1
EXHIBIT 4
[XXXXXXX XXXXX LOGO]
CONFIRMATION OF OTC TRANSACTION
DATED: JUNE 3, 1999 ML REF: 998688
TO: IXC INTERNET SERVICES, INC. ("COUNTERPARTY")
ATTENTION: XXXXX X. XXXXXXX
Telephone: 000-000-0000 Fax: 000-000-0000
FROM: XXXXXXX XXXXX INTERNATIONAL ("MLI")
Tel: (000) 000-0000
Fax: (000) 000-0000
Dear Sir / Madam,
The purpose of this letter agreement (this "Confirmation") is to confirm the
terms and conditions of the above referenced transaction entered into between
Counterparty and MLI, through its agent Xxxxxxx Lynch, Xxxxxx, Xxxxxx & Xxxxx
Incorporated ("MLPFS"), on the Trade Date specified below (the "Transaction").
This Confirmation constitutes a "Confirmation" as referred to in the Master
Agreement specified below.
The definitions and provisions contained in the 1991 ISDA Definitions (as
supplemented by the 1998 Supplement, the "Swap Definitions") and in the 1996
ISDA Equity Derivatives Definitions (the "Equity Definitions", and together with
the Swap Definitions, the "Definitions"), in each case as published by the
International Swaps and Derivatives Association, Inc., are incorporated into
this Confirmation. In the event of any inconsistency between the Swap
Definitions and the Equity Definitions, the Equity Definitions will govern. In
the event of any inconsistency between this Confirmation and the Agreement (as
defined below) or the Definitions, the terms of this Confirmation shall govern.
1. This Confirmation supplements, forms part of, and is subject to, the Master
Agreement (including the Schedule thereto and the Credit Support Annex ("CSA")
incorporated therein), dated as of June 2, 1999, as amended and supplemented
from time to time (the "Agreement"), between you and us. All provisions
contained in the Agreement govern this Confirmation except as expressly modified
below.
2. The terms of the particular Transaction to which this Confirmation relates
are as follows:
GENERAL TERMS:
Trade Date: **********, 1999
Termination Date: **********, 2002 (or if not an Exchange Business
Day, the next succeeding Exchange
Business Day).
Seller: Counterparty
Buyer: MLI
Shares: The common stock of PSINet Inc. (Symbol: PSIX)
* Selected portions have been deleted as confidential pursuant to Rule 24b-2.
Complete copies of the entire exhibit have been filed separately with the
Securities and Exchange Commission and marked "CONFIDENTIAL TREATMENT".
1
2
Number of Shares: 1,500,000
Floor Price: **********
Cap Price: **********
Final Price: The closing price per Share on the Exchange at the
Valuation Time on the Valuation Date.
Initial Payment
Amount: MLI shall pay to Counterparty on the Initial
Payment Date USD 51,963,068.36
Initial Payment
Date: June 14, 1999; provided, however, that if an
executed copy of this Confirmation is not received
by MLI on or prior to such date, then, subject to
Section 7(d) of this Confirmation, the Initial
Payment Date will be the day on which MLI receives
an executed copy of this Confirmation from
Counterparty, unless such day is not an Exchange
Business Day or such executed Confirmation is
received after 1:30 p.m. local time in New York on
such day, in which case the Initial Payment Date
will be the next succeeding Exchange Business Day.
Settlement
Currency: USD
Exchange: NASDAQ
Related Exchange: Any exchange on which options contracts related to
the Shares are principally traded.
Business Days: New York
VALUATION:
Valuation Time: At the close of trading in respect of regular
trading hours on the Exchange, without regard to
any extended trading hours on the Exchange, if any.
Valuation Date: The Termination Date
SETTLEMENT TERMS: Settlement of this Transaction shall be either Cash
Settlement or Physical Settlement as determined by
Counterparty in writing to MLI no less than ten
(10) Business Days prior to the Termination Date.
In the event MLI is not notified, the settlement
method for this Transaction shall be Physical
Settlement.
Cash Settlement: If Cash Settlement applies, then on the Cash
Settlement Payment Date, Counterparty will pay to
MLI the Cash Settlement Amount.
