PSINET INC.
510 HUNTMAR PARK DRIVE
HERNDON, VIRGINIA 20170
January 12, 1998
IMPORTANT REMINDER
Dear Shareholder:
We are writing to remind you to vote, if you have not already done so,
your proxy in connection with the Special Meeting of Shareholders (the "Special
Meeting") of PSINet Inc. ("PSINet" or the "Company") to be held on Friday,
January 23, 1998. We have enclosed an additional proxy card for your
convenience. If you have not already voted, please sign, date and return your
proxy in the envelope provided. You need not send another proxy if you have
already voted unless you wish to change your vote. NO MATTER HOW MANY SHARES
OF COMMON STOCK OF THE COMPANY YOU OWN, YOUR VOTE IS IMPORTANT.
At the Special Meeting, as described in the Proxy Statement relating to
the Special Meeting previously furnished to you (the "Proxy Statement"), you
are being asked to vote upon a proposal to approve the issuance to IXC Internet
Services, Inc. ("IXC") of common stock of the Company in excess of 20% of the
number of shares of common stock outstanding before such issuance in
consideration for the acquisition by the Company of certain noncancellable
indefeasible rights of use in up to 10,000 equivalent route miles of OC-48
bandwidth in portions of IXC's fiber optic telecommunications system (the
"IRUs") pursuant to an IRU and Stock Purchase Agreement dated as of July 22,
1997 between the Company and IXC, as amended (the "Purchase Agreement").
PSINET BELIEVES THAT ITS ACQUISITION OF THE IRUS IS ESSENTIAL TO MAINTAIN ITS
STRATEGIC POSITION AS THE WORLD'S LARGEST INDEPENDENT, FACILITIES-BASED
INTERNET SERVICE PROVIDER. Since the Company's announcement of the transaction
with IXC, three competitors of the Company have announced their intent to
acquire similar bandwidth and facilities from other telecommunications
companies.
In addition, as described in the Proxy Statement, you are being asked to
vote upon a proposal to approve an amendment to the Company's Certificate of
Incorporation to increase the number of authorized shares of the Company's
capital stock and common stock. PSINET BELIEVES THAT HAVING THESE ADDITIONAL
SHARES AVAILABLE IS ESSENTIAL TO GIVE IT THE FLEXIBILITY TO ENGAGE IN POTENTIAL
FUTURE TRANSACTIONS INVOLVING ISSUANCES OF COMMON STOCK AS WELL AS TO HAVE
AVAILABLE A REASONABLE NUMBER OF ADDITIONAL SHARES FOR ISSUANCE TO IXC IN
CONNECTION WITH THE COMPANY'S CONTINGENT OBLIGATION TO IXC UNDER THE PURCHASE
AGREEMENT, TO THE EXTENT IT BECOMES PAYABLE (AS DESCRIBED IN THE PROXY
STATEMENT).
PSINET'S BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR BOTH OF THESE
PROPOSALS.
Subsequent to mailing the Proxy Statement, the Company revised the terms
of its proposed acquisition of iSTAR internet inc. ("iSTAR") from those which
were described in the Proxy Statement under "Management's Discussion and
Analysis of Financial Condition -- International Operations." Under the
revised terms, the Company has commenced an all-cash offer for all of the
shares of iSTAR for Cdn.$0.75 (US$0.52) per share, or approximately US$16.6
million, plus net liabilities assumed of approximately US$5.0 million and
transaction expenses currently estimated to be approximately US$1.4 million.
The original terms of the transaction with iSTAR had provided for the
acquisition of the shares of iSTAR for Cdn.$1.206 (US$0.84) per share, or
approximately
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US$26.4 million, plus net liabilities assumed and transaction expenses,
pursuant to a plan of arrangement under Canadian law which, among other things,
would have required the issuance of shares of preferred stock to the holders of
iSTAR common shares exchangeable into shares of the Company's common stock.
The Company presently is seeking to enter into financing arrangements to fund
the iSTAR acquisition. In the event financing arrangements are not completed
prior to completion of the offer to purchase iSTAR common shares, the Company
intends to use its existing cash to fund the acquisition pending completion of
such arrangements. Although there can be no assurance that this transaction
will be completed, the Company presently expects that the iSTAR transaction
will be completed on or about January 30, 1998, subject to extension in
accordance with the terms of PSINet's agreement with iSTAR. Amounts expressed
in this paragraph in U.S. dollars are based upon an assumed exchange rate of
Cdn.$1.43 : US$1.00.
The modified terms of the Company's acquisition of iSTAR are described in
greater detail in the Company's Form 8-K dated January 7, 1998 (the "Form 8-
K"), which also contains pro forma financial information giving effect to each
of (i) the modified terms of the Company's proposed acquisition of iSTAR and
(ii) the transactions with IXC contemplated by the Purchase Agreement. The
Form 8-K is incorporated by reference in the Proxy Statement and the
information contained therein supersedes the description of the Company's
proposed acquisition of iSTAR contained in the Proxy Statement under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- International Operations" and the information contained in the
Proxy Statement under "Pro Forma Financial Information." A copy of the Form 8-
K may be obtained by shareholders, without charge, on the Internet at the
Securities and Exchange Commission's Web site (at http://www.sec.gov) or upon
written or oral request directed to PSINet Inc. at 510 Huntmar Park Drive,
Herndon, Virginia 20170, Attention: Investor Relations (telephone number (703)
904-4100, ext. 1245).
These proposals and the risks relating to the transaction with IXC are
explained in greater detail in the Proxy Statement. If you need another copy
of the Proxy Statement or have any questions about these proposals or how to
vote your shares at the Special Meeting, please call MacKenzie Partners, Inc.,
the Company's proxy solicitation agent, toll free at (800) 322-2885 or collect
at (212) 929-5500.
YOUR VOTE IS IMPORTANT AND TIME IS OF THE ESSENCE. EVEN IF YOU EXPECT TO
ATTEND THE SPECIAL MEETING, UNLESS YOU HAVE ALREADY RETURNED YOUR PROXY, PLEASE
TAKE THE TIME TODAY TO SIGN, DATE AND MAIL THE ENCLOSED DUPLICATE PROXY IN THE
ACCOMPANYING POSTAGE PAID ENVELOPE.
Your prompt attention to this matter is greatly appreciated.
Very truly yours,
William L. Schrader
CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
