SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Date of report (date of earliest event reported): April 4, 2002
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Cogent Communications Group, Inc.
---------------------------------
(Exact Name of Registrant as
Specified in Charter)
1-31227
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(Commission File No.)
52-2337274
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(IRS Employer
Identification No.)
Delaware
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(State or Other Jurisdiction
of Incorporation)
1015 31st Street N.W.
Washington, DC 20007
(Address of Principal
Executive Offices)
(202) 295-4200
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(Registrant's telephone
number, including area code)
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
As reported on its current report on Form 8-K filed April 4,
2002, on April 2, 2002, Cogent Communication Corporation, Inc. ("Cogent")
completed its acquisition of certain assets and the assumption of certain
liabilities of PSINet Inc. ("PSINet").
Pursuant to Item 7(a)(4) of Form 8-K, this Form 8-K/A amends the
current report on Form 8-K filed April 4, 2002 to include (1) the statements
of PSINet required by Item 7(a) of Form 8-K and (2) the pro forma financial
information required by Item 7(b) of Form 8-K.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Businesses Acquired.
The following financial statements required by Item 7(a) of Form 8-K
relating to PSINet are filed herewith:
Report of Independent Accountants
Statement of Assets Acquired and Liabilities Assumed as of December 31,
2001 and March 31, 2002 (unaudited)
Statements of Revenues and Direct Expenses for the year ended December 31,
2001 and the three months ended March 31, 2002 (unaudited) and
March 31, 2001 (unaudited)
Notes to Statements
(b) Pro Forma Financial Information.
The following pro forma financial information required by Item 7(b) of
Form 8-K relating to Cogent's acquisition of certain assets and the assumption
of certain liabilities of PSINet is filed herewith:
- Cogent Communications Group, Inc. pro forma balance sheet as of
March 31, 2002 (unaudited)
- Explanatory notes to pro forma balance sheet
- Cogent Communications Group, Inc. pro forma balance sheet as of
December 31, 2001 (unaudited)
- Explanatory notes to pro forma balance sheet
- Cogent Communications Group, Inc. pro forma statement of operations
for the year ended December 31, 2001 (unaudited)
- Explanatory notes to pro forma statement of operations
- Cogent Communications Group, Inc. pro forma statement of operations
for the three months ended March 31, 2002 (unaudited)
- Explanatory notes to pro forma statement of operations
(c) Exhibits
2.1 Asset Purchase Agreement, dated February 26, 2002, by and among
Cogent Communications, PSINet et al. (previously filed as Exhibit 2.1
to our Form 8-K, dated February 26, 2002, and incorporated herein by
reference).
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
COGENT COMMUNICATIONS GROUP, INC.
Date: June 17, 2002 By: /s/ THADDEUS G. WEED
--------------------------------------
Name: Thaddeus G. Weed
Title: Vice President and Controller
REPORT OF INDEPENDENT ACCOUNTANTS
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To the Board of Directors and
Shareholders of Cogent Communications Group, Inc.
We have audited the accompanying Statement of Assets Acquired and Liabilities
Assumed and the related Statement of Revenues and Direct Expenses of PSINet Inc.
Project Phoenix as of and for the year ended December 31, 2001. These statements
are the responsibility of the management of Cogent Communications Group, Inc.
("Cogent"). Our responsibility is to express an opinion on these statements
based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in these statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of these
statements. We believe that our audit provides a reasonable basis for our
opinion.
The accompanying statements were prepared for the purpose of complying with the
rules and regulations of the Securities and Exchange Commission (for inclusion
in Cogent's Current Report on Form 8-K) as described in Note 2 and are not
intended to be a complete presentation of the financial position or results of
operations of PSINet Inc.
In our opinion, the statements referred to above present fairly, in all material
respects, the assets acquired and liabilities assumed as of December 31, 2001
and the revenues and direct expenses for the year ended December 31, 2001, as
described in Note 2, in conformity with accounting principles generally accepted
in the United States of America.
As discussed in Note 1, on April 2, 2002, Cogent acquired selected assets and
liabilities of PSINet Inc. for a total cash purchase price of approximately
$9.5 million.
/s/ PricewaterhouseCoopers LLP
Washington, D.C.
June 13, 2002
1
PSINET INC. PROJECT PHOENIX
STATEMENT OF ASSETS ACQUIRED
AND LIABILITIES ASSUMED
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MARCH 31,
DECEMBER 31, 2002
2001 (UNAUDITED)
------------------ --------------
ASSETS ACQUIRED:
Accounts receivable (net of allowance for doubtful accounts of
$2,027,000 and $2,168,000, respectively) $ 2,803,000 $ 2,738,000
Other assets 134,000 134,000
Fixed assets, net 9,626,000 8,889,000
------------------ --------------
Total assets acquired 12,563,000 11,761,000
------------------ --------------
LIABILITIES ASSUMED:
Deferred revenue 2,386,000 2,472,000
------------------ --------------
Total liabilities assumed 2,386,000 2,472,000
------------------ --------------
Net assets acquired $ 10,177,000 $ 9,289,000
================== ==============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE STATEMENTS.
2
PSINET INC. PROJECT PHOENIX
STATEMENTS OF REVENUES AND
DIRECT EXPENSES
--------
THREE-MONTH THREE-MONTH
PERIOD ENDED PERIOD ENDED
MARCH 31, MARCH 31,
YEAR ENDED 2002 2001
DECEMBER 31, 2001 (UNAUDITED) (UNAUDITED)
------------------- ---------------- -----------------
Revenues, net $ 56,916,000 $ 14,105,000 $ 13,444,000
---------------- -------------- -------------
Direct expenses:
Cost of revenues 50,752,000 11,206,000 12,399,000
Sales and marketing 2,846.000 745,000 689,000
General and administrative 11,339,000 1,089,000 3,323,000
Depreciation and amortization 92,962,000 1,082,000 17,890,000
Impairment charges 295,521,000 - -
---------------- -------------- -------------
Total direct expenses 453,420,000 14,122,000 34,301,000
---------------- -------------- -------------
Excess of direct expenses over revenues $ (396,504,000) $ (17,000) $ (20,857,000)
================ ============== =============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE STATEMENTS.
