<PAGE>
As filed with the Securities and Exchange Commission on April 14, 2000
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------
PSINet Inc.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
New York 4813 16-1353600
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
510 Huntmar Park Drive, Herndon, Virginia 20170
(703)904-4100
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Kathleen B. Horne, Esq.
Senior Vice President and General Counsel
PSINet Inc.
510 Huntmar Park Drive, Herndon, Virginia 20170
Telephone No.: (703) 904-4100/Facsimile No.: (703) 397-5349
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
----------
Copies To:
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<S> <C> <C>
Nixon Peabody LLP Margaret G. Reed, Esq. Vinson & Elkins L.L.P.
437 Madison Avenue Senior Vice President and General Counsel 1001 Fannin Street
New York, New York 10022 Metamor Worldwide, Inc. Houston, Texas 77002
Attention: Richard F. Langan, Jr., Esq. 4400 Post Oak Parkway, Suite 1100 Attention: Jeffery B. Floyd, Esq.
Telephone No.: (212) 940-3140 Houston, Texas 77002 Telephone No.: (713) 758-2194
Facsimile No.: (212) 940-9940 Telephone No.: (713) 548-3467 Facsimile No.: (713) 615-5660
Facsimile No.: (713) 627-1059
</TABLE>
----------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective and all other
conditions to the merger referred to herein have been satisfied or waived.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]_______________
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ___________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ___________
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
==================================================================================================================================
Title of Each Class of Amount to be Proposed Maximum Proposed Maximum Amount of
Securities to be Registered Registered Offering Price Aggregate Offering Registration Fee
Per Share Price
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per share 40,750,647 shares(1) 22.916667(2) 933,869,000(2) $246,541
==================================================================================================================================
</TABLE>
(1) Represents the maximum aggregate number of shares of the registrant's
common stock that may be issued in connection with the merger, consisting
of shares of PSINet common stock issued for (a) 34,641,443 shares of
Metamor Worldwide, Inc. common stock currently outstanding, (b) up to
4,898,142 shares of Metamor common stock that may be issued prior to the
merger pursuant to Metamor's stock option plans, (c) up to 350,000 shares
of Metamor common stock that may be issued prior to the merger pursuant
to Metamor's employee stock purchase plan, and (d) up to 5,388,912 shares
of Metamor common stock that may be issued prior to the merger upon the
conversion of Metamor's outstanding 2.94% Convertible Subordinated Notes.
The Metamor common stock outstanding at the time of the merger will be
converted into the right to receive shares of PSINet common stock at an
exchange ratio of 0.9:1.0.
(2) Estimated solely for the purpose of calculating the registration fee
required by Section 6(b) of the Securities Act, and calculated pursuant
to Rules 457(f) under the Securities Act. Pursuant to Rule 457(f)(1)
under the Securities Act, the proposed maximum aggregate offering price
of the registrant's common stock to be issued as merger consideration in
connection with the merger of a wholly owned subsidiary of the registrant
into Metamor was calculated in accordance with Rule 457(c) under the
Securities Act as: (a) $20.625, the average of the high and low prices
per share of Metamor common stock on April 12, 2000 as reported on The
Nasdaq Stock Market, multiplied by (b) 45,278,497, the maximum aggregate
number of shares of Metamor common stock that may be received by the
registrant or cancelled as a result of the merger.
----------
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
The information contained in this prospectus/proxy statement is not complete and
may be changed. These securities may not be sold until the registration
statement filed with the Securities and Exchange Commission is effective. This
prospectus/proxy statement is not an offer to sell these securities and it is
not soliciting an offer to buy these securities in any state where the offer or
sale is not permitted.
Subject to Completion, Dated April ___, 2000
[PSINet Logo] [METAMOR WORLDWIDE LOGO]
JOINT PROSPECTUS/PROXY STATEMENT
The boards of directors of PSINet and Metamor, voting unanimously, have
approved a merger agreement that provides for the merger of a wholly owned
subsidiary of PSINet with and into Metamor. If the merger is completed, each
share of Metamor's common stock will be exchanged for 0.9 of a share of PSINet
common stock.
The merger cannot be completed unless both PSINet's shareholders approve the
issuance of PSINet's common stock in accordance with the rules of The Nasdaq
Stock Market and Metamor's stockholders approve the merger in accordance with
Delaware corporate law. We have scheduled special meetings for PSINet's
shareholders to vote on the issuance of PSINet's common stock and for Metamor's
stockholders to vote on the merger. The dates, times and places of the meetings
are as follows:
For PSINet shareholders: For Metamor stockholders:
May ___, 2000 May ___, 2000
10:00 a.m. local time 9:00 a.m. local time
44983 Knoll Square _________________________
Ashburn, Virginia Houston, Texas
This document is a prospectus of PSINet relating to the issuance of up to
40,750,647 shares of PSINet's common stock in connection with the merger and a
proxy statement for both PSINet and Metamor to use in soliciting proxies for our
special meetings. It contains answers to frequently asked questions and a
summary description of the merger (beginning on page 1), followed by a more
detailed discussion of the merger and related matters. You should also consider
the matters discussed under "Risk Factors Relating to the Merger" commencing on
page 19 of the enclosed prospectus/proxy statement. We urge you to review
carefully this entire document.
WILLIAM L. SCHRADER PETER T. DAMERIS
Chairman and Chief Executive Chairman, Chief Executive Officer and
Officer President
PSINet Inc. Metamor Worldwide, Inc.
Please cast your vote by telephone, over the Internet or by completing,
signing and dating your proxy and returning it in the enclosed envelope.
Neither the Securities and Exchange Commission nor any state securities
regulator has approved or disapproved the merger described in the
prospectus/proxy statement or the PSINet common stock to be issued in connection
with the merger, or determined if the prospectus/proxy statement is accurate or
adequate. Any representation to the contrary is a criminal offense.
This prospectus/proxy statement is dated April , 2000,
and is first being mailed to stockholders on or about April , 2000.
<PAGE>
REFERENCES TO ADDITIONAL INFORMATION
This document incorporates important business and financial information
about PSINet and Metamor from documents that are not included in or delivered
with this document. This information is available to you without charge upon
your written or oral request. You can obtain documents incorporated by reference
in this document by requesting them in writing or by telephone from the
appropriate company at the following addresses and telephone numbers:
PSINet Inc. Metamor Worldwide, Inc.
510 Huntmar Park Drive 4400 Post Oak Parkway, Suite 1100
Herndon, Virginia 20170 Houston, Texas 77027
Attention: Investor Relations Attention: Investor Relations
Telephone: (703) 375-1577 Telephone: (713) 548-3488
Facsimile: (703) 904-8733 Facsimile: (713) 963-9711
email: [email protected] email: [email protected]
See also "Where You Can Find More Information" beginning on page 113. If
you would like to request documents, please do so by May ,2000 in order to
receive them before the applicable special meeting.
<PAGE>
PSINet INC.
-----------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY ,2000
-----------
To the Shareholders of PSINet Inc.:
We will hold a special meeting of the shareholders of PSINet Inc. on ,
May ,2000, at 10:00 a.m., local time, at the company's offices located at
44983 Knoll Square, Ashburn, Virginia for the following purpose:
To consider and vote upon a proposal to approve the issuance of shares of
common stock, par value $0.01 per share, of PSINet pursuant to the
agreement and plan of merger among PSINet Inc., PSINet Shelf IV Inc. (a
wholly owned subsidiary of PSINet Inc.) and Metamor Worldwide, Inc. under
which Metamor will become a wholly owned subsidiary of PSINet. The shares
of PSINet common stock that will be issued will include shares issued as
merger consideration to the Metamor stockholders, shares issuable under
Metamor options that are assumed by PSINet and shares issuable upon the
conversion of outstanding convertible notes of Metamor that are not
converted prior to the merger.
We will transact no other business at the special meeting, except such
business as may properly be brought before the special meeting or any
adjournment of it by PSINet's board of directors.
Only holders of record of shares of PSINet common stock at the close of
business on April , 2000, the record date for the special meeting, are entitled
to notice of, and to vote at, the special meeting and any adjournments or
postponements of it. PSINet and Metamor cannot complete the merger unless a
quorum is present at the special meeting and a majority of the total votes cast
at the special meeting by the holders of the shares of PSINet common stock
outstanding as of the record date are voted in favor of the issuance of the
shares of PSINet's common stock.
For more information about the merger, please review the accompanying
prospectus/proxy statement and the copy of the merger agreement attached as
Annex 1.
After careful consideration, PSINet's board of directors has unanimously
approved the merger agreement and determined that the merger and the issuance of
PSINet's common stock is fair to you and in your best interests. The board of
directors unanimously recommends that you vote for the issuance of PSINet's
common stock.
By Order of the Board of Directors,
/s/ Kathleen B. Horne
KATHLEEN B. HORNE
Senior Vice President, General Counsel
and Corporate Secretary
Herndon, Virginia
April , 2000
- --------------------------------------------------------------------------------
Whether or not you plan to attend the special meeting, please cast your vote
by telephone, over the Internet or by completing, signing and dating the
enclosed proxy and returning it promptly in the enclosed postage-paid envelope.
- --------------------------------------------------------------------------------
<PAGE>
METAMOR WORLDWIDE, INC.
------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY , 2000
------------
To the Stockholders of Metamor Worldwide, Inc.:
We will hold a special meeting of the stockholders of Metamor Worldwide,
Inc. on , May , 2000, at 9:00 a.m., local time, at
, Houston, Texas, for the following purpose:
To consider and vote upon a proposal to adopt the agreement and plan of
merger among PSINet Inc., PSINet Shelf IV Inc. (a wholly owned subsidiary of
PSINet Inc.) and Metamor Worldwide, Inc.
We will transact no other business at the special meeting, except such
business as may properly be brought before the special meeting or any
adjournment of it by Metamor's board of directors.
Only holders of record of shares of Metamor common stock at the close of
business on April , 2000, the record date for the special meeting, are entitled
to notice of, and to vote at, the special meeting and any adjournments or
postponements of it. Metamor and PSINet cannot complete the merger unless the
holders of a majority of the outstanding shares of Metamor common stock vote to
adopt the merger agreement.
For more information about the merger, please review the accompanying
prospectus/proxy statement and the copy of the merger agreement attached as
Annex 1.
Please do not send any stock certificates at this time.
After careful consideration, Metamor's board of directors has approved the
merger agreement by unanimous vote and determined that the merger is fair to you
and in your best interests. The board of directors unanimously recommends that
you vote for the adoption of the merger agreement.
By Order of the Board of Directors,
/s/ Margaret G. Reed
MARGARET G. REED
Senior Vice President, General Counsel
and Secretary
Houston, Texas
April , 2000
- --------------------------------------------------------------------------------
Whether or not you plan to attend the special meeting, please cast your vote
by telephone, over the Internet or by completing, signing and dating the
enclosed proxy and returning it promptly in the enclosed postage-paid envelope.
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
Questions and Answers About the Merger............................................................................1
Summary...........................................................................................................4
PSINet Summary Unaudited Pro Forma Condensed Combined Financial Information.............................15
PSINet Summary Consolidated Financial and Operating Data................................................16
Metamor Summary Consolidated Financial Data.............................................................18
Risk Factors.....................................................................................................19
Risk Factors Relating to the Merger.....................................................................19
Risk Factors Relating to PSINet.........................................................................20
Risk Factors Relating to Metamor........................................................................30
The Companies....................................................................................................31
PSINet Inc..............................................................................................31
Metamor Worldwide, Inc..................................................................................33
The Special Meetings.............................................................................................37
The PSINet Special Meeting..............................................................................37
The Metamor Special Meeting.............................................................................38
Voting of Proxies.......................................................................................38
Revocability of Proxies.................................................................................39
Solicitation of Proxies.................................................................................39
The Merger.......................................................................................................41
Background to the Merger................................................................................41
PSINet's Reasons for the Merger and Board of Directors' Recommendation..................................45
Metamor's Reasons for the Merger and Board of Directors' Recommendation.................................48
Opinion of PSINet's Financial Advisor...................................................................51
Opinion of Metamor's Financial Advisor..................................................................61
Interests of Metamor Directors and Management in the Merger.............................................67
Tax Treatment...........................................................................................68
Form of the Merger......................................................................................69
Merger Consideration....................................................................................69
Conversion of Shares; Procedures for Exchange of Certificates; Fractional Shares........................69
Effective Time of the Merger............................................................................70
Listing of PSINet Common Stock on The Nasdaq Stock Market...............................................71
Material United States Federal Income Tax Consequences of the Merger....................................71
Accounting Treatment....................................................................................72
Regulatory Matters......................................................................................73
Appraisal Rights........................................................................................73
Continuation of Metamor Employee Benefits...............................................................73
Effect on Options Outstanding under Metamor Stock Plans.................................................74
Resale of PSINet Common Stock...........................................................................74
Investment by PSINet in Xpedior.........................................................................74
</TABLE>
-i-
<PAGE>
TABLE OF CONTENTS
<TABLE>
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Page
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The Merger Agreement.............................................................................................76
Conditions to the Completion of the Merger..............................................................76
No Solicitation of Alternate Transactions...............................................................77
Termination.............................................................................................79
Termination Fees........................................................................................80
Conduct of Business Pending the Merger..................................................................81
Repayment of Metamor Debt; Convertible Notes............................................................83
Amendment and Waiver....................................................................................83
Expenses................................................................................................84
Representations and Warranties..........................................................................84
Amendments to the Metamor Certificate of Incorporation..................................................85
Unaudited Pro Forma Condensed Combined Financial Information.....................................................86
Pro Forma Capitalization of PSINet...............................................................................95
Description of PSINet Capital Stock..............................................................................96
Common Stock............................................................................................96
Preferred Stock.........................................................................................97
Registration Rights....................................................................................101
New York Anti-Takeover Law, Certain Charter and By-law Provisions
and Other Anti-takeover Considerations............................................................102
Shareholder Rights Plan................................................................................103
Transfer Agent and Registrar...........................................................................105
Comparison of Rights of Holders of Common Stock of PSINet and Metamor...........................................105
Legal Matters...................................................................................................112
Experts.........................................................................................................112
Other Matters...................................................................................................113
Where You Can Find More Information.............................................................................113
Documents Incorporated by Reference.............................................................................114
Special Note Regarding Forward-Looking Statements...............................................................117
</TABLE>
Annexes
Annex 1 Agreement and Plan of Merger
Annex 2 Opinion of FleetBoston Robertson Stephens Inc.
Annex 3 Opinion of Lazard Freres & Co. LLC
-ii-
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: Why are PSINet and Metamor proposing to merge?
A: PSINet is a leading global provider of Internet and eCommerce solutions to
businesses. As an Internet Super Carrier, it provides Internet connectivity
and Web hosting services to more than 91,000 corporate customers in 27
countries. Including its ISP, carrier, small office/home office (SOHO) and
consumer businesses, PSINet serves over 2.0 million end users around the
world. It serves approximately 90 of the 100 largest metropolitan
statistical areas in the U.S. and has a presence in the 20 largest
telecommunications markets globally. Metamor is a leading provider of
information technology, or IT, solutions and offers a broad array of IT
solutions through its four business units:
. Metamor Enterprise Solutions, a provider of comprehensive
enterprise value chain services, including supply chain
management, enterprise resource planning and customer relationship
management;
. Metamor Global Solutions, a provider of global application
development and outsourcing;
. Metamor Industry Solutions, a provider of industry segment
solutions;
. Metamor European Operations, a provider of IT consulting and ERP
solutions in the European market; and
. Metamor also owns approximately 80% of Xpedior Incorporated, a
publicly-traded company that provides innovative, comprehensive
eBusiness solutions for Global 2000 companies and emerging
Internet businesses.
Metamor's IT service offerings are complementary to PSINet's hosting and
network capabilities, with virtually no overlap in customers or services.
The combined companies will have the ability to offer a broad array of
"end-to-end" solutions to business customers of all sizes. This type of
comprehensive solution is in high demand in the middle market where the
combined company will focus a major portion of its marketing efforts.
Q: What will happen in the merger?
A: Metamor will become a wholly owned subsidiary of PSINet, and Metamor's
stockholders will become shareholders of PSINet.
Q: What will Metamor stockholders receive?
A: In exchange for each of their Metamor shares, Metamor stockholders will
receive 0.9 of a share of PSINet common stock.
1
<PAGE>
Q: What do I need to do now?
A: After carefully reading and considering the information contained in this
document, please cast your vote. You may vote by telephone, over the
Internet or by completing and signing your proxy and returning it in the
enclosed return envelope as soon as possible, so that your shares may be
represented at the applicable special meeting. If you sign and send in your
proxy and do not indicate how you want to vote, we will count your proxy as
a vote in favor of the issuance of the PSINet common stock if you are a
PSINet shareholder and in favor of adoption of the merger agreement if you
are a Metamor stockholder.
The special meetings will take place on May ,2000. You may attend the
applicable special meeting and vote your shares in person, rather than
providing your proxy.
Q: Can I change my vote after I have provided my proxy?
A: Yes. You can change your vote at any time before your proxy is voted at the
applicable special meeting. You can do this in one of three ways. First,
you can send a written notice stating that you would like to revoke your
proxy. Second, you can complete and submit a new proxy. If you choose
either of these two methods, you must submit your notice of revocation to
the Corporate Secretary of PSINet or Metamor, as applicable, at the address
set forth below or submit your new proxy in the same way you submitted your
prior proxy. Third, you can attend the applicable special meeting and vote
in person.
Q: If my PSINet or Metamor shares are held in "street name" by my broker, will
my broker vote my shares for me?
A: Your broker will vote your PSINet or Metamor shares only if you provide
instructions on how to vote. You should follow the directions provided by
your broker regarding how to instruct your broker to vote your shares.
Without instructions, your shares will not be voted. PSINet shares that are
not voted may reduce the likelihood that a quorum will be present at the
PSINet special meeting. Metamor shares that are not voted will have the
effect of a vote against the merger.
Q: Should I send in my Metamor stock certificates now?
A: No. You should continue to hold your Metamor stock certificates until after
the merger is completed. After the merger is completed you will receive a
transmittal letter from the paying agent with instructions on how to
surrender your Metamor stock certificates. PSINet shareholders will not
need to surrender their PSINet stock certificates at any time.
Q: When do you expect the merger to be completed?
A: We expect the merger to be completed immediately after the special
meetings.
Q: Will the rights of Metamor stockholders before the merger be different than
their rights as PSINet shareholders after the merger?
2
<PAGE>
A: Yes. For a summary of material differences between the rights of Metamor
stockholders and the rights of PSINet shareholders, see pages 105 through
112.
Q: Am I entitled to appraisal rights?
A: No. Neither holders of PSINet common stock nor holders of Metamor common
stock are entitled to appraisal rights in connection with the merger.
Q: What are my tax consequences as a result of the merger?
A: PSINet shareholders will not have any tax consequences as a result of the
merger. Assuming the merger qualifies as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code, holders of Metamor
common stock will not recognize gain or loss for United States federal
income tax purposes as a result of the exchange of their Metamor common
stock for PSINet common stock in the merger, except with respect to cash
received instead of fractional shares of PSINet common stock. We describe
the material U.S. federal income tax consequences of the merger in more
detail beginning on page 70, although your tax consequences will depend
upon the facts of your own situation. You should consult your own tax
advisor for a full understanding of the consequences of the merger on your
tax position.
Q: Who can help answer my questions?
A: If you have any questions about the merger or if you need additional copies
of this document or the enclosed proxy, you should contact either:
PSINet Inc. Metamor Worldwide, Inc.
510 Huntmar Park Drive 4400 Post Oak Parkway, Suite 1100
Herndon, Virginia 20170 Houston, Texas 77027
Attention: Investor Relations Attention: Investor Relations
Telephone: (703) 375-1577 Telephone: (713) 548-3488
Facsimile: (703) 904-8733 Facsimile: (713) 963-9711
email: [email protected] email: [email protected]
3
<PAGE>
SUMMARY
This summary highlights selected information from this prospectus/proxy
statement and does not contain all of the information that is important to you.
To understand the merger fully and for a more complete description of the terms
of the merger, you should carefully read this entire document and the other
documents to which we have referred you. See "Where You Can Find More
Information" on page 113. We have included page references parenthetically to
direct you to a more complete description of the topics presented in this
summary. (As used in this document, "we" and "our" refers to PSINet and Metamor
together).
The Companies
PSINet Inc.
510 Huntmar Park Drive
Herndon, Virginia 22070
Telephone: (703) 904-4100
PSINet is a leading global provider of Internet and eCommerce solutions to
businesses. With its worldwide fiber network and related optronic equipment,
multiple Internet and eCommerce hosting centers, full suite of Internet access
and eCommerce products, extensive global distribution network and global brand
name recognition, PSINet has become an Internet Super Carrier or ISC. It offers
a robust suite of products that enable its customers to utilize the Internet
around the globe for mission critical applications carried over a worldwide
fiber optic network that is capable of transmission speeds in excess of three
terabits per second. It provides Internet connectivity and Web hosting services
to more than 91,000 corporate customers in 27 countries. Including its Internet
service provider (ISP), carrier, small office/home office (SOHO) and consumer
businesses, PSINet serves over 2.0 million end users around the world. It serves
approximately 90 of the 100 largest metropolitan statistical areas in the U.S.
and has a presence in the 20 largest telecommunications markets globally.
PSINet's services and products include dedicated, dial-up and digital
subscriber line (DSL) Internet access services connections, Web hosting and
collocation services, transaction network services, virtual private networks
(VPNs), eCommerce solutions, voice-over-Internet protocol (IP), e-mail and
managed security services. It also provides wholesale and private label network
connectivity and related services to other ISPs and telecommunications carriers
to further utilize its network capacity. PSINet operates eight Internet and
eCommerce hosting centers with an aggregate of 250,000 square feet in North
America, Europe and Asia and plans to open twelve more hosting centers having
more than 1,750,000 additional square feet.
4
<PAGE>
Metamor Worldwide, Inc.
4400 Post Oak Parkway, Suite 1100
Houston, Texas 77027
Telephone: (713) 548-3400
Metamor is a leading provider of information technology (IT) solutions with
one of the broadest and most diverse service offerings available in the
industry. It was founded in 1993 as a traditional staffing services business
under the name COREStaff, Inc. In 1994, Metamor began offering information
technology services to its clients and in 1998 it divested itself of its
traditional staffing services business. In 1999, Metamor completed the initial
public offering of 20% of its eBusiness solutions subsidiary, Xpedior
Incorporated. On December 16, 1999, Xpedior began trading on The Nasdaq Stock
Market under the symbol "XPDR". Metamor still owns approximately 80% of the
outstanding stock of Xpedior.
Information technology solutions consist of solutions relating to systems
that support the flow of information within and between companies and
institutions through electronic means, including computer systems, software and
peripheral systems. To meet the needs of its clients and implement solutions
with flexible project delivery capabilities, Metamor offers a broad array of
information technology solutions through its four business units:
. Metamor Enterprise Solutions, a provider of comprehensive enterprise
value chain services, including supply chain management, enterprise
resource planning (ERP) and customer relationship management;
. Metamor Global Solutions, a provider of global application development
and outsourcing;
. Metamor Industry Solutions, a provider of industry segment solutions;
and
. Metamor European Operations, a provider of IT consulting and ERP
solutions in the European market.
The PSINet Special Meeting (page 37)
The special meeting of PSINet shareholders will be held on , May
, 2000, at 10:00 a.m., local time, at PSINet's offices located at 44983
Knoll Square, Ashburn, Virginia. At the special meeting, PSINet will ask its
shareholders of record on April , 2000 to vote upon a proposal to approve the
issuance of shares of common stock, par value $0.01 per share, of PSINet
pursuant to the agreement and plan of merger among PSINet Inc., PSINet Shelf IV
Inc. (a wholly owned subsidiary of PSINet Inc.) and Metamor Worldwide, Inc.
under which Metamor will become a wholly owned subsidiary of PSINet. The shares
of PSINet common stock that will be issued in connection with the merger will
include shares issued as merger consideration to the Metamor stockholders,
shares issuable under Metamor options that are assumed by PSINet and shares
issuable upon the conversion of outstanding convertible notes of Metamor that
are not converted prior to the merger.
5
<PAGE>
Record Date; Voting Power
PSINet shareholders are entitled to vote at the PSINet special meeting if
they owned PSINet shares as of the close of business on the record date for the
meeting of April , 2000.
On the record date, there were shares of PSINet common stock entitled to
vote at the PSINet special meeting. PSINet shareholders will have one vote at
the PSINet special meeting for each share of PSINet common stock that they owned
on the record date.
Quorum; Vote Required
A majority of the outstanding shares of PSINet's common stock entitled to
vote at the PSINet special meeting is required to establish a quorum at the
special meeting. The affirmative vote of a majority of the votes cast at the
PSINet special meeting is required for the approval of the issuance of the
PSINet common stock in connection with the merger.
Voting by PSINet Directors and Executive Officers
On the record date, PSINet directors and executive officers and their
affiliates owned and were entitled to vote shares of PSINet common stock, or
approximately % of the shares of PSINet common stock outstanding on the
record date. William Schrader, PSINet's Chairman and Chief Executive Officer,
has agreed to vote ______ shares of PSINet common stock that he is entitled to
vote at the PSINet special meeting, which represents ___% of the outstanding
PSINet common stock entitled to vote at the meeting, "for" the approval of the
issuance of the PSINet common stock in connection with the merger.
The Metamor Special Meeting (page 38)
The special meeting of Metamor stockholders will be held on ,
May , 2000, at 9:00 a.m., local time, at , Houston, Texas.
At the special meeting, Metamor will ask its stockholders of record on April ,
2000 to vote upon a proposal to adopt the merger agreement and approve the
merger.
Record Date; Voting Power
Metamor stockholders are entitled to vote at the special meeting if they
owned Metamor shares as of the close of business on the record date for the
meeting of April , 2000.
On the record date, there were shares of Metamor common stock entitled to
vote at the Metamor special meeting. Metamor stockholders will have one vote at
the Metamor special meeting for each share of Metamor common stock that they
owned on the record date.
Vote Required
The affirmative vote of a majority of the shares of Metamor common stock
outstanding on the record date is required to adopt the merger agreement.
6
<PAGE>
Voting by Metamor Directors and Executive Officers
On the record date, Metamor directors and executive officers and their
affiliates owned and were entitled to vote shares of Metamor's common stock,
or approximately % of the shares of Metamor common stock outstanding on the
record date. Peter Dameris, Metamor's Chairman, Chief Executive Officer and
President, has agreed to vote shares of Metamor common stock that he is
entitled to vote at the Metamor special meeting, representing % of the
outstanding Metamor common stock entitled to vote at the meeting, "for" the
adoption of the merger agreement.
The Merger (page 41)
The merger agreement is attached as Annex 1 to this prospectus/proxy
statement. We encourage you to read the merger agreement. It is the principal
document governing the merger.
Structure of the Merger
Subject to the terms and conditions of the merger agreement, PSINet Shelf IV
Inc., a wholly owned subsidiary of PSINet, will merge with and into Metamor. At
the effective time of the merger, the separate corporate existence of PSINet
Shelf IV Inc. will end. Metamor will be the surviving corporation in the merger
and will continue its corporate existence as a wholly owned subsidiary of PSINet
under the name "PSINet Solutions Inc."
What Metamor Stockholders Will Receive in the Merger (page 69)
The merger agreement provides that, at the effective time of the merger,
each issued and outstanding share of Metamor common stock will be converted into
the right to receive PSINet common stock at an exchange ratio of 0.9 of a share
of PSINet common stock for each share of Metamor common stock.
Treatment of Metamor Stock Options
At the effective time of the merger, each outstanding option to purchase
Metamor common stock will be assumed by PSINet and converted into an option to
purchase a number of shares of PSINet common stock equal to the number of
Metamor shares covered by the option multiplied by the exchange ratio (i.e.,
0.9:1.0), with an exercise price equal to the exercise price in effect prior to
the merger divided by the exchange ratio. The assumed options will otherwise be
subject to their existing terms and conditions. The vesting of some Metamor
stock options will automatically accelerate as a result of the merger.
Repayment of Metamor Debt; Convertible Notes
Metamor and PSINet have agreed to cooperate to pay or satisfy at the
effective time of the merger the outstanding debt of Metamor and its
subsidiaries, with limited exceptions. This debt includes an aggregate of
approximately $7.6 million of borrowings under Metamor's revolving credit
facility, as of April 10, 2000, and approximately $227 million of convertible
subordinated notes of Metamor. The convertible notes are convertible into
Metamor common stock at an
7
<PAGE>
effective conversion price of $37.95 per share (based on the applicable
redemption price on the earliest redemption date). The convertible notes will
become convertible into PSINet common stock upon consummation of the merger. The
parties expect that the convertible notes will be called for redemption on the
later of August 18, 2000 (the earliest call date for the notes) or 45 days after
closing of the merger. Any notes may be converted by the holders of the notes
until the redemption date, and any notes not converted prior to the redemption
date will be redeemed for cash.
Ownership of PSINet Following the Merger
Based on the number of outstanding Metamor shares on its record date and
assuming that no convertible notes of Metamor are converted, no outstanding
options of Metamor are exercised, and no Metamor shares are purchased under
Metamor's employee stock purchase plan prior to the merger, Metamor stockholders
will receive approximately 31.2 million shares of PSINet common stock in the
merger. The total number of shares of PSINet common stock that may be issued as
a result of the Metamor transaction if all Metamor convertible notes are
converted, all outstanding Metamor options and 300,000 options which may be
granted prior to the merger are exercised and 350,000 Metamor shares are
purchased under Metamor's employee stock purchase plan is approximately
40,750,647. Based on these numbers and on the number of outstanding shares of
PSINet common stock on its record date, following the merger former Metamor
stockholders, noteholders and option holders will own between [19.8]% and
[25.9]% of the outstanding shares of PSINet common stock.
Investment by PSINet in Xpedior (page 74)
PSINet and Xpedior have entered into a letter of intent relating to an
investment by PSINet of $50 million in Xpedior preferred stock simultaneously
with the closing of the merger. While the making of this investment is
conditioned upon the completion of the merger, it is not a condition to the
merger.
Appraisal Rights (page 73)
Neither PSINet shareholders nor Metamor stockholders will have appraisal
rights in connection with the merger.
Material United States Federal Income Tax Consequences of the Merger (page 71)
The merger is intended to qualify as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code. It is a condition to the completion
of the merger that Metamor receive an opinion from its attorneys to the effect
that the merger will be treated as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code; provided, however, in the event
that Metamor's counsel is unwilling to render an opinion the condition will be
satisfied if an opinion that is reasonably satisfactory to Metamor is rendered
by attorneys for PSINet. It is also a condition to the completion of the merger
that PSINet receive an opinion from its attorneys to the effect that the merger
will be treated as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code; provided, however, in the event that PSINet's counsel is
unwilling to render an opinion the condition will be satisfied if an opinion
that is reasonably satisfactory to PSINet is rendered by attorneys for Metamor.
Assuming the
8
<PAGE>
merger qualifies as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code, holders of Metamor common stock will not recognize gain
or loss for United States federal income tax purposes as a result of the
exchange of their Metamor common stock for PSINet common stock in the merger,
except with respect to cash received instead of fractional shares of PSINet
common stock.
Tax matters are very complicated and the tax consequences of the merger to
you will depend on the facts of your own situation. You should consult your own
tax advisors for a full understanding of the tax consequences of the merger to
you.
Accounting Treatment
The merger will be accounted for as a "purchase" of Metamor by PSINet.
Regulatory Matters (page 73)
United States antitrust laws prohibit PSINet and Metamor from completing the
merger until after they have furnished specified information and materials to
the Antitrust Division of the Department of Justice and the Federal Trade
Commission and a required waiting period has ended. PSINet and Metamor each
filed the required notification and report forms with the Antitrust Division and
the Federal Trade Commission on April 10, 2000 and requested early termination
of the waiting period.
Boards of Directors Recommendations (pages 45 and 48)
PSINet's board of directors believes that the terms of the merger and the
merger agreement are fair to and in the best interests of PSINet and its
shareholders and unanimously recommends that PSINet's shareholders vote "for"
the approval of the issuance of the PSINet common stock in connection with the
merger. Metamor's board of directors believes that the terms of the merger and
the merger agreement are fair to and in the best interests of Metamor and its
stockholders and unanimously recommends that Metamor's stockholders vote "for"
the adoption of the merger agreement.
To review the background and reasons for the merger in greater detail, as
well as certain risks related to the merger, see pages 41 and 19, respectively.
Fairness Opinions of Financial Advisors (pages 51 and 61)
In deciding to approve the merger, PSINet's board of directors considered,
among other things, the opinion of its financial advisor, FleetBoston Robertson
Stephens Inc. (Robertson Stephens), dated March 21, 2000, to the effect that, as
of such date and based upon and subject to the various considerations set forth
in such opinion, the exchange ratio in connection with the merger is fair to
PSINet from a financial point of view. This opinion is attached as Annex 2 to
this prospectus/proxy statement. We encourage you to read this opinion carefully
in its entirety for a description of the assumptions made, matters considered
and limitations on the review undertaken. The opinion is not a recommendation to
shareholders of PSINet as to how they should vote with respect to the proposed
issuance of the PSINet common stock.
9
<PAGE>
In deciding to approve the merger, Metamor's board of directors considered,
among other things, the opinion of its financial advisor, Lazard Freres & Co.
LLC (Lazard), dated March 21, 2000, to the effect that, as of such date and
based upon and subject to the various considerations set forth in such opinion,
the exchange ratio in connection with the merger is fair to Metamor stockholders
from a financial point of view. This opinion is attached as Annex 3 to this
prospectus/proxy statement. We encourage you to read this opinion carefully in
its entirety for a description of the assumptions made, matters considered and
limitations on the review undertaken. The opinion is not a recommendation to
stockholders of Metamor as to how they should vote with respect to the proposed
merger.
Interests of Metamor Directors and Management in the Merger (page 67)
Metamor stockholders should note that a number of directors and officers of
Metamor have interests in the merger as directors or officers that are different
from, or in addition to, those of a Metamor stockholder. For a description of
these differences see pages 67 through 68.
Conditions to the Merger (page 76)
PSINet and Metamor will complete the merger only if they satisfy or, in some
cases, waive several conditions, including the following:
. PSINet's shareholders must approve the issuance of the shares of PSINet
common stock in connection with the merger at the PSINet special
meeting;
. Metamor's stockholders must adopt the merger agreement at the Metamor
special meeting;
. the waiting period required under applicable antitrust laws shall have
expired or been terminated;
. Metamor's outstanding debt (including Metamor's 2.94% Convertible
Subordinated Notes having a face amount of approximately $227 million
and amounts due under Metamor's $80 million revolving credit facility
of which $7.6 million was outstanding as of April 10, 2000) must be
paid or satisfied prior to the effectiveness of the merger, with funds
to be provided by PSINet at the closing;
. the PSINet common stock issuable to Metamor stockholders in the merger
and pursuant to the assumed Metamor options must have been approved for
listing on The Nasdaq Stock Market;
. no court with appropriate jurisdiction has issued an order, judgment,
decree, injunction or ruling which restrains, enjoins or prohibits the
completion of the merger;
. the registration statement of which this document forms a part must
remain effective;
. PSINet, PSINet Shelf IV Inc. and Metamor must satisfy the
representations, warranties and covenants contained in the merger
agreement with specified materiality qualifications; and
10
<PAGE>
. each of PSINet and Metamor must have received the tax opinions
described above.
Termination of the Merger Agreement
The merger agreement may be terminated for the following reasons:
1. PSINet and Metamor can agree by mutual written consent to terminate the
merger agreement at any time without completing the merger.
2. PSINet or Metamor can terminate the merger agreement if:
. the merger is not consummated on or before October 31, 2000 (unless
the reason for the delay is a material breach under the merger
agreement by the party seeking to terminate);
. the approvals required from the PSINet shareholders and Metamor
stockholders are not obtained at the special meetings;
. any court issues any order or takes other legal action which
permanently enjoins or prohibits the completion of the merger and,
after reasonable efforts by PSINet and Metamor, the court's action
is final and nonappealable; or
. the other party has breached in any material respect any of its
representations, warranties or obligations under the merger
agreement which causes one or more of the closing conditions to be
incapable of being satisfied by October 31, 2000.
3. Before the Metamor special meeting, Metamor can terminate the merger
agreement if Metamor's board of directors receives an unsolicited proposal by a
third party to acquire Metamor on terms determined by Metamor's board of
directors to be more favorable to Metamor stockholders than the terms of the
merger with PSINet. In the event that Metamor's board of directors decides to
accept a superior proposal, it must first give PSINet the opportunity to
negotiate and make adjustments to the terms of the merger agreement that would
enable PSINet to proceed with the merger and Metamor must pay PSINet a
termination fee of $45 million.
4. PSINet can terminate the merger agreement if Metamor's board of directors
withdraws or adversely modifies its approval or approves or recommends an
unsolicited third party proposal.
Non-Solicitation
In the merger agreement, Metamor has agreed not to discuss alternative
transactions to the merger with third parties, with specified exceptions
necessary to preserve the Metamor board's right to exercise its fiduciary
duties.
PSINet has agreed not to enter into any agreement that would expressly
prevent the merger or is conditioned upon the merger not occurring.
11
<PAGE>
Termination Fees (page 80)
Metamor must pay PSINet a termination fee of $45 million if:
1. Metamor terminates the merger agreement in order to accept a more
favorable proposal or withdraws or modifies its approval or recommendation of
the merger in connection with the Metamor special meeting;
2. PSINet terminates the merger agreement because Metamor's board of
directors approves or recommends a more favorable third party proposal;
3. the merger agreement is terminated because holders of Metamor common
stock fail to adopt the merger agreement at the Metamor special meeting as it
may be adjourned from time to time, a third party acquisition proposal is
publicly disclosed prior to the completion of the Metamor special meeting, and
within 12 months after the termination Metamor enters into a definitive
agreement with any third party with respect to an acquisition proposal or an
acquisition proposal is consummated; or
4. the merger agreement is terminated by PSINet based on a material breach
of the agreement by Metamor; by Metamor or PSINet if the closing of the merger
fails to occur by October 31, 2000; or by PSINet based on Metamor's withdrawal
or adverse modification of its recommendation of the merger agreement and, in
each case:
. there has been a third party acquisition proposal between the date
of the merger agreement and the date of termination;
. following the existence of the acquisition proposal, prior to the
termination, Metamor has intentionally breached in any material
respect (and not cured) any of its material agreements under the
merger agreement; and
. within 12 months of the termination Metamor enters into a definitive
agreement relating to an acquisition proposal or an acquisition
proposal is completed.
PSINet must pay Metamor a termination fee of $45 million if:
1. the PSINet shareholders have not approved the issuance of the PSINet
common stock at the PSINet special meeting as it may be adjourned from
time to time, and
2. either
. prior to the PSINet special meeting, the board of directors of
PSINet approved a bona fide written proposal or offer or entered
into a definitive agreement with respect to the acquisition of
PSINet or a majority interest in PSINet by another entity, or
. such a transaction is announced to the public at any time after the
date of the merger agreement and prior to the PSINet special meeting
and within 12 months following the final adjournment of the PSINet
special meeting, PSINet enters into a definitive agreement with any
third party with respect to the acquisition of PSINet or a majority
12
<PAGE>
interest in PSINet by any third party or such an acquisition by any
third party is consummated.
Comparative Per Share Market Price and Dividend Information
PSINet common stock is listed for trading on The Nasdaq Stock Market under
the trading symbol "PSIX" and Metamor common stock is listed on The Nasdaq Stock
Market under the trading symbol "MMWW."
The following table shows the closing prices for PSINet and Metamor shares
and the equivalent price per share of Metamor common stock based on the exchange
ratio on March 21, 2000, the last full trading day before the public
announcement of the proposed merger, and on April 13, 2000, the most recent date
for which quotations were available prior to the printing of this document.
PSINet Metamor Equivalent price
Common Common per share
------ ------ of Metamor
Date Stock Stock Common Stock
---- ----- ----- ------------
March 21, 2000............$49.5000 $16.0000 $44.5500
April 13, 2000............$22.0000 $17.7500 $19.8000
Neither Metamor nor PSINet has ever declared or paid any cash dividends on
its common stock. Except as required with respect to PSINet's preferred stock,
PSINet currently intends to retain all of its earnings, if any, for use in its
business and does not anticipate paying any cash dividends on its common stock
in the foreseeable future. In addition, PSINet's debt securities contain
limitations on its ability to declare and pay cash dividends.
The following table sets forth, for the periods indicated, the high and low
sales prices per share of PSINet common stock and Metamor common stock on The
Nasdaq Stock Market. For current price information, stockholders are urged to
consult publicly available sources.
<TABLE>
<CAPTION>
PSINet Metamor
Common Stock Common Stock
------------ ------------
Calendar Period High Low High Low
--------------- ---- --- ---- ---
Year Ended December 31, 1998:
<S> <C> <C> <C> <C>
First Quarter.............................. $ 6.0625 $ 5.5625 $39.6250 $20.7500
Second Quarter............................. $ 6.5000 $ 5.1250 $39.2500 $28.5000
Third Quarter.............................. $ 7.2500 $ 5.0625 $37.6250 $22.0000
Fourth Quarter............................. $10.8750 $ 8.8750 $29.1250 $17.8750
Year Ended December 31, 1999:
First Quarter.............................. $22.4688 $17.5625 $29.1250 $12.8750
Second Quarter............................. $24.4688 $21.7125 $28.1875 $12.5625
Third Quarter.............................. $24.5000 $16.7500 $25.3750 $13.7500
Fourth Quarter............................. $31.5625 $22.0625 $41.6250 $15.6875
Year Ending December 31, 2000:
First Quarter.............................. $60.9375 $27.2500 $35.7500 $15.2500
Second Quarter (through April 13, 2000).... $35.0000 $20.6250 $28.8750 $17.3750
</TABLE>
13
<PAGE>
Unaudited Pro Forma Comparative Per Share Information
We have summarized below information concerning earnings, cash dividends and
book value per share for:
. PSINet on a historical basis;
. Metamor on a historical basis;
. the combination of PSINet and Metamor on a pro forma basis; and
. the equivalent of one share of Metamor common stock, based on the
exchange ratio of 0.9 of a share of PSINet common stock for each share
of Metamor common stock.
You should read the information set forth below in conjunction with the
audited financial statements of Metamor and PSINet incorporated by reference in
this document and the unaudited condensed combined consolidated financial
information and related notes presented elsewhere in this document. See "Where
You Can Find More Information" and "Unaudited Pro Forma Condensed Combined
Financial Information."
<TABLE>
<CAPTION>
Equivalent of
PSINet Metamor One Metamor
Historical Historical Pro Forma Share
---------- ---------- --------- -----
Fiscal year ended December 31, 1999:
<S> <C> <C> <C> <C>
Basic earnings per share.......................... (3.49) 0.96 (3.45) (3.11)
Diluted earnings per share........................ (3.49) 0.96 (3.45) (3.11)
Cash dividends declared per share................. 0 0 0 0
Book value per share.............................. 4.93 13.26 16.08 14.47
</TABLE>
14
<PAGE>
PSINet Summary Unaudited Pro Forma Condensed Combined
Financial Information
(In millions of U.S. dollars, except share and per share amounts)
The following Summary Unaudited Pro Forma Condensed Combined Financial
Information of PSINet gives pro forma effect to the merger as well as to other
transactions, as more fully discussed under "Unaudited Pro Forma Condensed
Combined Financial Information," as if they had occurred on January 1, 1999 for
the statement of operations data and on December 31, 1999 for the balance sheet
data.
If PSINet had actually completed the merger in prior periods, Metamor might
have performed differently. You should not rely on the pro forma financial
information as an indication of the results that PSINet would have achieved if
the merger had taken place earlier or of the future results that the companies
will achieve after completion of the merger. For further information concerning
the following summary pro forma financial information, including the adjustments
made in preparing it, please refer to "Unaudited Pro Forma Condensed Combined
Financial Information."
<TABLE>
<CAPTION>
Pro Forma
Year Ended
December 31, 1999
-----------------
<S> <C>
Combined Statement of Operations Data:
Internet access revenue......................................................... $ 758.8
Services revenue................................................................ 577.0
--------
Total revenue........................................................... 1,335.8
Operating costs and expenses:
Data communications and operations......................................... 523.4
Cost of services revenue................................................... 341.0
Selling, general and administrative........................................ 403.2
Depreciation and amortization.............................................. 350.1
Charge for acquired in-process R&D......................................... 88.7
--------
Total operating costs and expenses..................................... 1,706.4
--------
Loss from operations............................................................ (370.6)
Interest expense................................................................ (196.2)
Interest income................................................................. 56.0
Other income, net............................................................... 1.1
--------
Loss from continuing operations before income taxes............................. (509.7)
Income tax benefit (expense).................................................... --
---------
Loss from continuing operations................................................. (509.7)
Return to preferred shareholders................................................ (55.8)
---------
Loss from continuing operations available to common shareholders................ $ (565.5)
=========
Basic and diluted loss per share from continuing operations..................... $ (3.45)
Shares used in computing basic and diluted loss per share from continuing =========
operations (in thousands)..................................................... 163,765
=========
<CAPTION>
Pro Forma
As of December 31, 1999
-----------------------
<S> <C>
Combined Balance Sheet Data:
Cash, cash equivalents, short-term investments and marketable securities........ $2,260.70
Restricted cash and short-term investments...................................... 154.1
Total assets.................................................................... 7,142.9
Current portion of debt......................................................... 115.0
Long-term debt, less current portion............................................ 3,394.4
Shareholders' equity............................................................ 2,990.4
</TABLE>
15
<PAGE>
PSINet Summary Consolidated Financial and Operating Data
(In millions of U.S. dollars, except share, per share and operating data)
The following table sets forth for the periods indicated summary
consolidated financial and operating data for PSINet. The consolidated balance
sheet data, consolidated statement of operations data and consolidated cash flow
data as of and for the years ended December 31, 1995, 1996, 1997, 1998 and 1999
have been derived from PSINet's audited consolidated financial statements. In
1998 and 1999, PSINet acquired a significant number of businesses, including
Transaction Network Services, Inc. (TNI), acquired a significant amount of
global fiber optic bandwith, issued a significant amount of debt and equity and,
in 1998, incurred a non-recurring arbitration charge. In 1996 PSINet sold its
individual subscriber accounts and certain related assets and in 1997 it sold
its software subsidiary. These transactions affect the comparability of PSINet's
financial position, results of operations and cash flows for those years. The
following summary consolidated financial and operating data should be read in
conjunction with PSINet's more detailed consolidated financial statements and
related notes incorporated by reference into this document.
The following information gives effect to a two-for-one stock split of
PSINet's common stock, effected in the form of a stock dividend on February 11,
2000, to holders of record as of the close of business on January 28, 2000.
EBITDA is used in the Internet services industry as one measure of a
company's operating performance and historical ability to service debt. EBITDA
is not determined in accordance with generally accepted accounting principles,
is not indicative of cash used by operating activities and should not be
considered in isolation or as an alternative to, or more meaningful than,
measures of performance determined in accordance with generally accepted
accounting principles. PSINet defines EBITDA as earnings (losses) from
continuing operations before interest expense and interest income, taxes,
depreciation and amortization, other non-operating income and expense, and
charges for intangible asset write-down and acquired in-process research and
development. PSINet's definition of EBITDA may not be comparable to similarly
titled measures used by other companies.
Exchange of Series C Preferred Stock
In February and March 2000, PSINet exchanged 8,155,192 newly issued shares
of its common stock for an aggregate of 4,629,335 shares of its outstanding
Series C preferred stock through individually negotiated transactions with a
limited number of holders of its Series C preferred stock. The implied premium
of approximately $1.7 million incurred in connection with the exchanges, net of
cash received from the deposit account relating to the exchanged shares, will be
recognized as a return to preferred shareholders in the first quarter of 2000.
Subsequent to the exchange, PSINet converted the exchanged Series C preferred
stock into 7,422,675 shares of its common stock, which is held as treasury
stock.
Issuance of Convertible Series D Preferred Stock
In February 2000, PSINet completed an offering of 16,500,000 shares of 7%
Series D cumulative convertible preferred stock for aggregate net proceeds of
approximately $739.0 million after expenses (excluding amounts paid by the
purchasers of the Series D preferred stock into a deposit account established
for the benefit of the holders of the Series D preferred stock). The Series D
preferred stock has a liquidation preference of $50 per share.
16
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------
1995 1996 1997 1998 1999
------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Operations Data:
Revenues:
U.S................................................ $ 36.2 $ 77.6 $ 104.0 $ 156.0 $ 270.6
International...................................... 2.5 6.8 17.9 103.6 284.1
------- ------- ------- ------- -------
38.7 84.4 121.9 259.6 554.7
Other income, net.................................. -- 5.4 -- -- --
------- ------- ------- ------- -------
38.7 89.8 121.9 259.6 554.7
Operating costs and expenses:
Data communications and operations................. 32.1 70.1 94.4 199.4 396.4
Sales and marketing................................ 23.9 27.1 25.8 57.0 103.8
General and administrative......................... 10.6 20.7 23.0 45.3 78.7
Depreciation and amortization...................... 14.8 28.0 28.3 63.4 166.5
Charge for acquired in-process research and
development ....................................... -- -- -- 70.8 88.7
Intangible asset write-down........................ 9.9 -- -- -- --
------- ------- ------- ------- -------
Total operating costs and expenses............... 91.3 145.9 171.5 435.9 834.1
------- ------- ------- ------- -------
Loss from operations................................. (52.6) (56.1) (49.6) (176.3) (279.4)
Interest expense..................................... (2.0) (5.0) (5.4) (63.9) (193.1)
Non-recurring arbitration charge..................... -- -- -- (49.0) --
Loss before income taxes............................. (53.2) (55.3) (46.1) (262.7) (419.0)
Net loss............................................. (53.2) (55.1) (45.6) (261.8) (416.2)
Return to preferred shareholders..................... -- -- (0.4) (3.1) (17.7)
------- ------- ------- ------- -------
Net loss available to common shareholders............ $(53.2) $ (55.1) $ (46.0) $ (264.9) $ (433.9)
======= ======= ======= ======= =======
Basic and diluted loss per share..................... $ (1.01) $ (0.70) $ (0.57) $ (2.66) $ (3.49)
======= ======= ======= ======= =======
Shares used in computing basic and diluted loss
per shares (in thousands) ......................... 52,970 78,756 80,612 99,612 124,386
======= ======= ======= ======= =======
Other Financial Data:
EBITDA:
U.S. .............................................. $ (26.9) $ (20.5) $ (13.1) $ (26.2) $ (39.4)
International...................................... (1.0) (7.5) (8.1) (15.9) 15.2
-------- -------- -------- -------- -------
$ (27.9) $ (28.0) $ (21.2) $ (42.1) $ (24.2)
======= ======= ======= ======= =======
Capital expenditures................................. $ 45.2 $ 38.4 $ 50.1 $ 303.6 $ 785.0
Consolidated Cash Flow Data:
Cash flows used in operating activities.............. $ (30.1) $ (32.5) $ (15.6) $ (87.6) $ (214.2)
Cash flows used in investing activities.............. (22.0) (7.9) (15.6) (783.9) (1,502.2)
Cash flows provided by (used in) financing
activities......................................... 151.4 (10.5) 12.6 874.2 2,520.3
Operating Data:
Number of POPs....................................... 241 350 350 500 900
Number of business customers accounts................ 8,200 17,800 26,400 54,700 91,000
Number of consumer customer accounts................. 75,000 0 5,300 225,000 562,000
<CAPTION>
December 31,
------------------------------------------------------------
1995 1996 1997 1998 1999
------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash, cash equivalent, short-term investments and
marketable securities.............................. $ 102.7 $ 56.4 $ 33.3 $ 322.5 $ 1,601.2
Restricted cash and short-term investments........... -- 0.9 20.7 162.5 154.1
Total assets......................................... 201.8 177.1 186.2 1,284.2 4,492.3
Current portion of debt.............................. 16.6 26.9 39.6 60.0 115.0
Long-term debt, less current portion................. 24.1 26.9 33.8 1,064.6 3,185.2
Shareholders' equity (deficit)....................... 143.2 89.8 73.4 (120.2) 723.0
</TABLE>
17
<PAGE>
Metamor Summary Consolidated Financial Data
(in thousands, except share and per share data)
The following table sets forth for the periods indicated summary
consolidated financial data for Metamor. The summary consolidated financial data
as of and for the years ended December 31, 1995, 1996, 1997, 1998 and 1999 have
been derived from Metamor's audited consolidated financial statements and have
been restated to present as discontinued operations Metamor's staffing services
business, which was sold during the third quarter of 1998, and its software
solutions and project support units, which were sold in the third quarter of
1999. The extraordinary loss during 1996 of $1.4 million ($0.9 million after
income taxes) related to the write-off of deferred loan costs of a revolving
credit facility that was extinguished in November 1996. The following summary
consolidated financial data should be read in conjunction with Metamor's more
detailed consolidated financial statements and related notes incorporated by
reference in this document.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------
1995 1996 1997 1998 1999
------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Operations Data:
Revenue from services................................ $ 11,572 $ 30,089 $ 134,343 $ 341,174 $ 576,997
Cost of services..................................... 8,277 21,537 85,640 201,415 340,973
------- ------- ------- ------- -------
Gross profit......................................... 3,295 8,552 48,703 139,759 236,024
Operating costs and expenses......................... 6,033 11,509 39,059 100,552 200,341
------- ------- ------- --------- -------
Operating income (loss).............................. (2,738) (2,957) 9,644 39,207 35,683
Interest expense and other........................... (575) (237) (1,872) (6,722) (18,547)
------- ------- ------- ------- -------
Income (loss) from continuing operations
before income taxes................................ (3,313) (3,194) 7,772 32,485 17,136
Provision (benefit) for income taxes................. (1,399) (753) 3,267 13,644 6,952
------- ------- ------- ------- -------
Income (loss) from continuing operations............. (1,914) (2,441) 4,505 18,841 10,184
Income from discontinued operations.................. 8,271 19,835 22,298 46,950 22,379
------- ------- ------- ------- -------
Income before extraordinary loss..................... 6,357 17,394 26,803 65,791 32,563
Extraordinary loss................................... -- (940) -- -- --
------- ------- ------- ------- ------
Net income........................................... $ 6,357 $ 16,454 $ 26,803 $ 65,791 $ 32,563
======= ======= ======= ======= =======
Diluted earnings per share...........................
Income (loss) from continuing operations.......... $ (0.13) $ (0.08) $ 0.14 $ 0.56 $ 0.30
Income from discontinued operations............... 0.42 0.65 0.68 1.32 0.66
Extraordinary loss................................ -- (0.03) -- -- --
------- ------- ------- ------- ------
Net income........................................ $ 0.29 $ 0.54 $ 0.82 $ 1.88 $ 0.96
======= ======= ======= ======= =======
Number of shares used in computing diluted
earnings per share (in thousands).................. 19,715 30,365 32,608 38,665 34,093
<CAPTION>
December 31,
----------------------------------------------------------
1995 1996 1997 1998 1999
------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Working capital...................................... $ 1,206 $ 9,251 $ 25,526 $ 8,127 $ 183,703
Total assets......................................... 124,281 347,999 547,473 703,668 971,809
Long-term debt, net of current maturities............ 43,312 107,822 246,883 238,076 209,193
Stockholders' equity................................. 75,165 230,917 262,597 338,745 458,155
</TABLE>
18
<PAGE>
RISK FACTORS
In addition to the other information included and incorporated by reference
in this prospectus/proxy statement, investors should consider carefully the
matters described below in determining whether to approve the issuance of the
PSINet common stock or adopt the merger agreement.
Risk Factors Relating to the Merger
The exchange ratio for Metamor common stock to be acquired in the merger is
fixed and will not be adjusted if there is any change in stock price
Under the merger agreement, each share of Metamor common stock will be
converted into the right to receive 0.9 of a share of PSINet common stock. This
exchange ratio is a fixed number and will not be adjusted if there is any
increase or decrease in the price of PSINet common stock or Metamor common
stock. The prices of PSINet common stock and Metamor common stock at the closing
of the merger may vary from their respective prices on the date of this document
and on the date of the special meetings. These prices may vary because of
changes in the business, operations or prospects of PSINet or Metamor, market
assessments of the likelihood that the merger will be completed, the timing of
the completion of the merger, the prospects of post-merger operations,
regulatory considerations, general market and economic conditions and other
factors. Although we expect the merger to be completed on the date of the
special meetings, it may be completed on a later date and the prices of PSINet
common stock and Metamor common stock on the date of the special meetings may
not be indicative of their respective prices on the date the merger is
completed.
PSINet may face difficulties in integrating Metamor's business into PSINet's
business
PSINet and Metamor entered into the merger agreement with the expectation
that integrating Metamor's IT solutions business with PSINet's technology in
Internet connectivity, Web hosting and eCommerce and its suite of value-added
products and services designed to maximize utilization of the Internet will
present a significant opportunity to create a combined organization that will be
a leader in providing global eCommerce and Internet solutions to businesses.
PSINet's ability to create such a combined organization will be subject to risks
associated with acquisitions including difficulties in integrating combined
operations, the potential disruption of operations and the related negative
impact on earnings and the incurrence of substantial expenses that could
adversely affect its financial condition. PSINet intends to integrate Metamor's
business into PSINet. Achieving the anticipated benefits of the merger will
depend in large part upon whether the integration of Metamor's business into
PSINet is accomplished in an efficient and effective manner. The integration of
Metamor's business into PSINet will require, among other things, integration of
the products and services, technologies, distribution channels, management
information systems and key personnel of Metamor's business into PSINet. Neither
PSINet nor Metamor can assure you that the integration of Metamor's business
will be accomplished in an efficient and effective manner, if at all. If
significant difficulties are encountered in the integration, it could have a
material adverse effect on the business, results of operations and financial
condition of PSINet.
19
<PAGE>
The integration of operations and technologies following the merger will
require the dedication of management and other personnel which may distract
their attention from the day-to-day businesses of PSINet and Metamor,
development or acquisition of new products, services and technologies, and the
pursuit of other business acquisition opportunities. The difficulties of
integrating PSINet and Metamor may be increased by the necessity of coordinating
organizations with distinct cultures and widely disbursed operations. Successful
integration of the two companies' sales and marketing organizations will require
the sales and marketing personnel of each company to learn about the often
technically-complex products, services and technologies of the other company.
In addition, successful combination of the PSINet and Metamor businesses
will be dependent at least in part on the retention and integration of the key
management, sales, marketing and engineering and other technical employees of
Metamor's business into PSINet. Competition for qualified personnel in the IT
solutions industry is intense and competitors often use aggressive tactics to
recruit key employees during the period leading up to a merger and during the
integration phase following a merger. While each of PSINet and Metamor is
engaged in ongoing efforts to retain key employees, it may be more difficult for
PSINet to retain such employees after the merger. In particular, in connection
with the closing of the merger, approximately 1.4 million unvested Metamor stock
options held by employees of Metamor will vest (representing 15% of the total
unvested stock options of Metamor held by its employees). In addition,
approximately 700,000 unvested Xpedior stock options held by employees of
Metamor will vest in connection with the merger. The acceleration of these
options could potentially reduce the retention incentive to Metamor employees
provided by the options. Neither PSINet nor Metamor can assure you that Metamor
employees will remain with PSINet. The loss of services of key employees of
Metamor could have a material adverse effect on the business, results of
operations and financial condition of PSINet.
The price of PSINet common stock may be affected by factors different from those
affecting the price of Metamor common stock
Upon completion of the merger, many holders of Metamor common stock will
become holders of PSINet common stock. PSINet's business differs from that of
Metamor, and PSINet's results of operations, as well as the price of PSINet
common stock, may be affected by factors different from those affecting the
price of Metamor common stock. For a discussion of PSINet's and Metamor's
businesses and other factors to consider in connection with the businesses, see
PSINet's Annual Report on Form 10-K for the year ended December 31, 1999, and
Metamor's Annual Report on Form 10-K for the year ended December 31, 1999, which
are incorporated by reference in this document.
