<PAGE>
As filed with the Securities and Exchange Commission on August 6, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________
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
_____________
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CALCULATION OF REGISTRATION FEE
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<S> <C> <C> <C> <C>
Title of Class of Securities Amount to be Proposed Maximum Proposed Maximum Amount of Registration
to be Registered Registered Offering Price Aggregate Offering Fee
Per Unit (1) Price (1)
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11% Senior Notes Due 2009 $1,050,000,000 100.75% $1,057,875,000 $294,089.25
- -----------------------------------------------------------------------------------------------------------------------
11% Senior Notes Due 2009 Euro 150,000,000 94.95% $ 153,719,302.50 $ 42,733.97
($161,895,000)(2)
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Total $1,211,895,000 $1,211,594,302.50 $336,823.22
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</TABLE>
(1) Estimated solely for purposes of calculating the registration fee
calculated pursuant to the provisions of Rule 457(f) under the Securities
Act of 1933, as amended, as the market value of the securities to be
canceled in the exchange.
(2) Euro amounts have been translated into U.S. Dollars at Euro 1=$1.0793 ,
which was the noon buying rate in New York City for cable transfers in Euro
as certified for custom purposes by the Federal Reserve Bank of New York on
August 5, 1999.
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
AUGUST 6, 1999.
PSINet Inc.
Exchange Offer for
$1,050,000,000
Euro 150,000,000
11% Senior Notes Due 2009
____________________________________________
PSINet:
. We are the leading independent global provider of Internet solutions to
businesses.
. PSINet Inc.
510 Hutmar Park Drive
Herndon, Virginia 20170
(703) 904-4100
The Exchange Offer:
. Expires at 5:00 p.m, New York City time (10:00 p.m., London time), on
________, 1999, unless extended.
. The exchange offer is subject to customary conditions which we may waive.
. All outstanding notes that are validly tendered and not validly withdrawn
will be exchanged.
. Tenders of outstanding notes may be withdrawn at any time prior to the
expiration of the exchange offer.
. The exchange of notes should not be a taxable exchange for U.S. federal
income tax purposes.
. We will not receive any proceeds from the exchange offer.
. The terms of the notes to be issued are substantially identical to the
outstanding notes, except for the outstanding notes being subject to transfer
restrictions under the Securities Act of 1933 and entitled to exchange and
registration rights, most of which will be fulfilled upon completion of the
exchange offer.
___________________________________
Investment in the notes to be issued in the exchange offer involves risk. See
"Risk Factors" beginning on page 15.
This prospectus and the accompanying letters of transmittal are first being
mailed to holders of outstanding notes on or about __________, 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.
___________________________________
___________, 1999
<PAGE>
TABLE OF CONTENTS
Page
----
Prospectus Summary............................................................2
Risk Factors.................................................................15
Use of Proceeds..............................................................33
The Exchange Offer...........................................................34
Certain U.S. Federal Income Tax Considerations...............................46
Capitalization...............................................................51
Selected Consolidated Financial and Operating Data...........................53
Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................................55
Business.....................................................................75
Management...................................................................97
Certain Transactions........................................................100
Stock Ownership of Certain Beneficial Owners and Management.................102
Description of Notes........................................................104
Description of Certain Indebtedness.........................................147
Description of Book-Entry System............................................154
Plan of Distribution........................................................154
Documents Incorporated By Reference.........................................154
Legal Matters...............................................................155
Experts.....................................................................155
Where You Can Find More Information.........................................155
Glossary....................................................................G-1
Index to Consolidated Financial Statements..................................F-1
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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...................... $1,050,000,000 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:
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<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 _____________, 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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<PAGE>
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 March 31, 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 $332.1
million of our secured debt (including
secured debt of our subsidiaries);
. would have been structurally
subordinated to approximately $85.4
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. We cannot
assure you that the exchange euro notes
will be admitted for listing on the
Luxembourg Stock Exchange or, if they are
listed, that the listing will occur by the
completion of the exchange offer.
Use of Proceeds.................... We will not receive any cash proceeds from
the exchange offer. See "Use of Proceeds."
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<PAGE>
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 five geographic operating segments--the U.S., Canada, 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.
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.
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<PAGE>
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 $34.6 billion in 2002. Trends contributing to this growth in demand
include:
. the increase in corporate Internet sites and connectivity as a means to
expand customer reach and improve communications efficiency;
. business demand for advanced, highly reliable information technology
solutions designed specifically to enhance productivity and improve
efficiency;
. the need of businesses to securely and efficiently connect multiple,
geographically-dispersed locations and provide global remote access
capabilities; and
. business use of the Internet as a lower-cost alternative to traditional
telecommunications services.
Our target market consists primarily of mid-sized and large businesses in
information intensive industries. As of June 30, 1999, we served approximately
73,400 business accounts, including 364 ISPs. The following table provides a
summary as of March 31, 1999 of our operations across the four geographic
operating segments in which we then operated:
<TABLE>
<CAPTION>
Revenue for
Three Months 1998 to 1999 Wholesale and
Ended 3/31/99 Revenue Business Consumer Commencement
($Millions) Growth (%) Accounts Accounts of Operations
-------------- -------------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C>
U.S................................... $ 50.5 59% 23,700 693,000 1989
Canada................................ 8.5 70% 7,100 94,000 1996
Europe................................ 15.9 165% 12,200 28,000 1995
Asia.................................. 29.9 1,773% 16,700 83,000 1994
------ ------ -------
All Segments.......................... $104.8 136% 59,700 898,000
====== ====== =======
</TABLE>
As a result of our acquisitions during the quarter ended June 30, 1999, we
now operate in a fifth geographic region--Latin America.
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.
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
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<PAGE>
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.
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<PAGE>
RECENT DEVELOPMENTS
Recent Developments
Quarter Ended June 30, 1999. For our quarter ended June 30, 1999, we
reported, on a preliminary basis, consolidated revenue of $123.8 million,
consolidated earnings 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, or EBITDA, of $0.2 million, and net loss available to common
shareholders of $62.0 million or $1.00 basic and diluted loss per share. As of
June 30, 1999, our consolidated working capital and consolidated long-term debt,
less current portion, were $668.5 million and $1.14 billion, respectively, as
determined on a preliminary basis, as compared to consolidated working capital
and consolidated long-term debt, less current portion, of $275.6 million and
$1.06 billion, respectively, at December 31, 1998. Based on our quarter ended
June 30, 1999, we had annualized revenues of $495.2 million, of which 69%
consisted of access services, 8% of Web and enhanced services, and 23% of
wholesale services.
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............. 32,990 369,010
====== =======
</TABLE>
(1) As of the respective dates of acquisition.
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 $742.6 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.
-12-
<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 three
months ended March 31, 1998 and 1999 have been derived from our consolidated
financial statements. The results of operations for the three month period ended
March 31, 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 in this
prospectus.
The March 31, 1999, as adjusted, balance sheet data gives effect to the
offering in May 1999 of 8,000,000 shares of our common stock at a public
offering price of $50.50 per share and the concurrent offering of 9,200,000
shares of our 6 3/4% Series C cumulative convertible preferred stock at a public
offering price of $50.00 per share, and the application of the net proceeds
therefrom (excluding amounts paid by the purchasers of the convertible preferred
stock into the deposit account therefor), as if these offerings had occurred on
March 31, 1999.
The March 31, 1999, as further adjusted, balance sheet data further adjusts
the as adjusted amounts to give effect to the offering of the initial notes and
the application of those net proceeds as if the offering had occurred on March
31, 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).
-13-
<PAGE>
<TABLE>
<CAPTION>
Three Months
Year Ended December 31 Ended March 31,
--------------------------------------------------------- ----------------------
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 $ 31,947 $ 50,570
International................................. 55 2,470 6,780 17,950 103,588 12,522 54,276
------- -------- -------- -------- --------- -------- --------
15,214 38,722 84,351 121,902 259,636 44,469 104,846
Other income, net............................... -- -- 5,417 -- -- -- --
Operating costs and expenses:
Data communications and operations............ 9,489 32,124 70,102 94,363 199,372 36,666 76,018
Sales and marketing........................... 3,599 23,930 27,064 25,831 57,026 10,732 18,572
General and administrative.................... 3,605 10,569 20,648 22,947 45,288 7,585 17,089
Depreciation and amortization................. 3,183 14,778 28,035 28,347 63,424 9,465 26,818
Charge for acquired in-process research and
development................................. -- -- -- -- 70,800 7,000 --
Intangible asset write-down................... -- 9,938 -- -- -- -- --
------- -------- -------- -------- --------- -------- --------
Total operating costs and expenses............ 19,876 91,339 145,849 171,488 435,910 71,448 138,497
-------- --------- --------- --------- --------- --------- ---------
Loss from operations............................ (4,662) (52,617) (56,081) (49,586) (176,274) (26,979) (33,651)
Interest expense................................ (731) (1,964) (5,025) (5,362) (63,914) (2,579) (29,581)
Non-recurring arbitration charge................ -- -- -- -- (49,000) -- --
Loss before income taxes........................ (5,342) (53,160) (55,256) (46,078) (262,717) (29,072) (58,687)
Net loss........................................ (5,342) (53,160) (55,097) (45,602) (261,869) (29,072) (58,687)
Return to preferred shareholders................ -- -- -- (411) (3,079) (782) (574)
Net loss available to common shareholders....... $(5,342) $(53,160) $(55,097) $(46,013) $(264,948) $(29,854) $(59,261)
======= ======== ======== ======== ========= ======== ========
Basic and diluted loss per share................ $(0.42) $(2.01) $(1.40) $(1.14) $(5.32) $(0.67) $(1.11)
======= ======== ======== ======== ========= ======== ========
Shares used in computing basic and diluted
loss per share (in thousands)................. 12,805 26,485 39,378 40,306 49,806 44,596 53,358
Other Financial Data:
EBITDA:
U.S........................................... $ 772) $(26,930) $(20,563) $(13,071) $ (26,170) $ (6,240) $ (8,253)
International................................. (707) (971) (7,483) (8,168) (15,880) (4,274) 1,420
------- -------- -------- -------- --------- -------- --------
$(1,479) $(27,901) $(28,046) $(21,239) $ (42,050) $(10,514) $ (6,833)
======= ======== ======== ======== ========= ======== ========
Capital expenditures............................ $ 5,009 $ 45,166 $ 38,390 $ 50,074 $ 303,550 $ 37,058 $127,568
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) (29,854) (59,261)
Cash Flow Data:
Cash flows used in operating activities......... $(1,097) $(30,093) $(32,543) $(15,568) $ (87,586) $ (9,970) $(77,264)
Cash flows used in investing activities......... (1,937) (21,958) (7,897) (15,560) (783,877) (9,922) (36,881)
Cash flows provided by (used in) financing
activities.................................... 4,527 151,403 (10,529) 12,598 874,246 13,617 91,309
Operating Data:
Number of POPs.................................. 82 241 350 350 500 400 525
Number of business accounts..................... 4,220 8,200 17,800 26,400 54,700 33,300 59,700
<CAPTION>
March 31, 1999
-------------------------------------
As
As Further
Actual Adjusted Adjusted
----------- ----------- -----------
<S> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents, short-term investments and marketable securities...... $ 265,961 $1,008,502 $2,177,376
Restricted cash and short-term investments.................................... 132,898 132,898 132,898
Total assets.................................................................. 1,371,213 2,113,754 3,316,709
Current portion of debt....................................................... 166,184 166,184 166,184
Long-term debt, less current portion.......................................... 1,118,801 1,118,801 2,321,756
Total liabilities............................................................. 1,546,497 1,546,497 2,749,452
Shareholders' equity (deficit)................................................ (175,284) 567,257 567,257
</TABLE>
-14-
<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 March 31, 1999, after giving pro forma effect to the offering of the initial
notes, and our equity offerings in May 1999, our total indebtedness would have
been $2.49 billion, representing 81% of total capitalization. For the year ended
December 31, 1998 and for the three months ended March 31, 1999, our interest
expense was $63.9 million and $29.6 million, respectively. After giving pro
forma effect to the offering of the initial notes, our interest expense for the
three months ended March 31, 1999 would have been $63.1 million. 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.
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
-15-
<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, we have
incurred losses and experienced negative EBITDA during each of 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, $46.0 million and $264.9 million and have incurred negative
EBITDA of $28.0 million, $21.2 million and $42.1 million for each of the years
ended December 31, 1996, 1997 and 1998, respectively. During the three months
ended March 31, 1999, we incurred a net loss available to common shareholders of
$59.3 million and negative EBITDA of $6.8 million. At March 31, 1999, we had an
accumulated deficit of $486.9 million. We cannot assure that we will be able to
achieve or sustain profitability or 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
obligations under the notes
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
-16-
<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 March 31, 1999, we had approximately $332.1 million of secured
debt (including secured debt of our subsidiaries) and our subsidiaries had in
the aggregate approximately $85.4 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 March 31, 1999, we were
obligated to make future payments that total $99.5 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. Although we currently
believe that our capital expenditures in 1999 may be consistent with those in
1998, we anticipate that, as a result of our completion of the initial notes
offering and recent equity offerings, we may decide to 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 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:
-17-
<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 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
-18-
<PAGE>
in a timely manner. In addition, we cannot assure 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 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 their 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 that we will be successful in overcoming these risks or
any other problems encountered in connection with our acquisitions of bandwidth.
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 32%
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 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 high
-19-
<PAGE>
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;
. 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 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 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 three months ended March
31, 1999, 40% and 52%, respectively, of our revenue was derived from operations
outside the United States and at March 31, 1999, 37% 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. The process of locating such
personnel with the combination of skills and attributes required to carry out
-20-
<PAGE>
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 anticipate that our U.S. internal systems will be
Y2K ready by September 30, 1999. We are in the process of completing an
inventory of our internal systems that we use in Canada, Latin America, Europe
and Asia 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 planned to be made Y2K compliant through minor changes to the
software or hardware or, in limited instances, replacement of the equipment. We
anticipate that our network will be Y2K compliant by September 30, 1999. In
addition to administering the implementation of necessary upgrades for Y2K
compliance, our network team is developing a contingency plan to address any
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
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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 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, it 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 can
not 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 have not yet completed a contingency plan to handle a worst case
scenario. We expect to have such contingency plan in place by September 30,
1999.
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. 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. 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 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 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.
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
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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.
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
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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 can not assure 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.
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
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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 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 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.
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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 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 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 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.
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.
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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.
. 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;
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. 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 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
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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 $1.16 billion, assuming an exchange rate of Euro .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. Gross proceeds from the offering of the
initial dollar notes and initial euro notes were $1.05 billion and $153.0
million, respectively, assuming such exchange rate.
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 _____________, 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 notes may be made by book-entry
transfer of such initial notes into the exchange agent's account at The
Depository Trust Company ("DTC"), Euroclear or Cedelbank, as applicable, 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, each holder will make to PSINet the
representation set forth below in the second paragraph under the heading "--
Resale of Exchange Notes."
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.
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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 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 the tendering holders, unless otherwise provided in the applicable
letter of transmittal, as soon as practicable following the expiration date.
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Book-Entry Delivery Procedures
Promptly after the date of this prospectus, the exchange agent will
establish accounts with respect to the initial dollar notes at DTC and 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 at such 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 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 at its 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 are received by the exchange agent. Delivery of documents to any of
the Book-Entry Transfer Facilities does not constitute delivery to the exchange
agent.
Tender of Initial Notes Held Through Book-Entry Transfer Facilities
The exchange agent 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 notes to 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.
The term "agent's message" means a message transmitted by a Book-Entry
Transfer Facility, received by the exchange agent and 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.
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;
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(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 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,
. 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
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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.
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:
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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.
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
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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 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.
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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.
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
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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.
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. A 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 March 31, 1999 on:
(1) an actual basis;
(2) an as adjusted basis, which adjusts the actual amounts to give effect
to the offering in May 1999 of 8,000,000 shares of our common stock at
a public offering price of $50.50 per share and the concurrent
offering of 9,200,000 shares of our 6 3/4% Series C cumulative
convertible preferred stock at a public offering price of $50.00 per
share, and the application of the net proceeds therefrom (excluding
amounts paid by the purchasers of the convertible preferred stock into
a deposit account therefor), as if they had occurred on March 31,
1999; and
(3) an as further adjusted basis, which further adjusts the as adjusted
amounts to give effect to our offering of the initial notes as if it
had occurred on March 31, 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 in this prospectus. Except as otherwise disclosed in this
prospectus, there has been no material change in the capitalization of PSINet
since March 31, 1999.
<TABLE>
<CAPTION>
March 31, 1999
---------------------------------------
As Further
Actual As Adjusted Adjusted
---------- ----------- -----------
(In thousands of dollars)
<S> <C> <C> <C>
Cash, cash equivalents, short-term investments and marketable
Securities .................................................... $ 265,961 $1,008,502 $2,177,376
========== ========== ==========
Restricted cash and short-term investments ..................... $ 132,898 $ 132,898 $ 132,898
========== ========== ==========
Current portion of long-term debt .............................. $ 166,184 $ 166,184 $ 166,184
---------- ---------- ----------
Long-term debt:
10% Senior Notes .............................................. 600,000 600,000 600,000
11 1/2% Senior Notes (plus unamortized premium of $2,875) ..... 352,875 352,875 352,875
Dollar notes .................................................. -- -- 1,050,000
Euro notes(1) ................................................. -- -- 152,955
Notes payable ................................................. 9,780 9,780 9,780
Capital lease obligations ..................................... 156,146 156,146 156,146
---------- ---------- ----------
Total long-term debt ........................................ 1,118,801 1,118,801 2,321,756
---------- ---------- ----------
</TABLE>
(1) Assuming an exchange rate of Euro 0.98 to $1.00, which was the exchange
rate on July 16, 1999, the date on which the initial notes offering was
priced.
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<PAGE>
<TABLE>
<CAPTION>
March 31, 1999
---------------------------------------------
As Further
Actual As Adjusted Adjusted
---------- ----------- -----------
<S> <C> <C> <C>
(In thousands of U.S. dollars)
Shareholders' equity (deficit):
Preferred stock, $.01 par value; 30,000,000 shares
authorized, actual; 20,800,000 shares authorized,
as adjusted and as further adjusted; no shares
issued and outstanding ...................................... -- -- --
Convertible preferred stock, Series C, $.01 par value; no
shares authorized or issued, actual; 9,200,000 shares
authorized and issued, as adjusted and as further
adjusted .................................................... -- 358,491 358,491
Common stock, $.01 par value; 250,000,000 shares
authorized; 56,322,112 shares outstanding, actual;
64,322,112 shares outstanding, as adjusted and as
further adjusted ............................................ 564 644 644
Capital in excess of par value ................................ 437,161 821,131 821,131
Accumulated deficit ........................................... (486,858) (486,858) (486,858)
Treasury stock, 99,556 shares, at cost ........................ (2,005) (2,005) (2,005)
Accumulated other comprehensive income ........................ 22,526 22,526 22,526
Bandwidth asset to be delivered under IXC agreement ........... (146,672) (146,672) (146,672)
---------- ---------- ----------
Total shareholders' equity (deficit) ........................ (175,284) 567,257 567,257
---------- ---------- ----------
Total capitalization ........................................ $1,109,701 $1,852,242 $3,055,197
========== ========== ==========
</TABLE>
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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 three months
ended March 31, 1998 and 1999, have been derived from our unaudited consolidated
financial statements. In 1998 and during the three months ended March 31, 1999,
we acquired a significant number of businesses, issued a significant amount of
debt and 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 three month period ended March 31, 1999 may not be
indicative of the results for the entire year ending December 31, 1999.
The March 31, 1999, as adjusted, balance sheet data gives effect to the
offering in May 1999 of 8,000,000 shares of our common stock at a public
offering price of $50.50 per share and the concurrent offering of 9,200,000
shares of our 6 3/4% Series C cumulative convertible preferred stock at a public
offering price of $50.00 per share, and the application of the net proceeds
therefrom (excluding amounts paid by the purchasers of the convertible preferred
stock into the deposit account therefor), as if these offerings had occurred on
March 31, 1999.
The March 31, 1999, as further adjusted, balance sheet data further adjusts
the as adjusted amounts to give effect to the offering of the initial notes and
the application of those net proceeds as if the offering had occurred on March
31, 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 in this prospectus.
<TABLE>
<CAPTION>
Three Months
Year Ended December 31, Ended March 31,
---------------------------------------------------------- ----------------------
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 $ 44,469 $104,846
Other income, net ........................... -- -- 5,417 -- -- -- --
------- -------- -------- -------- --------- -------- --------
15,214 38,722 89,768 121,902 259,636 44,469 104,846
Operating costs and expenses:
Data communications and operations ......... 9,489 32,124 70,102 94,363 199,372 36,666 76,018
Sales and marketing ........................ 3,599 23,930 27,064 25,831 57,026 10,732 18,572
General and administrative ................. 3,605 10,569 20,648 22,947 45,288 7,585 17,089
Depreciation and amortization .............. 3,183 14,778 28,035 28,347 63,424 9,465 26,818
Charge for acquired in-process research and
Development .............................. -- -- -- -- 70,800 7,000 --
Intangible asset write-down ................ -- 9,938 -- -- -- -- --
------- -------- -------- -------- --------- -------- --------
Total operating costs and expenses ......... 19,876 91,339 145,849 171,488 435,910 71,448 138,497
------- -------- -------- -------- --------- -------- --------
Loss from operations ........................ (4,662) (52,617) (56,081) (49,586) (176,274) (26,979) (33,651)
Interest expense ............................ (731) (1,964) (5,025) (5,362) (63,914) (2,579) (29,581)
Non-recurring arbitration charge ............ -- -- -- -- (49,000) -- --
------- -------- -------- -------- --------- -------- --------
Loss before income taxes .................... (5,342) (53,160) (55,256) (46,078) (262,717) (29,072) (58,687)
Income tax benefit .......................... -- -- (159) (476) (848) -- --
------- -------- -------- -------- --------- -------- --------
Net loss .................................... (5,342) (53,160) (55,097) (45,602) (261,869) (29,072) (58,687)
Return to preferred shareholders ............ -- -- -- (411) (3,079) (782) (574)
------- -------- -------- -------- --------- -------- --------
Net loss available to common shareholders ... $(5,342) $(53,160) $(55,097) $(46,013) $(264,948) $(29,854) $(59,261)
------- -------- -------- -------- --------- -------- --------
Basic and diluted loss per share ............ $(0.42) $(2.01) $(1.40) $(1.14) $(5.32) $(0.67) $(1.11)
======= ======== ======== ======== ========= ======== ========
Shares used in computing basic and diluted
loss per share (in thousands)................ 12,805 26,485 39,378 40,306 49,806 44,596 53,358
======= ======== ======== ======== ========= ======== ========
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Three Months
Year Ended December 31, Ended March 31,
--------------------------------------------------------- ----------------------
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) $(10,514) $ (6,833)
Capital expenditures .......................... 5,009 45,166 38,390 50,074 303,550 37,058 127,568
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) (29,854) (59,261)
Cash Flow Data:
Cash flows used in operating activities ....... $(1,097) $(30,093) $(32,543) $(15,568) $ (87,586) $ (9,970) $(77,264)
Cash flows used in investing activities ....... (1,937) (21,958) (7,897) (15,560) (783,877) (9,922) (36,881)
Cash flows provided by (used in) financing
activities ................................... 4,527 151,403 (10,529) 12,598 874,246 13,617 91,309
Operating Data:
Number of POPs ................................ 82 241 350 350 500 400 525
Number of business customer accounts .......... 4,220 8,200 17,800 26,400 54,700 33,300 59,700
<CAPTION>
December 31, March 31, 1999
----------------------------------------------------- -------------------------------------
As
As Further
1994 1995 1996 1997 1998 Actual Adjusted Adjusted
--------- --------- -------- -------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents, short-term
investments and Marketable securities..$ 3,358 $102,710 $ 56,390 $ 33,322 $ 322,508 $ 265,961 $1,008,502 $2,177,376
Restricted cash and short-term
investments .......................... -- -- 954 20,690 162,469 132,898 132,898 132,898
Total assets .......................... 17,055 201,830 177,112 186,181 1,284,231 1,371,213 2,113,754 3,316,709
Current portion of debt ............... 3,369 16,643 26,915 39,633 59,968 166,184 166,184 166,184
Long-term debt, less current portion.... 4,397 24,130 26,938 33,820 1,064,633 1,118,801 1,118,801 2,321,756
Total liabilities ..................... 11,721 58,600 87,329 112,752 1,404,405 1,546,497 1,546,497 2,749,452
Mandatorily redeemable preferred and
common stock ......................... 13,617 -- -- -- -- -- -- --
Shareholders' equity (deficit) ........ (8,283) 143,230 89,783 73,429 (120,174) (175,284) 567,257 567,257
</TABLE>
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<PAGE>
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 15.
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. Most recently, 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 $742.6 million (excluding, in the
calculation of net proceeds, amounts paid by the purchasers of the convertible
preferred stock into the deposit account therefor).
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 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.
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<PAGE>
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 32%
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.
Three Months Ended March 31, 1999 As Compared To The Three Months Ended March
31, 1998
Results of Operations
Revenue. We generate revenue primarily from the sale of Internet access
and related services to businesses. Revenue was $104.8 million for the three
months ended March 31, 1999, an increase of $60.3 million, or 136%, from $44.5
million for the three months ended March 31, 1998 and an increase of 12%
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<PAGE>
over the three months ended December 31, 1998. Revenue growth from the first
quarter of 1998 was a result of both acquisitions and internally generated
growth, as further described below. Revenue growth from the fourth quarter of
1998 was primarily internally generated, with acquisitions adding only a nominal
amount to the 12% increase. 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 the business
account retention rate.