3
PSINET INC. PROJECT PHOENIX
NOTES TO STATEMENTS
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1. BUSINESS AND ASSET PURCHASE AGREEMENT
On February 26, 2002, a wholly-owned subsidiary of Cogent Communications
Group, Inc. ("Cogent") entered into an agreement to acquire selected assets
and liabilities of PSINet Inc.'s United States operations ("PSINet Project
Phoenix"). The acquisition was consummated on April 2, 2002 (the "Close
Date") for a total cash purchase price of approximately $9.5 million.
PSINet Inc. ("PSINet") was organized in October 1989 and provided retail
and wholesale Internet services and end-to-end information technology (IT)
services, primarily to business customers. PSINet's services and products
included dedicated and global dial-up access, managed services, collocation
and shared hosting, enterprise resource planning system implementation,
application development, application service provider offerings and managed
applications. PSINet also provided wholesale and private label network
connectivity and related services to other Internet service providers and
telecommunications carriers to further utilize its network capacity. The
provision of wholesale internet services, end-to-end IT solutions, and
private label network connectivity and related services either ceased
during 2001 or was not part of the acquired business noted above.
On May 31, 2001, PSINet filed a voluntary petition for relief under Chapter
11 of the United States Bankruptcy Code. From May 31, 2001 through April 1,
2002, PSINet continued to operate their business as a debtor-in-possession.
Assets acquired by Cogent included all accounts receivable balances,
security deposits and prepayments related to acquired assets, certain owned
telecommunications, computer and office equipment, certain leasehold
improvements and certain indefeasible rights-of-use (IRU) capital lease
agreements for fiber optic cable. Cogent also acquired certain assets and
succeeded to certain agreements not reflected in PSINet's historical
financial statements, prepared in accordance with accounting principles
generally accepted in the United States of America. Such assets and
agreements included customer contracts, certain intellectual property, the
PSINet tradename, selected peering arrangements and operating leases for
three web-hosting data centers, which were assumed on a prospective basis
from the Close Date. Cogent has assumed the obligation to provide services
to certain customers subsequent to the Close Date, including those for
which PSINet had received payment for such services prior to April 2, 2002.
As a result of these obligations, deferred revenues are reflected in the
statement of assets acquired and liabilities assumed. Cogent also assumed
certain leased circuits on a prospective basis from the Close Date.
4
PSINET INC. PROJECT PHOENIX
NOTES TO STATEMENTS
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2. BASIS OF PRESENTATION
The accompanying statement of assets acquired and liabilities assumed as of
December 31, 2001 and the statement of revenues and direct expenses for the
year then ended has been prepared for the purpose of complying with the
rules and regulations of the Securities and Exchange Commission ("SEC")
(for inclusion in Cogent's Current Report on Form 8-K). The net assets
acquired constitute a business pursuant to rules and regulations of the
SEC.
The statement of assets acquired and liabilities assumed includes those
United States assets and liabilities of PSINet which are subject to the
asset purchase agreement, as described in more detail in Note 1 above and
in Section 2 of the Asset Purchase Agreement dated February 26, 2002.
The statement of revenues and direct expenses includes only those revenues
and expenses directly related to the acquired assets in the United States.
Although Cogent acquired all of PSINet U.S. accounts receivable, including
accounts receivable arising from customer relationships that were not
acquired by Cogent, only revenues related to the customer relationships
that were acquired and which will be served by Cogent on a prospective
basis are included in this statement of revenues and direct expenses.
Although Cogent did not acquire all of the U.S. fixed assets and software
utilized by PSINet, the depreciation and other charges related to certain
of these assets which were not acquired are included as direct expenses
since they were necessary to support the revenue base of the acquired
business during the periods presented. It was impracticable to allocate a
certain portion of depreciation and other charges to the acquired business
since such assets formed a network which, as a whole, was necessary to
support the acquired revenue base. As such, all depreciation and other
charges related to the aforementioned assets are included as direct
expenses.
Direct expenses also include an allocation of certain expenses directly
attributable to the acquired business, the most significant of which relate
to advertising, property taxes, licenses, building depreciation and
internal communications charges. Allocation methodologies were based on
relative percentages of the acquired business as compared to PSINet's
United States business, including relative revenue, relative payroll costs,
relative fixed asset balances and relative square feet of the owned
headquarters building. The use of these allocation methodologies
necessarily involved estimates and judgments; management believes the
allocation methodologies and resulting percentages represent a reasonable
and appropriate approach to allocating such direct expenses. Although the
headquarters building is not being purchased by Cogent, a certain portion
of the depreciation was allocated as a direct cost, given that the building
was used for operating purposes to support the revenue base of the acquired
business during the periods presented.
5
PSINET INC. PROJECT PHOENIX
NOTES TO STATEMENTS
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All non-direct costs such as income taxes, treasury, accounting and legal
services, goodwill amortization, interest expense and other non-operating
expenses, have been excluded from this statement.
The statements are not indicative of the financial condition or results of
operations of the acquired business on a prospective basis due to changes
in the business, including, among other things, the bankruptcy proceedings
of PSINet. Further, the omission or inclusion of various operating expenses
in these statements may not be indicative of such expenses of the acquired
business on a prospective basis.
Given the nature of these statements, the preparation of cash flow
information relating to operating, investing and financing activities of
PSINet Project Phoenix was impracticable.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies not disclosed elsewhere in the statements
are as follows:
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
UNAUDITED INTERIM STATEMENTS
In the opinion of Cogent management, the accompanying unaudited
statement of assets acquired and liabilities assumed as of March 31,
2002 and the unaudited statements of revenues and direct expenses for
the three-month periods ended March 31, 2002 and 2001 contain all
adjustments of a normal, recurring nature which are necessary for a
fair statement of the results for the interim periods presented. The
revenues and direct expenses are not necessarily indicative of results
for the entire year.
6
PSINET INC. PROJECT PHOENIX
NOTES TO STATEMENTS
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REVENUE RECOGNITION
Revenue is recognized when persuasive evidence of an agreement exists,
the terms are fixed or determinable, services are performed and
collection is reasonably assured.
Revenues from access and hosting services are recognized ratably over
the terms of the contracts, which are generally one to three years.
Revenues are recorded net of customer credits. Cash received in advance
of revenue earned is recorded as deferred revenues.