Risk Factors Relating to PSINet
PSINet had approximately $3.3 billion of indebtedness as of December 31, 1999,
which could restrict its operations and make it susceptible to economic
downturns
At December 31, 1999, PSINet's total indebtedness was $3.3 billion. Its
annual interest expense increased from $63.9 million in 1998 to $193.1 million
in 1999. PSINet estimates that
20
<PAGE>
its annual interest expense for the year 2000 will be approximately $363.5
million, assuming that it does not incur any additional indebtedness or
refinance existing indebtedness.
If PSINet is unable to generate sufficient cash from operations to service
its indebtedness, it will be adversely affected. PSINet historically has been
unable to generate sufficient cash flow from operations to meet its operating
needs and has relied upon financings to fund its operations. PSINet cannot
assure you that its business will generate cash flow from operations, or that
future financings will be available, sufficient to fund its operations or
satisfy its debt service or working capital requirements. PSINet's leverage
could adversely affect its ability to obtain additional financing for working
capital, acquisitions or for other purposes. Such leverage could make it more
susceptible to economic downturns, contractions in the general market
availability of equity or debt financing and competitive pressures. PSINet's
leverage could also affect its liquidity as a substantial portion of available
cash from operations must be applied to debt service requirements. In the event
of a cash short-fall, PSINet could be forced to reduce expenditures or forego
potential acquisitions and other elements of its business plan to meet such
requirements.
PSINet may continue to incur substantial losses
Although revenue has increased each year from $84.4 million in 1996 to
$554.7 million in 1999, PSINet had net losses available to common shareholders
of $55.1 million, $46.0 million, $264.9 million and $433.9 million, and had
negative EBITDA of $28.0 million, $21.2 million, $42.1 million and $24.2
million, for each of the years ended December 31, 1996, 1997, 1998 and 1999,
respectively. PSINet may continue to have losses and negative EBITDA as it
continues its acquisition program and expansion of its global network
operations.
Factors that cause PSINet's operating results to fluctuate include:
. general economic conditions and specific economic conditions in the
Internet access industry;
. user demand for Internet services;
. timing and amount of capital expenditures, other costs and expenses of
expanding its network;
. pricing changes, new product and new service introductions by it and its
competitors;
. the mix of services sold and the mix of channels through which those
services are sold;
. delays in obtaining sufficient supplies or inability to obtain
sufficient equipment from limited sources and telecom facilities; and
. potential adverse legislative and regulatory developments.
As a strategic response to a changing competitive environment, PSINet may
elect from time to time to make pricing, service or marketing decisions that
could have a material adverse effect
21
<PAGE>
on its business, results of operations and cash flow. As a result of these
factors, PSINet may continue to generate net losses and negative EBITDA.
The terms of PSINet's financing arrangements may restrict its operations
PSINet's financing arrangements with its equipment lessors are secured by
some of its assets. These financing arrangements require that PSINet satisfy
many financial covenants. PSINet's ability to satisfy these financial covenants
may be affected by events beyond its control. As a result, PSINet cannot assure
you that it will be able to continue to satisfy such covenants. Some of PSINet's
indentures also currently prohibit it from paying dividends and repurchasing its
capital stock without consent. PSINet's failure to comply with covenants and
restrictions could lead to a default under the terms of these agreements. In the
event of a default under these financing arrangements, its lenders would be
entitled to accelerate the outstanding indebtedness and foreclose upon any
assets securing that indebtedness. Lenders would also be entitled to be repaid
from the proceeds of the liquidation of those assets before the assets would be
available for distribution to the holders of its securities.
PSINet partially depends on the cash flows of its subsidiaries in order to
satisfy its debt obligations
PSINet's operating cash flow and consequently its ability to service its
debt is partially dependent upon the ability of its subsidiaries to distribute
their earnings to it in the form of dividends. PSINet also depends on loans,
advances or other payments of funds to it by its subsidiaries. If for some
reason these funds were restricted, PSINet would be adversely affected. PSINet's
subsidiaries are separate legal entities and have no obligation, contingent or
otherwise, to pay any amount due pursuant to its financing commitments or to
make any funds available for that purpose. PSINet's subsidiaries' ability to
make payments may be subject to the availability of sufficient surplus funds,
the terms of such subsidiaries' financings, applicable law and other factors.
PSINet's subsidiaries' creditors generally will have priority to the assets of
those subsidiaries over the claims, if any, that PSINet may have against those
assets and claims that holders of PSINet's indebtedness may indirectly have.
The growth of PSINet's eCommerce and Web hosting business is subject to a number
of risks and uncertainties
To successfully implement its business plan, PSINet must continue to grow
its Internet and eCommerce hosting business. In order to do so, PSINet will need
to locate and build Internet and eCommerce hosting centers. PSINet cannot assure
you that it can locate suitable sites to build these centers along a fiber path
on a cost-effective basis. If PSINet locates suitable sites, it will be subject
to construction risks, such as cost overruns and delays, and possible difficulty
in obtaining the hardware and telecommunications connectivity necessary to make
the Internet and eCommerce hosting centers operational. Also, once completed,
PSINet could experience difficulties in filling these centers to break even
profit capacity. Given the growing competition in PSINet's industry, speed to
market is a critical issue. To the extent PSINet experiences difficulties,
delays and unexpected costs, it may be adversely affected.
22
<PAGE>
PSINet may not be able to integrate acquired businesses and may not be able to
acquire businesses in the future
During the two years ended December 31, 1999, PSINet acquired TNI and 60
ISPs and related businesses for aggregate purchase prices and related payments
of approximately $1.4 billion exclusive of assumed debt. In order to
successfully integrate these businesses into PSINet's own existing business,
PSINet needs to expand and refine its management, personnel, accounting,
information systems and other resources.
If PSINet does not effectively expand its capabilities and deploy its
resources to meet these needs, its business may be disrupted and adversely
affected. Other risks include:
. possible inability of management to incorporate licensed or acquired
technology and rights into PSINet's service offering; and
. possible impairment of relationships with employees, customers and
suppliers as a result of changes in management.
PSINet cannot assure you that it will be successful in overcoming these
risks or other problems encountered in connection with acquisitions, strategic
alliances or investments it makes in other companies. PSINet believes that after
eliminating redundant network architecture and administrative functions and
taking other actions to integrate the operations of acquired companies it will
be able to realize cost savings. However, although PSINet has assembled teams to
help it integrate the businesses that it acquires, it cannot assure you that the
integration process will be successfully accomplished. PSINet may take charges
or make adjustments to the depreciable lives of its assets as it integrates
acquired companies and also seeks to reduce its cost structure. PSINet's
inability to improve the operating performance of businesses it acquires or to
integrate successfully the operations of those companies could have a material
adverse effect on it. In addition, as PSINet proceeds with acquisitions in which
the consideration consists of cash, a substantial portion of its available cash
may be used for those purposes.
The purchase price of many of the businesses that might become attractive
acquisition candidates for PSINet likely will significantly exceed the fair
values of the net assets of the acquired businesses. As a result, material
goodwill and other intangible assets would be required to be recorded which
would result in significant amortization charges in future periods.
In addition, an intangible asset that frequently arises in connection with
the acquisition of a technology company is "acquired in-process research and
development," which under present U.S. accounting standards must be expensed
immediately upon acquisition. Such expenses, in addition to the financial impact
of acquisitions, could have a material adverse effect on it and could cause
substantial fluctuations in its quarterly and yearly operating results. During
1999, PSINet recorded $88.7 million of charges for acquired in-process research
and development in connection with three acquisitions. Furthermore, in
connection with acquisitions or strategic alliances, PSINet could incur
substantial expenses including the expenses of integrating the business of the
acquired company or the strategic alliance with its existing business.
23
<PAGE>
Although PSINet has been successful to date in identifying acquisition
candidates at prices it considers to be reasonable, it cannot assure you that
this will continue. PSINet expects that competition for appropriate acquisition
candidates may be significant. It may compete with other telecommunications
companies with similar acquisition strategies, many of which may be larger and
have greater resources than it has. Competition for Internet companies is based
on a number of factors including price, terms and conditions, size and access to
capital, ability to offer cash, stock or other forms of consideration and other
matters. PSINet cannot assure you that it will be able to successfully identify
and acquire suitable companies on acceptable terms and conditions.
If PSINet does not effectively expand its capabilities and deploy its
resources to meet these needs, its business may be disrupted and adversely
affected.
PSINet's growth and expansion may strain its ability to manage its operations
and its financial resources
PSINet's rapid growth has placed a strain on its administrative, operational
and financial resources and has increased demands on its systems and controls.
PSINet has more than 900 points of presence (POPs) and it plans to continue to
expand the capacity of existing POPs as customer-driven demand dictates. In
addition, PSINet has completed a number of acquisitions of companies and
telecommunications bandwidth during 1998 and 1999 and plans to continue to do
so. The process of consolidating the businesses and implementing the strategic
integration of acquired businesses with PSINet's existing business may take a
significant amount of time. It may also place additional strain on PSINet's
resources and could subject it to additional expenses. PSINet cannot assure you
that its existing operating and financial control systems and infrastructure
will be adequate to maintain and effectively monitor its growth. PSINet's
continued growth and personnel turnover may also increase its need for qualified
personnel. PSINet cannot assure you that it will be successful in attracting,
integrating and retaining qualified personnel.
PSINet's success depends on providing increasing bandwidth to carry more
information faster than its competitors, which is expensive, requires it to make
significant future commitments and depends on technology that can become
obsolete quickly
At December 31, 1999, PSINet was obligated to make future cash payments
totaling $388.9 million for acquisitions of global fiber-based and satellite
telecommunications bandwidth, including indefeasible rights of use (IRUs) or
other rights. In addition, if certain additional fiber-based bandwidth is
delivered as expected in 2001, PSINet will have additional payment obligations
ranging from $120.0 to $180.0 million, depending on when the bandwidth is
delivered. PSINet also expects that there will be additional costs, such as
connectivity and equipment charges to take full advantage of this acquired
bandwidth and IRUs. Some of this fiber-based and satellite telecommunications
bandwidth may require acquisition and installation of equipment necessary to
access and light the bandwidth in order to make it operational. PSINet
anticipates making significant investments to acquire and build-out new Internet
and eCommerce hosting centers in key financial and business centers throughout
the world and to purchase other facilities. PSINet currently anticipates that
capital expenditures will be approximately $1.5 billion for the year ending
December 31, 2000. Additionally, in connection
24
<PAGE>
with its awards of external and local wireless licenses in Hong Kong, PSINet has
committed to invest approximately $385.8 million to build a next generation IP
network in Hong Kong. If PSINet cannot continue to provide bandwidth, its
business will suffer.
In order to compete effectively PSINet needs to continually develop new products
and services that gain market acceptance and keep the confidence of its
customers
PSINet has introduced new enterprise service offerings, including
value-added, IP-based enterprise communication services and DSL-based Internet
access services. The failure of these services, particularly DSL-based services,
to gain market acceptance in a timely manner could have an adverse effect on
PSINet. To the extent that new or enhanced services are introduced and are not
reliable, or there are quality or compatibility problems, it could negatively
impact market acceptance of such services and adversely affect PSINet's ability
to attract or retain customers and subscribers. PSINet's services may contain
undetected errors or defects that could result in additional development or
remediation costs and loss of credibility with its customers and subscribers.
Additionally, if PSINet is unable to meet customer demand for network
capacity, its network could become congested during peak periods. Congestion
could adversely affect the quality of service it is perceived to provide.
Conversely, due to the high fixed cost nature of its infrastructure, if PSINet's
network is under- utilized, it could adversely affect its ability to provide
cost-efficient services. PSINet's failure to match network capacity to demand
could have an adverse effect on it.
If PSINet does not continue to expand internationally, its business may suffer
A key component of PSINet's business strategy is its continued expansion
into international markets. Revenue from PSINet's non-U.S. operations continues
to increase as a percentage of consolidated results, comprising 51% of revenue
for 1999. By comparison, PSINet's non-U.S. operations comprised 40% of revenue
for all of 1998. As a result of PSINet's acquisition of TNI, its revenue mix
will likely change again in 2000 because TNI's revenues are derived primarily
from U.S. operations. PSINet may need to enter into joint ventures or other
strategic relationships with one or more third parties in order to conduct its
foreign operations successfully. To the extent that PSINet cannot do so, its
business may be adversely affected. In addition, there are a number of risks
involved with doing business abroad including:
. unexpected changes in or delays resulting from foreign laws, regulatory
requirements, tariffs, customs, duties and other trade barriers;
. difficulties in staffing and managing foreign operations;
. longer payment cycles and problems in collecting accounts receivable;
. fluctuations in currency exchange rates and foreign exchange controls
which restrict or prohibit repatriation of funds;
. technology export and import restrictions;
25
<PAGE>
. delays resulting from customs brokers or government agencies;
. seasonal reductions in business activity during the summer months in
Europe and other parts of the world; and
. potentially adverse tax consequences, which could adversely impact the
success of PSINet's international operations.
Asia-Pacific and Latin American countries in which PSINet operates have
experienced economic difficulties and uncertainties during the past few years.
Economic difficulties and uncertainties in varying regions of the world could
also adversely affect PSINet.
The loss of key management personnel could have a material adverse effect on
PSINet
PSINet's success is highly dependent upon the personal abilities of its
senior executive management, which includes its Chairman of the Board and Chief
Executive Officer and founder and its President and Chief Operating Officer.
PSINet has employment agreements with both of these senior executive officers.
The loss of the services of key management personnel could have a material
adverse effect on PSINet.
PSINet experiences personnel turnover from time to time. Three of PSINet's
financial and accounting executives recently have taken positions with other
companies. PSINet has filled the positions on an interim basis while it is
actively recruiting to fill these positions permanently. It does not expect the
departure of these executives to have a material adverse effect on it. The
transition of financial and accounting management could result in some
disruption to PSINet's ongoing operations. If PSINet fails to complete this
transition in a timely manner, its financial and accounting systems and
operations may suffer.
PSINet could be adversely affected by changes in suppliers or delays in delivery
of their products and services
From time to time, PSINet is dependent on third party suppliers for its
leased-line connections, or bandwidth, and some hardware components. Some of
these suppliers are or may become competitors. To the extent these suppliers
increase prices, PSINet may be adversely affected. Moreover, any failure or
delay on the part of PSINet's network providers to deliver bandwidth to it or to
provide operations, maintenance and other services with respect to such
bandwidth in a timely or adequate fashion could adversely affect PSINet.
In the case of hardware suppliers, although PSINet attempts to maintain a
minimum of two vendors for each required product, it is not always able to do
so. Some components that PSINet uses to provide networking services are
currently supplied only by one source. PSINet has from time to time experienced
delays in the receipt of hardware components and telecommunications facilities,
including delays in delivery of Primary Rate Interface telecommunications
facilities, which connect its dial-up customers to its network. A failure by a
supplier to deliver products and services on a timely basis, or the inability to
develop alternative sources for such products and services, could adversely
affect PSINet's business.
26
<PAGE>
Recent legislative and regulatory actions may affect the prices that PSINet
is charged by the regional bell operating companies and other bandwidth
carriers, which could adversely affect PSINet's business.
PSINet's network is susceptible to failure, shutdown and disruption
PSINet has implemented many network security measures, such as limiting
physical and network access to its routers. Nonetheless, PSINet's network
infrastructure is potentially vulnerable to computer viruses, break-ins, denials
of service and similar disruptive problems that could lead to interruptions in
service to its customers. Third parties could also potentially jeopardize the
security of confidential information stored in the computer systems of PSINet's
customers. Any one of these disruptions could deter potential customers, result
in loss of customer confidence and adversely affect PSINet's existing customer
relationships. PSINet also cannot assure you that it will not experience
failures or shutdowns relating to individual POPs or even catastrophic failure
of the entire network, whether because of an "act of God" or otherwise.
These disruptions may also result in claims against PSINet or liability to
it. Such claims, regardless of their ultimate outcome, could result in costly
litigation and could have an adverse effect on PSINet or its reputation or on
its ability to attract and retain customers for its products.
PSINet may be liable for information distributed on its network
The law relating to liability of ISPs for information disseminated through
their networks is not completely settled. A number of lawsuits have sought to
impose such liability for defamatory speech, infringement of copyrighted
materials and other claims. A U.S. Circuit Court of Appeals case held that an
ISP was protected by a provision of the Communications Decency Act from
liability for material posted on its system but this case may not be applicable
in other factual circumstances. Other courts have held that online service
providers and ISPs may, under some circumstances, be subject to damages for
copying or distributing copyrighted materials. However, in an effort to protect
certain qualified ISPs, the Digital Millennium Copyright Act provides qualified
ISPs with a "safe harbor" from liability for copyright infringement. PSINet has
taken steps to qualify for the "safe harbor" but there is no assurance that it
will be found to have qualified, if challenged in court. In 1998, the Child
Online Protection Act was enacted requiring limitations on access to pornography
and other material deemed "harmful to minors." This legislation has been
attacked in court as a violation of the First Amendment. PSINet is unable to
predict the outcome of this case at this time. The imposition upon ISPs or Web
server hosts of potential liability for materials carried on or disseminated
through their systems could require it to implement measures to reduce its
exposure to such liability. Such measures may require that PSINet spend
substantial resources or discontinue some product or service offerings. Any of
these actions could have an adverse effect on PSINet's business, operating
results and financial condition.
The regulation and liability of ISPs regarding information disseminated
through their networks is also undergoing a process of development in other
countries. For example, a recent court decision in England held an ISP liable
for certain allegedly indecent content carried through its network under factual
circumstances in which the ISP had failed to delete it when asked to do so by
the complainant. This case is reported to have settled at the end of March 2000
27
<PAGE>
with the ISP paying the claimant (pound)200,000. Legal developments in other
countries may impact PSINet due to its operations in those countries as well as
the ubiquity of the Internet. Decisions, laws, regulations and other activities
regarding regulation and content liability may significantly affect the
development and profitability of companies offering on-line and Internet access
services, including PSINet.
One particular area of uncertainty in this regard results from the entry
into effect of European Union Directive 95/46/EC on the protection of
individuals with regard to the processing of personal data and on the free
movement of such data. The EU Directive imposes obligations in connection with
the protection of personal data collected or processed by third parties. Under
some circumstances, PSINet may be regarded as subject to the EU Directive's
requirements. The United States and the European Union currently are negotiating
the application of the EU Directive to U.S. companies.
Asserting and defending intellectual property rights may adversely impact
results of operations regardless of the outcome
Competitors increasingly assert intellectual property infringement claims
against each other. The success of PSINet's business depends on its ability to
successfully defend its intellectual property. These types of claims may have a
material adverse impact on it regardless of whether or not PSINet is successful.
>From time to time, PSINet has received claims that it has infringed rights of
others. If a competitor were successful bringing a claim against PSINet,
PSINet's business might suffer. PSINet cannot assure you that it will be
successful defending or asserting its intellectual property rights.
PSINet is subject to foreign currency and exchange risks
During the year ended December 31, 1999, 51% of PSINet's revenue was derived
from operations outside the United States and 21% of its assets were located
outside the United States. PSINet anticipates that a significant percentage of
its future revenue and operating expenses will continue to be generated from
operations outside the United States, including investment in foreign companies.
Accordingly, PSINet will be subject to significant foreign currency and exchange
risks. PSINet's obligations and those of its customers in foreign currencies
will be subject to unpredictable and indeterminate fluctuations in the event
that such currencies change in value relative to U.S. dollars. Furthermore,
PSINet and its customers may be subject to exchange control regulations which
might restrict or prohibit the conversion of such currencies into U.S. dollars.
Although PSINet has not entered into hedging transactions to limit its foreign
currency risks, as a result of the increase in its foreign operations and its
issuance of euro-denominated indebtedness, it may implement such practices in
the future. PSINet cannot assure you that it will be successful in these
activities or that they will not have an adverse effect on its financial
condition.
PSINet is subject to competitive pressures that may adversely impact it
The market for Internet connectivity and related services is extremely
competitive. PSINet's current and prospective competitors include national,
regional and local ISPs, long distance and local exchange telecommunications
companies, cable television and direct broadcast satellite
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providers, wireless communications providers and on-line service providers.
While PSINet believes that its network, products and customer service
distinguish it from its competitors, some of these competitors have greater
market presence, brand recognition, and financial, technical and personnel
resources.
New regulations may adversely affect PSINet
PSINet's activities subject it to varying degrees of federal, state and
local regulation. The Federal Communications Commission (FCC) exercises
jurisdiction over all facilities of, and services offered by, telecommunications
carriers to the extent that they involve the provision, origination or
termination of jurisdictionally interstate or international communications. The
state regulatory commissions retain jurisdiction over the same facilities and
services to the extent they involve origination or termination of
jurisdictionally intrastate communications.
PSINet's Internet operations are not currently subject to direct regulation
by the FCC or any other governmental agency, other than regulations applicable
to businesses generally. However, the FCC has indicated that some services
offered over the Internet, such as phone-to-phone IP telephony, may be
functionally indistinguishable from traditional telecommunications service
offerings and their non-regulated status may have to be re-examined. PSINet is
unable to predict what regulations may be adopted in the future, or to what
extent existing laws and regulations may be found applicable, or the impact that
any new or existing laws may have on its business. PSINet cannot assure you that
new laws or regulations relating to Internet services will not have an adverse
effect on it. Although the FCC has decided not to allow local telephone
companies to impose per-minute access charges on Internet service providers, and
that decision has been upheld by the reviewing court, further regulatory and
legislative consideration of this issue is likely. In addition, some telephone
companies are seeking relief through state regulatory agencies. Such rules, if
adopted, would affect PSINet's costs of serving dial-up customers and could have
an adverse effect on it.
If PSINet becomes subject to provisions of the Investment Company Act of 1940,
its business operations may be restricted
PSINet has significant amounts of cash and pending its utilization of all
the net proceeds from its debt and equity offerings will have an even greater
amount of cash invested in short-term investment grade and government
securities. The Investment Company Act of 1940 places restrictions on the
capital structure and business activities of companies registered thereunder.
PSINet has active business operations in the Internet industry and does not
propose to engage in investment activities in a manner or to an extent which
would require it to register as an investment company under the Investment
Company Act of 1940. The Investment Company Act of 1940 permits a company to
avoid becoming subject to it for a period of up to one year despite the holding
of investment securities in excess of the amount permitted if, among other
things, its board of directors has adopted a resolution which states that it is
not the company's intention to become an investment company. PSINet's board of
directors has adopted such a resolution that would become effective in the event
it is deemed to fall within the definition of an investment company. If PSINet
were to be determined to be an investment company, its business would be
adversely affected.
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The market price and trading volume of PSINet's stock may be volatile
The market price and trading volume of PSINet's common stock and convertible
preferred stock has been and may continue to be highly volatile. Factors such as
variations in PSINet's revenue, earnings and cash flow and announcements of new
service offerings, technological innovations, strategic alliances or
acquisitions involving PSINet's competitors or price reductions by PSINet,
PSINet's competitors or providers of alternative services could cause the market
price of PSINet's common stock and convertible preferred stock to fluctuate
substantially. In addition, the stock markets recently have experienced
significant price and volume fluctuations that particularly have affected
technology-based companies and resulted in changes in the market prices of the
stocks of many companies that have not been directly related to the operating
performance of those companies. The broad market fluctuations have adversely
affected and may continue to adversely affect the market price of PSINet's
common stock and convertible preferred stock.
PSINet does not anticipate paying cash dividends on its common stock
PSINet has never declared or paid any cash dividends on its common stock and
does not anticipate paying cash dividends on its common stock in the foreseeable
future. In addition, PSINet's debt securities contain limitations on its ability
to declare and pay cash dividends.
Risk Factors Relating to Metamor
Investors are urged to read the risk factors relating to Metamor's business
contained in Metamor's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999 which is incorporated by reference in this document. After the
merger, these risk factors will apply to the combined entity. To the extent that
the businesses of PSINet and Metamor are subject to similar risks, the combined
entity may be more susceptible to such risks than either PSINet or Metamor would
be as an individual company.
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THE COMPANIES
PSINet Inc.
PSINet is a leading global provider of Internet and eCommerce solutions to
businesses. As an Internet Super Carrier (ISC), it offers a robust suite of
products globally that enables its customers to utilize the Internet for mission
critical applications carried over a worldwide fiber optic network that is
capable of transmission speeds in excess of three terabits per second. PSINet
defines the elements of an ISC to include:
. Worldwide fiber network and related optronic equipment - PSINet operates
one of the largest global data communications networks. It is Internet
optimized and built with PSINet's fiber, satellite and wireless
facilities which circumnavigate the globe, and is designed to enable
PSINet's customers to connect to the Internet and access their corporate
networks and systems resources from most of the world's major business
and population centers.
. Multiple Internet and eCommerce hosting centers - PSINet currently has
open eight global Internet and eCommerce hosting centers located in
Amsterdam, Herndon (Virginia/DC), La Chaux-de-Fonds (Switzerland),
London, Los Angeles, New York City, Toronto and Tokyo. These data
centers contain a total of approximately 250,000 square feet. In
addition, PSINet plans to open the following 12 global Internet and
eCommerce hosting centers: eight in its U.S./Canada segment (Atlanta,
Austin, Boston, Dallas, Loudoun (Virginia/DC), Miami, San Francisco and
Toronto); two in its Europe segment (Berlin and Geneva); and two in its
Asia/Pacific segment (Seoul and Sydney). These data centers are expected
to range from 60,000 to 360,000 square feet each. Once all of these
hosting facilities are completed, PSINet will have more than 2 million
square feet of state-of-the-art infrastructure in key financial and
business centers around the world.
. Full suite of products - PSINet offers a full suite of Internet access
and eCommerce products for corporate customers in 27 countries that not
only allow them to access the Internet but also to host their mission
critical business applications. It has a private label business unit,
serving leading Internet Service Providers (ISPs) and telephone
companies with Internet services supporting nearly 1 million consumers.
In addition, through its Virtual ISP (VISP) programs, PSINet provides a
full private label solution to organizations who wish to offer Internet
services to their customers, employees or members.
. Extensive global distribution - PSINet has over 1,000 sales personnel
and 2,500 Value Added Resellers (VAR), systems integrators and Web
design professionals throughout the world.
. Global brand name recognition - PSINet's brand name is increasingly
recognized throughout the world for Internet and eCommerce services and
applications that meet the needs of business customers, supported by
local language sales, provisioning and service.
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PSINet offers a suite of value-added products and services that are designed
to enable its customers, through their use of the Internet, to more efficiently
transact and conduct eCommerce with their customers, suppliers, business
partners and remote office locations. PSINet provides Internet connectivity and
Web hosting services to more than 91,000 corporate customers, which together
with its ISP, carrier, small office/home office (SOHO) and consumer businesses
around the world served over 2.0 million end users. PSINet's services and
products include dedicated, dial-up and digital subscriber line (DSL) Internet
access services connections, Web hosting and collocation services, transaction
network services, virtual private networks (VPNs), eCommerce solutions,
voice-over-Internet protocol (IP), e-mail and managed security services. PSINet
also provides wholesale and private label network connectivity and related
services to other ISPs and telecommunications carriers to further utilize its
network capacity. It serves approximately 90 of the 100 largest metropolitan
statistical areas in the U.S., has a presence in the 20 largest
telecommunications markets globally and operates in 27 countries. PSINet
conducts its business through operations organized into five geographic
operating segments - U.S./Canada, Latin America, Europe, Asia/Pacific and
India/Middle East/Africa.
PSINet operates one of the largest global commercial data communications
networks. Its Internet-optimized network extends around the globe and is
connected to more than 900 POPs that enable its customers to connect to the
Internet. Its network reach allows PSINet customers to access their corporate
network and systems resources through local calls in over 150 countries. It
expands the reach of its network by connecting with other large ISPs through
contractual arrangements, called peering agreements, that permit the exchange of
information between its network and the networks of its peering partners. PSINet
offers free peering to ISPs in more than 100 cities in the continental U.S.,
which provides each party with the opportunity to bypass the often congested and
unreliable public exchange points, thereby improving overall network performance
and customer satisfaction. PSINet currently has eight global Internet and
eCommerce hosting centers operating and plans to open 12 more. It also has three
network operating centers that monitor and manage network traffic 24-hours per
day, seven-days per week.
PSINet's mission is to build the premier global IP-based communications
company. It has grown by using multiple sales channels, including direct sales
and resellers, and by acquiring other ISPs and related businesses in key
markets. It has increased revenues by providing services and products that
enhance its customers' business processes by helping them to effectively use the
Internet. It has embarked on an initiative to aggressively grow its hosting
center business through the construction of more than $1.0 billion of new
facilities.
As a result of acquisitions in 1998 and 1999, PSINet has amassed a
significant number of consumer customers throughout its operating regions. Its
primary strategic focus is on providing services to business and wholesale
customers. Accordingly, in February 2000 PSINet announced that it has begun
consolidating its worldwide retail consumer operations into a new retail
business unit that will be run by an experienced management team and will
consist of nearly 400 staff specialists in consumer sales, marketing and
customer support, together with existing billing and customer support systems.
This retail unit will initially serve approximately 400,000 consumer accounts
distributed throughout global markets (mostly outside of the United States),
with over 30 localized consumer portals in more than 20 countries. PSINet
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is currently assessing options on how to structure this business unit to
maximize PSINet shareholder value.
In February 2000, PSINet announced the launch of PSINet Ventures, a new
corporate venture program. With a combination of cash investments and the
exchange of services for equity, PSINet Ventures will partner with innovative
Internet entrepreneurs through direct minority equity investments, typically
during early-and mid-stage financing. PSINet Ventures will focus globally on
application service providers (ASPs), content service providers (CSPs),
eCommerce providers, Internet infrastructure providers, incubators, and other
emerging opportunities that enhance PSINet's financial and competitive
technology and service positions. The services for equity structure permits the
start-up company to purchase any PSINet service, including managed web hosting
and VISP services, in exchange for equity rather than cash.
During the past two years PSINet has made significant acquisitions of
fiber-based bandwidth and related equipment to enhance its network
infrastructure and lower its per unit operating costs. In addition, it has
acquired more than 60 companies throughout its five geographic operating
regions, with many in the same countries where the result is an overlapping
network infrastructure. During the first quarter of 2000, PSINet completed and
approved a plan that will be directed to eliminating redundancies, streamlining
operations, and taking advantage of synergies created by its mergers and
acquisitions process. PSINet believes this may result in a restructuring charge
in the quarter ended March 31, 2000.
Metamor Worldwide, Inc.
Metamor is a leading provider of information technology (IT) solutions with
one of the broadest and most diverse service offerings available in the
industry. It was founded in 1993 as a traditional staffing services business
under the name COREStaff, Inc. In 1994, Metamor began offering information
technology services to its clients and in 1998 it divested itself of its
traditional staffing services business. In 1999, Metamor completed the initial
public offering of 20% of its eBusiness solutions subsidiary, Xpedior
Incorporated. On December 16, 1999, Xpedior began trading on The Nasdaq Stock
Market under the symbol "XPDR". Metamor still owns approximately 80% of the
outstanding stock of Xpedior.
Information technology solutions consist of solutions relating to systems
that support the flow of information within and between companies and
institutions through electronic means, including computer systems, software and
peripheral systems. To meet the needs of its clients and implement solutions
with flexible project delivery capabilities, Metamor offers a broad array of
information technology solutions through its four business units: Metamor
Enterprise Solutions, a provider of comprehensive enterprise value chain
services, including supply chain management (SCM), enterprise resource planning
(ERP) and customer relationship management (CRM); Metamor Global Solutions, a
provider of global application development and outsourcing; Metamor Industry
Solutions, a provider of industry segment solutions; and Metamor European
Operations, a provider of IT consulting and ERP solutions in the European
markets.
Many of Metamor's clients are Global 2000 corporations. Metamor also has a
significant presence in the middle market with client companies ranging in size
from $200 million to $2
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billion in annual revenues. Metamor offers its clients a broad range of IT
solutions. With offices across the United States and abroad, Metamor's flexible
delivery of value-added services is provided through a combination of geographic
presence, industry focus and specialized technology practices. These services
include the following:
. Strategy and planning - Involves working with a client to determine how
information flows can be leveraged to cut costs, increase productivity,
and in many cases drive revenue. To evaluate systems, consultants study
business processes, audiences, channels and users to determine what
applications and level of IT infrastructure are necessary to meet
clients' strategic goals.
. Process improvement - Leverages past IT investments by ensuring
appropriate infrastructure, eliminating inefficiencies and migrating to
newer technologies.
. Enterprise resource planning - Includes strategic planning, package
evaluations, business system analysis, infrastructure analysis,
customization, implementation, maintenance, help desk support, upgrade
planning and deployment, training and education, web enablement and
change management services. Experienced project teams, including project
leaders, functional and technical leads, developers and application
database administrators, leverage past experience while implementing
these complex systems.
. Customer relationship management - Includes assessment, planning,
implementation and on-going support services of CRM solutions that
automate such functions as lead generation, opportunity management,
workflow analysis, field service and client care.
. Supply chain management - Includes assessment, planning, implementation
and on-going support of SCM solutions that optimize the way goods are
produced, from long-term sourcing and capital plans to short-term
scheduling on manufacturing floors. Benefits include more efficient
production, more timely products and service delivery, and the
information necessary to isolate and circumvent problems throughout the
supply chain.
. eStrategy - Defines eEnabled business processes, system and application
requirements and the operational roles associated with new eBusiness
strategies. An initial assessment is followed by a formal plan to launch
or improve the success of eBusiness objectives including technology
recommendations, time frames and infrastructure needs.
. eDevelopment - Designing and delivering browser-enabled solutions for
eCommerce, intranets, extranets, and web sites. Consultants determine
the technology combination best suited for a client's unique needs,
including database and integration, web site design and development,
intranet systems and architecture.
. eMarketing - Includes defining sales channels, analyzing client bases to
identify high-value clients, creating strategies to capture client needs
and preferences and defining a process for mass customized messaging
driven by client requirements.
. eEnablement - Integrating package, custom and legacy systems with
Internet technologies to bridge the gap between operations, clients and
suppliers.
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. Custom application development - Involves leveraging expertise in
industry dynamics, process management, and application and architecture
design to construct scalable and flexible custom software applications.
Solutions take into account the business processes surrounding the new
system and the unique needs of the end user.
. System integration - Provide customized integration services, from
implementing new third-party software, to preparing for the integration
of systems from acquired companies.
. Enterprise application integration - Allows interoperability between two
or more enterprise applications by implementing a set of technologies
that allow the movement and exchange of information between different
applications and business processes within and between organizations.
. Knowledge management - Implementing systems that can uncover important
information about an organization's clients, suppliers and internal
operations that is buried within multiple sources, inaccurate, or
otherwise unusable. Components of a knowledge management system include
data warehousing, data mining, business analysis and business
intelligence solutions.
. Quality assurance and testing - Using a proven testing methodology,
certified software test engineers provide user, unit and acceptance
testing using automated testing tools.
. Training - Developing highly customized courseware focused on the
end-user and offering prepackaged application software training for
clients who choose to initiate, or continue, their training in-house.
. Application maintenance - Ensuring the ongoing accessibility,
functionality and interoperability of customized applications, third
party applications and applications developed by Metamor.
. Networking services - Supporting complex distributed network
infrastructures through planning and modeling, design, implementation,
technical support, desktop management, security, disaster avoidance and
data/voice/video integration.
. Total IT management - Providing the complete IT department, from the
chief information officer function (strategy and management) through the
help desk.
Metamor has developed a sales and marketing strategy that focuses on
national, regional and local accounts within specific industries. Regional and
local accounts are targeted by account managers at the regional offices,
enabling Metamor to capitalize on the local expertise and established
relationships of its regionally-dispersed employees. Where appropriate, the
sales efforts are supported with specific expertise from the functional Centers
of Excellence and Practice areas. Such accounts are solicited through personal
sales presentations, referrals from clients and advertising in a variety of
local and national media, including newspapers, trade and industry publications,
radio and outdoor advertising. Metamor also conducts public relations activities
designed to enhance public recognition of Metamor and its services. Local
employees
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are encouraged to be active in civic organizations and industry trade groups to
facilitate the development of new client relationships.
Metamor's national sales and marketing efforts are coordinated by management
at the corporate level, which enables Metamor to develop a consistent, focused
strategy to pursue new business opportunities. Metamor employs the Solutions
Selling(R) methodology, and has trained all of its sales staff so that it can
more effectively sell its solutions based IT services. The Company continues to
penetrate existing customers, to expand existing business while offering
solutions based services to new customers in its strategic vertical industries.
This strategy allows Metamor to leverage the capabilities of each of its
business units and cross-sell its solutions using a single, standard sales and
marketing approach.
In the IT services industry, the demand for project managers, system
architects, business analysts and other technology consultants significantly
exceeds supply. Metamor's success depends in large part on its ability to
attract, develop, motivate and retain highly-skilled IT consultants. Metamor has
strong recruiting channels in the United States, Europe and India to hire
experienced IT consultants. Metamor also has a program focused on hiring and
training recent college graduates. To ensure the high quality of its personnel,
Metamor follows a selection process that includes interviews, tests and
reference checks. At December 31, 1999, Metamor employed approximately 4,650
full-time employees and consultants, of whom approximately 1,500 are foreign
nationals working in the United States under H1-B permits. As of December 31,
1999, Xpedior had 1,317 full-time employees, comprised of 1,045 professionals
and 272 administrative and support employees.
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THE SPECIAL MEETINGS
We are furnishing this prospectus/proxy statement to shareholders of PSINet
and stockholders of Metamor as part of the solicitation of proxies by the PSINet
and Metamor boards of directors for use at the special meetings of PSINet and
Metamor.
The PSINet Special Meeting
Date, Time and Place. PSINet's board of directors is soliciting proxies in
the form accompanying this document for use at the special meeting of PSINet
shareholders. The special meeting of PSINet shareholders will be held on ,
May , 2000, at 10:00 a.m., local time, at PSINet's offices located at 44983
Knoll Square, Ashburn, Virginia.
Purpose of Special Meeting. At the special meeting, PSINet will ask holders
of PSINet common stock as of the record date to approve the issuance of PSINet
common stock in connection with the merger. The shares of PSINet common stock
that will be issued in connection with the merger will include shares issued as
merger consideration to the Metamor stockholders, shares issuable under Metamor
options that are assumed by PSINet and shares issuable upon the conversion of
outstanding convertible notes of Metamor that are not converted prior to the
merger. PSINet's board of directors has determined that the merger is fair to,
and in the best interests of, PSINet shareholders. The board has unanimously
approved the merger and the issuance of the PSINet common stock in connection
with the merger and unanimously recommends that PSINet shareholders vote "for"
the issuance of the PSINet common stock.
Record Date; Stock Entitled to Vote; Quorum. PSINet's board of directors has
fixed the close of business (5:00 p.m. local time) on April , 2000
as the record date. Only holders of record of PSINet common stock at the close
of business on the record date are entitled to notice of and to vote at the
PSINet special meeting. On the record date, shares of PSINet common stock
were issued and outstanding and held by approximately holders of record.
A quorum will be present at the PSINet special meeting if a majority of the
shares of PSINet common stock issued and outstanding and entitled to vote on the
record date are represented at the meeting in person or by proxy. In the event
that a quorum is not present at the PSINet special meeting, it is expected that
the meeting will be adjourned or postponed to solicit additional proxies.
Holders of record of PSINet common stock on the record date are entitled to one
vote per share at the PSINet special meeting on the proposal to approve the
issuance of the PSINet common stock.
Votes Required. The approval of the issuance of the PSINet common stock in
connection with the merger requires the affirmative vote of a majority of the
total votes cast at the PSINet special meeting.
Voting by PSINet Directors and Executive Officers. On the record date,
PSINet directors and executive officers and their affiliates owned and were
entitled to vote shares of PSINet common stock, or approximately %
of the shares of PSINet common stock outstanding on the record date. William
Schrader, PSINet's Chairman and Chief Executive Officer, agreed to vote shares
of PSINet common stock that he is entitled to vote at the PSINet special
meeting,
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representing % of the outstanding PSINet common stock entitled to vote
at the meeting, "for" the approval of the issuance of the PSINet common stock in
connection with the merger.
The Metamor Special Meeting
Date, Time and Place. Metamor's board of directors is soliciting proxies in
the form accompanying this document for use at the special meeting of Metamor
stockholders. The special meeting of Metamor stockholders will be held on ,
May , 2000, at 9:00 a.m., local time, at , Houston, Texas.
Purpose of Special Meeting. At the special meeting, we are asking holders
of Metamor common stock to adopt the merger agreement. Metamor's board of
directors has determined that the merger is fair to, and in the best interests
of, Metamor stockholders. By the unanimous vote of those voting, the Metamor
board has approved the merger agreement and the merger and recommends that
Metamor stockholders vote "for" adoption of the merger agreement.
Record Date; Stock Entitled to Vote; Quorum. Metamor's board of directors
has fixed the close of business (5:00 p.m. local time) on April , 2000 as the
record date. Only holders of record of Metamor common stock at the close of
business on the record date, are entitled to notice of and to vote at the
Metamor special meeting. On the record date, shares of Metamor common stock
were issued and outstanding and held by approximately holders of record.
A quorum is present at the Metamor special meeting if one-third of the
shares of Metamor common stock issued and outstanding and entitled to vote on
the record date are represented at the meeting in person or by proxy; however,
the adoption of the merger agreement will require approval of the holders of a
majority of the outstanding shares of Metamor common stock. In the event that a
quorum is not present at the Metamor special meeting, it is expected that the
meeting will be adjourned or postponed to solicit additional proxies. Holders of
record of Metamor common stock on the record date are entitled to one vote per
share at the Metamor special meeting on the proposal to adopt the merger
agreement.
Votes Required. The adoption of the merger agreement requires the
affirmative vote of a majority of the shares of Metamor common stock outstanding
on the record date.
Voting by Metamor Directors and Executive Officers. On the record date,
Metamor directors and executive officers and their affiliates owned and were
entitled to vote shares of Metamor common stock, or approximately % of the
shares of Metamor common stock outstanding on the record date. Peter Dameris,
Metamor's Chief Executive Officer and President, has agreed to vote shares of
Metamor common stock that he is entitled to vote at the Metamor special meeting,
representing % of the outstanding Metamor common stock entitled to vote at
the meeting, "for" the adoption of the merger agreement.
Voting of Proxies
All PSINet and Metamor shares represented by properly executed proxies
received in time for the applicable special meeting will be voted at the
applicable special meeting in the manner
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specified by the proxies. Properly executed proxies that do not contain voting
instructions will be voted "for" the approval of the issuance of the PSINet
common stock or the adoption of the merger agreement, as the case may be. Shares
of PSINet and Metamor common stock represented at the applicable special meeting
but not voting, including shares of PSINet common stock for which proxies have
been received but for which holders of shares have abstained, will be treated as
present at the special meeting for purposes of determining the presence or
absence of a quorum for the transaction of all business.
Only shares affirmatively voted for a proposal, including properly executed
proxies that do not contain voting instructions, will be counted as favorable
votes for that proposal. Brokers who hold shares of PSINet or Metamor common
stock in street name for customers who are the beneficial owners of such shares
may not give a proxy to vote those customers' shares in the absence of specific
instructions from those customers. These unvoted shares are referred to as
broker non-votes. Shares represented by broker non-votes will not be counted as
present for determining the existence of a quorum and, in the case of the
Metamor special meeting, have the effect of votes against adoption of the merger
agreement. The persons named as proxies by a stockholder may propose and vote
for one or more adjournments of the special meetings, including adjournments to
permit further solicitations of proxies. No proxy voted against a proposal will
be voted in favor of any adjournment or postponement.
PSINet and Metamor do not expect any matter other than the proposals
described in this document to be brought before either special meeting. If,
however, either the PSINet or Metamor board of directors properly presents other
matters at the applicable special meeting, the persons named as proxies will
vote in accordance with their judgment.
Revocability of Proxies
The grant of a proxy by telephone, over the Internet or on the enclosed form
of proxy does not preclude a stockholder from voting in person at the special
meeting. A stockholder may revoke a proxy at any time prior to its exercise by
filing with the Secretary of PSINet or Metamor, as applicable, a duly executed
revocation of proxy, by submitting in the same manner as the prior proxy a duly
executed proxy bearing a later date or by appearing at the special meeting and
voting in person. Attendance at the special meeting will not itself constitute
revocation of a proxy.
Solicitation of Proxies
PSINet will bear the cost of the solicitation of proxies from its
shareholders, and Metamor will bear the cost of the solicitation of proxies from
its stockholders. In addition to solicitation by mail, the directors, officers
and employees of PSINet and Metamor and their respective subsidiaries may
solicit proxies from stockholders by telephone or other electronic means or in
person. PSINet and Metamor will cause brokerage houses and other custodians,
nominees and fiduciaries to forward solicitation materials to the beneficial
owners of stock held of record by such persons. PSINet or Metamor, as
applicable, will reimburse such custodians, nominees and fiduciaries for their
reasonable out-of-pocket expenses in doing so.
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MacKenzie Partners will assist in the solicitation of proxies by PSINet.
PSINet will pay MacKenzie Partners a fee, not to exceed $ plus reimbursement
of certain out-of-pocket expenses, and will indemnify them against any losses
arising out of their proxy solicitation services on behalf of PSINet.
will assist in the solicitation of proxies by Metamor. Metamor will pay
a fee, not to exceed $ plus reimbursement of certain out-of-pocket expenses,
and will indemnify them against any losses arising out of their proxy
solicitation services on behalf of Metamor.
Metamor stockholders should NOT send stock certificates with your proxy
cards. You will receive instructions on when and where to surrender your stock
certificates after the merger.
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THE MERGER
The following discussion summarizes the material terms of the merger and the
merger agreement. Stockholders should read carefully the merger agreement, which
is attached as Annex 1 to this prospectus/proxy statement.
Background to the Merger
Within the last year, PSINet began to receive feedback from its sales force
that it would be advantageous to add certain eCommerce and information
technology, or IT, services to its portfolio of customer offerings. As a result,
one goal of PSINet's Internet Super Carrier strategy became attaining the
ability to offer a complete portfolio of IT communications, hosting, out-sourced
applications and system integration services. PSINet, after consultation with
its financial advisor Donaldson, Lufkin & Jenrette Securities Corporation (DLJ),
identified the acquisition of a large IT service provider as the best way to
obtain such capabilities on an expedited basis.
On Tuesday, March 7, 2000, at the request of PSINet's senior management, DLJ
identified to and discussed with PSINet one privately held entity and four
publicly traded corporations, including Metamor and Xpedior, that offered the
type of IT services that appeared to match PSINet's previously identified needs.
PSINet asked DLJ to investigate the possiblitity of a transaction with Metamor
and Xpedior.
On Wednesday, March 8, at the request of PSINet's senior management,
representatives of PSINet's financial advisor contacted representatives of a
separate team at DLJ who were acting as financial advisors to Metamor to express
PSINet's interest in exploring the possibility of a strategic business
combination with Metamor. Metamor responded that it would entertain a dialog
with PSINet and that its management team was considering strategic relationships
that would expand its application service provider and application outsourcing
offerings to middle market business customers.
On Thursday, March 9, PSINet's legal and financial advisors commenced an
intensive due diligence review of the publicly available information regarding
Metamor and Xpedior that continued through the weekend. Representatives of
PSINet's financial advisor and finance department also conducted financial
analyses intended to demonstrate the effects of an acquisition by PSINet of
Metamor and/or Xpedior by one or more mergers. In anticipation of exchanging
information, the parties entered into a confidentiality agreement on March 10,
2000.
On Friday, March 10, Harold Wills, PSINet's President and Chief Operating
Officer, and William Schrader, PSINet's Chairman and Chief Executive Officer met
in Houston with Peter Dameris, Metamor's Chairman, Chief Executive Officer and
President, and David Campbell, Xpedior's President and Chief Executive Officer.
During this initial meeting, the parties explored potential business
relationships among PSINet, Metamor and Xpedior, including a possible business
combination. They also discussed valuation issues relating to Metamor and
Xpedior. At the conclusion of the meeting, it was decided that it would be
advantageous to all of the parties to continue discussions and due diligence
relating to a potential business combination.
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On Saturday, March 11, Harold Wills and other members of PSINet's senior
management team, accompanied by representatives of its financial advisor, met
with members of Metamor's and Xpedior's senior management and representatives of
Metamor's financial advisor to commence high level financial due diligence and
to present detailed information on each company's capabilities and discuss the
complementary service offerings that the combined company could bring to the
market. This due diligence continued over the weekend and involved several
conference calls between PSINet's finance department and representatives of its
financial advisor, on the one hand, and Metamor's finance department and
representatives of its financial advisor on the other hand.
The senior management of the companies continued to discuss the strategic
fit between Metamor, Xpedior and PSINet between March 12 and March 21, with
senior management and their advisors meeting in Virginia several times beginning
March 17. During that period, the parties had discussions regarding the relative
valuation of the companies and the general terms and conditions of the proposed
transaction. Also during this period, Metamor and PSINet retained separate
independent financial advisors, in addition to their separate financial advisor
teams at DLJ, to advise their boards of directors as to the fairness of a
transaction to Metamor's stockholders and PSINet. Metamor engaged Lazard and
PSINet engaged Robertson Stephens as their independent financial advisors.
On Monday, March 13, senior management from PSINet and Metamor continued
their discussions regarding a potential business combination by telephone. The
two companies also reviewed and discussed with representatives of their
financial advisors a proposed fixed exchange ratio based on an implied price of
approximately $45 per share of Metamor common stock. The parties agreed to
continue discussions on the basis of this valuation.
On the evening of Wednesday, March 15, a special board meeting of PSINet was
held by telephone to discuss a possible transaction with Metamor and Xpedior. At
the meeting, Mr. Wills provided information concerning Metamor and Xpedior to
the board and discussed strategic alternatives available to PSINet. The board
then discussed the possible relative valuation of the companies as well as a
possible business combination and presented questions to PSINet's senior
management and counsel attending the meeting. At the conclusion of the meeting,
the board indicated its support for PSINet's management continuing to pursue a
transaction with Metamor and Xpedior.
On Thursday, March 16, members of PSINet's senior management gave an
overview presentation about PSINet to members of Metamor's senior management at
meetings in Houston. At these meetings members of Metamor's senior management
gave business, financial and operational presentations to members of PSINet's
senior management and PSINet's representatives of PSINet's financial advisor
regarding Metamor's European Operations and Global and Industry Solutions
business units. Simultaneously, PSINet's counsel and its independent accountants
visited Metamor's offices to conduct legal and accounting due diligence reviews
of Metamor. That night, PSINet's counsel first transmitted a draft merger
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agreement to Metamor and its legal and financial advisors that contemplated a
stock for stock exchange with a fixed exchange ratio.
On Friday, March 17, Metamor's and Xpedior's senior management continued
presentations in Northern Virginia to PSINet's senior management and
representatives of PSINet's financial advisors. These presentations focused on
Xpedior and Metamor's Enterprise Solutions business unit. Members of PSINet's
senior management also made an overview presentation about PSINet to Xpedior's
senior management. On March 17, representatives of Metamor visited PSINet's
offices to conduct further legal, operational and financial due diligence
reviews of PSINet. On March 17, PSINet's representatives at DLJ discussed with
Metamor's representatives at DLJ a proposed fixed exchange ratio of 0.9:1.0
based on a value of $45 per share for Metamor common stock and a value of $50
per share for PSINet common stock. Commencing late on March 17, 2000 and
continuing over the weekend, the parties and their counsel engaged in
negotiations regarding the terms and structure of the proposed transactions.
On Saturday, March 18, PSINet informed Metamor that, after discussions with
Xpedior, PSINet and Xpedior had agreed that PSINet would not include as part of
the proposed transaction an acquisition of the approximately 20% of Xpedior that
Metamor did not own for many of the same reasons that Xpedior's business was
segregated from Metamor, including employee retention and compensation issues.
It would instead consider making a direct investment in Xpedior convertible
preferred stock. Metamor's management, together with Metamor's in-house legal
counsel and and outside legal and financial advisors reviewed and discussed the
draft of the merger agreement distributed by PSINet, including the price and
other terms of the proposed merger.
On Sunday, March 19, members of PSINet management and its advisors at DLJ
participated in a conference call with members of Metamor's and Xpedior's
management in which they discussed potential operational and business synergies
between PSINet and Metamor and Xpedior.
On the evening of March 19, Metamor's board of directors held a telephonic
meeting to discuss the proposed transaction including a review of the
discussions to date, the proposed exchange ratio, and to better understand the
results of Metamor's ongoing due diligence review and the merits of the proposed
merger. At the meeting, which was also attended by Metamor's outside legal and
financial advisors, the Metamor board was informed of and discussed the proposed
terms of the merger and reminded of its fiduciary duties in considering the
merger under applicable law. At the conclusion of the meeting, the board
authorized management to continue negotiations with PSINet.
From March 19 through the execution of the merger agreement, PSINet, Metamor
and their legal and financial advisors continued to negotiate the terms of the
merger and legal, operational, financial and technological due diligence reviews
continued for both companies. During this same period, PSINet, Xpedior and their
financial advisors and counsel negotiated the terms of
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and drafted a letter of intent outlining the proposed investment by PSINet in
convertible preferred stock of Xpedior.
On Monday, March 20, Robertson Stephens provided PSINet with a summary of
certain financial analyses performed by Robertson Stephens and PSINet's
management circulated this analysis to PSINet's board of directors with the
current draft of the merger agreement, due diligence summaries and ancillary
materials relating to the merger. That evening, PSINet held a telephonic special
meeting of its board of directors at which PSINet's management outlined for the
board its objectives for the merger. PSINet's management provided an overview of
Metamor's business and an analysis of PSINet's position in the Internet,
eCommerce and IT markets, focusing on the strategic fit between PSINet and
Metamor and the anticipated synergies from the merger. PSINet's outside counsel
summarized the terms of the merger agreement and discussed the fiduciary duties
of the board of directors in considering the merger under applicable law.
PSINet's representatives at DLJ discussed the synergies of the proposed merger
and the proposed terms of the merger. The board heard presentations from, and
asked questions of, PSINet's management and PSINet's accountants and in-house
and outside counsel regarding the financial, operational, legal, tax and
accounting due diligence process and results. At the meeting, Robertson Stephens
made a presentation summarizing certain financial analyses performed by
Robertson Stephens. The PSINet board consulted with DLJ regarding Robertson
Stephens' presentation and its assessment of the merger. The board discussed the
input received from PSINet's management and advisors and the benefits and risks
of the proposed merger.
On Monday, March 20, Metamor's management circulated to Metamor's board a
draft of the merger agreement and a summary of the financial presentation
prepared by Lazard. Beginning in the evening of March 20 and continuing into the
morning of Tuesday, March 21, Metamor's board of directors held a telephonic
meeting to review the merger agreement and to consider the merits of a possible
business transaction with PSINet. Members of Metamor's senior management
reviewed for the board of directors the operational synergies between the two
companies and the results of their due diligence investigation. Representatives
of Lazard made a detailed financial presentation to Metamor's board and orally
advised the board that, in its opinion, as of that date and based upon and
subject to the factors and assumptions it described, the exchange ratio in
connection with the merger is fair to Metamor's stockholders from a financial
point of view. DLJ was not requested to, and did not, render any opinion to
Metamor's board of directors in connection with the merger. Representatives of
Metamor's outside legal counsel reviewed with Metamor's board of directors the
specific terms of the transaction, as embodied in the merger agreement. After a
significant period of discussion and questions, Metamor's directors in
attendance then unanimously voted to approve the merger and the merger agreement
and directed its management to complete negotiation of the merger agreement on
the terms discussed. One director was not present for the vote.
Beginning in the afternoon and continuing into the evening of Tuesday, March
21, PSINet held a second telephonic special meeting of its board of directors to
consider the merger agreement. PSINet management and its representatives
provided the board with an update as to
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the status of the negotiations with Metamor and Xpedior and the board discussed
with management how outstanding issues had been resolved. Although DLJ was not
requested to, and did not, render any opinion to PSINet's board of directors in
connection with the merger, representatives of DLJ reviewed with the PSINet
board other transactions with which they were familiar where the exchange ratio
implied large premiums to the pre-announcement stock price of the target.
Robertson Stephens updated its financial analyses of the financial terms of the
proposed transaction and orally advised PSINet's board of directors that, in its
opinion, as of that date and based upon and subject to the factors and
assumptions it described, the exchange ratio in connection with the merger is
fair to PSINet from a financial point of view. The board then deliberated on the
proposed merger and engaged in a discussion and asked questions concerning the
proposed transactions. Following this discussion, the board unanimously approved
the merger agreement, the letter of intent regarding the investment in Xpedior
and the transactions contemplated by the merger agreement and letter of intent
and authorized the execution, delivery and performance of the merger agreement,
the letter of intent and any related documents on behalf of PSINet.
Messrs. Wills and Dameris executed and delivered the merger agreement on
behalf of PSINet and Metamor on the evening of Tuesday, March 21, 2000. At the
same time, representatives of PSINet and Xpedior executed and delivered a letter
of intent regarding the acquisition by PSINet of convertible preferred stock of
Xpedior and Messrs. Dameris and Schrader executed their respective voting
agreements. Before the market opened on Wednesday, March 22, PSINet, Metamor and
Xpedior issued a joint press release announcing the transactions.
PSINet's Reasons for the Merger and Board of Directors' Recommendation
Reasons for the Merger. In reaching its decision to approve the merger
agreement and the merger, PSINet's board of directors consulted with its
management and advisors and independently considered the proposed merger
agreement and the transactions contemplated thereby. Based upon, among other
things, this review, PSINet's board of directors approved the merger agreement
and the transactions contemplated by the agreement.
The strategic basis for the merger is PSINet's belief that the integration
of Metamor's IT business and experienced consulting staff with PSINet's Internet
connectivity, eCommerce, Web hosting and suite of value-added products and
services will present a significant opportunity to create a combined
organization that will be a leader in providing global eCommerce and Internet
solutions to businesses. PSINet believes that Metamor's eBusiness, application
development and software package service offerings will enable PSINet to
leverage its telecommunications network assets and hosting centers to allow the
combined company to provide its customers with end-to-end solutions. When the
eCommerce business of Transaction Network Systems, Inc., which PSINet acquired
in November 1999, is added to the mix, the combined company appears to be in a
position to accomplish PSINet's goal of providing its customers with a complete
portfolio of bundled services, including access, business-to-business eCommerce,
ASP, communications, hosting, out-sourced applications and system integration
services. Metamor's global presence and 90,000 enterprise customers will also
create significant worldwide cross-
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selling opportunities and will set the stage for potentially rapid global
expansion. Finally, Metamor's cash flows may reduce the variability of PSINet's
cash flow by supplementing PSINet's revenues with sales of products and services
that produce recurring revenue on a per project basis.
The foregoing assessment of the merger is based on PSINet's expectations
about future performance. Neither PSINet nor Metamor can assure you that after
the merger any of the results, efficiencies or opportunities described in this
document will be achieved. See "Risk Factors--Risks Relating to the Merger."
