<PAGE>
As filed with the Securities and Exchange Commission on September 28, 1999
Registration No. 333-84721
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________
AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_____________
PSINet Inc.
(Exact name of registrant as specified in its charter)
New York
(State or other jurisdiction of
incorporation or
organization) 4813
(Primary Standard Industrial
Classification Code
Number) 16-1353600
(I.R.S. Employer
Identification No.)
510 Huntmar Park Drive, Herndon, Virginia 20170
(703) 904-4100
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
David N. Kunkel, Esq.
Executive Vice President and General Counsel
PSINet Inc.
510 Huntmar Park Drive, Herndon, Virginia 20170
Telephone No.: (703) 904-4100/Facsimile No.: (703) 904-9527
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
_____________
Copies To:
Nixon Peabody LLP
437 Madison Avenue, New York, New York 10022
Attention: Richard F. Langan, Jr., Esq.
Bruce E. Rosenthal, Esq.
Telephone No.: (212) 940-3140/Facsimile No.: (212) 940-3111
_____________
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
THE INFORMATION IN THIS PROSPECTUS
WILL BE AMENDED OR COMPLETED; DATED
SEPTEMBER 28, 1999.
PSINet Inc.
Exchange Offer for
$1,050,000,000
Euro 150,000,000
11% Senior Notes Due 2009
____________________________________________
PSINet: . Tenders of outstanding notes may be
withdrawn at any time prior to the
. We are the leading independent expiration of the exchange offer.
global provider of Internet
solutions to businesses. . The exchange of notes should not be
a taxable exchange for U.S. federal
. PSINet Inc. income tax purposes.
510 Hutmar Park Drive
Herndon, Virginia 20170 . We will not receive any proceeds
(703) 904-4100 from the exchange offer.
The Exchange Offer: . The terms of the notes to be issued
are substantially identical to the
. Expires at 5:00 p.m, New York outstanding notes, except for the
City time (10:00 p.m., London outstanding notes being subject to
time), on October , 1999, transfer restrictions under the
unless extended. Securities Act of 1933 and entitled
to exchange and registration rights,
. The exchange offer is subject most of which will be fulfilled upon
to customary conditions which completion of the exchange offer.
we may waive.
. All outstanding notes that are
validly tendered and not validly
withdrawn will be exchanged.
____________________________________________
Investment in the notes to be issued in the exchange offer involves risk. See
"Risk Factors" beginning on page 14.
This prospectus and the accompanying letters of transmittal are first being
mailed to holders of outstanding notes on or about September , 1999.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities, or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
____________________________________________
September , 1999
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Page
----
Prospectus Summary........................................... 1
Risk Factors................................................. 14
Use of Proceeds.............................................. 32
The Exchange Offer........................................... 33
Certain U.S. Federal Income Tax Considerations............... 46
Capitalization............................................... 51
Selected Consolidated Financial and Operating Data........... 52
Management's Discussion and Analysis of Financial
Condition and Results of Operations........................ 54
Business..................................................... 76
Management................................................... 98
Certain Relationships and Transactions....................... 101
Stock Ownership of Certain Beneficial Owners and Management.. 103
Description of Notes......................................... 105
Description of Certain Indebtedness.......................... 148
Description of Book-Entry System............................. 154
Plan of Distribution......................................... 155
Documents Incorporated By Reference.......................... 155
Legal Matters................................................ 156
Experts...................................................... 156
Where You Can Find More Information.......................... 157
Glossary..................................................... G-1
</TABLE>
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<PAGE>
PROSPECTUS SUMMARY
This summary highlights some information from this prospectus. Because
this is a summary, it may not contain all of the information that may be
important to you. To understand this exchange offer fully, you should read the
entire prospectus, including the Risk Factors and the financial statements.
There are technical terms used in this prospectus that are important to an
understanding of our business that are defined in the glossary beginning on page
G-1 of this prospectus.
THE EXCHANGE OFFER
Initial Notes................... $1,050,000,00 aggregate principal amount of
unregistered 11% Senior Notes due 2009, which
were issued in July 1999.
Euro 150,000,000 aggregate principal amount of
unregistered 11% Senior Notes due 2009, which
were issued in July 1999.
Exchange Notes.................. $1,050,000,000 aggregate principal amount of
11% Senior Notes due 2009, which have been
registered under the Securities Act of 1933,
that we are offering hereby.
Euro 150,000,000 aggregate principal amount of
11% Senior Notes due 2009, which have been
registered under the Securities Act of 1933,
that we are offering hereby.
The initial notes and the exchange notes are
referred to collectively as the notes.
The Exchange Offer.............. We are offering to exchange $1,000 principal
amount of exchange dollar notes for each
$1,000 principal amount of initial dollar
notes. Initial dollar notes may only be
exchanged in $1,000 principal amount
increments. As of the date of this prospectus,
there are $1,050,000,000 aggregate principal
amount of initial dollar notes outstanding.
We are offering to exchange Euro 1,000
principal amount of exchange euro notes for
each Euro 1,000 principal amount of initial
euro notes. Initial euro notes may only be
exchanged in Euro 1,000 principal amount
increments. As of the date of this prospectus,
there are Euro 150,000,000 aggregate principal
amount of initial euro notes outstanding.
Resales......................... Based on an interpretation by the Securities
and Exchange Commission set forth in no-action
letters issued to third parties, we believe
that you may resell or otherwise transfer
exchange notes issued pursuant to the exchange
offer in exchange for initial notes. However,
there are exceptions to this general
statement. You may not freely transfer the
exchange notes if:
<PAGE>
. you are an "affiliate" of PSINet
within the meaning of Rule 405
under the Securities Act of 1933,
. you are a broker-dealer who
acquired the initial notes
directly from us without
compliance with the registration
and prospectus delivery
provisions of the Securities Act
of 1933,
. you did not acquire the exchange
notes in the ordinary course of
your business, or
. you have engaged in, intend to
engage in, or have an arrangement
or understanding with any person
to participate in the
distribution of the exchange
notes.
Any holder subject to any of the
exceptions above and each
participating broker-dealer that
receives exchange notes for its own
account pursuant to the exchange
offer in exchange for initial notes
that were acquired as a result of
market-making, must comply with the
registration and prospectus delivery
requirements of the Securities Act
of 1933 in connection with the
resale of the exchange notes.
Expiration Date........................... 5:00 p.m., New York City time (10:00
p.m., London time), on October_,
1999, unless we extend the exchange
offer, in which case the term
"expiration date" means the latest
date and time to which the exchange
offer is extended.
Interest on the Exchange Notes and the
Initial Notes............................. Each exchange note will bear
interest from July 23, 1999, the
date of issuance of the initial
notes. If your initial notes are
accepted for exchange, you will not
receive accrued interest on the
initial notes, and will be deemed to
have waived the right to receive any
interest on the initial notes from
and after July 23, 1999.
Conditions to the Exchange Offer.......... The exchange offer is subject to
certain customary conditions, which
we may waive. See "The Exchange
Offer--Conditions."
Procedures for Tendering Initial Notes.... If you wish to accept the exchange
offer, you must complete, sign and
date, if you are a holder of initial
dollar notes, the accompanying
letter of transmittal for dollar
notes or, if you are a holder of
initial euro notes, the accompanying
letter of transmittal for euro
notes, in each case in accordance
with such letter of transmittal's
instructions and deliver the
applicable letter of transmittal,
together with the initial notes and
any other required documentation, to
the exchange agent at the address
set forth in the applicable letter
of transmittal.
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If you hold initial dollar notes
through The Depository Trust Company
or initial euro notes through
Euroclear or Cedelbank and wish to
accept the exchange offer, you must
do so pursuant to such book-entry
transfer facility's procedures for
book-entry transfer (or other
applicable procedures), all in
accordance with this prospectus and
the applicable letter of
transmittal. See "The Exchange
Offer--Procedures for Tendering
Initial Notes," "--Book-Entry
Delivery Procedures," and "--Tender
of Initial Notes Held Through Book-
Entry Transfer Facilities."
Special Procedures for Beneficial Owners.. If you are a beneficial owner whose
initial notes are registered in the
name of a broker, dealer, commercial
bank, trust company or other nominee
and you wish to tender in the
exchange offer, you should contact
the person in whose name your
initial notes are registered
promptly and instruct the person to
tender on your behalf. If you wish
to tender in the exchange offer on
your own behalf, you must, prior to
completing and executing the
applicable letter of transmittal and
delivering your initial notes,
either make appropriate arrangements
to register ownership of the initial
notes in your name or obtain a
properly completed bond power from
the person in whose name your
initial notes are registered. The
transfer of registered ownership may
take considerable time.
Guaranteed Delivery Procedures............ If you wish to tender your initial
notes in the exchange offer and your
initial notes are not immediately
available or you cannot deliver your
initial notes, the applicable letter
of transmittal or any other required
documents or you cannot comply with
the procedures for book-entry
transfer prior to the expiration
date, you may tender your initial
notes according to the guaranteed
delivery procedures set forth in
"The Exchange Offer--Guaranteed
Delivery Procedures."
Withdrawal Rights......................... Tenders may be withdrawn at any time
prior to 5:00 p.m., New York City
time (10:00 p.m., London time), on
the expiration date pursuant to the
procedures described under "The
Exchange Offer--Withdrawals of
Tenders."
Acceptance of Initial Notes and
Delivery of Exchange Notes................ Subject to certain conditions as
described more fully herein under
"The Exchange Offer--Conditions," we
will accept for exchange any and all
initial notes that are properly
tendered in the exchange offer prior
to the expiration date. The exchange
notes issued pursuant to the
exchange offer will be delivered as
promptly as practicable after the
expiration date. See "The Exchange
Offer--Terms
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<PAGE>
of the Exchange Offer."
Certain United States Federal Income Tax
Consequences.............................. With respect to the exchange of
initial notes for exchange notes:
. the exchange should not
constitute a taxable exchange for
U.S. federal income tax purposes;
. you should not recognize gain or
loss upon receipt of the exchange
notes; and
. you must include interest on the
exchange notes in gross income to
the same extent as the initial
notes.
Registration Rights Agreement............. In connection with our issuance and
sale of the initial notes on July
23, 1999, we entered into a
registration rights agreement with
the initial purchasers of the
initial notes which grants the
holders of the initial notes certain
exchange and registration rights. As
a result of the making of this
exchange offer, we will have
fulfilled certain of our obligations
under the registration rights
agreement. If you do not tender your
initial notes in the exchange offer,
you will not have any further
registration rights under the
registration rights agreement or
otherwise, unless you were not
eligible to participate in the
exchange offer. See "The Exchange
Offer--Registration Rights." In such
event, you will continue to hold the
untendered initial notes and will be
entitled to all the rights and
subject to all the limitations
applicable to the initial notes
under the indenture governing the
notes, except to the extent such
rights or limitations, by their
terms, terminate or cease to have
further effectiveness as a result of
the exchange offer. All untendered
initial notes will continue to be
subject to restrictions on transfer
under the Securities Act of 1933.
Exchange Agent............................ Wilmington Trust Company is serving
as our exchange agent in connection
with the exchange offer.
TERMS OF EXCHANGE NOTES
The form and terms of the exchange notes will be substantially the same as
the form and terms of the initial notes except that:
(1) the exchange notes have been registered under the Securities Act of
1933 and, therefore, will not bear legends restricting the transfer
thereof; and
(2) the holders of the exchange notes, except for limited instances, will
not be entitled to further registration rights under the registration
rights agreement.
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<PAGE>
The exchange notes will evidence the same debt as the initial notes and
will be entitled to the benefits of the indenture under which the initial notes
were issued.
Notes Offered..................... $1,050,000,000 aggregate principal amount
of 11% Senior Notes due 2009.
Euro 150,000,000 aggregate principal amount
of 11% Senior Notes due 2009.
The euro notes and the dollar notes will
generally be treated for purposes of the
indenture as a single series of securities
ranking pari passu with each other.
Maturity Date..................... August 1, 2009.
Interest Rate and Payment Dates... The euro notes will accrue interest at the
rate of 11% per annum. Interest on the euro
notes will be payable semi-annually in cash
(in euros) in arrears on February 1 and
August 1 of each year, commencing February
1, 2000.
The dollar notes will accrue interest at
the rate of 11% per annum. Interest on the
dollar notes will be payable semi-annually
in cash (in U.S. dollars) in arrears on
February 1 and August 1 of each year,
commencing February 1, 2000.
Ranking of the Notes.............. If our June 30, 1999 balance sheet were
restated to give effect to the offering of
the initial notes, and the application of
those net proceeds, the notes:
. would have been effectively subordinated
to approximately $267.4 million of our
secured debt (including secured debt of
our subsidiaries);
. would have been structurally
subordinated to approximately $115.4
million of other liabilities, including
trade payables and accrued liabilities,
of our subsidiaries; and
. would have ranked equally with an
aggregate of $950 million of our other
senior debt.
See "Description of Notes--General."
Sinking Fund...................... None.
Optional Redemption............... On or after August 1, 2004, we may redeem
some or all of the notes at any time at the
redemption prices, and subject to
limitations described in the section
"Description of Notes" under the heading
"Optional Redemption."
Before August 1, 2002, we may redeem up to
35% of the euro notes and up to 35% of the
dollar notes with the net cash proceeds of
public equity offerings or certain sales of
capital stock at the redemption prices
listed in the section "Description of
Notes" under the heading "Optional
Redemption."
Change of Control................. In the event of a change of control (as
defined in the indenture governing the
notes), we will be required to make an
offer to
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<PAGE>
purchase all of the notes at a purchase
price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest.
We may not have sufficient funds or the
financial resources necessary to satisfy
our obligations to repurchase the notes and
other debt that may become repayable upon a
change of control. See "Risk Factors --We
may not have the ability to raise the funds
necessary to finance the change of control
offer which may be required by the
indenture" and "Description of Notes--
Change of Control."
Basic Covenants of the Indenture.... We will issue the notes under an indenture
with Wilmington Trust Company, as trustee.
The indenture will, among other things,
restrict our ability to:
. incur indebtedness;
. make restricted payments;
. engage in transactions with affiliates;
. permit liens to exist;
. sell assets;
. issue guarantees;
. engage in sale and leaseback
transactions;
. issue and sell subsidiary capital stock;
. impose limitations on our subsidiaries'
ability to pay dividends to us;
. designate or create unrestricted
Subsidiaries; and
. change our business.
We will also have to comply with many
affirmative covenants, including the
provision of financial statements.
Exchange Offer; Registration Rights. To remove the transferability restrictions
on the notes, we have agreed:
. to file a registration statement with
the Securities and Exchange Commission
to exchange the notes for our senior
debt securities with terms identical to
the notes by October 6, 1999,
. to use our best efforts to cause the
registration statement to be declared
effective by the Securities and Exchange
Commission by December 20, 1999, and
. to keep that exchange offer open for not
less than 20 business days and cause
that exchange offer to be consummated no
later than the 30th business day after
the registration statement is declared
effective.
If the exchange offer is not permitted by
applicable law or Securities and Exchange
Commission policy, or a holder is not
otherwise able to exchange its notes for
certain reasons, we will file with the
Securities and Exchange Commission, subject
to our receipt of certain information, a
shelf registration statement to register
restricted notes for public resale. We will
seek to have any shelf registration
statement declared effective by the
Securities and Exchange Commission on or
before the 60th day after its filing. If we
default on any of these registration
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<PAGE>
obligations, we will pay certain liquidated
damages to each holder of restricted
initial notes. See "The Exchange Offer --
Registration Defaults; Liquidated Damages."
Listing............................ The initial notes have been designated as
eligible for trading in the PORTAL market
of the National Association of Securities
Dealers, Inc. The initial euro notes have
been admitted for listing on the Luxembourg
Stock Exchange. Application has been made
for listing of the exchange euro notes with
the Luxembourg Stock Exchange.
Use of Proceeds.................... We will not receive any cash proceeds from
the exchange offer. See "Use of Proceeds."
THE COMPANY
Our Business
PSINet is the leading independent global provider of Internet solutions to
businesses. We provide Internet connectivity and Web hosting services to
customers in 90 of the 100 largest metropolitan statistical areas in the U.S.
and in 16 of the 20 largest global telecommunications markets. In addition to
these services, we also offer a suite of value-added products and services that
are designed to enable our customers to maximize utilization of the Internet to
more efficiently communicate with their customers, suppliers, business partners
and remote office locations. We conduct our business through operations
organized into four geographic operating segments--North America, Latin America,
Europe and Asia. Our services and products include the following:
. Access services that offer dedicated, dial-up, wireless and digital
subscriber line, or xDSL, connections that link our customers' networks
to the Internet;
. Web hosting services that provide cost-effective solutions for the
management and maintenance of our customers' Web sites and Web-based
applications;
. Intranets and virtual private networks, or VPNs, that allow our
customers to provide secure and seamless wide area networks, or WANs,
connecting their remote offices and employees, customers and suppliers;
. E-commerce services designed to enable our customers to securely
transact business over the Internet;
. Voice-over-Internet protocol services that enable companies with
multiple business locations to transmit voice conversations over our
network at a significant savings to traditional long-distance calling;
. E-mail services that allow our customers to outsource to us the day-to-
day management and maintenance of their internal message systems; and
. Managed security services designed to protect, monitor and maintain the
integrity of our customers' networks.
We also provide wholesale and private label network connectivity and
related services to other Internet service providers, known as ISPs, and
telecommunications carriers to further utilize our network capacity.
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<PAGE>
Our Global Network
We operate one of the largest global commercial data communications
networks. Our Internet-optimized network has a footprint that extends around the
globe and is connected to approximately 600 sites, called points of presence, or
POPs, situated throughout the U.S., Canada, Latin America, Europe and Asia that
enable our customers to connect to the Internet. Our network reach allows our
customers' employees to access their corporate network and systems resources
through local calls in over 150 countries. Our network architecture consists of
high capacity frame relay switches and routers designed to deliver superior
Internet connections, reliable packet control and intelligent data traffic
routing and is compatible with all of the most widely deployed transmission
technologies. We further expand the reach of our network by connecting with
other large ISPs at 137 points through 67 contractual arrangements, called
peering agreements, that permit the exchange of information between our network
and the networks of our peering partners. We have recently opened four global
Internet hosting facilities in the U.S., Switzerland, Canada and London
containing a total of approximately 125,000 square feet and currently anticipate
opening additional Internet hosting facilities in New York and Los Angeles in
October 1999 and November 1999, respectively, containing a total of
approximately 55,000 square feet. We have two network operating centers that
monitor and manage network traffic 24-hours per day, seven-days per week.
Our Target Market and Customers
Internet access services is one of the fastest growing segments of the
global telecommunication services marketplace. For example, Gartner Group
forecasts that worldwide Internet access revenues will grow from $10.1 billion
in 1997 to $34.6 billion in 2002. Trends contributing to this growth in demand
include:
. the increase in corporate Internet sites and connectivity as a means to
expand customer reach and improve communications efficiency;
. business demand for advanced, highly reliable information technology
Solutions designed specifically to enhance productivity and improve
efficiency;
. the need of businesses to securely and efficiently connect multiple,
geographically-dispersed locations and provide global remote access
capabilities; and
. business use of the Internet as a lower-cost alternative to traditional
telecommunications services.
Our target market consists primarily of mid-sized and large businesses in
information intensive industries. As of June 30, 1999, we served approximately
73,400 business accounts, including 364 ISPs. The following table provides a
summary as of June 30, 1999 of our operations across the four geographic
operating segments in which we then operated:
<TABLE>
<CAPTION>
Revenue for
Six Months 1998 to 1999 Wholesale and
Ended 6/30/99 Revenue Business Consumer Commencement
($Millions) Growth (%) Accounts Accounts of Operations
----------- ----------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
America............................... $129.2 60% 37,600 818,662 1989
Latin America......................... 3.3 * 2,500 109,899 1999
Europe................................ 34.6 147% 15,200 29,154 1995
Asia.................................. 61.7 1,715% 18,100 83,628 1994
------ ------ ---------
All Segments.......................... $228.7 133% 73,400 1,041,303
====== ====== =========
</TABLE>
__________________________
*Did not exist in 1998
Some of our corporate customers include American Airlines, American Express
Company, C-SPAN, Electronic Data Systems (EDS), E*TRADE, Kmart Corp., Major
League Baseball, Motorola and
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<PAGE>
Xerox Corporation. Some of our ISP customers include EarthLink, FlashNet, IDT,
Microsoft's WebTV and MindSpring.
Our Strategy
Our objective is to be one of the top three providers of Internet access
services and related communications services and products in each of the 20
largest global telecommunications markets. The principal elements of our
business strategy are summarized below:
. Leverage Multiple Sales Channels. We are pursuing growth opportunities
through multiple channels consisting of our direct sales force of
approximately 550 individuals worldwide, over 1,700 resellers and
referral sources, and strategic alliances with selected
telecommunications services and equipment suppliers, networking service
companies, systems integrators and computer retailers.
. Increase Sales of Value-Added Services and New Products. We intend to
capitalize on the trend of companies seeking to increasingly outsource
their critical business applications and integrate Web-based services
and products as part of their core data networking strategy. We are
aggressively marketing value-added services and products to our existing
account base and prospective business customers, and are significantly
increasing our data center capacity to accommodate the anticipated
growth in this business.
. Accelerate Growth Through Targeted Acquisitions. We intend to make
strategic investments in or acquire:
. local or regional ISPs in markets where we have an established
POP and can benefit from the increased network utilization and
local sales force;
. ISPs in the 20 largest global telecommunications markets where
we currently do not have a presence or in those global
telecommunications markets where our current presence would be
significantly enhanced;
. related or complementary businesses to broaden our market
presence and expand our strengths in key product areas; and
. telecommunication or information technology companies which have
strong relationships with major corporations.
. Continue to Invest in our Network. We remain focused on reducing costs
as a percentage of revenue by maintaining a scaleable network and
increasing utilization of and controlling strategic assets, such as
acquisition of long-term rights in telecommunications bandwidth.
. Enhance Brand Name Recognition. We intend to leverage our PSINet brand
by rebranding acquired ISP operations and services under the PSINet
name, selectively using television commercials, print ads and direct
mailings which target key decision makers in the U.S. and abroad, and
acquiring corporate sponsorship rights, such as our recent acquisition
of the naming rights to the NFL Stadium of the Baltimore Ravens.
RECENT DEVELOPMENTS
Acquisition of Transaction Network Services. On August 22, 1999, we
entered into a definitive agreement to acquire Transaction Network Services,
Inc. (NYSE: TNI). TNI will be merged with and into a wholly-owned subsidiary of
PSINet. Under the terms of the merger agreement, the aggregate consideration to
be paid to TNI shareholders consists of up to $351.0 million in cash and up to
7.8 million shares (assuming the exercise of approximately 2.4 million currently
exercisable TNI stock options) of our common stock (which represents an
aggregate value of up to approximately $707.3 million, assuming a price per
share of our common stock of $45.719). Additionally, we will repay the $62.0
million of obligations outstanding under TNI's revolving credit facility. The
source of the cash consideration for the
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TNI merger and the cash for the repayment of the TNI revolving credit facility
obligation will be from our cash on hand. TNI shareholders may elect to receive
cash, shares of our common stock, or both cash and shares, subject to
adjustments. The amount of cash paid and shares of our common stock issued in
the TNI merger are contingent upon the ultimate number of outstanding TNI stock
options exercised prior to closing. Completion of the TNI merger is subject to a
number of conditions, including receipt of TNI shareholder approval and
regulatory approvals.
TNI was incorporated in August 1990 to build and operate a communications
network focused on the network services needs of the POS (point-of-sale/point
- -of-service) transaction processing industry through its POS division. TNI
currently operates four divisions: (1) the POS Division, which includes TNI's
TransXpress network services for the POS transaction processing industry, (2)
the Telecom Services Division, which includes TNI's CARD*TEL telephone call
billing validation and fraud control services and other services targeting
primarily the telecommunications industry, (3) the Financial Services Division,
which provides integrated data and voice services including the TNI FastLink
Data Service in support of the Financial Information eXchange messaging protocol
and other transaction oriented trading applications primarily to the financial
services industry, and (4) the International Systems Division, which markets
TNI's products and services internationally.
Unaudited pro forma consolidated financial information for PSINet as of
June 30, 1999 and for the year ended December 31, 1998 and for the six months
ended June 30, 1999, which present the pro forma effect of our acquisition of
TNI, certain other acquisitions and our offering of the initial notes and the
application of those net proceeds, has been filed as Exhibit 99.4 to our Current
Report on Form 8-K dated August 22, 1999 and is incorporated by reference in
this prospectus. See "Documents Incorporated by Reference" and "Where You Can
Find More Information."
Other Acquisitions. As part of our growth strategy, during the four months
ended July 31, 1999, we acquired twelve ISPs in six of the 20 largest global
telecommunications markets. The aggregate amount of the purchase prices and
related payments for these acquisitions was approximately $108.1 million,
exclusive of indebtedness assumed in connection with such acquisitions. Of such
amount, we have retained $16.4 million as of July 31, 1999 to secure performance
by certain sellers of indemnification or other contractual obligations. The
following table summarizes certain information concerning these recent
acquisitions:
<TABLE>
<CAPTION>
Ranking Among
SOHO/ 20 Largest
Name of Date of Business Consumer Global Telecom
Acquired Company Acquisition Principal Market Accounts (1) Accounts (1) Markets (1)
- ----------------------------- ----------- ------------------ ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C>
Horizontes Internet 4/99 Brazil 220 10,000 9
Openlink 4/99 Brazil 1,100 18,000 9
STI 5/99 Brazil 400 34,000 9
Internet de Mexico 5/99 Mexico 260 11,800 15
DataNet 5/99 Mexico 430 7,500 15
TIC 5/99 Switzerland 1,300 3,800 14
Caribbean Internet 6/99 U.S. (Puerto Rico) 210 12,800 1
TIAC 6/99 U.S. 6,300 33,200 1
Argentina On-line 6/99 Argentina 70 2,900 16
CSO.net 6/99 Austria 240 1,400 N/A
Intercomputer 7/99 Spain 220 18,900 11
ABAFoRUM 7/99 Spain 250 2,850 11
------ -------
Total ........... 11,000 157,150
====== =======
</TABLE>
_____________________________________
(1) As of the respective dates of acquisition.
-10-
<PAGE>
Equity Offerings. During May 1999, we completed concurrent public
offerings of 8,000,000 shares of our common stock and 9,200,000 shares of our 6
3/4% Series C cumulative convertible preferred stock for aggregate net proceeds
of approximately $742.0 million after expenses (excluding amounts paid by the
purchasers of the convertible preferred stock into the deposit account
therefor).
__________________
We are a New York corporation and our principal executive offices are
located at 510 Huntmar Park Drive, Herndon, Virginia 20170. Our telephone number
is (703) 904-4100.
-11-
<PAGE>
Summary Consolidated Financial and Operating Data
(In thousands of U.S. dollars, except per share, ratio and operating data)
The following summary consolidated financial and operating data as of and
for the years ended December 31, 1994, 1995, 1996, 1997 and 1998 and the six
months ended June 30, 1998 and 1999 have been derived from our consolidated
financial statements. The results of operations for the six month period ended
June 30, 1999 may not be indicative of the results for the entire year ending
December 31, 1999.
The information contained in this table should be read in conjunction with
the sections entitled "Selected Consolidated Financial and Operating Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Use of Proceeds" and our consolidated financial statements and
notes thereto and other financial and operating data included elsewhere or
incorporated by reference in this prospectus.
The June 30, 1999, as adjusted, balance sheet data gives effect to the
offering of the initial notes and the application of those net proceeds as if
the offering had occurred on June 30, 1999.
EBITDA is used in the Internet services industry as one measure of a
company's operating performance and historical ability to service debt. EBITDA
is not determined in accordance with generally accepted accounting principles,
is not indicative of cash used by operating activities and should not be
considered in isolation or as an alternative to, or more meaningful than,
measures of performance determined in accordance with generally accepted
accounting principles. We define EBITDA as earnings (losses) before interest
expense and interest income, taxes, depreciation and amortization, other non-
operating income and expense, and charges for intangible asset write-down and
acquired in-process research and development. Our definition of EBITDA may not
be comparable to similarly titled measures used by other companies.
For the purposes of computing the ratio of earnings to combined fixed
charges and preferred dividends, earnings consist of losses before income taxes,
equity in loss of affiliate, amortization of capitalized interest and fixed
charges. Fixed charges consist of interest on all indebtedness, including
amounts capitalized, amortization of debt financing costs and that portion of
rental expense which we believe to be representative of interest (deemed to be
one-third of rental expense).
-12-
<PAGE>
<TABLE>
<CAPTION>
Six Months
Year Ended December 31 Ended June 30,
1994 1995 1996 1997 1998 1998 1999
--------- ---------- ---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue:
U.S.......................................... $ 15,159 $ 36,252 $ 77,571 $103,952 $ 156,048 $ 68,888 $ 111,547
International................................ 55 2,470 6,780 17,950 103,588 29,294 117,121
-------- -------- -------- -------- --------- --------- ---------
15,214 38,722 84,351 121,902 259,636 98,182 228,668
Other income, net.............................. -- -- 5,417 -- -- -- --
Operating costs and expenses:
Data communications and operations........... 9,489 32,124 70,102 94,363 199,372 78,609 162,341
Sales and marketing.......................... 3,599 23,930 27,064 25,831 57,026 23,219 40,505
General and administrative................... 3,605 10,569 20,648 22,947 45,288 17,872 32,469
Depreciation and amortization................ 3,183 14,778 28,035 28,347 63,424 22,354 61,210
Charge for acquired in-process research and
development................................ -- -- -- -- 70,800 27,000 --
Intangible asset write-down.................. -- 9,938 -- -- -- -- --
-------- -------- -------- -------- --------- --------- ---------
Total operating costs and expenses........... 19,876 91,339 145,849 171,488 435,910 169,054 296,525
-------- -------- -------- -------- --------- --------- ---------
Loss from operations........................... (4,662) (52,617) (56,081) (49,586) (176,274) (70,872) (67,857)
Interest expense............................... (731) (1,964) (5,025) (5,362) (63,914) (19,471) (61,486)
Non-recurring arbitration charge............... -- -- -- -- (49,000) -- --
Loss before income taxes....................... (5,342) (53,160) (55,256) (46,078) (262,717) (82,695) (116,903)
Net loss....................................... (5,342) (53,160) (55,097) (45,602) (261,869) (82,724) (116,453)
Return to preferred shareholders............... -- -- -- (411) (3,079) (1,545) (4,797)
Net loss available to common shareholders...... $ (5,342) $(53,160) $(55,097) $(46,013) $(264,948) $ (84,269) $(121,250)
======== ======== ======== ======== ========= ========= =========
Basic and diluted loss per share............... $(0.42) $(2.01) $ (1.40) $(1.14) $ (5.32) $ (1.76) $ (2.10)
======== ======== ======== ======== ========= ========= =========
Shares used in computing basic and diluted
loss per share (in thousands)................ 12,805 26,485 39,378 40,306 49,806 47,854 57,657
Other Financial Data:
EBITDA:
U.S.......................................... $ 772) $(26,930) $(20,563) $(13,071) $ (26,170) $ (12,139) $ (12,735)
International................................ (707) (971) (7,483) (8,168) (15,880) (9,379) 6,088
-------- -------- -------- -------- --------- --------- ---------
$ (1,479) $(27,901) $(28,046) $(21,239) $ (42,050) $ (21,518) $ (6,647)
======== ======== ======== ======== ========= ========= =========
Capital expenditures........................... $ 5,009 $ 45,166 $ 38,390 $ 50,074 $ 303,550 $ 79,024 $ 215,400
Ratio of earnings to combined fixed charges
and preferred dividends (deficiency of
earnings to combined fixed charges
and preferred dividends)..................... (5,307) (52,956) (54,449) (46,489) (265,796) (84,240) (121,700)
Cash Flow Data:
Cash flows used in operating activities........ $ (1,097) $(30,093) $(32,543) $(15,568) $ (87,586) $ (20,730) $(139,325)
Cash flows used in investing activities........ (1,937) (21,958) (7,897) (15,560) (783,877) (451,312) (27,770)
Cash flows provided by (used in) financing
activities................................... 4,527 151,403 (10,529) 12,598 874,246 563,317 721,683
Operating Data:
Number of POPs................................. 82 241 350 350 500 400 600
Number of business accounts.................... 4,220 8,200 17,800 26,400 54,700 38,700 73,400
</TABLE>
<TABLE>
<CAPTION>
June 30, 1999
----------------------------
As
Actual Adjusted
---------- -----------
<S> <C> <C>
Balance Sheet Data:
Cash, cash equivalents, short-term investments and marketable securities................... $ 716,356 $1,889,708
Restricted cash and short-term investments................................................. 144,504 144,504
Total assets............................................................................... 2,013,459 3,221,019
Current portion of debt.................................................................... 78,455 78,455
Long-term debt, less current portion....................................................... 1,141,730 2,349,290
Total liabilities.......................................................................... 1,483,532 2,691,092
Shareholders' equity....................................................................... 529,927 529,927
</TABLE>
-13-
<PAGE>
RISK FACTORS
Before you invest in our securities, you should be aware that there are
various risks, including the ones listed below. You should carefully consider
these risk factors, as well as the other information contained in this
prospectus, in evaluating an investment in our securities.
We have significant indebtedness and we may not be able to meet our obligations
We are highly leveraged and have significant debt service requirements. As
of June 30, 1999, after giving pro forma effect to the offering of the initial
notes, our total indebtedness would have been $2.4 billion, representing 82% of
total capitalization. For the three and six months ended June 30, 1999, our
interest expense was $31.9 million and $61.5 million, respectively. After giving
pro forma effect to the offering of the initial notes, our interest expense,
including amortization of deferred financing costs for the three and six months
ended June 30, 1999 would have been $66.2 million and $130.1 million,
respectively. As a result of the completion of the initial notes offering, our
annual interest expense on the notes, 10% senior notes and 11 1/2% senior notes
will be $241.5 million, assuming an exchange rate of Euro 0.92 to U.S.$1.00,
which was the average exchange rate for the period from January 1 to June 30,
1999. We will have additional interest expense attributable to our revolving
credit facility and equipment lease arrangements.
Our high level of indebtedness could have several important effects on our
future operations, which, in turn, could have important consequences for the
holders of our securities, including the following:
. a substantial portion of our cash flow from operations must be used to
pay interest on our indebtedness and, therefore, will not be available
for other business purposes;
. covenants contained in the agreements evidencing our debt obligations
require us to meet many financial tests, and other restrictions limit
our ability to borrow additional funds or to dispose of assets and may
affect our flexibility in planning for, and reacting to, changes in our
business, including possible acquisition activities and capital
expenditures; and
. our ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions, general corporate purposes
or other purposes may be impaired.
Our ability to meet our debt service obligations and to reduce our total
indebtedness depends on our future operating performance and on economic,
financial, competitive, regulatory and other factors affecting our operations.
Many of these factors are beyond our control and our future operating
performance could be adversely affected by some or all of these factors. We
historically have been unable to generate sufficient cash flow from operations
to meet our operating needs and have relied on equity, debt and capital lease
financings to fund our operations. However, based on our current level of
operations, management believes that existing working capital, existing credit
facilities, capital lease financings and proceeds of future equity or debt
financings (including, without limitation, from the initial notes offering) will
be adequate to meet our presently anticipated future requirements for working
capital, capital expenditures and scheduled payments of interest on our debt,
including the notes. We cannot assure you, however, that our business will
generate sufficient cash flow from operations or that future working capital
borrowings will be available in an amount sufficient to enable us to service our
debt, including the notes, or to make necessary capital expenditures. In
addition, we cannot assure you that we will be able to raise additional capital
for any refinancing of our debt in the future.
We have experienced continuing losses, negative cash flow and fluctuations in
operating results
Our prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in new and rapidly evolving
markets. To address these risks, we must, among other things, respond to
competitive developments, continue to attract and retain qualified persons,
continue to upgrade our management and financial systems, and continue to
upgrade our technologies and
-14-
<PAGE>
commercialize our network services incorporating such technologies. We cannot
assure you that we will be successful in addressing such risks, and the failure
to do so could have a material adverse effect on our business, financial
condition, results of operations and ability to pay when due principal, interest
and other amounts in respect of our debt, including the notes. Although we have
experienced revenue growth on an annual basis with revenue increasing from $84.4
million in 1996 to $121.9 million in 1997 to $259.6 million in 1998 and $228.7
million for the first six months of 1999, we have incurred losses and
experienced negative EBITDA during such periods. We may continue to operate at a
net loss and may experience negative EBITDA as we continue our acquisition
program and the expansion of our global network operations. We have incurred net
losses available to common shareholders of $55.1 million in 1996, $46.0 million
in 1997, $264.9 million in 1998 and $121.3 million for the first six months of
1999. We have incurred negative EBITDA of $28.0 million, $21.2 million, $42.1
million and $6.8 million for each of the years ended December 31, 1996, 1997 and
1998 and the three months ended March 31, 1999, respectively, and had positive
EBITDA of $0.2 million for the three months ended June 30, 1999. At June 30,
1999, we had an accumulated deficit of $548.8 million. We cannot assure you that
we will be able to achieve or sustain profitability or sustain positive EBITDA.
Our operating results have fluctuated in the past and may fluctuate
significantly in the future as a result of a variety of factors, some of which
are outside our control. These factors, include, among others:
. general economic conditions and specific economic conditions in the
Internet access industry;
. user demand for Internet services;
. capital expenditures and other costs relating to the expansion of
operations of our network;
. the introduction of new services by us or our competitors;
. the mix of services sold and the mix of channels through which those
services are sold;
. pricing changes and new product introductions by us and our
competitors;
. delays in obtaining sufficient supplies of sole or limited source
equipment and telecom facilities; and
. potential adverse regulatory developments.
As a strategic response to a changing competitive environment, we may elect
from time to time to make pricing, service or marketing decisions that could
have a material adverse effect on our business, results of operations and cash
flow.
We will depend on the cash flows of our subsidiaries in order to satisfy our
debt obligations
We are an operating entity which also conducts a significant portion of our
business through our subsidiaries. Our operating cash flow and consequently our
ability to service our debt, including the notes, is therefore partially
dependent upon our subsidiaries' earnings and their distributions of those
earnings to us. It may also be dependent upon loans, advances or other payments
of funds to us by those subsidiaries. Our subsidiaries are separate legal
entities and have no obligation, contingent or otherwise, to pay any amount due
pursuant to the notes or to make any funds available for that purpose. Our
subsidiaries' ability to make payments may be subject to the availability of
sufficient surplus funds, the terms of such subsidiaries' indebtedness,
applicable laws and other factors.
Although the notes are referred to as "senior," they will be effectively
subordinated to our secured debt and the debt and other liabilities of our
subsidiaries
The euro notes and the dollar notes are being issued under a single
indenture, will be treated for purposes of that indenture as a single series
(including for voting in connection with consents, waivers or other matters),
and will rank pari passu with each other. In the event of bankruptcy or similar
proceedings
-15-
<PAGE>
involving us, our assets which serve as collateral will be available to satisfy
the obligations under our secured debt before any payments are made on the
notes. In addition, our subsidiaries will not guarantee the notes. In any event,
the notes are effectively subordinated in right of payment to all existing and
future indebtedness and other liabilities of our subsidiaries, including trade
payables. As of June 30, 1999, we had approximately $267.4 million of secured
debt (including secured debt of our subsidiaries) and our subsidiaries had in
the aggregate approximately $115.4 million of other liabilities, including trade
payables and accrued liabilities, to which holders of the notes are structurally
subordinated. Under the terms of agreements evidencing our debt obligations,
some of our subsidiaries are restricted in their ability to incur debt in the
future.
We may not be able to fund the expansion we will need to remain competitive
In order to maintain our competitive position and continue to meet the
increasing demands for service quality, availability and competitive pricing, we
expect to make significant capital expenditures. At June 30, 1999, we were
obligated to make future payments that total $73.9 million for acquisitions of
global fiber-based telecommunications bandwidth, including indefeasible rights
of use or other rights. We also expect that there will be additional costs, such
as connectivity and equipment charges, in connection with taking full advantage
of such acquired bandwidth and indefeasible rights of use. We currently believe
that our capital expenditures in 1999 will be greater than those in 1998 and
that, as a result of our completion of the initial notes offering and recent
equity offerings, we will accelerate our capital expenditure program. This may
occur as we continue to execute our expansion strategy in the 20 largest global
telecommunications markets and beyond.
We historically have been unable to generate sufficient cash flow from
operations to meet our operating needs and have relied on equity, debt and
capital lease financings to fund our operations. However, we believe that we
will have a reasonable degree of flexibility to adjust the amount and timing of
capital expenditures in response to market conditions, competition, our then
existing financing capabilities and other factors. We also believe that working
capital generated from the use of acquired bandwidth, together with other
existing working capital from existing credit facilities, from capital lease
financings, from the proceeds of the initial notes offering and from proceeds of
future equity or debt financings will be sufficient to meet the presently
anticipated working capital and capital expenditure requirements of our
operations. We cannot assure you, however, that we will have sufficient
additional capital and/or obtain financing on satisfactory terms to enable us to
meet our capital expenditures and working capital requirements.
We may need to raise additional funds in order to take advantage of
unanticipated opportunities, more rapid international expansion or acquisitions
of complementary businesses. In addition, we may need to raise additional funds
to develop new products or otherwise respond to changing business conditions or
unanticipated competitive pressures. We cannot assure you that we will be able
to raise such funds on favorable terms. In the event that we are unable to
obtain such additional funds on acceptable terms, we may determine not to enter
into various expansion opportunities.
We face risks associated with acquisitions and strategic alliances and
investments relating to difficulties in integrating combined operations,
incurrence of additional debt to finance acquisitions and operations of acquired
businesses, potential disruption of operations and related negative impact on
earnings, and incurrence of substantial expenses that could adversely affect our
financial condition
Growth through acquisitions represents a principal component of our
business strategy. Over the 22 months ended July 31, 1999, we acquired 32 ISPs
primarily in 14 of the 20 largest global telecommunications markets. We expect
to continue to acquire assets and businesses principally relating to or
complementary to our current operations. We may also seek to develop strategic
alliances and investments (including venture capital investments) both
domestically and internationally. Any such future acquisitions or strategic
alliances and investments would be accompanied by the risks commonly encountered
in acquisitions, strategic alliances or investments. Such risks include, among
other things:
-16-
<PAGE>
. the difficulty of integrating the operations and personnel of the
companies, particularly in non-U.S. markets;
. the potential disruption of our ongoing business;
. the inability of management to maximize our financial and strategic
position by the successful incorporation of licensed or acquired
technology and rights into our service offerings; and
. the inability to maintain uniform standards, controls, procedures and
policies and the impairment of relationships with employees and
customers as a result of changes in management.
We cannot assure you that we will be successful in overcoming these risks
or any other problems encountered in connection with such acquisitions,
strategic alliances or investments. We believe that after eliminating redundant
network architecture and administrative functions and taking other actions to
integrate the operations of acquired companies we will be able to realize cost
savings. However, we cannot assure you that our integration of acquired
companies' operations will be successfully accomplished. Our inability to
improve the operating performance of acquired companies' businesses or to
integrate successfully the operations of acquired companies could have a
material adverse effect on our business, financial condition and results of
operations. In addition, as we proceed with acquisitions in which the
consideration consists of cash, a substantial portion of our available cash will
be used to consummate such acquisitions.
As with each of our recent acquisitions, the purchase price of many of the
businesses that might become attractive acquisition candidates for us likely
will significantly exceed the fair values of the net assets of the acquired
businesses. As a result, material goodwill and other intangible assets would be
required to be recorded which would result in significant amortization charges
in future periods. In addition, an intangible asset that frequently arises in
connection with the acquisition of a technology company is "acquired in-process
research and development," which under U.S. accounting standards, as presently
in effect, must be expensed immediately upon acquisition. Such expenses, in
addition to the financial impact of such acquisitions, could have a material
adverse effect on our business, financial condition and results of operations
and could cause substantial fluctuations in our quarterly and yearly operating
results. Furthermore, in connection with acquisitions or strategic alliances, we
could incur substantial expenses, including the expenses of integrating the
business of the acquired company or the strategic alliance with our existing
business.
We expect that competition for appropriate acquisition candidates may be
significant. We may compete with other telecommunications companies with similar
acquisition strategies, many of which may be larger and have greater financial
and other resources than we have. Competition for Internet companies is based on
a number of factors including price, terms and conditions, size and access to
capital, ability to offer cash, stock or other forms of consideration and other
matters. We cannot assure you that we will be able to successfully identify and
acquire suitable companies on acceptable terms and conditions.
Our growth and expansion may strain our ability to manage our operations and our
financial resources
Our rapid growth has placed a strain on our administrative, operational and
financial resources and has increased demands on our systems and controls. We
have approximately 600 points-of-presence and we plan to continue to expand the
capacity of existing points-of-presence as customer-driven demand dictates. In
addition, we have completed a number of acquisitions of companies and
telecommunications bandwidth during 1998 and the first seven months of 1999 and
plan to continue to do so. We anticipate that our Carrier and Internet Service
Provider Services business unit, as well as other business growth, may require
continued enhancements to and expansion of our network. The process of
consolidating the businesses and implementing the strategic integration of these
acquired businesses with our existing business may take a significant amount of
time. It may also place additional strain on our resources and could subject us
to additional expenses. We cannot assure you that we will be able to integrate
these companies successfully or
-17-
<PAGE>
in a timely manner. In addition, we cannot assure you that our existing
operating and financial control systems and infrastructure will be adequate to
maintain and effectively monitor future growth.
Our continued growth may also increase our need for qualified personnel. We
cannot assure you that we will be successful in attracting, integrating and
retaining such personnel. The following risks, associated with our growth, could
have a material adverse effect on our business, results of operations and
financial condition:
. our inability to continue to upgrade our networking systems or our
operating and financial control systems;
. our inability to recruit and hire necessary personnel or to
successfully integrate new personnel into our operations;
. our inability to successfully integrate the operations of acquired
companies or to manage our growth effectively; or
. our inability to adequately respond to the emergence of unexpected
expansion difficulties.
We face risks associated with our acquisitions of bandwidth from network
suppliers, including our strategic alliance with IXC Communications Inc.,
relating to our dependence on their ability to satisfy their obligations to us,
the possibility that we may need to incur significant expenses to utilize
bandwidth and their ability to buildout their networks under construction that
could adversely affect our ability to utilize acquired bandwidth
We are subject to a variety of risks relating to our recent acquisitions of
fiber-based telecommunications bandwidth from our various global network
suppliers, including our strategic alliance with IXC Communications Inc., and
the delivery, operation and maintenance of such bandwidth. Such risks include,
among other things, the following:
. the risk that financial, legal, technical and/or other matters may
adversely affect such suppliers' ability to perform their respective
operation, maintenance and other services relating to such bandwidth,
which may adversely affect our use of such bandwidth;
. the risk that we will not have access to sufficient additional capital
and/or financing on satisfactory terms to enable us to make the
necessary capital expenditures to take full advantage of such
bandwidth;
. the risk that such suppliers may not continue to have the necessary
financial resources to enable them to complete, or may otherwise elect
not to complete, their contemplated buildout of the respective fiber
optic telecommunications systems; and
. the risk that such buildout may be delayed or otherwise adversely
affected by presently unforeseeable legal, technical and/or other
factors.
We cannot assure you that we will be successful in overcoming these risks
or any other problems encountered in connection with our acquisitions of
bandwidth.
Continued international expansion is a key component of our business strategy
and, if we are unable to complete this expansion, our financial condition may be
adversely affected
A key component of our business strategy is our continued expansion into
international markets. Revenue from our non-U.S. operations continues to
increase as a percentage of consolidated results, comprising 51% of revenue in
the second quarter of 1999. By comparison, our non-U.S. operations comprised 31%
of revenue in the second quarter of 1998 and 40% for all of 1998. We may need to
enter into joint ventures or other strategic relationships with one or more
third parties in order to conduct our foreign operations successfully. However,
we cannot assure you that we will be able to obtain the permits and operating
licenses required for us to operate, to hire and train employees or to market,
sell and deliver
-18-
<PAGE>
high quality services in these markets. In addition to the uncertainty as to our
ability to continue to expand our international presence, there are risks
inherent in doing business on an international level. Such risks include:
. unexpected changes in or delays resulting from regulatory requirements,
tariffs, customs, duties and other trade barriers;
. difficulties in staffing and managing foreign operations;
. longer payment cycles and problems in collecting accounts receivable;
. fluctuations in currency exchange rates and foreign exchange controls
which restrict or prohibit repatriation of funds;
. technology export and import restrictions or prohibitions;
. delays from customs brokers or government agencies;
. the introduction of free ISP services for consumer customers;
. seasonal reductions in business activity during the summer months in
Europe and other parts of the world; and
. potentially adverse tax consequences, which could adversely impact the
success of our international operations.
We cannot assure you that such factors will not have an adverse effect on
our future international operations and, consequently, on our business,
financial condition and results of operations. In addition, we cannot assure you
that laws or administrative practice relating to taxation, foreign exchange,
foreign ownership or other matters of countries within which we operate will not
change. Any such change could have a material adverse effect on our business,
financial condition and results of operations.
In particular, we have also recently made significant investments in Japan,
which has been experiencing a severe economic recession. Other countries in
which we operate may also experience economic difficulties and uncertainties.
These economic difficulties and uncertainties could have a material adverse
effect on our business, financial condition and results of operations.
Our financial results and our financial position may be adversely affected by
currency and exchange risks
During the year ended December 31, 1998 and the six months ended June 30,
1999, 40% and 51%, respectively, of our revenue was derived from operations
outside the United States and at June 30, 1999, 30% of our assets were in
operations outside of the United States. We anticipate that a significant
percentage of our future revenue and operating expenses will continue to be
generated from operations outside the United States and we expect to continue to
invest in non-U.S. businesses. Consequently, a substantial portion of our
revenue, operating expenses, assets and liabilities will be subject to
significant foreign currency and exchange risks. Obligations of customers and of
PSINet in foreign currencies will be subject to unpredictable and indeterminate
fluctuations in the event that such currencies change in value relative to U.S.
dollars. Furthermore, those customers and PSINet may be subject to exchange
control regulations which might restrict or prohibit the conversion of such
currencies into U.S. dollars. Although we have not entered into hedging
transactions to limit our foreign currency risks, as a result of the increase in
our foreign operations, we may implement such practices in the future. We cannot
assure you that the occurrence of any of these factors will not have a material
adverse effect on our business, financial position or results of operations.
We depend on key personnel and could be affected by the loss of their services
Competition for qualified employees and personnel in the Internet services
industry is intense and there are a limited number of persons with knowledge of
and experience in the Internet service industry.
-19-
<PAGE>
The process of locating such personnel with the combination of skills and
attributes required to carry out our strategies is often lengthy. Our success
depends to a significant degree upon our ability to attract and retain qualified
management, technical, marketing and sales personnel and upon the continued
contributions of such management and personnel. In particular, our success is
highly dependent upon the personal abilities of our senior executive management,
including William L. Schrader, our Chairman of the Board and Chief Executive
Officer and the founder of PSINet, Harold S. Wills, our President and Chief
Operating Officer, and Edward D. Postal, our Senior Vice President and Chief
Financial Officer. We have employment agreements with Messrs. Wills and Postal.
The loss of the services of any one of them could have a material adverse effect
on our business, financial condition or results of operations.
We depend on suppliers and could be affected by changes in suppliers or delays
in delivery of their products and services
We have few long-term contracts with our suppliers. We are dependent on
third party suppliers for our leased-line connections or bandwidth. Some of
these suppliers are or may become competitors of ours, and such suppliers are
not subject to any contractual restrictions upon their ability to compete with
us. If these suppliers change their pricing structures, we may be adversely
affected. Moreover, any failure or delay on the part of our network providers to
deliver bandwidth to us or to provide operations, maintenance and other services
with respect to such bandwidth in a timely or adequate fashion could adversely
affect us.
We are also dependent on third party suppliers of hardware components.
Although we attempt to maintain a minimum of two vendors for each required
product, some components used by us in providing our networking services are
currently acquired or available from only one source. We have from time to time
experienced delays in the receipt of hardware components and telecommunications
facilities, including delays in delivery of PRI telecommunications facilities,
which connect dial-up customers to our network. A failure by a supplier to
deliver quality products on a timely basis, or the inability to develop
alternative sources if and as required, could result in delays which could have
a material adverse effect on us. Our remedies against suppliers who fail to
deliver products on a timely basis are limited by contractual liability
limitations contained in supply agreements and purchase orders and, in many
cases, by practical considerations relating to our desire to maintain good
relationships with the suppliers. As our suppliers revise and upgrade their
equipment technology, we may encounter difficulties in integrating the new
technology into our network.
Many of the vendors from whom we purchase telecommunications bandwidth,
including the regional Bell operating companies, competitive local exchange
carriers and other local exchange carriers, currently are subject to tariff
controls and other price constraints which in the future may be changed. In
addition, recently enacted legislation will produce changes in the market for
telecommunications services. These changes may affect the prices which we are
charged by the regional Bell operating companies and other carriers, which could
have a material adverse effect on our business, financial condition and results
of operations. Moreover, we are subject to the effects of other potential
regulatory actions which, if taken, could increase the cost of our
telecommunications bandwidth through, for example, the imposition of access
charges.
The terms of our financing arrangements may restrict our operations
Our financing arrangements with our banks and equipment lessors are secured
by substantially all of our assets and stock of some of our subsidiaries. These
financing arrangements require that we satisfy many financial covenants. Our
ability to satisfy these financial covenants may be affected by events beyond
our control and, as a result, we cannot assure you that we will be able to
continue to satisfy such covenants. These financing arrangements also currently
prohibit us from paying dividends and repurchasing our capital stock without the
lender's consent. Our failure to comply with the covenants and restrictions in
these financing arrangements could lead to a default under the terms of these
agreements. In the event of a default under the financing arrangements, our
lenders would be entitled to accelerate the indebtedness outstanding thereunder
and foreclose upon the assets securing such indebtedness. They would also be
entitled to be repaid from the proceeds of the liquidation of those assets
before the assets would be available for distribution to the holders of our
securities, including the holders of the notes. In addition, the
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collateral security arrangements under our existing financing arrangements may
adversely affect our ability to obtain additional borrowings.
Our financial condition may be adversely affected if our systems and those of
our suppliers fail because of Year 2000 problems
The commonly referred to Year 2000, or Y2K, problem results from the fact
that many existing computer programs and systems use only two digits to identify
the year in the date field. These programs were designed and developed without
considering the impact of a change in the century designation. If not corrected,
computer applications that use a two-digit format could fail or create erroneous
results in any computer calculation or other processing involving the Year 2000
or a later date. We have identified two main areas of Y2K risk:
1. Internal computer systems or embedded chips could be disrupted or
fail, causing an interruption or decrease in productivity in our
operations; and
2. Computer systems or embedded chips of third parties including,
without limitation, financial institutions, suppliers, vendors, landlords,
customers, international suppliers of telecommunications services and
others, could be disrupted or fail, causing an interruption or decrease in
our ability to continue our operations.
We have developed detailed plans for implementing, testing and completing
any necessary modifications to our key computer systems and equipment with
embedded chips to ensure that they are Y2K compliant. We have engaged a third
party consultant to perform an assessment of our U.S. internal systems (e.g.,
accounting, billing, customer support and network operations) to determine the
status of their Y2K compliance. The assessment of these systems has been
completed and, while some minor changes are necessary, we believe that no
material changes or modifications to our internal systems are required to
achieve Y2K compliance. Our U.S. chief information officer has developed a test
bed of our U.S. internal systems to implement and complete testing of the
requisite minor changes. We believe that our U.S. internal systems are presently
Y2K ready. We have completed an inventory of our internal systems that we use
outside of the United States to determine the status of their Y2K compliance.
Each international office has plans in place to test, upgrade or, if necessary,
replace components of its internal systems to ensure they are Y2K compliant. We
anticipate that our international operations will be Y2K compliant during the
fourth quarter of 1999. To help ensure that our network operations and services
to our customers are not interrupted due to the Y2K problem, we have established
a network operations team that meets weekly to examine our network on a
worldwide basis. This team of operational staff have conducted inventories of
our network equipment (software and hardware) and have found no material Y2K
compliance issues. We believe that all equipment currently being purchased for
use in the PSINet network is Y2K compliant. Any existing equipment that is not
Y2K compliant is in the process of being made Y2K compliant through minor
changes to the software or hardware or, in limited instances, replacement of the
equipment. We believe that our network is presently Y2K compliant. In addition
to administering the implementation of necessary upgrades for Y2K compliance,
our network team has developed a contingency plan to address potential problems
that may occur with our network as we enter the year 2000. We believe that, as a
result of our detailed assessment and completed modifications, the Y2K issue
will not pose significant operational problems for us. However, if the requisite
modifications and conversions are not made, or not completed in a timely
fashion, it is possible that the Y2K problem could have a material impact on our
operations.
Our cost of addressing Y2K issues has been minor to date, less than 5% of
our information technology and network operations budgets, but this amount may
increase if additional outside consultants or personnel resources are required
or if important operational equipment must be remediated or replaced. Our
estimated total costs related to Y2K issues for 1999 is not expected to exceed
$2.0 million. These costs include equipment, consulting fees, software and
hardware upgrades, testing, remediation and, in limited instances, replacement
of equipment. The risk that Y2K issues could present to us include, without
limitation, disruption, delay or cessation of operations, including operations
that are subject to regulatory compliance. In each case, the correction of the
problem could result in substantial expense and disruption or delay of our
operations. The total cost of Y2K assessments and remediation is funded through
cash on
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hand and available from other sources and we are expensing these costs, as
appropriate. The financial impact of making all required systems changes or
other remediation efforts cannot be known precisely, but it is not expected to
be material to our financial position, results of operations, or cash flows. We
have not canceled any principal information technology projects as a result of
our Y2K effort, although we have rescheduled some internal tasks to accommodate
this effort.
In addition, we have identified, prioritized and are communicating with our
suppliers, vendors, customers, lenders and other material third parties to
determine their Y2K status and any probable impact on us. To date, our inquiries
have not revealed any significant Y2K noncompliance issue affecting our material
third parties. We will continue to monitor and evaluate our long-term
relationships with our material third parties based on their responses to our
inquiries and on information learned from other sources. If any of our material
third parties are not Y2K ready and their non-compliance causes a material
disruption to any of their respective businesses, our business could be
materially adversely affected. Disruptions could include, among other things:
. the failure of a material third party's business;
. a financial institution's inability to take and transfer funds;
. an interruption in delivery of supplies from vendors;
. a loss of voice and data connections;
. a loss of power to our facilities; and
. other interruptions in the normal course of our operations, the nature
and extent of which we cannot foresee.
We will continue to evaluate the nature of these risks, but at this time we
are unable to determine the probability that any such risk will occur, or if it
does occur, what the nature, length or other effects, if any, of such a risk may
have on us. If any of our material third parties experience significant failures
in their computer systems or operations due to Y2K non-compliance, it could
affect our ability to process transactions or otherwise engage in similar normal
business activities. For example, while we expect our internal systems, U.S. and
non-U.S., to be Y2K ready in stages during 1999, we and our customers who
communicate internationally will be dependent upon the Y2K-readiness of many
non-U.S. providers of telecommunication services and their vendors and
suppliers. If these providers and others are not Y2K ready, we and our customers
will not be able to send and receive data and other electronic transmissions,
which would have a material adverse effect on our revenues and business and that
of our customers. While many of these risks are outside our control, we have
identified and contacted our critical third party vendors and suppliers and are
establishing contingency plans to remedy any potential interruption to our
operations.
While we believe that we are adequately addressing the Y2K issue, we cannot
assure you that our Y2K compliance effort will prevent every potential
interruption or that the cost and liabilities associated with the Y2K issue will
not materially adversely impact our business, prospects, revenues or financial
position. We are uncertain as to our most reasonably likely worst case Y2K
scenario and, although we have completed a contingency plan to handle reasonably
foreseeable interruptions resulting from the Y2K problem, we cannot assure you
that our contingency plan will be capable of adequately addressing every
potential interruption that may occur.
If we become subject to provisions of the Investment Company Act, our business
operations may be restricted
We have significant amounts of cash and, pending our utilization of all the
net proceeds from our offering of the initial notes, will have an even greater
amount of cash invested in short term investment grade and government
securities, which investments could conceivably subject us to the provisions of
the Investment Company Act of 1940. We do not propose to engage in investment
activities in a manner or to an extent which would require us to register as an
investment company under the Investment Act of 1940. The Investment Company Act
of 1940 places restrictions on the capital structure and business activities of
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companies registered thereunder. Accordingly, we will seek to limit our holding
of "investment securities" (as defined in such Act) to an amount which is less
than 40% of the value of our total assets as calculated pursuant to the
Investment Company Act of 1940. The Investment Company Act of 1940 permits a
company to avoid becoming subject to such Act for a period of up to one year
despite the holding of investment securities in excess of such amount if, among
other things, its board of directors has adopted a resolution which states that
it is not the company's intention to become an investment company. Our Board of
Directors has adopted such a resolution that would become effective in the event
we are deemed to fall within the definition of an investment company.
Application of the provisions of the Investment Company Act of 1940 would have a
material adverse effect on us.
We face a high level of competition in the Internet services industry
The market for Internet connectivity and related services is extremely
competitive. We anticipate that competition will continue to intensify as the
use of the Internet grows. The tremendous growth and potential market size of
the Internet access market has attracted many new start-ups as well as
established businesses from different industries.
Our current and prospective competitors include other national, regional
and local ISPs, long distance and local exchange telecommunications companies,
cable television, direct broadcast satellite, wireless communications providers
and on-line service providers. We believe that our network, products and
customer service distinguish us from these competitors. However, some of these
competitors have significantly greater market presence, brand recognition and
financial, technical and personnel resources than we do.
We compete with all of the major long distance companies, also known as
interexchange carriers, including AT&T, MCIWorldCom, Sprint and Cable &
Wireless/IMCI, which also offer Internet access services. The recent sweeping
reforms in the federal regulation of the telecommunications industry have
created greater opportunities for local exchange carriers, including the
regional Bell operating companies, to enter the Internet connectivity market. We
believe that there is a move toward horizontal integration through acquisitions
of, joint ventures with, and the wholesale purchase of connectivity from ISPs to
address the Internet connectivity requirements of the current business customers
of long distance and local carriers. The WorldCom/MFS/UUNet consolidation, the
WorldCom/MCI merger, the ICG/NETCOM merger, Cable & Wireless' purchase of the
internetMCI assets, the Intermedia/DIGEX merger, GTE's acquisition of BBN,
Global Crossing's recently announced plans to acquire Frontier Corp. and
Frontier's prior acquisition of Global Center, Qwest Communication's recently
announced plans to acquire US West and AT&T's purchase of IBM's global
communications network are indicative of this trend. Accordingly, we expect to
experience increased competition from the traditional telecommunications
carriers. Many of these telecommunications carriers may have the ability to
bundle Internet access with basic local and long distance telecommunications
services. This bundling of services may have an adverse effect on our ability to
compete effectively with the telecommunications providers and may result in
pricing pressure on us that could have a material adverse effect on our
business, financial condition and results of operations.
Many of the major cable companies have announced that they are exploring
the possibility of offering Internet connectivity, relying on the viability of
cable modems and economical upgrades to their networks. Several announcements
also have recently been made by other alternative service companies approaching
the Internet connectivity market with various wireless terrestrial and
satellite-based service technologies.
The predominant on-line service providers, including America Online and
Microsoft Network, have all entered the Internet access business by engineering
their current proprietary networks to include Internet access capabilities. We
compete to a lesser extent with these on-line service providers. However,
America Online's acquisition of Netscape Communications Corporation and related
strategic alliance with Sun Microsystems will enable it to offer a broader array
of Internet protocol-based services and products that could significantly
enhance its ability to appeal to the business marketplace and, as a result,
compete more directly with us.
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Recently, there have been several announcements regarding the planned
deployment of broadband services for high speed Internet access by cable and
telephone companies. These services would include new technologies such as cable
modems and xDSL. These providers have initially targeted the residential
consumer. However, it is likely that their target markets will expand to
encompass business customers, which is our target market. This expansion could
adversely affect the pricing of our service offerings. Moreover, there has
recently been introduced a number of free ISP services, particularly in non-U.S.
markets, and some ISPs are offering free personal computers to their
subscribers. While these services primarily have been offered to dial-up
consumer customers, they could be extended to dial-up business customers as
well. These trends could have a material adverse effect on our business,
financial condition and results of operations.
As a result of the increase in the number of competitors and the vertical
and horizontal integration in the industry, we currently encounter and expect to
continue to encounter significant pricing pressure and other competition.
Advances in technology as well as changes in the marketplace and the regulatory
environment are constantly occurring, and we cannot predict the effect that
ongoing or future developments may have on us or on the pricing of our products
and services. Increased price or other competition could result in erosion of
our market share and could have a material adverse effect on our business,
financial condition and results of operations. We cannot assure you that we will
have the financial resources, technical expertise or marketing and support
capabilities to continue to compete successfully.
As we continue to expand our operations outside the United States, we will
encounter new competitors and competitive environments. In some cases, we will
be forced to compete with and buy services from government-owned or subsidized
telecommunications providers. Some of these providers may enjoy a monopoly on
telecommunications services essential to our business. We cannot assure you that
we will be able to purchase such services at a reasonable price or at all. In
addition to the risks associated with our previously described competitors,
foreign competitors may pose an even greater risk, as they may possess a better
understanding of their local markets and better working relationships with local
infrastructure providers and others. We cannot assure you that we can obtain
similar levels of local knowledge. Failure to obtain that knowledge could place
us at a significant competitive disadvantage.
Technology trends and evolving industry standards could result in our
competitors developing or obtaining access to bandwidth and technologies that
carry more information faster than our bandwidth and technology and,
consequently, render our bandwidth or technology obsolete
Our products and services are targeted toward users of the Internet, which
has experienced rapid growth. The market for Internet access and related
services is characterized by rapidly changing technology, evolving industry
standards, changes in customer needs and frequent new product and service
introductions. Our future success will depend, in part, on our ability to
effectively use and develop leading technologies.
We cannot assure you that we will be successful in responding to changing
technology or market trends. In addition, services or technologies developed by
others may render our services or technologies uncompetitive or obsolete.
Furthermore, changes to our services in response to market demand may require
the adoption of new technologies that could likewise render many of our assets
technologically uncompetitive or obsolete. As we accept bandwidth from IXC and
our other existing global network suppliers or acquire bandwidth or equipment
from other suppliers that may better meet our needs than existing bandwidth or
equipment, many of our assets could be determined to be obsolete or excess. The
disposition of obsolete or excess assets could have a material adverse effect on
our business, financial condition and results of operations.
Even if we do respond successfully to technological advances and emerging
industry standards, the integration of new technology may require substantial
time and expense, and we cannot assure you that we will succeed in adapting our
network infrastructure in a timely and cost-effective manner.
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We may be liable for information disseminated through our network
The law relating to liability of ISPs for information carried on or
disseminated through their networks is not completely settled. A number of
lawsuits have sought to impose such liability for defamatory speech and
infringement of copyrighted materials. The U.S. Supreme Court has let stand a
lower court ruling which held that an ISP was protected by a provision of the
Communications Decency Act from liability for material posted on its system.
However, the findings in that particular case may not be applicable in other
circumstances with differing facts. Other courts have held that online service
providers and ISPs may, under some circumstances, be subject to damages for
copying or distributing copyrighted materials. However, in an effort to protect
certain qualified ISPs, the Digital Millennium Copyright Act was signed into law
in October 1998. Under certain circumstances, this Act may provide qualified
ISPs with a "safe harbor" from liability for copyright infringement if the ISP
does not have knowledge of any transfer of potentially infringing material. We
cannot assure you that we would be protected by the terms, provisions and
interpretations of this Act. Provisions of the Communications Decency Act which
imposed criminal penalties for using an interactive computer service for
transmitting obscene or indecent communications have been found unconstitutional
by the U.S. Supreme Court. However, on October 21, 1998, new federal legislation
was enacted that requires limitations on access to pornography and other
material deemed "harmful to minors." This legislation has been attacked in court
as a violation of the First Amendment. We are unable to predict the outcome of
this case at this time. The imposition upon ISPs or web server hosts of
potential liability for materials carried on or disseminated through their
systems could require us to implement measures to reduce our exposure to such
liability. Such measures may require that we spend substantial resources or
discontinue some product or service offerings. Any of these actions could have a
material adverse effect on our business, operating results and financial
condition.
We carry errors and omissions insurance with a policy limit of $5.0
million, subject to deductibles and exclusions. Such coverage may not be
adequate or available to compensate us for all liability that may be imposed.
The imposition of liability in excess of, or the unavailability of, such
coverage could have a material adverse effect on our business, financial
condition and results of operations.
The law relating to the regulation and liability of ISPs in relation to
information carried or disseminated also is undergoing a process of development
in other countries. For example, a recent court decision in England held an ISP
liable for certain allegedly defamatory content carried through its network
under factual circumstances in which the ISP had been notified by the
complainant about the offending message which the ISP had failed to delete when
asked to do so by the complainant. Decisions, laws, regulations and other
activities regarding regulation and content liability may significantly affect
the development and profitability of companies offering on-line and Internet
access services, including us.
One particular area of uncertainty in this regard results from the entry
into effect of European Union Directive 95/46/EC on the protection of
individuals with regard to the processing of personal data and on the free
movement of such data ("EU Directive"). That Directive imposes obligations in
connection with the protection of personal data collected or processed by third
parties. Under some circumstances, we may be regarded as subject to the EU
Directive's requirements. The United States and the European Union ("EU")
currently are negotiating the application of the EU Directive to U.S. companies.
FCC regulations may limit the services we can offer
Consistent with our growth and acquisition strategy, we are now engaged in,
or will soon be engaged in, activities that subject us to varying degrees of
federal, state and local regulation. The FCC exercises jurisdiction over all
facilities of, and services offered by, telecommunications carriers to the
extent that they involve the provision, origination or termination of
jurisdictionally interstate or international communications. The state
regulatory commissions retain jurisdiction over the same facilities and services
to the extent they involve origination or termination of jurisdictionally
intrastate communications.
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Our Internet operations are not currently subject to direct regulation by
the FCC or any other governmental agency, other than regulations applicable to
businesses generally. However, the FCC has recently indicated that some services
offered over the Internet, such as phone-to-phone Internet protocol telephony,
may be functionally indistinguishable from traditional telecommunications
service offerings and their non-regulated status may have to be re-examined. We
are unable to predict what regulations may be adopted in the future, or to what
extent existing laws and regulations may be found applicable, or the impact such
new or existing laws may have on our business. We cannot assure you that new
laws or regulations relating to Internet services, or existing laws found to
apply to them, will not have a material adverse effect on us. Although the FCC
has recently decided not to allow local telephone companies to impose per-minute
access charges on Internet service providers, and that decision has been upheld
by the reviewing court, further regulatory and legislative consideration of this
issue is likely. In addition, some telephone companies are seeking relief
through state regulatory agencies. Such rules, if adopted, would affect our
costs of serving dial-up customers and could have a material adverse effect on
our business, financial condition and results of operations.
In addition to our Internet activities, we have recently focused attention
on acquiring telecommunications assets and facilities, which is a regulated
activity. Our wholly-owned subsidiary, PSINetworks Company, has received an
international Section 214 authorization from the FCC to provide global
facilities-based and global resale telecommunications services. Our wholly-owned
subsidiary, PSINet Telecom UK Limited, has received an international facilities
license from DTI and OFTEL, the responsible telecommunications regulatory bodies
in the United Kingdom. Currently, the FCC and OFTEL do not closely regulate the
charges or practices of non-dominant carriers, such as our subsidiaries.
Nevertheless, these regulatory agencies have the power to impose more stringent
regulatory requirements on us and to change our regulatory classification, which
may adversely affect our business.
Our subsidiaries have also received competitive local exchange carrier, or
CLEC, certification in New York, Virginia, Colorado and Texas, and have applied
for CLEC certification in Maryland and California. We are considering the
financial, regulatory and operational implications of becoming a competitive
local exchange carrier in other states. As a provider of domestic basic
telecommunications services, particularly competitive local exchange services,
we could become subject to further regulation by the FCC and/or another
regulatory agency, including state and local entities.
An important issue for CLECs is the right to receive reciprocal
compensation for the transport and termination of Internet traffic. Most states
have required incumbent local exchange carriers to pay competitive local
exchange carriers reciprocal compensation. In October 1998, the FCC determined
that dedicated Digital Subscriber Line service is an interstate service and
properly tariffed at the interstate level. In February 1999, the FCC concluded
that at least a substantial portion of dial-up ISP traffic is jurisdictionally
interstate. The FCC also concluded that its jurisdictional decision does not
alter the exemption from access charges currently enjoyed by ISPs. The FCC
established a proceeding to consider an appropriate compensation mechanism for
interstate Internet traffic. Pending the adoption of that mechanism, the FCC saw
no reason to interfere with existing interconnection agreements and reciprocal
compensation arrangements. The FCC order has been appealed and briefing will be
completed in September 1999. In light of the FCC's order, state commissions
that previously addressed this issue and required reciprocal compensation to be
paid for ISP traffic may reconsider and may modify their prior rulings. Several
incumbent local exchange carriers are seeking to overturn prior orders, or seek
refunds of, or authority to escrow, payments that they claim are inconsistent
with the FCCs' February 1999 order. In response to these and other challenges,
some state commissions have opened inquiries as to the appropriate compensation
mechanisms in the context of ISP traffic. Of the state commissions that have
considered the issue since the FCC's February 1999 order, most, but not all, of
these states have upheld the requirement to pay reciprocal compensation for ISP
traffic. We cannot assure you that any future court, state regulatory or FCC
decision on this matter will favor our position. An unfavorable result may have
an adverse impact on our potential future revenues as a CLEC, as well as
increasing our costs for PRIs generally.
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If we experience system failure or shutdown, we may not be able to deliver
services
Our success depends upon our ability to deliver reliable, high-speed access
to the Internet and upon the ability and willingness of our telecommunications
providers to deliver reliable, high-speed telecommunications service through
their networks. Our network, and other networks providing services to us, are
vulnerable to damage or cessation of operations from fire, earthquakes, severe
storms, power loss, telecommunications failures and similar events, particularly
if such events occur within a high traffic location of the network. We have
designed our network to minimize the risk of such system failure, for instance,
with redundant circuits among POPs to allow traffic rerouting. In addition, we
perform lab and field testing before integrating new and emerging technology
into the network, and we engage in capacity planning. Nonetheless, we cannot
assure you that we will not experience failures or shutdowns relating to
individual POPs or even catastrophic failure of the entire network.
We carry business personal property insurance at both scheduled locations
and unscheduled locations to protect us against losses due to property damage
and business interruption. Such coverage, however, may not be adequate or
available to compensate us for all losses that may occur. In addition, we
generally attempt to limit our liability to customers arising out of network
failures by contractually disclaiming all such liability. In respect of many
services, we have also contractually limited liability to a usage credit based
upon the amount of time that the system was not operational. We cannot assure
you, however, that such limitations will be enforceable. In any event,
significant or prolonged system failures or shutdowns could damage our
reputation and result in the loss of customers.
Although we have implemented network security measures, our network may be
susceptible to viruses, break-ins or disruptions
We have implemented many network security measures, such as limiting
physical and network access to our routers. Nonetheless, our network's
infrastructure is potentially vulnerable to computer viruses, break-ins and
similar disruptive problems caused by our customers or other Internet users.
Computer viruses, break-ins or other problems caused by third parties could lead
to interruptions, delays or cessation in service to our customers. Furthermore,
such inappropriate use of the Internet by third parties could also potentially
jeopardize the security of confidential information stored in the computer
systems of our customers. This could, in turn, deter potential customers and
adversely affect our existing customer relationships.
Security problems represent an ongoing threat to public and private data
networks. Attacks upon the security of Internet sites and infrastructure
continue to be reported to organizations such as the CERT Coordination Center at
Carnegie Mellon University, which facilitates responses of the Internet
community to computer security events. Addressing problems caused by computer
viruses, break-ins or other problems caused by third parties could have a
material adverse effect on us.
The security services that we offer in connection with our customers'
networks cannot assure complete protection from computer viruses, break-ins and
other disruptive problems. Although we attempt to limit contractually our
liability in such instances, the occurrence of such problems may result in
claims against us or liability on our part. Such claims, regardless of their
ultimate outcome, could result in costly litigation and could have a material
adverse effect on our business or reputation or on our ability to attract and
retain customers for our products. Moreover, until more consumer reliance is
placed on security technologies available, the security and privacy concerns of
existing and potential customers may inhibit the growth of the Internet service
industry and our customer base and revenues.
Risk associated with dependence on technology and with proprietary rights
Our success and ability to compete is dependent in part upon our technology
and technical expertise and, to a lesser degree, on our proprietary rights. In
order to establish and protect our technology, we rely on a combination of
copyright, trademark and trade secret laws and contractual restrictions.
Nevertheless, we cannot assure you that such measures are adequate to protect
our proprietary technology. It may be possible for a third party to copy or
otherwise obtain and use our products or technology without
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authorization or to develop similar technology independently. In addition, our
products may be licensed or otherwise utilized in foreign countries where laws
may not protect our proprietary rights to the same extent as do laws in the
United States. It is our policy to require employees and consultants and, when
obtainable, suppliers to execute confidentiality agreements upon the
commencement of their relationships with us. Nonetheless, we cannot assure you
that these precautions will be adequate to prevent misappropriation of our
technology or that our competitors will not independently develop technologies
that are substantially equivalent or superior to our technology.
In addition, we are also subject to the risk of adverse claims and
litigation alleging infringement by us of the intellectual property rights of
others. From time to time, we have received claims that we have infringed other
parties' proprietary rights. While we do not believe that we have infringed the
proprietary rights of other parties, we cannot assure you that third parties
will not assert infringement claims in the future with respect to our current or
future products. Such claims may require that we enter into license arrangements
or may result in protracted and costly litigation, regardless of the merits of
such claims. We cannot assure you that any necessary licenses will be available
or that, if available, such licenses can be obtained on commercially reasonable
terms.
We have recently introduced new enterprise service offerings, including
value-added, Internet protocol-based enterprise communication services and xDSL-
based Internet access services in limited areas. The failure of these services
to gain market acceptance in a timely manner or at all, or the failure of xDSL-
based services, in particular, to achieve significant market coverage could have
a material adverse effect on our business, financial condition and results of
operations. If we introduce new or enhanced services with reliability, quality
or compatibility problems, it could significantly delay or hinder market
acceptance of such services, which could adversely affect our ability to attract
new customers and subscribers. Our services may contain undetected errors or
defects when first introduced or as enhancements are introduced. Despite testing
by us or our customers, we cannot assure you that errors will not be found in
new services after commencement of commercial deployment. Such errors could
result in additional development costs, loss of or delays in market acceptance,
diversion of technical and other resources from our other development efforts
and the loss of credibility with our customers and subscribers. Any such event
could have a material adverse effect on our business, financial condition and
results of operations.
Additionally, if we are unable to match our network capacity to customer
demand for our services, our network could become congested during periods of
peak customer demand. Such congestion could adversely affect the quality of
service we are able to provide. Conversely, due to the high fixed cost nature of
our infrastructure, if our network is under-utilized, it could adversely affect
our ability to provide cost-efficient services. Our failure to match network
capacity to demand could have a material adverse effect on our business,
financial condition or results of operations.
We may not have the ability to raise the funds necessary to finance the change
of control offer which may be required by the indenture
Upon the occurrence of a change of control (as defined in the indenture
governing the notes), we would be required to make an offer to purchase any or
all of the notes, our 11 1/2% senior notes and our 10% senior notes at the
prices stated in the respective indentures governing such securities. However,
our ability to repurchase such securities upon a change of control may be
limited by the terms of our then existing contractual obligations and those of
our subsidiaries. Our credit facility requires that we pay all amounts
outstanding under it before we repurchase any of the notes, 11 1/2% senior
notes or 10% senior notes upon a change of control. In addition, we may not have
adequate financial resources to effect such a purchase, and we cannot assure you
that we would be able to obtain such resources through a refinancing of such
securities to be purchased or otherwise. If we fail to repurchase all of such
securities tendered for purchase upon the occurrence of a change of control,
such failure will constitute an event of default under the respective indentures
governing such securities.