ADVERTISING COSTS
Advertising costs are expensed in the period incurred. Advertising
expenses were $1,387,000 for the year ended December 31, 2001.
CONCENTRATIONS OF CREDIT RISK AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Financial instruments that potentially present concentrations of credit
risk consist of accounts receivable. Credit risk inherently increased
after PSINet's voluntary petition for bankruptcy on May 31, 2001 and
after customers became aware of the proposed acquisition by Cogent. The
allowance for doubtful accounts was based on an analysis of all U.S.
customers of PSINet since Cogent acquired all of PSINet's receivables,
despite the fact that Cogent will only service a certain portion of the
customers on a prospective basis. Bad debt expense of $491,000 for the
year ended December 31, 2001 and of $123,000 (unaudited) and $141,000
(unaudited) for the three- month periods ended March 31, 2001 and 2002,
respectively, relate only to the acquired customer base which will be
served by Cogent on a prospective basis.
No individual customer accounted for more than 10% of PSINet Project
Phoenix' revenue for the year ended December 31, 2001 or accounts
receivable at December 31, 2001.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Telecommunications, computer and office equipment is recorded at cost
less accumulated depreciation, which is provided on the straight-line
method over the estimated useful lives of the assets, which range from
three to five years. Cost includes major expenditures for improvements
and replacements that extend useful lives or increase capacity of the
assets. Expenditures for maintenance and repairs are expensed as
incurred. Leasehold improvements include costs associated with
7
PSINET INC. PROJECT PHOENIX
NOTES TO STATEMENTS
--------
telecommunications equipment installations and building improvements
and are depreciated over the shorter of the estimated useful life
(generally five to seven years) or the related lease term.
INDEFEASIBLE RIGHTS-OF-USE AGREEMENTS
Indefeasible right-of-use (IRU) agreements represent the right to
access and use certain dark and lit fiber facilities obtained under
capital-lease agreements. The IRU agreements are recorded at their
historical cost if paid up-front or at the net present value of the
future minimum lease payments. The cost is being amortized on a
straight-line basis over the respective terms of the arrangements,
which range from six years to twenty years based on the amendments in
effect at December 31, 2001. Cogent has purchased five IRU agreements
in connection with the acquisition. PSINet entered into amendments for
two IRU agreements during 2001 to reduce the terms of the agreements;
these amendments did not change the capital lease classification of the
arrangements. On April 2, 2002, one other IRU agreement was amended to
reduce the term from 20 years to 8 years; this amendment also did not
change the capital lease classification of the arrangement. Interest
costs associated with significant capital additions are capitalized.
IMPAIRMENT OF ASSETS
Management periodically evaluates the recoverability of its long-lived
assets, including assets under IRU arrangements. When indicators of
potential impairment are present, management evaluates the carrying
value of these assets in relation to the operating performance of the
business and future undiscounted cash flows expected to result from the
use of these assets to determine if an impairment exists. If an
impairment is present, the assets are reported at the lower of carrying
value or fair value. See discussion of 2001 impairment charges in Note
4.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments consist of accounts receivable. The fair value of
accounts receivable at December 31, 2001 approximates the net carrying
value of such receivables at that date.
RECENT ACCOUNTING PRONOUNCEMENTS
In October 2001, the FASB issued SFAS No. 144, Accounting For The
Impairment Or Disposal Of Long-Lived Assets. This statement replaces
SFAS No. 121, Accounting For The Impairment Of Long-Lived Assets And
For Long-Lived Assets To Be Disposed Of.
8
PSINET INC. PROJECT PHOENIX
NOTES TO STATEMENTS
--------
SFAS No. 144 retains the fundamental provisions of SFAS No. 121 for the
recognition and measurement of the impairment of long-lived assets to
be held and used and for those to be disposed of by sale. This
statement applies to all long-lived assets, including discontinued
operations, and replaces the provisions of APB Opinion No. 30 for the
disposal of segments of a business. This statement requires that those
long-lived assets be measured at the lower of carrying amount or fair
value less cost to sell, whether reported in continuing operations or
in discontinued operations. This statement is effective for PSINet
beginning January 1, 2002. The adoption of SFAS No. 144 did not result
in a material impact to the statements of PSINet Project Phoenix.
4. IMPAIRMENT OF ASSETS
In light of the difficulty in readily disposing of PSINet's U.S. assets in
bankruptcy, management determined during the fourth quarter of 2001 that
the estimated undiscounted cash flows associated with long-lived assets
acquired would not be sufficient to recover the net book value of such
assets. In accordance with SFAS No. 121, PSINet Project Phoenix recorded
an impairment charge of approximately $295 million at December 31, 2001 to
reflect its long-lived assets at estimated fair value. The fair values, as
required by SFAS No. 121, did not consider the value of such assets in a
forced sale or liquidation; rather, the values were based upon the
purchase price paid by Cogent and allocated to the individual long-lived
assets based upon industry fair value comparables (including recent Cogent
acquisitions) for the related assets. Such fair value allocations
necessarily involved the use of judgments and estimates which management
believe to be reasonable and appropriate.
5. FIXED ASSETS
Fixed assets consisted of the following:
MARCH 31,
DECEMBER 2002
31, 2001 (UNAUDITED)
---------------- -----------------
Equipment $ 940,000 $ 940,000
Leasehold improvements 658,000 658,000
Indefeasible rights-of-use agreements 8,028,000 8,028,000
---------------- ----------------
9,626,000 9,626,000
Less: Accumulated depreciation - (737,000)
---------------- ----------------
$ 9,626,000 $ 8,889,000
================ ================
9
PSINET INC. PROJECT PHOENIX
NOTES TO STATEMENTS
--------
The cost basis of the fixed assets at December 31, 2001 represents the new
cost basis subsequent to the impairment write-down (Note 4). Equipment
consists principally of telecommunications equipment and, to a lesser
extent, office equipment. Leasehold improvements relate to the three
web-hosting data center operating lease sites assumed by Cogent. IRU
assets relate to five capital lease arrangements (Note 3).