Our business customer account base increased by 79% to 59,700 business
accounts at March 31, 1999 from 33,300 business accounts at March 31, 1998 and
54,700 accounts at the end of 1998. Of the total business account growth from
the first quarter of 1998, 42% was the result of internally generated growth and
58% was attributable to the companies we acquired. The total number of our
Carrier customers grew to 196 at March 31, 1999, and, together with our small
office/home office ("SOHO") and consumer customers, provide service to 898,000
customers. This compares with 61 Carrier customers and 339,000 customers at
March 31, 1998. Average annual new contract value for business accounts
increased to $6,200 for the three months ended March 31, 1999 from $5,500 for
the three months ended March 31, 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 increased to 81% for
the three months ended March 31, 1999, compared with 80% for the three months
ended March 31, 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 $76.0 million (72.5% of revenue) for the first three
months of 1999, an increase of $39.3 million from $36.7 million (82.5% of
revenue) for the three months ended March 31, 1998. 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 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 16,000 at March 31, 1999
from 8,300 at March 31, 1998, an increase of 93%. Comparing the quarters,
backbone circuit costs increased $12.1 million, or 139%, dedicated customer
circuit costs increased $5.3 million, or 62%, PRI expense increased $5.4
million, or 96%, and personnel and related operating expenses associated with
network operations, customer support and field service increased $8.5 million,
or 101%. Circuit costs relating to our new and expanded POPs and PRIs generally
are incurred by us in advance of obtaining 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 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 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 $18.6 million (17.7% of revenue) for
the three months ended March 31, 1999, an increase of $7.9 million from $10.7
million (24.1% of revenue) for the three months ended March 31, 1998. The
increase is principally
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attributable to costs associated with the growth of our sales force in
conjunction with our growth and acquisitions. In conjunction with the Company's
naming rights and sponsorship agreements for PSINet Stadium with the Baltimore
Ravens of the National Football League, annual expenses under the arrangement
are expected to be approximately $4.7 million.
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 $17.1 million (16.3% of revenue) for
the three months ended March 31, 1999, an increase of $9.5 million from $7.6
million (17.1% of revenue) for the three months ended March 31, 1998. 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
$26.8 million (25.6% of revenue) for the three months ended March 31, 1999, an
increase of $17.3 million from $9.5 million (21.3% of revenue) for the three
months ended March 31, 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 three
months ended March 31, 1999 do not include any charges for acquired in-process
research and development. The results for the three months ended March 31, 1998
include a $7.0 million charge (15.7% of revenue) for acquired in-process
research and development related to an acquisition.
Interest Expense. Interest expense was $29.6 million (28.2% of revenue)
for the three months ended March 31, 1999, an increase of $27.0 million from
$2.6 million (5.8% of revenue) for the three months ended March 31, 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.
Interest Income. Interest income was $4.7 million (4.5% of revenue) for
the three months ended March 31, 1999, an increase of $4.2 million from $0.5
million (1.3% of revenue) for the three months ended March 31, 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 March 31, 1999
was $59.3 million, or $1.11 basic and diluted loss per share, a $29.4 million,
or 98%, increase from a net loss available to common shareholders for the three
months ended March 31, 1998 of $29.9 million, or $0.67 basic and diluted loss
per share. 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,
. the first portions of our acquired IRUs were installed, leading to an
increase in depreciation and personnel costs to manage the IRUs,
. increase in depreciation and amortization related to acquisitions,
offset by the absence of a charge for acquired in-process research and
development, and
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<PAGE>
. operating losses of acquired companies.
The return to preferred shareholders, which comprises the dividends with
respect to our previously outstanding 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, 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.
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.
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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.
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
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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,
(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.
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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
. 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.
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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.
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 March 31,
1999, we served primary markets in 13 of the 20 largest telecommunications
markets, with operations then organized into four geographic operating segments-
- -the U.S., Canada, Europe and Asia. 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 quarter of 1998 to the first quarter of
1999. Between 1996 and 1997, our revenue growth by segment was largely organic,
with the United States growing by 33%, Canada by 823%, 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 months ended March 31,
1999 compared to the three months ended March 31, 1998 was as follows:
Revenue
Growth
------
United States............................. 59%
Canada.................................... 70%
Europe.................................... 165%
Asia...................................... 1,773%
All Segments.............................. 136%
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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>
United States ........................................ 45% 5% 50% 60% 85%
Canada ............................................... 140% 725% 865% 11% 2%
Europe ............................................... 144% 123% 267% 15% 9%
Asia ................................................. 105% 657% 762% 14% 4%
---- ----
All Segments ......................................... 58% 55% 113% 100% 100%
==== ====
</TABLE>
EBITDA losses as a percentage of revenue improved in all segments from the
three months ended March 31, 1998 to the three months ended March 31, 1999,
reflecting the overall development cycle of our businesses in these areas.
Improvement in EBITDA profits (losses) as a percentage of revenue for the U.S.
segment was (19.6%) to (16.3%), for the Canadian segment was (62.9%) to 2.4%,
for the European segment was (19.5%) to (12.0%), and for the Asian segment was
4.1% to 10.4%. 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 concentration of
efforts on controlling operating costs, and second, almost every company we
acquired in 1998 and in the three months ended March 31, 1999 operated at EBITDA
breakeven or better, contributing to these improvements.
EBITDA losses as a percentage of revenue improved in all segments except
the U.S. from 1997 to 1998, reflecting the overall development cycle of our
businesses in these areas. In the U.S., our EBITDA loss as a percentage of
revenue increased from (13%) to (17%), 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 Canadian segment was
(144%) to (28%), 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 the U.S., it improved from (26%) to (13%), in Canada from (1,032%)
to (144%), in Europe from (55%) to (33%), and in Asia from (108%) to (12%). The
improvement in the U.S. 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
the U.S. due to the disposition of our software operations. Our operating
improvements outside of the U.S. 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 for the quarters 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.
With the exception of Asia, where the charges incurred for goodwill and other
intangible amortization have the most significant impact, our loss from
operations as a percentage of revenue improved across all geographic segments.
In the U.S., our loss from operations as a percentage of revenue was reduced
from (42.9%) in the first quarter of 1998 to (41.4%) in the first quarter of
1999. In Canada, it was reduced from (228.2%) to (38.9%) and in Europe from
(30.2%) to (29.9%) for those same quarters, respectively. The loss from
operations as a percentage of revenue increased in Asia from 0.2% to (16.6%).
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
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increased depreciation and amortization expenses in each geographic segment,
which increased our loss from operations. In the U.S., our loss from operations
as a percentage of revenue went from (60%) in 1996 to (37%) in 1997 to (47%) in
1998. In Canada, it went from (1,138%) to (176%) to (104%), in Europe 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 nine quarters ended
March 31, 1999. In the opinion of management, the 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
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(In millions of dollars, except per share amounts)
Revenue .......................... $ 25.6 $ 29.5 $ 32.0 $ 34.8 $ 44.5 $ 53.7 $ 67.6 $ 93.9 $ 104.8
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
Sales and marketing .............. 6.0 5.9 6.2 7.8 10.7 12.5 14.7 19.1 18.6
General and administrative ....... 5.4 6.1 5.3 6.0 7.6 10.3 11.6 15.8 17.1
Depreciation and amortization .... 8.0 6.1 6.6 7.7 9.5 12.9 14.7 26.4 26.8
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
------- ------- ------- ------- ------- ------- ------- ------- -------
Loss from operations ............. (14.8) (10.7) (9.9) (14.2) (27.0) (43.9) (38.7) (66.7) (33.7)
Interest expense ................. (1.4) (1.3) (1.5) (1.2) (2.6) (16.9) (18.7) (25.7) (29.6)
Interest income .................. 0.8 0.7 0.5 1.1 0.5 6.0 4.8 8.2 4.7
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)
Income tax benefit ............... (0.4) -- -- -- -- -- -- (0.9) --
------- ------- ------- ------- ------- ------- ------- ------- -------
Net loss ......................... (9.3) (11.3) (10.7) (14.3) (29.1) (53.6) (47.3) (131.8) (58.7)
Return to preferred
shareholders .................... -- -- -- (0.4) (0.8) (0.8) (0.8) (0.8) (0.6)
------- ------- ------- ------- ------- ------- ------- ------- -------
Net loss available to common
shareholders .................... $ (9.3) $ (11.3) $ (10.7) $ (14.7) $ (29.9) $ (54.4) $ (48.1) $(132.6) $ (59.3)
======= ======= ======= ======= ======= ======= ======= ======= =======
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)
======= ======= ======= ======= ======= ======= ======= ======= =======
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
======= ======= ======= ======= ======= ======= ======= ======= =======
</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
------- ------- ------- ------- ------- ------- ------- -------- -------
<S> <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%
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
Sales and marketing ................ 23.4 19.9 19.4 22.3 24.1 23.2 21.8 20.3 17.7
General and administrative ......... 21.4 20.8 16.7 17.2 17.1 19.2 17.1 16.9 16.3
Depreciation and amortization ...... 31.3 20.5 20.5 22.1 21.3 24.0 21.7 28.1 25.6
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
------ ------ ------ ------ ------ ------ ------ ------- ------
Loss from operations ............... (57.9) (36.1) (30.9) (40.8) (60.7) (81.7) (57.3) (71.0) (32.1)
Interest expense ................... (5.2) (4.4) (4.7) (3.4) (5.8) (31.4) (27.7) (27.4) (28.2)
Interest income .................... 3.0 2.3 1.7 3.1 1.3 11.3 7.0 8.8 4.5
Other income, net .................. 22.1 (0.1) 0.6 (0.1) (0.2) 2.0 7.9 0.5 (0.1)
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)
Income tax benefit ................. (1.8) -- -- -- -- -- -- (0.9) --
------ ------ ------ ------ ------ ------ ------ ------- ------
Net loss ........................... (36.2)% (38.3)% (33.3)% (41.2)% (65.4)% (99.8)% (70.1)% (140.4)% (56.0)%
====== ====== ====== ====== ====== ====== ====== ======= ======
</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.
Cash Flows for the Three Months Ended March 31, 1999 and 1998
Cash flows used in operating activities were $77.3 million and $10.0
million for the three months ended March 31, 1999 and 1998, respectively. Cash
flows from operating activities can vary significantly from period to period
depending upon the timing of operating cash receipts and payments and other
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working capital changes, especially accounts receivable, prepaid expenses and
other assets, and accounts payable and accrued liabilities. In both of these
three 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 and, in the
three months ended March 31, 1998, our charge for acquired in-process research
and development.
Cash flows used in investing activities were $36.9 million and $9.9 million
for the three months ended March 31, 1999 and 1998, respectively. Acquisition
activities resulted in the use of $35.1 million of cash for the three months
ended March 31, 1999, net of cash acquired. Investments in our network and
facilities during the first three months of 1999 resulted in total additions to
fixed assets of $127.6 million, excluding assets acquired from business
acquisition. Of this amount, $60.0 million was financed under vendor or other
financing arrangements, $11.9 million of non-cash additions related to the
bandwidth acquired from IXC Internet Services, Inc., and $55.7 million was
expended in cash. For the three months ended March 31, 1998, total additions
were $37.1 million, of which $30.9 million was financed under equipment
financing agreements and $6.2 million was expended in cash. Purchases of short-
term investments during the first three months of 1999 were an aggregate of
$129.3 million, offset by proceeds from the sale and maturity of short-term
investments of $153.9 million. Investing cash flows in the first three months of
1999 and 1998 were increased by $29.6 million and $14.3 million, respectively,
from decreases in restricted cash and short-term investments related to various
financing and acquisition activities.
Cash flows provided by financing activities were $91.3 million and $13.6
million for the three months ended March 31, 1999 and 1998, respectively. In the
first three months of 1999, we received $101.3 million from borrowings on our
credit facility and from the issuance of notes payable. In the first three
months of 1998, we received net proceeds from the issuance of notes payable of
$25.0 million. We made repayments aggregating $15.6 million and $11.2 million
for the three months ended March 31, 1999 and 1998, respectively, on our lines
of credit, capital lease obligations and notes payable. As of March 31, 1999, we
had $398.9 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.
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
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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 March 31, 1999, after giving pro forma effect to
our equity offerings in May 1999, consisted of a revolving credit facility,
other lines of credit, capital lease obligations, 10% senior notes, 11 1/2%
senior notes, 6 3/4% Series C cumulative convertible preferred stock and common
stock.
Total borrowings at March 31, 1999 were $1.28 billion, which included
$166.2 million in current obligations and $1.12 billion in long-term 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, of
which $100.0 million was outstanding, $5.2 million was utilized for letters of
credit and $4.8 million was available to draw at March 31, 1999. In April 1999,
we repaid, out of available cash, the $100.0 million that we had borrowed under
the credit facility, thereby restoring the availability of the credit facility
for future borrowings to a maximum principal amount of $110.0 million. In
addition, as of March 31, 1999, $31.8 million was available for purchases of
equipment and other fixed assets under various other financing arrangements,
after designating $22.0 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
. EBITDA (as defined therein), to be less than negative $40.0 million,
negative $31.0 million, negative $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 March 31, 1999, June 30,
1999, September 30, 1999, December 31, 1999, March 31, 2000, June 30,
2000, September 30, 2000 and December 31, 2000, respectively.
At March 31, 1999 and December 31, 1998, we were in compliance with all
such covenants.
At March 31, 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 $93.8 million to
fund, when due, the next three semi-annual interest payments on our 10% senior
notes.
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The indentures governing the 10% senior notes and the 11 1/2% 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 and the 11 1/2% 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 and
the 11 1/2% 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 March 31, 1999 and December 31, 1998, we were in compliance with all
such covenants.
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 $384.1
million, after 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 $358.5 million after 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,
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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 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 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.
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 March 31, 1999, we had commitments to certain telecommunications
vendors totaling $153.1 million payable in various years through 2011.
Additionally, we have various agreements to lease office space and facilities
and, as of March 31, 1999, were obligated to make future minimum lease payments
of $37.9 million on non-cancellable operating leases expiring in various years
through 2009.
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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 acquisition hold-back liabilities are
generally payable up to 24 months after the date of closing of the respective
acquisitions. Acquisition hold-back liabilities totaled $38.6 million at March
31, 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.
In connection with a non-recurring arbitration charge, we recorded an
accrual of $49.0 million in 1998 for the award and related costs, of which $48.3
million was paid in April 1999 from available cash.
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 of bandwidth. At March 31, 1999, we
were obligated to make future payments under these purchase agreements that
total $99.5 million.
We expect to continue to seek opportunities to acquire fiber-based
telecommunications bandwidth to enhance our global network capabilities. In
addition to the U.S. and Canada, we anticipate that such bandwidth acquisitions
will be in 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 may be consistent with those in 1998. However, we
anticipate that, as a result of our completion of the offering of the initial
notes and recent equity offerings, we may decide to 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 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 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
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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, 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.
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
anticipate that our U.S. internal systems will be Y2K ready by September 30,
1999. We are in the process of completing an inventory of our internal systems
that we use in Canada, Latin America, Europe and Asia 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
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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 planned to be made Y2K compliant through minor
changes to the software or hardware or, in limited instances, replacement of the
equipment. We anticipate that our network will be Y2K compliant by September 30,
1999. In addition to administering the implementation of necessary upgrades for
Y2K compliance, our network team is developing a contingency plan to address any
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 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, it may have on us.
If a significant number 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,
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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 can
not assure 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 have not yet completed a contingency plan to handle a worst case
scenario. We expect to have such contingency plan in place by September 30,
1999.
Quantitative and Qualitative Disclosures about Market Risk
At March 31, 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. Borrowings under our credit facility
at March 31, 1999 of $100.0 million have a variable interest rate and such
amounts were repaid in April 1999. Annual maturities of our debt obligations,
excluding capital lease obligations and our credit facility, are as follows:
$10.5 million in 1999, $7.3 million in 2000, $7.1 million in 2001, $5.0 million
in 2002, $3.4 million in 2003 and $967.8 million thereafter. At March 31, 1999,
the carrying value of our debt obligations excluding capital lease obligations
was $1,116.7 million and the fair value was $1,184.3 million. The weighted-
average interest rate of our debt obligations at March 31, 1999 was 10.5%. Our
investments are generally fixed rate short-term investment grade and government
securities denominated in U.S. dollars. At March 31, 1999, all of our
investments are due to mature within twelve months and the carrying value of
such investments approximates fair value. At March 31, 1999, $132.9 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.
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 five geographic operating segments--the U.S., Canada, 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 535 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 March 31, 1999, consisted of
approximately 550 individuals worldwide, more than half of whom are
employed outside of the U.S. As of March 31, 1999, our reseller and
referral program consisted of approximately 1,000 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 the U.S., Canada, 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 the U.S., Canada, 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 recently announced our offering of 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 expect to commence offering our
DSL services in California during the third quarter of 1999 with
expansion to other major metropolitan areas expected to occur later in
1999. Our DSL services will be 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 the U.S., Canada, 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-
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capacity network, 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 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 Vegas IRU
--Los Angeles--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 1999) IRU
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 2000) IRU/Capital 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 the U.S., Canada, 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 believe will
enhance revenue growth in our Carrier and ISP Services business unit. As of June
30, 1999,
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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 March 31,
1999, consisted of approximately 550 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 March 31, 1999
approximately 1,000 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 the potentially greater
sales and marketing resources of the resellers and referral sources to offer
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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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<TABLE>
<S> <C>
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
</TABLE>
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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 March 31, 1999, our technical support
group consisted of over 570 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
Date of Business Consumer Telecom
Name of Acquired 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.
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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.
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
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CLECs, the states also impose regulatory obligations upon 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 March 31, 1999, we had approximately 1,921 full-time employees: 853
in the United States and 1,068 outside of the United States, including
approximately 898 in data communications and operational positions, 642 in sales
and marketing, and 381 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 an office
park 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 15,000 square feet of office space in a second office
park located in Herndon, Virginia,
. 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 June 30, 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) .................... 64 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
our Senior Vice President since September 1996, as a director of PSINet and our
Secretary since September 1995, as our Vice President since July 1995 and as our
General Counsel since June 1995. Mr. Kunkel also served as our Vice President of
International Operations from April 1996 to September 1996 and as 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.
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Edward D. Postal has served as our Senior Vice President and Chief
Financial Officer since August 1997 and served as our Vice President and Chief
Financial Officer since October 1996. Prior to joining us, Mr. Postal 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
Watson Wyatt Worldwide), 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. Prior to joining us, Mr. Davis served as
Vice President of Customer Technical Support for Lucent Technologies (formerly
the network services division of AT&T), from January 1995 to April 1998. Prior
thereto, Mr. Davis served in various technical and management positions with
AT&T 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. Prior to joining us, 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. Prior thereto, 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. Prior thereto, 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. Prior
thereto, 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. Prior to joining us, 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. Prior thereto, 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. Prior to joining us, Mr. Malesardi served as Director of Financial
Administration of Watson Wyatt Worldwide, an international employee benefits and
human resources consulting firm ("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
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December 1989 to December 1990, respectively. Mr. Baumer's term of office as a
director of PSINet expires in 2000.
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 retired, is a director 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. Prior thereto, 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 entered into a transaction 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. 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 did not elect to
include any of the IXC Shares in this offering pursuant to its registration
rights but may request registration of all or any of the IXC Shares in the
future. 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.
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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 June 30, 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......................................... 436,715(5) *
David N. Kunkel......................................... 387,160(6) *
Edward D. Postal........................................ 199,128(7) *
Harry G. Hobbs.......................................... 97,709(9) *
William H. Baumer....................................... 94,488(8) *
Ralph J. Swett.......................................... 13,750(10) *
Ian P. Sharp............................................ 10,000(11) *
Executive officers and directors as a group (12 persons) 7,034,707(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 James F. Guthrie, 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, Benjamin
L. Scott, 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 1,500,000 shares 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 June 2002 or sooner upon the
occurrence of certain specified events, pursuant to which MLI made a
payment to IXC of $51,963,068.36. In its Schedule 13D Amendment No. 1, IXC
stated, among other things, that it has waived the right to vote any of the
loaned shares during the term of this transaction.
(3) Includes 5,557,457 shares which are pledged with NationsBank in respect of
two lines of credit providing Mr. Schrader with up to $18.3 million on an
aggregate basis, of which approximately $13.7 million (including principal
and interest) was outstanding as of June 30, 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
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
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dispositive power over any shares. T. Rowe Price and Associates, Inc.'s
address is 100 East Pratt Street, Baltimore, Maryland 21202.
(5) Includes 430,624 shares issuable upon the exercise of vested options and
options which are deemed to be presently exercisable. Does not include
424,376 shares issuable upon the exercise of options which are not deemed
to be presently exercisable.
(6) Includes 384,631 shares issuable upon the exercise of vested options and
options which are deemed to be presently exercisable. Does not include
261,562 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 184,328 shares issuable upon the exercise of vested options and
options which are deemed to be presently exercisable. Does not include
290,672 shares issuable upon the exercise of options which are not deemed
to be presently exercisable.
(8) 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.
(9) Consists solely of shares issuable upon the exercise of vested options and
options which are deemed to be presently exercisable. Does not include
approximately 232,291 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
85,012 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 374,488 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
. l 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:
Year Euro Notes Dollar Notes
---- ---------- ------------
2004 ........................ 105.500% 105.500%
2005 ........................ 103.667% 103.667%
2006 ........................ 101.833% 101.833%
2007 and thereafter ......... 100.000% 100.000%
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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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 [_]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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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 March 31, 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 $332.1 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 $85.4 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
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(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 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 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 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 the 40th
day after the later 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 40 days after the later of the
commencement of the initial notes
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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 accordance with
their respective customary procedures and based upon directions received from
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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.
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We may not have sufficient funds or the financial resources necessary to satisfy
our obligations to 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 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 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 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;
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(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 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
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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.
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
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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.
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 report on Form 10-Q for the three month period ended
March 31, 1999
2. Our current reports on Form 8-K dated:
. April 27, 1999
. May 7, 1999
. July 14, 1999
. July 21, 1999
. July 31, 1997 (solely insofar as it relates to our Shareholder Rights
Agreement dated May 8, 1996, as amended)
. August 20, 1997
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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 __________________.
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. as of December 31,
1998 and 1997, and for each of the three years in the period ended December 31,
1998 included in this prospectus, have been so included in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
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.
-155-
<PAGE>
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.
-156-
<PAGE>
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.
G-1
<PAGE>
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
G-2
<PAGE>
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 line 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.
G-3
<PAGE>
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").
G-4
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PSINet Inc.
Report of Independent Accountants........................................ F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998 (audited)
and March 31, 1999 (unaudited).......................................... F-3
Consolidated Statements of Operations for the years ended December 31,
1996, 1997 and 1998 (audited) and the three months ended March 31, 1998
and 1999 (unaudited).................................................... F-4
Consolidated Statements of Changes in Shareholders' Equity (Deficit) for
the years ended December 31, 1996, 1997 and 1998 (audited) and the three
months ended March 31, 1998 and 1999 (unaudited)........................ F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1997 and 1998 (audited) and the three months ended March 31, 1998
and 1999 (unaudited).................................................... F-7
Notes to Consolidated Financial Statements............................... F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of PSINet Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of changes in shareholders' equity
(deficit) and of cash flows present fairly, in all material respects, the
financial position of PSINet Inc. and its subsidiaries at December 31, 1998 and
1997, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Washington, D.C.