Cash Settlement
Amount: An amount determined by the Calculation Agent on
the Valuation Date based on the following formula:
a) if the Final Price is less than the Floor Price,
an amount equal to:
Number of Shares x Final Price
b) if the Final Price is less than or equal to the
Cap Price but greater than or equal to the Floor
Price, an amount equal to:
* Selected portions have been deleted as confidential pursuant to Rule 24b-2.
Complete copies of the entire exhibit have been filed separately with the
Securities and Exchange Commission and marked "CONFIDENTIAL TREATMENT".
2
3
Floor Price x Number of Shares
and
c) if the Final Price is greater than the Cap
Price, an amount equal to:
[Floor Price + (Final Price - Cap Price)] x Number
of Shares
Cash Settlement
Payment Date: Three (3) Currency Business Days after the
Valuation Date.
Physical Settlement: If Physical Settlement applies, then on the
Settlement Date, Counterparty will deliver to MLI
the Number of Shares to be Delivered.
Number of Shares
to be Delivered: A number of Shares determined by the Calculation
Agent on the Valuation Date based on the following
formula:
a) if the Final Price is less than the Floor Price,
a number of Shares equal to:
Number of Shares
b) if the Final Price is less than or equal to the
Cap Price but greater than or equal to the Floor
Price, a number of Shares equal to:
Floor Price x Number of Shares
Final Price
and
c) if the Final Price is greater than the Cap
Price, a number of Shares equal to:
Floor Price + (Final Price - Cap Price) x Number of Shares
---------------------------------------
Final Price
Settlement Date: Three (3) Exchange Business Days after the
Valuation Date.
Failure to Deliver: Applicable
Clearance System(s): The principal domestic clearance system customarily
settling trades on a delivery versus payment basis
on the Shares.
ADJUSTMENTS:
Method of Adjustment: In the event of the occurrence of a Potential
Adjustment Event, the Calculation Agent will
determine whether such Potential Adjustment Event
has a diluting or concentrative effect on the
theoretical value of the Shares and, if so, will
(i) make the corresponding adjustment(s), if any,
to the Number of Shares, the Floor Price and the
Cap Price and, in any case, any other variable
relevant to the settlement or payment terms of this
transaction as the Calculation Agent determines
appropriate to account for that diluting or
concentrative effect and (ii) determine the
effective date(s) of the adjustment(s).
3
4
EXTRAORDINARY EVENTS:
Consequences of Merger Event:
(a) Share-for-Share: Cancellation and Payment; provided, however, if the
New Shares are publicly traded on a United States
national securities exchange or on NASDAQ,
Alternative Obligation shall apply; provided
further that references to an "option" in Section
9.7 of the Equity Definitions shall be deemed to be
references to a "forward".
(b) Share-for-Other: Cancellation and Payment
(c) Share-for-
Combined: Cancellation and Payment; provided, however, if any
portion of the consideration for the relevant
shares consists of equity securities that are
publicly traded on a United States national
securities exchange or on NASDAQ (the "Publicly
Traded Securities Consideration"), Alternative
Obligation shall apply to that portion of the
Transaction corresponding to the Publicly Traded
Securities Consideration; provided further that
references to an "option" in Section 9.7 of the
Equity Definitions shall be deemed to be references
to a "forward".
Notwithstanding anything to the contrary in the
Equity Definitions, the amount payable under this
Transaction upon the occurrence of an Extraordinary
Event shall be calculated by the Calculation Agent
in good faith in accordance with Section 9.7 of the
Equity Definitions using, among other things, the
factors identified in subparagraphs (i), (ii) and
(iii) therein, but without the requirement of
soliciting dealer quotations therefor.
NATIONALIZATION OR
INSOLVENCY: Negotiated Close-out
3. CALCULATION AGENT: MLI, provided that if the Counterparty objects to
any calculation, the parties agree to be bound by
the determination of a leading, independent dealer
in derivative instruments of this type selected by
agreement between the parties, whose fees and
expenses, if any shall be met equally by them both
(the "Substitute Calculation Agent"). If unable to
agree on a Substitute Calculation agent, each party
shall select an independent dealer in derivative
instruments of this type, and such independent
dealers shall agree on a third party, who shall be
deemed to be the Substitute Calculation Agent. The
Calculation Agent or the Substitute Calculation
Agent shall have no liability or responsibility to
the parties for any error or omission in making any
determination in connection with this Transaction.