6. COMMITMENTS
PSINet Project Phoenix has guaranteed monthly usage levels of data and
voice communications with certain of its telecommunications vendors. In
addition, PSINet Project Phoenix has separate operating and maintenance
agreements related to the IRU's and non-cancelable operating leases for
three web-hosting data centers. Charges under the operating and
maintenance agreements expire in various years through 2019. The operating
leases expire in various years through 2009. At December 31, 2001, future
minimum lease payments under these agreements are as follows:
Operating and
Maintenance Operating
Agreements Leases Total
-------------- ------------- -------------
2002 $ 4,550,000 $ 1,646,000 $ 6,196,000
2003 1,925,000 1,446,000 3,371,000
2004 50,000 1,304,000 1,354,000
2005 51,000 1,343,000 1,394,000
2006 51,000 1,383,000 1,434,000
Thereafter 357,000 4,198,000 4,555,000
-------------- ------------- -------------
$ 6,984,000 $ 11,320,000 $ 18,304,000
============== ============= =============
Total operating and maintenance expense and rent expense for these
operating leases totaled $13,985,000 and $2,091,000, respectively, for the
year ended December 31, 2001.
10
UNAUDITED CONDENSED COMBINED PRO FORMA FINANCIAL STATEMENTS
The following unaudited condensed combined pro forma financial statements
("the pro forma financial statements") and explanatory notes have been prepared
to give effect to the merger between Cogent and Allied Riser Communications
Corporation, Cogent's September 6, 2001 acquisition of certain assets of
NetRail, Inc., and Cogent's April 2, 2002 acquisition of certain assets of
PSINet, Inc., using the purchase method of accounting for business combinations.
The merger and acquisition of certain PSINet, Inc. and NetRail, Inc. assets are
being accounted for as purchase business combinations. as defined by SFAS
No. 141. Cogent is the acquiring enterprise for purposes of accounting for the
merger, and the PSINet and NetRail asset acquisitions.
In accordance with Article 11 of Regulation S-X under the Securities Act,
unaudited condensed combined pro forma balance sheets ("the pro forma balance
sheets") as of March 31, 2002, and December 31, 2001, and unaudited condensed
combined pro forma statements of operations ("the pro forma statements of
operations") for the three months ended March 31, 2002, and the year ended
December 31, 2001, have been prepared to reflect, for accounting purposes, the
merger of Allied Riser and Cogent, the impact of Cogent's October 2001 credit
facility, and the acquisitions by Cogent of certain assets of PSINet, Inc. and
NetRail, Inc. For all periods included in the pro forma statements of
operations, the average number of common and common equivalent shares gives
effect to the exchange ratio of one share of Allied Riser for 0.0321679 shares
of Cogent.
The following pro forma financial statements have been prepared based
upon the historical financial statements of Cogent, PSINet, Allied Riser and
NetRail, respectively. The pro forma financial statements should be read in
conjunction with (a) the historical consolidated financial statements of
Cogent as of December 31, 2001 and 2000, for the year s ended December 31,
2001 and 2000, and for the period from inception (August 9, 1999) to
December 31, 1999, and the unaudited condensed consolidated financial
statements as of March 31, 2002, and for the three month periods ended
March 31, 2002 and 2001; (b) the historical consolidated financial
statements and related notes thereto of Allied Riser and NetRail; and (c) the
historical statements of PSINet, Inc.
The pro forma balance sheet as of March 31, 2002, assumes that the April 2,
2002 acquisition of certain assets of PSINet was completed on March 31, 2002.
The pro forma balance sheet includes historical unaudited consolidated balance
sheet data of Cogent and PSINet as of March 31, 2002. The Allied Riser merger
closed on February 4, 2002 and the acquisition of certain assets of NetRail
occurred in September 2001. As a result these transactions are reflected in
Cogent's March 31, 2002 historical balance sheet. The pro forma balance sheet as
of December 31, 2001, assumes that the merger and the acquisition of certain
assets of PSINet, Inc. were completed on December 31, 2001. The pro forma
December 31, 2001 balance sheet includes historical audited consolidated
balance sheet data of Cogent, Allied Riser, and PSINet as of December 31, 2001.
The pro forma statements of operations assume the merger and Cogent's
acquisitions of certain assets of PSINet, Inc. and NetRail, Inc. occurred on
January 1, 2001. The pro forma statements of operations for the year ended
December 31, 2001, include the historical consolidated statement of income data
of Cogent, PSINet, Allied Riser for the year ended December 31, 2001 and the
historical consolidated unaudited statement of operations data of NetRail for
the period from January 1, 2001 to the acquisition date--September 6, 2001. The
pro forma statements of operations for the three- month period ended March 31,
2002, include the historical consolidated unaudited statement of operations data
of Cogent and PSINet, for the three -month period ended March 31, 2002 and the
historical consolidated unaudited statement of operations data of Allied Riser
for the period from January 1, 2002 to January 31, 2002. Allied Riser operating
data for the period from February 1, 2002 to the merger date--February 4, 2002,
were not significant.
The pro forma financial statements are provided for illustrative purposes
only, and are not necessarily indicative of the operating results or financial
position that would have occurred if these transactions had been consummated at
the beginning of the periods or on the dates indicated, nor are they necessarily
indicative of any future operating results or financial position. The pro forma
financial statements do not include any adjustments related to any restructuring
charges, profit improvements, potential costs savings, or one-time charges which
may result from these transactions or the final result of valuations of
property, plant and equipment, intangible assets, debt, and other obligations.
Cogent is currently integrating the operations of the Allied and PSINet, which
will involve costs including, among others, the settlement of operating
commitments, which are material.
11
COGENT COMMUNICATIONS GROUP, INC.