In reaching its decision to approve the merger agreement and the
transactions contemplated thereby, the PSINet board also considered, among other
things, the following factors:
. the potential effect on shareholder value of a combination with Metamor
in light of the financial condition and prospects of PSINet and Metamor
and the current economic and industry environment, including, but not
limited to the complementary service offerings of PSINet, Metamor and
Xpedior and the possibility of synergies from combining PSINet's and
Metamor's product and service offerings and sales and marketing
organizations;
. its knowledge of the business operations, properties, assets, financial
condition and operating results of Metamor;
. PSINet's future prospects and whether such prospects could be
significantly enhanced by the merger and the anticipated operating
results of Metamor;
. the exchange ratio in light of Metamor's and PSINet's current and
historical stock market value and current financial market conditions;
. the results of due diligence investigations by PSINet's management and
legal, financial and accounting advisors concerning the business,
products and services, technology, operations, financial condition and
prospects of Metamor;
. the terms and conditions of the merger agreement, which were the product
of extensive arms' length negotiations;
. the compatibility of the respective business philosophies and corporate
cultures of PSINet and Metamor;
. the availability of other strategic alternatives and the attractiveness
of such alternatives;
. the management resources available to address the management needs of
PSINet and management's experience in managing operations at different
locations in integrating acquisitions;
. the anticipated impact of the merger on PSINet's and Metamor's
customers, suppliers and employees; and
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. the opinion of PSINet's financial advisor, Robertson Stephens, that, as
of the date of the merger agreement and subject to the conditions set
forth in Robertson Stephens' opinion, dated as of such date and
addressed to PSINet's board of directors, the exchange ratio in
connection with the merger is fair to PSINet from a financial point of
view.
PSINet's board of directors also identified and considered a number of
potentially negative factors in its deliberations concerning the merger,
including, but not limited to:
. the risk that despite the efforts of PSINet, management, marketing,
consulting and technical personnel of Metamor might not choose to remain
employed by the combined company;
. the risk that the combined company's ability to achieve synergies would
be dependent upon customer acceptance of bundled service offerings and
the pricing of bundled services, including the maintenance of current
pricing levels and retention of key customers;
. the risk that the operations of the two companies would not be
successfully integrated;
. the amount of the premium being paid in the merger compared to Metamor's
current stock price and the potential impact on PSINet and its stock
price;
. the other risks associated with PSINet's and Metamor's businesses and
with the merger described under "Risk Factors";
. the impact of the issuance of a large number of shares of PSINet common
stock in connection with the merger; and
. the risk that the merger would not be completed, including a failure
resulting from the shareholders of PSINet not approving the issuance of
the PSINet common stock.
PSINet's board of directors believed that, overall, these risks were
outweighed by the potential benefits of the merger.
The foregoing discussion is not exhaustive of all factors considered by
PSINet's board of directors. Moreover, in view of the variety of factors
considered in connection with its evaluation of the merger and the merger
agreement, PSINet's board of directors considered the factors as a whole and did
not find it practicable to, and did not, quantify or otherwise assign relative
weight to the specific factors considered in reaching its determination to
approve the merger and the merger agreement. In addition, each member of
PSINet's board of directors may have considered other factors on an individual
basis, including factors unknown to PSINet, or given different weight to
different factors considered.
Recommendation of PSINet's board of directors. After careful consideration,
PSINet's board of directors has unanimously determined that the terms of the
merger agreement and the merger are fair to, and in the best interests of,
PSINet and its shareholders and has approved the merger agreement and the
merger. PSINet's board of directors unanimously recommends that the
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shareholders of PSINet vote "for" the issuance of PSINet's common stock in
connection with the merger.
Metamor's Reasons for the Merger and Board of Directors' Recommendation
Reasons for the Merger. In reaching its decision to approve the merger
agreement and the merger, Metamor's board of directors consulted with its
management and advisors and independently considered the proposed merger
agreement and the transactions contemplated thereby. Based upon, among other
things, this review, Metamor's board of directors approved the merger agreement
and the transactions contemplated by the agreement. Metamor's board of directors
determined that the merger would be beneficial to Metamor and its stockholders
and that stockholders of Metamor should vote FOR the adoption of the merger
agreement. In approving the merger, Metamor's board of directors considered the
following matters:
. Metamor's stockholders will have the opportunity to participate in the
growth potential of the combined company after the merger, which may
create more long-term value for its stockholders;
. the combined company should have the ability to commit greater resources
to both current and emerging IT and IP solution development efforts and
to fund the future growth of its businesses;
. the premium that the exchange ratio represented at the time of the
signing of the merger agreement;
. the integration of Metamor's enterprise value chain solutions, including
packaged software solutions in supply chain management, enterprise
resource planning and customer relationship management, with PSINet's
application hosting and data centers around the world will enable the
combined company to offer a stronger end-to-end application service
provider and eCommerce solution to its customers and potentially
significantly shorten the time to market for these global service
offerings;
. the merger will provide access to PSINet's capital and technical
resources which should accelerate Metamor's and Xpedior's product
development and sales and marketing efforts;
. the global geographic coverage of PSINet's operations will allow the
combined company to expand its service offerings in Europe, the United
Kingdom, Asia and Latin America;
. Metamor's established relationships with large, strategic customers,
partners and other third parties, larger solutions sales force and well
established distribution channels will increase the number of
prospective customers for PSINet's service offerings and products;
. Metamor will gain access to PSINet's customer bases;
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. the opinion of Metamor's financial advisor, Lazard, that, as of the date
of the merger agreement and subject to the conditions set forth in
Lazard's opinion, dated as of such date and addressed to Metamor's board
of directors, the exchange ratio in connection with the merger is fair
to Metamor's stockholders from a financial point of view.
In the course of its deliberations, Metamor's board of directors reviewed
with Metamor's management and outside advisors a number of additional factors
relevant to the merger, including:
. historical information concerning PSINet's and Metamor's respective
businesses, financial performance and condition, operations, technology,
management and competitive position;
. Metamor management's view as to the financial condition, results of
operations and businesses of PSINet and Metamor before and after giving
effect to the merger based on earnings estimates and business, financial
and legal due diligence investigations conducted by Metamor's
management, financial advisors and legal advisors;
. current industry and financial market conditions and historical market
prices, volatility and trading information with respect to PSINet common
stock and Metamor common stock;
. an analysis of the market value of PSINet common stock to be issued in
exchange for each share of Metamor common stock in light of comparable
merger transactions;
. Metamor management's view as to the prospects of Metamor if Metamor was
to remain an independent company;
. Metamor management's view as to the potential for other third parties to
enter into strategic relationships with or to acquire Metamor;
. the potential impact of the merger on Metamor's customer and employee
relationships;
. the terms of the merger agreement regarding Metamor's right to consider
and negotiate other strategic transaction proposals, as well as the
termination fee provisions; and
. that the merger is expected to be a tax-free reorganization.
Metamor's board of directors also identified and considered a variety of
potentially negative factors in its deliberations concerning the merger,
including;
. the risk that the operations of Metamor and PSINet might not be
successfully integrated or that the potential benefits sought in the
merger might not be fully realized;
. the history of PSINet's operating losses and negative operating cash
flows;
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. the risk that the high valuation multiples at which PSINet's common
stock had traded might not be sustained in the future;
. the fact that the exchange ratio is fixed at 0.9, with no adjustment if
the value of PSINet common stock decreased;
. the possibility that the merger might not be completed, and the effect
of the public announcement of the merger on:
. Metamor's sales and operating results,
. Metamor's ability to attract and retain key management, marketing
and technical personnel; and
. Metamor's ongoing development projects;
. the possibility of customer or supplier confusion after the announcement
of the proposed merger;
. the fact that the transaction requires approval of PSINet shareholders,
in addition to Metamor stockholders;
. the difficulty that will be encountered in managing separate operations
at different geographic locations; and
. the potential loss of key employees as a result of the merger.
Metamor's board of directors believed that, overall, these risks were
outweighed by the potential benefits of the merger.
The foregoing discussion is not exhaustive of all factors considered by
Metamor's board of directors. Moreover, in view of the variety of factors
considered in connection with its evaluation of the merger and the merger
agreement, Metamor's board of directors considered the factors as a whole and
did not find it practicable to, and did not, quantify or otherwise assign
relative weight to the specific factors considered in reaching its determination
to approve the merger and the merger agreement. In addition, each member of
Metamor's board of directors may have considered other factors on an individual
basis, including factors unknown to Metamor, or given different weight to
different factors considered.
Recommendation of Metamor's Board of Directors. After careful consideration,
Metamor's board of directors believes that the merger and the merger agreement
are fair to Metamor's stockholders and in their best interests. Metamor's board
of directors has approved the merger and the merger agreement and recommends
that the stockholders of Metamor vote "for" the adoption of the merger
agreement.
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Opinion of PSINet's Financial Advisor
Pursuant to an engagement letter dated March 17, 2000, PSINet engaged
Robertson Stephens to render an opinion as to the fairness of the exchange
ratio, from a financial point of view, to PSINet.
On March 21, 2000 at a meeting of the PSINet board held to evaluate the
proposed merger, Robertson Stephens delivered to the PSINet board its oral
opinion, which was subsequently confirmed in writing as of March 21, 2000, that,
as of such date and based on the assumptions made, the matters considered and
the limitations on the review undertaken described in the opinion, the exchange
ratio is fair from a financial point of view to PSINet. No limitations were
imposed by the PSINet board on Robertson Stephens with respect to the
investigations made or procedures followed by it in furnishing its opinion. The
exchange ratio was determined through negotiations between the respective
managements of PSINet and Metamor. Robertson Stephens was not asked by PSINet
to, and did not, recommend that any specific exchange ratio constituted the
appropriate exchange ratio for the merger.
The full text of the Robertson Stephens opinion, which sets forth, among
other things, assumptions made, matters considered and limitations on the review
undertaken, is attached as Annex 2 to this document. PSINet shareholders are
urged to read the Robertson Stephens opinion in its entirety. The Robertson
Stephens opinion was prepared for the benefit and use of the PSINet board in its
consideration of the merger and does not constitute a recommendation to
shareholders of PSINet as to how they should vote upon, or take any other action
with respect to, the issuance of PSINet's common stock.
The Robertson Stephens opinion does not address:
. the relative merits of the merger and the other business strategies that
the PSINet board has considered or may be considering; or
. the underlying business decision of the PSINet board to proceed with the
merger.
The summary of the Robertson Stephens opinion set forth in this document is
qualified in its entirety by reference to the full text of the Robertson
Stephens opinion.
In connection with the preparation of the Robertson Stephens opinion,
Robertson Stephens, among other things:
. reviewed certain publicly available financial statements and other
business and financial information of Metamor, Xpedior and PSINet,
respectively;
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. reviewed certain internal financial statements and other financial and
operating data, including certain financial forecasts and other forward
looking financial information, concerning Metamor prepared by the
managements of Metamor and PSINet, respectively, and concerning Xpedior
prepared by the managements of Xpedior, Metamor and PSINet,
respectively;
. reviewed certain internal financial statements and other financial and
operating data, including certain financial forecasts and other forward
looking financial information (including, specifically, forecasts of
certain revenue synergies and cost savings that are expected to result
from the merger), concerning PSINet prepared by the management of
PSINet;
. reviewed certain publicly available estimates of research analysts
regarding Metamor, Xpedior and PSINet, respectively;
. held discussions with the respective managements of Metamor, Xpedior and
PSINet concerning the businesses, past and current operations, financial
condition and future prospects of each of Metamor, Xpedior and PSINet,
independently and combined, including discussions with the managements
of Metamor, Xpedior and PSINet concerning the expected synergies, as
well as their views regarding the strategic rationale for the merger;
. reviewed the financial terms and conditions set forth in the merger
agreement;
. reviewed the stock price and trading history of Metamor, Xpedior and
PSINet;
. compared the financial performance of Metamor and Xpedior and the prices
and trading activity of Metamor common stock and Xpedior common stock
with that of certain other publicly traded companies comparable with
Metamor and Xpedior;
. compared the financial terms of the merger with the financial terms, to
the extent publicly available, of other transactions it deemed relevant;
. reviewed the pro forma impact of the merger on PSINet's EBITDA per share
and revenue per share;
. prepared a discounted cash flow analysis for each of Metamor and
Xpedior;
. participated in discussions among representatives of Metamor, Xpedior
and PSINet and their financial and legal advisors; and
. made such other studies and inquiries, and reviewed such other data, as
it deemed relevant.
In its review and analysis, and in arriving at its opinion, Robertson
Stephens assumed and relied upon the accuracy and completeness of all of the
financial and other information provided to it (including information furnished
to it orally or otherwise discussed with it by the management of Metamor,
Xpedior and PSINet) or publicly available and neither attempted to verify, nor
assumed responsibility for verifying, any of such information. Robertson
Stephens relied upon the assurances of management of Metamor, Xpedior and PSINet
that they were not aware of any facts that would make such information
inaccurate or misleading. Furthermore, Robertson Stephens did not obtain or
make, or assume any responsibility for obtaining or making, any independent
evaluation or appraisal of the properties, assets or liabilities (contingent
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or otherwise) of Metamor, Xpedior or PSINet, nor was Robertson Stephens
furnished with any such evaluation or appraisal.
With respect to the financial forecasts and projections (and the assumptions
and bases therefor) for each of Metamor, Xpedior and PSINet that Robertson
Stephens reviewed (including the expected synergies), Robertson Stephens assumed
that such forecasts and projections (including the expected synergies):
. had been reasonably prepared in good faith on the basis of reasonable
assumptions;
. reflected the best available estimates and judgments as to the future
financial condition and performance of Metamor, Xpedior and PSINet,
respectively; and
. will be realized in the amounts and in the time periods estimated.
In this regard, Robertson Stephens noted that each of Metamor, Xpedior and
PSINet face exposure to the Year 2000 problem. Robertson Stephens did not
undertake any independent analysis to evaluate the reliability or accuracy of
the assumptions made by the managements of Metamor, Xpedior and PSINet with
respect to the potential effect that the Year 2000 problem might have on their
respective forecasts. Robertson Stephens also relied upon statements from
PSINet's management regarding the strategic value of the merger and its
assessment that the merger represents a compelling and significant strategic
opportunity for PSINet in the eServices segment.
In addition, Robertson Stephens assumed that:
. the merger will be consummated upon the terms set forth in the merger
agreement without material alteration thereof, including, among other
things, that the merger will be accounted for as a "purchase method"
business combination in accordance with U.S. generally accepted
accounting principles (U.S. GAAP); and
. the historical financial statements of each of Metamor, Xpedior and
PSINet reviewed by it had been prepared and fairly presented in
accordance with U.S. GAAP consistently applied.
Robertson Stephens relied as to all legal matters relevant to rendering its
opinion on the advice of counsel.
Although developments following the date of the Robertson Stephens opinion
may affect the opinion, Robertson Stephens assumed no obligation to update,
revise or reaffirm its opinion. The Robertson Stephens opinion is necessarily
based upon market, economic and other conditions as in effect on, and
information made available to Robertson Stephens as of, the date of the
Robertson Stephens opinion. It should be understood that subsequent developments
may affect the conclusion expressed in the Robertson Stephens opinion and that
Robertson Stephens disclaims any undertaking or obligation to advise any person
of any change in any matter affecting the opinion which may come or be brought
to its attention after the date of the opinion. The Robertson Stephens opinion
is limited to the fairness, from a financial point of view and as
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<PAGE>
of the date thereof, of the exchange ratio to PSINet. Robertson Stephens does
not express any opinion as to:
. the value of any employee agreement or other arrangement entered into in
connection with the merger;
. any tax or other consequences that might result from the merger; or
. what the value of PSINet common stock will be when issued to Metamor's
stockholders pursuant to the merger or the price at which shares of
PSINet common stock may be traded in the future.
The following is a summary of the material financial analyses performed by
Robertson Stephens in connection with rendering the Robertson Stephens opinion.
The summary of the financial analyses is not a complete description of all of
the analyses performed by Robertson Stephens. Certain of the information in this
section is presented in a tabular form. In order to better understand the
financial analyses performed by Robertson Stephens, these tables must be read
together with the text of each summary. The Robertson Stephens opinion is based
upon the totality of the various analyses performed by Robertson Stephens and no
particular portion of the analyses has any merit standing alone.
As described in more detail below, using the results of these analyses,
Robertson Stephens derived an implied equity valuation for Metamor (including
the interest in Xpedior owned by Metamor) ranging from $1.533 billion to $2.312
billion, an implied equity value per share for Metamor (including its interest
in Xpedior) ranging from $34.34 to $51.81 and an implied exchange ratio for
Metamor (including its interest in Xpedior) ranging from 0.694 to 1.047:1.0.
Metamor Analyses
Robertson Stephens performed several analyses to determine implied valuation
ranges for Metamor, exclusive of its interest in Xpedior, as summarized below.
Comparable Companies Analysis. Using publicly available information,
Robertson Stephens analyzed, among other things, the total capitalization and
trading multiples of Metamor and selected publicly traded companies in the IT
services industry that have similar business and operating profiles, including:
. American Management Systems, Inc.
. Cambridge Technology Partners, Inc.
. Complete Business Solutions, Inc.
. Computer Sciences Corporation
. Keane, Inc.
. MasTec, Inc.
. Metro Information Services, Inc.
. RCM Technologies, Inc.
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Multiples compared by Robertson Stephens included total capitalization to
revenues or estimated revenues and EBITDA and estimated EBITDA for calendar
years 1999, 2000 and 2001. All multiples were based on closing stock prices as
of March 17, 2000.
Using the ranges of multiples set forth in the table below that Robertson
Stephens derived from multiples for the comparable companies, the following
Metamor equity values, Metamor equity values per share and exchange ratios were
implied (in each case, exclusive of Metamor's interest in Xpedior):
<TABLE>
<CAPTION>
Multiple Implied Metamor Implied Metamor Equity Implied
Range Equity Value Value Per Share Exchange Ratio
-------- --------------- ---------------------- --------------
<S> <C> <C> <C> <C>
1999 Revenues 1.2x - 1.8x $715 - $979 million $16.02 - $21.93 0.324 - 0.443
2000 Revenues 1.0x - 1.6x $643 - $945 million $14.40 - $21.16 0.291 - 0.428
2001 Revenues 0.8x - 1.3x $643 - $957 million $14.40 - $21.45 0.291 - 0.433
1999 EBITDA 9.0x - 15.0x $664 - $1,013 million $14.87 - $22.71 0.301 - 0.459
2000 EBITDA 8.0x - 12.0x $597 - $826 million $13.38 - $18.51 0.270 - 0.374
2001 EBITDA 7.5x - 10.5x $754 - $1,000 million $16.90 - $22.41 0.341 - 0.453
</TABLE>
Robertson Stephens also applied a control premium of 40.0% to the results of
the foregoing analysis, which implied the following Metamor equity values,
equity values per share and exchange ratios (in each case, exclusive of
Metamor's interest in Xpedior):
<TABLE>
<CAPTION>
Multiple Implied Metamor Implied Metamor Equity Implied
Range Equity Value Value Per Share Exchange Ratio
-------- --------------- ---------------------- --------------
<S> <C> <C> <C> <C>
1999 Revenues 1.8x - 2.9x $1,001 - $1,370 million $22.43 - $30.70 0.453 - 0.620
2000 Revenues 1.5x - 2.6x $ 900 - $1,322 million $20.16 - $29.63 0.407 - 0.599
2001 Revenues 1.2x - 2.1x $ 900 - $1,340 million $20.16 - $30.03 0.407 - 0.607
1999 EBITDA 13.6x - 24.3x $ 929 - $1,419 million $20.82 - $31.79 0.421 - 0.642
2000 EBITDA 12.2x - 20.2x $ 836 - $1,157 million $18.73 - $25.92 0.378 - 0.524
2001 EBITDA 11.2x - 17.1x $1,056 - $1,400 million $23.66 - $31.38 0.478 - 0.634
</TABLE>
Precedent Transaction Analysis. Using publicly available information,
Robertson Stephens analyzed the consideration offered and the implied
transaction value multiples paid or proposed to be paid in selected acquisition
transactions in the IT services industry, including:
. Entex-InfoTech Acquisition/CompuCom Systems, Inc. (Safeguard) (May 11,
1999)
. Wang Global Inc./Getronics NV (May 4, 1999)
. Beechwood/The Cap Gemini Group (April 8, 1999)
. BancTec, Inc./Welsh Carson Anderson & Stowe (April 5, 1999)
. Analysis & Technology/Anteon Corp. (March 8, 1999)
. GE Capital Consulting/Metamor Worldwide, Inc. (March 5, 1999)
. Computer Management Sciences/Computer Associates (February 8, 1999)
. Decan/Metamor Worldwide, Inc. (February 4, 1999)
. Delphi Group, plc/Adecco SA (February 4, 1999)
. SPR Inc./Metamor Worldwide, Inc. (January 11, 1999)
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. AtWeb, Inc./Netscape Communications (November 11, 1998)
. Strategix Solutions/Randstad Holding NV (August 27, 1998)
. Claremont Technology Group/Complete Business Solutions (April 9, 1998)
In analyzing these "precedent transactions", Robertson Stephens compared,
among other things, the total consideration in such transactions as a multiple
of last twelve month (LTM) revenues and EBITDA and estimated next twelve month
(NTM) revenues. All multiples for the precedent transactions were based on
public information available at the time of the announcement. Based on this
information and other publicly available information, the following table
illustrates the implied Metamor equity valuations, Metamor equity valuations per
share and exchange ratios derived from applying a range of multiples that
Robertson Stephens derived from the precedent transactions (in each case,
exclusive of Metamor's interest in Xpedior):
<TABLE>
<CAPTION>
Multiple Implied Metamor Implied Metamor Equity Implied
Range Equity Valuation Value Per Share Exchange Ratio
----- ---------------- --------------- --------------
<S> <C> <C> <C> <C>
LTM Revenues 1.3x - 2.3x $763 - $1,242 million $17.09 - $27.84 0.345 - 0.562
NTM Revenues 1.1x - 1.9x $693 - $1,096 million $15.53 - $24.55 0.314 - 0.496
LTM EBITDA 12.0x - 18.0x $839 - $1,188 million $18.79 - $26.63 0.380 - 0.538
</TABLE>
No company, business or transaction compared in the comparable companies
analysis or precedent transaction analysis is identical to Metamor, PSINet or
the merger. Accordingly, an analysis of the results of the foregoing is not
entirely mathematical; rather it involves complex considerations and judgments
concerning differences in financial and operating characteristics and other
factors that could affect the acquisition, public trading and other values of
the comparable companies, precedent transactions or the business segment,
company or transactions to which they are being compared.
Discounted Cash Flow Analysis. Robertson Stephens performed a discounted
cash flow analysis of the after-tax free cash flows of Metamor for calendar
years 2000 through 2005. Robertson Stephens first discounted the projected,
after-tax free cash flows through December 31, 2005 using discount rates ranging
from 14.0% to 18.0%. Metamor after-tax free cash-flows were calculated as the
after-tax operating earnings of Metamor adjusted to add back non-cash expenses
and deduct uses of cash not reflected in the income statement. Robertson
Stephens then added to the present value of the cash flows the terminal value of
Metamor at December 31, 2005, discounted back at the same discount rate to
represent a present value. The terminal value was computed by multiplying the
projected EBITDA for Metamor in calendar year 2005 by terminal multiples ranging
from 8.0x to 10.0x. The range of terminal multiples selected reflects Robertson
Stephens' judgment as to an appropriate range of multiples at the end of the
reference period. The following table summarizes the resulting implied equity
valuations, equity values per share and exchange ratios (in each case, exclusive
of Metamor's interest in Xpedior):
Implied Metamor Implied Metamor Equity Implied
Discount Rates Equity Valuation Value Per Share Exchange Ratio
- -------------- ---------------- --------------- --------------
14.0% - 18.0% $994 - $1,389 million $22.26 - $31.13 0.450 - 0.629
Xpedior Analyses
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<PAGE>
Robertson Stephens also performed several analyses to determine implied
valuation ranges for Xpedior, as summarized below.
Comparable Companies Analysis. Using publicly available information,
Robertson Stephens analyzed, among other things, the total capitalization and
trading multiples of Xpedior and the previously identified comparable companies
in the IT services industry, as well as the selected publicly traded companies
in the eBusiness consulting industry that have similar business and operating
profiles, including:
. AppNet, Inc.
. C-bridge Internet Solutions, Inc.
. Modem Media Poppe Tyson, Inc.
. Predictive Systems, Inc.
. Proxicom, Inc.
. Razorfish, Inc.
. Sapient Corporation
. Scient Corporation
. Tanning Technology Corp.
. U.S. Interactive, Inc.
. Viant Corp.
. Whittman-Hart, Inc.
Multiples compared by Robertson Stephens included total capitalization to
revenues or estimated revenues for calendar years 1999, 2000 and 2001. All
multiples were based on closing stock prices as of March 17, 2000.
In deriving an appropriate multiple range from these companies, Robertson
Stephens applied a weighting factor of 1/3 for the eBusiness companies and 2/3
for the IT services companies. Using the derived range of multiples set forth in
the table below, the following Xpedior equity values and equity values per share
are implied:
Multiple Implied Xpedior Implied Xpedior Equity
Range Equity Value Value Per Share
-------- --------------- ----------------------
1999 Revenues 8.0x - 12.0x $1,220 - $1,793 million $20.49 - $30.12
2000 Revenues 4.5x - 7.0x $1,090 - $1,655 million $18.31 - $27.79
2001 Revenues 3.0x - 4.5x $1,255 - $1,846 million $21.08 - $31.00
Precedent Transaction Analysis. Using publicly available information,
Robertson Stephens analyzed the consideration offered and the implied
transaction value multiples paid or proposed to be paid in selected acquisition
transactions in the eBusiness consulting industry, including:
. Tallan/CMGI Inc. (February 14, 2000)
. Cell Networks AB/Mandator AB (February 8, 2000)
. USWeb/CKS Corp./Whittman-Hart Inc. (December 13, 1999)
. I-Cube/Razorfish Inc. (August 10, 1999)
. International Network Services/Lucent Technologies Inc. (August 10,
1999)
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. Mitchell Madison Group/USWeb/CKS (July 30, 1999)
. Information Advantage Software/Sterling Software Inc. (July 15, 1999)
. Think New Ideas, Inc./Answerthink Consulting Group (June 24, 1999)
. Computer Management Sciences/Computer Associates (February 8, 1999)
. Strategic Decision Group/Metzler Group (February 8, 1999)
In analyzing these "precedent transactions", Robertson Stephens compared,
among other things, the total consideration in such transactions as a multiple
of LTM revenues and estimated NTM revenues. All multiples for the precedent
transactions were based on public information available at the time of the
announcement. Based on this information and other publicly available
information, the following table illustrates the implied Xpedior equity
valuations and equity valuations per share derived from applying a range of
multiples that Robertson Stephens derived from the precedent transactions:
Multiple Implied Xpedior Implied Xpedior Equity
Range Equity Valuation Value Per Share
-------- ---------------- ----------------------
LTM Revenues 8.0x - 12.0x $1,220 - $1,793 million $20.49 - $30.12
NTM Revenues 4.5x - 7.5x $1,090 - $1,768 million $18.31 - $29.69
No company, business or transaction compared in the comparable companies
analysis or precedent transaction analysis is identical to Metamor, Xpedior,
PSINet or the merger. Accordingly, an analysis of the results of the foregoing
is not entirely mathematical; rather it involves complex considerations and
judgments concerning differences in financial and operating characteristics and
other factors that could affect the acquisition, public trading and other values
of the comparable companies, precedent transactions or the business segment,
company or transactions to which they are being compared.
Discounted Cash Flow Analysis. Robertson Stephens performed a discounted
cash flow analysis of the after-tax free cash flows of Xpedior for calendar
years 2000 through 2005. Robertson Stephens first discounted the projected,
after-tax free cash flows through December 31, 2005 using discount rates ranging
from 25.0% to 35.0%. Xpedior after-tax free cash-flows were calculated as the
after-tax operating earnings of Xpedior adjusted to add back non-cash expenses
and deduct uses of cash not reflected in the income statement. Robertson
Stephens then added to the present value of the cash flows the terminal value of
Xpedior at December 31, 2005, discounted back at the same discount rate to
represent a present value. The terminal value was computed by multiplying the
projected EBITDA for Xpedior in calendar year 2005 by terminal multiples ranging
from 10.0x to 12.0x. The range of terminal multiples selected reflects Robertson
Stephens' judgment as to an appropriate range of multiples at the end of the
reference period. The following table summarizes the resulting implied equity
valuations and equity values per share:
Implied Xpedior Implied Xpedior
Discount Rates Equity Valuation Equity Value Per Share
-------------- ---------------- ----------------------
25.0% - 35.0% $1,289 - $2,294 million $21.65 - $38.53
Summation of the Metamor Analyses and the Xpedior Analyses
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Using the results of the above Metamor analyses and Xpedior analyses,
Robertson Stephens derived implied valuation ranges for each of Metamor
(exclusive of its interest in Xpedior) and Xpedior and added such ranges to
derive an aggregate implied valuation range for Metamor. The following table
summarizes the implied Metamor equity valuations, equity valuations per share
and exchange ratios based on the combined value of Metamor and its approximately
67% ownership interest in Xpedior on a fully diluted as converted basis:
<TABLE>
<CAPTION>
Implied Implied Metamor Implied
Equity Valuation Equity Value Per Share Exchange Ratio
---------------- ---------------------- --------------
<S> <C> <C> <C>
Metamor (exclusive of Xpedior) $ 730 - $1,064 million $16.37 - $23.83 0.331 - 0.481
Xpedior $1,194 - $1,858 million -- --
67% of Xpedior Owned by Metamor $ 802 - $1,248 million $17.98 - $27.97 0.363 - 0.565
Metamor Total $1,533 - $2,312 million $34.34 - $51.81 0.694 - 1.047
</TABLE>
Other Analyses
Exchange Ratio Analysis. Robertson Stephens compared the historical ratios
of the closing price of Metamor common stock to the closing price of PSINet
common stock over various periods. The following table sets forth certain ratios
of the closing prices of Metamor common stock compared to PSINet common stock
for various periods ending March 17, 2000:
Ratio of closing prices of Metamor
Common Stock Compared to
Period Ending March 17, 2000 PSINet Common Stock
---------------------------- -------------------
Average High Low
5 trading days 0.330x 0.349x 0.312x
10 trading days 0.324x 0.349x 0.299x
20 trading days 0.378x 0.469x 0.299x
30 trading days 0.433x 0.644x 0.299x
LTM trading days 0.811x 1.279x 0.299x
Deal Premium Analysis. Robertson Stephens also considered the premium that
an exchange ratio of 0.900x (which implied a price per share of $44.55 based on
the closing price of PSINet common stock on March 21, 2000) represented to the
closing price of Metamor common stock over various periods. The results of this
analysis are summarized below:
<TABLE>
<CAPTION>
Days Prior to Five Day Average Metamor Premium to Five Day
Date March 17, 2000 Price Average Metamor Price
---- -------------- ----- ---------------------
<S> <C> <C> <C>
March 17, 2000 -- $16.78 165.6%
March 6, 2000 10 days $20.15 121.1%
February 4, 2000 30 days $28.56 56.0%
December 23, 1999 60 days $29.63 50.3%
November 9, 1999 90 days $21.98 102.7%
July 2, 1999 180 days $23.19 92.1%
March 16, 1999 1 year $14.74 202.3%
</TABLE>
Pro Forma Analyses. Robertson Stephens analyzed certain pro forma effects
resulting from the merger, including, among other things, the impact of the
merger on the projected revenue per share and EBITDA per share of the combined
company for fiscal years 2000 and 2001. The
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<PAGE>
following table summarizes the results of such analysis assuming no synergies
(accretion was greater in fiscal year 2001 assuming synergies):
Fiscal Year 2000 estimated revenue per share accretion 20.5%
Fiscal Year 2001 estimated revenue per share accretion 27.2%
Fiscal Year 2000 estimated EBITDA per share accretion 22.1%
Fiscal Year 2001 estimated EBITDA per share accretion 28.2%
The actual results achieved by the combined company may vary from projected
results and the variations may be material.
Other Factors and Comparative Analyses. In rendering its opinion, Robertson
Stephens considered certain other factors and conducted certain other
comparative analyses, including, among other things, a review of selected
published analysts' reports on Metamor, Xpedior and PSINet.
While the foregoing summary describes certain analyses and factors that
Robertson Stephens deemed material in its presentation to the PSINet board, it
is not a comprehensive description of all analyses and factors considered by
Robertson Stephens. The preparation of a fairness opinion is a complex process
that involves various determinations as to the most appropriate and relevant
methods of financial analysis and the application of these methods to the
particular circumstances and, therefore, such an opinion is not readily
susceptible to summary description. Robertson Stephens believes that its
analyses must be considered as a whole and that selecting portions of its
analyses and of the factors considered by it, without considering all analyses
and factors, would create an incomplete view of the evaluation process
underlying the Robertson Stephens opinion. Several analytical methodologies were
employed and no one method of analysis should be regarded as critical to the
overall conclusion reached by Robertson Stephens. Each analytical technique has
inherent strengths and weaknesses, and the nature of the available information
may further affect the value of particular techniques. The conclusions reached
by Robertson Stephens are based on all analyses and factors taken as a whole and
also on application of Robertson Stephens' own experience and judgment. Such
conclusions may involve significant elements of subjective judgment and
qualitative analysis. Robertson Stephens therefore gives no opinion as to the
value or merit standing alone of any one or more parts of the analysis it
performed. In performing its analyses, Robertson Stephens considered general
economic, market and financial conditions and other matters, many of which are
beyond the control of Metamor, Xpedior and PSINet. The analyses performed by
Robertson Stephens are not necessarily indicative of actual values or future
results, which may be significantly more or less favorable than those suggested
by such analyses. Accordingly, analyses relating to the value of a business do
not purport to be appraisals or to reflect the prices at which the business
actually may be purchased. Furthermore, no opinion is being expressed as to the
prices at which shares of Metamor common stock, Xpedior common stock or PSINet
common stock may be traded at any future time.
The engagement letter between Robertson Stephens and PSINet provides that
Robertson Stephens is entitled to receive a fee for its services, a substantial
portion of which is contingent upon completion of the merger. PSINet has also
agreed to reimburse Robertson Stephens for
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certain of its out-of-pocket expenses, including legal fees, and to indemnify
and hold harmless Robertson Stephens and its affiliates and any director,
employee or agent of Robertson Stephens or any of its affiliates, or any person
controlling Robertson Stephens or its affiliates for certain losses, claims,
damages, expenses and liabilities relating to or arising out of services
provided by Robertson Stephens as financial advisor to PSINet. The terms of the
fee arrangement with Robertson Stephens, which PSINet and Robertson Stephens
believe are customary in transactions of this nature, were negotiated at arm's
length between PSINet and Robertson Stephens, and the PSINet board was aware of
such fee arrangements, including the fact that a significant portion of the fees
payable to Robertson Stephens is contingent upon completion of the merger.
Robertson Stephens has provided certain investment banking services to PSINet
for which it has been paid fees, including acting as financial advisor to PSINet
with respect to certain acquisitions and minority investments. Robertson
Stephens maintains a market in the shares of PSINet common stock. In the
ordinary course of its business, Robertson Stephens may trade in PSINet's
securities, Metamor's securities and Xpedior's securities for its own account
and the account of its customers and, accordingly, may at any time hold a long
or short position in PSINet's securities, Metamor's securities or Xpedior's
securities.
Robertson Stephens was retained based on Robertson Stephens' experience as a
financial advisor in connection with mergers and acquisitions and in securities
valuations generally, as well as Robertson Stephens' investment banking
relationship and familiarity with PSINet.
Robertson Stephens is an internationally recognized investment banking firm.
As part of its investment banking business, Robertson Stephens is frequently
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, secondary distributions of
securities, private placements and other purposes.
Opinion of Metamor's Financial Advisor
On March 21, 2000, Lazard delivered its oral opinion to Metamor's board of
directors, which opinion was subsequently confirmed in writing, to the effect
that, as of March 21, 2000, based upon and subject to the various considerations
set forth in its opinion, the exchange ratio in connection with the merger is
fair to the holders of Metamor common stock from a financial point of view.
The full text of the Lazard opinion, dated March 21, 2000, which sets forth
the assumptions made, matters considered and limitations on the review
undertaken in connection with this opinion, is attached hereto as Annex 3. This
summary discussion of such opinion of Lazard is qualified in its entirety by
reference to the full text of such opinion. The engagement of Lazard and its
opinion are for the benefit of Metamor's board of directors and its opinion was
rendered to Metamor's board of directors in connection with Metamor's board of
directors' consideration of the merger. Lazard's opinion is directed only to the
fairness of the exchange ratio from a financial point of view to the holders of
Metamor common stock and does not address any other aspects of the merger. The
Lazard opinion does not constitute, and should not be construed as, a
recommendation to any holder of Metamor common stock as to how such holder
should vote with respect to the merger. Holders of Metamor's common stock are
urged to read the Lazard opinion in its entirety.
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In connection with rendering its opinion, dated March 21, 2000, to Metamor's
board of directors, Lazard:
. reviewed the financial terms and conditions of a draft merger agreement
dated March 21, 2000;
. analyzed certain historical business and financial information relating
to PSINet, Metamor and Xpedior;
. reviewed various financial forecasts and other data provided to Lazard
by PSINet and Metamor relating to their respective businesses including
in the case of Metamor relating to Xpedior's business;
. held discussions with members of the senior management of PSINet,
Metamor and Xpedior with respect to the businesses and prospects of
PSINet, Metamor and Xpedior, respectively, and the strategic objectives
of each;
. reviewed public information with respect to certain other companies in
lines of businesses Lazard believed to be generally comparable to those
of PSINet, Metamor and Xpedior;
. reviewed the financial terms of certain business combinations involving
companies in lines of business Lazard believed to be generally
comparable to those of Metamor and Xpedior;
. reviewed the historical stock prices and trading volumes of shares of
PSINet common stock, Metamor common stock and Xpedior common stock; and
. conducted such other financial studies, analyses and investigations as
it deemed appropriate.
Lazard relied upon the accuracy and completeness of the foregoing
information and did not assume any responsibility for any independent
verification of such information or any independent valuation or appraisal of
any of the assets or liabilities of PSINet, Metamor or Xpedior, or concerning
the solvency of or issues relating to solvency concerning PSINet, Metamor or
Xpedior. With respect to the financial forecasts, Lazard assumed that they had
been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the managements of PSINet, Metamor and Xpedior as to
the future financial performance of PSINet, Metamor and Xpedior, respectively.
Lazard assumed no responsibility for and expressed no view as to such forecasts
or the assumptions on which they were based.
The written opinion of Lazard was necessarily based on economic, monetary,
market and other conditions as in effect on, and the information made available
to it as of, March 21, 2000. In rendering its opinion, Lazard did not address
the relative merits of the merger, any alternative potential transaction or
Metamor's underlying decision to effect the merger. In that regard, Lazard was
not authorized by Metamor to solicit, nor did Lazard solicit, third-party
indications of interest for the acquisition of all or any part of Metamor.
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In rendering its opinion, Lazard assumed that the merger would be
consummated on the terms described in the draft merger agreement dated March 21,
2000, without any waiver of any material terms or conditions by Metamor and that
obtaining the necessary regulatory approvals, if any, for the merger would not
have an adverse effect on Metamor, PSINet or Xpedior. Lazard also assumed that
the definitive merger agreement would not differ in any material respects from
the draft furnished to it.
The following is a summary of the material financial and comparative
analyses performed by Lazard in connection with providing to, and reviewing
with, Metamor's board of directors its oral opinion at the meeting of Metamor's
board of directors on March 21, 2000.
Comparable Publicly Traded Companies Analysis. Lazard compared certain
actual and estimated financial, operating and stock market information for
Metamor, not including its equity interest in Xpedior (the "Metamor Residual"),
and for a group of publicly traded companies in lines of business which Lazard
believed to be reasonably comparable to those of the Metamor Residual in the
traditional IT solutions industry. The selected public companies included in the
Metamor Residual comparable company analysis (collectively defined as the
"Metamor Residual Comparable Companies") included:
. Affiliated Computer Services, Inc.;
. American Management Systems, Incorporated;
. Cambridge Technology Partners (Massachusetts), Inc.;
. Complete Business Solutions, Inc.;
. Computer Horizons Corp.; and
. Keane, Inc.
Lazard compared the market value of each of the Metamor Residual Comparable
Companies as a multiple of its estimated 2000 cash net income (determined by
adjusting GAAP net income for the after-tax stock compensation charges and
goodwill). This analysis indicated that the Metamor Residual Comparable
Companies' market value as a multiple of 2000 estimated cash net income was as
follows:
Low Median High
--- ------ ----
2000 Estimated Cash Net Income .......... 15.2x 20.0x 38.4x
Based on the Metamor Residual Comparable Companies' market value as a
multiple of 2000 estimated cash net income above, Lazard developed a valuation
multiple range to apply to the Metamor Residual 2000 estimated cash net income.
This analysis resulted in an implied value range per share of the Metamor
Residual of $12.47 to $14.68.
Lazard also compared certain actual and estimated financial, operating and
stock market information for Xpedior, and for two groups of publicly traded
companies in lines of business which Lazard believed to be reasonably comparable
to those of Xpedior in the Internet based IT solutions industry. The selected
public companies included in the first group of the Xpedior comparable company
analysis (collectively defined as the "Xpedior Group One Comparable Companies")
included:
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. AGENCY.COM Ltd.;
. AppNet, Inc.; and
. Luminant Worldwide Corporation.
The selected public companies included in the second group of the Xpedior
comparable company analysis (collectively defined as the "Xpedior Group Two
Comparable Companies") included:
. Braun Consulting, Inc.;
. iXL Enterprises, Inc.;
. Proxicom, Inc.;
. Razorfish, Inc.;
. Sapient Corporation;
. Scient Corporation; and
. Viant Corporation.
Lazard compared the enterprise value of each of the Xpedior Group One
Comparable Companies and the Xpedior Group Two Comparable Companies as a
multiple of its estimated 2000 revenue. This analysis indicated that the Xpedior
Group One Comparable Companies' and the Xpedior Group Two Comparable Companies'
enterprise value as a multiple of 2000 estimated revenue were as follows:
Low High
--- ----
Group One 2000 Estimated Revenue......... 2.36x 9.10x
Group Two 2000 Estimated Revenue......... 7.90x 30.72x
Based on the Xpedior Group One Comparable Companies' and the Xpedior Group
Two Comparable Companies' enterprise value as a multiple of 2000 estimated
revenue above, Lazard developed a valuation multiple range to apply to Xpedior's
2000 estimated revenue. This analysis resulted in an implied value range per
share of Xpedior common stock of $18.65 to $27.55, which results in an implied
market value to Metamor of its equity interest of Xpedior common stock of $19.89
to $30.11 per share of Metamor common stock.
Based upon the foregoing data and projections for Metamor and Xpedior
provided to Lazard, the implied per share equity valuation of Metamor common
stock analyzing the Metamor Residual and Xpedior on a "sum-of-the-parts" basis
was estimated to range from $32.00 to $45.00.
Selected Precedent Transaction Analysis. Lazard reviewed selected financial,
operating and stock market information relating to selected acquisition
transactions in the traditional IT solutions industry. The selected traditional
IT solutions precedent transactions included in the Metamor Residual precedent
transaction analysis (collectively defined as the "Metamor Residual Precedent
Transactions") included:
. Compuware Corporation/Data Processing Resources Corporation (June 1999);
. Electronic Data Systems Corporation/MCI Systemhouse (February 1999);
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. Computer Task Group, Incorporated/Elumen Solutions, Inc. (January 1999);
. Affiliated Computer Services, Inc./BRC Holdings, Inc. (October 1998);
. First Consulting Group, Inc./Integrated Systems Consulting Group, Inc.
(September 1998);
. Data Processing Resources Corporation/Systems & Programming Consultants,
Inc. (June 1998);
. CIBER, Inc./The Summit Group, Inc. (April 1998);
. Complete Business Solutions, Inc./Claremont Technology Group, Inc.
(April 1998); and
. Renaissance Worldwide, Inc./Triad Data, Inc. (April 1998).
Lazard compared the enterprise value of each of the Metamor Residual
Precedent Transactions as a multiple of the latest twelve months' ("LTM") net
income at the time of the announcement of such Metamor Residual Precedent
Transaction. This analysis indicated that the Metamor Residual Precedent
Transactions' enterprise value as a multiple of LTM net income was as follows:
Low Median High
--- ------ ----
LTM Net Income.................... 16.1x 28.0x 51.6x
Based on the Metamor Residual Precedent Transactions' enterprise value as a
multiple of LTM net income above, Lazard developed a valuation multiple range to
apply to the Metamor Residual 1999 actual net income. This analysis resulted in
an implied value range per share of the Metamor Residual of $11.76 to $14.11.
Lazard also reviewed selected financial, operating and stock market
information relating to selected acquisition transactions in the Internet based
IT solutions industry. The selected Internet based IT solutions precedent
transactions included in the Xpedior precedent transaction analysis
(collectively defined as the "Xpedior Precedent Transactions") included:
. Whittman-Hart, Inc./USWeb Corporation (December 1999);
. Braun Consulting, Inc./Emerging Technologies Consultants, Inc. (December
1999);
. Razorfish, Inc./International Integration Incorporated (August 1999);
. AnswerThink Consulting Group, Inc./THINK New Ideas, Inc. (June 1999);
and
. Sapient Corporation/Adjacency, Inc. (March 1999).
Lazard compared the enterprise value of each of the Xpedior Precedent
Transactions as a multiple of its LTM revenue. This analysis indicated that the
Xpedior Precedent Transactions' enterprise value as a multiple of LTM revenue
was as follows:
Low Median High
--- ------ ----
LTM Revenue.....................................4.22x 9.99x 14.10x
Based on the Xpedior Precedent Transactions' enterprise value as a multiple
of LTM revenue above, Lazard developed a valuation multiple range to apply to
Xpedior's 1999 actual revenue. This analysis resulted in an implied value range
per Xpedior Share of $23.72 to $28.80, which
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results in an implied market value to Metamor of its equity interest of Xpedior
common stock of $25.79 to $31.53 per share of Metamor common stock.
Based upon such information for the Metamor Residual Precedent Transactions
and the Xpedior Precedent Transactions, the implied per share equity valuation
of Metamor common stock analyzing the Metamor Residual and Xpedior on a
"sum-of-the-parts" basis was estimated to range from $37.00 to $46.00.
Stock Trading History. Lazard examined the historical trading prices and
volumes for Metamor common stock during the 52-week period ending on March 17,
2000. Lazard indicated that based on the closing stock price of PSINet common
stock on March 17, 2000 of $49.75 per share, the exchange ratio implied a 188.9%
premium over the closing price per share of Metamor common stock, on March 17,
2000. The following is the intra-day price of Metamor common stock and the
implied exchange ratio per share of Metamor common stock to PSINet common stock:
<TABLE>
<CAPTION>
Metamor Stock Price Implied Exchange Ratio
------------------- ----------------------
<S> <C> <C>
Market price on 3/17/00 $15.50 0.312x
Ten-day prior average ending on 3/17/00 $17.73 0.356x
Three-month average ending on 3/17/00 $24.66 0.496x
One-year average ending on 3/17/00 $21.41 0.430x
52-Week High (12/13/99) $41.63 0.837x
52-Week Low (4/9/99) $12.56 0.253x
</TABLE>
Pro Forma Contribution Analysis. Lazard analyzed the relative contributions
by Metamor and PSINet to the pro form combined companies and compared the
relative contribution by Metamor to certain financial data for the pro forma
combined companies. These analyses indicated that Metamor's pro forma ownership
percentage of the pro forma combined companies was 17% and that the relative
contribution by Metamor to certain financial data for the pro forma combined
companies was as follows:
Metamor's Percentage Contribution
---------------------------------
2000 Estimated Revenue 41%
2001 Estimated Revenue 36%
2000 Estimated EBITDA 43%
2001 Estimated EBITDA 36%
Enterprise Value 6%
Net Debt 9%
Equity Value 5%
The summary set forth above does not purport to be a complete description of
the analysis performed by Lazard, although it is a summary of the material
financial and comparative analyses performed by Lazard in arriving at its
opinion. The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above without considering
the analyses as a whole could create an incomplete or misleading view of the
process underlying the Lazard opinion. No company or transaction used in the
above analysis as a comparison is identical to Metamor or Xpedior or the
transaction contemplated by the merger agreement. In arriving at its opinion,
Lazard considered the results of all such analyses and did not assign
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relative weights to any of the analyses. The analyses were prepared solely for
purposes of Lazard providing its opinion that, as of March 21, 2000, the
exchange ratio is fair to the holders of Metamor common stock from a financial
point of view, and do not purport to be appraisals or necessarily reflect the
prices at which businesses or securities actually may be sold, which may be
significantly more or less favorable than as set forth in these analyses.
Similarly, any estimate of values or forecast of future results contained in the
analyses is not necessarily indicative of actual values or actual future
results, which may be significantly more or less favorable than those suggested
by such analyses.
In performing its analyses, Lazard made numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters. Because such analyses are inherently subject to uncertainty, being
based upon numerous factors or events beyond the control of the parties or their
respective advisors, none of PSINet, Metamor or Xpedior, Lazard or any other
person assumes responsibility if future results or actual values are materially
different from those forecasts or estimates contained in the analyses.
Lazard is an internationally recognized investment banking firm and is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements, leveraged
buyouts, and valuations for estate, corporate and other purposes. Metamor's
board of directors selected Lazard to act as its investment banker because of
Lazard's expertise and its reputation in investment banking and mergers and
acquisitions.
In connection with Lazard's services as investment banker to Metamor,
Metamor has agreed to pay Lazard a customary fee for its services, a substantial
portion of which is contingent upon the consummation of the merger. Lazard has
in the past provided financial advisory services to Metamor for which it
received usual and customary compensation. Metamor has also agreed to reimburse
Lazard for its reasonable out-of-pocket expenses (including fees of its outside
legal counsel) and to indemnify Lazard and certain related parties against
certain liabilities, including liabilities arising under the federal securities
laws, relating to, or arising out of, its engagement.
In the ordinary course of its business, Lazard and its affiliates may
actively trade in the securities of Metamor for its own account and for the
account of its customers and, accordingly, may at any time hold a long or short
position.
Interests of Metamor Directors and Management in the Merger
In considering the recommendation of Metamor's board of directors in favor
of the merger, stockholders of Metamor should be aware that the directors and
executive officers of Metamor have interests in the merger that are different
from, or in addition to, the interests of stockholders of Metamor. Those
interests relate to or arise from, among other things, the terms of the merger
agreement providing for the continued indemnification of current directors and
officers of Metamor, the accelerated vesting of some outstanding Metamor and
Xpedior stock options and the continuation of Metamor employee benefits.
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Indemnification and Insurance. The merger agreement provides that all rights
of indemnification and exculpation from liabilities existing in favor of the
current and former directors or officers of Metamor and its subsidiaries as
provided in their respective certificates of incorporation and by-laws of
Metamor will be assumed by the surviving corporation in the merger, and will
continue in full force and effect with respect to their activities prior to the
merger in accordance with their terms for at least six years after the effective
time of the merger. In addition, PSINet will provide similar indemnification of
the Metamor directors and officers. The merger agreement provides that for three
years after the effective time of the merger, PSINet will maintain directors'
and officers' liability insurance for acts or omissions occurring prior to the
effective time of the merger covering those persons who were, as of the date of
the merger agreement, covered by Metamor's directors' and officers' liability
insurance policy, on terms no less favorable than those in effect on the date of
the merger agreement.
Employment Agreements. Metamor has entered into employment agreements with
each of Messrs. Dameris, Pierce and Tusa and Ms. Reed. The employment agreements
for Messrs. Dameris and Pierce generally provide for severance benefits equal to
one year of base salary in the event of termination upon death or total
disability or upon non-renewal after the initial term; two years of base salary
in the event of termination without cause or constructive termination; and two
years of base compensation plus one year of bonus and the acceleration of
vesting of all outstanding options in the event of a change of control and
termination without cause or constructive termination. The employment agreements
for Mr. Tusa and Ms. Reed generally provide for severance benefits equal to one
year of base salary in the event of termination upon death or total disability
or upon non-renewal after the initial term; eighteen months of base salary in
the event of termination without cause or constructive termination; and eighteen
months of base compensation plus one year of bonus and the acceleration of
vesting of all outstanding options in the event of a change of control and
termination without cause or constructive termination. The merger will
constitute a change of control for purposes of these agreements.
Metamor Options. Under terms of Metamor's Long-Term Incentive Plan, all
options granted prior to January 1, 1999, totaling approximately 700,000
options, will automatically vest under the terms of the Plan as a result of the
merger. In addition, options to purchase approximately 33,000 shares of common
stock granted to Metamor's non-employee directors will fully vest upon
consummation of the merger and options to purchase approximately 480,000 shares
of common stock granted to Messrs. Dameris, Pierce and Tusa and Ms. Reed will
automatically vest under terms of the Plan in the event of termination without
cause or constructive termination.
Xpedior Options. Under terms of Xpedior's Stock Incentive Plan, options to
purchase approximately 700,000 shares of common stock granted to Metamor
employees and directors will automatically vest under terms of the Plan in the
event of a change of control of Metamor, including the merger, and termination
without cause or constructive termination.
Tax Treatment
Completion of the merger is conditioned upon its being treated as a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
and the receipt by PSINet and Metamor
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of opinions from Nixon Peabody LLP and/or Vinson & Elkins L.L.P. that the merger
qualifies as a reorganization under such section.
Form of the Merger
Subject to the terms and conditions of the merger agreement and in
accordance with Delaware law, at the effective time of the merger, PSINet Shelf
IV Inc. will be merged with and into Metamor. The separate existence of PSINet
Shelf IV Inc. will cease and Metamor will survive the merger as a wholly owned
Delaware subsidiary of PSINet. In connection with the merger, Metamor's name
will be changed to "PSINet Solutions Inc."
Merger Consideration
In the merger, each share of outstanding Metamor stock will be converted
into the right to receive 0.9 of a share of PSINet common stock. If, at any time
during the period between the date of the merger agreement and the merger, the
number of shares of Metamor common stock or PSINet common stock issued and
outstanding is adjusted as a result of a stock split, reverse stock split, stock
dividend, recapitalization, redenomination of share capital or other similar
transaction with an effective date or record date prior to the merger, the
exchange ratio and any other items dependent on the exchange ratio will be
appropriately adjusted.
Metamor stockholders will receive cash for any fractional shares of PSINet
common stock which they would otherwise receive in the merger. As of the
effective time of the merger, all shares of Metamor common stock will
automatically be canceled and will cease to exist, and each holder of a
certificate representing any shares of Metamor common stock will cease to have
any rights as a stockholder except the right to receive PSINet common stock and
cash in lieu of fractional shares.
Conversion of Shares; Procedures for Exchange of Certificates; Fractional Shares
The conversion of Metamor common stock into the right to receive PSINet
common stock will occur automatically at the effective time of the merger. , as
the paying agent, will provide instructions to Metamor stockholders for
surrendering their Metamor stock certificates promptly following the merger.
Metamor stockholders should not return stock certificates with the enclosed
proxy.
Following the merger, each holder of a certificate representing Metamor
common stock will be asked to surrender and deliver the certificate to the
paying agent together with a properly completed and executed transmittal letter.
Promptly after surrender and delivery, the holder will receive a certificate
representing the number of whole shares of PSINet common stock for which the
holder's shares of Metamor common stock has been converted, together with a
check for any cash in lieu of any fractional share of PSINet common stock. Until
so surrendered and exchanged, each certificate formerly representing an
outstanding share of Metamor common stock will be treated for all purposes to
evidence only the right to receive PSINet common stock and any cash payable in
lieu of fractional shares. The merger agreement provides that Metamor
stockholders' rights as shareholders of PSINet will commence when the merger
occurs; however,
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any dividends or distributions will not be paid to a Metamor stockholder until
such stockholder has surrendered his or her Metamor stock certifcate(s).
At the effective time, the stock transfer books of Metamor will be closed
and no transfer of shares of Metamor common stock will be made after that, other
than registration of transfers of shares of Metamor common stock that occurred
prior to the effective time. If certificates representing Metamor common stock
are presented for transfer to the transfer agent for Metamor, PSINet or PSINet
Shelf IV Inc. after the effective time, they will be delivered to the paying
agent and exchanged for PSINet common stock and any cash payable in lieu of
fractional shares.
Any shares of PSINet common stock or any cash that remains undistributed to
Metamor stockholders after four months have elapsed following the effective time
will be delivered to PSINet by the paying agent, upon demand, and any former
stockholders of Metamor who have not previously complied with these procedures
for exchange may look only to PSINet for payment of their claim for PSINet
common stock and any cash payable in lieu of fractional shares.
Neither the paying agent nor any of Metamor, PSINet or PSINet Shelf IV Inc.
will be liable to any holder of shares of Metamor common stock with respect to
any shares of PSINet common stock (or dividends or distributions with respect to
PSINet common stock) delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law, rule, regulation, statute, order,
judgment or decree.
If any Metamor certificates have been lost, stolen or destroyed, the paying
agent may require the claiming holder to make an affidavit of that fact and
deliver a bond as the paying agent may reasonably require, and the paying agent
may then issue the PSINet common stock and pay any cash payable in lieu of
fractional shares to which the holder of the lost, stolen or destroyed
certificates is entitled.
Stockholders of Metamor will not be required to pay any transfer taxes with
respect to the issuance of the PSINet common stock, unless any PSINet common
stock is to be issued in a name other than that in which the certificate
surrendered has been registered. In such case, the person requesting the
issuance must pay to PSINet any transfer taxes payable by reason of the
transfer, or of any prior transfer of the surrendered certificate, or establish
to the satisfaction of PSINet that the taxes have been paid or are not payable.
Effective Time of the Merger
The merger will become effective once the certificate of merger has been
filed with the Secretary of State for the State of Delaware and has become
effective in accordance with Delaware law.
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Listing of PSINet Common Stock on The Nasdaq Stock Market
It is a condition to the completion of the merger that PSINet common stock
issuable to Metamor stockholders in the merger and upon exercise of the assumed
Metamor options be approved for listing on The Nasdaq Stock Market, subject to
official notice of issuance.
Material United States Federal Income Tax Consequences of the Merger
The following discussion is a summary description of the material U.S.
federal income tax consequences of the merger applicable to Metamor
stockholders. This discussion is for general information only and does not
purport to consider all aspects of U.S. federal income taxation that may be
relevant to a Metamor stockholder. This discussion is based upon the provisions
of the Internal Revenue Code, existing regulations, and administrative and
judicial interpretations of the Internal Revenue Code, all as in effect as of
the date hereof and all of which are subject to change (possibly with
retroactive effect). This discussion applies only to Metamor stockholders who
hold their Metamor shares as capital assets within the meaning of Section 1221
of the Internal Revenue Code and does not apply to the following:
. stockholders who received their Metamor shares pursuant to the exercise
of employee stock options or similar securities or otherwise as
compensation;
. stockholders who hold their Metamor shares as part of a "straddle,"
"hedge," "conversion transaction," "synthetic security" or other
integrated investment;
. stockholders (including, without limitation, financial institutions,
insurance companies, tax-exempt organizations, dealers or traders in
securities, and stockholders subject to the alternative minimum tax) who
may be subject to special rules;
. stockholders whose functional currency is not the U.S. dollar; or
. stockholders who, for U.S. federal income tax purposes, are non-resident
alien individuals, foreign corporations, foreign partnerships, or
foreign estates or trusts.
THIS DISCUSSION ALSO DOES NOT CONSIDER THE EFFECT OF ANY FOREIGN, STATE OR
LOCAL LAWS. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR TO DETERMINE THE
TAX EFFECT TO YOU OF THE MERGER, INCLUDING THE APPLICATION AND EFFECT OF
FOREIGN, STATE, LOCAL OR OTHER TAX LAWS.
Tax Opinion and Merger. The consummation of the merger is contingent upon
the receipt by:
. PSINet of an opinion from its attorneys to the effect that the merger
will be treated as a reorganization within the meaning of Section 368(a)
of the Internal Revenue Code; provided, however, in the event that such
counsel is unwilling to render such an opinion
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this condition shall be satisfied if such an opinion that is reasonably
satisfactory to PSINet is rendered by attorneys for Metamor; and
. Metamor of an opinion from its attorneys to the effect that the merger
will be treated as a reorganization within the meaning of Section 368(a)
of the Internal Revenue Code; provided, however, in the event that such
counsel is unwilling to render such an opinion this condition shall be
satisfied if such an opinion that is reasonably satisfactory to Metamor
is rendered by attorneys for PSINet.