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With respect to the sale of assets referred to in the definition of change
of control, the phrase "all or substantially all" as used in such definition
varies according to the facts and circumstances of the subject transaction, has
no clearly established meaning under the relevant law and is subject to judicial
interpretation. Accordingly, in some circumstances there may be a degree of
uncertainty in ascertaining whether a particular transaction would involve a
disposition of "all or substantially all" of the assets of a person. It may,
therefore, be unclear whether a change of control has occurred and whether such
securities are subject to an offer to purchase.
The change of control provision may not necessarily afford the holders of
the notes protection in the event of a highly leveraged transaction, including a
reorganization, restructuring, merger or other similar transaction involving us
that may adversely affect the holders of the notes, because such transactions
may not involve a shift in voting power or beneficial ownership or, even if they
do, may not involve a shift of the magnitude required under the definition of
change control to trigger such provisions. Except as described under
"Description of Notes--Change of Control," the indenture governing the notes
will not contain provisions that permit the holders thereof to require us to
repurchase or redeem the notes in the event of a takeover, recapitalization or
similar transaction.
You may find it difficult to sell your notes
Currently, there is no public market for the exchange notes or, except for
the listing of the initial euro notes on the Luxembourg Stock Exchange, the
initial notes. Except for the listing of the euro notes on the Luxembourg Stock
Exchange, we do not intend to apply for listing of the notes on any securities
exchange or on any automated dealer quotation system. Although the initial
purchasers of the initial notes have informed us that they intend to make a
market in the notes, they are not obligated to do so and may discontinue any
such market at any time without notice. In addition, such market making activity
may be limited during the exchange offer or during an offering under a shelf
registration statement should we decide to file one. As a result, we can make no
assurance to you as to the development or liquidity of any market for the notes,
your ability to sell the notes, or the price at which you may be able to sell
the notes. Future trading prices of the notes will depend on many factors,
including, among other things, prevailing interest rates, our operating results
and the market for similar securities. Historically, the market for securities
similar to the notes, including non-investment grade debt, has been subject to
disruptions that have caused substantial volatility in the prices of such
securities. We cannot assure you that, if a market develops, it will not be
subject to similar disruptions. Any such disruptions may have an adverse effect
on the holders of the notes.
We will retain a significant amount of discretionary authority over the use of
net proceeds of the initial notes offering
We will retain a significant amount of discretion over the application of
the net proceeds of our offering of the initial notes. Because of the number and
variability of factors that determine our use of the net proceeds of the initial
notes offering, we cannot assure you that such applications will not vary
substantially from our current intentions. Pending such utilization, we intend
to invest the net proceeds of the initial notes offering in short-term U.S.
investment grade and government securities. See "Use of Proceeds."
Fraudulent transfer statutes may limit your rights as a noteholder
Federal or state fraudulent transfer laws permit a court, if it makes
certain findings, to:
. avoid all or a portion of our obligations under the notes to you;
. subordinate our obligations under the notes to you to our other
existing and future indebtedness, entitling other creditors to be paid
in full before any payment is made on the notes; and
. take other action detrimental to you, including, in some circumstances,
invalidating the notes.
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. If a court were to take any of those actions, we cannot assure you that
you would ever be repaid.
. Under federal and state fraudulent transfer laws, in order to take any
of those actions, courts will typically need to find that, at the time
the notes were issued, we:
. issued the notes with the intent of hindering, delaying or defrauding
current or future creditors;
. received less than fair consideration or reasonably equivalent value for
incurring the indebtedness represented by the notes and were insolvent
or were rendered insolvent by reason of the issuance of the notes;
. were engaged, or about to engage, in a business or transaction for which
our assets were unreasonably small; or
. intended to incur, or believed (or should have believed) we would incur,
debts beyond our ability to pay as such debts mature (as all of the
foregoing terms are defined in or interpreted under such fraudulent
transfer statutes).
Different jurisdictions define "insolvency" differently. However, we
generally would be considered insolvent at the time we incurred the indebtedness
constituting the notes if (1) the fair market value (or fair saleable value) of
our assets is less than the amount required to pay our total existing debts and
liabilities (including the probable liability related to contingent liabilities)
as they become absolute or matured or (2) we were incurring debts beyond our
ability to pay as such debts mature. We cannot assure you as to what standard a
court would apply in order to determine whether we were "insolvent" as of the
date the notes were issued, and we cannot assure you that, regardless of the
method of valuation, a court would not determine that we were insolvent on that
date. Nor can we assure you that a court would not determine, regardless of
whether we were insolvent on the date the notes were issued, that the payments
constituted fraudulent transfers on another ground.
Certain Considerations Relating to Book-Entry Interests
Unless and until notes in definitive registered form ("Definitive
Registered Notes") are issued in exchange for notes held in the form of book-
entry interests by The Depository Trust Company, in the case of the dollar
notes, and by Euroclear or Cedelbank, in the case of the euro notes, owners of
book-entry interests in the notes will not be considered owners or holders of
notes. The Depository Trust Company (or its nominee) will be the sole holder of
the global notes representing the dollar notes, and Kredietbank S.A.
Luxembourgeoise (or its nominee), as common depositary for the euro notes, will
be the sole holder of the global notes representing the euro notes. After
payment to the relevant depositary, we will have no responsibility for the
relevant depositary to make such payments to the owners of book-entry interests.
Accordingly, if you own a book-entry interest, you must rely on the procedures
of The Depository Trust Company, Euroclear or Cedelbank, as applicable, and if
you are not a participant in The Depository Trust Company, Euroclear or
Cedelbank, as applicable, on the procedures of the participant through which you
own your interest, to exercise any rights and obligations of a holder under the
indenture. See "Description of Book-Entry System."
Unlike the holders of the notes themselves, owners of book-entry interests
will not have the direct right to act upon our solicitations for consents or
requests for waivers or other actions from holders of the notes. Instead, if you
own a book-entry interest, you will be permitted to act only to the extent you
have received appropriate proxies to do so from The Depository Trust Company,
Euroclear or Cedelbank, as applicable. We cannot assure you that procedures
implemented for the granting of such proxies will be sufficient to enable you to
vote on any requested actions on a timely basis.
Similarly, upon the occurrence of an event of default under the indenture
for the notes, unless and until Definitive Registered Notes are issued in
respect of all book-entry interests, if you own a book-entry interest, you will
be restricted to acting through The Depository Trust Company, Euroclear or
Cedelbank, as applicable. We cannot assure you that the procedures to be
implemented through The Depository Trust
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Company, Euroclear or Cedelbank, as applicable, will be adequate to ensure the
timely exercise of remedies under the notes. See "Description of Book-Entry
System."
If you fail to exchange your notes or follow the procedure for tendering, your
notes will continue to be restricted
Issuance of exchange notes in exchange for the initial notes pursuant to
the exchange offer will only be made following the prior satisfaction of the
procedures and conditions set forth in "The Exchange Offer--Procedures for
Tendering Initial Notes." Such procedures and conditions include timely receipt
by the exchange agent (as defined) of such initial notes, and of a properly
completed and duly executed applicable letter of transmittal. Initial notes
that are not tendered or are tendered but not accepted will, following the
consummation of the exchange offer, continue to be restricted securities under
the Securities Act of 1933 and may not be offered or sold except pursuant to any
exemption from, or in a transaction not subject to, the Securities Act of 1933
and applicable state securities law.
Forward-looking statements
Some of the information contained in this prospectus may contain forward-
looking statements. Such statements can be identified by the use of forward-
looking terminology such as "believes," "expects," "may," "will," "should," or
"anticipates" or similar words, or by discussions of strategy that involve risks
and uncertainties. These statements may discuss our future expectations or
contain projections of our results of operations or financial condition or
expected benefits to us resulting from acquisitions or transactions. We cannot
assure that the future results indicated, whether expressed or implied, will be
achieved. The risk factors noted in this section and other factors noted
throughout this prospectus, including risks and uncertainties, could cause our
actual results to differ materially from those contained in any forward-looking
statement.
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USE OF PROCEEDS
We will not receive any cash proceeds from the exchange offer. In
consideration for issuing the exchange notes in exchange for the initial notes,
we will receive initial notes in like principal amount. We will cancel all
initial notes surrendered in exchange for the exchange notes.
The net proceeds of the offering of the initial notes, after deducting
discounts and commissions of the initial purchasers and our expenses, were
approximately $1.17 billion, using an exchange rate of Euro 0.9520 to U.S.
$1.00, which was the exchange rate on July 23, 1999, the date on which the
initial notes offering was completed. Gross proceeds from the offering of the
initial dollar notes and initial euro notes were $1.05 billion and $157.6
million, respectively.
We intend to use the net proceeds from the initial notes offering to
finance capital expenditures, including the acquisition of additional
telecommunications bandwidth and related facilities and equipment and the
construction of Internet data centers, in furtherance of our goal of becoming
one of the top three providers of Internet access services and related
communications services and products in each of the 20 largest global
telecommunications markets. We also intend to use part of the net proceeds for
general corporate purposes. In addition, as described below, we expect to use a
portion of the net proceeds to make strategic investments in or acquisitions of
complementary businesses or assets. See "Management Discussion and Analysis of
Financial Condition and Results of Operations-Liquidity and Capital Resources."
We expect to use a portion of the net proceeds from the initial notes
offering for possible future investments, acquisitions or strategic alliances in
businesses or assets that are related or complementary to our existing business.
As a key part of our growth strategy, we periodically evaluate investment,
acquisition and strategic alliance candidates. We are currently evaluating
several acquisition candidates, including several subject to non-binding letters
of intent. However, we cannot you assure that we will successfully complete any
such acquisitions currently being contemplated. See "Business-Acquisitions."
We currently intend to allocate substantial proceeds to each of the
foregoing uses. However, the precise allocation of funds among these uses will
depend on future commercial, technological, regulatory and other developments in
or affecting our business, the competitive climate in which we operate and the
emergence of future opportunities. Because of the number and variability of
factors that determine our use of the net proceeds of the initial notes
offering, we cannot assure you that our application of the net proceeds will not
vary substantially from our current intentions. Pending these uses, we intend to
invest the net proceeds of the initial notes offering in short-term U.S.
investment grade and government securities.
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THE EXCHANGE OFFER
The following discussion sets forth or summarizes the material terms of the
exchange offer, including those set forth in the letter of transmittals
distributed with this prospectus. This summary is qualified in its entirety by
reference to the full text of the documents underlying the exchange offer,
including the indenture and the registration rights agreement governing the
notes, which are exhibits to the exchange offer registration statement of which
this prospectus is a part.
Registration Rights
The initial notes were sold by us to Donaldson, Lufkin & Jenrette
International, Bear Stearns International Limited and Chase Manhattan
International Limited, as initial purchasers, on July 23, 1999 pursuant to an
Offering Memorandum dated July 16, 1999 relating to $1,050,000,000 principal
amount of 11% Senior Notes due 2009 and Euro 150,000,000 principal amount of 11%
Senior Notes due 2009. The initial notes were then subsequently resold to
qualified institutional buyers pursuant to Rule 144A and Regulation S under the
Securities Act of 1933. In connection with the initial notes offering, we
entered into a registration rights agreement dated as of July 23, 1999.
The registration rights agreement requires, among other things, that we:
. file with the Securities and Exchange Commission by October 6, 1999 a
registration statement under the Securities Act of 1933 with respect to
an issue of exchange notes of PSINet identical in all material respects
to the initial notes, other than transfer restrictions under the
Securities Act of 1933, the registration rights under the registration
rights agreement and the requirement, under certain circumstances, to
pay liquidated damages with respect to the initial notes;
. use our best efforts to cause such exchange offer registration statement
to become effective under the Securities Act of 1933 by December 20,
1999;
. upon the effectiveness of such exchange offer registration statement,
commence the exchange offer and keep the exchange offer open for a
period of not less than 20 business days; and
. use our best efforts to cause the exchange offer to be consummated
within 30 business days after the effective date.
The exchange offer would allow holders of the initial notes the
opportunity, with certain exceptions, to exchange their initial notes for a like
principal amount of exchange notes, which would be issued without a restrictive
legend and may generally be reoffered and resold by the holders without
restrictions or limitations under the Securities Act of 1933, subject to the
terms and conditions enunciated by the staff of the Securities and Exchange
Commission (the "Staff") in the Morgan Stanley No-Action Letter (Morgan Stanley
--------------
and Co., Inc. (available June 5, 1991)) and the Exxon Capital No-Action Letter
- -------------
(Exxon Capital Holdings Corporation (available May 13, 1988)), as interpreted in
- -----------------------------------
the Securities and Exchange Commission's letter to Shearman & Sterling
-------------------
(available July 2, 1993), and similar no-action letters. However, holders of
the initial notes are not entitled to rely on the position of the Staff in the
no-action letters referred to above and, in the absence of an exemption
therefrom, must comply with the registration and prospectus delivery
requirements of the Securities Act of 1933 in connection with the resale of the
exchange notes, if such holder:
. is an "affiliate" of PSINet within the meaning of Rule 405 under the
Securities Act of 1933,
. does not acquire the exchange notes in the ordinary course of business,
. tenders in the exchange offer with the intention to participate, or for
the purpose of participating, in a distribution of the exchange notes,
or
. is a broker-dealer which acquired such initial notes directly from
PSINet.
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Each broker-dealer that receives exchange notes for its own account in
exchange for initial notes, where such initial notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such exchange notes. See "Plan of Distribution." We have
agreed to include in this prospectus information necessary to allow such broker-
dealers to exchange such initial notes pursuant to the exchange offer and to
satisfy the prospectus delivery requirements in connection with resales of
exchange notes received by such broker-dealer in the exchange offer. We have
also agreed to maintain the effectiveness of the exchange offer registration
statement for such purposes for one year.
In addition, we agreed, pursuant to the registration rights agreement, to
file a shelf registration statement pursuant to Rule 415 under the Securities
Act of 1933, registering for resale:
. any initial notes held by persons who are not permitted by law or any
policy of the Securities and Exchange Commission to participate in the
exchange offer and who satisfy certain other conditions,
. any exchange notes acquired in the exchange offer by any holder who must
comply with the prospectus delivery requirements of the Securities Act
of 1933 in connection with the resales of such exchange notes if this
prospectus is not appropriate or available for such resales by such
holder, or
. any initial notes held by a broker-dealer which were acquired directly
from PSINet or one of its affiliates.
To participate in such a shelf registration, any such holder of notes must
so notify PSINet within 10 business days following consummation of the exchange
offer and provide to PSINet the information requested by PSINet within 10
business days of such request. We have agreed to file with the Securities and
Exchange Commission such a shelf registration statement no later than 30 days
after the earlier of:
(1) the date on which we determine that the exchange offer is not permitted
by applicable law, or
(2) the date on which we receive the notice from the holder as specified
above,
and to use our best efforts to cause such shelf registration statement to become
effective under the Securities Act of 1933 as soon as practicable but in no
event later than 60 days after the filing of the shelf registration statement or
such longer period, not to exceed 150 days after the filing of the shelf
registration statement, as may be necessary to avoid conflicts with existing
contractual obligations of PSINet. In addition, we agreed to use our best
efforts to keep such shelf registration statement continually effective,
supplemented and amended for a period of at least two years following the
closing date of the initial offering of the initial notes, or such shorter
period as will terminate when all initial notes covered by such shelf
registration statement have been sold pursuant thereto.
Registration Defaults; Liquidated Damages
If the applicable registration statement or amendment is not timely filed
or declared effective or thereafter ceases to be effective or fails to be usable
for its intended purpose without being succeeded immediately by a post-effective
amendment that cures such failure and is itself immediately declared effective,
or if the exchange offer has not been consummated on or prior to the 30th
business day after the effective date, we have agreed to pay liquidated damages
to each holder of initial notes affected thereby in an amount equal to 0.25% per
annum per Euro 1,000 or $1,000 in principal amount, as the case may be, of notes
held by such holder with respect to the first 90-day period immediately
following the occurrence of such default. The amount of such liquidated damages
will increase by an additional 0.25% per annum per Euro 1,000 or $1,000 in
principal amount, as the case may be, of initial notes for each subsequent 90-
day period until all such defaults have been cured, up to a maximum amount of
liquidated damages of 1.50% per annum per Euro 1,000 or $1,000 in principal
amount, as the case may be, of initial notes, provided that we shall in no event
be required to pay liquidated damages for more than one default at any given
time.
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Following the cure of any default, the payment of liquidated damages in respect
of the notes will cease. Notwithstanding the fact that any initial notes for
which liquidated damages are due cease to be restricted securities within the
meaning of the Securities Act of 1933, all of our obligations to pay liquidated
damages with respect to such securities outstanding prior to the time such
initial notes ceased to be restricted securities shall survive until such time
as such obligations shall have been satisfied in full.
Except as set forth above, this prospectus may not be used for any offer to
resell, resale or other transfer of exchange notes.
Except as set forth above, after consummation of the exchange offer,
holders of notes have no registration or exchange rights under the registration
rights agreement. See "--Consequences of Failure to Exchange."
Expiration Date; Extensions; Amendments
The term "expiration date" shall mean 5:00 p.m., New York City time (10:00
p.m., London time), on October __, 1999, unless PSINet, in its sole discretion,
extends the exchange offer, in which case the term "expiration date" shall mean
the latest date and time to which the exchange offer is extended.
To extend the exchange offer, we will notify the exchange agent of any
extension by oral or written notice, followed by a public announcement thereof
no later than 9:00 a.m. (2:00 p.m., London time), New York City time, on the
next business day after the previously scheduled expiration date. In no event
will the expiration date be extended to a date more than 30 business days after
effectiveness of the exchange offer registration statement.
We reserve the right, in our reasonable judgment:
(1) to delay accepting any initial notes, to extend the exchange offer or
to terminate the exchange offer if any of the conditions set forth below
under "--Conditions" shall not have been satisfied, by giving oral or
written notice of such delay, extension or termination to the exchange
agent, or
(2) to amend the terms of the exchange offer in any manner.
Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by a public announcement thereof.
Terms of the Exchange Offer
Upon the terms and subject to the conditions set forth in this prospectus
and in the letters of transmittal, we will accept any and all initial notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time (10:00
p.m., London time) on the expiration date. We will issue $1,000 or Euro 1,000,
as applicable, principal amount of exchange notes in exchange for each $1,000 or
Euro 1,000, as applicable, principal amount of outstanding initial notes
accepted in the exchange offer. Holders of the initial notes may tender some or
all of their initial notes pursuant to the exchange offer; however, initial
notes may be tendered only in integral multiples of $1,000 or Euro 1,000, as
applicable. The exchange notes will evidence the same debt as the initial notes
and will be entitled to the benefits of the indenture. The form and terms of the
exchange notes are substantially the same as the form and terms of the initial
notes, except that:
. the exchange notes have been registered under the Securities Act of 1933
and thus will not bear legends restricting the transfer thereof, and
. holders of the exchange notes generally will not be entitled to certain
rights under the registration rights agreements or liquidated damages,
which rights generally will terminate upon consummation of the exchange
offer.
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Holders of initial notes do not have any appraisal or dissenters' rights
under the New York Business Corporation Law or the indenture in connection with
the exchange offer. We intend to conduct the exchange offer in accordance with
the applicable requirements of the Securities Exchange Act of 1934 and the rules
and regulations of the Securities and Exchange Commission thereunder, including
Rule 14e-1.
We shall be deemed to have accepted validly tendered initial notes when, as
and if we have given oral or written notice thereof to the exchange agent. The
exchange agent will act as agent for the tendering holders pursuant to the
exchange agent agreement for the purpose of receiving the exchange notes from
us.
If any tendered initial notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, the certificates for any such unaccepted initial notes will be
returned, without expense, to the tendering holder thereof as promptly as
practicable after the expiration date.
Holders who tender their initial notes in the exchange offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the letter of transmittal, transfer taxes with respect to the exchange of
initial notes pursuant to the exchange offer. We will pay all charges and
expenses, other than transfer taxes in certain circumstances, in connection with
the exchange offer. See "--Fees and Expenses."
Interest on Exchange Notes
Each exchange note will bear interest from the most recent date to which
interest has been paid or duly provided for on the initial note surrendered in
exchange for such exchange note or, if no such interest has been paid or duly
provided for on such initial note, from July 23, 1999, the date of issuance of
the initial notes. Holders of the initial notes whose initial notes are accepted
for exchange will not receive accrued interest on such initial notes for any
period from and after the last interest payment date to which interest has been
paid or duly provided for on such initial notes prior to the original issue date
of the exchange notes or, if no such interest has been paid or duly provided
for, will not receive any accrued interest on such initial notes, and will be
deemed to have waived the right to receive any interest on such initial notes
accrued from and after such interest payment date or, if no such interest has
been paid or duly provided for, from and after July 23, 1999. Interest on the
notes will be payable semi-annually on February 1 and August 1 of each year,
commencing February 1, 2000.
Procedures for Tendering Initial Notes
Only holders of initial notes may tender such initial notes in the exchange
offer. To tender in the exchange offer, a holder must complete, sign and date
the applicable letter of transmittal, or a facsimile thereof, have the
signatures thereon guaranteed if required by the applicable letter of
transmittal, and mail or otherwise deliver such letter of transmittal or such
facsimile, together with the initial notes and any other required documents, to
the exchange agent so as to be received by the exchange agent at the address set
forth below prior to 5:00 p.m., New York City time (10:00 p.m., London time), on
the expiration date. Delivery of the initial dollar notes may be made by book-
entry transfer of such initial dollar notes into the exchange agent's account at
The Depository Trust Company ("DTC") and delivery of the initial euro notes may
be made by book-entry transfer of such initial euro notes into the account of
Kredietbank S.A. Luxembourgeoise, the common depositary for the euro notes (the
"common depositary") at Euroclear or Cedelbank, as applicable, in either case in
accordance with the procedures described below under "--Book-Entry Delivery
Procedures" and "--Tender of Initial Notes Held Through Book-Entry Transfer
Facilities." Confirmation of such book-entry transfer must be received by the
exchange agent prior to the expiration date.
By executing a letter of transmittal or delivering notes by book-entry
transfer, each holder will make to PSINet the representation set forth below in
the second paragraph under the heading "--Resale of Exchange Notes."
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The tender by a holder and the acceptance thereof by PSINet will constitute
an agreement between such holder and PSINet in accordance with the terms and
subject to the conditions set forth herein and in the applicable letter of
transmittal.
The method of delivery of initial notes and the applicable letter of
transmittal and all other required documents to the exchange agent is at the
election and risk of the holder. Instead of delivery by mail, it is recommended
that holders use an overnight or hand delivery service. In all cases, sufficient
time should be allowed to assure delivery to the exchange agent before the
expiration date. No letter of transmittal or notes should be sent to PSINet.
Holders may request their respective brokers, dealers, commercial banks, trust
companies or nominees to effect the above transactions for such holders.
Any beneficial owner whose initial notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf.
Signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an "eligible institution" (as defined below)
unless the initial notes tendered pursuant thereto:
(1) are signed by the registered holder, unless such holder has completed
the box entitled "Special Exchange Instructions" or "Special Delivery
Instructions" on the applicable letter of transmittal, or
(2) are tendered for the account of an eligible institution.
In the event that signatures on a letter of transmittal or a notice of
withdrawal, as the case may be, are required to be guaranteed, such guarantee
must be by a member firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc., a commercial bank or trust
company having an office or correspondent in the United States, or an "eligible
guarantor institution" within the meaning of Rule 17Ad-15 under the Securities
Exchange Act of 1934 (an "eligible institution").
If a letter of transmittal is signed by a person other than the registered
holder of any initial notes listed therein, such initial notes must be endorsed
or accompanied by a properly completed bond power, signed by such registered
holder as such registered holder's name appears on such initial notes, with the
signature thereon guaranteed by an eligible institution.
If a letter of transmittal or any initial notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by PSINet, evidence
satisfactory to PSINet of their authority to so act must be submitted with such
letter of transmittal.
All questions as to the validity, form, eligibility, including time of
receipt, acceptance of tendered initial notes and withdrawal of tendered initial
notes will be determined by PSINet in its sole discretion, which determination
will be final and binding. PSINet reserves the absolute right to reject any and
all initial notes not properly tendered or any initial notes PSINet's acceptance
of which would, in the opinion of counsel for PSINet, be unlawful. PSINet also
reserves the right to waive any defects, irregularities or conditions of tender
as to particular initial notes. PSINet's interpretation of the terms and
conditions of the exchange offer, including the instructions in the letters of
transmittal, will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of initial notes must be
cured within such time as PSINet shall determine. Although PSINet intends to
notify holders of initial notes of defects or irregularities with respect to
tenders of initial notes, none of PSINet, the exchange agent, the common
depositary or any other person shall incur any liability for failure to give
such notification. Tenders of initial notes will not be deemed to have been made
until such defects or irregularities have been cured or waived. Any initial
notes received by the exchange agent that are not properly tendered and as to
which the defects or irregularities have not been cured or waived will be
returned by the exchange agent to
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the tendering holders, unless otherwise provided in the applicable letter of
transmittal, as soon as practicable following the expiration date.
Book-Entry Delivery Procedures
Promptly after the date of this prospectus, the exchange agent will
maintain an account with respect to the initial dollar notes at DTC and the
common depositary will maintain an account with respect to the initial euro
notes at each of Euroclear and Cedelbank (DTC, Euroclear and Cedelbank are
collectively referred to as the "Book-Entry Transfer Facilities" and,
individually, as a "Book-Entry Transfer Facility") for purposes of the exchange
offer. Any financial institution that is a participant in the applicable Book-
Entry Transfer Facility's systems may make book-entry delivery of the initial
notes by causing the applicable Book-Entry Transfer Facility to transfer such
initial notes into the exchange agent's account, in the case of book-entry
delivery of initial dollar notes, or into the common depositary's account (on
behalf of the exchange agent), in the case of book-entry delivery of initial
euro notes, at the applicable Book-Entry Transfer Facility in accordance with
such Book-Entry Transfer Facility's procedures for such transfer. Timely book-
entry delivery of initial notes pursuant to the exchange offer, however,
requires receipt of a confirmation of a book-entry transfer ("Book-Entry
Confirmation") prior to the expiration date. In addition, although delivery of
initial notes may be effected through book-entry transfer into the exchange
agent's or the common depositary's, as applicable, account at the applicable
Book-Entry Transfer Facility, the applicable letter of transmittal or a manually
signed facsimile thereof, together with any required signature guarantees and
any other required documents, or an "agent's message" (as defined below) in
connection with a book-entry transfer, must, in any case, be delivered or
transmitted to and received by the exchange agent (or, in the case of book-entry
transfer of the initial euro notes, by the common depositary on behalf of the
exchange agent) at the exchange agent's address set forth on the cover page of
such letter of transmittal prior to the expiration date to receive exchange
notes for tendered initial notes, or the guaranteed delivery procedure described
below must be complied with. Tender will not be deemed made until such documents
or agent's message, as applicable, are received by the exchange agent (or, in
the case of book-entry transfer of the initial euro notes, by the common
depositary on behalf of the exchange agent). Delivery of documents to any of the
Book-Entry Transfer Facilities or the common depositary does not constitute
delivery to the exchange agent.
Tender of Initial Notes Held Through Book-Entry Transfer Facilities
The exchange agent, the common depositary and each of the Book-Entry
Transfer Facilities have confirmed that the exchange offer is eligible for each
of the Book-Entry Transfer Facilities' automated tender offer program.
Accordingly, participants in the applicable Book-Entry Transfer Facility's
automated tender offer program may, in lieu of physically completing and signing
the applicable letter of transmittal and delivering it to the exchange agent,
electronically transmit their acceptance of the exchange offer by causing such
Book-Entry Transfer Facility to transfer initial dollar notes to the exchange
agent and initial euro notes to the common depositary (on behalf of the exchange
agent) in accordance with such Book-Entry Transfer Facility's automated tender
offer program procedures for transfer. Such Book-Entry Transfer Facility will
then send an agent's message to the exchange agent, in the case of book-entry
transfer of the initial dollar notes, or to the common depositary (which will
then forward such agent's message to the exchange agent), in the case of book-
entry transfer of the initial euro notes.
The term "agent's message" means a message transmitted by a Book-Entry
Transfer Facility, received by the exchange agent, in the case of book-entry
transfer of the initial dollar notes, or by the common depositary (which will
then forward such message to the exchange agent), in the case of book-entry
transfer of the initial euro notes, and in either case forming part of the Book-
Entry Confirmation, which states that such Book-Entry Transfer Facility has
received an expressed acknowledgment from a participant in such Book-Entry
Transfer Facility's automated tender offer program that is tendering initial
notes which are the subject of such Book-Entry Confirmation, that such
participant has received and agrees to be bound by the terms of the applicable
letter of transmittal or, in the case of an agent's message relating to
guaranteed delivery, that such participant has received and agrees to be bound
by the applicable notice of guaranteed delivery, and that PSINet may enforce
such agreement against such participant.
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Guaranteed Delivery Procedures
Holders who wish to tender their initial notes and
(1) whose initial notes are not immediately available,
(2) who cannot deliver their initial notes, the applicable letter of
transmittal or any other required documents to the exchange agent, or
(3) who cannot complete the procedures for book-entry transfer, prior to
the expiration date, may effect a tender if:
(a) the tender is made through an eligible institution;
(b) prior to the expiration date, the exchange agent receives from such
eligible institution a properly completed and duly executed notice
of guaranteed delivery by facsimile transmission, mail or hand
delivery setting forth the name and address of the holder, the
certificate number(s) of such initial notes and the principal amount
of initial notes tendered, stating that the tender is being made
thereby and guaranteeing that, within three Nasdaq Stock Market
National Market System trading days after the expiration date, the
applicable letter of transmittal or facsimile thereof, together with
the certificate(s) representing the initial notes or a Book-Entry
Confirmation transfer of such initial notes into the exchange
agent's account at the applicable Book-Entry Transfer Facility and
all other documents required by the applicable letter of
transmittal, will be deposited by the eligible institution with the
exchange agent; and
(c) such properly completed and executed letter of transmittal or
facsimile thereof, as well as the certificate(s) representing all
tendered initial notes in proper form for transfer or a Book-Entry
Confirmation transfer of such initial notes into the exchange
agent's account, in the case of the book-entry transfer of initial
dollar notes, or into the common depositary's account (on behalf of
the exchange agent), in the case of book-entry transfer of initial
euro notes, at the applicable Book-Entry Transfer Facility and all
other documents required by the letter of transmittal, are received
by the exchange agent within three Nasdaq Stock Market National
Market System trading days after the expiration date.
Upon request to the exchange agent, a notice of guaranteed delivery will be
sent to holders who wish to tender their initial notes according to the
guaranteed delivery procedures set forth above.
Withdrawals of Tenders
Except as otherwise provided herein, tenders of initial notes may be
withdrawn at any time prior to 5:00 p.m., New York City time (10:00 p.m., London
time), on the expiration date.
To withdraw a tender of initial notes in the exchange offer, a written or
facsimile transmission notice of withdrawal must be received by the exchange
agent at the address set forth herein prior to 5:00 p.m., New York City time
(10:00 p.m., London time), on the expiration date. Any such notice of
withdrawal must:
. specify the name of the person having deposited the initial notes to be
withdrawn (the "depositor"),
. identify the initial notes to be withdrawn, including the certificate
number(s) and principal amount of such initial notes, or, in the case of
initial notes transferred by book-entry transfer, the name and number of
the account at the applicable Book-Entry Transfer Facility to be
credited,
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. be signed by the holder in the same manner as the original signature on
the letter of transmittal by which such initial notes were tendered,
including any required signature guarantees, or be accompanied by
documents of transfer sufficient to have the trustee under the indenture
register the transfer of such initial notes into the name of the person
withdrawing the tender, and
. specify the name in which any such initial notes are to be registered,
if different from that of the depositor.
All questions as to the validity, form and eligibility, including time of
receipt, of such notices will be determined by PSINet, whose determination shall
be final and binding on all parties. Any initial notes so withdrawn will be
deemed not to have been validly tendered for purposes of the exchange offer and
no exchange notes will be issued with respect thereto unless the initial notes
so withdrawn are validly retendered. Any initial notes which have been tendered
but which are not accepted for exchange will be returned to such holder without
cost to such holder as soon as practicable after withdrawal, rejection of tender
or termination of the exchange offer. Properly withdrawn initial notes may be
retendered by following one of the procedures described above under "--
Procedures for Tendering Initial Notes" at any time prior to the expiration
date.
Conditions
Notwithstanding any other term of the exchange offer, PSINet shall not be
required to accept for exchange any initial notes, and may terminate or amend
the exchange offer as provided herein before the acceptance of such initial
notes, if:
(a) in the opinion of counsel to PSINet, the exchange offer or any part
thereof contemplated herein violates any applicable law or interpretation of the
Staff;
(b) any action or proceeding shall have been instituted or threatened in
any court or by any governmental agency which might materially impair the
ability of PSINet to proceed with the exchange offer or any material adverse
development shall have occurred in any such action or proceeding with respect to
PSINet;
(c) any governmental approval has not been obtained, which approval PSINet
shall deem necessary for the consummation of the exchange offer as contemplated
hereby;
(d) any cessation of trading on The Nasdaq Stock Market or any exchange,
or any banking moratorium, shall have occurred, as a result of which PSINet is
unable to proceed with the exchange offer; or
(e) a stop order shall have been issued by the Securities and Exchange
Commission or any state securities authority suspending the effectiveness of the
exchange offer registration statement or proceedings shall have been initiated
or, to the knowledge of PSINet, threatened for that purpose.
If PSINet determines in its reasonable judgment that any of the foregoing
conditions are not satisfied, PSINet may:
(1) refuse to accept any initial notes and return all tendered initial
notes to the tendering holders,
(2) extend the exchange offer and retain all initial notes tendered prior
to the expiration of the exchange offer, subject, however, to the rights of
holders to withdraw such initial notes (see "--Withdrawals of Tenders"), or
(3) waive such unsatisfied conditions with respect to the exchange offer
and accept all properly tendered initial notes which have not been withdrawn.
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Exchange Agent
Wilmington Trust Company will act as exchange agent for the exchange offer
with respect to the initial notes.
Questions and requests for assistance, requests for additional copies of
this prospectus or of the letter of transmittal for the initial notes and
requests for copies of the notice of guaranteed delivery should be directed to
the exchange agent, addressed as follows:
By registered or certified mail or overnight courier:
Attn: Kristin Long
Wilmington Trust Company
Corporate Trust Operations
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890-0001
By facsimile (for eligible institutions only): (302) 651-1079
Confirm by telephone: (302) 651-1562
Kristin Long
Fees and Expenses
The expenses of soliciting initial notes for exchange will be borne by
PSINet. The principal solicitation is being made by mail by the exchange agent.
However, additional solicitation may be made by telephone, facsimile or in
person by officers and regular employees of PSINet and its affiliates and by
persons so engaged by the exchange agent.
PSINet will pay the exchange agent reasonable and customary fees for its
services and will reimburse it for its reasonable out-of-pocket expenses in
connection therewith and pay other registration expenses, including fees and
expenses of the trustee under the indenture, filing fees, blue sky fees and
printing and distribution expenses.
PSINet will pay all transfer taxes, if any, applicable to the exchange of
the initial notes pursuant to the exchange offer. If, however, certificates
representing the exchange notes or the initial notes for principal amounts not
tendered or accepted for exchange are to be delivered to, or are to be issued in
the name of, any person other than the registered holder of the initial notes
tendered, or if tendered initial notes are registered in the name of any person
other than the person signing the letter of transmittal, or if a transfer tax is
imposed for any reason other than the exchange of the initial notes pursuant to
the exchange offer, then the amount of any such transfer taxes, whether imposed
on the registered holder or any other person, will be payable by the tendering
holder.
Accounting Treatment
The exchange notes will be recorded at the same carrying value as the
initial notes, which is the aggregate principal amount of the initial notes, as
reflected in PSINet's accounting records on the date of exchange. Accordingly,
no gain or loss for accounting purposes will be recognized in connection with
the exchange offer. The expenses of the initial notes offerings and the
exchange offer will be amortized over the term of the exchange notes.
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Resale of Exchange Notes
PSINet is making the exchange offer in reliance on the position of the
Staff's Exxon Capital no-action letter, Morgan Stanley no-action letter,
Shearman & Sterling no-action letter, and other interpretive letters addressed
to third parties in other transactions; however, PSINet has not sought its own
interpretive letter addressing such matters and there can be no assurance that
the Staff would make a similar determination with respect to the exchange offer
as it has in such interpretive letters to third parties. Based on these
interpretations by the Staff, and subject to the two immediately following
sentences, PSINet believes that exchange notes issued pursuant to this exchange
offer in exchange for initial notes may be offered for resale, resold and
otherwise transferred by holders of such exchange notes, other than such a
holder who is a broker-dealer, without further compliance with the registration
and prospectus delivery requirements of the Securities Act of 1933, provided
that such exchange notes are acquired in the ordinary course of such holder's
business and that such holder is not participating, and has no arrangement or
understanding with any person to participate, in a distribution within the
meaning of the Securities Act of 1933 of such exchange notes. Notwithstanding
the above, any holder of initial notes may be subject to separate restrictions
if it:
. is an "affiliate" of PSINet within the meaning of Rule 405 under the
Securities Act of 1933,
. does not acquire such exchange notes in the ordinary course of its
business,
. intends to participate in the exchange offer for the purpose of
distributing exchange notes, or
. is a broker-dealer who purchased such initial notes directly from
PSINet.
Holders of initial notes falling into any of the categories above:
. will not be able to rely on the interpretations of the Staff set forth
in the above-mentioned interpretive letters,
. will not be permitted or entitled to tender such initial notes in the
exchange offer, and
. must comply with the registration and prospectus delivery requirements
of the Securities Act of 1933 in connection with any sale or other
transfer of such initial notes unless such sale is made pursuant to an
exemption from such requirements.
In addition, as described below, if any broker-dealer holds initial notes
acquired for its own account (a "Participating Broker-Dealer"), then such
Participating Broker-Dealer may be deemed a statutory "underwriter" within the
meaning of the Securities Act of 1933 and must deliver a prospectus meeting the
requirements of the Securities Act of 1933 in connection with any resales of
such exchange notes.
As a condition to its participation in the exchange offer, each holder of
initial notes, including, without limitation, any holder who is a Participating
Broker-Dealer, shall furnish, upon the request of PSINet, prior to the
consummation of the exchange offer, a written representation to PSINet contained
in the applicable letter of transmittal to the effect that:
. it is not an affiliate of PSINet,
. any exchange notes to be received by it are being acquired in the
ordinary course of its business, and
. it is not engaged in, and does not intend to engage in, and has no
arrangement or understanding with any person to participate in, a
distribution within the meaning of the Securities Act of 1933 of such
exchange notes.
Each broker-dealer that receives exchange notes for its own account
pursuant to the exchange offer must acknowledge that it acquired the initial
notes for its own account as a result of market-making activities or other
trading activities and not directly from PSINet, and must agree that it will
deliver a prospectus meeting the requirements of the Securities Act of 1933 in
connection with any resale of such
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exchange notes. The letters of transmittal state that by so acknowledging and by
delivering a prospectus, such a Participating Broker-Dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act of
1933. Based on the position taken by the Staff in the interpretive letters
referred to above, PSINet believes that Participating Broker-Dealers may fulfill
their prospectus delivery requirements with respect to the exchange notes
received upon exchange of such initial notes with a prospectus meeting the
requirements of the Securities Act of 1933, which may be the prospectus prepared
for an exchange offer so long as it contains a description of the plan of
distribution with respect to the resale of such exchange notes. Accordingly,
this prospectus, as it may be amended or supplemented from time to time, may be
used by a Participating Broker-Dealer during the period referred to below in
connection with resales of exchange notes received in exchange for initial notes
where such initial notes were acquired by such Participating Broker-Dealer for
its own account as a result of market-making or other trading activities.
Subject to certain provisions set forth in the registration rights
agreement, PSINet shall use its best efforts to keep the exchange offer
registration statement continuously effective, supplemented and amended to the
extent necessary to ensure that it is available for sales of exchange notes by
Participating Broker-Dealers, and to ensure that the exchange offer registration
statement conforms with the requirements of the Securities Act of 1933 and the
policies, rules and regulations of the Securities and Exchange Commission as
announced from time to time, for a period of one year from the consummation of
the exchange offer or such shorter period as will terminate when all initial
notes covered by the exchange offer registration statement have been sold
pursuant thereto. See "Plan of Distribution." Any Participating Broker-Dealer
who is an affiliate of PSINet may not rely on such interpretive letters and must
comply with the registration and prospectus delivery requirements of the
Securities Act of 1933 in connection with any resale transaction.
Each holder of initial notes and each initial purchaser who is required to
deliver a prospectus in connection with sales or market making activities, by
acquisition of an initial note, agrees that, upon receipt of notice from PSINet
that:
(1) the issuance by the Securities and Exchange Commission of any stop
order suspending the effectiveness of the exchange offer registration
statement under the Securities Act of 1933 or of the suspension by any
state securities commission of the qualification of the initial notes
from offering or sale in any jurisdiction, or the initiation of any
proceeding for any of the preceding purposes, or
(2) the existence of any fact or the happening of any event that makes any
statement of a material fact made in the exchange offer registration
statement or this prospectus, or any amendment or supplement thereto or
any document incorporated by reference herein untrue, or that requires
the making of any additions or changes in the exchange offer
registration statement or this prospectus in order to make the
statements herein, in light of the circumstances under which they were
made, not misleading (in each case, a "Suspension Notice"),
such holder or person shall discontinue disposition of the initial notes
pursuant to this prospectus until such holder or person has received copies of
the supplemented or amended prospectus or such holder or person is advised in
writing by PSINet that use of the prospectus may be resumed and has received
copies of any additional or supplemental filings that are incorporated by
reference in the prospectus (in each case, the "Recommencement Date").
In addition, each holder or person will be deemed to have agreed that it
will either:
(1) destroy any prospectuses, other than permanent file copies, then in
such holder or person's possession which have been replaced by PSINet
with more recently dated prospectuses; or
(2) deliver to PSINet, at PSINet's expense, all copies, other than
permanent file copies, then in such holder's or person's possession of
the prospectus covering such initial notes that was current at the time
of receipt of the Suspension Notice.
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PSINet shall extend the time period regarding the effectiveness of the exchange
offer registration statement by a number of days equal to the number of days in
the period from and including the date of delivery of the Suspension Notice to
the date of delivery of the Recommencement Date.
Consequences of Failure to Exchange
Any initial notes tendered and exchanged in the exchange offer will reduce
the aggregate principal amount of initial notes outstanding. Following the
consummation of the exchange offer, holders who did not tender their initial
notes generally will not have any further registration rights under the
registration rights agreement, and such initial notes will continue to be
subject to certain restrictions on transfer. Accordingly, the liquidity of the
market for such initial notes could be adversely affected. The initial notes
are currently eligible for sale pursuant to Rule 144A through PORTAL and the
initial euro notes have been admitted for listing on the Luxembourg Stock
Exchange. Because PSINet anticipates that most holders will elect to exchange
such initial notes for exchange notes pursuant to the exchange offer due to the
absence of restrictions on the resale of exchange notes, except for applicable
restrictions on any holder of exchange notes who is an affiliate of PSINet or is
a broker-dealer which acquired the initial notes directly from PSINet, under the
Securities Act of 1933, PSINet anticipates that the liquidity of the market for
any initial notes remaining after the consummation of the exchange offer may be
substantially limited.
As a result of the making of this exchange offer, subject to limited
exceptions, PSINet will have fulfilled its obligations under the registration
rights agreement, and holders who do not tender their initial notes, except for
instances involving the initial purchasers or holders of initial notes who are
not eligible to participate in the exchange offer, will not have any further
registration rights under the registration rights agreement or otherwise or
rights to receive liquidated damages for failure to register. Accordingly, any
holder that does not exchange its initial notes for exchange notes will continue
to hold the untendered initial notes and will be entitled to all the rights and
subject to all the limitations applicable thereto under the indenture, except to
the extent that such rights or limitations, by their terms, terminate or cease
to have further effectiveness as a result of the exchange offer.
The initial notes that are not exchanged for exchange notes pursuant to the
exchange offer will remain restricted securities within the meaning of the
Securities Act of 1933. Accordingly, such initial notes may be resold only:
. to PSINet or any of its subsidiaries,
. inside the United States to a qualified institutional buyer in
compliance with Rule 144A under the Securities Act of 1933,
. inside the United States to an institutional "accredited investor" (as
defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act of
1933), an "accredited investor" that, prior to such transfer, furnishes
or has furnished on its behalf by a U.S. broker-dealer to the trustee
under the indenture a signed letter containing certain representations
and agreements relating to the restrictions on transfer of the notes,
the form of which letter can be obtained from such trustee,
. outside the United States in compliance with Rule 904 under the
Securities Act of 1933,
. pursuant to the exemption from registration provided by Rule 144 under
the Securities Act of 1933, if available, or
. pursuant to an effective registration statement under the Securities Act
of 1933.
Each accredited investor that is not a qualified institutional buyer and
that is an original purchaser of any of the initial notes from the initial
purchasers will be required to sign a letter confirming that such person is an
accredited investor under the Securities Act of 1933 and that such person
acknowledges the transfer restrictions summarized herein.
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Other
Participation in the exchange offer is voluntary and holders of initial
notes should carefully consider whether to accept the offer to exchange their
initial notes. Holders of initial notes are urged to consult their financial and
tax advisors in making their own decision on what action to take with respect to
the exchange offer. PSINet may in the future seek to acquire untendered initial
notes in open market or privately negotiated transactions, through subsequent
exchange offers or otherwise. PSINet has no present plans to acquire any initial
notes that are not tendered in the exchange offer or to file a registration
statement to permit resales of any untendered initial notes.
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CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
General
The following is a summary of material United States federal income tax
consequences relevant in the opinion of Nixon Peabody LLP, counsel to PSINet, to
the exchange of initial notes for exchange notes pursuant to the exchange offer
and the purchase, ownership and disposition of the notes, but does not purport
to be a complete analysis of all potential tax effects. This summary is based
upon the Internal Revenue Code of 1986, as amended (the "Code"), existing and
proposed regulations thereunder, published rulings and court decisions, all as
in effect and existing on the date hereof and all of which are subject to change
at any time, which change may be retroactive. Such counsel has relied upon
representations by PSINet and its officers with respect to factual matters for
purposes of this summary. This summary is not binding on the Internal Revenue
Service or on the courts, and no ruling will be requested from the Internal
Revenue Service on any issues described below. We cannot assure that the
Internal Revenue Service will not take a different position concerning the
matters discussed below and that such positions of the Internal Revenue Service
would not be sustained.
This summary applies only to those persons who are the initial holders of
notes, who acquired the notes for cash and who hold notes as capital assets. It
does not address the tax consequences to taxpayers who are subject to special
rules (such as financial institutions, tax-exempt organizations, insurance
companies, dealers in securities or foreign currency, taxpayers holding notes as
part of a "straddle," "hedge" or "conversion" transaction, or that have a
"functional currency" other than the U.S. Dollar, and, except as discussed below
under "--Certain U.S. Federal Income Tax Considerations for Non-U.S. Holders,"
persons who are not "U.S. Holders"). A "U.S. Holder" means a beneficial owner of
a note who purchased the notes pursuant to this offering that is for U.S.
federal income tax purposes:
. a citizen or resident of the United States;
. a corporation, partnership or other entity created or organized in or
under the laws of the United States or any political subdivision
thereof;
. an estate the income of which is subject to U.S. federal income taxation
regardless of its source; or
. a trust if (A) a court within the United States is able to exercise
primary supervision over the administration of the trust and (B) one or
more U.S. fiduciaries have the authority to control all substantial
decisions of the trust.
The following discussion is for general information only. Each holder of a
note is strongly urged to consult with its own tax advisors to determine the
impact of such holder's personal tax situation on the anticipated tax
consequences, including the tax consequences under state, local, foreign or
other tax laws, of the acquisition, ownership and disposition of the notes.
Interest
The stated interest on the notes generally will be taxable to a U.S. Holder
as ordinary income at the time that it is paid or accrued, in accordance with
the holder's method of accounting for federal income tax purposes.
Interest paid on a euro note will be includible in income by a U.S. Holder
in an amount equal to the U.S. Dollar value of the payment, regardless of
whether the payment is in fact converted to U.S. Dollars at that time. If such
U.S. Holder uses the cash method of accounting for tax purposes, the U.S. Dollar
value of such payment is determined using the spot rate at the time such payment
is received. If a U.S. Holder uses the accrual method of accounting for tax
purposes, the U.S. Dollar value of such payment is determined using the average
exchange rate during the relevant accrual period (or partial accrual period with
respect to interest paid in a subsequent taxable year) or, if elected, the spot
rate (a) on the last day of the relevant accrual period (or partial accrual
period) or (b) on the payment date, if such date is within five
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business days of the last day of the accrual period or taxable year. Any
differences in the exchange rate between the rate at which interest on a euro
note is included in income and the spot rate on the payment (or disposition)
date for interest will result in exchange gain or loss with respect to the
related amount of interest, and will generally be treated as ordinary income or
loss for U.S. federal income tax purposes. The U.S. Dollar value of interest
accrued or received, adjusted for any exchange gain or loss with respect to the
amount accrued, generally will be a U.S. Holder's tax basis in the Euros
received as interest on a euro note.
Exchange of Initial Notes for Exchange Notes
Pursuant to this prospectus, PSINet is offering to effect a registered
exchange offer for the initial notes, through which holders would be entitled to
exchange the initial notes for exchange notes that would be substantially
identical in all material respects to the initial notes, except that the
exchange notes would be registered and therefore would not be subject to
transfer restrictions. Alternatively, PSINet may file a shelf registration
statement with respect to the notes which, if effective, would have the effect
of eliminating transfer restrictions on the notes, thereby permitting their
resale. Neither participation in this exchange offer nor the filing of a shelf
registration statement as described above should result in a taxable exchange to
PSINet or any holder of a note. No taxable exchange should occur or should be
deemed to occur because there would be no material alteration in the terms of
the notes and any modification of the terms of the notes resulting from such an
action would be by operation of the original terms of the notes pursuant to a
unilateral act by PSINet. As a result, counsel to PSINet is of the opinion that
there should be no U.S. federal income tax consequences to holders electing to
exchange initial notes for exchange notes. If, however, such transaction were
treated as an "exchange" for U.S. federal income tax purposes, the transaction
should constitute a recapitalization for U.S. federal income tax purposes.
Under the rules applicable to recapitalizations, counsel to PSINet is of the
opinion that holders electing to exchange initial notes for exchange notes
should not recognize any gain or loss upon such exchange.
Liquidated Damages
If, within the applicable period after the original issuance of the initial
notes, PSINet has not filed an exchange offer registration statement or a shelf
registration statement with respect to the initial notes, as the case may be, or
if PSINet otherwise defaults with respect to its obligations under the
registration rights agreements, liquidated damages shall become payable in cash
with respect to the applicable initial notes. See "The Exchange Offer--
Registration Defaults; Liquidated Damages." Although the characterization of
such liquidated damages is uncertain, liquidated damages probably would
constitute contingent interest, which generally is not includible in income
before it is fixed or paid. If liquidated damages become fixed or paid, they
should be included in the holder's gross income in accordance with the holder's
method of accounting for federal income tax purposes.
According to regulations under the Code, the possibility of a change in the
interest rate will not affect the amount of interest income recognized by a U.S.
Holder if the likelihood of the change, as of the date the notes are issued, is
remote. PSINet believes that the likelihood of a change in the interest rate on
the notes is remote and does not intend to treat the possibility of a change in
the interest rate as affecting the yield to maturity of any note. If, as
anticipated, the issue price of the notes equals their stated principal amount,
and the likelihood of a change in the interest rate is remote, the notes will
not be issued with original issue discount.
Sale, Exchange and Redemption of Notes
A sale, exchange or redemption of a note will result in taxable gain or
loss equal to the difference between the amount of cash or other property
received and the U.S. Holder's adjusted tax basis in the note. A U.S. Holder's
adjusted tax basis for determining gain or loss on the sale or other disposition
of a note will initially equal the cost of the note to such holder and will be
decreased by the amount of any principal payments received by such holder. Gain
or loss upon a sale, exchange, or redemption of a note will be capital gain or
loss if the note is held as a capital asset. With respect to individual U.S.
Holders, if the note is held for more than 12 months, the maximum rate of tax on
any capital gain is 20%. The distinction
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between capital gain or loss and ordinary income or loss is also relevant for
purposes of, among other things, limitations on the deductibility of capital
losses.
The cost of a euro note to a U.S. Holder will be the U.S. Dollar value of
the Euro purchase price translated at the spot rate for the date of purchase
(or, in some cases, the settlement date). The conversion of U.S. Dollars into
Euros and the immediate use of those Euros to purchase a euro note generally
will not result in a taxable gain or loss for a U.S. Holder. U.S. Holder will
have a tax basis in any Euro received on the sale, exchange or retirement of a
euro note equal to the U.S. Dollar value of the Euro on the date of receipt.
Upon the sale, exchange, retirement or repayment of a euro note, a U.S.
Holder will also recognize exchange gain or loss to the extent that the rate of
exchange on the date of retirement or disposition differs from the rate of
exchange on the date the euro note was acquired, or deemed acquired. Exchange
gain or loss is recognized, however, only to the extent of total gain or loss on
the transaction. For purposes of determining the total gain or loss on the
transaction, a U.S. Holder's tax basis in a euro note will generally equal the
U.S. Dollar cost of the euro note. Exchange gain or loss recognized by a U.S.
Holder will generally be treated as ordinary income or loss.
Any gain realized by a U.S. Holder on the sale, exchange or redemption of a
note generally will be treated as U.S. source income for U.S. foreign tax credit
purposes. Generally a loss realized upon such a sale, exchange, redemption or
other disposition of a note will be allocated to U.S. source income.
Certain U.S. Federal Income Tax Considerations for Non-U.S. Holders
The following summary describes certain United States federal income and
estate tax consequences of the ownership of notes as of the date hereof by any
holder who is a beneficial owner of a note but is not a "U.S. Holder" (a
"Non-U.S. Holder").
Under present United States federal income and estate tax law, and subject
to the discussion below concerning backup withholding:
(a) generally no withholding of United States federal income tax will be
required with respect to payment by PSINet or any paying agent of principal or
interest on a note owned by a Non-U.S. Holder, provided
(1) that the beneficial owner does not actually or constructively own
10% or more of the total combined voting power of all classes of stock of
PSINet entitled to vote within the meaning of section 871(h)(3) of the Code
and the regulations thereunder,
(2) the beneficial owner is not a "controlled foreign corporation" (as
defined in Section 957 of the Code) that is related directly, indirectly or
constructively to PSINet through stock ownership, and
(3) the beneficial owner satisfies the statement requirement (described
generally below) set forth in section 871(h) and section 881(c) of the Code
and the regulations thereunder;
(b) generally no withholding of United States federal income tax will be
required with respect to any gain or income realized by a Non-U.S. Holder upon
the sale, exchange or retirement of a note; and
(c) a note beneficially owned by an individual who at the time of death is
a Non-U.S. Holder generally will not be includible in the individual's gross
estate for the purposes of the United States federal estate tax as a result of
such individual's death, provided that such individual does not at the time of
death actually or constructively own 10% or more of the total combined voting
power of all classes of stock of PSINet entitled to vote within the meaning of
section 871(h)(3) of the Code and provided that the interest
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<PAGE>
payments with respect to such note will not have been, if received at the time
of such individual's death, effectively connected with the conduct of a United
States trade or business by such individual.
To satisfy the requirement referred to in (a)(3) above, the beneficial
owner of such note, or a financial institution holding the note on behalf of
such owner, must provide, in accordance with specified procedures, PSINet or a
paying agent of PSINet with a statement to the effect that the beneficial owner
is not a U.S. person. Pursuant to current temporary Regulations, these
requirements will be met if:
(1) the beneficial owner provides the payor his name and address, and
certifies, under penalties of perjury, that he is not a U.S. person, which
certification may be made on an Internal Revenue Service Form W-8 or
successor or substitute form; or
(2) a financial institution that holds customers' securities in the
ordinary course of its trade or business and holds the note on behalf of
the beneficial owner certifies, under penalties of perjury, that such
statement has been received by it or by another financial institution
acting on behalf of the Non-U.S. Holder, and furnishes a paying agent with
a copy thereof.
Regulations recently issued by the Internal Revenue Service, which will be
effective for payments made after December 31, 2000, subject to certain
transition rules, make modifications to the certification procedures applicable
to Non-U.S. Holders. In general, these regulations unify certain certification
procedures and forms and clarify and modify reliance standards. A Non-U.S.
Holder should consult its own tax advisor regarding the effect of the new
Regulations.
If a Non-U.S. Holder cannot satisfy the requirements of the "portfolio
interest" exception described in (a) above, payments of interest made to Non-
U.S. Holders will generally be subject to a 30% withholding tax, or such lower
rate as may be specified by an applicable income tax treaty, unless the
beneficial owner of the note provides PSINet or its paying agent, as the case
may be, with a properly executed:
(1) Internal Revenue Service Form 1001 or successor form claiming an
exemption from withholding under the benefit of a tax treaty, or
(2) Internal Revenue Service Form 4224 or successor form stating that
interest paid on the note is not subject to withholding tax because it is
effectively connected with the beneficial owner's conduct of a trade or
business in the United States.
If a Non-U.S. Holder is engaged in a trade or business in the United States
and interest on the note is effectively connected with the conduct of such trade
or business, the Non-U.S. Holder, although exempt from the withholding tax
discussed above, will generally be subject to United States federal income tax
on such interest on a net income basis in the same manner as if it were a United
States person. In addition, if such holder is a foreign corporation, it may be
subject to a branch profits tax equal to 30% of its effectively connected
earnings and profits for the taxable year, or such lower rate as may be
specified by an applicable income tax treaty, subject to adjustments.
Any gain or income realized upon the sale, exchange or retirement of a note
generally will not be subject to United States federal income tax unless:
(1) such gain or income is effectively connected with a trade or business
in the United States of the Non-U.S. Holder, or
(2) in the case of a Non-U.S. Holder who is a nonresident alien individual,
such holder is present in the United States for 183 days or more in the
taxable year of such sale, exchange or retirement, and certain other
conditions are met.
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<PAGE>
Information Reporting and Backup Withholding
The "backup" withholding and information reporting requirements may apply
to certain payments of principal and interest on a note and to certain payment
of proceeds from the sale or retirement of a note. PSINet, its agent, a broker,
the Trustee or any paying agent, as the case may be, is required to withhold tax
from any payment that is subject to backup withholding at a rate of 31% of such
payment if the holder fails to furnish his taxpayer identification number,
social security number or employer identification number, or to certify that
such holder is not subject to backup withholding rules. Certain holders
including, among others, all corporations, are not subject to the backup
withholding and reporting requirements.
Under current Treasury Regulations, backup withholding and information
reporting do not apply to payments made by PSINet or any agent thereof, in its
capacity as such, to a holder of a note who has provided the required
certification under penalties of perjury that it is not a U.S. Holder as set
forth in the third paragraph under "Certain U.S. Federal Income Tax
Considerations for Non-U.S. Holders" or has otherwise established an exemption,
provided that neither PSINet nor such agent has actual knowledge that the holder
is a U.S. Holder or that the conditions of any other exemption are not in fact
satisfied. Payments of the proceeds from the sale by a holder who is not a U.S.
Holder of a note made to or through a foreign office of a broker will not be
subject to U.S. information reporting or backup withholding, except that if the
broker is a U.S. person, a controlled foreign corporation for U.S. tax purposes
or a foreign person 50% or more of whose gross income is effectively connected
with a United States trade or business for a specified three-year period, U.S.
information reporting may apply to such payments.
Payments of the proceeds from the sale of a note to or through the United
States office of a broker is subject to U.S. information reporting and backup
withholding unless the holder or beneficial owner certifies as to its non-U.S.
status or otherwise establishes an exemption from U.S. information reporting and
backup withholding.
In October 1997, Regulations were issued which alter the foregoing rules in
certain respects and which generally will apply to any payments in respect of a
note or proceeds from the sale of a note that are made after December 31, 2000.
Among other things, such regulations expand the number of foreign intermediaries
that are potentially subject to information reporting and address certain
documentary evidence requirements relating to exemption from the general backup
withholding requirements. Holders of the notes should consult their tax
advisors concerning possible application of the final regulations to any
payments made on or with respect to the notes.
Any amounts withheld under the backup withholding rules from a payment to a
holder may be claimed as a credit against such holder's United States federal
income tax liability.
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<PAGE>
CAPITALIZATION
The following table sets forth the cash, cash equivalents, short-term
investments and marketable securities, restricted cash and short-term
investments and capitalization of PSINet as of June 30, 1999 on:
(1) an actual basis; and
(2) an as adjusted basis, which adjusts the actual amounts to give effect
to our offering of the initial notes as if it had occurred on June 30,
1999.
This table should be read in conjunction with the sections entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Capital Structure" and "Use of Proceeds" and our consolidated
financial statements and notes thereto and other financial and operating data
included elsewhere or incorporated by reference in this prospectus. Except as
otherwise disclosed in this prospectus, there has been no material change in the
capitalization of PSINet since June 30, 1999.
<TABLE>
<CAPTION>
June 30, 1999
---------------------------------
Actual As Adjusted
-------------- -------------
(In thousands of dollars)
<S> <C> <C>
Cash, cash equivalents, short-term investments and marketable
Securities....................................................... $ 716,356 $1,889,708
=========== ==========
Restricted cash and short-term investments........................ $ 144,504 $ 144,504
========== ==========
Current portion of long-term debt................................. $ 78,455 $ 78,455
---------- ----------
Long-term debt:
10% Senior Notes................................................. 600,000 600,000
11 1/2% Senior Notes (plus unamortized premium of $2,800)........ 352,800 352,800
Dollar notes..................................................... -- 1,050,000
Euro notes(1).................................................... -- 157,560
Notes payable.................................................... 30,574 30,574
Capital lease obligations........................................ 158,356 158,356
---------- ----------
Total long-term debt........................................... 1,141,730 2,349,290
---------- ----------
Shareholders' equity:
Preferred stock, $.01 par value; 20,800,000 shares
authorized, actual and as adjusted; no shares
issued and outstanding......................................... -- --
Convertible preferred stock, Series C, $.01 par value;
9,200,000 shares authorized and issued, actual and
as adjusted.................................................... 362,434 362,434
Common stock, $.01 par value; 250,000,000 shares
authorized; 64,677,497 shares outstanding, actual
and as adjusted................................................ 648 648
Capital in excess of par value................................... 823,636 823,636
Accumulated deficit.............................................. (548,847) (548,847)
Treasury stock, 99,556 shares, at cost........................... (2,005) (2,005)
Accumulated other comprehensive income........................... 17,672 17,672
Bandwidth asset to be delivered under IXC agreement.............. (123,611) (123,611)
---------- ----------
Total shareholders' equity..................................... 529,927 529,927
---------- ----------
Total capitalization........................................... $1,750,112 $2,957,672
========== ==========
</TABLE>
_____________
(1) Using an exchange rate of Euro 0.9520 to $1.00, which was the exchange rate
on July 23, 1999, the date on which the initial notes offering was
completed.
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<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
(In thousands of U.S. dollars, except per share, ratio and operating data)
The following table sets forth for the periods indicated selected
consolidated financial and operating data for PSINet. The consolidated balance
sheet data and consolidated statement of operations data as of and for the years
ended December 31, 1994, 1995, 1996, 1997 and 1998 have been derived from our
consolidated financial statements, which have been audited by
PricewaterhouseCoopers LLP, independent accountants, and for the six months
ended June 30, 1998 and 1999, have been derived from our unaudited consolidated
financial statements. In 1998 and during the six months ended June 30, 1998 and
1999, we acquired a significant number of businesses, issued a significant
amount of debt and equity securities and in 1998 incurred a non-recurring
arbitration charge. In 1996 and 1997, we sold our individual subscriber accounts
and certain related assets and also sold our software subsidiary. These
transactions affect the comparability of our financial position, results of
operations and cash flows for those years. The results of operations for the six
month period ended June 30, 1999 may not be indicative of the results for the
entire year ending December 31, 1999.
The June 30, 1999, as adjusted, balance sheet data gives effect to the
offering in July 1999 of the initial notes and the application of those net
proceeds as if the offering had occurred on June 30, 1999.
The following selected consolidated financial and operating data should be
read in conjunction with the sections entitled "Summary Consolidated Financial
and Operating Data," "Use of Proceeds" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and our more detailed
consolidated financial statements and notes thereto and other financial and
operating data included elsewhere or incorporated by reference in this
prospectus.
<TABLE>
<CAPTION>
Six Months
Year Ended December 31, Ended June 30,
--------------------------------------------------------- ---------------------
1994 1995 1996 1997 1998 1998 1999
--------- ---------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue........................................ $15,214 $ 38,722 $ 84,351 $121,902 $ 259,636 $ 98,182 $ 228,668
Other income, net.............................. -- -- 5,417 -- -- -- --
------- -------- -------- -------- --------- -------- ---------
15,214 38,722 89,768 121,902 259,636 98,182 228,668
Operating costs and expenses:
Data communications and operations............ 9,489 32,124 70,102 94,363 199,372 78,609 162,341
Sales and marketing........................... 3,599 23,930 27,064 25,831 57,026 23,219 40,505
General and administrative.................... 3,605 10,569 20,648 22,947 45,288 17,872 32,469
Depreciation and amortization................. 3,183 14,778 28,035 28,347 63,424 22,354 61,210
Charge for acquired in-process research and
Development................................. -- -- -- -- 70,800 27,000 --
Intangible asset write-down................... -- 9,938 -- -- -- -- --
------- -------- -------- -------- --------- -------- ---------
Total operating costs and expenses............ 19,876 91,339 145,849 171,488 435,910 169,054 296,525
------- -------- -------- -------- --------- -------- ---------
Loss from operations........................... (4,662) (52,617) (56,081) (49,586) (176,274) (70,872) (67,857)
Interest expense............................... (731) (1,964) (5,025) (5,362) (63,914) (19,471) (61,486)
Non-recurring arbitration charge............... -- -- -- -- (49,000) -- --
------- -------- -------- -------- --------- -------- ---------
Loss before income taxes....................... (5,342) (53,160) (55,256) (46,078) (262,717) (82,695) (116,903)
Income tax (benefit) expense................... -- -- (159) (476) (848) 29 (450)
------- -------- -------- -------- --------- -------- ---------
Net loss....................................... (5,342) (53,160) (55,097) (45,602) (261,869) (82,724) (116,453)
Return to preferred shareholders............... -- -- -- (411) (3,079) (1,545) (4,997)
------- -------- -------- -------- --------- -------- ---------
Net loss available to common shareholders...... $(5,342) $(53,160) $(55,097) $(46,013) $(264,948) $(84,269) $(121,250)
------- -------- -------- -------- --------- -------- ---------
Basic and diluted loss per share............... $(0.42) $(2.01) $(1.40) $(1.14) $(5.32) $(1.76) $(2.10)
======= ======== ======== ======== ========= ======== =========
Shares used in computing basic and diluted loss
per share (in thousands)...................... 12,805 26,485 39,378 40,306 49,806 47,854 57,657
======= ======== ======== ======== ========= ======== =========
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Six Months
Year Ended December 31, Ended June 30,
--------------------------------------------------------- -------------------
1994 1995 1996 1997 1998 1998 1999
--------- ---------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Other Financial Data:
EBITDA (as defined)............................... $(1,479) $(27,901) $(28,046) $(21,239) $ (42,050) $ (21,518) $ (6,647)
Capital expenditures.............................. 5,009 45,166 38,390 50,074 303,550 79,024 215,400
Ratio of earnings to combined fixed charges and
preferred dividends (deficiency of earnings to... (5,307) (52,956) (54,449) (46,489) (265,796) (84,240) (121,700)
combined fixed charges and preferred dividends)
Cash Flow Data:
Cash flows used in operating activities ......... $(1,097) $(30,093) $(32,543) $(15,568) $ (87,586) $ (20,730) $(139,325)
Cash flows used in investing activities ......... (1,937) (21,958) (7,897) (15,560) (783,877) (451,312) (27,770)
Cash flows provided by (used in) financing........ 4,527 151,403 (10,529) 12,598 874,246 563,317 721,683
activities .
Operating Data:
Number of POPs .................................. 82 241 350 350 500 400 600
Number of business customer accounts ............ 4,220 8,200 17,800 26,400 54,700 38,700 73,400
</TABLE>
<TABLE>
<CAPTION>
December 31, June 30, 1999
------------------------------------------------- -----------------------
1994 1995 1996 1997 1998 Actual As Adjusted
-------- --------- -------- -------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents, short-term investments and
Marketable securities ............................. $ 3,358 $102,710 $ 56,390 $ 33,322 $ 322,508 $ 716,356 $1,889,708
Restricted cash and short-term investments ......... -- -- 954 20,690 162,469 144,504 144,504
Total assets ....................................... 17,055 201,830 177,112 186,181 1,284,231 2,013,459 3,221,019
Current portion of debt ............................ 3,369 16,643 26,915 39,633 59,968 78,455 78,455
Long-term debt, less current portion ............... 4,397 24,130 26,938 33,820 1,064,633 1,141,730 2,349,290
Total liabilities .................................. 11,721 58,600 87,329 112,752 1,404,405 1,483,532 2,691,092
Mandatorily redeemable preferred and
common stock ...................................... 13,617 -- -- -- -- -- --
Shareholders' equity (deficit) ..................... (8,283) 143,230 89,783 73,429 (120,174) 529,927 529,927
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with the
Consolidated Financial Statements and notes thereto included elsewhere in this
prospectus. The results shown herein are not necessarily indicative of the
results to be expected in any future periods. This discussion contains certain
forward-looking statements based on current expectations which involve risks and
uncertainties. Actual results and the timing of certain events could differ
materially from the forward-looking statements as a result of a number of
factors. For a discussion of the risk factors that could cause actual results to
differ materially from the forward-looking statements, you should read the
"Risk Factors" section which begins on page 14.
General
We are a New York corporation, founded in 1989, and were the first
commercial ISP to offer Internet connectivity to businesses. In 1993, we
commenced offering dial-up Internet connectivity to individual consumers in the
U.S. on a nationwide basis. We funded the initial buildout of our U.S. network
and expansion of our operations through the private placement of equity
securities and through capital lease financings. Since 1993, we have pursued a
strategy of both internal growth and growth through acquisitions of
complementary businesses to increase both individual and business customer
accounts, enter into new geographic markets and increase our service and product
offerings. During 1995, we raised net proceeds of $47.3 million through an
initial public offering of common stock and an additional $86.6 million through
a follow-on public offering of common stock to continue the buildout of our
domestic network and to increase our sales, marketing and customer support
infrastructure. In April and November 1998, we completed offerings of $600.0
million aggregate principal amount of 10% senior notes and $350.0 million
aggregate principal amount of 11 1/2% senior notes, respectively, from which we
received aggregate net proceeds of $785.1 million. In May 1999, we completed
public offerings of our common stock and 6 3/4% Series C cumulative convertible
preferred stock for aggregate gross proceeds of $864 million and aggregate net
proceeds of approximately $742.0 million (excluding, in the calculation of net
proceeds, amounts paid by the purchasers of the convertible preferred stock into
the deposit account therefor). Most recently, in July 1999, we completed an
offering of $1.2 billion aggregate principal amount of 11% senior notes due
2009, consisting of $1.05 billion aggregate principal amount of 11% senior notes
and Euro 150 million aggregate principal amount of 11% senior notes, from which
we received aggregate net proceeds of approximately $1.17 billion.
In mid-1996, in order to avoid increasing pricing competition and the high
marketing and customer care costs of providing consumer access and to better
utilize our network backbone, we altered our strategy to focus on providing
wholesale access services to consumer-oriented ISPs in the United States, rather
than providing consumer access services directly. As part of this strategy, in
1996 we sold substantially all our individual subscriber accounts and related
assets, but from time to time thereafter have acquired individual subscriber
accounts in connection with our acquisitions. To further refine our focus on
providing business Internet services, in February 1997, we sold our software
subsidiary. Beginning in the third quarter of 1996, we hired several new
executive officers with extensive experience in the telecommunications industry
to assist us in executing our business strategy. In December 1997, we realigned
our core domestic operations into three customer-focused business units--the
Corporate Network Services group, the Applications and Web Services group, and
the Carrier and ISP Services group--to more effectively meet the emerging needs
of the Internet marketplace.
We derive a majority of our revenues from providing Internet access
services to business customers and other ISPs. Business customers are typically
signed to contracts for one year terms. Revenues generated from business
customers are typically comprised of recurring monthly fees, installation and
start-up charges and sales of related equipment and services. Revenues from
other ISPs are generated pursuant to network access agreements which typically
require a minimum number of subscribers and obligate the ISP customers to pay
specified monthly fees for each subscriber using the PSINet network. In
addition, we provide a variety of value-added services, including, among others,
Web hosting, corporate
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<PAGE>
intranets, VPNs, security services, e-commerce solutions and other advanced
Internet protocol or IP-based applications, such as Internet fax. Revenues from
value-added services are typically in the form of monthly charges and are often
bundled with Internet access services.
We currently have operations in 16 of the 20 largest international
telecommunications markets. In addition to the United States, we have operations
in Argentina, Belgium, Brazil, Canada, France, Germany, Hong Kong, Italy, Japan,
Mexico, the Netherlands, Republic of Korea, Spain, Switzerland and the United
Kingdom. We typically enter a new market through the acquisition of an existing
company within the particular market. Revenue from non-U.S. operations continues
to increase as a percentage of consolidated results, comprising 51% of revenue
in the second quarter of 1999. By comparison, non-U.S. operations comprised 31%
of revenue in the second quarter of 1998 and 40% for all of 1998.
Since the commencement of our operations, we have undertaken a program of
developing and expanding our data communications network. In connection with
this program, we have made significant investments in telecommunications
circuits and equipment to produce a geographically-dispersed, Asynchronous
Transfer Mode (ATM), Integrated Service Digital Network (ISDN) and Switched
Multimegabit Data Service (SMDS) compatible frame relay network specially
designed to optimize Internet traffic. ATM, ISDN and SMDS are among the most
widely used switching standards. These investments generally are made in advance
of obtaining customers and resulting revenue. As part of our ongoing efforts to
further expand and enhance our network, we have acquired or agreed to acquire
significant amounts of global fiber-based telecommunications bandwidth,
including long-term rights, typically for 20 or more years, called indefeasible
rights of use, or IRUs, or other rights in:
. 10,000 equivalent route miles of OC-48 capacity across the United
States;
. transatlantic capacity in two STM-1s connecting the United States, the
United Kingdom and continental Europe;
. ten dark fiber optic strands connecting the New York City and
Washington, D.C. metropolitan areas and major metropolitan areas in
between, and four strands each within New York and Washington, D.C.;
. six DS-3s of transpacific capacity connecting the United States and
Japan;
. four dark fiber optic strands connecting multiple locations in the San
Francisco Bay area;
. STM-1 network bandwidth having the capability of connecting Japan,
China, Southeast Asia, India, the Middle East, Europe and the United
Kingdom;
. STM-1 network bandwidth inter-connecting 30 European cities; and
. 20 dark fiber optic strands connecting the Vancouver, British Columbia
and Seattle, Washington metropolitan areas.
In addition, we have entered into an agreement with other leading global
telecommunications companies to build the Japan-U.S. Cable Network.
The acquisition of these telecommunications bandwidth assets is expected to
increase our network capacity by a substantial magnitude and to reduce
significantly our future data communications and operations costs per equivalent
mile. In addition, the increased network capacity is expected to enable us to
offer a wider variety of higher-speed Internet and Internet-related services to
a larger customer base. As a result, we anticipate that our data communications
and operations costs as a percentage of revenue will decrease as we substitute
the acquired bandwidth for existing leased circuit arrangements with various
telecommunications carriers.
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<PAGE>
Three and Six Months Ended June 30, 1999 As Compared To The Three and Six Months
Ended June 30, 1998
Results of Operations
Revenue. We generate revenue primarily from the sale of Internet access
and related services to businesses. Revenue was $123.8 million for the three
months ended June 30, 1999, an increase of $70.1 million, or 131%, from $53.7
million for the three months ended June 30, 1998 and an increase of $19.0
million, or 18%, over the three months ended March 31, 1999. Revenue was $228.7
million for the six months ended June 30, 1999, an increase of $130.5 million,
or 133%, from $98.2 million for the six months ended June 30, 1998. Revenue
growth from the second quarter of 1998 was a result of both acquisitions and
internally generated growth, as further described below. Revenue growth of 18%
from the first quarter of 1999 consisted of organic growth of 14% and growth
from acquisitions of 4%. Our internally generated revenue growth is
attributable to a number of factors, including an increase in the number of
business customer and ISP accounts, an increase in the average annual revenue
realized per new business customer account, and an increase in hardware sales to
customers.
Our business customer account base increased by 90% to 73,400 business
accounts at June 30, 1999 from 38,700 business accounts at June 30, 1998. By
comparison, at March 31, 1999, we had 59,700 accounts. Of the total business
account growth from June 30, 1998, 21,400 accounts were attributable to the
existing customer base of the companies we acquired. The total number of our
Carrier and ISP customers grew to 364 at June 30, 1999, and, together with our
small office/home office ("SOHO") and consumer customers, provided service to
1,041,000 customers. This compares with 109 Carrier and ISP customers and
412,000 customers at June 30, 1998. Average annual new contract value for
business accounts increased to $7,300 for the three months ended June 30, 1999
from $5,800 for the three months ended June 30, 1998 and $6,000 for the full
year 1998, which we believe reflects an increasing demand for value-added
services and higher levels of bandwidth. Our business account retention rate
remained strong at 80% for the three months ended June 30, 1999, compared with
83% for the three months ended June 30, 1998 and a full-year retention rate in
1998 of 79%.
Data Communications and Operations. Data communications and operations
expenses consist primarily of leased long distance and local circuit costs as
well as personnel and related operating expenses associated with network
operations, customer support and field service. Data communications and
operations expenses were $86.3 million (69.7% of revenue) for the three months
ended June 30, 1999, an increase of $44.4 million, or 106%, from $41.9 million
(78.1% of revenue) for the three months ended June 30, 1998. Data
communications and operations expenses were $162.3 million (71.0% of revenue)
for the six months ended June 30, 1999, an increase of $83.7 million, or 107%,
from $78.6 million (80.1% of revenue) for the six months ended June 30, 1998.
The increase in expenses related principally to increases in:
. the number of leased backbone, dedicated customer and dial-up circuits,
. expenditures for additional primary rate interface, or PRI, circuits to
support the growth of our Carrier and ISP Services business,
. personnel costs resulting from the expansion of our network operations,
customer support and field service staff, including through
acquisitions, and
. operating and maintenance charges on telecommunications bandwidth.
Our dedicated access customer account base grew to 19,300 at June 30, 1999
from 8,900 at June 30, 1998, an increase of 116%. Comparing the second quarter
of 1999 to the second quarter of 1998, backbone circuit costs increased $15.1
million, or 158%, dedicated customer circuit costs increased $6.8 million, or
72%, PRI expense increased $4.9 million, or 65%, personnel and related operating
expenses associated with network operations, customer support and field service
increased $8.4 million, or 86% and operating and maintenance charges on our
bandwidth increased $2.3 million, or 2,500%. Circuit costs relating to our new
and expanded POPs and PRIs generally are incurred by us in advance of obtaining
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customers and resulting revenue. Although we expect that data communications
and operations expenses will continue to increase as our customer base grows, we
anticipate that such expenses will continue to decrease over time as a
percentage of revenue due to decreases in unit costs and continued increases in
network utilization. In particular, we anticipate that costs for data
communications and operations as a percentage of revenue will decrease as we
substitute network bandwidth purchased or acquired under capital lease
agreements for existing bandwidth currently under operating lease agreements.
Network bandwidth purchased or acquired under capital lease agreements is
recorded as an asset and amortized over its useful life. This will, in turn,
result in an increase in the operating and maintenance expense component of data
communications costs as well as increases in depreciation and amortization
expense over the useful life of the bandwidth, typically 10 to 25 years.