March 9, 1999, except as to Note 11, which is as of March 25, 1999
F-2
<PAGE>
PSINET INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
---------------------------------- March 31,
1997 1998 1999
--------------- ----------------- ---------------------
(In thousands of U.S. dollars, except share data)
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents........... $ 33,322 $ 56,842 $ 25,131
Restricted cash and
short-term
investments........... 20,690 162,469 132,898
Short-term investments
and marketable
securities............ -- 265,666 240,830
Accounts receivable,
net of allowances of
$2,101, $11,700 and
$12,272 (unaudited)... 11,022 50,211 54,687
Prepaid expenses....... 1,478 10,998 23,657
Other current assets... 12,386 19,077 18,042
--------------- ----------------- -----------------
Total current assets.. 78,898 565,263 495,245
Property, plant and
equipment, net......... 95,619 389,476 503,522
Goodwill and other
intangibles, net of
accumulated
amortization of $2,057,
$14,491 and $19,586
(unaudited)............ 4,675 282,781 319,960
Other assets and
deferred charges....... 6,989 46,711 52,486
--------------- ----------------- -----------------
Total assets.......... $ 186,181 $ 1,284,231 $ 1,371,213
=============== ================= =================
LIABILITIES AND
SHAREHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Current portion of
debt................. $ 39,633 $ 59,968 $ 166,184
Trade accounts
payable.............. 25,031 89,973 64,178
Accrued payroll and
related expenses..... 4,636 8,501 15,815
Other accounts payable
and accrued
liabilities.......... 2,229 82,760 88,204
Accrued interest
payable.............. 153 28,988 23,804
Deferred revenue...... 5,944 19,427 20,521
--------------- ----------------- -----------------
Total current
liabilities.......... 77,626 289,617 378,706
Long-term debt.......... 33,820 1,064,633 1,118,801
Deferred income tax
liabilities............ -- 6,123 6,123
Other liabilities....... 1,306 44,032 42,867
--------------- ----------------- -----------------
Total liabilities....... 112,752 1,404,405 1,546,497
--------------- ----------------- -----------------
Commitments and
contingencies (Notes 2
and 10)
Shareholders' equity
(deficit):
Preferred stock, $.01
par value; 29,324,858
shares authorized; no
shares issued and
outstanding........... -- -- --
Convertible preferred
stock, $.01 par value;
$50.00 stated value;
675,142 shares
authorized; 600,000,
600,000 and 0
(unaudited) shares
issued and
outstanding........... 28,135 28,802 --
Common stock, $.01 par
value and 100,000,000,
250,000,000 and
250,000,000 shares
authorized;
40,577,342, 52,183,195
and 56,421,668
(unaudited) shares
issued................ 406 522 564
Capital in excess of
par value............. 210,162 401,990 437,161
Accumulated deficit.... (162,649) (427,597) (486,858)
Treasury stock, 99,556
shares, at cost....... (2,005) (2,005) (2,005)
Accumulated other
comprehensive income
(loss)................ (620) 36,664 22,526
Bandwidth asset to be
delivered under IXC
agreement............. -- (158,550) (146,672)
--------------- ----------------- -----------------
Total shareholders'
equity (deficit)... 73,429 (120,174) (175,284)
--------------- ----------------- -----------------
Total liabilities and
shareholders' equity
(deficit)............ $ 186,181 $ 1,284,231 $ 1,371,213
=============== ================= =================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
PSINET INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months
Year Ended December 31, ended March 31,
----------------------------- -----------------------
1996 1997 1998 1998 1999
-------- -------- --------- ----------- -----------
(In thousands of U.S. dollars, except per share
amounts)
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Revenue................. $ 84,351 $121,902 $ 259,636 $ 44,469 $104,846
Other income, net....... 5,417 -- -- -- --
-------- -------- --------- -------- --------
89,768 121,902 259,636 44,469 104,846
Operating costs and
expenses:
Data communications and
operations............ 70,102 94,363 199,372 36,666 76,018
Sales and marketing.... 27,064 25,831 57,026 10,732 18,572
General and
administrative........ 20,648 22,947 45,288 7,585 17,089
Depreciation and
amortization.......... 28,035 28,347 63,424 9,465 26,818
Charge for acquired in-
process research and
development........... -- -- 70,800 7,000 --
-------- -------- --------- -------- --------
Total operating costs
and expenses......... 145,849 171,488 435,910 71,448 138,497
-------- -------- --------- -------- --------
Loss from operations.... (56,081) (49,586) (176,274) (26,979) (33,651)
Interest expense........ (5,025) (5,362) (63,914) (2,579) (29,581)
Interest income......... 3,794 3,059 19,638 585 4,720
Other income (expense),
net.................... 2,056 5,811 6,833 (99) (175)
Non-recurring
arbitration charge..... -- -- (49,000) -- --
-------- -------- --------- -------- --------
Loss before income
taxes.................. (55,256) (46,078) (262,717) (29,072) (58,687)
Income tax benefit...... 159 476 848 -- --
-------- -------- --------- -------- --------
Net loss................ (55,097) (45,602) (261,869) (29,072) (58,687)
Return to preferred
shareholders........... -- (411) (3,079) (782) (574)
-------- -------- --------- -------- --------
Net loss available to
common shareholders.... $(55,097) $(46,013) $(264,948) $(29,854) $(59,261)
======== ======== ========= ======== ========
Basic and diluted loss
per share.............. $ (1.40) $ (1.14) $ (5.32) $ (0.67) $ (1.11)
======== ======== ========= ======== ========
Shares used in computing
basic and diluted loss
per share (in
thousands)............. 39,378 40,306 49,806 44,596 53,358
======== ======== ========= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
PSINET INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
For the Three Years Ended December 31, 1998 and
For The Three Months Ended March 31, 1999 (Unaudited)
(In thousands of U.S. dollars, except share data)
<TABLE>
<CAPTION>
Bandwidth
Preferred Stock Common Stock Accumulated Asset To Be Total
------------------ ------------------ Capital in Other Delivered Shareholders
Outstanding Outstanding Par Excess of Accumulated Treasury Comprehensive Under IXC Equity
Shares Amount Shares Value Par Value Deficit Stock Income (Loss) Agreement (Deficit)
----------- ------ ----------- ----- ---------- ----------- -------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December
31, 1995........ -- $ -- 37,914,932 $379 $206,035 $(61,539) $(2,054) $ 409 $ -- $143,230
Comprehensive
income:
Net loss......... (55,097)
Unrealized
holding gains
(losses)........ (813)
Foreign currency
translation
adjustment...... 426
Total
comprehensive
income (loss).. (55,484)
Retirement of
treasury stock.. (49) 49 --
Issuance of
common stock
pursuant to
exercise of
stock warrants.. 1,362,604 14 (14) --
Issuance of
common stock
pursuant to
exercise of
stock options... 803,330 9 1,806 1,815
Issuance of
common stock in
escrow for
acquisition of
World Online.... 32,368 --
Repayments under
employee stock
option loan
program......... 232 232
Interest under
employee stock
option loan
program......... (10) (10)
------- ------ ---------- ---- -------- -------- ------- ------ -------- --------
Balance, December
31, 1996........ -- -- 40,113,234 402 208,000 (116,636) (2,005) 22 -- 89,783
Comprehensive
income:
Net loss......... (45,602)
Foreign currency
translation
adjustment...... (642)
Total
comprehensive
income (loss)... (46,244)
Issuance of
common stock
pursuant to
exercise of
stock warrants.. 164,185 2 3 5
Issuance of
common stock
pursuant to
exercise of
stock options... 283,251 3 659 662
Issuance of
Series B
convertible
preferred stock,
net of
expenses........ 600,000 28,064 1,500 29,564
Return to
preferred
shareholders.... 71 (411) (340)
Cancellation of
common stock for
acquisition of
World Online.... (82,884) (1) (1)
------- ------ ---------- ---- -------- -------- ------- ------ -------- --------
Balance, December
31, 1997........ 600,000 28,135 40,477,786 406 210,162 (162,649) (2,005) (620) -- 73,429
Comprehensive
income:
Net loss......... (261,869)
Unrealized
holding gains
(losses)........ 152
Foreign currency
translation
adjustment...... 37,132
Total
comprehensive
income (loss)... (224,585)
Issuance of
common stock
pursuant to
exercise of
stock warrants.. 174,274 2 277 279
Issuance of
common stock
pursuant to
exercise of
stock options... 1,201,790 12 5,679 5,691
Issuance of
common stock and
contingent
obligation to
IXC............. 10,229,789 102 185,872 (185,974) --
Acceptance of IXC
bandwidth....... 27,424 27,424
Return to
preferred
shareholders.... 667 (3,079) (2,412)
------- ------ ---------- ---- -------- -------- ------- ------ -------- --------
Balance, December
31, 1998........ 600,000 28,802 52,083,639 522 401,990 (427,597) (2,005) 36,664 (158,550) (120,174)
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
Bandwidth
Preferred Stock Common Stock Accumulated Asset To Be
------------------- ----------------- Capital in Other Delivered
Outstanding Outstanding Par Excess of Accumulated Treasury Comprehensive Under IXC
Shares Amount Shares Value Par Value Deficit Stock Income (Loss) Agreement
----------- ------- ----------- ----- ---------- ----------- --------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Comprehensive
income:
Net loss
(Unaudited).... (58,687)
Unrealized
holding gains
(losses)
(Unaudited).... (148)
Foreign currency
translation
adjustment
(Unaudited).... (13,990)
Total
comprehensive
income (loss)
(Unaudited)....
Issuance of
common stock
pursuant to
exercise of
stock options
(Unaudited).... 1,238,473 12 6,276
Conversion of
convertible
preferred stock
(Unaudited).... (600,000) (28,925) 3,000,000 30 28,895
Acceptance of
IXC bandwidth
(Unaudited).... 11,878
Return to
preferred
shareholders
(Unaudited).... 123 (574)
-------- ------- ---------- ---- -------- ----------- --------- ------- -----------
Balance, March
31, 1999
(Unaudited).... -- $ -- 56,322,112 $564 $437,161 $ (486,858) $ (2,005) $22,526 $ (146,672)
======== ======= ========== ==== ======== =========== ========= ======= ===========
<CAPTION>
Total
Shareholders
Equity
(Deficit)
-------------
<S> <C>
Comprehensive
income:
Net loss
(Unaudited)....
Unrealized
holding gains
(losses)
(Unaudited)....
Foreign currency
translation
adjustment
(Unaudited)....
Total
comprehensive
income (loss)
(Unaudited).... (72,825)
Issuance of
common stock
pursuant to
exercise of
stock options
(Unaudited).... 6,288
Conversion of
convertible
preferred stock
(Unaudited)....
Acceptance of
IXC bandwidth
(Unaudited).... 11,878
Return to
preferred
shareholders
(Unaudited).... (451)
-------------
Balance, March
31, 1999
(Unaudited).... $ (175,284)
=============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
PSINET INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months
Year Ended December 31, Ended March 31,
----------------------------- -----------------------
1996 1997 1998 1998 1999
-------- -------- --------- ----------- -----------
(In thousands of U.S. dollars)
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss.............. $(55,097) $(45,602) $(261,869) $(29,072) $(58,687)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation and
amortization........ 28,035 28,347 63,424 9,465 26,818
Gain (loss) on sale
of investments and
subsidiary.......... (2,056) (5,721) (5,023) -- 162
Charge for acquired
in-process research
and development..... -- -- 70,800 7,000 --
Amortization of debt
offering costs and
debt premium........ -- -- 2,339 -- 955
(Gain) loss on sale
of other assets..... (5,417) -- (1,810) 12 68
Provision for
allowances.......... 3,130 5,426 5,505 3,369 864
(Increase) decrease
in accounts
receivable.......... (14,320) 430 (27,583) (5,285) (2,786)
Decrease (increase)
in notes
receivable.......... (56) (5,656) 4,835 (397) 3
(Increase) decrease
in prepaid expenses
and other assets.... 311 312 (16,880) 155 (16,454)
(Increase) decrease
in other assets and
deferred charges.... (509) (258) (3,017) (385) 10
Increase (decrease)
in accounts payable
and accrued
liabilities......... 11,545 6,449 78,766 4,565 (28,680)
Increase (decrease)
in deferred
revenue............. 2,367 635 9,419 619 (584)
Decrease in deferred
income taxes........ (159) (476) (848) -- --
(Decrease) increase
in other
liabilities......... (317) 546 (5,644) (16) 1,047
-------- -------- --------- -------- --------
Net cash used in
operating
activities......... (32,543) (15,568) (87,586) (9,970) (77,264)
-------- -------- --------- -------- --------
Cash flows from
investing activities:
Purchases of property
and equipment....... (12,814) (12,613) (118,006) (6,196) (55,666)
Purchases of
investments......... (17,167) (3,000) (511,738) (2,205) (129,254)
Proceeds from
maturity or sale of
investments......... 15,769 7,649 251,207 -- 153,928
Proceeds from sale of
assets to
MindSpring.......... 8,451 691 2,077 -- --
Proceeds from sale of
InterCon, net....... -- 20,353 -- -- --
Investments in
certain businesses,
net of cash
acquired............ (69) (8,551) (267,979) (15,971) (35,121)
Restricted cash and
short-term
investments......... (954) (19,736) (140,989) 14,255 29,571
Other, net........... (1,113) (353) 1,551 195 (339)
-------- -------- --------- -------- --------
Net cash used in
investing
activities......... (7,897) (15,560) (783,877) (9,922) (36,881)
-------- -------- --------- -------- --------
Cash flows from
financing activities:
Proceeds from issuance
of debt, net......... 8,281 10,110 1,091,992 25,000 101,258
Costs of debt
issuance............. -- -- (31,417) -- --
Repayments of debt.... (5,666) (5,670) (150,977) (3,540) (3,365)
Principal payments
under capital lease
obligations.......... (15,117) (22,071) (38,571) (7,623) (12,271)
Proceeds from issuance
of Series B preferred
stock................ -- 29,564 -- -- --
Payments of dividends
on preferred stock... -- -- (2,740) (940) (452)
Proceeds from exercise
of common stock
warrants............. -- 5 279 -- --
Proceeds from exercise
of common stock
options.............. 1,815 662 5,691 720 6,288
Other, net............ 158 (2) (11) -- (149)
-------- -------- --------- -------- --------
Net cash provided by
(used in) financing
activities......... (10,529) 12,598 874,246 13,617 91,309
-------- -------- --------- -------- --------
Effect of exchange rate
changes on cash....... -- 111 20,737 96 (8,875)
-------- -------- --------- -------- --------
Net increase (decrease)
in cash and cash
equivalents........... (50,969) (18,419) 23,520 (6,179) (31,711)
Cash and cash
equivalents, beginning
of year............... 102,710 51,741 33,322 33,322 56,842
-------- -------- --------- -------- --------
Cash and cash
equivalents, end of
year.................. $ 51,741 $ 33,322 $ 56,842 $ 27,143 $ 25,131
======== ======== ========= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
PSINET INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--Nature of Operations and Summary of Significant Accounting Policies
Organization and Nature of Operations -- PSINet Inc. (the "Company") was
organized in October 1989 and is the leading independent global facilities-
based Internet data communications carrier focused on the business marketplace.
The Company provides a broad set of wireline and wireless high-speed corporate
LAN/WAN Internet connectivity services supporting managed security and
guaranteed service levels for intranet, electronic commerce, and Web and
application hosting services. As of December 31, 1998, the Company provided
dedicated and dial-up Internet connectivity in 90 of the 100 largest
metropolitan statistical areas in the U.S. and in 12 of the 20 largest
international telecommunications markets. Additionally, the Company provides
network backbone and related services to other telecommunications carriers and
Internet Service Providers ("ISPs") to further exploit its network capacity.
The Company's operations are subject to certain risks and uncertainties,
including those associated with: significant indebtedness and the ability to
meet obligations; continuing losses, negative cash flow and fluctuations in
operating results; dependence on subsidiaries for repayment of debt; funding
expansion; acquisitions and strategic alliances, including their integration;
managing rapid growth and expansion; acquisition and utilization of bandwidth;
international expansion; dependence on key personnel; dependence on suppliers;
financing arrangement terms that may restrict operations; possible Year 2000
issues; regulatory issues; pending litigation; competition in the Internet
services industry; technology trends and evolving industry standards;
delivering reliable service; and volatility of stock price.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements.
Actual results may differ from those estimates.
Principles of Consolidation -- The consolidated financial statements include
the accounts of the Company and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Revenue Recognition -- Revenue and related direct costs from customer
contracts are recognized ratably over the terms of the contracts, which are
generally three months to three years. Cash received in advance of revenues
earned is recorded as deferred revenue. In 1996, when the Company's offerings
included connectivity software products, revenue from the sale of software was
recognized when software products were shipped, and revenue from separate post-
contract customer support agreements was recognized over the contract period.
Advertising and Customer Acquisition Costs -- The Company expenses all
advertising and customer acquisition costs in the period incurred. Advertising
expenses (which include customer acquisition costs) were $14.3 million in 1996,
$9.2 million in 1997 and $19.8 million in 1998.
Research and Development -- Research and development costs are expensed as
incurred.
Cash and Cash Equivalents -- All highly liquid investments with an original
maturity of three months or less at the date of acquisition are classified as
cash equivalents.
Restricted Cash and Short-Term Investments -- Restricted cash and short-term
investments represent amounts that are restricted as to their use in accordance
with financing arrangements and acquisition hold-back agreements.
Short-Term Investments and Marketable Securities -- Short-term investments
and marketable securities consist of U.S. government obligations, commercial
paper and certificates of deposit with original
F-8
<PAGE>
PSINET INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
maturities greater than three months but less than one year. Management
determines the appropriate classification of its investments in debt and equity
securities at the time of purchase. Debt securities are classified as held to
maturity when the Company has the positive intent and ability to hold the
securities to maturity. Held to maturity securities are stated at amortized
cost. Debt securities for which the Company does not have the intent or ability
to hold to maturity, along with any equity securities, are classified as
available-for-sale. Available-for-sale securities are carried at fair value,
with the unrealized gains and losses, net of tax, reported as a component of
accumulated other comprehensive income in shareholders' equity. Cost of
securities sold is determined on a specific identification basis.
Concentrations of Credit Risk -- Financial instruments that potentially
subject the Company to concentrations of credit risk consist principally of
cash and cash equivalents, short-term investments and marketable securities and
accounts receivable. The Company's cash and investment policies limit
investments to short-term, investment grade instruments. Concentrations of
credit risk with respect to accounts receivable are limited due to the large
number and geographic dispersion of customers comprising the Company's customer
base.
Property, Plant and Equipment -- Property, plant and equipment is recorded
at cost less accumulated depreciation, which is provided on the straight-line
method over the estimated useful lives of the assets. Cost includes major
expenditures for improvements and replacements which extend useful lives or
increase capacity of the asset and interest costs associated with significant
capital additions. Expenditures for maintenance and repairs are expensed as
incurred. Leasehold improvements include costs associated with
telecommunications equipment installations and building improvements. In 1998,
the Company capitalized interest of approximately $0.8 million. No interest was
capitalized in 1997 or 1996.
The Company finances most of its data communications equipment and other
fixed assets under capital lease agreements. The assets and liabilities under
capital leases are recorded at the lesser of the present value of aggregate
future minimum lease payments, including estimated bargain purchase options, or
the fair value of the assets under lease. Assets under these capital leases are
depreciated over their estimated useful lives of three to five years, which are
generally longer than the terms of the leases.
Costs for internal use software that are incurred in the preliminary project
stage and in the post-implementation/operation stage are expensed as incurred.
Costs incurred during the application development stage are capitalized and
amortized over the estimated useful life of the software.
Depreciation and amortization periods are as follows:
<TABLE>
<C> <S>
Type of Asset: Depreciation or Amortization Period:
Telecommunications bandwidth Shorter of useful life or indefeasible right
of use
("IRU")/lease agreement, generally 10-25
years,
beginning when bandwidth is available for use
Data communications equipment Three to five years
Leasehold improvements Shorter of lease or useful life, generally
five to seven years
Software Three to five years
Office and other equipment Three years
Building 50 years
</TABLE>
The carrying value of property, plant and equipment is assessed annually
and/or when factors indicating a possible impairment are present. If an
impairment is present, the assets are reported at the lower of carrying value
or fair value.
F-9
<PAGE>
PSINET INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Goodwill and Other Intangibles -- The Company continually reviews goodwill
and other intangibles and other long-lived assets to assess recoverability
based upon undiscounted cash flow analysis. Impairments, if any, are measured
based upon discounted cash flow analyses and are recognized in operating
results in the period in which an impairment in value is determined. Goodwill
is generally amortized over ten years and other intangibles are amortized over
their estimated useful lives of two to ten years.
Acquired In-process Research and Development -- The fair value of acquired
in-process research and development ("IPR&D") projects acquired in business
combinations is expensed immediately. The amount of purchase price allocated to
IPR&D is determined based on independent appraisals obtained by the Company
using appropriate valuation techniques, including percentage-of-completion
which utilizes the key milestones to estimate the stage of development of each
project at the date of acquisition, estimating cash flows resulting from the
expected revenues generated from such projects, and discounting the net cash
flows back to their present value. The discount rate includes a factor that
takes into account the uncertainty surrounding the successful development of
the purchased in-process technology. At the respective dates of acquisition,
the IPR&D projects had not yet reached technological feasibility and did not
have alternative future uses. As discussed in Note 5, material risks existed
with each IPR&D project, however, management expects that such projects will be
completed.
Other Assets and Deferred Charges -- Other assets and deferred charges
principally comprise debt issuance costs and investments in business in which
the Company owns less than a 20% voting equity interest. Debt issuance costs
are amortized using the effective interest method over the terms of the related
debt as additional interest expense. Investments in non-public businesses in
which the Company owns less than a 20% voting equity interest are accounted for
using the cost method. Such investments are periodically evaluated for
impairment and appropriate adjustments are recorded, if necessary.
Income Taxes -- The Company accounts for income taxes under the asset and
liability method which requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of temporary differences
between the carrying amounts and tax basis of assets and liabilities. The
Company provides a valuation allowance on net deferred tax assets when it is
more likely than not that such assets will not be realized. In conjunction with
business acquisitions, the Company records acquired deferred tax assets and
liabilities. Future reversals of the valuation allowance on acquired deferred
tax assets will first be applied against goodwill and other intangibles before
recognition of a benefit in the consolidated statements of operations.
Stock Compensation -- The Company accounts for its stock option plans under
APB Opinion No. 25, "Accounting for Stock Issued to Employees." Pro forma
information regarding net income and earnings per share, as calculated under
the provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," is
disclosed herein.
Foreign Currency -- Gains and losses on translation of the accounts of the
Company's non-U.S. operations are accumulated and reported as a component of
accumulated other comprehensive income in shareholders' equity. At December 31,
1997 and 1998, the cumulative foreign currency translation adjustment was ($0.6
million) and $36.5 million, respectively. Transaction gains and losses are
recorded in the consolidated statement of operations.
Loss Per Share -- Basic loss per share is computed using the weighted
average number of shares of common stock outstanding during the year. Diluted
loss per share is computed using the weighted average number of shares of
common stock, adjusted for the dilutive effect of common stock equivalent
shares of common stock options and warrants and contingently issuable shares of
common stock. Common stock equivalent shares are calculated using the treasury
stock method. All stock options and warrants outstanding
F-10
<PAGE>
PSINET INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
have been excluded from the computation of diluted loss per share as their
effect would be antidilutive and, accordingly, there is no reconciliation
between basic and diluted loss per share for each of the years presented.
Fair Value of Financial Instruments -- For cash and cash equivalents, short-
term investments and marketable securities, the carrying amount represents or
approximates fair value. The Company estimates the fair value of borrowings by
reference to quoted market values or by discounting the future cash flows using
quoted market rates or interest rates at which similar types of borrowing
arrangements with the same maturities could be obtained by the Company.
Segment Reporting -- The Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," during 1998. SFAS No. 131
replaces the "industry segment" approach with the "management" approach. The
management approach designates the internal organization that is used by
management for allocating resources and assessing performance as the source of
the Company's reportable segments. SFAS No. 131 also requires disclosures about
products and services, geographic areas, and major customers. The adoption of
SFAS No. 131 did not affect results of operations or financial position. The
Company has provided comparable information for prior years.
Reclassifications in Financial Presentation -- Certain prior year
information has been reclassified to conform to the current year presentation.
Recent Pronouncements -- 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 certain derivative instruments embedded in
other contracts, and for hedging securities. Currently, as the Company has no
derivative instruments, the adoption of SFAS No. 133 would have no impact on
the Company's financial condition or results of operations.
Unaudited Interim Financial Information -- The consolidated financial
statements at March 31, 1999 and for the three months ended March 31, 1998 and
1999 and the related footnote information are unaudited and have been prepared
on a basis substantially consistent with the audited consolidated financial
statements as of and for the year ended December 31, 1998. In the opinion of
management, the unaudited consolidated financial statements contain all
adjustments (consisting of only normal recurring adjustments) which management
considers necessary to present fairly the consolidated financial position of
the Company at March 31, 1999 and the results of its operations and cash flows
for the three months ended March 31, 1998 and 1999. The results of operations
for the three months ended March 31, 1999 may not be indicative of the results
expected for any succeeding quarter or for the entire year ending December 31,
1999.
F-11
<PAGE>
PSINET INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 2--Acquisitions and Dispositions of Certain Businesses
Acquisitions
During 1997 and 1998, the Company acquired the following businesses:
<TABLE>
<CAPTION>
Ownership
Business Name Location Acquisition Date Interest
- ------------- -------- ---------------- ---------
<S> <C> <C> <C>
Serveur Telematique
Internet S.A. France October 1997 100%
Internet Prolink S.A. Switzerland January 1998 100%
iSTAR internet inc. Canada February and May 1998 100%
Interactive Telephony
Limited Channel Islands, Jersey April 1998 100%
Interactive Networx GmbH Germany May 1998 100%
LinkAge Online Limited Hong Kong June 1998 100%
ioNET Internetworking
Services United States June 1998 100%
SCII-CalvaPro France June 1998 100%
INTERLOG Internet
Services, Inc. Canada July 1998 100%
Rimnet Corporation Japan August 1998 100%
TWICS Co., Ltd. Japan September 1998 100%
Hong Kong Internet &
Gateway Services Hong Kong September 1998 100%
iNet, Inc. Korea September 1998 100%
Tokyo Internet
Corporation Japan October 1998 100%
The Unix Group B.V. The Netherlands October 1998 100%
AsiaNet Limited Hong Kong November 1998 100%
Spider Net Limited Hong Kong December 1998 100%
Huge Net Limited Hong Kong December 1998 100%
</TABLE>
Each of the acquisitions was accounted for using the purchase method of
accounting and, accordingly, the net assets and results of operations of the
acquired companies have been included in the Company's consolidated financial
statements since the acquisition dates. The purchase price of the acquisitions
was allocated to assets acquired, including intangible assets, and liabilities
assumed, based on their respective fair values at the acquisition dates.
All of the companies acquired are Internet service providers or data
transmission companies, offering a wide range of Internet-protocol based
solutions for businesses and small office/home office and consumer users.
Depending on the particular business activities of the company acquired,
revenue may also be derived from network integration, web hosting, managed co-
location, as well as vertical market Internet services, including comprehensive
banking, medical and telecommunications Internet solutions.
For certain acquisitions, the Company has 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. These acquisition hold-back liabilities are generally payable up
to 24 months after the date of closing of the respective acquisitions.
Acquisition hold-back liabilities totaling $37.0 million and $37.2 million
(unaudited) are included in other noncurrent liabilities and $1.2 million and
$0.2 million (unaudited) are included in other accounts payable and accrued
liabilities at December 31, 1998 and March 31, 1999, respectively.
The purchase price relating to one acquisition may be increased by up to
$8.0 million pursuant to an earnout provision in the event the acquired company
achieved certain levels of future operating results. Such amount will be
recorded as additional cost of the acquired company when the amount to be paid,
if any,
F-12
<PAGE>
PSINET INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
becomes probable. At December 31, 1998 and March 31, 1999 (unaudited), no
amount has been accrued since the final outcome of the earnout provision was
not determinable.
In connection with these acquisitions, the Company recorded $14.2 million in
other accounts payable and accrued liabilities in accordance with planned
terminations of certain contracts of acquired companies. Such terminations are
expected to occur within one year of acquisition date. Through December 31,
1998, $1.4 million had been incurred and charged against the liability.
In connection with the acquisitions consummated during 1998, liabilities
assumed were as follows (in thousands of U.S. dollars):
<TABLE>
<CAPTION>
Fair
Value of Cash Paid for
Assets the Liabilities
Business Name Acquired Capital Stock Assumed
- ------------- -------- ------------- -----------
<S> <C> <C> <C>
Tokyo Internet............................... $159,877 $(140,457) $ 19,420
ISTAR........................................ 49,047 (19,490) 29,557
Rimnet....................................... 41,318 (31,946) 9,372
IoNET........................................ 26,704 (22,215) 4,489
LinkAge...................................... 18,053 (11,800) 6,253
INX.......................................... 11,823 (9,469) 2,354
Other acquisitions........................... 83,338 (54,747) 28,591
-------- --------- --------
$390,160 $(290,124) $100,036
======== ========= ========
</TABLE>
In connection with the acquisitions consummated during the three months
ended March 31, 1999, liabilities assumed were as follows (in thousands of U.S.
dollars):
<TABLE>
<CAPTION>
Fair Value Cash Paid for
of Assets the Liabilities
Business Name Acquired Capital Stock Assumed
- ------------- ----------- ------------- -----------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
Other acquisitions........................ $92,503 $(36,372) $56,131
======= ======== =======
</TABLE>
The following represents the unaudited pro forma results of operations of
the Company for the years ended December 31, 1997 and 1998 as if the
acquisitions were consummated on January 1, 1997. The unaudited pro forma
results of operations include certain pro forma adjustments, including the
amortization of intangible assets relating to the acquisitions. The unaudited
pro forma results of operations are prepared for comparative purposes only and
do not necessarily reflect the results that would have occurred had the
acquisitions occurred at January 1, 1997 or the results which may occur in the
future.