The opinions will be based upon certain customary assumptions and
representations of fact, including representations of fact contained in
certificates of officers of PSINet, Metamor and others. No ruling has been or
will be sought from the Internal Revenue Service as to the U.S. federal income
tax consequences of the merger, and the opinions of counsel are not binding upon
the Internal Revenue Service or any court. Accordingly, neither PSINet nor
Metamor can assure you that the Internal Revenue Service will not contest the
conclusions expressed in the opinions or that a court will not sustain such
contest.
The following discussion of U.S. federal income tax consequences of the
merger to Metamor stockholders assumes that the merger will qualify as a
"reorganization" within the meaning of Section 368(a) of the Internal Revenue
Code, based on such opinions.
Tax Impact from the Merger. Metamor stockholders will not recognize any gain
or loss as a result of the exchange of their shares of Metamor common stock for
PSINet common stock (except with respect to the receipt of cash in lieu of
fractional shares of PSINet, as discussed below). The aggregate adjusted tax
basis of PSINet shares received (including any fractional shares deemed
received) will equal the Metamor stockholder's aggregate adjusted tax basis in
the Metamor shares surrendered. The holding period of the PSINet shares received
pursuant to the merger will include the holding period of the Metamor shares
surrendered.
Taxation of Cash Paid in Lieu of Fractional Shares. Metamor stockholders who
receive cash in lieu of a fractional PSINet share will be treated as having
first received such fractional PSINet share in the merger and then as having
received cash in exchange for the fractional share interest. Thus, each such
Metamor stockholder generally will recognize gain or loss in an amount equal to
the difference between the amount of cash received in lieu of the fractional
PSINet share and the portion of the basis in the Metamor shares allocable to
that fractional interest.
Material Federal Income Tax Consequences to PSINet, Metamor and PSINet Shelf
IV Inc. None of PSINet, Metamor or PSINet Shelf IV Inc. will recognize gain or
loss as a result of the merger.
Accounting Treatment
The acquisition of Metamor will be accounted for as a purchase business
combination and, accordingly, the purchase price of Metamor will be allocated to
tangible and intangible assets acquired and liabilities assumed, based upon
their respective fair values, with the excess allocated to goodwill to be
amortized over the estimated economic life of the goodwill. PSINet is
undertaking a study by an independent third party to determine the allocation of
the total
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purchase price of the merger to the various assets acquired, including
in-process research and development, and the liabilities assumed. Any portion of
the purchase price allocated to in-process research and development will be
recognized as a charge against income in PSINet's financial statements for the
period in which the merger closes. The results of operations of Metamor will be
included in PSINet's consolidated results of operations upon the consummation of
the merger.
Regulatory Matters
United States Antitrust. Under the Hart-Scott-Rodino Act and related rules,
the merger may not be completed unless applicable waiting period requirements
have been satisfied. On April 10, 2000, PSINet and Metamor each filed a
Notification and Report Form with the Antitrust Division of the Department of
Justice and the Federal Trade Commission and requested early termination of the
waiting period. At any time before or after the effective time of the merger,
the Antitrust Division, the Federal Trade Commission or others could take action
under the antitrust laws, including seeking to prevent the merger, to rescind
the merger or to conditionally approve the merger upon the divestiture of
substantial assets of PSINet or Metamor. There can be no assurance that a
challenge to the merger on antitrust grounds will not be made or, if such a
challenge is made, that it would not be successful. Based upon the advice of
counsel, neither PSINet nor Metamor expect any conditions to be imposed by
either the Antitrust Division or the Federal Trade Commission.
General. Neither PSINet nor Metamor is aware of any other governmental
filings or consents that are required in connection with the merger. If any such
additional filings or consents are required, such filings or consents may delay
or prevent the closing of the merger or have other adverse consequences to
PSINet and/or Metamor.
Appraisal Rights
Neither the shareholders of PSINet nor the stockholders of Metamor are
entitled to dissenters' rights of appraisal in connection with the merger under
New York law or Delaware law, respectively.
Continuation of Metamor Employee Benefits
PSINet has agreed that, from the effective time of the merger until the
second anniversary of the effective time of the merger, it will provide, or
cause to be provided, benefit plans, programs and arrangements to employees of
Metamor that are no less favorable in the aggregate to those provided to
employees of Metamor immediately before the effective time of the merger.
PSINet has agreed that, to the extent permitted under applicable benefit
plans or insurance policies:
. it will credit continuing employees of Metamor with their service with
Metamor and its affiliates for purposes of participation, vesting and
entitlement to benefits in any employee benefits plans, programs or
arrangements in which they subsequently participate after the effective
time of the merger;
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. it will provide each Metamor employee with credit for any co-payments
and deductibles paid before the effective time of the merger in
satisfying any applicable deductible or out-of-pocket requirements; and
. it will not impose any limitations more onerous than those currently in
effect as to pre-existing conditions, exclusions and waiting periods
with respect to participation and coverage requirements applicable to
Metamor employees.
Effect on Options Outstanding under Metamor Stock Plans
Under the merger agreement, at the effective time of the merger, the
outstanding options to purchase Metamor common stock not previously exercised
will become exercisable for shares of PSINet common stock in accordance with
their existing terms. Each option to acquire shares of Metamor common stock will
be converted into an option to acquire PSINet common stock on the same terms and
conditions, except that:
. the number of shares of PSINet common stock subject to the option will
be equal to the number of shares of Metamor common stock subject to the
option multiplied by 0.9;
. the per share exercise price of the option will be the per share
exercise price for the option prior to the merger divided by 0.9; and
. an aggregate of approximately 700,000 Metamor stock options will become
fully vested as a result of the merger, including approximately
options held by executive officers of Metamor.
Metamor has agreed not to issue any additional stock options prior to the
effective time of the merger other than up to 300,000 options to new employees,
employees who have received promotions and members of Metamor's board of
directors at its annual meeting.
Resale of PSINet Common Stock
PSINet common stock issued in the merger will not be subject to any
restrictions on transfer arising under the Securities Act of 1933, except for
shares issued to any Metamor stockholder who may be deemed to be an "affiliate"
of Metamor or PSINet for purposes of Rule 145 under the Securities Act. Under
Rule 145 each such affiliate may not transfer any PSINet common stock received
in the merger except in compliance with the resale provisions of Rule 144 or 145
under the Securities Act or as otherwise permitted under the Securities Act.
Investment by PSINet in Xpedior
PSINet and Xpedior have entered into a letter of intent relating to an
investment by PSINet of $50 million in Xpedior preferred stock simultaneously
with the closing of the merger. It is anticipated that the preferred stock to be
issued by Xpedior will bear annual dividends of 8 1/2% cumulative quarterly and
payable upon conversion or liquidation in stock (based upon the trailing five
day average closing bid price for Xpedior common stock) or cash at Xpedior's
option. In addition, it is anticipated that the Xpedior preferred stock will be
convertible into Xpedior common stock at $37.50 per share; provided, the
conversion price is expected to be
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reset after each of the first three anniversaries of issuance, if, at the
applicable anniversary date, the 30 trading day average closing bid price of
Xpedior's common stock is below the conversion price then in effect. If the
conversion price is adjusted, the new conversion price will be the 30 trading
day average closing bid price prior to the first two anniversaries and 95% of
the 30 trading day average closing bid price prior to the third anniversary
date. It is also anticipated that Xpedior will have the right to force the
holders of the Xpedior preferred stock to convert all of the preferred stock
into Xpedior common stock at the conversion price then in effect if the average
current market price of Xpedior common stock has exceeded 225% of the conversion
price then in effect for at least 30 consecutive trading days and specified
volumes of Xpedior common stock have traded during that period. Moreover, it is
anticipated that Xpedior will grant registration rights in connection with the
issuance of the preferred stock.
This summary of the transaction with Xpedior is subject to the preparation,
negotiation and execution of definitive documentation, and is subject to change
in the course of that process. The investment by PSINet in the Xpedior preferred
stock is conditioned on the completion of the merger; however, the investment is
not a condition to the merger.
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THE MERGER AGREEMENT
The following description summarizes the material provisions of the merger
agreement. You should read carefully the merger agreement, which is attached as
Annex 1 to this prospectus/proxy statement.
Conditions to the Completion of the Merger
Each party's obligation to effect the merger is subject to the satisfaction
or waiver of various conditions which include the following:
. PSINet's shareholders must approve the issuance of the shares of PSINet
common stock at the PSINet special meeting;
. Metamor's stockholders must adopt the merger agreement at the Metamor
special meeting;
. the waiting period required under applicable antitrust laws shall have
expired or been terminated;
. Metamor's outstanding debt (including Metamor's 2.94% Convertible
Subordinated Notes having a face amount of approximately $227 million
and amounts due under Metamor's $80 million revolving credit facility
of which $7.6 million was outstanding as of April 10, 2000) must be paid
or satisfied prior to the effectiveness of the merger, with funds to be
provided by PSINet immediately prior to the closing;
. the PSINet common stock issuable to Metamor stockholders in the merger
and pursuant to the assumed Metamor options must have been approved for
listing on The Nasdaq Stock Market;
. no court with appropriate jurisdiction has issued an order, judgment,
decree, injunction or ruling which restrains, enjoins or prohibits the
completion of the merger;
. the registration statement of which this document forms a part must
remain effective; and
. each of PSINet and Metamor must have received the tax opinions described
above.
In addition, each of PSINet's and Metamor's obligation to effect the merger
is subject to the satisfaction or waiver of the following additional conditions:
. the representations and warranties of the other party set forth in the
merger agreement shall be true and correct in all respects with
specified materiality exceptions as though made on and as of the
effective date of the merger;
. the other party to the merger agreement having performed or complied
with all agreements and covenants required to be performed by it under
the merger agreement on or prior to the date on which the merger is to
be completed, in all material respects; and
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. PSINet and Metamor having received from Nixon Peabody LLP and/or Vinson
& Elkins L.L.P. the opinions stating that the merger will qualify for
United States federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code as described in
"The Merger--Material United States Federal Income Tax Consequences of
the Merger."
PSINet and Metamor can provide no assurance that all of the conditions
precedent to the merger will be satisfied or waived by the party permitted to do
so. PSINet and Metamor cannot at this point determine whether either of them
would resolicit proxies in the event that it decides to waive any of the items
listed above. This decision would depend upon the facts and circumstances
leading to the decision to complete the merger and whether PSINet or Metamor, as
applicable, believes there has been a material change in the terms of the merger
and its effect on the PSINet shareholders or Metamor stockholders. In making its
determination, PSINet or Metamor would consider, among other factors, the
reasons for the waiver, the effect of the waiver on the terms of the merger,
whether the requirement being waived was necessary in order to make the deal
fair to its shareholders or stockholders from a financial point of view, the
availability of alternative transactions and, in the case of Metamor, the
prospects of Metamor as an independent entity. If either PSINet or Metamor
determines that a waiver of a condition would materially change the terms of the
merger, including the expected qualification of the merger as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code, it would
resolicit proxies.
No Solicitation of Alternate Transactions
The merger agreement provides that Metamor will not, nor will its
subsidiaries, nor any of their directors, officers or employees, or any
investment banker, attorney, accountant or other representative retained by it
or any of its subsidiaries, directly or indirectly through another person:
. initiate, solicit, induce, encourage or knowingly facilitate, including
by way of furnishing information, any inquiries or the making of any
acquisition proposal, as defined below;
. participate in any discussions, provide any confidential information or
data relating to, or engage in any negotiations regarding, any
acquisition proposal or knowingly facilitate any effort or attempt to
implement an acquisition proposal or accept an acquisition proposal;
provided, however, that if, at any time prior to the date of the special
meeting, Metamor's board of directors following consultation with its financial
advisors determines in good faith, that an unsolicited bona fide written
acquisition proposal could reasonably be expected to result in a superior
proposal, as defined below, Metamor may participate in negotiations or
discussions regarding such acquisition proposal and provide information to the
person or persons making the proposal after giving notice of the existence and
terms of any such proposal or proposals to PSINet at least one day before
commencing negotiations or discussions or providing information. Also, before
providing any information or data Metamor must receive a confidentiality
agreement containing restrictions comparable to those then in force between
PSINet and Metamor.
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The merger agreement provides that:
. the term "acquisition proposal" means any inquiry, proposal or offer
from any person relating to a merger, reorganization, share exchange,
consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction involving Metamor, or any purchase or
sale of all or any significant portion of the assets of Metamor or more
than 10% of the Metamor common stock or the assets or capital sock of
any of its subsidiaries;
. the term "superior proposal" means any bona fide unsolicited written
acquisition proposal made by a third party to acquire a majority of the
voting power of the shares of Metamor common stock then outstanding or
all or substantially all the assets of Metamor, for consideration
consisting of cash and/or securities, that Metamor's board of directors
concludes in good faith, after consultation with its financial advisors
and legal counsel, taking into account all legal, financial, regulatory
and other aspects of the proposal and the third party, would, if
consummated, result in a transaction materially more favorable from a
financial point of view to Metamor's stockholders than the merger and
which is reasonably capable of being completed, including a conclusion
that its financing, to the extent required, is then committed or is, in
the good faith judgment of Metamor's board of directors, reasonably
capable of being financed.
Except as expressly permitted by the merger agreement, neither Metamor's
board of directors nor any committee of the board will:
. withdraw or modify, or propose publicly to withdraw or modify, in a
manner adverse to PSINet, or take any action not explicitly permitted by
the merger agreement that would be inconsistent with, the approval or
recommendation by Metamor's board of directors or that committee of the
merger;
. approve or recommend, or propose publicly to approve or recommend, any
acquisition proposal; or
. cause Metamor to enter into any letter of intent, agreement in
principle, acquisition agreement or other similar agreement related to
any acquisition proposal.
Notwithstanding the foregoing, if prior to the special meeting, Metamor's board
of directors determines in good faith, after giving effect to all concessions
which may be offered by PSINet, that an acquisition proposal constitutes a
superior proposal which was not solicited by Metamor and which did not otherwise
result from a breach of the provisions of the merger agreement described above,
Metamor's board of directors may withdraw or modify its approval or
recommendation of the merger agreement, terminate the merger agreement and enter
into a letter of intent, agreement in principle, acquisition agreement or other
similar agreement related to an acquisition proposal, but only at a time that is
after the third day following PSINet's receipt of written notice advising PSINet
that Metamor's board of directors has received a superior proposal and will no
longer recommend the approval of the merger. Metamor must pay a fee in the
amount of $45 million to PSINet as a condition to taking these actions. See
"--Termination" and "--Termination Fees."
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Termination
The merger agreement may be terminated at any time before the effective time
of the merger, whether before or after adoption of the merger agreement by the
stockholders of Metamor:
1. by mutual written consent of PSINet and Metamor;
2. by PSINet or Metamor, if the other party has materially breached the
merger agreement, which breach has not been cured and which would cause a
closing condition to be incapable of being satisfied by October 31, 2000;
3. by PSINet or Metamor if any court of competent jurisdiction has issued,
enacted, entered, promulgated or enforced any order, judgment, decree,
injunction or ruling which, after reasonable efforts on the part of PSINet and
Metamor to resist, resolve or lift, permanently restrains, enjoins or otherwise
prohibits the merger and the order, judgment, decree, injunction or ruling has
become final and nonappealable;
4. by PSINet or Metamor, if the merger has not been completed by October 31,
2000 provided that the terminating party's failure to perform any of its
material covenants or obligations under the merger agreement did not result in
the failure of the merger to occur on or before this date;
5. by PSINet or Metamor, if the PSINet or Metamor special meeting (including
as they may be adjourned from time to time) concluded without PSINet having
obtained the shareholder approval to issue the PSINet common stock in connection
with the merger or Metamor having obtained the stockholder approval of the
merger agreement;
6. by PSINet if, before the Metamor special meeting, Metamor's board of
directors: (a) withdraws or modifies in any adverse manner its approval of the
merger agreement, (b) approves or recommends a superior proposal, or (c)
resolves to take either of the foregoing actions; or
7. by Metamor at any time before the Metamor special meeting, upon three
days' prior notice to PSINet, if Metamor's board of directors approves a
superior proposal; provided, that (a) Metamor has complied with its agreement
not to solicit acquisition proposals, (b) Metamor's board of directors has
concluded in good faith, after giving effect to all concessions which may be
offered by PSINet described in (c) below, on the basis of the advice of its
financial advisors and outside counsel, that the acquisition proposal is a
superior proposal and (c) before any termination, Metamor has negotiated, and
caused its financial and legal advisors to negotiate, with PSINet to make
adjustments in the terms and conditions of the merger agreement as would enable
PSINet to proceed with the merger, and (d) Metamor has paid the $45 million
termination fee.
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Termination Fees
Termination Fee Payable by Metamor. Metamor must pay PSINet a termination
fee of $45 million if:
1. Metamor terminates the merger agreement in order to accept a more
favorable proposal or withdraws or modifies its approval or recommendation of
the merger in connection with the Metamor special meeting;
2. PSINet terminates the merger agreement because Metamor's board of
directors approves or recommends a more favorable third party proposal;
3. the merger agreement is terminated because holders of Metamor common
stock fail to adopt the merger agreement at the Metamor special meeting as it
may be adjourned from time to time, a third party acquisition proposal is
publicly disclosed prior to the completion of the Metamor special meeting, and
within 12 months after the termination Metamor enters into a definitive
agreement with any third party with respect to an acquisition proposal or an
acquisition proposal is consummated; or
4. the merger agreement is terminated by PSINet based on a material breach
of the agreement by Metamor; by Metamor or PSINet if the closing of the merger
fails to occur by October 31, 2000; or by PSINet based on Metamor's withdrawal
or adverse modification of its recommendation of the merger agreement and, in
each case:
. there has been a third party acquisition proposal between the date
of the merger agreement and the date of termination;
. following the existence of the acquisition proposal, prior to the
termination, Metamor has intentionally breached in any material
respect (and not cured) any of its material agreements under the
merger agreement; and
. within 12 months of the termination Metamor enters into a definitive
agreement relating to an acquisition proposal or an acquisition
proposal is completed.
Termination Fee Payable by PSINet. PSINet must pay Metamor a termination fee
of $45 million if:
1. the PSINet shareholders have not approved the issuance of the PSINet
common stock at the PSINet special meeting as it may be adjourned from time to
time, and
2. either
. prior to the PSINet special meeting, the board of directors of
PSINet approved a bona fide written proposal or offer or entered
into a definitive agreement with respect to the acquisition of
PSINet or a majority interest in PSINet by another entity, or
. such a transaction is announced to the public at any time after the
date of the merger agreement and prior to the PSINet special meeting
and within 12 months following
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the final adjournment of the PSINet special meeting, PSINet enters
into a definitive agreement with any third party with respect to the
acquisition of PSINet or a majority interest in PSINet by any third
party or such an acquisition by any third party is consummated.
Conduct of Business Pending the Merger
Before the effective time, except as contemplated by the merger agreement or
unless PSINet otherwise agrees in writing, Metamor has agreed that it will, and
will cause its subsidiaries to, carry on their respective businesses in the
usual, regular and ordinary course in substantially the same manner as conducted
immediately before the signing of the merger agreement and to use reasonable
efforts to conduct their business in a manner consistent with the budgets and
plans made available to PSINet. Metamor has agreed to, and to cause its
subsidiaries to, use all reasonable efforts to preserve intact their business
organizations, keep available the services of their employees and consultants,
preserve their relationships and goodwill with customers, suppliers, licensors,
licensees, distributors and others having business dealings with them, and to
use commercially reasonable efforts to protect their intellectual property to
the end that their goodwill and on-going businesses will not be impaired in any
material respect at the effective time of the merger. Metamor has also agreed
that, unless PSINet otherwise agrees in writing, before the effective time of
the merger, it will not and will not permit its subsidiaries to:
. declare, set aside, or pay any dividends on, or make any other
distributions with respect to, any of its capital stock, other than
dividends and distributions by any direct or indirect subsidiary of
Metamor to its parent(s);
. split, combine or reclassify any of its capital stock or, other than
pursuant to the exercise or conversion of Metamor stock options or other
convertible securities outstanding on the date of the merger agreement,
issue or authorize the issuance of any other securities with respect to,
instead of or in substitution for shares of its capital stock;
. purchase, redeem or otherwise acquire, other than pursuant to the
exercise or conversion of Metamor stock options or other convertible
securities outstanding on the date of the merger agreement, any shares
of Metamor capital stock or any of its subsidiaries or any other equity
securities of Metamor or its subsidiaries or any rights, warrants, or
options to acquire any of those shares or other securities other than
purchases, redemptions or acquisitions of equity securities of wholly
owned subsidiaries of Metamor or rights, warrants or options to acquire
those securities;
. issue, deliver, sell, pledge, dispose of or otherwise encumber any
shares of its capital stock including any Metamor stock options (other
than up to 300,000 options agreed to previously by PSINet and options
granted by Xpedior) or other convertible securities any other voting
securities of Metamor or any securities convertible into, or any rights,
warrants or options to acquire, any of those shares or voting securities
(other than the issuance of Metamor common stock upon the exercise of
stock options outstanding on the date of the merger agreement) or amend
the terms of any of those securities, rights, warrants or options or
take action to accelerate the vesting thereof;
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. grant, award or enter into any compensation or change of control
arrangement with any employee;
. amend its certificate of incorporation or by-laws or comparable
organizational documents of any of its subsidiaries;
. acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial portion of the assets of, any business or any
corporation, partnership, joint venture, association or other business
organization or division, or any assets that are material, individually
or in the aggregate, to Metamor and its subsidiaries, except in the
ordinary course of business;
. subject to a lien or sell, lease or otherwise dispose of any of its
material properties, assets or intellectual property rights, except in
the ordinary course of business;
. incur or modify any indebtedness for borrowed money or guarantee any
indebtedness of another person, issue or sell any debt securities of
Metamor or any of its subsidiaries, guarantee any debt securities of
another person (other than indebtedness to, guarantees of, or issuances
or sales to Metamor or a wholly owned subsidiary of Metamor), or enter
into any "keep well" or other agreement to maintain any financial
condition of another person, except, in any case, for borrowings or
other transactions incurred in the ordinary course of business under
existing credit facilities including to repay existing indebtedness
pursuant to the terms of the indebtedness;
. except in the ordinary course of business, make any loans, advances or
capital contributions to, or investments in, any other person, other
than to Metamor or any direct or indirect subsidiary of Metamor or
settle or compromise any material claims or litigation;
. take any action that would result in Metamor owning less than 80% of the
outstanding Xpedior common stock;
. take any action or omit to take any action that would cause any of its
representations and warranties in the merger agreement to become untrue
in any material respect; or
. authorize any of, or commit or agree to take any of, the foregoing
actions.
These limitations upon Metamor's conduct do not generally apply to these
transactions or actions if they are between Metamor and a wholly owned
subsidiary of Metamor or if they are between two wholly owned subsidiaries of
Metamor.
Metamor has agreed to promptly provide PSINet copies of all filings made by
Metamor with any governmental entity in connection with the merger agreement and
the transactions contemplated by the agreement. Before settling or compromising
any material income tax liability of Metamor or any of its subsidiaries, Metamor
has agreed to obtain the consent of PSINet. Metamor has also agreed to consult
with PSINet and its advisors as to the positions and elections that will be
taken or made with respect to tax matters.
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PSINet covenants and agrees that between the date of the merger agreement
and the completion of the merger it will not:
. declare, set aside, or pay any dividends on, or make any other
distributions in respect of, any of its PSINet common stock, except such
dividends or distributions as would give rise to an adjustment to the
exchange ratio pursuant to the merger agreement;
. enter into, or permit any of its subsidiaries to enter into, any written
contract pursuant to which PSINet expressly agrees not to consummate the
merger, which is otherwise conditioned upon the merger not occurring, or
by its express terms would prohibit the merger; or
. take any action or omit to take any action that would cause any of its
representations and warranties in the merger agreement to become untrue
in any material respect.
Repayment of Metamor Debt; Convertible Notes
Metamor and PSINet have agreed to cooperate to pay or satisfy at the
effective time of the merger the outstanding debt of Metamor and its
subsidiaries, with limited exceptions. This debt includes an aggregate of
approximately $7.6 million of borrowings under Metamor's revolving credit
facility, as of April 10, 2000, and approximately $227 million of convertible
subordinated notes of Metamor. The convertible notes are convertible into
Metamor common stock at an effective conversion price of $37.95 per share (based
on the applicable redemption price on the earliest redemption date). The
convertible notes will become convertible into PSINet common stock upon
consummation of the merger. The parties expect that the convertible notes will
be called for redemption on the later of August 18, 2000 (the earliest call date
for the notes) or 45 days after closing of the merger. Any notes may be
converted by the holders of the notes until the redemption date, and any notes
not converted prior to the redemption date will be redeemed for cash.
Amendment and Waiver
Subject to applicable law:
. the merger agreement provides that it may be amended by the parties in
writing at any time, except that after the approval of the shareholders
of PSINet and the stockholders of Metamor has been obtained, no
amendment may be entered into which would require further stockholder
approval unless further approval is obtained; and
. at any time before the effective time of the merger, any party may
extend the time for performance of the obligations of any other party to
the merger agreement, waive inaccuracies in representations and
warranties of any other party contained in the merger agreement or in
any related document and waive compliance by any other party with any
agreements or conditions in the merger agreement.
Under Section 251(d) of the Delaware General Corporation Law, no amendment
to the merger agreement made after the adoption of the merger agreement by the
stockholders of
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Metamor may, without further stockholder approval, alter or change the amount or
kind of shares, securities, cash, property or rights to be received by Metamor
stockholders in the merger, or alter or change any terms and conditions of the
merger agreement if the alteration or change would adversely affect the holders
of any class or series of stock of Metamor.
Expenses
Whether or not the merger is consummated, all costs and expenses incurred in
connection with the merger agreement and the transactions contemplated by the
agreement will be paid by the party incurring the fees or expenses, except as
otherwise provided in the merger agreement. If the merger agreement is
terminated, PSINet and Metamor will share equally the expenses incurred in
connection with filing and printing of this document and the filing fees for the
premerger notification and report forms under the Hart-Scott-Rodino Act and
other antitrust laws.
Representations and Warranties
The merger agreement contains customary representations and warranties
relating to, among other things:
. corporate organization and similar corporate matters of PSINet and
Metamor and their respective subsidiaries;
. the capital structure of each of PSINet and Metamor;
. authorization, execution, delivery, performance and enforceability of,
and required consents, approvals, orders and authorizations of
governmental authorities relating to, the merger agreement and related
matters of PSINet and Metamor;
. documents filed by each of PSINet and Metamor with the Securities and
Exchange Commission, the accuracy of information contained in those
documents and the absence of undisclosed liabilities of each of PSINet
and Metamor;
. the accuracy of information supplied by each of PSINet and Metamor in
connection with this document and the registration statement of which it
is a part;
. absence of certain material changes or events concerning PSINet and
Metamor;
. compliance with applicable laws by Metamor;
. absence of changes in employee compensation and benefit plans of
Metamor;
. matters relating to the Employee Retirement Income Security Act and
other labor matters of Metamor;
. filing of tax returns and payment of taxes by Metamor and its
subsidiaries;
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. board approval and required stockholder vote of Metamor and PSINet to
approve the merger and the issuance of the PSINet common stock in
connection with the merger;
. engagement and payment of fees of brokers, investment bankers, finders
and financial advisors by each of PSINet and Metamor;
. receipt of fairness opinion by Metamor from its financial advisor;
. intellectual property and year 2000 matters of Metamor;
. outstanding and pending material litigation of each of PSINet and
Metamor;
. assets and contracts of Metamor and absence of restrictions on its
business activities; and
. environmental and insurance matters of Metamor.
Amendments to the Metamor Certificate of Incorporation
As of the effective time of the merger, the Metamor certificate of
incorporation will be restated to be substantially identical to PSINet Shelf IV
Inc.'s certificate of incorporation immediately prior to the merger except that
Metamor's name will change to "PSINet Solutions Inc." For a summary of some
current provisions of the Metamor certificate of incorporation and the
associated rights of Metamor stockholders, see "Comparison of Rights of Holders
of Common Stock of PSINet and Metamor."
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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined balance sheet as of
December 31, 1999 and the unaudited pro forma condensed combined statement of
operations for the year ended December 31, 1999, which we refer to as the Pro
Forma Financial Information, present the pro forma effect of PSINet's
acquisitions of Metamor, Transaction Network Services, Inc. ("TNI"), certain
other acquisitions, capital raising activity of PSINet since January 1, 2000
and the exchange of PSINet common stock for a portion of its outstanding Series
C preferred stock described below.
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.
Under the terms of the merger agreement with Metamor entered into on March
21, 2000, the aggregate consideration to be paid to Metamor stockholders
consists of approximately 31.2 million shares of PSINet's common stock (at a
conversion ratio of 0.9 shares of PSINet's common stock for each share of
Metamor's common stock outstanding), which represents an aggregate value of
approximately $1.35 billion, based upon an average price per share of PSINet's
common stock of $43.35 for the period from March 20, 2000 through March 24,
2000. PSINet will also assume options to acquire approximately 4.6 million
shares of Metamor common stock which, under the terms of the merger agreement,
will be exercisable into approximately 4.1 million shares of PSINet's common
stock and represent an aggregate fair value of approximately $142.5 million.
Additionally, PSINet will transfer funds to a trustee to be held in an escrow
account for the redemption of Metamor's 2.94% Convertible Subordinated Notes
having a face amount of approximately $227.0 million and will repay amounts
outstanding under Metamor's $80.0 million revolving credit facility ($7.6
million was outstanding as of April 10, 2000) immediately prior to the merger as
a condition to closing. Simultaneously with the merger, PSINet has agreed to
invest $50.0 million in 8 1/2% preferred stock of Xpedior, a majority owned
subsidiary of Metamor. The source of the cash for the repayment of the Metamor
outstanding debt and the investment in Xpedior will be cash on hand.
On November 23, 1999, PSINet acquired TNI. PSINet paid shareholders of TNI
aggregate consideration of approximately $339.3 million in cash and
approximately 15.2 million shares of PSINet common stock, which represented an
aggregate value of approximately $347.7 million, based upon a price per share of
PSINet common stock of $22.859 at the time we entered the definitive agreement
with TNI. PSINet also assumed options to acquire approximately 463,000 shares of
TNI common stock which, at the time we entered into the definitive agreement,
were exercisable into 926,000 shares of PSINet common stock and represented an
aggregate fair value of approximately $13.0 million. PSINet also repaid
outstanding principal and interest under TNI's revolving credit facility in the
amount of $52.1 million 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 cash on hand.
In addition to the TNI merger, during the year ended December 31, 1999,
PSINet completed a total of 43 acquisitions for aggregate purchase prices and
related payments of approximately $247.0 million exclusive of assumed debt.
In February 2000, PSINet completed an offering of 16.5 million shares of 7%
Series D cumulative convertible preferred stock ("Series D preferred stock")
for net proceeds of approximately $739.0 million after expenses (excluding
amounts paid by the purchasers of the Series D preferred stock into the deposit
account that is not an asset of PSINet).
In February and March 2000, PSINet exchanged approximately 8.2 million newly
issued shares of its common stock for an aggregate of approximately 4.6 million
shares of its Series C preferred stock through individually negotiated
transactions with a limited number of holders of the Series C preferred stock.
Subsequent to the exchange, PSINet converted the exchanged Series C preferred
stock into approximately 7.4 million shares of PSINet common stock, which are
held as treasury shares. In connection with this transaction, PSINet received
approximately $32.4 million of cash from the deposit account associated with
the Series C preferred stock.
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The following unaudited pro forma condensed combined balance sheet at
December 31, 1999 presents, on a pro forma basis, our PSINet's condensed
combined financial position assuming each of the following had occurred on
December 31, 1999:
. PSINet's acquisition of Metamor and the simultaneous investment in
Xpedior and the transfer of funds for and the repayment of Metamor debt at
closing;
. PSINet's February 2000 offering of its Series D preferred stock and the
application of the net proceeds; and
. the exchange of PSINet's Series C preferred stock, the subsequent
conversion of the Series C preferred stock into PSINet's common stock
held as treasury shares and the receipt of cash from the deposit
account.
The following unaudited pro forma condensed combined statement of operations
for the year ended December 31, 1999 presents, on a pro forma basis, PSINet's
condensed combined results of operations assuming each of the following had
occurred on January 1, 1999:
. PSINet's acquisition of Metamor and the simultaneous investment in
Xpedior and the transfer of funds for and the repayment of Metamor debt at
closing;
. PSINet's acquisition of TNI;
. PSINet's acquisitions of Planete.net S.A.R.L., Satelnet S.A., Telelinx
Ltd. Horizontes Internet Ltd., Wavis Equipamentos de Informatica Ltd.,
Sao Paulo On-Line Ltda., Internet de Mexico S.A. de C.V. Mexico, Datanet
S.A. de C.V., The Internet Company, Caribbean Internet Service Corp.,
The Internet Access Company, Argentina On-Line S.A., CSO.net Telecom
Services GmbH, Intercomputer, S.A. and Intercomputer Soft, S.A.,
ABAFoRUM S.A., Netwing EDV-Dienstleistungs GmbH, Global Link, Netsystem
S.A., Domain Acesso e Servicos Internet Ltda, Netline Communicaciones
S.A., Sinfonet S.A., Vision Network Limited, Servnet Servicos de
Informatica e Communicacao Ltda, Elender Informatikai, Infase
Comunicaciones, S.L., Internet Network Technologies, Site Internet Ltda,
TotalNet Inc, Terzomillennio S.L., Orbinet Telecommunications, Inc.,
ZebraNet, Inc., SPIN GmbH, Zircon, Mlink Internet, Inc., Netup, Lyceum,
Telalink Corporation, Transaction Network Services, Inc, Alpha dot net,
Netgate, JoinNet, Correionet, Lynx, and Pacwan ("Other Acquisitions")
which were consummated during 1999;
. PSINet's February 2000 offering of its Series D preferred stock and the
application of the net proceeds; and
. the exchange of PSINet's Series C preferred stock, the subsequent
conversion of the Series C preferred stock into PSINet's common stock
held as treasury shares and the receipt of cash from the deposit
account.
The acquisition of Metamor will be accounted for as a purchase business
combination and, accordingly, the purchase price of Metamor will be 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. PSINet
has undertaken a study by an independent third party to determine the
allocation of the total purchase price of PSINet's acquisition of Metamor.
Until the study is complete, PSINet is unable to determine the allocation of
the total purchase price of Metamor. For purposes of this Pro Forma Financial
Information, PSINet attributed the excess of the purchase price over the
acquired net tangible assets for Metamor of $1.5 billion to goodwill with a
twenty year estimated useful life. PSINet's management does expect that a
portion of the purchase price will be allocated to nongoodwill intangibles. To
the extent that a portion of the purchase price of Metamor is allocated among
other intangible assets with a useful life shorter than twenty years, the
adjustment for amortization expense for the twelve months ended December 31,
1999 would be higher. In addition, PSINet's management is in the process of
assessing and formulating its integration plans. PSINet's management does not
know the exact amount, if any, of restructuring and other costs to be included
in purchase accounting but does not expect them to be material.
87
<PAGE>
The acquisition of TNI was accounted for as a purchase business combination
and, accordingly, the purchase price of TNI 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. PSINet engaged an
independent third party to determine the allocation of the total purchase price
of its acquisition of TNI. The evaluation for TNI indicated there were the
following intangible assets present: existing technology, tradenames, customer
contracts and relationships, existing workforce and goodwill, with estimated
useful lives from three to 20 years, and approximately $84.0 million of
purchased in-process research and development which is included in PSINet's
historical consolidated retained deficit reflected in the unaudited pro forma
condensed combined balance sheet and PSINet's historical loss from continuing
operations available to common shareholders in the unaudited pro forma
condensed combined statement of operations.
Each of the Other Acquisitions 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.
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 management believes are reasonable in the circumstances. The
unaudited pro form condensed combined statement of operations does not give
effect to any potential cost savings and synergies that could result from the
acquisitions included therein. The Pro Forma Financial Information should be
read in conjunction with PSINet's consolidated financial statements and notes
thereto and Metamor's consolidated financial statements and notes thereto which
are incorporated by reference in this prospectus/proxy statement.
88
<PAGE>
PSINET INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1999
(In millions of U.S. dollars, except per share and share amounts)
<TABLE>
<CAPTION>
Transaction
Metamor Network
Metamor Worldwide, Services
PSINet Inc. Worldwide, Inc. Inc. Inc. Other
Consolidated Consolidated Adjustments Consolidated Acquisitions
------------ --------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Internet access
revenue................ $ 554.7 $ -- $ $152.8 $51.3
Services revenue........ -- 577.0 -- --
------- ------ ------ ------ -----
Total revenue....... 554.7 577.0 152.8 51.3
Operating costs and
expenses:
Data communications
and operations....... 396.4 -- 98.3 28.7
Cost of services
revenue.............. -- 341.0 -- --
Selling, general and
administrative....... 182.5 174.3 27.8 18.6
Depreciation and
amortization......... 166.5 26.0 74.0 (a) 17.6 3.6
Charge for acquired
in-process R&D....... 88.7 -- -- --
------- ------ ------ ------ -----
Total operating
costs and
expenses........... 834.1 541.3 74.0 143.7 50.9
------- ------ ------ ------ -----
(Loss) income from
operations............. (279.4) 35.7 (74.0) 9.1 0.4
Interest expense........ (193.1) (20.9) 20.9 (b) (3.7) (0.8)
Interest income......... 54.4 -- 1.4 0.2
Other income (expense),
net.................... (0.9) 2.4 -- (0.4)
------- ------ ------ ------ -----
(Loss) income from
continuing operations
before income taxes.... (419.0) 17.2 (53.1) 6.8 (0.6)
Income tax benefit
(expense).............. 2.8 (7.0) 5.0 (c) (5.8) (0.8)
------- ------ ------ ------ -----
(Loss) income from
continuing operations.. (416.2) 10.2 (48.1) 1.0 (1.4)
Return to preferred
shareholders........... (17.7) -- -- --
------- ------ ------ ------ -----
(Loss) income from
continuing operations
available to common
shareholders........... $(433.9) $ 10.2 $(48.1) $ 1.0 $(1.4)
======= ====== ====== ====== =====
Basic and diluted loss
per share from
continuing
operations(e).......... $ (3.49)
=======
Shares used in computing
basic and diluted loss
per share from
continuing operations
(in thousands)......... 124,386 31,224
======= ======
</TABLE>
89
<PAGE>
PSINET INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1999
(In millions of U.S. dollars, except per share and share amounts)
<TABLE>
<CAPTION>
Pro
Adjustments Forma
----------- --------
<S> <C> <C>
Internet access revenue............................... $ $ 758.8
Services revenue...................................... 577.0
------ --------
Total revenue..................................... 1,335.8
Operating costs and expenses:
Data communications and operations.................. 523.4
Cost of services revenue............................ 341.0
Selling, general and administrative................. 403.2
Depreciation and amortization....................... 62.4 (a) 350.1
Charge for acquired in-process R&D.................. 88.7
------ --------
Total operating costs and expenses................ 62.4 1,706.4
------ --------
(Loss) income from operations......................... (62.4) (370.6)
Interest expense...................................... 1.4 (b) (196.2)
Interest income....................................... 56.0
Other income (expense), net........................... 1.1
------ --------
(Loss) income from continuing operations before income
taxes................................................ (61.0) (509.7)
Income tax benefit (expense).......................... 5.8 (c) --
------ --------
(Loss) income from continuing operations.............. (55.2) (509.7)
Return to preferred shareholders...................... (38.1)(d) (55.8)
------ --------
(Loss) income from continuing operations available to
common shareholders.................................. $(93.3) $ (565.5)
====== ========
Basic and diluted loss per share from continuing
operations........................................... $ (3.45)
========
Shares used in computing basic and diluted loss per
share from continuing operations (in thousands)...... 8,155 163,765
====== ========
</TABLE>
90
<PAGE>
PSINET INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1999
NOTE 1--PRO FORMA ADJUSTMENTS
The pro forma adjustments outlined below present separate adjustments
related to the acquisition of Metamor and the adjustments related to the other
transactions reflected in the unaudited pro forma condensed combined statement
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 20 years from the respective
dates of acquisition.
PSINet has undertaken a study by an independent third party to determine the
allocation of the total purchase price of its acquisition of Metamor. Until the
study is complete, PSINet is unable to determine the allocation of the total
purchase price of Metamor. For purposes of this Pro Forma Financial
Information, PSINet has attributed the excess of the purchase price over the
acquired net tangible assets for Metamor of $1.5 billion to goodwill with an
estimated twenty year useful life. To the extent that a portion of the purchase
price of Metamor is allocated among other intangible assets with a useful life
shorter than twenty years, the adjustment for amortization expense for the
twelve months ended December 31, 1999 would be higher and PSINet would record a
deferred tax liability relating to nongoodwill intangibles.
For the Year Ended December 31, 1999
(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 relating to TNI and the other acquisitions and goodwill
relating to Metamor). The assigned lives of the acquired intangible assets
range from three to 20 years.
<TABLE>
<CAPTION>
Amortization
--------------------------
(millions of U.S. dollars)
<S> <C>
Metamor merger.................................. $(74.0)
======
TNI merger...................................... $(42.2)
Other acquisitions.............................. (20.2)
------
$(62.4)
======
(b) Reflects the following:
<CAPTION>
Interest
--------------------------
(millions of U.S. dollars)
<S> <C>
Interest expense avoided through assumed
repayment of the Metamor 2.94% Convertible
Subordinated Notes and the Metamor credit
facility as of January 1, 1999................. $ 20.9
======
Interest expense avoided through assumed
repayment of the TNI revolving credit facility
as of January 1, 1999.......................... $ 1.8
Other........................................... (0.4)
------
$ 1.4
======
</TABLE>
91
<PAGE>
(c) Reversal of tax expense recorded by Metamor and TNI as a result of
availability of PSINet taxable losses for the periods presented to offset
Metamor and TNI taxable income.
(d) Reflects the following:
<TABLE>
<CAPTION>
Return to Preferred
Shareholders
--------------------------
(millions of U.S. dollars)
<S> <C>
Dividends on the Series D preferred stock........ $(55.3)
Dividends on the Series C preferred stock avoided
through assumed exchange for common stock as of
January 1, 1999................................. 17.2
------
$(38.1)
======
</TABLE>
(e) Basic and diluted loss per share are computed using net loss available
to common shareholders divided by the weighted average number of shares of
PSINet's common stock that were outstanding during the period presented and
assumes that the issuance of approximately 31.2 million shares of PSINet's
common stock in connection with the acquisition of Metamor and the issuance of
approximately 8.2 million shares of PSINet's common stock in connection with the
Series C preferred stock exchange as if they had occurred on January 1, 1999.
Because all common stock equivalents are antidilutive, basic and diluted loss
per share are the same for all periods presented.
92
<PAGE>
PSINET INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
As of December 31, 1999
(In millions of U.S. dollars)
<TABLE>
<CAPTION>
Metamor Metamor
PSINet Inc. Worldwide, Inc. Worldwide, Inc. Other
Consolidated Consolidated Adjustments Adjustments Pro Forma
------------ --------------- --------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash $ 853.6 $ 92.6 $ (204.5)(e) $ 32.4 (g)
equivalents...........
739.0 (f) $1,513.1
Restricted cash and
short-term
investments........... 154.1 -- 154.1
Short-term investments
and marketable
securities............ 747.6 -- 747.6
Accounts receivable,
net................... 103.6 178.1 281.7
Prepaid expenses and
other current assets.. 83.5 27.9 111.4
-------- ------ -------- ------- --------
Total current assets... 1,942.4 298.6 (204.5) 771.4 2,807.9
Property, plant and
equipment, net......... 1,162.6 53.5 1,216.1
Goodwill and other
intangibles, net....... 1,212.0 573.0 (573.0)(b)
1,480.4 (b) 2,692.4
Other assets and
deferred charges....... 175.3 46.7 204.5 (e) 426.5
-------- ------ -------- ------- --------
Total assets........... $4,492.3 $971.8 $ 907.4 $ 771.4 $7,142.9
======== ====== ======== ======= ========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of
debt.................. $ 115.0 $ 115.0
Trade accounts
payable............... 141.5 $ 12.2 153.7
Accrued payroll and
related expenses...... 16.1 30.3 46.4
Other accounts payable
and accrued
liabilities........... 85.3 68.0 $ 22.3 (c) 175.6
Accrued interest
payable............... 94.7 2.5 97.2
Deferred revenue....... 29.5 1.9 31.4
-------- ------ -------- ------- --------
Total current
liabilities........... 482.1 114.9 22.3 619.3
Long-term debt.......... 3,185.2 209.2 3,394.4
Deferred income tax
liabilities............ 17.9 15.0 (15.0)(b) 17.9
Other liabilities....... 84.1 1.0 85.1
Minority interest....... -- 173.5 (137.7)(b) 35.8
-------- ------ -------- ------- --------
Total liabilities...... 3,769.3 513.6 (130.4) 4,152.5
-------- ------ -------- ------- --------
Shareholders' equity:
Convertible preferred
stock, Series C....... 375.2 (188.8)(g) 186.4
Convertible preferred
stock, Series D....... -- -- 739.0 (f) 739.0
Common stock........... 1.5 0.4 (0.4)(d) 0.1 (g)
0.3 (a) 0.1 (h) 2.0
Capital in excess of
par value............. 1,194.8 308.1 137.7 (b) (0.1)(h)
(445.8)(d)
1,495.7 (a) 222.8 (g) 2,913.2
Accumulated (deficit)
earnings.............. (861.5) 146.9 (146.9)(d) (1.7)(g) (863.2)
Treasury stock......... (2.0) -- (2.0)
Accumulated other
comprehensive income.. 125.4 2.8 (2.8)(d) 125.4
Bandwidth asset to be
delivered under IXC
agreement............. (110.4) -- (110.4)
-------- ------ -------- ------- --------
Total shareholders'
equity................ 723.0 458.2 1,037.8 771.4 2,990.4
-------- ------ -------- ------- --------
Total liabilities and
shareholders' equity.. $4,492.3 $971.8 $ 907.4 $ 771.4 $7,142.9
======== ====== ======== ======= ========
</TABLE>
93
<PAGE>
PSINET INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
As of December 31, 1999
NOTE 1--PRO FORMA ADJUSTMENTS
Reflects the acquisition of Metamor and other events as if they had
occurred on December 31, 1999, including:
(a) the assumed issuance of approximately 31.2 million shares of PSINet
common stock in connection with the Metamor acquisition (the shares of PSINet
common stock assume a value of $43.35 per share, based on the average of the
closing price of PSINet common stock on the Nasdaq National Market for the
period from March 20, 2000 through March 24, 2000).
(b) PSINet has undertaken a study by an independent third party to
determine the allocation of the total purchase price of the acquisition of
Metamor. Until the study is complete, PSINet is unable to determine the
allocation of the total purchase price of Metamor. For purposes of this Pro
Forma Financial Information, PSINet has attributed the excess of the purchase
price over the acquired net tangible assets for Metamor of $1.5 billion to
goodwill with an estimated twenty year useful life. To the extent that a
portion of the purchase price of Metamor is allocated among other intangible
assets, PSINet would record a deferred tax liability related to the
nongoodwill intangibles and additional goodwill.
(c) the estimated closing costs and estimated purchase liabilities
associated with the Metamor acquisition.
(d) the elimination of the Metamor common stock, capital in excess of
par value, retained earnings and accumulated other comprehensive income.
(e) The placement of the funds into a restricted escrow account necessary
to redeem the Metamor 2.94% Convertible Subordinated Notes on the first
redemption date, August 18, 2000 at a redemption price of $901.02 for each
$1,000 face value note.
(f) the issuance of approximately 16.5 million shares of 7% Series D
preferred stock in February 2000 and the application of the net proceeds
therefrom.
(g) the exchange of approximately 8.2 million newly issued shares of
PSINet common stock for an aggregate of approximately 4.6 million shares of
PSINet Series C preferred stock and the receipt of $32.4 million of cash
from the deposit account. In connection with this exchange PSINet recorded
$1.7 million as additional return to preferred shareholders which has been
recorded as an increase in accumulated deficit.
(h) the issuance of approximately 7.4 million shares of PSINet common
stock upon conversion of approximately 4.6 million shares of its Series C
preferred stock held in treasury shares after the above exchange.
94
<PAGE>
PRO FORMA CAPITALIZATION OF PSINET
The following table presents the pro forma cash, cash equivalents,
short-term investments and marketable securities, restricted cash and short-term
investments and capitalization of PSINet as of December 31, 1999 after giving
pro forma effect to:
. the merger, the transfer of $204.5 million to a restricted escrow
account for the redemption of Metamor's indebtedness and the investment
of $50 million in Xpedior;
. PSINet's February 2000 offering of 7% Series D cumulative convertible
preferred stock for net proceeds of approximately $739.0 million
(excluding amounts paid by the initial purchasers into a deposit
account); and
. the exchange in February and March, 2000 of approximately 8.2 million
newly issued shares of PSINet common stock for an aggregate of
approximately 4.6 million shares of its Series C preferred stock, the
receipt of $32.4 million of cash from the related deposit account and
the conversion of the Series C preferred stock held in treasury into
approximately 7.4 million shares of PSINet common stock.
This table should be read in conjunction with PSINet's and Metamor's
consolidated financial statements incorporated by reference in this document and
the "Unaudited Pro Forma Condensed Combined Financial Information" included in
this document on page 86. See also "Where You Can Find More Information"
included in this document on page 113.
<TABLE>
<CAPTION>
Pro Forma
December 31, 1999
-----------------
(in millions of U.S. dollars)
<S> <C>
Cash, cash equivalents, short-term investments and marketable securities..................... $2,260.7
========
Restricted cash and short-term investments................................................... $ 154.1
========
Current portion of long-term debt............................................................ $ 115.0
--------
Long-term debt:
10.0% senior notes due 2005............................................................. 600.0
10.5% senior notes due 2006 (Euro 150.0)................................................ 150.9
10.5% senior notes due 2006............................................................. 600.0
11.0% senior notes due 2009 (Euro 150.0)................................................ 150.9
11.0% senior notes due 2009............................................................. 1,050.0
11.5% senior notes due 2008 (plus unamortized premium of $2.7).......................... 352.7
Capital lease obligations at interest rates ranging from 2.7% to 17.3%.................. 252.8
Notes payable at interest rates ranging from 1.8% to 12.7%.............................. 237.1
--------
Total long-term debt................................................................ 3,394.4
--------
Shareholders' equity:
Preferred stock, $.01 par value; 30,000,000 shares authorized; 10,200,000
shares designated
Preferred Stock, Series A, 1,000,000 shares designated;
no shares issued and outstanding..................................................... --
Convertible preferred stock, Series C, $50.00 stated value; 9,200,000
shares designated; 4,570,665 issued and outstanding.................................. 186.4
Convertible preferred stock, Series D, $50.00 stated value; 16,500,000
shares designated, issued and outstanding............................................ 739.0
Common stock, $.01 par value; 500,000,000 shares authorized;
193,597,514 shares issued.............................................................. 2.0
Capital in excess of par value.......................................................... 2,913.2
Accumulated deficit..................................................................... (863.2)
Treasury stock, 7,621,787 shares, at cost............................................... (2.0)
Accumulated other comprehensive income.................................................. 125.4
Bandwidth asset to be delivered under IXC agreement..................................... (110.4)
--------
Total shareholders' equity.......................................................... 2,990.4
--------
Total capitalization................................................................ $6,499.8
========
</TABLE>
95
<PAGE>
DESCRIPTION OF PSINET CAPITAL STOCK
The following summary of PSINet's capital stock is subject in all respects
to applicable New York law, PSINet's certificate of incorporation, by-laws and
shareholder rights plan. This summary is qualified in its entirety by reference
to the provisions of PSINet's certificate of incorporation, by-laws and
shareholders rights plan. Copies of PSINet's certificate of incorporation,
by-laws and shareholders rights plan have been filed with the SEC.
PSINet's authorized capital stock consists of 500 million shares of common
stock, par value $.01 per share, and 30 million shares of preferred stock, par
value $.01 per share. The board of directors of PSINet has authorized an
amendment to PSINet's certificate of incorporation that would increase the
number of authorized shares of capital stock of PSINet to 2.0 billion shares of
common stock and 60 million shares of preferred stock. The shareholders of
PSINet are scheduled to vote on the proposed certificate of amendment at the
PSINet annual meeting which is scheduled to be held on May 15, 2000.
Common Stock
As of March 3, 2000, there were approximately 149,520,373 shares of PSINet
common stock outstanding and 1,767,396 shares of PSINet common stock in the
company's treasury. In addition, a total of approximately 28,533,308 shares of
common stock were reserved for issuance in connection with outstanding stock
options, 100,000 shares were reserved for issuance in connection with
outstanding warrants to purchase common stock and a total of 14,435,715 shares
were reserved for issuance under PSINet's stock option and employee stock
purchase plans. On February 11, 2000, PSINet effected a two-for-one split of its
common stock by the payment of a stock dividend to holders of record of its
common stock as of the close of business on January 28, 2000. All share and
dollar amounts in this document have been adjusted to reflect the impact of this
stock split.
Holders of PSINet common stock are entitled to one vote for each share held
of record on all matters submitted to a vote of the shareholders. Holders of
PSINet common stock are not entitled to cumulative voting rights with respect to
the election of directors and, as a consequence, minority shareholders will not
be able to elect directors on the basis of their votes alone. Subject to
preferences that may be applicable to any shares of preferred stock issued in
the future, holders of common stock are entitled to receive ratably such
dividends as may be declared from time to time by PSINet's Board of Directors
out of funds legally available for payment. In the event of a liquidation,
dissolution or winding up of PSINet, holders of PSINet common stock are entitled
to share ratably in all of PSINet's assets remaining after payment of
liabilities and the liquidation preference of any then outstanding preferred
stock. Holders of common stock have no preemptive rights and no right to convert
their common stock into any other securities. There are no redemption or sinking
fund provisions applicable to PSINet common stock. All shares of PSINet common
stock to be outstanding upon completion of this offering will by fully paid and
non- assessable, subject to Section 630 of the New York Business Corporation
Law. Under Section 630 of the New York Business Corporation Law, PSINet's ten
largest shareholders may become personally liable for unpaid wages and debts to
PSINet's employees if PSINet's capital stock ceases to be listed on a national
securities exchange or regularly quoted in the over-the-counter market.
96
<PAGE>
Preferred Stock
PSINet's board of directors has the authority to issue up to 30,000,000
shares of its preferred stock in one or more series and to fix the rights,
preferences, privileges and restrictions of such series, including dividend
rights, conversion rights, voting rights, terms of redemption, liquidation
preferences, sinking fund terms and the number of shares constituting any series
or the designation of such series, without any further vote or action by
shareholders. As of the date of this document, 1,000,000 shares of PSINet
preferred stock were designated as Series A Junior Participating Preferred
Stock, $.01 par value per share, in connection with PSINet's shareholder rights
plan, no shares of which have been issued; 4,570,665 shares of PSINet preferred
stock are designated as 6 3/4% Series C cumulative convertible preferred stock,
all of which are issued and outstanding; and 16,500,000 shares of PSINet
preferred stock are designated as 7% Series D cumulative convertible preferred
stock, all of which are issued and outstanding. PSINet's board of directors may
designate and authorize the issuance of a new series of PSINet preferred stock
with voting and other rights that could adversely affect the voting power of
holders of PSINet common stock and the likelihood that such holders will receive
dividend payments and payments upon PSINet's liquidation and could have the
effect of delaying, deferring or preventing a change in control of PSINet.
In November 1997, PSINet issued 600,000 shares of its 8% Series B
convertible preferred stock in a private placement for approximately $30.0
million. During the first quarter of 1999, all outstanding shares of the Series
B preferred stock, which accrued dividends at an annual rate of 8%, were
converted into an aggregate of 6,000,000 shares of PSINet common stock.
Effective upon this conversion, the formerly outstanding shares of Series B
preferred stock resumed the status of authorized and unissued shares of PSINet
preferred stock, undesignated as to series, and are available for future
issuance as described in the immediately preceding paragraph.
In May 1999, PSINet issued 9,200,000 shares of its 6 3/4% Series C
cumulative convertible preferred stock in a public offering for net proceeds of
$358.2 million after underwriting discounts and commissions and other offering
expenses (excluding amounts paid by the purchasers of the Series C preferred
stock into the deposit account described below). Simultaneously with the
issuance of the Series C preferred stock, the purchasers of the Series C
preferred stock deposited funds into an account called the deposit account, from
which quarterly cash payments of $0.84375 per share will be made or which may be
used at PSINet's option to purchase shares of its common stock at 95% of the
then current market price of PSINet common stock for delivery to holders of the
Series C preferred stock in lieu of cash payments. The deposit account is not an
asset of PSINet. The funds placed in the deposit account by the purchasers of
the Series C preferred stock will, together with the earnings on those funds, be
sufficient to make payments, in cash or stock, through May 15, 2002. Holders of
Series C preferred stock received quarterly payments from the deposit account of
approximately $7.8 million on each of August 15, 1999, November 15, 1999 and
February 15, 2000. Until the expiration of the deposit account, PSINet will
accrete a return to preferred shareholders each quarter from the date of
issuance at an annual rate of approximately 6 3/4% of the liquidation preference
per share. Such amount will be recorded as a deduction from net income to
determine net income available to common shareholders. Upon the expiration of
the deposit account, which is expected to occur on May 15, 2002, unless earlier
terminated, the Series C preferred stock will begin to accrue dividends at an
annual rate of 6 3/4% of the liquidation preference payable, at PSINet's option,
in cash or in
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shares of its common stock at 95% of the market price of its common stock on
that date. Under specified circumstances, PSINet can elect to terminate the
deposit account prior to May 15, 2002, at which time the remaining funds in the
deposit account would be distributed to it and the Series C preferred stock
would begin to accrue dividends.
In February and March 2000, PSINet exchanged 8,155,192 newly issued shares
of its common stock for an aggregate of 4,629,335 shares of the then outstanding
Series C preferred stock through individually negotiated transactions with a
limited number of holders of Series C preferred stock. After the exchange,
PSINet converted the exchanged Series C preferred stock into 7,422,675 shares of
its common stock, which are being held as treasury shares. Upon the conversion,
the formerly outstanding shares of Series C preferred stock resumed the status
of authorized and unissued shares of PSINet preferred stock, undesignated as to
series, that are available for future issuance as described above. Approximately
$34.2 million will be released to PSINet from the deposit account because of the
conversion. As a result of these transactions, there are only 4,570,665 shares
of Series C preferred stock outstanding as of the date of this document.
Each share of the Series C preferred stock will be convertible at any time
at the option of the holders into 1.6034 shares of PSINet common stock (after
giving effect to PSINet's common stock split), equal to an initial conversion
price of $31.18375 per share (after giving effect to PSINet's common stock
split), subject to adjustment. The shares of Series C preferred stock will be
entitled to a liquidation preference equal to $50 per share.
PSINet may redeem the Series C preferred stock at a redemption premium of
101.929% of the liquidation preference (plus accumulated and unpaid dividends,
if any) on or after November 15, 2000 and prior to May 15, 2002, if the trading
price for the Series C preferred stock equals or exceeds $124.74 per share for a
specified trading period. Additional payments will also be made from the deposit
account or by PSINet to the holders of the Series C preferred stock if it
redeems Series C preferred stock under the foregoing circumstances. Except in
the foregoing circumstances, PSINet may not redeem the Series C preferred stock
prior to May 15, 2002. Beginning on May 15, 2002, PSINet may redeem shares of
the Series C preferred stock at an initial redemption premium of 103.857% of the
liquidation preference, declining to 100.00% on May 15, 2006 and thereafter,
plus in each case all accumulated and unpaid dividends to the redemption date.