Sales and Marketing. Sales and marketing expenses consist primarily of
personnel costs, advertising costs, distribution costs and related occupancy
costs. Sales and marketing expenses were $21.9 million (17.7% of revenue) for
the three months ended June 30, 1999, an increase of $9.4 million, or 76%, from
$12.5 million (23.2% of revenue) for the three months ended June 30, 1998.
Sales and marketing expenses were $40.5 million (17.7% of revenue) for the six
months ended June 30, 1999, an increase of $17.3 million, or 74%, from $23.2
million (23.6% of revenue) for the six months ended June 30, 1998. The increase
is principally attributable to costs associated with the growth of our sales
force in conjunction with our growth and acquisitions and to advertising costs,
including costs associated with our naming rights and sponsorship agreements for
PSINet Stadium with the Baltimore Ravens of the National Football League.
General and Administrative. General and administrative expenses consist
primarily of salaries and occupancy costs for executive, financial, legal and
administrative personnel and provision for uncollectible accounts receivable.
General and administrative expenses were $15.4 million (12.4% of revenue) for
the three months ended June 30, 1999, an increase of $5.1 million, or 50%, from
$10.3 million (19.2% of revenue) for the three months ended June 30, 1998.
General and administrative expenses were $32.5 million (14.2% of revenue) for
the six months ended June 30, 1999, an increase of $14.6 million, or 82%, from
$17.9 million (18.2% of revenue) for the six months ended June 30, 1998.
The increase resulted from the addition of management staff and related
operating expenses across our organization, including increases in conjunction
with our growth and acquisitions
Depreciation and Amortization. Depreciation and amortization costs were
$34.4 million (27.8% of revenue) for the three months ended June 30, 1999, an
increase of $21.5 million, or 167%, from $12.9 million (24.0% of revenue) for
the three months ended June 30, 1998. Depreciation and amortization costs were
$61.2 million (26.8% of revenue) for the six months ended June 30, 1999, an
increase of $38.8 million, or 174%, from $22.4 million (22.8% of revenue) for
the six months ended June 30, 1998.
Depreciation and amortization costs have increased as a result of capital
expenditures associated with network infrastructure enhancements, including
telecommunications bandwidth acquisitions, and depreciation and amortization of
tangible and intangible assets related to business acquisitions. We anticipate
that our depreciation and amortization expenses will continue to increase
significantly as we substitute network bandwidth purchased or acquired under
capital lease agreements for existing bandwidth under operating lease
agreements, and as we record depreciation and amortization on tangible and
intangible assets related to business combinations and expansion of our
operations.
Acquired In-Process Research and Development. The results for the six
months ended June 30, 1999 include no charges for acquired in-process research
and development related to acquisitions completed during the period. The
results for the six months ended June 30, 1998 include a $27.0 million charge
(27.5% of revenue) for acquired in-process research and development. The
charges in 1998 were based on independent valuations and reflect technologies
acquired prior to technological feasibility and for which there was no
alternative future use. We are in the process of finalizing valuations for 1999
acquisitions and the allocation of the purchase price for such acquisitions is
preliminary. We do not expect any change in the allocation of the purchase
price for such acquisitions, including any charge for acquired in-process
research and development, to have a material impact on our results of
operations.
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Interest Expense. Interest expense was $31.9 million (25.8% of revenue)
for the three months ended June 30, 1999, an increase of $15.0 million, or 89%,
from $16.9 million (31.4% of revenue) for the three months ended June 30, 1998.
Interest expense was $61.5 million (26.9% of revenue) for the six months ended
June 30, 1999, an increase of $42.0 million, or 216%, from $19.5 million (19.8%
of revenue) for the six months ended June 30, 1998. The increase was due to
interest on our $600.0 million aggregate principal amount of 10% senior notes
issued in April 1998 and our $350.0 million aggregate principal amount of
11 1/2% senior notes issued in November 1998, as well as to increased borrowings
and capital lease obligations incurred to finance our network expansion and to
fund our working capital requirements. As a result of the completion of our
offering of the 11% senior notes, our annual interest expense on the 10% senior
notes, 11 1/2% senior notes and 11% senior notes, including amortization of
deferred financing costs, will be $241.5 million, assuming an exchange rate of
Euro 0.92 to U.S. $1.00, which was the average exchange rate for the period from
January 1 to June 30, 1999. We will have additional interest expense
attributable to our revolving credit facility and equipment lease arrangements.
Interest Income. Interest income was $8.1 million (6.5% of revenue) for
the three months ended June 30, 1999, an increase of $2.0 million, or 33%, from
$6.1 million (11.3% of revenue) for the three months ended June 30, 1998.
Interest income was $12.8 million (5.6% of revenue) for the six months ended
June 30, 1999, an increase of $6.2 million, or 93%, from $6.6 million (6.8% of
revenue) for the six months ended June 30, 1998. The increase was due to
interest received on the net proceeds of our offerings of the 10% senior notes
and 11 1/2% senior notes, which we invest in short-term investment grade and
government securities until such time as we use them for other purposes.
Net Loss Available to Common Shareholders and Loss per Share. Our net loss
available to common shareholders for the three months ended June 30, 1999 was
$62.0 million, or $1.00 basic and diluted loss per share, a $7.6 million, or
14%, increase from a net loss available to common shareholders for the three
months ended June 30, 1998 of $54.4 million, or $1.06 basic and diluted loss per
share. Our net loss available to common shareholders was $121.3 million, or
$2.10 basic and diluted loss per share, for the six months ended June 30, 1999,
an increase of $37.0 million, or 44%, from $84.3 million, or $1.76 basic and
diluted loss per share, for the six months ended June 30, 1998.
The primary reasons for the increase were:
. the increase in interest expense due to the issuance of the 10% senior
notes and 11 1/2% senior notes,
. our acquisitions of fiber-based telecommunications bandwidth, leading to
an increase in depreciation and personnel costs to manage the bandwidth,
and
. an increase in depreciation and amortization related to acquisitions,
offset by the absence of a charge for acquired in-process research and
development.
The return to preferred shareholders, which comprises the dividends with
respect to our convertible preferred stock, is subtracted from net loss in
determining the net loss available to common shareholders. Because inclusion of
common stock equivalents is antidilutive, basic and diluted loss per share are
the same for each period presented.
Year Ended December 31, 1998 As Compared To The Year Ended December 31, 1997
Results of Operations
Revenue. Revenue was $259.6 million in 1998, an increase of $137.7
million, or 113%, from $121.9 million in 1997. The 113% revenue growth is broken
down into 58% from those operations that were in existence at the end of 1997
and 55% from the companies we acquired in 1998. Our organic growth is
attributable to a number of factors, including an increase in the number of
business customer and ISP accounts, an increase in the average annual revenue
realized per new business customer account, and an increase in the business
account retention rate.
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Our business customer account base increased by 107% to 54,700 business
accounts at the end of 1998 from 26,400 business accounts at the end of 1997. Of
the total business account growth in 1998, 8,100 business accounts resulted from
organic growth and 20,200 business accounts were attributable to the companies
we acquired. The total number of our Carrier and ISP customers grew to 168,
serving 863,000 SOHO and consumer customers at the end of 1998, from 47 ISPs
serving 264,000 SOHO/consumer customers at the end of 1997. Average annual new
contract value for business accounts increased to $6,000 in 1998 from $5,500 in
1997, which we believe reflects an increasing demand for value-added services
and higher levels of bandwidth. Our business account retention rate improved to
79% in 1998 from 76% in 1997.
Data Communications and Operations. Data communications and operations
expenses were $199.4 million (76.8% of revenue) for 1998, an increase of $105.0
million from $94.4 million (77.4% of revenue) for 1997. The increase in expenses
related principally to increases in:
(1) the number of leased long distance, dedicated customer and dial-up
circuits,
(2) expenditures for additional PRI circuits to support the growth of our
Carrier and ISP Services business,
(3) personnel costs resulting from the expansion of our network
operations, customer support and field service staff, including
through acquisitions, and
(4) operating and maintenance charges on telecommunications bandwidth.
Our dedicated customer account base grew to 14,000 at December 31, 1998
from 7,500 at December 31, 1997, an increase of 87%. Comparing 1998 to 1997,
backbone circuit costs increased $30.2 million (or 141%), dedicated customer
circuit costs increased $18.4 million (or 77%), PRI expense increased $16.7
million (or 112%), and personnel and related operating expenses associated with
network operations, customer support and field service increased $23.8 million
(or 109%). Circuit costs relating to our new and expanded POPs and PRIs
generally are incurred by us in advance of obtaining customers and resulting
revenue.
Sales and Marketing. Sales and marketing expenses were $57.0 million
(22.0% of revenue) for 1998, an increase of $31.2 million from $25.8 million
(21.2% of revenue) for 1997. The increase is principally attributable to costs
related to a branding and advertising campaign resulting in additional
advertising expense of $10.6 million and from costs associated with the growth
of our sales force in conjunction with our growth and acquisitions.
General and Administrative. General and administrative expenses were
$45.3 million (17.4% of revenue) for 1998, an increase of $22.4 million from
$22.9 million (18.8% of revenue) for 1997. The increase resulted from the
addition of management staff and related operating expenses across the
organization, including increases in conjunction with our growth and
acquisitions.
Depreciation and Amortization. Depreciation and amortization costs were
$63.4 million (24.4% of revenue) for 1998, an increase of $35.1 million from
$28.3 million (23.3% of revenue) for 1997.
Acquired In-Process Research and Development. The results for 1998
include $70.8 million (27.3% of revenue) in charges for acquired in-process
research and development. The charges were based on independent valuations and
reflect technologies acquired prior to technological feasibility and for which
there was no alternative future use. The technologies exist at eight of the
companies we acquired, specifically iSTAR, INX, ioNET, LinkAge, Interlog,
Rimnet, iNet, and Tokyo Internet, comprising approximately 18% of the total fair
value of assets acquired. We have included a detailed description of the
specific technologies acquired, their value, cost to complete, expected
completion date and remaining tasks in the notes to our consolidated financial
statements included in this offering memorandum.
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The value of the in-process projects was adjusted to reflect the relative
value and contribution of the acquired research and development. In doing so, we
gave consideration to the stage of completion, the complexity of the work
completed to date, the difficulty of completing the remaining development, costs
already incurred, and the projected cost to complete the projects. The value
assigned to purchased in-process technology was based on key assumptions that
included:
. Estimated revenue associated with the respective business enterprise
valuations assuming five-year compound annual revenue growth rates of
between 22% and 45%.
. Revenue growth rates for each technology considering, among other
things, current and expected industry trends, acceptance of the
technologies and historical growth rates for similar industry products.
Estimated revenues from the purchased in-process technology projects
were generally assumed to peak in the year 2003 and decline through 2014
or earlier as other new products are expected to be introduced. These
revenue projections were based on management's estimates of market size
and growth, expected trends in technology and the expected timing of new
product introductions.
. Estimated net cash flows discounted back to their present value using a
discount rate of between 17.0% and 27.5%, which represents a premium to
our cost of capital.
. Estimated percentage-of-completion of the various in-process research
and development projects ranged from 50% to 85% complete.
If none of these projects is successfully developed, our sales and
profitability may be adversely affected in future periods. However, the failure
of any particular individual project in-process would not have a material impact
on our financial condition or our results of operations. The failure of any
particular individual project in-process could impair the value of other
intangible assets acquired.
There were no comparable charges in 1997.
Interest Expense. Interest expense was $63.9 million for 1998, an
increase of $58.5 million from $5.4 million for 1997. The increase was due to
interest on our issuance of $600.0 million aggregate principal amount of 10%
senior notes in April 1998 and our issuance of $350.0 million aggregate
principal amount of 11 1/2% senior notes in November 1998, as well as to
increased borrowings and capital lease obligations incurred to finance our
network expansion and to fund our working capital requirements.
Interest Income. Interest income was $19.6 million for 1998, an increase
of $16.5 million from $3.1 million for 1997. The increase was due to interest
received on the net proceeds of our offerings of the 10% senior notes and
11 1/2% senior notes, which we invest in short-term investment grade and
government securities until such time as we use them for other purposes.
Other Income, Net. Other income, net, was $6.8 million for 1998, which
primarily relates to a $5.6 million realized gain on equity securities that we
sold during the third quarter. The total of $5.8 million in 1997 primarily
related to the sale in the first quarter of 1997 of our software subsidiary.
Non-Recurring Arbitration Charge. The results for 1998 include a $49.0
million charge for an arbitration award and related costs associated with a
dispute between PSINet and The Chatterjee Management Company. The charge relates
to a joint venture agreement executed by the parties in 1996 and we have no
ongoing relationship with Chatterjee. There were no similar charges in 1997.
Net Loss Available to Common Shareholders and Loss per Share. Our net
loss available to common shareholders for 1998 was $264.9 million, or $5.32
basic and diluted loss per share, a $218.9 million, or 476%, increase from a net
loss available to common shareholders for 1997 of $46.0 million, or $1.14 basic
and diluted loss per share. The primary reasons for the increase were:
(1) operating losses of acquired companies,
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(2) the increase in data communications costs,
(3) the first portions of our acquired IRUs were installed, leading to an
increase in depreciation and personnel costs to manage the IRUs,
(4) the charge for acquired in-process research and development relating
to acquisitions in 1998,
(5) the increase in interest expense due to the issuance of the 10% senior
notes and 11 1/2% senior notes, and
(6) the non-recurring arbitration charge.
The return to preferred shareholders, which comprises the dividends with
respect to our Series B 8% convertible preferred stock and accretion of the
related conversion premium, is subtracted from net loss in determining the net
loss available to common shareholders. Because inclusion of common stock
equivalents is antidilutive, basic and diluted loss per share are the same for
each period presented.
Year Ended December 31, 1997 As Compared To The Year Ended December 31, 1996
Results of Operations
Revenue. Revenue was $121.9 million in 1997, an increase of $37.5
million, or 45%, from $84.4 million in 1996. The increase was attributable to a
number of factors, including an increase in the number of business customer and
ISP accounts, an increase in the average annual revenue realized per new
business customer account and an increase in sales by our international
subsidiaries. The growth was driven by an expansion of our sales force and
greater public awareness and utilization of the Internet.
In comparison with 1996, revenue for 1997 was affected by the sale in 1996
of our individual consumer accounts and related assets and by the sale in 1997
of our software subsidiary, which together provided $15.6 million of revenue in
1996 but only $0.3 million in 1997. If such revenue was excluded from 1996
revenue, our growth in revenue from 1996 to 1997 would have been 77% instead of
45%. Revenue growth in 1997 was also impacted by a drop in our annualized
business customer retention rate from 79% in 1996 to 76% in 1997, which was
attributable in part to an initiative by us to remove certain non-performing
accounts.
Our business customer account base increased by 48% to 26,400 business
accounts at December 31, 1997, including 47 ISPs, from 17,800 business accounts,
including 22 ISPs, at December 31, 1996. Our revenue from international
operations increased by 165% to $18.0 million in 1997 from $6.8 million in 1996,
principally as a result of significant growth in our operations in the United
Kingdom, Japan and Canada.
Other Income, Net. We did not have other income, net, in 1997, compared
with $5.4 million during 1996, consisting of the consideration received, net of
related asset costs and expenses, relating to the sale of our individual
consumer subscribers and certain related tangible and intangible assets during
the second and third quarters of 1996.
Data Communications and Operations. Data communications and operations
expenses were $94.4 million (77.4% of revenue) during 1997, an increase of $24.3
million from $70.1 million (83.1% of revenue) during 1996. The increase in
expenses related principally to increases in:
. the number of leased long distance, dedicated customer and dial-up
circuits;
. expenditures for additional primary rate interfaces to support the
growth of our Carrier and ISP Services business; and
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. personnel costs resulting from the expansion of our network operations,
customer support and field service staff.
Sales and Marketing. Sales and marketing expenses were $25.8 million
(21.2% of revenue) during 1997, a decrease of $1.3 million from $27.1 million
(32.1% of revenue) during 1996. The decrease resulted principally from
reductions in costs following the sale of our individual consumer subscribers
and related infrastructure in 1996 and the sale of our software operations in
1997, which were offset in part by an increase in sales and marketing expenses
relating to the expansion of our operations.
General and Administrative. General and administrative expenses were
$22.9 million (18.8% of revenue) during 1997, an increase of $2.3 million from
$20.6 million (24.5% of revenue) during 1996. The increase resulted from the
addition of management staff and related operating expenses across the
organization, including in conjunction with our expansion outside of the United
States, and increases in the provision for doubtful accounts receivable. These
expenses were in part offset by decreased expenses following the sale of our
individual consumer subscribers and related assets in 1996 and the sale of our
software operations in 1997.
Depreciation and Amortization. Depreciation and amortization costs were
$28.3 million (23.3% of revenue) during 1997, an increase of $0.3 million from
$28.0 million (33.2% of revenue) during 1996. Depreciation costs increased due
to additional capital expenditures associated with network infrastructure
enhancements, which were partially offset by decreases in costs resulting from
the elimination of depreciation and amortization that had been associated with
the individual consumer subscriber assets sold in 1996 and the software assets
sold in 1997.
Interest Expense. Interest expense was $5.4 million during 1997, an
increase of $0.4 million from $5.0 million in 1996. The increase was principally
due to increased borrowings and capital lease obligations incurred by us to
finance network expansion and to fund working capital requirements.
Interest Income. Interest income was $3.1 million during 1997, a decrease
of $0.7 million from $3.8 million in 1996. The decrease was principally due to a
reduction in the amount of cash and short-term, interest-bearing investments
held by us.
Other Income, Net. Other income, net, was $5.8 million for 1997, which
primarily related to the sale in the first quarter of 1997 of our software
subsidiary.
Net Loss Available to Common Shareholders and Loss Per Share. As a result
of the factors discussed above, our net loss available to common shareholders
for 1997 was $46.0 million (37.7% of revenue), or $1.14 basic and diluted loss
per share, a $9.1 million improvement from a net loss available to common
shareholders in 1996 of $55.1 million (65.3% of revenue), or $1.40 basic and
diluted loss per share. The return to preferred shareholders, which comprises
the dividends with respect to our Series B 8% convertible preferred stock and
accretion of the related conversion premium, is subtracted from net loss in
determining the net loss available to common shareholders. Because inclusion of
common stock equivalents is antidilutive, basic and diluted loss per share are
the same for each year presented.
Income Taxes
In 1998, we generated a pretax U.S. book loss of approximately $134.6
million and pretax non-U.S. book loss of approximately $128.1 million. As of
December 31, 1998, we had net operating loss carryforwards of approximately
$216.7 million for U.S. income tax purposes. The use of the U.S. net operating
loss carryforwards may be subject to limitations under the rules regarding a
change in stock ownership as determined by the Internal Revenue Code. These net
operating loss carryforwards may be carried forward in varying amounts until
2018. Additionally, at December 31, 1998, we had net operating loss
carryforwards for tax purposes in various jurisdictions outside the United
States amounting to approximately $158.6 million. The majority of non-U.S. loss
carryforwards will expire in varying amounts in 2003 to 2005. Some of the non-
U.S. loss carryforwards will never expire under local country tax rules.
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We have provided a valuation allowance against our deferred tax assets
since realization of these benefits cannot be reasonably assured. The change in
valuation allowance was an increase of $101.7 million and $18.8 million in 1998
and 1997, respectively.
We recognized deferred income tax benefits of $0.8 million in 1998, $0.5
million in 1997, and $0.2 million in 1996, resulting primarily from deferred tax
liabilities of companies we acquired outside of the U.S. We did not recognize
any current income tax expense or benefit for any of those three years.
Segment Information
We offer a broad range of Internet access services and related products to
businesses in the U.S. and throughout the rest of the world. As of June 30,
1999, we served primary markets in 16 of the 20 largest telecommunications
markets, with operations organized into four geographic operating segments--
North America, Latin America (which includes Mexico), Europe and Asia. During
the second quarter of 1999, we redefined our reporting segments to combine our
U.S. and Canadian operations into one segment called North America; and, due to
acquisitions during the quarter, we added a Latin America segment. In measuring
performance and allocating assets, we review each geographic operating segment
as a whole and not by types of services provided.
All our reportable segments have experienced significant revenue increases
from 1996 to 1998 and from the first six months of 1998 to the first six months
of 1999. Between 1996 and 1997, our revenue growth by segment was largely
organic, with North America growing by 37%, Europe by 114% and Asia by 205%.
Starting in late 1997 and through the first quarter of 1999, we acquired 21 ISPs
and related businesses in the U.S., Canada, Europe and Asia, and our revenue
growth between 1997 and 1998 reflected a mixture of organic and acquired
revenue.
Revenue growth by segment for the three and six months ended June 30, 1999
compared to the three and six months ended June 30, 1998 was as follows:
<TABLE>
<CAPTION>
Revenue Growth
-------------------------------------------------
Three Months Ended Six Months Ended
June 30, 1999 June 30, 1999
Compared To Compared To
Three Months Ended Six Months Ended
June 30, 1998 June 30, 1998
----------------------- -----------------------
<S> <C> <C>
North America...................................... 59% 60%
Latin America...................................... * *
Europe............................................. 134% 147%
Asia............................................... 1,667% 1,715%
All Segments....................................... 131% 133%
* Segment new in second quarter of 1999
</TABLE>
Revenue growth by segment between 1997 and 1998 was as follows:
<TABLE>
<CAPTION>
Percentage of
Revenue Growth Total Revenue
----------------------------------- -------------------
Organic Acquired Total 1998 1997
----------- ---------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
North America .............................. 48% 24% 72% 71% 87%
Europe ..................................... 144% 123% 267% 15% 9%
Asia ....................................... 105% 657% 762% 14% 4%
----- -----
All Segments ............................... 58% 55% 113% 100% 100%
===== =====
</TABLE>
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We evaluate the performance of our segments and allocate resources to them
based on revenue and EBITDA, which is defined as earnings (losses) before
interest expense and interest income, taxes, depreciation and amortization,
other non-operating income and expense, and charge for acquired in-process
research and development. EBITDA as a percentage of revenue improved in all
segments from the three months ended June 30, 1998 to the three months ended
June 30, 1999, reflecting the overall development cycle of our businesses in
these areas. For the quarter, improvement in EBITDA losses as a percentage of
revenue for the North America segment was (21%) to (5%), for the European
segment was (21%) to (4%), and for the Asian segment was 2% to 11%. The Latin
America segment, new this quarter, generated positive EBITDA of 26% of revenue.
For the six month periods ended June 30, 1998 and 1999, EBITDA losses as a
percentage of revenue improved from (23%) to (9%) for North America, from (20%)
to (8%) for Europe, and positive EBITDA improved from 3% to 11% for Asia. Latin
America achieved positive EBITDA of 26% for the six months ended June 30, 1999.
These improvements have arisen primarily as a result of two factors. First,
improvements have been generated based on internally generated growth factors,
including high levels of revenue growth and concentrated efforts to control
operating costs, and second, almost every company we acquired in 1998 and 1999
operated at EBITDA breakeven or better, contributing to these improvements.
EBITDA losses as a percentage of revenue improved in all segments except
North America from 1997 to 1998, reflecting the overall development cycle of our
businesses in these areas. In North America, our EBITDA loss as a percentage of
revenue increased from (16%) to (18%), which is reflective of increased costs
charged to the U.S. segment relating to shared network, marketing and general
and administrative costs not allocated to other reportable segments.
Improvements in EBITDA as percentage of revenue for the European segment was
(33%) to (16%) and for the Asian segment was (12%) to (5%). These improvements
have arisen as a result of two primary factors. First, improvements have been
generated based on organic growth factors including high levels of revenue
growth and concentration of efforts on controlling operating costs, and second,
almost every company we acquired in 1998 operated at EBITDA breakeven or better,
contributing to these improvements.
EBITDA losses as a percentage of revenue improved in all segments from 1996
to 1997. In North America, it improved from (30%) to (16%), in Europe from
(55%) to (33%), and in Asia from (108%) to (12%). The improvement in North
America reflects revenue that increased at a faster rate than did data
communications and operations, sales and marketing and general and
administrative expenses. We achieved cost reductions between 1996 and 1997 in
North America due to the disposition of our software operations. Our operating
improvements outside of North America primarily are the result of the
development of these operations that were largely still in a start-up mode in
1996.
Our loss from operations differs from EBITDA only by depreciation and
amortization and the charge for acquired in-process research and development;
therefore, loss from operations in each segment reflects the same underlying
trends as those impacting EBITDA as a percentage of revenue. Our loss from
operations as a percentage of revenue improved across all geographic segments.
In North America, our loss from operations as a percentage of revenue was
reduced from (68%) in the second quarter of 1998 to (35%) in the second quarter
of 1999. In Asia, it was reduced from (398%) to (16%), and in Europe from (87%)
to (24%) for those same quarters, respectively. Latin America achieved an
operating profit for the second quarter of 1999 of 8% of revenue. For the six
month periods ended June 30, 1998 and 1999, our loss from operations as a
percentage of revenue in North America was reduced from (68%) to (38%), in
Europe from (63%) to (27%), and in Asia from (236%) to (16%), respectively.
Latin America achieved an operating profit for the six months ended June 30,
1999 of 8%.
Our loss from operations in 1996, 1997 and 1998 differs from EBITDA only by
depreciation and amortization and the charge for acquired in-process research
and development; therefore, loss from operations in each segment reflects
underlying trends as those impacting EBITDA as a percentage of revenue. However,
as a result of our 1998 acquisitions of telecommunications bandwidth and other
fixed assets and acquisitions of ISPs, we incurred charges for acquired in-
process research and development and increased depreciation and amortization
expenses in each geographic segment, which increased our loss from operations.
In North America, our loss from operations as a percentage of revenue went from
(64%) in 1996 to (41%) in 1997 to (56%) in 1998. In Europe, it went from (74%)
to (51%) to (41%) and in Asia from (116%) to (17%) to (160%) for those same
three years, respectively.
Quarterly Results
The following tables set forth certain unaudited quarterly financial data,
and such data expressed as a percentage of revenue, for the ten quarters ended
June 30, 1999. In the opinion of management, the
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unaudited financial information set forth below has been prepared on the same
basis as the audited financial information included elsewhere herein and
includes all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the information set forth. The operating results for
any quarter are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
Quarter Ended
--------------------------------------------------------------------------------------------------
1997 1998 1999
------------------------------------------------ ---------------------------- ------------------
Mar 31 Jun 30 Sep 30 Dec 31 Mar 31 Jun 30 Sep 30 Dec 31 Mar 31 Jun 30
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
(In millions of dollars, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue .......................... $ 25.6 $ 29.5 $ 32.0 $ 34.8 $ 44.5 $ 53.7 $ 67.6 $ 93.9 $ 104.8 $ 123.8
Operating costs and expenses:
Data communications and
operations ...................... 21.0 22.1 23.8 27.5 36.7 41.9 51.9 68.9 76.0 86.3
Sales and marketing .............. 6.0 5.9 6.2 7.8 10.7 12.5 14.7 19.1 18.6 21.9
General and administrative ....... 5.4 6.1 5.3 6.0 7.6 10.3 11.6 15.8 17.1 15.4
Depreciation and amortization .... 8.0 6.1 6.6 7.7 9.5 12.9 14.7 26.4 26.8 34.4
Charge for acquired in-process
research and development.......... -- -- -- -- 7.0 20.0 13.4 30.4 -- --
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total operating costs and
Expenses ........................ 40.4 40.2 41.9 49.0 71.5 97.6 106.3 160.6 138.5 158.0
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Loss from operations ............. (14.8) (10.7) (9.9) (14.2) (27.0) (43.9) (38.7) (66.7) (33.7) (34.2)
Interest expense ................. (1.4) (1.3) (1.5) (1.2) (2.6) (16.9) (18.7) (25.7) (29.6) (31.9)
Interest income .................. 0.8 0.7 0.5 1.1 0.5 6.0 4.8 8.2 4.7 8.0
Other income, net ................ 5.7 -- 0.2 -- -- 1.2 5.3 0.5 (0.1) --
Non-recurring arbitration
charge .......................... -- -- -- -- -- -- -- (49.0) -- --
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Loss before income taxes ......... (9.7) (11.3) (10.7) (14.3) (29.1) (53.6) (47.3) (132.7) (58.7) (58.2)
Income tax benefit ............... (0.4) -- -- -- -- -- -- (0.9) -- (0.4)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net loss ......................... (9.3) (11.3) (10.7) (14.3) (29.1) (53.6) (47.3) (131.8) (58.7) (57.8)
Return to preferred
shareholders .................... -- -- -- (0.4) (0.8) (0.8) (0.8) (0.8) (0.6) (4.2)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net loss available to common
shareholders .................... $ (9.3) $ (11.3) $ (10.7) $ (14.7) $ (29.9) $ (54.4) $ (48.1) $(132.6) $ (59.3) $ (62.0)
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Basic and diluted loss per
share (1) ....................... $ (0.23) $ (0.28) $ (0.26) $ (0.36) $ (0.67) $ (1.06) $ (0.93) $ (2.56) $ (1.11) $ (1.00)
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Shares used in computing basic
and diluted loss per share
(in thousands) .................. 40,158 40,225 40,407 40,436 44,596 51,111 51,659 51,871 53,358 61,956
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
(1) Since there are changes in the weighted average number of shares outstanding
each quarter, the sum of the loss per share by quarter does not equal the
loss per share for 1997 and 1998.
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<TABLE>
<CAPTION>
Quarter Ended
-----------------------------------------------------------------------------------------
1997 1998 1999
---------------------------------- ----------------------------------- ----------------
Mar 31 Jun 30 Sep 30 Dec 31 Mar 31 Jun 30 Sep 30 Dec 31 Mar 31 Jun 30
------- ------- ------- ------- ------- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue ............................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Operating costs and expenses:
Data communications and
operations ......................... 81.8 74.9 74.3 79.2 82.5 78.1 76.8 73.3 72.5 69.7
Sales and marketing ................. 23.4 19.9 19.4 22.3 24.1 23.2 21.8 20.3 17.7 17.7
General and administrative .......... 21.4 20.8 16.7 17.2 17.1 19.2 17.1 16.9 16.3 12.4
Depreciation and amortization ....... 31.3 20.5 20.5 22.1 21.3 24.0 21.7 28.1 25.6 27.8
Charge for acquired in-process
research and development ........... -- -- -- -- 15.7 37.2 19.8 32.4 -- --
------ ------ ------ ------ ------ ------ ------ ------- ------ ------
Total operating costs and
expenses ........................... 157.9 136.1 130.9 140.8 160.7 181.7 157.3 171.0 132.1 127.6
------ ------ ------ ------ ------ ------ ------ ------- ------ ------
Loss from operations ................ (57.9) (36.1) (30.9) (40.8) (60.7) (81.7) (57.3) (71.0) (32.1) (27.6)
Interest expense .................... (5.2) (4.4) (4.7) (3.4) (5.8) (31.4) (27.7) (27.4) (28.2) (25.8)
Interest income ..................... 3.0 2.3 1.7 3.1 1.3 11.3 7.0 8.8 4.5 6.5
Other income, net ................... 22.1 (0.1) 0.6 (0.1) (0.2) 2.0 7.9 0.5 (0.1) (0.8)
Non-recurring arbitration charge .... -- -- -- -- -- -- -- (52.2) -- --
------ ------ ------ ------ ------ ------ ------ ------- ------ ------
Loss before income taxes ............ (38.0) (38.3) (33.3) (41.2) (65.4) (99.8) (70.1) (141.3) (56.0) (47.0)
Income tax benefit .................. (1.8) -- -- -- -- -- -- (0.9) -- (0.3)
------ ------ ------ ------ ------ ------ ------ ------- ------ ------
Net loss ............................ (36.2)% (38.3)% (33.3)% (41.2)% (65.4)% (99.8)% (70.1)% (140.4)% (56.0)% (46.7)%
====== ====== ====== ====== ====== ====== ====== ======= ====== ======
</TABLE>
Our quarterly operating results have fluctuated and will continue to
fluctuate from period to period for the foreseeable future depending upon such
factors as:
. the timing of acquisitions,
. the success of our efforts to expand our customer base, and to sell
enhanced and value added services to existing customers,
. changes in and the timing of expenditures relating to the continued
expansion of our network,
. the delivery of bandwidth from our global network providers,
. the development of new services, and
. changes in pricing policies by us or our competitors.
In view of the significant historical growth of our operations, we believe
that period-to-period comparisons of our financial results should not be relied
upon as an indication of future performance and that we may experience
significant period-to-period fluctuations in operating results in the future. We
expect to focus in the near term on building and increasing our customer base
and increasing our network utilization both through internal growth and through
acquisitions which may require us from time to time to increase our expenditures
for personnel, marketing, network infrastructure and the development of new
services.
Liquidity And Capital Resources
We have historically had losses from operations, which have been funded
primarily through borrowings and capital lease financings from vendors,
financial institutions and other third parties, and through the issuance of debt
and equity securities. In 1998, we received net proceeds of approximately $1.06
billion from debt financings. In 1999, we have to date received net proceeds of
approximately $1.9 billion from debt and equity financings.
Cash Flows for the Six Months Ended June 30, 1999 and 1998
Cash flows used in operating activities were $139.3 million and $20.7
million for the six months ended June 30, 1999 and 1998, respectively. Cash
flows from operating activities can vary significantly
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from period to period depending upon the timing of operating cash receipts and
payments and other working capital changes, especially accounts receivable,
prepaid expenses and other assets, and accounts payable and accrued liabilities.
In both of these six-month periods, our net losses were the primary component of
cash used in operating activities, offset by significant non-cash depreciation
and amortization expenses relating to our network and intangible assets.
Operating cash flows in 1999 also include the $48.0 million arbitration award
payment.
Cash flows used in investing activities were $27.8 million and $451.3
million for the six months ended June 30, 1999 and 1998, respectively.
Acquisition activities resulted in the use of $103.2 million of cash for the six
months ended June 30, 1999, net of cash acquired. Investments in our network
and facilities during the first six months of 1999 resulted in total additions
to fixed assets of $215.4 million. Of this amount, $78.6 million was financed
under vendor or other financing arrangements, $34.9 million of non-cash
additions related to the bandwidth acquired from IXC Internet Services, Inc.,
and $101.9 million was expended in cash. For the six months ended June 30,
1998, total additions were $79.0 million, of which $49.1 million was financed
under equipment financing agreements, $4.7 million of non-cash additions related
to the bandwidth acquired from IXC and $25.2 million was expended in cash.
Purchases of short-term investments during the first six months of 1999 were an
aggregate of $103.2 million, offset by proceeds from the sale and maturity of
short-term investments of $262.6 million. Purchases of short-term investments
during the six months of 1998 were an aggregate of $242.3 million. Investing
cash flows in the first six months of 1999 and 1998 were increased by $18.0
million and decreased by $122.5 million, respectively, from changes in
restricted cash and short-term investments related to various financing and
acquisition activities.
Cash flows provided by financing activities were $721.7 million and $563.3
million for the six months ended June 30, 1999 and 1998, respectively. In the
first six months of 1999, we received $102.7 million from borrowings on our
credit facility and from the issuance of notes payable and $742.0 million from
equity offerings. In the first six months of 1998, we received net proceeds
from the issuance of notes payable of $609.0 million. We made repayments
aggregating $104.9 million and $29.1 million for the six months ended June 30,
1999 and 1998, respectively, on our lines of credit, capital lease obligations
and notes payable. During the six months ended June 30, 1999 and 1998, we
received proceeds from the exercise of stock options of $9.1 million and $2.1
million, respectively.
As of June 30, 1999, we had $860.9 million of cash, cash equivalents,
restricted cash, short-term investments and marketable securities.
Cash Flows For The Years Ended December 31, 1998, 1997 and 1996
Cash flows used in operating activities were $87.6 million in 1998, $15.6
million in 1997 and $32.5 million in 1996. In all three years, our net losses
were the primary component of cash used in operating activities, offset by
significant non-cash depreciation and amortization expenses relating to our
network and intangible assets and, in 1998, our charge for acquired in-process
research and development.
Cash flows used in investing activities were $783.9 million for 1998, $15.6
million for 1997 and $7.9 million for 1996. Acquisition activities resulted in
the use of $268.0 million of cash for 1998, net of cash acquired. Investments in
our network and facilities during 1998 resulted in total additions to fixed
assets of $303.6 million. Of this amount, $113.3 million was financed under
vendor or other financing arrangements, $27.4 million of non-cash additions
related to the bandwidth acquired from IXC Internet Services, Inc., $44.9
million related to other network facilities that remained in accounts payable at
year end, and $118.0 million was expended in cash. For 1997, total additions
were $50.1 million, of which $37.5 million was financed under equipment
financing agreements and $12.6 million was expended in cash, and for 1996,
additions were $38.4 million, with $25.6 million financed and $12.8 million
expended in cash. Purchases of short-term investments with the proceeds of our
10% senior notes and 11 1/2% senior notes offerings during 1998 were an
aggregate of $511.7 million, offset by proceeds from the sale and maturity of
short-term investments of $251.2 million. Investing cash flows in 1998 and 1997
were reduced by $141.0 million and $19.7 million, respectively, from increases
in restricted cash and short-term investments related to various financing
alternatives.
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Cash flows provided by (used in) financing activities were $874.2 million
for 1998, $12.6 million for 1997, and ($10.5) million for 1996. In 1998, 1997
and 1996, we received net proceeds from the issuance of notes payable of
$1,060.6 million, $10.1 million and $8.3 million, respectively. In 1997, we
completed a private placement of 600,000 shares of our Series B convertible
preferred stock for gross proceeds of $30.0 million. In 1998, 1997 and 1996, we
made repayments aggregating $189.5 million, $27.7 million, and $20.8 million,
respectively, on our capital lease obligations and notes payable.
As of December 31, 1998, we had $485.0 million of cash, cash equivalents,
restricted cash, short-term investments and marketable securities.
Capital Structure
Our capital structure at June 30, 1999 consisted of a revolving credit
facility, other lines of credit, capital lease obligations, 10% senior notes,
11 1/2% senior notes, convertible preferred stock, and common stock.
In July 1999, we issued $1.2 billion aggregate principal amount of our 11%
senior notes due 2009, consisting of $1.05 billion aggregate principal amount of
11% senior notes due 2009 and Euro 150 million aggregate principal amount of 11%
senior notes due 2009, pursuant to Securities and Exchange Commission Rule 144A
and Regulation S. The aggregate net proceeds of the offering of the 11% senior
notes, after giving effect to discounts and commissions and other offering
expenses, was approximately $1.17 billion.
Total borrowings at June 30, 1999 were $1.22 billion, which included $78.5
million in current obligations and $1.14 billion in long-term debt, capital
lease obligations and notes payable.
We have a senior secured revolving credit facility that expires on
September 29, 2001 and has an aggregate principal amount of $110.0 million. At
June 30, 1999, no amounts were outstanding, $9.7 million was being utilized for
letters of credit, and $100.3 million was available to draw under the credit
facility.
In addition, as of June 30, 1999, $91.9 million was available for purchases
of equipment and other fixed assets under various other financing arrangements,
after designating $20.4 million of payables for various equipment purchases.
Our bank financing arrangements in the U.S., which are secured by
substantially all of our assets, require us to satisfy many financial covenants
such as those relating to consolidated revenue, leverage, liquidity and EBITDA
(as defined therein), and prohibit us from paying cash dividends and
repurchasing our capital stock without the lender's consent. In particular, we
are prohibited from permitting:
. consolidated revenue for the period of four consecutive fiscal quarters
to be less than $215.0 million during the six month period beginning
December 31, 1998, $285.0 million during the six month period beginning
June 30, 1999, $350.0 million during the six month period beginning
December 31, 1999, $425.0 million during the six month period beginning
June 30, 2000, and $500.0 million on December 31, 2000 and thereafter;
. the ratio of consolidated debt minus cash, excluding cash escrowed with
respect to the payment of obligations, to annualized consolidated
revenue for the most recent fiscal quarter for which financial
statements have been delivered, as adjusted to give pro forma effect to
any acquisitions completed during or after such fiscal quarter, to
exceed 2.5 to 1 at any time;
. the sum of cash, excluding cash escrowed with respect to the payment of
obligations, and available borrowing capacity under our credit facility
at any time to be less than $100.0 million; and
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. EBITDA (as defined therein), to be less than ($31.0) million, ($15.0)
million, $0, $15.0 million, $25.0 million, $40.0 million and $50.0
million for the period of four consecutive fiscal quarters ending on
each of June 30, 1999, September 30, 1999, December 31, 1999, March 31,
2000, June 30, 2000, September 30, 2000 and December 31, 2000,
respectively.
At June 30, 1999 and December 31, 1998, we were in compliance with all such
covenants.
At June 30, 1999, we had outstanding $600.0 million aggregate principal
amount of 10% senior notes due 2005 and $350.0 million aggregate principal
amount of 11 1/2% senior notes due 2008. At that date, we had deposited into an
escrow account restricted cash and short-term investments of $94.3 million to
fund, when due, the next three semi-annual interest payments on our 10% senior
notes.
The indentures governing the 10% senior notes, the 11 1/2% senior notes and
the 11% senior notes contain many covenants with which we must comply relating
to, among other things, the following matters:
. a limitation on our payment of cash dividends, repurchase of capital
stock, payment of principal on subordinated indebtedness and making of
certain investments, unless after giving effect to each such payment,
repurchase or investment, certain operating cash flow coverage tests are
met, excluding permitted payments and investments;
. a limitation on our incurrence and our subsidiaries' incurrence of
additional indebtedness, unless at the time of such incurrence, our
ratio of debt to annualized operating cash flow would be less than or
equal to 6.0 to 1.0 prior to April 1, 2001 and less than or equal to 5.5
to 1.0 on or after April 1, 2001, excluding permitted incurrences of
debt;
. a limitation on our incurrence and our subsidiaries' incurrence of
liens, unless the 10% senior notes, the 11 1/2% senior notes and the
11% senior notes are secured equally and ratably with the obligation or
liability secured by such lien, excluding permitted liens;
. a limitation on the ability of any of our subsidiaries to create or
otherwise cause to exist any encumbrance or restriction on the payment
of dividends or other distributions on their capital stock, payment of
indebtedness owed to us or to any of our other subsidiaries, making of
investments in us or in any of our other subsidiaries, or transfer of
any of their properties or assets to us or any of our other
subsidiaries, excluding certain permitted encumbrances and restrictions;
. a limitation on certain mergers, consolidations and sales of assets by
us or our subsidiaries;
. a limitation on transactions with our affiliates;
. a limitation on the ability of any of our subsidiaries to guarantee or
otherwise become liable with respect to any of our indebtedness unless
such subsidiary provides for a guarantee of the 10% senior notes, the
11 1/2% senior notes and the 11% senior notes on the same terms as the
guarantee of such indebtedness;
. a limitation on sale and leaseback transactions by us or our
subsidiaries;
. a limitation on issuances and sales of capital stock of our
subsidiaries; and
. a limitation on the ability of us or our subsidiaries to engage in any
business not substantially related to a telecommunications business.
At June 30, 1999 and December 31, 1998, we were in compliance with all such
covenants.
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In November 1997, we completed a private placement of 600,000 shares of our
Series B convertible preferred stock for gross proceeds of $30.0 million. During
the first quarter of 1999, all outstanding shares of the Series B preferred
stock, which accrued dividends at an annual rate of 8%, were converted into an
aggregate of 3,000,000 shares of our common stock. As a result of this
conversion, we are no longer required to pay the 8% annual dividends under the
terms of the Series B preferred stock, resulting in the elimination of
approximately $2.4 million in annual dividend expense.
In May 1999, we completed a public offering of 8,000,000 shares of our
common stock at $50.50 per share for net proceeds of approximately $383.8
million, after underwriting discounts and commissions and other offering
expenses.
In May 1999, we completed a public offering of 9,200,000 shares of our
6 3/4% Series C cumulative convertible preferred stock for net proceeds of
approximately $358.2 million after underwriting discounts and commissions and
other offering expenses (excluding amounts paid by the purchasers of the Series
C preferred stock into the deposit account therefor). The Series C preferred
stock has a liquidation preference of $50 per share. The Series C preferred
stock accrues dividends at an annual rate of 6 3/4%, payable quarterly in
arrears, commencing on August 15, 2002, in cash, or at our option and subject to
applicable law, in shares of our common stock or a combination thereof.
At the closing of the Series C preferred stock offering, the purchasers of
the Series C preferred stock deposited approximately $85.8 million into an
account established with a deposit agent. This deposit account is not an asset
of PSINet. Funds in the deposit account will be paid to the holders of the
Series C preferred stock each quarter in the amount of $0.84375 per share in
cash or may be used, at our option, to purchase shares of our common stock at
95% of the market price of the common stock on that date for delivery to holders
of Series C preferred stock in lieu of cash payments. The funds placed in the
deposit account by the purchasers of the Series C preferred stock will, together
with the earnings on those funds, be sufficient to make payments, in cash or
stock, through May 15, 2002. Until the expiration of the deposit account, we
will accrete a return to preferred shareholders each quarter from the date of
issuance at an annual rate of approximately 6 3/4% of the liquidation
preference per share. Such amount will be recorded as a deduction from net
income to determine net income available to common shareholders. Upon the
expiration of the deposit account, which is expected to occur on May 15, 2002
unless earlier terminated, the Series C preferred stock will begin to accrue
dividends at an annual rate of 6 3/4% of the $50 per share liquidation
preference payable, at our option and subject to applicable law, in cash or in
shares of our common stock at 95% of the market price of the common stock on
that date. Under certain circumstances, we can elect to terminate the deposit
account prior to May 15, 2002, at which time, under specified circumstances, the
remaining funds in the deposit account would be distributed to PSINet and the
Series C preferred stock would begin to accrue dividends.
Each share of Series C preferred stock is convertible at any time at the
option of the holders thereof into shares of our common stock at an initial
conversion ratio price of $62.3675 per share, subject to adjustment upon the
occurrence of specified events, equal to an initial conversion ratio of 0.8017
shares of our common stock for each share of Series C preferred stock. The
Series C preferred stock is redeemable, at our option, at a redemption premium
of 101.929% of the liquidation preference (plus accumulated and unpaid
dividends, if any, whether or not declared, to the redemption date) on or after
November 15, 2000 but prior to May 15, 2002 if the trading price for the Series
C preferred stock equals or exceeds $124.74 per share for 20 trading days within
any 30 trading day period. Except in the circumstances described in the
preceding sentence, we may not redeem the Series C preferred stock prior to May
15, 2002. Beginning on May 15, 2002, we may redeem shares of the Series C
preferred stock initially at a redemption premium of 103.857% and thereafter at
prices declining to 100% (plus in each case, accumulated and unpaid dividends,
if any, whether or not declared, to the redemption date).
In the event of a change in control of PSINet and if the market price of
our common stock at such time is less than the conversion price of the Series C
preferred stock, then the holders of the Series C preferred stock will have the
right to convert their shares to our common stock at the greater of (1) the
market price per share ending on the date on which a change of control event
occurs, and (2) $38.73.
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As a result of the completion of the initial notes offering, our annual
interest expense on the notes, 10% senior notes and 11 1/2% senior notes will be
$232.6 million, assuming an exchange rate of Euro 0.98 to U.S.$1.00, which was
the exchange rate on July 16, 1999, the date on which the initial notes offering
was priced. We will have additional interest expense attributable to our
revolving credit facility and equipment lease arrangements.
Commitments, Capital Expenditures And Future Financing Requirements
As of June 30, 1999, we had commitments to certain telecommunications
vendors totaling $162.1 million payable in various years through 2011.
Additionally, we have various agreements to lease office space and facilities
and, as of June 30, 1999, were obligated to make future minimum lease payments
of $43.7 million on non-cancellable operating leases expiring in various years
through 2009.
On August 22, 1999, we entered into a definitive agreement to acquire
Transaction Network Services, Inc. (NYSE: TNI). TNI will be merged with and
into a wholly-owned subsidiary of PSINet. Under the terms of the merger
agreement, the aggregate consideration to be paid to TNI shareholders consists
of up to $351.0 million in cash and up to 7.8 million shares (assuming the
exercise of approximately 2.4 million currently exercisable TNI stock options)
of our common stock (which represents an aggregate value of up to approximately
$707.3 million, assuming a price per share of our common stock of $45.719).
Additionally, we will repay the $62.0 million of obligations outstanding under
TNI's revolving credit facility. The source of the cash consideration for the
TNI merger and the cash for the repayment of the TNI revolving credit facility
obligation will be from our cash on hand. TNI shareholders may elect to receive
cash, shares of our common stock, or both cash and shares, subject to
adjustments. The amount of cash paid and shares of our common stock issued in
the TNI merger are contingent upon the ultimate number of outstanding TNI stock
options exercised prior to closing. Completion of the TNI merger is subject to
a number of conditions, including receipt of TNI shareholder approval and
regulatory approvals.
Unaudited pro forma consolidated financial information for PSINet as of
June 30, 1999 and for the year ended December 31, 1998 and for the six months
ended June 30, 1999, which present the pro forma effect of our acquisition of
TNI, certain other acquisitions and our offering of the initial notes and the
application of those net proceeds, has been filed as Exhibit 99.4 to our Current
Report on Form 8-K dated August 22, 1999 and is incorporated by reference in
this prospectus. See "Documents Incorporated by Reference" and "Where You Can
Find More Information."
For some of our acquisitions, we have retained a portion of the purchase
price under hold-back provisions of the purchase agreements to secure
performance by certain sellers of indemnification or other contractual
obligations of the sellers. These hold-back amounts are generally payable up to
24 months after the date of closing of the respective acquisitions. Acquisition
hold-back amounts totaled $50.2 million at June 30, 1999.
In connection with our previously announced 20-year commercial relationship
with the Baltimore Ravens of the National Football League, we acquired, among
other things, rights to name the Ravens' NFL Stadium "PSINet Stadium" as well
as rights for sponsorship and promotion of team events and related advertising
and marketing rights. In addition, we have the right to develop a Baltimore
Ravens' web site and provide related Internet services to subscribing fan
members which, along with other commercial aspects of the transaction, are
expected to bring revenues to both organizations through service and membership
fees, e-commerce and promotional ventures. In exchange for all of these rights,
we will make payments to the Baltimore Ravens over a 20-year period. We paid
$11.8 million in January 1999, which includes a one-time prepayment of $9.25
million under the stadium naming rights agreement. Annual payments for 2000 and
for the 18 years thereafter start at $2.6 million, with successive annual
increases of approximately 5%. We expect that the total payments to be made over
the 20-year period will be approximately $93.5 million.
We acquire fiber-based telecommunications bandwidth through purchases and
capital leases. Some of the purchase agreements have obligations for future cash
payments that coincide with the delivery
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of bandwidth. At June 30, 1999, we were obligated to make future payments under
these purchase agreements that total $73.9 million.
We expect to continue to seek opportunities to acquire fiber-based
telecommunications bandwidth to enhance our global network capabilities. In
addition to North America, we anticipate that such bandwidth acquisitions will
be in Latin America, Europe and Asia and would be accompanied by capital
expenditures in the deployment of high activity POPs designed and located with
the objective of optimizing the efficient use of the bandwidth. We currently
believe that our capital expenditures in 1999 will be greater than those in 1998
and that, as a result of our completion of the offering of the initial notes and
recent equity offerings, we will accelerate our capital expenditure program.
This will occur as we continue to execute our expansion strategy in the 20
largest global telecommunications markets and beyond.
We presently believe, based on the flexibility we expect to have in the
timing of orders of bandwidth, in outfitting our POPs with appropriate
telecommunications and computer equipment, and in controlling the pace and scope
of our anticipated buildout of our international Internet network, that we will
have a reasonable degree of flexibility to adjust the amount and timing of such
capital expenditures in response to our then existing financing capabilities,
market conditions, competition and other factors. Accordingly, we believe that
working capital generated from the use of acquired bandwidth, together with
other existing working capital, working capital from existing credit facilities,
from capital lease financings, from the proceeds of the offering of the initial
notes, our recent equity offerings and from future equity or debt financings,
which we presently expect to be able to obtain when needed, will be sufficient
to meet the currently anticipated working capital and capital expenditure
requirements of our operations. We cannot assure you, however, that we will have
access to sufficient additional capital and/or financing on satisfactory terms
to enable us to meet our capital expenditure and working capital requirements.
Other Possible Strategic Relationships And Acquisitions
We anticipate that we will continue to seek to develop relationships with
strategic partners, both domestically and internationally, and to acquire
assets, including, without limitation, additional telecommunications bandwidth,
and businesses principally relating to or complementary to our existing
business. In this regard, we have entered into several non-binding letters of
intent pursuant to which we and the other parties thereto have agreed to
negotiate the terms and conditions of definitive agreements relating to our
acquisition of additional U.S. and non-U.S. ISPs. We are also currently
evaluating additional acquisitions and investments. However, we cannot assure
you that we will successfully complete all or any of such acquisitions currently
subject to letters of intent or acquisitions or investments otherwise being
contemplated, or what the consequences thereof could be. Certain of these
strategic relationships may involve other telecommunications companies that
desire to enter into joint marketing and services arrangements with us pursuant
to which we would provide Internet and Internet-related services to such
companies. Such transactions, if deemed appropriate by us, may also be effected
in conjunction with an equity or debt investment by such companies in us. Such
relationships and acquisitions may require additional financing and may be
subject to the consent of our lenders and other third parties.
We have not entered into any material financial instruments to serve as
hedges against certain financial and currency risks or for trading. However, as
a result of the increase in our foreign operations and the issuance of the
initial notes, we may begin to use various financial instruments, including
derivative financial instruments, in the ordinary course of business, for
purposes other than trading. These instruments could include letters of credit,
guarantees of debt, interest rate swap agreements and foreign currency exchange
contracts relating to intercompany payables of foreign subsidiaries. We do not
intend to use derivative financial instruments for speculative purposes. Foreign
currency exchange contracts would be used to mitigate foreign currency exposure
and with the intent of protecting the U.S. dollar value of certain currency
positions and future foreign currency transactions. Interest rate swap
agreements would be used to reduce our exposure to risks associated with
interest rate fluctuations. By their nature, all such instruments would involve
risk, including the risk of nonperformance by counterparties. We would attempt
to control our exposure to counterparty credit risk through monitoring
procedures and by entering into multiple contracts.
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Risks Associated With Year 2000
The commonly referred to Year 2000, or Y2K, problem results from the fact
that many existing computer programs and systems use only two digits to identify
the year in the date field. These programs were designed and developed without
considering the impact of a change in the century designation. If not corrected,
computer applications that use a two-digit format could fail or create erroneous
results in any computer calculation or other processing involving the Year 2000
or a later date. We have identified two main areas of Y2K risk:
. Internal computer systems or embedded chips could be disrupted or fail,
causing an interruption or decrease in productivity in our operations;
and
. Computer systems or embedded chips of third parties, including, without
limitation, financial institutions, suppliers, vendors, landlords,
customers, international suppliers of telecommunications services and
others could be disrupted or fail, causing an interruption or decrease
in our ability to continue our operations.
We developed plans for implementing, testing and completing any necessary
modifications to our key computer systems and equipment with embedded chips to
ensure that they are Y2K compliant. We engaged a third party consultant to
perform an assessment of our U.S. internal systems (e.g., accounting, billing,
customer support and network operations) to determine the status of their Y2K
compliance. The assessment of these systems has been completed and, while some
minor changes are necessary, we believe that no material changes or
modifications to our internal systems are required to achieve Y2K compliance.
Our U.S. chief information officer has developed a test bed of our U.S. internal
systems to implement and complete testing of the requisite minor changes. We
believe that our U.S. internal systems are presently Y2K ready. We have
completed an inventory of our internal systems that we use outside of the United
States to determine the status of their Y2K compliance. Each international
office has plans in place to test, upgrade or, if necessary, replace components
of its internal systems to ensure they are Y2K compliant. We anticipate that our
international operations will be Y2K compliant during the fourth quarter of
1999. To help ensure that our network operations and services to our customers
are not interrupted due to the Y2K problem, we have established a network
operations team that meets weekly to examine our network on a worldwide basis.
This team of operational staff have conducted inventories of our network
equipment (software and hardware) and have found no material Y2K compliance
issues. We believe that all equipment currently being purchased for use in the
PSINet network is Y2K compliant. Any existing equipment that is not Y2K
compliant is in the process of being made Y2K compliant through minor changes to
the software or hardware or, in limited instances, replacement of the equipment.
We believe that our network is presently Y2K compliant. In addition to
administering the implementation of necessary upgrades for Y2K compliance, our
network team has developed a contingency plan to address potential problems that
may occur with our network as we enter the year 2000. We believe that, as a
result of our detailed assessment and completed modifications, the Y2K issue
will not pose significant operational problems for us. However, if the requisite
modifications and conversions are not made, or not completed in a timely
fashion, it is possible that the Y2K problem could have a material impact on our
operations.
Our cost of addressing Y2K issues has been minor to date, less than 5% of
our information technology and network operations budgets, but this amount may
increase if additional outside consultants or personnel resources are required
or if important operational equipment must be remediated or replaced. Our
estimated total costs related to Y2K issues for 1999 is not expected to exceed
$2.0 million. These costs include equipment, consulting fees, software and
hardware upgrades, testing, remediation and, in limited instances, replacement
of equipment. The risk that Y2K issues could present to us include, without
limitation, disruption, delay or cessation of operations, including operations
that are subject to regulatory compliance. In each case, the correction of the
problem could result in substantial expense and disruption or delay of our
operations. The total cost of Y2K assessments and remediation is funded through
cash on hand and available from other sources and we are expensing these costs,
as appropriate. The financial impact of making all required systems changes or
other remediation efforts cannot be known precisely, but it is not expected to
be material to our financial position, results of operations, or cash flows. We
have not
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canceled any principal information technology projects as a result of our Y2K
effort, although we have rescheduled some internal tasks to accommodate this
effort.
In addition, we have identified, prioritized and are communicating with our
suppliers, vendors, customers, lenders and other material third parties to
determine their Y2K status and any probable impact on us. To date, our inquiries
have not revealed any significant Y2K noncompliance issue affecting our material
third parties. We will continue to monitor and evaluate our long-term
relationships with our material third parties based on their responses to our
inquiries and on information learned from other sources. If any of our material
third parties are not Y2K ready and their non-compliance causes a material
disruption to any of their respective businesses, our business could be
materially adversely affected. Disruptions could include, among other things:
. the failure of a material third party's business;
. a financial institution's inability to take and transfer funds;
. an interruption in delivery of supplies from vendors;
. a loss of voice and data connections;
. a loss of power to our facilities; and
. other interruptions in the normal course of our operations, the nature
and extent of which we cannot foresee.
We will continue to evaluate the nature of these risks, but at this time we
are unable to determine the probability that any such risk will occur, or if it
does occur, what the nature, length or other effects, if any, of such a risk may
have on us. If any of our material third parties experience failures in their
computer systems or operations due to Y2K non-compliance, it could affect our
ability to process transactions or otherwise engage in similar normal business
activities. For example, while we expect our internal systems, U.S. and non-
U.S., to be Y2K ready in stages during 1999, we and our customers who
communicate internationally will be dependent upon the Y2K-readiness of many
non-U.S. providers of telecommunication services and their vendors and
suppliers. If these providers and others are not Y2K ready, we and our customers
will not be able to send and receive data and other electronic transmissions,
which would have a material adverse effect on our revenues and business and that
of our customers. While many of these risks are outside our control, we have
identified and contacted our critical third party vendors and suppliers and are
establishing contingency plans to remedy any potential interruption to our
operations.
While we believe that we are adequately addressing the Y2K issue, we cannot
assure you that our Y2K compliance effort will prevent every potential
interruption or that the cost and liabilities associated with the Y2K issue will
not materially adversely impact our business, prospects, revenues or financial
position. We are uncertain as to our most reasonably likely worst case Y2K
scenario and, although we have completed a contingency plan to handle reasonably
foreseeable interruptions resulting from the Y2K problem, we cannot assure you
that our contingency plan will be capable of adequately addressing every
potential interruption that may occur.
Quantitative and Qualitative Disclosures about Market Risk
At June 30, 1999, we had other financial instruments consisting of fixed
and variable rate debt and short-term investments. The substantial majority of
our debt obligations have fixed interest rates and are denominated in U.S.
dollars, which is our reporting currency. We had no amounts outstanding under
our credit facility at June 30, 1999. Any borrowings under our credit facility
would have a variable interest rate. Annual maturities of our debt obligations,
excluding capital lease obligations and our credit facility, are as follows:
$3.3 million in 1999, $2.5 million in 2000, $4.4 million in 2001, $3.3 million
in 2002, $1.5 million in 2003 and $971.1 million thereafter. At June 30, 1999,
the carrying value of our debt obligations excluding capital lease obligations
was $986.1 million and the fair value was $1,012.4 million. The weighted-
average interest rate of our debt obligations at June 30, 1999 was 10.5%. Our
investments are generally fixed rate short-term investment grade and government
securities denominated in U.S. dollars.
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At June 30, 1999, all of our investments in debt securities are due to mature
within twelve months and the carrying value of all of our investments
approximates fair value. At June 30, 1999, $144.5 million of our cash and short-
term investments were restricted in accordance with the terms of our financing
arrangements and certain acquisition holdback agreements. We actively monitor
the capital and investing markets in analyzing our capital raising and investing
decisions.
In July 1999, we issued $1.2 billion aggregate principal amount of 11%
senior notes due 2009, consisting of $1.05 billion aggregate principal amount of
11% senior notes due 2009 and Euro 150 million aggregate principal amount of 11%
senior notes due 2009.
Recent Accounting Pronouncement
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is effective for all fiscal quarters
of fiscal years beginning after June 15, 2000. This Statement establishes
accounting and reporting standards for derivative instruments, including some
derivative instruments embedded in other contracts, and for hedging securities.
To the extent we begin to enter into such transactions in the future, we will
adopt the Statement's disclosure requirements in the quarterly and annual
financial statements for the year ending December 31, 2001.
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BUSINESS
We are the leading independent global provider of Internet solutions to
businesses. We provide Internet connectivity and Web hosting services to
customers in 90 of the 100 largest metropolitan statistical areas in the U.S.
and in 16 of the 20 largest global telecommunications markets. In addition to
these services, we also offer a suite of value-added products and services that
are designed to enable our customers to maximize utilization of the Internet to
more efficiently communicate with their customers, suppliers, business partners
and remote office locations. We conduct our business through operations
organized into four geographic operating segments--North America, Latin America,
Europe and Asia. Our services and products include access services that offer
dedicated, dial-up, wireless and xDSL connections, Web hosting services,
intranets, VPNs, e-commerce, voice-over-IP, e-mail and managed security
services. We also provide wholesale and private label network connectivity and
related services to other ISPs and telecommunications carriers to further
utilize our network capacity.
We operate one of the largest global commercial data communications
networks. Our Internet-optimized network has a footprint that extends around the
globe and is connected to approximately 600 POPs situated throughout the U.S.,
Canada, Latin America, Europe and Asia that enable our customers to connect to
the Internet. Our network reach allows our customers' employees to access their
corporate network and systems resources through local calls in over 150
countries. Our network architecture consists of high capacity frame relay
switches and routers designed to deliver superior Internet connections, reliable
packet control and intelligent data traffic routing and is compatible with all
of the most widely deployed transmission technologies. We further expand the
reach of our network by connecting with other large ISPs at 137 points through
67 contractual arrangements, called peering agreements, that permit the exchange
of information between our network and the networks of our peering partners. We
have recently opened four global Internet hosting facilities in the U.S.,
Switzerland, Canada and London containing a total of approximately 125,000
square feet and currently anticipate opening additional Internet hosting
facilities in New York and Los Angeles in October 1999 and November 1999,
respectively, containing a total of approximately 55,000 square feet. We have
two network operating centers that monitor and manage network traffic 24-hours
per day, seven-days per week.
Our mission is to build a premier IP-based communications company. We have
grown by using multiple sales channels, including direct sales and resellers,
and by acquiring other ISPs and related businesses in key markets. We have
increased revenues by providing services and products that enhance our
customers' business processes by helping them to effectively use the Internet
and related tools. We served, as of June 30, 1999, approximately 73,400 business
accounts, including 346 ISPs.
Some of our corporate customers include American Airlines, American Express
Company, C-SPAN, Electronic Data Systems (EDS), E*TRADE, Kmart Corp., Major
League Baseball, Motorola and Xerox Corporation. Some of our ISP customers
include EarthLink, FlashNet, IDT, Microsoft's WebTV and MindSpring.
Industry Overview
Overview. Internet access services is one of the fastest growing segments
of the global telecommunication services market place. For example, Gartner
Group forecasts that worldwide Internet access revenues are forecasted to grow
from $10.1 billion in 1997 to $34.6 billion in 2002. Internet access services
represent the means by which ISPs interconnect either businesses or individual
consumers to the Internet's resources or to corporate intranets and extranets.
Access services include dial-up access for individuals and small businesses, and
high-speed dedicated access used primarily by mid-sized and larger
organizations. In addition to Internet access services, business-focused ISPs
are increasingly providing a range of value-added services, including managed
access (i.e., intranets), shared and dedicated Web hosting, security services,
and advanced applications such as IP-based voice, fax and video services. These
services are being used by business customers to enhance productivity, ensure
reliability and reduce costs.
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The ISP market is segmented into large national or multinational ISPs
("Tier 1 ISPs"), which are typically full-service providers that offer a broad
range of Internet access and value-added services to businesses, and regional
and local ISPs ("Tier 2" and "Tier 3 ISPs"), which typically offer a smaller
range of products and services to both individuals and business customers and
may specialize in the provision of one IP-based product or service. We are a
Tier 1 ISP. Tier 1 ISPs also provide wholesale services by reselling capacity on
their networks to smaller regional and local ISPs, thereby enabling these
smaller ISPs to provide Internet services on a private label basis without
building their own facilities. Tier 1 ISPs exchange Internet traffic at multiple
public peering points known as network access points and through private peering
arrangements. As the number of ISPs has grown, Tier 1 ISPs have increased their
requirements for peering arrangements thereby increasing the barriers to entry
into the top-tier. Tier 2 and Tier 3 ISPs generally rely on Tier 1 ISPs for
Internet access and interconnection. The ISP market is highly fragmented with,
according to industry sources, over 6,700 providers estimated to be doing
business in the U.S. and Canada alone. Because of the low barriers to entry,
there are many local and regional ISPs entering the market, which has caused the
level of competition to intensify. In addition, there recently have been several
acquisitions of large ISPs by multinational telecommunications companies seeking
to offer a more complete package of telecommunications products to their
customers.
Market Size and Growth. The Internet services market is forecast to
continue its rapid growth for the foreseeable future. Gartner Group estimates
that worldwide revenues for Internet services will grow from $11.3 billion in
1997 to $39.8 billion in 2002, reflecting a compounded annual growth rate of
29%. According to Gartner Group, in 1997, access services represented 89% or
$10.1 billion of this total market.
Growth in demand for business connectivity is being driven by a number of
factors, including an increase in online market penetration, particularly in the
small and medium-sized business segments, and increased use of the Internet by
businesses. Specifically, Gartner Group estimates that business access services
represented 47% or $4.7 billion of the total access services market in 1997, but
will increase their percentage to 62% of the $34.6 billion total Internet access
services market in 2002. In addition, as more businesses evolve from
establishing an Internet presence to utilizing secure connectivity between
geographically-dispersed locations, remote access to corporate networks and
business-to-business commerce solutions, the demand for high quality Internet
connectivity and value-added services should grow. Gartner Group forecasts that
worldwide web hosting services revenue will grow at a compound rate of 40% per
annum from $579 million in 1997 to $3.1 billion in 2002.
Reflecting the globalization of the Internet, Gartner Group estimates that
47% or $16.3 billion of the $34.6 billion access services opportunity in 2002 is
expected to come from North America. It is estimated that Asia will represent
26% or $8.9 billion, Europe will represent 20% or $6.8 billion, and the rest of
the world will comprise the remaining 7% or $2.5 billion. In North America,
Gartner Group forecasts that businesses will represent 57% of the total Internet
access services market of $16.3 billion. In Asia, Gartner Group estimates that
businesses will represent 65% of the total Internet access services market of
$8.9 billion. In Europe, Gartner Group forecasts that businesses will represent
63% of the total Internet access services market of $6.8 billion.
Growth in Business Use of the Internet. Since the commercialization of the
Internet in the early 1990s, businesses have rapidly established corporate
Internet sites and connectivity as a means to expand customer reach and improve
communications efficiency. Currently, many businesses are utilizing the Internet
as a lower-cost alternative to certain traditional telecommunications services.
For example, many corporations are connecting their remote locations using
intranets and VPNs to enable efficient communications with employees, customers
and suppliers worldwide, providing remote access for a mobile workforce,
reducing telecommunications costs by using value-added services such as IP-based
fax and videoconferencing, and migrating legacy database applications to run
over IP-based networks. Businesses of all sizes are demanding advanced, highly
reliable solutions designed specifically to enhance productivity and improve
efficiency. Moreover, businesses are seeking national and global ISPs that can
securely and efficiently connect multiple, geographically-dispersed locations,
provide global remote access capabilities and offer a full range of value-added
services that meet their particular networking needs.
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The PSINet Solution
We provide high quality global IP-based services and products that are
tailored to meet the needs of businesses. We believe that the business market is
particularly attractive due to its low customer churn characteristics, high
revenue per user, relatively low penetration and, in international markets,
early stage of development. In addition, we believe that within the business
access marketplace there is a significant opportunity to upsell to higher
service levels and provide additional value-added services as businesses grow
from establishing basic Internet connectivity and corporate Web sites to
utilizing the Internet, corporate intranets and VPNs for more advanced, mission-
critical applications. Further, we believe that small and medium-sized
businesses will continue to seek to outsource certain information technology
functions to large full-service ISPs to reduce costs and improve service levels.
Moreover, we believe that regional and local ISPs will continue to seek business
relationships with large, Tier 1 ISPs that enable them to sell Internet
connectivity services without making significant investments in facilities.
The PSINet Strategy
Our objective is to be one of the top three providers of Internet access
services and related communications services and products in each of the 20
largest global telecommunications markets. The principal elements of our
business strategy are summarized below:
. Leverage Multiple Sales Channels. We are pursuing growth opportunities
through multiple channels consisting of our direct sales force, a
reseller and referral program and strategic alliances with selected
telecommunications services and equipment suppliers, networking
service companies, systems integrators and computer retailers. We have
built a direct sales force, which, as of June 30, 1999, consisted of
approximately 650 individuals worldwide, more than half of whom are
employed outside of the U.S. As of June 30, 1999, our reseller and
referral program consisted of approximately 1,100 resellers and
referral sources in the U.S. and over 700 outside of the U.S. This
program enables us to leverage the sales and marketing resources of
our resellers and referral sources to offer PSINet Internet access
services and products to a broader and more diverse prospect base. We
also seek to establish strategic alliances with selected
telecommunications carriers, such as we have with American
Communications Network, Inc., ATX Telecommunications Services, e.Spire
Communications, Inc. and NEXTLINK Communications Inc., to offer our
IP-based services and products to the carriers' customer base on a
private label or co-branded basis. In addition, we are pursuing
agreements with computer retailers, such as we have with CompUSA, as a
means for offering our services and products through retail sales
channels.
. Increase Sales of Value-Added Services and New Products. We intend to
capitalize on the trend of companies seeking to increasingly outsource
their critical business applications and integrate Web-based services
and products by aggressively marketing value-added services and
products to our existing account base and prospective business
customers. We currently offer a number of value-added services, such
as Web hosting and collocation, intranets, VPNs, multi-currency e-
commerce, voice-over IP services, e-mail outsourcing, streaming media,
security and remote user access. We are aggressively expanding our Web
hosting and managed services operations. We have opened four new
global Internet hosting centers in Herndon, Virginia, Neuchatel,
Switzerland, Toronto, Ontario and London, England, containing a total
of approximately 125,000 square feet, and currently anticipate opening
two additional global Internet hosting centers in New York and Los
Angeles in October 1999 and November 1999, respectively, containing a
total of approximately 55,000 square feet. Additionally, we continue
to evaluate and implement new alternative broadband local loop
services, including wireless, xDSL and cable modem solutions.
. Accelerate Growth Through Targeted Acquisitions. We intend to continue
to accelerate our growth in the U.S. and expand our presence in key
markets internationally by acquiring primarily business-focused ISPs
and related businesses and assets. We intend to make strategic
investments in or acquire:
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. local or regional ISPs in markets where we have an established
POP and can benefit from the increased network utilization and
local sales force;
. ISPs in the 20 largest global telecommunications markets where we
currently do not have a presence or in those global
telecommunications markets where our current presence would be
significantly enhanced;
. related or complementary businesses to broaden our market
presence and expand our strengths in key product areas, such as
Web hosting or data center companies, or data-processing
companies with legacy networks which would benefit by migrating
to IP-based technologies; and
. telecommunication or information technology companies which have
strong relationships with chief technology officers and other
management information service executives at major corporations
worldwide.
. Continue to Invest in our Network. We remain focused on reducing costs
as a percentage of revenue by maintaining a scaleable network and
increasing utilization of and controlling strategic assets, such as
telecommunications bandwidth through IRUs and acquisition of dark fiber.
Our flexible network architecture utilizes advanced ATM, ISDN and SMDS
compatible frame relay equipment, which allows the PSINet network to
cost-effectively scale the number of POPs and the number of users
accessing a POP in response to customer demand. We have enhanced our
network significantly through several strategic acquisitions of
fiber-based telecommunications bandwidth, including acquisitions of IRUs
and other rights within and connecting the U.S., Canada, Europe and
Asia.
. Enhance Brand Name Recognition. We were the first commercial ISP and
have established significant brand recognition among information
technology professionals in the U.S. In 1998, we launched a major
program to develop and enhance the PSINet brand name as a leading global
facilities-based ISP. Our branding program includes the rebranding of
acquired ISP operations and services under the PSINet name, the select
use of television commercials, print ads and direct mailings which
target key decision makers in the United States and abroad, and the
acquisition of corporate sponsorship rights, such as our recent
acquisition of the naming rights to the NFL Stadium of the Baltimore
Ravens and related marketing rights. By combining this branding program
with our multiple sales channel distribution strategy, superior customer
service and technical support available 24-hours per day, seven-days per
week, we seek to expand market share, increase customer loyalty and
develop brand recognition in the global Internet market.
PSINet Services
We offer a broad range of reliable, high-speed Internet access options and
related services in North America, Latin America, Europe and Asia at a variety
of prices designed to meet the requirements of commercial, educational,
governmental and other organizations that link their computers, networks and
information servers to, or otherwise seek to benefit from the use of, the
Internet. We provide Internet solutions to help business and other organizations
reduce costs, increase productivity and access new markets. Access options range
from dial-up services to high-speed continuous access provided by dedicated
circuits. We believe that our broad range of competitively priced Internet
services and products allows us to compete effectively in the Internet access
market for corporate and other institutional customers. We have organized our
core operations into three customer-focused business units--Corporate Network
Services, which focuses on sales of Internet access services, Applications and
Web Services, which focuses on sales of Web and value-added services, and
Carrier and ISP Services, which focuses on sales of Internet access and related
services to telecommunications carriers and consumer-based ISPs--in order to
more closely align our operations with the needs of the emerging Internet
marketplace.
Internet Access Services. We offer in North America, Latin America,
Europe and Asia global connectivity services, including a variety of dial-up and
dedicated access solutions in bundled and unbundled packages, which provide
high-speed continuous access to the Internet for businesses' local area
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networks or LANs. We provide turnkey configuration solutions encompassing such
services as domain name registration, line ordering and installation, IP address
assignment, router configuration, installation and management, security planning
and management and technical consultation services. All of our connectivity
customers receive 24-hours per day, seven-days per week technical support. We
also offer a full range of customer premise equipment required to connect to the
Internet, including routers, channel service units/data service units, software
and other products, as needed. Due to our business relationships with a variety
of vendors, we are able to offer competitive hardware pricing and bundled
services to our customers.
. Dedicated Access. We offer a broad line of high-speed dedicated
connectivity services which provide business customers with direct
access to a full range of Internet applications. Our flagship access
service, InterFrame, provides companies with robust, full-time,
dedicated Internet connectivity in a range of access speeds, from 56
Kbps to 45 Mbps. InterFrame is designed to offer comprehensive network
security and to help ensure bandwidth availability for priority
business applications. We believe that the traffic-management
advantages of the frame relay technology deployed in the PSINet
network provide our customers with fully integrated Internet access
and improved performance. For higher bandwidth needs, we provide our
InterMAN(R) access service in major U.S. cities in connection speeds
ranging from 1.5 Mbps to 45 Mbps. InterMAN is a turnkey solution in
which we provide, install and maintain equipment at the customers'
premises. InterMAN affords cost advantages over competitive dedicated
access services by utilizing high-speed SMDS and ATM data transmission
technologies.
. xDSL Access. We offer high-speed Internet access services using
digital subscriber line or DSL technology. DSL is a new technology
being deployed by telephone companies and competitive local exchange
carriers, or CLECs, that permits high speed digital transmission over
the existing copper wiring of regular telephone lines. We have entered
into an agreement with Covad Communications Group, Inc., a leading
provider of DSL services to ISPs, to deliver DSL access services to
our customers. We recently announced our offering of DSL services in
21 major metropolitan areas throughout the U.S. with expansion to
other major metropolitan areas expected to occur later in 1999 and
2000. Our DSL services are available in a wide range of dedicated
access speeds, from 144 Kbps to 1.5 Mbps. Our DSL services are
designed to appeal to the small-to-medium sized business market by
providing high quality Internet access at speeds faster than ISDN and
at flat-rate prices that are low relative to traditional dedicated
access charges.
. Wireless Access. Our recently introduced InterSky(R) service offers
dedicated high-speed "fixed wireless" Internet access utilizing
digital microwave technology. Speeds of up to 128Kbps are currently
available with faster capabilities anticipated to be made available
during 1999 and 2000. Our InterSky service is currently operational in
certain cities in Alabama, Florida and Tennessee, with expansion to
additional areas in the southeastern U.S. expected to occur later in
1999. InterSky provides an affordable, high-speed alternative to
traditional land-based Internet services, commonly referred to as
"local loop connections," offered by telecommunications carriers.
. Dial-up Access. Our LAN-Dial(R) dial-up services offer a cost-
effective, entry-level Internet solution that provides access to
PSINet's advanced network backbone via ordinary telephone lines at
speeds of up to 56 Kbps. Our LAN-ISDN service provides dial-up access
through digital ISDN lines at speeds of up to 128 Kbps.
Web and Value-Added Services. We believe that business customers on a
worldwide basis will continue to increase their use of the Internet as a
business tool and will increasingly rely upon an expanding range of value-added
services to enhance productivity, reduce costs and improve service reliability.
We offer in North America, Latin America, Europe and Asia a variety of value-
added services, including Web hosting and collocation, intranets, VPNs, multi-
currency e-commerce, voice-over-IP, e-mail outsourcing, streaming media,
security and remote user access services designed to meet the diverse networking
needs of businesses. In addition, in order to capitalize on our technologically
advanced, high-capacity network,
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we intend to continue to develop new IP-based services and products that
increase customer use of the Internet, including bandwidth-intensive multimedia
services such as video conferencing over the Internet.
. Web Hosting. We provide a line of Web hosting and multimedia streaming
services that permit companies to market themselves and their products
on the Internet without having to invest significantly in technology
infrastructure and operations staff. The PSIWeb(R) services are backed
by our 100% uptime guarantee, the industry's first, and by our
advanced network backbone, which provides highly reliable Internet
connectivity. PSIWeb offers options such as complete electronic
commerce solutions as well as "TV on the WEB LIVE," a joint service
offering from PSINet and Gardy McGrath International, which is an end-
to-end solution for video broadcasting of live events over the
Internet. We have recently introduced a line of management application
services to enable our customers to outsource their Web management
requirements to our highly trained systems administrators and support
staff.
. Collocation. Our PSIWeb Co-Locate(SM) service enables companies to
house business-critical servers in secure off-site facilities with
improved bandwidth management and reliable connections. Collocation
facilities are situated on the highest bandwidth portions of our
infrastructure in order to facilitate optimal performance and high-
speed capabilities.