4. NON-RELIANCE: Each party represents to the other party that it is
acting for its own account, and has made its own
independent decisions to enter into this
Transaction and as to whether this Transaction is
appropriate or proper for it based on its own
judgment and upon advice from such advisors as it
has deemed necessary. It is not relying on any
communication (written or oral) of the other party
as investment advice or as a recommendation to
enter into this Transaction, it being understood
that information and explanations related to the
terms and conditions of this Transaction shall not
be considered investment advice or a recommendation
to enter into this Transaction. No communication
(written or
4
5
oral) received from the other party shall be deemed
to be an assurance or guarantee as to the expected
results of this Transaction.
5. GOVERNING LAW: The laws of the State of New York (without
reference to choice of law doctrine)
6. COLLATERAL:
Independent Amount: Independent Amount with respect to Counterparty and
this Transaction means a number of Shares equal to
the Number of Shares (the "Pledged Shares").
Eligible Collateral: The Pledged Shares will constitute Eligible
Collateral with respect to this Transaction. In the
event that MLI borrows the Pledged Shares pursuant
to the Securities Loan Agreement dated as of June
2, 1999 between MLI and Counterparty (the
"Securities Loan Agreement"), the Collateral (as
defined in the Securities Loan Agreement) delivered
by MLI to Counterparty pursuant to the Securities
Loan Agreement shall constitute Posted Collateral
for purposes of the CSA; provided, however, that
such Collateral will be disregarded for purposes of
determining the Interest Amount under the CSA.
Exposure: This Transaction will be disregarded for purposes
of determining the Credit Support Amount under the
CSA.
7. ADDITIONAL
TERMINATION EVENTS: The following shall constitute Additional
Termination Events under Section 5(b)(v) of the
Agreement:
(a)(i) MLI is no longer able, or it becomes
more costly, to borrow (or maintain a
borrowing of) Shares in connection with this
Transaction, (ii) MLI notifies Counterparty
of such inability or increased cost; and
(iii) on or before the fifth Exchange
Business Day following such notice,
Counterparty fails to provide, either
directly or indirectly, for a loan to MLI of
either (x) the Pledged Shares, pursuant to,
and in accordance with, the Securities Loan
Agreement or (y) Shares (other than the
Pledged Shares) that are freely tradable in
an amount equal to the Number of Shares, upon
terms consistent with then-applicable law. In
the event that such an agreement is executed
and the Pledged Shares or such other Shares
so borrowed, MLI shall adjust the terms of
this Transaction accordingly (and in its sole
discretion) taking into account the costs
incurred by MLI in borrowing (or maintaining
a borrowing of) the Number of Shares.
(b) At any time after the loan of the Pledged
Shares by Counterparty to MLI pursuant to the
Securities Loan Agreement, Counterparty
demands the return of the Pledged Shares
pursuant to the Securities Loan Agreement
and, at the time of such demand, MLI is not
able, or it is more costly, to borrow (or
maintain a borrowing of) Shares in connection
with this Transaction.
(c) A registration statement, accompanied by
Satisfactory Ancillary Documents, covering
the delivery of the Loaned Shares (as defined
in the Securities Loan Agreement) by MLI in
connection with its hedging activities
relating to this Transaction, is not
effective within 185 days from the Trade Date
of this Transaction.
5
6
"Satisfactory Ancillary Documents" means an
agreement of PSINet Inc. containing
representations, warranties, covenants and
indemnification provisions substantially
identical to those contained in, as well as
legal opinions and a comfort letter
substantially identical to those delivered in
connection with, the Underwriting Agreement
in respect of 8,000,000 Shares of Common
Stock of PSINet Inc. dated April 28, 1999
between PSINet Inc. and the underwriters
named therein.
(d) on or prior to the fourteenth day
following the Trade Date, (i) Counterparty
fails to execute and deliver to MLI the
Master Agreement including this Confirmation,
the Securities Loan Agreement and the Client
Money Opt Out Letter or (ii) Counterparty
fails to execute and deliver to PSINet Inc. a
letter requesting PSINet Inc. to remove from
the certificates evidencing the Pledged
Shares the legends restricting the transfer
of such Shares.