PSINet may effect any redemption, in whole or in part, at its option, in cash or
by delivery of fully paid and nonassessable shares of its common stock or a
combination thereof (subject to applicable law), by delivering notice to the
holders of the Series C preferred stock.
Holders of Series C preferred stock have no voting rights, except:
. as required by law,
. if dividends payable on the Series C preferred stock are in arrears for
six quarterly periods, the holders of Series C preferred stock voting
separately as a class with shares of any other preferred stock or
preference securities having similar voting rights, including the Series
D preferred stock, will be entitled to elect two directors to PSINet's
board of directors, and
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. the affirmative vote or consent of the holders of at least 66 2/3% of
the outstanding Series C preferred stock will be required to permit
PSINet to issue any class or series of stock, or security convertible
into stock or evidencing a right to purchase any shares of any class or
series of stock ranking senior to the Series C preferred stock as to
dividends, liquidation rights or voting rights, and for amendments to
PSINet's charter that would adversely affect the rights of holders of
Series C preferred stock.
In the event of a "change of control" (as defined in the charter amendment
designating the Series C preferred stock), holders of Series C preferred stock
will, if the market value of PSINet common stock at such time is less than the
conversion price for the Series C preferred stock, have a one time option to
convert all of their shares of Series C preferred stock into shares of PSINet
common stock at a conversion price equal to the greater of the market value of
PSINet common stock as of the date of the change in control and $19.365 (after
giving effect to PSINet's common stock split). In lieu of issuing shares of
common stock upon conversion in the event of a change of control, PSINet may, at
its option, make a cash payment equal to the market value of the common stock
otherwise issuable.
In February 2000, PSINet issued 16,500,000 shares of its 7% Series D
cumulative convertible preferred stock in a public offering for net proceeds of
$739.0 million after discounts and commissions and estimated offering expenses
(including amounts paid by the purchasers of the Series D preferred stock into
the deposit account described below). Simultaneously with the issuance of the
Series D preferred stock, the purchasers of the Series D preferred stock
deposited funds into an account called the deposit account, from which quarterly
cash payments of $0.875 per share will be made or which may be used at PSINet's
option to purchase shares of its common stock at either 93% or 97% of the then
current market price of its common stock (depending on whether the registration
statement covering the shares is effective) for delivery to holders of the
Series D preferred stock in lieu of cash payments. The deposit account is not an
asset of PSINet. The funds placed in the deposit account by the purchasers of
the Series D preferred stock will, together with the earnings on those funds, be
sufficient to make payments, in cash or stock, through February 15, 2001.
Holders of Series D preferred stock will receive quarterly payments from the
deposit account on each of February 15, May 15, August 15 and November 15 of
each year, commencing May 15, 2000. Until the expiration of the deposit account,
PSINet will accrete a return to preferred shareholders each quarter from the
date of issuance at an annual rate of 7% of the liquidation preference per
share. Such amount will be recorded as a deduction from net income to determine
net income available to common shareholders. Upon the expiration of the deposit
account, which is expected to occur on February 15, 2001, unless earlier
terminated, the Series D preferred stock will begin to accrue dividends at an
annual rate of 7% of the liquidation preference payable, at PSINet's option, in
cash or in shares of its common stock at either 93% or 97% of the then market
price of its common stock (depending on whether the registration statement
covering the shares is effective). Under specified circumstances, PSINet can
elect to terminate the deposit account prior to February 15, 2001, at which time
the remaining funds in the deposit account would be distributed to PSINet and
the Series D preferred stock would begin to accrue dividends.
Each share of the Series D preferred stock will be convertible at any time
after February 15, 2000 at the option of the holders into 0.9352 shares of
PSINet common stock (after giving effect to PSINet's common stock split), equal
to a conversion price of $53.465 per share (after giving
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effect to PSINet's common stock split), subject to adjustment upon the
occurrence of specified events. The shares of Series D preferred stock will be
entitled to a liquidation preference equal to $50 per share.
PSINet may redeem the Series D preferred stock at a redemption premium of
105.50% of the liquidation preference (plus accumulated and unpaid dividends, if
any) on or after August 15, 2001, if the trading price for PSINet common stock
equals or exceeds $80.20 per share for a specified trading period. PSINet will
also make additional payments to the holders of the Series D preferred stock if
it redeems the Series D preferred stock under the foregoing circumstances.
Except in the foregoing circumstances, PSINet may not redeem the Series D
preferred stock prior to February 15, 2003. Beginning on February 15, 2003,
PSINet may redeem shares of the Series D preferred stock at an initial
redemption premium of 104.00% of the liquidation preference, declining to
100.00% on February 15, 2007 and thereafter, plus in each case all accumulated
and unpaid dividends to the redemption date. PSINet may effect any redemption,
in whole or in part, at its option, in cash or by delivery of fully paid and
nonassessable shares of its common stock or a combination thereof (subject to
applicable law), by delivering notice to the holders of the Series D preferred
stock.
Holders of Series D preferred stock have no voting rights, except:
. as required by law,
. if dividends payable on the Series D preferred stock are in arrears for
six quarterly periods, the holders of Series D preferred stock voting
separately as a class with shares of any other preferred stock or
preference securities having similar voting rights, including the Series
C preferred stock, will be entitled to elect two directors to PSINet's
board of directors, and
. the affirmative vote or consent of the holders of at least 66 2/3% of
the outstanding Series D preferred stock will be required to permit
PSINet to issue any class or series of stock, or security convertible
into stock or evidencing a right to purchase any shares of any class or
series of stock ranking senior to the Series D preferred stock as to
dividends, liquidation rights or voting rights, and for amendments to
PSINet's charter that would adversely affect the rights of holders of
Series D preferred stock.
In the event of a "change of control" (as defined in the charter amendment
designating the Series D preferred stock), holders of Series D preferred stock
will, if the market value of PSINet common stock at such time is less than the
conversion price for the Series D preferred stock, have a one time option to
convert all of their shares of Series D preferred stock into shares of PSINet
common stock at a conversion price equal to the greater of the market value of
PSINet common stock as of the date of the change in control and $28.98 (after
giving effect to PSINet's common stock split). In lieu of issuing shares of
common stock upon conversion in the event of a change of control, PSINet may, at
its option, make a cash payment equal to the market value of the common stock
otherwise issuable.
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Registration Rights
Pursuant to a registration rights agreement among PSINet and the original
holders of approximately 43.4 million shares of common stock (after giving
effect to PSINet's common stock split), until September 30, 2006, the holders
and their permitted transferees may make up to six demands of PSINet to file a
registration statement under the Securities Act which would permit them to sell
all or a portion of their common stock. Those holders may also require PSINet
from time to time prior to January 12, 2005 to register their shares on Form
S-3.
In connection with acquisitions, PSINet granted registration rights with
respect to an aggregate of approximately 9.8 million shares of PSINet common
stock (after giving effect to PSINet's common stock split). If, prior to May 8,
2000, PSINet proposes to register any of its securities under the Securities Act
of 1933, the holders of registrable shares will be entitled to notice thereof
and, subject to restrictions, to include their registrable shares in the
registration. Holders of registrable shares may require PSINet on up to five
occasions prior to September 30, 2006 to register their shares on Form S-3,
subject to specified conditions and limitations. Certain of these holders are
also entitled to require it to effect Form S-3 registrations for them.
PSINet granted registration rights to IXC Internet Services Inc. with
respect to the shares of its common stock acquired by IXC pursuant to an IRU and
Stock Purchase Agreement. These registration rights are substantially similar to
those described in the immediately preceding paragraph except that IXC is
entitled to notice and piggyback registration rights at any time. IXC may make
up to three separate demands to have PSINet file a registration statement under
the Securities Act with respect to an underwritten public offering, and IXC is
entitled to Form S-3 registrations form time to time. IXC has made one demand
for registration to date and in January 2000, PSINet effected a registration of
6 million shares of PSINet common stock to satisfy its obligations resulting
from such demand of IXC.
Subject to limitations, PSINet is required to bear all registration, legal
(for no more than one independent legal counsel for all selling holders of
registrable shares) and other expenses in connection with these registrations,
other than underwriting discounts and commissions, and must provide appropriate
indemnification. These registration rights rank ratably.
PSINet has granted registration rights to the holders of its Series D
preferred stock. PSINet is in the process of preparing a registration statement
with regard to the resale of the Series D preferred stock and underlying common
stock.
PSINet believes that, with the exception of William Schrader who is PSINet's
founder, Chairman and Chief Executive Officer, and IXC, the original holders of
the registration rights described above would be eligible to sell the shares of
PSINet common stock held by them in the public market pursuant to SEC Rule
144(k) and, consequently, could dispose of the shares without exercising their
registration rights.
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New York Anti-Takeover Law, Certain Charter and By-law Provisions and Other
Anti-takeover Considerations
PSINet is subject to the provisions of Section 912 of the New York Business
Corporation Law and will continue to be so subject if and for so long as it has
a class of securities registered under Section 12 of the Securities Exchange Act
of 1934, at least 25% of PSINet's total employees are employed primarily within
New York or at least 250 employees are so employed and at least 10% of PSINet's
voting stock is owned beneficially by residents of the State of New York.
Section 912 provides, with certain exceptions, which include transactions with
shareholders who became interested prior to the effective date of an amendment
to the New York corporation's certificate of incorporation providing that the
corporation would be subject to Section 912 if such corporation did not then
have a class of stock registered pursuant to Section 12 of the Exchange Act,
that a New York corporation may not engage in a "business combination" (e.g.,
merger, consolidation, recapitalization or disposition of stock) with any
"interested shareholder" for a period of five years from the date that such
person first became an interested shareholder unless:
(1) the transaction resulting in a person becoming an interested
shareholder, or the business combination, was approved by the board of directors
of the corporation prior to that person becoming an interested shareholder;
(2) the business combination is approved by the holders of a majority of the
outstanding voting stock not beneficially owned by such interested shareholder;
or
(3) the business combination meets certain valuation requirements for the
stock of the New York corporation.
An "interested shareholder" is defined as any person that:
(a) is the beneficial owner of 20% or more of the outstanding voting stock
of a New York corporation; or
(b) is an affiliate or associate of the corporation that at any time during
the prior five years was the beneficial owner, directly or indirectly, of 20% or
more of the then outstanding voting stock.
These provisions are likely to impose greater restrictions on an unaffiliated
shareholder than on the existing shareholders who will continue to own a
majority of PSINet's outstanding common stock after the merger.
PSINet's certificate of incorporation and by-laws contain provisions
intended to enhance the likelihood of continuity and stability in the
composition of its board of directors and of the policies formulated by the
board of directors which may discourage a future unsolicited takeover of us.
These provisions could have the effect of discouraging some attempts to acquire
PSINet or remove incumbent management. This is true even if a majority of
PSINet's shareholders believe removal would be in their best interests.
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PSINet's certificate of incorporation or by-laws, as applicable, among
other things:
(1) provide that the number of directors will be not fewer than three nor
more than nine. The exact number of directors will be determined from time to
time by resolution adopted by a majority of its board of directors;
(2) provide for a classified board of directors consisting of two classes of
directors having staggered terms of two years each, with each of the classes
required to consist of at least three directors;
(3) subject to any rights of holders of its preferred stock which may be
granted by its board of directors in the future and except as otherwise provided
by Section 706(d) of the New York Business Corporation Law, provide that
directors may be removed only for cause;
(4) subject to any rights of holders of its preferred stock which may be
granted by its board of directors in the future, permit vacancies on the board
of directors that may occur between annual meetings and any newly created seats
to be filled only by the board of directors and not by the shareholders;
(5) limit the right of shareholders to call special meetings of
shareholders;
(6) prohibit shareholders from proposing amendments to its certificate of
incorporation;
(7) require any shareholder who wished to bring any proposal before a
meeting of its shareholders or to nominate a person to serve as a director to
give written notice thereof and certain related information at least 60 days
prior to the date one year from the date of its immediately preceding annual
meeting, if such proposal or nomination is to be submitted at an annual meeting,
and within ten days of the giving of notice to its shareholders, if such
proposal or nomination is to be submitted at a special meeting;
(8) require the affirmative vote of at least two-thirds of its capital stock
entitled to vote to amend certain provisions of its certificate of incorporation
and to amend its by-laws; and
(9) provide that its board of directors, without action by its shareholders,
may issue and fix the rights and preferences of shares of its preferred stock.
These provisions may have the effect of delaying, deferring or preventing a
change of control of PSINet without further action by its shareholders. These
provisions may also discourage bids for PSINet common stock at a premium over
market price and may adversely affect the market price of, and the voting and
other rights of the holders of, common stock.
Shareholder Rights Plan
Each outstanding share of PSINet common stock has attached to it one-half of
a preferred stock purchase right. The rights also attach to most future
issuances of common stock. Subject to exceptions, each right will entitle the
registered holder to buy one one-thousandth of a share of PSINet Series A
preferred stock at an exercise price of $275 per right, subject to adjustment.
The rights will generally become exercisable upon the occurrence of the earlier
of:
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. an announcement that a person or group of affiliated or associated
persons (each, an "acquiring person") has acquired beneficial ownership
of 20.50% or more of PSINet's outstanding common stock (other than
persons who acquire ownership pursuant to a tender offer or exchange
offer which is for all outstanding shares of PSINet's common stock, or
persons who acquire ownership directly from PSINet, William Schrader,
PSINet's Chairman and Chief Executive Officer, or his or PSINet's
affiliates so long as such persons beneficially own less than 50% of
PSINet's outstanding common stock); or
. an announcement or commencement of an intention to make a tender offer
or exchange offer the consummation of which would result in the
beneficial ownership by a person or group of 20.50% or more of the
outstanding shares of PSINet's common stock (the earlier of such dates
being called the "distribution date").
In such event, each holder of a right, other than rights beneficially owned by
the acquiring person, will thereafter have the right, subject to exceptions, to
receive upon exercise thereof a number of shares (or portions of shares) of
Series A preferred stock or, at the discretion of PSINet's board of directors, a
number of additional shares of common stock as set forth in the rights plan. The
acquisition of shares of PSINet's common stock by IXC or its controlled
affiliates pursuant to the IRU and Stock Purchase Agreement between IXC and
PSINet, however, did not render it an acquiring person. In addition, Ralph J.
Swett, a former officer and director of IXC and its parent corporation will not
become an acquiring person solely by reason of the issuance or exercise of
options, if any, granted to him in his capacity as one of PSINet's directors.
All rights expire on November 5, 2009, unless the rights are earlier
redeemed or exchanged by PSINet or expire earlier upon the consummation of
certain transactions. Shares of PSINet Series A preferred stock purchasable upon
exercise of the rights will not be redeemable. Each share of Series A preferred
stock will be entitled, when, as and if declared, to an aggregate dividend of
1,000 times the dividend declared per share of PSINet common stock. No dividend
may be declared on the common stock without the concurrent declaration of a
dividend on the Series A preferred stock. In the event of liquidation, holders
of the Series A preferred stock will be entitled to a minimum preferential
liquidation payment of $1,000 per share, plus any accrued but unpaid dividends,
but will be entitled to an aggregate payment of 1,000 times the payment made per
share of common stock; thereafter, holders of the Series A preferred stock and
the holders of common stock will share pari passu per share in any of PSINet's
remaining assets. Each share of PSINet Series A preferred stock will have 1,000
votes, voting together with PSINet common stock. Finally, in the event of any
merger, consolidation or other transaction in which shares of common stock are
converted or exchanged, each share of Series A preferred stock will be entitled
to receive 1,000 times the amount received per share of common stock.
In the event that any person or group of affiliated or associated persons
becomes an acquiring person, each holder of a right, other than rights
beneficially owned by the acquiring person which will thereupon become void,
will thereafter have the right (the "flip-in right") to receive, upon exercise
of a right at the then current exercise price of the right, that number of one
one-thousandths of a share of Series A preferred stock or, in the discretion of
PSINet's board of directors, that number of shares of common stock or, in
certain circumstances, other of PSINet's securities, having a market value of
two times the exercise price of the right. The flip-in right
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provisions do not apply to a merger or other business combination with a person
who has acquired shares of PSINet common stock pursuant to certain transactions
approved by PSINet's board of directors (each, a "permitted offer").
In the event that, after a person or group has become an acquiring person,
PSINet is acquired in a merger or other business combination transaction or 50%
or more of PSINet's consolidated assets or earning power are sold or
transferred, except pursuant to a permitted offer, proper provision will be made
so that each holder of a right, other than rights beneficially owned by an
acquiring person which will have become void, will thereafter have the right
(the "flip-over right") to receive, upon the exercise thereof at the then
current exercise price of the right, that number of shares of common stock of
the person with which PSINet has engaged in the foregoing transaction (or its
parent), which number of shares at the time of such transaction will have a
market value of two times the exercise price of the right. The holder of a right
will continue to have the flip-over right whether or not such holder exercises
or surrenders the flip-in right.
At any time prior to the earlier to occur of a person becoming an acquiring
person or the expiration of the rights, and under other specified circumstances,
PSINet may redeem the rights at a redemption price of $.01 per right. PSINet
may, at its option, pay the redemption price in shares of its common stock.
After the date that a person becomes an acquiring person, PSINet may redeem the
then outstanding rights, at the redemption price, provided that such redemption
is in connection with a merger or other business combination transaction or
series of transactions involving PSINet in which all holders of shares of common
stock are treated alike.
The rights have anti-takeover effects. The rights will cause substantial
dilution to a person or group that attempts to acquire PSINet without
conditioning the offer on the rights being redeemed, a substantial number of
rights being acquired, or the offer being deemed a permitted offer under the
rights plan. However, the rights should not interfere with any merger or other
business combination in connection with a permitted offer or that is approved by
PSINet because the rights are redeemable under specified circumstances.
Transfer Agent and Registrar
First Chicago Trust Company, a division of EquiServe, is the transfer agent
and registrar for PSINet's common stock, Series C preferred stock and Series D
preferred stock. Its telephone number is (201) 222-4099.
COMPARISON OF RIGHTS OF HOLDERS OF
COMMON STOCK OF PSINET AND METAMOR
PSINet is a business corporation incorporated in New York and the rights of
PSINet shareholders are currently governed by the New York Business Corporation
Law, PSINet's certificate of incorporation and PSINet's by-laws. Metamor is a
business corporation incorporated in Delaware and the rights of Metamor
stockholders are currently governed by the Delaware General Corporation Law,
Metamor's certificate of incorporation and Metamor's by-laws. Upon completion of
the merger, the rights of Metamor stockholders who become
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shareholders of PSINet in the merger will be governed by the New York Business
Corporation Law, PSINet's certificate of incorporation and PSINet's by-laws.
The following description summarizes the material differences which may
affect the rights of stockholders of PSINet and Metamor, but it is not a
complete statement of all the differences or a complete description of the
specific provisions referred to in it. The identification of specific
differences is not intended to indicate that other equally or more significant
differences do not exist. You should read carefully the relevant provisions of
the New York Business Corporation Law, the Delaware General Corporation Law,
PSINet's certificate of incorporation, PSINet's by-laws, Metamor's certificate
of incorporation and Metamor's by-laws.
<TABLE>
<CAPTION>
PSINet Metamor
------ -------
Authorized Capital Stock
<S> <C>
PSINet's authorized capital stock Metamor's authorized capital stock
consists of 500 million shares of common consists of 100 million shares of common
stock, par value $.01 per share, of which stock, par value $.01 per share, of which
approximately 164,711,825 shares were 34,641,443 were outstanding at the close of
issued and 157,289,178 shares were business on April 11, 2000, 3 million shares
outstanding at the close of business of Class B non-voting common stock, par
on April 12, 2000, and 30 million shares value $.01 per share, none of which were
of preferred stock, par value $.01 per outstanding at the close of business on April
share, of which 22,070,665 shares have been 11, 2000, and 5 million shares of preferred
designated and 21,070,665 shares were stock, par value $.01 per share, none of
outstanding at the close of business on which were outstanding at the close of
April 12, 2000. business on April 11, 2000.
Under the New York Business
Corporation Law, the ten largest
stockholders (as determined by the fair value
of their beneficial holdings) of a corporation
which does not have a class of stock which is
listed on a national stock exchange are
jointly and severally liable for any unpaid
wages and salaries owed to the corporation's
employees.
Dividends
Under the New York Business Under the Delaware General Corporation
Corporation Law, PSINet may declare and Law, Metamor may make distributions to its
pay dividends or make other distributions to stockholders (subject to the rights of the
its shareholders (subject to the rights of preferred stockholders) out of its surplus, or
preferred shareholders) out of its surplus, in the event there is no surplus, out of its net
unless PSINet is insolvent at the time, if profits for the fiscal year in which the
PSINet would become insolvent by doing so, dividend is declared or the preceding fiscal
or when doing so would be contrary to any year. If Metamor's capital is diminished to
restrictions contained in its certificate of an amount less than the aggregate amount of
incorporation. The net assets of PSINet the capital represented by the issued and
remaining after a declaration or payment of outstanding stock of all classes having a
</TABLE>
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<TABLE>
<S> <C>
dividends must be at least as much as its preference upon the distribution of assets,
stated capital. however, no dividends may be paid until the
deficiency in the amount of the capital
represented by such stock is repaired.
Classification of the Board of Directors
Under the New York Business Under the Delaware General Corporation
Corporation Law, a corporation's certificate Law, a corporation's certificate of
of incorporation or a by-law adopted by its incorporation or a by-law adopted by its
shareholders may provide that the directors stockholders may provide the directors be
be divided into two, three or four classes. divided into two or three classes. The
The PSINet certificate of incorporation and Metamor certificate of incorporation
by-laws provide that the board of directors provides that the board of directors shall be
shall be comprised of two classes of at least comprised of three classes as nearly equal in
three directors each. One class is elected number as possible. One class is elected each
each year for a two-year term. year for a three-year term.
Size of the Board of Directors
Under the New York Business Under the Delaware General Corporation
Corporation Law, the number of directors Law, the number of directors constituting a
constituting a corporation's board may be corporation's board may be fixed by, or in the
fixed by its by-laws, by ation of its manner provided in, its by-laws unless its
shareholders or by action of its board pursuant certificate of incorporation fixes the number of
to a by-law adopted by the shareholders. directors. Under the Metamor certificate of
Under the PSINet certificate of incorporation incorporation and by-laws, the board may fix
and by-laws, the board may fix the number of the number of directors, provided that such number
directors, provided that such number must be must be no less than three and no morre than twelve.
no less than three and no more than nine. Metamor's board of directors
PSINet's board of directors currently consists currently consists of eleven directors.
of six directors.
Removal of Directors; Filling of Vacancies
Under the PSINet certificate of Under the Delaware General Corporation
incorporation and by-laws, except as Law, a director of a corporation having a
otherwise provided by the New York Business classified board may only be removed for
Corporation Law, a director may be removed cause. Any vacancies of Metamor's board of
only for cause and only at an annual or special directors may be filled solely by the
meeting of shareholders. Any vacancies on affirmative vote of a majority of the remaining
PSINet's board of directors may be filled directors except as otherwise provided in its
solely by the affirmative vote of a majority of certificate of incorporation. Metamor's
the remaining directors. certificate of incorporation provides that any
director may be removed from office during
</TABLE>
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<TABLE>
<S> <C>
any term by the affirmative vote of the holders
of shares constituting 66 2/3% of the voting
power of the outstanding shares of stock
entitled to vote on the election of directors.
Size of the Board of Directors; Filling of Vacancies
Under the PSINet certifcate of Under the Delaware General Corporation
incorporation and by-laws, except as Law, a director of a corporation having a
otherwise provided by the New York classified board may only be removed for
Business Corporation Law, a director may be cause. Any vacancies on Metamor's board
removed only for cause and only at an of directors may be filled solely by the
annual or special meeting of shareholders. affirmative vote of a majority of the
Any vacancies on PSINet's board of remaining directors.
directors may be filled solely by the
affirmative vote of a majority of the
remaining directors.
Special Meeting of the Stockholders
Under the New York Business Corporate Law Under the Delaware General Corporation Law,
special meetings of shareholders may be called by special meetings of stockholders may be called by the
the board of by such person or persons as are authorized board or by such person or persons as are authorized
by the certificate of incorporation of by-laws. The only by the certificate of incorporation or by-laws. Under
business that may be conducted at a special meeting of the Metamor by-laws, special meeting or stockholders
shareholders is that which is related to the purposes set may be called by the Board of Directors, the Chairman,
forth in the notice of the meeting. Under the PSINet the Vice Chairman, the Chief Executive Officer, the
by-laws, special meetings of shareholders may be called by President or at the written request of holders owning
the Chairman, the President or at the written request of a more than twenty-five percent of the shares of capital
majority of the board of directors. PSINet shareholders stock issued and outstanding and entitled to vote at
may act without a meeting but only by unanimous written any such meeting. Metamor stockholders may act without
consent. a meeting , without prior stockholder notice and
without a vote, upon the written consent of the
number of stockholders having not less than
the minimum number of votes necessary to
authorize such action at a meeting at which
all stockholders entitled to vote were present
and voted; provided, the board of directors must
have approved the action in advance.
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Stockholder Proposals
<S> <C>
Under the PSINet certificate of incorporation and Under the Metamor by-laws, for a stockholder to
by-laws, for a shareholder to bring a matter before a bring a matter before an annual meeting of
meeting of shareholders, the Secretary of PSINet must stockholders, the Secretary of Metamor must receive
receive advance written notice of the shareholder's advance written notice of the stockholder's intent,
intent, containing certain required information. With containing certain required information, no more than
respect to a shareholder proposal to be submitted at an fifty days before the annual meeting and no later that
annual meeting, the Secretary must receive the notice no the later of thirty days before the meeting or ten
later than sixty days before the anniversary of the days after notice or public disclosure of the date of
preceding annual meeting. With respect to a shareholder the meeting is given to Metamor's stockholders.
proposal to be submitted at a special meeting, the
Secretary must receive the notice no later than the tenth
day following the date on which notice of such meeting is
first given to shareholders.
Indemnification of Officers and Directors
The New York Business Corporation The Delaware General Corporation Law
Law generally provides that a corporation generally provides that a corporation may
may indemnify an officer or director made a indemnify any person made a party or
party or threatened to be made a party to a threatened to be amde a party to a legal
legal proceeding against judgements, fines, proceeding by reason of the fact that such
amounts paid in settlement and reasonable person is or was an officer, director,
expenses (including attorney's fees) actually employee or agent of the corporation against
and necessarily incurred in connection with expenses (including attorney fees),
the proceeding if: judgments, fines and amounts paid in settlement if:
settlement if:
. he acted in good faith for a purpose he . he acted in good faith and in a manner he
reasonably believed to be in or not reasonably believed to be in or not
opposed to the best interests of the opposed to the best interests of the
corporation; corporation;
. in the case of a criminal proceeding, he had no . in the case of a criminal proceeding, he
reasonable cause to believe that had no reasonable cause to believe that
his conduct was unlawful; and his conduct was unlawful; and
. in the case of a suit by or in the right of the . in the case of a suit by or in the name of
corporation, the suit is not settled and the corporation, he is not adjudged to be
he is not adjudged to be liable to the liable to the corporation, unless the Court
corporation, unless a proper court of Chancery determines that he is
determines that he is nonetheless entitled nonetheless entitled to indemnification.
to indemnification.
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The New York Business Corporation Metamor's certicate of incorporation
Law also permits corporations to indemnify and by-laws provide for indemnification to
corporate personnel other than officers and the fullest extent permitted by law for all
directors but provides no specific criteria for persons it is permitted to indemnify.
such indemnification. Futhermore, to the fullest extent permitted
by law, such persons would not be liable to
PSINet's certifcate of incorporation and Metamor for monetary damages for breach
by-laws generally provide for of fiduciary duty as a director. Under the
indemnification, as described above, of Delaware General Corporation law, such
directors and officers, as well as others person may also be entitled to other
serving at the request of PSINet, to the indemnification rights arising under any by-
extent not prohibitted by law, such law, agreement or stockholder vote.
persons will not be liable to PSINet except in
the event of bad faith, intentional misconduct
a knowing violation of law or a
violation of certain statutory provisions
relating to the payment of dividends and the
distribution of the assets of the corporation.
Under PSINet's by-laws, a director, officer
or employee may also be entitled to other
indemnification rights, including any arising
under any agreement with the corporation.
Amendment of Certificate of Incorporation
The PSINet certificate of incorporation generally may Under the Delaware General Corporation Law,
be amended by a majority of the outstanding PSINet shares unless otherwise specified in the certificate of
entitled to vote thereon, but the provision relating to incorporation, an amendment to the certificate of
amendments to specified by-laws may be amended only by incorporation requires the affirmative vote of a
two-thirds of the votes of the outstanding PSINet shares. majority of the outstanding shares entitled to vote
Furthermore, under the New York Business Corporation Law, thereon. Furthermore, under the Delaware General
any amendment to the PSINet certificate of incorporation Corporation Law, any amendment to the Metamor
must be authorized by its board of directors. certificate of incorporation must also be authorized
by its board of directors.
Amendment of By-Laws
The PSINet by-laws may be amended by Under the Delaware General
two-thirds of the outstanding PSINet shares Corporation Law, majority of the
entitled to vote in the election of directos or stockholders may adopt, amend or repeal
by a majority of the PSINet directors present Metamor's by-laws. Under Metamor's
at a meeting of the board of directors. certificate of Incorporation and by-laws, a
However, any by-law adopted by the board majority of the board of directors can
may be amended or repealed by two-thirds also adopt, amend or repeal its by-laws.
of the outstanding sharres at an annual or
special meeting.
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<CAPTION>
Business Combinations
<S> <C>
Under the PSINet certificate of Under the Delaware General
incorporation, a majority of the outstanding Corporation Law, a majority of the
PSINet shares is needed to adopt a plan of merger or outstanding shares is needed to adopt a plan
consolidation. of merger or consolidation.
The New York Business Corporation The Delaware General Corporation Law
Law prohibits a New York corporation prohibits a Delaware corporation which has a
which has a class of voting stock which is class of stock which is listed on a national
registered with the SEC from engaging in stock exchange or which has 2,000 or more stockholders
business combinations with an interested of record from engaging in
shareholder (generally, the beneficial owner business combination with an interested stockholder
of 20% or more of the corporation's voting (generally, the beneficial owner of 15% or more of the
stock) for five years following the time the corporation's outstanding voting stock) for three years
shareholder became an interested following the time the stockholder became an interested
shareholder, unless, prior to that time, the stockholder, unless, prior to that time, the corporation's
corporation's board of directors approved board of directors approved either the business combination
either the business combination or the or the transaction that resulted in the stockholder becoming
transaction that resulted in the shareholder an interested stockholder, or if two-thirds of the outstanding
becoming an interested shareholder. After shares not owned by such interested stockholder approve the
five years, these business combinations may business combination, or if, upon becoming an interested
occur if approved by a majority vote of shares stockholder, such stockholder owned 85% of the outstanding
not owned by the interested shares (excluding those held by officers, directors and
shareholder, or if certain fair price certain employee stock plans).
requirements are met.
Under Metamor's certificate of incorporation,
Metamor is prohibited from engaging in
business combinations with an interested
stockholder (generally, the beneficial owner of 10% or
more of Metamor's outstanding voting stock) unless
(1) the holders of 66 2/3% of Metamor's outstanding
voting stock, and (2) the holders of a majority of
Metamor's outstanding shares of common stock
other than the interested stockholder, voting separately
as a class, have approved the business combination;
except and unless (A) the business combination has
been approved by
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<S> <C>
more than two-thirds of Metamor's directors,
or (B) certain fair price conditions with
respect to the consideration to be paid by the
interested stockholder and other prohibitions
on the transaction with or benefiting the
interested stockholder are met or complied
with, in which case approval of the business
combination will require only the affirmative
vote of Metamor's stockholders holding a
majority of Metamor's outstanding common
stock.
Stockholder Rights Plan
PSINet's shareholder rights plan is Metamor does not have a stockholder
described in the preceding section. rights plan.
</TABLE>
LEGAL MATTERS
The legality of PSINet common stock offered by this document and certain
United States federal income tax consequences of the merger will be passed upon
for PSINet by Nixon Peabody LLP, New York, New York, counsel for PSINet. Certain
attorneys with Nixon Peabody LLP currently own in the aggregate less than one
percent of PSINet's common stock.
Certain United States federal income tax consequences of the merger will be
passed upon for Metamor by its counsel, Vinson & Elkins L.L.P. Certain attorneys
with Vinson & Elkins L.L.P. currently own in the aggregate less than one percent
of Metamor's common stock.
EXPERTS
The consolidated financial statements of PSINet Inc. incorporated in this
document by reference to PSINet Inc.'s Annual Report on Form 10-K for the year
ended December 31, 1999, have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
such firm as experts in auditing and accounting.
The consolidated financial statements of Metamor Worldwide, Inc. appearing
in Metamor Worldwide, Inc.'s Annual Report (Form 10-K) for the year ended
December 31, 1999, have been audited by Ernst & Young LLP, independent auditors,
as set forth in their report thereon included therein and incorporated herein by
reference. Such consolidated financial statements are incorporated herein by
reference in reliance upon such report given on the authority of such firm as
experts in auditing and accounting.
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OTHER MATTERS
As of the date of this document, the PSINet and Metamor boards of directors
know of no matters that will be presented for consideration at either special
meeting other than as described in this document.
WHERE YOU CAN FIND MORE INFORMATION
PSINet and Metamor file annual, quarterly and special reports, proxy
statements and other information with the Securities and Exchange Commission.
You may read and copy any reports, statements or other information that PSINet
and Metamor file with the Securities and Exchange Commission at the Securities
and Exchange Commission's public reference rooms at the following locations:
Public Reference Room New York Regional Office
450 Fifth Street, N.W. 7 World Trade Center
Room 1024 Suite 1300
Washington, D.C. 20549 New York, NY 10048
Please call the Securities and Exchange Commission at 1-800-SEC-0330 for
further information on the public reference rooms. These Securities and Exchange
Commission filings are also available to the public from commercial document
retrieval services and at the Internet world wide web site maintained by the
Securities and Exchange Commission at "http://www.sec.gov." Reports, proxy
statements and other information pertaining to PSINet and Metamor are also
available for inspection at the offices of The Nasdaq Stock Market, which is
located at 1735 K Street, N.W., Washington, D.C. 20006.
PSINet filed a registration statement on Form S-4 on April 14, 2000 to
register with the Securities and Exchange Commission the PSINet common stock to
be issued to Metamor stockholders in the merger and filed Amendment No. 1 to
such registration statement on Form S-4 on , 2000. This document is a
part of that registration statement, as amended, and constitutes a prospectus of
PSINet in addition to being a proxy statement of PSINet and Metamor. As allowed
by Securities and Exchange Commission rules, this document does not contain all
the information you can find in PSINet's registration statement or the exhibits
to the registration statement.
The Securities and Exchange Commission allows PSINet and Metamor to
"incorporate by reference" information into this document, which means that the
companies can disclose important information to you by referring you to other
documents filed separately with the Securities and Exchange Commission. The
information incorporated by reference is considered part of this document,
except for any information superseded by information contained directly in this
document or in later filed documents incorporated by reference in this document.
This document incorporates by reference the documents set forth below that
PSINet and Metamor have previously filed with the Securities and Exchange
Commission. These documents
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<PAGE>
contain important business and financial information about PSINet and Metamor
that is not included in or delivered with this document.
PSINet has supplied all of the information contained or incorporated by
reference in this document relating to PSINet and Metamor has supplied all of
the information relating to Metamor.
Metamor stockholders should not send in their Metamor certificates until
they receive the transmittal materials from the paying agent. Metamor
stockholders of record who have further questions about their share certificates
or the exchange of their Metamor common stock for PSINet common stock in the
merger should call the paying agent.
We may already have sent you some of the documents incorporated by
reference, but you can obtain any of them through the companies, the Securities
and Exchange Commission or the Securities and Exchange Commission's Internet web
site as described above. Documents incorporated by reference are available from
the companies without charge, excluding all exhibits, except that if the
companies have specifically incorporated by reference an exhibit in this
document, the exhibit will also be provided without charge. Stockholders may
obtain documents incorporated by reference in this document by requesting them
in writing or by telephone from the appropriate company at the following
addresses:
PSINet Inc. Metamor Worldwide, Inc.
510 Huntmar Park Drive 4400 Post Oak Parkway, Suite 1100
Herndon, Virginia 20170 Houston, Texas 77027
Attention: Investor Relations Attention: Investor Relations
Telephone: (703) 375-1577 Telephone: (713) 548-3488
Facsimile: (703) 904-8733 Facsimile: (713) 963-9711
email: [email protected] email: [email protected]
You should rely only on the information contained or incorporated by
reference in this document. We have not authorized anyone to provide you with
information that is different from what is contained in this document. This
document is dated April , 2000. You should not assume that the information
contained in this document is accurate as of any date other than that date.
Neither the mailing of this document nor the issuance of PSINet common stock in
the merger creates any implication to the contrary.
DOCUMENTS INCORPORATED BY REFERENCE
PSINet
PSINet is incorporating by reference in this document the following
documents which have been filed with the Securities and Exchange Commission:
1. Annual report on Form 10-K for the fiscal year ended December 31, 1999.
This report contains:
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<PAGE>
. audited consolidated balance sheets for PSINet and its subsidiaries
as of December 31, 1999 and 1998
. audited consolidated statements of operations, of changes in
shareholders' equity and of cash flows for the years ended December
31, 1999, 1998 and 1997
2. Current reports on Form 8-K dated:
. January 10, 2000
. January 18, 2000
. January 26, 2000
. January 28, 2000
. February 9, 2000
. February 11, 2000
. March 22, 2000
3. Registration statement on Form 8-A dated April 7, 1995, as amended
(registration no. 0-25812).
4. Registration statement on Form 8-A dated June 4, 1996, as amended
(registration no. 0-25812).
Metamor
Metamor is incorporating by reference in this document the following
documents which have been filed with the Securities and Exchange Commission:
1. Annual report on Form 10-K for the fiscal year ended December 31, 1999.
This report contains:
. audited consolidated balance sheets for Metamor and its subsidiaries
as of December 31, 1999 and 1998
. related consolidated statements of operations, stockholders' equity
and cash flows for each of the three years in the period ended
December 31, 1999
2. Current reports on Form 8-K dated:
. March 28, 2000
3. Registration statement on Form 8-A dated October 20, 1995 (registration
no 0-26970).
Subsequent Filings
PSINet and Metamor also incorporate by reference additional documents that
may be filed with the Securities and Exchange Commission under Section 13(a),
13(c), 14 or 15(d) of the Exchange Act between the date of this document and the
date of the special meetings. These
115
<PAGE>
include periodic reports, such as Annual Reports on Form 10-K, Quarterly Reports
on Form 10-Q and Current Reports on Form 8-K, as well as proxy statements.
116
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This document contains certain forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995 with respect to the
financial condition, results of operations, business strategies, operating
efficiencies or synergies, competitive positions, growth opportunities for
existing products, plans and objectives of management, markets for stock of
PSINet and Metamor and other matters. Statements in this document that are not
historical facts are hereby identified as "forward-looking statements" for the
purpose of the safe harbor provided by Section 21E of the Exchange Act and
Section 27A of the Securities Act. Such forward-looking statements, including,
without limitation, those relating to the future business prospects, revenues
and income, in each case relating to PSINet and Metamor, wherever they occur in
this document, are necessarily estimates reflecting the best judgment of the
senior management of PSINet and Metamor and involve a number of risks and
uncertainties that could cause actual results to differ materially from those
suggested by the forward-looking statements. Such forward-looking statements
should, therefore, be considered in light of various important factors,
including those set forth in this document. Important factors that could cause
actual results to differ materially from estimates or projections contained in
the forward-looking statements include without limitation:
. the ability to integrate the operations of PSINet and Metamor, including
their respective services and products; and
. the effects of vigorous competition in the markets in which PSINet and
Metamor operate.
Words such as "estimate," "project," "plan," "intend," "expect," "believe,"
"anticipate" and similar expressions are intended to identify forward-looking
statements. These forward-looking statements are found at various places
throughout this document and the other documents incorporated by reference,
including, but not limited to, the Annual Report on Form 10-K for the year ended
December 31, 1999 of PSINet, including any amendments, and the Annual Report on
Form 10-K for the year ended December 31, 1999 of Metamor, including any
amendments. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date of this document.
Neither PSINet nor Metamor undertakes any obligation to publicly update or
release any revisions to these forward-looking statements to reflect events or
circumstances after the date of this document or to reflect the occurrence of
unanticipated events.
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Annex 1
AGREEMENT AND PLAN OF MERGER
DATED AS OF MARCH 21, 2000
AMONG
PSINET INC.,
PSINET SHELF IV INC.,
AND
METAMOR WORLDWIDE, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
ARTICLE I
The Merger
Section 1.1 The Merger............................................................ 1
Section 1.2 Closing............................................................... 2
Section 1.3 Effective Time of the Merger.......................................... 2
Section 1.4 Effect of the Merger.................................................. 2
ARTICLE II
The Surviving Corporation
Section 2.1 Certificate of Incorporation.......................................... 2
Section 2.2 By-Laws............................................................... 2
Section 2.3 Board of Directors; Officers.......................................... 3
ARTICLE III
Conversion of Shares
Section 3.1 Merger Consideration.................................................. 3
Section 3.2 Stockholders' Rights at the Effective Time............................ 4
Section 3.3 Surrender and Exchange of Share Certificates.......................... 5
Section 3.4 No Further Rights..................................................... 6
ARTICLE IV
Representations and Warranties of Metamor
Section 4.1 Organization and Qualification........................................ 6
Section 4.2 Capitalization........................................................ 7
Section 4.3 Authority Relative to this Agreement and the Transactions............. 8
Section 4.4 No Conflicts, Required Filings and Consents........................... 8
Section 4.5 Reports and Financial Statements...................................... 9
Section 4.6 Information........................................................... 11
Section 4.7 Litigation............................................................ 11
Section 4.8 Absence of Certain Changes or Events.................................. 11
Section 4.9 Employee Benefit Plans................................................ 12
Section 4.10 Labor Relations....................................................... 14
Section 4.11 Taxes................................................................. 15
Section 4.12 Compliance with Applicable Laws....................................... 15
Section 4.13 Voting Requirements................................................... 16
Section 4.14 Assets of Metamor and Its Subsidiaries................................ 16
Section 4.15 Material Contracts.................................................... 16
</TABLE>
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Section 4.16 Intellectual Property................................................. 17
Section 4.17 Interested Party Transactions......................................... 18
Section 4.18 Environmental Matters................................................. 18
Section 4.19 Restrictions on Business Activities................................... 19
Section 4.20 Certain Business Practices............................................ 20
Section 4.21 Insurance............................................................. 20
Section 4.22 Brokers; Expenses..................................................... 20
Section 4.23 Board Approval........................................................ 20
Section 4.24 Opinion of Metamor's Fairness Opinion Advisor......................... 20
ARTICLE V
Representations and Warranties of PSINet
Section 5.1 Organization and Qualification........................................ 21
Section 5.2 Capitalization........................................................ 21
Section 5.3 Authority Relative to this Agreement.................................. 22
Section 5.4 No Conflicts, Required Filings and Consents........................... 22
Section 5.5 Reports and Financial Statements...................................... 23
Section 5.6 Information........................................................... 24
Section 5.7 Litigation............................................................ 24
Section 5.8 Absence of Certain Changes or Events.................................. 24
Section 5.9 Voting Requirements................................................... 24
Section 5.10 Brokers............................................................... 25
Section 5.11 Ownership of Metamor Common Stock..................................... 25
Section 5.12 Board Approval........................................................ 25
ARTICLE VI
Conduct of Business Pending the Merger
Section 6.1 Conduct of Business by Metamor and its Subsidiaries Pending the
Merger................................................................ 25
Section 6.2 Covenant of Buyer..................................................... 27
Section 6.3 Special Meetings...................................................... 27
Section 6.4 Further Action; Consents; Filings..................................... 28
Section 6.5 Plan of Reorganization................................................ 29
Section 6.6 Letters Of Accountants................................................ 29
Section 6.7 Group Debt............................................................ 29
ARTICLE VII
Additional Agreements
Section 7.1 Access to Information................................................. 30
Section 7.2 Registration Statement; Joint Proxy Statement/Prospectus.............. 31
Section 7.3 Employee Retention.................................................... 32
Section 7.4 Public Announcements.................................................. 32
Section 7.5 Indemnification of Metamor's Directors and Officers and Insurance..... 32
Section 7.6 Notice of Breaches.................................................... 34
Section 7.7 Transfer and Gains Taxes and Certain Other Taxes and Expenses......... 34
</TABLE>
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Section 7.8 Acquisition Proposals................................................ 34
Section 7.9 Metamor Related Agreement and PSINet Related Agreement............... 36
Section 7.10 Employee Benefits.................................................... 36
Section 7.11 Nasdaq Listing and Delisting......................................... 37
ARTICLE VIII
Conditions Precedent
Section 8.1 Conditions to Each Party's Obligation to Effect the Merger........... 37
Section 8.2 Conditions to Obligation of Metamor to Effect the Merger............. 38
Section 8.3 Conditions to Obligations of PSINet and Merger Subsidiary
to Effect the Merger................................................. 39
ARTICLE IX
Termination, Amendment and Waiver
Section 9.1 Termination.......................................................... 39
Section 9.2 Effect of Termination................................................ 40
Section 9.3 Fees and Expenses.................................................... 41
Section 9.4 Amendment............................................................ 42
Section 9.5 Waiver............................................................... 42
ARTICLE X
General Provisions
Section 10.1 Non-Survival of Representations, Warranties and Agreements........... 42
Section 10.2 Notices.............................................................. 42
Section 10.3 Specific Performance................................................. 43
Section 10.4 Entire Agreement..................................................... 44
Section 10.5 Assignments; Parties in Interest..................................... 44
Section 10.6 Governing Law........................................................ 44
Section 10.7 Headings; Disclosure................................................. 44
Section 10.8 Certain Definitions and Rules of Construction........................ 44
Section 10.9 Counterparts......................................................... 50
Section 10.10 Severability......................................................... 50
Section 10.11 Xpedior.............................................................. 50
</TABLE>
Exhibit 2.1 Amended and Restated Certificate of Incorporation of PSINet
Solutions Inc.
Exhibit 6.1 Conduct of Business by Metamor and its Subsidiaries
Exhibit 8.1(b) Material Third Party Consents
<PAGE>
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "AGREEMENT"), dated as of March
21, 2000, is entered into by and among PSINet INC., a New York corporation
("PSINET" or "BUYER"), PSINet SHELF IV INC., a Delaware corporation and
wholly-owned subsidiary of PSINet ("MERGER SUBSIDIARY"), and METAMOR WORLDWIDE,
INC., a Delaware corporation ("METAMOR"). Capitalized terms used in this
Agreement and not defined in context shall have the meanings ascribed to them in
Section 10.8 hereof.
WHEREAS, the respective Boards of Directors of PSINet, Merger Subsidiary
and Metamor have approved the merger of Merger Subsidiary with and into Metamor,
with Metamor being the surviving corporation as a wholly-owned subsidiary of
PSINet (the "MERGER"), all upon the terms and subject to the conditions set
forth herein; and
WHEREAS, it is intended that, for federal income tax purposes, the Merger
shall qualify as a reorganization under the provisions of Section 368 of the
Internal Revenue Code of 1986, as amended, and the rules and regulations
promulgated thereunder (the "CODE"); and
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, as a condition and inducement to PSINet's and Merger Subsidiary's
willingness to enter into this Agreement, Peter T. Dameris is entering into a
stockholders agreement (the "METAMOR RELATED AGREEMENT") pursuant to which,
among other things, he agrees to vote in favor of the Merger under the terms and
conditions set forth in the Metamor Related Agreement; and
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, as a condition and inducement to Metamor's willingness to enter into
this Agreement, William L. Schrader is entering into a stockholders agreement
(the "PSINET RELATED AGREEMENT") pursuant to which, among other things, he
agrees to vote in favor of the issuance of the shares of PSINet Common Stock in
the Merger under the terms and conditions set forth in the PSINet Related
Agreement;
NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties and agreements contained herein and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. Upon the terms and subject to the conditions of
----------
this Agreement, at the Effective Time, Merger Subsidiary shall be merged with
and into Metamor and the separate existence of Merger Subsidiary shall thereupon
cease. Metamor shall continue as the surviving corporation in the Merger
(thereafter referred to as the "SURVIVING CORPORATION") under the laws of the
State of Delaware under the name "PSINET SOLUTIONS, INC." as a wholly-owned
subsidiary of PSINet. Throughout this Agreement, the term "METAMOR"
<PAGE>
-2-
shall refer to such entity prior to the Merger and the term "SURVIVING
CORPORATION" shall refer to it in its status as the surviving corporation in the
Merger.
Section 1.2 Closing. The closing of the Transactions (the "CLOSING") will
-------
take place as promptly as practicable (and in any event within two business
days) after satisfaction or waiver of the conditions set forth in Article VIII.
The Closing shall be held at the offices of Nixon Peabody LLP, 437 Madison
Avenue, New York, New York 10022, unless another place is agreed to in writing
by the parties hereto. The date on which the Closing occurs is referred to
herein as the "CLOSING DATE".
Section 1.3 Effective Time of the Merger. The Merger shall become effective
----------------------------
upon the filing with the Secretary of State of the State of Delaware of a
certificate of merger (the "CERTIFICATE OF MERGER"), or at such later time as
specified therein, with respect to the Merger pursuant to and in compliance with
this Agreement and Section 251 of the General Corporation Law of the State of
Delaware (the "DELAWARE LAW"). The Certificate of Merger shall be filed
immediately following the commencement of the Closing. When used in this
Agreement, the term "EFFECTIVE TIME" shall mean the time at which the
Certificate of Merger becomes effective in accordance with Delaware Law.
Section 1.4 Effect of the Merger. The Merger shall, from and after the
--------------------
Effective Time, have all the effects provided by applicable Law. If, at any time
after the Effective Time, the Surviving Corporation shall consider or be advised
that any further deeds, conveyances, assignments or assurances in Law or any
other acts are necessary, desirable or proper to vest, perfect or confirm, of
record or otherwise, in the Surviving Corporation the title to any property or
rights of Metamor or Merger Subsidiary, by reason or as a result of the Merger,
or otherwise to carry out the purposes of this Agreement, Metamor and Merger
Subsidiary agree that the Surviving Corporation and its proper officers and
directors shall execute and deliver all such deeds, conveyances, assignments and
assurances in Law and do all things necessary, desirable or proper to vest,
perfect or confirm title to such property or rights in the Surviving Corporation
and otherwise to carry out the purposes of this Agreement, and that the proper
officers and directors of the Surviving Corporation are fully authorized in the
name of each of Metamor and Merger Subsidiary or otherwise to take any and all
such action.
ARTICLE II
THE SURVIVING CORPORATION
Section 2.1 Certificate of Incorporation. The certificate of incorporation
----------------------------
of Metamor shall be amended at the Effective Time to read in its entirety in the
form attached hereto as EXHIBIT 2.1 and shall be the certificate of
incorporation of the Surviving Corporation until thereafter duly amended.
Section 2.2 By-Laws. The by-laws of Metamor shall be amended as of the
-------
Effective Time to be identical with the by-laws of Merger Subsidiary and shall
be the by-laws of the Surviving Corporation until thereafter duly amended.
<PAGE>
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Section 2.3 Board of Directors; Officers. The members of the Board of
----------------------------
Directors and the officers of the Surviving Corporation following the Merger
shall be the directors and officers of Merger Subsidiary immediately prior to
the Effective Time, and such directors and officers shall continue in office
until the earlier of their respective death, resignation or removal and the time
that their respective successors are duly elected or appointed and qualified.
ARTICLE III
CONVERSION OF SHARES
Section 3.1 Merger Consideration.
--------------------
(a) As of the Effective Time, by virtue of the Merger and without any
action on the part of any stockholder of Metamor or Merger Subsidiary:
(i) Each share of common stock, no par value per share, of
Merger Subsidiary that is issued and outstanding immediately prior to the
Effective Time shall be automatically converted without any further action into
one fully paid and non-assessable share of common stock, no par value per share,
of the Surviving Corporation, and shall constitute the only issued and
outstanding capital stock of the Surviving Corporation following the Merger.
(ii) Each share of the common stock of Metamor, par value
$.01 per share ("METAMOR COMMON STOCK"), that is owned by Metamor as treasury
stock and any shares of Metamor Common Stock that are owned by PSINet or any of
its Subsidiaries shall be canceled and shall cease to exist, and no stock of
PSINet or other consideration shall be delivered in exchange therefor.
(iii) Subject to the provisions of this Section 3.1(a), the
shares of Metamor Common Stock, other than the shares canceled pursuant to
Section 3.1(a)(ii), issued and outstanding immediately prior to the Effective
Time shall, by virtue of the Merger and without any action on the part of the
holders thereof, be converted into the right to receive validly issued, fully
paid and non-assessable (subject to Section 630 of the New York Business
Corporation Law) shares of Common Stock of PSINet, par value $.01 per share
("PSINET COMMON STOCK"), at an exchange ratio (the "EXCHANGE RATIO") of 0.9
shares of PSINet Common Stock for each share of Metamor Common Stock (the
"MERGER CONSIDERATION").
(b) If, at any time during the period between the date of this
Agreement and the Effective Time, Metamor changes the number of shares of
Metamor Common Stock issued and outstanding or PSINet changes the number of
shares of PSINet Common Stock issued and outstanding, in each case as a result
of a stock split, reverse stock split, stock dividend, recapitalization,
redenomination of share capital or other similar transaction with an effective
date or record date, as applicable, prior to the Effective Time, the Exchange
Ratio and any other items dependent thereon shall be appropriately adjusted.
(c) In connection with the Merger:
<PAGE>
-4-
(i) At the Effective Time, automatically and without any
action on the part of the holder thereof, each option (whether or not vested) to
purchase shares of Metamor Common Stock granted under all Metamor stock option
plans, including any stock option plan intended to be qualified under Section
423 of the Code (each such option a "METAMOR OPTION" and each such plan a
"METAMOR STOCK OPTION PLAN"), which remains as of such time unexercised in whole
or in part, shall be assumed by PSINet and become an option (an "ASSUMED METAMOR
OPTION") to purchase that number of shares of PSINet Common Stock obtained by
multiplying the number of shares of Metamor Common Stock issuable upon the
exercise of such Metamor Option by the Exchange Ratio at an exercise price per
share equal to the per share exercise price of such Metamor Option divided by
the Exchange Ratio. If the foregoing calculation results in an Assumed Metamor
Option being exercisable for a fraction of a share of PSINet Common Stock, the
number of shares of PSINet Common Stock subject to such Assumed Metamor Option
shall be rounded down to the nearest whole number of shares. The Assumed Metamor
Option (A) shall provide the optionee with the same vesting and other rights,
limitations and obligations that the optionee had under the Metamor Option
before such assumption, and (B) shall not give the optionee additional vesting
or other rights, limitations or obligations that he did not have under the
Metamor Option before such assumption.
(ii) As soon as practicable after the Effective Time,
PSINet (A) shall deliver to the holders of the Metamor Options appropriate
agreements evidencing PSINet's assumption of such options, and (B) shall file a
registration statement on Form S-8 (or any successor or other appropriate forms)
with respect to the shares of PSINet Common Stock issuable in respect of the
Assumed Metamor Options. PSINet shall use all reasonable efforts to maintain the
effectiveness of such registration statement (and maintain the current status of
the prospectus or prospectuses contained therein) for so long as such Assumed
Metamor Options remain outstanding.
(iii) At the Effective Time, PSINet agrees to assume the
Metamor Stock Option Plans with such amendments thereto as may be required to
reflect the Merger, including the substitution of PSINet Common Stock for
Metamor Common Stock thereunder.
(iv) The Board of Directors of Metamor (or a duly appointed
committee thereof responsible for the administration of the Metamor Stock Option
Plans in accordance with the terms of each such plan) shall, prior to or as of
the Effective Time, take all necessary actions, pursuant to and in accordance
with the terms of the Metamor Stock Option Plans and the instruments evidencing
the Metamor Options, to provide for the conversion of the Metamor Options into
the Assumed Metamor Options in accordance with subparagraph (i) above.
(v) All Metamor Options shall, prior to and subsequent to
the Effective Time, continue to vest and be exercisable under the terms of the
respective Metamor Option and associated Metamor Stock Option Plan.
Section 3.2 Stockholders' Rights at the Effective Time. On and after the
------------------------------------------
Effective Time, the certificates that immediately prior to the Effective Time
represented shares of Metamor Common Stock (the "CERTIFICATES"), shall cease to
represent any rights with respect to Metamor Common Stock and shall only
represent the right to receive the Merger Consideration, together with the
amount of cash, if any, payable in lieu of fractional shares of PSINet Common
Stock
<PAGE>
-5-
otherwise issuable as Merger Consideration; provided, however, that no dividends
or other distributions, if any, in respect of the shares of PSINet Common Stock,
declared after the Effective Time and payable to holders of record after the
Effective Time, shall be paid to the holders of any unsurrendered Certificates
until such Certificates and transmittal letters are surrendered and delivered as
provided in Section 3.3 of this Agreement. Subject to applicable New York Law,
after the surrender and exchange of Certificates, the record holders thereof
will be entitled to receive any such dividends or other distributions declared
after the Effective Time without interest thereon, which theretofore have become
payable with respect to the number of shares of PSINet Common Stock for which
such Certificates were exchangeable. As of the Effective Time, the holders of
Metamor Common Stock as of the Effective Time who are entitled to receive shares
of PSINet Common Stock as Merger Consideration shall be deemed to be record
owners of such shares of PSINet Common Stock as of the Effective Time and shall
thereupon be entitled to exercise any rights as a holder of PSINet Common Stock,
including the right to vote such PSINet Common Stock, whether or not the
Certificates are surrendered and exchanged pursuant to this Agreement.
Section 3.3 Surrender and Exchange of Share Certificates.
--------------------------------------------
(a) Promptly after the Closing Date, PSINet shall make available
to a paying agent reasonably acceptable to the parties (the "PAYING AGENT") such
certificates evidencing such number of shares of PSINet Common Stock to enable
the Paying Agent to deliver the PSINet Common Stock as Merger Consideration
pursuant to Section 3.1(a) and an amount of cash as shall be reasonably
estimated as needed to make cash payments in lieu of fractional shares.
Notwithstanding any other provision of this Agreement, no fractional shares of
PSINet Common Stock will be issued in connection with the Merger, and any holder
of Metamor Common Stock entitled to receive a fractional share of PSINet Common
Stock but for this Section 3.3(a) shall be entitled to receive a cash payment in
lieu thereof, which payment shall represent such holder's proportionate interest
in such share of PSINet Common Stock. For purposes of determining the amount of
the cash payable in lieu of a fractional share, one full share of PSINet Common
Stock shall be deemed to have a value equal to $50.
(b) On the Closing Date, PSINet shall instruct the Paying Agent
to mail to each Person who was a holder of record of shares of Metamor Common
Stock immediately prior to the Effective Time (other than holders whose shares
were canceled pursuant to Section 3.1(a)(ii)): (i) a letter of transmittal, and
(ii) instructions for use in effecting the surrender of the Certificates
nominally representing Metamor Common Stock in exchange for the Merger
Consideration.
(c) After the Closing, each holder of a Certificate shall
surrender and deliver such Certificate to the Paying Agent together with a duly
completed and executed transmittal letter. Upon such surrender and delivery, the
holder shall receive the Merger Consideration. Until so surrendered and
exchanged, each Certificate formerly representing an outstanding share of
Metamor Common Stock shall, after the Effective Time, be deemed for all purposes
to evidence only the right to receive the Merger Consideration as provided in
Section 3.1(a)(iii), together with cash in lieu of any fractional share of
PSINet Common Stock.