<TABLE>
<CAPTION>
Year Ended
-------------------------
December 31, December 31,
1997 1998
------------ ------------
(In thousands of U.S.
dollars, except per share
amounts)
<S> <C> <C>
Revenue............................................... $ 254,654 $ 325,252
Net loss available to common shareholders............. $(121,216) $(296,140)
Basic and diluted loss per share...................... $ (3.01) $ (5.95)
</TABLE>
Dispositions
In 1997, the Company sold all of the issued and outstanding capital stock of
its software subsidiary in exchange for an aggregate of $20.5 million in cash,
and recognized a gain of $5.7 million.
F-13
<PAGE>
PSINET INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In 1996, the Company transferred substantially all of its individual
subscriber accounts and related assets and rights in connection with its
consumer dial-up internet access services in the U.S. to a third party in
exchange for $12.9 million in cash and a note receivable. In addition, the
Company signed an agreement to provide continued services to the third party's
customers. The Company recognized a gain from this transaction of $5.4
million, which is included as other income, net, a component of operating
loss, because of the continued relationship with the customers. All amounts
receivable under the note were subsequently collected in accordance with the
note's terms.
NOTE 3--Short-Term Investments and Marketable Securities
Short-term investments and marketable securities, including restricted
amounts, consisted of the following:
<TABLE>
<CAPTION>
December 31,
-------------------- March 31,
1997 1998 1999
-------- ----------- --------------
(In thousands of U.S. dollars)
(Unaudited)
<S> <C> <C> <C>
U.S. government obligations.................. $ -- $ 235,105 $ 222,560
Commercial paper............................. -- 112,290 111,576
Certificates of deposit...................... -- 25,000 --
-------- ----------- -----------
$ -- $ 372,395 $ 334,136
======== =========== ===========
</TABLE>
The cost of all such investments approximates fair value. The unrealized
holding gain was zero and $0.2 million at December 31, 1997 and 1998,
respectively.
NOTE 4--Property, Plant and Equipment
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31,
------------------
1997 1998
-------- --------
(In thousands of
U.S. dollars)
<S> <C> <C>
Telecommunications bandwidth................................ $ -- $118,162
Data communications equipment............................... 32,108 103,467
Leasehold improvements...................................... 9,204 29,267
Software.................................................... 3,920 17,724
Office and other equipment.................................. 4,451 14,826
Land........................................................ -- 1,992
Building.................................................... -- 1,298
-------- --------
49,683 286,736
Less accumulated depreciation and amortization.............. (28,217) (63,059)
-------- --------
21,466 223,677
-------- --------
Leased data communications equipment........................ 96,059 171,935
Leased telecommunications bandwidth......................... -- 30,267
Leased office and other equipment........................... 3,521 3,973
-------- --------
99,580 206,175
Less accumulated amortization............................... (25,427) (40,376)
-------- --------
74,153 165,799
-------- --------
Property, plant and equipment, net.......................... $ 95,619 $389,476
======== ========
</TABLE>
F-14
<PAGE>
PSINET INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Total depreciation and leasehold amortization expense was $16.6 million in
1996, $25.1 million in 1997 and $51.4 million in 1998. Total depreciation and
leasehold amortization expense was $9.0 million (unaudited) and $19.4 million
(unaudited) for the three months ended March 31, 1998 and 1999, respectively.
NOTE 5--Goodwill, Other Intangibles and Acquired In-Process Research and
Development
Goodwill and other intangibles consisted of the following:
<TABLE>
<CAPTION>
December 31,
--------------------
March 31,
1997 1998 1999
-------- ---------- --------------
(In thousands of U.S. dollars)
(Unaudited)
<S> <C> <C> <C> <C>
Goodwill................ $ 5,671 $ 230,362 $ 276,216
Tradename............... -- 24,081 23,802
Customer relationships.. -- 25,954 25,413
Existing technology..... -- 8,834 8,812
Workforce............... -- 3,887 3,560
Other................... 1,061 4,154 1,743
-------- ---------- ----------
6,732 297,272 339,546
Less accumulated
amortization........... (2,057) (14,491) (19,586)
-------- ---------- ----------
Goodwill and other
intangibles, net....... $ 4,675 $ 282,781 $ 319,960
======== ========== ==========
</TABLE>
Total amortization expense was $11.1 million in 1996, $2.7 million in 1997,
$11.4 million in 1998, and $0.5 million (unaudited) and $7.4 million
(unaudited) during the three months ended March 31, 1998 and 1999,
respectively.
F-15
<PAGE>
PSINET INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In connection with the acquisitions described in Note 2, the Company
recorded $70.8 million of charges in 1998 for acquired in-process research and
development. A summary of the allocated values by technology/ project for
companies acquired in 1998 is as follows (in thousands of U.S. dollars):
<TABLE>
<CAPTION>
Cost to Expected Completion
Acquired Company R&D Technology/Project Value Complete At Date Of Acquisition Remaining Tasks
- ---------------- ---------------------- ------- -------- ---------------------- ---------------
<S> <C> <C> <C> <C> <C>
iSTAR Corporate--DSL/ATM/Fax
on Demand/Web Hosting $ 4,270 $1,930 Late 1998 or early 1999 System verification and testing
Dial-up--Widespan 2,660 2,200 Late 1998 or early 1999 System verification and testing
Icommerce 70 40 Early 1999 System verification and testing
INX Access technologies 3,600 1,460 Early 1999 System verification and testing
ioNET ATM and Internet services 8,500 2,210 Early 1999 System verification and testing
LinkAge VPN technology 2,900 200 Early 1999 Network architecture development
Website tools 2,600 1,325 Early 1999 Improve system stability
IP Telephony 2,400 200 Early 1999 Transmission quality improvement
Interlog DSL 2,700 320 Early 1999 Operations support system development,
resolution of provisioning issues
E-commerce 500 70 Early 1999 Software development
Website design 300 50 Early 1999 Systems verification and integration
Rimnet Wireless local loop 2,300 135 Mid 1999 Network interconnection and security issues
IP Telephony 1,500 320 Mid 1999 Database development, increasing system
scalability
Universal Messaging 300 70 Early 1999 Network integration and testing
iNet Frame Relay 5,000 125 Mid 1999 Network management system software
development, network reconfiguration
Website hosting 450 85 Late 1998 or early 1999 Software development and testing
E-commerce 350 70 Early 1999 Development of database management
system
Tokyo Internet ATM technologies 16,400 225 Early 1999 Development of safeguards
ensuring continued network reliability
under high traffic loads
Domain Name Service 4,300 75 Mid 1999 Database testing and system
verification, resolution of scalability
issues
Network technologies 3,400 60 Mid 1999 Resolution of issues related to shared
peering facilities, reliability of
content caching systems
Access technologies 3,200 60 Mid 1999 Testing of wireless traffic
distribution functionality
Performance technologies 2,800 70 Mid 1999 Test service issues
Wholesale 300 100 Early 1999 Testing of software, verification, and
resolution of scalability issues
-------
Total $70,800
=======
</TABLE>
A description of the key acquired in-process technologies for each of the
acquisitions is set forth below:
iSTAR
iSTAR is developing four concurrent technology projects relating to
corporate Internet access, including asymmetric digital subscriber line
technology to provide high-speed Internet access, a proprietary implementation
of an Asynchronous Transfer Mode ("ATM") network to provide high-bandwidth
backbone
F-16
<PAGE>
PSINET INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
service to customers, a data conversion project to provide fax services over
the Internet and a proprietary website hosting service that will be built on a
Windows NT platform. Additionally, iSTAR is developing a proprietary service
management interface that would allow dial-up customers to seamlessly select
and manage a wide variety of services. iSTAR is also developing several new
electronic commerce applications that will enable content providers to charge
users a nominal fee to access information and facilitate point of terminal
sales.
INX
INX is developing proprietary implementations of wireless local loop and
digital subscriber line ("DSL") technologies to provide high-speed Internet
access in metropolitan Germany, which began in January 1997.
ioNet
ioNet is developing two concurrent technology projects, a proprietary
implementation of an ATM network for use by businesses in the Oklahoma region,
and a wholesale ISP system that will enable external service providers to use
ioNet's network, which began in January 1997.
LinkAge
LinkAge is developing a proprietary version of a virtual private network
("VPN") system based around a telecommunications link from Hong Kong to
mainland China. LinkAge began its VPN technology efforts in February 1997.
Additionally, LinkAge is developing a proprietary IP telephony system for use
in overseas communications. LinkAge is also developing proprietary technology
that will enable it to provide website mirroring in multiple countries. The
company began both its IP telephony and its website mirroring efforts in
February 1997.
Interlog
Interlog began developing a DSL network with proprietary operations support
systems in July 1996. Additionally, Interlog is designing a proprietary e-
commerce system that will enable small businesses to manage credit-card based
transactions over the Internet, which it began in December 1996. Interlog is
also developing a new web page design system that will enable it to design low-
cost corporate websites capable of supporting its e-commerce technology, which
was initiated in December 1996.
Rimnet
Rimnet is developing proprietary technology to allow corporate customers to
securely access wireless local loop services in the Tokyo region, which it
began in December 1997. Additionally, Rimnet is developing proprietary software
that will convert a new universal messaging system for Japanese-language use.
This system is being designed to integrate voicemail, e-mail, and facsimile
applications on one platform. Rimnet began this project in February 1997.
Rimnet is also developing a proprietary Internet Protocol ("IP") telephony
system for domestic and international service, which it began in August 1996.
iNet
iNet is developing and integrating a frame relay network with a proprietary
network management system optimized to lower service costs for transoceanic
data traffic, which it began in August 1996. Additionally, iNet is creating a
new electronic commerce micropayment system that will enable content providers
such as Korean newspapers to charge users a nominal fee to access information;
it initiated this in July 1998. iNet is also developing a proprietary website
hosting platform that will enable it to automate the daily operations of
websites on the system, which it began in March 1998.
F-17
<PAGE>
PSINET INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Tokyo Internet
Tokyo Internet ("TI") is developing six technologies. In October 1996, TI
began related projects that will enable TI to support high-quality, value-added
services over its network, including IP telephony (a method of carrying voice
traffic over data networks) and IP multicasting (a method of broadcasting data
over the Internet). In July 1997, TI began related infrastructure projects that
involve the development of private peering and content caching capabilities
that will enable the company to improve its efficiency and service quality,
while serving more customers. In September 1997, TI began developing a
proprietary database and registry system to support the new generic Top Level
Domain ("gTLD") standard, which will add other domains beyond existing ones
such as ".com". This effort will enable TI to become an authorized registrar
for the new standard, so that it can offer domain registration services to
companies in Japan and internationally. In October 1997, TI began developing
technologies to integrate several new methods of accessing its network,
including wireless local loop, DSL technology, and third-party access to ATM
network resources. In March 1998, TI began a project that will enable the
company to use lower-cost ATM services in its backbone network while
maintaining its traditional emphasis on high network redundancy and reliability
and began a project that will enable the company to wholesale its network
capacity to external service providers.
Key Assumptions
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,
consideration was given 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
including:
. The estimated revenue associated with the respective business enterprise
valuations assumed five-year compound annual revenue growth rates of
between 22% and 45%.
. Revenue growth rates for each technology were developed considering,
among other things, the 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.
. The estimated net cash flows were discounted back to their present value
using a discount rate of between 17.0% and 27.5%, which represents a
premium to the Company's cost of capital. The estimated percentage-of-
completion of the various in-process research and development projects
ranged from 50% to 85% complete.
The net cash flows from such projects were based on the Company's estimates
of revenues, cost of sales, research and development costs, selling, general
and administrative costs, and income taxes associated with such projects.
If none of these projects is successfully developed, the Company's 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 the Company's financial condition or its results of operations. The
failure of any particular individual project in-process could impair the value
of other intangible assets acquired.
F-18
<PAGE>
PSINET INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 6--Debt
Debt consisted of the following:
<TABLE>
<CAPTION>
December 31,
-------------------- March 31,
1997 1998 1999
-------- ---------- -----------
(In thousands of U.S. dollars)
(Unaudited)
<S> <C> <C> <C>
Senior notes at interest rate of 10%........ $ -- $ 600,000 600,000
Senior notes at interest rate of 11.5%...... -- 350,000 350,000
Capital lease obligations at interest rates
ranging from 2.1% to 17.3%................. 56,355 120,670 168,288
Notes payable at interest rates ranging from
1.8% to 12.7%.............................. 11,450 50,981 63,822
Credit Facility............................. 5,648 -- 100,000
-------- ---------- ---------
73,453 1,121,651 1,282,110
Plus unamortized premium.................... -- 2,950 2,875
-------- ---------- ---------
73,453 1,124,601 1,284,985
Less current portion........................ (39,633) (59,968) (166,184)
-------- ---------- ---------
Long-term portion........................... $ 33,820 $1,064,633 1,118,801
======== ========== =========
</TABLE>
In April 1998, the Company completed an offering of $600.0 million aggregate
principal amount of 10% Senior Notes due 2005, at par (the "10% Notes"). In
November 1998, the Company completed offerings of 11 1/2% Senior Notes due 2008
with $200.0 million principal amount at par and $150.0 million principal amount
at 102% of par (the "11 1/2% Notes" and, collectively with the 10% Notes, the
"Notes"). The Notes are senior unsecured obligations of the Company ranking
equivalent in right of payment to all existing and future unsecured and
unsubordinated indebtedness of the Company, and senior in right of payment to
all existing and future subordinated indebtedness of the Company. Interest is
payable on the Notes semi-annually. At December 31, 1998 and March 31, 1999,
the Company has deposited in an escrow account restricted cash and short-term
investments of $122.2 million and $93.8 million (unaudited), respectively, to
fund, when due, the semi-annual interest payments through August 15, 2000 on
the 10% Notes. The indentures governing the Notes contain certain financial and
other covenants which, among other things, will restrict the Company's ability
to incur further indebtedness and sell assets.
The Company has various financing arrangements accounted for as capital
leases for the acquisition of equipment, telecommunications bandwidth, and
other fixed assets. During 1996, 1997 and 1998, and the three months ended
March 31, 1998 and 1999, the Company incurred capital lease obligations under
these arrangements and from the acquisitions of business of $25.6 million,
$37.5 million, $113.3 million, $30.9 million and $60.0 million (unaudited),
respectively, upon the execution of leases for new data communications
equipment, telecommunications bandwidth and other fixed assets. At December 31,
1998 and March 31, 1999, the aggregate unused portion under these arrangements
totaled $12.9 million and 31.8 million (unaudited),
respectively, after designating $27.9 and $22.0 million (unaudited),
respectively, of payables for various equipment purchases which will be
financed under capital lease facilities. The capital lease obligations contain
provisions which, among other things, require the maintenance of certain
financial ratios and restrict the payment of dividends.
In September 1998, the Company entered into a new senior secured credit
facility ("Credit Facility"), to replace its then existing bank credit
arrangement in the United States. The Credit Facility has a maximum principal
amount of $110.0 million and amounts drawn are payable in September 2001. There
were no amounts outstanding at December 31, 1998 and $108.8 million was
available to draw. At March 31, 1999, $100.0 million (unaudited) was
outstanding, $5.2 million (unaudited) was being utilized for letters of credit,
and $4.8 million (unaudited) was available to draw. In April 1999, the Company
repaid, out of available cash, $100.0 million (unaudited) that it had borrowed
under the Credit Facility, thereby restoring the availability of the
F-19
<PAGE>
PSINET INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Credit Facility for future borrowings to a maximum principal amount of $110.0
million (unaudited). Interest on the Credit Facility is based on a spread over
the London interbank offered rate or the higher of the bank's prime rate or
the Federal funds effective rate, at the Company's option (8.4% at December
31, 1998 and 9.5% (unaudited) at March 31, 1999).
The Company's obligations under the Credit Facility are guaranteed by each
existing and subsequently acquired or organized significant domestic
subsidiary of the Company and are secured by a lien on substantially all of
the assets of the Company and each subsidiary guarantor and by a pledge by the
Company and each subsidiary guarantor of all capital stock and other equity
interests it owns. The Credit Facility requires, among other things, the
satisfaction of certain financial covenants, including a minimum annual
consolidated revenue test, a minimum EBITDA test and requires the reduction in
the maximum amount of availability and prepayments equal to the net proceeds
received from certain asset sales and certain casualty events. The Company is
required to pay a commitment fee ranging from 0.50% to 0.875% of the unused
amounts under the Credit Facility.
The Company was in compliance with the covenants under each of its
financing arrangements at December 31, 1998 and March 31, 1999 (unaudited).
Future minimum lease payments under capital leases and annual maturities of
other debt are as follows:
<TABLE>
<CAPTION>
Capital
Year Ending December 31, Leases Other Debt
- ------------------------ -------- ----------
(In thousands of
U.S. dollars)
<S> <C> <C>
1999...................................................... $ 58,530 $ 10,463
2000...................................................... 47,394 7,253
2001...................................................... 27,782 7,078
2002...................................................... 1,830 5,033
2003...................................................... 57 3,401
Thereafter................................................ 1,644 967,753
-------- ----------
137,237 $1,000,981
==========
Less amount representing interest......................... (16,567)
--------
Present value of future minimum lease payments............ $120,670
========
</TABLE>
Cash paid for interest was $5.1 million in 1996, $5.6 million in 1997 and
$33.6 million in 1998.
At December 31, 1997 and 1998, the estimated fair value of the debt
excluding capital lease obligations was approximately $11.4 million and
$1,009.8 million, respectively.
NOTE 7--Capital Stock
Issuance of Common Stock (unaudited)
During the quarter ended March 31, 1999, options with respect to 1,238,327
shares of common stock were exercised for aggregate net proceeds of $6.3
million.
F-20
<PAGE>
PSINET INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In May 1999, the Company completed a public offering of 8,000,000 shares of
its common stock at $50.50 per share for net proceeds of approximately $384.1
million after expenses.
Issuance of Convertible Preferred Stock (unaudited)
In May 1999, the Company completed a public offering of 9,200,000 shares of
its 6 3/4% Series C Cumulative Convertible Preferred Stock ("Series C Preferred
Stock") for net proceeds of approximately $358.5 million after expenses. 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 the
Company's option, in shares of its common stock or a combination thereof.
At closing, the purchasers of the Series C Preferred Stock deposited
approximately $85.8 million into an account established with a deposit agent
("Deposit Account"). This Deposit Account is not an asset of the Company. 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
to purchase shares of 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, the Company 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 the Company's
option, in cash or in shares of its common stock at 95% of the market price of
the common stock on that date. Under certain circumstances, the Company 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 the Company 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 the Company's 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 the Company's common stock for each share of Series C
Preferred Stock. The Series C Preferred Stock is redeemable at a redemption
premium of 101.929% of the liquidation preference (plus accumulated and unpaid
dividends) on or after November 15, 2000 but prior to May 15, 2002 if the
trading price for the Series C Preferred Stock exceeds $124.74 per share for a
specified period. Except in the circumstances described in the preceding
sentence, the Company may not redeem the Series C Preferred Stock prior to May
15, 2002. Beginning on May 15, 2002, the Company may redeem shares of declining
to 100% (plus in each case, accumulated and unpaid dividends).
In the event of a change in control of the Company and if the market price
of the Company's 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 the Company's common stock at
the greater of (i) the market price per share ending on the date on which a
change of control event occurs, or (ii) $38.73.
Preferred Stock Rights Plan
In May 1996, the Company's Board of Directors adopted a Shareholder Rights
Plan, as thereafter amended ("Rights Plan"), pursuant to which preferred stock
purchase rights ("Rights") were granted as a
F-21
<PAGE>
PSINET INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
dividend to shareholders of record at the rate of one Right for each
outstanding share of common stock held of record as of the close of business on
June 5, 1996. The Rights also attach to most future issuances of common stock.
Subject to exceptions, each Right, when exercisable, will entitle the holder to
buy one one-thousandth of a share of a Series A Junior Participating Preferred
Stock, par value $.01 per share, of the Company (the "Series A Junior Preferred
Stock") at an exercise price of $75 per Right.
Subject to exceptions, the Rights will become exercisable upon the
occurrence of specified events, including an announcement that a person or
group of affiliated or associated persons ("Acquiring Person") has acquired
beneficial ownership of 20.5% or more of the outstanding common stock of the
Company. In such event, each holder of a Right (other than Rights beneficially
owned by the Acquiring Person) will thereafter have the right, subject to
exceptions, to receive upon exercise thereof a number of shares of Series A
Junior Preferred Stock or, at the discretion of the Company's Board of
Directors, a number of additional shares of common stock of the Company, or in
some circumstances, shares of common stock of the Acquiring Person (or its
parent), as set forth in the Rights Plan.
The Company's Board of Directors has designated 1,000,000 shares of Series A
Junior Preferred Stock, which amount may be increased or decreased by the Board
of Directors. All Rights expire on June 5, 2006, unless the Rights are earlier
redeemed or exchanged by the Company in accordance with the Rights Plan or
expire earlier upon the consummation of specified transactions as set forth in
the Rights Plan.
Convertible Preferred Stock
In November 1997, the Company completed a private placement of 600,000
shares of its Series B 8% Convertible Preferred Stock ("Series B Preferred
Stock") for net proceeds of $29.6 million. The Series B Preferred Stock accrues
dividends at an annual rate of 8%, payable quarterly in cash or, at the
Company's option, in Series B Preferred Stock and is non-voting. The Series B
Preferred Stock is convertible into the Company's common stock at $10 per share
and may be reset, under certain circumstances, to the stock's then current
market value. At the third anniversary date, the conversion price may be reset,
under certain circumstances, to 95% of the stock's then current market value.
To reflect the nature of the conversion rights, preferred stock was reduced at
issuance by $1.5 million with a corresponding increase to capital in excess of
par value. Such amount is being accreted as an additional return to preferred
shareholders over a period of three years.
During the first quarter of 1999, all 600,000 (unaudited) shares of the
Company's Series B 8% convertible preferred stock were converted into 3,000,000
(unaudited) shares of the Company's common stock in accordance with the
original terms of the convertible preferred stock.
Common Stock Issued to IXC
In February 1998, the Company closed a transaction with IXC Internet
Services, Inc. ("IXC"), an indirect subsidiary of IXC Communications, Inc., to
acquire 20-year noncancellable IRUs in up to 10,000 equivalent route miles of
fiber-based OC-48 network bandwidth (the "PSINet IRUs") in selected portions
across the IXC fiber optic telecommunications network within the United States.
The PSINet IRUs were acquired in exchange for the issuance to IXC of 10,229,789
shares of common stock of the Company (the "IXC Initial Shares") and a
contingent payment obligation. The contingent payment obligation required the
Company to pay cash or issue additional shares, at its option, to IXC if the
fair market value of the IXC Initial Shares was less than $240 million at a
future date.
F-22
<PAGE>
PSINET INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company accounted for the transaction in accordance with EITF 96-18,
"Accounting for Equity Instruments with Variable Terms That Are Issued for
Consideration Other Than Employee Services under FASB Statement No. 123" which
required the Company to measure the fair value of the common stock and
contingent payment obligation upon issuance. The bandwidth asset to be
delivered under the IXC agreement is recorded as a reduction to shareholders'
equity until such time as the Company accepts the bandwidth from IXC.
The fair value of the contingent payment obligation of $107.3 million was
measured utilizing a Black-Scholes valuation model using an assumed term of
four years, the closing market price per share of the common stock on the date
of the closing ($7.6875), an exercise price of $23.46 (which is the price per
share required in order for the calculation of the IXC Initial Shares to result
in a value equal to $240.0 million), expected volatility of 76% and an interest
rate of 11%.
In January 1999, the Company's contingent payment obligation to IXC under
the agreement was terminated without the payment of any additional amounts or
issuance of additional shares to IXC when, after the close of trading on The
Nasdaq Stock Market, the fair market value of the shares issued to IXC exceeded
the $240 million threshold in accordance with the terms of the original
agreement.
NOTE 8--Stock Compensation and Retirement Plans
Stock Option and Warrant Plans
The Company has four stock option plans that provide for granting of
incentive stock options, non-qualified stock options, stock appreciation rights
or restricted stock awards to employees, consultants and directors of the
Company and its subsidiaries, as appropriate. Under all of the plans, the
option exercise price is equal to fair market value at the date of grant.
Options granted under the various plans become exercisable based on a schedule
determined by the Compensation Committee at the date of grant, generally over
four years. The options have terms of seven to ten years from the date of
grant. The Company has also reserved shares for other plans.
The number of authorized and reserved shares were as follows at December 31,
1998:
<TABLE>
<CAPTION>
Shares
Reserved
Authorized for
Shares Issuance
---------- ----------
<S> <C> <C>
Executive Stock Incentive Plan............................ 10,000,000 9,306,427
Strategic Stock Incentive Plan............................ 3,500,000 3,422,789
Executive Stock Option Plan............................... 1,250,000 936,770
Directors Stock Incentive Plan............................ 100,000 100,000
Other plans............................................... 541,158 541,158
---------- ----------
Total..................................................... 15,391,158 14,307,144
========== ==========
</TABLE>
Stock Option Repricing
In 1996, the Company's Board of Directors approved a repricing of certain
employee stock options. Accordingly, options with respect to 2,520,555 shares
of the Company's common stock whose exercise price was greater than $9.375, the
closing market price of the Company's common stock on that date, were cancelled
and new options with respect to the same number of shares were granted with an
exercise price of $9.375. Other terms and conditions of the options remained
the same.
F-23
<PAGE>
PSINET INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Fair Value of Stock Options
For disclosure purposes under SFAS No. 123, the fair value of each stock
option granted is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Expected life (in years)...................................... 5.0 5.0 5.0
Risk-free interest rate....................................... 5.98% 6.36% 5.20%
Volatility.................................................... 80.0% 76.0% 90.0%
Dividend yield................................................ 0% 0% 0%
</TABLE>
Utilizing these assumptions, the weighted-average fair value of the stock
options granted in 1996, 1997 and 1998 was $4.89, $4.88 and $7.10,
respectively.