UNAUDITED CONDENSED COMBINED PRO FORMA BALANCE SHEET
AS OF MARCH 31, 2002
(DOLLARS IN THOUSANDS)
PSINET PRO COGENT &
FORMA PSINET PRO
HISTORICAL HISTORICAL ACQUISITION FORMA
COGENT PSINET ADJUSTMENTS COMBINED
---------- ---------- ----------- ----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................... $ 98,109 $ -- $(6,450)(a) $ 91,659
Short-term investments.......................... 3,959 -- -- 3,959
Accounts receivable, net........................ 2,178 2,738 -- 4,916
Prepaid expenses and other current assets....... 6,145 134 -- 6,279
-------- ------- ---------
Total current assets.......................... 110,391 2,872 -- 106,813
PROPERTY AND EQUIPMENT, net..................... 251,621 8,889 (8,643)(b) 251,867
GOODWILL AND OTHER INTANGIBLE ASSETS, net....... 9,457 -- 9,604 (c) 19,061
OTHER ASSETS, net............................... 22,713 -- (3,000)(d) 19,713
-------- ------- ---------
Total assets.................................. $394,182 $11,761 -- $ 397,454
======== ======= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................ $ 4,506 $ -- -- $ 4,506
Accrued liabilities............................. 25,030 2,472 800 (e) 28,302
Current maturities of capital lease
obligations................................... 2,398 -- -- 2,398
-------- ------- ---------
Total current liabilities..................... 31,934 2,472 -- 35,206
CAPITAL LEASE OBLIGATIONS, net of current
maturities.................................... 31,267 -- -- 31,267
LONG-TERM LIABILITIES:
Credit facility................................. 191,919 -- -- 191,919
Other long term liabilities..................... 1,150 -- -- 1,150
Convertible notes, net of discount.............. 33,994 -- -- 33,994
-------- ------- ---------
Total liabilities............................. 290,264 2,472 293,536
======== ======= =========
STOCKHOLDERS' EQUITY:
Convertible preferred stock, Series A........... 25,892 -- -- 25,892
Convertible preferred stock, Series B........... 90,009 -- -- 90,009
Convertible preferred stock, Series C........... 61,345 -- -- 61,345
Common stock.................................... 4 -- -- 4
Additional paid-in capital...................... 48,432 -- -- 48,432
Warrants........................................ 9,013 -- -- 9,013
Deferred compensation........................... (9,892) -- -- (9,892)
Accumulated other comprehensive loss............ (2) -- -- (2)
Accumulated (deficit)........................... (120,883) 9,289 (9,289)(f) (120,883)
-------- ------- ---------
Total stockholders' equity.................... $103,918 $ 9,289 103,918
======== ======= =========
Total liabilities and stockholders' equity.... $394,182 $11,761 $ 397,454
======== ======= =========
See Notes to Unaudited Condensed Combined Pro Forma Balance Sheet
12
NOTES TO THE UNAUDITED CONDENSED COMBINED PRO FORMA BALANCE SHEET
AS OF MARCH 31, 2002
(a) Represents cash paid of $6.5 million in April 2002.
(b) Represents the adjustment to record PP&E to its estimated fair value of
$246,000
(c) Represents the excess of the purchase price over the estimated fair value of
net assets acquired:
The PSINet purchase price allocation is preliminary and may change upon
final determination of the fair value of the assets and liabilities
acquired.
AMOUNTS
PSINET, INC. IN THOUSANDS
------------ ------------
Cash paid................................................... $ 9,450
Transaction expenses........................................ 800
-------
Total purchase price........................................ 10,250
-------
Estimated fair value of net assets acquired................. 646
-------
Purchase price in excess of estimated fair value............ $ 9,604
=======
Purchase price allocated to:
Customer contracts.......................................... $ 3,940
Peering agreements.......................................... 3,940
Trade name.................................................. 1,478
Non-compete agreement....................................... 246
-------
Total....................................................... $ 9,604
=======
The assets acquired are being depreciated using the straight-line method
over the following useful lives.
Peering agreements.......................................... 3 years
Customer contracts.......................................... 2 years
Trade name.................................................. 3 years
Non-compete agreement....................................... 5 years
(d) Represents the elimination of $3.0 million prepaid under the due diligence
agreement. This amount was credited towards the total acquisiton price of
$9.5 million.
(e) Represents the estimated transaction costs
(f) Represents the elimination of the historical equity balance
13
COGENT COMMUNICATIONS GROUP, INC.
UNAUDITED CONDENSED COMBINED PRO FORMA BALANCE SHEET
AS OF DECEMBER 31, 2001
(DOLLARS IN THOUSANDS)
COGENT
ALLIED & ALLIED PSINET COGENT,
PRO FORMA PRO PRO FORMA ALLIED
HISTORICAL HISTORICAL ACQUISITION FORMA HISTORICAL ACQUISITION & PSINET
ASSETS COGENT ALLIED ADJUSTMENTS COMBINED PSINET ADJUSTMENTS COMBINED
------ ---------- ---------- ----------- --------- ---------- ----------- ---------
CURRENT ASSETS:
Cash and cash equivalents............ $ 49,017 $ 35,361 $ (1,600)(a) $ 82,778 $ -- $ (6,450)(j) $ 76,328
Short-term investments............... 1,746 42,711 -- 44,457 -- -- 44,457
Accounts receivable, net............. 1,156 859 -- 2,015 2,803 -- 4,818
Prepaid expenses and other current
assets............................. 2,171 1,765 -- 3,936 134 -- 4,070
-------- -------- -------- -------- --------
Total current assets............... 54,090 80,696 133,186 2,937 129,673
PROPERTY AND EQUIPMENT, net............ 235,782 25,916 (25,916)(b) 235,782 9,626 (9,384)(k) 236,024
REAL ESTATE ACCESS RIGHTS, net......... -- 8,286 (8,286)(c) -- -- -- --
GOODWILL AND OTHER INTANGIBLE ASSETS,
net.................................. 10,436 -- -- 10,436 -- 9,457(l) 19,893
OTHER ASSETS, net...................... 19,461 8,069 (4,098)(d) 23,432 -- (3,000)(m) 20,432
-------- -------- -------- -------- --------
Total assets....................... $319,769 $122,967 $402,836 $ 12,563 $406,022