<PAGE>
-6-
(d) At the Effective Time, the stock transfer books of Metamor
shall be closed and no transfer of shares of Metamor Common Stock shall be
recorded thereafter, other than transfers of shares of Metamor Common Stock that
have occurred prior to the Effective Time. In the event that, after the
Effective Time, Certificates are presented for transfer to the transfer agent
for Metamor, Merger Subsidiary or PSINet, they shall be delivered to the Paying
Agent and exchanged for the Merger Consideration as provided for in this
Section 3.3.
(e) Any Merger Consideration that remains undistributed to the
stockholders of Metamor as of the Effective Time after four months have elapsed
following the Effective Time shall be delivered to PSINet by the Paying Agent,
upon demand, and any former stockholders of Metamor who have not previously
complied with this Section 3.3 shall thereafter look only to PSINet for payment
of their claim for the Merger Consideration or dividends or distributions with
respect to PSINet Common Stock.
(f) Neither the Paying Agent, nor any of Metamor, Merger
Subsidiary or PSINet shall be liable to any holder of shares of Metamor Common
Stock with respect to any Merger Consideration (or dividends or distributions
with respect to PSINet Common Stock) delivered to a public official pursuant to
any applicable abandoned property, escheat or similar Law.
(g) In the event any Certificates shall have been lost, stolen
or destroyed, the Paying Agent shall deliver the Merger Consideration and any
dividends or other distributions with respect to PSINet Common Stock to which
such holder is entitled in exchange for such lost, stolen or destroyed
Certificates, upon the making of an affidavit of that fact by the record holder
thereof and the delivery of such bond as the Paying Agent may reasonably
require.
(h) No transfer taxes shall be payable by any stockholder of
Metamor in respect of the issuance of the PSINet Common Stock under this Section
3.3, except that if any PSINet Common Stock is to be issued in a name other than
that in which the Certificate surrendered has been registered, it shall be a
condition of such issuance that the Person requesting such issuance shall pay to
PSINet any transfer taxes payable by reason thereof, or of any prior transfer of
such surrendered Certificate, or establish to the satisfaction of PSINet that
such taxes have been paid or are not payable.
Section 3.4 No Further Rights. From and after the Effective Time, holders
-----------------
of Certificates theretofore evidencing shares of Metamor Common Stock shall
cease to have any rights as stockholders of Metamor, except as provided herein
or by Law.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF METAMOR
Metamor represents and warrants to PSINet and Merger Subsidiary that,
except as disclosed in the Metamor Disclosure Schedule which has been delivered
to PSINet prior to the execution of this Agreement (the "METAMOR DISCLOSURE
SCHEDULE"):
Section 4.1 Organization and Qualification. Metamor is a corporation duly
------------------------------
incorporated, validly existing and in good standing under the laws of the State
of Delaware. Each of
<PAGE>
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Metamor's Subsidiaries is a corporation or limited liability company duly
organized, validly existing and, if applicable, in good standing under the laws
of the jurisdiction in which it is formed. Each of Metamor and its Subsidiaries
has the requisite corporate power and authority to carry on its business as it
is now being conducted and is duly qualified or licensed to do business, and, if
applicable, is in good standing, in each jurisdiction where the character of its
properties owned or held under lease or the nature of its activities makes such
qualification or licensing necessary, except where the failure to be so
organized, qualified, licensed or in good standing, or to have such power and
authority, when taken together with all other such failures would not have a
Metamor Material Adverse Effect. Metamor has heretofore made available to PSINet
and Merger Subsidiary a complete and correct copy of the certificate of
incorporation, by-laws or other governing documents, each as amended to the date
hereof, of Metamor and each of its Subsidiaries.
Section 4.2 Capitalization.
--------------
(a) The authorized capital stock of Metamor consists of
100,000,000 shares of Metamor Common Stock and 5,000,000 shares of preferred
stock, par value $0.01 per share (the "METAMOR PREFERRED STOCK"). As of March 8,
2000: (a) 34,692,972 shares of Metamor Common Stock were issued and outstanding,
all of which were validly issued, fully paid and non-assessable, (b) an
aggregate of 8,000,000 shares of Metamor Common Stock were reserved for issuance
under stock options to be issued pursuant to Metamor's employee and director
stock option plans, (c) an aggregate of 3,450,000 shares of Metamor Common Stock
were reserved for issuance under rights to purchase Metamor Common Stock
pursuant to Metamor's Employee Stock Purchase Plan, and (d) no shares of Metamor
Preferred Stock were issued or outstanding. As of March 8, 2000, there were
outstanding Metamor Options to purchase 3,851,042 shares of Metamor Common
Stock. Except as set forth on the Metamor Disclosure Schedule, no Metamor
Options will be subject to accelerated vesting or exercisability in connection
with the execution and delivery of this Agreement or the Merger. No shares of
capital stock of Metamor or any of its Subsidiaries other than Xpedior have been
issued between March 8, 2000 and the date hereof other than pursuant to the
exercise or conversion of any Metamor Options. Since March 8, 2000 through the
date hereof, options to purchase 747,100 shares of shares of Metamor Common
Stock have been granted.
(b) The authorized capital stock of Xpedior Incorporated, a
Delaware corporation and Subsidiary of Metamor ("XPEDIOR"), consists of
100,000,000 shares of common stock, par value $.01 per share ("XPEDIOR COMMON
STOCK") and 5,000,000 shares of preferred stock, par value $0.01 per share (the
"XPEDIOR PREFERRED STOCK"). As of March 20, 2000: (a) 50,000,000 shares of
Xpedior Common Stock were issued and outstanding, all of which were validly
issued, fully paid and non-assessable and 40,005,048 of which are owned
beneficially and of record by Metamor, (b) an aggregate of 15,000,000 shares of
Xpedior Common Stock were reserved for issuance under stock options issued
pursuant to the Xpedior's Stock Incentive Plan (the "XPEDIOR STOCK OPTIONS"),
and (c) no shares of Xpedior Preferred Stock were issued or outstanding. As of
January 31, 2000, there were outstanding Xpedior Stock Options to purchase
10,109,350 shares of Xpedior Common Stock. Except as set forth on the Metamor
Disclosure Schedule, no Xpedior Stock Options will be subject to accelerated
vesting or exercisability in connection with the execution and delivery of this
Agreement or the Merger. No shares of
<PAGE>
-8-
capital stock of Xpedior or any of its Subsidiaries have been issued between
March 20, 2000 and the date hereof.
(c) Except for the Metamor Notes or as set forth in this Section
4.2 or the Metamor Disclosure Schedule, there are no preemptive or other
outstanding rights, options, warrants, conversion rights (including pursuant to
convertible securities), stock appreciation rights, redemption rights,
repurchase rights, agreements, arrangements, calls, commitments or rights of any
kind relating to the issued or unissued capital stock of Metamor or any of its
Subsidiaries or obligating Metamor or any of its Subsidiaries to issue or sell
any shares of capital stock of, or other equity interests in, Metamor or any of
its Subsidiaries. All shares of capital stock of Metamor and its Subsidiaries
subject to issuance pursuant to the Metamor Options, upon issuance on the terms
and conditions specified in the instruments pursuant to which they are issuable,
will be duly authorized, validly issued, fully paid and non-assessable. Without
limiting the generality of the foregoing, neither Metamor nor any of its
Subsidiaries has adopted a shareholder rights plan or similar plan or
arrangement. As of the date of this Agreement, there are no outstanding
contractual obligations of Metamor or any of its Subsidiaries to repurchase,
redeem or otherwise acquire any shares of capital stock of Metamor or any of its
Subsidiaries or to provide material funds to, or make any material investment
(in the form of a loan, capital contribution or otherwise) in, any Person except
as set forth on the Metamor Disclosure Schedule.
Section 4.3 Authority Relative to this Agreement and the Transactions.
---------------------------------------------------------
Metamor has all necessary power and authority to execute and deliver this
Agreement and the Metamor Related Agreement, to perform its obligations
hereunder and thereunder and to consummate the Merger. The execution and
delivery by Metamor of this Agreement and the Metamor Related Agreement, and the
consummation by Metamor of the Transactions to which it is a party, have been
duly and validly authorized by all necessary corporate action and no other
corporate proceedings on the part of Metamor are necessary to authorize the
execution and delivery of this Agreement or the Metamor Related Agreement to
which Metamor is a party or to consummate the Transactions to which it is a
party other than, with respect to the Merger, the adoption of this Agreement by
the affirmative vote of the holders of a majority of the outstanding shares of
Metamor Common Stock entitled to be voted at the Metamor Special Meeting and the
filing and recordation of appropriate merger documents as required by Delaware
Law. This Agreement and the Metamor Related Agreement have been duly and validly
executed and delivered by Metamor and, assuming the due authorization, execution
and delivery by the other parties hereto and thereto, each constitutes a legal,
valid and binding obligation of Metamor, enforceable against Metamor in
accordance with its terms.
Section 4.4 No Conflicts, Required Filings and Consents.
-------------------------------------------
(a) The execution and delivery of this Agreement by Metamor does
not, and the performance of this Agreement and consummation of the Transactions
by Metamor will not: (i) conflict with or violate the certificate of
incorporation or by-laws of Metamor or any of its Subsidiaries, (ii) assuming
the consents, approvals, authorizations and waivers specified in Section 4.4(b)
have been received and the waiting periods referred to therein have expired, and
any condition precedent to such consent, approval, authorization, or waiver has
been satisfied, conflict with or violate any Law applicable to Metamor or any of
its Subsidiaries or by which
<PAGE>
-9-
any property or asset of Metamor or any of its Subsidiaries is bound or
affected, or (iii) result in any breach of or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or
give to others any right of termination, amendment, acceleration, or
cancellation of, or result in the creation of a lien or other encumbrance on any
property or asset of Metamor or any of its Subsidiaries pursuant to, any
contract, agreement, note, bond, mortgage, indenture, credit agreement, lease,
license, permit, franchise or other instrument or obligation to which Metamor or
any of its Subsidiaries is a party or by which Metamor or any of its
Subsidiaries or any property or asset of Metamor or any of its Subsidiaries is
bound or affected, except in the case of clauses (ii) and (iii) for any such
conflicts, violations, breaches, defaults or other occurrences of the type
referred to above which would not have a Metamor Material Adverse Effect or
would not prevent or materially delay the consummation of the Merger.
(b) The execution and delivery of this Agreement by Metamor does
not, and the performance of this Agreement by Metamor will not, require any
consent, approval, authorization, waiver or permit of, or filing with or
notification to, any governmental or regulatory authority, domestic, foreign or
supranational (a "GOVERNMENTAL ENTITY"), except for applicable requirements of
the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), the
Securities Act of 1933, as amended (the "SECURITIES ACT"), state securities or
"blue sky" laws ("BLUE SKY LAWS"), the pre-merger notification requirements of
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the
rules and regulations thereunder (the "HSR ACT"), such filings, approvals,
consents and waivers as may be required under other Merger Control Laws, filing
and recordation of the Certificate of Merger as required by Delaware Law, and
applications for listing and other filings required by the rules of the Nasdaq
National Market System, except where failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, would not
have a Metamor Material Adverse Effect or would not prevent or materially delay
the consummation of the Merger.
Section 4.5 Reports and Financial Statements.
--------------------------------
(a) Metamor has filed with the U.S. Securities and Exchange
Commission (the "SEC") all forms, reports, schedules, registration statements,
definitive proxy statements, information statements and other filings (the
"METAMOR SEC REPORTS") required to be filed by it with the SEC since January 1,
1998. Xpedior has filed with the SEC only a registration statement under the
Securities Act on Form S-1 and amendments thereto, a final Prospectus pursuant
to Rule 424(b)(1) of the Securities Act (the "FINAL PROSPECTUS") and a
registration statement under the Exchange Act on Form 8-A (such filings,
together with all forms, reports, schedules, registration statements, definitive
proxy statements, information statements and other filings hereafter filed with
the SEC, the "XPEDIOR SEC REPORTS" and, together with the Metamor SEC Reports,
the "SEC REPORTS"). As of their respective dates, the SEC Reports complied as to
form in all material respects with the requirements of the Exchange Act and the
Securities Act, as the case may be, and the rules and regulations of the SEC
thereunder applicable to such SEC Reports. As of their respective dates and as
of the date any information from such SEC Reports has been incorporated by
reference, the SEC Reports did not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were
<PAGE>
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made, not misleading. Metamor and Xpedior have filed all material contracts and
agreements and other documents or instruments required to be filed as exhibits
to the SEC Reports.
(b) The consolidated balance sheets of Metamor as of December
31, 1998, 1997 and 1996 and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the three-
year period ended December 31, 1998 (including the related notes and schedules
thereto) contained in Metamor's Form 10-K for the year ended December 31, 1998
(the "METAMOR FINANCIAL STATEMENTS") present fairly, in all material respects,
the consolidated financial position and the consolidated results of operations,
retained earnings and cash flows of Metamor and its consolidated Subsidiaries as
of the dates or for the periods presented therein in conformity with United
States generally accepted accounting principles ("GAAP") applied on a consistent
basis during the periods involved except as otherwise noted therein, including
in the related notes. The consolidated balance sheets of Xpedior as of September
30, 1999 and December 31, 1998 and 1997 and the related consolidated statements
of operations, stockholders' equity and cash flows for the nine months ended
September 30, 1999, the year ended December 31, 1998 and the period from March
27, 1997 through December 31, 1997 (including the related notes and schedules
thereto) contained in the Final Prospectus (the "XPEDIOR FINANCIAL STATEMENTS")
present fairly, in all material respects, the consolidated financial position
and the consolidated results of operations, retained earnings and cash flows of
Xpedior and its consolidated Subsidiaries as of the dates or for the periods
presented therein in conformity with GAAP applied on a consistent basis during
the periods involved except as otherwise noted therein, including in the related
notes.
(c) The consolidated balance sheets and the related statements
of operations and cash flows (including, in each case, the related notes
thereto) of Metamor contained in the Form 10-Q for the quarterly period ended
September 30, 1999 (the "METAMOR QUARTERLY FINANCIAL STATEMENTS") have been
prepared in accordance with the requirements for interim financial statements
contained in Regulation S-X, which do not require all the information and
footnotes necessary for a fair presentation of financial position, results of
operations and cash flows in conformity with GAAP. The Metamor Quarterly
Financial Statements reflect all adjustments necessary to present fairly in
accordance with GAAP (except as indicated), in all material respects, the
consolidated financial position, results of operations and cash flows of Metamor
and its consolidated Subsidiaries for all periods presented therein.
(d) The adoption of SEC Staff Accounting Bulletin No. 101
(Revenue Recognition in Financial Statements) effective January 1, 2000 will not
adversely impact, in any material respect, the amount or timing of revenue
recognition by Metamor and its Subsidiaries as compared to their prior revenue
recognition practices.
(e) Except for those liabilities that are fully reflected or
reserved against on the Metamor Financial Statements, the Metamor Quarterly
Financial Statements or the Xpedior Financial Statements or as set forth in the
Metamor Disclosure Schedule, neither Metamor nor any of its Subsidiaries has
outstanding any liability of any nature whatsoever (whether absolute, accrued,
contingent, or otherwise and whether due or to become due) which would be
required to be reflected on a balance sheet or in the notes thereto prepared in
accordance with GAAP, except for (i) liabilities and obligations which have been
incurred since September 30, 1999 in the ordinary course of business which are
not material in nature or amount, or (ii) liabilities and
<PAGE>
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obligations which individually or in the aggregate would not have a Metamor
Material Adverse Effect.
Section 4.6 Information.
-----------
(a) None of the information supplied or to be supplied by
Metamor for inclusion or incorporation by reference in the Joint Proxy
Statement/Prospectus will, at the time of filing with the SEC, at the time of
the mailing of the Joint Proxy Statement/Prospectus or any amendments or
supplements thereto to Metamor's and PSINet's stockholders or at the time of the
Metamor Special Meeting or the PSINet Special Meeting, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. The portion of the
Joint Proxy Statement/Prospectus based on information supplied by Metamor for
inclusion or incorporation by reference therein will comply as to form in all
material respects with the applicable provisions of the Securities Act and the
Exchange Act and the rules and regulations thereunder.
(b) As of the date of this Agreement, Metamor does not know of
any reason (A) why it would not be able to deliver to the respective counsel to
PSINet and Metamor, at the date of the legal opinions referred to below,
certificates substantially in compliance with published Internal Revenue Service
("IRS") advance ruling guidelines, with customary exceptions and modifications
thereto, to enable such firms to deliver the legal opinions contemplated by
Sections 8.2(c) and 8.3(c), or (B) why counsel to PSINet and Metamor would not
be able to deliver the opinions required by Sections 8.2(c) and 8.3(c).
Section 4.7 Litigation. Except as disclosed in the SEC Reports or on
----------
the Metamor Disclosure Schedule, as of the date hereof, there is no civil,
criminal or administrative suit, action or proceeding pending or, to the
knowledge of Metamor, threatened against or affecting Metamor or any of its
Subsidiaries that is reasonably expected to have a Metamor Material Adverse
Effect, nor is there any judgment, decree, injunction or order of any
Governmental Entity or arbitrator outstanding against Metamor or any of its
Subsidiaries having, or which is reasonably expected to have, individually or in
the aggregate, a Metamor Material Adverse Effect.
Section 4.8 Absence of Certain Changes or Events. Except as disclosed
------------------------------------
in the SEC Reports, in the Metamor Financial Statements, in the Metamor
Quarterly Financial Statements or on the Metamor Disclosure Schedule or as
permitted by Section 6.1 for events after the date hereof, since September 30,
1999 each of Metamor and its Subsidiaries has conducted its business only in the
ordinary course and in a manner consistent with past practice and since such
date there has not been (i) any Metamor Material Adverse Effect, (ii) any
declaration, setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) with respect to any of Metamor's or any of
its Subsidiaries' capital stock, or, any redemption, purchase or other
acquisition of any of its or any of its Subsidiaries' capital stock, (iii) any
split, combination or reclassification of any of Metamor's or its Subsidiaries'
capital stock or, except with respect to Metamor Options or Xpedior Stock
Options, any issuance or the authorization of any issuance of any other
securities in respect of, in lieu of or in substitution for shares of Metamor's
or its Subsidiaries' capital stock, (iv) any granting by Metamor or any of its
<PAGE>
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Subsidiaries to any officer of Metamor or any of its Subsidiaries of any
increase in compensation or any rights with respect to compensation in the event
of a "change in control" (however defined) of Metamor, except in the ordinary
course of business consistent with prior practice or as required under
employment agreements in effect as of September 30, 1999, (v) any granting by
Metamor or any of its Subsidiaries to any officer or any group or class of
employees of Metamor of any increase in severance or termination pay, except as
required under employment, severance or termination agreements or plans in
effect as of September 30, 1999 or as previously disclosed to PSINet, (vi) any
entry by Metamor or any of its Subsidiaries into any employment, severance or
termination agreement with any officer of Metamor, or any increase in benefits
available under or establishment of any Benefit Plan except in the ordinary
course of business consistent with past practice or as previously disclosed to
PSINet, or (vii) any material change in accounting methods, principles or
practices by Metamor, except insofar as may have been required by a change in
GAAP.
Section 4.9 Employee Benefit Plans.
----------------------
(a) Schedule 4.9 sets forth a complete and correct list of all
existing (i) "employee benefit plans", as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and (ii)
any other material pension plans or employee benefit arrangements or payroll
practices (including severance pay, vacation pay, company awards, salary
continuation for disability, sick leave, deferred compensation, bonus or other
incentive compensation, stock option or stock purchase arrangements or policies)
maintained, or contributed to, by Metamor, its Subsidiaries or any trade or
business (whether or not incorporated) which is treated with Metamor or its
Subsidiaries as a single employer under Section 414(b), (c), (m) or (o) of the
Code (an "ERISA AFFILIATE") with respect to employees of Metamor, its
Subsidiaries or their ERISA Affiliates (all such plans, arrangements or
practices that currently exist or have been in existence at any time during the
last three (3) years are hereinafter referred to as the "BENEFIT PLANS"). Each
Benefit Plan is in writing and Metamor has previously made available to PSINet a
true and complete copy of each existing Benefit Plan document, including all
amendments thereto, and a true and complete copy of each material document, if
any, prepared in connection with each such Benefit Plan, including: (A) a copy
of each trust or other funding arrangement, (B) each summary plan description
and summary of material modifications, (C) the most recently filed Form 5500,
including all attachments thereto, (D) the most recently received IRS
determination letter for each such Benefit Plan, and (E) the most recently
prepared actuarial report and financial statement in connection with each such
Benefit Plan. Neither Metamor nor any of its Subsidiaries have any express or
implied commitment (X) to create or incur material liability with respect to or
cause to exist any other employee benefit plan, program or arrangement, (Y) to
enter into any material contract or agreement to provide compensation or
benefits to any individual, or (Z) to materially modify, change or terminate any
Benefit Plan, other than with respect to a modification, change or termination
required by ERISA or the Code or a merger of a previously acquired 401(k) or
welfare plan.
(b) No "accumulated funding deficit" as defined in Section 412
of the Code exists with respect to any Benefit Plan, whether or not waived. No
"reportable event" within the meaning of Section 4043 of ERISA, and no event
described in Section 4062 or 4063 of ERISA has occurred with respect to any
Benefit Plan. Neither Metamor nor any ERISA Affiliate of
<PAGE>
-13-
Metamor has: (i) engaged in, or is a successor corporation or parent corporation
to an entity that has engaged in, a transaction described in sections 4069 or
4212(c) of ERISA or (ii) incurred or reasonably expects to incur (A) any
material liability under Title IV of ERISA arising in connection with the
termination of, or a complete or partial withdrawal from, any plan covered or
previously covered by Title IV of ERISA, or (B) any material liability under
Section 4971 of the Code that in either case could become a liability of the
Surviving Corporation or PSINet or any of its Affiliates after the Effective
Time. As of September 30, 1999, there was no material unfunded liability under
any of the Benefit Plans, computed using reasonable actuarial assumptions and
determined as if all benefits under such Benefit Plans were vested and payable
as of such date. No event has occurred since September 30, 1999 which would
cause Metamor to believe that as of the date of this Agreement there is any such
material unfunded liability.
(c) Each of the Benefit Plans intended to qualify under Section
401(a) of the Code has received a favorable determination letter (or opinion
letter in the case of a prototype plan) from the IRS that such Benefit Plan is
so qualified or is within the remedial amendment period for applying for such a
determination letter, and, except as disclosed on the Metamor Disclosure
Schedule, nothing has occurred with respect to the operation of any such Benefit
Plan which, either individually or in the aggregate, would cause the loss of
such qualification or the imposition of any material liability, penalty or tax
under ERISA or the Code.
(d) There has been no non-exempt prohibited transaction (within
the meaning of Section 406 of ERISA or Section 4975 of the Code) with respect to
any Benefit Plan. Metamor, its Subsidiaries and their ERISA Affiliates are not
currently liable for any excise tax or penalty in connection with any Benefit
Plan arising under the Code or ERISA, including but not limited to Section 4971,
4972, 4975, 4979, 4980, 4980B or 4980D of the Code or Section 502 of ERISA, and
to the knowledge of Metamor no fact or event exists which could give rise to any
liability except, in each case, for any such liability set forth on the Metamor
Disclosure Schedule or which would not have a Metamor Material Adverse Effect.
(e) All contributions and premiums required by Law or by the
terms of any Benefit Plan or any agreement relating thereto have been timely
made (without regard to any waivers granted with respect thereto) in all
material respects.
(f) The liabilities of each Benefit Plan that has been
terminated or otherwise wound up, have been fully discharged in material
compliance with applicable Law.
(g) There has been no violation of ERISA with respect to the
filing of applicable returns, reports, documents and notices regarding any of
the Benefit Plans with the Secretary of Labor or the Secretary of the Treasury
or the furnishing of such notices or documents to the participants or
beneficiaries of the Benefit Plans which, either individually or in the
aggregate, could result in a material liability to Metamor or any of its
Subsidiaries.
(h) To the knowledge of Metamor, there are no pending legal
proceedings which have been asserted or instituted against any of the Benefit
Plans or their assets, Metamor, any of its Subsidiaries, any ERISA Affiliate, or
the plan administrator or any fiduciary of any of the Benefit Plans with respect
to the operation of such plans (other than routine, uncontested benefits
claims).
<PAGE>
-14-
(i) Each of the Benefit Plans has been maintained, in all
material respects, in accordance with its terms and all provisions of applicable
Laws . All amendments and actions required to bring each of the Benefit Plans
into conformity in all material respects with all of the applicable provisions
of ERISA and other applicable Laws have been made or taken except to the extent
that such amendments or actions are not required by Law to be made or taken
until a date after the Closing Date.
(j) Metamor, its Subsidiaries and their ERISA Affiliates do not
maintain and have no liability under a welfare benefit plan providing continuing
benefits after the termination of employment (other than as required by Section
4980B of the Code and at the former employee's own expense). Except as set forth
on the Metamor Disclosure Schedule, Metamor, its Subsidiaries and each of their
ERISA Affiliates have complied in all material respects with the notice and
continuation requirements of Section 4980B of the Code and the regulations
thereunder. Other than money purchase pension plans, Metamor, its Subsidiaries
and their ERISA Affiliates do not maintain, sponsor or contribute to , and to
the knowledge of Metamor have never maintained, sponsored or contributed to, any
benefit plan subject to Title IV of ERISA, including but not limited to a
multiple employer plan subject to Sections 4063 and 4064 of ERISA or a
multiemployer plan as defined in Section 4001(a)(3) of ERISA.
(k) Except as set forth on the Metamor Disclosure Schedule,
neither the execution and delivery of this Agreement nor the consummation of the
Transactions will (i) result in any material payment (including severance,
unemployment compensation or golden parachute) becoming due to any director,
employee or independent contractor of Metamor or its Subsidiaries, (ii)
materially increase any benefits otherwise payable under any Benefit Plan, or
(iii) result in the acceleration of the time of payment or vesting of any such
benefits to any material extent other than vesting of Metamor Options in
accordance with their terms.
(l) Metamor and its Subsidiaries are in compliance in all
material respects with applicable Laws and collective bargaining agreements with
respect to all benefit plans, contracts and arrangements covering non-U.S.
employees ("NON-U.S. BENEFIT PLANS"). Metamor and its Subsidiaries have no
material unfunded liabilities under any Metamor Non-U.S. Benefit Plan in
violation of local Law or that would, if the plan were covered by ERISA, violate
the funding obligations prescribed by ERISA. All benefits payable under each of
the Non-U.S. Benefit Plans are provided in accordance with the terms of the
governing provisions of the relevant Metamor Non-U.S. Benefit Plan. Metamor and
its Subsidiaries are not aware of any failure to comply with any applicable Law
which would or might result in the loss of tax approval or qualification of any
Non-U.S. Benefit Plans.
(m) To the knowledge of Metamor, all individuals providing
services to Metamor, its Subsidiaries and their ERISA Affiliates have been
properly characterized and treated as being either an employee or an independent
contractor of such Person.
Section 4.10 Labor Relations. There are no labor controversies pending
---------------
or threatened with respect to Metamor or its Subsidiaries, and neither Metamor
nor any of its U.S. Subsidiaries is a party to any collective bargaining
agreement with any labor union or other representative of employees. Except as
set forth in the Metamor Disclosure Schedule, no non-U.S. Subsidiary of Metamor
is a party to any collective bargaining agreement with any labor union or other
<PAGE>
-15-
representative of employees or any works' council or similar entity under
applicable Laws. To the knowledge of Metamor, there is no pending or threatened
union organization activity by or among any of its or its Subsidiaries'
employees.
Section 4.11 Taxes. Metamor and its Subsidiaries have duly filed all
-----
material federal, state, local and foreign income, franchise, excise, real and
personal property and other Tax returns and reports (including, but not limited
to, those filed on a consolidated, combined or unitary basis) required to have
been filed by Metamor and its Subsidiaries prior to the date hereof. All of the
foregoing returns and reports are true and correct in all material respects, and
Metamor and its Subsidiaries have paid or, prior to the Closing Date will pay,
all Taxes shown on such returns or reports as being due. Metamor and its
Subsidiaries have paid and will pay all installments of estimated taxes due on
or before the Closing Date. Metamor and its Subsidiaries have paid or made
adequate provision in accordance with GAAP in the SEC Reports, the Metamor
Financial Statements, the Metamor Quarterly Financial Statements and the Xpedior
Financial Statements for all Taxes payable in respect of all periods ending on
or prior to the date of this Agreement and will have paid or provided for all
Taxes payable in respect of all periods covered thereby. As of the date hereof,
all deficiencies proposed as a result of any audits have been paid or settled.
Metamor and each of its Subsidiaries has paid, collected or withheld, or caused
to be paid, collected or withheld, all amounts of Tax required to be paid,
collected or withheld, other than such Taxes for which adequate reserves in the
SEC Reports, the Metamor Financial Statements, the Metamor Quarterly Financial
Statements or the Xpedior Financial Statements have been established or which
are being contested in good faith, except as would not have a Metamor Material
Adverse Effect. There are no claims or assessments pending against Metamor or
any of its Subsidiaries for any alleged deficiency in any Tax, and neither
Metamor nor any of its Subsidiaries has been notified in writing of any proposed
Tax claims or assessments against Metamor or any Subsidiary. Neither Metamor nor
any of its Subsidiaries has been a member of a consolidated group filing a
consolidated federal income Tax return (other than a consolidated group of which
Metamor is the common parent), or has any liability for Taxes of any other
Person (other than a member of the Metamor consolidated group) arising from the
application of Treasury Regulations section 1.1502-6 promulgated under the Code
or any analogous Law. No consent under Section 341(f) of the Code has been filed
with respect to Metamor or any of its Subsidiaries. Except as set forth in the
Metamor Disclosure Schedule, there is no contract, agreement, plan or
arrangement covering any Person that, individually or collectively, could give
rise to the payment of any amount that would not be deductible by PSINet,
Metamor, or any of the Subsidiaries of Metamor by reason of Section 280G of the
Code.
Section 4.12 Compliance with Applicable Laws. Metamor and its
-------------------------------
Subsidiaries hold all permits, licenses, variances, exemptions, orders and
approvals of all Governmental Entities (the "METAMOR PERMITS") necessary for
them to own, lease or operate their properties and assets and to carry on their
businesses substantially as now conducted or presently intended to be conducted,
except for such permits, licenses, variances, exemptions, orders and approvals
the failure of which to hold would not have a Metamor Material Adverse Effect.
The Metamor Permits are valid and in full force and effect except as would not
have a Metamor Material Adverse Effect. Except as set forth in the SEC Reports
filed prior to the date hereof, the businesses of each of Metamor and its
Subsidiaries have not been, and are not being, conducted in violation of any
Metamor Permit or any Law, arbitration award, agency requirement, license or
permit of any Governmental Entity (a "GOVERNMENTAL REGULATION"), except for
violations or
<PAGE>
-16-
possible violations that, individually or in the aggregate, are not reasonably
likely to have a Metamor Material Adverse Effect or prevent or materially burden
or materially impair the ability of Metamor to consummate the Transactions.
Except as set forth in the SEC Reports filed prior to the date hereof, no
material investigation or review by any Governmental Entity with respect to
Metamor or any of its Subsidiaries is pending or, to Metamor's knowledge,
threatened, nor has any Governmental Entity indicated an intention to conduct
any such investigation or review. No material change is required in Metamor's or
any of its Subsidiaries' operations, properties or procedures to comply with any
Metamor Permit or Governmental Regulation, and Metamor has not received any
notice or communication of any material noncompliance with any Metamor Permit or
Governmental Regulation that has not been cured as of the date hereof, except as
would not have a Metamor Material Adverse Effect.
Section 4.13 Voting Requirements. The affirmative vote of the holders
-------------------
of a majority of the Metamor Common Stock outstanding as of the record date for
the Metamor Special Meeting is the only vote of the holders of any class or
series of Metamor's capital stock or other securities necessary to adopt this
Agreement and the Transactions on behalf of Metamor.
Section 4.14 Assets of Metamor and Its Subsidiaries. Metamor and each
--------------------------------------
of its Subsidiaries has good and defensible title to all of its material
properties and assets, free and clear of all liens, charges and encumbrances,
except liens for Taxes not yet due and payable and such liens or other
imperfections of title that do not individually or in the aggregate constitute a
Metamor Material Adverse Effect. All leases, easements, licenses, rights of way,
and other rights pursuant to which Metamor or any of its Subsidiaries lease from
others or otherwise have the right to use material real or personal property,
individually or in the aggregate material to the business of Metamor (the
"METAMOR PROPERTY RIGHTS"), are valid and binding and are in full force and
effect and enforceable against Metamor or its Subsidiaries and the other parties
thereto, as applicable, in accordance with their respective terms and there is
not, under any such Metamor Property Right, any existing default or event of
default (or event which with notice or lapse of time, or both, would constitute
a default or event of default), except where the lack of such validity and
effectiveness or the existence of such default or event of default does not and
will not constitute a Metamor Material Adverse Effect. Metamor has made
available to PSINet true and accurate copies of the documents creating or
reflecting the Metamor Property Rights. No consent of any Person is needed in
order for each Metamor Property Right to continue in full force and effect in
accordance with its terms without penalty, acceleration or rights of early
termination by reason of the consummation of the Transactions, except for
consents the absence of which would not have a Metamor Material Adverse Effect.
The tangible and intangible assets owned or leased by Metamor and its
Subsidiaries are all of the assets used in their respective businesses or
necessary for them to conduct their respective businesses as presently conducted
or presently intended to be conducted. All material items of tangible property
used by Metamor or its Subsidiaries in their businesses are in operable
condition and adequate for the purposes used (normal wear and tear excepted).
Section 4.15 Material Contracts. Neither Metamor nor any of its
------------------
Subsidiaries is a party or is subject to any contract, note, bond, mortgage,
indenture, credit agreement, lease, license, agreement, understanding,
instrument, bid or proposal (excluding any contract or arrangement that is or is
associated with a Benefit Plan), and any amendment or modification thereto
(collectively, "CONTRACTS"), that is required to be described in or filed as an
exhibit to any
<PAGE>
-17-
Metamor SEC Report that is not so described in or filed as required by the
Securities Act or the Exchange Act, as the case may be. All Contracts to which
Metamor or any of its Subsidiaries is a party, or by which any of them is bound,
are valid and binding and are in full force and effect and enforceable against
Metamor, its Subsidiaries and, to the knowledge of Metamor, the other party or
parties thereto in accordance with their respective terms, and no consent of any
Person is needed in order for each such contract to continue in full force and
effect in accordance with its terms without penalty, acceleration or rights of
early termination by reason of the consummation of the Transactions, except for
any failure to be in full force and effect or failure to obtain a consent that
would not, in the aggregate with all other such failures, have a Metamor
Material Adverse Effect. Neither Metamor nor any of its Subsidiaries is in
violation or breach of or default in any material respect under any Contract to
which it is a party or by which it is bound, nor, to Metamor's knowledge, is any
other party to any such Contract in violation or breach of or default in any
material respect under any such Contract.
Section 4.16 Intellectual Property.
---------------------
(a) Metamor and its Subsidiaries, directly or indirectly, own,
license or otherwise have legally enforceable rights to use, or can acquire on
reasonable terms and without material expense, all patents, trademarks, trade
names, service marks, copyrights and any applications therefor, technology,
know-how, computer software and applications and tangible or intangible
proprietary information or materials, that are material to and used in the
business of Metamor and its Subsidiaries as presently conducted (the
"INTELLECTUAL PROPERTY RIGHTS").
(b) In the case of Intellectual Property Rights owned by Metamor
or one of its Subsidiaries, either Metamor or one of its Subsidiaries owns such
Intellectual Property Rights free and clear of any material liens, charges or
encumbrances. Metamor or one of its Subsidiaries has an adequate right to the
use of the Intellectual Property Rights or the material covered thereby in
connection with the services or products in respect of which such Intellectual
Property Rights are being used. The manufacture, sale, licensing, or use of any
of the services or products of Metamor or any of its Subsidiaries as now
manufactured, sold, licensed or used or proposed for manufacture, sale,
licensing or use by Metamor or any of its Subsidiaries in the ordinary course of
Metamor's business as presently conducted does not infringe on any copyright,
patent, trade mark, service mark or trade secret of a third party where such
infringement would have a Metamor Material Adverse Effect. The use by Metamor or
any of its Subsidiaries of any trademarks, service marks, trade names, trade
secrets, copyrights, patents, technology or know-how and applications used in
the business of Metamor and any of its Subsidiaries as presently conducted does
not infringe on any other Person's trademarks, service marks, trade names, trade
secrets, copyrights, patents, technology or know-how and applications where such
infringement would have a Metamor Material Adverse Effect. Except as set forth
in the Metamor Disclosure Schedule, Metamor has not received any information
challenging the ownership by Metamor or any of its Subsidiaries or the validity
of any of the Intellectual Property Rights. All registered patents, trademarks,
service marks and copyrights held by Metamor and its Subsidiaries are valid and
subsisting, except to the extent any failure to be valid and subsisting does not
constitute a Metamor Material Adverse Effect. To the knowledge of Metamor, there
is no material unauthorized use, infringement or misappropriation of any of the
Intellectual Property Rights by any third party, including any employee or
former employee of Metamor or any of its Subsidiaries. Metamor or one of its
Subsidiaries has valid, binding and
<PAGE>
-18-
enforceable agreements with each employee, former employee and contractor who
has or has had access to confidential or proprietary intellectual property of
Metamor or any of its Subsidiaries pursuant to which such Person is required to
maintain the confidentiality of such information for a reasonable period of time
or such agreements are not necessary to adequately protect the interests of
Metamor or such Subsidiary. No Metamor Intellectual Property Right is subject to
any known outstanding decree, order, judgment, or stipulation restricting in any
manner the licensing thereof by Metamor or any of its Subsidiaries, except to
the extent any such restriction does not constitute a Metamor Material Adverse
Effect.
(c) The computer systems, software, hardware, firmware,
middleware and other information technology (collectively, "INFORMATION
TECHNOLOGY") of Metamor and its Subsidiaries are Year 2000 Ready except as would
not have a Metamor Material Adverse Effect, and none of Metamor nor any of its
Subsidiaries has experienced any material disruption in their Information
Technology or in the services and products provided to them by their vendors and
suppliers as a result of the occurrence of the year 2000. "YEAR 2000 READY"
means that Information Technology is designed to be used prior to, during and
after the calendar year 2000 A.D. and such Information Technology will
accurately receive, provide and process date/time data (including calculating,
comparing, sequencing and making leap year calculations) from, into and between
the twentieth and twenty-first centuries A.D., and will not malfunction, cease
to function or provide invalid or incorrect results as a result of date/time
data (including to the extent that other Information Technology used in
combination with such Information Technology properly exchanges date/time data
with it).
Section 4.17 Interested Party Transactions. Since December 31, 1998, or
-----------------------------
as described in the SEC Reports, no event has occurred that would be required to
be reported by Metamor or Xpedior pursuant to Item 404 of Regulation S-K
promulgated by the SEC. Except as expressly set forth in the SEC Reports or the
Metamor Disclosure Schedule, there are no material agreements, arrangements,
understandings or commitments (including Debt, guarantees, financial support or
keep whole arrangements) between or involving Metamor or any one or more of its
Subsidiaries (other than Xpedior and its Subsidiaries) on the one hand, and
Xpedior or any one or more of its Subsidiaries, on the other hand.
Section 4.18 Environmental Matters. Except as disclosed on the Metamor
---------------------
Disclosure Schedule or in the SEC Reports and excluding matters that would not
have a Metamor Material Adverse Effect:
(a) Metamor and its Subsidiaries (i) are in compliance with all
Environmental Laws, and are not subject to any asserted liability or, to
Metamor's knowledge, any unasserted liability (including liability with respect
to current or former Subsidiaries or operations), under any Environmental Laws,
(ii) hold or have applied for all Environmental Permits required for their
properties or operations, and (iii) are in compliance with their respective
Environmental Permits;
(b) none of Metamor nor any of its Subsidiaries has received any
written notice, demand, letter, claim or request for information alleging that
Metamor or any of its Subsidiaries is or may be in violation of, or liable
under, any Environmental Law;
<PAGE>
-19-
(c) none of Metamor nor any of its Subsidiaries (i) has entered
into or agreed to any consent decree or order or is subject to any judgment,
decree or judicial order relating to compliance with Environmental Laws,
Environmental Permits or the investigation, sampling, monitoring, treatment,
remediation, removal or cleanup of Hazardous Materials and, to the knowledge of
Metamor and the Subsidiaries, no investigation, litigation or other proceeding
is pending or threatened in writing with respect thereto, or (ii) has received
written notice asserting that it is an indemnitor in connection with any
threatened or asserted claim by any third-party indemnitee for any liability
under any Environmental Law or relating to any Hazardous Materials; and
(d) none of the real property owned or leased by Metamor or any
of its Subsidiaries is listed on or, to the knowledge of Metamor, proposed for
listing on the "National Priorities List" under CERCLA, as updated through the
date hereof, or any similar state or foreign list of sites requiring
investigation or cleanup.
For purposes of this Agreement:
"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended as of the date hereof.
"ENVIRONMENTAL LAWS" means any applicable federal, state, local,
foreign or supranational statute, Law, ordinance, regulation, rule, code,
treaty, writ or order and any enforceable judicial or administrative
interpretation thereof, including any judicial or administrative order, consent
decree, judgment, stipulation, injunction, permit, authorization, policy,
opinion, or agency requirement, in each case having the force and effect of Law,
relating to the pollution, protection, investigation or restoration of the
environment, health and safety or natural resources, including those relating to
the use, handling, presence, transportation, treatment, storage, disposal,
release, threatened release or discharge of Hazardous Materials or noise, odor,
wetlands, pollution, contamination or any injury or threat of injury to Persons
or property or to the siting, construction, operation, closure and post-closure
care of waste disposal, handling and transfer facilities.
"ENVIRONMENTAL PERMITS" means any permit, approval, identification
number, license or other authorization required under any Environmental Law.
"HAZARDOUS MATERIALS" means (i) any petroleum, petroleum products,
by-products or breakdown products, radioactive materials, asbestos-containing
materials or polychlorinated biphenyls, or (ii) any chemical, material or other
substance defined or regulated as toxic or hazardous or as a pollutant or
contaminant or waste under any Environmental Law.
Section 4.19 Restrictions on Business Activities. Except as set forth
-----------------------------------
on the Metamor Disclosure Schedule, there is no Contract, judgment, injunction,
order or decree binding upon Metamor or any of its Subsidiaries or any of their
properties which has had or could reasonably be expected to have the effect of
prohibiting or materially impairing (i) any material business practices of
Metamor, any of its Subsidiaries or, to the knowledge of Metamor or its
Subsidiaries, PSINet or its Affiliates, or (ii) the conduct of any material
business by Metamor, any of its Subsidiaries or, to the knowledge of Metamor or
its Subsidiaries, PSINet or its
<PAGE>
-20-
Affiliates, as currently conducted or as proposed to be conducted by Metamor and
its Subsidiaries.
Section 4.20 Certain Business Practices. Neither Metamor nor any of its
--------------------------
Subsidiaries nor any director, officer, employee or agent of Metamor or any of
its Subsidiaries has in any material respect (i) used any funds for unlawful
contributions, gifts, entertainment or other unlawful payments relating to
political activity, (ii) made any unlawful payment to any foreign or domestic
government official or employee or to any foreign or domestic political party or
campaign or violated any provision of the Foreign Corrupt Practices Act of 1977,
as amended, (iii) consummated any transaction, made any payment, entered into
any agreement or arrangement or taken any other action in violation of Section
1128B(b) of the Social Security Act, as amended, or (iv) made any other unlawful
payment.
Section 4.21 Insurance. Metamor has adequate insurance covering all of
---------
the customarily insurable liabilities, including product liability, director and
officer liability, and general and casualty liabilities, with financially secure
insurers.
Section 4.22 Brokers; Expenses. Except for Lazard Freres & Co. LLC
-----------------
("METAMOR'S FAIRNESS OPINION ADVISOR") and Donaldson, Lufkin & Jenrette
Securities Corporation whose fees shall be paid by Metamor, no agent, broker,
finder, investment banker or other firm or Person is or will be entitled to any
broker's or finder's fee or other similar commission or fee in connection with
the Transactions based upon arrangements made by or on behalf of Metamor.
Metamor has provided to PSINet a good faith estimate and description of the
expenses of Metamor and its Subsidiaries that Metamor expects to incur or has
incurred in connection with the Transactions.
Section 4.23 Board Approval. The Board of Directors of Metamor by
--------------
resolutions duly adopted by unanimous vote of those voting at a meeting duly
called and held and not subsequently rescinded or modified in any way (the
"METAMOR BOARD APPROVAL"), has duly (i) determined that this Agreement and the
Merger are advisable, fair to and in the best interests of Metamor and its
stockholders, (ii) approved this Agreement and the Metamor Related Agreement and
the Merger, (iii) recommended that the stockholders of Metamor adopt this
Agreement and approve the Merger, and (iv) directed that this Agreement and the
Transactions be submitted for consideration by Metamor's stockholders at the
Metamor Special Meeting. The Metamor Board Approval constitutes approval of this
Agreement and the Merger for purposes of Section 203 of the Delaware Law so that
consummation of the Merger does not cause PSINet to become an interested
stockholder of Metamor for purposes of Section 203 of the Delaware Law. To the
knowledge of Metamor, except for Section 203 of the Delaware Law (the
restriction on business combinations of which has been rendered inapplicable),
no state takeover statute is applicable to the Merger or the other Transactions.
Xpedior has taken action to cause Section 203 of the Delaware Law to be
inapplicable to Xpedior. The consummation of the Merger will not cause PSINet to
become an interested stockholder of Xpedior for purposes of Section 203 of the
Delaware Law.
Section 4.24 Opinion of Metamor's Fairness Opinion Advisor. Metamor has
---------------------------------------------
received the opinion of Metamor's Fairness Opinion Advisor, dated the date of
this Agreement, to the
<PAGE>
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effect that, as of such date, the Exchange Ratio is fair to the holders of
Metamor Common Stock from a financial point of view, a copy of which opinion
will be provided to PSINet.
ARTICLE V
Representations and Warranties of PsINet
PSINet represents and warrants to Metamor that, except as disclosed in
the PSINet Disclosure Schedule which has been delivered to Metamor prior to the
execution of this Agreement (the "PSINET DISCLOSURE SCHEDULE"):
Section 5.1 Organization and Qualification. PSINet is a corporation
------------------------------
duly organized, validly existing and in good standing under the laws of the
State of New York, and Merger Subsidiary is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
Each of PSINet's Subsidiaries is duly organized, validly existing and in good
standing (to the extent such concept is applicable) in the jurisdiction of its
formation or organization. Each of PSINet and its Subsidiaries has the requisite
corporate power and authority to carry on its business as it is now being
conducted and is duly qualified or licensed to do business, and is in good
standing, in each jurisdiction where the character of its properties owned or
held under lease or the nature of its activities makes such qualification
necessary, except where the failure to be so qualified will not have a PSINet
Material Adverse Effect. PSINet has heretofore made available to Metamor a
complete and correct copy of the organizational documents, each as amended to
the date hereof, of PSINet and Merger Subsidiary.
Section 5.2 Capitalization. As of the date of this Agreement, the
--------------
authorized capital stock of PSINet consists of 500,000,000 shares of PSINet
Common Stock and 30,000,000 shares of preferred stock, par value $.01 per share,
of which 1,000,000 shares have been designated as Series A Junior Participating
Preferred Stock, 4,570,665 shares have been designated as 6 3/4% Series C
Cumulative Convertible Preferred Stock (the "PSINET SERIES C PREFERRED STOCK")
and 16,500,000 shares have been designated as 7% Series D Cumulative Convertible
Preferred Stock (the "PSINET SERIES D PREFERRED STOCK"). As of March 20, 2000:
(a) 164,341,575 shares of PSINet Common Stock were issued and outstanding, all
of which were validly issued, fully paid and non-assessable subject to Section
630 of the New York Business Corporation Law, (b) 7,422,676 shares of PSINet
Common Stock were held in the treasury of PSINet, (c) an aggregate of 41,916,110
shares of PSINet Common Stock were reserved for issuance under stock options
issued pursuant to PSINet's employee and director stock option plans (the
"PSINET STOCK OPTIONS"), (d) an aggregate of 100,000 shares of PSINet Common
Stock were reserved for issuance pursuant to outstanding warrants, and (e)
4,570,665 shares of PSINet Series C Preferred Stock and 16,500,000 shares of
PSINet Series D Preferred Stock were outstanding, all of which were validly
issued, fully paid and non-assessable subject to Section 630 of the New York
Business Corporation Law. Except as set forth in this Section 5.2 and the PSINet
Disclosure Schedule, there are no options, warrants or other rights, agreements,
arrangements or commitments of any character relating to the issued or unissued
capital stock of PSINet or obligating PSINet to issue or sell any shares of
capital stock of, or other equity interests in, PSINet. All shares of capital
stock of PSINet subject to issuance pursuant to the PSINet Stock Options, upon
issuance on the terms and conditions specified in the instruments pursuant to
<PAGE>
-22-
which they are issuable, will be duly authorized, validly issued, fully paid and
non-assessable subject to Section 630 of the New York Business Corporation Law.
Section 5.3 Authority Relative to this Agreement. Each of PSINet and
------------------------------------
Merger Subsidiary has all necessary power and authority to execute and deliver
this Agreement, to perform its obligations hereunder and to consummate the
Transactions to which each of them is a party. The execution and delivery of
this Agreement by PSINet and Merger Subsidiary and the consummation by PSINet
and Merger Subsidiary of the Transactions have been duly and validly authorized
by all necessary corporate action and no other corporate proceedings on the part
of PSINet or Merger Subsidiary are necessary to authorize the execution and
delivery of this Agreement or to consummate the Transactions other than, with
respect to the Merger, the approval of the issuance of the shares of PSINet
Common Stock as the Merger Consideration by the affirmative vote of the holders
of a majority of the total votes cast by holders of outstanding shares of PSINet
Common Stock entitled to be voted at the PSINet Special Meeting and the filing
and recordation of appropriate merger documents as required by Delaware Law.
This Agreement has been duly and validly executed and delivered by PSINet and
Merger Subsidiary and, assuming the due authorization, execution and delivery
hereof by the other parties hereto, constitutes a legal, valid and binding
obligation of PSINet and Merger Subsidiary, enforceable against PSINet and
Merger Subsidiary in accordance with its terms.
Section 5.4 No Conflicts, Required Filings and Consents.
-------------------------------------------
(a) The execution and delivery of this Agreement by PSINet and
Merger Subsidiary does not, and the performance of this Agreement and
consummation of the Transactions by PSINet and Merger Subsidiary will not: (i)
conflict with or violate the certificate of incorporation or by-laws of PSINet
and Merger Subsidiary, (ii) assuming the consents, approvals, authorizations and
waivers specified in Section 5.4(b) have been received and the waiting periods
referred to therein have expired, and any condition precedent to such consent,
approval, authorization, or waiver has been satisfied, conflict with or violate
any Laws applicable to PSINet or its Subsidiaries or by which any property or
asset of PSINet or any of its Subsidiaries is bound or affected, or (iii) result
in any breach of or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to others any right of
termination, amendment, acceleration, or cancellation of, or result in the
creation of a lien or other encumbrance on any property or asset of PSINet or
any of its Subsidiaries pursuant to, any note, bond, mortgage, indenture or
credit agreement, or, to PSINet's knowledge as of the date of this Agreement,
any other contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which PSINet or any of its Subsidiaries is a party
or by which PSINet or any of its Subsidiaries or any property or asset of PSINet
or any of its Subsidiaries is bound or affected, except in the case of clauses
(ii) or (iii) for any such conflicts, violations, breaches, defaults or other
occurrences of the type referred to above which would not have a PSINet Material
Adverse Effect or would not prevent or materially delay the consummation of the
Merger.
(b) The execution and delivery of this Agreement by PSINet and
Merger Subsidiary does not, and the performance of this Agreement by PSINet and
Merger Subsidiary will not, require any consent, approval, authorization, waiver
or permit of, or filing with or notification to, any Governmental Entity, except
for applicable requirements of the Exchange
<PAGE>
-23-
Act, the Securities Act, Blue Sky Laws, the HSR Act, such filings, filings,
approvals, consents and waivers as may be required under the Merger Control
Laws, filing and recordation of the Certificate of Merger as required by
Delaware Law and applications for listing and other filings required by the
rules of the NASD National Market System and except where failure to obtain such
consents, approvals, authorizations or permits, or to make such filings or
notifications, would not have a PSINet Material Adverse Effect or would not
prevent or materially delay the consummation of the Merger.
Section 5.5 Reports and Financial Statements.
--------------------------------
(a) PSINet has filed with the SEC all forms, reports, schedules,
registration statements and definitive proxy statements (the "PSINET SEC
REPORTS") required to be filed by it with the SEC since January 1, 1998. As of
their respective dates, the PSINet SEC Reports complied as to form in all
material respects with the requirements of the Exchange Act or the Securities
Act, as the case may be, and the rules and regulations of the SEC thereunder
applicable to such PSINet SEC Reports. As of their respective dates and as of
the date any information from such PSINet SEC Reports has been incorporated by
reference, the PSINet SEC Reports did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. PSINet has filed all material contracts
and agreements and other documents or instruments required to be filed as
exhibits to the PSINet SEC Reports.
(b) The consolidated balance sheets of PSINet as of December 31,
1998, 1997 and 1996 and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the three-
year period ended December 31, 1998 (including the related notes and schedules
thereto) contained in PSINet's Form 10-K for the year ended December 31, 1998
(the "PSINET FINANCIAL STATEMENTS") present fairly, in all material respects,
the consolidated financial position and the consolidated results of operations,
retained earnings and cash flows of PSINet and its consolidated Subsidiaries as
of the dates or for the periods presented therein in conformity with GAAP
applied on a consistent basis during the periods involved except as otherwise
noted therein, including in the related notes.
(c) The consolidated balance sheets and the related statements of
operations and cash flows (including, in each case, the related notes thereto)
of PSINet contained in the Form 10-Q for the quarterly period ended September
30, 1999 (the "PSINET QUARTERLY FINANCIAL STATEMENTS") have been prepared in
accordance with the requirements for interim financial statements contained in
Regulation S-X, which do not require all the information and footnotes necessary
for a fair presentation of financial position, results of operations and cash
flows in conformity with GAAP. The PSINet Quarterly Financial Statements reflect
all adjustments necessary to present fairly in accordance with GAAP (except as
indicated), in all material respects, the consolidated financial position,
results of operations and cash flows of PSINet and its consolidated Subsidiaries
for all periods presented therein.
(d) Except for those liabilities that are fully reflected or
reserved against on the PSINet Financial Statements or the PSINet Quarterly
Financial Statements or as disclosed in the PSINet SEC Reports or as set forth
in the PSINet Disclosure Schedule, neither PSINet nor any of
<PAGE>
-24-
its Subsidiaries has outstanding any liability of any nature whatsoever (whether
absolute, accrued, contingent, or otherwise and whether due or to become due)
which would be required to be reflected on a balance sheet or in the notes
thereto prepared in accordance with GAAP, except for (i) liabilities and
obligations which have been incurred since September 30, 1999 in the ordinary
course of business which are not material in nature or amount or (ii)
liabilities and obligations which individually or in the aggregate would not
have a PSINet Material Adverse Effect.
Section 5.6 Information.
-----------
(a) None of the information supplied or to be supplied by PSINet
or Merger Subsidiary for inclusion or incorporation by reference in the Joint
Proxy Statement/Prospectus will, at the time of filing with the SEC, at the time
of the mailing of the Joint Proxy Statement/Prospectus or any amendments or
supplements thereto to Metamor's and PSINet's stockholders or at the time of the
Metamor Special Meeting or the PSINet Special Meeting, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. The portion of the
Joint Proxy Statement/Prospectus based on information supplied by PSINet and
Merger Subsidiary for inclusion or incorporation by reference therein will
comply as to form in all material respects with the applicable provisions of the
Securities Act and the Exchange Act and the rules and regulations thereunder.
(b) As of the date of this Agreement, PSINet does not know of any
reason (i) why it would not be able to deliver to the respective counsel to
PSINet and Metamor, at the date of the legal opinions referred to below,
certificates substantially in compliance with published IRS advance ruling
guidelines, with customary exceptions and modifications thereto, to enable such
firms to deliver the legal opinions contemplated by Sections 8.2(c) and 8.3(c),
or (ii) why counsel to PSINet or Metamor would not be able to deliver the
opinions required by Sections 8.2(c) and 8.3(c).
Section 5.7 Litigation. Except as disclosed in the PSINet SEC Reports,
----------
as of the date hereof, there is no suit, action or proceeding pending or, to the
knowledge of PSINet, threatened against or affecting PSINet or any of its
Subsidiaries that is reasonably expected to have a PSINet Material Adverse
Effect, nor is there any judgment, decree, injunction or order of any
Governmental Entity or arbitrator outstanding against PSINet or its Subsidiaries
having, or which is reasonably expected to have, individually or in the
aggregate, a PSINet Material Adverse Effect.
Section 5.8 Absence of Certain Changes or Events. Except as disclosed
------------------------------------
in the PSINet SEC Reports, in the PSINet Financial Statements or PSINet
Quarterly Financial Statements, or on the PSINet Disclosure Schedule or as
contemplated by this Agreement, since September 30, 1999, PSINet has conducted
its business only in the ordinary course and in a manner consistent with past
practice and, since such date, there has not been any PSINet Material Adverse
Effect.
Section 5.9 Voting Requirements. The affirmative vote of the holders
-------------------
of at least a majority of the total number of votes cast by the holders of the
PSINet Common Stock outstanding as of the record date for the PSINet Special
Meeting is the only vote of the holders
<PAGE>
-25-
of any class or series of PSINet's capital stock or other securities necessary
to approve this Agreement and the Merger.
Section 5.10 Brokers. Except for FleetBoston Robertson Stephens Inc.
-------
and Donaldson, Lufkin & Jenrette Securities Corporation whose fees shall be paid
by PSINet, no agent, broker, finder, investment banker or other firm or Person
is or will be entitled to any broker's or finder's fee or other similar
commission or fee in connection with the Transactions based upon arrangements
made by or on behalf of PSINet.
Section 5.11 Ownership of Metamor Common Stock. PSINet and its
---------------------------------
Subsidiaries do not own and, to PSINet's knowledge, have not owned at any time
during the past five years, any shares of Metamor Common Stock.
Section 5.12 Board Approval. The Board of Directors of PSINet by
--------------
resolutions duly adopted by unanimous vote of those voting at a meeting duly
called and held and not subsequently rescinded or modified in any way (the
"PSINET BOARD APPROVAL"), has duly (i) approved this Agreement and the issuance
of the PSINet Common Stock in the Merger, and (ii) recommended that the
stockholders of PSINet approve the issuance of the PSINet Common Stock in the
Merger.
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
Section 6.1 Conduct of Business by Metamor and its Subsidiaries Pending
-----------------------------------------------------------
the Merger.