Under the above model, the total value of stock options granted $28.6
million in 1996, $23.6 million in 1997, and $46.0 million in 1998, which would
be amortized on a pro forma basis over the option vesting period. Had the
Company determined compensation cost for these plans in accordance with SFAS
No. 123, the Company's pro forma results would have been as follows (in
thousands of U.S. dollars, except per share amounts):
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------
1996 1997 1998
-------- -------- ---------
<S> <C> <C> <C>
Pro forma net loss available to common
shareholders.................................. $(63,897) $(53,113) $(279,908)
Pro forma basic and diluted loss per share..... $ (1.62) $ (1.32) $ (5.62)
</TABLE>
Stock Option and Warrant Activity
The following table summarizes stock option and warrant activity under all
plans for the three years ended December 31, 1998:
<TABLE>
<CAPTION>
Number of Shares of Weighted-
Common Stock Average
---------------------- Exercise
Options Warrants Price per Share Price
---------- ---------- --------------- ---------
<S> <C> <C> <C> <C>
Balance, December 31, 1995.. 3,843,668 2,084,507 $.01 to $ 25.25 $ 3.42
Granted.................... 5,853,949 167 4.15 to 16.75 10.81
Exercised.................. (819,256) (1,659,000) .01 to 9.38 2.36
Forfeited.................. (1,319,951) -- 1.60 to 25.25 8.72
Cancelled.................. (2,520,555) -- 9.56 to 25.25 13.61
---------- ----------
Balance, December 31, 1996.. 5,037,855 425,674 .05 to 13.50 6.24
Granted.................... 4,846,300 -- 5.38 to 11.25 7.36
Exercised.................. (288,529) (201,400) .05 to 8.13 1.83
Forfeited.................. (1,259,740) -- 2.00 to 13.13 8.33
---------- ----------
Balance, December 31, 1997.. 8,335,886 224,274 .05 to 13.50 6.81
Granted.................... 6,483,804 -- 6.00 to 19.13 9.82
Exercised.................. (1,202,069) (174,274) .05 to 13.13 4.34
Forfeited.................. (1,171,323) -- 2.00 to 14.94 8.27
---------- ----------
Balance, December 31, 1998.. 12,446,298 50,000 $1.60 to $19.13 $ 8.51
========== ==========
Exercisable, December 31,
1996....................... 1,584,068 425,674 $.05 to $ 10.01 $ 3.60
========== ==========
Exercisable, December 31,
1997....................... 2,824,881 224,274 $.05 to $ 13.50 $ 5.76
========== ==========
Exercisable, December 31,
1998....................... 4,161,506 50,000 $1.60 to $19.13 $ 7.27
========== ==========
</TABLE>
F-24
<PAGE>
PSINET INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table summarizes information about the outstanding and
exercisable options and warrants at December 31, 1998:
<TABLE>
<CAPTION>
Outstanding Exercisable
------------------------------------- -------------------
Weighted-Average Weighted- Weighted-
Remaining Average Average
Contractual Exercise Exercise
Range of Exercise Prices Number Life (Years) Price Number Price
- ------------------------ ---------- ---------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$1.60 to $6.19.......... 2,749,251 6.8 $4.81 1,184,631 $3.71
6.25 to 7.63............ 3,103,259 8.3 7.13 1,119,635 7.08
7.66 to 9.38............ 2,989,444 8.0 8.78 1,354,653 8.96
9.75 to 13.19........... 2,579,815 9.2 11.10 486,498 10.76
13.25 to 19.13.......... 1,074,529 9.7 14.95 66,089 14.03
---------- ---------
$1.60 to 19.13.......... 12,496,298 8.2 $8.51 4,211,506 $7.27
========== =========
</TABLE>
The Company sponsors a retirement savings plan, under which participants are
eligible to receive discretionary Company matching contributions each year of
the equivalent of 100% of the first $1,000 of employee salary deferral and 25%
of amounts thereafter up to the maximum allowable deferral under IRS
regulations. All contributions to a participant's plan account are vested after
two years of service with the Company. The total contributions made by the
Company under the Plan totaled $0.6 million, $0.5 million and $0.9 million in
1996, 1997 and 1998, respectively.
NOTE 9--Income Taxes
The components of loss before income taxes are as follows (in thousands of
U.S. dollars):
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------
1996 1997 1998
-------- -------- ----------
<S> <C> <C> <C>
U.S. operations................................. $(46,047) $(34,427) $ (134,639)
Non-U.S. operations............................. (9,209) (11,651) (128,078)
-------- -------- ----------
$(55,256) $(46,078) $(262,717)
======== ======== ==========
</TABLE>
The Company recognized deferred tax benefits of $0.2 million, $0.5 million
and $0.8 million for the years ended December 31, 1996, 1997 and 1998,
respectively, resulting primarily from deferred tax liabilities of acquired
non-U.S. companies. The Company did not recognize any current income tax
expense or benefit for 1996, 1997 or 1998, and no cash was paid for income
taxes in 1996, 1997 or 1998.
F-25
<PAGE>
PSINET INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Significant components of the Company's deferred tax assets (liabilities)
consisted of the following (in thousands of U.S. dollars):
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1998
------------------------ ---------------------------
Non-
U.S. Total U.S. Non-U.S. Total U.S.
------- ------ ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Gross deferred tax assets:
Net operating losses....... $50,470 $7,834 $58,304 $ 82,053 $63,197 $145,250
Arbitration accrual........ -- -- -- 20,090 -- 20,090
Other...................... 1,515 -- 1,515 1,998 14,120 16,118
------- ------ ------- -------- ------- --------
51,985 7,834 59,819 104,141 77,317 181,458
Less: Valuation allowance.. (43,245) (7,834) (51,079) (90,307) (62,485) (152,792)
------- ------ ------- -------- ------- --------
8,740 -- 8,740 13,834 14,832 28,666
------- ------ ------- -------- ------- --------
Gross deferred tax
liabilities:
Depreciation/amortization.. (8,740) -- (8,740) (10,103) -- (10,103)
Acquired intangibles....... -- -- -- (2,493) (20,834) (23,327)
Other...................... -- -- -- (1,238) (121) (1,359)
------- ------ ------- -------- ------- --------
(8,740) -- (8,740) (13,834) (20,955) (34,789)
------- ------ ------- -------- ------- --------
Net deferred tax
liabilities................ $ -- $ -- $ -- $ -- $(6,123) $ (6,123)
======= ====== ======= ======== ======= ========
</TABLE>
As of December 31, 1998, the Company 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 limitation 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, the Company had net
operating loss carryforwards for tax purposes in various jurisdictions outside
the U.S. 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.
The significant increase in net operating loss carryforwards for tax purposes
in jurisdictions outside the U.S. results mostly from the acquisition of non-
U.S. entities during 1998.
A capital tax loss of $0.8 million resulting from the sale of one of the
Company's investments was incurred in 1997. The loss may be carried forward
until 2003.
The Company has provided a valuation allowance against a portion of its
deferred tax assets since realization of these tax benefits cannot be
reasonably assured. The change in valuation allowance was an increase of $18.8
million and $101.7 million in 1997 and 1998, respectively. The changes
primarily relate to additional losses in those years. The portion of the
valuation allowance for which subsequently recognized tax benefits will be
first applied to reduce goodwill or other intangibles was $32.4 million at
December 31, 1998.
F-26
<PAGE>
PSINET INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Taxes computed at the U.S. statutory federal income tax rate of 34% are
reconciled to the provision for income taxes as follows:
<TABLE>
<CAPTION>
Year ended
December 31,
---------------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
U.S. federal taxes at statutory rate.................... 34.0% 34.0% 34.0%
State taxes (net of federal benefit).................... 7.0% 7.0% 7.0%
Foreign rate differential............................... -- (1.5)% (1.8)%
Change in valuation allowance........................... (37.9)% (40.7)% (38.7)%
Acquired intangibles.................................... -- -- 11.5%
Acquired research and development write-off............. -- -- (11.1)%
Amortization of non-deductible goodwill................. (5.7)% (0.6)% (1.5)%
Other................................................... 2.9% 2.8% 0.9%
----- ----- -----
Effective tax rate...................................... 0.3% 1.0% 0.3%
===== ===== =====
</TABLE>
NOTE 10--Commitments and Contingencies
Commitments
The Company has guaranteed monthly usage levels of data and voice
communications with certain of its telecommunications vendors. In addition, the
Company leases certain of its facilities under non-cancelable operating leases
expiring in various years through 2009. Total rent expense for all operating
leases amounted to $3.6 million in 1996, $5.0 million in 1997 and $12.5 million
in 1998.
At December 31, 1998, commitments to telecommunications vendors and future
minimum lease payments under non-cancelable operating leases are as follows:
<TABLE>
<CAPTION>
Year Ending December 31, Telecommunications Operating Leases
- ------------------------ ------------------ ----------------
(In thousands of U.S. dollars)
<S> <C> <C>
1999....................................... $26,151 $ 9,148
2000....................................... 18,398 7,669
2001....................................... 15,229 5,956
2002....................................... 8,556 5,285
2003....................................... 4,493 4,688
Thereafter................................. 22,528 7,671
------- -------
$95,355 $40,417
======= =======
</TABLE>
The Company also acquires fiber-based telecommunications bandwidth through
purchases of IRUs and capital leases. Some of the purchase agreements have
obligations for future cash payments that coincide with the delivery of
bandwidth. At December 31, 1998, the Company was obligated to make future
payments under these purchase agreements that total $103.7 million, most of
which will be paid in 1999. Under its telecommunications bandwidth agreements,
the Company is also obligated to pay operating and maintenance charges which
vary by agreement in amount.
In January 1999, the Company entered into a 20-year commercial relationship
with the Baltimore Ravens of the National Football League pursuant to which it
acquired, among other things, the 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, the Company has the
right to develop a Baltimore Ravens' web site and provide related Internet
services to subscribing fan members. In exchange for all of these rights,
F-27
<PAGE>
PSINET INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
the Company will make payments to the Baltimore Ravens over a 20-year period.
The Company paid $11.8 million in January 1999, which included 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%. Total payments over the 20-
year period will be approximately $93.5 million.
Contingencies
The Company is subject to certain other claims and legal proceedings that
arise in the ordinary course of its business activities. Each of these matters
is subject to various uncertainties, and it is possible that some of these
matters may be decided unfavorably to the Company. Management believes that any
liability that may ultimately result from the resolution of these matters will
not have a material adverse effect on the financial condition or results of
operations or cash flows of the Company.
NOTE 11--Non-Recurring Arbitration Charge
On March 23, 1999, an arbitrator awarded The Chatterjee Management Company
("Chatterjee") compensatory damages including interest and legal expenses from
the Company. In conjunction with this, the Company has recorded a charge of
$49.0 million relating to this arbitration decision and such accrual is
reflected in other accounts payable and accrued liabilities in the Company's
consolidated balance sheet at December 31, 1998. This award resulted from a
claim by Chatterjee that the Company had breached the terms of a joint venture
agreement executed by the parties in September 1996. Chatterjee had initiated
the arbitration proceedings against the Company in November 1997 before the
International Chamber of Commerce, Court of Arbitration, in London, England.
On September 19, 1996, the Company and Chatterjee signed an agreement
pursuant to which the Company and an investment group led by Chatterjee would
have established a joint venture for the purpose of building an Internet
network across Europe and providing Internet-related services in Europe. Such
investment group was to invest up to $41 million in a joint venture. No monies
were invested by Chatterjee or the investment group pursuant to the joint
venture agreement nor were any other actions undertaken to implement it.
Following the signing of the agreement, the parties acknowledged structural
difficulties associated with the joint venture as originally contemplated,
which prevented its implementation. Instead, they sought for several months to
negotiate a direct investment in the Company by Chatterjee in lieu of the
initial agreement. Those negotiations were not successful.
In the arbitration proceedings, Chatterjee alleged that the Company breached
the joint venture agreement by repudiating its obligations under the agreement
and by breaching a covenant not to compete. Chatterjee requested an arbitration
award declaring that the agreement was still valid and binding upon the parties
and that the Company stood in breach of the agreement, directing the Company to
specifically perform its obligations under the agreement or, in the
alternative, awarding Chatterjee compensatory damages in an amount not less
than $25 million, awarding Chatterjee profits that the Company had earned or
stood to earn in Europe, and awarding Chatterjee the costs of arbitration,
including attorney's fees and interest on the award of damages.
NOTE 12--Industry Segment and Geographic Reporting
SFAS No. 131 establishes standards for reporting information about operating
segments in annual financial statements and requires selected information about
operating segments in interim financial reports issued to stockholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. Operating segments are defined as
components of an enterprise about which separate
F-28
<PAGE>
PSINET INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in assessing
performance.
The Company offers a broad range of Internet access services and related
products to businesses in the U.S. and throughout the world. As of December 31,
1998, the Company served primary markets in 12 countries, with operations
organized into four geographic operating segments--the U.S., Canada, Europe and
Asia. In measuring performance and allocating assets, the chief operating
decision maker reviews each geographic operating segment as a whole and not by
types of services provided.
Each of these geographic operating segments is considered a reportable
segment, and the accounting policies of the operating segments are the same as
those described in Note 1. The Company evaluates the performance of its
segments and allocates resources to them based on revenue and EBITDA. The
Company defines EBITDA as 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.
Operations of the U.S. segment include shared network costs and corporate
functions which the Company does not allocate to its other geographic segments
for management reporting purposes. Capital expenditures include both assets
acquired for cash and financed through capital lease and seller-financed
arrangements.
Revenue by reportable segment is provided on the basis of where services are
provided. The Company has no single customer representing greater than 10% of
its revenues.
Certain financial information is presented below (in thousands of U.S.
dollars):
<TABLE>
<CAPTION>
Year Ended December 31: U.S. Canada Europe Asia Eliminations Total
----------------------- ---------- ------- ------- -------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
1996
Revenue................ $ 78,132 $ 308 $ 5,097 $ 1,375 $ (561) $ 84,351
EBITDA................. (20,378) (3,180) (2,819) (1,484) (185) (28,046)
Assets................. 199,959 2,109 4,640 991 (30,587) 177,112
Capital expenditures... 35,560 438 2,130 262 -- 38,390
1997
Revenue................ 104,254 2,844 10,917 4,189 (302) 121,902
EBITDA................. (13,091) (4,097) (3,556) (515) 20 (21,239)
Assets................. 196,053 10,617 14,608 2,938 (38,035) 186,181
Capital expenditures... 47,389 1,523 473 689 -- 50,074
1998
Revenue................ 156,431 27,440 40,037 36,111 (383) 259,636
EBITDA................. (26,170) (7,668) (6,364) (1,848) -- (42,050)
Assets................. 1,261,629 54,028 84,192 284,349 (399,967) 1,284,231
Capital expenditures... 248,295 14,899 17,687 22,790 (121) 303,550
</TABLE>
F-29
<PAGE>
PSINET INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
U.S. Canada Europe Asia Eliminations Total
-------- ------ ------- -------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Three Months Ended:
-------------------
March 31, 1998
- --------------
Revenue (unaudited).... $ 31,947 $5,036 $ 6,003 $ 1,596 $ (113) $ 44,469
EBITDA (unaudited)..... (6,240) (3,168) (1,171) 65 -- (10,514)
Assets (unaudited)..... 159,107 39,853 25,923 2,779 5,642 233,304
Capital expenditures
(unaudited)........... 32,374 1,242 3,611 43 (212) 37,058
March 31, 1999
- --------------
Revenue (unaudited).... $ 50,570 $8,539 $15,913 $ 29,900 $ (76) $ 104,846
EBITDA (unaudited)..... (8,253) 208 (1,908) 3,120 -- (6,833)
Assets (unaudited)..... 862,899 52,319 194,847 272,408 (11,260) 1,371,213
Capital expenditures
(unaudited)........... 76,924 4,426 40,448 5,770 -- 127,568
</TABLE>
EBITDA for all reportable segments differs from consolidated loss before
income taxes reported in the consolidated statements of operations as follows
(in thousands of U.S. dollars):
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
----------------------------- -----------------------
1996 1997 1998 1998 1999
-------- -------- --------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
EBITDA.................. $(28,046) $(21,239) $ (42,050) $(10,514) $ (6,833)
Reconciling items:
Depreciation and
amortization.......... (28,035) (28,347) (63,424) (9,465) (26,818)
Charge for acquired
IPR&D................. -- -- (70,800) (7,000) --
Interest expense....... (5,025) (5,362) (63,914) (2,579) (29,581)
Interest income........ 3,794 3,059 19,638 585 4,720
Other income, net...... 2,056 5,811 6,833 (99) (175)
Non-recurring
arbitration charge.... -- -- (49,000) -- --
-------- -------- --------- -------- --------
Loss before income
taxes.................. $(55,256) $(46,078) $(262,717) $(29,072) $(58,687)
======== ======== ========= ======== ========
</TABLE>
NOTE 13--Subsequent Event (unaudited)
During April 1999, the Company's request that the International Chamber of
Commerce reconsider the amount of the damages awarded in the Company's
arbitration proceeding with Chatterjee was denied and the Company resolved this
matter by payment of $48.0 million to Chatterjee in April 1999.
F-30
<PAGE>
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.
3.1 Certificate of Incorporation, as amended.
3.2 Certificate of Amendment of Certificate of Incorporation, dated April
25, 1995.
3.3 Certificate of Amendment of Certificate of Incorporation, dated May 5,
1995.
II-1
<PAGE>
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.
4.14 Article I of the Amended and Restated By-laws of PSINet, as amended.
II-2
<PAGE>
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.
10.9 Sublease Agreement dated as of June 2, 1997 between Lucas Industries,
Inc. and PSINet and Office Lease Agreement
II-3
<PAGE>
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.
II-4
<PAGE>
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.
II-5
<PAGE>
*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.
*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.
II-6
<PAGE>
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 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 Three Months Ended March 31,
1999.
12 Statements re Computation of Ratios.
21 Subsidiaries of PSINet.
23.1 Consent of Nixon Peabody LLP.
23.2 Consent of PricewaterhouseCoopers 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).
FINANCIAL STATEMENTS AND SCHEDULE:
Financial Statements:
Financial Statements filed as a part of this Registration Statement are
listed in the Index to Financial Statements on page F-1.
Financial Statement Schedules:
II-10
<PAGE>
II-Valuation and Qualifying Accounts for each of the three years in the
period ended December 31, 1998.
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
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 registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Herndon, Commonwealth of Virginia on August 6, 1999.
PSINet Inc.
By: /s/ William L. Schrader
------------------------------------------
William L. Schrader, Chairman and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints David N. Kunkel, Edward D. Postal, Michael
J. Malesardi and Kathleen B. Horne, and each or any of them, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
registration statement filed pursuant to Rule 462(b) under the Securities Act of
1933 and any and all amendments (including post-effective amendments) to this
registration statement and to any registration statement filed pursuant to Rule
462(b), and to file same, with all exhibits thereto and, other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
each said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
foregoing, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and agent
or either of them, or their or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ William L. Schrader Chairman, Chief Executive August 6, 1999
- --------------------------------- Officer and Director (Principal
William L. Schrader Executive Officer)
/s/ Harold S. Wills President, Chief Operating August 6, 1999
- --------------------------------- Officer and Director
Harold S. Wills
/s/ David N. Kunkel Executive Vice President, August 6, 1999
- --------------------------------- General Counsel and Director
David N. Kunkel
/s/ Edward D. Postal Senior Vice President and Chief August 6, 1999
- --------------------------------- Financial officer (Principal
Edward D. Postal Financial Officer
/s/ Michael J. Malesardi Vice President and Controller August 6, 1999
- --------------------------------- (Principal Accounting Officer)
Michael J. Malesardi
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
/s/ William H. Baumer Director August 6, 1999
- ---------------------------------
William H. Baumer
/s/ Ralph J. Swett Director August 6, 1999
- ---------------------------------
Ralph J. Swett
/s/ Ian P. Sharp Director August 6, 1999
- ---------------------------------
Ian P. Sharp
</TABLE>
<PAGE>
SCHEDULE II-VALUATION ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
Additions
--------------------------------------
Balance at Charged to Balances Balance at
beginning costs and of acquired end of
of period expenses subsidiaries Deductions period
---------- ---------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
(In thousands of U.S. dollars)
Year ended December 31, 1996
Allowances for doubtful accounts and returns......... 875 3,130 - (2,096) 1,909
Deferred tax valuation allowance..................... 11,375 20,948 - - 32,323
Year ended December 31, 1997
Allowances for doubtful accounts and returns......... 1,909 5,424 16 (5,248) 2,101
Deferred tax valuation allowance..................... 32,323 18,756 - - 51,079
Year ended December 31, 1998
Allowances for doubtful accounts and returns......... 2,101 5,505 6,889 (2,795) 11,700
Deferred tax valuation allowance..................... 51,079 69,335 32,378 - 152,792
</TABLE>
S-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION LOCATION
- ------ ----------- --------
<S> <C> <C>
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 the 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")
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")
</TABLE>
<PAGE>
<TABLE>
EXHIBIT
NUMBER DESCRIPTION LOCATION
- ------ ----------- --------
<S> <C> <C>
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 Filed herewith
11% Senior Notes due 2009
4.7 Form of unregistered Euro-denominated Filed herewith
11% Senior Notes due 2009
4.8 Form of registered 11% Senior Notes due 2009 Filed herewith
4.9 Indenture dated as of July 23, 1999 between PSINet Filed herewith
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
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
</TABLE>
-2-
<PAGE>
<TABLE>
EXHIBIT
NUMBER DESCRIPTION LOCATION
- ------ ----------- --------
<S> <C> <C>
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 Filed herewith
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
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
</TABLE>
-3-
<PAGE>
<TABLE>
EXHIBIT
NUMBER DESCRIPTION LOCATION
- ------ ----------- --------
<S> <C> <C>
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
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")
</TABLE>
-4-
<PAGE>
<TABLE>
EXHIBIT
NUMBER DESCRIPTION LOCATION
- ------ ----------- --------
<S> <C> <C>
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
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
</TABLE>
-5-
<PAGE>
<TABLE>
EXHIBIT
NUMBER DESCRIPTION LOCATION
- ------ ----------- --------
<S> <C> <C>
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
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
</TABLE>
-6-
<PAGE>
<TABLE>
EXHIBIT
NUMBER DESCRIPTION LOCATION
- ------ ----------- --------
<S> <C> <C>
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 October 16, 1998 8-K
Manhattan Bank, as Administrative Agent, Fleet
National Bank, as Syndication Agent, and The Bank
of New York as Documentation Agent
</TABLE>
-7-
<PAGE>
<TABLE>
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>
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/A2
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. Amendment No. 1 to PSINet's Quarterly Report on
and PSINet Form 10-Q for the quarter ended June 30, 1996
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>
-9-
<PAGE>
<TABLE>
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>
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 Filed herewith
PSINet and Thomas A. Leach
10.100* Employment Agreement dated May 24, 1999 between Filed herewith
PSINet and James F. Cragg
10.101* Employment Agreement dated May 24, 1999 between Filed herewith
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>
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<PAGE>
<TABLE>
EXHIBIT
NUMBER DESCRIPTION LOCATION
- ------ ----------- --------
<S> <C> <C>
10.107 Registration Rights Agreement, dated as of July 23, Filed herewith
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 998 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 the March 31, 1999 10-Q
Three Months Ended March 31, 1999
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 Contained in Exhibit 5
23.2 Consent of PricewaterhouseCoopers LLP Filed herewith
24 Power of Attorney Set forth on the signature page to this
registration statement
25 Statement of Eligibility on Form T-1 of Wilmington Filed herewith
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
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).
-12-
<PAGE>
EXHIBIT 4.6
DOLLAR INTERNATIONAL GLOBAL NOTE
THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER
REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE OF A
DEPOSITARY OR A SUCCESSOR DEPOSITARY. TRANSFERS OF THIS GLOBAL NOTE SHALL BE
LIMITED TO TRANSFERS TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN
SECTION 2.07 OF THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS
AGENT FOR REGISTRATION OF TRANSFER OR EXCHANGE, OR FOR PAYMENT AND ANY SUCH
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME
AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE
TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
PSINET INC.
THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE
OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO,
OR FOR THE ACCOUNT OR BENEFIT OF, UNITED STATES PERSONS, EXCEPT AS SET FORTH IN
THE NEXT SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN,
THE HOLDER:
(1) REPRESENTS THAT (A) (I) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED
IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB") OR (II) IT IS NOT A UNITED
STATES PERSON AND HAS ACQUIRED THIS NOTE IN AN OFFSHORE TRANSACTION IN
COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT AND (B) IT IS HEREBY
NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF
SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER OR ANOTHER
EXEMPTION UNDER THE SECURITIES ACT.
<PAGE>
(2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO
THE COMPANY OR ANY OF ITS SUBSIDIARIES, (B) TO A PERSON WHOM THE SELLER
REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT
OF A QIB IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (C) IN AN
OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR 904 OF THE
SECURITIES ACT, (D) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER
THE SECURITIES ACT, (E) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF
COUNSEL ACCEPTABLE TO THE COMPANY) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS
OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION.
(3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE OR AN INTEREST
HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.
AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND "UNITED STATES" HAVE THE
MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT. THE
INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY
TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING.
-------------------
11% SENIOR NOTE DUE 2009
CUSIP No. U74442AA9/ISIN No. USU74442AA93 (Dollar International Note)
No. DI-1 $
PSINet Inc., a New York corporation (herein called the "Company,"
which term includes any successor Person under the Indenture), for value
received, hereby promises to pay to Cede & Co. or registered assigns, the
principal sum of United States Dollars on August 1, 2009, at the office or
agency of the Company referred to below, and to pay interest thereon from July
23, 1999, or from the most recent Interest Payment Date to which interest has
been paid or duly provided for, semiannually on February 1 and August 1, in each
year, commencing February 1, 2000 at the rate of 11% per annum, subject to
adjustments as described in the second following paragraph, in United
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<PAGE>
States Dollars, until the principal hereof is paid or duly provided for.