======== ======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable..................... $ 3,623 $ 3,613 -- $ 7,236 $ -- -- $ 7,236
Accrued liabilities.................. 3,462 12,946 7,226 (e) 23,634 2,386 800 (n) 26,820
Current maturities of capital lease
obligations........................ 426 1,193 -- 1,619 -- -- 1,619
Current maturities of debt........... -- 614 -- 614 -- -- 614
-------- -------- -------- -------- --------
Total current liabilities.......... 7,511 18,366 33,103 2,386 36,289
CAPITAL LEASE OBLIGATIONS, net of
current maturities................... 20,732 1,506 -- 22,238 -- -- 22,238
LONG-TERM LIABILITIES:
Credit facility...................... 181,312 -- -- 181,312 -- -- 181,312
Long-term debt, net of current
maturities......................... -- 564 -- 564 -- -- 564
Convertible notes.................... -- 116,980 (84,226)(f) 32,754 -- -- 32,754
-------- -------- -------- -------- --------
Total liabilities.................. 209,555 137,416 269,971 2,386 273,157
-------- -------- -------- -------- --------
STOCKHOLDERS' EQUITY:
Convertible preferred stock, Series
A.................................. 25,892 -- -- 25,892 -- -- 25,892
Convertible preferred stock, Series
B.................................. 90,009 -- -- 90,009 -- -- 90,009
Convertible preferred stock, Series
C.................................. 61,345 -- -- 61,345 -- -- 61,345
Common stock......................... 1 6 (6)(g) 1 -- -- 1
Additional paid-in capital........... 38,724 508,963 (497,986)(h) 49,701 -- -- 49,701
Warrants............................. 8,248 71,127 (71,127)(g) 8,248 -- -- 8,248
Deferred compensation................ (11,081) (274) 274 (g) (11,081) -- -- (11,081)
Accumulated other comprehensive
loss............................... -- (893) 893 (g) -- -- -- --
Accumulated deficit.................. (102,924) (593,378) 605,052 (I) (91,250) 10,177 (10,177)(o) (91,250)
-------- -------- -------- -------- --------
Total stockholders' equity
(deficit)........................ $110,214 $(14,449) $132,865 $ 10,177 $132,865
======== ======== ======== ======== ========
Total liabilities and stockholders'
equity........................... $319,769 $122,967 $402,836 $ 12,563 $406,022
======== ======== ======== ======== ========
NOTES TO THE UNAUDITED CONDENSED COMBINED PRO FORMA BALANCE SHEET
AS OF DECEMBER 31, 2001
----------------------------------------
(a) Represents the estimated transation costs associated with the merger
(b) Represents the (a) decrease of $2.1 million in the historical cost basis of
Allied Riser's PP&E to its estimated fair value of $23.8 and (2) the
allocation of $23.8 million to negative goodwill
(c) Represents the allocation of $8.3 million to negative goodwill
(d) Represents the allocation of negative goodwill to non-monetary long term
assets
(e) Represents the (1) estimated liability for Allied Riser's operating lease
commitments not expected to be used by Cogent of $6.1 million and (2) the
estimated liability for Allied Risers' real estate access agreements not
expected to be used by Cogent of $1.5 million and (3) a reduction of $1.0
million to Allied Risers accrued circuit commitments and (4) additional
health care benefits of $0.6 million assumed by Cogent under the merger
agreement. Cogent has determined that these obligations qualify as costs to
exit an activity of an acquired company under EITF Issue 95-3 "Recognition
of Liabilities in Connection with a Purchase Business Combination"
(f) Represents the adjustment required to Allied Riser's convertible notes at
their fair value using their most recent trading price
(g) Represents the elimination of Allied risers historical equity balance
(h) Represents (1) the elimination of Allied risers historical equity balance
and (2) the additional paid in capital resulting from the issuance of 2.1
million shares of Cogent common stock to be issued in the merger. The fair
value of the common stock included in the pro forma determination of the
purchase price was determined by using the average closing price of Allied's
common stock in accordance with SFAS 141 "Business Combinations"
(i) Represents the elimination of Allied Risers historical equity balance and
(2) the extraordinary gain of $11.7 million resulting from the excess of the
net assets acquired over the purchase price pursuant to SFAS No. 141
14
(j) Represents cash paid of $6.5 million in April 2002.
(k) Represents the adjustment to record PP&E to its estimated fair value of
$242,000
(l) Represents the excess of the purchase price over the estimated fair value of
net assets acquired:
The PSINet purchase price allocation is preliminary and may change upon
final determination of the fair value of the assets and liabilities
acquired.
AMOUNTS
PSINET, INC. IN THOUSANDS
------------ ------------
Cash paid................................................... $ 9,450
Transaction expenses........................................ 800
Total purchase price........................................ 10,250
-------
Estimated fair value of net assets acquired................. 793
-------
Purchase price in excess of estimated fair value............ $ 9,457
=======
Purchase price allocated to:
Customer contracts.......................................... $ 3,880
Peering agreements.......................................... 3,880
Trade name.................................................. 1,455
Non-compete agreement....................................... 242
-------
Total....................................................... $ 9,457
=======
The assets acquired are being depreciated using the straight-line method
over the following useful lives.
Peering agreements.......................................... 3 years
Customer contracts.......................................... 2 years
Trade name.................................................. 3 years
Non-compete agreement....................................... 5 years
(m) Represents the elimination of $3.0 million prepaid under the due diligence
agreement. This amount was credited towards the total acquisiton price of
$9.5 million.
(n) Represents the estimated transaction costs
(o) Represents the elimination of the historical equity balance
15
COGENT COMMUNICATIONS GROUP, INC.
