $3,299,455 $201,323 $ 161,822 $3,662,600
========== ======== ========= ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of
long-term debt........ $ 89,467 $ 90 $ -- $ 89,557
Trade accounts
payable............... 85,744 4,099 -- 89,843
Accrued payroll and
related expenses...... 21,108 1,997 -- 23,105
Other accounts payable
and accrued
liabilities........... 72,070 15,149 17,000 (c) 104,219
Accrued interest
payable............... 49,953 862 -- 50,815
Deferred revenue....... 22,605 1,651 -- 24,256
---------- -------- --------- ----------
Total current
liabilities........... 340,947 23,848 17,000 381,795
Long-term debt.......... 2,402,841 62,883 (62,811)(f) 2,402,913
Deferred income taxes... 2,928 -- -- 2,928
Other liabilities....... 64,857 617 -- 65,474
Minority interest....... -- -- -- --
---------- -------- --------- ----------
Total liabilities....... 2,811,573 87,348 (45,811) 2,853,110
---------- -------- --------- ----------
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Transaction Transaction
Network Network
Services, Services,
PSINet Inc. Inc. Inc.
Consolidated Consolidated Adjustments Pro Forma
------------ ------------ ----------- ----------
<S> <C> <C> <C> <C>
Shareholders' equity:
Convertible preferred
stock, Series C....... 368,838 -- -- 368,838
Common stock........... 651 142 78 (a)
(142)(d) 729
Capital in excess of 825,848 78,371
par value............. (78,371)(d)
356,530 (a) 1,182,378
Accumulated earnings (636,537) 36,160
(deficit)............. (36,160)(d)
(35,000)(e) (671,537)
Treasury stock......... (2,005) -- -- (2,005)
Accumulated other
comprehensive income.. 53,959 (698) 698 (d) 53,959
Bandwidth asset/IRU
agreement............. (122,872) -- -- (122,872)
---------- -------- -------- ----------
Total shareholders'
equity................ 487,882 113,975 207,633 809,490
---------- -------- -------- ----------
Total liabilities and
shareholders' equity.. $3,299,455 $201,323 $161,822 $3,662,600
========== ======== ======== ==========
</TABLE>
13
<PAGE>
PSINET INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
As of September 30, 1999
NOTE 1 PRO FORMA ADJUSTMENTS
Reflects the acquisition of TNI, including:
(a) the assumed cash paid and the issuance of approximately 7.8 million
shares of PSINet common stock in connection with the acquisition assuming
the acquisition had been consummated on September 30, 1999 (the shares of
PSINet common stock assume a value of $45.719 per share, based on the
average of the closing price of PSINet common stock on the Nasdaq Stock
Market's National Market on August 20, 1999 and August 23, 1999, and also
assume the exercise in full of approximately 1.4 million exercisable TNI
stock options at September 30, 1999).
(b) the preliminary allocation of the purchase price of TNI which has
been allocated to tangible assets acquired and liabilities assumed, based
upon their respective fair values, with the excess allocated to intangible
assets to be amortized over the estimated economic lives of the intangible
assets, and the elimination of existing intangible assets of TNI.
(c) the estimated closing costs and estimated purchase liabilities
associated with the merger.
(d) the elimination of the TNI common stock, capital in excess of par
value, retained earnings and accumulated other comprehensive income.
(e) the write-off from the preliminary allocation of a portion of the
purchase price of TNI to purchased in-process research and development.
(f) the repayment of the TNI revolving credit facility including accrued
interest in accordance with the merger agreement which totaled $62.8
million as of September 30, 1999.
PSINet has recently engaged an independent third party to determine the
allocation of the total purchase price of TNI. Until the study is complete,
preliminary estimates have been used in the development of the Pro Forma
Financial Information, including an estimate of the amount of purchased in-
process research and development that will result from this acquisition. For
purposes of this Pro Forma Financial Information, PSINet has attributed the
excess of the purchase price over the acquired net tangible assets for TNI of
$696.7 million to other intangible assets in accordance with the preliminary
valuation; these include: existing technology including software, patents,
unpatented technology and know-how $68.0 million, tradenames $37.0 million,
customer contracts and relationships $50.0 million, existing workforce $3.0
million and goodwill $503.7 million, with useful lives from five to 15 years,
and $35.0 million to purchased in-process research and development. To the
extent that a different portion of the purchase price is allocated to in-
process research and development, a different charge against operating results,
which may be material, would be recognized in the fourth quarter of 1999, the
period in which the merger was completed, with a corresponding change in the
recorded amount of goodwill. Such charge may be material.
14