. VPNs/Intranets. Our IP-optimized network allows us to create private
IP networks, known as "intranets" or "virtual private networks," that
are designed to securely isolate internal network traffic from public
Internet traffic and provide each site on the intranet access to other
sites on the intranet as well as to the Internet. Our PSI IntraNet(R)
service integrates an organization's multiple sites in different
countries throughout the world by providing IP connectivity with
access speeds ranging from 56 Kbps to 2 Mbps. By combining the
security and control of a private network with cost-effective
Internet-compatible connectivity, PSI IntraNet provides a turnkey
solution for equipment management support and offers significant
savings over traditional wide area network or WAN solutions.
. Multi-Currency E-Commerce. Our PSIWeb eCommerce(SM) service provides a
turnkey solution to create and manage "Virtual Storefronts" and is
designed to give shoppers the ability to make secure purchases in
their local currency using the Web. PSIWeb eCommerce integrates
payment systems engineered for security with virtual store technology,
through alliances with CyberCash, Inc. and Mercantec, Inc., to
facilitate a seamless shopping experience. In addition, PSIWeb
Worldpay(SM) provides a cost-effective electronic commerce solution
for selling goods and services to an international audience. Developed
in association with Worldpay Ltd., an electronic commerce transaction
clearing house, and National Westminster Bank PLC, PSIWeb Worldpay
enables customers around the world to make real-time purchases using
the Web in over 100 currencies.
. Voice-Over-IP. PSIVoice(SM) enables companies with multiple business
locations to communicate by voice among these sites and with select
third parties, such as business partners, customers and suppliers,
outside their corporate intranets or VPNs via low-cost IP telephony
links. PSIVoice is a turnkey service allowing for such enhanced
features as desktop faxing, conference calling and unified messaging
services and includes all the hardware and network management services
required for high quality, private-line voice connections among
geographically dispersed offices. By providing voice and Internet
traffic on the same circuit, customers are able to use existing
bandwidth more efficiently, resulting in savings of 20%-50% over
traditional long-distance telephone calling.
. E-Mail. PSIMail(SM) enables customers to outsource their e-mail
service and its management to our highly trained systems
administrators and support staff. For a monthly fee, we establish
accounts, manage the servers and provide full accessibility to e-mail
for our customers while saving them the investment in additional
servers and staff.
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. Security Solutions. The proprietary nature of business Internet
traffic demands protection from unauthorized access. We deliver a
range of managed security services that were developed in conjunction
with certain strategic partners and are backed by the expertise of our
Security Planning and Response Team. Our RouteWaller(R) service
provides cost-effective perimeter defense with sophisticated remote
user authentication that helps to ensure that no strategic
applications or data can be accessed until the user has proven his or
her access clearance. SecureEnterprise(R) is our management service
designed to protect enterprises with a full-featured, application-
layer firewall.
. Faxing. Since a significant portion of telecommunications traffic
consists of fax transmissions, companies are looking for ways to
better manage fax costs. Our InternetPaper(SM) service supports hard-
copy distribution of electronic documents from desktop PCs to any fax
machine in the world. This service offers centralized management of
document distribution, thereby significantly reducing transmission
costs.
. Remote Access. Today's work force increasingly operates outside the
traditional office setting. Our InterRamp(R) Remote Access service
enables mobile personnel to access their corporate network and systems
resources using the Internet from over 2,400 POPs in over 150
countries through our strategic relationship with iPass, an
international data communications network. In most locations where
business is conducted, InterRamp Remote Access offers full Internet
access through a local telephone call. As part of InterRamp Remote
Access service, we provide our customers with a special account
management system that enables customers' MIS administrators to
control user access and monitor usage statistics.
Carrier and ISP Services. In 1996, to maximize utilization of our
network, we formed our Carrier and ISP Services business unit to provide dial-up
Internet access to telecommunications carriers and consumer-based ISPs in the
U.S. and Canada, such as Earthlink Network, Inc. and Microsoft's WebTV, whose
customers typically access the network during evening hours when business use
tends to be minimal. We have expanded this business unit to offer peering and
transit services to telecommunications carriers and other ISPs and to offer our
connectivity and value-added services for resale, on a private label basis, to
larger telecommunications carriers and other ISPs that require high quality
business services and products to enhance their product portfolio. Through such
services, we have the opportunity to significantly increase our distribution
channel.
. ISP and Consumer Dial-up Access. We provide dial-up access to
consumer-oriented ISPs enabling them to expand their geographic reach
and network capacity by purchasing from us access to our IP-optimized
network through over 335 POPs in the United States and Canada as of
June 30, 1999. We offer programs that provide smaller ISPs the
opportunity to increase their user base over time and provide larger
ISPs the opportunity to cost-effectively manage their rapid growth. In
addition, in certain domestic and international markets, we provide
dial-up access services directly to individual customers.
. Commercial Private Label/Virtual ISP Services. We provide our market-
tested services on a private label or "virtual ISP" basis to companies
with which we have strategic alliances and other companies that desire
to offer consumer Internet access services but do not have the
resources or network facilities to provide these services. This allows
these companies to market and resell PSINet services under their own
brand while leveraging our nationwide network and expertise in service
delivery. We assist in training the sales and support staffs of these
companies and provide technical support to facilitate their resale
efforts.
. Peering and Transit. In order to support the exchange of information
between ISPs, which is critical to the effective operation of the
Internet, we offer free private peering for all U.S.-based ISPs.
Private peering allows other ISPs' traffic to directly reach our
customers, which improves network performance and, we believe, thereby
promotes customer satisfaction. Furthermore, we offer, for a fee,
transit service, which allows an ISP to transfer traffic through the
PSINet network to another ISP. Transit service enables ISPs to reduce
their data
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communications expense by leasing network utilization from us in lieu
of leasing point-to-point circuits from other telecommunications
providers.
. Web Filtering. PSIChoice(SM) enables our carrier and ISP customers to
offer their consumers the option to protect themselves from content
they find objectionable on the World Wide Web by restricting access to
sites that contain undesirable information. PSIChoice is hosted on the
technologically advanced PSINet network and utilizes content proxy
services to screen Web content accessed by end-users. PSIChoice
requires no software implementation on the consumer's computer and is
presently available in the United States.
Services and Product Development. As part of our ongoing efforts to develop
IP-based services and products that enable businesses to take maximum advantage
of their corporate networks and the Internet, we have continually invested in
service and product development programs. Since our inception, we have
introduced to the Internet marketplace several major new services, including the
first LAN-based dial-up TCP/IP access service, the first managed Internet
security service, the first ISP electronic commerce service and the first ISP
intranet service. Major services and products currently under development
include multimedia services, such as next-generation video conferencing over the
Internet, and higher speed connectivity services.
PSINet's Network
Overview. We operate a global high capacity, IP-optimized network which, as
of June 30, 1999, was comprised of approximately 600 POPs, of which
approximately 300 were within the United States with the remainder located
throughout Canada, Latin America, Europe and Asia. Our network employs
architecture designed to deliver superior dedicated or dial-up Internet
connections, reliable packet control and intelligent data traffic routing. We
have strengthened our position as a leading facilities-based ISP through several
recent acquisitions of high capacity, fiber optic telecommunications bandwidth
and other strategic network assets that have significantly reduced our
incremental data communications costs. The combination of our technologically
advanced network architecture and global network infrastructure has positioned
us to deliver the high level of IP-based services, such as Web hosting and a
broad array of multimedia Internet services, increasingly demanded by
businesses.
Network Architecture. We have engineered an IP-optimized network by
integrating advanced Internet routers with high-speed frame relay switching
equipment that is compatible with ATM, ISDN and SMDS transmission technologies.
We have planned for growth by ensuring that the network is scaleable, flexible,
fault tolerant, open standards-based and remotely manageable.
. Scaleable. Our flexible, multi-layer network architecture utilizes a
high-speed switching fabric which enables us to grow the number of
POPs and the number of users served in an incremental manner that
matches investment with demand. The network's scalability extends
beyond the currently installed base of approximately 600 POPs to allow
for growth to 2,000 POPs without fundamental design changes.
. Flexible. Our network architecture consists of an Internet routing
infrastructure overlaid upon a fast packet switching fabric that
enables us to provide reliable, high-speed connections and provide our
customers the ability to manage bandwidth by type of application and
to accommodate applications that are delay-sensitive. We are able to
use our flexible network architecture in concert with our remote
monitoring capability to accommodate changing customer usage patterns
and patterns of traffic that, if left unmanaged, could otherwise
degrade network performance.
. Fault Tolerant. Redundancy and adaptive technology in our network
reduces the impact of isolated failures on the customer's experience.
Adaptive technology incorporated into our Internet router
infrastructure compensates automatically for circuit failures that
might otherwise interrupt the flow of customer traffic. Key switching
and router elements are redundantly configured to further reduce the
impact of individual component failures. In
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addition, typically we have an uninterruptible power supply at each
POP, limiting the impact of local power outages on the PSINet network.
. Open. The PSINet network is based on the open internetworking protocol
standard TCP/IP and on relevant international standards relating to
transmission and modulation technologies. We are able to install a
variety of equipment types and capacities without impacting network
interoperability. As a result, our network can be upgraded
incrementally and benefit from multi-vendor supply strategies.
. Manageable. From our NOCs, we are able to monitor the network
remotely, perform network diagnostics and equipment surveillance, and
initialize customers. As a result of our network architecture and our
experience in Internet network management, these tasks can be
performed remotely regardless of POP location or network status. This
capability allows us to respond quickly to network problems and to
control costs associated with on-site network configuration and
repair.
Global Network Infrastructure. As part of our ongoing efforts to control
strategic assets and further expand and enhance our network, we have recently
acquired or agreed to acquire IRUs and other rights in significant amounts of
fiber-based telecommunications bandwidth located throughout the world. The
following table summarizes our bandwidth facilities as of June 30, 1999.
<TABLE>
<CAPTION>
Location Capacity Connection Point Ownership
- --------- ---------------------------- ----------------------------------------------------- --------------
<S> <C> <C> <C>
North America 13,412 route miles of OC-12 New York--Chicago--Dallas--Phoenix--Las IRU
Vegas--LosAngeles--Philadelphia--
Washington, DC--Atlanta--Houston (operational)
Seattle--San Francisco (beginning in Q3 1999)
18 high capacity dark fibers New York--Washington, DC Capital lease
4 high capacity dark fibers San Francisco Bay Area (during 1999 and 2000) Capital lease
20 high capacity dark fibers Vancouver, B.C.--Seattle, WA (beginning in Q3 IRU
1999)
T-3 Intercontinental Leased
Transatlantic 14,000 km of STM-1 (OC-3) New York--U.K.--Amsterdam IRU
and Europe 12,600 km of STM-1 New York--U.K. (during Q3 1999) IRU
21,000 km of STM-1 30 European cities (initial portions operational) IRU
E-1 Intercontinental Leased
Transpacific 6,000 miles of 6 DS-3s US--Japan (4DS-3s operational; 2DS-3s prior to IRU/Capital
2000) lease
and Asia 22 STM-1s (increasing to 30) Japan-Hawaii-US (during Q2 2000) IRU
27,300 km of STM-1 Japan-China-Southeast Asia-India-Middle East-Europe IRU
(initial portions operational)
</TABLE>
Recently acquired bandwidth facilities in North America:
. In February 1998, we acquired from IXC IRUs in up to 10,000 equivalent
route miles of OC-48 network bandwidth across the United States,
including such major metropolitan areas as Atlanta, Chicago,
Cleveland, Dallas, Houston, Los Angeles, Las Vegas, New York,
Philadelphia, Phoenix, Seattle, San Francisco and Washington, D.C., in
exchange for approximately 20% of our common stock. As of June 30,
1999, approximately 13,412 route miles of OC-12 (equivalent to
approximately 3,353 route miles of OC-48) bandwidth, connecting New
York, Washington, D.C., Atlanta, Chicago, Dallas, Houston, San
Francisco and Los Angeles and certain major cities in between, have
been placed into operation on the PSINet network. We currently
anticipate delivery of the remaining OC-48 bandwidth from IXC over the
next 12 to 18 months.
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. In May 1998, we acquired from Metromedia Fiber Network Services, Inc.
("MFN") long-term rights in 18 dark fiber optic strands connecting the
New York City and Washington, D.C. metropolitan areas and major
metropolitan areas in between. Using currently available technology,
this fiber will be capable of carrying 96 Gbps of data in the New York
City to Washington, D.C. corridor, which currently handles approximately
35% of the telecommunications traffic in the United States and is a
vital route connecting Internet traffic between Europe and the United
States. As of June 30, 1999, all of this bandwidth has been placed into
operation.
. In December 1998, we acquired from MFN long-term rights in four dark
fiber optic strands connecting multiple cities in the San Francisco Bay
area along a circular route extending south to the Silicon Valley,
including San Jose and Santa Clara, and east to Hayward. This market is
an important financial and technology corridor and is expected to
generate high demand for Internet services well into the future. We
expect to place into operation portions of this fiber prior to the end
of 1999, with full delivery anticipated in 2000.
. In January 1999, we entered into an agreement to acquire from Starcom
Service Corporation IRUs in 20 dark fiber optic strands connecting the
Vancouver, British Columbia and Seattle, Washington metropolitan areas,
a high-demand international telecommunications corridor. We expect to
place into operation portions of this fiber prior to the end of the
third quarter of 1999.
Recently acquired Transatlantic and European bandwidth facilities:
. In March 1998, we acquired from Global Crossing Ltd. IRUs in STM-1
(equivalent to OC-3) network bandwidth configured along an approximately
14,000 kilometer route on the Atlantic Crossing undersea fiber optic
system connecting the United States, the United Kingdom and continental
Europe. As of June 30, 1999, the portion of this bandwidth linking New
York City, the United Kingdom and Amsterdam, the Netherlands is
operational and integrated with the OC-12 bandwidth previously acquired
from IXC.
. In January 1999, we acquired from Hermes Europe Railtel (Ireland)
Limited IRUs in STM-1 network bandwidth configured as multiple rings
along an approximately 21,000 kilometer route, which when completed, is
expected to link 30 European cities. By the end of 1999, we expect a
portion of this bandwidth to be connected to our existing operations in
England, the Netherlands, France, Germany and Switzerland. In 2000, we
anticipate that Hermes will extend its network to additional cities in
Austria, Belgium, Denmark, France, Germany, Italy, Luxembourg, Monaco,
the Netherlands, Spain and Sweden. The acquisition of this bandwidth
will enable us to expand our presence into an additional large global
telecommunications market--Sweden--and should be sufficient to support
our European operations for the next several years.
. In March 1999, we acquired from Cable & Wireless, Inc. an IRU in STM-1
network bandwidth configured along an approximately 12,600 kilometer
route on the Gemini Submarine cable system connecting the United States
and the United Kingdom. We expect to place this bandwidth into operation
during the third quarter of 1999.
Recently acquired Transpacific and Asian bandwidth facilities:
. In September 1998, we acquired from International Digital Communications
Inc. in the United States and from International Digital Communications,
Inc. and Cable & Wireless Plc in Japan bandwidth capacity equivalent to
six DS-3s in the North Pacific Cable undersea fiber optic system
connecting the United States and Japan through a combination of IRUs and
long-term capital leases. As of June 30, 1999, four DS-3s connecting
Portland, Oregon and Tokyo, Japan are operational. We expect the
remainder of this capacity to become operational in stages prior to the
end of 1999 and, when integrated with the bandwidth from FLAG Limited
(described below) we recently placed in operation, will extend the reach
of the PSINet network into the Republic of Korea and Hong Kong.
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. In July 1998, we entered into an agreement with a group of leading
telecommunications companies to build the Japan-U.S. Cable Network, an
undersea cable system connecting the United States (through California
and Hawaii) and Japan, on which we will own IRUs in 22 STM-1s,
increasing to 30 STM-1s as the network is upgraded, of bandwidth. Upon
completion, the Japan-U.S. Cable Network will initially operate at 80
Gbps, increasing to 155 Gbps as the network is upgraded, and is
currently anticipated to become operational in the second quarter of
2000. Completion of the undersea cable system is subject to a number of
risks associated with construction projects.
. In December 1998, we acquired from FLAG Limited (Fiberoptic Link Around
the Globe) IRUs in STM-1 network bandwidth configured along an
approximately 27,300 kilometer route having the capability of connecting
Japan, China, Southeast Asia, India, the Middle East, Europe and the
United Kingdom. With this acquisition, the PSINet network became the
first independent Internet network to fully circle the globe, serving
customers on three continents. Our agreement with FLAG also enables us
to purchase additional capacity and insert new connections along the
FLAG cable route to accommodate future demand. We have placed into
operation portions of this bandwidth, which when integrated with our
capacity on the North Pacific Cable system, will extend the reach of the
PSINet network into the Republic of Korea and Hong Kong.
See "Risk Factors--We face risks associated with our acquisitions of bandwidth
from network suppliers, including our strategic alliance with IXC
Communications, Inc., relating to our dependence on their ability to satisfy
their obligations to us, the possibility that we may need to incur significant
expenses to utilize bandwidth and their ability to buildout their networks under
construction that could adversely affect our ability to utilize acquired
bandwidth."
We expect to further expand our network in North America, Latin America,
Europe and Asia, as well as in other select international markets, and to
acquire fiber-based IRUs and other rights in telecommunications bandwidth in
these regions to support demand growth and reduce costs. We are targeting cities
with a high concentration of businesses for global expansion with the objective,
over the long-term, of providing local access to our services and products to
80% of the businesses in those cities. In furtherance of this plan, we have
entered into agreements in Germany and Switzerland that enable us to offer local
telephone call access to our services and products throughout each of these
countries. We already offer local call access to 80% of the business markets in
the United States, Canada, France, the Netherlands, Hong Kong and Japan.
Internet Data Centers. We have recently opened technologically advanced,
10,000 square foot, global Internet hosting facilities in each of Herndon,
Virginia and Neuchatel, Switzerland, a 5,000 square foot global Internet hosting
facility in Toronto, Ontario and an approximately 100,000 square foot global
Internet hosting facility in London. We currently anticipate opening an
approximately 12,000 square foot global Internet hosting facility in New York
City in October 1999 and a 42,000 square foot global Internet hosting facility
in Los Angeles in November 1999, and have plans for construction of additional
global Internet hosting facilities throughout the world. The additional
facilities will range from approximately 10,000-50,000 square feet, will be
specifically designed for dedicated Web hosting, application hosting,
collocation services and high capacity access to the PSINet network, and will be
equipped with uninterruptible power supply and backup generators, fire
suppression, raised floors, HVAC, 24-hours per day, seven-days per week
operations and physical security. Our partnership with Hewlett-Packard Company
further supports our ability to provide high-end Web services consisting of
shared hosting, dedicated hosting and collocation hosting.
PRI Circuits. In key geographically-dispersed cities located along the
configuration of the PSINet network (e.g., Atlanta, Chicago, Dallas, Los Angeles
and Washington, D.C.), we are also investing in PRI circuits, which provide
dial-up access to our POPs, in order to increase the capacity available for our
consumer-oriented ISP customers. Through agreements with select CLECs we have
lowered our average cost per PRI by approximately 15-20% over the last twelve
months. As of June 30, 1999, we have more than doubled our dial-up capacity from
May 31, 1998 as a result of our investment in PRIs, which we
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believe will enhance revenue growth in our Carrier and ISP Services business
unit. As of June 30, 1999, nearly 100% of our dial-up capacity is accessible at
56 Kbps modem speeds. We anticipate that all newly deployed modems will support
this technology.
Peering Arrangements. We maintain peering relationships with national,
regional and local ISPs by either private peering with the ISPs or by
participation in various public peering locations, known as network access
points. As of June 30, 1999, we maintained more than 2,000 Mbps (2.0 Gbps) of
peering connectivity with 50 private agreements and seventeen public connections
strategically placed throughout the United States, the United Kingdom, Canada,
Japan and Europe. Recently, some companies that have previously offered peering
have cut back or eliminated peering relations and are establishing new, more
restrictive criteria for peering. We expect that, due to our offering of peering
with any of the estimated 4,000 ISPs in the United States without settlement
charges, we will substantially increase the number of ISPs with which we peer
over the next two years. We believe that by entering into direct peering
relationships with a large number of ISPs, our business customers will receive
better service and the highest quality network performance.
Global Network Management. We believe that we offer superior network
management capabilities which enhance customer satisfaction. We have established
a 24-hours per day, seven-days per week NOC in the United States that allows for
continuous monitoring of our international network, managing of traffic, and
customer problem resolution. Back-up operating facilities manned by trained
personnel are available at our offices in Herndon, Virginia and Cambridge,
England in the event the U.S. NOC experiences service interruptions or other
difficulties. We have recently opened our European Technical Center in
Switzerland as a second NOC with global capabilities equivalent to those in the
U.S. NOC. Furthermore, we anticipate that as we expand our presence in Asia we
will construct a third NOC in that region during 1999.
Sales and Marketing
We have built a multi-channel sales and marketing infrastructure throughout
the U.S., Canada, Europe and Asia in an effort to respond effectively to the
growing opportunities in the business Internet market. We seek to attract and
retain customers by offering our services and products through our direct sales
force and our authorized reseller and referral program and by seeking to forge
strategic relationships with selected telecommunications carriers. We believe
that this multi-channel approach will enable us to utilize the technical skills
and experience of our direct sales force to penetrate our targeted customer base
while utilizing the potentially greater sales and marketing resources of the
resellers, referral sources and companies with which we have strategic alliances
to offer our services and products to a broader and more diverse potential
customer base.
Direct Sales. We have built a direct sales force, which, as of June 30,
1999, consisted of approximately 650 individuals (more than half of whom are
employed outside of the U.S.) who have a strong Internet technical background
and knowledge of potential applications of the Internet to meet the critical
needs of targeted business customers. Direct sales tactics include direct
contacts with targeted ISPs and potential significant corporate accounts by our
sales representatives and systems engineers, inbound and outbound telemarketing,
direct mail efforts, seminars and trade show participation. We have developed
programs to attract and train high quality, motivated sales representatives who,
in addition to having strong Internet technical skills and knowledge of
potential applications of the Internet, have consultative sales experience.
These programs include technical sales training, consultative selling technique
training, sales compensation plan development and sales representative
recruiting profile identification. Sales representatives from our U.S. and
international operations jointly attend training programs in order to ensure an
integrated sales approach domestically and internationally.
Reseller and Referral Program. We have forged an authorized reseller and
referral program with selected telecommunications service companies, equipment
suppliers, networking service companies, systems integrators and computer
retailers. This program, through which we have established as of June 30, 1999
approximately 1,100 formal and informal arrangements in the U.S. and over 700
outside of the U.S., affords us an indirect distribution mechanism in our
targeted markets and is designed to enable us to utilize
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the potentially greater sales and marketing resources of the resellers and
referral sources to offer PSINet services and products to a broader and more
diverse potential customer base. Participants in our reseller and referral
program include CompUSA, a computer equipment and software retailer, and
Hewlett-Packard Company, a provider of computer hardware and networking
products. We provide training and ongoing support to the sales representatives
of companies with which we have reseller and referral relationships in order to
strengthen the sales representatives' knowledge of our services and products and
brand loyalty to PSINet. We believe that the reseller and referral program has
enabled us to achieve greater market reach with reduced overhead costs and to
use the reseller and referral sources to assist in the delivery of complete
solutions to meet customer needs. We have a team of 19 individuals who pursue
reseller and referral arrangements for us.
Strategic Alliances. In 1997, we launched our strategic alliance program,
pursuant to which we seek to establish strategic alliances with selected
telecommunications carriers which may afford us access to recurring revenue from
the carriers' customer base, while enabling the carriers to offer their
customers an integrated package of telecommunications and Internet services and
products. We also recently formed an alliance with the Baltimore Ravens of the
National Football League pursuant to which, among other things, we have the
right to develop a Web site and provide related Internet subscriber services for
the Baltimore Ravens. We believe that these strategic alliances may facilitate
the cost-effective acquisition of customers and increase utilization of our
network. It is anticipated that, in most cases, the companies with which we have
strategic alliances will offer our services and products on an unbranded or co-
branded basis or under only their own trademark. As with the reseller and
referral program, we provide training and ongoing support to the sales
representatives of companies with which we have strategic alliances in order to
strengthen the sales representatives' knowledge of our services and products and
brand loyalty to PSINet.
Marketing. Our marketing program is intended to build national and local
strength and awareness of the PSINet brand. We use radio and print advertising
in targeted markets and publications to enhance awareness and acquire leads for
our direct sales team and companies with which we have resale, referral or
strategic alliance relationships. Our print advertisements are placed in trade
journals and special-interest publications. We employ public relations personnel
in-house and work with an outside public relations agency to provide broad
coverage in the Internet and computer networking fields. We also attempt to
create brand awareness by securing corporate sponsorship rights, such as our
recent acquisition of the naming rights to the NFL stadium of the Baltimore
Ravens and related sponsorship, promotion, advertising and marketing rights, and
by participating in industry trade shows such as Networld, Interop, InterNet
World and ISPCon, based on the size and vertical makeup of the trade show
audience, and relationships with industry groups and the media. We also use
direct mailings, telemarketing programs, Web marketing, co-marketing agreements
and joint promotional efforts to reach new corporate customers. We attempt to
retain our customers through active and responsive customer support as well as
by continually offering new value-added services.
Customers
We had, as of June 30, 1999, approximately 73,400 business customers,
including 364 ISP customers. Our customers include businesses in the aerospace,
finance, communications, computer data processing and related industries,
governmental agencies and educational and research institutions, as well as
other ISPs. The following is a list of certain business and governmental agency
customers in each of nine selected industry groups to which we provided Internet
access and related services as of June 30, 1999:
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Aerospace and Defense Computer And Data Services
British Aerospace Automatic Data Processing, Inc.
Northrop Grumman Corporation Computer Sciences Corporation
Raytheon Corporation Dun & Bradstreet Corp.
NASA/Johnson Space Center Electronic Data Services
Hewlett-Packard Company
Airlines International Business Machines Corporation
AMR/The Sabre Group Microsoft Corporation
United Airlines, Inc. 3Com Corporation
Wang Laboratories, Inc.
Banks Xerox Corporation
Chase Manhattan Bank
First Chicago NBD Corporation Electronics
First Union Corporation Dolby Laboratories
Wells Fargo Bank NA Litton Applied Technology
Motorola, Inc.
Financial Services
American Express Company Telecommunications
Donaldson, Lufkin & Jenrette AT&T Corporation
Lehman Brothers Inc. Bell Atlantic Corporation
Morgan Stanley Dean Witter & Co. Bell South Corporation
Travelers Group Inc. GTE Corporation
IXC Communications Inc.
Entertainment Lucent Technologies, Inc.
Major League Baseball
Ticketmaster
Retail and New Media
C-SPAN
E*TRADE
Kmart Corp.
Liz Claiborne, Inc.
Reuters Group PLC
Saks Fifth Avenue
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Customer Support
High quality customer service and support is critical to our objective of
retaining and developing our customers. We have made significant investments in
customer service personnel and systems that enhance customer care and service
throughout the complete customer life cycle from order entry and billing to
selling of value-added services. As of June 30, 1999, our network and customer
operations support groups consisted of over 1,200 individuals. To ensure
consistency in the quality and approach to customer care, both domestic and
international associates attend an intensive technical training and
certification program at our U.S. NOC. Our U.S. NOC monitors and responds to
customer needs by providing 24-hours per day, seven-days per week technical
support and service. Our customer support group utilizes a leading customer
support trouble ticketing and workflow management system from Remedy Corporation
to track, route and report on customer service issues. Network operations can
remotely service customer connections to the PSINet network. In addition, field
service personnel are dispatched in the event of an equipment failure that
cannot be serviced remotely. As part of our international expansion strategy, we
have opened a fully redundant NOC in Switzerland and anticipate adding a third
in Asia in 1999. In connection with our customer care initiatives, we seek to
continuously improve systems that increase productivity and enhance customer
satisfaction. We have recently reengineered our customer care program to address
the complex needs of our business customers and are scaling our customer care
resources to keep pace with projected increases in customer requirements. By
maintaining centralized support services, we seek to increase operational
efficiencies and enhance the quality, consistency and scalability of customer
care. We are currently in the process of implementing a new high quality, cost-
effective and scaleable billing system to replace our existing system in order
to provide customers on a global basis with uniform and easy-to-understand
invoicing.
Acquisitions
As a key component of our growth strategy, over the 22 month period ended
July 31, 1999, we acquired 32 ISPs primarily in 14 of the 20 largest global
telecommunications markets. The aggregate amount of the purchase prices and
related payments for these acquisitions was approximately $410.5 million,
exclusive of indebtedness assumed in connection with such acquisitions. Of such
amount, we have retained $49.7 million as of July 31, 1999 to secure performance
by certain sellers of indemnification or other contractual obligations. In
connection with these acquisitions, we acquired, among other things, valuable
technologies including some under development which we plan to complete. In
addition, we have entered into several non-binding letters of intent pursuant to
which we and the other parties thereto have agreed to negotiate the terms and
conditions of definitive agreements relating to our acquisition of additional
U.S. and non-U.S. ISPs. We are also currently evaluating additional
acquisitions as well. However, we cannot assure you that we will successfully
complete all or any of such acquisitions currently subject to letters of intent
or otherwise being contemplated, or what the consequences thereof would be.
In general, we seek acquisition targets that, once integrated into our
existing operations, generally will be accretive to EBITDA. After we have
acquired an ISP, we typically act to generate economies of scale and cost
savings by eliminating redundant operations and network architecture and
migrating the acquired ISP's customers on to the PSINet network. Connecting an
acquired ISP's customers to the PSINet network typically entails minimal
incremental data communication costs and enables us to significantly reduce our
transit costs. We seek to generate cost savings by centralizing back office
operations, such as network monitoring, customer billing, human resources and
accounting. We also endeavor to realize efficiencies by consolidating an
acquired ISP's purchasing, product development and marketing and sales
operations into our established programs. We believe this integration of
operations improves the quality, breadth, consistency and scaleability of the
services and products offered to customers of acquired ISPs. We believe that our
entrepreneurial environment is attractive to and helps us retain key employees
of acquired ISPs.
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The following table summarizes basic information concerning our
acquisitions of ISPs:
<TABLE>
<CAPTION>
Ranking
Among 20
Largest
SOHO/ Global
Name of Acquired Date of Business Consumer Telecom
Company Acquisition Principal Market Accounts(1) Accounts(1) Markets(1)
- ------------------------ ----------- ------------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
CalvaCom......................... 10/97 France 1,500 2,300 5
Iprolink......................... 1/98 Switzerland 2,400 2,600 14
ISTAR............................ 2/98 Canada 2,700 47,000 10
ITL.............................. 4/98 Jersey, Channel Islands -- -- 4
INX.............................. 5/98 Germany 650 15,600 3
IoNet............................ 6/98 U.S. 2,300 21,500 1
LinkAge.......................... 6/98 Hong Kong 1,100 -- 19
CalvaPro......................... 6/98 Sub-Sahara Africa 425 30 N/A
Interlog......................... 7/98 Canada 2,100 41,000 10
Rimnet........................... 8/98 Japan 260 56,000 2
TWICS............................ 9/98 Japan 70 1,700 2
HKIGS............................ 9/98 Hong Kong 200 -- 19
Inet............................. 9/98 Korea 1,100 13,000 12
Tokyo Internet................... 10/98 Japan 6,500 10,000 2
IXE/USN.......................... 10/98 Netherlands 85 -- 13
AsiaNet.......................... 11/98 Hong Kong 180 250 19
Spider Net....................... 12/98 Hong Kong 30 100 19
Huge Net......................... 12/98 Hong Kong 90 -- 19
Planete.net...................... 2/99 France 190 780 5
Satelnet......................... 2/99 France 110 -- 5
Horizontes Internet.............. 4/99 Brazil 220 10,000 9
Openlink......................... 4/99 Brazil 1,100 18,000 9
STI.............................. 5/99 Brazil 400 34,000 9
Internet de Mexico............... 5/99 Mexico 260 11,800 15
DataNet.......................... 5/99 Mexico 430 7,500 15
TIC.............................. 5/99 Switzerland 1,300 3,800 14
Caribbean Internet............... 6/99 U.S. (Puerto Rico) 210 12,800 1
TIAC............................. 6/99 U.S. 6,300 33,200 1
Argentina On-Line................ 6/99 Argentina 70 2,900 16
CSO.net.......................... 6/99 Austria 240 1,400 N/A
Intercomputer.................... 7/99 Spain 220 18,900 11
ABAFoRUM......................... 7/99 Spain 250 2,850 11
------ -------
Total............................ 32,990 369,010
====== =======
</TABLE>
____________________
(1) As of the respective dates of acquisition.
During the four months ended July 31, 1999, we acquired twelve ISPs. These
acquisitions are briefly described below.
In April 1999, we acquired Horizontes Internet Ltda and Wavis Equipamentos
de Informatica Ltda, which we refer to as "Openlink," two commercial ISPs
based in Belo Horizonte and Rio de Janeiro, Brazil, respectively. These
acquisitions established our market presence in Brazil, the ninth largest global
telecommunications market, by adding an aggregate of approximately 1,100
business and Web services accounts and 18,000 SOHO or consumer dial-up
customers.
In May 1999, we acquired Sao Paulo On-Line Ltda, which we refer to as
"STI," the fourth largest Brazilian ISP. This acquisition enhances our
position in Brazil by adding approximately 400 business and Web services
accounts and 34,000 SOHO or consumer dial-up customers.
In May 1999, we acquired Internet de Mexico S.A. de C.V. and Datanet S.A.
de C.V., two commercial ISPs based in Mexico City, Mexico. These acquisitions
established our market presence in Mexico, the fifteenth largest global
telecommunications market and the second largest telecommunications market in
Latin America, by adding an aggregate of approximately 660 business and Web
services accounts and 45,800 SOHO or consumer dial-up customers.
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In May 1999, we acquired The Internet Company (TIC) a leading Swiss
provider of dedicated and dial-up connectivity services and Web hosting
capabilities to businesses and consumers. This acquisition enhances our position
in Switzerland through the addition of approximately 1,300 business and Web
services accounts, 3,800 SOHO or consumer dial-up customers and six POPs.
In June 1999, we acquired Caribbean Internet Service Corp., the second
largest commercial ISP in Puerto Rico. This acquisition established our market
presence in the Caribbean region by adding approximately 210 business and Web
services accounts and 12,800 SOHO or consumer dial-up customers.
In June 1999, we acquired The Internet Access Company (TIAC), a regional
ISP based in Bedford, Massachusetts. TIAC's offerings include tiered T-1, frame
relay and ISDN services from over 50 POPs situated throughout the Northeastern
U.S. This acquisition resulted in our addition of approximately 6,300 business
and Web services accounts and 33,200 SOHO or consumer dial-up customers.
In June 1999, we acquired Argentina On-Line S.A., a leading commercial ISP
based in Buenos Aires, Argentina. This acquisition established our market
presence in Argentina, the sixteenth largest global telecommunications market,
by adding approximately 70 business and Web services accounts and 2,900 SOHO or
consumer dial-up customers.
In June 1999, we acquired CSO.net Telecom Services G.m.b.H, an ISP based in
Austria. This acquisition established our market presence in Austria by adding
approximately 240 business and Web services accounts and 1,400 SOHO or consumer
dial-up customers.
In July 1999, we acquired two Spanish ISPs, Intercomputer S.A., the leading
provider of electronic banking solutions in Spain with offices in several cities
throughout the country, and ABAFoRUM S.A., a Barcelona-based provider of
connectivity services to both businesses and consumers. This acquisition
established our market presence in Spain, the eleventh largest global
telecommunicaitons market, by adding an aggregate of approximately 470 business
and Web services accounts and 21,750 SOHO or consumer dial-up customers.
Competition
The market for Internet connectivity and related services is extremely
competitive. We anticipate that competition will continue to intensify as the
use of the Internet grows. The tremendous growth and potential market size of
the Internet access market has attracted many new start-ups as well as existing
businesses from different industries.
We believe that a reliable international network, knowledgeable salespeople
and the quality of technical support currently are the primary competitive
factors in our targeted market and that price is usually secondary to these
factors.
Our current and prospective competitors include, in addition to other
national, regional and local ISPs, long distance and local exchange
telecommunications companies, cable television, direct broadcast satellite,
wireless communications providers and on-line service providers. While we
believe that our network, products and customer service distinguish us from
these competitors, some of these competitors have significantly greater market
presence, brand recognition, and financial, technical and personnel resources
than we do.
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ISPs. According to industry sources, there were over 6,700 ISPs in the
United States and Canada in 1998, consisting of national, regional and local
providers. Our current primary competitors include other ISPs with a significant
national presence which focus on business customers, such as UUNet Technologies,
Inc., GTE Internetworking (formerly BBN), Concentric Network and DIGEX. While we
believe that our level of customer service and support and target market focus
distinguish us from these competitors, many of these competitors have greater
market share, brand recognition, and financial, technical and personnel
resources than we. We also compete with unaffiliated regional and local ISPs in
our targeted geographic regions.
Telecommunications Carriers. The major long distance companies, also
known as interexchange carriers, including AT&T, MCI WorldCom, Cable &
Wireless/IMCI and Sprint, offer Internet access services and compete with us.
Reforms in the federal regulation of the telecommunications industry have
created greater opportunities for incumbent local exchange carriers, or ILECs,
including the Regional Bell Operating Companies, or RBOCs, and other CLECs, to
enter the Internet connectivity market. In order to address the Internet
connectivity requirements of the business customers of long distance and local
carriers, we believe that there is a move toward horizontal integration by ILECs
and CLECs through acquisitions or joint ventures with, and the wholesale
purchase of, connectivity from ISPs. The MCI/WorldCom merger (and the prior
WorldCom/MFS/UUNet consolidation), GTE's acquisition of BBN, the acquisition by
ICG Communications, Inc. of Netcom, Global Crossing's recently announced plans
to acquire Frontier Corp. (and Frontier's prior acquisition of Global Center),
Qwest Communication's recently announced plans to acquire US West and AT&T's
purchase of IBM's global communications network are indicative of this trend.
Accordingly, we expect that we will experience increased competition from the
traditional telecommunications carriers. Many of these telecommunications
carriers, in addition to their greater network coverage, market presence, and
financial, technical and personnel resources, also have large existing
commercial customer bases.
Cable Companies, Direct Broadcast Satellite and Wireless Communications
Companies. Many of the major cable companies have announced that they are
exploring the possibility of offering Internet connectivity, relying on the
viability of cable modems and economical upgrades to their networks. Continental
Cablevision, Inc., Tele-Communications, Inc. (TCI) and At Home Corporation
(@Home) have announced trials to provide Internet cable service to their
residential customers in select areas. Cable companies, however, are faced with
large-scale upgrades of their existing plant equipment and infrastructure in
order to support connections to the Internet backbone via high-speed cable
access devices. Additionally, their current subscriber base and market focus is
residential which requires that they partner with business-focused providers or
undergo massive sales and marketing and network development efforts in order to
target the business sector. Several announcements also recently have been made
by other alternative service companies approaching the Internet connectivity
market with various wireless terrestrial and satellite-based service
technologies. These include Hughes Network Systems' DirecPC product that
provides high-speed data through direct broadcast satellite technology; CAI
Wireless Systems Inc.'s announcement of an MMDS wireless cable operator
launching data services via 2.5 to 2.7 GHz and high-speed wireless modem
technology; Cellularvision's announcement that it is offering Internet access
via high-speed wireless LMDS technology; and WinStar Communications, a 38 GHz
radio company that wholesales its network capacity to other carriers and now
offers high-speed Internet access to business customers. We believe that there
is a trend toward horizontal integration involving cable companies through
acquisitions or joint ventures between cable companies and telecommunications
carriers. The acquisition of TCI by AT&T and AT&T's proposed acquisition of
MediaOne are indicative of this trend.
On-line Service Providers. The dominant on-line service providers,
including Microsoft Network and America Online, Incorporated, have all entered
the Internet access business by engineering their current proprietary networks
to include Internet access capabilities. We compete to a lesser extent with
these service providers, which currently are primarily focused on the consumer
marketplace and offer their own content, including chat rooms, news updates,
searchable reference databases, special interest groups and shopping. However,
America Online's acquisition of Netscape Communications Corporation and related
strategic alliance with Sun Microsystems will enable it to offer a broader array
of IP-based services and products that could significantly enhance its ability
to appeal to the business marketplace and, as a result, compete more directly
with us. While CompuServe has announced it also will target Internet
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connectivity for the small to medium-sized business market, this will require a
significant transition from a consumer market focus to a business market focus.
We believe that our ability to attract business customers and to market
value-added services is a key to our future success. However, there can be no
assurance that our competitors will not introduce comparable services or
products at similar or more attractive prices in the future or that we will not
be required to reduce our prices to match competition. Recently, many
competitive ISPs have shifted their focus from individual customers to business
customers. Moreover, there can be no assurance that more of our competitors will
not shift their focus to attracting business customers, resulting in even more
competition for us. There can be no assurance that we will be able to offset the
effects of any such competition or resulting price reductions. Increased
competition could result in erosion of our market share and could have a
material adverse effect on our business, financial condition and results of
operations.
Proprietary Rights
Our success and ability to compete is dependent in part upon our technology
and proprietary rights, although we believe that our success is more dependent
upon our technical expertise than our proprietary rights. We rely on a
combination of copyright, trademark and trade secret laws and contractual
restrictions to establish and protect our technology. There can be no assurance
that the steps taken by us will be adequate to prevent misappropriation of our
technology or that our competitors will not independently develop technologies
that are substantially equivalent or superior to our technology. We are also
subject to the risk of adverse claims and litigation alleging infringement of
the intellectual property rights of others.
Regulatory Matters
The following summary of regulatory developments and legislation is not
complete. It does not describe all present and proposed federal, state, and
local regulation and legislation affecting the ISP and telecommunications
industries. Existing federal and state regulations are currently subject to
judicial proceedings, legislative hearings, and administrative proposals that
could change, in varying degrees, the manner in which our industries operate. We
cannot predict the outcome of these proceedings or their impact upon the ISP and
telecommunications industries or upon us.
In recent years there have been a number of U.S. and foreign legislative
and other initiatives seeking to control or affect the content of information
provided over the Internet. Some of these initiatives would impose criminal
liability upon persons sending or displaying, in a manner available to minors,
obscene or indecent material or material harmful to minors. Liability would also
be imposed on an entity knowingly permitting facilities under its control to be
used for such activities. These initiatives may decrease demand for Internet
access, chill the development of Internet content, or have other adverse effects
on Internet access providers, including us.
Both the provision of Internet access service and the provision of
underlying telecommunications services are affected by federal, state, local and
foreign regulation. The Federal Communications Commission (the "FCC")
exercises jurisdiction over all facilities of, and services offered by,
telecommunications carriers in the U.S. to the extent that they involve the
provision, origination or termination of jurisdictionally interstate or
international communications. The state regulatory commissions retain
jurisdiction over the same facilities and services to the extent they involve
origination or termination of jurisdictionally intrastate communications. In
addition, as a result of the passage of the Telecommunications Act of 1996 (the
``1996 Act''), state and federal regulators share responsibility for
implementing and enforcing the domestic pro-competitive policies of the 1996
Act. In particular, state regulatory commissions have substantial oversight over
the provision of interconnection and non-discriminatory network access by ILECs.
Municipal authorities generally have some jurisdiction over access to rights of
way, franchises, zoning and other matters of local concern.
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Our Internet operations are not currently subject to direct regulation by
the FCC or any other U.S. governmental agency, other than regulations applicable
to businesses generally. However, the FCC continues to review its regulatory
position on the usage of the basic network and communications facilities by
ISPs. Although in an April 1998 Report, the FCC determined that ISPs should not
be treated as telecommunications carriers and therefore should not be regulated,
it is expected that future ISP regulatory status will continue to be uncertain.
Indeed, in that report, the FCC concluded that certain services offered over the
Internet, such as phone-to-phone IP telephony, may be functionally
indistinguishable from traditional telecommunications service offerings, and
their non-regulated status may have to be re-examined. However, in July 1999,
the FCC's Office of Plans and Policy issued a white paper entitled "The FCC and
the Unregulation of the Internet" advocating continued FCC forbearance from
imposing regulation on the Internet. In particular, the white paper supported
avoiding the imposition of legacy regulations on new technologies and the
deregulation of traditional legacy service that may face competition from
Internet-based services. Our Internet operations outside the U.S. are subject
to direct regulation through licensing from foreign governmental agencies.
Changes in the regulatory structure and environment affecting the Internet
access market, including regulatory changes that directly or indirectly affect
telecommunications costs or increase the likelihood of competition from RBOCs or
other telecommunications companies, could have an adverse effect on our
business. Although the FCC has decided not to allow local telephone companies to
impose per-minute access charges on ISPs, and that decision has been upheld by
the reviewing court, further regulatory and legislative consideration of this
issue is likely. In addition, some telephone companies are seeking relief
through state regulatory agencies. Such rules, if adopted, are likely to have a
greater impact on consumer-oriented Internet access providers than on business-
oriented ISPs, such as us. Nonetheless, the imposition of access charges would
affect our costs of serving dial-up customers and could have a material adverse
effect on our business, financial condition and results of operations.
In addition to our Internet activities, we have recently focused attention
on acquiring telecommunications assets and facilities, involving regulated
activities. Our wholly-owned subsidiary, PSINetworks Company, has received an
international Section 214 authorization from the FCC to provide global
facilities-based and global resale telecommunications services, subjecting it to
regulation as a non-dominant international common carrier, including the filing
of periodic reports with the FCC. In addition, our wholly-owned subsidiary,
PSINet Telecom UK Limited, has received an international facilities license from
DTI and OFTEL, the responsible telecommunications regulatory bodies in the
United Kingdom. Generally, the FCC and OFTEL have chosen not to closely regulate
the charges or practices of non-dominant carriers, such as our subsidiaries.
Nevertheless, these regulatory agencies act upon complaints against such
carriers for failure to comply with statutory obligations or with the rules,
regulations and policies of such regulatory agencies. These regulatory agencies
also have the power to impose more stringent regulatory requirements on us and
to change our regulatory classification. We believe that, in the current
regulatory environment, such regulatory agencies are unlikely to do so. As we
enter new markets, we anticipate obtaining similar licenses as required by
applicable telecommunications rules and regulations in order to acquire and
maintain telecommunications assets and facilities in such countries.
The laws relating to the provision of telecommunications services in
countries other than the U.S., and in multinational organizations such as the
International Telecommunications Union, are also undergoing a process of
development. As we continue our program of acquisition and expansion into
international markets, these laws will have an increasing impact on our
operations. There can be no assurance that new or existing laws or regulations
will not have a material adverse effect on us.
Our subsidiaries have also received CLEC certification in New York,
Virginia, Colorado and Texas, and have applied for CLEC certification in
Maryland and California. We are considering the financial, regulatory and
operational implications of also becoming a CLEC in certain other states. The
1996 Act requires CLECs not to prohibit or unduly restrict resale of their
services; to provide dialing parity, number portability, and nondiscriminatory
access to telephone numbers, operator services, directory assistance, and
directory listings; to afford access to poles, ducts, conduits, and rights-of-
way; and to establish reciprocal compensation arrangements for the transport and
termination of telecommunications traffic. In addition to federal regulation of
CLECs, the states also impose regulatory obligations upon
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CLECs. While these obligations vary from state to state, most states require
CLECs to file a tariff for their services and charges; require CLECs to charge
just and reasonable rates for their services, and not to discriminate among
similarly-situated customers; to file periodic reports and pay certain fees; and
to comply with certain services standards and consumer protection laws. As a
provider of domestic basic telecommunications services, particularly competitive
local exchange services, we could become subject to further regulation by the
FCC and/or another regulatory agency, including state and local entities.
The 1996 Act has caused fundamental changes in the markets for local
exchange services. In particular, the 1996 Act and the FCC rules issued pursuant
to it mandate competition in local markets and require that ILECs interconnect
with CLECs. Under the provisions of the 1996 Act, the FCC and state public
utility commissions share jurisdiction over the implementation of local
competition: the FCC was required to promulgate general rules and the state
commissions were required to arbitrate and approve individual interconnection
agreements. The courts have generally upheld the FCC in its promulgation of
rules, including a January 25, 1999 U.S. Supreme Court ruling which determined
that the FCC has jurisdiction to promulgate national rules in pricing for
interconnection.
An important issue for CLECs is the right to receive reciprocal
compensation for the transport and termination of Internet traffic. We believe
that, under the 1996 Act, CLECs are entitled to receive reciprocal compensation
from ILECs. However, some ILECs have disputed payment of reciprocal compensation
for Internet traffic, arguing that ISP traffic is not local traffic. Most states
have required ILECs to pay CLECs reciprocal compensation. However, in October
1998, the FCC determined that dedicated Digital Subscriber Line service is an
interstate service and properly tariffed at the interstate level. In February
1999, the FCC concluded that at least a substantial portion of dial-up ISP
traffic is jurisdictionally interstate. The FCC also concluded that its
jurisdictional decision does not alter the exemption from access charges
currently enjoyed by ISPs. The FCC established a proceeding to consider an
appropriate compensation mechanism for interstate Internet traffic. Pending the
adoption of that mechanism, the FCC saw no reason to interfere with existing
interconnection agreements and reciprocal compensation arrangements. The FCC
order has been appealed. In light of the FCC's order, state commissions that
previously addressed this issue and required reciprocal compensation to be paid
for ISP traffic may reconsider and may modify their prior rulings. Several
incumbent LECs are seeking to overturn prior orders that they claim are
inconsistent with the FCCs' February 1999 order. Relief sought could include
repayment of reciprocal compensation amounts previously paid by incumbent LECs.
Recently, the Massachusetts regulatory authority vacated its earlier decision
requiring such payments. In addition, at least one incumbent LEC has filed suit
seeking a refund from another carrier of reciprocal compensation which the
incumbent LEC has paid to that carrier. That suit was dismissed by the United
States District Court for lack of subject matter jurisdiction. Another incumbent
LEC has sought to escrow reciprocal compensation payments to carriers. In
response to these and other challenges, some state commissions have opened
inquiries as to the appropriate compensation mechanisms in the context of ISP
traffic. Of the state commissions that have considered the issue since the FCC's
February 1999 order, most, but not all, of these states have upheld the
requirement to pay reciprocal compensation of ISP traffic. We cannot assure you
that any future court, state regulatory or FCC decision on this matter will
favor our position. An unfavorable result may have an adverse impact on our
potential future revenues as a CLEC, as well as increasing our costs for PRIs
generally.
As we become a competitor in local exchange markets, we will become subject
to state requirements regarding provision of intrastate services. This may
include the filing of tariffs containing rates and conditions, and regulation of
rates charged for our services. As a new entrant, without market power, we
expect to face a relatively flexible regulatory environment. Nevertheless, it is
possible that some states could require us to obtain the approval of the public
utilities commission for the issuance of debt or equity or other transactions
which would result in a lien on our property used to provide intrastate
services.
Employees
As of June 30, 1999, we had approximately 2,463 full-time employees: 958 in
the United States and 1,505 outside of the United States, including
approximately 1,223 in data communications and operational positions, 772 in
sales and marketing, and 468 in general and administrative positions. We
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believe that our relations with our employees are good. None of our employees is
represented by a labor union or covered by a collective bargaining agreement,
other than by operation of foreign law, and we have never experienced a work
stoppage.
Properties
Our principal administrative, operational and marketing and sales
facilities total approximately 66,000 square feet and are located in two office
parks in Herndon, Virginia. We occupy this space under four leases which expire
in September 2003 and include five-year renewal options. We also lease:
. approximately 48,480 and 23,000 square feet of office space in two office
parks located in Reston, Virginia,
. approximately 23,760 square feet of office space for our network
operations center in Troy, New York,
. approximately 100,000 square feet of data center capacity in London,
England, and
. approximately 42,000 square feet of data center capacity in Los Angeles,
California for our global Internet hosting facility currently under
construction.
All of our regional offices and subsidiaries also lease their facilities,
except for our European Technical Center which includes our principal European
administrative, operational, marketing and sales facilities, which total
approximately 10,000 square feet and is owned by us in Switzerland. We also
lease or are otherwise provided with the right to utilize space in various
geographic locations to provide an operational facility for certain of our POPs.
We believe that these facilities are adequate for our current needs and that
suitable additional space, should it be needed, will be available to accommodate
expansion of our operations on commercially reasonable terms.
Legal Proceedings
From time to time, we have been involved in disputes and threatened with or
named as a defendant in lawsuits and administrative claims. Some of such
disputes, lawsuits and threatened litigation include claims asserting alleged
breach of agreements and some of them may relate to relatively novel or
unresolved issues of law arising out of or relating to the developing nature of
the Internet and on-line services industries.
In addition, from time to time we receive communications from third parties
asserting alleged infringement of patents, trademarks and service marks of
others. Although there is currently no material litigation arising out of any
alleged infringement of patents, trademarks or service marks, we cannot assure
you that litigation will not be commenced regarding these or other matters.
We are not involved in any legal proceedings which we believe would, if
adversely determined, have a material adverse effect upon our business,
financial condition or results of operations. We cannot assure you whether these
matters would be determined in a manner which is favorable to us or, if
adversely determined, whether such determination would have a material adverse
effect upon our business, financial condition or results of operations.
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MANAGEMENT
The following sets forth certain information as of July 31, 1999 concerning
the directors and executive officers of PSINet.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Executive Officers:
William L. Schrader(1)(3...................... 47 Chairman of the Board of Directors and
Chief Executive Officer (Founder)
Harold S. Wills............................... 57 President, Chief Operating Officer and Director
David N. Kunkel............................... 56 Executive Vice President, General Counsel and Director
Edward D. Postal.............................. 43 Senior Vice President and Chief Financial Officer
E. A. Davis................................... 53 Senior Vice President and President, PSINetworks Company
Harry G. Hobbs................................ 45 Senior Vice President and President, PSINet Europe
Philippe J. Kuperman.......................... 55 Senior Vice President and President, PSINet Latin America
Chi H. Kwan................................... 47 Senior Vice President and President, PSINet Asia/Pacific
Michael J. Malesardi.......................... 39 Vice President and Controller
Non-Executive Directors:
William H. Baumer(1)(2)(3).................... 66 Director
Ian P. Sharp(2)(3)............................ 67 Director
Ralph J. Swett(1)(2).......................... 65 Director
</TABLE>
____________________________________
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
(3) Member of Financing Committee.
William L. Schrader is the founder of PSINet and has served as our Chairman
of the Board of Directors and Chief Executive Officer since our inception and as
our President from our inception to September 1998. Prior to forming PSINet, Mr.
Schrader served as President and Chief Executive Officer of NYSERNet Inc., a
provider of data networking services in New York State (``NYSERNet''), from
January 1986 to December 1989. Mr. Schrader also was a co-founder, and, from May
1984 until February 1987, served as Executive Director of the Cornell Theory
Center, a National Science Foundation supercomputer center. Mr. Schrader's term
of office as a director of PSINet expires in 2001.
Harold S. Wills has served as our President since September 1998 and as a
director of PSINet and our Chief Operating Officer since April 1996, and served
as our Executive Vice President from April 1996 to September 1998. Mr. Wills
served as Chief Operating Officer of Hospitality Information Networks, Inc., a
provider of information services for the hospitality industry, from July 1995
through January 1996. Mr. Wills also held various positions including, Managing
Director, International Computer Services, Technical Service Director and Sales
Director of Granada Group PLC, a computer services provider, from September 1991
through September 1995. Mr. Wills's term of office as a director of PSINet
expires in 2000.
David N. Kunkel has served as our Executive Vice President since 1998, as a
director of PSINet since September 1995 and as our General Counsel since June
1995. Mr. Kunkel also served as our Senior Vice President from September 1996 to
September 1998, our Secretary from September 1995 to September 1998 and our Vice
President of International Operations from April 1996 to September 1996. He was
Senior Counsel to Nixon, Hargrave, Devans & Doyle LLP (now known as Nixon
Peabody LLP), outside counsel to PSINet, from July 1995 through December 1995.
Prior to July 1995, Mr. Kunkel was a partner with the law firm of Nixon,
Hargrave, Devans & Doyle LLP for 16 years and served as outside counsel to
NYSERNet from 1986 until 1989 and to PSINet from our inception until July 1995.
Mr. Kunkel's term of office as a director of PSINet expires in 2001.
Edward D. Postal has served as our Senior Vice President since August 1998
and Chief Financial Officer since August 1997. Mr. Postal served as our Vice
President from October 1996 to August 1998.
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<PAGE>
He served as Senior Vice President, Chief Financial Officer and a director of
The Hunter Group, Inc., a systems integration consulting firm, from March 1995
to October 1996, as Vice President and Chief Financial Officer of The Wyatt
Company, an international employee benefits and human resources consulting firm,
currently known as Watson Wyatt Worldwide ("Watson Wyatt"), from December 1991
to October 1994 and as controller/treasurer of The Wyatt Company from November
1985 to December 1991. From 1981 to November 1985, Mr. Postal served in various
financial management positions at Satellite Business Systems, a satellite
communications company acquired by MCI in 1985, and, prior thereto, held various
positions at Touche Ross & Co. (currently Deloitte & Touche LLP).
E. A. "Ted" Davis has served as our Senior Vice President and President,
PSINetworks Company since October 1998. Mr. Davis served as Vice President of
Customer Technical Support for Lucent Technologies (formerly the network
services division of AT&T Corp.), from January 1995 to April 1998. Prior
thereto, Mr. Davis served in various technical and management positions with
AT&T Corp. since beginning his career there in June 1968.
Harry G. Hobbs has served as our Senior Vice President and President,
PSINet Europe since September 1998 and served as our Vice President, Customer
Administration from September 1997 to September 1998. Mr. Hobbs served as Vice
President, Customer Care for American Personal Communications, LP, a provider of
wireless communications services and an affiliate of Sprint Spectrum, from
February 1995 to August 1997. Prior thereto, Mr. Hobbs served in various
positions in the Customer Service, Operations and Large Account Support groups
at MCI, including Vice President, Global Customer Service from September 1993 to
February 1995, Director, Operations from March 1992 to February 1995 and
Director, Large Account Group from November 1990 to March 1992.
Philippe Kuperman has served as our Senior Vice President and President,
PSINet Latin America since May 1999. Mr. Kuperman served as Vice President
Americas and Asia for the Language Technology Division of Lernout & Hauspie
Speech Products N.V., a developer of translation software, from October 1998 to
February 1999. Mr. Kuperman was employed by Globalink Inc., which was acquired
by Lernout & Hauspie, as Executive Vice President of Worldwide Sales and
Marketing from July 1996 to January 1997 and as Senior Vice President of
International Operations from January 1997 to September 1998. Mr. Kuperman
served in various positions at Software AG, a developer of database, networking
and application software, from 1989 to May 1996, most recently as Senior Vice
President, Indirect Sales Worldwide.
Chi H. Kwan has served as our Senior Vice President and President, PSINet
Asia/Pacific since October 1998. Mr. Kwan served as Vice Chairman and
Representative Director of Montblanc Japan K.K., a maker of luxury branded
products, from May 1997 to September 1998. Mr. Kwan served in several executive
management positions with Pitney Bowes Corporation and its affiliates, including
Vice Chairman and Director and Vice President Market Development, Asia Pacific,
from October 1995 to April 1997, and President and Representative Director of
Dodwell Pitney Bowes Corporation from April 1992 to September 1995. From 1975 to
April 1992, Mr. Kwan held various senior management positions with Nicolet
Japan, K.K., Finnegan-Mat Instruments Inc. and H.B. Fuller Japan Inc.
Michael J. Malesardi has served as our Vice President and Controller since
July 1997. Mr. Malesardi served as Director of Financial Administration of
Watson Wyatt from April 1995 to May 1997 and as Controller of Watson Wyatt from
February 1992 to April 1995. From September 1982 to February 1992, Mr. Malesardi
held various positions at Price Waterhouse LLP (currently PricewaterhouseCoopers
LLP), the latest as Senior Audit Manager.
William H. Baumer has served as a director of PSINet since 1993. Mr. Baumer
has been a Professor of Philosophy at the University at Buffalo since 1971 and
was the Acting Chairman of the Department of Economics at the University at
Buffalo from June 1992 until June 1995. Mr. Baumer also served as Treasurer and
Vice President of NYSERNet from January 1986 to December 1990 and from December
1989 to December 1990, respectively. Mr. Baumer's term of office as a director
of PSINet expires in 2000.
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Ian P. Sharp has served as a director of PSINet since September 1996. Mr.
Sharp is currently retired and was the President and founder of I.P. Sharp
Associates, a software development company, from December 1964 through July
1989. Mr. Sharp's term of office as a director of PSINet expires in 2001.
Ralph J. Swett has served as a director of PSINet since February 1998. Mr.
Swett is currently Vice-Chairman of the Board of Directors of IXC Communications
and was Chairman of IXC Communications from its formation in July 1992 through
April 1998, and served as Chief Executive Officer and President of IXC
Communications from July 1992 to October 1997. Mr. Swett served as Chairman of
the Board and Chief Executive Officer of Communications Transmission, Inc.
("CTI") from 1986 to 1992. From 1969 to 1986, Mr. Swett served in increasingly
senior positions (Vice President, President and Chairman) of Times Mirror Cable
Television ("TMCT"), a subsidiary of Times Mirror and a previous owner of IXC
Carrier, and as a Vice President of Times Mirror from 1981 to 1986. Mr. Swett
served as Chairman of IXC Carrier from 1979 through April 1998, and served as
its Chief Executive Officer from 1986 to October 1997 and its President from
1991 to October 1997. Mr. Swett has managed communications businesses for the
past 26 years. Mr. Swett's term of office as a director of PSINet expires in
2000. See "Certain Relationships and Transactions--Strategic Alliance With
IXC."
Pursuant to the IRU Purchase Agreement between us and IXC, Ralph J. Swett,
the former Chairman of IXC Communications, was elected, effective as of the
closing of the transaction, to our Board of Directors. The IRU Purchase
Agreement provides that our Chairman will recommend that Mr. Swett continue to
be re-elected to our Board for so long as IXC continues to own at least 95% of
the shares of our common stock we issued to IXC in connection with the
transaction. IXC has recently entered into transactions that may cause or have
caused this provision to no longer be effective. See "Stock Ownership of
Certain Beneficial Owners and Management." IXC is an indirect wholly owned
subsidiary of IXC Communications. See "Certain Relationships and
Transactions--Strategic Alliance With IXC."
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CERTAIN RELATIONSHIPS AND TRANSACTIONS
Strategic Alliance With IXC
General Terms. In February 1998, we acquired from IXC 20-year
noncancellable indefeasible rights of use for specified purposes 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 our common
stock, representing approximately 20% of our issued and outstanding common stock
after giving effect to such issuance and having an aggregate market value of
$78.6 million based on the closing market price per share of our common stock as
reported by The Nasdaq Stock Market on such date of $7.6875 (the "IXC
Shares"), pursuant to an IRU and Stock Purchase Agreement, dated as of July 22,
1997, between us and IXC, as amended (the "IRU Purchase Agreement").
IXC Shares. IXC has been granted demand and "piggyback" registration
rights with respect to the IXC Shares pursuant to a registration rights
agreement between us and IXC. In the event IXC proposes to sell or otherwise
dispose of any of the IXC Shares, other than pursuant to a pledge to an
unaffiliated third party lender, we have a right of first offer to acquire the
shares proposed to be sold at the closing market price per share of our common
stock as reported by The Nasdaq Stock Market or the principal securities
exchange on which our common stock is then listed on the date notice of such
proposed sale is given to us. 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 Shares are not subject to any transfer
restrictions or to any voting restrictions or other agreements with us. The IXC
Shares are currently eligible for sale in the public market subject to
compliance with the volume limitations, manner of sale provisions, notice
requirements and other requirements of Rule 144 under the Securities Act of
1933. IXC may request registration of all or any of the IXC Shares in the future
pursuant to its registration rights. Future sales by IXC of substantial numbers
of shares of our common stock could adversely affect the market price for our
common stock and make it more difficult for us to raise funds through equity
offerings and to effect acquisitions of businesses or assets in consideration
for issuances of our common stock.
PSINet IRUs. The total amount of bandwidth corresponding to the PSINet IRUs
is contemplated to be delivered to us, to the extent then available, in
specified increments every six months during the two year period following the
closing. As of June 30, 1999, approximately 13,412 route miles of OC-12
(equivalent to approximately 3,353 route miles of OC-48) bandwidth corresponding
to the PSINet IRUs, connecting New York, Washington, D.C., Atlanta, Chicago,
Dallas, Houston, Phoenix, Las Vegas, Los Angeles, Seattle and San Francisco and
certain major cities in between, have been placed into operation on the PSINet
network. We currently anticipate delivery of the remaining bandwidth
corresponding to the PSINet IRUs over the next 12 to 18 months. IXC has granted
us 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 us at specified prices and terms, the total cost of which to us on
an annual basis is expected to be approximately $1.2 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 us at agreed upon fees.
Joint Marketing and Services Agreement. In connection with this
transaction, we and IXC also entered into a Joint Marketing and Services
Agreement (the "Marketing Agreement") pursuant to which each party is entitled
to market the products and services of the other under its own brand. Pursuant
to the Marketing Agreement, we have agreed to provide IXC with managed
connectivity services, value-added services and opportunity consulting services
for specified fees which, in light of the strategic importance to us of the
PSINet IRUs and our other arrangements with IXC described herein, we have agreed
will be, or will be equal to, the lowest offered by us.
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Other Transactions. In addition to the transactions described above, IXC
Communications or its affiliates and we are parties to transactions in the
ordinary course of business which we believe are on terms no more favorable than
could be obtained on an arms' length basis with independent third parties. On
July 21, 1999, IXC Communications announced that it had agreed to merge with
Cincinnati Bell, Inc.
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STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of our common
stock, as of July 31, 1999, by (1) each person who is known by us to own
beneficially more than five percent of our common stock; (2) each director of
PSINet who owns shares of our common stock; (3) our chief executive officer and
each of our four most highly paid executive officers other than our chief
executive officer; and (4) all directors and executive officers of PSINet as a
group.
<TABLE>
<CAPTION>
Amount Beneficially Percent of
Name of Beneficial Owner Owned(1) Class
------------------------ ------------------------ -----------------------
<S> <C> <C>
IXC Internet Services, Inc................................... 10,229,789(2) 15.8%
William L. Schrader.......................................... 5,709,677(3) 8.8
T. Rowe Price Associates, Inc................................ 5,168,600(4) 8.0
Harold S. Wills.............................................. 454,528(5) *
David N. Kunkel.............................................. 395,388(6) *
Edward D. Postal............................................. 209,021(7) *
Harry G. Hobbs............................................... 104,585(8) *
William H. Baumer............................................ 94,488(9) *
Ralph J. Swett............................................... 13,750(10) *
Ian P. Sharp................................................. 10,000(11) *
Executive officers and directors as a group (12 persons)..... 7,044,278(12) 10.9
</TABLE>
___________
* Less than 1%
(1) The persons named in the table have sole voting and dispositive power with
respect to all shares of our common stock shown as beneficially owned by
them, subject to the information contained in the notes to the table and to
community property laws, where applicable.
(2) These shares could be deemed to be beneficially owned by the members of the
Board of Directors of IXC, consisting of Stanley W. Katz, Jeffrey C. Smith
and Stuart K. Coppens, as well as by the members of the Board of Directors
of IXC Communications, the parent company of IXC, consisting of Wolfe
(Bill) H. Bragin, Joe C. Culp, Richard D. Irwin, Carl W. McKinzie, Ralph J.
Swett, Phillip L. Williams and John M. Zrno. IXC's address is City View
Center, 1122 Capitol of Texas Highway South, Austin, Texas 78746. See
"Certain Relationships and Transactions--Strategic Alliance with IXC--IXC
Shares." Includes an aggregate of 3,000,000 shares, 1,500,000 of which,
according to IXC's Schedule 13D Amendment No. 1 dated June 11, 1999, IXC
loaned to Merrill Lynch International ("MLI") in June 1999 in respect of
a forward-purchase agreement with MLI, to be settled in the second quarter
of 2002 or sooner upon the occurrence of certain specified events, pursuant
to which MLI made a payment to IXC of $51,963,068.36, and 1,500,000 of
which, according to IXC's Schedule 13D Amendment No. 3 dated July 16, 1999,
IXC loaned to MLI in July 1999 in respect of a forward-purchase agreement
with MLI, to be settled in the first quarter of 2002 or sooner upon the
occurrence of certain specified events, pursuant to which MLI made a
payment to IXC of $59,750,806.68. In the amendments to its Schedule 13D,
IXC stated, among other things, that it has waived the right to vote any of
the loaned shares during the term of these transactions.
(3) Includes 5,557,457 shares which are pledged with NationsBank in respect of
four lines of credit providing Mr. Schrader with up to $20.1 million on an
aggregate basis, of which approximately $17.6 million (including principal
and interest) was outstanding as of July 31, 1999, at an interest rate
equal to the 30 day LIBOR rate plus 1.65% per annum. Includes 1,000 shares
held by Mr. Schrader and his wife as joint tenants with rights of
survivorship. Also includes 150,000 shares held by a limited liability
company of which Mr. Schrader and his wife have shared voting and
dispositive power. Does not include 1,062,612 shares beneficially owned by
Mr. Schrader's wife, nor 111,882 shares held by two trusts (of which Mr.
Schrader's wife is trustee) for the benefit of two minor children of Mr.
Schrader's. Mr. Schrader disclaims beneficial ownership of the shares
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<PAGE>
beneficially owned by his wife and held in trust for his minor children.
Mr. Schrader's address is c/o PSINet Inc., 510 Huntmar Park Drive, Herndon,
Virginia, 20170.
(4) In a Schedule 13G dated February 12, 1999, T. Rowe Price Associates, Inc.
claimed sole voting power over 385,000 shares, sole dispositive power over
5,168,600 shares and no shared voting or shared dispositive power over any
shares. T. Rowe Price and Associates, Inc.'s address is 100 East Pratt
Street, Baltimore, Maryland 21202.
(5) Includes 448,437 shares issuable upon the exercise of vested options and
options which are deemed to be presently exercisable. Does not include
406,334 shares issuable upon the exercise of options which are not deemed
to be presently exercisable.
(6) Includes 392,859 shares issuable upon the exercise of vested options and
options which are deemed to be presently exercisable. Does not include
253,334 shares issuable upon the exercise of options which are not deemed
to be presently exercisable or 29,571 shares beneficially owned by Mr.
Kunkel's wife. Mr. Kunkel disclaims beneficial ownership of the shares
beneficially owned by his wife.
(7) Includes 194,221 shares issuable upon the exercise of vested options and
options which are deemed to be presently exercisable. Does not include
280,779 shares issuable upon the exercise of options which are not deemed
to be presently exercisable.
(8) Consists solely of shares issuable upon the exercise of vested options and
options which are deemed to be presently exercisable. Does not include
approximately 225,415 shares issuable upon the exercise of options which
are not deemed to be presently exercisable.
(9) Includes 50,000 shares issuable upon the exercise of outstanding warrants
and 4,500 shares issuable upon the exercise of vested options and options
which are deemed to be presently exercisable. Does not include 7,500 shares
issuable upon the exercise of options which are not deemed to be presently
exercisable.
(10) Includes 3,750 shares issuable upon the exercise of vested options and
options which are deemed to be presently exercisable. Does not include
11,250 shares issuable upon the exercise of options which are not deemed to
be presently exercisable, and does not include 10,229,789 shares
beneficially owned by IXC, of which Mr. Swett is a director and was the
chairman of the board. Mr. Swett disclaims beneficial ownership of the
shares beneficially owned by IXC. See "Certain Relationships and
Transactions--Strategic Alliance With IXC."
(11) Consists solely of shares issuable upon the exercise of vested options and
options which are deemed to be presently exercisable. Does not include
approximately 10,000 shares issuable upon the exercise of options which are
not deemed to be presently exercisable.
(12) See notes (3) and (5) through (11) above. Includes also approximately
94,583 shares issuable upon the exercise of vested options and options
which are deemed to be presently exercisable granted to four executive
officers. Does not include approximately 364,917 shares issuable upon the
exercise of outstanding options granted to four executive officers which
are not deemed to be presently exercisable.
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DESCRIPTION OF NOTES
The initial notes were issued, and the exchange notes will be issued, under
an Indenture dated as of July 23, 1999 (the "Indenture"), between PSINet and
Wilmington Trust Company, as trustee (the "Trustee"). A copy of the Indenture
will be made available to holders of the notes upon request to PSINet, the
Trustee or a paying agent.
The following summaries of the material provisions of the notes, the
Indenture and the registration rights agreement do not purport to be complete.
Where reference is made to particular provisions of the Indenture and the
registration rights agreement, those provisions, including the definitions of
certain terms, are qualified in their entirety by reference to all of the
provisions of the Indenture and those terms made a part of the Indenture and the
registration rights agreement by the Trust Indenture Act of 1939. The initial
notes have not been registered under the Securities Act of 1933 and are subject
to certain transfer restrictions. For definitions of certain capitalized terms
used in the following summary, see "--Certain Definitions."
General
The notes:
. will mature on August 1, 2009 and be payable at 100.0% of the
principal amount thereof; and
. will bear interest at the rates set forth on the cover page of this
offering memorandum from July 23, 1999 or from the most recent
interest payment date to which interest has been paid, payable
semiannually on February 1 and August 1 in each year, commencing
February 1, 2000, to the Person in whose name the note is registered
at the close of business on the January 15 or July 15 immediately
preceding such interest payment date, with interest computed on the
basis of a 360-day year comprised of twelve 30-day months.
The Indenture will limit the aggregate principal amount of euro notes and
dollar notes that we may issue under its terms to Euro 150,000,000 and
$1,050,000,000, respectively.
Principal of, premium, if any, and interest on the euro notes will be
payable in euros, and the euro notes will be exchangeable and transferable, at
the corporate trust office or agency of the Euro Paying Agents (as defined
below) maintained in the City of New York, which initially will be the corporate
trust office of Wilmington Trust Company, and in Luxembourg, which initially
will be the corporate trust office of Kredietbank S.A. Luxembourgeoise, for such
purposes. Principal of, premium, if any, and interest on the dollar notes will
be payable in U.S. Dollars, and the dollar notes will be exchangeable and
transferable, at the corporate trust office or agency of the Dollar Paying
Agents (as defined below) maintained in the City of New York, which initially
will be the corporate trust office of Wilmington Trust Company and in
Luxembourg, which initially will be the corporate trust office of Kredietbank
S.A. Luxembourgeoise, for such purposes.
The notes will be issued only in fully registered form without coupons, in
denominations of Euro1,000 or $1,000, as applicable, principal amount and any
integral multiple thereof. No service charge will be made for any registration
of transfer, exchange or redemption of notes, except in certain circumstances
for any tax or other governmental charge that may be imposed in connection
therewith.
The initial euro notes have been admitted for listing on the Luxembourg
Stock Exchange. Application has been made for listing of the exchange euro notes
on the Luxembourg Stock Exchange, although we cannot assure you that the
exchange euro notes will be admitted for listing or, if they are listed, that
the listing will be granted by the completion of the exchange offer.
Any reference in this "Description of Notes" to U.S. Dollars, U.S. $ or
"$" shall mean, to the extent the context requires, the United States Dollar
Equivalent thereof.
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The euro notes and the dollar notes will generally be treated for purposes
of the indenture as a single series of securities ranking pari passu with each
other. Certain actions taken on a "pro rata" basis under the indenture will be
taken in the manner described below.
The aggregate principal amount, or any portion thereof, of the notes, at
any date of determination, shall be the sum of (1) the United States Dollar
Equivalent at such date of determination, of the principal amount, or portion
thereof, as the case may be, of the euro notes and (2) the principal amount, or
portion thereof, as the case may be, of the dollar notes, at such date of
determination. With respect to any matter requiring consent, waiver, approval or
other action of the holders of a specified percentage of the principal amount of
the notes, such percentage shall be calculated, on the relevant date of
determination, by dividing (a) the principal amount, as of such date, of notes
the holders of which have so consented by (b) the aggregate principal amount, as
of such date, of the notes then outstanding, in each case, as determined in
accordance with the preceding sentence. To the extent that the indenture
provides for action to be taken on a "pro rata" basis, whether in respect of any
redemption or otherwise, such determination shall be made on the basis of the
relative outstanding principal amounts of the euro notes and the dollar notes as
of the time of such determination.
Optional Redemption
The notes are not redeemable prior to August 1, 2004, except in the limited
circumstances described in the next paragraph. On or after August 1, 2004, the
notes will be redeemable at the option of PSINet, in whole at any time, or in
part from time to time, on not less than 30 nor more than 60 days' prior notice
in amounts of Euro 1,000 or $1,000, as applicable, or integral multiples thereof
at the following redemption prices, expressed as percentages of the principal
amount, if redeemed during the 12-month period beginning on August 1 of the
years indicated below:
<TABLE>
<CAPTION>
Year Euro Notes Dollar Notes
---- ---------- ------------
<S> <C> <C>
2004........................................... 105.500% 105.500%
2005........................................... 103.667% 103.667%
2006........................................... 101.833% 101.833%
2007 and thereafter............................ 100.000% 100.000%
</TABLE>
in each case, together with accrued and unpaid interest, if any, to the date of
redemption, subject to the rights of holders of record on relevant record dates
to receive interest due on an interest payment date.
In addition, on or prior to August 1, 2002, PSINet may, at its option, use
the Net Cash Proceeds of one or more Public Equity Offerings or the sale of
Capital Stock of PSINet to a Strategic Investor in a single transaction or a
series of related transactions, other than Disqualified Stock, in each such
case, to redeem, on a pro rata basis, up to an aggregate of 35% of the aggregate
principal amount of euro notes and 35% of the aggregate principal amount of the
dollar notes, as applicable, originally issued under the Indenture at a
redemption price equal (1) in the case of the euro notes, to 111.000% of the
aggregate principal amount thereof, plus accrued and unpaid interest, if any, to
the date of redemption and (2) in the case of the dollar notes, to 111.000% of
the aggregate principal amount thereof, plus accrued and unpaid interest, if
any, to the date of redemption; provided, in each case, that at least 65% of the
original aggregate principal amount of each of the euro notes and the dollar
notes remain outstanding immediately following such redemption. In order to
effect this redemption, PSINet must provide a notice of redemption no later than
45 days after the related Public Equity Offering or sale to a Strategic Investor
and must consummate the redemption within 60 days of the closing of the Public
Equity Offering or sale to a Strategic Investor.
If less than all of the notes are to be redeemed, the Trustee shall select
the notes or portions thereof to be redeemed pro rata, by lot or by any other
method the Trustee deems fair and reasonable. To the extent that the notes may
be listed on the Luxembourg Stock Exchange and the rules of the Luxembourg Stock
Exchange so require, we will, once in each year in which there has been a
partial redemption of any of the notes, cause to be published in a leading daily
newspaper of general circulation in Luxembourg (which is
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<PAGE>
expected to be the Luxembourger Wort) a notice specifying the aggregate
principal amount of notes outstanding and a list of the notes drawn for
redemption but not surrendered.
Sinking Fund
The notes will not be entitled to the benefit of any sinking fund.
Change of Control
If a Change of Control shall occur at any time, then each holder shall have
the right to require that PSINet purchase all such holder's notes in whole or in
part in integral multiples of Euro 1,000 or $1,000, as applicable, at a purchase
price (the "Change of Control Purchase Price") in cash, in an amount equal to
101% of the principal amount of such notes or portion thereof, plus accrued and
unpaid interest, if any, to the date of purchase (the "Change of Control
Purchase Date"), pursuant to the offer described below (the "Change of Control
Offer") and in accordance with the other procedures set forth in the Indenture.
Within 30 days of any Change of Control, PSINet shall notify the Trustee of
such Change of Control and give notice, as described in the subsection entitled
"--Notices," of such Change of Control to each holder of notes stating that:
. a Change of Control has occurred and the date of such event, the
circumstances and relevant facts regarding such Change of Control;
. the purchase price and the purchase date, which shall be fixed by
PSINet on a business day no earlier than 30 days nor later than 60
days from the date such notice is mailed, or such later date as is
necessary to comply with requirements under the Securities Exchange
Act of 1934 or any securities exchange on which the notes are listed;
. any note not tendered will continue to accrue interest;
. unless PSINet defaults in the payment of the Change of Control
Purchase Price, any notes accepted for payment pursuant to the Change
of Control Offer shall cease to accrue interest after the Change of
Control Purchase Date; and
. certain other procedures that a holder must follow to accept a Change
of Control Offer or to withdraw such acceptance.