- ----------
(a) From and after the date hereof until the Closing Date, except
as contemplated by this Agreement or unless PSINet shall otherwise agree in
writing, Metamor covenants and agrees that it shall, and shall cause its
Subsidiaries to: (i) carry on their respective businesses in the usual, regular
and ordinary course in substantially the same manner as heretofore conducted and
to use reasonable efforts to conduct their businesses in a manner consistent
with the budgets and plans heretofore made available to PSINet, including all
capital expenditure plans, (ii) use all reasonable efforts to preserve intact
their present business organizations, keep available the services of their
employees and consultants and preserve their relationships and goodwill with
customers, suppliers, licensors, licensees, distributors and others having
business dealings with them, and (iii) use commercially reasonable efforts to
protect the Intellectual Property Rights to the end that its and its
Subsidiaries' goodwill and on-going businesses shall not be impaired in any
material respect as of the Closing Date. Without limiting the generality of the
foregoing, except as expressly contemplated by this Agreement or as set forth on
EXHIBIT 6.1 or unless PSINet shall otherwise agree in writing, prior to the
Closing, Metamor shall not and shall not permit its Subsidiaries to:
(i) declare, set aside, or pay any dividends on, or make any
other distributions in respect of, any of its capital stock, other than
dividends and distributions by any direct or indirect Subsidiary of Metamor to
its parent; split, combine or reclassify any of its capital stock or, other than
pursuant to the exercise or conversion of Metamor Options, Xpedior Stock
Options, Metamor Notes or other convertible securities outstanding on the date
of this Agreement, issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock;
purchase, redeem or otherwise acquire, other than pursuant to the exercise or
conversion of Metamor Options, Xpedior Stock Options, Metamor Notes or other
convertible securities outstanding on the date of this
<PAGE>
-26-
Agreement, any shares of capital stock of Metamor or any of its Subsidiaries or
any other equity securities thereof or any rights, warrants, or options to
acquire any such shares or other securities other than purchases, redemptions or
acquisitions of equity securities of wholly-owned Subsidiaries of Metamor or
rights, warrants or options to acquire such securities;
(ii) grant, award or enter into any compensation or change of
control arrangement with any employee of Metamor or any of its Subsidiaries;
(iii) except for issuances of capital stock of a Subsidiary
of Metamor to Metamor or a wholly-owned Subsidiary of Metamor, issue, deliver,
sell, pledge, dispose of or otherwise encumber any shares of Metamor's or any of
its Subsidiaries' capital stock including any Metamor Options, Xpedior Stock
Options, Metamor Notes or other convertible securities, any other voting
securities of Metamor or its Subsidiaries or any securities convertible into, or
any rights, warrants or options to acquire, any such shares or voting securities
(other than the issuance of Metamor Common Stock upon the exercise of Metamor
Options, Metamor Notes or other convertible securities outstanding on the date
of this Agreement or the issuance of Xpedior Common Stock upon the exercise or
conversion of Xpedior Stock Options or other Xpedior convertible securities
outstanding on the date of this Agreement) or amend the terms of any such
securities, rights, warrants or options or take any action to accelerate the
vesting thereof;
(iv) amend the certificate of incorporation or by-laws of
Metamor or any of its Subsidiaries;
(v) acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial portion of the assets of, or by any other
manner, any business or any corporation, partnership, joint venture, association
or other business organization or division thereof, or any assets that are
material, individually or in the aggregate, to Metamor or any of its
Subsidiaries, except, in any such case, in the ordinary course of business, and
except transactions between a wholly-owned Subsidiary of Metamor and Metamor or
another wholly-owned Subsidiary of Metamor;
(vi) subject to a lien, charge or encumbrance or sell, lease,
license or otherwise dispose of any of its material properties or assets or any
Intellectual Property Rights, except in the ordinary course of business
consistent with past practices and except transactions between a wholly-owned
Subsidiary of Metamor and Metamor or another wholly-owned Subsidiary of Metamor,
or adopt a plan of complete or partial liquidation;
(vii) incur or modify any indebtedness for borrowed money or
guarantee any such indebtedness of another Person; issue or sell any debt
securities of Metamor or any of its Subsidiaries; guarantee any debt securities
of another Person (other than indebtedness to, guarantees of, or issuances or
sales to Metamor or a wholly-owned Subsidiary of Metamor); or enter into any
"keep well" or other agreement to maintain any financial condition of another
Person, except, in any such case, for borrowings or other transactions incurred
in the ordinary
<PAGE>
-27-
course of business under existing credit facilities including the repayment of
existing indebtedness pursuant to the terms thereof;
(viii) except in the ordinary course of business, make any
loans, advances or capital contributions to, or investments in, any other
Person, other than to Metamor or any direct or indirect Subsidiary of Metamor or
settle or compromise any material claims or litigation;
(ix) alter, amend or delay in any material respect the
implementation of its plans for capital expenditures;
(x) take any action or omit to take any action that would
result in Metamor owning less than eighty percent (80%) of the outstanding
Xpedior Common Stock; or
(xi) take any action or omit to take any action that would
cause any of its representations and warranties herein to become untrue in any
material respect; or
(xii) authorize any of, or commit or agree to take any of, the
foregoing actions.
(b) Metamor shall promptly provide PSINet with copies of all filings
made by it or its Subsidiaries with any Governmental Entity in connection with
this Agreement and the Transactions contemplated hereby.
(c) Metamor shall, before filing a material amended Tax return,
changing any material method of Tax accounting, or settling or compromising any
material litigation, claim, income Tax or other liability of Metamor or any of
its Subsidiaries, consult with PSINet and its advisors as to the positions and
elections that will be taken or made with respect to such matter and shall not
enter into any such settlement or compromise without the consent of PSINet.
Section 6.2 Covenant of Buyer. From and after the date hereof until the
-----------------
Closing Date, except as contemplated by this Agreement or unless Metamor shall
otherwise agree in writing, PSINet covenants and agrees that it shall not:
(a) declare, set aside, or pay any dividends on, or make any other
distributions in respect of, any of its PSINet Common Stock, except such
dividends or distributions as would give rise to an adjustment pursuant to
Section 3.1(b);
(b) enter into, or permit any of its Subsidiaries to enter into, any
written Contract (i) pursuant to which PSINet expressly agrees not to consummate
the Merger, (ii) which is otherwise conditioned upon the Merger not occurring,
or (iii) by its express terms would prohibit the Merger; or
(c) take any action or omit to take any action that would cause any
of its representations and warranties herein to become untrue in any material
respect.
Section 6.3 Special Meetings. Metamor and PSINet shall each take all
----------------
actions necessary, in accordance with applicable Law and its respective
certificate of incorporation and
<PAGE>
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by-laws, to convene a special meeting (the "METAMOR SPECIAL MEETING" and "PSINET
SPECIAL MEETING," respectively) as promptly as reasonably practicable after the
date on which the Joint Proxy Statement/Prospectus have been mailed to Metamor's
stockholders for the purpose of considering and taking action upon the Merger
and this Agreement. Metamor and PSINet will hold the Metamor Special Meeting and
PSINet Special Meeting within 45 days after the effective date of the
Registration Statement. Subject to Section 7.8(b), Metamor's board of directors
shall recommend such approval and shall take all lawful action to solicit and
obtain such approval. PSINet's board of directors shall recommend that its
shareholders approve the issuance of the shares of PSINet Common Stock in the
Merger and shall take all lawful action to solicit and obtain such approval.
Section 6.4 Further Action; Consents; Filings.
---------------------------------
(a) Upon the terms and subject to the conditions hereof, each of
the parties hereto shall use its reasonable best efforts to take, or cause to be
taken, all appropriate actions and do, or cause to be done, all things
necessary, proper or advisable under applicable Law or otherwise to consummate
and make effective as promptly as practicable the Transactions and to cooperate
with each other in connection with the foregoing. Without limiting the
generality of the foregoing, each of the parties agrees to take all appropriate
actions to obtain from Governmental Entities any Governmental Authorizations
required to be obtained or made by PSINet, Metamor or any of their Subsidiaries
in connection with the authorization, execution and delivery of this Agreement
and the consummation of the Transactions, and to make all necessary filings, and
thereafter make any other required submissions that are required under (A) the
Exchange Act, the Securities Act or the Blue Sky Laws, (B) the HSR Act and any
other Merger Control Laws, and (C) any other applicable Law. The parties hereto
shall cooperate with each other in connection with the making of all such
filings, including by providing copies of all such documents to the nonfiling
party and its advisors prior to filing and, if requested, by accepting all
reasonable additions, deletions or changes suggested in connection therewith.
(b) Each of PSINet and Metamor shall file, as soon as practicable
after the date of this Agreement but in no event more than ten business days
after the date of this Agreement, notifications under the HSR Act. PSINet and
Metamor shall, and shall cause their Subsidiaries who are required to do so to,
file any other applications or notices required under other Merger Control Laws,
shall respond as promptly as practicable to all inquiries or requests that may
be made pursuant to any Merger Control Laws for additional information or
documentation and shall respond as promptly as practicable to all inquiries and
requests received from any Governmental Entity in connection with antitrust
matters or matters relating to Metamor Permits. Each of PSINet and Metamor, to
the extent applicable, further agrees to file contemporaneously with the filing
of the applications any requests for waivers of applicable Governmental
Authorizations as may be available and to expeditiously prosecute such waiver
requests and diligently submit any additional information or amendments for
which any Governmental Entity may ask with respect to such waiver requests. The
parties shall cooperate with each other in connection with the making of all
such filings or responses, including providing copies of all such documents to
the other parties and its advisors prior to filing or responding.
(c) Prior to the Closing Date, Metamor shall, and shall cause its
Subsidiaries to, use its reasonable best efforts to assist PSINet in its
integration of the acquisition of Metamor,
<PAGE>
-29-
including the prompt and orderly transition of employees, customers and
suppliers of Metamor's and its Subsidiaries businesses and providing assistance
to PSINet in connection with the integration of Metamor's and its Subsidiaries
lines of business and services with those of PSINet.
Section 6.5 Plan of Reorganization.
----------------------
(a) The Merger is intended to constitute a "plan of
reorganization" under the provisions of Sections 368(a)(1)(A) and 368(a)(2)(E)
of the Code. From and after the date of this Agreement and until the Closing,
each party hereto shall use its reasonable best efforts to cause the Merger to
qualify, and will not knowingly take any action, cause any action to be taken,
fail to take any action or cause any action to fail to be taken which action or
failure to act could prevent the Merger from qualifying as a reorganization
under the provisions of Section 368(a) of the Code. Following the Closing,
neither Surviving Corporation, PSINet nor any of their Affiliates shall
knowingly take any action, cause any action to be taken, fail to take any action
or cause any action to fail to be taken, which action or failure to act could
cause the Merger to fail to qualify as a reorganization under Section 368(a) of
the Code.
(b) Metamor and PSINet each hereby agrees to deliver certificates
substantially in compliance with IRS published advance ruling guidelines, with
customary exceptions and modifications thereto, to enable counsel to Metamor and
PSINet to deliver the legal opinions contemplated by Sections 8.2(c) and 8.3(c),
which certificates shall be effective as of the date of such opinions.
Section 6.6 Letters Of Accountants.
----------------------
(a) PSINet shall use its reasonable best efforts to cause to be
delivered to Metamor "comfort" letters of PricewaterhouseCoopers LLP, PSINet's
independent auditors, dated and delivered the date on which the Registration
Statement shall become effective and addressed to Metamor, in form and substance
reasonably satisfactory to Metamor and reasonably customary in scope and
substance for letters delivered by independent public accountants in connection
with transactions such as those contemplated by this Agreement.
(b) Metamor shall use its reasonable best efforts to cause to be
delivered to PSINet "comfort" letters of Ernst & Young LLP, Metamor's
independent accountants, dated and delivered the date on which the Registration
Statement shall become effective and addressed to PSINet, in form and substance
reasonably satisfactory to PSINet and reasonably customary in scope and
substance for letters delivered by independent public accountants in connection
with transactions such as those contemplated by this Agreement.
Section 6.7 Group Debt. PSINet will cooperate with Metamor to provide
----------
funds for the payment of or satisfaction and discharge of all Group Debt at or
prior to Closing other than Metamor Notes that shall have been converted into
Metamor Common Stock in accordance with the terms of the Metamor Notes, and
subject to obtaining necessary funds from PSINet Metamor will cause the payment
of or satisfaction and discharge of all Group Debt effective as of the Effective
Time except to the extent that the failure to do so would not, either by itself
or with the giving of notice, passage of time or both, result in a breach of or
default under any agreement, instrument or indenture relating to Debt of PSINet
or any of its Subsidiaries.
<PAGE>
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ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1 Access to Information.
---------------------
(a) From the date hereof until the Closing or the earlier
termination of this Agreement in accordance with its terms, each of Metamor and
its Subsidiaries shall afford to PSINet and PSINet's accountants, counsel and
other representatives full and reasonable access during normal business hours
(and at such other times as the parties may mutually agree) to its properties,
books, contracts, commitments, records and personnel and, during such period,
shall furnish promptly to PSINet (i) a copy of each report, schedule and other
document filed or received by it pursuant to the requirements of the Exchange
Act and the Securities Act, and (ii) all other information concerning its
business, properties and personnel as PSINet may reasonably request, including
information regarding customers, suppliers and personnel and the opportunity to
meet with such Persons to discuss their business and relations with Metamor or
its Subsidiaries. Metamor and its Subsidiaries will permit PSINet full access to
the Intellectual Property Rights. PSINet shall conduct its review in a manner
reasonably calculated not to disrupt Metamor's or its Subsidiaries' business and
operations. PSINet shall hold, and shall cause its employees, agents and
representatives to hold, in confidence all "Confidential Information" in
accordance with the terms of the Nondisclosure Agreement, dated March 10, 2000
between PSINet and Metamor (the "CONFIDENTIALITY AGREEMENT"), which shall remain
in full force and effect in accordance with the terms thereof, including in the
event of any termination of this Agreement. No investigation pursuant to this
Section 7.1(a) shall limit any representation or warranty of Metamor.
(b) From the date hereof until the Closing or the earlier
termination of this Agreement in accordance with its terms, PSINet shall afford
to Metamor and its accountants, counsel and other representatives full and
reasonable access during normal business hours (and at such other times as the
parties may mutually agree) to its properties, books, contracts, commitments,
records and personnel and, during such period, shall furnish promptly to Metamor
(i) a copy of each report, schedule and other document filed or received by it
pursuant to the requirements of the Exchange Act or the Securities Act, and (ii)
all other information concerning its business, properties and personnel as
Metamor may reasonably request, including information regarding customers,
suppliers and personnel and the opportunity to meet with such Persons to discuss
their business and relations with PSINet and its Subsidiaries. Metamor shall
conduct its review in a manner reasonably calculated not to disrupt PSINet's or
its Subsidiaries' business and operations. Metamor shall hold, and shall cause
its employees, agents and representatives to hold, in confidence all
"Confidential Information" in accordance with the terms of the Confidentiality
Agreement, which shall remain in full force and effect in accordance with the
terms thereof, including in the event of any termination of this Agreement. No
investigation pursuant to this Section 7.1(b) shall limit any representation or
warranty of PSINet.
(c) As soon as practicable after the date hereof, Metamor shall
use its best efforts to cooperate and assist PSINet and PSINet's independent
public accountants in the compilation and preparation of all financial
statements and financial statement schedules of Metamor in accordance with GAAP
and to obtain such reports and consents of Metamor's independent
<PAGE>
-31-
public accountants as may be necessary or deemed advisable by PSINet to comply
with SEC reporting and disclosure requirements. Metamor shall deliver to
PSINet's independent public accountants and/or Metamor's independent public
accountants all engagement letters and management representation letters as may
be reasonably requested by PSINet or such accountants. Metamor shall use its
best efforts to cause its independent public accountants to cooperate with and
assist PSINet and its independent public accountants in the preparation of the
financial statements contemplated by this Section 7.1(c).
Section 7.2 Registration Statement; Joint Proxy Statement/Prospectus.
--------------------------------------------------------
(a) For the purposes of (i) registering the issuance of PSINet
Common Stock to holders of the shares of Metamor Common Stock in connection with
the Merger with the SEC under the Securities Act and complying with applicable
Blue Sky Laws and (ii) holding the Metamor Special Meeting and the PSINet
Special Meeting, PSINet and Metamor will cooperate in the preparation of a
registration statement on Form S-4 relating to the Merger (together with any and
all amendments and supplements to such registration statement, the "REGISTRATION
STATEMENT"). The Registration Statement shall include a joint proxy
statement/prospectus satisfying all requirements of the Securities Act, the
Exchange Act and applicable Blue Sky Laws. Such joint proxy statement/prospectus
in the form mailed by Metamor and PSINet to their respective stockholders,
together with any and all amendments or supplements thereto, are herein referred
to as the "JOINT PROXY STATEMENT/PROSPECTUS."
(b) Metamor will furnish PSINet with such information concerning
it and its Subsidiaries as is necessary in order to cause the Joint Proxy
Statement/Prospectus, insofar as it relates to Metamor and its Subsidiaries, to
comply with applicable Law. Metamor agrees to promptly advise PSINet if, at any
time prior to the Metamor Special Meeting, any information provided by it in the
Joint Proxy Statement/Prospectus is or becomes incorrect or incomplete in any
material respect and to provide PSINet with the information needed to correct
such inaccuracy or omission. Metamor will furnish PSINet with such supplemental
information as may be necessary in order to cause the Joint Proxy
Statement/Prospectus, insofar as it relates to Metamor and its Subsidiaries, to
comply with applicable Law after the mailing thereof to the stockholders of
Metamor and PSINet.
(c) PSINet will include in the Joint Proxy Statement/Prospectus
such information concerning PSINet and its Subsidiaries as is necessary in order
to cause such Joint Proxy Statement/Prospectus, insofar as it relates to PSINet
and its Subsidiaries, to comply with applicable Law. If, at any time prior to
the Metamor Special Meeting, any information included or incorporated by
reference by PSINet in the Joint Proxy Statement/Prospectus is or becomes
incorrect or incomplete in any material respect, PSINet shall correct such
inaccuracy or omission. PSINet will furnish such supplemental information as may
be necessary in order to cause the Joint Proxy Statement/Prospectus, insofar as
it relates to PSINet and its Subsidiaries, to comply with applicable Law after
the mailing thereof to the stockholders of Metamor and PSINet.
(d) Metamor and PSINet agree to cooperate in making any
preliminary filings of the Joint Proxy Statement/Prospectus with the SEC, as
promptly as practicable, pursuant to Rule
<PAGE>
-32-
14a-6 under the Securities Exchange Act, and shall cooperate in responding to
any comments with respect thereto received from the SEC.
(e) PSINet will file the Registration Statement with the SEC and
appropriate materials with applicable state securities agencies as promptly as
practicable and will use all reasonable efforts to cause the Registration
Statement to become effective under the Securities Act and all such state filed
materials to comply with applicable Blue Sky Laws. Metamor authorizes PSINet to
utilize in the Registration Statement and the Joint Proxy Statement/Prospectus
and all such state filed materials, the information concerning Metamor and its
Subsidiaries provided to PSINet in connection with, or contained or incorporated
by reference in, the Joint Proxy Statement/Prospectus. PSINet will promptly
advise Metamor when the Registration Statement has become effective and of any
supplements or amendments thereto, and PSINet will furnish Metamor with copies
of all such documents. Except for the Joint Proxy Statement/Prospectus or the
preliminary joint proxy statement/prospectus, neither PSINet nor Metamor shall
distribute any written material that might constitute a "prospectus" relating to
the Merger within the meaning of the Securities Act or any applicable state
securities Law without the prior written consent of the other.
(f) Each of Metamor and PSINet shall mail the Joint Proxy
Statement/Prospectus to its stockholders as promptly as practicable after the
date the Registration Statement is declared effective under the Securities Act.
Section 7.3 Employee Retention. Metamor and PSINet shall consult with
------------------
each other promptly after the date of this Agreement on the design and
implementation of retention arrangements and non-competition agreements to
retain key employees of Metamor and its Subsidiaries. Each of Metamor and PSINet
will act in good faith to implement the arrangements agreed upon and to
encourage the retention of such key employees, and Metamor hereby waives any
claim that it may have against PSINet, its Affiliates or such employees
resulting from any employment negotiations which they may undertake. PSINet
further agrees to cooperate in good faith to assist Metamor in complying with
its agreements under Section 6.1(a)(ii).
Section 7.4 Public Announcements. On or before the Closing Date,
--------------------
neither PSINet nor Metamor shall (nor shall they permit any of their respective
Affiliates to), without prior consultation with the other parties and such other
parties' review of and consent to any public announcement concerning the
Transactions, issue any press release or make any public announcement with
respect to Transactions during such period, and PSINet and Metamor shall, to the
extent practicable, allow the other parties reasonable time to review and
comment on such release or announcement in advance of its issuance and use
reasonable efforts in good faith to reflect the reasonable and good faith
comments of such other party; provided, however, no party shall be prevented
from making any disclosure required by Law at the time so required because of
any delay on the part of another party. The parties intend that the initial
announcement of the terms of the Transactions shall be made by a joint press
release of PSINet and Metamor.
Section 7.5 Indemnification of Metamor's Directors and Officers and
-------------------------------------------------------
Insurance.
- ---------
(a) To the extent, if any, not provided by an existing right of
indemnification or other agreement or policy, from and after the Effective Time,
PSINet shall, to the extent not
<PAGE>
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permitted by applicable Law, indemnify, defend and hold harmless the present and
former directors, officers and management employees of Metamor and its
Subsidiaries, other than a Person in his or her capacity as a director, officer
or management employee of Xpedior and its Subsidiaries unless such Person is
also a director, officer or management employee of Metamor who so served as a
director, officer or employee of Xpedior at the request of Metamor (each, an
"INDEMNIFIED PARTY" and, collectively, the "INDEMNIFIED PARTIES"), against (i)
all losses, expenses (including reasonable attorneys' fees and expenses),
claims, damages, costs, liabilities, judgments or (subject to the proviso of the
next succeeding sentence) amounts that are paid in settlement of or in
connection with any claim, action, suit, proceeding or investigation based in
whole or in part on or arising in whole or in part out of the fact that such
person is or was a director, officer or management employee of Metamor or
applicable Subsidiaries, whether pertaining to any matter existing or occurring
at or prior to the Effective Time and whether asserted or claimed prior to, at
or after the Effective Time, and (ii) all liabilities based in whole or in part
on, or arising in whole or in part out of, or pertaining to this Agreement or
the Transactions. In the event of any such loss, expense, claim, damage, cost,
liability, judgment or settlement (whether or not incurred before the Effective
Time), (x) the PSINet shall pay the reasonable fees and expenses of counsel
selected by the Indemnified Parties, which counsel shall be reasonably
satisfactory to the PSINet, promptly after statements therefor are received, and
otherwise advance to the Indemnified Parties upon request reimbursement of
documented expenses reasonably incurred, in either case to the extent not
prohibited by applicable Law, (y) PSINet shall cooperate in the defense of any
such matter, and (z) any determination required to be made with respect to
whether an Indemnified Party's conduct complies with the standards under
applicable Law or as set forth in PSINet's certificate of incorporation or
bylaws shall be made by independent counsel mutually acceptable to PSINet and
the Indemnified Party; provided, however, that PSINet shall not be liable for
any settlement effected without its written consent (which consent shall not be
unreasonably withheld or delayed). The Indemnified Parties as a group may retain
only one law firm (other than local counsel) with respect to each related matter
except to the extent there is, in the sole opinion of counsel to an Indemnified
Party, under applicable standards of professional conduct, a conflict on any
significant issue between positions of any two or more Indemnified Parties, in
which case each Indemnified Party with a conflicting position on a significant
issue shall be entitled to separate counsel. In the event any Indemnified Party
is required to bring any action to enforce rights or to collect moneys due under
this Agreement and is successful in such action, PSINet shall reimburse such
Indemnified Party for all of its expenses in bringing and pursuing such action.
Each Indemnified Party shall be entitled to the advancement of expenses to the
full extent contemplated in this Section 7.5(a) in connection with any such
action. The rights of Indemnified Parties to indemnification and advancement and
reimbursement of expenses for matters arising after the Effective Time shall be
governed by the certificate of incorporation and by-laws of the Surviving
Corporation and Metamor's Subsidiaries and any applicable agreements or other
arrangements.
(b) The Surviving Corporation shall cause to be maintained in
effect for a period of three years, the current policies of directors' and
officers' liability insurance and fiduciary liability insurance maintained by
Metamor (provided that the Surviving Corporation may substitute therefor
policies of at least the same coverage and amounts containing terms and
conditions which are, in the aggregate, no less advantageous to the insured)
with respect to claims arising from facts or events that occurred on or before
the Effective Time; provided, however, that in no event shall the Surviving
Corporation be required to expend in any one year
<PAGE>
-34-
an amount in excess of 200% of the annual premiums currently paid by Metamor for
such insurance; and, provided, further, that if the annual premiums of such
insurance coverage exceed such amount, the Surviving Corporation shall be
obligated to obtain a policy with the greatest coverage available for a cost not
exceeding such amount.
(c) In the event the PSINet or any of its successors or assigns
(i) consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger,
or (ii) transfers all or substantially all of its properties and assets to any
person, then and in either such case, proper provision shall be made so that the
successors and assigns of the PSINet shall assume the obligations set forth in
this Section 7.5.
(d) To the extent not prohibited by Law, from and after the
Effective Time, all rights to indemnification now existing in favor of the
employees, agents, directors or officers of Metamor and its Subsidiaries with
respect to their activities as such prior to or at the Effective Time, as
provided in their respective certificates of incorporation or bylaws or
indemnification agreements in effect on the date of such activities or otherwise
in effect on the date hereof, shall survive the Merger and shall continue in
full force and effect for a period of not less than six years from the Effective
Time, provided that, in the event any claim or claims are asserted or made
within such six year period, all such rights to indemnification in respect of
any claim or claims shall continue until final disposition of such claim or
claims and provided further that nothing in this Section 7.5 shall preclude any
amendment or termination of such rights with respect to activities after the
Effective Time.
Section 7.6 Notice of Breaches. Metamor shall give prompt notice to
------------------
PSINet, and PSINet shall give prompt notice to Metamor, of (i) any
representation or warranty made by it contained in this Agreement which has
become untrue or inaccurate in any material respect, or (ii) the failure by it
to comply with or satisfy in any material respect any covenant, condition, or
agreement to be complied with or satisfied by it under this Agreement; provided,
however, that such notification shall not excuse or otherwise affect the
representations, warranties, covenants or agreements of the parties or the
conditions to the obligations of the parties under this Agreement.
Section 7.7 Transfer and Gains Taxes and Certain Other Taxes and
----------------------------------------------------
Expenses. PSINet agrees that the Surviving Corporation will pay all real
- --------
property transfer, gains and other similar taxes and all documentary stamps,
filing fees, recording fees and sales and use taxes, if any, and any penalties
or interest with respect thereto, payable in connection with consummation of the
Merger without any offset, deduction, counterclaim or deferment of the payment
of the Merger Consideration. Metamor shall update its good faith estimate and
description of the expenses of Metamor and its Subsidiaries that they expect to
incur or have incurred in connection with the Transactions not fewer than five
days prior to the Closing Date and at such other times as may be reasonably
requested by PSINet.
Section 7.8 Acquisition Proposals.
---------------------
(a) Metamor agrees that it shall not nor shall any of its
Subsidiaries or any of its or its Subsidiaries' officers, directors, employees,
agents and representatives (including any investment banker, attorney or
accountant retained by it or any of its Subsidiaries), directly or
<PAGE>
-35-
indirectly, initiate, solicit, induce, encourage or knowingly facilitate
(including by way of furnishing information) any inquiries or the making of any
proposal or offer with respect to a merger, reorganization, share exchange,
consolidation, business combination, recapitalization, liquidation, dissolution
or similar transaction involving, or any purchase or sale of all or any
significant portion of the assets of Metamor or more than 10% of the Metamor
Common Stock or the assets or capital stock of any of its Subsidiaries (any such
proposal or offer (other than a proposal or offer made by PSINet or an Affiliate
thereof) being hereinafter referred to as an "ACQUISITION PROPOSAL"). Metamor
further agrees that neither it nor any of its Subsidiaries nor any of its or its
Subsidiaries' officers or directors shall, and that it shall direct and use its
reasonable best efforts to cause its and its Subsidiaries' employees, agents and
representatives (including any investment banker, attorney or accountant
retained by it or any of its Subsidiaries) not to, directly or indirectly, have
any discussion with or provide any confidential information or data to any
Person relating to an Acquisition Proposal, or engage in any negotiations
concerning an Acquisition Proposal, or knowingly facilitate any effort or
attempt to make or implement an Acquisition Proposal or accept an Acquisition
Proposal. Notwithstanding the foregoing, Metamor and its Board of Directors
shall be permitted to comply with Rule 14e-2 promulgated under the Exchange Act
with regard to an Acquisition Proposal or in response to an unsolicited bona
fide written Acquisition Proposal by any Person, to engage in any discussions or
negotiations with, or provide any information to, any Person in response to an
unsolicited bona fide written Acquisition Proposal by any such Person, if and
only to the extent that: (i) the Metamor Special Meeting shall not have
occurred; (ii) the Board of Directors of Metamor, following consultation with
Metamor's financial advisors, concludes in good faith that such Acquisition
Proposal could reasonably be expected to result in a Superior Proposal; (iii)
prior to providing any information or data to any Person in connection with an
Acquisition Proposal by any such Person, the Metamor Board of Directors receives
from such Person an executed confidentiality agreement on terms substantially
similar to those contained in the Confidentiality Agreement (including the
standstill provisions contained therein, unless Metamor shall have amended the
Confidentiality Agreement to modify the standstill provisions therein to be no
more restrictive of PSINet than such Person is restricted pursuant to such
confidentiality agreement); and (iv) at least one day prior to providing any
information or data to any Person or entering into discussions or negotiations
with any Person, the Board of Directors of Metamor notifies PSINet promptly of
such inquiries, proposals or offers received by, any such information requested
from, or any such discussions or negotiations sought to be initiated or
continued with, any of its representatives indicating, in connection with such
notice, the material terms and conditions of any proposals or offers other than
the name of such Person. Metamor agrees that it will keep PSINet informed, on a
current basis, of the status and terms of any Acquisition Proposals and the
status of any such discussions or negotiations. Metamor agrees that it will
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any Persons conducted heretofore with respect
to any Acquisition Proposal and, to the fullest extent permitted by any
confidentiality or non-disclosure agreements with such Persons, use commercially
reasonable efforts to enforce the right to recover or cause to be destroyed all
information regarding Metamor or its Subsidiaries in the possession of such
Persons and their respective Affiliates, representatives and advisors. Metamor
agrees that it will take the necessary steps to promptly inform the individuals
or entities referred to in the first sentence of this Section 7.8(a) of the
obligations undertaken in this Section 7.8(a) and that any breach of the
provisions of this Section 7.8(a) by any officer or director of Metamor or its
Subsidiaries or any investment banker,
<PAGE>
-36-
financial advisor, attorney, accountant or other representative of Metamor or
its Subsidiaries will be deemed a breach by Metamor.
(b) Except as permitted in this Section 7.8(b), neither the
Board of Directors of Metamor nor any committee thereof shall (i) withdraw or
modify, or propose publicly to withdraw or modify, in a manner adverse to
PSINet, or take any action not explicitly permitted by this Agreement that would
be inconsistent with, the approval or recommendation by such Board of Directors
or such committee of the Transactions, (ii) approve or recommend, or propose
publicly to approve or recommend, any Acquisition Proposal, or (iii) cause
Metamor to enter into any letter of intent, agreement in principle, acquisition
agreement or other similar agreement (each, an "ACQUISITION AGREEMENT") related
to any Acquisition Proposal. Notwithstanding the foregoing, in the event that
prior to the vote on the Merger at the Metamor Special Meeting, the Board of
Directors of Metamor determines in good faith, that an Acquisition Proposal
constitutes a Superior Proposal, the Board of Directors of Metamor may (x)
withdraw or modify its approval or recommendation of the Merger in connection
with the Metamor Special Meeting, (y) approve or recommend a Superior Proposal
and (z) if it so chooses, cause Metamor to enter into an Acquisition Agreement
with respect to such Superior Proposal but, in each of the cases, only if: (A)
three (3) days have elapsed following PSINet's receipt of written notice from
Metamor advising PSINet that the Board of Directors of Metamor has received a
Superior Proposal, specifying the material terms and conditions of such Superior
Proposal, identifying the Person making such Superior Proposal, and advising
PSINet that the Board of Directors of Metamor has determined that it will no
longer recommend approval of the Merger; (B) Metamor has paid the Termination
Fee to PSINet; and (C) Metamor has terminated this Agreement in accordance with
its terms. During the three-day period referred to in clause (A) of the
immediately preceding sentence, PSINet shall not enter into an agreement with
the Person making the Superior Proposal concerning an Acquisition Proposal with
regard to Metamor.
Section 7.9 Metamor Related Agreement and PSINet Related Agreement.
------------------------------------------------------
Simultaneously with the execution and delivery of this Agreement and as material
consideration for the execution and delivery of this Agreement by PSINet and
Merger Subsidiary, Peter T. Dameris is entering into the Metamor Related
Agreement pursuant to which he, among other things, agrees to vote the shares of
Metamor Common Stock owned by him in favor of the Merger at the Metamor Special
Meeting. Simultaneously with the execution and delivery of this Agreement and as
material consideration for the execution and delivery of this Agreement by
Metamor, William L. Schrader is entering into the PSINet Related Agreement
pursuant to which he, among other things, agrees to vote the shares of PSINet
Common Stock owned by him in favor of the issuance of the shares of PSINet
Common Stock in the Merger.
Section 7.10 Employee Benefits.
-----------------
(a) As of the Effective Time, PSINet shall cause the employees
of Metamor and its Subsidiaries other than Xpedior and its Subsidiaries
(collectively, the "METAMOR EMPLOYEES") to be covered under the PSINet's
"employee benefit plans" as defined in ERISA ("PSINET BENEFIT PLANS") and for at
least two years after the Effective Time, PSINet shall, or shall cause the
Surviving Corporation to, provide benefits, in the aggregate, that are no less
favorable than the benefits provided, in the aggregate, to the Metamor Employees
under the
<PAGE>
-37-
Benefit Plans of Metamor immediately prior to the Effective Time.
Notwithstanding the foregoing, except as specifically provided in this
Agreement, nothing herein shall require: (i) the continuation of any Benefit
Plan or prevent the amendment or termination thereof (subject to the
maintenance, in the aggregate, of the benefits as provided in the preceding
sentence); or (ii) require PSINet or the Surviving Corporation to continue or
maintain any stock purchase or other equity plan related to the equity of
Metamor or the Surviving Corporation or to change the eligibility requirements
of any stock or other equity plan of PSINet; or (iii) constitute any obligation
on the part of PSINet, the Surviving Corporation or any of their Affiliates to
change the employment status of any of the Metamor Employees to other than "at
will."
(b) With respect to any PSINet Benefit Plans in which the
Metamor Employees participate, PSINet shall, or shall cause the Surviving
Corporation to, to the extent permitted under the PSINet Benefits Plans: (i) not
impose any limitations more onerous than those currently in effect as to pre-
existing conditions, exclusions and waiting periods with respect to
participation and coverage requirements applicable to the Metamor Employees
under which any welfare benefit plan in which such employees may be eligible to
participate after the Effective Time, (ii) provide each Metamor Employee with
credit for any co-payments and deductibles paid prior to the Effective Time in
satisfying any applicable deductible or out-of-pocket requirements under any
welfare benefit plan in which such employees may be eligible to participate
after the Effective Time, and (iii) recognize all service of each Metamor
Employee with Metamor for all purposes (including purposes of eligibility to
participate, vesting credit, entitlement for benefits and benefit accrual) in
any benefit plan in which such employees may be eligible to participate after
the Effective Time, to the same extent taken into account under a comparable
Benefit Plan immediately prior to the Closing Date.
Section 7.11 Nasdaq Listing and Delisting. PSINet shall promptly
----------------------------
prepare and submit to the Nasdaq National Market System a listing application
covering the PSINet Common Stock to be issued in the Merger and upon exercise of
the Assumed Metamor Options, and shall use its reasonable efforts to obtain,
prior to the Closing Date, approval for the listing of such PSINet Common
Shares, subject to official notice of issuance, and Metamor shall cooperate with
PSINet with respect to such listing, which cooperation shall include, but not be
limited to, taking all necessary actions to delist the Metamor Common Stock from
the Nasdaq National Market System effective after the Effective Time.
ARTICLE VIII
CONDITIONS PRECEDENT
Section 8.1 Conditions to Each Party's Obligation to Effect the
---------------------------------------------------
Merger. The respective obligations of each party to effect the Merger shall be
- ------
subject to the fulfillment at or prior to the Effective Time of the following
conditions:
(a) This Agreement and the Merger shall have been approved and
adopted by the requisite vote of the holders of Metamor Common Stock at the
Metamor Special Meeting in the manner required by Law and the issuance of the
shares of PSINet Common Stock in the Merger shall have been approved and adopted
by the requisite vote of the holders of PSINet Common
<PAGE>
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Stock at the PSINet Special Meeting in accordance with applicable Law and the
Rules of the Nasdaq National Market System.
(b) The waiting period applicable to the consummation of the
Merger under the HSR Act and other applicable Merger Control Laws shall have
expired or been terminated and any material consents from third parties listed
on EXHIBIT 8.1(B) hereto which are required to be received prior to the Closing
Date with respect to the Transactions shall have been received.
(c) The shares of PSINet Common Stock to be issued in the Merger
and upon exercise of the Metamor Assumed Options and such other shares to be
reserved for issuance in connection with the Merger shall have been approved for
listing on the Nasdaq National Market System upon official notice of issuance.
(d) The Registration Statement shall have been declared
effective by the SEC under the Securities Act, no stop order suspending the
effectiveness of the Registration Statement shall have been issued by the SEC,
and no proceedings for that purpose shall have been initiated or threatened by
the SEC.
(e) The consummation of the Merger shall not be restrained,
enjoined or prohibited by any order, judgment, decree, injunction or ruling of a
court of competent jurisdiction.
Section 8.2 Conditions to Obligation of Metamor to Effect the Merger.
--------------------------------------------------------
The obligation of Metamor to effect the Merger shall be subject to the
fulfillment at or before the Effective Time of the following additional
conditions, unless waived by Metamor:
(a) The representations and warranties of PSINet contained in
this Agreement shall be true and correct in all respects on the date hereof and
as of the Closing Date as if made on the Closing Date; provided, however, (i)
this condition shall be deemed to be satisfied if (A) all inaccuracies in the
representations and warranties of PSINet (other than those set forth in Sections
5.1 through 5.3), without taking into account any qualifications as to
materiality or PSINet Material Adverse Effect, in the aggregate, do not
constitute a PSINet Material Adverse Effect, and (B) the representations and
warranties set forth in Sections 5.1 through 5.3 are true and correct in all
material respects; and (ii) that such representations and warranties which are
made as of a specific date need only be true as of such date. Metamor shall have
received a certificate of an authorized officer of PSINet, on behalf of PSINet,
to such effect.
(b) PSINet and Merger Subsidiary shall have performed or
complied in all material respects with all agreements and covenants required to
be performed by each of them under this Agreement on or before the Closing Date,
and Metamor shall have received a certificate of an authorized officer of PSINet
and Merger Subsidiary, on behalf of PSINet and Merger Subsidiary, to such
effect.
(c) Metamor shall have received from Vinson & Elkins, LLP,
counsel to Metamor, at or prior to the date of mailing of the Joint Proxy
Statement/Prospectus and on the Closing Date, a written opinion dated as of such
date, based on appropriate representations, including representations of PSINet
and Metamor, that the Merger qualifies as a reorganization within the meaning of
Section 368(a) of the Code; provided, however, in the event that counsel
<PAGE>
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to Metamor is unwilling to render such opinion this condition shall be satisfied
if counsel to PSINet renders such an opinion that is reasonably satisfactory to
Metamor.
Section 8.3 Conditions to Obligations of PSINet and Merger Subsidiary
---------------------------------------------------------
to Effect the Merger. The obligations of PSINet and Merger Subsidiary to effect
- --------------------
the Merger shall be subject to the fulfillment at or before the Effective Time
of the following additional conditions, unless waived by PSINet:
(a) The representations and warranties of Metamor contained in
this Agreement shall be true and correct in all respects on the date hereof and
as of the Closing Date as if made on the Closing Date; provided, however, (i)
this condition shall be deemed to be satisfied if (A) all inaccuracies in the
representations and warranties of Metamor (other than those set forth in
Sections 4.1 through 4.3), without taking into account any qualifications as to
materiality or Metamor Material Adverse Effect, in the aggregate, do not
constitute a Metamor Material Adverse Effect, and (B) the representations and
warranties set forth in Sections 4.1 through 4.3 are true and correct in all
material respects; and (ii) that such representations and warranties which are
made as of a specific date need only be true as of such date. PSINet shall have
received a certificate of an authorized officer of Metamor, on behalf of
Metamor, to such effect.
(b) Metamor shall have performed or complied in all material
respects with all agreements and covenants required to be performed by it under
this Agreement on or before the Closing Date and PSINet shall have received a
certificate of an authorized officer of Metamor, on behalf of Metamor, to such
effect.
(c) PSINet shall have received from Nixon Peabody LLP, counsel
to PSINet, on the Closing Date, a written opinion dated as of such date, based
on appropriate representations, including representations of PSINet and Metamor,
that the Merger qualifies as a reorganization within the meaning of Section
368(a) of the Code; provided, however, in the event that counsel to PSINet is
unwilling to render such opinion this condition shall be satisfied if counsel to
Metamor renders such an opinion that is reasonably satisfactory to PSINet.
(d) Provided that PSINet shall have made funds available
therefor, the Group Debt shall have been paid or satisfied and discharged except
to the extent that the failure to do so would not, either by itself or with the
giving of notice, passage of time or both, result in a breach of or default
under any agreement, instrument or indenture relating to Debt of PSINet or any
of its Subsidiaries.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
Section 9.1 Termination. This Agreement may be terminated at any time
-----------
prior to the Effective Time, whether before or after approval by the
stockholders of Metamor:
(a) by mutual written consent of PSINet and Metamor;
<PAGE>
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(b) by Metamor, upon a material breach of this Agreement on the
part of PSINet or Merger Subsidiary which has not been cured and which would
cause the condition set forth in Section 8.2 to be incapable of being satisfied
by October 31, 2000;
(c) by PSINet, upon a material breach of this Agreement on the
part of Metamor which has not been cured and which would cause the conditions
set forth in Section 8.3 to be incapable of being satisfied by October 31, 2000;
(d) by PSINet or Metamor if any court of competent jurisdiction
shall have issued, enacted, entered, promulgated or enforced any order,
judgment, decree, injunction or ruling which, after reasonable efforts on the
part of PSINet and Metamor to resist, resolve or lift, permanently restrains,
enjoins or otherwise prohibits the Merger and such order, judgment, decree,
injunction or ruling shall have become final and nonappealable;
(e) by PSINet or Metamor if the Merger shall not have been
consummated on or before October 31, 2000 provided that the right to terminate
this Agreement under this Section 9.1(e) shall not be available to any party
whose failure to perform any material covenant or obligation under this
Agreement has been the cause of or resulted in the failure of the Merger to
occur on or before such date;
(f) by PSINet or Metamor if the Metamor Special Meeting or the
PSINet Special Meeting (as any of them may be adjourned from time to time) shall
have concluded without Metamor or PSINet, as the case may be, having obtained
the required stockholder approval;
(g) by PSINet if the Board of Directors of Metamor, prior to the
Metamor Special Meeting (i) shall withdraw or modify in any adverse manner the
Metamor Board Approval, or (ii) shall approve or recommend a Superior Proposal
pursuant to Section 7.8(b), or (iii) shall resolve to take any of the actions
specified in clauses (i) or (ii) above; or
(h) by Metamor at any time prior to the Metamor Special Meeting,
upon three days' prior notice to PSINet, if the Board of Directors of Metamor
shall approve a Superior Proposal; provided, however, that (i) Metamor shall
have complied with Section 7.8, (ii) the Board of Directors of Metamor shall
have concluded in good faith, after giving effect to all concessions which may
be offered by PSINet pursuant to clause (iii) below, after consultation with its
financial advisors and outside counsel, that such proposal is a Superior
Proposal, and (iii) prior to any such termination, Metamor shall, and shall
cause its financial and legal advisors to, negotiate with PSINet to make such
adjustments in the terms and conditions of this Agreement as would enable PSINet
to proceed with the Transactions; provided, however, that it shall be a
condition to termination by Metamor pursuant to this Section 9.l(h) that Metamor
shall have made the payment of the Termination Fee to PSINet required by Section
9.3(b).
Section 9.2 Effect of Termination. In the event of termination of this
---------------------
Agreement as provided in Section 9.1, this Agreement shall forthwith terminate
and there shall be no liability hereunder on the part of any of Metamor, PSINet
or Merger Subsidiary or their respective officers or directors; provided that
Sections 4.22 and 5.9 (Brokers); the second sentence of Sections 7.1(a) and (b)
(Confidentiality), Section 7.8 to the extent that the Termination Fee is
required to be paid, until such Termination Fee is paid; this Section 9.2,
Section 9.3 (Fees and
<PAGE>
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Expenses); and Section 10.6 (Governing Law) shall survive the termination and
remain in full force and effect and; provided, further, that (i) each party
shall remain liable for any breaches prior to the termination of this Agreement
with respect to such party's covenants hereunder and representations and
warranties hereunder which were known by such party to be untrue when made, and
(ii) PSINet and Metamor shall each pay one-half of the fees and expenses
incurred in connection with the filing and printing of the Registration
Statement and Joint Proxy Statement/Prospectus (including any preliminary joint
proxy statement/prospectus) and the filing fees under the Merger Control Laws.
Section 9.3 Fees and Expenses.
-----------------
(a) Whether or not the Merger is consummated, all costs and
expenses incurred in connection with this Agreement and the Transactions shall
be paid by the party incurring such expenses, except as otherwise provided in
Section 7.7 and Section 9.2.
(b) PSINet and Metamor agree that Metamor shall be obligated to
pay to PSINet the sum of $45,000,000 (the "TERMINATION FEE") solely as follows:
(i) if PSINet shall terminate this Agreement pursuant to Sections 9.1(g)(ii) or
if Metamor shall terminate this Agreement pursuant to Section 9.1(h); (ii) if
(A) Metamor or PSINet shall terminate this Agreement pursuant to Section 9.1(f)
due to the failure of Metamor's stockholders to approve and adopt this
Agreement, (B) at any time after the date of this Agreement and at or before the
time of the event giving rise to such termination an Acquisition Proposal with
respect to Metamor shall be publicly disclosed, and (C) within 12 months of the
termination of this Agreement, Metamor enters into a definitive agreement with
any third party with respect to an Acquisition Proposal or an Acquisition
Proposal is consummated; or (iii) if (A) PSINet shall terminate this Agreement
pursuant to Section 9.1(c), 9.1(e), 9.1(g)(i) or 9.1(g)(iii), (B) at any time
after the date of this Agreement and at or before the time of the event giving
rise to such termination there shall exist an Acquisition Proposal, (C)
following the existence of such Acquisition Proposal and prior to any such
termination, Metamor shall have intentionally breached (and not cured after
notice thereof) any of its material covenants or agreements set forth in this
Agreement in any material respect, and (D) within 12 months of any such
termination of this Agreement, Metamor shall enter into a definitive agreement
with any third party with respect to an Acquisition Proposal or an Acquisition
Proposal is consummated.
(c) The Termination Fee shall be paid prior to, and shall be a
pre-condition to the effectiveness of, any termination of this Agreement by
Metamor pursuant to Section 9.1(h). The Termination Fee shall be paid within two
business days following any termination of this Agreement by PSINet pursuant to
Section 9.1(g)(ii). Any other payment of the Termination Fee shall be made not
later than two business days after the entering into of an Acquisition Agreement
with respect to, or the consummation of, an Acquisition Proposal, as applicable.
All payments under Section 9.3(a) and (b) shall be made by wire transfer of
immediately available funds to an account designated by PSINet.
(d) PSINet and Metamor agree that PSINet shall be obligated to
pay to Metamor the sum of $45,000,000 (the "PSINET TERMINATION FEE") if and only
if (i) in the event that the PSINet Special Meeting (as it may be adjourned from
time to time) shall have concluded without PSINet having obtained the required
stockholder approval, and (ii) either (A) prior to the PSINet
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Special Meeting, the Board of Directors of PSINet shall have approved a bona
fide written proposal or offer or entered into a definitive agreement with
respect to a merger, reorganization, share exchange, consolidation, business
combination, recapitalization, liquidation, dissolution or similar transaction
involving PSINet, as the acquired entity, or with respect to the acquisition of
a majority of the voting power of the shares of PSINet Common Stock then
outstanding or all or substantially all the assets of PSINet for consideration
consisting of cash and/or securities (a "PSINET ACQUISITION PROPOSAL"), or (B) a
PSINet Acquisition Proposal is announced to the public at any time after the
date of this Agreement and prior to the PSINet Special Meeting and, within 12
months following the final adjournment of the PSINet Special Meeting, PSINet
enters into a definitive agreement with any third party with respect to a PSINet
Acquisition Proposal or a PSINet Acquisition Proposal is consummated. The PSINet
Termination Fee shall be payable by PSINet at the time of the Board of Directors
action approving the PSINet Acquisition Proposal in the case of clause (ii)(A)
above and at the time of the entering into of the definitive agreement relating
to, or the consummation of, the PSINet Acquisition Proposal in the case of
clause (ii)(B) above. All payments under this Section 9.3(d) shall be made by
wire transfer of immediately available funds to an account designated by
Metamor.
Section 9.4 Amendment. This Agreement may be amended by the parties
---------
hereto at any time before or after approval hereof by the stockholders of
Metamor and PSINet, but, after such approval, no amendment shall be made which
under applicable Law would require approval of Metamor's or PSINet's
stockholders without the further approval of such stockholders, as the case may
be. This Agreement may not be amended except by an instrument in writing signed
on behalf of each of the parties hereto.
Section 9.5 Waiver. At any time prior to the Closing, the parties
-----
hereto may, to the extent permitted by applicable Law, (i) extend the time for
the performance of any of the obligations or other acts of any other party
hereto, (ii) waive any inaccuracies in the representations and warranties by any
other party contained herein or in any documents delivered by any other party
pursuant hereto and (iii) waive compliance with any of the agreements of any
other party or with any conditions to its own obligations contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
ARTICLE X
GENERAL PROVISIONS
Section 10.1 Non-Survival of Representations, Warranties and
-----------------------------------------------
Agreements. The representations and warranties in this Agreement shall not
- ----------
survive the Merger.
Section 10.2 Notices. All notices or other communications under this
-------
Agreement shall be in writing and shall be given (and shall be deemed to have
been duly given upon receipt) by delivery in person, by telecopy (with
confirmation of receipt), or by registered or certified mail, postage prepaid,
return receipt requested, addressed as follows:
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If to Metamor:
Metamor Worldwide, Inc.
4400 Post Oak Parkway
Suite 1100
Houston, Texas 77027-3413
Attention: Chief Executive Officer
Telecopy No.: (713) 627-1059
With copies to:
Vinson & Elkins L.L.P.
1001 Fannin Street
Houston, Texas 77002
Attention: Jeffery B. Floyd, Esq.
Telecopy: (713) 615-5660
If to PSINet or Merger Subsidiary:
PSINet Inc.
510 Huntmar Park Drive
Herndon, Virginia 22070
Attention: Chairman and Chief Executive Officer
Telecopy: (703) 904-1608
With a copy to:
PSINet Inc.
510 Huntmar Park Drive
Herndon, Virginia 22070
Attention: Kathleen B. Horne, Esq., Senior Vice
President and General Counsel
Telecopy: (703) 397-5394
and to:
Nixon Peabody LLP
437 Madison Avenue
New York, New York 10022
Attention: Richard F. Langan, Jr., Esq.
Telecopy: (212) 940-9940
or to such other address as any party may have furnished to the other parties in
writing in accordance with this Section 10.2.
Section 10.3 Specific Performance. The parties hereto agree that
--------------------
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in
<PAGE>
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accordance with their specific terms or were otherwise breached. Accordingly,
the parties further agree that each party shall be entitled to an injunction or
restraining order to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of the United States
or any state having jurisdiction, this being in addition to any other right or
remedy to which such party may be entitled under this Agreement, at Law or in
equity.
Section 10.4 Entire Agreement. This Agreement (including the documents
----------------
and instruments referred to herein), together with the Confidentiality
Agreement, constitutes the entire agreement and supersedes all other prior
agreements and understandings, both written and oral, among the parties, or any
of them, with respect to the subject matter hereof.
Section 10.5 Assignments; Parties in Interest. Neither this Agreement
--------------------------------
nor any of the rights, interests or obligations hereunder may be assigned by any
of the parties hereto (whether by operation of Law or otherwise) without the
prior written consent of the other parties. Subject to the foregoing, this
Agreement shall be binding upon and inure solely to the benefit of each party
hereto, and nothing in this Agreement, express or implied, is intended to or
shall confer upon any Person not a party hereto any right, benefit or remedy of
any nature whatsoever under or by reason of this Agreement, including to confer
third party beneficiary rights, except for the provisions of Article III and
Section 7.5.
Section 10.6 Governing Law. This Agreement shall be governed in all
-------------
respects by the laws of the State of Delaware (without giving effect to the
provisions thereof relating to conflicts of Law). The exclusive venue for the
adjudication of any dispute or proceeding arising out of this Agreement or the
performance hereof shall be the courts located in Newcastle County, Delaware,
and the parties hereto and their Affiliates each consents to and hereby submits
to the jurisdiction of any court located in Newcastle County Delaware or Federal
courts in Delaware.
Section 10.7 Headings; Disclosure. The descriptive headings herein are
--------------------
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement. Any disclosure by
Metamor or PSINet in any portion of its respective Disclosure Schedule shall be
deemed disclosure in each other portion of such Disclosure Schedule to which
such disclosure reasonably relates on its face.
Section 10.8 Certain Definitions and Rules of Construction.
---------------------------------------------
(a) As used in this Agreement:
"ACQUISITION AGREEMENT" has the meaning set forth in Section 7.8(b).
"ACQUISITION PROPOSAL" has the meaning set forth in Section 7.8(a).
"AFFILIATE" as applied to any Person, shall mean any other Person
directly or indirectly controlling, controlled by, or under common control with,
that Person; for purposes of this definition, "control" (including, with
correlative meanings, the terms "controlling," "controlled by" and "under common
control with"), as applied to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of that Person, whether through the ownership of voting securities, by
contract or otherwise.
<PAGE>
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"AGREEMENT" has the meaning set forth in the preamble to this
Agreement.
"ASSUMED METAMOR OPTIONS" has the meaning set forth in Section 3.1(e).
"BLUE SKY LAWS" has the meaning set forth in Section 4.4(b).
"BENEFIT PLANS" has the meaning set forth in Section 4.9(a).
"CERCLA" has the meaning set forth in Section 4.18.
"CERTIFICATE OF MERGER" has the meaning set forth in Section 1.3.
"CERTIFICATES" has the meaning set forth in Section 3.2.
"CLOSING" has the meaning set forth in Section 1.2.
"CLOSING DATE" has the meaning set forth in Section 1.2.
"CODE" has the meaning set forth in the preamble to this Agreement.
"CONFIDENTIALITY AGREEMENT" has the meaning set forth in Section
7.1(a).
"CONTRACTS" has the meaning set forth in Section 4.15.
"DEBT" means, with respect to any Person, all indebtedness of such
Person for borrowed money or the deferred purchase price of property or services
(excluding trade payables and other accrued current liabilities arising in the
ordinary course of business), obligations of such Person evidenced by bonds,
notes, indentures or similar instruments, obligations of such Person under
interest rate agreements, currency hedging agreements, commodity price
protection agreements or similar hedging instruments, capital lease obligations
of such Person, redeemable capital stock of such Person and any other
obligations of such Person classified as indebtedness under GAAP.
"DELAWARE LAW" has the meaning set forth in Section 1.3.
"EFFECTIVE TIME" has the meaning set forth in Section 1.3.
"ENVIRONMENTAL LAWS" has the meaning set forth in Section 4.18.
"ENVIRONMENTAL PERMITS" has the meaning set forth in Section 4.18.
"ERISA" shall have the meaning set forth in Section 4.9(a).
"ERISA AFFILIATE" has the meaning set forth in Section 4.9(a).
"EXCHANGE ACT" has the meaning set forth in Section 4.4(b).
"EXCHANGE RATIO" has the meaning set forth in Section 3.1(a)(iii).
"FINAL PROSPECTUS" has the meaning set forth in Section 4.5(a).
<PAGE>
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"GAAP" has the meaning set forth in Section 4.5(b).
"GOVERNMENTAL ENTITY" has the meaning set forth in Section 4.4(b).
"GOVERNMENTAL REGULATION" has the meaning set forth in Section 4.12.
"GROUP DEBT" means all Debt of Metamor or any one or more of its
Subsidiaries other than any Xpedior Debt.
"HAZARDOUS MATERIALS" has the meaning set forth in Section 4.18.
"HSR ACT" has the meaning set forth in Section 4.4(b).
"INDEMNIFIED PARTIES" has the meaning set forth in Section 7.5(a).
"INFORMATION TECHNOLOGY" has the meaning set forth in Section 4.16(c).
"INTELLECTUAL PROPERTY RIGHTS" has the meaning set forth in Section
4.16(a).
"IRS" has the meaning set forth in Section 4.6(b).
"JOINT PROXY STATEMENT/PROSPECTUS" has the meaning set forth in Section
7.2(a).
"LAWS" means any domestic (federal, state or local) or foreign law,
rule, regulation, order, judgment or decree.
"MERGER" has the meaning set forth in the preamble to this Agreement.
"MERGER CONSIDERATION" has the meaning set forth in Section
3.1(a)(iii).
"MERGER CONTROL LAWS" means the HSR Act and the Laws of any other
Governmental Entity with respect to competition, mergers or other business
combinations.
"MERGER SUBSIDIARY" has the meaning set forth in the preamble to this
Agreement.
"METAMOR" has the meaning set forth in the preamble to this Agreement.
"METAMOR BOARD APPROVAL" has the meaning set forth in Section 4.23.
"METAMOR COMMON STOCK" has the meaning set forth in Section 3.1(a)(ii).
"METAMOR DISCLOSURE SCHEDULE" has the meaning set forth in Article IV,
Introduction.
"METAMOR EMPLOYEES" has the meaning set forth in Section 7.10(a).
"METAMOR FINANCIAL STATEMENTS" has the meaning set forth in Section
4.5(b).
"METAMOR MATERIAL ADVERSE EFFECT" shall be any circumstance, event or
occurrence or series of circumstances, events or occurrences which individually
or in the aggregate with all
<PAGE>
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other circumstances, events or occurrences would be reasonably likely to have a
material adverse effect on the business, assets, operations, financial
condition, revenues, results of operations or, solely with respect to clause
(iv) of this paragraph, prospects of Metamor and its Subsidiaries taken as a
whole, other than any change, circumstances or effect relating to (i) a change
after the date of this Agreement in Law, rule, or regulation or generally
accepted accounting principles or interpretations thereof that applies to
Metamor or its Subsidiaries, (ii) the economy or securities markets in general,
(iii) the industries in which Metamor operates in general and not specifically
relating to Metamor, or (iv) this Agreement, the execution hereof or the
announcement of the Transactions, other than, with respect to this clause (iv),
changes, circumstances, events, occurrences or effects that would cause
irreparable harm to the long-term business prospects of the combined business of
PSINet, Metamor and their respective Subsidiaries following the Effective Time.
"METAMOR NOTES" means the 2.94% Convertible Subordinated Notes due 2004
of Metamor issued under the Indenture dated as of August 15, 1997 between
Metamor and The Bank of New York, as Trustee.
"METAMOR OPTIONS" has the meaning set forth in Section 3.1(c)(i).
"METAMOR PERMITS" has the meaning set forth in Section 4.12.
"METAMOR PREFERRED STOCK" has the meaning set forth in Section 4.2(a).
"METAMOR PROPERTY RIGHTS" has the meaning set forth in Section 4.14.
"METAMOR QUARTERLY FINANCIAL STATEMENTS" has the meaning set forth in
Section 4.5(c).
"METAMOR RELATED AGREEMENT" has the meaning set forth in the preamble
to this Agreement.