UNAUDITED CONDENSED COMBINED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2001
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NETRAIL COGENT & COGENT
PRO FORMA NETRAIL PRO FORMA
HISTORICAL HISTORICAL ACQUISITION PRO FORMA FINANCING ADJUSTED HISTORICAL
COGENT NETRAIL ADJUSTMENTS COMBINED ADJUSTMENTS COGENT ALLIED
---------- ---------- ----------- ---------- ----------- -------- -----------
REVENUE:
Network services.......... $ 3,018 $ 8,594 $ (6,936)(a) $ 4,676 -- $ 4,676 $ 19,998
Value added services...... -- -- -- -- 5,754
---------- -------- ---------- -------- -----------
Total revenue........... 3,018 8,594 4,676 4,676 25,752
OPERATING EXPENSES:
Network operations........ 19,990 19,128 (17,818)(b) 21,300 -- 21,300 61,681
Cost of value added
services................ -- -- -- -- -- -- 4,126
Selling, general and
administrative
expenses................ 27,322 9,113 (9,113)(c) 27,322 -- 27,322 63,600
Depreciation and
amortization............ 13,535 1,360 1,593 (d) 16,488 236 (f) 16,724 39,527
Amortization of deferred
compensation............ 3,265 -- -- 3,265 3,265 4,072
Asset write-down.......... -- -- -- -- -- -- 214,585
---------- -------- ---------- -------- -----------
Total operating
expenses.............. 64,112 29,601 68,375 68,611 387,590
---------- -------- ---------- -------- -----------
OPERATING LOSS............ (61,094) (21,007) (63,699) (63,935) (361,838)
OTHER INCOME (EXPENSE):
Interest expense.......... (7,945) (1,040) 1,040 (c) (7,945) (669)(g) (8,614) (13,935)
Interest and other
income.................. 2,126 139 (496)(e) 1,769 -- 1,769 7,518
---------- -------- ---------- -------- -----------
Total other income
(expense)............. (5,819) (901) (6,176) (6,845) (6,417)
---------- -------- ---------- -------- -----------
LOSS BEFORE INCOME
TAXES................... (66,913) (21,908) (69,875) (70,780) (368,255)
---------- -------- ---------- -------- -----------
PROVISION FOR INCOME
TAXES................... -- -- -- -- -- -- 7,578
---------- -------- ---------- -------- -----------
NET LOSS.................. $ (66,913) $(21,908) $ (69,875) $(70,780) $ (360,677)
---------- -------- ---------- -------- -----------
BASIC & DILUTED NET LOSS
PER COMMON SHARE (l).... $ (47.59) $ (49.70) $ (6.04)
========== ========== ===========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING...... 1,406,007 1,406,007 59,704,000
========== ========== ===========
COGENT,
ALLIED COGENT, NETRAIL, PSINET,
PRO FORMA & ALLIED PSINET ALLIED &
ACQUISITION PRO FORMA HISTORICAL PRO FORMA NETRAIL
ADJUSTMENTS COMBINED PSINET ADJUSTMENTS COMBINED
----------- ---------------- ----------- ----------- ----------
REVENUE:
Network services.......... $ (1,222)(h) $ 23,452 $ 56,916 $ 80,368
Value added services...... -- 5,754 -- -- 5,754
---------- ----------- ----------
Total revenue........... 29,206 56,916 86,122
OPERATING EXPENSES:
Network operations........ (1,222)(h) 81,759 50,752 (2,184)(m) 130,328
Cost of value added
services................ -- 4,126 -- -- 4,126
Selling, general and
administrative
expenses................ -- 90,922 14,185 (11,538)(m) 93,569
Depreciation and
amortization............ (39,527)(i) 16,724 92,962 (89,075)(n) 20,611
Amortization of deferred
compensation............ -- 7,337 -- -- 7,337
Asset write-down.......... -- 214,584 295,521 (295,521)(p) 214,584
---------- ----------- ----------
Total operating
expenses.............. 415,452 453,420 470,555
---------- ----------- ----------
OPERATING LOSS............ (386,246) (396,504) (384,433)
OTHER INCOME (EXPENSE):
Interest expense.......... (13,475)(j) (36,024) -- -- (36,024)
Interest and other
income.................. -- 9,287 -- (378)(o) 8,909
---------- ----------- ----------
Total other income
(expense)............. (26,737) -- (27,115)
---------- ----------- ----------
LOSS BEFORE INCOME
TAXES................... (412,983) (396,504) (411,548)
---------- ----------- ----------
PROVISION FOR INCOME
TAXES................... -- 7,578 -- -- 7,578
---------- ----------- ----------
NET LOSS.................. $ (405,405) $ (396,504) (403,970)
---------- ----------- ----------
BASIC & DILUTED NET LOSS
PER COMMON SHARE (l).... $ (115.31) $ (114.90)
========== ==========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING...... 2,109,768 (k) 3,515,775 3,515,775
========== ==========
See Notes to Unaudited Condensed Combined Pro Forma Statement of Operations for
the year ended December 31, 2001.
16
NOTES TO THE UNAUDITED CONDENSED COMBINED PRO FORMA
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2001
(a) Represents the elimination of revenue generated by customers whose
contracts were not acquired by Cogent.
(b) Represents the elimination of expenses generated by assets not acquired
by Cogent. Retained expenses include network costs under contracts
assumed by Cogent. Under the asset purchase agreement, Cogent assumed
contracts for network services which totaled approximately $1.3 million
in network costs for the year ended December 31, 2001. This
$17.8 million adjustment eliminates expenses related to contracts which
were not acquired and are in excess of the $1.3 million.
(c) Represents the elimination of expenses generated by assets not acquired
by Cogent. Under the asset purchase agreement, Cogent did not acquire or
assume obligations recorded as selling general and administrative
expenses by NetRail. This adjustment eliminates $9.1 million of selling,
general and administrative expenses related to obligations and
commitments which were not acquired.
(d) Represents (1) the elimination of the historical depreciation and
amortization of $1.4 million plus (2) the increase in amortization and
depreciation of $3.0 million from the amortization of assets acquired.
AMOUNTS IN
THOUSANDS
----------
NETRAIL
Purchase consideration:
Cash paid............................................... $11,886
Transaction expenses.................................... 204
-------
Total purchase price...................................... $12,090
=======
Estimated fair value of assets acquired:
Tangible assets........................................... 350
Peering agreements...................................... $11,036
Customer contracts...................................... 704
-------
$12,090
=======
The purchase price allocation is preliminary and may change upon final
determination of the fair value of assets and liabilities acquired.
The assets acquired are being depreciated using the straight-line method
over the following useful lives.
Peering agreements.......................................... 3 years
Customer contracts.......................................... 3 years
Tangible assets............................................. 3-7 years
(e) Represents (1) the elimination of historical interest income of
$0.1 million plus (2) the estimated reduction to interest income of
$0.4 million from the reduction in cash of $12.0 million.
(f) Represents amortization of the commitment fee of $2.0 million paid to
Cisco Capital in connection with Cogent's October 2001 credit facility
over the remaining seven year term of the credit facility.
17
(g) Represents the amortization of debt issuance costs associated with
warrants for 0.6 million shares of Cogent's common stock amortized over
the remaining seven year term of the credit facility. These warrants were
issued to Cisco Capital in connection with Cogent's October 2001 credit
facility.
(h) Represents the elimination of transactions between NetRail and Allied
Riser. Allied Riser was a customer of NetRail.