If a Change of Control Offer is made, there can be no assurance that PSINet
will have sufficient funds or financial resources necessary to pay the Change of
Control Purchase Price for all of the notes that might be delivered by holders
seeking to accept the Change of Control Offer. PSINet's credit facility
prohibits PSINet from repurchasing notes upon a Change of Control unless it has
paid all amounts outstanding under the credit facility prior thereto. See "Risk
Factors--We may not have the ability to raise funds necessary to finance the
change of control offer which may be required by the indenture." The failure of
PSINet to make or consummate the Change of Control Offer or pay the Change of
Control Purchase Price when due will give the Trustee and the note holders the
rights described under "Events of Default."
The term "all or substantially all" as used in the definition of "Change of
Control" has not been definitively interpreted under New York law, which is the
governing law of the Indenture, to represent a specific quantitative test. As a
consequence, in the event the holders elected to exercise their rights under the
Indenture and PSINet elected to contest such election, there could be no
assurance as to how a court interpreting New York law would interpret the
phrase.
The existence of a holder's right to require PSINet to repurchase such
holder's notes upon a Change of Control may deter a third party from acquiring
PSINet in a transaction which constitutes a Change of Control.
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<PAGE>
PSINet will comply with the applicable tender offer rules, including Rule
14e-1 under the Securities Exchange Act of 1934, and any other applicable
securities laws or regulations, including those regulations imposed by any
securities exchange on which the notes may be listed, in connection with a
Change of Control Offer.
Cancellation
All notes surrendered for payment, purchase, redemption, registration of
transfer or exchange will be delivered to the Trustee and, if not already
canceled, will be promptly canceled by it. PSINet and any guarantor may at any
time deliver to the Trustee for cancellation any notes previously authenticated
and delivered hereunder which PSINet or the guarantor may have acquired, and all
notes so delivered will be promptly canceled by the Trustee. All canceled notes
held by the Trustee will, at the option of the Trustee, be returned to PSINet or
destroyed.
Ranking
The notes:
. are senior, unsecured obligations of PSINet;
. rank pari passu in right of payment with each other and with all other
existing and future unsecured and unsubordinated indebtedness of
PSINet (which includes our 10% senior notes and 11 1/2% senior notes)
and senior in right of payment to all existing and future Subordinated
Indebtedness of PSINet;
. are effectively subordinated to secured indebtedness of PSINet to the
extent of the value of the assets securing such indebtedness;
. are also structurally subordinated to the claims of creditors of
PSINet's subsidiaries and to the interests of holders of preferred
stock, if any, of such subsidiaries; and
. are not be entitled to any security and will not be entitled to the
benefit of any guarantees except under the limited circumstances
described under "--Certain Covenants--Limitation on Issuances of
Guarantees of Indebtedness."
As of June 30, 1999, on a pro forma basis after giving effect to the
initial notes offering and the application of those net proceeds, there would
have been approximately $267.4 million of total secured indebtedness (including
secured indebtedness of PSINet's subsidiaries) outstanding to which holders of
notes would have been effectively subordinated in right of payment and
approximately $115.1 million of other liabilities of PSINet's subsidiaries,
including trade payables and accrued liabilities, to which noteholders would
have been structurally subordinated.
No Gross Up
All payments of principal and interest by PSINet on the notes will be made
without withholding or deductions for, or on account of, any present or future
taxes, duties, assessments or governmental charges of whatever nature imposed or
levied by or on behalf of the United States or any political subdivision thereof
or any authority therein or thereof having power to tax unless the withholding
or deduction of such taxes, duties, assessments or governmental charges is
required by law. If any such withholding or deduction is required, PSINet will
not be obligated to pay any additional amounts in respect of such withholding or
deduction.
Certain Covenants
The Indenture contains, among others, the following covenants:
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Limitation on Indebtedness. (a) PSINet will not, and will not cause or
permit any Subsidiary to, directly or indirectly, Incur any Indebtedness, other
than the notes; provided, however, that PSINet may Incur Indebtedness, and
PSINet or any Subsidiary may Incur Acquired Indebtedness, if, at the time of
such Incurrence, the Debt to Annualized Operating Cash Flow Ratio would be less
than or equal to 6.0 to 1.0 prior to April 1, 2001, or less than or equal to 5.5
to 1.0 on or after April 1, 2001.
(b) The preceding limitations of paragraph (a) of this covenant will not
apply to any of the following, each of which shall be given independent effect:
(1) the Incurrence by PSINet or any of its Subsidiaries of Indebtedness
incurred for the purpose of financing all or any part of the (A)
purchase price, cost of design, development, acquisition, construction
or improvement of real or personal property, including, without
limitation indefeasible rights of use or similar rights, tangible or
intangible, used or to be used in connection with the
Telecommunications Business, provided that such Indebtedness,
exclusive of the interest portion of such Indebtedness and reasonable
costs of financing, does not exceed the lesser of Fair Market Value or
the purchase price and related costs of design, development,
acquisition, construction or improvement of such assets or property at
the time of such Incurrence or (B) purchase price or acquisition of
Capital Stock of a Person engaged in the Telecommunications Business;
(2) the Incurrence by PSINet or any of its Subsidiaries of any
Indebtedness, and any refinancings (as defined) of such Indebtedness,
so long as the aggregate principal amount of such Indebtedness shall
not exceed $100 million at any one time outstanding;
(3) The Incurrence by PSINet of Indebtedness in an aggregate principal
amount not to exceed (A) two times the sum of the Net Cash Proceeds
received by PSINet after April 13, 1998 in connection with any Public
Equity Offerings or sale of Capital Stock to any Strategic Investor,
other than from the issuance of Disqualified Stock in any case, minus
(B) the gross proceeds of this offering, but only to the extent that
such Net Cash Proceeds have not been used pursuant to clause (b)(3) or
clause (c)(7) of "--Limitation on Restricted Payments" described
below; provided that such Indebtedness does not mature prior to the
Stated Maturity of the notes or has an Average Life to Stated Maturity
at least equal to the notes;
(4) the Incurrence by PSINet or any Subsidiary of any Indebtedness entered
into in the ordinary course of business:
. pursuant to Interest Rate Agreements entered into to protect
PSINet or any Subsidiary against fluctuations in interest rates
in respect of Indebtedness of PSINet or any Subsidiary as long as
the notional principal amount of such Interest Rate Agreements
does not exceed the aggregate principal amount of such
Indebtedness then outstanding;
. under any Currency Hedging Arrangements entered into to protect
PSINet or any Subsidiary against fluctuations in the value of any
currency; or
. under any Commodity Price Protection Agreements entered into to
protect PSINet or any Subsidiary against fluctuations in the
price of any commodity;
(1) the Incurrence by PSINet or any of its Subsidiaries of Indebtedness in
respect of bid, performance or advance payment bonds, standby letters
of credit and appeal or surety bonds entered into in the ordinary
course of business and not in connection with the borrowing of money;
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(2) Indebtedness outstanding under the notes or the Indenture, Guarantees
of the notes issued under the Indenture or other Indebtedness existing
on the date of the Indenture, other than Indebtedness described in
clause (8) below;
(3) the Incurrence of:
. Indebtedness of any Subsidiary owed to and held by PSINet or
another Subsidiary; and
. Indebtedness of PSINet owed to and held by any Subsidiary or
represented by a guarantee of Indebtedness of any Subsidiary
which Indebtedness such Subsidiary is otherwise permitted to
Incur under the Indenture;
provided that upon either (A) the transfer or other disposition by a
Subsidiary or PSINet of any Indebtedness so permitted to a Person other
than PSINet or a Subsidiary or (B) the issuance, sale, transfer or other
disposition of Capital Stock, including by amalgamation, consolidation or
merger, of a Subsidiary, such that upon such sale, transfer or other
disposition such Subsidiary would no longer meet the definition of a
Subsidiary, to a Person other than PSINet or a Subsidiary, the provisions
of this clause (7) shall no longer be applicable to such Indebtedness and
such Indebtedness shall be deemed to have been Incurred at the time of such
issue, sale, transfer or other disposition;
(1) Indebtedness incurred by PSINet or any Subsidiary under a Permitted
Credit Facility or Debt Securities, provided that the aggregate
principal amount at any time outstanding under this clause (8)
(including any amounts pursuant to this clause (8) that may be, or
have been, refinanced pursuant to this or any other clause or
provision) does not exceed $350 million; and
(2) any amendments, supplements, modifications, deferrals, renewals,
extensions, substitutions, refundings, refinancings or replacements
(collectively, a "refinancing") of any Indebtedness described in
clauses (1), (2), (3), (6), (7) and (8) above, and this clause (9),
including any successive refinancings so long as the borrower under
such refinancing is PSINet or, if not PSINet, the same as the borrower
or its successor of the Indebtedness being refinanced and the
aggregate principal amount of Indebtedness and accrued interest
represented thereby, or the accreted value thereof as of the date of
refinancing, is not increased by such refinancing, plus the lesser of:
(A) the stated amount of any premium or other payment required to be paid
in connection with such a refinancing pursuant to the terms of the
Indebtedness being refinanced, or
(B) the amount of premium or other payment actually paid at such time to
refinance the Indebtedness,
plus, in either case, the amount of expenses of PSINet or such borrower
incurred in connection with such refinancing,
and, in the case of any refinancing of Indebtedness that is Subordinated
Indebtedness, such new Indebtedness is made subordinated to the notes at
least to the same extent as the Indebtedness being refinanced and such
refinancing does not reduce the Average Life to Stated Maturity or the
Stated Maturity of such Subordinated Indebtedness.
(c) For purposes of determining any particular amount of Indebtedness
under this covenant, Guarantees, Liens or obligations with respect to letters of
credit supporting Indebtedness otherwise included in the determination of such
particular amount shall not be included; provided, however, that the foregoing
shall not in any way be deemed to limit the provisions of "--Limitations on
Issuances of Guarantees of Indebtedness."
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(d) For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness may be Incurred through paragraph (a) of this
covenant or by meeting the criteria of one or more of the types of Indebtedness
described in paragraph (b) of this covenant (or the definitions of the terms
used therein), PSINet, in its sole discretion, may:
. classify such item of Indebtedness under and comply with either of such
paragraphs (or any of such definitions), as applicable;
. classify and divide such item of Indebtedness into more than one of such
paragraphs (or definitions), as applicable; and
. elect to comply with such paragraphs (or definitions), as applicable, in
any order.
Limitation on Restricted Payments. (a) PSINet will not, and will not permit
any Subsidiary to, directly or indirectly:
(1) declare or pay any dividend on, or make any distribution on any shares
of PSINet's Capital Stock, other than dividends or distributions solely
in shares of its Qualified Capital Stock or in options, warrants or
other rights to acquire shares of such Qualified Capital Stock;
(2) purchase, redeem or otherwise acquire or retire for value, directly or
indirectly, PSINet's Capital Stock or any Capital Stock of any
Affiliate of PSINet, other than Capital Stock of any Wholly Owned
Subsidiary of PSINet, or options, warrants or other rights to acquire
such Capital Stock;
(3) make any principal payment on, or repurchase, redeem, defease, retire
or otherwise acquire for value, prior to any scheduled principal
payment, sinking fund payment or maturity, any Subordinated
Indebtedness;
(4) declare or pay any dividend or distribution on any Capital Stock of any
Subsidiary to any Person, other than
(A) to PSINet or any of its Wholly Owned Subsidiaries, or
(B) to all holders of any class, series or the same type of Capital Stock
of such Subsidiary on a pro rata basis; provided that in the case of
this clause (B), such dividend or distribution shall not constitute
Indebtedness or Disqualified Stock; or
(1) make any Investment in any Person, other than any Permitted
Investments
(any of the preceding actions described in clauses (1) through (5), other than
any such action that is a Permitted Payment (as defined below), collectively,
"Restricted Payments"). The amount of any such Restricted Payment, if other than
cash, shall be as determined, in good faith, by the Board of Directors of
PSINet, whose determination shall be conclusive and evidenced by a board
resolution.
(b) The preceding limitations of paragraph (a) of this covenant will not
apply if:
(1) immediately before and immediately after giving effect to such proposed
Restricted Payment on a pro forma basis, no Default or Event of Default
shall have occurred and be continuing;
(2) immediately before and immediately after giving effect to such
Restricted Payment on a pro forma basis, PSINet could incur $1.00 of
additional Indebtedness, other than Permitted Indebtedness, under
paragraph (a) of the provisions described under "--Limitation on
Indebtedness;" and
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after giving effect to the proposed Restricted Payment, the aggregate amount of
all such Restricted Payments declared or made after April 13, 1998, does not
exceed the sum of:
(A) the Cumulative Operating Cash Flow determined at the time of such
Restricted Payment, less 150% of cumulative Consolidated Interest
Expense determined for the period (treated as one accounting period)
commencing on April 13, 1998 and ending on the last day of the most
recent fiscal quarter immediately preceding the date of such Restricted
Payment for which consolidated financial information of PSINet is
required to be available; plus
(B) the aggregate Net Cash Proceeds received after April 13, 1998 by PSINet
from the issuance or sale, other than to any of its Subsidiaries, of
Qualified Capital Stock of PSINet or any options, warrants or rights to
purchase such Qualified Capital Stock of PSINet, except to the extent
such proceeds are used to purchase, redeem or otherwise retire Capital
Stock or Subordinated Indebtedness as set forth in clause (2) or (3) of
paragraph (c) below; plus
(C) the aggregate Net Cash Proceeds received after April 13, 1998 by
PSINet, other than from any of its Subsidiaries, upon the exercise of
any options, warrants or rights to purchase Qualified Capital Stock of
PSINet; plus
(D) the aggregate Net Cash Proceeds received after April 13, 1998 by PSINet
from the conversion or exchange, if any, of debt securities or
Redeemable Capital Stock of PSINet or its Subsidiaries into or for
Qualified Capital Stock of PSINet plus, to the extent such debt
securities or Redeemable Capital Stock were issued after April 13,
1998, the aggregate of Net Cash Proceeds from their original issuance;
plus
(E) in the case of the disposition or repayment of any Investment
constituting a Restricted Payment, an amount equal to the lesser of (x)
the cash return of capital with respect to such Investment, less the
cost of disposition and taxes, if any, and (y) the initial amount of
such Investment.
(c) Notwithstanding the foregoing, and in the case of clauses (2) through
(6) below, so long as there is no Default or Event of Default continuing, the
limitations of paragraph (a) of this covenant will not prohibit the following
actions (each of clauses (1) through (10) below being referred to as a
"Permitted Payment"):
(1) the payment of any dividend within 60 days after the date of
declaration thereof, if at such date of declaration such payment was
permitted by the provisions of paragraph (b) of this covenant and such
payment shall have been deemed to have been paid on such date of
declaration;
(2) the repurchase, redemption, or other acquisition or retirement for
value of any shares of any class of Capital Stock of PSINet in exchange
for, including any such exchange pursuant to the exercise of a
conversion right or privilege in connection with which cash is paid in
lieu of the issuance of fractional shares or scrip, or out of the Net
Cash Proceeds of a substantially concurrent issuance and sale for cash,
other than to a Subsidiary, of other shares of Qualified Capital Stock
of PSINet; provided that the Net Cash Proceeds from the issuance of
such shares of Qualified Capital Stock are excluded from clause (3)(B)
of paragraph (b) of this covenant;
(3) the repurchase, redemption, defeasance, retirement or acquisition for
value or payment of principal of any Subordinated Indebtedness or
Redeemable Capital Stock in exchange for, or in an amount not in excess
of the Net Cash Proceeds of, a substantially concurrent issuance and
sale for cash, other than to any Subsidiary, of any Qualified Capital
Stock of PSINet, provided that the Net Cash Proceeds from the issuance
of such shares of Qualified Capital Stock are excluded from clause
(3)(B) of paragraph (b) of this covenant;
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(4) the repurchase, redemption, defeasance, retirement, refinancing,
acquisition for value or payment of principal of any Subordinated
Indebtedness, other than Redeemable Capital Stock, through the
substantially concurrent issuance of new Subordinated Indebtedness of
PSINet, provided that any such new Subordinated Indebtedness:
. shall be in a principal amount that does not exceed the principal
amount and accrued interest thereon so refinanced or the accreted
value thereof as of the date of refinancing, or, if such
Subordinated Indebtedness provides for an amount less than the
principal amount thereof to be due and payable upon a declaration of
acceleration thereof, then such lesser amount as of the date of
determination, plus the lesser of:
(A) the stated amount of any premium or other payment required to be paid
in connection with such a refinancing pursuant to the terms of the
Indebtedness being refinanced, or
(B) the amount of premium or other payment actually paid at such time to
refinance the Indebtedness,
plus, in either case, the amount of expenses of PSINet incurred in
connection with such refinancing,
. has an Average Life to Stated Maturity greater than the remaining
Average Life to Stated Maturity of the notes,
. has a Stated Maturity for its final scheduled principal payment
later than the Stated Maturity for the final scheduled principal
payment of the notes, and
. is expressly subordinated in right of payment to the notes at least
to the same extent as the Subordinated Indebtedness to be
refinanced;
(5) the repurchase, redemption, defeasance, retirement, refinancing,
acquisition for value or payment of any Redeemable Capital Stock
through the substantially concurrent issuance of new Redeemable Capital
Stock of PSINet, provided that any such new Redeemable Capital Stock:
. shall have an aggregate liquidation preference that does not exceed
the aggregate liquidation preference of the amount so refinanced,
. has an Average Life to Stated Maturity greater than the remaining
Average Life to Stated Maturity of the notes, and
. has a Stated Maturity later than the Stated Maturity for the final
scheduled principal payment of the notes;
(6) the repurchase of shares of, or options to purchase shares of, common
stock of PSINet or any of its Subsidiaries from employees, officers,
consultants or directors or any former employees, officers, consultants
or directors of PSINet or any of its Subsidiaries, or permitted
transferees of such employees, officers, consultants or directors or
former employees, officers, consultants or directors, pursuant to the
terms of the agreements, including employment agreements, or plans, or
amendments thereto, or other arrangements or transactions approved by
the Board of Directors under which such individuals purchase or sell or
are granted the option to purchase or sell, shares of such common
stock; provided, however, that the aggregate amount of such repurchases
in any calendar year shall not exceed $1 million and $3 million in the
aggregate pursuant to this clause (6);
(7) Investments in any Person engaged principally in the Telecommunications
Business on the date of such Investments; provided that the aggregate
amount of any such Investments made pursuant to this clause (7) does
not exceed the sum of:
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(A) the amount of the Net Cash Proceeds received by PSINet after April 13,
1998 as a capital contribution or from the sale of its Capital Stock,
other than Disqualified Stock, to a Person who is not a Subsidiary of
PSINet (less one-half of the gross proceeds of this offering), except
to the extent that such Net Cash Proceeds are used to Incur
Indebtedness pursuant to clause (3) of paragraph (b) under the
covenant described above under "--Limitation on Indebtedness" or to
make Restricted Payments pursuant to clause (3) of paragraph (b), or
clauses (2), (3) or (4) of this paragraph (c), of this "Limitation on
Restricted Payments" covenant, plus
(B) the net reduction in Investments made pursuant to this clause (7)
resulting from distributions on or repayments of such Investments or
from the Net Cash Proceeds from the sale of any such Investments,
except in each case to the extent any such payments or proceeds are
included in the calculation of Consolidated Net Income, or from such
Person becoming a Wholly Owned Subsidiary (valued in each case as
provided in the definition of "Permitted Investments");
(8) the payment or declaration of any dividend or the making of any
distribution on or the redemption of rights or any securities issued
pursuant to the Company Rights Agreement;
(9) the payment of cash in lieu of the issuance of fractional shares
pursuant to any agreement, warrant or option and any repurchase or
other acquisition of fractional shares from time to time; and
(10) the acquisition of Capital Stock of PSINet by PSINet in connection
with the cashless exercise of any options, warrants or similar rights
issued by PSINet on or prior to January 1, 1998.
In determining the amount of Restricted Payments permissible under this
covenant, amounts expended pursuant to clauses (1), (6), (7), (8) and (9) shall
be included, without duplication, as Restricted Payments and shall not be deemed
a Permitted Payment for purposes of the calculation required by paragraph (b) of
this covenant.
Limitation on Transactions with Affiliates. PSINet will not, and will not
permit any of its Subsidiaries to, directly or indirectly, enter into any
transaction or series of related transactions, including, without limitation,
the sale, purchase, exchange or lease of assets, property or services, with or
for the benefit of any Affiliate of PSINet, other than PSINet or a Wholly Owned
Subsidiary, unless such transaction or series of related transactions is entered
into in good faith and in writing and:
(a) such transaction or series of related transactions is on terms that are
no less favorable to PSINet or such Subsidiary, as the case may be, than those
that would be reasonably expected to be available in a comparable transaction in
arm's-length dealings with an unrelated third party;
(b) with respect to any transaction or series of related transactions
involving aggregate value in excess of $5 million, PSINet delivers an officers'
certificate to the Trustee certifying that such transaction or series of related
transactions complies with clause (a) above; and
(c) with respect to any transaction or series of related transactions
involving aggregate value in excess of $10 million, either:
(A) such transaction or series of related transactions has been approved by
a majority of the Disinterested Directors of PSINet, or in the event
there is only one Disinterested Director, by such Disinterested
Director, or
(B) PSINet delivers to the Trustee a written opinion of an investment
banking firm of national standing or other recognized independent
expert with experience appraising the terms and
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conditions of the type of transaction or series of related transactions
for which an opinion is required stating that the transactions or
series of related transactions is fair to PSINet or such Subsidiary
from a financial point of view;
provided, however, that this covenant shall not apply to:
(1) compensation, severance and employee benefit arrangements with any
officer, director or employee of PSINet, including under any stock
option or stock incentive plans, in the ordinary course of business;
(2) any transaction solely between or among PSINet and/or any Subsidiaries,
if such transaction does not otherwise violate the terms of the
Indenture;
(3) any transaction otherwise permitted by the terms of the section of the
Indenture described under "--Limitations on Restricted Payments";
(4) the execution and delivery of or payments made under any tax sharing
agreement between or among any of PSINet and any Subsidiary;
(5) licensing or sublicensing of use of any intellectual property by PSINet
or any Subsidiary to PSINet, any other Subsidiary of PSINet or to any
Permitted Joint Venture; provided that the licensor shall continue to
have access to such intellectual property to the extent necessary for
the conduct of its business and, in the case of any Permitted Joint
Venture, that the terms of any such arrangement are fair and reasonable
to PSINet or any such Subsidiary as determined in good faith by the
Board of Directors;
(6) arrangements between PSINet and any Subsidiary of PSINet for the
purpose of providing services or employees to PSINet or such
Subsidiary; and
(7) transactions undertaken pursuant to the IXC Agreement and other
agreements entered into in connection therewith and in effect on or
after April 13, 1998, or as such other agreements may be amended, from
time to time, to the extent that any such amendment has been determined
by the Board of Directors, in good faith, not to adversely affect the
holders of notes.
Limitation on Liens. PSINet will not, and will not permit any Subsidiary
to, directly or indirectly, create, incur or affirm any Lien of any kind upon
any property or assets, including any intercompany notes, of PSINet or any
Subsidiary owned on April 13, 1998 or acquired after April 13, 1998, or any
income or profits therefrom, unless the notes are directly secured equally and
ratably with, or, in the case of Subordinated Indebtedness, prior or senior
thereto with the same relative priority as the notes shall have with respect to
such Subordinated Indebtedness, the obligation or liability secured by such Lien
except for any Permitted Liens.
Limitation on Sale of Assets. (a) PSINet will not, and will not permit any
of its Subsidiaries to, directly or indirectly, consummate an Asset Sale unless:
(1) at least 75% of the consideration from such Asset Sale is received in
cash or other comparable consideration as described below; and
(2) PSINet or such Subsidiary receives consideration at the time of such
Asset Sale at least equal to the Fair Market Value of the shares or
assets subject to such Asset Sale, as determined by the Board of
Directors of PSINet and evidenced in a board resolution.
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The following types of consideration shall be deemed "comparable
consideration" for the purposes of this covenant:
. Cash Equivalents,
. Liabilities, contingent or otherwise, of PSINet or a Subsidiary assumed
by the transferee or its designee such that PSINet or such Subsidiary
has no further liability therefor, and
. any securities, notes or other obligations received by PSINet or any
such Subsidiary from such transferee that, within 60 days after receipt,
are converted by PSINet or such Subsidiary into cash.
(b) PSINet or a Subsidiary may, within 365 days of the Asset Sale, invest
the Net Cash Proceeds thereof in Telecommunications Assets or to repay any Pari
Passu Indebtedness of PSINet or any Subsidiary, including the repurchase of
notes. The amount of such Net Cash Proceeds not used or invested within 365 days
of the Asset Sale as set forth in this paragraph constitutes "Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds exceeds $10 million,
PSINet will apply the Excess Proceeds to the repayment of the notes and any
other Pari Passu Indebtedness outstanding with similar provisions requiring
PSINet to make an offer to purchase such Indebtedness with the proceeds from any
Asset Sale as follows:
(A) PSINet will make an offer to purchase (an "Offer") from all Holders, on
a pro rata basis, in accordance with the procedures set forth in the
Indenture in the maximum principal amount (expressed as a multiple of
Euro 1,000 or $1,000, as applicable) of notes that may be purchased out
of an amount (the "Note Amount") equal to the product of such Excess
Proceeds multiplied by a fraction, the numerator of which is the
outstanding principal amount of the notes, and the denominator of which
is the sum of the outstanding principal amount of the notes and such
Pari Passu Indebtedness, subject to proration in the event such amount
is less than the aggregate Offered Price (as defined herein) of all
notes tendered; and
(B) to the extent required by such Pari Passu Indebtedness to permanently
reduce the principal amount of such Pari Passu Indebtedness, PSINet
will make an offer to purchase or otherwise repurchase or redeem Pari
Passu Indebtedness (a "Pari Passu Offer") in an amount (the "Pari Passu
Debt Amount") equal to the excess of the Excess Proceeds over the Note
Amount; provided that in no event will PSINet be required to make a
Pari Passu Offer in a Pari Passu Debt Amount exceeding the principal
amount of such Pari Passu Indebtedness plus the amount of any premium
required to be paid to repurchase such Pari Passu Indebtedness.
The offer price for the notes will be payable in cash in an amount equal to
100% of the principal amount of the notes plus accrued and unpaid interest, to
the date (the "Offer Date") such Offer is consummated (the "Offered Price"), in
accordance with the procedures set forth in the Indenture. To the extent that
the aggregate Offered Price of the notes tendered pursuant to the Offer is less
than the Note Amount relating thereto or the aggregate amount of Pari Passu
Indebtedness that is purchased in a Pari Passu Offer is less than the Pari Passu
Debt Amount, PSINet will use any remaining Excess Proceeds for general corporate
purposes. If the aggregate principal amount of notes and Pari Passu Indebtedness
surrendered by Holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the notes to be purchased on a pro rata basis. Upon the
completion of the purchase of all the notes tendered pursuant to an Offer and
the completion of a Pari Passu Offer, the amount of Excess Proceeds, if any,
shall be reset at zero.
(d) The Indenture provides that, if PSINet becomes obligated to make an
Offer pursuant to paragraph (c) above, the notes and the Pari Passu Indebtedness
shall be purchased by PSINet, at the option of the holders thereof, in whole or
in part in integral multiples of Euro 1,000 or $1,000, as the case may be, on a
date that is not earlier than 30 days and not later than 60 days from the date
the notice of the Offer is
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given to holders, or such later date as may be necessary for PSINet to comply
with the requirements under the Securities Exchange Act of 1934.
(e) The Indenture provides that PSINet will comply with the applicable
tender offer rules, including Rule 14e-1 under the Securities Exchange Act of
1934, and any other applicable securities laws or regulations, including those
regulations that may be imposed by any securities exchange on which the notes
may be listed, in connection with an Offer.
Limitation on Issuances of Guarantees of Indebtedness. (a) PSINet will not
permit any Subsidiary, directly or indirectly, to guarantee, assume or in any
other manner become liable with respect to any Pari Passu Indebtedness or
Subordinated Indebtedness of PSINet unless such Subsidiary simultaneously
executes and delivers a supplemental indenture to the Indenture providing for a
Guarantee of the notes on the same terms as the guarantee of such Indebtedness
except that:
(A) such guarantee need not be secured unless required pursuant to
"--Limitation on Liens", and
(B) if such Indebtedness is by its terms expressly subordinated to the
notes, any such assumption, guarantee or other liability of such
Subsidiary with respect to such Indebtedness shall be subordinated to
such Subsidiary's Guarantee of the notes at least to the same extent as
such Indebtedness is subordinated to the notes;
provided that this paragraph shall not apply to any guarantee or assumption of
liability of Indebtedness permitted under the Indenture as described in clauses
(1), (2), (4), (5), (7) and (8) of paragraph (b) of "--Limitation on
Indebtedness."
(b) Notwithstanding the foregoing, any Guarantee by a Subsidiary of the
notes shall provide by its terms that it, and all Liens securing the same, shall
be automatically and unconditionally released and discharged upon any sale,
exchange or transfer, to any Person not an Affiliate of PSINet, of all of
PSINet's Capital Stock in, or all or substantially all the assets of, such
Subsidiary, which transaction is in compliance with the terms of the Indenture
and such Subsidiary is released from its guarantees of other Indebtedness of
PSINet or any Subsidiaries.
Limitation on Sale and Leaseback Transactions. PSINet will not, and will
not permit any Subsidiary of PSINet to, directly or indirectly, enter into any
Sale-Leaseback Transaction with respect to any property or assets, whether now
owned or hereafter acquired, unless:
(a) the sale or transfer of such property or assets to be leased is treated
as an Asset Sale and complies with the "--Limitation on Sale of Assets"
covenant; and
(b) PSINet or such Subsidiary would be entitled under the "--Limitation on
Indebtedness" covenant to incur any Indebtedness, with the lease obligations
being treated as Indebtedness for purposes of ascertaining compliance with this
covenant unless such lease is properly classified as an operating lease under
GAAP, in respect of such sale and leaseback transaction.
The foregoing restriction does not apply to any Sale-Leaseback Transaction
if:
(1) the lease is for a period, including renewal rights, not in excess of
three years;
(2) the transaction is solely between PSINet and any Wholly Owned
Subsidiary or any Wholly Owned Subsidiary and any other Wholly Owned
Subsidiary; and
(3) the transaction is consummated within 180 days of the acquisition by
PSINet or its Subsidiary of the property or assets subject to such
sale-leaseback or entered into within 180 days after the purchase or
substantial completion of the construction of such property
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or assets or 270 days in the event that the only condition delaying
such consummation is the receipt of applicable regulatory approvals.
Limitation on Issuance and Sale of Subsidiary Capital Stock. PSINet will
not permit:
(a) any Subsidiary of PSINet to issue any Capital Stock, except for:
(1) Capital Stock issued or sold to, held by or transferred to PSINet or a
Wholly Owned Subsidiary, or
(2) Capital Stock issued by a Person prior to the time such Person becomes
a Subsidiary, such Person merges with or into a Subsidiary, or a
Subsidiary merges with or into such Person;
provided that such Capital Stock was not issued or incurred by such Person in
anticipation of the type of transaction contemplated by clause (2), excluding
for purposes of this proviso, shares of Capital Stock issued in connection with
customary accelerated vesting provisions contained in option or similar plans or
agreements which are accelerated as a result of a change of control of such
Person and which option or similar plans or agreements were not adopted or
implemented solely in anticipation of or in connection with such transaction; or
(b) any Person, other than PSINet or a Wholly Owned Subsidiary, to acquire
Capital Stock of any Subsidiary from PSINet or any Subsidiary;
except, in the case of each of paragraph (a) or (b):
. upon the acquisition of all the outstanding Capital Stock of such
Subsidiary in accordance with the terms of the Indenture,
. if, immediately after giving effect to such issuance or sale, such
Subsidiary would no longer constitute a Subsidiary, and any Investment
in such Person remaining after giving effect to such issuance or sale
would have been permitted to be made under "--Limitations on Restricted
Payments" if made on the date of such issuance or sale,
. issuances of director's qualifying shares, or sales to foreign nationals
of shares of Capital Stock of foreign Subsidiaries, to the extent
required by applicable law or to maintain the limited liability status
of such foreign Subsidiaries, or
. issuances or sales of common stock of a Subsidiary;
provided that PSINet or such Subsidiary applies the Net Cash Proceeds, if any,
in a manner which does not violate the provisions of the Indenture to the extent
applicable, excluding for purposes of this proviso, shares of Capital Stock
issued in connection with customary accelerated vesting provisions contained in
option or similar plans or agreements which are accelerated as a result of a
change of control of such Person and which option or similar plans or agreements
were not adopted or implemented solely in anticipation of or in connection with
such transaction.
Limitation on Dividends and Other Payment Restrictions Affecting
Subsidiaries. PSINet will not, and will not permit any of its Subsidiaries to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any encumbrance or restriction on the ability of any Subsidiary to:
(a) pay dividends or make any other distribution on its Capital Stock;
(b) pay any Indebtedness owed to PSINet or any other Subsidiary;
(c) make any Investment in PSINet or any other Subsidiary; or
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(d) transfer any of its properties or assets to PSINet or any other
Subsidiary, except for:
(1) any encumbrance or restriction, with respect to a Subsidiary that was
not a Subsidiary of PSINet on April 13, 1998, in existence at the time
such Person becomes a Subsidiary of PSINet and not incurred in
connection with, or in contemplation of, such Person becoming a
Subsidiary;
(2) encumbrances or restrictions (A) by reason of applicable law, (B) under
the Indenture, or (C) in any agreement, instrument or indenture
governing or relating to Indebtedness in respect of any Permitted
Credit Facility;
(3) customary non-assignment provisions of any contract or lease of any
Subsidiary entered into in the ordinary course of business;
(4) encumbrances or restrictions imposed pursuant to Indebtedness or
contracts entered into in connection with Permitted Liens, but solely
to the extent such encumbrances or restrictions affect only the
property or assets subject to such Permitted Lien;
(5) any encumbrance or restriction imposed pursuant to contracts for the
sale of assets with respect to the assets to be sold pursuant to such
contract; and
(6) any encumbrance or restriction existing under any agreement that
extends, renews, refunds, refinances or replaces the agreements
containing the encumbrances or restrictions in the foregoing clauses
(1) through (5), or in this clause (6), provided that the terms and
conditions of any such encumbrances or restrictions are no more
restrictive in any material respect than those under or pursuant to the
agreement evidencing the Indebtedness so extended, renewed, refinanced
or replaced.
Limitations on Unrestricted Subsidiaries. PSINet will not make, and will
not permit its Subsidiaries to make, any Investment in Unrestricted Subsidiaries
if, at the time thereof, the aggregate amount of such Investments would exceed
the amount of Restricted Payments then permitted to be made pursuant to the "--
Limitation on Restricted Payments" covenant. Any Investments in Unrestricted
Subsidiaries permitted to be made pursuant to this covenant will be treated as a
Restricted Payment in calculating the amount of Restricted Payments made by
PSINet.
Provision of Financial Statements. After the earlier to occur of the
consummation of the exchange offer and the 150th calendar day following the date
of original issue of the notes, whether or not PSINet is subject to Section
13(a) or 15(d) of the Securities Exchange Act of 1934, PSINet will, to the
extent permitted under the Securities and Exchange Act of 1934, file with the
Securities and Exchange Commission the annual reports, quarterly reports and
other documents which PSINet would have been required to file with the
Securities and Exchange Commission pursuant to Sections 13(a) or 15(d) if PSINet
were so subject, such documents to be filed with the Securities and Exchange
Commission on or prior to the date (the "Required Filing Date") by which PSINet
would have been required so to file such documents if PSINet were so subject.
PSINet will also in any event:
(1) within 15 days of each Required Filing Date, transmit by mail to all
holders, as their names and addresses appear in the security register,
without cost to such holders, and file with the Trustee and paying
agents copies (which shall be available to holders upon request to any
of PSINet, the Trustee or a paying agent) of the annual reports,
quarterly reports and other documents which PSINet would have been
required to file with the Securities and Exchange Commission pursuant
to Sections 13(a) or 15(d) of the Securities Exchange Act of 1934 if
PSINet were subject to either of such Sections; and
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(2) if filing such documents by PSINet with the Securities and Exchange
Commission is not permitted under the Securities Exchange Act of 1934,
promptly upon written request and payment of the reasonable cost of
duplication and delivery, supply copies of such documents to any
prospective holder at PSINet's cost. If any Guarantor's financial
statements would be required to be included in the financial statements
filed or delivered pursuant to the Indenture if PSINet were subject to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934, PSINet
shall include such Guarantor's financial statements in any filing or
delivery pursuant to the Indenture. The Indenture also provides that,
so long as any of the notes remain outstanding, PSINet will make
available to any prospective purchaser of notes or beneficial owner of
notes in connection with any sale thereof the information required by
Rule 144A(d)(4) under the Securities Act of 1933, until the earlier of
such time as PSINet has completed its offer to exchange the notes for
securities identical in all material respects which have been
registered under the Securities Act or such time as the holders thereof
have disposed of such notes pursuant to an effective registration
statement under the Securities Act of 1933.
Limitation on Business. PSINet will not, and will not permit any of the
Subsidiaries to, engage in a business which is not substantially a
Telecommunications Business.
Consolidation, Merger or Sale of Assets
PSINet will not, in a single transaction or through a series of related
transactions, consolidate with or merge with or into any other Person or sell,
assign, convey, transfer, lease or otherwise dispose of all or substantially all
of its properties and assets to any Person or group of affiliated Persons, or
permit any of its Subsidiaries to enter into any such transaction or series of
related transactions if such transaction or series of related transactions, in
the aggregate, would result in a sale, assignment, conveyance, transfer, lease
or disposition of all or substantially all of the properties and assets of
PSINet and its Subsidiaries on a Consolidated basis to any other Person or group
of affiliated Persons, unless at the time and after giving effect thereto:
(1) either PSINet will be the continuing corporation, in the case of a
consolidation or merger involving PSINet, or the Person, if other than
PSINet, formed by such consolidation or into which PSINet is merged or
the Person which acquires by sale, assignment, conveyance, transfer,
lease or disposition all or substantially all of the properties and
assets of PSINet and its Subsidiaries on a Consolidated basis (the
"Surviving Entity") will be a corporation duly organized and validly
existing under the laws of the United States of America, any state
thereof or the District of Columbia and such Person expressly assumes,
by a supplemental indenture, in a form reasonably satisfactory to the
Trustee, all the obligations of PSINet under the notes, the Indenture
and the registration rights agreement, as the case may be, and the
notes, the Indenture and the registration rights agreement will remain
in full force and effect as so supplemented;
(2) immediately after giving effect to such transaction on a pro forma
basis, and treating any Indebtedness not previously an obligation of
PSINet or any of its Subsidiaries which becomes the obligation of
PSINet or any of its Subsidiaries as a result of such transaction as
having been incurred at the time of such transaction, no Default or
Event of Default will have occurred and be continuing;
(3) immediately after giving effect to such transaction on a pro forma
basis, PSINet, or the Surviving Entity if PSINet is not the continuing
obligor under the Indenture, could incur $1.00 of additional
Indebtedness, other than Permitted Indebtedness, under paragraph (a) of
the provisions of "--Certain Covenants--Limitation on Indebtedness;"
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(4) at the time of the transaction, each Guarantor, if any, unless it is
the other party to the transactions described above, will have by
supplemental indenture confirmed that its Guarantee shall apply to such
Person's obligations under the Indenture and the notes; and
(5) at the time of the transaction PSINet or the Surviving Entity will have
delivered, or caused to be delivered, to the Trustee, in form and
substance reasonably satisfactory to the Trustee, an officers'
certificate and an opinion of counsel, each to the effect that such
consolidation, merger, sale, assignment, conveyance, transfer, lease or
other transaction and the supplemental indenture in respect thereof
comply with the Indenture.
Notwithstanding the foregoing, PSINet may merge or consolidate with any
Wholly Owned Subsidiaries and into any Person in a transaction designed solely
for the purpose of effecting a change in the jurisdiction of incorporation of
PSINet within the United States of America.
In the event of any transaction, other than a lease, described in and
complying with the conditions listed in the immediately preceding paragraph in
which PSINet is not the Surviving Person, such Surviving Person shall succeed
to, and be substituted for, and exercise every right and power of, PSINet, and
PSINet shall be discharged from all obligations and covenants under the
indenture, the notes and the registration rights agreements.
Events of Default
An Event of Default will occur under the Indenture if:
(1) there shall be a default in the payment of any interest on any note
when it becomes due and payable, and such default shall continue for a
period of 30 days;
(2) there shall be a default in the payment of the principal of or premium,
if any, on any note at its Maturity, upon acceleration, optional or
mandatory redemption, required repurchase or otherwise;
(3) (a) there shall be a default in the performance, or breach, of any
covenant or agreement of PSINet or any Guarantor under the Indenture,
the registration rights agreements or any Guarantee, other than a
default in the performance, or breach, of a covenant or agreement which
is specifically dealt with in clause (1), (2) or in clause (b), (c) or
(d) of this clause (3), and such default or breach shall continue for a
period of 30 days after written notice has been given, by certified
mail, (A) to PSINet by the Trustee or (B) to PSINet and the Trustee by
the holders of at least 25% in aggregate principal amount of the
outstanding notes;
(b) there shall be a default in the performance or breach of the
provisions described in "--Consolidation, Merger or Sale of Assets";
(c) PSINet shall have failed to make or consummate an Offer in
accordance with the provision described in
"--Certain Covenants--Limitation on Sale of Assets"; or
(d) PSINet shall have failed to make or consummate a Change of Control
Offer in accordance with the provisions of "--Change of Control";
(4) (a) any default by PSINet or any Subsidiary in the payment of the
principal, premium, if any, or interest has occurred with respect to
amounts in excess of $10 million under any agreement, indenture or
instrument evidencing Indebtedness when the same shall become due and
payable in full and such default shall have continued after any
applicable grace period and shall not have been cured or waived and, if
not already matured at its final
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maturity in accordance with its terms, the holder of such Indebtedness
shall have the right to accelerate such Indebtedness; or
(b) any event of default as defined in any agreement, indenture or
instrument of PSINet evidencing Indebtedness in excess of $10 million
shall have occurred and the Indebtedness thereunder, if not already
matured at its final maturity in accordance with its terms, shall have
been accelerated;
(5) any Guarantee shall for any reason cease to be, or shall for any reason
be asserted in writing by any Guarantor or PSINet not to be, in full
force and effect and enforceable in accordance with its terms, except
to the extent contemplated by the Indenture and any such Guarantee;
(6) one or more judgments or orders for the payment of money in excess of
$10 million, either individually or in the aggregate, shall be rendered
against PSINet and not paid unless covered by financially sound third-
party insurers, or any Subsidiary or any of their respective properties
and is not discharged and for which there shall have been a period of
60 consecutive days during which a stay of enforcement of such judgment
or order, by reason of an appeal or otherwise, shall not be in effect;
(7) any holder or holders of at least $10 million in aggregate principal
amount of Indebtedness of PSINet or any Subsidiary after a default
under such Indebtedness shall notify the Trustee of its commencement of
proceedings to foreclose on any assets of PSINet or any Subsidiary that
have been pledged to or for the benefit of such holder or holders to
secure such Indebtedness or shall commence proceedings, or take any
action, including by way of set-off, to retain in satisfaction of such
Indebtedness or to collect on, seize, dispose of or apply in
satisfaction of Indebtedness, assets of PSINet or any Subsidiary,
including funds on deposit or held pursuant to lock-box and other
similar arrangements;
(8) there shall have been the entry by a court of competent jurisdiction of
(a) a decree or order for relief in respect of PSINet or any
Significant Subsidiary in an involuntary case or proceeding under any
applicable Bankruptcy Law or (b) a decree or order adjudging PSINet or
any Significant Subsidiary bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment or composition of or in respect
of PSINet or any Significant Subsidiary under any applicable federal or
state law, or appointing a custodian, receiver, liquidator, assignee,
trustee, sequestrator or other similar official of PSINet or any
Significant Subsidiary or of any substantial part of their respective
properties, or ordering the winding up or liquidation of their
respective affairs, and any such decree or order for relief shall
continue to be in effect, or any such other decree or order shall be
unstayed and in effect, for a period of 60 consecutive days; or
(9) (a) PSINet or any Significant Subsidiary commences a voluntary case or
proceeding under any applicable Bankruptcy Law or any other case or
proceeding to be adjudicated bankrupt or insolvent,
(b) PSINet or any Significant Subsidiary consents to the entry of a
decree or order for relief in respect of PSINet or such Significant
Subsidiary in an involuntary case or proceeding under any applicable
Bankruptcy Law or to the commencement of any bankruptcy or insolvency
case or proceeding against it,
(c) PSINet or any Significant Subsidiary files a petition or answer or
consent seeking reorganization or relief under any applicable federal
or state law,
(d) PSINet or any Significant Subsidiary (A) consents to the filing of
such petition or the appointment of, or taking possession by, a
custodian, receiver, liquidator, assignee, trustee,
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sequestrator or similar official of PSINet or such Significant
Subsidiary or of any substantial part of PSINet's Consolidated
properties, (B) makes an assignment for the benefit of creditors or (C)
admits in writing its inability to pay its debts generally as they
become due, or
(e) PSINet or any Significant Subsidiary takes any corporate action in
furtherance of any such actions in this paragraph (9).
If an Event of Default, other than as specified in clauses (8) and (9) of
the prior paragraph with respect to PSINet, shall occur and be continuing with
respect to the Indenture, the Trustee or the holders of not less than 25% in
aggregate principal amount of the notes then outstanding may, and the Trustee at
the request of such holders shall, declare all unpaid principal of, premium, if
any, and accrued interest on all notes to be due and payable, by a notice in
writing to PSINet and to the Trustee if given by the holders, and upon any such
declaration, such principal, premium, if any, and interest shall become due and
payable immediately. If an Event of Default specified in clause (8) or (9) of
the prior paragraph occurs with respect to PSINet and is continuing, then all
the notes shall ipso facto become and be due and payable immediately in an
amount equal to the principal amount of the notes, together with accrued and
unpaid interest, to the date the notes become due and payable, without any
declaration or other act on the part of the Trustee or any holder. Thereupon,
the Trustee may, at its discretion, proceed to protect and enforce the rights of
the holders by appropriate judicial proceedings.
After a declaration of acceleration, but before a judgment or decree for
payment of the money due has been obtained by the Trustee, the holders of a
majority in aggregate principal amount of notes then outstanding by written
notice to PSINet and the Trustee, may rescind and annul such declaration and its
consequences if:
(a) PSINet has paid or deposited with the Trustee sums (in euros and U.S.
Dollars) sufficient to pay
. all sums paid or advanced by the Trustee under the Indenture and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel,
. all overdue interest on all notes then outstanding,
. the principal of and premium, if any, on any notes then outstanding
which have become due otherwise than by such declaration of acceleration
and interest thereon at the rate borne by the notes, and
. to the extent that payment of such interest is lawful, interest upon
overdue interest at the rate borne by the notes; and
(b) all Events of Default, other than the non-payment of principal of the
notes which have become due solely by such declaration of acceleration, have
been cured or waived as provided in the Indenture. No such rescission shall
affect any subsequent default or impair any right consequent thereon.
The holders of not less than a majority in aggregate principal amount of
the notes then outstanding may on behalf of the holders of all outstanding notes
waive any past default under the Indenture and its consequences, except a
default in the payment of the principal of, premium, if any, or interest on any
note or in respect of a covenant or provision which under the Indenture cannot
be modified or amended without the consent of the holder of each note affected
by such modification or amendment.
PSINet is also required to notify the Trustee within 30 days of the
occurrence of any Default unless such Default shall have been cured. PSINet is
required to deliver to the Trustee, on or before a date not more than 60 days
after the end of each fiscal quarter and not more than 120 days after the end of
each fiscal year, a written statement as to compliance with the Indenture,
including whether or not any Default has occurred that is not cured.
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The Trust Indenture Act of 1939 contains limitations on the rights of the
Trustee, should it become a creditor of PSINet or any Guarantor, if any, to
obtain payment of claims in certain cases or to realize on certain property
received by it in respect of any such claims, as security or otherwise. The
Trustee is permitted to engage in other transactions, provided that if it
acquires any conflicting interest it must eliminate such conflict upon the
occurrence of an Event of Default or resign.
Defeasance or Covenant Defeasance of Indenture
PSINet may, at its option and at any time, elect to have the obligations of
PSINet, any Guarantor and any other obligor upon the notes discharged with
respect to the outstanding notes ("defeasance"). Such defeasance means that
PSINet, any such Guarantor and any other obligor under the Indenture shall be
deemed to have paid and discharged the entire Indebtedness represented by the
outstanding notes, except for:
(1) the rights of holders of such outstanding notes to receive payments in
respect of the principal of, premium, if any, and interest on such
notes when such payments are due,
(2) PSINet's obligations with respect to the notes concerning issuing
temporary notes, registration of notes, mutilated, destroyed, lost or
stolen notes, and the maintenance of an office or agency for payment
and money for security payments held in trust,
(3) the rights, powers, trusts, duties and immunities of the Trustee, and
(4) the defeasance provisions of the Indenture.
In addition, PSINet may, at its option and at any time, elect to have the
obligations of PSINet and any Guarantor released with respect to certain
covenants that are described in the Indenture ("covenant defeasance") and
thereafter any omission to comply with such obligations shall not constitute a
Default or an Event of Default with respect to the notes. In the event covenant
defeasance occurs, certain events, not including non-payment, bankruptcy and
insolvency events, described under "Events of Default" will no longer constitute
an Event of Default with respect to the notes.
Satisfaction and Discharge
The Indenture will be discharged and will cease to be of further effect,
except as to surviving rights of registration of transfer or exchange of the
notes as expressly provided for in the Indenture, as to all outstanding notes
under the Indenture when:
(a) either (1) all such notes theretofore authenticated and delivered,
except lost, stolen or destroyed notes which have been replaced or paid or notes
whose payment has been deposited in trust or segregated and held in trust by
PSINet and thereafter repaid to PSINet or discharged from such trust as provided
for in the Indenture, have been delivered to the Trustee for cancellation or (2)
all notes not theretofore delivered to the Trustee for cancellation:
. have become due and payable,
. will become due and payable at their Stated Maturity within one year, or
. are to be called for redemption within one year under arrangements
reasonably satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and at the expense, of PSINet;
and PSINet or any Guarantor has irrevocably deposited or caused to be deposited
with the Trustee as trust funds in trust (1) in the case of the euro notes, an
amount in euros or Government Securities of the United Kingdom, the Federal
Republic of Germany or the Republic of France denominated in euros and (2) in
the case of the dollar notes, an amount in United States dollars or United
States Government Securities, in each
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case sufficient to pay and discharge the entire indebtedness on such notes, as
applicable, not previously delivered to the Trustee for cancellation, including
principal of, premium, if any, and accrued interest at such Maturity, Stated
Maturity or redemption date;
(b) PSINet or any Guarantor has paid or caused to be paid all other sums
payable under the Indenture by PSINet and any Guarantor; and
(c) PSINet has delivered to the Trustee an officers' certificate and an
opinion of independent counsel each stating that (1) all conditions precedent
under the Indenture relating to the satisfaction and discharge of such Indenture
have been complied with and (2) such satisfaction and discharge will not result
in a breach or violation of, or constitute a default under, the Indenture or any
other material agreement or instrument to which PSINet, any Guarantor or any
Subsidiary is a party or by which PSINet, any Guarantor or any Subsidiary is
bound.
Modifications and Amendments
Modifications and amendments of the Indenture may be made by PSINet, each
Guarantor, if any, and the Trustee with the consent of the holders of at least a
majority in aggregate principal amount of the notes then outstanding; provided,
however, that no such modification or amendment may, without the consent of the
holder of each outstanding note affected thereby:
(1) change the Stated Maturity of the principal of, or any installment of
interest on, or change to an earlier date any redemption date of, or
waive a default in the payment of the principal, or interest on, any
such note or reduce the principal amount thereof or the rate of
interest thereon or any premium payable upon the redemption thereof, or
change the coin or currency in which the principal of any such note or
any premium or the interest thereon is payable, or impair the right to
institute suit for the enforcement of any such payment after the Stated
Maturity thereof or, in the case of redemption, on or after the
redemption date;
(2) amend, change or modify the obligation of PSINet to make and consummate
an Offer to such holder with respect to any Asset Sale or Asset Sales
in accordance with "--Certain Covenants--Limitation on Sale of Assets"
or the obligation of PSINet to make and consummate a Change of Control
Offer in the event of a Change of Control in accordance with "--Change
of Control," including, in each case, amending, changing or modifying
any definitions relating thereto;
(3) reduce the percentage in principal amount of such outstanding notes,
the consent of whose Holders is required for any such supplemental
indenture, or the consent of whose holders is required for any waiver
or compliance with certain provisions of the Indenture;
(4) modify any of the provisions relating to supplemental indentures
requiring the consent of holders or relating to the waiver of past
defaults or relating to the waiver of certain covenants, except to
increase the percentage of such outstanding notes required for such
actions or to provide that certain other provisions of the Indenture
cannot be modified or waived without the consent of the holder of each
such Note affected thereby;
(5) except as otherwise permitted under "--Consolidation, Merger or Sale of
Assets," consent to the assignment or transfer by PSINet or any
Guarantor of any of its rights and obligations under the Indenture; or
(6) amend or modify any of the provisions of the Indenture in any manner
which subordinates the notes issued thereunder in right of payment to
any other Indebtedness of PSINet or which subordinates any Guarantee in
right of payment to any other Indebtedness of the Guarantor issuing any
such Guarantee.
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Notwithstanding the foregoing, without the consent of any holders of the
notes, PSINet, any Guarantor and the Trustee may modify or amend the Indenture
or any Guarantee:
(a) to evidence the succession of another Person to PSINet or a
Guarantor, and the assumption by any such successor of the covenants of
PSINet or such Guarantor in the Indenture, the notes, the Registration
Rights Agreement and in any Guarantee in accordance with
"--Consolidation, Merger or Sale of Assets";
(b) to add to the covenants of PSINet, any Guarantor or any other
obligor upon the notes for the benefit of the holders or to surrender any
right or power conferred upon PSINet or any Guarantor or any other
obligor upon the notes, as applicable, in the Indenture, in the notes or
in any Guarantee;
(c) to cure any ambiguity, or to correct or supplement any provision
in the Indenture, the notes or any Guarantee which may be defective or
inconsistent with any other provision in the Indenture, the notes or any
Guarantee or make any other provisions with respect to matters or
questions arising under the Indenture, the notes or any Guarantee;
provided that, in each case, such provisions shall not adversely affect
the interest of the holders of the notes;
(d) to comply with the requirements of the Securities and Exchange
Commission in order to effect or maintain the qualification of the
Indenture under the Trust Indenture Act of 1939;
(e) to add a Guarantor under the Indenture;
(f) to evidence and provide the acceptance of the appointment of a
successor Trustee under the Indenture; or
(g) to mortgage, pledge, hypothecate or grant a security interest in
favor of the Trustee for the benefit of the holders as additional
security for the payment and performance of PSINet's and any Guarantor's
obligations under the Indenture, in any property, or assets, including
any of which are required to be mortgaged, pledged or hypothecated, or in
which a security interest is required to be granted to the Trustee
pursuant to the Indenture or otherwise.
The holders of a majority in aggregate principal amount of the notes
outstanding may waive compliance with certain restrictive covenants and
provisions of the Indenture.
Governing Law
The Indenture, the notes and any Guarantee will be governed by, and
construed in accordance with, the internal laws of the State of New York,
without giving effect to the conflicts of law principles thereof.
Concerning the Trustee
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of PSINet, to obtain payment of claims in certain
cases, or to realize on certain property received in respect of any such claim
as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
as Trustee with such conflict or resign as Trustee.
The holders of a majority in principal amount of the then outstanding notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the
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Trustee, subject to certain exceptions. The Indenture provides that in case an
Event of Default occurs, which has not been cured, the Trustee will be required,
in the exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request of any holder of notes unless such holder shall have offered to
the Trustee security and indemnity satisfactory to it against any loss,
liability or expense.
Certain Definitions
"Acquired Indebtedness" means Indebtedness of a Person:
(1) existing at the time such Person becomes a Subsidiary; or
(2) assumed in connection with the acquisition of assets from, or merger or
consolidation with or into, such Person, in each case, other than
Indebtedness incurred in connection with, or in contemplation of, such
Person becoming a Subsidiary or such acquisition, as the case may be;
provided that Indebtedness of such Person which is redeemed, defeased, retired
or otherwise repaid at the time of, or substantially contemporaneously with, the
consummation of the transactions by which such Person becomes a Subsidiary or
such asset acquisition shall not constitute Acquired Indebtedness.
"Acquired Person" means, with respect to any specified Person, any other
Person which merges with or into or becomes a Subsidiary of such specified
Person.
"Acquisition" means:
(1) any capital contribution by means of transfers of cash or other
property to others or payments for property or services for the account
or use of others, or otherwise, by PSINet or any Subsidiary to any
other Person, or any acquisition or purchase of Capital Stock of any
other Person by PSINet or any Subsidiary, in either case pursuant to
which such Person shall become a Subsidiary or shall be consolidated,
merged with or into PSINet or any Subsidiary; or
(2) any acquisition by PSINet or any Subsidiary of the assets of any Person
which constitute substantially all of an operating unit or line of
business of such Person or which is otherwise outside of the ordinary
course of business of PSINet or such Subsidiary.
"Affiliate" means, with respect to any specified Person, any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through ownership of voting securities, by contract or otherwise; and
the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or other
disposition, including, without limitation, by way of merger, consolidation or
sale and leaseback transaction (collectively, a "transfer"), directly or
indirectly, in one or a series of related transactions, of:
(1) any Capital Stock of any Subsidiary;
(2) all or substantially all of the properties and assets of any division
or line of business of PSINet or its Subsidiaries; or
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(3) any other properties or assets of PSINet or any Subsidiary other than
in the ordinary course of business. For the purposes of this
definition, the term "Asset Sale" shall not include any transfer of
properties and assets:
(A) that is governed by the provisions described under
"-- Consolidation, Merger or Sale of Assets,"
(B) that is by PSINet to any Wholly Owned Subsidiary or by any Wholly
Owned Subsidiary to PSINet or any other Wholly Owned Subsidiary in a
manner which does not violate the terms of the Indenture,
(C) that is of obsolete equipment in the ordinary course of business,
(D) the Fair Market Value of which in the aggregate does not exceed
$5 million in any transaction or series of related transactions,
(E) that is made in accordance with the provisions described under
"--Certain Covenants--Limitations on Restricted Payments,
(F) which constitutes the granting of any Permitted Lien, and
(G) that is transferred in exchange for Telecommunications Assets;
provided, that if the Fair Market Value of the assets to be transferred
by PSINet or such Subsidiary under this clause (G), plus the Fair Market
Value of any other consideration paid or credited by PSINet or such
Subsidiary exceeds $10 million, such transaction shall require approval
of the Board of Directors of PSINet.
"Average Life to Stated Maturity" means, as of the date of determination
with respect to any Indebtedness, the quotient obtained by dividing:
(1) the sum of the products of (a) the number of years from the date of
determination to the date or dates of each successive scheduled
principal payment of such Indebtedness multiplied by (b) the amount of
each such principal payment by
(2) the sum of all such principal payments.
"Bankruptcy Law" means Title 11, United States Bankruptcy Code of 1978, as
amended, or any similar United States federal or state law relating to
bankruptcy, insolvency, receivership, winding up, liquidation, reorganization or
relief of debtors or any amendment to, succession to or change in any such law.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions or trust companies in The City
of New York, in Luxembourg or in the city in which the Corporate Trust Office of
the Trustee is located are authorized or obligated by law, regulation or
executive order to be closed.
"Capital Lease Obligation" of any Person means any obligation of such
Person and its subsidiaries on a Consolidated basis under any capital lease of
real or personal property which, in accordance with GAAP, has been recorded as a
capital lease obligation.
"Capital Stock" (1) with respect to any Person that is a corporation, any
and all shares, interests, participations or other equivalents, however
designated and whether or not voting, of corporate stock, including each class
of common stock and preferred stock of such Person and (2) with respect to any
Person that is not a corporation, any and all partnership, membership or other
equity interests of such Person.
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"Cash Equivalents" means:
(1) any evidence of Indebtedness, maturing not more than one year after the
date of acquisition, (A) issued by the United States of America, or an
instrumentality or agency thereof, and guaranteed fully as to
principal, premium, if any, and interest by the United States of
America or (B) which is denominated in euros and is issued by the
Federal Republic of Germany, the Federal Republic of France or the
United Kingdom, or any instrumentality or agency thereof, and
guaranteed fully as to principal, premium, if any, and interest by the
issuing government;
(2) any certificate of deposit, maturing not more than one year after the
date of acquisition, issued by, or time deposit of, (A) a commercial
banking institution that is a member of the Federal Reserve System or
(B) a bank or trust company organized under the laws of any member of
the European Union whose long-term debt is rated "A-" or higher
according to S&P or "A-3" or higher according to Moody's, and in the
case of clause (A) and (B), such banking institution, bank or trust
company also has (i) combined capital and surplus and undivided profits
of not less than $500 million, and (ii) short term debt with a rating,
at the time as of which any investment therein is made, of "P-1" or
higher according to Moody's Investors Service, Inc. ("Moody's") or any
successor rating agency or "A-1" or higher according to Standard &
Poor's Corporation ("S&P") or any successor rating agency;
(3) commercial paper, maturing not more than 270 days after the date of
acquisition, issued by a bank or corporation, other than an Affiliate
or Subsidiary of PSINet, with a rating, at the time as of which any
investment therein is made, of "P-1" or higher according to Moody's or
"A-1" or higher according to S&P and which is organized under the laws
of (A) the United States of America or (B) any member of the European
Union provided that such member's long-term debt is rated "A-" or
higher according to S&P or "A-3" or higher according to Moody's; and
(4) any money market accounts or funds at least 95% of the assets of which
constitute Cash Equivalents of the kinds described in clauses (1), (2)
or (3).
"Change of Control" means the occurrence of any of the following events:
(1) any "person" or "group" (as such terms are used in Sections 13(d) and
14(d) of the Exchange Act) is or becomes the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a
Person shall be deemed to have beneficial ownership of all shares that
such Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly,
of more than 50% of the total outstanding Voting Stock of PSINet;
(2) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of PSINet,
together with any new directors whose election to such board or whose
nomination for election by the stockholders of PSINet was approved by a
vote of a majority of the directors then still in office who were
either directors at the beginning of such period or whose election or
nomination for election was previously so approved, cease for any
reason to constitute a majority of such Board of Directors then in
office;
(3) PSINet consolidates with or merges with or into any Person or conveys,
transfers or leases all or substantially all of its assets to any
Person, or any corporation consolidates with or merges into or with
PSINet in any such event pursuant to a transaction in which the
outstanding Voting Stock of PSINet is changed into or exchanged for
cash, securities or other property, other than any such transaction
where the outstanding Voting Stock of
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PSINet is not changed or exchanged at all, except to the extent
necessary to reflect a change in the jurisdiction of incorporation of
PSINet or where no "person" or "group" owns, immediately after such
transaction, directly or indirectly, more than 50% of the total
outstanding Voting Stock of the surviving corporation; or
(4) PSINet is liquidated or dissolved or adopts a plan of liquidation or
dissolution other than in a transaction which complies with the
provisions described under "--Consolidation, Merger or Sale of Assets."
The good faith determination of the Board, based upon the advice of
outside counsel, of the beneficial ownership of securities of PSINet
within the meaning of Rules 13d-3 and 13d-5 under the Exchange Act
shall be conclusive, absent contrary controlling judicial precedent or
contrary written interpretation published by the Commission.
"Commodity Price Protection Agreement" means any forward contract,
commodity swap, commodity option or other similar financial agreement or
arrangement relating to, or the value which is dependent upon, fluctuations in
commodity prices.
"Company Rights Agreement" means the Rights Agreement, dated as of May 8,
1996, between PSINet and First Chicago Trust Company of New York, as in effect
on the date of the Indenture (or as amended, from time to time, to the extent
that such amendment has been determined by the Board of Directors, in good
faith, not to adversely affect the holders of the notes).
"Consolidated" means consolidated in accordance with GAAP.
"Consolidated Income Tax Expense" of any Person means, for any period, the
provision for federal, state, local and foreign income taxes of such Person and
its Consolidated subsidiaries for such period as determined in accordance with
GAAP.
"Consolidated Interest Expense" of any Person means, without duplication,
for any period, the sum of:
(a) the interest expense of such Person and its subsidiaries for such
period, on a Consolidated basis in accordance with GAAP, including,
without limitation:
(1) amortization of debt discount,
(2) the net costs associated with Interest Rate Agreements,
Currency Hedging Agreements and Commodity Price Protection
Agreements, including amortization of discounts,
(3) the interest portion of any deferred payment obligation, and
(4) accrued interest; plus
(b) (1) the interest component of the Capital Lease Obligations paid,
accrued and/or scheduled to be paid or accrued by such Person and its
subsidiaries during such period and (2) all capitalized interest of such
Person and its subsidiaries; plus
(c) the interest expense actually paid by such Person under any
Guaranteed Debt of such Person and any subsidiary to the extent not
included under clause (a)(4) above; plus
(d) the aggregate amount for such period of cash or non-cash dividends
on any Redeemable Capital Stock or Preferred Stock of PSINet and its
Subsidiaries, in each case as determined on a Consolidated basis in
accordance with GAAP.
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"Consolidated Net Income" means, with respect to any period, the net income
of PSINet and any Subsidiary for such period determined on a consolidated basis
in accordance with GAAP, adjusted, to the extent included in calculating such
net income, by excluding, without duplication:
(a) all extraordinary gains or losses for such period;
(b) all gains or losses from the sales or other dispositions of assets
out of the ordinary course of business, net of taxes, fees and expenses
relating to the transaction giving rise thereto, for such period;
(c) that portion of such net income derived from or in respect of
investments in Persons other than Subsidiaries, except to the extent
actually received in cash by PSINet or any Subsidiary, subject, in the
case of any Subsidiary, to the provisions of clause (f) of this
definition;
(d) the portion of such net income (or loss) allocable to minority
interests in any Person, other than a Subsidiary, for such period, except
to the extent PSINet's allocation portion of such Person's net income for
such period is actually received in cash by PSINet or any Subsidiary,
subject, in the case of any Subsidiary, to the provisions of clause (f)
of this definition;
(e) the net income (or loss) of any other Person combined with PSINet
or any Subsidiary on a "pooling of interests" basis attributable to any
period prior to the date of combination; and
(f) the net income of any Subsidiary to the extent that the
declaration of dividends or similar distributions by that Subsidiary of
that income is not at the time, regardless of any waiver, permitted,
directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or
governmental regulations applicable to that Subsidiary or its Capital
Stock holders.
"Consolidated Operating Cash Flow" means, with respect to any period,
Consolidated Net Income for such period increased, without duplication, to the
extent deducted in calculating such Consolidated Net Income, by:
(a) Consolidated Income Tax Expense for such period;
(b) Consolidated Interest Expense for such period; and
(c) depreciation, amortization and any other non-cash items for such
period, other than any non-cash item which requires the accrual of, or a
reserve for, cash charges for any future period, of PSINet and any
Subsidiary, including, without limitation, amortization of capitalized
debt issuance costs for such period;
all of the foregoing determined on a consolidated basis in accordance with GAAP
minus non-cash items to the extent they increase Consolidated Net Income,
including the partial or entire reversal of reserves taken in prior periods, for
such period.
"Cumulative Operating Cash Flow" means, as at any date of determination,
the positive cumulative Consolidated Operating Cash Flow realized during the
period commencing on April 13, 1998 and ending on the last day of the most
recent fiscal quarter immediately preceding the date of determination for which
consolidated financial information of PSINet is available or, if such cumulative
Consolidated Operating Cash Flow for such period is negative, the negative
amount by which cumulative Consolidated Operating Cash Flow is less than zero.
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"Currency Hedging Arrangements" means one or more of the following
agreements which shall be entered into by one or more financial institutions:
foreign exchange contracts, currency swap agreements or other similar agreements
or arrangements designed to protect against the fluctuations in currency values.
"Debt Securities" means any debt securities issued by PSINet in a public
offering or private placement.
"Debt to Annualized Operating Cash Flow Ratio" means the ratio of:
(a) the Total Consolidated Indebtedness as of the date of calculation
(the "Determination Date") to
(b) four times the Consolidated Operating Cash Flow for the latest
fiscal quarter for which financial information is available immediately
preceding such Determination Date (the "Measurement Period").
For purposes of calculating Consolidated Operating Cash Flow for the
Measurement Period immediately prior to the relevant Determination Date:
(1) any Person that is a Subsidiary on the Determination Date, or would
become a Subsidiary on such Determination Date in connection with the
transaction that requires the determination of such Consolidated
Operating Cash Flow, will be deemed to have been a Subsidiary at all
times during such Measurement Period,
(2) any Person that is not a Subsidiary on such Determination Date, or
would cease to be a Subsidiary on such Determination Date in connection
with the transaction that requires the determination of such
Consolidated Operating Cash Flow, will be deemed not to have been a
Subsidiary at any time during such Measurement Period, and
(3) if PSINet or any Subsidiary shall have in any manner acquired through
an Acquisition or the commencement of activities constituting such
operating business, or disposed of by an Asset Sale or the termination
or discontinuance of activities constituting such operating business,
any operating business during such Measurement Period or after the end
of such period and on or prior to such Determination Date, such
calculation will be made on a pro forma basis in accordance with GAAP
as if, in the case of an Acquisition or the commencement of activities
constituting such operating business, all such transactions had been
consummated prior to the first day of such Measurement Period (it being
understood that in calculating Consolidated Operating Cash Flow, the
exclusions set forth in clauses (a) through (f) of the definition of
Consolidated Net Income shall apply to an Acquired Person as if it were
a Subsidiary).
"Default" means any event which is, or after notice or passage of any time
or both would be, an Event of Default.
"Disinterested Director" means, with respect to any transaction or series
of related transactions, a member of the Board of Directors of PSINet who does
not have any material direct or indirect financial interest in or with respect
to such transaction or series of related transactions.
"Disqualified Stock" means, with respect to any person, any Capital Stock
which, by its terms or by the terms of any security into which it is convertible
or for which it is exchangeable, or upon the happening of any event, matures or
becomes mandatorily redeemable, pursuant to a sinking fund obligation or
otherwise, or becomes exchangeable for Indebtedness at the option of the holder
thereof, or becomes redeemable at the option of the holder thereof, in whole or
in part, on or prior to the final maturity date of the notes;
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provided such Capital Stock shall only constitute Disqualified Stock to the
extent it so matures or becomes so redeemable or exchangeable on or prior
to the final maturity date of the notes;
provided, further, that any Capital Stock that would not constitute
Disqualified Stock but for provisions thereof giving holders thereof the
right to require such person to repurchase or redeem such Capital Stock
upon the occurrence of an "asset sale" or "change of control" occurring
prior to the final maturity date of the notes shall not constitute
Disqualified Stock if the "asset sale" or "change of control" provisions
applicable to such Capital Stock are no more favorable to the holders of
such Capital Stock than the provisions contained in "Limitation on Sale of
Assets" and "Change of Control" described above and such Capital Stock
specifically provides that such person will not repurchase or redeem any
such stock pursuant to such provision prior to PSINet's repurchase of such
notes as are required to be repurchased pursuant to the "Limitation on Sale
of Assets" and "Change of Control" provisions described above.
"Fair Market Value" means, with respect to any asset or property, the sale
value that would be reasonably expected to be obtained in an arm's-length
transaction between an informed and willing seller under no compulsion to sell
and an informed and willing buyer under no compulsion to buy. Fair Market Value
shall be determined by the Board of Directors of PSINet acting in good faith and
shall be evidenced by a resolution of the Board of Directors.
"Guarantee" means the guarantee by any Guarantor of PSINet's Indenture
Obligations.
"Guaranteed Debt" of any Person means, without duplication, all
Indebtedness of any other Person guaranteed directly or indirectly in any manner
by such Person, or in effect guaranteed directly or indirectly by such Person
through an agreement:
(1) to pay or purchase such Indebtedness or to advance or supply funds for
the payment or purchase of such Indebtedness,
(2) to purchase, sell or lease, as lessee or lessor, property, or to
purchase or sell services, primarily for the purpose of enabling the
debtor to make payment of such Indebtedness or to assure the holder of
such Indebtedness against loss,
(3) to supply funds to, or in any other manner invest in, the debtor,
including any agreement to pay for property or services without
requiring that such property be received or such services be rendered,
(4) to maintain working capital or equity capital of the debtor, or
otherwise to maintain the net worth, solvency or other financial
condition of the debtor, or
(5) otherwise to assure a creditor against loss;
provided that the term "guarantee" shall not include endorsements for collection
or deposit, in either case in the ordinary course of business.
"Guarantor" means any Subsidiary which is required after the date of the
Indenture to execute a guarantee of the notes pursuant to the "Limitation on
Issuance of Guarantees of Indebtedness" covenant until a successor replaces such
party pursuant to the applicable provisions of the Indenture and, thereafter,
shall mean such successor.
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur, including by conversion, exchange or otherwise,
assume, guarantee or otherwise become liable in respect of such Indebtedness or
other obligation or the recording, as required pursuant to GAAP or otherwise, of
any such Indebtedness or other obligation on the balance sheet of such Person
(and "Incurrence," "Incurred" and "Incurring" shall have meanings correlative to
the foregoing). Indebtedness of
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a Person existing at the time such Person becomes a Subsidiary or is merged or
consolidated with or into PSINet or any Subsidiary shall be deemed to be
Incurred at such time.
"Indebtedness" means, with respect to any Person, without duplication:
(1) all indebtedness of such Person for borrowed money or for the deferred
purchase price of property or services, excluding any trade payables
and other accrued current liabilities arising in the ordinary course of
business,
(2) all obligations of such Person evidenced by bonds, notes, debentures or
other similar instruments,
(3) all indebtedness created or arising under any conditional sale or other
title retention agreement with respect to property acquired by such
Person, unless the rights and remedies of the seller or lender under
such agreement in the event of default are limited to repossession or
sale of such property, but excluding trade payables arising in the
ordinary course of business,
(4) all obligations under Interest Rate Agreements, Currency Hedging
Agreements or Commodity Price Protection Agreements of such Person,
(5) all Capital Lease Obligations of such Person,
(6) all Indebtedness referred to in clauses (1) through (5) above of other
Persons and all dividends of other Persons, the payment of which is
guaranteed by such Person or which is otherwise secured by, or for
which the holder of such Indebtedness has an existing right, contingent
or otherwise, to be secured by, any Lien, upon or with respect to
property, including, without limitation, accounts and contract rights,
owned by such Person, even though such Person has not directly assumed
or become liable for the payment of such Indebtedness,
(7) all Redeemable Capital Stock issued by such Person valued at the
greater of its voluntary or involuntary maximum fixed repurchase price
plus accrued and unpaid dividends, and
(8) any refinancing of any liability of the types referred to in clauses
(1) through (7) above. For purposes hereof, the "maximum fixed
repurchase price" of any Redeemable Capital Stock which does not have a
fixed repurchase price shall be calculated in accordance with the terms
of such Redeemable Capital Stock as if such Redeemable Capital Stock
were purchased on any date on which Indebtedness shall be required to
be determined pursuant to the Indenture, and if such price is based
upon, or measured by, the Fair Market Value of such Redeemable Capital
Stock, such Fair Market Value to be determined in good faith by the
Board of Directors of the issuer of such Redeemable Capital Stock. In
no event shall "Indebtedness" include any trade payable or other
current liabilities arising in the ordinary course of business. The
amount of any item of Indebtedness shall be the amount of such
Indebtedness properly classified as a liability on a balance sheet
prepared in accordance with GAAP.
"Indenture Obligations" means the obligations of PSINet and any other
obligor under the Indenture or under the notes, including any Guarantor, to pay
principal of, premium, if any, and interest when due and payable, and all other
amounts due or to become due under or in connection with the Indenture, the
notes and the performance of all other obligations to the Trustee and the
holders under the Indenture and the notes, according to the respective terms
thereof.
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"Interest Rate Agreements" means one or more of the following agreements
which shall be entered into by one or more financial institutions: interest rate
protection agreements, including, without limitation, interest rate swaps, caps,
floors, collars and similar agreements, and/or other types of interest rate
hedging agreements from time to time.
"Investment" means, with respect to any Person, directly or indirectly, any
advance, loan, including guarantees, or other extension of credit or capital
contribution to by means of any transfer of cash or other property to others or
any payment for property or services for the account or use of others, or any
purchase, acquisition or ownership by such Person of any Capital Stock, bonds,
notes, debentures or other securities issued or owned by any other Person and
all other items that would be classified as investments on a balance sheet
prepared in accordance with GAAP.
"IXC" means IXC Internet Services, Inc., a Delaware corporation, and any
successors or assigns under the IXC Agreement.
"IXC Agreement" means the IRU and Stock Purchase Agreement, dated as of
July 22, 1997, between PSINet and IXC, as amended, pursuant to which PSINet
acquired from IXC 20-year noncancellable indefeasible rights of use, as in
effect on the date of the Indenture, or as further amended, from time to time,
to the extent that such amendment has been determined by the Board of Directors,
in good faith, not to adversely affect the holders of notes.
"Lien" means any mortgage or deed of trust, pledge, lien (statutory or
otherwise), security interest, hypothecation, or other encumbrance upon or with
respect to any property of any kind, real or personal, movable or immovable, now
owned or hereafter acquired. A Person shall be deemed to own subject to a Lien
any property which such Person has acquired or holds subject to the interest of
a vendor or lessor under any conditional sale agreement, capital lease or other
title retention agreement, other than:
(1) any lease properly classified as an operating lease under GAAP,
(2) intellectual property licensing arrangements, or
(3) cancellation or termination rights or provisions contained in
agreements governing any indefeasible rights of use or similar property
rights which do not materially impair the use of the property or
interest which is the subject of such cancellation or termination
rights or provisions.
"Liquidated Damages" has the meaning provided in section 5 of the
registration rights agreement.
"Maturity" means, when used with respect to the notes, the date on which
the principal of the notes becomes due and payable as therein provided or as
provided in the Indenture, whether at Stated Maturity, the Offer Date or the
redemption date and whether by declaration of acceleration, Offer in respect of
Excess Proceeds, Change of Control Offer in respect of a Change of Control, call
for redemption or otherwise.
"Net Cash Proceeds" means:
(a) with respect to any Asset Sale by any Person, the proceeds thereof,
without duplication in respect of all Asset Sales, in the form of cash
or Cash Equivalents including payments in respect of deferred payment
obligations when received in the form of, or stock or other assets when
disposed of for, cash or Cash Equivalents, except to the extent that
such obligations are financed or sold with recourse to PSINet or any
Wholly Owned Subsidiary, net of
. brokerage commissions and other fees and expenses, including
fees and expenses of counsel and investment bankers, related to
such Asset Sale,
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. provisions for all taxes payable as a result of such Asset
Sale,
. payments made to retire Indebtedness where payment of such
Indebtedness is secured by the assets or properties the subject
of such Asset Sale,
. amounts required to be paid to any Person, other than PSINet or
any Subsidiary, owning a beneficial interest in the assets
subject to the Asset Sale, and
. amounts contractually required to be deposited into escrow or
similar trust arrangements and other appropriate amounts to be
provided by PSINet or any Subsidiary, as the case may be, as a
reserve, in accordance with GAAP, against, any liabilities
associated with such Asset Sale and retained by PSINet or any
Subsidiary, as the case may be, after such Asset Sale,
including, without limitation, pension and other post-
employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale or reimbursement
obligations related to letters of credit issued against
liabilities associated therewith, all as reflected in an
officers' certificate delivered to the Trustee, which amounts
shall become Net Cash Proceeds only at such time as they are
released from escrow or such trust arrangements or otherwise
cease to be reserved or subject to other obligations to third
parties; and
(b) with respect to any issuance or sale of Capital Stock or options,
warrants or rights to purchase Capital Stock, or debt securities or
Capital Stock that have been converted into or exchanged for Capital
Stock as referred to under "--Certain Covenants--Limitation on
Restricted Payments," the proceeds of such issuance or sale in the form
of cash or Cash Equivalents including payments in respect of deferred
payment obligations when received in the form of, or stock or other
assets when disposed of for, cash or Cash Equivalents, except to the
extent that such obligations are financed or sold with recourse to
PSINet or any Subsidiary, net of attorney's fees, accountant's fees and
brokerage, consultation, underwriting and other fees and expenses
actually incurred in connection with such issuance or sale or
conversion, in the case of debt securities or Capital Stock that have
been converted, and net of taxes paid or payable as a result thereof.
