SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) February 25, 1998
PSINet Inc.
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(Exact name of registrant as specified in its charter)
New York 0-25812 16-1353600
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
510 Huntmar Park Drive, Herndon, Virginia 20170
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (703)904-4100
(Former name or former address, if changed since last report)
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Item 2. Acquisition or Disposition of Assets
On February 25, 1998, PSINet Inc. (the "Company") closed its
transaction with IXC Internet Services, Inc. ("IXC"), an indirect subsidiary of
IXC Communications, Inc. ("IXC Communications"), to acquire 20-year
noncancellable indefeasible rights of use ("IRUs") in up to 10,000 equivalent
route miles of fiber-based OC-48 network bandwidth (the "PSINet IRUs") in
selected portions across the IXC fiber optic telecommunications system within
the United States (the "Available System"). The PSINet IRUs were acquired in
exchange for the issuance to IXC of 10,229,789 shares of Common Stock of the
Company, $.01 par value per share (the "Common Stock"), representing
approximately 20% of the issued and outstanding Common Stock of the Company
after giving effect to such issuance and having an aggregate market value of
$78,641,503 based on the closing market price per share of the Common Stock as
reported by The Nasdaq Stock Market on such date of $7.6875 (the "IXC Initial
Shares"), pursuant to an IRU and Stock Purchase Agreement, dated as of July 22,
1997, between the Company and IXC, as amended (the "IRU Purchase Agreement").
Under the IRU Purchase Agreement, if the fair market value of the IXC Initial
Shares (based on the volume-weighted average closing market price per share of
the Common Stock as reported by The Nasdaq Stock Market or the principal
securities exchange on which the Common Stock is then listed over the 20 trading
day period immediately preceding the applicable date of determination) is less
than $240 million at the earlier of one year following delivery and acceptance
of the total amount of bandwidth corresponding to the PSINet IRUs or the fourth
anniversary of the closing of the transaction (i.e., February 25, 2002) (the
"Determination Date"), the Company will be obligated to provide IXC with
additional shares of Common Stock (the "IXC Additional Shares" and, together
with the IXC Initial Shares, the "IXC Transaction Shares") or, at the sole
option of the Company, cash or a combination thereof equal to the shortfall (the
"Contingent Payment Obligation"). The Company has the right to accelerate the
Contingent Payment Obligation to any date (the "Acceleration Date") prior to the
Determination Date. In addition, the right of IXC to receive IXC Additional
Shares and/or cash pursuant to the Contingent Payment Obligation will terminate
on such date as the fair market value of the IXC Initial Shares (as determined
above) is equal to or greater than $240 million.
IXC Transaction Shares. IXC has been granted certain demand and
"piggyback" registration rights with respect to the IXC Transaction Shares
pursuant to a registration rights agreement between IXC and the Company.
Pursuant to the IRU Purchase Agreement, Ralph J. Swett, IXC Communications'
chairman, was elected, effective as of the closing of the transaction, to the
Company's Board of Directors, and the IRU Purchase Agreement provides that the
Company's Chairman will recommend that Mr. Swett continue to be re-elected to
the Company's Board for so long as IXC continues to own at least 95% of the IXC
Initial Shares. In the event IXC proposes to sell or otherwise dispose of any of
the IXC Transaction Shares (other than pursuant to a pledge to an unaffiliated
third party lender), the Company has a right of first
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offer to acquire the shares proposed to be sold at the closing market price per
share of the Common Stock (as reported by The Nasdaq Stock Market or the
principal securities exchange on which the Common Stock is then listed) on the
date notice of such proposed sale is given to the Company. In addition, neither
IXC, IXC Communications nor any of their controlled affiliates may sell or
otherwise dispose of any shares of the Company's Common Stock during the
six-month period preceding or following the Determination Date or during the
six-month period following the Acceleration Date. Other than as set forth above
and except for transfer restrictions existing from time to time under applicable
federal and state securities laws, the IXC Transaction Shares are not subject to
any transfer restrictions or to any voting restrictions or other agreements.
PSINet IRUs. The total amount of bandwidth corresponding to the PSINet
IRUs is contemplated to be delivered to the Company (to the extent then
available) in specified minimum increments every six months during the two year
period following the closing. IXC has granted the Company a security interest
in, among other collateral, a portion of the IRUs underlying the PSINet IRUs
granted to IXC by IXC Carrier, Inc., its direct parent company, and in a portion
of certain other IRUs in IXC's fiber optic telecommunications system to secure
the performance of IXC's obligations under the IRU Purchase Agreement to deliver
the PSINet IRUs.
IXC will provide customary operation and maintenance services with
respect to the bandwidth delivered to the Company at specified prices and terms,
the total cost of which to the Company on an annual basis is expected to be
approximately $1.15 million per each 1,000 equivalent route miles of OC-48
bandwidth accepted under the IRU Purchase Agreement. IXC also will furnish
multiplexing, reconfiguration and collocation services with respect to such
bandwidth as requested by the Company at agreed upon fees.
Certain Restrictions on Use of Bandwidth; Transfer and Assignment.
PSINet may use the bandwidth acquired from IXC for any purpose in connection
with the provision of Internet services and for non-Internet telecommunications
transport at a rate of DS-3 (45 Mbps) or less, but is restricted from using such
bandwidth to deliver any private line or long distance switched telephone
services (based on non-Internet telephone switching technologies) to any third
party.
In addition, the Company may not effect any sale, swap, lease or other
transfer of such bandwidth to any unaffiliated third party except (i) in
connection with the offering of Internet connectivity services or (ii) in
connection with a bona fide financing arrangement. Any transferee of bandwidth
acquired from IXC, other than in connection with a bankruptcy of the Company,
will be subject to the terms and conditions of the IRU Purchase Agreement,
including, without limitation, the foregoing restrictions.
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Joint Marketing and Services Agreement. As previously disclosed, in
connection with this transaction, on July 22, 1997, PSINet and IXC also entered
into a Joint Marketing and Services Agreement (the "Marketing Agreement")
pursuant to which each party will be entitled to market the products and
services of the other.
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Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits
(c) Exhibits
Exhibit 2.1 IRU and Stock Purchase Agreement,
dated as of July 22, 1997,
between PSINet Inc. and IXC
Internet Services, Inc., as
amended*
Exhibit 10.2 Joint Marketing and Services
Agreement, dated as of July 22,
1997, between PSINet Inc. and IXC
Internet Services, Inc.*
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* Confidential treatment has been granted by the Commission with respect to
certain provisions of such document.
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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 thereunto duly authorized.
Dated: March 10, 1998 PSINET INC.
By: /s/ David N. Kunkel
David N. Kunkel
Senior Vice President,
Secretary and General
Counsel
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EXHIBIT INDEX
Exhibit Exhibit Name Location
Number
2.1 IRU and Stock Purchase Agreement, dated as *
of July 22, 1997, between PSINet Inc. and
IXC Internet Services, Inc., as amended.**
10.2 Joint Marketing and Services Agreement, ***
dated as of July 22, 1997, between PSINet
Inc. and IXC Internet Services, Inc.**
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* Incorporated by reference to Exhibit A to the Company's Proxy Statement
on Schedule 14A dated December 19, 1997 filed with the Securities and
Exchange Commission (the "Commission").
** Confidential treatment has been granted by the Commission with
respect to certain provisions of such document.
*** Incorporated by reference to Exhibit B to the Company's Proxy Statement
on Schedule 14A dated December 19, 1997 filed with the Commission.
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