For purposes of the foregoing Termination Events,
Counterparty will be the Affected Party.
8. REPRESENTATIONS OF
COUNTERPARTY: Counterparty (a) has such knowledge and experience
in financial and business affairs as to be capable
of evaluating the merits and risks of entering into
the Transaction; (b) qualifies as an "accredited
investor" under Regulation D of the Securities Act
of 1933, as amended (the "Securities Act"); (c) has
consulted with its own legal, financial, accounting
and tax advisors in connection with the
Transaction; (d) is entering into the Transaction
for a bona fide business purpose to hedge an
existing position; (e) acknowledges that in return
for downside protection against a decline in the
market price of the Shares below the Floor Price,
Counterparty is foregoing the upside value of an
increase in the market price of the Shares above
the Cap Price; and (f) in exchange for prepayment
of the purchase price under the Transaction,
Counterparty agrees to sell (and physically
deliver) the Shares to MLI on the Settlement Date
(unless Counterparty elects Cash Settlement in the
manner specified herein).
Counterparty has no knowledge of any non-public
material information regarding the Issuer of the
Shares.
Counterparty has furnished MLI with copies of all
material agreements or contracts to which it is a
party, by which it is bound, or by which the
Pledged Shares are bound, that relate to the
Pledged Shares.
The Initial Payment Amount received by Counterparty
will not be used for the purpose of purchasing,
refinancing or carrying margin stock, as defined in
Regulation U promulgated by the Board of Governors
of The Federal Reserve System.
In the event that MLI sells any Pledged Shares
borrowed pursuant to the Securities Loan Agreement,
Counterparty represents and warrants that the
following will be true as of each Representation
Date (defined below): (i) the Registration
Statement of the Issuer of the Shares as filed with
the Securities and Exchange Commission and any
related prospectus (and any supplement thereto)
(the "Registration Statement"), as of its
respective dates, to Counterparty's knowledge, does
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
6
7
statements therein not misleading and (ii) since
the respective dates as of which information is
given in the Registration Statement and any such
prospectus (and any supplement thereto), except as
otherwise stated therein, to Counterparty's
knowledge, there has been no material adverse
change in the condition, financial or otherwise, or
in the earnings, business affairs or business
prospects of the Issuer of the Shares and its
subsidiaries considered as one enterprise, whether
or not arising in the ordinary course of business.
"Representation Dates" means: (i) the date on which
Counterparty delivers any prospectus (and any
supplement thereto) under the Registration
Statement, (ii) the date of each sale of Pledged
Shares by MLI; and (iii) the settlement date of
each sale of Pledged Shares by MLI.
Counterparty was not or will not be insolvent at
the time this Transaction was consummated, and was
not or will not be rendered insolvent or will not
be insolvent as a result thereof. Counterparty has
not engaged or will not engage in any business or
transaction with MLI after which the property
remaining with Counterparty was or will be
unreasonably small in relation to its business. At
the time of any transfer to or for the benefit of
MLI, Counterparty did not intend or will not intend
to incur, and did not incur or will not incur,
debts that were beyond the ability of Counterparty
to pay as they mature.
Counterparty has not received from PSINet Inc.
notice of exercise by PSINet Inc. of its purchase
rights under the IRU and Stock Purchase Agreement
dated July 22, 1997, in respect of the Shares
subject to this Transaction and the option of
PSINet Inc. to exercise such right under the letter
from Counterparty to PSINet Inc. dated May 31, 1999
has expired.
Neither Counterparty nor any person attributable to
Counterparty for purposes of Rule 144 under the
Securities Act ("Rule 144") has sold any Shares
during the preceding three (3) months prior to the
Trade Date of this Transaction and Counterparty
covenants and agrees that, until a registration
statement is effective with respect to the delivery
of the Loaned Shares and MLI has notified
Counterparty that it has delivered all of the
Loaned Shares pursuant thereto, it will not sell,
nor will it permit any person attributable to it
for purposes of Rule 144 to sell, Shares without
the prior consent of MLI.
9. ACKNOWLEDGEMENTS: The parties hereto intend for:
(i) This Transaction to be a "securities contract"
as defined in Section 741(7) of the Bankruptcy
Code, qualifying for the protection under Section
555 of the Bankruptcy Code.