"Pari Passu Indebtedness" means:
(1) any Indebtedness of PSINet that is pari passu in right of payment to
the notes; and
(2) with respect to any Guarantee, Indebtedness which ranks pari passu in
right of payment to such Guarantee.
"Permitted Credit Facility" means any unsubordinated commercial term loan
and/or revolving credit facility entered into principally with commercial banks
and/or other financial institutions typically party to commercial loan
agreements and any refinancing thereof.
"Permitted Investment" means:
(1) Investments in any Wholly Owned Subsidiary or any Person which, as a
result of, or in connection with, such Investment, (a) becomes a Wholly
Owned Subsidiary or (b) is merged or consolidated with or into, or
transfers or conveys all or substantially all of its assets to, or is
liquidated into, PSINet or any Wholly Owned Subsidiary;
(2) Indebtedness of PSINet or a Subsidiary described under clauses (4) and
(7) of paragraph (b) under "--Certain Covenants--Limitation on
Indebtedness";
(3) Investments in any of the notes;
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(4) Investments in Cash Equivalents;
(5) Investments acquired by PSINet or any Subsidiary in connection with an
Asset Sale permitted under "--Certain Covenants--Limitation on Sale of
Assets" to the extent such Investments are non-cash proceeds as
permitted under such covenant;
(6) Investments in existence or contractually committed to on or after
April 13, 1998 and any extension, modification or renewal of any such
Investment that does not increase the amount of such Investment;
(7) guarantees of Indebtedness of a Wholly Owned Subsidiary given by
PSINet or another Wholly Owned Subsidiary and guarantees of
Indebtedness of PSINet given by any Subsidiary, in each case, not
otherwise in violation of the terms of the Indenture;
(8) advances to employees or officers of PSINet in the ordinary course of
business so long as the aggregate amount of such advances shall not
exceed $2 million outstanding at any one time;
(9) any Investment in PSINet by any Subsidiary of PSINet; provided, that
any such Investment in the form of Indebtedness shall be Subordinated
Indebtedness;
(10) accounts receivable created or acquired in the ordinary course of
business of PSINet or any Subsidiary and Investments arising from
transactions by PSINet or any Subsidiary with trade creditors or
customers in the ordinary course of business, including any such
Investment received pursuant to any plan of reorganization or similar
arrangement pursuant to the bankruptcy or insolvency of such trade
creditors or customers or otherwise in settlement of a claim;
(11) loans in the ordinary course of business to employees, officers or
directors of PSINet or a Subsidiary to purchase Capital Stock of
PSINet pursuant to the terms of stock benefit plans;
(12) Investments the consideration of which is Capital Stock of PSINet;
(13) Investments in or acquisitions of Capital Stock or other obligations,
property or securities of Persons, other than Affiliates, received in
the bankruptcy or reorganization of or by such Person or otherwise
taken in settlement or satisfaction of claims, disputes or judgments,
and, in each case, extensions, modifications and renewals thereof;
(14) Investments in prepaid expenses, negotiable instruments held for
collection, and lease, utility and workers' compensation, performance
and other similar deposits;
(15) Investments, not to exceed, in the aggregate, $100 million at any one
time outstanding, made to obtain noncancellable indefeasible rights of
use to, or capacity in, fiber-based bandwidth or similar network
bandwidth, related equipment and/or other Telecommunications Assets in
the ordinary course of PSINet's business or in the Capital Stock of a
Person engaged in a Telecommunications Business; and
(16) any other Investments in an aggregate amount not to exceed $50 million
at any one time outstanding.
In connection with any assets or property contributed or transferred to any
Person as an Investment, such property and assets shall be equal to the Fair
Market Value, as determined by PSINet's Board of Directors at the time of such
Investment.
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"Permitted Joint Venture" means a corporation, partnership or other Person
engaged in a Telecommunications Business over which PSINet has, directly or
indirectly, the power to direct the policies, management and affairs in all
material respects.
"Permitted Lien" means:
(a) any Lien existing as of the date of the Indenture;
(b) any Lien arising by reason of:
(1) any judgment, decree or order of any court, so long as such Lien is
adequately bonded and any appropriate legal proceedings which may have
been duly initiated for the review of such judgment, decree or order
shall not have been finally terminated or the period within which such
proceedings may be initiated shall not have expired,
(2) taxes not yet delinquent or which are being contested in good faith,
(3) security for payment of workers' compensation or other insurance or
arising under workers' compensation laws or similar legislation,
(4) good faith deposits in connection with bids, tenders, leases,
contracts, other than contracts evidencing Indebtedness,
(5) zoning restrictions, easements, licenses, reservations, title defects,
rights of others for rights of way, utilities, sewers, electric lines,
telephone or telegraph lines, and other similar purposes, provisions,
covenants, conditions, waivers, restrictions on the use of property or
irregularities of title and, with respect to leasehold interests,
mortgages, obligations, liens and other encumbrances incurred, created,
assumed or permitted to exist and arising by, through or under a
landlord or owner of the leased property, with or without consent of
the lessee, none of which materially impairs the use of any parcel of
property material to the operation of the business of PSINet or any
Subsidiary or the value of such property for the purpose of such
business,
(6) deposits to secure public or statutory obligations, or in lieu of
surety or appeal bonds, or
(7) operation of law in favor of landlords, carriers, warehousemen,
bankers, mechanics, materialmen, laborers, employees or suppliers,
incurred in the ordinary course of business for sums which are not yet
delinquent or are being contested in good faith by negotiations or by
appropriate proceedings which suspend the collection thereof;
(c) any Lien to secure the performance bids, trade contracts, leases,
including, without limitation, statutory and common law landlord's liens,
statutory obligations, surety and appeal bonds, letters of credit and other
obligations of a like nature and incurred in the ordinary course of business of
PSINet or any Subsidiary;
(d) any Lien securing obligations in connection with Indebtedness permitted
under that section of the Indenture described in clause (1) of paragraph (b) of
"--Certain Covenants--Limitation on Indebtedness" which attaches within 180 days
of the incurrence of such Indebtedness or the date of delivery of such property
or asset, whichever occurs later; provided that such Liens only extend to such
acquired, developed or constructed property and any accessories, accessions,
additions, replacements and proceeds thereof;
(e) any Lien arising from judgments, decrees or attachments in
circumstances not constituting an Event of Default;
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(f) any Lien securing obligations in connection with Indebtedness permitted
under that section of the Indenture described in clauses (2), (4) or (8) of
paragraph (b) of "--Limitation on Indebtedness;"
(g) any Lien in favor of PSINet or any Wholly Owned Subsidiary;
(h) any Lien securing obligations in connection with Acquired Indebtedness;
provided that any such Lien does not extend to or cover any property or assets
of PSINet or any of its Subsidiaries other than the property or assets of the
Acquired Person covered thereby or the property assets so acquired;
(i) any Lien in favor of the Trustee for the benefit of the Holders or the
Trustee arising under the provisions in the Indenture;
(j) any Lien encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual or warranty requirements of PSINet or any
Subsidiary if and to the extent arising in the ordinary course of business,
including rights of offset and set-off;
(k) any Lien in favor of customs or revenue authorities to secure payment
of customs duties in connection with the importation of goods in the ordinary
course of business;
(l) leases, subleases, licenses or other similar rights granted to third
Persons not interfering with the ordinary course of business of PSINet or its
Subsidiaries;
(m) any Lien securing reimbursement obligations with respect to letters of
credit that encumber documents and other property relating to such letters of
credit; and
(n) any Lien securing any refinancing, in whole or in part, of any
obligation or Indebtedness described in the foregoing clauses (a) through (m),
other than clause (e), so long as no additional collateral is granted as
security thereby.
"Preferred Stock" means, with respect to any Person, any Capital Stock of
any class or classes (however designated) which is preferred as to the payment
of dividends or distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over the
Capital Stock of any other class in such Person.
"Public Equity Offering" means an underwritten offering of Capital Stock,
other than Disqualified Stock, of PSINet with gross proceeds to PSINet of at
least $25 million pursuant to a registration statement that has been declared
effective by the Securities and Exchange Commission pursuant to the Securities
Act of 1933, other than a registration statement on Form S-8 or otherwise
relating to equity securities issuable under any employee benefit plan of
PSINet.
"Purchase Money Obligation" means any Indebtedness secured by a Lien on
assets related to the business of PSINet and any additions, replacements,
modifications and accessions thereto, which are purchased by PSINet at any time
after the notes are issued; provided that:
(1) the security agreement or conditional sales or other title retention
contract pursuant to which the Lien on such assets is created
(collectively a "Purchase Money Security Agreement") shall be entered
into within 180 days after the purchase or substantial completion of
the construction of such assets and shall at all times be confined
solely to the assets so purchased or acquired, any additions,
replacements, modifications and accessions thereto and any proceeds and
products therefrom;
(2) at no time shall the aggregate principal amount of the outstanding
Indebtedness secured thereby be increased, except in connection with
the purchase of additions and accessions
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thereto and except in respect of fees and other obligations in respect
of such Indebtedness; and
(3) (A) the aggregate outstanding principal amount of Indebtedness secured
thereby, determined on a per asset basis in the case of any additions
and accessions, shall not at the time such Purchase Money Security
Agreement are entered into exceed 100% of the purchase price to PSINet
of the assets subject thereto or (B) the Indebtedness secured thereby
shall be with recourse solely to the assets so purchased or acquired,
any additions, replacements, modifications and accessions thereto and
any proceeds and products therefrom.
"Qualified Capital Stock" of any Person means any and all Capital Stock of
such Person other than Redeemable Capital Stock.
"Redeemable Capital Stock" means any Capital Stock that, either by its
terms or by the terms of any security into which it is convertible or
exchangeable or otherwise, is or upon the happening of an event or passage of
time would be, required to be redeemed prior to the Stated Maturity of the
principal of the notes or is redeemable at the option of the holder thereof at
any time prior to such Stated Maturity, or is convertible into or exchangeable
for debt securities at any time prior to such Stated Maturity at the option of
the holder thereof.
"Registration Default" has the meaning provided in Section 5 of the
registration rights agreement.
"Sale and Leaseback Transaction" means any transaction or series of related
transactions pursuant to which PSINet or a Subsidiary sells or transfers any
property or asset in connection with the leasing, or the resale against
installment payments, of such property or asset to the seller or transferor.
"Shelf Registration Statement" means a shelf registration statement
pursuant to Rule 415 under the Securities Act of 1933.
"Stated Maturity" means, when used with respect to any Indebtedness or any
installment of interest thereon, the dates specified in such Indebtedness as the
fixed date on which the principal of such Indebtedness or such installment of
interest, as the case may be, is due and payable.
"Strategic Investor" means any Person which is, or a controlled Affiliate
of any Person which is or a controlled Affiliate of which is, engaged
principally in the Telecommunications Business and which has a Total Market
Capitalization of at least $500 million.
"Subordinated Indebtedness" means Indebtedness of PSINet or a Guarantor
expressly subordinated by its terms in right of payment to the notes or the
Guarantee of such Guarantor, as the case may be.
"subsidiary" means, with respect to any Person, a corporation, association
or other business entity (1) of which outstanding Capital Stock having at least
the majority of the votes entitled to be cast in the election of directors is
owned, directly or indirectly, by such Person and/or any one or more
subsidiaries of such Person, or (2) of which at least a majority of voting
interest is owned, directly or indirectly, by such Person and/or one or more
subsidiaries of such Person.
"Subsidiary" means any subsidiary of PSINet other than an Unrestricted
Subsidiary.
"Telecommunications Assets" means all assets, including Capital Stock,
rights, contractual or otherwise, and properties, real or personal, whether
tangible or intangible, used or intended for use in connection with a
Telecommunications Business.
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"Telecommunications Business" means, when used in reference to any Person,
that such Person is engaged primarily in:
(1) the business of transmitting, or providing services relating to the
transmission of, voice, video or data through owned or leased
transmission facilities,
(2) the business of creating, developing or marketing communications
related network equipment or services or computer-based information or
(3) businesses reasonably related thereto, which determination shall, in
any such case, be made in good faith by the Board of Directors.
"Total Consolidated Indebtedness" means, as at any date of determination,
an amount equal to the aggregate amount of all Indebtedness of PSINet and any
Subsidiary, on a Consolidated basis in accordance with GAAP, outstanding as of
such date of determination, after giving effect to any Incurrence of
Indebtedness and the application of the proceeds therefrom giving rise to such
determination.
"Total Market Capitalization" of any Person means, as of any day of
determination, the sum of:
(a) the consolidated Indebtedness of such Person and any Subsidiaries
on such day; plus
(b) the product of
(1) the aggregate number of outstanding shares of common stock of
such Person on such day, which shall not include any options or
warrants on, or securities convertible or exchangeable into,
shares of Common Stock of such Person, and
(2) the average closing price of such common stock over the 10
consecutive Trading Days ending not earlier than 10 Trading Days
immediately prior to such date of determination; plus
(c) the liquidation value of any outstanding shares of preferred stock of
such Person on such day.
If no such closing price exists with respect to shares of any such class,
the value of such shares for purposes of clause (b) of the preceding sentence
shall be determined by the Board in good faith and evidenced by a resolution of
the Board filed with the Trustee. Notwithstanding the foregoing, unless the
Person's Common Stock is listed on any national securities exchange or on The
Nasdaq National Market, the "Total Market Capitalization" of the Person shall
mean, as of any day of determination, the enterprise value, without duplication,
of the Person and any subsidiaries, including the fair market value of their
debt and equity, as determined by an independent banking firm of national
standing with experience in such valuations and evidenced by a written opinion
in customary form filed with the Trustee; provided that for purposes of any such
determination, the enterprise value of the Person shall be calculated as if the
Person were a publicly held corporation without a controlling stockholder. For
purposes of any such determination, such banking firm's written opinion may
state that such fair market value is no less than a specified amount and such
opinion may be as of a date no earlier than 90 days prior to the date of such
determination.
"Trading Day" with respect to a securities exchange or automated quotation
system means a day on which such exchange or system is open for a full day of
trading.
"Trustee" means Wilmington Trust Company, until a successor trustee shall
have become such pursuant to the applicable provisions of the Indenture, and
thereafter "Trustee" shall mean such successor trustee.
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"United States Dollar Equivalent" means, with respect to any monetary
amount in a currency other than the U.S. Dollar, at or as of any time for the
determination thereof, the amount of U.S. Dollars obtained by converting such
foreign currency involved in such computation into U.S. Dollars at the spot rate
for the purchase of U.S. Dollars with the applicable foreign currency as quoted
by Reuters (or, if Reuters ceases to provide such spot quotations, by such other
service as is providing such spot quotations, as selected by PSINet) at
approximately 11:00 a.m. (New York City time) on the date not more than two
business days prior to such determination. For purposes of determining whether
any Indebtedness can be incurred, any Investment can be made or any transaction
described in the "Limitation on Transactions with Affiliates" covenant can be
undertaken (a "Tested Transaction"), the United States Dollar Equivalent of such
Indebtedness, Investment or transaction described in the "Limitation or
Transaction with Affiliates" covenant shall be determined as of the date
incurred, made or undertaken and, in each case, no subsequent change in the
United States Dollar Equivalent shall cause such Tested Transaction to have been
incurred, made or undertaken in violation of the Indenture.
"Unrestricted Subsidiary" means:
(1) any subsidiary of PSINet that at the time of determination shall be an
Unrestricted Subsidiary, as designated by the Board of Directors of
PSINet, as provided below; and
(2) any subsidiary of an Unrestricted Subsidiary.
The Board of Directors of PSINet may designate any subsidiary of PSINet,
including any newly acquired or newly formed Subsidiary, to be an Unrestricted
Subsidiary if all of the following conditions apply:
(a) neither PSINet nor any of its Subsidiaries provides credit support
for Indebtedness of such subsidiary, including any undertaking,
agreement or instrument evidencing such Indebtedness;
(b) such subsidiary is not liable, directly or indirectly, with
respect to any Indebtedness other than Unrestricted Subsidiary
Indebtedness;
(c) any Investment in such subsidiary made as a result of designating
such subsidiary an Unrestricted Subsidiary shall not violate the
provisions of the "--Certain Covenants--Limitation on Unrestricted
Subsidiaries" covenant and such Unrestricted Subsidiary is not party to
any agreement, contract, arrangement or understanding at such time with
PSINet or any Subsidiary of PSINet unless the terms of any such
agreement, contract, arrangement or understanding are no less favorable
to PSINet or such Subsidiary than those that might be obtained at the
time from Persons who are not Affiliates of PSINet; and
(d) such Unrestricted Subsidiary does not own any Capital Stock in any
Subsidiary of PSINet which is not simultaneously being designated an
Unrestricted Subsidiary.
Any such designation by the Board of Directors of PSINet shall be evidenced
to the Trustee by filing with the Trustee a board resolution giving effect to
such designation and an officers' certificate certifying that such designation
complies with the foregoing conditions and shall be deemed a Restricted Payment
on the date of designation in an amount equal to the greater of (A) the net book
value of such Investment or (B) the fair market value of such Investment as
determined in good faith by PSINet's Board of Directors. The Board of Directors
of PSINet may designate any Unrestricted Subsidiary as a Subsidiary; provided
that:
. immediately after giving effect to such designation, PSINet could incur
$1.00 of additional Indebtedness, other than Permitted Indebtedness,
pursuant to the restrictions under "--Certain Covenants, Limitation on
Indebtedness"; and
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. all Indebtedness of such Subsidiary shall be deemed to be incurred on
the date such Unrestricted Subsidiary becomes a Subsidiary.
"Unrestricted Subsidiary Indebtedness" of any Unrestricted Subsidiary means
Indebtedness of such Unrestricted Subsidiary:
(1) as to which neither PSINet nor any Subsidiary is directly or indirectly
liable, by virtue of PSINet or any such Subsidiary being the primary
obligor on, guarantor of, or otherwise liable in any respect to, such
Indebtedness, except Guaranteed Debt of PSINet or any Subsidiary to any
Affiliate, in which case, unless the incurrence of such Guaranteed Debt
resulted in a Restricted Payment at the time of incurrence, PSINet
shall be deemed to have made a Restricted Payment equal to the
principal amount of any such Indebtedness to the extent guaranteed at
the time such Affiliate is designated an Unrestricted Subsidiary, and
(2) which, upon the occurrence of a default with respect thereto, does not
result in, or permit any holder of any Indebtedness of PSINet or any
Subsidiary to declare, a default on such Indebtedness of PSINet or any
Subsidiary or cause the payment thereof to be accelerated or payable
prior to its Stated Maturity.
"Voting Stock" means Capital Stock of the class or classes pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the Board of Directors, managers
or trustees of a corporation, irrespective of whether or not at the time Capital
Stock of any other class or classes shall have or might have voting power by
reason of the happening of any contingency.
"Wholly Owned Subsidiary" means a Subsidiary all the Capital Stock of which
is owned by PSINet or another Wholly Owned Subsidiary. For the purposes of this
definition, any director qualifying shares or investments by foreign nationals
mandated by, or required to maintain its limited liability status under,
applicable law shall be disregarded in determining the ownership of a
Subsidiary.
Paying Agents and Registrar for the Notes
We will maintain one or more paying agents and transfer agents for the euro
notes (1) in Luxembourg, for as long as the euro notes are outstanding, and (2)
in the Borough of Manhattan, City of New York (each a "Euro Paying Agent" and a
"Euro Transfer Agent," respectively). The initial Euro Paying Agents and Euro
Transfer Agents are Wilmington Trust Company in New York and, as agent for
Wilmington Trust Company in Luxembourg, Kredietbank S.A. Luxembourgeoise.
We will maintain one or more paying agents and transfer agents for the
dollar notes (1) in Luxembourg, for so long as, the dollar notes are
outstanding, and (2) in the Borough of Manhattan, City of New York (each a
"Dollar Paying Agent" and a "Dollar Transfer Agent," respectively, and together
with the Euro Paying Agents and the Euro Transfer Agents, the "Paying Agents"
and the "Transfer Agents," respectively). The initial Dollar Paying Agents are
Wilmington Trust Company in New York and, as agent for Wilmington Trust Company
in Luxembourg, Kredietbank S.A. Luxembourgeoise.
We will also maintain a registrar for the euro notes and a registrar for
the dollar notes (each, a "Registrar") with offices or agents in the Borough of
Manhattan, City of New York. The initial Registrar for the dollar notes is
Wilmington Trust Company in New York. The initial Registrar for the euro notes
is Wilmington Trust Company in New York. The Registrar will maintain a register
reflecting ownership of the relevant Definitive Registered Notes outstanding
from time to time.
In any case where any interest payment date, redemption date, maturity or
stated maturity of any note shall not be a Business Day, then payment of
interest or principal or premium, if any, need not be made on such date, but may
be made on the next succeeding Business Day with the same force and effect as if
made on such interest payment date or redemption date, or at the maturity of
stated maturity and no
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interest shall accrue with respect to such payment for the period from and after
such interest payment date, redemption date, maturity or stated maturity, as the
case may be, to the next succeeding Business Day.
We reserve the right at any time to vary or terminate the appointment of
any Paying Agent, Registrar, Transfer Agent or other agent and/or to appoint
additional or other Paying Agents, Registrars, Transfer Agents or other agents
and/or to appoint additional or other Paying Agents, Registrars, Transfer Agents
without prior notice to the holders.
Notices
All notices to holders of the notes shall be deemed to have been duly given
upon (1) the mailing by first-class mail, postage prepaid, of such notices to
registered holders of the notes at their registered addresses as recorded in the
registers; and (2) publication in a leading daily newspaper with general
circulation in Luxembourg or, if the euro notes are not listed on the Luxembourg
Stock Exchange and not practicable, in a leading daily English-language
newspaper having general circulation in Europe previously approved by the
Trustee. Any notice referred to in (2) above shall be deemed to have been given
on the date of such publication or, if published more than once or on different
dates, on the first date on which publication is made in the manner required in
the newspaper or in one of the newspapers referred to above. For notes which are
represented by global certificates held on behalf of Euroclear or Cedelbank,
notices may be given by delivery of the relevant notices to Euroclear or
Cedelbank for communication in substitution for the aforesaid publication. If,
and for so long as, any euro notes are listed on the Luxembourg Stock Exchange
and the rules and regulations of the Luxembourg Stock Exchange so require, any
such notice shall also be published in a leading daily newspaper of general
circulation in Luxembourg. Such publication is expected to be the Luxembourger
Wort.
Form of Notes
The notes issued on the closing date of the initial notes offering were
issued in the form of Global Notes. Initial dollar notes were, and exchange
dollar notes will be, issued in denominations of $1,000 principal amount and
integral multiples thereof. Initial euro notes were, and exchange euro notes
will be, issued in denominations of Euro 1,000 principal amount and integral
multiples thereof.
Euro notes sold within the United States to qualified institutional buyers
will initially be represented by one Global Note (the "Euro U.S. Global Note")
and euro notes sold outside the United States pursuant to Regulation S under the
Securities Act will initially be represented by one Global Note (the "Euro
International Global Note" and, together with the Euro U.S. Global Note, the
"Euro Global Notes"). On July 23, 1999, the closing date of the initial notes
offering, the Euro Global Notes were deposited with a common depositary for
Euroclear and Cedelbank, or its nominee. Investors may hold their interests in
the Euro Global Notes directly through Euroclear or Cedelbank or indirectly
through organizations which are participants in Euroclear or Cedelbank. Euro
Book-Entry Interests will be shown on, and transfers thereof will be effected
only through, records maintained in book-entry form by Euroclear and Cedelbank
and their participants.
Dollar notes sold within the United States to qualified institutional
buyers will initially be represented by one or more Global Notes (the "Dollar
U.S. Global Note") and dollar notes sold outside the United States pursuant to
Regulation S under the Securities Act will initially be represented by one or
more Global Notes (the "Dollar International Global Note" and, together with the
Dollar U.S. Global Note, the "Dollar Global Notes"). On July 23, 1999, the
closing date of the initial notes offering, the Dollar Global Notes were
deposited with the Trustee as custodian for DTC (together with Euroclear and
Cedelbank, the "Depositaries") and registered in the name of Cede & Co., as
nominee of DTC. Prior to September 1, 1999, the 40th day after the later
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of the commencement of the initial notes offering and the issue date of the
initial notes, interests in the Dollar International Global Note may be held
only through Euroclear or Cedelbank. Investors may hold their interests in the
Dollar International Global Notes directly through Euroclear or Cedelbank, or
indirectly through organizations which are participants in such systems.
Euroclear and Cedelbank will hold such interests in the Dollar International
Global Note in their respective names on the books of DTC on behalf of their
participants. Beginning September 1, 1999, the date 40 days after the later of
the commencement of the initial notes offering and the issue date of the initial
notes (but not earlier), ownership interests in the Dollar International Global
Notes may also be held through organizations other than Cedelbank or Euroclear
that are participants in DTC. Dollar Book-Entry Interests will be shown on, and
transfers thereof will be effected only through, records maintained in book-
entry form by DTC and its participants.
Book-entry interests in the dollar notes are held by DTC (the "Dollar Book-
Entry Interests") and book-entry interests in the euro notes are held by
Euroclear or Cedelbank (the "Euro Book-Entry Interests" and, collectively with
the Dollar Book-Entry Interests, the "Book-Entry Interests"). Book-Entry
Interests will not be held in definitive form. Instead, DTC, Euroclear and/or
Cedelbank will credit on their respective book-entry registration and transfer
systems a participant's account with the interest beneficially owned by such
participant. The laws of some jurisdictions, including some states of the United
States, may require that certain purchasers of securities take physical delivery
of such securities in definitive form. The foregoing limitations may impair the
ability to own, transfer or pledge Book-Entry Interests. For certain
restrictions on the transferability of the initial notes, see "The Exchange
Offer--Consequences of Failure to Exchange." In addition, while the notes are
in global form, holders of Book-Entry Interests will not be considered the
owners or "holders" of notes for any purpose, including with respect to the
giving of any directions, instructions or approvals to the Trustee under the
Indenture.
Under the terms of the Indenture, owners of Euro Book-Entry Interests will
receive Definitive Registered Notes:
(1) if either Euroclear or Cedelbank notifies us that it is unwilling or
unable to continue to act as depositary and a successor depositary is
not appointed by us within 120 days;
(2) if Euroclear or Cedelbank so request following an Event of Default
under the Indenture;
(3) in whole (but not in part) at any time if we in our sole discretion
determine that the Euro Global Notes should be exchanged for Definitive
Registered Notes; or
(4) the owner of a Euro Book-Entry Interest requests such exchange in
writing delivered through either Euroclear or Cedelbank following an
Event of Default under the Indenture.
Euroclear has advised us, with regard to the Euro Book-Entry Interests,
that its current practice, upon receipt of any request by an owner of a Book-
Entry Interest for Definitive Registered Notes, is to make a request to us that
all owners of Book-Entry Interests receive Definitive Registered Notes.
Under the terms of the Indenture, owners of Dollar Book-Entry Interests
will receive Definitive Registered Notes:
(1) if DTC notifies us that it is unwilling or unable to continue to act as
depositary or ceases to be a clearing agency registered under the
Exchange Act and, in either case, a successor depositary is not
appointed by the Issuer within 120 days;
(2) if DTC so requests following an Event of Default under the Indenture;
(3) in whole (but not in part) at any time if we in our sole discretion
determine that the Global Notes should be exchanged for Definitive
Registered Notes; or
(4) the owner of a Dollar Book-Entry Interest requests such exchange in
writing delivered through DTC (including following an Event of Default
under the Indenture).
In such an event, the Registrar for the notes will issue notes in
definitive registered form ("Definitive Registered Notes"), registered in the
name or names and issued in any approved denominations, requested by or on
behalf of DTC, Euroclear and/or Cedelbank, as applicable (in
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accordance with their respective customary procedures and based upon directions
received from participants reflecting the beneficial ownership of Book-Entry
Interests) and will bear the restrictive legend currently set forth on the
Dollar Global Notes and the Euro Global Notes, unless that legend is not
required by the Indenture or applicable law. Principal of, premium, if any, and
interest on any Definitive Registered Notes will be payable at the corporate
trust office or agency of the relevant Paying Agent maintained in New York City
or Luxembourg for such purpose, provided that payment of interest may be made at
our option by check mailed to addresses of persons entitled thereto as shown on
the note register.
Payments of principal on any Definitive Registered Notes will be made
against presentation and surrender (or, in the case of a partial payment,
endorsement) of such notes at the office of the relevant Paying Agent. Payments
in respect of dollar notes will be made by U.S. dollar check drawn on, or by
transfer from a U.S. dollar account maintained by us, and payments in respect of
euro notes will be made by Euro check drawn on, or by transfer from a Euro
account maintained by us.
If Definitive Registered Notes are issued and such notes are listed on the
Luxembourg Stock Exchange, transfers of such notes will have to be cleared
through a clearing system or a method approved by the rules and regulations of
the Luxembourg Stock Exchange in order to continue to be listed on the
Luxembourg Stock Exchange.
To the extent permitted by law, we, the Trustee and the Registrar shall be
entitled to treat the holder of any note as the absolute owner thereof.
We will not impose any fees or other charges in respect of the notes;
however, holders of the Book-Entry Interests may incur fees normally payable in
respect of the maintenance and operation of accounts in DTC, Euroclear and/or
Cedelbank.
None of us, the guarantors, if any, the Trustee or the Registrar will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of Book-Entry Interests or for maintaining, supervising
or reviewing any records of DTC, Euroclear or Cedelbank relating to the notes.
Transfer and Exchange
The Global Notes may be transferred only to a successor to the relevant
Depositary.
Book-Entry Interests in the initial notes will be subject to certain
restrictions on transfer and certification requirements, as described under "The
Exchange Offer--Consequences of Failure to Exchange." After the exchange notes
have been registered under the Securities Act, all certification requirements
with respect to the exchange notes will cease.
All transfers of Book-Entry Interests between participants in DTC,
participants in Euroclear or participants in Cedelbank will be effected by DTC,
Euroclear or Cedelbank pursuant to customary procedures and subject to the
applicable rules and procedures established by DTC, Euroclear or Cedelbank and
their respective participants. See "Description of Book-Entry System."
Subject to the foregoing, a Book-Entry Interest in one of the Global Notes
may be transferred to a person who takes delivery thereof in the form of a Book-
Entry Interest in another of the Global Notes by means of an instruction
originated through DTC, Euroclear or Cedelbank, as applicable. Any Book-Entry
Interest that is so transferred will, upon transfer, cease to be a Book-Entry
Interest in the first-mentioned Global Note and become a Book-Entry Interest in
the other Global Note and will thereafter be subject to all transfer
restrictions, if any, and other procedures applicable to Book-Entry Interests in
such other Global Note for as long as it remains such a Book-Entry Interest. In
connection with such transfer, appropriate adjustments will be made to reflect a
decrease in the principal amount at maturity of the first-mentioned Global Note
and a corresponding increase in the principal amount at maturity of the other
Global Note, as applicable.
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Book-Entry Interests in a Global Note may be exchanged by the holder
thereof for Definitive Registered Notes in denominations of Euro 1,000 or $1,000
principal amount and integral multiples thereof upon receipt by the Registrar of
instructions relating thereto and any certificates and other documentation
required by the Indenture. It is expected that such instructions will be based
upon directions received by DTC, Euroclear or Cedelbank, as applicable, from the
participant which owns the relevant Book-Entry Interests. Definitive Registered
Notes issued in exchange for a Book-Entry Interest in the initial notes will,
except as set forth in the Indenture or as otherwise determined by us in
compliance with applicable law, be subject to the restrictions described under
"The Exchange Offer--Consequences of Failure to Exchange" and will have the
legend currently set forth on the Dollar Global Notes and the Euro Global Notes.
Subject to such restrictions on the initial notes, euro notes issued as
Definitive Registered Notes may be transferred, upon surrender for registration
of transfer of such note at the office or agency maintained for such purpose in
New York City or Luxembourg, in whole or in part, in denominations of Euro 1,000
in principal amount or integral multiples thereof and dollar notes issued as
Definitive Registered Notes may be transferred, upon surrender for registration
of transfer of such note at the office or agency maintained for such purpose in
New York City or Luxembourg, in whole or in part, in denominations of $1,000 in
principal amount or integral multiples thereof to persons who take delivery
thereof in the form of Definitive Registered Notes or in the form of Book-Entry
Interests in a Global Note. In the case of a transfer of only a portion of a
Definitive Registered Note, a new Definitive Registered Note will be issued to
the transferee in respect of the principal amount of the portion so transferred
and a further new Definitive Registered note in respect of the balance of the
principal amount not so transferred shall be issued to the transferor, in each
case at the office or agency maintained for such purpose in New York City or
Luxembourg. In connection with any transfer of notes, the Indenture will
require the transferor to, among other things, furnish appropriate endorsements
and transfer documents, to furnish certain certificates and to pay any taxes,
duties and governmental charges in connection with such transfer.
Notwithstanding the foregoing, we are not required to register the transfer
of any Definitive Registered Notes:
(1) for a period of 15 calendar days prior to any date fixed for the
redemption of the notes;
(2) for a period of 15 calendar days immediately prior to the date fixed
for selection of notes to be redeemed in part;
(3) for a period beginning on the record date with respect to any interest
payment date and ending on the close of business on such interest
payment date; or
(4) which the holder has tendered (and not withdrawn) for repurchase in
connection with a Change of Control Offer or an Excess Proceeds Offer.
Any such transfer will be made without charge to the holder, other than any
taxes, duties and governmental charges payable in connection with such transfer.
Replacement of Notes
If any mutilated note is surrendered to the Trustee, or we and the Trustee
receive evidence to our satisfaction of the destruction, loss or theft of any
note, application can be made to any Transfer Agent at its office or agency in
New York City or Luxembourg to replace that note, which must be accompanied by
delivery to us, each guarantor, if any, and the Trustee of such security or
indemnity as may be required by any of such parties. Upon the issuance of any
replacement note, we may require the payment of a sum sufficient to pay all
documentary, stamp or similar issue or transfer taxes or other governmental
charges that may be imposed in relation thereto and any other expenses
(including the fees and expenses of the Trustee) connected therewith.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
The summaries contained herein of certain of our existing indebtedness do
not purport to be complete and are qualified in their entirety by reference to
the provisions of the various agreements and indentures related thereto, copies
of which have been filed with the Securities and Exchange Commission and to
which reference is hereby made. See "Where You Can Find More Information."
Credit Facility
In September 1998, we entered into a three-year senior secured revolving
credit facility, pursuant to which The Chase Manhattan Bank ("Chase") is acting
as administrative agent. The credit facility is a secured revolving credit
facility with borrowing availability thereunder in the maximum principal amount
of $110 million.
Interest. Borrowings under the credit facility bear interest at our
option, at:
(1) the London interbank offered rate for deposits in U.S. Dollars for the
relevant period multiplied by the statutory reserve rate plus the
Applicable Margin ("Eurodollar Rate"); or
(2) the higher of Chase's prime rate or the Federal Funds effective rate
plus 1/2 of 1%, plus the Applicable Margin ("ABR Rate").
The Applicable Margin varies based on the Leverage Ratio (as defined in the
credit facility) as of the most recent determination date. Currently, the
Applicable Margin is 1.75% for ABR Rate borrowings and 2.75% for Eurodollar Rate
borrowings.
Guarantees and Security. Our obligations under the credit facility are
guaranteed by each existing and subsequently acquired or organized significant
domestic subsidiary of us (a subsidiary which owns or maintains at least
$1,000,000 in assets or generates at least $1,000,000 in annual revenues) and
are secured by a lien on substantially all of the assets of us and each
subsidiary guarantor and by a pledge by us and each subsidiary guarantor of all
capital stock and other equity interests it owns (65% in the case of equity
interests in foreign subsidiaries).
Covenants. The credit facility contains covenants and provisions that
restrict, among other things, our ability and the ability of our subsidiaries
to:
(1) make dividends and distributions on, and redemptions and repurchases
of, capital stock and other similar payments;
(2) make prepayments, redemptions and repurchases of indebtedness;
(3) incur liens and enter into sale-leaseback transactions;
(4) make certain loans and investments;
(5) incur additional indebtedness and certain contingent obligations;
(6) effect certain mergers, acquisitions and asset sales;
(7) engage in certain transactions with affiliates;
(8) effect certain changes in business conducted by us; and
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(9) amend and waive certain debt and other agreements. The credit facility
also requires the satisfaction of certain financial covenants,
including a minimum annual consolidated revenue test, a minimum debt-
to-annualized adjusted revenue ratio, a minimum aggregate balance of
nonrestricted cash and available borrowings and a minimum EBITDA test.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Capital Structure." In addition, the credit
facility requires a reduction in the maximum amount of availability
and prepayments (if required as a result of such reduction) equal to
the net proceeds received from certain asset sales aggregating more
than $5 million and from certain casualty events.
Events of Default. Events of default under the credit facility include
various events of default customary for such type of agreement, such as failure
to pay scheduled payments when due, cross defaults with and cross acceleration
to other indebtedness (including the 10% senior notes and the 11 1/2% senior
notes), the occurrence of a change in control (as defined in the credit
facility) and certain events of bankruptcy, insolvency and reorganization.
10% Senior Notes
We have outstanding $600.0 million aggregate principal amount of 10% Senior
Notes due 2005. The 10% senior notes are senior unsecured obligations ranking
equivalent in right of payment to all of our existing and future unsecured and
unsubordinated indebtedness and senior in right of payment to all of our
existing and future subordinated indebtedness. The 10% senior notes were issued
under an Indenture dated as of April 13, 1998 between us and Wilmington Trust
Company, as Trustee.
The 10% senior notes will mature on February 15, 2005. Interest on the 10%
senior notes is payable semi-annually on August 15 and February 15 of each year,
commencing August 15, 1998. The 10% senior notes are redeemable at our option,
in whole or in part, at any time on or after February 15 of 2002, 2003 and 2004
at 105%, 102.5% and 100% of the principal amount thereof, respectively, in each
case, plus accrued and unpaid interest to the date of redemption. In addition,
on or prior to February 15, 2001, we may redeem up to 35% of the original
aggregate principal amount of the 10% senior notes at a redemption price of 110%
of the principal amount thereof, plus accrued and unpaid interest to the date of
redemption, with the net cash proceeds of certain public equity offerings or the
sale of stock to one or more strategic investors, provided that at least 65% of
the original aggregate principal amount of the 10% senior notes remains
outstanding immediately after such redemption. Upon the occurrence of a Change
of Control (as defined in the 10% senior notes indenture), we will be required
to make an offer to purchase all of the 10% senior notes at a purchase price
equal to 101% of the principal amount thereof, plus accrued and unpaid interest,
if any, to the date of repurchase. We may not have sufficient funds or the
financial resources necessary to satisfy its obligations to repurchase the 10%
senior notes upon a Change of Control. The credit facility prohibits us from
repurchasing 10% senior notes upon a Change of Control unless it has paid all
amounts outstanding under the credit facility prior thereto.
The 10% senior notes indenture contains certain financial covenants with
which we must comply relating to, among other things, the following matters:
(1) limitation on our payment of cash dividends, repurchase of capital
stock, payment of principal on subordinated indebtedness and making of
certain investments, unless after giving effect to each such payment,
repurchase or investment, certain operating cash flow coverage tests
are met, excluding certain permitted payments and investments;
(2) limitation on our and our subsidiaries' incurrence of additional
indebtedness, unless at the time of such incurrence, our ratio of debt
to annualized operating cash flow would be less than or equal to 6.0
to 1.0 prior to April 1, 2001 and less than or equal to 5.5 to 1.0 on
or after April 1, 2001, excluding certain permitted incurrences of
debt;
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(3) limitation on our and our subsidiaries' incurrence of liens, unless
the 10% senior notes are secured equally and ratably with the
obligation or liability secured by such lien, excluding certain
permitted liens;
(4) limitation on the ability of any subsidiary of us to create or
otherwise cause to exist any encumbrance or restriction on the payment
of dividends or other distributions on its capital stock, payment of
indebtedness owed to us or any other subsidiary, making of investments
in us or any other subsidiary, or transfer of any properties or assets
to us or any other subsidiary, excluding certain permitted
encumbrances and restrictions;
(5) limitation on certain mergers, consolidations and sales of assets by
us or our subsidiaries;
(6) limitation on certain transactions with our affiliates;
(7) limitation on the ability of any subsidiary of us to guarantee or
otherwise become liable with respect to any indebtedness of us unless
such subsidiary provides for a guarantee of the 10% senior notes on
the same terms as the guarantee of such indebtedness;
(8) limitation on certain sale and leaseback transactions by us or our
subsidiaries;
(9) limitation on certain issuances and sales of capital stock of
subsidiaries of us; and
(10) limitation on the ability of us or our subsidiaries to engage in any
business not substantially related to a telecommunications business.
The events of default under the 10% senior notes indenture include various
events of default customary for such type of agreement, including, among others,
the failure to pay principal and interest when due on the 10% senior notes,
cross-defaults on other indebtedness for borrowed monies in excess of $10
million (which indebtedness would therefore include indebtedness outstanding
under the credit facility), certain judgments or orders for payment of money in
excess of $10 million, and certain events of bankruptcy, insolvency and
reorganization.
11 1/2% Senior Notes
We have outstanding $350.0 million aggregate principal amount of our
11 1/2% senior notes due 2008. The 11 1/2% senior notes are our senior unsecured
obligations ranking equivalent in right of payment to all our existing and
future unsecured and unsubordinated indebtedness and senior in right of payment
to all our existing and future subordinated indebtedness. The 11 1/2% senior
notes were issued under an Indenture dated as of November 3, 1998, as amended,
between us and Wilmington Trust Company, as Trustee.
The 11 1/2% senior notes will mature on November 1, 2008. Interest on the
11 1/2% senior notes is payable semi-annually on May 1 and November 1 of each
year, commencing May 1, 1999. The 11 1/2% senior notes are redeemable at our
option, in whole or in part, any time on or after November 1 of 2003, 2004, 2005
and 2006 at 105.70%, 103.833%, 101.917% and 100% of the principal amount
thereof, respectively, in each case, plus accrued and unpaid interest to the
date of redemption. In addition, on or prior to November 1, 2001, we may redeem
up to 35% of the original aggregate principal amount thereof, plus accrued and
unpaid interest to the date of redemption, with the net cash proceeds of certain
public equity offerings or the sale of stock to one or more strategic investors,
provided that at least 65% of the original aggregate principal amount of the
11 1/2% senior notes remains outstanding immediately after such redemption. Upon
the occurrence of a change of control (as defined in the 11 1/2% senior notes
indenture), we will be required to make an offer to purchase all of the 11 1/2%
senior notes at a purchase price equal to 101% of the principal amount thereof,
plus accrued and unpaid interest, if any, to the date of repurchase. We may not
have sufficient funds or the financial resources necessary to satisfy our
obligations to
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repurchase the 11 1/2% senior notes upon a change of control. Our credit
facility prohibits us from repurchasing any 11 1/2% senior notes upon a change
of control unless we have paid all amounts outstanding under the credit facility
prior thereto.
The 11 1/2% senior notes indenture contains certain financial covenants
with which we must comply, which are substantially identical to those contained
in the indenture governing our 10% senior notes described above under "--10%
Senior Notes."
The events of default under the 11 1/2% senior notes indenture are
substantially identical to those contained in the indenture governing our 10%
senior notes described above under "--10% Senior Notes."
DESCRIPTION OF BOOK-ENTRY SYSTEM
General
On July 23, 1999, the closing date of the initial notes offering, two
Global Notes representing the initial euro notes were deposited with a common
depositary for Euroclear and Cedelbank (or its nominee). Thereafter, Euro Book-
Entry Interests will be shown on, and transfers thereof will be effected only
through, records maintained in book-entry form by Euroclear and Cedelbank and
their participants. On July 23, 1999, the closing date of the initial notes
offering, six Global Notes representing the initial dollar notes were deposited
with the Trustee, as custodian for DTC. Thereafter, Dollar Book-Entry Interests
will be shown on, and transfers thereof will be effected only through, records
maintained in book-entry form by DTC and its participants.
Book-Entry Interests will not be held in definitive form. Instead, DTC,
Euroclear and/or Cedelbank will credit on their respective book-entry
registration and transfer systems a participant's account with the interest
beneficially owned by such participant. The laws of some jurisdictions,
including certain states of the United States, may require that certain
purchasers of securities take physical delivery of such securities in definitive
form. The foregoing limitations may impair the ability to own, transfer or
pledge Book-Entry Interests. In addition, while the notes are in global form,
holders of Book-Entry Interests will not be considered the owners or "holders"
of notes for any purpose.
So long as the notes are held in global form, DTC (or its nominee), in the
case of the dollar notes, and the common depositary (or its nominee), in the
case of the euro notes, will be considered the sole holders of Global Notes for
all purposes under the Indenture. In addition, participants must rely on the
procedures of DTC, Euroclear and/or Cedelbank, as applicable, and indirect
participants must rely on the procedures of the participants through which they
own Book-Entry Interests to exercise any rights of holders under the Indenture.
None of us, the Trustee, the exchange agent or the Registrar will have any
responsibility or be liable for any aspect of the records relating to the Book-
Entry Interests.
Definitive Registered Notes
Under the terms of the Indenture, owners of Euro Book-Entry Interests will
receive Definitive Registered Notes:
(1) if either Euroclear or Cedelbank notifies us that it is unwilling or
unable to continue to act as depositary and a successor depositary is not
appointed by us within 120 days;
(2) if Euroclear or Cedelbank so request following an Event of Default
under the Indenture;
(3) in whole (but not in part) at any time if we in our sole discretion
determine that the Global Notes should be exchanged for Definitive
Registered Notes; or
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(4) the owner of a Euro Book-Entry Interest requests such exchange in
writing delivered through either Euroclear or Cedelbank following an Event
of Default under the Indenture.
Euroclear has advised us, with regard to the Euro Book-Entry Interests,
that its current practice, upon receipt of any request by an owner of a Book-
Entry Interest for Definitive Registered Notes, is to make a request to us that
all owners of Book-Entry Interests receive Definitive Registered Notes.
Under the terms of the Indenture, owners of Dollar Book-Entry Interests
will receive Definitive Registered Notes:
(1) if DTC notifies us that it is unwilling or unable to continue to act as
depositary or ceases to be a clearing agency registered under the
Exchange Act and, in either case, a successor depositary is not
appointed by us within 120 days;
(2) if DTC so requests following an Event of Default under the Indenture;
(3) in whole (but not in part) at any time if we in our sole discretion
determine that the Global Notes should be exchanged for Definitive
Registered Notes; or
(4) the owner of a Dollar Book-Entry Interest requests such exchange in
writing delivered through DTC (including following an Event of Default
under the Indenture).
In such an event, the Registrar will issue Definitive Registered Notes in
the name or names and issued in any approved denominations, requested by or on
behalf of DTC, Euroclear and/or Cedelbank, as applicable (in accordance with
their respective customary procedures and based upon directions received from
participants reflecting the beneficial ownership of Book-Entry Interests). Any
such Definitive Registered Notes representing initial notes will bear the
restrictive legend currently set forth on the Dollar Global Notes and the Euro
Global Notes, unless that legend is not required by the Indenture or applicable
law.
If Definitive Registered Notes are issued and such notes are listed on the
Luxembourg Stock Exchange, transfers of such notes will have to be cleared
through a clearing system or a method approved by the rules and regulations of
the Luxembourg Stock Exchange in order to continue to be listed on the
Luxembourg Stock Exchange.
Redemption of Global Notes
In the event any Global Note (or any portion thereof) is redeemed, the
relevant Depositary will redeem an equal amount of the Book-Entry Interests in
such Global Note from the amount received by it in respect of the redemption of
such Global Note. The redemption price payable in connection with the redemption
of such Book-Entry Interests will be equal to the amount received by the
relevant Depositary in connection with the redemption of such Global Note (or
any portion thereof). We understand that under existing practices of DTC,
Euroclear and Cedelbank, if fewer than all of the notes are to be redeemed at
any time, DTC, Euroclear and Cedelbank will credit their respective
participants' accounts on a proportionate basis (with adjustments to prevent
fractions) or by lot or on such other basis as they deem fair and appropriate;
provided, however, that no Euro Book-Entry Interest of less than Euro 1,000
principal amount or Dollar Book-Entry Interest of less than $1,000 principal
amount may be redeemed in part.
Payments on Global Notes
Payments of any amounts owing in respect of the Global Notes (including
principal, premium, if any, interest and Liquidated Damages, if any) will be
made by us in euros, in the case of Euro Global Notes, and U.S. Dollars, in the
case of the Dollar Global Notes, to the relevant Paying Agent. The relevant
Paying Agent will, in turn, make payments to DTC or the common depositary for
Euroclear and Cedelbank, as applicable, which will distribute such payments to
participants in accordance with its procedures.
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Under the terms of the Indenture, we and the Trustee will treat the
registered holder of the Global Notes (e.g., DTC (or its nominee) and the common
depositary (or its nominee)) as the owner thereof for the purpose of receiving
payments and for all other purposes. Consequently, none of us, the Trustee or
any agent of ours or the Trustee has or will have any responsibility or
liability for:
(1) any aspect of the records of DTC, Euroclear, Cedelbank or any
participant or indirect participant relating to or payments made on
account of a Book-Entry Interest or for maintaining, supervising or
reviewing any of the records of DTC, Euroclear, Cedelbank or any
participant or indirect participant relating to our payments made on
account of a Book-Entry Interest; or
(2) DTC, Euroclear, Cedelbank or any participant or indirect participant.
Payments by participants to owners of Book-Entry Interests held through
participants are the responsibility of such participants, as is now the case
with securities held for the accounts of customers registered in "street name."
Action by Owners of Book-Entry Interests
DTC, Euroclear and Cedelbank have advised us that they will take any action
permitted to be taken by a holder of notes (including the presentation of notes
for exchange as described above) only at the direction of one or more
participants to whose account the Book-Entry Interests in the Global Notes are
credited and only in respect of such portion of the aggregate principal amount
of notes as to which such participant or participants has or have given such
direction. The relevant Depositary will not exercise any discretion in the
granting of consents, waivers or the taking of any other action in respect of
the Global Notes. However, if there is an Event of Default under the notes, each
of DTC, Euroclear and Cedelbank reserve the right to exchange the Global Notes
for Definitive Registered Notes in certificated form, and to distribute such
notes to its participants.
Information Concerning DTC, Euroclear and Cedelbank
We understand as follows with respect to DTC, Euroclear and Cedelbank:
DTC is a limited purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
was created to hold securities of its participants and to facilitate the
clearance and settlement of transactions among its participants in such
securities through electronic book-entry changes in accounts of the
participants, thereby eliminating the need for physical movement of securities
certificates. DTC participants include securities brokers and dealers (including
the Initial Purchasers), banks, trust companies, clearing corporations and
certain other organizations, some of whom (and/or their representatives) own
DTC. Access to the DTC book-entry system is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly.
Because DTC can only act on behalf of participants, who in turn act on
behalf of indirect participants and certain banks, the ability of an owner of a
Book-Entry Interest to pledge such interest to persons or entities that do not
participate in the DTC system, or otherwise take actions in respect of such
interest, may be limited by the lack of a definitive certificate for such
interest. The laws of some states require that certain persons take physical
delivery of securities in definitive form. Consequently, the ability to transfer
Book-Entry Interests to such persons may be limited. In addition, beneficial
owners of Book-Entry Interests through the DTC system will receive distributions
attributable to the Global Notes only through DTC participants.
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Euroclear and Cedelbank hold securities for participating organizations and
facilitate the clearance and settlement of securities transactions between their
respective participants through electronic book-entry changes in accounts of
such participants. Euroclear and Cedelbank provide to their participants, among
other things, services for safekeeping, administration, clearance and settlement
of internationally traded securities and securities lending and borrowing.
Euroclear and Cedelbank interface with domestic securities markets. Euroclear
and Cedelbank participants are financial institutions such as underwriters,
securities brokers and dealers, banks, trust companies and certain other
organizations. Indirect access to Euroclear or Cedelbank is also available to
others such as banks, brokers, dealers and trust companies that clear through or
maintain a custodian relationship with a Euroclear or Cedelbank participant,
either directly or indirectly.
Global Clearance and Settlement Under the Book-Entry System
Initial Settlement
Initial settlement for the dollar notes will be made in U.S. Dollars.
Initial settlement for the euro notes will be made in Euros.
Book-Entry Interests owned through DTC (other than through accounts at
Euroclear or Cedelbank) will follow the settlement applicable to United States
corporate debt obligations. The securities custody accounts of investors will be
credited with their holdings against payment in same-day funds on the settlement
date.
Book-Entry Interests owned through Euroclear or Cedelbank accounts will
follow the settlement procedures applicable to conventional eurobonds in
registered form. Book-Entry Interests will be credited to the securities custody
accounts of Euroclear and Cedelbank holders on the business day following the
settlement date against payment for value on the settlement date.
Secondary Market Trading
The Dollar Book-Entry Interests will trade in DTC's Same-Day Funds
Settlement System, and secondary market trading activity in such Book-Entry
Interests will therefor settle in same-day funds. The Euro Book-Entry Interests
will trade through participants of Euroclear or Cedelbank, and will settle in
same-day funds.
Since the purchase determines the place of delivery, it is important to
establish at the time of trading of any Book-Entry Interests where both the
purchaser's and seller's accounts are located to ensure that settlement can be
made on the desired dates.
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PLAN OF DISTRIBUTION
This prospectus, as it may be amended or supplemented from time to time,
may be used by Participating Broker-Dealers in connection with resales of
exchange notes received in exchange for initial notes where such initial notes
were acquired as a result of market-making activities or other trading
activities. Each Participating Broker-Dealer that receives exchange notes for
its own account pursuant to the exchange offer must acknowledge that it will
deliver a prospectus in connection with any resale of such exchange notes.
PSINet has agreed that under certain circumstances, PSINet shall use its best
efforts to keep the exchange offer registration statement continuously
effective, supplemented and amended to the extent necessary to ensure that it is
available for sales of exchange notes by Participating Broker-Dealers, and to
ensure that the exchange offer registration statement conforms with the
requirements of the Securities Act of 1933 and the policies, rules and
regulations of the Securities and Exchange Commission as announced from time to
time, for a period of one year from the consummation of the exchange offer or
such shorter period as will terminate when all restricted securities covered by
the exchange offer registration statement have been sold pursuant thereto.
PSINet will not receive any proceeds from any sale of exchange notes by
broker-dealers. Exchange notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the exchange notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such broker-
dealer or the purchasers of any such exchange notes. Any Participating Broker-
Dealer that acquired initial notes as a result of market making activities or
other trading activities and who resells exchange notes that were received by it
pursuant to the exchange offer and any broker or dealer that participates in a
distribution of such exchange notes may be deemed to be an "underwriter" within
the meaning of the Securities Act of 1933 and any profit on any such resale of
exchange notes and any commission or concessions received by any such persons
may be deemed to be underwriting compensation under the Securities Act of 1933.
The letter of transmittal states that, by acknowledging that it will deliver and
by delivering a prospectus, a Participating Broker-Dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act of
1933.
DOCUMENTS INCORPORATED BY REFERENCE
We are incorporating by reference in this prospectus the following
documents which we have filed with the Securities and Exchange Commission:
Our annual report on Form 10-K for our fiscal year ended December 31, 1998.
This report contains:
. audited consolidated balance sheets for us and our subsidiaries as of
December 31, 1998 and 1997
. related consolidated statements of operations, of changes in
shareholders' equity and of cash flows for the years ended December 31,
1998, 1997 and 1996
1. Our quarterly reports on Form 10-Q for the quarters ended:
. March 31, 1999
. June 30, 1999
2. Our current reports on Form 8-K dated:
. April 27, 1999
. May 7, 1999
. July 16, 1999
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. July 16, 1999
. August 22, 1999
. August 22, 1999
. July 31, 1997 (solely insofar as it relates to our Shareholder Rights
Agreement dated May 8, 1996, as amended)
. August 20, 1997
3. Our registration statement on Form 8-A dated April 7, 1995, as amended
(registration no. 0-25812).
4. Our registration statement on Form 8-A dated June 4, 1996, as amended
(registration no. 0-25812).
We are also incorporating by reference in this prospectus all reports and
other documents that we file after the date of this prospectus pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, prior
to the termination of the offering of securities under this prospectus. These
reports and documents will be incorporated by reference in and considered to be
a part of this prospectus as of the date of filing of such reports and
documents.
Any statement contained in this prospectus or in a document which is
incorporated by reference herein will be modified or superseded for purposes of
this prospectus to the extent that a statement in any document that we file
after the date of this prospectus that also is incorporated by reference herein
modifies or supersedes such prior statement. Any such statement so modified or
superseded will not, except as so modified or superseded, constitute a part of
this prospectus.
This prospectus incorporates by reference documents which are not presented
in this prospectus or delivered to you with it. You may request, and we will
send to you, without charge, copies of these documents (other than exhibits to
these documents, which we will send to you for a reasonable fee). Requests
should be directed to the Office of the Secretary, PSINet Inc., 510 Huntmar Park
Drive, Herndon, Virginia 20170 (telephone (703) 904-4100). In order to assure
timely delivery of the requested materials before the expiration of the exchange
offer, any request should be made prior to October __, 1999.
LEGAL MATTERS
The validity of the exchange notes offered hereby will be passed upon by
Nixon Peabody LLP, New York, New York, counsel for PSINet. Certain attorneys
with Nixon Peabody LLP currently own in the aggregate less than one percent of
PSINet's common stock.
EXPERTS
The consolidated financial statements of PSINet Inc. incorporated in this
prospectus by reference to PSINet's Annual Report on Form 10-K for the year
ended December 31, 1998, have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The financial statements of Transaction Network Services, Inc. ("TNI") as
of December 31, 1998 and 1997 and for each of the three years in the period
ended December 31, 1998 are incorporated by reference in this prospectus from
our Current Report on Form 8-K dated August 22, 1999, which incorporates by
reference such financial statements from TNI's Annual Report on Form 10-K for
the year ended December 31, 1998. Such financial statements have been audited
by Arthur Andersen LLP, independent public accountants, as stated in their
report incorporated by reference in our August 22, 1999 Form 8-K and
incorporated by reference herein in reliance upon the authority of such firm as
experts in giving said reports.
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WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy materials that we have file
with the SEC, including the registration statement, at the following SEC public
reference rooms:
<TABLE>
<CAPTION>
<S> <C> <C>
Judiciary Plaza Northwest Atrium Center
450 Fifth Street, N.W. 7 World Trade Center 500 West Madison Street
Room 1024 Suite 1300 Suite 1400
Washington, DC 20549 New York, New York 10048 Chicago, Illinois 60661
</TABLE>
You can also obtain copies of filed documents, at prescribed rates, by mail
from the Public Reference Section of the SEC at its Judiciary Plaza location,
listed above, or by telephone at 1-800-SEC-0330 or electronically through the
SEC's Web Site at http://www.sec.gov.
Our common stock is listed on the Nasdaq Stock Market's National Market
under the symbol "PSIX," and our SEC filings can also be read and obtained at
the following Nasdaq address:
The Nasdaq Stock Market
Reports Section
1735 K Street, N.W.
Washington, D.C. 20006
We furnish our stockholders with annual reports containing our audited
financial statements and with proxy material for our annual meetings complying
with the proxy requirements of the Securities Exchange Act of 1934.
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GLOSSARY
Set forth below are definitions of some of the terms used in this
prospectus.
ATM Asynchronous Transfer Mode. A communications
standard that provides for information transfer in
the form of fixed-length cells of 53 bytes each.
The ATM format can be used to deliver voice, video
and data traffic at varying rates.
Backbone A centralized high-speed network that interconnects
smaller, independent networks.
Bandwidth The number of bits of information which can move
over a communications medium in a given amount of
time; the capacity of a telecommunications
circuit/network to carry voice, data and video
information. Typically measured in Kbps and Mbps.
Bandwidth from public networks is typically
available to business and residential end-users in
increments from 56 Kbps to T-3.
CLEC Competitive local exchange carrier. A category of
telephone service provider that offers services
similar to the former monopoly local telephone
company. A CLEC may also provide other types of
telecommunications.
CSU/DSU Channel Service Unit/Data Service Unit. A device
used in digital transmission for connecting data
terminal equipment, such as a router, to a digital
transmission circuit or service.
Dark fiber Fiber which does not have connected to it the
electronics required to transmit data on such
fiber.
Dedicated circuits Telecommunications lines dedicated or reserved for
use by particular customers along predetermined
routes.
Dial-up line Communications circuit that is established by a
switched-circuit connection using the telephone
network.
DNS Domain Name System. Distributed name system used in
the Internet.
Electronic mail or e-mail An application that allows a user to send or
receive text messages to or from any other user
with an Internet address, commonly termed an e-mail
address.
56 Kbps Equivalent to a single high-speed telephone service
line; capable of transmitting one voice call or 56
Kbps of data. Currently in widespread use by medium
and large businesses primarily for entry level
high-speed data and very low-speed video
applications.
Frame relay A communications standard that is optimized for
efficient switching of variable-length data
packets.
Gbps Gigabits per second. A measure of digital
transmission rates. One gigabit equals 1,000
megabits.
Host A computer with direct access to the Internet.
HTML Hypertext Markup Language used to produce Web
pages. It is a method of presenting information
where selected words can be "expanded" to provide
other information about the word.
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ILEC Incumbent local exchange carrier. The local exchange
carrier that was the monopoly carrier, prior to the
opening of local exchange services to competition.
Internet An open global network of interconnected commercial,
educational and governmental computer networks which
utilize TCP/IP, a common communications protocol.
Internetworking The process of communicating between and among
networks.
Intranet A TCP/IP based network and Web site which is securely
isolated from the Internet and serves the internal
needs of a company or institution.
IP Internet protocol.
IRUs Indefeasible rights of use in network bandwidth
capacity.
ISDN Integrated Services Digital Network. A network that
provides digital voice and data services through a
single medium.
ISP Internet service provider.
Kbps Kilobits per second. A measure of digital information
transmission rates. One kilobit equals 1,000 bits of
digital information. Normally, 10 bits are used for
each alpha-numeric character.
LAN Local Area Network. A data communications network
designed to interconnect personal computers,
workstations, minicomputers, file servers and other
communications and computing devices within a localized
environment.
LEC Local Exchange Carrier. A telecommunications company
that provides telecommunications services in a
geographic area in which calls generally are
transmitted without toll charges.
Mbps Megabits per second. A measure of digital information
transmission rates. One megabit equals 1,000 kilobits.
Modem A device for transmitting information over an analog
communications channel such as a POTS telephone
circuit.
Network A collection of distributed computers which share data
and information through inter-connected lines of
communication.
NOC Network operation center.
OC-3 OC-3 SONET high capacity optical telecommunications
line capable of transmitting data at 155.52 Mbps.
OC-12 OC-12 SONET high capacity optical telecommunications
line capable of transmitting data at 622.08 Mbps.
OC-48 OC-48 SONET high capacity optical telecommunications
line capable of transmitting data at 2488.32 Mbps.
OC-48 Equivalent One OC-48, four OC-12s, 16 OC-3s or 48 DS-3s.
OC-48 Equivalent Mile One Route Mile of OC-48 capacity, four Route Miles of
OC-12 capacity, 16 Route Miles of OC-3 capacity or 48
Route Miles of DS-3 capacity.
On-line services Commercial information services that offer a computer
user access through a modem to a specified slate of
information, entertainment
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and communications menus.
These services are generally closed systems, although
many are now offering full Internet access.
Open systems A networking system which is based upon non-proprietary
protocols (i.e., protocols which are in the public
domain).
Peering The commercial practice under which nationwide ISPs
exchange each other's traffic, in most cases, without
the payment of settlement charges.
POPs Points-of-presence. An interlinked group of modems,
routers and other computer equipment, located in a
particular city or metropolitan area, that allows a
nearby subscriber to access the Internet through a
local telephone call or using a short-distance
permanent data circuit.
POTS Plain Old Telephone Service. Standard analog telephone
service used by many telephone companies throughout the
United States.
PRI Primary Rate Interface. ISDN interface to primary rate
access.
Protocol A formal description of message formats and the rules
two or more machines must follow in order to
communicate.
RBOC Regional Bell Operating Company. One of the LECs
created by the divestiture of the local exchange
business by AT&T. These include BellSouth, Bell
Atlantic, Ameritech, US West, SBC, and PacTel.
Router A device that receives and transmits data packets
between segments in a network or different networks.
Route Mile One mile of the actual geographic length of the high
capacity telecommunications fiber route.
Server Software that allows a computer to offer a service to
another computer. Other computers contact the server
program by means of matching client software. The term
also refers to the computer on which server software
runs.
SMDS Switched Multimegabit Data Service. A public packet-
switching service offered by telephone companies in
many major metropolitan areas. Packet-switching is a
method of delivering voice and data traffic.
SONET Synchronous Optical Network.
TCP/IP Transmission Control Protocol/Internet Protocol. A
compilation of network and transport-level protocols
that allow computers with different architectures and
operating system software to communicate with other
computers on the Internet.
T-3 or DS-3 A data communications capable of transmitting data at
45 Mbps.
UNIX A computer operating system for workstations and
personal computers and noted for its portability and
communications functionality.
VOIP Voice over internet protocol.
WAN Wide Area Network. A network spanning a wide geographic
area.
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Web or World Wide Web A network of computer servers that uses a special
communications protocol to link different servers
throughout the Internet and permits communication of
graphics, video and sound.
Web server The computer system that runs Web software, used to
create custom Web sites, Web pages, and home pages.
Web sites or Web pages A site located on the Web, written in the HTML or SGML
language.
xDSL A term referring to a variety of new Digital Subscriber
Line technologies. Some of these varieties are
asymmetric with different data rates in the downstream
and upstream directions. Others are symmetric.
Downstream speeds range from 384 kilobits (or "SDSL")
to 1.5-8 Mbps (or "ADSL").
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Under Sections 721 through 725 of the Business Corporation Law of the State
of New York (the "BCL"), the Registrant has broad powers to indemnify its
directors, officers and other employees. These sections (i) provide that the
statutory indemnification and advancement of expenses provision of the BCL are
not exclusive, provided that no indemnification may be made to or on behalf of
any director or officer if a judgment or other final adjudication adverse to the
director or officer establishes that his acts were committed in bad faith or
were the result of active and deliberate dishonesty and were material to the
cause of action as adjudicated, or that he personally gained in fact a financial
profit or other advantage to which he was not legally entitled, (ii) establish
procedures for indemnification and advancement of expenses that may be contained
in the certificate of incorporation or by-laws, or, when authorized by either of
the foregoing, set forth in a resolution of the shareholders or directors of an
agreement providing for indemnification and advancement of expenses, (iii) apply
a single standard for statutory indemnification for third-party and derivative
suits by providing that indemnification is available if the director or officer
acted in good faith, for a purpose which he reasonably believed to be in the
best interests of the corporation, and, in criminal actions, had no reasonable
cause to believe that his conduct was unlawful and (iv) permit the advancement
of litigation expenses upon receipt of an undertaking to repay such advance if
the director or officer is ultimately determined not to be entitled to
indemnification or to the extent the expenses advanced exceed the
indemnification to which the director or officer is entitled. Section 726 of
the BCL permits the purchase of insurance to indemnify a corporation or its
officers and directors to the extent permitted.
As permitted by Section 721 of the BCL, the Registrant's By-laws provide
that the Registrant shall indemnify its officers and directors, as such, to the
fullest extent permitted by applicable law, and that expenses reasonably
incurred by any such officer or director in connection with a threatened or
actual action or proceeding shall be advanced or promptly reimbursed by the
Registrant in advance of the final disposition of such action or proceeding upon
receipt of an undertaking by or on behalf of such officer or director to repay
such amount if and to the extent that it is ultimately determined that such
officer or director is not entitled to indemnification.
Article EIGHTH of the Registrant's Certificate of Incorporation provides
that no director of the Registrant shall be held personally liable to the
Registrant or its shareholders for damages for any breach of duty in his
capacity as a director occurring after authorization of such Article EIGHTH by
the shareholders unless a judgment or other final adjudication adverse to him
establishes that (1) his acts or omissions were in bad faith or involved
intentional misconduct or a knowing violation of law, or (2) he personally
gained in fact a financial profit or other advantage to which he was not legally
entitled, or (3) his acts violated section 719 of the BCL. The Registrant has
entered into Indemnity Agreements with its directors and certain key officers
pursuant to which the Registrant generally is obligated to indemnify its
directors and such officers to the full extent permitted by the BCL as described
above. PSINet also has purchased directors' and officers' liability insurance.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The following is a list of all exhibits filed as part of this Registration
Statement.
2.1 Agreement and Plan of Merger, dated August 22, 1999, among PSINet,
PSINet Shelf I Inc. and Transaction Network Services, Inc.
3.1 Certificate of Incorporation, as amended.
3.2 Certificate of Amendment of Certificate of Incorporation, dated April
25, 1995.
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3.3 Certificate of Amendment of Certificate of Incorporation, dated May
5, 1995.
3.4 Certificate of Amendment of Certificate of Incorporation, dated
November 11, 1995.
3.5 Certificate of Amendment of Certificate of Incorporation dated May
18, 1996.
3.6 Certificate of Amendment of Certificate of Incorporation dated as of
November 6, 1997.
3.7 Certificate of Amendment of Certificate of Incorporation dated
February 5, 1998.
3.8 Certificate of Amendment of Certificate of Incorporation dated April
30, 1999.
3.9 Amended and Restated By-laws of PSINet.
4.1 Form of 10% Senior Notes due 2005.
4.2 Indenture dated as of April 13, 1998 between PSINet and Wilmington
Trust Company, as trustee.
4.3 Form of 11 1/2% Senior Notes due 2008.
4.4 Indenture dated as of November 3, 1998 between PSINet and Wilmington
Trust Company, as trustee.
4.5 First Supplemental Indenture dated as of November 12, 1998 between
PSINet and Wilmington Trust Company, as trustee.
4.6 Form of unregistered Dollar-denominated 11% Senior Notes due 2009.
4.7 Form of unregistered Euro-denominated 11% Senior Notes due 2009.
4.8 Form of registered 11% Senior Notes due 2009.
4.9 Indenture dated as of July 23, 1999 between PSINet and Wilmington
Trust Company, as Trustee.
4.10 Form of Common Stock Certificate.
4.11 Form of Common Stock Certificate (name change).
4.12 Form of 6 3/4% Series C Cumulative Convertible Preferred Stock
Certificate.
4.13 Articles Fourth, Fifth, Sixth, Ninth and Tenth of the Certificate of
Incorporation of the Company, as amended.
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4.14 Article I of the Amended and Restated By-laws of PSINet, as amended.
4.15 Form of Rights Agreement, dated as of May 8, 1996, between PSINet and
First Chicago Trust Company of New York, as Rights Agent, which
includes as Exhibit A--Certificate of Amendment; Exhibit B--Form of
Rights Certificate; and Exhibit C--Summary of Rights to Purchase
Shares of Preferred Stock.
4.16 Amendment No. 1, dated as of July 21, 1997, to Rights Agreement,
dated as of May 8, 1996, between PSINet and First Chicago Trust
Company of New York, as Rights Agent.
4.17 Amendment No. 2, dated as of July 31, 1997, to Rights Agreement,
dated as of May 8, 1996, between PSINet and First Chicago Trust
Company of New York, as Rights Agent.
4.18 Deposit Agreement dated as of May 4, 1999 between PSINet and
Wilmington Trust Company, as deposit agent.
5 Opinion of Nixon Peabody LLP.
7 Opinion of Nixon Peabody LLP regarding tax matters (contained in
Exhibit 5).
10.1 Lease Agreement dated July 1, 1990 between PSINet and Rensselaer
Polytechnic Institute, amended by Lease, Renewal Agreement dated as
of July 1, 1993, Letter Agreement, dated November 14, 1994 and Letter
Agreement dated February 1, 1995.
10.2 Lease Agreement dated February 8, 1995 between PSINet and Rensselaer
Polytechnic Institute.
10.3 Amendment to Lease Agreement dated July 1, 1995 between PSINet and
Rensselaer Polytechnic Institute.
10.4 Lease Agreement dated as of April 30, 1993 by and between Vingarden
Limited Partnership and PSINet.
10.5 Lease Agreement dated April 1995 by and between Brit Limited
Partnership.
10.6 Sublease dated September 20, 1995 by and between The Medical Sciences
Research Institute and PSINet and Lease Agreement dated October 6,
1993 by and between Vingarden Associates Limited Partnership and The
Medical Sciences Research Institute.
10.7 Lease Agreement dated October 31, 1995 between Oakfern Properties
Limited and PSINet.
10.8 Amendment to Deed of 460 Spring Park Technology Center dated as of
June 12, 1997 between JBG/Spring Park Limited Partnership and PSINet.
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10.9 Sublease Agreement dated as of June 2, 1997 between Lucas
Industries, Inc. and PSINet and Office Lease Agreement between 3B
Limited Partnership and Lucas Industries Inc. dated as of September
12, 1989.
10.10 Sublease Agreement dated January 22, 1998 between PSINet and Unisys
Corporation, as amended.
10.11 Lease Agreement dated February 20, 1998 between PSINet and
CarrAmerica Realty Corporation.
10.12 Lease Agreement dated October 1994 between PSINet and Cascade
Communications, Inc.
10.13 Master Lease Agreement dated July 19, 1994 between PSINet and
Technology Credit Corporation.
10.14 Lease Agreement dated as of July 9, 1993 between Applied
Telecommunications Technologies, Inc. and PSINet.
10.15 Lease Agreement dated as of February 10, 1994 between Applied
Telecommunications Technologies, Inc. and PSINet.
10.16 Lease Agreement dated as of March 14, 1994 between Applied
Telecommunications Technologies, Inc. and PSINet.
10.17 Lease Agreement dated as of June 9, 1994 between Applied
Telecommunications Technologies, Inc. and PSINet.
10.18 Lease Agreement dated as of September 21, 1994 between Applied
Telecommunications Technologies, Inc. and PSINet.
10.19 Master Equipment Lease Agreement dated as of June 23, 1995 between
PSINet and Forsythe/McArthur Associates, Inc. ("FMA").
10.20 Master Lease Line Commitment Agreement dated as of June 23, 1995
between PSINet and FMA.
10.21 Amendment Agreement dated as of August 1, 1995 between PSINet and
Technology Credit Corporation.
10.22 Master Equipment Lease Agreement No. 620-0004602-000 dated November
1995 between PSINet and Siemens Credit Corporation.
10.23 Amendment to Master Lease Agreement No. 1753 dated January 26, 1996
between PSINet and Technology Credit Corporation.
10.24 Master Equipment Lease Agreement dated December 15, 1995 between
PSINet and Financing for Science International, Inc.
10.25 Security Agreement dated as of March 20, 1996 between PSINet and
USL Capital Corporation.
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10.26 Master Software/Equipment Lease Agreement dated as of September 20,
1996 between PSINet and LPI Software Funding Group, Inc.
10.27 Master Lease Agreement dated as of January 27, 1997 between Cascade
Communications Corp. and PSINet.
10.28 Master Equipment/Software Rental Agreement dated as of September
11, 1997 between PSINet and Earthlink Network, Inc. and Change
Order Amendment Master Equipment dated as of September 22, 1997.
10.29 Equipment lease dated as of June 30, 1997 between Royal Bank of
Canada and PSINet Limited.
10.30 Master Lease Agreement dated as of October 10, 1997 between Cisco
Systems Capital Corporation and PSINet.
10.31 Master Lease Agreement No. A212 dated as of October 30, 1997
between 3Com Credit Corporation and PSINet, as amended.
10.32 Master Lease of Personal Property No. 3402, dated December 12, 1997
between PSINet and Charter Financial, Inc., as amended.
*10.33 Executive Stock Option Plan of PSINet.
*10.34 Executive Stock Incentive Plan of PSINet, as amended.
*10.35 Directors Stock Incentive Plan of PSINet, as amended.
*10.36 Strategic Stock Incentive Plan of PSINet, as amended.
*10.37 1996 Performance Bonus Plan of PSINet.
*10.38 InterCon Systems Corporation 1992 Incentive Stock Plan.
*10.39 InterCon Systems Corporation 1994 Stock Option Plan.
*10.40 Software Ventures Corporation 1994 Stock Option Plan.
*10.41 Employment Agreement dated February 9, 1996 between PSINet and
Mary-Ann Carolan.
*10.42 Employment Agreement dated February 13, 1996 between PSINet and
Mitchell Levinn.
*10.43 Employment Agreement dated October 9, 1996 between PSINet and
Richard R. Frizalone.
*10.44 Employment Agreement dated February 12, 1997 between PSINet and
David L. Hudson.
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*10.45 Employment Agreement dated July 1, 1997 between PSINet and Michael
Malesardi.
*10.46 Employment Agreement dated August 2, 1997 between PSINet and
Anthony Aveta.
*10.47 Employment Agreement dated August 4, 1997 between PSINet and Harry
Hobbs.
*10.48 Employment Agreement dated January 8, 1998 between PSINet and
William Cripe.
*10.49 Employment Agreement dated January 18, 1998 between PSINet and
Kathleen B. Horne.
*10.50 Employment Agreement dated February 16, 1998 between PSINet and
John Muleta.
*10.51 Employment Agreement dated October 16, 1998 between PSINet and
Harold S. Wills.
*10.52 Employment Agreement dated October 16, 1998 between PSINet and
Edward D. Postal.
*10.53 Employment Agreement dated October 16, 1998 between PSINet and
David N. Kunkel.
10.54 Form of Indemnification Agreement.
10.55 Registration Rights Agreement dated as of June 16, 1995 among
PSINet and Stockholders of InterCon Systems Corporation.
10.56 Registration Rights Agreement dated as of July 11, 1995 among
PSINet and Stockholders of Software Ventures Corporation.
10.57 Registration Rights Agreement dated as of November 11, 1997 between
PSINet and the purchasers of Series B 8% Convertible Preferred
Stock.
10.58 Registration Rights Agreement dated as of February 25, 1998 between
PSINet and IXC Internet Services, Inc.
10.59 Credit Agreement dated September 29, 1998 among PSINet, the Lenders
party thereto, The Chase Manhattan Bank, as Administrative Agent,
Fleet National Bank, as Syndication Agent, and The Bank of New
York, as Documentation Agent.
10.60 Guarantee Agreement dated September 29, 1998 among each of the
subsidiaries of PSINet party thereto and The Chase Manhattan Bank.
10.61 Pledge Agreement dated September 29, 1998 among PSINet, each
subsidiary of PSINet party thereto and The Chase Manhattan Bank.
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10.62 Security Agreement dated September 29, 1998 among PSINet, each
subsidiary of PSINet party thereto and The Chase Manhattan Bank.
10.63 First Amendment dated as of October 27, 1998 to the Credit
Agreement, dated as of September 29, 1998, among PSINet, the
Lenders party thereto, The Chase Manhattan Bank, as Administrative
Agent, Fleet National Bank, as Syndication Agent, and The Bank of
New York, as Documentation Agent.
10.64 Warrant to purchase up to 25,000 shares of the Series B Preferred
of PSINet, at an exercise price of $1.60 per share, registered in
the name of William H. Baumer.
10.65 Warrant to purchase up to 25,000 shares of the Series B Preferred
of PSINet, at an exercise price of $1.60 per share, registered in
the name of William H. Baumer.
10.66 Stock Acquisition Agreement, dated as of February 1, 1997, between
Ascend Communications, Inc., a Delaware corporation, and PSINet, a
New York corporation, with respect to all outstanding capital stock
of InterCon Systems Corporation, a Delaware corporation and a
wholly-owned subsidiary of PSINet.