Interest shall be computed on the basis of a 360-day year comprised of twelve
30-day months.
The Holder of this Note is entitled to the benefits of the
Registration Rights Agreement between the Company and the Initial Purchasers,
dated as of July 23, 1999, pursuant to which, subject to the terms and
conditions thereof, the Company is obligated to consummate the Exchange Offer
pursuant to which the Holder of this Note shall have the right to exchange this
Note for a new 11% Senior Note due 2009 in like principal amount as provided
therein.
In the event that (a) the Exchange Offer Registration Statement is
not filed with the Commission on or prior to the date specified in the
Registration Rights Agreement, (b) the Exchange Offer Registration Statement is
not declared effective on or prior to the date specified in the Registration
Rights Agreement, (c) the Exchange Offer is not consummated on or prior to the
date specified in the Registration Rights Agreement, (d) if obligated to file
the Shelf Registration Statement, the Company fails to file the Shelf
Registration Statement with the Commission on or prior to the date specified in
the Registration Rights Agreement, (e) if obligated to file the Shelf
Registration Statement, the Shelf Registration Statement is not declared
effective on or prior to the date specified in the Registration Rights
Agreement, or (f) the Shelf Registration Statement or the Exchange Offer
Registration Statement is declared effective but thereafter ceases to be
effective or usable in connection with resales of the Restricted Notes during
the periods specified in the Registration Rights Agreement (each such event
referred to in clauses (a) through (f) above, a "Registration Default"), the
Company agrees to pay to each Holder of Restricted Notes liquidated damages
("Liquidated Damages") in an amount equal to 0.25% per annum per $1,000 in
principal amount of the Restricted Notes held by such Holder for each year or
portion thereof that the Registration Default continues for the first 90 day
period immediately following the occurrence of such Registration Default. The
amount of Liquidated Damages shall increase by an additional 0.25% per annum per
$1,000 in principal amount of the Restricted Notes with respect to each
subsequent 90 day period until all Registration Defaults have been cured, up to
a maximum amount of Liquidated Damages of 1.50% per annum per $1,000 in
principal amount of the Notes. The Company shall not be required to pay
Liquidated Damages for more than one Registration Default at any given time.
Following the cure of all Registration Defaults, the accrual of Liquidated
Damages shall cease. All accrued Liquidated Damages shall be paid by the Company
to Holders entitled thereto in the manner provided for the payment of interest
in the Indenture and herein, on each Interest Payment Date, as more fully set
forth in the Indenture and herein.
The interest so payable, and punctually paid or duly provided for,
on any Interest Payment Date will, as provided in the Indenture, be paid to the
Person in whose name this Note (or any Predecessor Note) is registered at the
close of business on the "Regular Record Date" for such interest, which shall be
the January 15 or July 15 (whether
-3-
<PAGE>
or not a Business Day), as the case may be, next preceding such Interest Payment
Date. Any such interest not so punctually paid, or duly provided for, and
interest on such defaulted interest at the interest rate borne by the Notes, to
the extent lawful, shall, as provided in the Indenture, be paid to the Person in
whose name this Note (or any Predecessor Notes) is registered at the close of
business on the "Special Record Date" for such defaulted interest, such date to
be fixed by the Company in a manner satisfactory to the Trustee, notice whereof
shall be given to Holders of Notes not less than 15 days prior to such Special
Record Date.
Payment of the principal of, premium, if any, and interest on, this
Note, and exchange or transfer of the Note, will be made at the office or agency
of the Company in the City of New York maintained for that purpose (which
initially will be the Trustee c/o Harris Trust Company of New York, 77 Water
Street, New York, NY 10005), or at such other office or agency as may be
maintained for such purpose, or, at the option of the Company, payment of
interest may be made by check mailed to the address of the Person entitled
thereto as such address shall appear on the Register, and provided that payment
by wire transfer of immediately available funds will be required with respect to
principal of and interest on all Global Notes and all other Notes the Holders of
which shall have provided wire transfer instructions to the Company or the
Paying Agent. Such payment shall be in such coin or currency of the United
States of America as at the time of payment is legal tender for payment of
public and private debts.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly
executed by the Trustee referred to on the reverse hereof or by the
authenticating agent appointed as provided in the Indenture by manual signature
of an authorized signer, this Note shall not be entitled to any benefit under
the Indenture, or be valid or obligatory for any purpose.
-4-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be
duly executed by the manual or facsimile signature of its authorized officers.
PSINET INC.
By:________________________________________
Title:
Attest:
_________________________________
Authorized Officer
-5-
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the 11% Senior Notes due 2009 referred to in the
within-mentioned Indenture.
WILMINGTON TRUST COMPANY,
as Trustee
By:________________________________________
Authorized Signer
Dated:___________________________
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<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company pursuant to
Section 10.12 or Section 10.14, as applicable, of the Indenture, check the Box:
|_|.
If you wish to have a portion of this Note purchased by the Company
pursuant to Section 10.12 or Section 10.14, as applicable, of the Indenture,
state the amount (in original principal amount): $ _______________.
Date: ___________________
Your Signature: _____________________
(Sign exactly as your name appears on the other side of this Note)
Signature Guarantee: __________________________________
[If applicable, signature must be guaranteed by an eligible Guarantor
Institution (banks, stock brokers, savings and loan associations and credit
unions) with membership in an approved guarantee medallion program pursuant to
Securities and Exchange Commission Rule 17Ad-15]
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<PAGE>
[REVERSE SIDE OF NOTE]
PSINET INC.
11% Senior Note due 2009
This Note is one of a duly authorized issue of Notes of the Company
designated as its 11% Senior Notes due 2009 (herein called the "Notes"), limited
(except as otherwise provided in the Indenture referred to below) in aggregate
principal amount to $1,050,000,000, issued under, entitled to the benefits of
and subject to the terms of an indenture (herein called the "Indenture") dated
as of July 23, 1999, between the Company and Wilmington Trust Company, as
trustee (herein called the "Trustee," which term includes any successor trustee
under the Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights, limitations
of rights, duties, obligations and immunities thereunder of the Company, any
Guarantors, the Trustee and the Holders of the Notes, and of the terms upon
which the Notes are, and are to be, authenticated and delivered.
The Indenture contains provisions for defeasance at any time of (a)
the entire Indebtedness on the Notes and (b) certain restrictive covenants and
related Defaults and Events of Default, in each case upon compliance with
certain conditions set forth therein.
The Notes are subject to redemption at any time on or after August
1, 2004, at the option of the Company, 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 $1,000 or an integral multiple thereof, at the following redemption
prices (expressed as percentages of the principal amount), if redeemed during
the 12-month period beginning August 1 of the years indicated below:
Year Dollar Notes Euro Notes
---- ------------ ----------
2004 105.500% 105.500%
2005 103.667% 103.667%
2006 101.833% 101.833%
2007 100.000% 100.000%
and thereafter at 100% of the principal amount, in each case, together with
accrued and unpaid interest, if any, to the Redemption Date (subject to the
rights of Holders of record on relevant record dates to receive interest due on
an Interest Payment Date).
-8-
<PAGE>
In addition, at any time on or prior to August 1, 2002, the Company
may, at its option, use the Net Cash Proceeds of one or more Public Equity
Offerings or the sale of Capital Stock of the Company to a Strategic Investor in
a single transaction or in a series of related transactions (other than
Disqualified Stock) in any 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 (a) in the case of the Euro
Notes, to 111.000% of the aggregate principal amount thereof, plus accrued and
unpaid interest thereon, if any, to the Redemption Date and (b) in the case of
the Dollar Notes, to 111.000% of the aggregate principal amount thereof, plus
accrued and unpaid interest thereon, if any, to the Redemption Date; provided
that, in each case, at least 65% of the original aggregate principal amount of
each of the Euro Notes and the Dollar Notes remains outstanding immediately
following such redemption. All determinations with respect to these provisions
shall be made in the manner set forth in the Indenture. In order to effect the
foregoing redemption, the Company must provide a notice of redemption no later
than 45 days after the closing of the related Public Equity Offering or sale to
a Strategic Investor and must consummate such 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 shall deem fair and reasonable, subject to the terms of
the Indenture.
Upon the occurrence of a Change of Control, subject to the terms of
the Indenture, each Holder may require the Company to purchase such Holder's
Notes in whole or in part in integral multiples of $1,000, at a 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, pursuant to a Change of Control Offer in accordance with the
procedures set forth in the Indenture.
Under certain circumstances, subject to the terms of the Indenture,
in the event the Net Cash Proceeds received by the Company from any Asset Sale,
which proceeds are not used to repay any Pari Passu Indebtedness of the Company
or any Subsidiary (including the repurchase of Notes) or which will be invested
in Telecommunications Assets, exceeds a specified amount, the Company will be
required to apply such proceeds by making an offer to purchase Notes and certain
Indebtedness ranking pari passu in right of payment to the Notes.
In the case of any redemption of Notes in accordance with the
Indenture, interest installments whose Stated Maturity is on or prior to the
Redemption Date will be payable to the Holders of such Notes of record as of the
close of business on the relevant Regular Record Date or Special Record Date
referred to on the face hereof. Notes (or
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<PAGE>
portions thereof) for whose redemption and payment provision is made in
accordance with the Indenture shall cease to bear interest from and after the
Redemption Date.
In the event of redemption of this Note in accordance with the
Indenture in part only, a new Note or Notes for the unredeemed portion hereof,
denominated in the same currency, shall be issued in the name of the Holder
hereof upon the cancellation hereof.
If an Event of Default shall occur and be continuing, the principal
amount of all the Notes may be declared due and payable in the manner and with
the effect provided in the Indenture.
The Indenture permits, with certain exceptions (including certain
amendments permitted without the consent of any Holders and certain amendments
which require the consent of all the Holders) as therein provided, the amendment
thereof and the modification of the rights and obligations of the Company and
any Guarantors and the rights of the Holders under the Indenture and the Notes
and any Guarantees at any time by the Company and the Trustee with the consent
of the Holders of at least a majority in aggregate principal amount of the Notes
at the time Outstanding. The Indenture also contains provisions permitting the
Holders of at least a majority in aggregate principal amount of the Notes (100%
of the Holders in certain circumstances) at the time Outstanding, on behalf of
the Holders of all the Notes, to waive compliance by the Company and any
Guarantors with certain provisions of the Indenture and the Notes and any
Guarantees and certain past Defaults under the Indenture and the Notes and any
Guarantees and their consequences. Any such consent or waiver by or on behalf of
the Holder of this Note shall be conclusive and binding upon such Holder and
upon all future Holders of this Note and of any Note issued upon the
registration of transfer hereof or in exchange herefor or in lieu hereof whether
or not notation of such consent or waiver is made upon this Note.
No reference herein to the Indenture and no provision of this Note
or of the Indenture shall alter or impair the obligation of the Company, any
Guarantor or any other obligor on the Notes (in the event such Guarantor or such
other obligor is obligated to make payments in respect of the Notes), which is
absolute and unconditional, to pay the principal of, premium, if any, and
interest on, this Note at the times, place and rate, and in the coin or
currency, herein prescribed.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Note is registrable in the Register,
upon surrender of this Note for registration of transfer at the office or agency
of the Company in the Borough of Manhattan, The City of New York or in
Luxembourg, duly endorsed by, or accompanied by a written instrument of transfer
in form satisfactory to the Company and the Registrar duly executed by, the
Holder hereof or its attorney duly authorized in writing, and thereupon one or
more
-10-
<PAGE>
new Notes, denominated in the same currency, of authorized denominations and for
the same aggregate principal amount, will be issued to the designated transferee
or transferees.
Certificated securities shall be transferred to all beneficial
holders in exchange for their beneficial interests in the U.S. Global Notes or
the International Global Notes, as the case may be, if, among other things, (a)
the Depositary notifies the Company that it is unwilling or unable to continue
as depository for such Global Note and a successor depository is not appointed
by the Company within 120 days or (b) there shall have occurred and be
continuing an Event of Default and the Registrar has received a request from the
relevant Depositary. Upon any such issuance, the Trustee is required to register
such certificated Notes in the name of, and cause the same to be delivered to,
such Person or Persons (or the nominee of any thereof). All such certificated
Notes would be required to include the Legend.
Notes in certificated form are issuable only in registered form
without coupons in denominations of $1,000 and any integral multiple thereof. As
provided in the Indenture and subject to certain limitations therein set forth,
the Notes are exchangeable for a like aggregate principal amount of Notes of a
differing authorized denomination, as requested by the Holder surrendering the
same.
At any time when the Company is not subject to Sections 13 or 15(d)
of the Exchange Act, upon the written request of a Holder of a Restricted Note,
the Company will promptly furnish or cause to be furnished such information as
is specified pursuant to Rule 144A(d)(4) under the Securities Act to such Holder
or to a prospective purchaser of such Note who such Holder informs the Company
is reasonably believed to be a "Qualified Institutional Buyer" within the
meaning of Rule 144A under the Securities Act, as the case may be, in order to
permit compliance by such Holder with Rule 144A under the Securities Act.
No service charge shall be made for any registration of transfer,
exchange or redemption of this Note, except for any tax or other governmental
charge that may be imposed in connection therewith, other than certain exchanges
not involving a transfer as more fully set forth in the Indenture.
Prior to due presentment of this Note for registration of transfer,
the Company, any Guarantor, the Paying Agents, the Transfer Agents, the
Registrar, the Trustee and any agent of the Company, any Guarantor, the Paying
Agents, the Transfer Agents, the Registrar or the Trustee may deem and treat the
Person in whose name this Note is registered as the absolute owner of that Note
for all purposes, whether or not this Note is overdue, and neither the Company,
any Guarantor, the Paying Agents, the Transfer Agents, the Registrant or the
Trustee nor any such agent shall be affected by notice to the contrary.
-11-
<PAGE>
THIS NOTE SHALL 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.
All terms used in this Note which are defined in the Indenture and
not otherwise defined herein shall have the meanings assigned to them in the
Indenture.
-12-
<PAGE>
APPENDIX I
FORM OF TRANSFER NOTICE
FOR VALUE RECEIVED, the undersigned registered holder hereby
sell(s), assign(s) and transfer(s) unto
Insert Taxpayer Identification No.______________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Please print or typewrite name and address including zip code of assignee)
________________________________________________________________________________
the within Note and all rights thereunder, hereby irrevocably constituting and
appointing
________________________________________________________________________________
attorney to transfer such Note on the books of the Company with full power of
substitution in the premises. [THE FOLLOWING PROVISION TO BE INCLUDED ON ALL
CERTIFICATES FOR RESTRICTED NOTES]. In connection with any transfer of this Note
occurring prior to the date which is the earlier of the date of an effective
Registration Statement or July 23, 2000, the undersigned confirms that without
utilizing any general solicitation or general advertising that:
[Check One]
|_| (a) this Note is being transferred in compliance with the
exemption from registration under the Securities Act of 1933, as amended,
provided by Rule 144A thereunder or
|_| (b) this Note is being transferred other than in accordance with
clause (a) above and documents are being furnished which comply with the
conditions of transfer set forth in this Note and the Indenture. If none of the
foregoing boxes is checked, the Trustee or other Note Registrar shall not be
obligated to register this Note in the name of any Person other than the Holder
hereof unless and until the conditions to any such transfer of registration set
forth herein and in Section 2.07 of the Indenture shall have been satisfied.
Date: ________________________________________________________
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the within-mentioned instrument in every particular,
without alteration or any change whatsoever.
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<PAGE>
Signature Guarantee:
______________________________
[If applicable, signature must be guaranteed by an eligible Guarantor
Institution (banks, stock brokers, savings and loan associations and credit
unions) with membership in an approved guarantee medallion program pursuant to
Securities and Exchange Commission Rule 17Ad-15.]
TO BE COMPLETED BY PURCHASER IF CLAUSE (a) ABOVE IS CHECKED. The undersigned
represents and warrants that it is purchasing this Note for its own account or
an account with respect to which it exercises sole investment discretion and
that it and any such account is a "qualified institutional buyer" within the
meaning of Rule 144A under the Securities Act of 1933, as amended, and is aware
that the sale to it is being made in reliance on Rule 144A and acknowledges that
it has received such information regarding the Company as the undersigned has
requested pursuant to Rule 144A or has determined not to request such
information and that it is aware that the transferor is relying upon the
undersigned's foregoing representations in order to claim the exemption from
registration provided by Rule 144A.
Dated:________________________________________________________________
NOTICE: To be executed by an authorized signatory
-14-
<PAGE>
APPENDIX II
FORM OF TRANSFEREE CERTIFICATE
I or we assign and transfer this Note to:
Please insert social security or other identifying number of
assignee
____________________________________________________________
Print or type name, address and zip code of assignee
____________________________________________________________
and irrevocably appoint __________________________________________________
[Agent], to transfer this Note on the books of the Company. The Agent may
substitute another to act for him.
Dated __________________________
Signed _________________________
(Sign exactly as name appears on the other side of this Note)
[If applicable, signature must be guaranteed by an eligible Guarantor
Institution (banks, stock brokers, savings and loan associations and credit
unions) with membership in an approved guarantee medallion program pursuant to
Securities and Exchange Commission Rule 17 Ad-15]
-15-
<PAGE>
DOLLAR U.S. GLOBAL NOTE
THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER
REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE OF A
DEPOSITARY OR A SUCCESSOR DEPOSITARY. TRANSFERS OF THIS GLOBAL NOTE SHALL BE
LIMITED TO TRANSFERS TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN
SECTION 2.07 OF THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS
AGENT FOR REGISTRATION OF TRANSFER OR EXCHANGE, OR FOR PAYMENT AND ANY SUCH
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME
AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE
TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
PSINET INC.
THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE
OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO,
OR FOR THE ACCOUNT OR BENEFIT OF, UNITED STATES PERSONS, EXCEPT AS SET FORTH IN
THE NEXT SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN,
THE HOLDER:
(1) REPRESENTS THAT (A) (I) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED
IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB") OR (II) IT IS NOT A UNITED
STATES PERSON AND HAS ACQUIRED THIS NOTE IN AN OFFSHORE TRANSACTION IN
COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT AND (B) IT IS HEREBY
NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF
SECTION 5 OF THE SECURITIES ACT
<PAGE>
PROVIDED BY RULE 144A THEREUNDER OR ANOTHER EXEMPTION UNDER THE SECURITIES ACT.
(2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO
THE COMPANY OR ANY OF ITS SUBSIDIARIES, (B) TO A PERSON WHOM THE SELLER
REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT
OF A QIB IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (C) IN AN
OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR 904 OF THE
SECURITIES ACT, (D) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER
THE SECURITIES ACT, (E) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF
COUNSEL ACCEPTABLE TO THE COMPANY) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS
OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION.
(3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE OR AN INTEREST
HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.
AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND "UNITED STATES" HAVE THE
MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT. THE
INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY
TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING.
-------------------
11% SENIOR NOTE DUE 2009
CUSIP No. 69363 VAA5 (Dollar U.S. Note)
No. DU-5 $
PSINet Inc., a New York corporation (herein called the "Company," which
term includes any successor Person under the Indenture), for value received,
hereby promises to pay to Cede & Co. or registered assigns, the principal sum of
United States Dollars on August 1, 2009, at the office or agency of the
Company referred to below, and to pay interest thereon from July 23, 1999, or
from the most recent Interest Payment Date to which interest has
-2-
<PAGE>
been paid or duly provided for, semiannually on February 1 and August 1, in each
year, commencing February 1, 2000 at the rate of 11% per annum, subject to
adjustments as described in the second following paragraph, in United States
Dollars, until the principal hereof is paid or duly provided for. Interest shall
be computed on the basis of a 360-day year comprised of twelve 30-day months.
The Holder of this Note is entitled to the benefits of the
Registration Rights Agreement between the Company and the Initial Purchasers,
dated as of July 23, 1999, pursuant to which, subject to the terms and
conditions thereof, the Company is obligated to consummate the Exchange Offer
pursuant to which the Holder of this Note shall have the right to exchange this
Note for a new 11% Senior Note due 2009 in like principal amount as provided
therein.
In the event that (a) the Exchange Offer Registration Statement is
not filed with the Commission on or prior to the date specified in the
Registration Rights Agreement, (b) the Exchange Offer Registration Statement is
not declared effective on or prior to the date specified in the Registration
Rights Agreement, (c) the Exchange Offer is not consummated on or prior to the
date specified in the Registration Rights Agreement, (d) if obligated to file
the Shelf Registration Statement, the Company fails to file the Shelf
Registration Statement with the Commission on or prior to the date specified in
the Registration Rights Agreement, (e) if obligated to file the Shelf
Registration Statement, the Shelf Registration Statement is not declared
effective on or prior to the date specified in the Registration Rights
Agreement, or (f) the Shelf Registration Statement or the Exchange Offer
Registration Statement is declared effective but thereafter ceases to be
effective or usable in connection with resales of the Restricted Notes during
the periods specified in the Registration Rights Agreement (each such event
referred to in clauses (a) through (f) above, a "Registration Default"), the
Company agrees to pay to each Holder of Restricted Notes liquidated damages
("Liquidated Damages") in an amount equal to 0.25% per annum per $1,000 in
principal amount of the Restricted Notes held by such Holder for each year or
portion thereof that the Registration Default continues for the first 90 day
period immediately following the occurrence of such Registration Default. The
amount of Liquidated Damages shall increase by an additional 0.25% per annum per
$1,000 in principal amount of the Restricted Notes with respect to each
subsequent 90 day period until all Registration Defaults have been cured, up to
a maximum amount of Liquidated Damages of 1.50% per annum per $1,000 in
principal amount of the Notes. The Company shall not be required to pay
Liquidated Damages for more than one Registration Default at any given time.
Following the cure of all Registration Defaults, the accrual of Liquidated
Damages shall cease. All accrued Liquidated Damages shall be paid by the Company
to Holders entitled thereto in the manner provided for the payment of interest
in the Indenture and herein, on each Interest Payment Date, as more fully set
forth in the Indenture and herein.
The interest so payable, and punctually paid or duly provided for,
on any Interest Payment Date will, as provided in the Indenture, be paid to the
Person in whose name this Note
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<PAGE>
(or any Predecessor Note) is registered at the close of business on the "Regular
Record Date" for such interest, which shall be the January 15 or July 15
(whether or not a Business Day), as the case may be, next preceding such
Interest Payment Date. Any such interest not so punctually paid, or duly
provided for, and interest on such defaulted interest at the interest rate borne
by the Notes, to the extent lawful, shall, as provided in the Indenture, be paid
to the Person in whose name this Note (or any Predecessor Notes) is registered
at the close of business on the "Special Record Date" for such defaulted
interest, such date to be fixed by the Company in a manner satisfactory to the
Trustee, notice whereof shall be given to Holders of Notes not less than 15 days
prior to such Special Record Date.
Payment of the principal of, premium, if any, and interest on, this
Note, and exchange or transfer of the Note, will be made at the office or agency
of the Company in the City of New York maintained for that purpose (which
initially will be the Trustee c/o Harris Trust Company of New York, 77 Water
Street, New York, NY 10005), or at such other office or agency as may be
maintained for such purpose, or, at the option of the Company, payment of
interest may be made by check mailed to the address of the Person entitled
thereto as such address shall appear on the Register, and provided that payment
by wire transfer of immediately available funds will be required with respect to
principal of and interest on all Global Notes and all other Notes the Holders of
which shall have provided wire transfer instructions to the Company or the
Paying Agent. Such payment shall be in such coin or currency of the United
States of America as at the time of payment is legal tender for payment of
public and private debts.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly
executed by the Trustee referred to on the reverse hereof or by the
authenticating agent appointed as provided in the Indenture by manual signature
of an authorized signer, this Note shall not be entitled to any benefit under
the Indenture, or be valid or obligatory for any purpose.
-4-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be
duly executed by the manual or facsimile signature of its authorized officers.
PSINET INC.
By:_________________________________
Title:
Attest:
____________________________
Authorized Officer
-5-
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the 11% Senior Notes due 2009 referred to in the
within-mentioned Indenture.
WILMINGTON TRUST COMPANY,
as Trustee
By:_________________________________
Authorized Signer
Dated:____________________________
-6-
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company pursuant to
Section 10.12 or Section 10.14, as applicable, of the Indenture, check the Box:
|_|.
If you wish to have a portion of this Note purchased by the Company
pursuant to Section 10.12 or Section 10.14, as applicable, of the Indenture,
state the amount (in original principal amount): $ _______________.
Date: ___________________
Your Signature: _____________________
(Sign exactly as your name appears on the other side of this Note)
Signature Guarantee: __________________________________
[If applicable, signature must be guaranteed by an eligible Guarantor
Institution (banks, stock brokers, savings and loan associations and credit
unions) with membership in an approved guarantee medallion program pursuant to
Securities and Exchange Commission Rule 17Ad-15]
-7-
<PAGE>
[REVERSE SIDE OF NOTE]
PSINET INC.
11% Senior Note due 2009
This Note is one of a duly authorized issue of Notes of the Company
designated as its 11% Senior Notes due 2009 (herein called the "Notes"), limited
(except as otherwise provided in the Indenture referred to below) in aggregate
principal amount to $1,050,000,000, issued under, entitled to the benefits of
and subject to the terms of an indenture (herein called the "Indenture") dated
as of July 23, 1999, between the Company and Wilmington Trust Company, as
trustee (herein called the "Trustee," which term includes any successor trustee
under the Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights, limitations
of rights, duties, obligations and immunities thereunder of the Company, any
Guarantors, the Trustee and the Holders of the Notes, and of the terms upon
which the Notes are, and are to be, authenticated and delivered.
The Indenture contains provisions for defeasance at any time of (a)
the entire Indebtedness on the Notes and (b) certain restrictive covenants and
related Defaults and Events of Default, in each case upon compliance with
certain conditions set forth therein.
The Notes are subject to redemption at any time on or after August
1, 2004, at the option of the Company, 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 $1,000 or an integral multiple thereof, at the following redemption
prices (expressed as percentages of the principal amount), if redeemed during
the 12-month period beginning August 1 of the years indicated below:
Year Dollar Notes Euro Notes
---- ------------ ----------
2004 105.500% 105.500%
2005 103.667% 103.667%
2006 101.833% 101.833%
2007 100.000% 100.000%
and thereafter at 100% of the principal amount, in each case, together with
accrued and unpaid interest, if any, to the Redemption Date (subject to the
rights of Holders of record on relevant record dates to receive interest due on
an Interest Payment Date).