(ii) A party's right to liquidate this Transaction
and to exercise any other remedies upon the
occurrence of any Event of Default under the
Agreement with respect to the other party to
constitute a "contractual right" as defined in the
Bankruptcy Code.
(iii) Any cash, securities or other property
provided as performance assurance, credit, support
or collateral with respect to this Transaction to
constitute "margin payments" as defined in the
Bankruptcy Code.
(iv) All payments for, under or in connection with
this Transaction, all payments for the Shares and
the transfer of such Shares to constitute
"settlement payments" as defined in the Bankruptcy
Code.
(v) "Bankruptcy Code" means Title 11 of the United
States Code.
7
8
10. TAX TREATMENT: MLI and Counterparty hereby agree to treat, for
United States Federal, state and local tax
purposes, this Transaction as a pre-paid forward
contract, which does not constitute, in whole or in
part, indebtedness, pursuant to which MLI is
obligated to purchase and Counterparty is obligated
to deliver the Number of Shares to be Delivered
(subject to Counterparty's right to elect Cash
Settlement). Notwithstanding the foregoing, as used
herein, the term "forward contract" does not mean a
"forward contract" as referred to in either Section
101(49)(B)(iii) of the Bankruptcy Code or Section
1259(d)(1) of the Internal Revenue Code of 1986, as
amended.
11. INDEMNIFICATION: Counterparty agrees to indemnify MLI and its
Affiliates and their respective directors,
officers, employees, agents and controlling persons
(MLI and each such person being an "Indemnified
Party") from and against any and all losses,
claims, damages and liabilities, joint or several,
to which such Indemnified Party may become subject
under any applicable federal or state law or
otherwise, and related to or arising out of any of
the transactions contemplated by this Confirmation,
and will reimburse any Indemnified Party for all
expenses (including reasonable counsel fees and
expenses) as they are incurred in connection with
the investigation of, preparation for or defense or
settlement of any pending or threatened claim or
any action or proceeding arising therefrom, whether
or not such Indemnified Party is a party and
whether or not such claim, action or proceeding is
initiated or brought by or on behalf of
Counterparty. Counterparty will not be liable under
the foregoing indemnification provision to the
extent that any loss, claim, damage, liability or
expense is found in a nonappealable judgment by a
court to have resulted from MLI's willful
misconduct or gross negligence. The provisions of
this Section 11 shall survive any termination of
the Agreement or completion of the transactions
contemplated by this Confirmation.
12. INTERPRETATION: For purposes of the Equity Definitions, this
Transaction will be deemed to be a
Physically-settled Share Option Transaction if
Physical Settlement applies and a Cash-settled
Share Option Transaction if Cash Settlement
applies, in either case with an Exercise Date equal
to the Valuation Date.
13. AGENCY: Counterparty understands and agrees that MLPFS will
act as its agent with respect to this Transaction.
MLPFS is acting hereunder solely in its capacity as
agent for MLI and Counterparty pursuant to
instructions from MLI and Counterparty. MLPFS shall
not be liable to MLI or Counterparty as a result of
any failure by MLI or Counterparty to pay or
perform any obligation hereunder. Each of MLI and
Counterparty agrees to proceed solely against the
other or any Credit Support Provider to collect or
recover any amount owing to it or enforce any of
its rights in connection with or as a result of the
Transaction.
MLI is regulated by The Financial Services
Authority and has entered into this Transaction as
principal.
8
9
Please confirm that the foregoing correctly sets forth the terms of our
agreement by executing the copy of this Confirmation enclosed for that purpose
and returning it to us by facsimile transmission to the Attention of: Xxxx Xxxxx
(Telecopier No. 212 449-2697).
Very truly yours,
XXXXXXX XXXXX INTERNATIONAL
By: /s/ XXXXX XXXXXX
------------------------------------
Name: Xxxxx Xxxxxx
Title:
Confirmed as of the date first above written:
IXC INTERNET SERVICES, INC.
By: /s/ XXXXX X. XXXXXXX
------------------------------------
Name: Xxxxx X. Xxxxxxx
Title: Executive Vice President and
Chief Financial Officer
9