10.67 Asset Purchase Agreement dated as of June 28, 1996 between PSINet
and MindSpring Enterprises, Inc.
10.68 Amendment No. 1 to Asset Purchase Agreement and Network Services
Agreement entered into as of June 28, 1996 by and between PSINet
and MindSpring Enterprises, Inc.
10.69 Amendment No. 2 to Asset Purchase Agreement entered into as of
September 1, 1996 by and between PSINet and MindSpring Enterprises,
Inc.
10.70 Amendment No. 3 to Asset Purchase Agreement and Amendment No. 1 to
Convertible Note entered into as of January 24, 1997 by and between
PSINet and MindSpring Enterprises, Inc.
10.71 Amendment No. 2 to Network Services Agreement entered into as of
January 1, 1997 by and between PSINet and MindSpring Enterprises,
Inc.
10.72 IRU and Stock Purchase Agreement dated as of July 22, 1997 between
IXC Internet Services, Inc. and PSINet.
10.73 First Amendment to IRU and Stock Purchase Agreement dated as of
July 22, 1997 between IXC Internet Services, Inc. and PSINet.
10.74 Second Amendment to IRU and Stock Purchase Agreement dated as of
July 22, 1997 between IXC Internet Services, Inc. and PSINet.
II-7
<PAGE>
10.75 Joint Marketing and Services Agreement dated as of July 22, 1997
between IXC Internet Services Inc. and PSINet.
10.76 Stock Purchase Agreement dated as of November 11, 1997 between
PSINet and the Purchasers of Series B 8% Convertible Preferred
Stock.
10.77 Agreement dated as of November 10, 1997 between iSTAR internet inc.
and PSINet.
10.78 Pre-Acquisition Agreement between PSINet and iSTAR internet inc.,
dated December 23, 1997.
10.79 Security Agreement and Assignment dated as of February 25, 1998
between PSINet and IXC Internet Services, Inc.
10.80 Collocation and Interconnection Agreement between PSINet and IXC
Internet Services, Inc.
10.81 Escrow Agreement, dated as of April 13, 1998, among Wilmington
Trust Company (as escrow agent and trustee) and PSINet.
10.82 Registration Rights Agreement dated as of April 13, 1998 among
PSINet and Donaldson, Lufkin & Jenrette Securities Corporation,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, and Chase
Securities Inc.
10.83 First Amendment to Sublease dated as of March 23, 1998 between
Unisys Corporation and PSINet.
10.84 Share Purchase Agreement dated as of October 1, 1998 among PSINet
Japan Inc., a subsidiary of PSINet, Tokyo Internet Corporation and
Secom Co., Ltd.
10.85 Registration Rights Agreement dated as of November 3, 1998 among
PSINet and Donaldson, Lufkin & Jenrette Securities Corporation,
Chase Securities, Inc. and Morgan Stanley & Co. Incorporated.
*10.86 Employment Agreement dated June 17, 1998 between PSINet and William
A. Opet.
*10.87 Employment Agreement dated July 2, 1998 between PSINet and Robert
D. Leahy.
*10.88 Employment Agreement dated September 1, 1998 between PSINet and Chi
H. Kwan.
*10.89 Employment Agreement dated September 8, 1998 between PSINet and
James A. Haid.
*10.90 Employment Agreement dated September 30, 1998 between PSINet and
Sandy L. Blaisdell.
II-8
<PAGE>
*10.91 Employment Agreement dated October 12, 1998 between PSINet and
Geoffrey E. Axton.
*10.92 Employment Agreement dated October 14, 1998 between PSINet and
Edward Arnold Davis.
10.93 Registration Rights Agreement, dated as of November 13, 1998, among
PSINet and Donaldson, Lufkin & Jenrette Securities Corporation,
Chase Securities Inc. and Morgan Stanley & Co. Incorporated.
10.94 Second Amendment dated as of November 9, 1998, to the Credit
Agreement, dated as of September 29, 1998, among PSINet, the
Lenders party thereto, the Chase Manhattan Bank, as Administrative
Agent, Fleet National Bank, as Syndication Agent, and The Bank of
New York, as Documentation Agent.
*10.95 Amendment to Employment Agreement dated October 1, 1998 between
PSINet and Harry Hobbs.
*10.96 Employment Agreement dated November 2, 1998 between PSINet and
David J. Kramer.
*10.97 Employment Agreement dated November 6, 1998 between PSINet and John
Walpuck.
*10.98 Employment Agreement dated November 12, 1998 between PSINet and
Lawrence Winkler.
*10.99 Employment Agreement dated May 24, 1999 between PSINet and Thomas
A. Leach.
*10.100 Employment Agreement dated May 24, 1999 between PSINet and James
F. Cragg.
*10.101 Employment Agreement dated May 27, 1999 between PSINet and
Philippe J. Kuperman.
10.102 Master Lease Agreement between PSINet and Technology Credit
Corporation No. 1788 dated June 20, 1998.
10.103 Master Lease Agreement between PSINet and Technology Credit
Corporation No. 1789 dated June 20, 1998.
10.104 Master Loan and Security Agreement No. 3963 between PSINet and
Charter Financial Inc. dated September 28, 1998.
10.105 Lease Agreement dated July 8, 1998 between Ballymore Properties
Limited and Cordoba Holdings Limited and Thomas Charles Cembrinck.
10.106 Third Amendment dated as of June 30, 1999 to the Credit Agreement,
dated as of September 29, 1998, among PSINet, the Lenders party
thereto, The Chase Manhattan Bank, as
II-9
<PAGE>
Administrative Agent, Fleet National Bank, as Syndication Agent,
and The Bank of New York, as Documentation Agent.
10.107 Fourth Amendment dated as of July 15, 1999 to the Credit Agreement,
dated as of September 29, 1998, among PSINet, the Lenders party
thereto, The Chase Manhattan Bank, as Administrative Agent, Fleet
National Bank, as Syndication Agent, and The Bank of New York, as
Documentation Agent.
10.108 Registration Rights Agreement, dated as of July 23, 1999, among
PSINet and Donaldson Lufkin & Jenrette International, Bear Stearns
International Limited and Chase Manhattan International Limited.
11.1 Calculation of Basic and Diluted Loss Per Share and Weighted
Average Shares for the Year Ended December 31, 1998.
11.2 Calculation of Basic and Diluted Loss Per Share and Weighted
Average Shares for the Year Ended December 31, 1997.
11.3 Calculation of Basic and Diluted Loss Per Share and Weighted
Average Shares for the Year Ended December 31, 1996.
11.4 Calculation of Basic and Diluted Loss Per Share and Weighted
Average Shares Used in Calculation for the Six Months Ended June
30, 1999.
12 Statements re Computation of Ratios.
21 Subsidiaries of PSINet.
23.1 Consent of Nixon Peabody LLP.
23.2 Consent of PricewaterhouseCoopers LLP.
23.3 Consent of Arthur Andersen LLP.
24 Power of Attorney.
25 Statement of Eligibility on Form T-1 of Wilmington Trust Company.
99.1 Letter of Transmittal for Dollar Notes.
99.2 Letter of Transmittal for Euro Notes.
99.3 Form of Notice of Guaranteed Delivery for Dollar Notes.
99.4 Form of Notice of Guaranteed Delivery for Euro Notes.
* Indicates a management contract or compensatory plan or arrangement required
to be filed as an Exhibit pursuant to Item 14(a)(3).
II-10
<PAGE>
FINANCIAL STATEMENTS AND SCHEDULES:
Financial Statements and Financial Statement Schedules:
Incorporated by reference in this registration statement from PSINet's
Annual Report on Form 10-K for the year ended December 31, 1998.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes that insofar as
indemnification for liabilities arising under the Securities Act of 1933, as
amended (the "Act") may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(b) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the SEC pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) of this
-------- -------
section do not apply if the registration statement is on Form S-3,
Form S-8 or Form F-3, and the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic
reports filed with or furnished to the SEC by the registrant pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement
II-11
<PAGE>
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.
(4) If the registrant is a foreign private issuer, to file a post-
effective amendment to the registration statement to include any
financial statements required by (S) 210.3-19 of this chapter at the
start of any delayed offering or throughout a continuous offering.
Financial statements and information otherwise required by Section
10(a)(3) of the Act need not be furnished, provided that the
--------
registrant includes in the prospectus, by means of a post-effective
amendment, financial statements required pursuant to this paragraph
(a)(4) and other information necessary to ensure that all other
information in the prospectus is at least as current as the date of
those financial statements. Notwithstanding the foregoing, with
respect to registration statements on Form F-3, a post-effective
amendment need not be filed to include financial statements and
information required by Section 10(a)(3) of the Act or (S)210.3-19 of
this chapter if such financial statements and information are
contained in periodic reports filed with or furnished to the SEC by
the registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference on
the Form F-3.
(c) The undersigned Registrant hereby undertakes:
(1) To deliver or cause to be delivered with the prospectus, to each
person to whom the prospectus is sent or given, the latest annual
report to security holders that is incorporated by reference in the
prospectus and furnished pursuant to and meeting the requirements of
Rule 14a-3 or Rule 14c-3 under the Securities and Exchange Act of
1934; and, where interim financial information required to be
presented by Article 3 of regulation S-X are not set forth in the
prospectus, to deliver, or cause to be delivered to each person to
whom the prospectus is sent or given, the latest quarterly report that
is specifically incorporated by reference in the prospectus to provide
such interim information.
(2) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of
this form, within one business day of receipt of such request, and to
send the incorporated documents by first class mail or other equally
prompt means. This includes information contained in documents filed
subsequent to the effective date of the Registration Statement through
the date of responding to the request.
II-12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-4 and has duly caused this Amendment
No. 1 to registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of Herndon, Commonwealth of Virginia on
September 27, 1999.
PSINet Inc.
By: /s/ William L. Schrader
------------------------------------
William L. Schrader, Chairman and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 1 to registration statement has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
Chairman, Chief Executive
/s/ William L. Schrader Officer and Director (Principal
- ---------------------------------
William L. Schrader Executive Officer) September 27, 1999
/s/ Harold S. Wills President, Chief Operating
- ---------------------------------
Harold S. Wills Officer and Director September 27, 1999
/s/ David N. Kunkel Executive Vice President,
- ---------------------------------
David N. Kunkel General Counsel and Director September 27, 1999
Senior Vice President and Chief
/s/ Edward D. Postal
- --------------------------------- Financial officer (Principal
Edward D. Postal Financial Officer September 27, 1999
/s/ Michael J. Malesardi Vice President and Controller
- ---------------------------------
Michael J. Malesardi (Principal Accounting Officer) September 27, 1999
/s/ Edward D. Postal * Director
- ---------------------------------
William H. Baumer September 27, 1999
/s/ Edward D. Postal * Director
- ---------------------------------
Ralph J. Swett September 27, 1999
/s/ Edward D. Postal * Director
- ---------------------------------
Ian P. Sharp September 27, 1999
*By /s/ Edward D. Postal
-----------------------------
Edward D. Postal
Attorney-in-fact
</TABLE>
II-13
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION LOCATION
- ------ ----------- --------
<S> <C> <C>
2.1 Agreement and Plan of Merger, dated August 22, Incorporated by reference from Exhibit 2.1 to
1999, among PSINet, PSINet Shelf I Inc. and PSINet's Current Report on Form 8-K dated
Transaction Network Services, Inc. August 24, 1999 located under Securities and
Exchange Commission File No. 0-25812
3.1 Certificate of Incorporation, as amended Incorporated by reference from Exhibit 3.1 to
PSINet's Registration Statement on Form S-1
declared effective on May 1, 1995 located under
Securities and Exchange Commission File No.
33-90154 ("May 1995 Registration Statement")
3.2 Certificate of Amendment of Certificate of Incorporated by reference from Exhibit 3.1 to
Incorporation dated April 25, 1995 PSINet's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995 located under
Securities and Exchange Commission File No.
0-25812 ("June 1995 10-Q")
3.3 Certificate of Amendment of Certificate of Incorporated by reference from Exhibit 3.2 to
Incorporation Dated May 5, 1995 the June 1995 10-Q
3.4 Certificate of Amendment of Certificate of Incorporated by reference from Exhibit 3.1 to
Incorporation Dated November 11, 1995 PSINet's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1995 located under
Securities and Exchange Commission File No.
0-25812 ("September 1995 10-Q")
3.5 Certificate of Amendment of Certificate of Incorporated by reference from Exhibit 3 to
Incorporation, dated May 18, 1996 PSINet's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996 located under
Securities and Exchange Commission File No.
0-25812 ("June 1996 10-Q")
3.6 Certificate of Amendment of Certificate of Incorporated by reference from Exhibit 3.1 to
Incorporation dated as of November 6, 1997 PSINet's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997 located under
Securities and Exchange Commission File No.
0-25812 ("September 1997 10-Q")
3.7 Certificate of Amendment of Certificate of Incorporated by reference from Exhibit 3.7 to
Incorporation dated February 5, 1998 PSINet's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 located
under Securities and Exchange Commission File
No. 0-25812 ("1997 Form 10-K")
3.8 Certificate of Amendment of Certificate of Incorporated by reference from Exhibit 3.1 to
Incorporation dated April 30, 1999 PSINet's Current Report on Form 8-K dated May
7, 1999 located under Securities Exchange
Commission File No. 0-25812 ("May 7, 1999 8-K")
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION LOCATION
- ------ ----------- --------
<S> <C> <C>
3.9 Amended and Restated By-laws of PSINet Incorporated by reference from Exhibit 3.8 to
PSINet's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998 located
under the Securities and Exchange Commission
File No. 0-25812 ("1998 Form 10-K")
4.1 Form of 10% Senior Notes due 2005 Incorporated by reference from Exhibit 4.1 to
PSINet's Current Report on Form 8-K dated April
22, 1998 located under Securities and Exchange
Commission File No. 0-25812 ("April 22, 1998
8-K")
4.2 Indenture dated as of April 13, 1998 between PSINet Incorporated by reference from Exhibit 4.2 to
and Wilmington Trust Company, as Trustee the April 22, 1998 8-K
4.3 Form of 11 1/2% Senior Notes due 2008 Incorporated by reference from PSINet's
Registration Statement on Form S-4 declared
effective on February 16, 1999 located under
Securities and Exchange Commission File No.
333-68385
4.4 Indenture dated as of November 3, 1998 between Incorporated by reference from Exhibit 4.1 to
PSINet and Wilmington Trust Company, as trustee the November 10, 1998 8-K
4.5 First Supplemental Indenture dated as of November Incorporated by reference from Exhibit 4.1 to
12, 1998 between PSINet and Wilmington Trust PSINet's Quarterly Report on Form 10-Q for the
Company, as trustee quarter ended September 30, 1998 located under
Securities and Exchange Commission File No.
0-25812 ("September 1998 10-Q")
4.6 Form of unregistered Dollar-denominated Previously filed
11% Senior Notes due 2009
4.7 Form of unregistered Euro-denominated Previously filed
11% Senior Notes due 2009
4.8 Form of registered 11% Senior Notes due 2009 Previously filed
4.9 Indenture dated as of July 23, 1999 between PSINet Previously filed
and Wilmington Trust Company, as Trustee
4.10 Form of Common Stock Certificate Incorporated by reference from Exhibit 4.1 to
the May 1995 Registration Statement
4.11 Form of Common Stock Certificate (name change) Incorporated by reference from Exhibit 4.1A to
PSINet's Registration Statement on Form S-1
declared effective on December 14, 1995 located
under Securities and Exchange Commission File
No. 33-99610 ("December 1995 Registration
Statement")
4.12 Form of 6 3/4% Series C Cumulative Convertible Incorporated by reference from Exhibit 4.1 to
Preferred Stock Certificate the May 7, 1999 8-K
</TABLE>
-2-
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION LOCATION
- ------ ----------- --------
<S> <C> <C>
4.13 Articles Fourth, Fifth, Sixth, Ninth and Tenth of See Exhibits 3.2, 3.3, 3.4, 3.5, 3.6 and 3.7
the Certificate of Incorporation of PSINet, as
amended
4.14 Article I of the Amended and Restated By-laws of See Exhibit 3.9
PSINet, as amended
4.15 Form of Rights Agreement, dated as of May 8, 1996, Incorporated by reference from Exhibit 1 to
between PSINet and First Chicago Trust Company of PSINet's Registration Statement on Form 8-A
New York, as Rights Agent, which includes as dated June 3, 1996 located under Securities and
Exhibit A - Certificate of Amendment; Exhibit B - Exchange Commission File No. 0-25812
Form of Rights Certificate; and Exhibit C - Summary
of Rights to Purchase Shares of Preferred Stock
4.16 Amendment No. 1, dated as of July 21, 1997, to Incorporated by reference from Exhibit 4.1.1 to
Rights Agreement, dated as of May 8, 1996, between PSINet's Current Report on Form 8-K dated
PSINet and First Chicago Trust Company of New York, August 1, 1997 located under Securities and
as Rights Agent. Exchange Commission File No. 0-25812
4.17 Amendment No. 2, dated as of July 31, 1997, to Incorporated by reference from Exhibit 4.1.2 to
Rights Agreement, dated as of May 8, 1996, between PSINet's Current Report on Form 8-K dated
PSINet and First Chicago Trust Company of New York, August 20, 1997 located under Securities and
as Rights Agent. Exchange Commission File No. 0-25812
4.18 Deposit Agreement dated as of May 4, 1999 between Incorporated by reference from Exhibit 4.2 to
PSINet and Wilmington Trust Company, as deposit the May 7, 1999 8-K
agent
5 Opinion of Nixon Peabody LLP Previously filed
10.1 Lease Agreement dated July 1, 1990 between PSINet Incorporated by reference from Exhibit 10.1 to
and Rensselaer Polytechnic Institute, amended by the May 1995 Registration Statement
Lease Renewal Agreement dated as of July 1, 1993,
Letter Agreement dated November 14, 1994 and Letter
Agreement dated February 1, 1995
10.2 Lease Agreement dated February 8, 1995 between Incorporated by reference from Exhibit 10.2 to
PSINet and Rensselaer Polytechnic Institute the May 1995 Registration Statement
10.3 Amendment to Lease Agreement dated July 1, 1995 Incorporated by reference from Exhibit 10.2A to
between PSINet and Rensselaer Polytechnic Institute the December 1995 Registration Statement
10.4 Lease Agreement dated as of April 30, 1993 by and Incorporated by reference from Exhibit 10.3 to
between Vingarden Limited Partnership and PSINet the May 1995 Registration Statement
10.5 Lease Agreement dated April 1995 by and between Incorporated by reference from by Exhibit 10.3A
Brit Limited Partnership and PSINet to the December 1995 Registration Statement
</TABLE>
-3-
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION LOCATION
- ------ ----------- --------
<S> <C> <C>
10.6 Sublease dated September 20, 1995 by and between Incorporated by reference from Exhibit 10.3B to
The Medical Sciences Research Institute and PSINet the December 1995 Registration Statement
and Lease Agreement dated October 6, 1993 by and
between Vingarden Associates Limited Partnership
and The Medical Sciences Research Institute
10.7 Lease Agreement dated October 31, 1995 between Incorporated by reference from Exhibit 10.4A to
Oakfern Properties Limited and PSINet the December 1995 Registration Statement
10.8 Amendment to Deed of 460 Spring Park Technology Incorporated by reference from Exhibit 10.1 to
Center dated as of June 12, 1997 between JBG/ the September 1997 Form 10-Q
Spring Park Limited Partnership and PSINet
10.9 Sublease Agreement dated as of June 2, 1997 between Incorporated by reference from Exhibit 10.2 to
Lucas Industries, Inc. and PSINet and Office Lease the September 1997 10-Q
Agreement between 3B Limited Partnership and Lucas
Industries Inc. dated as of September 12, 1989
10.10 Sublease Agreement dated January 22, 1998 between Incorporated by reference from Exhibit 10.9 to
PSINet and Unisys Corporation, as amended the 1997 Form 10-K
10.11 Lease Agreement dated February 20, 1998 between Incorporated by reference from Exhibit 10.11 to
PSINet and CarrAmerica Realty Corporation the 1997 Form 10-K
10.12 Lease Agreement dated October 1994 between PSINet Incorporated by reference from Exhibit 10.4 to
and Cascade Communications, Inc. the May 1995 Registration Statement
10.13 Master Lease Agreement dated July 19, 1994 between Incorporated by reference from Exhibit 10.5 to
PSINet and Technology Credit Corporation the May 1995 Registration Statement
10.14 Lease Agreement dated as of July 9, 1993 between Incorporated by reference from Exhibit 10.6 to
Applied Telecommunications Technologies, Inc. and the May 1995 Registration Statement
PSINet
10.15 Lease Agreement dated as of February 10, 1994 Incorporated by reference from Exhibit 10.7F to
between Applied Telecommunications Technologies, the December 1995 Registration Statement
Inc. and PSINet
10.16 Lease Agreement dated as of March 14, 1994 between Incorporated by reference from Exhibit 10.7G to
Applied Telecommunications Technologies, Inc. and the December 1995 Registration Statement
PSINet
10.17 Lease Agreement dated as of June 9, 1994 between Incorporated by reference from Exhibit 10.7H to
Applied Telecommunications Technologies, Inc. and the December 1995 Registration Statement
PSINet
10.18 Lease Agreement dated as of September 21, 1994 Incorporated by reference from Exhibit 10.7 to
between Applied Telecommunications Technologies, the May 1995 Registration Statement
Inc. and PSINet
</TABLE>
-4-
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION LOCATION
- ------ ----------- --------
<S> <C> <C>
10.19 Master Equipment Lease Agreement dated as of June Incorporated by reference from Exhibit 10.1 to
23, 1995 between PSINet and Forsythe/McArthur the September 1995 10-Q
Associates, Inc. ("FMA")
10.20 Master Lease Line Commitment Agreement dated as of Incorporated by reference from Exhibit 10.2 to
June 23, 1995 between PSINet and FMA the September 1995 10-Q
10.21 Amendment Agreement dated as of August 1, 1995 Incorporated by reference from Exhibit 10.8 to
between PSINet and Technology Credit Corporation the September 1995 10-Q
10.22 Master Equipment Lease Agreement No. Incorporated by reference from Exhibit 10.44A
620-0004602-000 dated November 1995 between PSINet to the December 1995 Registration Statement
and Siemens Credit Corporation
10.23 Amendment to Master Lease Agreement No. 1753 dated Incorporated by reference from Exhibit 10.77 to
January 26, 1996 between PSINet and Technology PSINet's Annual Report on Form 10-K for the
Credit Corporation fiscal year ended December 31, 1995 located
under the Securities and Exchange Commission
File No. 0-25812 ("1995 Form 10-K")
10.24 Master Equipment Lease Agreement dated December 15, Incorporated by reference from Exhibit 10.78 to
1995 between PSINet and Financing for Science the 1995 Form 10-K
International, Inc.
10.25 Security Agreement dated as of March 20, 1996 Incorporated by reference from Exhibit 10.79 to
between PSINet and USL Capital Corporation the 1995 Form 10-K
10.26 Master Software/Equipment Lease Agreement dated as Incorporated by reference from Exhibit 10.4 to
of September 20, 1996 between PSINet and LPI PSINet's Quarterly Report on Form 10-Q for the
Software Funding Group, Inc. quarter ended September 30, 1996 located under
Securities and Exchange Commission File No.
0-25812 ("September 1996 10-Q")
10.27 Master Lease Agreement dated as of January 27, 1997 Incorporated by reference from Exhibit 10.77 to
between Cascade Communications Corp. PSINet's Annual Report on Form 10-K for the
and PSINet fiscal year ended December 31, 1996 located
under Securities and Exchange Commission File
No. O-25812 ("1996 Form 10-K")
10.28 Master Equipment/Software Rental Agreement dated as Incorporated by reference from Exhibit 10.3 to
of September 11, 1997 between PSINet and Earthlink the September 1997 10-Q
Network, Inc. and Change Order Amendment Master
Equipment dated as of September 22, 1997
10.29 Equipment lease dated as of June 30, 1997 between Incorporated by reference from Exhibit 10.4 to
Royal Bank of Canada and PSINet Limited the September 1997 10-Q
</TABLE>
-5-
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION LOCATION
- ------ ----------- --------
<S> <C> <C>
10.30 Master Lease Agreement dated as Incorporated by reference from Exhibit 10.4 to
Of October 10, 1997 between Cisco Systems Capital the September 1997 Form 10-Q
Corporation and PSINet
10.31 Master Lease Agreement No. A212 between 3Com Credit Incorporated by reference from dated as of
Corporation and PSINet, as amended October 30, 1997 Exhibit 10.31 to the 1997 Form
10-K
10.32 Master Lease of Personal Property No. 3402, dated Incorporated by reference from Exhibit 10.32 to
December 12, 1997 between PSINet and Charter the 1997 Form 10-K
Financial, Inc., as amended
10.33* Executive Stock Option Plan of Incorporated by reference from Exhibit 10.10 to
PSINet the May 1995 Registration Statement
10.34* Executive Stock Incentive Plan of PSINet, as amended Incorporated by reference from Exhibit 10.12 to
the December 1995 Registration Statement
10.35* Directors Stock Incentive Plan of PSINet, as amended Incorporated by reference from Exhibit 10.13 to
the December 1995 Registration Statement
10.36* Strategic Stock Incentive Plan of PSINet Incorporated by reference from Exhibit 10 to
the June 1995 10-Q
10.37* 1996 Performance Bonus Plan of PSINet Incorporated by reference from Exhibit 10.25 to
the 1996 Form 10- K
10.38* InterCon Systems Corporation 1992 Incentive Stock Incorporated by reference from Exhibit 99.1 to
Plan PSINet's Registration Statement on Form S-8
which became effective on October 18, 1995
located under Securities Exchange Commission
File No. 33-98316 ("S-8 No. 16")
10.39* InterCon Systems Corporation 1994 Stock Option Plan Incorporated by reference from Exhibit 99.2 to
the S-8 No. 16
10.40* Software Ventures Corporation 1994 Stock Option Plan Incorporated by reference from Exhibit 99 to
PSINet's Registration Statement on Form S-8
which became effective on October 18, 1995
located under Securities and Exchange
Commission File No. 33-98314
10.41* Employment Agreement dated February 9, 1996 between Incorporated by reference from Exhibit 10.42 to
PSINet and Mary-Ann Carolan the 1995 Form 10-K
10.42* Employment Agreement dated February 13, 1996 Incorporated by reference from Exhibit 10.19 to
between PSINet and Mitchell Levinn the 1995 10-K
10.43* Employment Agreement dated October 9, 1996 between Incorporated by reference from Exhibit 10.3 to
PSINet and Richard R. the September 1996 10-Q
Frizalone
10.44* Employment Agreement dated February 12, 1997 Incorporated by reference from Exhibit 10.78 to
between PSINet and David L. Hudson the 1996 Form 10-K
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION LOCATION
- ------ ----------- --------
<S> <C> <C>
10.45* Employment Agreement dated July 1, 1997 between Incorporated by reference from Exhibit 10.5 to
PSINet and Michael Malesardi the September 1997 10-Q
10.46* Employment Agreement dated August 2, 1997 between Incorporated by reference from Exhibit 10.6 to
PSINet and Anthony Aveta the September 1997 10-Q
10.47* Employment Agreement dated August 4, 1997 between Incorporated by reference from Exhibit 10.7 to
PSINet and Harry Hobbs the September 1997 10-Q
10.48* Employment Agreement dated January 8, 1998 between Incorporated by reference from Exhibit 10.52 to
PSINet and William Cripe the 1997 Form 10-K
10.49* Employment Agreement dated January 18, 1998 between Incorporated by reference from Exhibit 10.53 to
PSINet and Kathleen B. Horne the 1997 Form 10-K
10.50* Employment Agreement dated February 16, 1998 Incorporated by reference from Exhibit 10.54 to
between PSINet and John Muleta the 1997 Form 10-K
10.51* Employment Agreement dated October 16, 1998, 1996 Incorporated by reference from Exhibit 10.57 to
between PSINet and Harold S. Wills the 1998 Form 10-K
10.52* Employment Agreement dated October 16, 1998 between Incorporated by reference from Exhibit 10.58 to
PSINet and Edward D. Postal the 1998 Form 10-K
10.53 Employment Agreement dated October 16, 1998 between Incorporated by reference from Exhibit 10.59 to
PSINet and David N. Kunkel the 1998 Form 10-K
10.54 Form of Indemnification Agreement Incorporated by reference from Exhibit 10.21 to
the May 1995 Registration Statement
10.55 Registration Rights Agreement dated as of June 16, Incorporated by reference from Exhibit 10.39 to
1995 among PSINet and Stockholders of InterCon the December 1995 Registration Statement
Systems Corporation
10.56 Registration Rights Agreement dated as of July 11, Incorporated by reference from Exhibit 10.40
1995 among PSINet and Stockholders of Software to the December 1995 Registration Statement
Ventures Corporation
10.57 Registration Rights Agreement dated as of November Incorporated by reference from Exhibit 10.10 to
11, 1997 between PSINet and the purchasers of the September 1997 10-Q
Series B 8% Convertible Preferred Stock
10.58 Registration Rights Agreement dated as of February Incorporated by reference from Exhibit 10.62 to
25, 1998 between PSINet and IXC Internet Services, the 1997 Form 10-K
Inc.
10.59 Credit Agreement dated September 29, 1998 among Incorporated by reference from Exhibit 2.2 to
PSINet, the Lenders party thereto, The Chase PSINet's Current Report on Form 8-K dated
Manhattan Bank, as Administrative Agent, Fleet October 16, 1998 located under Securities and
National Bank, as Syndication Agent, and The Bank Exchange Commission File No. 0-25812 ("October
of New York as Documentation Agent 16, 1998 8-K")
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION LOCATION
- ------ ----------- --------
<S> <C> <C>
10.60 Guarantee Agreement dated September 29, 1998 among Incorporated by reference from Exhibit 2.3 to
each of the subsidiaries of PSINet party thereto the October 16, 1998 8-K
and The Chase Manhattan Bank
10.61 Pledge Agreement dated September 29, 1998 among Incorporated by reference from Exhibit 2.4 to
PSINet, each subsidiary of PSINet party thereto and the October 16, 1998 8-K
The Chase Manhattan Bank
10.62 Security Agreement dated September 29, 1998 among Incorporated by reference from Exhibit 2.5 to
PSINet, each subsidiary of PSINet party thereto and the October 16, 1998 8-K
The Chase Manhattan Bank
10.63 First Amendment dated as of October 27, 1998 to the Incorporated by reference from Exhibit 10.2 to
Credit Agreement dated as of September 29, 1998, the November 10, 1998 8-K
among PSINet, the Lenders party thereto, The Chase
Manhattan Bank, as Administrative Agent, Fleet
National Bank, as Syndication Agent, and the Bank
of New York, as Documentation Agent
10.64 Warrant to purchase up to 25,000 shares of the Incorporated by reference from Exhibit 10.39 to
Series B Preferred of PSINet, at an exercise price the May 1995 Registration Statement
of $1.60 per share, registered in the name of
William H. Baumer
10.65 Warrant to purchase up to 25,000 shares of the Incorporated by reference from Exhibit 10.40 to
Series B Preferred of PSINet, at an exercise price the May 1995 Registration Statement
of $1.60 per share, registered in the name of
William H. Baumer
10.66 Stock Acquisition Agreement, dated as of February Incorporated by reference from Exhibit 2 to
1, 1997, between Ascend Communications, Inc. and PSINet's Current Report on Form 8-K dated
PSINet with respect to all outstanding capital February 14, 1997 located under Securities and
stock of InterCon Systems Corporation, a Delaware Exchange Commission File No. 0-25812
corporation and a wholly-owned subsidiary of PSINet
10.67 Asset Purchase Agreement dated as of June 28, 1996 Incorporated by reference from Exhibit 2 to the
between PSINet and MindSpring Enterprises, Inc. June 1996 10-Q
10.68 Amendment No. 1 to Asset Purchase Agreement and Incorporated by reference from Exhibit 2 to the
Network Services Agreement entered into as of June September 1996 10-Q
28, 1996 by and between PSINet and MindSpring
Enterprises, Inc.
10.69 Amendment No. 2 to Asset Purchase Agreement entered Incorporated by reference from Exhibit 10.8 to
into as of September 1, 1996 by and between PSINet the September 1996 10-Q
and MindSpring Enterprises, Inc.
10.70 Amendment No. 3 to Asset Purchase Agreement and Incorporated by reference from Exhibit 10.74 to
Amendment No. 1 to Convertible Note entered into the 1996 Form 10-K
as of January 24, 1997 by and between PSINet and
MindSpring Enterprises, Inc.
</TABLE>
-8-
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION LOCATION
- ------ ----------- --------
<S> <C> <C>
10.71 Amendment No. 2 to Network Services Agreement Incorporated by reference from Exhibit 10.75 to
entered in as of January 1, 1997 by and between the 1996 Form 10-K
PSINet and MindSpring Enterprises, Inc.
10.72 IRU and Stock Purchase Agreement dated as of July Incorporated by reference from Exhibit 2.1 to
22, 1997 between IXC Internet Services, Inc. and the June 1997 10-Q
PSINet
10.73 First Amendment to IRU and Stock Purchase Agreement Incorporated by reference from Exhibit A to
dated as of July 22, 1997 between IXC Internet PSINet's December 1997 Proxy Statement
Services, Inc. and PSINet
10.74 Second Amendment to IRU and Stock Purchase Incorporated by reference from Exhibit A to the
Agreement dated as of July 22, 1997 between IXC December 1997 Proxy Statement
Internet Services, Inc. and PSINet
10.75 Joint Marketing and Services Agreement dated as of Incorporated by reference from Exhibit 10.1 to
July 22, 1997 between IXC Internet Services, Inc. PSINet's Quarterly Report on Form 10-Q for the
and PSINet quarter ended June 30, 1997 located under
Securities and Exchange Commission File no.
0-25812
10.76 Stock Purchase Agreement dated as of November 11, Incorporated by reference from Exhibit 10.9 to
1997 between PSINet and the Purchasers of its the September 1997 10-Q
Series B 8% Convertible Preferred Stock
10.77 Agreement dated as of November 10, 1997 between Incorporated by reference from Exhibit 2 to the
iSTAR internet inc. and PSINet September 1997 10-Q
10.78 Pre-Acquisition Agreement between PSINet and iSTAR Incorporated by reference from Exhibit 10.1 to
internet inc., dated December 23, 1997 the January 7, 1998 8-K
10.79 Security Agreement and Assignment dated as of Incorporated by reference from Exhibit 10.95 to
February 25, 1998 between PSINet and IXC Internet the 1997 Form 10-K
Services, Inc.
10.80 Collocation and Interconnection Agreement between Incorporated by reference from Exhibit 10.96 to
PSINet and IXC Internet Services, Inc. the 1997 Form 10-K
10.81 Escrow Agreement, dated as of April 13, 1998, Incorporated by reference from Exhibit 10.2 to
among Wilmington Trust Company (as escrow agent and the April 22, 1998 8-K
trustee) and PSINet.
10.82 Registration Rights Agreement dated as of April 13, Incorporated by reference from Exhibit 10.1 to
1998 among PSINet and Donaldson, Lufkin & Jenrette the April 22, 1998 8-K
Securities Corporation, Merrill Lynch, Pierce,
Fenner & Smith Incorporated, and Chase Securities,
Inc.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION LOCATION
- ------ ----------- --------
<S> <C> <C>
10.83 First Amendment to Sublease dated as of March 23, Incorporated by reference from Exhibit 10.99 to
1998 between Unisys Corporation and PSINet PSINet's Registration Statement on Form S-4
declared effective on May 7, 1998 located under
the Securities and Exchange Commission File No.
333-51491 ("May 1998
Registration Statement")
10.84 Share Purchase Agreement dated as of October 1, Incorporated by reference from Exhibit 2.1 to
1998 among PSINet Japan Inc., a subsidiary of the October 16, 1998 8-K
PSINet, Tokyo Internet Corporation and Secom Co.,
Ltd.
10.85 Registration Rights Agreement dated as of November Incorporated by reference from Exhibit 10.1 to
3, 1998 among PSINet and Donaldson, Lufkin and the November 10, 1998 8-K
Jenrette Securities Corporation, Chase Securities,
Inc. and Morgan Stanley & Co. Incorporated
10.86* Employment Agreement dated June 17, 1998 between Incorporated by reference from Exhibit 10.1 to
PSINet and William A. Opet PSINet's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998 located under
Securities and Exchange Commission File No.
0-25812 ("June 1998 10-Q")
10.87* Employment Agreement dated July 2, 1998 between Incorporated by reference from Exhibit 10.2 to
PSINet and Robert D. Leahy the June 1998 10-Q
10.88* Employment Agreement dated September 1, 1998 Incorporated by reference from Exhibit 10.8 to
between PSINet and Chi H. Kwan the September 1998 10-Q
10.89* Employment Agreement dated September 8, 1998 Incorporated by reference from Exhibit 10.5 to
between PSINet and James A. Haid the September 1998 10-Q
10.90* Employment Agreement dated September 30, 1998 Incorporated by reference from Exhibit 10.3 to
between PSINet and Sandy L. Blaisdell the September 1998 10-Q
10.91* Employment Agreement dated October 12, 1998 between Incorporated by reference from Exhibit 10.2 to
PSINet and Geoffrey E. Axton the September 1998 10-Q
10.92* Employment Agreement dated October 14, 1998 between Incorporated by reference from Exhibit 10.4 to
PSINet and Edward Arnold Davis the September 1998 10-Q
10.93 Registration Rights Agreement, dated as of November Incorporated by reference from Exhibit 4.3 to
13, 1998, among PSINet and Donaldson Lufkin & the September 1998 10-Q
Jenrette Securities Corporation, Chase Securities
Inc. and Morgan Stanley & Co. Incorporated
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION LOCATION
- ------ ----------- --------
<S> <C> <C>
10.94 Second Amendment dated as of November 9, 1998, to Incorporated by reference from Exhibit 10.1 to
the Credit Agreement, dated as of September 29, the September 1998 10-Q
1998, among PSINet, the Lenders party thereto, the
Chase Manhattan Bank, as Administrative Agent,
Fleet National Bank, as Syndication Agent, and The
Bank of New York, as Documentation Agent
10.95* Amendment to Employment Agreement dated October 1, Incorporated by reference from Exhibit 10.6 to
1998 between PSINet and Harry Hobbs the September 1998 10-Q
10.96* Employment Agreement dated November 2, 1998 between Incorporated by reference from Exhibit 10.7 to
PSINet and David J. Kramer the September 1998 10-Q
10.97* Employment Agreement dated November 6, 1998 between Incorporated by reference from Exhibit 10.9 to
PSINet and John Walpuck the September 1998 10-Q
10.98* Employment Agreement dated November 12, 1998 Incorporated by reference from Exhibit 10.10 to
between PSINet and Lawrence Winkler the September 1998 10-Q
10.99* Employment Agreement dated May 24, 1999 between Previously filed
PSINet and Thomas A. Leach
10.100* Employment Agreement dated May 24, 1999 between Previously filed
PSINet and James F. Cragg
10.101* Employment Agreement dated May 24, 1999 between Previously filed
PSINet and Philippe J. Kuperman
10.102 Master Lease Agreement between PSINet and Incorporated by reference from Exhibit 10.11 to
Technology Credit Corporation No. 1788 dated June the September 1998 10-Q
20, 1998
10.103 Master Lease Agreement between PSINet and Incorporated by reference from Exhibit 10.12 to
Technology Credit Corporation No. 1789 dated June the September 1998 10-Q
20, 1998
10.104 Master Loan and Security Agreement No. 3963 between Incorporated by reference from Exhibit 10.13 to
PSINet and Charter Financial Inc. dated September the September 1998 10-Q
28, 1998
10.105 Lease Agreement dated July 8, 1998 between Incorporated by reference from Exhibit 10.2 to
Ballymore Properties Limited and Cordoba Holdings the April 27, 1999 8-K
Limited and Thomas Charles Cembrinck
10.106 Third Amendment dated as of June 30, 1999 to the Incorporated by reference from Exhibit 10.1 to
Credit Agreement, dated as of September 29, 1998, PSINet's Current Report on Form 8-K dated July
among PSINet, the Lenders party thereto, The Chase 6, 1999 located under Securities and Exchange
Manhattan Bank, as Administrative Agent, Fleet Commission File No. 0-25812
National Bank, as Syndication Agent, and The Bank
of New York, as Documentation Agent
</TABLE>
-11-
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION LOCATION
- ------ ----------- --------
<S> <C> <C>
10.107 Fourth Amendment dated as of July 15, 1999 to the Incorporated by reference from Exhibit 10.1 to
Credit Agreement, dated as of September 29, 1998, PSINet's Quarterly Report on Form 10-Q for the
among PSINet, the Lenders party thereto, The Chase quarter ended June 30, 1999 located under
Manhattan Bank, as Administrative Agent, Fleet Securities and Exchange Commission File No.
National Bank, as Syndication Agent, and The Bank 0-25812
of New York, as Documentation Agent.
10.108 Registration Rights Agreement, dated as of July 23, Previously filed
1999, among PSINet and Donaldson Lufkin & Jenrette
International, Bear Stearns International Limited
and Chase Manhattan International Limited
11.1 Calculation of Basic and Diluted Loss Per Share and Incorporated by reference from Exhibit 11.1 to
Weighted Average Shares for the Year Ended December the 1998 Form 10-K
31, 1998
11.2 Calculation of Basic and Diluted Loss Per Share and Incorporated by reference from Exhibit 11.2 to
Weighted Average Shares for the Year Ended December the 1998 Form 10-K
31, 1997
11.3 Calculation of Basic and Diluted Loss Per Share and Incorporated by reference from Exhibit 11.3 to
Weighted Average Shares for the Year Ended December the 1998 Form 10-K
31, 1996
11.4 Calculation of Basic and Diluted Loss Per Share and Incorporated by reference from Exhibit 11.1 to
Weighted Average Shares Used in Calculation for the PSINet's Quarterly Report on Form 10-Q for the
Six Months Ended June 30, 1999 quarter ended June 30, 1999 located under
Securities and Exchange Commission File No.
0-25812
12 Statements re Computation of Ratios Filed herewith
21 Significant subsidiaries of PSINet Incorporated by reference from Exhibit 21 to
the 1998 Form 10-K
23.1 Consent of Nixon Peabody LLP Previously filed
23.2 Consent of PricewaterhouseCoopers LLP Filed herewith
23.3 Consent of Arthur Andersen LLP Filed herewith
24 Power of Attorney Previously filed
25 Statement of Eligibility on Form T-1 of Wilmington Previously filed
Trust Company
99.1 Letter of Transmittal for Dollar Notes Filed herewith
99.2 Letter of Transmittal for Euro Notes Filed herewith
99.3 Form of Notice of Guaranteed Delivery for Dollar Filed herewith
Notes
</TABLE>
-12-
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION LOCATION
- ------ ----------- --------
<S> <C> <C>
99.4 Form of Notice of Guaranteed Delivery for Euro Notes Filed herewith
</TABLE>
______________________________
* Indicates a management contract or compensatory plan or arrangement required
to be filed as an Exhibit pursuant to Item 14(a)(3).
-13-
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 12
STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED DIVIDENDS
Six Months Six Months
Ended Ended
June 30, June 30,
1994 1995 1996 1997 1998 1998 1999
--------- ---------- ---------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Loss before income taxes $(5,342) $(53,160) $(55,256) $(46,078) $(262,717) $(82,695) $(116,903)
Equity in loss of affiliate 35 204 807 - - - -
Interest expense 731 1,964 5,025 5,362 63,914 19,471 61,486
Interest portion of rental expense 230 692 1,200 1,359 4,183 1,606 3,423
--------- ---------- ---------- ---------- ----------- ---------- ----------
Earnings/(loss) $(4,346) $(50,300) $(48,224) $(39,357) $(194,620) $(61,618) $(51,994 )
========= ========== ========== ========== =========== ========== ==========
Fixed charges:
Interest expense 731 1,964 5,025 5,362 63,914 19,471 61,486
Interest portion of rental expense 230 692 1,200 1,359 4,183 1,606 3,423
--------- ---------- ---------- ---------- ----------- ---------- ----------
Total fixed charges 961 2,656 6,225 6,721 68,097 21,077 64,909
Preferred stock dividend
requirement - - - 411 3,079 1,545 4,797
--------- ---------- ---------- ---------- ----------- ---------- ----------
Total fixed charges and preferred
dividends $ 961 $ 2,656 $ 6,225 $ 7,132 $ 71,176 $ 22,622 $ 69,706
========= ========== ========== ========== =========== ========== ==========
Ratio of earnings to fixed charges -- -- -- -- -- -- --
========= ========== ========== ========== =========== ========== ==========
Deficiency of earnings to cover
combined fixed charges and
preferred dividends $(5,307) $(52,956) $(54,449) $(46,489) $(265,796) $(84,240) $(121,700)
========= ========== ========== ========== =========== ========== ==========
</TABLE>
<PAGE>
Exhibit 23.2
------------
Consent of Independent Accountants
----------------------------------
We hereby consent to the incorporation by reference in this Amendment No. 1 to
the Registration Statement on Form S-4 of our report dated March 9, 1999, except
as to Note 11, which is as of March 25, 1999, relating to the consolidated
financial statements and financial statement schedule of PSINet Inc. appearing
in PSINet Inc.'s Annual Report on Form 10-K for the year ended December 31,
1998. We also consent to the references to us under the headings "Experts" and
"Selected Consolidated Financial and Operating Data" in such Registration
Statement.
PricewaterhouseCoopers LLP
Washington, DC
September 27, 1999
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
As independent public accountants, we hereby consent to the incorporation by
reference in this Amendment No. 1 to Registration Statement on Form S-4 of
PSINet Inc. (File No. 333-84721) of our report dated February 10, 1999 included
in Transaction Network Services, Inc.'s Form 10-K for the fiscal year ended
December 31, 1998, which is incorporated by reference in PSINet Inc.'s Current
Report on Form 8-K dated August 22, 1999, and to all references to our Firm
included in this Amendment No. 1 to Registration Statement.
ARTHUR ANDERSEN LLP
Vienna, Virginia
September 22, 1999
<PAGE>
Exhibit 99.1
Letter of Transmittal for Dollar Notes
PSINET INC.
Offer To Exchange Its
New Dollar-Denominated 11% Senior Notes Due 2009,
Which Have Been
Registered Under The Securities Act of 1933,
For Any And All Of Its Outstanding
Unregistered Dollar-Denominated
11% Senior Notes Due 2009
Pursuant To The Prospectus
Dated September __, 1999
- --------------------------------------------------------------------------------
THIS EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME (10:00 P.M.,
LONDON TIME), ON OCTOBER __, 1999, UNLESS EXTENDED (THE "EXPIRATION DATE").
TENDERS MAY BE WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME (10:00 P.M.,
LONDON TIME), ON THE EXPIRATION DATE.
- --------------------------------------------------------------------------------
If you desire to accept the Exchange Offer (as defined below), this Letter
of Transmittal should be completed, signed, and submitted to:
WILMINGTON TRUST COMPANY, as Exchange Agent
By Registered or Certified Mail or By Hand:
Overnight Courier:
Wilmington Trust Company Wilmington Trust Company
Attn: Kristin Long Attn: Corporate Trust Operations
Corporate Trust Operations c/o Harris Trust Co. of New York as Agent
1100 North Market Street 88 Pine Street, 19th Floor
Rodney Square North Wall Street Plaza
Wilmington, DE 19890-0001 New York, New York 10005
By Facsimile:
(For Eligible Institutions Only)
Wilmington Trust Company
(302) 651-1079
Confirm by telephone:
(302) 651-1562
Kristin Long
Delivery of this Letter of Transmittal to an address other than as set
forth above or transmission of this Letter of Transmittal via facsimile to a
number other than as set forth above does not constitute a valid delivery.
The instructions contained herein should be read carefully before this
Letter of Transmittal is completed.
Capitalized terms used but not defined herein shall have the same meaning
given them in the Prospectus (as defined below).
1
<PAGE>
This Letter of Transmittal is to be completed by holders of Initial Notes
(as defined below) either if Initial Notes are to be forwarded herewith or if
tenders of Initial Notes are to be made by book-entry transfer to an account
maintained by the Exchange Agent (as defined below) at The Depository Trust
Company ("DTC") pursuant to the procedures set forth in "The Exchange
Offer--Procedures for Tendering Initial Notes" in the Prospectus and an "agent's
message" (as defined below) is not delivered. Tenders by book-entry transfer may
also be made by delivering an agent's message in lieu of this Letter of
Transmittal.
Holders of Initial Notes whose certificates (the "Certificates") for such
Initial Notes are not immediately available or who cannot deliver their
Certificates and all other required documents to the Exchange Agent on or prior
to the Expiration Date (as defined in the Prospectus) or who cannot complete the
procedures for book-entry transfer on a timely basis, must tender their Initial
Notes according to the guaranteed delivery procedures set forth in "The Exchange
Offer--Procedures for Tendering Initial Notes" in the Prospectus. See
Instruction 1 hereto. Delivery of documents to DTC does not constitute delivery
to the Exchange Agent.
Ladies and Gentlemen:
The undersigned hereby tenders to PSINet Inc., a New York corporation (the
"Company"), the principal amount of the Company's outstanding $1,050,000,000
aggregate principal amount 11% Senior Notes due 2009 (the "Initial Notes")
described in Box 1 below, in exchange for a like principal amount of the
Company's new 11% Senior Notes due 2009 (the "Exchange Notes"), which have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
upon the terms and subject to the conditions set forth in the Prospectus dated
September __, 1999 (as the same may be amended or supplemented from time to
time, the "Prospectus"), receipt of which is acknowledged, and in this Letter of
Transmittal (which, together with the Prospectus, constitutes the "Exchange
Offer").
Subject to, and effective upon, the acceptance for exchange of all or any
portion of the Initial Notes tendered herewith in accordance with the terms and
conditions of the Exchange Offer (including, if the Exchange Offer is extended
or amended, the terms and conditions of any such extension or amendment), the
undersigned hereby sells, assigns and transfers to or upon the order of the
Company all right, title and interest in and to such Initial Notes as are being
tendered herewith. The undersigned hereby irrevocably constitutes and appoints
Wilmington Trust Company as Exchange Agent (the "Exchange Agent") as its agent
and attorney-in-fact (with full knowledge that the Exchange Agent is also acting
as agent of the Company in connection with the Exchange Offer) with respect to
the tendered Initial Notes, with full power of substitution (such power of
attorney being deemed to be an irrevocable power coupled with an interest),
subject only to the right of withdrawal described in the Prospectus, to (1)
deliver Certificates for Initial Notes to the Company together with all
accompanying evidences of transfer and authenticity to, or upon the order of,
the Company, upon receipt by the Exchange Agent, as the undersigned's agent, of
the Exchange Notes to be issued in exchange for such Initial Notes, (2) present
Certificates for such Initial Notes for transfer, and to transfer the Initial
Notes on the books of the Company, and (3) receive for the account of the
Company all benefits and otherwise exercise all rights of beneficial ownership
of such Initial Notes, all in accordance with the terms and conditions of the
Exchange Offer.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, exchange, sell, assign and transfer the
Initial Notes tendered hereby and that, when the same are accepted for exchange,
the Company will acquire good, marketable and unencumbered title thereto, free
and clear of all liens, restrictions, charges and encumbrances, and that the
Initial Notes tendered hereby are not subject to any adverse claims or proxies.
The undersigned will, upon request, execute and deliver any additional documents
deemed by the Company or the Exchange Agent to be necessary or desirable to
complete the exchange, assignment and transfer of the Initial Notes tendered
hereby, and the undersigned will comply with its obligations under the
Registration Rights Agreement dated as of July 23, 1999 (the "Registration
Rights Agreement") by and among the Company and Donaldson, Lufkin & Jenrette
2
<PAGE>
International, Bear Stearns International Limited and Chase Manhattan
International Limited. The undersigned has read and agrees to all of the terms
of the Exchange Offer.
The name(s) and address(es) of the registered holder(s) of the Initial
Notes tendered hereby should be printed in Box 1 below, if they are not already
set forth therein, as they appear on the Certificates representing such Initial
Notes. The Certificate number(s) and the aggregate principal amount of Initial
Notes that the undersigned wishes to tender should also be indicated in Box 1
below.
If any tendered Initial Notes are not exchanged pursuant to the Exchange
Offer for any reason, or if Certificates are submitted for more Initial Notes
than are tendered or accepted for exchange, Certificates for such nonexchanged
or nontendered Initial Notes will be returned (or, in the case of Initial Notes
tendered by book-entry transfer, such Initial Notes will be credited to an
account maintained at DTC), without expense to the tendering holder, promptly
following the expiration or termination of the Exchange Offer.
The undersigned understands that tenders of Initial Notes pursuant to any
one of the procedures described under "The Exchange Offer--Procedures for
Tendering Initial Notes" in the Prospectus and in the instructions hereto will,
upon the Company's acceptance for exchange of such tendered Initial Notes,
constitute a binding agreement between the undersigned and the Company upon the
terms and subject to the conditions of the Exchange Offer.
The Exchange Offer is subject to certain conditions as set forth in the
Prospectus under the caption "The Exchange Offer-Conditions." The undersigned
recognizes that as a result of these conditions (which may be waived by the
Company, in whole or in part, in the reasonable discretion of the Company), as
more particularly set forth in the Prospectus, the Company may not be required
to exchange any of the Initial Notes tendered hereby and, in such event, the
Initial Notes not exchanged will be returned to the undersigned at the address
shown in Box 1.
Unless otherwise indicated herein in the box entitled "Special Exchange
Instructions" below (Box 7), the undersigned hereby directs that the Exchange
Notes be issued in the name(s) of the undersigned or, in the case of a book-
entry transfer of Initial Notes, that such Exchange Notes be credited to the
account indicated below maintained at DTC. If applicable, substitute
Certificates representing Initial Notes not exchanged or not accepted for
exchange will be issued to the undersigned or, in the case of a book-entry
transfer of Initial Notes, will be credited to the account indicated below
maintained at DTC. Similarly, unless otherwise indicated herein in the box
entitled "Special Delivery Instructions" below (Box 8), the undersigned hereby
directs that the Exchange Notes be delivered to the undersigned at the address
shown below the undersigned's signature.
THE EXCHANGE OFFER IS NOT BEING MADE TO ANY BROKER-DEALER WHO PURCHASED
INITIAL NOTES DIRECTLY FROM THE COMPANY FOR RESALE PURSUANT TO RULE 144A UNDER
THE SECURITIES ACT OR ANY PERSON THAT IS AN "AFFILIATE" OF THE COMPANY WITHIN
THE MEANING OF RULE 405 UNDER THE SECURITIES ACT. THE UNDERSIGNED UNDERSTANDS
AND AGREES THAT THE COMPANY RESERVES THE RIGHT NOT TO ACCEPT TENDERED INITIAL
NOTES FROM ANY TENDERING HOLDER IF THE COMPANY DETERMINES, IN ITS REASONABLE
DISCRETION, THAT SUCH ACCEPTANCE COULD RESULT IN A VIOLATION OF APPLICABLE
SECURITIES LAWS.
By tendering Initial Notes and executing this Letter of Transmittal or
delivering an agent's message in lieu of this Letter of Transmittal, the
undersigned hereby represents and agrees that (i) the undersigned is not an
"affiliate" of the Company (within the meaning of Rule 405 under the Securities
Act), (ii) any Exchange Notes to be received by the undersigned are being
acquired in the ordinary course of its business, (iii) the undersigned has no
arrangement or understanding with any person to participate in a distribution
(within the meaning of the Securities Act) of Exchange Notes to be received in
the Exchange Offer, and (iv) if the undersigned is not a broker-dealer, the
undersigned is not engaged in, and does not intend to engage
3
<PAGE>
in, a distribution (within the meaning of the Securities Act) of such Exchange
Notes. By tendering Initial Notes pursuant to the Exchange Offer and executing
this Letter of Transmittal or delivering Initial Notes by book-entry transfer, a
holder of Initial Notes that is a broker-dealer additionally represents and
agrees, consistent with certain interpretive letters issued by the staff of the
Division of Corporation Finance of the Securities and Exchange Commission to
third parties described under "The Exchange Offer--Registration Rights" in the
Prospectus, that such Initial Notes were acquired by such broker-dealer for its
own account as a result of market-making activities or other trading activities
(such a broker-dealer tendering Initial Notes is herein referred to as a
"Participating Broker-Dealer") and it will deliver the Prospectus (as amended or
supplemented from time to time) meeting the requirements of the Securities Act
in connection with any resale of such Exchange Notes (provided that, by so
acknowledging and by delivering a Prospectus, such Participating Broker-Dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act).
The Company has agreed that, subject to the provisions of the Registration
Rights Agreement, the Prospectus, as it may be amended or supplemented from time
to time, may be used by a Participating Broker-Dealer in connection with resales
of Exchange Notes received in exchange for Initial Notes, where such Initial
Notes were acquired by such Participating Broker-Dealer for its own account as a
result of market-making activities or other trading activities, for a period
ending one year after the Expiration Date or, if earlier, when all such Exchange
Notes have been disposed of by such Participating Broker-Dealer. In that
regard, each Participating Broker-Dealer, by tendering such Initial Notes and
executing this Letter of Transmittal or delivering an agent's message in lieu of
this Letter of Transmittal, agrees to notify the Company prior to using the
Prospectus in connection with the sale or transfer of Exchange Notes and
acknowledges and agrees that, upon receipt of notice from the Company of the
occurrence of any event or the discovery of any fact which makes any statement
contained or incorporated by reference in the Prospectus untrue in any material
respect or which causes the Prospectus to omit to state a material fact
necessary in order to make the statements contained therein, in light of the
circumstances under which they were made, not misleading or of the occurrence of
certain other events specified in the Registration Rights Agreement, such
Participating Broker-Dealer will suspend the sale of Exchange Notes pursuant to
the Prospectus until the Company has amended or supplemented the Prospectus to
correct such misstatement or omission and has furnished copies of the amended or
supplemented Prospectus to the Participating Broker-Dealer or the Company has
given notice that the sale of the Exchange Notes may be resumed, as the case may
be.
EACH PARTICIPATING BROKER-DEALER SHOULD CHECK THE BOX HEREIN UNDER THE
CAPTION "PARTICIPATING BROKER-DEALER" (BOX 5 HEREOF) IN ORDER TO RECEIVE
ADDITIONAL COPIES OF THE PROSPECTUS, AND ANY AMENDMENTS AND SUPPLEMENTS THERETO,
FOR USE IN CONNECTION WITH RESALES OF THE EXCHANGE NOTES, AS WELL AS ANY NOTICES
FROM THE COMPANY TO SUSPEND AND RESUME USE OF THE PROSPECTUS. BY TENDERING ITS
INITIAL NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL OR DELIVERING AN AGENT'S
MESSAGE IN LIEU OF THIS LETTER OF TRANSMITTAL, EACH PARTICIPATING BROKER-DEALER
AGREES TO USE ITS REASONABLE BEST EFFORTS TO NOTIFY THE COMPANY OR THE EXCHANGE
AGENT WHEN IT HAS SOLD ALL OF ITS EXCHANGE NOTES. IF NO PARTICIPATING BROKER-
DEALERS CHECK SUCH BOX, OR IF ALL PARTICIPATING BROKER-DEALERS WHO HAVE CHECKED
SUCH BOX SUBSEQUENTLY NOTIFY THE COMPANY OR THE EXCHANGE AGENT THAT ALL THEIR
EXCHANGE NOTES HAVE BEEN SOLD, THE COMPANY WILL NOT BE REQUIRED TO MAINTAIN THE
EFFECTIVENESS OF THE EXCHANGE OFFER REGISTRATION STATEMENT OR TO UPDATE THE
PROSPECTUS AND WILL NOT PROVIDE ANY HOLDERS WITH ANY NOTICES TO SUSPEND OR
RESUME USE OF THE PROSPECTUS.
Each Exchange Note will bear interest from the most recent date on which
interest has been paid or duly provided for on the Initial Note surrendered in
exchange for such Exchange Note or, if no such interest has been paid or duly
provided for on such Initial Note, from July 23, 1999, the date of issuance of
the
4
<PAGE>
Initial Notes. Holders of Initial Notes whose Initial Notes are accepted for
exchange will not receive accrued interest on such Initial Notes for any period
from and after the last Interest Payment Date to which interest has been paid or
duly provided for on such Initial Notes prior to the original issue date of the
Exchange Notes or, if no such interest has been paid or duly provided for, will
not receive any accrued interest on such Initial Notes, and will be deemed to
have waived the right to receive any interest on such Initial Notes accrued from
and after such Interest Payment Date or, if no such interest has been paid or
duly provided for, from and after July 23, 1999.
The undersigned understands that the delivery and surrender of the Initial
Notes is not effective, and the risk of loss of the Initial Notes does not pass
to the Exchange Agent, until receipt by the Exchange Agent of this Letter of
Transmittal, or a manually signed facsimile hereof, properly completed and duly
executed, with any required signature guarantees, together with all accompanying
evidences of authority and any other required documents in form satisfactory to
the Company. All questions as to form of all documents and the validity
(including time of receipt) and acceptance of tenders and withdrawals of Initial
Notes will be determined by the Company, in its sole discretion, which
determination shall be final and binding.
All authority herein conferred or agreed to be conferred in this Letter of
Transmittal shall survive the death or incapacity of the undersigned and any
obligation of the undersigned hereunder shall be binding upon the heirs,
executors, administrators, personal representatives, trustees in bankruptcy,
legal representatives, successors and assigns of the undersigned. Except
pursuant to the withdrawal rights as set forth in the Prospectus, this tender is
irrevocable.
Please read this entire Letter of Transmittal carefully before completing
the boxes below and follow the instructions included herewith.
THE EXCHANGE OFFER IS NOT BEING MADE TO (NOR WILL TENDERS OF INITIAL NOTES
BE ACCEPTED FROM OR ON BEHALF OF) HOLDERS IN ANY JURISDICTION IN WHICH THE
MAKING OR ACCEPTANCE OF THE EXCHANGE OFFER WOULD NOT BE IN COMPLIANCE WITH THE
LAWS OF SUCH JURISDICTION.
Your bank or broker can assist you in completing this form. The
instructions included with this Letter of Transmittal must be followed.
Questions and requests for assistance or for additional copies of the
Prospectus, this Letter of Transmittal and the Notice of Guaranteed Delivery may
be directed to the Exchange Agent, whose address and telephone number appear on
the front cover of this Letter of Transmittal. See Instruction 8 below.
5
<PAGE>
All Tendering Holders Complete This Box 1:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
BOX 1
DESCRIPTION OF INITIAL NOTES TENDERED
(See Instructions 3 and 4 Below)
- -----------------------------------------------------------------------------------------------------------------
If Blank, Please Print Certificate Number(s) of Aggregate Principal Aggregate Principal Amount
Name(s) And Address(es) Initial Notes Amount Represented By of Initial Notes Being
Of Registered Holder(s), Certificates* Tendered**
Exactly As Name(s)
Appear(s) On Initial Note
Certificate(s)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Total
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
* Need not be completed by book-entry holders (see below).
** The minimum permitted tender is $1,000 in principal amount. All
tenders must be in integral multiples of $1,000 in principal amount. The
aggregate principal amount of all Initial Notes Certificates identified in this
Box 1, or delivered to the Exchange Agent herewith, shall be deemed tendered
unless a lesser number is specified in this column. See Instruction 4.
- --------------------------------------------------------------------------------
BOX 2
BOOK-ENTRY TRANSFER
(See Instruction 1 Below)
[_] CHECK HERE IF TENDERED INITIAL NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT AT DTC AND COMPLETE THE
FOLLOWING:
Name of Tendering Institution __________________________________________________
DTC Account Number _____________________________________________________________
Transaction Code Number ________________________________________________________
- --------------------------------------------------------------------------------
Holders of Initial Notes may tender Initial Notes by book-entry transfer by
crediting the Initial Notes to the Exchange Agent's account at the DTC in
accordance with the DTC's automated tender offer program and by complying with
applicable automated tender offer program procedures with respect to the
Exchange Offer. DTC participants that are accepting the Exchange Offer should
transmit their acceptance to DTC, which will edit and verify the acceptance and
execute a book-entry delivery to the Exchange
6
<PAGE>
Agent's account at DTC. DTC will then send a computer-generated message (an
"agent's message") to the Exchange Agent for its acceptance in which the holder
of the Initial Notes acknowledges and agrees to be bound by the terms of, and
makes the representations and warranties contained in, this Letter of
Transmittal, and the DTC participant confirms on behalf of itself and the
beneficial owners of such Initial Notes all provisions of this Letter of
Transmittal (including any representations and warranties) applicable to it and
such beneficial owner as fully as if it had completed the information required
herein and executed and transmitted this Letter of Transmittal to the Exchange
Agent. Delivery of the agent's message by DTC will satisfy the terms of the
Exchange Offer as to execution and delivery of a Letter of Transmittal by the
participant identified in the agent's message. DTC participants may also accept
the Exchange Offer by submitting a Notice of Guaranteed Delivery through DTC's
automated tender offer program.
7
<PAGE>
- --------------------------------------------------------------------------------
BOX 3
NOTICE OF GUARANTEED DELIVERY
(See Instruction 1 Below)
[_] CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF
TENDERED INITIAL NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED
DELIVERY PREVIOUSLY SENT (OR DELIVERED THROUGH THE AUTOMATED TENDER OFFER
PROGRAM TO) THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING:
Name of Registered Holder(s)____________________________________________________
Window Ticket Number (if any)___________________________________________________
Date of Execution of Notice of Guaranteed Delivery______________________________
Name of Institution which Guaranteed Delivery___________________________________
If Guaranteed Delivery is to be made By Book-Entry Transfer:
Name of Tendering Institution___________________________________________________
DTC Account Number______________________________________________________________
Transaction Code Number_________________________________________________________
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BOX 4
RETURN OF NON-EXCHANGED INITIAL NOTES
TENDERED BY BOOK-ENTRY TRANSFER
(See Instructions 4 and 6 Below)
[_] CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED INITIAL
NOTES ARE TO BE RETURNED BY CREDITING THE DTC ACCOUNT NUMBER SET FORTH ABOVE.
- --------------------------------------------------------------------------------
8
<PAGE>
- --------------------------------------------------------------------------------
BOX 5
PARTICIPATING BROKER-DEALER
[_] CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE INITIAL NOTES FOR ITS
OWN ACCOUNT AS A RESULT OF MARKET-MAKING OR OTHER TRADING ACTIVITIES (A
"PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE TEN ADDITIONAL COPIES OF THE
PROSPECTUS AND TEN COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO, AS WELL AS
ANY NOTICES FROM THE COMPANY TO SUSPEND AND RESUME USE OF THE PROSPECTUS. BY
TENDERING ITS INITIAL NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL OR
DELIVERING AN AGENT'S MESSAGE IN LIEU OF THIS LETTER OF TRANSMITTAL, EACH
PARTICIPATING BROKER-DEALER AGREES TO USE ITS REASONABLE BEST EFFORTS TO NOTIFY
THE COMPANY OR THE EXCHANGE AGENT WHEN IT HAS SOLD ALL OF ITS EXCHANGE NOTES.
(IF NO PARTICIPATING BROKER-DEALERS CHECK THIS BOX, OR IF ALL PARTICIPATING
BROKER-DEALERS WHO HAVE CHECKED THIS BOX SUBSEQUENTLY NOTIFY THE COMPANY OR THE
EXCHANGE AGENT THAT ALL THEIR EXCHANGE NOTES HAVE BEEN SOLD, THE COMPANY WILL
NOT BE REQUIRED TO MAINTAIN THE EFFECTIVENESS OF THE EXCHANGE OFFER REGISTRATION
STATEMENT OR TO UPDATE THE PROSPECTUS AND WILL NOT PROVIDE ANY NOTICES TO ANY
HOLDERS TO SUSPEND OR RESUME USE OF THE PROSPECTUS).
PROVIDE THE NAME OF THE INDIVIDUAL WHO SHOULD RECEIVE, ON BEHALF OF THE HOLDER,
ADDITIONAL COPIES OF THE PROSPECTUS, AND AMENDMENTS AND SUPPLEMENTS THERETO, AND
ANY NOTICES TO SUSPEND AND RESUME USE OF THE PROSPECTUS.
Name: ______________________________________________________________
Address: ___________________________________________________________
Telephone No.: _____________________________________________________
Facsimile No.: _____________________________________________________
- --------------------------------------------------------------------------------
9
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
BOX 6
TENDERING HOLDER SIGNATURE
(See Instructions 1 and 5)
In Addition, Complete Substitute Form W-9
- -----------------------------------------------------------------------------------------------------------------------
<S> <C>
X ____________________________________________________ Signature Guarantee
(If required by Instruction 5)
X ____________________________________________________
(Signature of registered holder(s) or Authorized Authorized Signature
Signatory(ies))
Note: The above lines must be signed by the registered X __________________________________________________________
holder(s) of Initial Notes as their name(s) appear(s)
on the Initial Notes or by person(s) authorized to Name: ______________________________________________________
become registered holder(s) (evidence of which (please print)
authorization must be transmitted with this Letter of
Transmittal). If signature is by a trustee, executor, Title: _____________________________________________________
administrator, guardian, attorney-in-fact, officer, or
other person acting in a fiduciary or representative Name of Firm: ______________________________________________
capacity, such person must set forth his or her full (Must be an Eligible Institution as
title below. See Instruction 5. defined in Instruction 1)
Name(s): _____________________________________________
Address: __________________________________________________
____________________________________________
________________________________________________
____________________________________________
________________________________________________
Capacity: ____________________________________________ (include Zip Code)
____________________________________________
Street Address: ______________________________________ Area Code and Telephone Number:
____________________________________________ ________________________________________________
____________________________________________ Dated: _______________________________________________
(include Zip Code)
Area Code and Telephone Number:
--------------------------------------------
Tax Identification or Social Security Number:
________________________________________________
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------- -----------------------------------------------------------
BOX 7 BOX 8
SPECIAL EXCHANGE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 1, 5 and 6 Below) (See Instructions 1, 5 and 6 Below)
<S> <C>
- ------------------------------------------------------- -----------------------------------------------------------
To be completed ONLY if Certificates for the Initial To be completed ONLY if Certificates for the Initial
Notes not exchanged and/or Certificates for the Notes not exchanged and/or Certificates for the
Exchange Notes are to be issued in the name of Exchange Notes are to be sent to someone other than the
someone other than the registered holder of the registered holder of the Initial Notes whose name(s)
Initial Notes whose name(s) appear(s) above. appear(s) above, or to such registered holder(s) at an
address other than that shown above.
Name: _________________________________________________ Name: ______________________________________________________
(Please Print) (Please Print)
Address: ______________________________________________ Address: ___________________________________________________
______________________________________________ ___________________________________________________
(Include Zip Code) (Include Zip Code)
______________________________________________________ ___________________________________________________________
(Tax Identification or Social Security Number) (Tax Identification or Social Security Number)
- ------------------------------------------------------- -------------------------------------------------------------
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
BOX 9
- ------------------------------------------------------------------------------------------------------------------------------------
PAYOR'S NAME: WILMINGTON TRUST COMPANY
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
SUBSTITUTE Name (if joint names, list first and circle the name of the person or entity whose number you
enter in Part 1 below. See instructions if your name has changed)
--------------------------------------------------------------------------------------------------
Form W-9 Address
--------------------------------------------------------------------------------------------------
City, State and Zip Code
--------------------------------------------------------------------------------------------------
Department of the Treasury List account number(s) here (optional)
Internal Revenue Service
--------------------------------------------------------------------------------------------------
Part 1 - PLEASE PROVIDE YOUR TAXPAYER IDENTIFICATION NUMBER Social Security Number or
("TIN") IN THE BOX AT RIGHT AND CERTIFY BY SIGNING AND DATING TIN
BELOW.
--------------------------------------------------------------------------------------------------
Part 2 - Check the box if you are NOT subject to backup withholding under the provisions of
section 3406(a)(1)(C) of the Internal Revenue Code because (1) you have not been notified that
you are subject to backup withholding as a result of failure to report all interest or dividends
or (2) the Internal Revenue Service has notified you that you are no longer subject to backup
withholding.
Not subject to withholding [_]
--------------------------------------------------------------------------------------------------
Payor's Request for TIN CERTIFICATION - UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT Part 3 --
THE INFORMATION PROVIDED ON THIS FORM IS TRUE, CORRECT, AND
COMPLETE. Awaiting TIN [_]
Signature: ___________________________ Date: ___________
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE
REVIEW THE ENCLOSED "GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W - 9" FOR ADDITIONAL DETAILS.
12
<PAGE>
- --------------------------------------------------------------------------------
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE
IF YOU CHECKED THE BOX IN PART 3 OF THE SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (1) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (2)
I intend to mail or deliver an application in the near future. I understand that
if I do not provide a taxpayer identification number by the time of payment, 31%
of all payments made to me on account of the Exchange Notes shall be retained
until I provide a taxpayer identification number to the Exchange Agent and that,
if I do not provide my taxpayer identification number within 60 days, such
retained amounts shall be remitted to the Internal Revenue Service as backup
withholding and 31% of all reportable payments made to me thereafter will be
withheld and remitted to the Internal Revenue Service until I provide a taxpayer
identification number.
Signature: ____________________________________________________________________
Date: _________________________________________________________________________
- --------------------------------------------------------------------------------
13
<PAGE>
INSTRUCTIONS TO LETTER OF TRANSMITTAL
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
GENERAL
Please do not send Certificates for Initial Notes directly to the Company.
Your Initial Note Certificates, together with your signed and completed Letter
of Transmittal and any required supporting documents, should be mailed in the
enclosed addressed envelope, or otherwise delivered, to the Exchange Agent, at
either of the addresses indicated on the first page hereof. The method of
delivery of Certificates, this Letter of Transmittal and all other required
documents is at the option and sole risk of the tendering holder and the
delivery will be deemed made only when actually received by the Exchange Agent.
If delivery is by mail, registered mail with return receipt requested, properly
insured, or overnight delivery service is recommended. In all cases, sufficient
time should be allowed to ensure timely delivery.
1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED DELIVERY
PROCEDURES
This Letter of Transmittal is to be completed by holders of Initial Notes
(which term, for purposes of the Exchange Offer, includes any participant in DTC
whose name appears on a security position listing as the holder of such Initial
Notes) if either (a) Certificates for such Initial Notes are to be forwarded
herewith or (b) tenders are to be made pursuant to the procedures for tender by
book-entry transfer set forth in "The Exchange Offer--Procedures for Tendering
Initial Notes" in the Prospectus, and an agent's message is not delivered.
Tenders by book-entry transfer may also be made by delivering an agent's message
in lieu of this Letter of Transmittal. The term "agent's message" means a
message, transmitted by DTC to and received by the Exchange Agent and forming a
part of a book-entry confirmation, which states that DTC has received an
express acknowledgement from the tendering Participant, which acknowledgement
states that such Participant has received and agrees to be bound by, and makes
the representations and warranties contained in, this Letter of Transmittal and
that the Company may enforce this Letter of Transmittal against such
Participant. Certificates representing the tendered Initial Notes, or timely
confirmation of a book-entry transfer of such Initial Notes into the Exchange
Agent's account at DTC, as well as a properly completed and duly executed copy
of this Letter of Transmittal, or a facsimile hereof (or, in the case of a book-
entry transfer, an agent's message), a substitute Form W-9, and any other
documents required by this Letter of Transmittal, must be received by the
Exchange Agent at its address set forth herein on or prior to 5:00 p.m., New
York City time (10:00 p.m., London time), on the Expiration Date, or the
tendering holder must comply with the guaranteed delivery procedures set forth
below. Initial Notes may be tendered in whole or in part in the principal
amount of $1,000 and integral multiples of $1,000.
Holders who wish to tender their Initial Notes and (1) whose Initial Notes
are not immediately available or (2) who cannot deliver their Initial Notes,
this Letter of Transmittal and all other required documents to the Exchange
Agent on or prior to the Expiration Date or (3) who cannot complete the
procedures for delivery by book-entry transfer on a timely basis, may tender
their Initial Notes by properly completing and duly executing a Notice of
Guaranteed Delivery pursuant to the guaranteed delivery procedures set forth in
"The Exchange Offer--Procedures for Tendering Initial Notes" in the Prospectus
and by completing Box 3 hereof. Pursuant to such procedures: (1) such tender
must be made by or through an Eligible Institution (as defined below); (2) a
properly completed and duly executed Notice of Guaranteed Delivery,
substantially in the form made available by the Company, must be received by the
Exchange Agent on or prior to the Expiration Date; and (3) the Certificates (or
a book-entry confirmation (as defined in the Prospectus)) representing all
tendered Initial Notes of such holder, in proper form for transfer, together
with a Letter of Transmittal (or facsimile thereof), properly completed and duly
executed, with any required signature guarantees (or, in the case of a book-
entry transfer, an agent's message) and any other
14
<PAGE>
documents required by this Letter of Transmittal, must be received by the
Exchange Agent within three Nasdaq Stock Market National Market System trading
days after the date of execution of such Notice of Guaranteed Delivery, all as
provided in "The Exchange Offer--Procedures for Tendering Initial Notes" in the
Prospectus.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted
by facsimile or mail to the Exchange Agent, and must include a guarantee by an
Eligible Institution in the form set forth in such Notice. For Initial Notes to
be properly tendered pursuant to the guaranteed delivery procedure, the Exchange
Agent must receive a Notice of Guaranteed Delivery on or prior to the Expiration
Date. As used herein, "Eligible Institution" means a firm or other entity
identified in Rule 17Ad-15 under the Exchange Act as "an eligible guarantor
institution," including (as such terms are defined therein) (1) a bank; (2) a
broker, dealer, municipal securities broker or dealer or government securities
broker or dealer; (3) a credit union; (4) a national securities exchange,
registered securities association or clearing agency; or (5) a savings
association that is a participant in the Securities Transfer Agents Medallion
Program, the New York Stock Exchange Medallion Signature Program or the Stock
Exchange Medallion Program.
The Company will not accept any alternative, conditional or contingent
tenders. Each tendering holder, by execution of a Letter of Transmittal (or
facsimile thereof) or delivering an agent's message in lieu of this Letter of
Transmittal, waives any right to receive any notice of the acceptance of such
tender.
2. GUARANTEE OF SIGNATURES
No signature guarantee on this Letter of Transmittal is required if:
(i) this Letter of Transmittal is signed by the registered holder (which
term, for purposes of this document, shall include any participant in DTC whose
name appears on a security position listing as the owner of the Initial Notes)
of Initial Notes tendered herewith, unless such holder(s) has (have) completed
either the box entitled "Special Exchange Instructions" (Box 7) or the box
entitled "Special Delivery Instructions" (Box 8) above; or
(ii) such Initial Notes are tendered for the account of a firm that is an
Eligible Institution.
In all other cases, an Eligible Institution must guarantee the signature(s)
in Box 6 on this Letter of Transmittal. See Instruction 5.
3. INADEQUATE SPACE
If the space provided in the box captioned "Description of Initial Notes"
is inadequate, the Certificate number(s) and/or the principal amount of Initial
Notes and any other required information should be listed on a separate, signed
schedule and attached to this Letter of Transmittal.
4. PARTIAL TENDERS AND WITHDRAWAL RIGHTS
Tenders of Initial Notes will be accepted only in the principal amount of
$1,000 and integral multiples thereof. If less than all the Initial Notes
evidenced by any Certificate submitted are to be tendered, fill in the principal
amount of Initial Notes which are to be tendered in Box 1 under the column
"Aggregate Principal Amount of Initial Notes Being Tendered." In such case, new
Certificate(s) for the remainder of the Initial Notes that were evidenced by the
Initial Notes Certificate(s) will be sent to the holder of the Initial Notes,
promptly after the Expiration Date. All Initial Notes represented by
Certificates delivered to the Exchange Agent will be deemed to have been
tendered unless otherwise indicated.