In addition, at any time on or prior to August 1, 2002, the Company
may, at its option, use the Net Cash Proceeds of one or more Public Equity
Offerings or the sale of Capital
-8-
<PAGE>
Stock of the Company to a Strategic Investor in a single transaction or in a
series of related transactions (other than Disqualified Stock) in any 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 (a) in the case of the Euro Notes, to 111.000% of the
aggregate principal amount thereof, plus accrued and unpaid interest thereon, if
any, to the Redemption Date and (b) in the case of the Dollar Notes, to 111.000%
of the aggregate principal amount thereof, plus accrued and unpaid interest
thereon, if any, to the Redemption Date; provided that, in each case, at least
65% of the original aggregate principal amount of each of the Euro Notes and the
Dollar Notes remains outstanding immediately following such redemption. All
determinations with respect to these provisions shall be made in the manner set
forth in the Indenture. In order to effect the foregoing redemption, the Company
must provide a notice of redemption no later than 45 days after the closing of
the related Public Equity Offering or sale to a Strategic Investor and must
consummate such 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 shall deem fair and reasonable, subject to the terms of
the Indenture.
Upon the occurrence of a Change of Control, subject to the terms of
the Indenture, each Holder may require the Company to purchase such Holder's
Notes in whole or in part in integral multiples of $1,000, at a 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, pursuant to a Change of Control Offer in accordance with the
procedures set forth in the Indenture.
Under certain circumstances, subject to the terms of the Indenture,
in the event the Net Cash Proceeds received by the Company from any Asset Sale,
which proceeds are not used to repay any Pari Passu Indebtedness of the Company
or any Subsidiary (including the repurchase of Notes) or which will be invested
in Telecommunications Assets, exceeds a specified amount, the Company will be
required to apply such proceeds by making an offer to purchase Notes and certain
Indebtedness ranking pari passu in right of payment to the Notes.
In the case of any redemption of Notes in accordance with the
Indenture, interest installments whose Stated Maturity is on or prior to the
Redemption Date will be payable to the Holders of such Notes of record as of the
close of business on the relevant Regular Record Date or Special Record Date
referred to on the face hereof. Notes (or portions thereof) for whose redemption
and payment provision is made in accordance with the Indenture shall cease to
bear interest from and after the Redemption Date.
-9-
<PAGE>
In the event of redemption of this Note in accordance with the
Indenture in part only, a new Note or Notes for the unredeemed portion hereof,
denominated in the same currency, shall be issued in the name of the Holder
hereof upon the cancellation hereof.
If an Event of Default shall occur and be continuing, the principal
amount of all the Notes may be declared due and payable in the manner and with
the effect provided in the Indenture.
The Indenture permits, with certain exceptions (including certain
amendments permitted without the consent of any Holders and certain amendments
which require the consent of all the Holders) as therein provided, the amendment
thereof and the modification of the rights and obligations of the Company and
any Guarantors and the rights of the Holders under the Indenture and the Notes
and any Guarantees at any time by the Company and the Trustee with the consent
of the Holders of at least a majority in aggregate principal amount of the Notes
at the time Outstanding. The Indenture also contains provisions permitting the
Holders of at least a majority in aggregate principal amount of the Notes (100%
of the Holders in certain circumstances) at the time Outstanding, on behalf of
the Holders of all the Notes, to waive compliance by the Company and any
Guarantors with certain provisions of the Indenture and the Notes and any
Guarantees and certain past Defaults under the Indenture and the Notes and any
Guarantees and their consequences. Any such consent or waiver by or on behalf of
the Holder of this Note shall be conclusive and binding upon such Holder and
upon all future Holders of this Note and of any Note issued upon the
registration of transfer hereof or in exchange herefor or in lieu hereof whether
or not notation of such consent or waiver is made upon this Note.
No reference herein to the Indenture and no provision of this Note
or of the Indenture shall alter or impair the obligation of the Company, any
Guarantor or any other obligor on the Notes (in the event such Guarantor or such
other obligor is obligated to make payments in respect of the Notes), which is
absolute and unconditional, to pay the principal of, premium, if any, and
interest on, this Note at the times, place and rate, and in the coin or
currency, herein prescribed.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Note is registrable in the Register,
upon surrender of this Note for registration of transfer at the office or agency
of the Company in the Borough of Manhattan, The City of New York or in
Luxembourg, duly endorsed by, or accompanied by a written instrument of transfer
in form satisfactory to the Company and the Registrar duly executed by, the
Holder hereof or its attorney duly authorized in writing, and thereupon one or
more new Notes, denominated in the same currency, of authorized denominations
and for the same aggregate principal amount, will be issued to the designated
transferee or transferees.
-10-
<PAGE>
Certificated securities shall be transferred to all beneficial
holders in exchange for their beneficial interests in the U.S. Global Notes or
the International Global Notes, as the case may be, if, among other things, (a)
the Depositary notifies the Company that it is unwilling or unable to continue
as depository for such Global Note and a successor depository is not appointed
by the Company within 120 days or (b) there shall have occurred and be
continuing an Event of Default and the Registrar has received a request from the
relevant Depositary. Upon any such issuance, the Trustee is required to register
such certificated Notes in the name of, and cause the same to be delivered to,
such Person or Persons (or the nominee of any thereof). All such certificated
Notes would be required to include the Legend.
Notes in certificated form are issuable only in registered form
without coupons in denominations of $1,000 and any integral multiple thereof. As
provided in the Indenture and subject to certain limitations therein set forth,
the Notes are exchangeable for a like aggregate principal amount of Notes of a
differing authorized denomination, as requested by the Holder surrendering the
same.
At any time when the Company is not subject to Sections 13 or 15(d)
of the Exchange Act, upon the written request of a Holder of a Restricted Note,
the Company will promptly furnish or cause to be furnished such information as
is specified pursuant to Rule 144A(d)(4) under the Securities Act to such Holder
or to a prospective purchaser of such Note who such Holder informs the Company
is reasonably believed to be a "Qualified Institutional Buyer" within the
meaning of Rule 144A under the Securities Act, as the case may be, in order to
permit compliance by such Holder with Rule 144A under the Securities Act.
No service charge shall be made for any registration of transfer,
exchange or redemption of this Note, except for any tax or other governmental
charge that may be imposed in connection therewith, other than certain exchanges
not involving a transfer as more fully set forth in the Indenture.
Prior to due presentment of this Note for registration of transfer,
the Company, any Guarantor, the Paying Agents, the Transfer Agents, the
Registrar, the Trustee and any agent of the Company, any Guarantor, the Paying
Agents, the Transfer Agents, the Registrar or the Trustee may deem and treat the
Person in whose name this Note is registered as the absolute owner of that Note
for all purposes, whether or not this Note is overdue, and neither the Company,
any Guarantor, the Paying Agents, the Transfer Agents, the Registrant or the
Trustee nor any such agent shall be affected by notice to the contrary.
THIS NOTE SHALL 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.
-11-
<PAGE>
All terms used in this Note which are defined in the Indenture and
not otherwise defined herein shall have the meanings assigned to them in the
Indenture.
-12-
<PAGE>
APPENDIX I
FORM OF TRANSFER NOTICE
FOR VALUE RECEIVED, the undersigned registered holder hereby
sell(s), assign(s) and transfer(s) unto
Insert Taxpayer Identification No.______________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Please print or typewrite name and address including zip code of assignee)
________________________________________________________________________________
the within Note and all rights thereunder, hereby irrevocably constituting and
appointing
________________________________________________________________________________
attorney to transfer such Note on the books of the Company with full power of
substitution in the premises. [THE FOLLOWING PROVISION TO BE INCLUDED ON ALL
CERTIFICATES FOR RESTRICTED NOTES]. In connection with any transfer of this Note
occurring prior to the date which is the earlier of the date of an effective
Registration Statement or July 23, 2000, the undersigned confirms that without
utilizing any general solicitation or general advertising that:
[Check One]
|_| (a) this Note is being transferred in compliance with the
exemption from registration under the Securities Act of 1933, as amended,
provided by Rule 144A thereunder or
|_| (b) this Note is being transferred other than in accordance with
clause (a) above and documents are being furnished which comply with the
conditions of transfer set forth in this Note and the Indenture. If none of the
foregoing boxes is checked, the Trustee or other Note Registrar shall not be
obligated to register this Note in the name of any Person other than the Holder
hereof unless and until the conditions to any such transfer of registration set
forth herein and in Section 2.07 of the Indenture shall have been satisfied.
Date: ________________________________________________________
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the within-mentioned instrument in every particular,
without alteration or any change whatsoever.
-13-
<PAGE>
Signature Guarantee:
________________________
[If applicable, signature must be guaranteed by an eligible Guarantor
Institution (banks, stock brokers, savings and loan associations and credit
unions) with membership in an approved guarantee medallion program pursuant to
Securities and Exchange Commission Rule 17Ad-15.]
TO BE COMPLETED BY PURCHASER IF CLAUSE (a) ABOVE IS CHECKED. The undersigned
represents and warrants that it is purchasing this Note for its own account or
an account with respect to which it exercises sole investment discretion and
that it and any such account is a "qualified institutional buyer" within the
meaning of Rule 144A under the Securities Act of 1933, as amended, and is aware
that the sale to it is being made in reliance on Rule 144A and acknowledges that
it has received such information regarding the Company as the undersigned has
requested pursuant to Rule 144A or has determined not to request such
information and that it is aware that the transferor is relying upon the
undersigned's foregoing representations in order to claim the exemption from
registration provided by Rule 144A.
Dated:________________________________________________________________
NOTICE: To be executed by an authorized signatory
-14-
<PAGE>
APPENDIX II
FORM OF TRANSFEREE CERTIFICATE
I or we assign and transfer this Note to:
Please insert social security or other identifying number of
assignee
____________________________________________________________
Print or type name, address and zip code of assignee
____________________________________________________________
and irrevocably appoint __________________________________________________
[Agent], to transfer this Note on the books of the Company. The Agent may
substitute another to act for him.
Dated __________________________
Signed _________________________
(Sign exactly as name appears on the other side of this Note)
[If applicable, signature must be guaranteed by an eligible Guarantor
Institution (banks, stock brokers, savings and loan associations and credit
unions) with membership in an approved guarantee medallion program pursuant to
Securities and Exchange Commission Rule 17 Ad-15]
-15-
<PAGE>
EXHIBIT 4.7
EURO INTERNATIONAL GLOBAL NOTE
THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER
REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE OF A
DEPOSITARY OR A SUCCESSOR DEPOSITARY. TRANSFERS OF THIS GLOBAL NOTE SHALL BE
LIMITED TO TRANSFERS TO NOMINEES OF KREDIETBANK S.A. LUXEMBOURGEOISE OR TO A
SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS
GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE
RESTRICTIONS SET FORTH IN SECTION 2.07 OF THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
EUROCLEAR SYSTEM OR CEDELBANK TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF
TRANSFER OR EXCHANGE, OR FOR PAYMENT AND ANY SUCH CERTIFICATE ISSUED IS
REGISTERED IN THE NAME OF KREDIETBANK S.A. LUXEMBOURGEOISE OR IN SUCH OTHER NAME
AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF EUROCLEAR SYSTEM OR CEDELBANK
(AND ANY PAYMENT IS MADE TO KREDIETBANK S.A. LUXEMBOURGEOISE OR TO SUCH OTHER
ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF EUROCLEAR SYSTEM OR
CEDELBANK), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY
OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF,
KREDIETBANK S.A. LUXEMBOURGEOISE, HAS AN INTEREST HEREIN.
PSINET INC.
THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE
OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO,
OR FOR THE ACCOUNT OR BENEFIT OF, UNITED STATES PERSONS, EXCEPT AS SET FORTH IN
THE NEXT SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN,
THE HOLDER:
(1) REPRESENTS THAT (A) (I) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED
IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB") OR (II) IT IS NOT A UNITED
STATES PERSON AND HAS ACQUIRED THIS NOTE IN AN OFFSHORE TRANSACTION IN
COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT AND (B) IT IS HEREBY
NOTIFIED THAT THE SELLER MAY BE RELYING ON
<PAGE>
THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY
RULE 144A THEREUNDER OR ANOTHER EXEMPTION UNDER THE SECURITIES ACT.
(2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO
THE COMPANY OR ANY OF ITS SUBSIDIARIES, (B) TO A PERSON WHOM THE SELLER
REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT
OF A QIB IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (C) IN AN
OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR 904 OF THE
SECURITIES ACT, (D) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER
THE SECURITIES ACT, (E) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF
COUNSEL ACCEPTABLE TO THE COMPANY) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS
OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION.
(3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE OR AN INTEREST
HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.
AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND "UNITED STATES" HAVE THE
MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT. THE
INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY
TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING.
-------------------
11% SENIOR NOTE DUE 2009
ISIN No. XS009991930-9/Common Code No. 9991930
No. EI-1 EURO
PSINet Inc., a New York corporation (herein called the "Company,"
which term includes any successor Person under the Indenture), for value
received, hereby promises to pay
-2-
<PAGE>
to Kredietbank S.A. Luxembourgeoise or registered assigns, the principal
sum of Euros on August 1, 2009, at the office or agency of the Company
referred to below, and to pay interest thereon from July 23, 1999, or from the
most recent Interest Payment Date to which interest has been paid or duly
provided for, semiannually on February 1 and August 1, in each year, commencing
February 1, 2000 at the rate of 11% per annum, subject to adjustments as
described in the second following paragraph, in Euros, until the principal
hereof is paid or duly provided for. Interest shall be computed on the basis of
a 360-day year comprised of twelve 30-day months.
The Holder of this Note is entitled to the benefits of the
Registration Rights Agreement between the Company and the Initial Purchasers,
dated as of July 23, 1999, pursuant to which, subject to the terms and
conditions thereof, the Company is obligated to consummate the Exchange Offer
pursuant to which the Holder of this Note shall have the right to exchange this
Note for a new 11% Senior Note due 2009 in like principal amount as provided
therein.
In the event that (a) the Exchange Offer Registration Statement is
not filed with the Commission on or prior to the date specified in the
Registration Rights Agreement, (b) the Exchange Offer Registration Statement is
not declared effective on or prior to the date specified in the Registration
Rights Agreement, (c) the Exchange Offer is not consummated on or prior to the
date specified in the Registration Rights Agreement, (d) if obligated to file
the Shelf Registration Statement, the Company fails to file the Shelf
Registration Statement with the Commission on or prior to the date specified in
the Registration Rights Agreement, (e) if obligated to file the Shelf
Registration Statement, the Shelf Registration Statement is not declared
effective on or prior to the date specified in the Registration Rights
Agreement, or (f) the Shelf Registration Statement or the Exchange Offer
Registration Statement is declared effective but thereafter ceases to be
effective or usable in connection with resales of the Restricted Notes during
the periods specified in the Registration Rights Agreement (each such event
referred to in clauses (a) through (f) above, a "Registration Default"), the
Company agrees to pay to each Holder of Restricted Notes liquidated damages
("Liquidated Damages") in an amount equal to 0.25% per annum per Euro 1,000 in
principal amount of the Restricted Notes held by such Holder for each year or
portion thereof that the Registration Default continues for the first 90 day
period immediately following the occurrence of such Registration Default. The
amount of Liquidated Damages shall increase by an additional 0.25% per annum per
Euro 1,000 in principal amount of the Restricted Notes with respect to each
subsequent 90 day period until all Registration Defaults have been cured, up to
a maximum amount of Liquidated Damages of 1.50% per annum per Euro 1,000 in
principal amount of the Notes. The Company shall not be required to pay
Liquidated Damages for more than one Registration Default at any given time.
Following the cure of all Registration Defaults, the accrual of Liquidated
Damages shall cease. All accrued Liquidated Damages shall be paid by the Company
to Holders entitled thereto in the manner provided for the payment of interest
in the Indenture and herein, on each Interest Payment Date, as more fully set
forth in the Indenture and herein.
-3-
<PAGE>
The interest so payable, and punctually paid or duly provided for,
on any Interest Payment Date will, as provided in the Indenture, be paid to the
Person in whose name this Note (or any Predecessor Note) is registered at the
close of business on the "Regular Record Date" for such interest, which shall be
the January 15 or July 15 (whether or not a Business Day), as the case may be,
next preceding such Interest Payment Date. Any such interest not so punctually
paid, or duly provided for, and interest on such defaulted interest at the
interest rate borne by the Notes, to the extent lawful, shall, as provided in
the Indenture, be paid to the Person in whose name this Note (or any Predecessor
Notes) is registered at the close of business on the "Special Record Date" for
such defaulted interest, such date to be fixed by the Company in a manner
satisfactory to the Trustee, notice whereof shall be given to Holders of Notes
not less than 15 days prior to such Special Record Date.
Payment of the principal of, premium, if any, and interest on, this
Note, and exchange or transfer of the Note, will be made at the office or agency
of the Company in Luxembourg maintained for that purpose (which initially will
be Kredietbank S.A. Luxembourgeoise, 43 Boulevard Royal, L-2955 Luxembourg), or
at such other office or agency as may be maintained for such purpose, or, at the
option of the Company, payment of interest may be made by check mailed to the
address of the Person entitled thereto as such address shall appear on the
Register, and provided that payment by wire transfer of immediately available
funds will be required with respect to principal of and interest on all Global
Notes and all other Notes the Holders of which shall have provided wire transfer
instructions to the Company or the Paying Agent. Such payment shall be in such
coin or currency of the European Union as at the time of payment is legal tender
for payment of public and private debts.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly
executed by the Trustee referred to on the reverse hereof or by the
authenticating agent appointed as provided in the Indenture by manual signature
of an authorized signer, this Note shall not be entitled to any benefit under
the Indenture, or be valid or obligatory for any purpose.
-4-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be
duly executed by the manual or facsimile signature of its authorized officers.
PSINET INC.
By:__________________________________
Title:
Attest:
_______________________________
Authorized Officer
-5-
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the 11% Senior Notes due 2009 referred to in the
within-mentioned Indenture.
WILMINGTON TRUST COMPANY,
as Trustee
By:_______________________________
Authorized Signer
Dated:______________
-6-
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company pursuant to
Section 10.12 or Section 10.14, as applicable, of the Indenture, check the Box:
[_].
If you wish to have a portion of this Note purchased by the Company
pursuant to Section 10.12 or Section 10.14 as applicable, of the Indenture,
state the amount (in original principal amount): Euro _______________.
Date: ___________________
Your Signature: ____________________________
(Sign exactly as your name appears on the other side of this Note)
Signature Guarantee: __________________________________
[If applicable, signature must be guaranteed by an eligible Guarantor
Institution (banks, stock brokers, savings and loan associations and credit
unions) with membership in an approved guarantee medallion program pursuant to
Securities and Exchange Commission Rule 17Ad-15]
-7-
<PAGE>
[REVERSE SIDE OF NOTE]
PSINET INC.
11% Senior Note due 2009
This Note is one of a duly authorized issue of Notes of the Company
designated as its 11% Senior Notes due 2009 (herein called the "Notes"), limited
(except as otherwise provided in the Indenture referred to below) in aggregate
principal amount to Euro 150,000,000, issued under, entitled to the benefits of
and subject to the terms of an indenture (herein called the "Indenture") dated
as of July 23, 1999, between the Company and Wilmington Trust Company, as
trustee (herein called the "Trustee," which term includes any successor trustee
under the Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights, limitations
of rights, duties, obligations and immunities thereunder of the Company, any
Guarantors, the Trustee and the Holders of the Notes, and of the terms upon
which the Notes are, and are to be, authenticated and delivered.
The Indenture contains provisions for defeasance at any time of (a)
the entire Indebtedness on the Notes and (b) certain restrictive covenants and
related Defaults and Events of Default, in each case upon compliance with
certain conditions set forth therein.
The Notes are subject to redemption at any time on or after August
1, 2004, at the option of the Company, 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 an integral multiple thereof, at the following
redemption prices (expressed as percentages of the principal amount), if
redeemed during the 12-month period beginning August 1 of the years indicated
below:
Year Dollar Notes Euro Notes
---- ------------ ----------
2004 105.500% 105.500%
2005 103.667% 103.667%
2006 101.833% 101.833%
2007 100.000% 100.000%
and thereafter at 100% of the principal amount, in each case, together with
accrued and unpaid interest, if any, to the Redemption Date (subject to the
rights of Holders of record on relevant record dates to receive interest due on
an Interest Payment Date).
In addition, at any time on or prior to August 1, 2002, the Company
may, at its option, use the Net Cash Proceeds of one or more Public Equity
Offerings or the sale of Capital
-8-
<PAGE>
Stock of the Company to a Strategic Investor in a single transaction or in a
series of related transactions (other than Disqualified Stock) in any 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 (a) in the case of the Euro Notes, to 111.000% of the
aggregate principal amount thereof, plus accrued and unpaid interest thereon, if
any, to the Redemption Date and (b) in the case of the Dollar Notes, to 111.000%
of the aggregate principal amount thereof, plus accrued and unpaid interest
thereon, if any, to the Redemption Date; provided that, in each case, at least
65% of the original aggregate principal amount of each of the Euro Notes and the
Dollar Notes remains outstanding immediately following such redemption. All
determination with respect to these provisions shall be made in the manner set
forth in the Indenture. In order to effect the foregoing redemption, the Company
must provide a notice of redemption no later than 45 days after the closing of
the related Public Equity Offering or sale to a Strategic Investor and must
consummate such 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 shall deem fair and reasonable, subject to the terms of
the Indenture.
Upon the occurrence of a Change of Control, subject to the terms of
the Indenture, each Holder may require the Company to purchase such Holder's
Notes in whole or in part in integral multiples of Euro 1,000, at a 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, pursuant to a Change of Control Offer in accordance with the
procedures set forth in the Indenture.
Under certain circumstances, subject to the terms of the Indenture,
in the event the Net Cash Proceeds received by the Company from any Asset Sale,
which proceeds are not used to repay any Pari Passu Indebtedness of the Company
or any Subsidiary (including the repurchase of Notes) or which will be invested
in Telecommunications Assets, exceeds a specified amount, the Company will be
required to apply such proceeds by making an offer to purchase Notes and certain
Indebtedness ranking pari passu in right of payment to the Notes.
In the case of any redemption of Notes in accordance with the
Indenture, interest installments whose Stated Maturity is on or prior to the
Redemption Date will be payable to the Holders of such Notes of record as of the
close of business on the relevant Regular Record Date or Special Record Date
referred to on the face hereof. Notes (or portions thereof) for whose redemption
and payment provision is made in accordance with the Indenture shall cease to
bear interest from and after the Redemption Date.
-9-
<PAGE>
In the event of redemption of this Note in accordance with the
Indenture in part only, a new Note or Notes for the unredeemed portion hereof,
denominated in the same currency, shall be issued in the name of the Holder
hereof upon the cancellation hereof.
If an Event of Default shall occur and be continuing, the principal
amount of all the Notes may be declared due and payable in the manner and with
the effect provided in the Indenture.
The Indenture permits, with certain exceptions (including certain
amendments permitted without the consent of any Holders and certain amendments
which require the consent of all the Holders) as therein provided, the amendment
thereof and the modification of the rights and obligations of the Company and
any Guarantors and the rights of the Holders under the Indenture and the Notes
and any Guarantees at any time by the Company and the Trustee with the consent
of the Holders of at least a majority in aggregate principal amount of the Notes
at the time Outstanding. The Indenture also contains provisions permitting the
Holders of at least a majority in aggregate principal amount of the Notes (100%
of the Holders in certain circumstances) at the time Outstanding, on behalf of
the Holders of all the Notes, to waive compliance by the Company and any
Guarantors with certain provisions of the Indenture and the Notes and any
Guarantees and certain past Defaults under the Indenture and the Notes and any
Guarantees and their consequences. Any such consent or waiver by or on behalf of
the Holder of this Note shall be conclusive and binding upon such Holder and
upon all future Holders of this Note and of any Note issued upon the
registration of transfer hereof or in exchange herefor or in lieu hereof whether
or not notation of such consent or waiver is made upon this Note.
No reference herein to the Indenture and no provision of this Note
or of the Indenture shall alter or impair the obligation of the Company, any
Guarantor or any other obligor on the Notes (in the event such Guarantor or such
other obligor is obligated to make payments in respect of the Notes), which is
absolute and unconditional, to pay the principal of, premium, if any, and
interest on, this Note at the times, place and rate, and in the coin or
currency, herein prescribed.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Note is registrable in the Register,
upon surrender of this Note for registration of transfer at the office or agency
of the Company in the Borough of Manhattan, The City of New York or in
Luxembourg, duly endorsed by, or accompanied by a written instrument of transfer
in form satisfactory to the Company and the Registrar duly executed by, the
Holder hereof or its attorney duly authorized in writing, and thereupon one or
more new Notes denominated in the same currency, of authorized denominations and
for the same aggregate principal amount, will be issued to the designated
transferee or transferees.
-10-
<PAGE>
Certificated securities shall be transferred to all beneficial
holders in exchange for their beneficial interests in the U.S. Global Notes or
the International Global Notes, as the case may be, if, among other things, (a)
the Depositary notifies the Company that it is unwilling or unable to continue
as depository for such Global Note and a successor depository is not appointed
by the Company within 120 days or (b) there shall have occurred and be
continuing an Event of Default and the Registrar has received a request from the
relevant Depositary. Upon any such issuance, the Trustee is required to register
such certificated Notes in the name of, and cause the same to be delivered to,
such Person or Persons (or the nominee of any thereof). All such certificated
Notes would be required to include the Legend.
Notes in certificated form are issuable only in registered form
without coupons in denominations of Euro 1,000 and any integral multiple
thereof. As provided in the Indenture and subject to certain limitations therein
set forth, the Notes are exchangeable for a like aggregate principal amount of
Notes of a differing authorized denomination, as requested by the Holder
surrendering the same.