(i) Represents the reduction to depreciation and amortization expense
resulting from the allocation of negative goodwill.
(j) Represents increased interest expense resulting from the write down of
Allied Riser's convertible notes to their fair value and the resulting
additional amortization of discount. The adjustment required to record
Allied Riser's convertible notes at their fair value results in an
amortization of the discount resulting in additional interest expense.
(k) Represents the effect of issuing 2.1 million shares of Cogent common
stock for all of the outstanding shares of Allied Riser common stock in
the merger. Based upon a conversion ratio of 0.0321679 shares of Cogent
common stock issued for each share of Allied Riser common stock. The
conversion ratio was determined based upon Cogent's common stock on a
fully diluted basis.
(l) Historical basic and diluted loss per common share and pro forma basic
and diluted net loss per common share are the same, because Cogent,
Allied Riser and the pro forma combined company would have a loss and the
effect of common stock equivalents would be anti-dilutive.
(m) Represents the elimination of expenses allocated to the acquired
business, however, generated by assets not acquired by Cogent
including, taxes, software maintenance and license fees based upon
PSINet's historical cost, and allocated advertising costs and occupancy
charges. Under the asset purchase agreement, Cogent did not acquire or
assume obligations recorded as network operations and selling general
and administrative expenses by PSINet.
(n) Represents the elimination of the historical depreciation and
amortization expense of $93.0 million offset by the increase in
amortization expense of $3.7 million from the acquired assets.
(o) Represents the reduction in interest income of $0.4 million for the use
of cash of $9.5 million to purchase the acquired assets
(p) Represents the elimination of the asset impairment recorded by PSINet.
18
COMMUNICATIONS GROUP, INC.
UNAUDITED CONDENSED COMBINED PRO FORMA STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2002
(IN THOUSANDS, EXCEPT PER SHARE DATA)
HISTORICAL
ALLIED
FOR THE PERIOD COGENT, PSINET
FROM JANUARY 1, ALLIED COGENT & PSINET AND ALLIED
HISTORICAL 2002 TO PRO FORMA ALLIED HISTORICAL PRO FORMA PRO FORMA
COGENT JANUARY 31, 2002 ADJUSTMENTS COMBINED PSINET ADJUSTMENTS COMBINED
---------- ------------------ ----------- ---------- ---------- ----------- --------------
REVENUE:
Network services..... $ 3,542 $ 380 $ -- 3,922 14,105 -- $ 18,027
Value added
services........... -- 10 -- 10 -- -- 10
---------- ----------- ---------- ------- ----------
Total revenue...... 3,542 390 3,932 14,105 18,037
OPERATING EXPENSES:
Network operations... 6,908 1,076 -- 7,984 11,206 (950)(d) 18,240
Cost of value added
services........... -- 5 -- 5 -- -- 5
Selling, general and
administrative
expenses........... 6,640 4,768 -- 11,408 1,834 (1,153)(d) 12,089
Depreciation and
amortization....... 6,677 847 (847)(a) 6,677 1,082 (95)(e) 7,664
Amortization of
deferred
compensation....... -- 274 -- 274 -- -- 274
---------- ----------- ---------- ------- ----------
Total operating
expenses......... 20,225 6,970 26,348 14,122 38,272
---------- ----------- ---------- ------- ----------
OPERATING (LOSS)
INCOME............. (16,683) (6,580) (22,416) (17) (20,235)
---------- ----------- ---------- ------- ----------
OTHER INCOME
(EXPENSE):
Interest expense..... (7,060) (741) (1,394)(b) (9,195) -- -- (9,195)
Interest and other
income............. 1,257 (213) -- 1,044 -- (63)(f) 981
---------- ----------- ---------- ------- ----------
Total other income
(expense)........ (5,803) (954) (8,151) -- (8,214)
---------- ----------- ---------- ------- ----------
(LOSS) INCOME BEFORE
INCOME TAXES....... (22,486) (7,534) (30,567) (17) (28,449)
PROVISION FOR INCOME
TAXES.............. -- -- -- -- -- -- --
---------- ----------- ---------- ------- ----------
NET (LOSS) INCOME.... $ (22,486) $ (7,534) (30,567) (17) $ (28,449)
---------- ----------- ---------- ------- ----------
BASIC & DILUTED NET
LOSS PER COMMON
SHARE (l).......... $ (8.52) $ (0.13) $ (8.84) $ (8.23)
========== =========== ========== ==========
WEIGHTED AVERAGE
NUMBER OF SHARES
OUTSTANDING........ 2,637,951 59,704,000 820,465 (c) 3,548,416 3,458,416
========== =========== ========== ==========
See Notes to Unaudited Condensed Combined Pro Forma Statement of Operations for
the three months ended March 31, 2002.
19
NOTES TO THE UNAUDITED CONDENSED COMBINED PRO FORMA
STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED MARCH 31, 2002
(a) Represents the reduction to depreciation and amortization expense resulting
from the allocation of negative goodwill.
(b) Represents increased interest expense resulting from the write down of
Allied Riser's convertible notes and capital leases to their fair value and
the resulting additional amortization of discount.
(c) Represents the weighted average effect of issuing 2.1 million shares of
Cogent common stock for all of the outstanding shares of Allied Riser common
stock in the merger. Based upon a conversion ratio of 0.0321679 shares of
Cogent common stock issued for each share of Allied Riser common stock. The
conversion ratio was determined based upon Cogent's common stock on a fully
diluted basis.
(d) Represents the elimination of expenses allocated to the acquired business,
however, generated by assets not acquired by Cogent. Under the asset
purchase agreement, Cogent did not acquire or assume obligations recorded as
network operations and selling general and administrative expenses by
PSINet.
(e) Represents the elimination of the historical depreciation and amortization
expense of $1.1 million offset by the increase in amortization expense of
$1.0 million from the acquired assets.
(f) Represents the reduction in interest income for the use of cash of
$9.5 million to purchase the acquired assets
20
Exhibit Index
EXHIBIT NO. DESCRIPTION
2.1 Asset Purchase Agreement, dated February 26, 2002, by and among
Cogent Communications, PSINet et al. (previously filed as
Exhibit 2.1 to our Form 8-K, dated February 26, 2002, and
incorporated herein by reference).