Except as otherwise provided herein, tenders of Initial Notes may be
withdrawn at any time on or prior to the Expiration Date. In order for a
withdrawal to be effective, a written or facsimile transmission of
15
<PAGE>
such notice of withdrawal must be timely received by the Exchange Agent at its
address set forth above on or prior to the Expiration Date. Any such notice of
withdrawal must (1) specify the name of the person having deposited the Initial
Notes to be withdrawn (the "Depositor"), (2) identify the Initial Notes to be
withdrawn (including the Certificate number(s) and principal amount of such
Initial Notes, or, in the case of Initial Notes transferred by book-entry
transfer, the name and number of the account at DTC to be credited), (3) be
signed by the Initial Holder in the same manner as the original signature on the
Letter of Transmittal by which such Initial Notes were tendered (including any
required signature guarantees) or be accompanied by documents of transfer
sufficient to have the Trustee register the transfer of such Initial Notes into
the name of the person withdrawing the tender and (4) specify the name in which
any such Initial Notes are to be registered, if different from that of the
Depositor. All questions as to the validity, form and eligibility (including
time or receipt) of such notices will be determined by the Company, whose
determination shall be final and binding on all parties. If Initial Notes have
been tendered pursuant to the procedures for book-entry transfer set forth in
the Prospectus under "The Exchange Offer--Procedures for Tendering Initial
Notes," the notice of withdrawal must specify the name and number of the account
at DTC to be credited with the withdrawal of Initial Notes, in which case a
notice of withdrawal will be effective if delivered to the Exchange Agent by
written or facsimile transmission. Initial Notes properly withdrawn will not be
deemed validly tendered for purposes of the Exchange Offer. Withdrawals of
tenders of Initial Notes may not be rescinded, but such Initial Notes may be
retendered at any subsequent time on or prior to the Expiration Date by
following any of the procedures described in the Prospectus under "The Exchange
Offer--Procedures for Tendering Initial Notes."
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Company, in its
sole discretion, whose determination shall be final and binding on all parties.
Neither the Company, any affiliates or assigns of the Company, the Exchange
Agent nor any other person shall be under any duty to give any notification of
any irregularities in any notice of withdrawal or incur any liability for
failure to give such notification. Any Initial Notes which have been tendered
but which are withdrawn will be returned to the holder thereof without cost to
such holder promptly after withdrawal.
5. SIGNATURES ON LETTER OF TRANSMITTAL, ASSIGNMENTS AND ENDORSEMENTS
If this Letter of Transmittal is signed by the registered holder(s) of the
Initial Notes tendered hereby, the signature(s) must correspond with the name(s)
as written on the face of the Certificate(s) without alteration, addition or any
change whatsoever.
If any of the Initial Notes tendered hereby are owned of record by two or
more joint owners, all such owners must sign this Letter of Transmittal.
If any tendered Initial Notes are registered in different names on several
Certificates, it will be necessary to complete, sign and submit as many separate
Letters of Transmittal (or facsimiles thereof) as there are different
registrations of Certificates.
If this Letter of Transmittal or any Certificates or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing and, unless waived by the Company, must
submit proper evidence satisfactory to the Company, in its sole discretion, of
such persons' authority to so act.
When this Letter of Transmittal is signed by the registered owner(s) of the
Initial Notes listed and transmitted hereby, no endorsement(s) of Certificate(s)
or separate bond power(s) are required unless Exchange Notes are to be issued in
the name of a person other than the registered holder(s). However, if Exchange
Notes are to be issued in the name of a person other than the registered
holder(s), signature(s) on such Certificate(s) or bond power(s) must be
guaranteed by an Eligible Institution.
16
<PAGE>
If this Letter of Transmittal is signed by a person other than the
registered owner(s) of the Initial Notes listed, the Certificates must be
endorsed or accompanied by appropriate bond powers, signed exactly as the name
or names of the registered owner(s) appear(s) on the Certificates, and also must
be accompanied by such opinions of counsel, certifications and other information
as the Company or the Trustee for the Initial Notes may require in accordance
with the restrictions on transfer applicable to the Initial Notes. Signatures on
such Certificates or bond powers must be guaranteed by an Eligible Institution.
6. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS
If Exchange Notes are to be issued in the name of a person other than the
signer of this Letter of Transmittal, or if Exchange Notes are to be sent to
someone other than the signer of this Letter of Transmittal or to an address
other than that shown above, the appropriate boxes on this Letter of Transmittal
should be completed (Boxes 7 and 8). Certificates for Initial Notes not
exchanged will be returned by mail or, if tendered by book-entry transfer, by
crediting the account indicated above maintained at DTC. See Instruction 4.
7. DETERMINATION OF VALIDITY
The Company will determine, in its sole discretion, all questions as to the
form of documents, validity, eligibility (including time of receipt) and
acceptance for exchange of any tender of Initial Notes, which determination
shall be final and binding on all parties. The Company reserves the absolute
right to reject any and all tenders determined by it not to be in proper form or
the acceptance of which, or exchange for, may, in the view of counsel to the
Company, be unlawful. The Company also reserves the absolute right, subject to
applicable law, to waive any of the conditions of the Exchange Offer set forth
in the Prospectus under "The Exchange Offer--Conditions" or any conditions or
irregularity in any tender of Initial Notes of any particular holder whether or
not similar conditions or irregularities are waived in the case of other
holders.
The Company's interpretation of the terms and conditions of the Exchange
Offer (including this Letter of Transmittal and the instructions hereto) will be
final and binding. No tender of Initial Notes will be deemed to have been
validly made until all irregularities with respect to such tender have been
cured or waived. Neither the Company, any affiliates or assigns of the Company,
the Exchange Agent, nor any other person shall be under any duty to give
notification of any irregularities in tenders or incur any liability for failure
to give such notification.
8. QUESTIONS, REQUESTS FOR ASSISTANCE AND ADDITIONAL COPIES
Questions and requests for assistance may be directed to the Exchange Agent
at its address and telephone number set forth on the front of this Letter of
Transmittal. Additional copies of the Prospectus, the Notice of Guaranteed
Delivery and the Letter of Transmittal may be obtained from the Exchange Agent.
9. 31% BACKUP WITHHOLDING; SUBSTITUTE FORM W-9
For U.S. Federal income tax purposes, holders are required, unless an
exemption applies, to provide the Exchange Agent with such holder's correct
taxpayer identification number ("TIN") on Substitute Form W-9 (Box 9 of this
Letter of Transmittal), and to certify, under penalty of perjury, that such
number is correct and that he or she is not subject to backup withholding. If
the Exchange Agent is not provided with the correct TIN, the Internal Revenue
Service (the "IRS") may subject the holder or other payee to a $50 penalty. In
addition, payments to such holders or other payees with respect to Initial Notes
exchanged pursuant to the Exchange Offer, or with respect to Exchange Notes
following the Exchange Offer, may be subject to 31% backup withholding.
17
<PAGE>
Part 3 of the Substitute Form W-9 (Box 9) may be checked if the tendering
holder has not been issued a TIN and has applied for a TIN or intends to apply
for a TIN in the near future. If Part 3 is checked, the holder or other payee
must also complete the Certificate of Awaiting Taxpayer Identification Number
following Substitute Form W-9 in order to avoid backup withholding.
Notwithstanding that Part 3 is checked and the Certificate of Awaiting Taxpayer
Identification Number is completed, the Exchange Agent will withhold 31% of all
payments made prior to the time a properly certified TIN is provided to the
Exchange Agent.
The holder is required to give the Exchange Agent the TIN (i.e., social
security number or employer identification number) of the registered owner of
the Initial Notes or of the last transferee appearing on the transfers attached
to, or endorsed on, the Initial Notes. If the Initial Notes are registered in
more than one name or are not in the name of the actual owner, consult the
enclosed "Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9" for additional guidance on which number to report.
If the tendering holder is a nonresident alien or foreign entity not
subject to backup withholding, such holder must give the Company a completed
Form W-8, Certificate of Foreign Status. A copy of the Form W-8 may be obtained
from the Exchange Agent. Please consult the enclosed "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9" for
additional guidance on which holders are exempt from backup withholding.
Backup withholding is not an additional U.S. Federal income tax. Rather,
the U.S. Federal income tax liability of a person subject to backup withholding
will be reduced by the amount of tax withheld. If withholding results in an
overpayment of taxes, a refund may be obtained.
10. LOST, DESTROYED OR STOLEN CERTIFICATES
If any Certificate(s) representing Initial Notes have been lost, destroyed
or stolen, the holder should promptly notify the Exchange Agent. The holder will
then be instructed as to the steps that must be taken in order to replace the
Certificate(s). This Letter of Transmittal and related documents cannot be
processed until the procedures for replacing lost, destroyed or stolen
Certificate(s) have been completed.
11. SECURITY TRANSFER TAXES
Holders who tender their Initial Notes for exchange will not be obligated
to pay any transfer taxes in connection therewith. If, however, Exchange Notes
are to be delivered to, or are to be issued in the name of, any person other
than the registered holder of the Initial Notes tendered, or if a transfer tax
is imposed for any reason other than the exchange of Initial Notes in connection
with the Exchange Offer, then the amount of any such tax (whether imposed on the
registered holder or any other persons) is payable by the tendering holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such taxes will be
billed directly to such tendering holder.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE THEREOF) AND ALL OTHER
REQUIRED DOCUMENTS MUST BE RECEIVED BY THE EXCHANGE AGENT ON OR PRIOR TO THE
EXPIRATION DATE.
18
<PAGE>
INSTRUCTIONS TO REGISTERED HOLDER
FROM BENEFICIAL OWNER
OF OUTSTANDING DOLLAR-DENOMINATED
11 % SENIOR NOTES DUE 2009
OF
PSINET INC.
The undersigned hereby acknowledges receipt of the Prospectus dated
September __, 1999 (the "Prospectus") of PSINet Inc., a New York corporation
(the "Company"), and the accompanying Letter of Transmittal (the "Letter of
Transmittal"), that together constitute the Company's offer (the "Exchange
Offer") to exchange $1,000 in principal amount of its Dollar-denominated 11 %
Senior Notes due 2009, which have been registered under the Securities Act (the
"Exchange Notes"), for each $1,000 in principal amount of its outstanding
unregistered Dollar-denominated 11 % Senior Notes due 2009 (the "Initial
Notes"). Capitalized terms used but not defined herein have the meanings
ascribed to them in the Prospectus.
This will instruct you, the registered holder, as to the action to be taken
by you relating to the Exchange Offer with respect to the Initial Notes held by
you for the account of the undersigned.
The aggregate principal amount of the Initial Notes held by you for the
account of the undersigned is (fill in principal amount):
$_______________ .
With respect to the Exchange Offer, the undersigned hereby instructs you
(check appropriate box):
[_] To TENDER the following Initial Notes held by you for the account of
the undersigned (insert principal amount of Initial Notes to be
tendered*, if any):
$_______________ .
* The minimum permitted tender is $1,000 in principal amount of
Initial Notes. All other tenders must be in integral multiples
of $1,000 of principal amount.
[_] NOT to TENDER any Initial Notes held by you for the account of the
undersigned.
If the undersigned instructs you to tender the Initial Notes held by you
for the account of the undersigned, it is understood that you are authorized (a)
to make, on behalf of the undersigned (and the undersigned, by its signature
below, hereby makes to you), the representations and warranties contained in the
Letter of Transmittal that are to be made with respect to the undersigned as a
Beneficial Owner (as defined in the Letter of Transmittal), including but not
limited to representations to the effect that (i) the undersigned's principal
residence is in the state of (fill in state)________________________, (ii) the
undersigned is acquiring the Exchange Notes in the ordinary course of business
of the undersigned, (iii) the undersigned is not participating, does not intend
to participate, and has no arrangement or understanding with any person to
participate, in the distribution (within the meaning of the Securities Act) of
the Exchange Notes, (iv) except as otherwise disclosed in writing herewith, the
undersigned acknowledges that any person participating in the Exchange Offer
with the intention or for the purpose of distributing the Exchange Notes must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale of the Exchange Notes
acquired by such person and cannot rely on the position of the Staff of the
Securities and Exchange Commission set forth in the no-action letters that are
discussed in the section of the Prospectus entitled "The Exchange Offer--Resale
of the Exchange Notes"; (b) to make such agreements, representations and
warranties on behalf of the undersigned, as set forth in the Letter of
Transmittal; and (c) to take such other action as may be necessary under the
Prospectus or the Letter of Transmittal to effect the valid tender of such
Initial Notes.
SIGN HERE
Name of Beneficial Owner(s):__________________________________________________
Signature(s):___________________________________________________________________
Name(s) (please print):_________________________________________________________
Address:________________________________________________________________________
________________________________________________________________________________
Telephone Number:_______________________________________________________________
Taxpayer Identification or Social Security Number:______________________________
Date:___________________________________________________________________________
19
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
A. TIN--The Taxpayer Identification Number for most individuals is their social
security number. Refer to the following chart to determine the appropriate
number:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
FOR THIS TYPE OF ACCOUNT: GIVE THE SOCIAL SECURITY OR EMPLOYER
IDENTIFICATION NUMBER OF:
- ------------------------------------------------------------------------------------------------------------
<S> <C>
1. Individual The individual
2. Two or more individuals The actual owner of the account or, if combined
(joint account) funds, the first individual on the account (1)
3. Custodian account of a minor (Uniform Gift to The minor(2)
Minors Act)
4. a. Revocable savings trust (grantor is also trustee) The grantor-trustee(1)
b. So-called trust account that is not a legal or
valid trust under State law The actual owner(1)
5. Sole proprietorship
6. A valid trust, estate or pension trust The owner(3)
7. Corporate Legal entity(4)
8. Association, club, religious, charitable, The corporation
educational or other tax exempt organization The organization
9. Partnership
10. A broker or registered nominee The partnership
11. Account with the Department of Agriculture The broker or nominee
The public entity
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's name and social security
number.
(3) Show the individual's name. You may also enter your business name or "doing
business as" name. You may use either your Social Security number or your
employer identification number.
(4) List first and circle the name of the legal trust, estate or pension trust.
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
B. EXEMPT PAYEES--The following lists exempt payees. If you are exempt, you must
nonetheless complete the form and provide your TIN in order to establish that
you are exempt. Check the box in Part 3 of the form, sign and date the form.
For this purpose, Exempt Payees include: (1) a corporation; (2) an
organization exempt from tax under section 501(a), or an individual retirement
plan (IRA) or a custodial account under section 403(b)(7); (3) the United States
or any of its agencies or instrumentalities; (4) a state, the District of
Columbia, a possession of the United States, or any of their political
subdivisions or instrumentalities; (5) a foreign government or any of its
political subdivisions, agencies or instrumentalities; (6) an international
organization or any of its agencies or instrumentalities; (7) a foreign central
bank of issue; (8) a dealer in securities or commodities required to register in
the U.S. or a possession of the U.S.; (9) a real estate investment trust; (10)
an entity or person registered at all times during the tax year under the
Investment
20
<PAGE>
Company Act of 1940; (11) a common trust fund operated by a bank under section
584(a); and (12) a financial institution.
C. OBTAINING A NUMBER
If you do not have a taxpayer identification number or you do not know your
number, obtain Form SS-5, application for a Social Security Number, or Form
SS-4, Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number.
D. PRIVACY ACT NOTICE
Section 6109 requires most recipients of dividend, interest or other
payments to give taxpayer identification numbers to payers who must report the
payments to the IRS. The IRS uses the numbers for identification purposes.
Payers must be given the numbers whether or not payees are required to file
tax returns. Payers must generally withhold 31% of taxable interest, dividend
and certain other payments to a payee who does not furnish a taxpayer
identification number. Certain penalties may also apply.
E. PENALTIES
(1) Penalty for Failure to Furnish Taxpayer Identification Number. If you
fail to furnish your taxpayer identification number to a payer, you are subject
to a penalty of $50 for each such failure unless your failure is due to
reasonable cause and not to willful neglect.
(2) Failure to Report Certain Dividend and Interest Payments. If you fail
to include any portion of an includable payment for interest, dividends, or
patronage dividends in gross income, such failure will be treated as being due
to negligence and will be subject to a penalty of 5% on any portion of an under-
payment attributable to that failure unless there is clear and convincing
evidence to the contrary.
(3) Civil Penalty for False Information with Respect to Withholding. If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(4) Criminal Penalty for Falsifying Information. Falsifying certifications
or affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL
REVENUE SERVICE.
21
<PAGE>
Exhibit 99.2
Letter of Transmittal for Euro Notes
PSINET INC.
Offer To Exchange Its
New Euro-Denominated 11% Senior Notes Due 2009,
Which Have Been Registered Under The Securities Act of 1933,
For Any And All Of Its Outstanding Unregistered Euro-Denominated
11% Senior Notes Due 2009
Pursuant To The Prospectus
Dated September __, 1999
- --------------------------------------------------------------------------------
THIS EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME (10:00 P.M.,
LONDON TIME), ON OCTOBER __, 1999, UNLESS EXTENDED (THE "EXPIRATION DATE").
TENDERS MAY BE WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME (10:00 P.M.,
LONDON TIME), ON THE EXPIRATION DATE.
- --------------------------------------------------------------------------------
If you desire to accept the Exchange Offer (as defined below), this Letter
of Transmittal should be completed, signed, and submitted to:
WILMINGTON TRUST COMPANY, as Exchange Agent
By Registered or Certified Mail By Hand:
or Overnight Courier:
Wilmington Trust Company Wilmington Trust Company
Attn: Kristin Long Attn: Corporate Trust Operations
Corporate Trust Operations c/o Harris Trust Co. of New York as Agent
1100 North Market Street 88 Pine Street, 19th Floor
Rodney Square North Wall Street Plaza
Wilmington, DE 19890-0001 New York, New York 10005
By Facsimile:
(For Eligible Institutions Only)
Wilmington Trust Company
(302) 651-1079
Confirm by telephone:
(302) 651-1562
Kristin Long
Delivery of this Letter of Transmittal to an address other than as set
forth above or transmission of this Letter of Transmittal via facsimile to a
number other than as set forth above does not constitute a valid delivery.
The instructions contained herein should be read carefully before this
Letter of Transmittal is completed.
Capitalized terms used but not defined herein shall have the same meaning
given them in the Prospectus (as defined below).
1
<PAGE>
This Letter of Transmittal is to be completed by holders of Initial Notes
(as defined below) either if Initial Notes are to be forwarded herewith or if
tenders of Initial Notes are to be made by book-entry transfer to an account
maintained by Kredietbank S.A. Luxembourgeoise, the common depositary for the
Initial Notes (the "Common Depositary"), on behalf of the Exchange Agent (as
defined below) at Euroclear or Cedelbank, as applicable, pursuant to the
procedures set forth in "The Exchange Offer--Procedures for Tendering Initial
Notes" in the Prospectus and an "agent's message" (as defined below) is not
delivered. Tenders by book-entry transfer may also be made by delivering an
agent's message in lieu of this Letter of Transmittal.
Holders of Initial Notes whose certificates (the "Certificates") for such
Initial Notes are not immediately available or who cannot deliver their
Certificates and all other required documents to the Exchange Agent on or prior
to the Expiration Date (as defined in the Prospectus) or who cannot complete the
procedures for book-entry transfer on a timely basis, must tender their Initial
Notes according to the guaranteed delivery procedures set forth in "The Exchange
Offer--Procedures for Tendering Initial Notes" in the Prospectus. See
Instruction 1 hereto. Delivery of documents to Euroclear, Cedelbank or the
Common Depositary does not constitute delivery to the Exchange Agent.
Ladies and Gentlemen:
The undersigned hereby tenders to PSINet Inc., a New York corporation (the
"Company"), the principal amount of the Company's outstanding Euro 150,000,000
aggregate principal amount 11% Senior Notes due 2009 (the "Initial Notes")
described in Box 1 below, in exchange for a like euro principal amount of the
Company's new 11% Senior Notes due 2009 (the "Exchange Notes"), which have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
upon the terms and subject to the conditions set forth in the Prospectus dated
September __, 1999 (as the same may be amended or supplemented from time to
time, the "Prospectus"), receipt of which is acknowledged, and in this Letter of
Transmittal (which, together with the Prospectus, constitutes the "Exchange
Offer").
Subject to, and effective upon, the acceptance for exchange of all or any
portion of the Initial Notes tendered herewith in accordance with the terms and
conditions of the Exchange Offer (including, if the Exchange Offer is extended
or amended, the terms and conditions of any such extension or amendment), the
undersigned hereby sells, assigns and transfers to or upon the order of the
Company all right, title and interest in and to such Initial Notes as are being
tendered herewith. The undersigned hereby irrevocably constitutes and appoints
Wilmington Trust Company as Exchange Agent (the "Exchange Agent") as its agent
and attorney-in-fact (with full knowledge that the Exchange Agent is also acting
as agent of the Company in connection with the Exchange Offer) with respect to
the tendered Initial Notes, with full power of substitution (such power of
attorney being deemed to be an irrevocable power coupled with an interest),
subject only to the right of withdrawal described in the Prospectus, to (1)
deliver Certificates for Initial Notes to the Company together with all
accompanying evidences of transfer and authenticity to, or upon the order of,
the Company, upon receipt by the Exchange Agent, as the undersigned's agent, of
the Exchange Notes to be issued in exchange for such Initial Notes, (2) present
Certificates for such Initial Notes for transfer, and to transfer the Initial
Notes on the books of the Company, and (3) receive for the account of the
Company all benefits and otherwise exercise all rights of beneficial ownership
of such Initial Notes, all in accordance with the terms and conditions of the
Exchange Offer.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, exchange, sell, assign and transfer the
Initial Notes tendered hereby and that, when the same are accepted for exchange,
the Company will acquire good, marketable and unencumbered title thereto, free
and clear of all liens, restrictions, charges and encumbrances, and that the
Initial Notes tendered hereby are not subject to any adverse claims or proxies.
The undersigned will, upon request, execute and deliver any additional documents
deemed by the Company or the Exchange Agent to be necessary or desirable to
2
<PAGE>
complete the exchange, assignment and transfer of the Initial Notes tendered
hereby, and the undersigned will comply with its obligations under the
Registration Rights Agreement dated as of July 23, 1999 (the "Registration
Rights Agreement") by and among the Company and Donaldson, Lufkin & Jenrette
International, Bear Stearns International Limited and Chase Manhattan
International Limited. The undersigned has read and agrees to all of the terms
of the Exchange Offer.
The name(s) and address(es) of the registered holder(s) of the Initial
Notes tendered hereby should be printed in Box 1 below, if they are not already
set forth therein, as they appear on the Certificates representing such Initial
Notes. The Certificate number(s) and the aggregate principal amount of Initial
Notes that the undersigned wishes to tender should also be indicated in Box 1
below.
If any tendered Initial Notes are not exchanged pursuant to the Exchange
Offer for any reason, or if Certificates are submitted for more Initial Notes
than are tendered or accepted for exchange, Certificates for such nonexchanged
or nontendered Initial Notes will be returned (or, in the case of Initial Notes
tendered by book-entry transfer, such Initial Notes will be credited to an
account maintained at Euroclear or Cedelbank, as applicable), without expense to
the tendering holder, promptly following the expiration or termination of the
Exchange Offer.
The undersigned understands that tenders of Initial Notes pursuant to any
one of the procedures described under "The Exchange Offer--Procedures for
Tendering Initial Notes" in the Prospectus and in the instructions hereto will,
upon the Company's acceptance for exchange of such tendered Initial Notes,
constitute a binding agreement between the undersigned and the Company upon the
terms and subject to the conditions of the Exchange Offer.
The Exchange Offer is subject to certain conditions as set forth in the
Prospectus under the caption "The Exchange Offer-Conditions." The undersigned
recognizes that as a result of these conditions (which may be waived by the
Company, in whole or in part, in the reasonable discretion of the Company), as
more particularly set forth in the Prospectus, the Company may not be required
to exchange any of the Initial Notes tendered hereby and, in such event, the
Initial Notes not exchanged will be returned to the undersigned at the address
shown in Box 1.
Unless otherwise indicated herein in the box entitled "Special Exchange
Instructions" below (Box 7), the undersigned hereby directs that the Exchange
Notes be issued in the name(s) of the undersigned or, in the case of a book-
entry transfer of Initial Notes, that such Exchange Notes be credited to the
account indicated below maintained at Euroclear or Cedelbank, as applicable. If
applicable, substitute Certificates representing Initial Notes not exchanged or
not accepted for exchange will be issued to the undersigned or, in the case of a
book-entry transfer of Initial Notes, will be credited to the account indicated
below maintained at Euroclear or Cedelbank, as applicable. Similarly, unless
otherwise indicated herein in the box entitled "Special Delivery Instructions"
below (Box 8), the undersigned hereby directs that the Exchange Notes be
delivered to the undersigned at the address shown below the undersigned's
signature.
THE EXCHANGE OFFER IS NOT BEING MADE TO ANY BROKER-DEALER WHO PURCHASED
INITIAL NOTES DIRECTLY FROM THE COMPANY FOR RESALE PURSUANT TO RULE 144A UNDER
THE SECURITIES ACT OR ANY PERSON THAT IS AN "AFFILIATE" OF THE COMPANY WITHIN
THE MEANING OF RULE 405 UNDER THE SECURITIES ACT. THE UNDERSIGNED UNDERSTANDS
AND AGREES THAT THE COMPANY RESERVES THE RIGHT NOT TO ACCEPT TENDERED INITIAL
NOTES FROM ANY TENDERING HOLDER IF THE COMPANY DETERMINES, IN ITS REASONABLE
DISCRETION, THAT SUCH ACCEPTANCE COULD RESULT IN A VIOLATION OF APPLICABLE
SECURITIES LAWS.
3
<PAGE>
By tendering Initial Notes and executing this Letter of Transmittal or
delivering an agent's message in lieu of this Letter of Transmittal, the
undersigned hereby represents and agrees that (i) the undersigned is not an
"affiliate" of the Company (within the meaning of Rule 405 under the Securities
Act), (ii) any Exchange Notes to be received by the undersigned are being
acquired in the ordinary course of its business, (iii) the undersigned has no
arrangement or understanding with any person to participate in a distribution
(within the meaning of the Securities Act) of Exchange Notes to be received in
the Exchange Offer, and (iv) if the undersigned is not a broker-dealer, the
undersigned is not engaged in, and does not intend to engage in, a distribution
(within the meaning of the Securities Act) of such Exchange Notes. By tendering
Initial Notes pursuant to the Exchange Offer and executing this Letter of
Transmittal or delivering Initial Notes by book-entry transfer, a holder of
Initial Notes that is a broker-dealer additionally represents and agrees,
consistent with certain interpretive letters issued by the staff of the Division
of Corporation Finance of the Securities and Exchange Commission to third
parties described under "The Exchange Offer--Registration Rights" in the
Prospectus, that such Initial Notes were acquired by such broker-dealer for its
own account as a result of market-making activities or other trading activities
(such a broker-dealer tendering Initial Notes is herein referred to as a
"Participating Broker-Dealer") and it will deliver the Prospectus (as amended or
supplemented from time to time) meeting the requirements of the Securities Act
in connection with any resale of such Exchange Notes (provided that, by so
acknowledging and by delivering a Prospectus, such Participating Broker-Dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act).
The Company has agreed that, subject to the provisions of the Registration
Rights Agreement, the Prospectus, as it may be amended or supplemented from time
to time, may be used by a Participating Broker-Dealer in connection with resales
of Exchange Notes received in exchange for Initial Notes, where such Initial
Notes were acquired by such Participating Broker-Dealer for its own account as a
result of market-making activities or other trading activities, for a period
ending one year after the Expiration Date or, if earlier, when all such Exchange
Notes have been disposed of by such Participating Broker-Dealer. In that
regard, each Participating Broker-Dealer, by tendering such Initial Notes and
executing this Letter of Transmittal or delivering an agent's message in lieu of
this Letter of Transmittal, agrees to notify the Company prior to using the
Prospectus in connection with the sale or transfer of Exchange Notes and
acknowledges and agrees that, upon receipt of notice from the Company of the
occurrence of any event or the discovery of any fact which makes any statement
contained or incorporated by reference in the Prospectus untrue in any material
respect or which causes the Prospectus to omit to state a material fact
necessary in order to make the statements contained therein, in light of the
circumstances under which they were made, not misleading or of the occurrence of
certain other events specified in the Registration Rights Agreement, such
Participating Broker-Dealer will suspend the sale of Exchange Notes pursuant to
the Prospectus until the Company has amended or supplemented the Prospectus to
correct such misstatement or omission and has furnished copies of the amended or
supplemented Prospectus to the Participating Broker-Dealer or the Company has
given notice that the sale of the Exchange Notes may be resumed, as the case may
be.
EACH PARTICIPATING BROKER-DEALER SHOULD CHECK THE BOX HEREIN UNDER THE
CAPTION "PARTICIPATING BROKER-DEALER" (BOX 5 HEREOF) IN ORDER TO RECEIVE
ADDITIONAL COPIES OF THE PROSPECTUS, AND ANY AMENDMENTS AND SUPPLEMENTS THERETO,
FOR USE IN CONNECTION WITH RESALES OF THE EXCHANGE NOTES, AS WELL AS ANY NOTICES
FROM THE COMPANY TO SUSPEND AND RESUME USE OF THE PROSPECTUS. BY TENDERING ITS
INITIAL NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL OR DELIVERING AN AGENT'S
MESSAGE IN LIEU OF THIS LETTER OF TRANSMITTAL, EACH PARTICIPATING BROKER-DEALER
AGREES TO USE ITS REASONABLE BEST EFFORTS TO NOTIFY THE COMPANY OR THE EXCHANGE
AGENT WHEN IT HAS SOLD ALL OF ITS EXCHANGE NOTES. IF NO PARTICIPATING BROKER-
DEALERS CHECK SUCH BOX, OR IF ALL PARTICIPATING BROKER-DEALERS WHO HAVE CHECKED
SUCH BOX
4
<PAGE>
SUBSEQUENTLY NOTIFY THE COMPANY OR THE EXCHANGE AGENT THAT ALL THEIR EXCHANGE
NOTES HAVE BEEN SOLD, THE COMPANY WILL NOT BE REQUIRED TO MAINTAIN THE
EFFECTIVENESS OF THE EXCHANGE OFFER REGISTRATION STATEMENT OR TO UPDATE THE
PROSPECTUS AND WILL NOT PROVIDE ANY HOLDERS WITH ANY NOTICES TO SUSPEND OR
RESUME USE OF THE PROSPECTUS.
Each Exchange Note will bear interest from the most recent date on which
interest has been paid or duly provided for on the Initial Note surrendered in
exchange for such Exchange Note or, if no such interest has been paid or duly
provided for on such Initial Note, from July 23, 1999, the date of issuance of
the Initial Notes. Holders of Initial Notes whose Initial Notes are accepted
for exchange will not receive accrued interest on such Initial Notes for any
period from and after the last Interest Payment Date to which interest has been
paid or duly provided for on such Initial Notes prior to the original issue date
of the Exchange Notes or, if no such interest has been paid or duly provided
for, will not receive any accrued interest on such Initial Notes, and will be
deemed to have waived the right to receive any interest on such Initial Notes
accrued from and after such Interest Payment Date or, if no such interest has
been paid or duly provided for, from and after July 23, 1999.
The undersigned understands that the delivery and surrender of the Initial
Notes is not effective, and the risk of loss of the Initial Notes does not pass
to the Exchange Agent, until receipt by the Exchange Agent of this Letter of
Transmittal, or a manually signed facsimile hereof, properly completed and duly
executed, with any required signature guarantees, together with all accompanying
evidences of authority and any other required documents in form satisfactory to
the Company. All questions as to form of all documents and the validity
(including time of receipt) and acceptance of tenders and withdrawals of Initial
Notes will be determined by the Company, in its sole discretion, which
determination shall be final and binding.
All authority herein conferred or agreed to be conferred in this Letter of
Transmittal shall survive the death or incapacity of the undersigned and any
obligation of the undersigned hereunder shall be binding upon the heirs,
executors, administrators, personal representatives, trustees in bankruptcy,
legal representatives, successors and assigns of the undersigned. Except
pursuant to the withdrawal rights as set forth in the Prospectus, this tender is
irrevocable.
Please read this entire Letter of Transmittal carefully before completing
the boxes below and follow the instructions included herewith.
THE EXCHANGE OFFER IS NOT BEING MADE TO (NOR WILL TENDERS OF INITIAL NOTES
BE ACCEPTED FROM OR ON BEHALF OF) HOLDERS IN ANY JURISDICTION IN WHICH THE
MAKING OR ACCEPTANCE OF THE EXCHANGE OFFER WOULD NOT BE IN COMPLIANCE WITH THE
LAWS OF SUCH JURISDICTION.
Your bank or broker can assist you in completing this form. The
instructions included with this Letter of Transmittal must be followed.
Questions and requests for assistance or for additional copies of the
Prospectus, this Letter of Transmittal and the Notice of Guaranteed Delivery may
be directed to the Exchange Agent, whose address and telephone number appear on
the front cover of this Letter of Transmittal. See Instruction 8 below.
5
<PAGE>
All Tendering Holders Complete This Box 1:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
BOX 1
DESCRIPTION OF INITIAL NOTES TENDERED
(See Instructions 3 and 4 Below)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
If Blank, Please Print Certificate Number(s) of Aggregate Principal Aggregate Principal Amount
Name(s) And Address(es) Initial Notes Amount Represented By of Initial Notes Being
Of Registered Holder(s), Certificates* Tendered**
Exactly As Name(s)
Appear(s) On Initial Note
Certificate(s)
- ------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
Total
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
* Need not be completed by book-entry holders (see below).
** The minimum permitted tender is Euro 1,000 in principal amount. All
tenders must be in integral multiples of Euro 1,000 in principal amount. The
aggregate principal amount of all Initial Notes Certificates identified in this
Box 1, or delivered to the Exchange Agent herewith, shall be deemed tendered
unless a lesser number is specified in this column. See Instruction 4.
- --------------------------------------------------------------------------------
BOX 2
BOOK-ENTRY TRANSFER
(See Instruction 1 Below)
[_] CHECK HERE IF TENDERED INITIAL NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER TO THE ACCOUNT MAINTAINED BY THE COMMON DEPOSITARY ON BEHALF OF THE
EXCHANGE AGENT AT EUROCLEAR OR CEDEL, AS APPLICABLE, AND COMPLETE THE FOLLOWING:
Name of Tendering Institution __________________________________________________
Euroclear or Cedelbank Account Number __________________________________________
Transaction Code Number ________________________________________________________
- --------------------------------------------------------------------------------
Holders of Initial Notes may tender Initial Notes by book-entry transfer by
crediting the Initial Notes to the Common Depositary's account (on behalf of the
Exchange Agent) at Euroclear or Cedelbank,
6
<PAGE>
as applicable, in accordance with Euroclear or Cedelbank's automated tender
offer program and by complying with applicable automated tender offer program
procedures with respect to the Exchange Offer. Euroclear or Cedelbank
participants that are accepting the Exchange Offer should transmit their
acceptance to Euroclear or Cedelbank, as applicable, which will edit and verify
the acceptance and execute a book-entry delivery to the Common Depositary's
account (on behalf of the Exchange Agent) at Euroclear or Cedelbank, as
applicable. Euroclear or Cedelbank, as applicable, will then send a computer-
generated message (an "agent's message") to the Common Depositary (which will
then forward such message to the Exchange Agent for its acceptance) in which the
holder of the Initial Notes acknowledges and agrees to be bound by the terms of,
and makes the representations and warranties contained in, this Letter of
Transmittal, and the Euroclear or Cedelbank participant confirms on behalf of
itself and the beneficial owners of such Initial Notes all provisions of this
Letter of Transmittal (including any representations and warranties) applicable
to it and such beneficial owner as fully as if it had completed the information
required herein and executed and transmitted this Letter of Transmittal to the
Exchange Agent. Delivery of the agent's message by Euroclear or Cedelbank, as
applicable, to the Common Depositary (for delivery to the Exchange Agent) will
satisfy the terms of the Exchange Offer as to execution and delivery of a Letter
of Transmittal by the participant identified in the agent's message. Euroclear
or Cedelbank participants may also accept the Exchange Offer by submitting a
Notice of Guaranteed Delivery through Euroclear's or Cedelbank's automated
tender offer program.
7
<PAGE>
- --------------------------------------------------------------------------------
BOX 3
NOTICE OF GUARANTEED DELIVERY
(See Instruction 1 Below)
[_] CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF
TENDERED INITIAL NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED
DELIVERY PREVIOUSLY SENT (OR DELIVERED THROUGH THE AUTOMATED TENDER OFFER
PROGRAM) TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING:
Name of Registered Holder(s) ___________________________________________________
Window Ticket Number (if any) __________________________________________________
Date of Execution of Notice of Guaranteed Delivery _____________________________
Name of Institution which Guaranteed Delivery __________________________________
If Guaranteed Delivery is to be made By Book-Entry Transfer:
Name of Tendering Institution __________________________________________________
Euroclear or Cedelbank Account Number __________________________________________
Transaction Code Number ________________________________________________________
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BOX 4
RETURN OF NON-EXCHANGED INITIAL NOTES
TENDERED BY BOOK-ENTRY TRANSFER
(See Instructions 4 and 6 Below)
[_] CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED INITIAL
NOTES ARE TO BE RETURNED BY CREDITING THE EUROCLEAR OR CEDELBANK ACCOUNT NUMBER
SET FORTH ABOVE.
- --------------------------------------------------------------------------------
8
<PAGE>
- --------------------------------------------------------------------------------
BOX 5
PARTICIPATING BROKER-DEALER
[_] CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE INITIAL NOTES FOR ITS
OWN ACCOUNT AS A RESULT OF MARKET-MAKING OR OTHER TRADING ACTIVITIES (A
"PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE TEN ADDITIONAL COPIES OF THE
PROSPECTUS AND TEN COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO, AS WELL AS
ANY NOTICES FROM THE COMPANY TO SUSPEND AND RESUME USE OF THE PROSPECTUS. BY
TENDERING ITS INITIAL NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL OR
DELIVERING AN AGENT'S MESSAGE IN LIEU OF THIS LETTER OF TRANSMITTAL, EACH
PARTICIPATING BROKER-DEALER AGREES TO USE ITS REASONABLE BEST EFFORTS TO NOTIFY
THE COMPANY OR THE EXCHANGE AGENT WHEN IT HAS SOLD ALL OF ITS EXCHANGE NOTES.
(IF NO PARTICIPATING BROKER-DEALERS CHECK THIS BOX, OR IF ALL PARTICIPATING
BROKER-DEALERS WHO HAVE CHECKED THIS BOX SUBSEQUENTLY NOTIFY THE COMPANY OR THE
EXCHANGE AGENT THAT ALL THEIR EXCHANGE NOTES HAVE BEEN SOLD, THE COMPANY WILL
NOT BE REQUIRED TO MAINTAIN THE EFFECTIVENESS OF THE EXCHANGE OFFER REGISTRATION
STATEMENT OR TO UPDATE THE PROSPECTUS AND WILL NOT PROVIDE ANY NOTICES TO ANY
HOLDERS TO SUSPEND OR RESUME USE OF THE PROSPECTUS).
PROVIDE THE NAME OF THE INDIVIDUAL WHO SHOULD RECEIVE, ON BEHALF OF THE HOLDER,
ADDITIONAL COPIES OF THE PROSPECTUS, AND AMENDMENTS AND SUPPLEMENTS THERETO, AND
ANY NOTICES TO SUSPEND AND RESUME USE OF THE PROSPECTUS.
Name: _________________________________________________________________
Address: ______________________________________________________________
Telephone No.: ________________________________________________________
Facsimile No.: ________________________________________________________
- --------------------------------------------------------------------------------
9
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
BOX 6
TENDERING HOLDER SIGNATURE
(See Instructions 1 and 5)
In Addition, Complete Substitute Form W-9
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
X __________________________________________________ Signature Guarantee
(If required by Instruction 5)
X __________________________________________________
(Signature of registered holder(s) or Authorized Authorized Signature
Signatory(ies))
Note: The above lines must be signed by the registered X _________________________________________________
holder(s) of Initial Notes as their name(s) appear(s)
on the Initial Notes or by person(s) authorized to Name: _____________________________________________
become registered holder(s) (evidence of which (please print)
authorization must be transmitted with this Letter of
Transmittal). If signature is by a trustee, executor, Title: ____________________________________________
administrator, guardian, attorney-in-fact, officer, or
other person acting in a fiduciary or representative Name of Firm: _____________________________________
capacity, such person must set forth his or her full (Must be an Eligible Institution as
title below. See Instruction 5. defined in Instruction 1)
Name(s): ___________________________________________
Address: __________________________________________
__________________________________________
________________________________________
__________________________________________
________________________________________
Capacity: __________________________________________ (include Zip Code)
__________________________________________
Street Address: ____________________________________ Area Code and Telephone Number:
__________________________________________ ________________________________________
__________________________________________ Dated: ________________________________________
(include Zip Code)
Area Code and Telephone Number:
__________________________________________
Tax Identification or Social Security Number:
__________________________________________
-------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
BOX 7 BOX 8
SPECIAL EXCHANGE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 1, 5 and 6 Below) (See Instructions 1, 5 and 6 Below)
<S> <C>
To be completed ONLY if Certificates for the Initial To be completed ONLY if Certificates for the Initial
Notes not exchanged and/or Certificates for the Notes not exchanged and/or Certificates for the
Exchange Notes are to be issued in the name of Exchange Notes are to be sent to someone other than the
someone other than the registered holder of the registered holder of the Initial Notes whose name(s)
Initial Notes whose name(s) appear(s) above. appear(s) above, or to such registered holder(s) at an
address other than that shown above.
Name: _________________________________________________ Name: ____________________________________________________
(Please Print) (Please Print)
Address: ______________________________________________ Address: _________________________________________________
______________________________________________ _________________________________________________
(Include Zip Code) (Include Zip Code)
_______________________________________________________ __________________________________________________________
(Tax Identification or Social Security Number) (Tax Identification or Social Security Number)
- ------------------------------------------------------- ------------------------------------------------------------
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
BOX 9
- ------------------------------------------------------------------------------------------------------------------------------------
PAYOR'S NAME: WILMINGTON TRUST COMPANY
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
SUBSTITUTE Name (if joint names, list first and circle the name of the person or entity whose number you
enter in Part 1 below. See instructions if your name has changed)
--------------------------------------------------------------------------------------------------
Form W-9 Address
--------------------------------------------------------------------------------------------------
City, State and Zip Code
--------------------------------------------------------------------------------------------------
Department of the Treasury List account number(s) here (optional)
Internal Revenue Service
--------------------------------------------------------------------------------------------------
Part 1 - PLEASE PROVIDE YOUR TAXPAYER IDENTIFICATION NUMBER Social Security Number or
("TIN") IN THE BOX AT RIGHT AND CERTIFY BY SIGNING AND DATING TIN
BELOW.
--------------------------------------------------------------------------------------------------
Part 2 - Check the box if you are NOT subject to backup withholding under the provisions of
section 3406(a)(1)(C) of the Internal Revenue Code because (1) you have not been notified that
you are subject to backup withholding as a result of failure to report all interest or dividends
or (2) the Internal Revenue Service has notified you that you are no longer subject to backup
withholding.
Not subject to withholding [_]
- ------------------------------------------------------------------------------------------------------------------------------------
Payor's Request for TIN CERTIFICATION - UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT Part 3 --
THE INFORMATION PROVIDED ON THIS FORM IS TRUE, CORRECT, AND
COMPLETE. Awaiting TIN [_]
Signature: ___________________________ Date: ___________
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE
REVIEW THE ENCLOSED "GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W - 9" FOR ADDITIONAL DETAILS.
12
<PAGE>
- --------------------------------------------------------------------------------
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE
IF YOU CHECKED THE BOX IN PART 3 OF THE SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (1) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (2)
I intend to mail or deliver an application in the near future. I understand that
if I do not provide a taxpayer identification number by the time of payment, 31%
of all payments made to me on account of the Exchange Notes shall be retained
until I provide a taxpayer identification number to the Exchange Agent and that,
if I do not provide my taxpayer identification number within 60 days, such
retained amounts shall be remitted to the Internal Revenue Service as backup
withholding and 31% of all reportable payments made to me thereafter will be
withheld and remitted to the Internal Revenue Service until I provide a taxpayer
identification number.
Signature: _____________________________________________________________________
Date: __________________________________________________________________________
- --------------------------------------------------------------------------------
13
<PAGE>
INSTRUCTIONS TO LETTER OF TRANSMITTAL
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
GENERAL
Please do not send Certificates for Initial Notes directly to the Company.
Your Initial Note Certificates, together with your signed and completed Letter
of Transmittal and any required supporting documents, should be mailed in the
enclosed addressed envelope, or otherwise delivered, to the Exchange Agent, at
either of the addresses indicated on the first page hereof. The method of
delivery of Certificates, this Letter of Transmittal and all other required
documents is at the option and sole risk of the tendering holder and the
delivery will be deemed made only when actually received by the Exchange Agent.
If delivery is by mail, registered mail with return receipt requested, properly
insured, or overnight delivery service is recommended. In all cases, sufficient
time should be allowed to ensure timely delivery.
1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED DELIVERY
PROCEDURES
This Letter of Transmittal is to be completed by holders of Initial Notes
(which term, for purposes of the Exchange Offer, includes any participant in
Euroclear or Cedelbank whose name appears on a security position listing as the
holder of such Initial Notes) if either (a) Certificates for such Initial Notes
are to be forwarded herewith or (b) tenders are to be made pursuant to the
procedures for tender by book-entry transfer set forth in "The Exchange Offer--
Procedures for Tendering Initial Notes" in the Prospectus, and an agent's
message is not delivered. Tenders by book-entry transfer may also be made by
delivering an agent's message in lieu of this Letter of Transmittal. The term
"agent's message" means a message, transmitted by Euroclear or Cedelbank, as
applicable, to and received by the Common Depositary (which will then forward
such message to the Exchange Agent) and forming a part of a book-entry
confirmation, which states that Euroclear or Cedelbank, as applicable, has
received an express acknowledgement from the tendering Participant, which
acknowledgement states that such Participant has received and agrees to be bound
by, and makes the representations and warranties contained in, this Letter of
Transmittal and that the Company may enforce this Letter of Transmittal against
such Participant. Certificates representing the tendered Initial Notes, or
timely confirmation of a book-entry transfer of such Initial Notes into the
Common Depositary's account (on behalf of the Exchange Agent) at Euroclear or
Cedelbank, as applicable, as well as a properly completed and duly executed copy
of this Letter of Transmittal, or a facsimile hereof (or, in the case of a book-
entry transfer, an agent's message), a substitute Form W-9, and any other
documents required by this Letter of Transmittal, must be received by the
Exchange Agent at its address set forth herein on or prior to 5:00 p.m., New
York City time (10:00 p.m., London time), on the Expiration Date, or the
tendering holder must comply with the guaranteed delivery procedures set forth
below. Initial Notes may be tendered in whole or in part in the principal
amount of Euro 1,000 and integral multiples of Euro 1,000.
Holders who wish to tender their Initial Notes and (1) whose Initial Notes
are not immediately available or (2) who cannot deliver their Initial Notes,
this Letter of Transmittal and all other required documents to the Exchange
Agent on or prior to the Expiration Date or (3) who cannot complete the
procedures for delivery by book-entry transfer on a timely basis, may tender
their Initial Notes by properly completing and duly executing a Notice of
Guaranteed Delivery pursuant to the guaranteed delivery procedures set forth in
"The Exchange Offer--Procedures for Tendering Initial Notes" in the Prospectus
and by completing Box 3 hereof. Pursuant to such procedures: (1) such tender
must be made by or through an Eligible Institution (as defined below); (2) a
properly completed and duly executed Notice of Guaranteed Delivery,
substantially in the form made available by the Company, must be received by the
Exchange
14
<PAGE>
Agent on or prior to the Expiration Date; and (3) the Certificates (or a book-
entry confirmation (as defined in the Prospectus)) representing all tendered
Initial Notes of such holder, in proper form for transfer, together with a
Letter of Transmittal (or facsimile thereof), properly completed and duly
executed, with any required signature guarantees (or, in the case of a book-
entry transfer, an agent's message) and any other documents required by this
Letter of Transmittal, must be received by the Exchange Agent within three
Nasdaq Stock Market National Market System trading days after the date of
execution of such Notice of Guaranteed Delivery, all as provided in "The
Exchange Offer--Procedures for Tendering Initial Notes" in the Prospectus.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted
by facsimile or mail to the Exchange Agent, and, unless waived by the Company,
must include a guarantee by an Eligible Institution in the form set forth in
such Notice. For Initial Notes to be properly tendered pursuant to the
guaranteed delivery procedure, the Exchange Agent must receive a Notice of
Guaranteed Delivery on or prior to the Expiration Date. As used herein,
"Eligible Institution" means a firm or other entity identified in Rule 17Ad-15
under the Exchange Act as "an eligible guarantor institution," including (as
such terms are defined therein) (1) a bank; (2) a broker, dealer, municipal
securities broker or dealer or government securities broker or dealer; (3) a
credit union; (4) a national securities exchange, registered securities
association or clearing agency; or (5) a savings association that is a
participant in the Securities Transfer Agents Medallion Program, the New York
Stock Exchange Medallion Signature Program or the Stock Exchange Medallion
Program.
The Company will not accept any alternative, conditional or contingent
tenders. Each tendering holder, by execution of a Letter of Transmittal (or
facsimile thereof) or delivering an agent's message in lieu of this Letter of
Transmittal, waives any right to receive any notice of the acceptance of such
tender.
2. GUARANTEE OF SIGNATURES
No signature guarantee on this Letter of Transmittal is required if:
(i) this Letter of Transmittal is signed by the registered holder (which
term, for purposes of this document, shall include any participant in Euroclear
or Cedelbank whose name appears on a security position listing as the owner of
the Initial Notes) of Initial Notes tendered herewith, unless such holder(s) has
(have) completed either the box entitled "Special Exchange Instructions" (Box 7)
or the box entitled "Special Delivery Instructions" (Box 8) above; or
(ii) such Initial Notes are tendered for the account of a firm that is an
Eligible Institution.
In all other cases, unless waived by the Company, an Eligible Institution
must guarantee the signature(s) in Box 6 on this Letter of Transmittal. See
Instruction 5.
3. INADEQUATE SPACE
If the space provided in the box captioned "Description of Initial Notes"
is inadequate, the Certificate number(s) and/or the principal amount of Initial
Notes and any other required information should be listed on a separate, signed
schedule and attached to this Letter of Transmittal.
4. PARTIAL TENDERS AND WITHDRAWAL RIGHTS
Tenders of Initial Notes will be accepted only in the principal amount of
Euro 1,000 and integral multiples thereof. If less than all the Initial Notes
evidenced by any Certificate submitted are to be tendered, fill in the principal
amount of Initial Notes which are to be tendered in Box 1 under the column
"Aggregate
15
<PAGE>
Principal Amount of Initial Notes Being Tendered." In such case, new
Certificate(s) for the remainder of the Initial Notes that were evidenced by the
Initial Notes Certificate(s) will be sent to the holder of the Initial Notes,
promptly after the Expiration Date. All Initial Notes represented by
Certificates delivered to the Exchange Agent will be deemed to have been
tendered unless otherwise indicated.
Except as otherwise provided herein, tenders of Initial Notes may be
withdrawn at any time on or prior to the Expiration Date. In order for a
withdrawal to be effective, a written or facsimile transmission of such notice
of withdrawal must be timely received by the Exchange Agent at its address set
forth above on or prior to the Expiration Date. Any such notice of withdrawal
must (1) specify the name of the person having deposited the Initial Notes to be
withdrawn (the "Depositor"), (2) identify the Initial Notes to be withdrawn
(including the Certificate number(s) and principal amount of such Initial Notes,
or, in the case of Initial Notes transferred by book-entry transfer, the name
and number of the account at Euroclear or Cedelbank, as applicable, to be
credited), (3) be signed by the Initial Holder in the same manner as the
original signature on the Letter of Transmittal by which such Initial Notes were
tendered (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the Trustee register the transfer of
such Initial Notes into the name of the person withdrawing the tender and (4)
specify the name in which any such Initial Notes are to be registered, if
different from that of the Depositor. All questions as to the validity, form
and eligibility (including time or receipt) of such notices will be determined
by the Company, whose determination shall be final and binding on all parties.
If Initial Notes have been tendered pursuant to the procedures for book-entry
transfer set forth in the Prospectus under "The Exchange Offer--Procedures for
Tendering Initial Notes," the notice of withdrawal must specify the name and
number of the account maintained at Euroclear or Cedelbank, as applicable, to be
credited with the withdrawal of Initial Notes, in which case a notice of
withdrawal will be effective if delivered to the Exchange Agent by written or
facsimile transmission. Initial Notes properly withdrawn will not be deemed
validly tendered for purposes of the Exchange Offer. Withdrawals of tenders of
Initial Notes may not be rescinded, but such Initial Notes may be retendered at
any subsequent time on or prior to the Expiration Date by following any of the
procedures described in the Prospectus under "The Exchange Offer--Procedures for
Tendering Initial Notes."
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Company, in its
sole discretion, whose determination shall be final and binding on all parties.
Neither the Company, any affiliates or assigns of the Company, the Exchange
Agent, the Common Depositary nor any other person shall be under any duty to
give any notification of any irregularities in any notice of withdrawal or incur
any liability for failure to give such notification. Any Initial Notes which
have been tendered but which are withdrawn will be returned to the holder
thereof without cost to such holder promptly after withdrawal.
5. SIGNATURES ON LETTER OF TRANSMITTAL, ASSIGNMENTS AND ENDORSEMENTS
If this Letter of Transmittal is signed by the registered holder(s) of the
Initial Notes tendered hereby, the signature(s) must correspond with the name(s)
as written on the face of the Certificate(s) without alteration, addition or any
change whatsoever.
If any of the Initial Notes tendered hereby are owned of record by two or
more joint owners, all such owners must sign this Letter of Transmittal.
If any tendered Initial Notes are registered in different names on several
Certificates, it will be necessary to complete, sign and submit as many separate
Letters of Transmittal (or facsimiles thereof) as there are different
registrations of Certificates.
16
<PAGE>
If this Letter of Transmittal or any Certificates or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing and, unless waived by the Company, must
submit proper evidence satisfactory to the Company, in its sole discretion, of
such persons' authority to so act.
When this Letter of Transmittal is signed by the registered owner(s) of the
Initial Notes listed and transmitted hereby, no endorsement(s) of Certificate(s)
or separate bond power(s) are required unless Exchange Notes are to be issued in
the name of a person other than the registered holder(s). However, if Exchange
Notes are to be issued in the name of a person other than the registered
holder(s), signature(s) on such Certificate(s) or bond power(s) must be
guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered owner(s) of the Initial Notes listed, the Certificates must be
endorsed or accompanied by appropriate bond powers, signed exactly as the name
or names of the registered owner(s) appear(s) on the Certificates, and also must
be accompanied by such opinions of counsel, certifications and other information
as the Company or the Trustee for the Initial Notes may require in accordance
with the restrictions on transfer applicable to the Initial Notes. Signatures on
such Certificates or bond powers must be guaranteed by an Eligible Institution.
6. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS
If Exchange Notes are to be issued in the name of a person other than the
signer of this Letter of Transmittal, or if Exchange Notes are to be sent to
someone other than the signer of this Letter of Transmittal or to an address
other than that shown above, the appropriate boxes on this Letter of Transmittal
should be completed (Boxes 7 and 8). Certificates for Initial Notes not
exchanged will be returned by mail or, if tendered by book-entry transfer, by
crediting the account indicated above maintained at Euroclear or Cedelbank, as
applicable. See Instruction 4.
7. DETERMINATION OF VALIDITY
The Company will determine, in its sole discretion, all questions as to the
form of documents, validity, eligibility (including time of receipt) and
acceptance for exchange of any tender of Initial Notes, which determination
shall be final and binding on all parties. The Company reserves the absolute
right to reject any and all tenders determined by it not to be in proper form or
the acceptance of which, or exchange for, may, in the view of counsel to the
Company, be unlawful. The Company also reserves the absolute right, subject to
applicable law, to waive any of the conditions of the Exchange Offer set forth
in the Prospectus under "The Exchange Offer--Conditions" or any conditions or
irregularity in any tender of Initial Notes of any particular holder whether or
not similar conditions or irregularities are waived in the case of other
holders.
The Company's interpretation of the terms and conditions of the Exchange
Offer (including this Letter of Transmittal and the instructions hereto) will be
final and binding. No tender of Initial Notes will be deemed to have been
validly made until all irregularities with respect to such tender have been
cured or waived. Neither the Company, any affiliates or assigns of the Company,
the Exchange Agent, the Common Depositary nor any other person shall be under
any duty to give notification of any irregularities in tenders or incur any
liability for failure to give such notification.
17
<PAGE>
8. QUESTIONS, REQUESTS FOR ASSISTANCE AND ADDITIONAL COPIES
Questions and requests for assistance may be directed to the Exchange Agent
at its address and telephone number set forth on the front of this Letter of
Transmittal. Additional copies of the Prospectus, the Notice of Guaranteed
Delivery and the Letter of Transmittal may be obtained from the Exchange Agent.
9. 31% BACKUP WITHHOLDING; SUBSTITUTE FORM W-9
For U.S. Federal income tax purposes, holders are required, unless an
exemption applies, to provide the Exchange Agent with such holder's correct
taxpayer identification number ("TIN") on Substitute Form W-9 (Box 9 of this
Letter of Transmittal), and to certify, under penalty of perjury, that such
number is correct and that he or she is not subject to backup withholding. If
the Exchange Agent is not provided with the correct TIN, the Internal Revenue
Service (the "IRS") may subject the holder or other payee to a $50 penalty. In
addition, payments to such holders or other payees with respect to Initial Notes
exchanged pursuant to the Exchange Offer, or with respect to Exchange Notes
following the Exchange Offer, may be subject to 31% backup withholding.
Part 3 of the Substitute Form W-9 (Box 9) may be checked if the tendering
holder has not been issued a TIN and has applied for a TIN or intends to apply
for a TIN in the near future. If Part 3 is checked, the holder or other payee
must also complete the Certificate of Awaiting Taxpayer Identification Number
following Substitute Form W-9 in order to avoid backup withholding.
Notwithstanding that Part 3 is checked and the Certificate of Awaiting Taxpayer
Identification Number is completed, the Exchange Agent will withhold 31% of all
payments made prior to the time a properly certified TIN is provided to the
Exchange Agent.
The holder is required to give the Exchange Agent the TIN (i.e., social
security number or employer identification number) of the registered owner of
the Initial Notes or of the last transferee appearing on the transfers attached
to, or endorsed on, the Initial Notes. If the Initial Notes are registered in
more than one name or are not in the name of the actual owner, consult the
enclosed "Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9" for additional guidance on which number to report.
If the tendering holder is a nonresident alien or foreign entity not
subject to backup withholding, such holder must give the Company a completed
Form W-8, Certificate of Foreign Status. A copy of the Form W-8 may be obtained
from the Exchange Agent. Please consult the enclosed "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9" for
additional guidance on which holders are exempt from backup withholding.
Backup withholding is not an additional U.S. Federal income tax. Rather,
the U.S. Federal income tax liability of a person subject to backup withholding
will be reduced by the amount of tax withheld. If withholding results in an
overpayment of taxes, a refund may be obtained.
10. LOST, DESTROYED OR STOLEN CERTIFICATES
If any Certificate(s) representing Initial Notes have been lost, destroyed
or stolen, the holder should promptly notify the Exchange Agent. The holder will
then be instructed as to the steps that must be taken in order to replace the
Certificate(s). This Letter of Transmittal and related documents cannot be
processed until the procedures for replacing lost, destroyed or stolen
Certificate(s) have been completed.
18
<PAGE>
11. SECURITY TRANSFER TAXES
Holders who tender their Initial Notes for exchange will not be obligated
to pay any transfer taxes in connection therewith. If, however, Exchange Notes
are to be delivered to, or are to be issued in the name of, any person other
than the registered holder of the Initial Notes tendered, or if a transfer tax
is imposed for any reason other than the exchange of Initial Notes in connection
with the Exchange Offer, then the amount of any such tax (whether imposed on the
registered holder or any other persons) is payable by the tendering holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such taxes will be
billed directly to such tendering holder.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE THEREOF) AND ALL OTHER
REQUIRED DOCUMENTS MUST BE RECEIVED BY THE EXCHANGE AGENT ON OR PRIOR TO THE
EXPIRATION DATE.
19
<PAGE>
INSTRUCTIONS TO REGISTERED HOLDER
FROM BENEFICIAL OWNER
OF OUTSTANDING EURO-DENOMINATED
11 % SENIOR NOTES DUE 2009
OF
PSINET INC.
The undersigned hereby acknowledges receipt of the Prospectus dated
September __, 1999 (the "Prospectus") of PSINet Inc., a New York corporation
(the "Company"), and the accompanying Letter of Transmittal (the "Letter of
Transmittal"), that together constitute the Company's offer (the "Exchange
Offer") to exchange Euro 1,000 in principal amount of its Euro-denominated 11%
Senior Notes due 2009, which have been registered under the Securities Act (the
"Exchange Notes"), for each Euro 1,000 in principal amount of its outstanding
unregistered Euro-denominated 11% Senior Notes due 2009 (the "Initial Notes").
Capitalized terms used but not defined herein have the meanings ascribed to them
in the Prospectus.
This will instruct you, the registered holder, as to the action to be taken
by you relating to the Exchange Offer with respect to the Initial Notes held by
you for the account of the undersigned.
The aggregate principal amount of the Initial Notes held by you for the
account of the undersigned is (fill in principal amount):
Euro _______________.
With respect to the Exchange Offer, the undersigned hereby instructs you
(check appropriate box):
[_] To TENDER the following Initial Notes held by you for the account of
the undersigned (insert principal amount of Initial Notes to be
tendered*, if any):
Euro _______________.
* The minimum permitted tender is Euro 1,000 in principal amount of
Initial Notes. All other tenders must be in integral multiples
of Euro 1,000 of principal amount.
[_] NOT to TENDER any Initial Notes held by you for the account of the
undersigned.
If the undersigned instructs you to tender the Initial Notes held by you
for the account of the undersigned, it is understood that you are authorized (a)
to make, on behalf of the undersigned (and the undersigned, by its signature
below, hereby makes to you), the representations and warranties contained in the
Letter of Transmittal that are to be made with respect to the undersigned as a
Beneficial Owner (as defined in the Letter of Transmittal), including but not
limited to representations to the effect that (i) the undersigned's principal
residence is in the state of (fill in state) ____________________________ or
the country of (fill in country) ___________________________________ as
applicable, (ii) the undersigned is acquiring the Exchange Notes in the ordinary
course of business of the undersigned, (iii) the undersigned is not
participating, does not intend to participate, and has no arrangement or
understanding with any person to participate, in the distribution (within the
meaning of the Securities Act) of the Exchange Notes, (iv) except as otherwise
disclosed in writing herewith, the undersigned acknowledges that any person
participating in the Exchange Offer with the intention or for the purpose of
distributing the Exchange Notes must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a secondary
resale of the Exchange Notes acquired by such person and cannot rely on the
position of the Staff of the Securities and Exchange Commission set forth in the
no-action letters that are discussed in the section of the Prospectus entitled
"The Exchange Offer--Resale of the Exchange Notes"; (b) to make such agreements,
representations and warranties on behalf of the undersigned, as set forth in the
Letter of Transmittal; and (c) to take such other action as may be necessary
under the Prospectus or the Letter of Transmittal to effect the valid tender of
such Initial Notes.
SIGN HERE
Name of Beneficial Owner(s):__________________________________________________
Signature(s):___________________________________________________________________
Name(s) (please print):_________________________________________________________
Address:________________________________________________________________________
________________________________________________________________________________
Telephone Number:_______________________________________________________________
Taxpayer Identification or Social Security Number:______________________________
Date:___________________________________________________________________________
20
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
A. TIN--The Taxpayer Identification Number for most individuals is their social
security number. Refer to the following chart to determine the appropriate
number:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
FOR THIS TYPE OF ACCOUNT: GIVE THE SOCIAL SECURITY OR EMPLOYER
IDENTIFICATION NUMBER OF:
- ----------------------------------------------------------------------------------------------------------
<S> <C>
1. Individual The individual
2. Two or more individuals The actual owner of the account or, if combined
(joint account) funds, the first individual on the account (1)
3. Custodian account of a minor (Uniform Gift to The minor(2)
Minors Act)
4. a. Revocable savings trust (grantor is also trustee) The grantor-trustee(1)
b. So-called trust account that is not a legal or
valid trust under State law The actual owner(1)
5. Sole proprietorship
6. A valid trust, estate or pension trust The owner(3)
7. Corporate Legal entity(4)
8. Association, club, religious, charitable, The corporation
educational or other tax exempt organization The organization
9. Partnership
10. A broker or registered nominee The partnership
11. Account with the Department of Agriculture The broker or nominee
The public entity
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's name and social security
number.
(3) Show the individual's name. You may also enter your business name or "doing
business as" name. You may use either your Social Security number or your
employer identification number.
(4) List first and circle the name of the legal trust, estate or pension trust.
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
B. EXEMPT PAYEES--The following lists exempt payees. If you are exempt, you must
nonetheless complete the form and provide your TIN in order to establish that
you are exempt. Check the box in Part 3 of the form, sign and date the form.
For this purpose, Exempt Payees include: (1) a corporation; (2) an
organization exempt from tax under section 501(a), or an individual retirement
plan (IRA) or a custodial account under section 403(b)(7); (3) the United States
or any of its agencies or instrumentalities; (4) a state, the District of
Columbia, a possession of the United States, or any of their political
subdivisions or instrumentalities; (5) a foreign government or any of its
political subdivisions, agencies or instrumentalities; (6) an international
organization or any of its agencies or instrumentalities; (7) a foreign central
bank of issue; (8) a dealer in securities or commodities required to register in
the U.S. or a possession of the U.S.; (9) a real estate investment trust; (10)
an entity or person registered at all times during the tax year under the
Investment
21
<PAGE>
Company Act of 1940; (11) a common trust fund operated by a bank under section
584(a); and (12) a financial institution.
C. OBTAINING A NUMBER
If you do not have a taxpayer identification number or you do not know your
number, obtain Form SS-5, application for a Social Security Number, or Form SS-
4, Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number.
D. PRIVACY ACT NOTICE
Section 6109 requires most recipients of dividend, interest or other
payments to give taxpayer identification numbers to payers who must report the
payments to the IRS. The IRS uses the numbers for identification purposes.
Payers must be given the numbers whether or not payees are required to file
tax returns. Payers must generally withhold 31% of taxable interest, dividend
and certain other payments to a payee who does not furnish a taxpayer
identification number. Certain penalties may also apply.
E. PENALTIES
(1) Penalty for Failure to Furnish Taxpayer Identification Number. If you
fail to furnish your taxpayer identification number to a payer, you are subject
to a penalty of $50 for each such failure unless your failure is due to
reasonable cause and not to willful neglect.
(2) Failure to Report Certain Dividend and Interest Payments. If you fail
to include any portion of an includable payment for interest, dividends, or
patronage dividends in gross income, such failure will be treated as being due
to negligence and will be subject to a penalty of 5% on any portion of an under-
payment attributable to that failure unless there is clear and convincing
evidence to the contrary.
(3) Civil Penalty for False Information with Respect to Withholding. If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(4) Criminal Penalty for Falsifying Information. Falsifying certifications
or affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL
REVENUE SERVICE.
22
<PAGE>
Exhibit 99.3
Notice of Guaranteed Delivery
of Dollar-denominated
11% Senior Notes due 2009
of
PSINet Inc.
This form, or one substantially equivalent hereto, must be used by any
holder of outstanding Dollar-denominated 11% Senior Notes due 2009 (the "Initial
Notes") of PSINet Inc., a New York corporation (the "Company"), who wishes to
tender Initial Notes pursuant to the Company's Exchange Offer, as defined in the
prospectus dated September __, 1999 (the "Prospectus"), and (1) whose Initial
Notes are not immediately available or (2) who cannot deliver such Initial Notes
or any other documents required by the applicable Letter of Transmittal on or
before the Expiration Date (as defined in the Prospectus) or (3) who cannot
comply with the book-entry transfer procedure on a timely basis. This form may
be delivered by facsimile transmission, mail or hand delivery to the Exchange
Agent. See "The Exchange Offer--Guaranteed Delivery Procedures" in the
Prospectus.
PSINet Inc.
Notice of Guaranteed Delivery
WILMINGTON TRUST COMPANY, as Exchange Agent
By Registered or Certified Mail or By Hand:
Overnight Courier:
Wilmington Trust Company Wilmington Trust Company
Attn: Kristin Long Attn: Corporate Trust Operations
Corporate Trust Operations c/o Harris Trust Co. of New York as Agent
1100 North Market Street 88 Pine Street, 19th Floor
Rodney Square North Wall Street Plaza
Wilmington, DE 19890-0001 New York, New York 10005
By Facsimile:
(For Eligible Institutions Only)
Wilmington Trust Company
(302) 651-1079
Confirm by telephone:
(302) 651-1562
Kristin Long
Delivery of this notice of guaranteed delivery to an address other than as
set forth above or transmission via a facsimile number other than as set forth
above will not constitute a valid delivery.
Please read the accompanying instructions carefully.
<PAGE>
-2-
Ladies and Gentlemen:
The undersigned hereby tenders to the Company upon the terms and subject to
the conditions set forth in the Prospectus and the related Letter of
Transmittal, receipt of which is hereby acknowledged, the principal amount of
Initial Notes specified below pursuant to the guaranteed delivery procedures set
forth under the caption "The Exchange Offer--Guaranteed Delivery Procedures" in
the Prospectus. By so tendering, the undersigned does hereby make, at and as of
the date hereof, the representations and warranties of a tendering holder of
Initial Notes set forth in the applicable Letter of Transmittal. The
undersigned hereby tenders the Initial Notes listed below:
CERTIFICATE NUMBERS PRINCIPAL AMOUNT TENDERED
(IF AVAILABLE)
___________________________ _____________________________
___________________________ _____________________________
___________________________ _____________________________
All authority herein conferred or agreed to be conferred shall survive the
death, incapacity, or dissolution of the undersigned and every obligation of the
undersigned hereunder shall be binding upon the heirs, personal representatives,
successors and assigns of the undersigned.
If Initial Notes will be tendered by book-entry transfer:
Name of Tendering Institution:
______________________________ __________________________________
The Depository Trust Company __________________________________
Account No.: Signature(s)
__________________________________
______________________________
__________________________________
Name(s) (please print)
__________________________________
Street Address
__________________________________
City, State Zip Code
Date: _____________________ __________________________________
Area Code & Telephone No.
<PAGE>
-3-
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a participant in a Recognized Signature Guarantee
Medallion Program, guarantees deposit with the Exchange Agent of the applicable
Letter of Transmittal (or facsimile thereof), together with the Initial Notes
tendered hereby in proper form for transfer, or confirmation of the book-entry
transfer of such Initial Notes into the Exchange Agent's account at the
Depository Trust Company, pursuant to the procedure for book-entry transfer set
forth in the Prospectus, and any other required documents, all by 5:00 p.m., New
York City time (10:00 p.m., London time), on the third Nasdaq Stock Market
National Market System trading day following the Expiration Date (as defined in
the Prospectus).
________________________________ ________________________________
Name of Firm Authorized Signature
________________________________ ________________________________
Street Address Name (please print)
________________________________
City, State Zip Code
________________________________ Date: __________________________
Area Code & Telephone Number
DO NOT SEND CERTIFICATES FOR INITIAL NOTES WITH THIS FORM. ACTUAL SURRENDER OF
CERTIFICATES FOR INITIAL NOTES MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY,
A COPY OF THE PREVIOUSLY EXECUTED LETTER OF TRANSMITTAL.
<PAGE>
-4-
INSTRUCTIONS
1. DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY. A properly completed
and duly executed copy of this Notice of Guaranteed Delivery and any other
documents required by this Notice of Guaranteed Delivery must be received by the
Exchange Agent at one of its addresses set forth on the cover hereof prior to
the Expiration Date. The method of delivery of this Notice of Guaranteed
Delivery and all other required documents to the Exchange Agent is at the
election and risk of the holder but, except as otherwise provided below, the
delivery will be deemed made only when actually received by the Exchange Agent.
Instead of delivery by mail, it is recommended that holders use an overnight or
hand delivery service, properly insured. If such delivery is by mail, it is
recommended that the holder use properly insured, registered mail with return
receipt requested. For a full description of the guaranteed delivery
procedures, see the Prospectus under the caption "The Exchange Offer--Guaranteed
Delivery Procedures." In all cases, sufficient time should be allowed to assure
timely delivery. No Notice of Guaranteed Delivery should be sent to the
Company.
2. SIGNATURE ON THIS NOTICE OF GUARANTEED DELIVERY; GUARANTEE OF
SIGNATURES. If this Notice of Guaranteed Delivery is signed by the registered
holder(s) of the Initial Notes referred to herein, then the signature must
correspond with the name(s) as written on the face of the Initial Notes without
alteration, enlargement or any change whatsoever.
If this Notice of Guaranteed Delivery is signed by a person other than the
registered holder(s) of any Initial Notes listed, this Notice of Guaranteed
Delivery must be accompanied by a properly completed bond power signed as the
name of the registered holder(s) appear(s) on the face of the Initial Notes
without alteration, enlargement or any change whatsoever.
If this Notice of Guaranteed Delivery is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or other
person acting in a fiduciary or representative capacity, such person should so
indicate when signing and, unless waived by the Company, evidence satisfactory
to the Company of their authority so to act must be submitted with this Notice
of Guaranteed Delivery.
3. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to
the Exchange Offer or the procedure for consenting and tendering as well as
requests for assistance or for additional copies of the Prospectus, the
applicable Letter of Transmittal and this Notice of Guaranteed Delivery, may be
directed to the Exchange Agent at the address set forth on the cover hereof or
to your broker, dealer, commercial bank or trust company.
<PAGE>
Exhibit 99.4
Notice of Guaranteed Delivery
of Euro-denominated
11% Senior Notes due 2009
of
PSINet Inc.
This form, or one substantially equivalent hereto, must be used by any
holder of outstanding Euro-denominated 11% Senior Notes due 2009 (the "Initial
Notes") of PSINet Inc., a New York corporation (the "Company"), who wishes to
tender Initial Notes pursuant to the Company's Exchange Offer, as defined in the
prospectus dated September __, 1999 (the "Prospectus"), and (1) whose Initial
Notes are not immediately available or (2) who cannot deliver such Initial Notes
or any other documents required by the applicable Letter of Transmittal on or
before the Expiration Date (as defined in the Prospectus) or (3) who cannot
comply with the book-entry transfer procedure on a timely basis. This form may
be delivered by facsimile transmission, mail or hand delivery to the Exchange
Agent. See "The Exchange Offer--Guaranteed Delivery Procedures" in the
Prospectus.
PSINet Inc.
Notice of Guaranteed Delivery
WILMINGTON TRUST COMPANY, as Exchange Agent
By Registered or Certified Mail By Hand:
or Overnight Courier:
Wilmington Trust Company Wilmington Trust Company
Attn: Kristin Long Attn: Corporate Trust Operations
Corporate Trust Operations c/o Harris Trust Co. of New York as Agent
1100 North Market Street 88 Pine Street, 19th Floor
Rodney Square North Wall Street Plaza
Wilmington, DE 19890-0001 New York, New York 10005
By Facsimile:
(For Eligible Institutions Only)
Wilmington Trust Company
(302) 651-1079
Confirm by telephone:
(302) 651-1562
Kristin Long
Delivery of this notice of guaranteed delivery to an address other than as
set forth above or transmission via a facsimile number other than as set forth
above will not constitute a valid delivery.
Please read the accompanying instructions carefully.
<PAGE>
-2-
Ladies and Gentlemen:
The undersigned hereby tenders to the Company upon the terms and subject to
the conditions set forth in the Prospectus and the related Letter of
Transmittal, receipt of which is hereby acknowledged, the principal amount of
Initial Notes specified below pursuant to the guaranteed delivery procedures set
forth under the caption "The Exchange Offer--Guaranteed Delivery Procedures" in
the Prospectus. By so tendering, the undersigned does hereby make, at and as of
the date hereof, the representations and warranties of a tendering holder of
Initial Notes set forth in the applicable Letter of Transmittal. The
undersigned hereby tenders the Initial Notes listed below:
CERTIFICATE NUMBERS PRINCIPAL AMOUNT TENDERED
(IF AVAILABLE)
________________________________ ________________________________
________________________________ ________________________________
________________________________ ________________________________
All authority herein conferred or agreed to be conferred shall survive the
death, incapacity, or dissolution of the undersigned and every obligation of the
undersigned hereunder shall be binding upon the heirs, personal representatives,
successors and assigns of the undersigned.
If Initial Notes will be tendered by book-entry transfer:
Name of Tendering Institution:
__________________________________ ________________________________
Euroclear or Cedelbank ________________________________
Account No.: Signature(s)
________________________________
__________________________________
________________________________
Name(s) (please print)
________________________________
Street Address
________________________________
City, State Zip Code
________________________________
Country
Date: ________________ ________________________________
Area Code & Telephone No.
<PAGE>
-3-
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a participant in a Recognized Signature Guarantee
Medallion Program, guarantees deposit with the Exchange Agent of the applicable
Letter of Transmittal (or facsimile thereof), together with the Initial Notes
tendered hereby in proper form for transfer, or confirmation of the book-entry
transfer of such Initial Notes into the Common Depositary's account (on behalf
of the Exchange Agent) at Euroclear or Cedelbank, as applicable, pursuant to the
procedure for book-entry transfer set forth in the Prospectus, and any other
required documents, all by 5:00 p.m., New York City time (10:00 p.m., London
time), on the third Nasdaq Stock Market National Market System trading day
following the Expiration Date (as defined in the Prospectus).
________________________________ ________________________________
Name of Firm Authorized Signature
________________________________ ________________________________
Street Address Name (please print)
________________________________
City, State Zip Code
___________________________________
Country
________________________________ Date: __________________________
Area Code & Telephone Number
DO NOT SEND CERTIFICATES FOR INITIAL NOTES WITH THIS FORM. ACTUAL SURRENDER OF
CERTIFICATES FOR INITIAL NOTES MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY,
A COPY OF THE PREVIOUSLY EXECUTED LETTER OF TRANSMITTAL.
<PAGE>
-4-
INSTRUCTIONS
1. DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY. A properly completed
and duly executed copy of this Notice of Guaranteed Delivery and any other
documents required by this Notice of Guaranteed Delivery must be received by the
Exchange Agent at one of its addresses set forth on the cover hereof prior to
the Expiration Date. The method of delivery of this Notice of Guaranteed
Delivery and all other required documents to the Exchange Agent is at the
election and risk of the holder but, except as otherwise provided below, the
delivery will be deemed made only when actually received by the Exchange Agent.
Instead of delivery by mail, it is recommended that holders use an overnight or
hand delivery service, properly insured. If such delivery is by mail, it is
recommended that the holder use properly insured, registered mail with return
receipt requested. For a full description of the guaranteed delivery
procedures, see the Prospectus under the caption "The Exchange Offer--Guaranteed
Delivery Procedures." In all cases, sufficient time should be allowed to assure
timely delivery. No Notice of Guaranteed Delivery should be sent to the
Company.
2. SIGNATURE ON THIS NOTICE OF GUARANTEED DELIVERY; GUARANTEE OF
SIGNATURES. If this Notice of Guaranteed Delivery is signed by the registered
holder(s) of the Initial Notes referred to herein, then the signature must
correspond with the name(s) as written on the face of the Initial Notes without
alteration, enlargement or any change whatsoever.
If this Notice of Guaranteed Delivery is signed by a person other than the
registered holder(s) of any Initial Notes listed, this Notice of Guaranteed
Delivery must be accompanied by a properly completed bond power signed as the
name of the registered holder(s) appear(s) on the face of the Initial Notes
without alteration, enlargement or any change whatsoever.
If this Notice of Guaranteed Delivery is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or other
person acting in a fiduciary or representative capacity, such person should so
indicate when signing and, unless waived by the Company, evidence satisfactory
to the Company of their authority so to act must be submitted with this Notice
of Guaranteed Delivery.
3. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to
the Exchange Offer or the procedure for consenting and tendering as well as
requests for assistance or for additional copies of the Prospectus, the
applicable Letter of Transmittal and this Notice of Guaranteed Delivery, may be
directed to the Exchange Agent at the address set forth on the cover hereof or
to your broker, dealer, commercial bank or trust company.