"METAMOR SEC REPORTS" has the meaning set forth in Section 4.5(a).
"METAMOR SPECIAL MEETING" has the meaning set forth in Section 6.3.
"METAMOR STOCK OPTION PLAN" has the meaning set forth in Section
3.1(c).
"METAMOR'S FAIRNESS OPINION ADVISOR" has the meaning set forth in
Section 4.22.
"NON-U.S. BENEFIT PLANS" has the meaning set forth in Section 4.9(l).
"PAYING AGENT" has the meaning set forth in Section 3.3(a).
"PERSON" shall include individuals, corporations, partnerships, limited
liability companies, trusts, other entities and groups (which term shall include
a "group" as such term is defined in Section 13(d)(3) of the Exchange Act).
"PSINET" has the meaning set forth in the preamble to this Agreement.
<PAGE>
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"PSINET ACQUISITION PROPOSALS" has the meaning set forth in Section
9.3(d).
"PSINET BENEFIT PLANS" has the meaning set forth in Section 7.10(a).
"PSINET COMMON STOCK" has the meaning set forth in Section 3.1(a)(iii).
"PSINET DISCLOSURE SCHEDULE" has the meaning set forth in Article V,
Introduction.
"PSINET FINANCIAL STATEMENTS" has the meaning set forth in Section
5.5(b).
"PSINET MATERIAL ADVERSE EFFECT" shall be any circumstance, event or
occurrence or series of circumstances, events or occurrences which individually
or in the aggregate with all other circumstances, events or occurrences would be
reasonably likely to have a material adverse effect on the business, operations,
financial condition or results of operations of PSINet and its Subsidiaries
taken as a whole, other than any change, circumstances or effect relating to (i)
a change after the date of this Agreement in Law or generally accepted
accounting principles or interpretations thereof that applies to PSINet or its
Subsidiaries, (ii) the economy or securities markets in general, or (iii) the
industries in which PSINet operates in general and not specifically relating to
PSINet.
"PSINET QUARTERLY FINANCIAL STATEMENTS" has the meaning set forth in
Section 5.5(c).
"PSINET RELATED AGREEMENT" has the meaning set forth in the preamble to
this Agreement.
"PSINET SEC REPORTS" has the meaning set forth in Section 5.5(a).
"PSINET SPECIAL MEETING" has the meaning set forth in Section 6.3.
"PSINET SERIES C PREFERRED STOCK" has the meaning set forth in Section
5.2.
"PSINET SERIES D PREFERRED STOCK" has the meaning set forth in Section
5.2.
"PSINET STOCK OPTIONS" has the meaning set forth in Section 5.2.
"PSINET TERMINATION FEE" has the meaning set forth in Section 9.3(d).
"PSINET TERMINATION PROPOSAL" has the meaning set forth in Section
9.3(d).
"REGISTRATION STATEMENT" has the meaning set forth in Section 7.2(a).
"SEC" has the meaning set forth in Section 4.5(a).
"SEC REPORTS" has the meaning set forth in Section 4.5(a).
"SECURITIES ACT" has the meaning set forth in Section 4.4(b).
"SUBSIDIARY" or "SUBSIDIARIES" means, with respect to PSINet, Metamor
or any other Person, any corporation, partnership, joint venture or other legal
entity of which PSINet,
<PAGE>
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Metamor or such other Person, as the case may be (either alone or through or
together with any other subsidiary), owns, directly or indirectly, stock or
other equity interests the holders of which are generally entitled to more than
50% of the vote for the election of the board of directors or other governing
body of such corporation or other legal entity.
"SUPERIOR PROPOSAL" means a bona fide unsolicited written Acquisition
Proposal to acquire a majority of the voting power of the shares of Metamor
Common Stock then outstanding or all or substantially all the assets of Metamor
for consideration consisting of cash and/or securities which the Board of
Directors of Metamor concludes in good faith (after consultation with its
financial advisors and legal counsel), taking into account all legal, financial,
regulatory and other aspects of the proposal and the Person making the proposal,
(i) would, if consummated, result in a transaction that is materially more
favorable to Metamor's stockholders (in their capacities as stockholders), from
a financial point of view, than the Transactions, and (ii) is reasonably capable
of being completed, including a conclusion that its financing, to the extent
required, is then committed or is in the good faith judgment of the Board of
Directors of Metamor, reasonably capable of being financed by such third party.
"SURVIVING CORPORATION" has the meaning set forth in Section 1.1.
"TAX" shall mean any federal, state, local, foreign or provincial
income, gross receipts, property, sales, service, use, license, lease, excise,
franchise, employment, payroll, withholding, employment, unemployment insurance,
workers' compensation, social security, alternative or added minimum, ad
valorem, value added, stamp, business license, occupation, premium,
environmental, windfall profit, customs, duties, estimated, transfer or excise
tax, or any other tax, custom, duty, premium, governmental fee or other
assessment or charge of any kind whatsoever, together with any interest, penalty
or addition to tax imposed by any Governmental Entity.
"TERMINATION FEE" has the meaning set forth in Section 9.3(b).
"TRANSACTIONS" shall mean the transactions contemplated by this
Agreement and the other agreements referenced herein including the Merger.
"XPEDIOR" has the meaning set forth in Section 4.2(b).
"XPEDIOR COMMON STOCK" has the meaning set forth in Section 4.2(b).
"XPEDIOR DEBT" means any Debt of Xpedior or any one or more of its
Subsidiaries other than Debt payable to Metamor or a Subsidiary of Metamor
(other than Xpedior or a Subsidiary of Xpedior).
"XPEDIOR FINANCIAL STATEMENTS" has the meaning set forth in Section
4.5(b).
"XPEDIOR PREFERRED STOCK" has the meaning set forth in Section 4.2(b).
"XPEDIOR SEC REPORTS" has the meaning set forth in Section 4.5(a).
"XPEDIOR STOCK OPTIONS" has the meaning set forth in Section 4.2(b).
<PAGE>
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"YEAR 2000 READY" has the meaning set forth in Section 4.16(c).
(b) Other Rules of Construction.
(i) References in this Agreement to any gender shall
include references to all genders. Unless the context otherwise requires,
references in the singular include references in the plural and vice versa.
References to a party to this Agreement or to other agreements described herein
means those Persons executing such agreements.
(ii) The words "include", "including" or "includes" shall be
deemed to be followed by the phrase "without limitation" or the phrase "but not
limited to" in all places where such words appear in this Agreement. The word
"or" shall be deemed to be inclusive.
(iii) This Agreement is the joint drafting product of PSINet
and Metamor, and each provision has been subject to negotiation and agreement
and shall not be construed for or against either party as drafter thereof.
(iv) In each case in this Agreement where this Agreement or
a Contract is represented or warranted to be enforceable will be deemed to
include as a limitation to the extent that enforceability may be subject to
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or similar Laws affecting the enforcement of creditors' rights
generally and to general equitable principles, whether applied in equity or at
Law.
(v) All references in this Agreement to financial terms
shall be deemed to refer to such terms as they are defined under GAAP,
consistently applied.
Section 10.9 Counterparts. This Agreement may be executed in two or
------------
more counterparts which together shall constitute a single agreement.
Section 10.10 Severability. If any term or other provision of this
------------
Agreement is invalid, illegal or incapable of being enforced by any rule of Law
or public policy, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economics or legal
substance of the Transactions are not affected in any manner materially adverse
to any party. Upon determination that any term or other provision hereof is
invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible to the fullest extent permitted by
applicable Law in an acceptable manner to the end that the Transactions are
fulfilled to the extent possible.
Section 10.11 Xpedior. Notwithstanding anything in this Agreement to
-------
the contrary, in no event shall Metamor be required to take any action to cause
Xpedior or any of its Subsidiaries to take any action or refrain from taking any
action solely to the extent that the taking of such action by Metamor would
violate any duties under Delaware Law owed by Metamor, as a majority
stockholder, to the minority stockholders of Xpedior.
<PAGE>
-51-
IN WITNESS WHEREOF, PSINet, Merger Subsidiary and Metamor have caused
this Agreement to be signed by their respective officers thereunto duly
authorized all as of the date first written above.
PSINet INC.
By: /s/ Harold S. Wills
--------------------------------
Harold S. Wills, President
PSINet SHELF IV INC.
By: /s/ Harold S. Wills
--------------------------------
Harold S. Wills, President
METAMOR WORLDWIDE, INC.
By: /s/ Peter T. Dameris
--------------------------------
Peter T. Dameris, Chief Executive
Officer and President
<PAGE>
Annex 2
FleetBoston Robertson Stephens Inc.
555 California Street
Suite 2600
San Francisco, California 94104
(415) 781-9700
March 21, 2000
Board of Directors
PSINet Inc.
510 Huntmar Park Drive
Reston, Virginia 22070
Members of the Board:
We understand that PSINet Inc. ("PSINet"), Metamor Worldwide, Inc.
("Metamor") and PSINet Merger Sub, Inc. (a wholly owned subsidiary of PSINet,
"Merger Sub") are proposing to enter into an Agreement and Plan of Merger (the
"Agreement") which will provide, among other things, for the merger (the
"Merger") of Merger Sub with and into Metamor. Upon consummation of the Merger,
Metamor will become a wholly owned subsidiary of PSINet. Under the terms set
forth in a draft of the Agreement dated March 20, 2000 (the "Draft Agreement"),
at the effective time of the Merger (the "Effective Time"), the shares of common
stock of Metamor, par value $.01 per share ("Metamor Common Stock"), issued and
outstanding immediately prior to the Effective Time, other than certain shares
to be canceled pursuant to the Agreement, will be converted into the right to
receive shares of the common stock of PSINet, par value $.01 per share ("PSINet
Common Stock"), at an exchange ratio (the "Exchange Ratio") of 0.9000 share(s)
of PSINet Common Stock for each share of Metamor Common Stock. The terms and
conditions of the Merger are set out more fully in the Draft Agreement.
You have asked us whether, in our opinion, the Exchange Ratio is fair from a
financial point of view and as of the date hereof to PSINet.
For purposes of rendering this opinion we have, among other things:
(i) reviewed certain publicly available financial statements and
other business and financial information of Metamor, Xpedior
Incorporated (an approximately 67%-owned (on a fully diluted
as-converted basis) subsidiary of Metamor, "Xpedior") and PSINet,
respectively;
2-1
<PAGE>
(ii) reviewed certain internal financial statements and other
financial and operating data, including certain financial
forecasts and other forward looking information, concerning (a)
Metamor prepared by the managements of Metamor and PSINet,
respectively and (b) Xpedior prepared by the managements of
Xpedior, Metamor and PSINet, respectively;
(iii) reviewed certain internal financial statements and other
financial and operating data, including certain financial
forecasts and other forward looking information (including,
specifically, forecasts of certain revenue synergies and cost s
avings that are expected to result from the Merger ("Expected
Synergies")), concerning PSINet prepared by the management of
PSINet;
(iv) reviewed certain publicly available research estimates of
research analysts regarding Metamor, Xpedior and PSINet,
respectively;
(v) held discussions with the respective managements of Metamor,
Xpedior and PSINet concerning the businesses, past and current
operations, financial condition and future prospects of each of
Metamor, Xpedior and PSINet, independently and combined,
including discussions withthe managements of Metamor, Xpedior
and PSINet concerning theExpected Synergies as well as their
views regarding the strategic rationale for the Merger;
(vi) reviewed the financial terms and conditions set forth in the
Draft Agreement;
(vii) reviewed the stock price and trading history of Metamor, Xpedior
and PSINet;
(viii) compared the financial performance of Metamor and Xpedior and the
prices and trading activity of Metamor Common Stock and the
common stock of Xpedior with that of certain other publicly
traded companies which we deemed comparable to Metamor and
Xpedior;
(ix) compared the financial terms of the Merger with the financial
terms, to the extent publicly available, of other transactions
that we deemed relevant;
(x) reviewed the pro forma impact of the Merger on PSINet EBITDA per
share and revenue per share;
(xi) prepared a discounted cash flow analysis for each of Metamor and
Xpedior;
(xii) participated in discussions among representatives of Metamor,
Xpedior and PSINet and their financial and legal advisors; and
(xiii) made such other studies and inquiries, and reviewed such other
data, as we deemed relevant.
2-2
<PAGE>
In our review and analysis, and in arriving at our opinion, we have assumed and
relied upon the accuracy and completeness of all of the financial and other
information provided to us (including information furnished to us orally or
otherwise discussed with us by the managements of Metamor, Xpedior and PSINet)
or publicly available and have neither attempted to verify, nor assumed
responsibility for verifying, any of such information. We have relied upon the
assurances of the managements of Metamor, Xpedior and PSINet that they are not
aware of any facts that would make such information inaccurate or misleading.
Furthermore, we did not obtain or make, or assume any responsibility for
obtaining or making, any independent evaluation or appraisal of the properties,
assets or liabilities (contingent or otherwise) of Metamor, Xpedior or PSINet,
nor were we furnished with any such evaluation or appraisal. With respect to the
financial forecasts and projections (and the assumptions and bases therefor) for
each of Metamor, Xpedior and PSINet that we have reviewed (including the
Expected Synergies), we have assumed that such forecasts and projections
(including the Expected Synergies) have been reasonably prepared in good faith
on the basis of reasonable assumptions and reflect the best currently available
estimates and judgments as to the future financial condition and performance of
Metamor, Xpedior and PSINet, respectively, and we have further assumed that such
projections and forecasts (including the Expected Synergies) will be realized in
the amounts and in the time periods currently estimated. In this regard, we note
that each of Metamor, Xpedior and PSINet face exposure to the Year 2000 problem.
We have not undertaken any independent analysis to evaluate the reliability or
accuracy of the assumptions made with respect to the potential effect that the
Year 2000 problem might have on Metamor's, Xpedior' and PSINet' respective
forecasts. With your permission, we have relied upon statements from PSINet'
management to us regarding the strategic value of the Merger and its assessment
that the Merger represents a compelling and significant strategic opportunity
for PSINet in the eServices segment. We have assumed that the Merger will be
consummated upon the terms set forth in the Draft Agreement without material
alteration thereof, including, among other things, that the Merger will be
accounted for as a "purchase" business combination in accordance with U.S.
generally accepted accounting principles ("GAAP"). In addition, we have assumed
that the historical financial statements of each of Metamor, Xpedior and PSINet
reviewed by us have been prepared and fairly presented in accordance with U.S.
GAAP consistently applied. We have relied as to all legal matters relevant to
rendering our opinion on the advice of counsel.
This opinion is necessarily based upon market, economic and other conditions
(including the interest rate environment) as in effect on, and information made
available to us as of, the date hereof. It should be understood that subsequent
developments may affect the conclusion expressed in this opinion and that we
disclaim any undertaking or obligation to advise any person of any change in any
matter affecting this opinion which may come or be brought to our attention
after the date of this opinion. Our opinion is limited to the fairness, from a
financial point of view and as to the date hereof, of the Exchange Ratio to
PSINet. We do not express any opinion as to (i) the value of any employee
agreement or other arrangement entered into in connection with the Merger, (ii)
any tax or other consequences that might result from the Merger or (iii) what
the value of PSINet Common Stock will be when issued to Metamor's stockholders
pursuant to the Merger or the price at which the shares of PSINet Common Stock
may be traded in the future. Our opinion does not address the relative merits of
the Merger and the other business strategies that PSINet Board of Directors has
considered or may be considering, nor does it address the decision of PSINet
Board of Directors to proceed with the Merger.
2-3
<PAGE>
We have been engaged by PSINet to render a fairness opinion in connection with
the Merger and will receive (i) a fee contingent upon the delivery of this
opinion and (ii) an additional fee contingent upon the consummation of the
Merger. In addition, PSINet has agreed to indemnify us for certain liabilities
that may arise out of our engagement. In the past, we have provided certain
investment banking services to PSINet for which we have been paid fees,
including acting as financial advisor to PSINet with respect to certain
acquisitions and minority investments. We maintain a market in the shares of
PSINet Common Stock. In the ordinary course of business, we may trade in PSINet'
securities, Metamor's securities and Xpedior' securities for our own account and
the account of our customers and, accordingly, may at any time hold a long or
short position in PSINet' securities, Metamor's securities or Xpedior'
securities.
Our opinion expressed herein is provided for the information of the Board of
Directors of PSINet in connection with its evaluation of the Merger. Our opinion
is not intended to be and does not constitute a recommendation to any
stockholder of PSINet or Metamor as to how such stockholder should vote, or take
any other action, with respect to the Merger. This opinion may not be
summarized, described or referred to or furnished to any party except with our
express prior written consent.
Based upon and subject to the foregoing considerations, it is our opinion that
the Exchange Ratio is fair from a financial point of view and as of the date
hereof to PSINet.
Very truly yours,
FLEETBOSTON ROBERTSON STEPHENS INC.
/s/FleetBoston Roberston Stephens Inc.
--------------------------------------
2-4
<PAGE>
Annex 3
Lazard Freres & Co. LLC
30 Rockefeller Plaza
New York, New York 10020
(212) 632-6000
March 21, 2000
The Board of Directors
Metamor Worldwide, Inc.
4400 Post Oak Parkway
Suite 1100
Houston, TX 77027-3413
Dear Members of the Board:
We understand that Metamor Worldwide, Inc. (the "Company"), PSINet Inc. (the
"Purchaser") and PSINet Shelf IV Inc., a wholly owned subsidiary of the
Purchaser ("Merger Sub"), propose to enter into an Agreement and Plan of Merger
(the "Merger Agreement"), pursuant to which Merger Sub will be merged with and
into the Company (the "Merger") as a result of which the Company will become a
wholly owned subsidiary of the Purchaser. Pursuant to the Merger Agreement, each
share of common stock, par value $0.01 per share, of the Company (the "Company
Common Stock"), issued and outstanding immediately prior to the effective time
of the Merger, other than shares of the Company Common Stock held in the
treasury of the Company and shares of the Company Common Stock held by the
Purchaser or any of its subsidiaries, will be converted into the right to
receive 0.90 shares (the "Exchange Ratio") of common stock of the Purchaser, par
value $0.01 per share (the "Purchaser Common Stock").
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of the Company Common Stock of the Exchange Ratio. In
connection with this opinion, we have:
(i) Reviewed the financial terms and conditions of a draft Merger
Agreement dated March 21, 2000;
(ii) Analyzed certain historical business and financial information
relating to the Purchaser and the Company, including Xpedior
Incorporated, a subsidiary of the Company ("Xpedior");
(iii) Reviewed various financial forecasts and other data provided to us by
the Purchaser and the Company relating to their respective businesses
, including in the case of the Company relating to Xpedior's
business;
3-1
<PAGE>
(iv) Held discussions with members of senior management of the Purchaser,
the Company and Xpedior with respect to the businesses and prospects
of the Purchaser, the Company and Xpedior, respectively, and the
strategic objectives of each;
(v) Reviewed public information with respect to certain other companies
in lines of business we believe to be generally comparable to those
of the Purchaser, the Company and Xpedior;
(vi) Reviewed the financial terms of certain business combinations
involving companies in lines of business we believe to be generally
comparable to those of the Company and Xpedior;
(vii) Reviewed the historical stock prices and trading volumes of the
Purchaser Company Stock, Company Common Stock and the common stock of
Xpedior; and
(viii) Conducted such other financial studies, analyses and investigations
as we deemed appropriate.
We have relied upon the accuracy and completeness of the foregoing
information and have not assumed any responsibility for any independent
verification of such information or any independent valuation or appraisal of
any of the assets or liabilities of the Purchaser, the Company or Xpedior, or
concerning the solvency of or issues relating to solvency concerning the
Purchaser, the Company or Xpedior. With respect to financial forecasts, we have
assumed that they have been reasonably prepared on bases reflecting the best
currently available estimates and judgments of the management of the Purchaser,
the Company and Xpedior as to the future financial performance of the Purchaser,
the Company and Xpedior, respectively. We assume no responsibility for and
express no view as to such forecasts or the assumptions on which they are based.
Further, our opinion is necessarily based on economic, monetary, market and
other conditions as in effect on, and the information made available to us as
of, the date hereof. In rendering our opinion, we did not address the relative
merits of the Merger, any alternative potential transaction or the Company's
underlying decision to effect the Merger. In that regard, we have not been
authorized by the Company to solicit, nor have we solicited, third-party
indications of interest for the acquisition of all or any part of the Company.
In rendering our opinion, we have assumed that the Merger will be
consummated on the terms described in the Merger Agreement, without any waiver
of any material terms or conditions by the Company and that obtaining the
necessary regulatory approvals, if any, for the Merger will not have an adverse
effect on the Purchaser, the Company or Xpedior. We have also assumed that the
definitive Merger Agreement will not differ in any material respect from the
draft thereof furnished to us.
Lazard Freres & Co. LLC is acting as investment banker to the Company in
connection with the Merger and will receive a fee for our services, a
substantial portion of which
3-2
<PAGE>
is contingent upon the consummation of the Merger. We have in the past provided
investment banking services to the Company for which we received usual and
customary compensation.
Our engagement and the opinion expressed herein are for the benefit of the
Company's Board of Directors and our opinion is rendered to the Company's Board
of Directors in connection with its consideration of the Merger. This opinion is
not intended to and does not constitute a recommendation to any holder of the
Company Common Stock as to whether such stockholder should vote for the Merger.
We are not expressing any opinion herein as to the prices at which the Company
Common Stock or the Purchaser Common Stock will trade following the announcement
or consummation of the Merger. It is understood that this letter may not be
disclosed or otherwise referred to without our prior consent, except as may
otherwise be required by law or by a court of competent jurisdiction.
Based on and subject to the foregoing, we are of the opinion that the
Exchange Ratio in connection with the Merger is fair to the holders of the
Company Common Stock from a financial point of view.
Very truly yours,
LAZARD FRERES & CO. LLC
By /s/ Patrick Sayer
-------------------------------
Patrick Sayer
Managing Director
3-3
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Under Sections 721 through 725 of the Business Corporation Law of the State
of New York (the "BCL"), the Registrant has broad powers to indemnify its
directors, officers and other employees. These sections (i) provide that the
statutory indemnification and advancement of expenses provision of the BCL are
not exclusive, provided that no indemnification may be made to or on behalf of
any director or officer if a judgment or other final adjudication adverse to the
director or officer establishes that his acts were committed in bad faith or
were the result of active and deliberate dishonesty and were material to the
cause of action as adjudicated, or that he personally gained in fact a financial
profit or other advantage to which he was not legally entitled, (ii) establish
procedures for indemnification and advancement of expenses that may be contained
in the certificate of incorporation or by-laws, or, when authorized by either of
the foregoing, set forth in a resolution of the shareholders or directors of an
agreement providing for indemnification and advancement of expenses, (iii) apply
a single standard for statutory indemnification for third-party and derivative
suits by providing that indemnification is available if the director or officer
acted in good faith, for a purpose which he reasonably believed to be in the
best interests of the corporation, and, in criminal actions, had no reasonable
cause to believe that his conduct was unlawful and (iv) permit the advancement
of litigation expenses upon receipt of an undertaking to repay such advance if
the director or officer is ultimately determined not to be entitled to
indemnification or to the extent the expenses advanced exceed the
indemnification to which the director or officer is entitled. Section 726 of the
BCL permits the purchase of insurance to indemnify a corporation or its officers
and directors to the extent permitted.
As permitted by Section 721 of the BCL, the Registrant's By-laws provide
that the Registrant shall indemnify its officers and directors, as such, to the
fullest extent permitted by applicable law, and that expenses reasonably
incurred by any such officer or director in connection with a threatened or
actual action or proceeding shall be advanced or promptly reimbursed by the
Registrant in advance of the final disposition of such action or proceeding upon
receipt of an undertaking by or on behalf of such officer or director to repay
such amount if and to the extent that it is ultimately determined that such
officer or director is not entitled to indemnification.
Article EIGHTH of the Registrant's Certificate of Incorporation provides
that no director of the Registrant shall be held personally liable to the
Registrant or its shareholders for damages for any breach of duty in his
capacity as a director occurring after authorization of such Article EIGHTH by
the shareholders unless a judgment or other final adjudication adverse to him
establishes that (1) his acts or omissions were in bad 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 BCL. The Registrant has
entered into Indemnity Agreements with its directors and certain key officers
pursuant to which the Registrant generally is obligated to indemnify its
directors and such officers to the full extent permitted by the BCL as described
above. PSINet also has purchased directors' and officers' liability insurance.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The following is a list of all exhibits filed as part of this Registration
Statement.
See Exhibit Index.
FINANCIAL STATEMENTS AND FINANCIAL STATEMENTS SCHEDULES:
Financial Statements and Financial Statements Schedules:
Incorporated by reference in this registration statement from PSINet's
Annual Report on Form 10-K for the year ended December 31, 1999.
ITEM 22. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes that insofar as
indemnification for liabilities arising under the Securities Act of 1933, as
amended (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act
II-1
<PAGE>
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(b) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(c) The undersigned Registrant hereby undertakes:
(1) To deliver or cause to be delivered with the prospectus, to each
person to whom the prospectus is sent or given, the latest annual report to
security holders that is incorporated by reference in the prospectus and
furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3
under the Securities and Exchange Act of 1934; and, where interim financial
information required to be presented by Article 3 of Regulation S-X is not set
forth in the prospectus, to deliver, or cause to be delivered to each person to
whom the prospectus is sent or given, the latest quarterly report that is
specifically incorporated by reference in the prospectus to provide such interim
financial information.
(2) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this Form,
within one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
(d) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Act of 1933, each filing of the Registrant's
annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act
(and, where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(e) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Herndon,
Commonwealth of Virginia on April 13, 2000.
PSINet Inc.
By: /s/ Harold S. Wills
------------------------------------
Harold S. Wills, President and Chief
Operating Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints William L. Schrader, Harold S. Wills,
David N. Kunkel, Kathleen B. Horne and Emory Donelson, and each or any of them,
his true and lawful attorney-in-fact and agent, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any registration statement filed pursuant to Rule 462(b)
under the Securities Act of 1933 and any and all amendments (including
post-effective amendments) to this registration statement and to any
registration statement filed pursuant to Rule 462(b), and to file the same, with
all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto each said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the foregoing, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or any of them, or their,
his or her substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ William L. Schrader Chairman, Chief Executive Officer and April 13, 2000
- ------------------------------- Director (Principal Executive Officer)
William L. Schrader
/s/ Harold S. Wills President, Chief Operating Officer April 13, 2000
- ----------------------------- and Director
Harold S. Wills
/s/ David H. Kunkel Vice Chairman, Executive Vice April 13, 2000
- ----------------------------- President and Director
David H. Kunkel
/s/ Michael J. Malesardi Senior Vice President and Controller April 13, 2000
- ------------------------------- Co-Principal Financial Officer and Principal
Michael J. Malesardi Accounting Officer)
/s/ Lawrence S. Winkler Senior Vice President and Treasurer April 13, 2000
- ------------------------------- (Co-Principal Financial Oficer)
Lawrrence S. Winkler
/s/ William H. Baumer Director April 13, 2000
- ------------------------------
William H. Baumer
/s/ Ralph J. Swett Director April 13, 2000
- ----------------------------
Ralph J. Swett
/s/ Ian P. Sharp Director April 13, 2000
- ---------------------------
Ian P. Sharp
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION LOCATION
- ------ ----------- --------
<S> <C> <C>
2.1 Agreement and Plan of Merger, dated August 22, Incorporated by reference from Exhibit 2.1 to
1999, among PSINet, PSINet Shelf I Inc. and PSINet's Current Report on Form 8-K dated
Transaction Network Services, Inc. August 24, 1999 located under Securities and
Exchange Commission File No. 0-25812
2.2 Amendment No. 1, dated October 14, 1999, to Incorporated by reference from Annex 1 to
Agreement and Plan of Merger dated August 22, Amendment No. 1 to PSINet's Registration
1999, among PSINet, PSINet Shelf IV Inc. and Statement on Form S-4 filed on October 19,
Transaction Network Services, Inc. 1999 located under Securities and Exchange
Commission File No. 333-88325.
2.3 Agreement and Plan of Merger, dated as of March 21, Included as Annex 1 to the Prospectus/Proxy
21, 2000 among PSINet, Inc. PSINet Shelf I Inc. and Statement which forms a part of this
and Metamor Worldwide, Inc. registration statement. The exhibits listed in the
table of contents to the Agreement and Plan of
Merger have been omitted pursuant to Item
601(b)(2) of Regulation S-K. The registrant
agrees to furnish supplementally a copy of any
omitted exhibit to the Commission upon
request.
3.1 Restated Certificate of Incorporation dated Incorporated by reference from Exhibit 3.1 to
November 9, 1999 PSINet's Current Report on Form 8-K dated
November 23, 1999, located under Securities
and Exchange Commission File No. 0-25812
("November 23, 1999 8-K")
3.2 Certificate of Correction of Restated Certificate Incorporated by reference from Exhibit 3.1 to
Incorporation dated as of December 2, 1999 PSINet's Current Report on Form 8-K dated
November 24, 1999, located under Securities
and Exchange Commission File No. 0-25812
("November 24, 1999 8-K")
3.3 Certificate of Amendment of Certificate of Incorporated by reference from Exhibit 3.3 to
Incorporation dated as of January 31, 2000 PSINet's Registration Statement on Form S-4
filed on February 9, 2000 located under
Securities and Exchange Commission File No.
333-96459
3.4 Amended and Restated By-laws of PSINet Incorporated by reference from Exhibit 3.4 to
PSINet's Annual Report on Form 10K for the
year ended December 31, 1999 located under
Securities and Exchange Commission File No.
0-25812 ("1999 Form 10-K")
4.1 Form of 10% Senior Notes due 2005 Incorporated by reference from Exhibit 4.1 to
PSINet's Current Report on Form 8-K dated
April 22, 1998 located under Securities and
Exchange Commission File No. 0-25812
("April 22, 1998 8-K")
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION LOCATION
- ------ ----------- --------
<S> <C> <C>
4.2 Indenture dated as of April 13, 1998 between PSINet Incorporated by reference from Exhibit 4.2 to
and Wilmington Trust Company, as Trustee the April 22, 1998 8-K
4.3 Form of 11 Senior Notes due 2008 Incorporated by reference from PSINet's
Registration Statement on Form S-4 declared
effective on February 16, 1999 located under
Securities and Exchange Commission File
No. 333-68385
4.4 Indenture dated as of November 3, 1998 between Incorporated by reference from Exhibit 4.1 to
PSINet and Wilmington Trust Company, as trustee the November 10, 1998 8-K
4.5 First Supplemental Indenture dated as of November Incorporated by reference from Exhibit 4.1 to
12, 1998 between PSINet and Wilmington Trust PSINet's Quarterly Report on Form 10-Q for
Company, as trustee the quarter ended September 30, 1998 located
under Securities and Exchange Commission
File No. 0-25812 ("September 1998 10-Q")
4.6 Form of unregistered Dollar-denominated Incorporated by reference from Exhibit 4.6 to
11% Senior Notes due 2009 PSINet's Registration Statement on Form S-4
filed on August 6, 1999 located under
Securities and Exchange Commission File
No. 333-84721 ("August 1999 Registration
Statement")
4.7 Form of unregistered Euro-denominated Incorporated by Reference from Exhibit 4.7 to
11% Senior Notes due 2009 August 1999 Registration Statement
4.8 Form of registered 11% Senior Notes due 2009 Incorporated by Reference from Exhibit 4.8 to
August 1999 Registration Statement
4.9 Indenture dated as of July 23, 1999 between PSINet Incorporated by Reference from Exhibit 4.9 to
and Wilmington Trust Company, as Trustee August 1999 Registration Statement
4.10 Form of Common Stock Certificate Incorporated by reference from Exhibit 4.1 to
the May 1995 Registration Statement
4.11 Form of Common Stock Certificate (name change) Incorporated by reference from Exhibit 4.1A to
PSINet's Registration Statement on Form S-1
declared effective on December 14, 1995
located under Securities and Exchange
Commission File No. 33-99610 ("December
1995 Registration Statement")
4.12 Form of 6% Series C Cumulative Convertible Incorporated by reference from Exhibit 4.1 to
Preferred Stock Certificate the May 7, 1999 8-K
4.13 Article Fourth of the Restated Certificate See Exhibit 3.1
Incorporation of PSINet, as amended
4.14 Article I of the Amended and Restated By-laws of See Exhibit 3.9
PSINet, as amended
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION LOCATION
- ------ ----------- --------
<S> <C> <C>
4.15 Form of Rights Agreement, dated as of May 8, 1996, Incorporated by reference from Exhibit 1 to
between PSINet and First Chicago Trust PSINet's Registration Statement on Form 8-A
Company of New York, as Rights Agent, which dated June 3, 1996 located under Securities and
includes as Exhibit A - Certificate of Amendment; Exchange Commission File No. 0-25812
Exhibit B - Form of Rights Certificate; and Exhibit
C - Summary of Rights to Purchase Shares of
Preferred Stock
4.16 Amendment No. 1, dated as of July 21, 1997, to Incorporated by reference from Exhibit 4.1.1 to
Rights Agreement, dated as of May 8, 1996, PSINet's Current Report on Form 8-K dated
between PSINet and First Chicago Trust Company August 1, 1997 located under Securities and
of New York, as Rights Agent. Exchange Commission File No. 0-25812
4.17 Amendment No. 2, dated as of July 31, 1997, to Incorporated by reference from Exhibit 4.1.2
Rights Agreement, dated as of May 8, 1996 PSINet's Current Report on Form 8-K dated
between PSINet and First Chicago Trust Company August 20, 1997 located under Securities and
of New York, as Rights Agent. Exchange Commission File No. 0-25812
4.18 Amendment No. 3, dated as of November 5, 1999, to Incorporated by reference from Exhibit 4 to
to Rights Agreement, dated as of May 8, 1996, PSINet's Registration Statement on Form 8/A
between PSINet and First Chicago Trust Company filed on November 5, 1999
of New York
4.19 Deposit Agreement dated as of May 4, 1999 between Incorporated by reference from Exhibit 4.2 to
PSINet and Wilmington Trust Company, the May 7, 1999 8-K.
as deposit agent
4.20 Form of unregistered Dollar-denominated 10_% Senior Incorporated by reference from Exhibit 4.2 to
Notes due 2006 PSINet's November 24, 1999 8-K
4.21 Form of unregistered Euro-denominated 10_% Senior Incorporated by reference from Exhibit 4.3 to
Notes due 2006 PSINet's November 24, 1999 8-K
4.22 Form of registered 10_% Senior Notes due 2006 Incorporated by reference from Exhibit 4.4 to
PSINet's Current Report on Form 8-K dated
February 1, 2000 located under Securities and
Exchange Commission File No. 0-25812
("February 1, 2000 8-K")
4.23 Indenture dated as of December 2, 1999 between Incorporated by reference from Exhibit 4.1 to
PSINet and Wilmington Trust Company, as Trustee the November 24, 1999 8-K
4.24 Form of 7% Series D Cumulative Convertible Incorporated by reference from Exhibit 4.3 to
Preferred Stock the February 1, 2000 8-K
4.25 Deposit Agreement dated as of February 1, 2000 Incorporated by reference from Exhibit 4.1 to
between PSINet and Wilmington Trust Company, the February 1, 2000 8-K
as deposit agent
4.26 First Amendment to Deposit Agreement dated as of Incorporated by reference from Exhibit 4.2 to
February 7, 2000, between PSINet and Wilmington the February 1, 2000 8-K
Trust Company, as deposit agent
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION LOCATION
- ------ ----------- --------
<S> <C> <C>
5 Opinion of Nixon Peabody LLP *
8.1 Opinion of Nixon Peabody LLP regarding tax matters *
8.2 Opinion of Vinson & Elkins L.L.P. regarding tax matters *
12 Computation of Ratio of Earnings to Combined Incorporated by reference from Exhibit 12 to
Fixed Charges and Preferred Stock Dividends the 1999 Form 10-K
21 Significant subsidiaries of PSINet Incorporated by reference from Exhibit 21 to
the 1999 Form 10-K
23.1 Consent of PricewaterhouseCoopers LLP Filed herewith
23.2 Consent of Ernst & Young LLP Filed herewith
23.3 Consent of Nixon Peabody LLP (included in Exhibits *
5 and 8.1)
23.4 Consent of Vinson & Elkins L.L.P. (included in *
Exhibit 8.2)
24 Power of Attorney Included in the signature page to this
registration statement
99.1 Form of Proxy for holders of PSINet Inc. common *
stock
99.2 Form of Proxy for holders of Metamor Worldwide, *
Inc. common stock
99.3 Stockholder Agreement, dated as of March 21, Filed herewith
2000, among William L. Schrader, Metamor
Worldwide, Inc. and PSINet Inc.
99.4 Stockholder Agreement, dated as of March 21, Filed herewith
2000, among Peter T. Dameris, PSINet Inc. and
Metamor Worldwide, Inc.
99.5 Consent of FleetBoston Robertson Stephens Inc. Filed herewith
99.6 Form of Consent of Lazard Freres & Co. LLC Filed herewith
</TABLE>
- -----------------------------
* To be filed by amendment or in a Current Report on Form 8-K.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-4 of PSINet Inc. of our report dated March 20, 2000 relating
to the consolidated financial statements and the financial statement schedule
appearing in PSINet Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1999. We also consent to the reference to us under the heading
"Experts" in such Registration Statement.
/s/ PRICEWATERHOUSECOOPERS LLP
Washington, DC
April 13, 2000
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
We consent to the reference to our firm under the caption "Experts" in this
Registration Statement (Form S-4) and related joint prospectus/proxy statement
of PSINet Inc. and Metamor Worldwide, Inc. for the registration of PSINet Inc.'s
common stock and to the incorporation by reference therein of our report dated
February 8, 2000 with respect to the consolidated financial statements of
Metamor Worldwide, Inc. included in its Annual Report (Form 10-K) for the year
ended December 31, 1999, filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Houston, Texas
April 13, 2000
<PAGE>
Exhibit 99.3
STOCKHOLDER AGREEMENT
This STOCKHOLDER AGREEMENT, dated as of March 21, 2000, is entered
into by and among PSINet INC., a New York corporation ("BUYER"), METAMOR
WORLDWIDE, INC., a Delaware corporation ("METAMOR"), PSINet SHELF IV Inc., a
Delaware corporation and wholly owned subsidiary of Buyer ("MERGER SUBSIDIARY"),
and the other parties who have signed this Agreement (each, a "STOCKHOLDER" and,
collectively, the "STOCKHOLDERS").
RECITALS
--------
WHEREAS, each Stockholder is the beneficial owner of the number of
shares of common stock of Metamor, par value $.01 per share, set forth on the
signature page to this Agreement (such shares, together with any other shares of
capital stock of Metamor acquired by such Stockholder after the date hereof
(including through the exercise of stock options, warrants or similar rights or
the conversion or exchange of securities) being collectively referred to herein
as the "SHARES" of such Stockholder);
WHEREAS, the respective Boards of Directors of Buyer, Metamor and
Merger Subsidiary have approved the execution of an Agreement and Plan of
Merger, dated as of the date hereof (as the same may be amended, supplemented or
otherwise modified in accordance with its terms, the "MERGER AGREEMENT"), with
respect to, among other things, the merger of Merger Subsidiary with or into
Metamor (the "MERGER");
WHEREAS, pursuant to the Merger Agreement, each Stockholder is
required to execute this Agreement and deliver it to Buyer and Merger
Subsidiary;
WHEREAS, concurrently with the execution and delivery of this
Agreement, Buyer, Metamor and Merger Subsidiary have entered into the Merger
Agreement, setting forth certain representations, warranties, covenants and
agreements of the parties thereto in connection with the Merger; and
WHEREAS, as an inducement and an essential condition to Buyer and
Merger Subsidiary entering into the Merger Agreement, Metamor and each
Stockholder have agreed to enter into this Agreement;
NOW, THEREFORE, in consideration of the premises and the
representations, warranties and agreements contained herein and for other good
and valuable consideration, the parties hereto, intending to be legally bound,
agree as follows (certain capitalized terms are used herein with the meanings
set forth in Section 6):
<PAGE>
-2-
1. Voting Agreement. Except for Beneficially Owned Shares sold or
----------------
otherwise conveyed by a financial institution or broker-dealer pursuant to bona
fide pledge arrangements relating to loans or margin arrangements (the
"ARRANGEMENTS") made through such financial institution or broker-dealer or with
respect to which the Stockholder is subject to restrictions affecting such
Stockholder's obligations hereunder ("RESTRICTED SHARES"), each Stockholder
hereby agrees with Buyer and Merger Subsidiary that, at any meeting of Metamor's
shareholders, however called and any postponement or adjournment thereof, or in
connection with any written consent of Metamor's shareholders (collectively, the
"METAMOR STOCKHOLDERS MEETING"), such Stockholder shall, except as restricted by
the Arrangements, vote (or, if applicable and requested by Buyer, grant proxies
(including proxies to execute consents), execute consents and give approvals in
respect of) the Shares Beneficially Owned by such Stockholder as of the date of
such meeting or written consent, whether heretofore owned or hereafter acquired
in favor of adoption and approval of the Merger Agreement and the transactions
contemplated thereby (including the Merger) and by any of the agreements
referred to therein and such other matters, if any, as requested by Buyer or
Merger Subsidiary.
2. Restrictions on Transfer.
------------------------
(a) Except with respect to or pursuant to the Arrangements,
each Stockholder covenants and agrees with Buyer that, until after the Effective
Time, such Stockholder shall not, directly or indirectly give, offer, sell,
transfer, assign, pledge, hypothecate or otherwise dispose of the record or
beneficial ownership of (any such act, a "TRANSFER"), or consent to any Transfer
of, any or all of the Beneficially Owned Shares or any interest therein. No
Transfer of any Beneficially Owned Shares in violation of this Section 2 shall
be made or recorded on the books of Metamor and any such Transfer shall be void
and of no effect.
3. Assignment. Neither this Agreement nor any of the rights,
----------
interests or obligations hereunder shall be assigned by any of the parties
hereto without the prior written consent of the other parties, and any purported
assignment in violation of this Section 3 shall be void and of no effect.
Subject to the preceding sentence, this Agreement will be binding upon, inure to
the benefit of and be enforceable by the parties and their respective
administrators, heirs, legal representatives, successors and permitted
assignees.
4. Termination. This Agreement shall terminate immediately upon
-----------
the earlier of: (i) the termination of the Merger Agreement, or (ii) the
Effective Time. Notwithstanding the foregoing, this Section 4 and Sections 5
through 6 hereof shall survive any termination of this Agreement and remain in
effect until the date on which fully discharged in accordance with their
respective terms.
5. Stockholder Capacity. By executing and delivering this Agreement,
--------------------
each Stockholder makes no agreement or understanding herein as to his or its
capacity, if any, as a director or officer of Metamor or any subsidiary of
Metamor. Each Stockholder signs solely in his or its capacity as the beneficial
owner of Metamor's Shares and nothing herein shall limit or affect any actions
taken by such Stockholder, or his or its Affiliates, solely in his or their
fiduciary capacity as an officer or director of Metamor or any subsidiary of
Metamor.
<PAGE>
-3-
6. General Provisions.
------------------
(a) Certain Definitions. Capitalized terms used herein and not
-------------------
otherwise defined are used with the meanings ascribed to them in the Merger
Agreement. As used in this Agreement, "BENEFICIALLY OWNED" with respect to any
securities of Metamor shall mean a Stockholder's having such ownership, control
or power to direct the voting or investment with respect to, or otherwise
enabling such Stockholder to legally act with respect to, such securities as
contemplated hereby, including pursuant to any agreement, arrangement or
understanding, whether or not in writing provided, however, that notwithstanding
the foregoing, securities Beneficially Owned by such Stockholder shall not
include (1) securities Beneficially Owned by all other persons with whom such
Stockholder would constitute a "GROUP" within the meaning of Section 13(d)(3) of
the Exchange Act or (2) any securities owned by any trust, limited liability
company, relative of such Stockholder or foundation or jointly owned with such
Stockholder's spouse.
(b) Amendments. This Agreement may not be amended, supplemented,
----------
modified or waived except by an instrument in writing signed by Buyer and the
Stockholder or Stockholders to whom such amendment, modification or waiver
relates.
(c) Notice. All notices or other communications under this Agreement
------
shall be in writing and shall be given (and shall be deemed to have been duly
given upon receipt) by delivery in person, by telecopy (with confirmation of
receipt), or by registered or certified mail, postage prepaid, return receipt
requested, addressed to the notice address specified on the applicable signature
page to this Agreement.
(d) Interpretation. The descriptive headings herein are inserted for
--------------
convenience of reference only and are not intended to be part of or to affect
the meaning or interpretation of this Agreement. The parties acknowledge and
agree that: (i) each party to this Agreement and its counsel reviewed and
negotiated the terms and provisions of this Agreement and have contributed to
its revision; (ii) the rule of construction to the effect that any ambiguities
are resolved against the drafting party shall not be employed in the
interpretation of this Agreement; and (iii) the terms and provisions of this
Agreement shall be construed fairly as to both parties hereto, regardless of
which party was generally responsible for the preparation of this Agreement or
any provision hereof.
(e) Counterparts. This Agreement may be executed in two or more
------------
counterparts which together shall constitute a single agreement.
(f) Entire Agreement; No Third-Party Beneficiaries. This Agreement
----------------------------------------------
and the Merger Agreement constitute the entire agreement, and supersede all
other prior agreements, understandings, representations and warranties, both
written and oral, between the parties, with respect to the subject matter
hereof. The terms and conditions of this Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective successors and
permitted assigns. Nothing in this Agreement, expressed or implied, is intended
to confer upon any party, other than the parties hereto, and their respective
successors and permitted assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
herein.
<PAGE>
-4-
(g) Governing Law. This Agreement shall be construed in accordance
-------------
with and governed in all respects, including validity, interpretation and
effect, by the law of the State of Delaware without giving effect to the
principles of conflicts of laws thereof.
(h) Consent to Jurisdiction; Consent to Service. IN THE EVENT OF ANY
-------------------------------------------
LITIGATION, CLAIM OR OTHER LEGAL PROCEEDING WITH RESPECT TO ANY MATTER
PERTAINING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY, THE
PARTIES HERETO HEREBY WAIVE THE RIGHT TO A TRIAL BY JURY. THE PARTIES HERETO
HEREBY READILY CONSENT TO THE EXCLUSIVE JURISDICTION AND VENUE OF THE COURTS OF
THE STATE OF DELAWARE AND ANY FEDERAL COURT LOCATED IN DELAWARE IN CONNECTION
WITH ANY LITIGATION ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
(i) Severability. If any term or other provision of this Agreement is
------------
invalid, illegal or incapable of being enforced by any rule of Law or public
policy, all other terms and provisions of this Agreement shall nevertheless
remain in full force and effect. Upon determination that any term or other
provision hereof is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible to the fullest extent
permitted by applicable Law in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
IN WITNESS WHEREOF, Buyer, Metamor, Merger Subsidiary and each Stockholder
have executed or caused this Agreement to be duly executed and delivered as of
the date first written above.
PSINET INC.
By: /s/ Harold S. Wills
-------------------------
Name: Harold S. Wills
Title: President
PSINET SHELF IV INC.
By: /s/ Harold S. Wills
--------------------------
Name: Harold S. Wills
Title: President
<PAGE>
-5-
METAMOR WORLDWIDE, INC.
By: /s/ Peter T. Dameris
------------------------------
Name: Peter T. Dameris
Title: Chief Executive Officer
and President
<PAGE>
-6-
SIGNATURE PAGE TO STOCKHOLDER AGREEMENT
/s/ Peter T. Dameris
----------------------------
Name: Peter T. Dameris
Number of Shares Beneficially Owned as of
March 21, 2000:
583,650 shares of Common Stock (including
535,000 shares issuable under options)
Notice Address:
c/o Metamor Worldwide, Inc.
4400 Past Oak Parkway
Suite 1100
Houston, Texas 77027-3413
<PAGE>
Exhibit 99.4
STOCKHOLDER AGREEMENT
This STOCKHOLDER AGREEMENT, dated as of March 21, 2000, is entered
into by and among PSINet INC., a New York corporation ("BUYER"), METAMOR
WORLDWIDE, INC., a Delaware corporation ("METAMOR"), and the other parties who
have signed this Agreement (each, a "STOCKHOLDER" and, collectively, the
"STOCKHOLDERS").
RECITALS
--------
WHEREAS, each Stockholder is the beneficial owner of the number of
shares of common stock of Buyer, par value $.01 per share, set forth on the
signature page to this Agreement (such shares, together with any other shares of
capital stock of Buyer acquired by such Stockholder as sole beneficial owner
after the date hereof (including through the exercise of stock options, warrants
or similar rights or the conversion or exchange of securities) being
collectively referred to herein as the "SHARES" of such Stockholder);
WHEREAS, the respective Boards of Directors of Buyer, Metamor and
PSINet Shelf IV Inc. ("MERGER SUBSIDIARY") have approved the execution of an
Agreement and Plan of Merger, dated as of the date hereof (as the same may be
amended, supplemented or otherwise modified in accordance with its terms, the
"MERGER AGREEMENT"), with respect to, among other things, the merger of Merger
Subsidiary with or into Metamor (the "MERGER");
WHEREAS, pursuant to the Merger Agreement, each Stockholder is
required to execute this Agreement and deliver it to Metamor;
WHEREAS, concurrently with the execution and delivery of this
Agreement, Buyer, Metamor and Merger Subsidiary have entered into the Merger
Agreement, setting forth certain representations, warranties, covenants and
agreements of the parties thereto in connection with the Merger; and
WHEREAS, as an inducement and an essential condition to Metamor
entering into the Merger Agreement, Buyer and each Stockholder have agreed to
enter into this Agreement;
NOW, THEREFORE, in consideration of the premises and the
representations, warranties and agreements contained herein and for other good
and valuable consideration, the parties hereto, intending to be legally bound,
agree as follows (certain capitalized terms are used herein with the meanings
set forth in Section 6):
<PAGE>
-2-
1. Voting Agreement. Except for Beneficially Owned Shares sold or
----------------
otherwise conveyed by a financial institution or broker-dealer pursuant to bona
fide pledge arrangements relating to loans or margin arrangements (the
"ARRANGEMENTS") made through such financial institution or broker-dealer or with
respect to which the Stockholder is subject to restrictions affecting such
Stockholder's obligations hereunder ("RESTRICTED SHARES"), each Stockholder
hereby agrees with Metamor that, at any meeting of Buyer's shareholders, however
called and any postponement or adjournment thereof, or in connection with any
written consent of Buyer's shareholders (collectively, the "BUYER STOCKHOLDERS
MEETING"), such Stockholder shall, except as restricted by the Arrangements,
vote (or, if applicable and requested by Metamor, grant proxies (including
proxies to execute consents), execute consents and give approvals in respect of)
the Shares Beneficially Owned by such Stockholder as of the date of such meeting
or written consent, whether heretofore owned or hereafter acquired in favor of
adoption and approval of the issuance of Buyer common stock pursuant to the
Merger Agreement and such other matters, if any, as requested by Metamor.
2. Restrictions on Transfer.
------------------------
(a) Except with respect to or pursuant to the Arrangements, each
Stockholder covenants and agrees with Metamor that, until after the Effective
Time, such Stockholder shall not, directly or indirectly give, offer, sell,
transfer, assign, pledge, hypothecate or otherwise dispose of the record or
beneficial ownership of (any such act, a "TRANSFER"), or consent to any Transfer
of, any or all of the Beneficially Owned Shares or any interest therein. No
Transfer of any Beneficially Owned Shares in violation of this Section 2 shall
be made or recorded on the books of Buyer and any such Transfer shall be void
and of no effect.
3. Assignment. Neither this Agreement nor any of the rights,
----------
interests or obligations hereunder shall be assigned by any of the parties
hereto without the prior written consent of the other parties, and any purported
assignment in violation of this Section 3 shall be void and of no effect.
Subject to the preceding sentence, this Agreement will be binding upon, inure to
the benefit of and be enforceable by the parties and their respective
administrators, heirs, legal representatives, successors and permitted
assignees.
4. Termination. This Agreement shall terminate immediately upon the
-----------
earlier of: (i) the termination of the Merger Agreement, or (ii) the Effective
Time. Notwithstanding the foregoing, this Section 4 and Sections 5 through 6
hereof shall survive any termination of this Agreement and remain in effect
until the date on which fully discharged in accordance with their respective
terms.
5. Stockholder Capacity. By executing and delivering this Agreement,
--------------------
each Stockholder makes no agreement or understanding herein as to his or its
capacity, if any, as a director or officer of Buyer or any subsidiary of Buyer.
Each Stockholder signs solely in his or its capacity as the beneficial owner of
Buyer's Shares and nothing herein shall limit or affect any actions taken by
such Stockholder, or his or its Affiliates, solely in his or their fiduciary
capacity as an officer or director of Buyer or any subsidiary of Buyer.
<PAGE>
-3-
6. General Provisions.
------------------
(a) Certain Definitions. Capitalized terms used herein and not
-------------------
otherwise defined are used with the meanings ascribed to them in the Merger
Agreement. As used in this Agreement, "BENEFICIALLY OWNED" with respect to any
securities of Buyer shall mean a Stockholder's having such ownership, control or
power to direct the voting or investment with respect to, or otherwise enabling
such Stockholder to legally act with respect to, such securities as contemplated
hereby, including pursuant to any agreement, arrangement or understanding,
whether or not in writing provided, however, that notwithstanding the foregoing,
securities Beneficially Owned by such Stockholder shall not include (1)
securities Beneficially Owned by all other persons with whom such Stockholder
would constitute a "group" within the meaning of Section 13(d)(3) of the
Exchange Act or (2) any securities owned by any trust, limited liability
company, relative of such Stockholder or foundation or jointly owned with such
Stockholder's spouse.
(b) Amendments. This Agreement may not be amended, supplemented,
----------
modified or waived except by an instrument in writing signed by Metamor and the
Stockholder or Stockholders to whom such amendment, modification or waiver
relates.
(c) Notice. All notices or other communications under this Agreement
------
shall be in writing and shall be given (and shall be deemed to have been duly
given upon receipt) by delivery in person, by telecopy (with confirmation of
receipt), or by registered or certified mail, postage prepaid, return receipt
requested, addressed to the notice address specified on the applicable signature
page to this Agreement.
(d) Interpretation. The descriptive headings herein are inserted for
--------------
convenience of reference only and are not intended to be part of or to affect
the meaning or interpretation of this Agreement. The parties acknowledge and
agree that: (i) each party to this Agreement and its counsel reviewed and
negotiated the terms and provisions of this Agreement and have contributed to
its revision; (ii) the rule of construction to the effect that any ambiguities
are resolved against the drafting party shall not be employed in the
interpretation of this Agreement; and (iii) the terms and provisions of this
Agreement shall be construed fairly as to both parties hereto, regardless of
which party was generally responsible for the preparation of this Agreement or
any provision hereof.
(e) Counterparts. This Agreement may be executed in two or more
------------
counterparts which together shall constitute a single agreement.
(f) Entire Agreement; No Third-Party Beneficiaries. This Agreement
----------------------------------------------
and the Merger Agreement constitute the entire agreement, and supersede all
other prior agreements, understandings, representations and warranties, both
written and oral, between the parties, with respect to the subject matter
hereof. The terms and conditions of this Agreement shall inure to the benefit
of and be binding upon the parties hereto and their respective successors and
permitted assigns. Nothing in this Agreement, expressed or implied, is intended
to confer upon any party, other than the parties hereto, and their respective
successors and permitted assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
herein.
<PAGE>
-4-
(g) Governing Law. This Agreement shall be construed in accordance
-------------
with and governed in all respects, including validity, interpretation and
effect, by the law of the State of New York without giving effect to the
principles of conflicts of laws thereof.
(h) Consent to Jurisdiction; Consent to Service. IN THE EVENT OF ANY
-------------------------------------------
LITIGATION, CLAIM OR OTHER LEGAL PROCEEDING WITH RESPECT TO ANY MATTER
PERTAINING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY, THE
PARTIES HERETO HEREBY WAIVE THE RIGHT TO A TRIAL BY JURY. THE PARTIES HERETO
HEREBY READILY CONSENT TO THE EXCLUSIVE JURISDICTION AND VENUE OF THE COURTS OF
THE STATE OF NEW YORK AND ANY FEDERAL COURT LOCATED IN NEW YORK IN CONNECTION
WITH ANY LITIGATION ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
(i) Severability. If any term or other provision of this Agreement is
------------
invalid, illegal or incapable of being enforced by any rule of Law or public
policy, all other terms and provisions of this Agreement shall nevertheless
remain in full force and effect. Upon determination that any term or other
provision hereof is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible to the fullest extent
permitted by applicable Law in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
IN WITNESS WHEREOF, Buyer, Metamor and each Stockholder have executed or
caused this Agreement to be duly executed and delivered as of the date first
written above.
PSINET INC.
By: /s/ Harold S. Wills
--------------------------------
Name: Harold S. Wills
Title: President
<PAGE>
-5-
METAMOR WORLDWIDE, INC.
By: /s/ Peter T. Dameris
--------------------------------
Name: Peter T. Dameris
Title: Chief Executive Officer and
President
<PAGE>
-6-
SIGNATURE PAGE TO STOCKHOLDER AGREEMENT
/s/ William L. Schrader
-----------------------------------
Name: William L. Schrader
Number of Shares Beneficially Owned as of
March 21, 2000:
10,954,744 shares of Common Stock
Notice Address:
c/o PSINet Inc.
510 Huntmar Park Drive
Herndon, Virginia 20170
<PAGE>
Exhibit 99.5
CONSENT OF FLEETBOSTON ROBERTSON STEPHENS INC.
We hereby consent to: (i) the inclusion of our opinion letter, dated March
21, 2000, to the Board of Directors of PSINet Inc. ("PSINet") as Annex 2 to the
joint Prospectus/ Proxy Statement of PSINet and Metamor Worldwide, Inc.
("Metamor"), and (ii) all references to us in the sections captioned "Summary,"
"The Merger--Background to the Merger," "--PSINet's Reasons for the Merger and
Board of Directors' Recommendation," and "--Opinion of PSINet's Financial
Advisor" of the joint Prospectus/ Proxy Statement of PSINet and Metamor which
forms a part of this Registration Statement on Form S-4. In giving such consent,
we do not admit that we come within the category of persons whose consent is
required under, and we do not admit that we are "experts" for purposes of, the
Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder.
/s/ FLEETBOSTON ROBERTSON STEPHENS INC.
San Francisco, California
April 11, 2000
<PAGE>
EXHIBIT 99.6
FORM OF CONSENT OF LAZARD FRERES & CO. LLC
, 2000
The Board of Directors
Metamor Worldwide, Inc.
4400 Post Oak Parkway
Suite 1100
Houston, TX 77027-3413
We hereby consent to (i) the use of our opinion letter, dated March 21,
2000, to the Board of Directors of Metamor Worldwide, Inc. ("Metamor"), included
as Annex 3 to the joint prospectus/proxy statement which forms a part of the
Registration Statement on Form S-4 relating to the proposed merger between
PSINet Inc.'s wholly owned subsidiary PSINet Shelf IV Inc. and Metamor, and (ii)
references to such opinion in such joint prospectus/proxy statement under the
captions "Summary--Fairness Opinions of Financial Advisors," "The Merger--
Background to the Merger," "The Merger--Metamor's Reasons for the Merger and
Board of Directors' Recommendation," and "The Merger--Opinion of Metamor's
Financial Advisor." In giving such consent, we do not thereby admit that we come
within the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission promulgated thereunder nor do we thereby
admit that we are experts with respect to any part of such Registration
Statement within the meaning of the term "experts" as used in the Securities Act
of 1933, as amended, or the rules and regulations of the Securities and Exchange
Commission promulgated thereunder.
Very truly yours,
LAZARD FRERES & CO. LLC
By:
------------------------------
Patrick Sayer
Managing Director