At any time when the Company is not subject to Sections 13 or 15(d)
of the Exchange Act, upon the written request of a Holder of a Restricted Note,
the Company will promptly furnish or cause to be furnished such information as
is specified pursuant to Rule 144A(d)(4) under the Securities Act to such Holder
or to a prospective purchaser of such Note who such Holder informs the Company
is reasonably believed to be a "Qualified Institutional Buyer" within the
meaning of Rule 144A under the Securities Act, as the case may be, in order to
permit compliance by such Holder with Rule 144A under the Securities Act.
No service charge shall be made for any registration of transfer,
exchange or redemption of this Note, except for any tax or other governmental
charge that may be imposed in connection therewith, other than certain exchanges
not involving a transfer as more fully set forth in the Indenture.
Prior to due presentment of this Note for registration of transfer,
the Company, any Guarantor, the Paying Agents, the Transfer Agents, the
Registrar, the Trustee and any agent of the Company, any Guarantor, the Paying
Agents, the Transfer Agents, the Registrar or the Trustee may deem and treat the
Person in whose name this Note is registered as the absolute owner of that Note
for all purposes, whether or not this Note is overdue, and neither the Company,
any Guarantor, the Paying Agents, the Transfer Agents, the Registrant or the
Trustee nor any such agent shall be affected by notice to the contrary.
THIS NOTE SHALL 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.
-11-
<PAGE>
All terms used in this Note which are defined in the Indenture and
not otherwise defined herein shall have the meanings assigned to them in the
Indenture.
-12-
<PAGE>
APPENDIX I
FORM OF TRANSFER NOTICE
FOR VALUE RECEIVED, the undersigned registered holder hereby
sell(s), assign(s) and transfer(s) unto
Insert Taxpayer Identification No. ___________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Please print or typewrite name and address including zip code of assignee)
________________________________________________________________________________
the within Note and all rights thereunder, hereby irrevocably constituting and
appointing ____________________________________________________________________
attorney to transfer such Note on the books of the Company with full power of
substitution in the premises. [THE FOLLOWING PROVISION TO BE INCLUDED ON ALL
CERTIFICATES FOR RESTRICTED NOTES]. In connection with any transfer of this Note
occurring prior to the date which is the earlier of the date of an effective
Registration Statement or July 23, 2000, the undersigned confirms that without
utilizing any general solicitation or general advertising that:
[Check One]
[_] (a) this Note is being transferred in compliance with the
exemption from registration under the Securities Act of 1933, as amended,
provided by Rule 144A thereunder or
[_] (b) this Note is being transferred other than in accordance with
clause (a) above and documents are being furnished which comply with the
conditions of transfer set forth in this Note and the Indenture. If none of the
foregoing boxes is checked, the Trustee or other Note Registrar shall not be
obligated to register this Note in the name of any Person other than the Holder
hereof unless and until the conditions to any such transfer of registration set
forth herein and in Section 2.07 of the Indenture shall have been satisfied.
Date: ________________________________________________________
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the within-mentioned instrument in every particular,
without alteration or any change whatsoever.
-13-
<PAGE>
Signature Guarantee:
________________________
[If applicable, signature must be guaranteed by an eligible Guarantor
Institution (banks, stock brokers, savings and loan associations and credit
unions) with membership in an approved guarantee medallion program pursuant to
Securities and Exchange Commission Rule 17Ad-15.]
TO BE COMPLETED BY PURCHASER IF CLAUSE (a) ABOVE IS CHECKED. The
undersigned represents and warrants that it is purchasing this Note for its own
account or an account with respect to which it exercises sole investment
discretion and that it and any such account is a "qualified institutional buyer"
within the meaning of Rule 144A under the Securities Act of 1933, as amended,
and is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company as the
undersigned has requested pursuant to Rule 144A or has determined not to request
such information and that it is aware that the transferor is relying upon the
undersigned's foregoing representations in order to claim the exemption from
registration provided by Rule 144A.
Dated:________________________________________________________________
NOTICE: To be executed by an authorized signatory
-14-
<PAGE>
APPENDIX II
FORM OF TRANSFEREE CERTIFICATE
I or we assign and transfer this Note to:
Please insert social security or other identifying number of assignee
_____________________________________________________________________
Print or type name, address and zip code of assignee
_____________________________________________________________________
and irrevocably appoint ________________________________________________________
[Agent], to transfer this Note on the books of the Company. The Agent may
substitute another to act for him.
Dated __________________________
Signed _________________________
(Sign exactly as name appears on the other side of this Note)
[If applicable, signature must be guaranteed by an eligible Guarantor
Institution (banks, stock brokers, savings and loan associations and credit
unions) with membership in an approved guarantee medallion program pursuant to
Securities and Exchange Commission Rule 17 Ad-15]
-15-
<PAGE>
EURO U.S. GLOBAL NOTE
THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER
REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE OF A
DEPOSITARY OR A SUCCESSOR DEPOSITARY. TRANSFERS OF THIS GLOBAL NOTE SHALL BE
LIMITED TO TRANSFERS TO NOMINEES OF KREDIETBANK S.A. LUXEMBOURGEOISE OR TO A
SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS
GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE
RESTRICTIONS SET FORTH IN SECTION 2.07 OF THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
EUROCLEAR SYSTEM OR CEDELBANK TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF
TRANSFER OR EXCHANGE, OR FOR PAYMENT AND ANY SUCH CERTIFICATE ISSUED IS
REGISTERED IN THE NAME OF KREDIETBANK S.A. LUXEMBOURGEOISE OR IN SUCH OTHER NAME
AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF EUROCLEAR SYSTEM OR CEDELBANK
(AND ANY PAYMENT IS MADE TO KREDIETBANK S.A. LUXEMBOURGEOISE OR TO SUCH OTHER
ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF EUROCLEAR SYSTEM OR
CEDELBANK), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY
OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF,
KREDIETBANK S.A. LUXEMBOURGEOISE, HAS AN INTEREST HEREIN.
PSINET INC.
THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE
OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO,
OR FOR THE ACCOUNT OR BENEFIT OF, UNITED STATES PERSONS, EXCEPT AS SET FORTH IN
THE NEXT SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN,
THE HOLDER:
(1) REPRESENTS THAT (A) (I) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED
IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB") OR (II) IT IS NOT A UNITED
STATES PERSON AND HAS ACQUIRED THIS NOTE IN AN OFFSHORE TRANSACTION IN
COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT AND (B) IT IS HEREBY
NOTIFIED THAT THE SELLER MAY BE RELYING ON
<PAGE>
THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY
RULE 144A THEREUNDER OR ANOTHER EXEMPTION UNDER THE SECURITIES ACT.
(2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO
THE COMPANY OR ANY OF ITS SUBSIDIARIES, (B) TO A PERSON WHOM THE SELLER
REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT
OF A QIB IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (C) IN AN
OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR 904 OF THE
SECURITIES ACT, (D) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER
THE SECURITIES ACT, (E) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF
COUNSEL ACCEPTABLE TO THE COMPANY) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS
OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION.
(3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE OR AN INTEREST
HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.
AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND "UNITED STATES" HAVE THE
MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT. THE
INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY
TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING.
-------------------
11% SENIOR NOTE DUE 2009
ISIN No. XS010014328-7/Common Code No. 010014328
No. EU-1 EURO
PSINet Inc., a New York corporation (herein called the "Company",
which term includes any successor Person under the Indenture), for value
received, hereby promises to pay
-2-
<PAGE>
to Kredietbank S.A. Luxembourgeoise or registered assigns, the principal
sum of Euros on August 1, 2009, at the office or agency of the Company
referred to below, and to pay interest thereon from July 23, 1999, or from the
most recent Interest Payment Date to which interest has been paid or duly
provided for, semiannually on February 1 and August 1, in each year, commencing
February 1, 2000 at the rate of 11% per annum, subject to adjustments as
described in the second following paragraph, in Euros, until the principal
hereof is paid or duly provided for. Interest shall be computed on the basis of
a 360-day year comprised of twelve 30-day months.
The Holder of this Note is entitled to the benefits of the
Registration Rights Agreement between the Company and the Initial Purchasers,
dated as of July 23, 1999, pursuant to which, subject to the terms and
conditions thereof, the Company is obligated to consummate the Exchange Offer
pursuant to which the Holder of this Note shall have the right to exchange this
Note for a new 11% Senior Note due 2009 in like principal amount as provided
therein.
In the event that (a) the Exchange Offer Registration Statement is
not filed with the Commission on or prior to the date specified in the
Registration Rights Agreement, (b) the Exchange Offer Registration Statement is
not declared effective on or prior to the date specified in the Registration
Rights Agreement, (c) the Exchange Offer is not consummated on or prior to the
date specified in the Registration Rights Agreement, (d) if obligated to file
the Shelf Registration Statement, the Company fails to file the Shelf
Registration Statement with the Commission on or prior to the date specified in
the Registration Rights Agreement, (e) if obligated to file the Shelf
Registration Statement, the Shelf Registration Statement is not declared
effective on or prior to the date specified in the Registration Rights
Agreement, or (f) the Shelf Registration Statement or the Exchange Offer
Registration Statement is declared effective but thereafter ceases to be
effective or usable in connection with resales of the Restricted Notes during
the periods specified in the Registration Rights Agreement (each such event
referred to in clauses (a) through (f) above, a "Registration Default"), the
Company agrees to pay to each Holder of Restricted Notes liquidated damages
("Liquidated Damages") in an amount equal to 0.25% per annum per Euro 1,000 in
principal amount of the Restricted Notes held by such Holder for each year or
portion thereof that the Registration Default continues for the first 90 day
period immediately following the occurrence of such Registration Default. The
amount of Liquidated Damages shall increase by an additional 0.25% per annum per
Euro 1,000 in principal amount of the Restricted Notes with respect to each
subsequent 90 day period until all Registration Defaults have been cured, up to
a maximum amount of Liquidated Damages of 1.50% per annum per Euro 1,000 in
principal amount of the Notes. The Company shall not be required to pay
Liquidated Damages for more than one Registration Default at any given time.
Following the cure of all Registration Defaults, the accrual of Liquidated
Damages shall cease. All accrued Liquidated Damages shall be paid by the Company
to Holders entitled thereto in the manner provided for the payment of interest
in the Indenture and herein, on each Interest Payment Date, as more fully set
forth in the Indenture and herein.
-3-
<PAGE>
The interest so payable, and punctually paid or duly provided for,
on any Interest Payment Date will, as provided in the Indenture, be paid to the
Person in whose name this Note (or any Predecessor Note) is registered at the
close of business on the "Regular Record Date" for such interest, which shall be
the January 15 or July 15 (whether or not a Business Day), as the case may be,
next preceding such Interest Payment Date. Any such interest not so punctually
paid, or duly provided for, and interest on such defaulted interest at the
interest rate borne by the Notes, to the extent lawful, shall, as provided in
the Indenture, be paid to the Person in whose name this Note (or any Predecessor
Notes) is registered at the close of business on the "Special Record Date" for
such defaulted interest, such date to be fixed by the Company in a manner
satisfactory to the Trustee, notice whereof shall be given to Holders of Notes
not less than 15 days prior to such Special Record Date.
Payment of the principal of, premium, if any, and interest on, this
Note, and exchange or transfer of the Note, will be made at the office or agency
of the Company in Luxembourg maintained for that purpose (which initially will
be Kredietbank S.A. Luxembourgeoise, 43 Boulevard Royal, L-2955 Luxembourg), or
at such other office or agency as may be maintained for such purpose, or, at the
option of the Company, payment of interest may be made by check mailed to the
address of the Person entitled thereto as such address shall appear on the
Register, and provided that payment by wire transfer of immediately available
funds will be required with respect to principal of and interest on all Global
Notes and all other Notes the Holders of which shall have provided wire transfer
instructions to the Company or the Paying Agent. Such payment shall be in such
coin or currency of the European Union as at the time of payment is legal tender
for payment of public and private debts.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly
executed by the Trustee referred to on the reverse hereof or by the
authenticating agent appointed as provided in the Indenture by manual signature
of an authorized signer, this Note shall not be entitled to any benefit under
the Indenture, or be valid or obligatory for any purpose.
-4-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be
duly executed by the manual or facsimile signature of its authorized officers.
PSINET INC.
By:__________________________________
Title:
Attest:
____________________________
Authorized Officer
-5-
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the 11% Senior Notes due 2009 referred to in the
within-mentioned Indenture.
WILMINGTON TRUST COMPANY,
as Trustee
By:__________________________________
Authorized Signer
Dated:____________________
-6-
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company pursuant to
Section 10.12 or Section 10.14, as applicable, of the Indenture, check the Box:
[_].
If you wish to have a portion of this Note purchased by the Company
pursuant to Section 10.12 or Section 10.14 as applicable, of the Indenture,
state the amount (in original principal amount): Euro _______________.
Date: ___________________
Your Signature: ___________________________
(Sign exactly as your name appears on the other side of this Note)
Signature Guarantee: __________________________________
[If applicable, signature must be guaranteed by an eligible Guarantor
Institution (banks, stock brokers, savings and loan associations and credit
unions) with membership in an approved guarantee medallion program pursuant to
Securities and Exchange Commission Rule 17Ad-15]
-7-
<PAGE>
[REVERSE SIDE OF NOTE]
PSINET INC.
11% Senior Note due 2009
This Note is one of a duly authorized issue of Notes of the Company
designated as its 11% Senior Notes due 2009 (herein called the "Notes"), limited
(except as otherwise provided in the Indenture referred to below) in aggregate
principal amount to Euro 150,000,000, issued under, entitled to the benefits of
and subject to the terms of an indenture (herein called the "Indenture") dated
as of July 23, 1999, between the Company and Wilmington Trust Company, as
trustee (herein called the "Trustee," which term includes any successor trustee
under the Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights, limitations
of rights, duties, obligations and immunities thereunder of the Company, any
Guarantors, the Trustee and the Holders of the Notes, and of the terms upon
which the Notes are, and are to be, authenticated and delivered.
The Indenture contains provisions for defeasance at any time of (a)
the entire Indebtedness on the Notes and (b) certain restrictive covenants and
related Defaults and Events of Default, in each case upon compliance with
certain conditions set forth therein.
The Notes are subject to redemption at any time on or after August
1, 2004, at the option of the Company, 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 an integral multiple thereof, at the following
redemption prices (expressed as percentages of the principal amount), if
redeemed during the 12-month period beginning August 1 of the years indicated
below:
Year Dollar Notes Euro Notes
---- ------------ ----------
2004 105.500% 105.500%
2005 103.667% 103.667%
2006 101.833% 101.833%
2007 100.000% 100.000%
and thereafter at 100% of the principal amount, in each case, together with
accrued and unpaid interest, if any, to the Redemption Date (subject to the
rights of Holders of record on relevant record dates to receive interest due on
an Interest Payment Date).
In addition, at any time on or prior to August 1, 2002, the Company
may, at its option, use the Net Cash Proceeds of one or more Public Equity
Offerings or the sale of Capital
-8-
<PAGE>
Stock of the Company to a Strategic Investor in a single transaction or in a
series of related transactions (other than Disqualified Stock) in any 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 (a) in the case of the Euro Notes, to 111.000% of the
aggregate principal amount thereof, plus accrued and unpaid interest thereon, if
any, to the Redemption Date and (b) in the case of the Dollar Notes, to 111.000%
of the aggregate principal amount thereof, plus accrued and unpaid interest
thereon, if any, to the Redemption Date; provided that, in each case, at least
65% of the original aggregate principal amount of each of the Euro Notes and the
Dollar Notes remains outstanding immediately following such redemption. All
determinations with respect to these provisions shall be made in the manner set
forth in the Indenture. In order to effect the foregoing redemption, the Company
must provide a notice of redemption no later than 45 days after the closing of
the related Public Equity Offering or sale to a Strategic Investor and must
consummate such 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 shall deem fair and reasonable, subject to the terms of
the Indenture.
Upon the occurrence of a Change of Control, subject to the terms of
the Indenture, each Holder may require the Company to purchase such Holder's
Notes in whole or in part in integral multiples of Euro 1,000, at a 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, pursuant to a Change of Control Offer in accordance with the
procedures set forth in the Indenture.
Under certain circumstances, subject to the terms of the Indenture,
in the event the Net Cash Proceeds received by the Company from any Asset Sale,
which proceeds are not used to repay any Pari Passu Indebtedness of the Company
or any Subsidiary (including the repurchase of Notes) or which will be invested
in Telecommunications Assets, exceeds a specified amount, the Company will be
required to apply such proceeds by making an offer to purchase Notes and certain
Indebtedness ranking pari passu in right of payment to the Notes.
In the case of any redemption of Notes in accordance with the
Indenture, interest installments whose Stated Maturity is on or prior to the
Redemption Date will be payable to the Holders of such Notes of record as of the
close of business on the relevant Regular Record Date or Special Record Date
referred to on the face hereof. Notes (or portions thereof) for whose redemption
and payment provision is made in accordance with the Indenture shall cease to
bear interest from and after the Redemption Date.
-9-
<PAGE>
In the event of redemption of this Note in accordance with the
Indenture in part only, a new Note or Notes for the unredeemed portion hereof,
denominated in the same currency, shall be issued in the name of the Holder
hereof upon the cancellation hereof.
If an Event of Default shall occur and be continuing, the principal
amount of all the Notes may be declared due and payable in the manner and with
the effect provided in the Indenture.
The Indenture permits, with certain exceptions (including certain
amendments permitted without the consent of any Holders and certain amendments
which require the consent of all the Holders) as therein provided, the amendment
thereof and the modification of the rights and obligations of the Company and
any Guarantors and the rights of the Holders under the Indenture and the Notes
and any Guarantees at any time by the Company and the Trustee with the consent
of the Holders of at least a majority in aggregate principal amount of the Notes
at the time Outstanding. The Indenture also contains provisions permitting the
Holders of at least a majority in aggregate principal amount of the Notes (100%
of the Holders in certain circumstances) at the time Outstanding, on behalf of
the Holders of all the Notes, to waive compliance by the Company and any
Guarantors with certain provisions of the Indenture and the Notes and any
Guarantees and certain past Defaults under the Indenture and the Notes and any
Guarantees and their consequences. Any such consent or waiver by or on behalf of
the Holder of this Note shall be conclusive and binding upon such Holder and
upon all future Holders of this Note and of any Note issued upon the
registration of transfer hereof or in exchange herefor or in lieu hereof whether
or not notation of such consent or waiver is made upon this Note.
No reference herein to the Indenture and no provision of this Note
or of the Indenture shall alter or impair the obligation of the Company, any
Guarantor or any other obligor on the Notes (in the event such Guarantor or such
other obligor is obligated to make payments in respect of the Notes), which is
absolute and unconditional, to pay the principal of, premium, if any, and
interest on, this Note at the times, place and rate, and in the coin or
currency, herein prescribed.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Note is registrable in the Register,
upon surrender of this Note for registration of transfer at the office or agency
of the Company in the Borough of Manhattan, The City of New York or in
Luxembourg, duly endorsed by, or accompanied by a written instrument of transfer
in form satisfactory to the Company and the Registrar duly executed by, the
Holder hereof or its attorney duly authorized in writing, and thereupon one or
more new Notes, denominated in the same currency, of authorized denominations
and for the same aggregate principal amount, will be issued to the designated
transferee or transferees.
-10-
<PAGE>
Certificated securities shall be transferred to all beneficial
holders in exchange for their beneficial interests in the U.S. Global Notes or
the International Global Notes, as the case may be, if, among other things, (a)
the Depositary notifies the Company that it is unwilling or unable to continue
as depository for such Global Note and a successor depository is not appointed
by the Company within 120 days or (b) there shall have occurred and be
continuing an Event of Default and the Registrar has received a request from the
relevant Depositary. Upon any such issuance, the Trustee is required to register
such certificated Notes in the name of, and cause the same to be delivered to,
such Person or Persons (or the nominee of any thereof). All such certificated
Notes would be required to include the Legend.
Notes in certificated form are issuable only in registered form
without coupons in denominations of Euro 1,000 and any integral multiple
thereof. As provided in the Indenture and subject to certain limitations therein
set forth, the Notes are exchangeable for a like aggregate principal amount of
Notes of a differing authorized denomination, as requested by the Holder
surrendering the same.
At any time when the Company is not subject to Sections 13 or 15(d)
of the Exchange Act, upon the written request of a Holder of a Restricted Note,
the Company will promptly furnish or cause to be furnished such information as
is specified pursuant to Rule 144A(d)(4) under the Securities Act to such Holder
or to a prospective purchaser of such Note who such Holder informs the Company
is reasonably believed to be a "Qualified Institutional Buyer" within the
meaning of Rule 144A under the Securities Act, as the case may be, in order to
permit compliance by such Holder with Rule 144A under the Securities Act.
No service charge shall be made for any registration of transfer,
exchange or redemption of this Note, except for any tax or other governmental
charge that may be imposed in connection therewith, other than certain exchanges
not involving a transfer as more fully set forth in the Indenture.
Prior to due presentment of this Note for registration of transfer,
the Company, any Guarantor, the Paying Agents, the Transfer Agents, the
Registrar, the Trustee and any agent of the Company, any Guarantor, the Paying
Agents, the Transfer Agents, the Registrar or the Trustee may deem and treat the
Person in whose name this Note is registered as the absolute owner of that Note
for all purposes, whether or not this Note is overdue, and neither the Company,
any Guarantor, the Paying Agents, the Transfer Agents, the Registrant or the
Trustee nor any such agent shall be affected by notice to the contrary.
THIS NOTE SHALL 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.
-11-
<PAGE>
All terms used in this Note which are defined in the Indenture and
not otherwise defined herein shall have the meanings assigned to them in the
Indenture.
APPENDIX I
FORM OF TRANSFER NOTICE
FOR VALUE RECEIVED, the undersigned registered holder hereby
sell(s), assign(s) and transfer(s) unto
Insert Taxpayer Identification No. ___________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Please print or typewrite name and address including zip code of assignee)
________________________________________________________________________________
the within Note and all rights thereunder, hereby irrevocably constituting and
appointing _____________________________________________________________________
attorney to transfer such Note on the books of the Company with full power of
substitution in the premises. [THE FOLLOWING PROVISION TO BE INCLUDED ON ALL
CERTIFICATES FOR RESTRICTED NOTES]. In connection with any transfer of this Note
occurring prior to the date which is the earlier of the date of an effective
Registration Statement or July 23, 2000, the undersigned confirms that without
utilizing any general solicitation or general advertising that:
[Check One]
[_] (a) this Note is being transferred in compliance with the
exemption from registration under the Securities Act of 1933, as amended,
provided by Rule 144A thereunder or
[_] (b) this Note is being transferred other than in accordance with
clause (a) above and documents are being furnished which comply with the
conditions of transfer set forth in this Note and the Indenture. If none of the
foregoing boxes is checked, the Trustee or other Note Registrar shall not be
obligated to register this Note in the name of any Person other than the Holder
hereof unless and until the conditions to any such transfer of registration set
forth herein and in Section 2.07 of the Indenture shall have been satisfied.
Date: ________________________________________________________
-12-
<PAGE>
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the within-mentioned instrument in every particular,
without alteration or any change whatsoever.
Signature Guarantee:
________________________
[If applicable, signature must be guaranteed by an eligible Guarantor
Institution (banks, stock brokers, savings and loan associations and credit
unions) with membership in an approved guarantee medallion program pursuant to
Securities and Exchange Commission Rule 17Ad-15.]
TO BE COMPLETED BY PURCHASER IF CLAUSE (a) ABOVE IS CHECKED. The
undersigned represents and warrants that it is purchasing this Note for its own
account or an account with respect to which it exercises sole investment
discretion and that it and any such account is a "qualified institutional buyer"
within the meaning of Rule 144A under the Securities Act of 1933, as amended,
and is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company as the
undersigned has requested pursuant to Rule 144A or has determined not to request
such information and that it is aware that the transferor is relying upon the
undersigned's foregoing representations in order to claim the exemption from
registration provided by Rule 144A.
Dated:________________________________________________________________
NOTICE: To be executed by an authorized signatory
-13-
<PAGE>
APPENDIX II
FORM OF TRANSFEREE CERTIFICATE
I or we assign and transfer this Note to:
Please insert social security or other identifying number of assignee
_____________________________________________________________________
Print or type name, address and zip code of assignee
_____________________________________________________________________
and irrevocably appoint ________________________________________________________
[Agent], to transfer this Note on the books of the Company. The Agent may
substitute another to act for him.
Dated __________________________
Signed _________________________
(Sign exactly as name appears on the other side of this Note)
[If applicable, signature must be guaranteed by an eligible Guarantor
Institution (banks, stock brokers, savings and loan associations and credit
unions) with membership in an approved guarantee medallion program pursuant to
Securities and Exchange Commission Rule 17 Ad-15]
-1-
<PAGE>
EXHIBIT 4.8
EXHIBIT A
FORM OF GLOBAL NOTE
THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER
REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE OF A
DEPOSITARY OR A SUCCESSOR DEPOSITARY. TRANSFERS OF THIS GLOBAL NOTE SHALL BE
LIMITED TO TRANSFERS TO NOMINEES OF [CEDE & CO./KREDIETBANK S.A.
LUXEMBOURGEOISE] OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE
WITH THE RESTRICTIONS SET FORTH IN SECTION 2.07 OF THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF [THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC")/EUROCLEAR SYSTEM OR
CEDELBANK], TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER OR
EXCHANGE, OR FOR PAYMENT AND ANY SUCH CERTIFICATE ISSUED IS REGISTERED IN THE
NAME OF [CEDE & CO./KREDIETBANK S.A. LUXEMBOURGEOISE] OR IN SUCH OTHER NAME AS
IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF [DTC/EUROCLEAR SYSTEM OR
CEDELBANK] (AND ANY PAYMENT IS MADE TO [CEDE & CO./KREDIETBANK S.A.
LUXEMBOURGEOISE] OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF [DTC/EUROCLEAR SYSTEM OR CEDELBANK]), ANY TRANSFER, PLEDGE, OR
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH
AS THE REGISTERED OWNER HEREOF, [CEDE & CO./KREDIETBANK S.A. LUXEMBOURGEOISE],
HAS AN INTEREST HEREIN.
PSINET INC.
<PAGE>
11% SENIOR NOTE DUE 2009
[CUSIP No(s). / ISIN No(s). / Common Code No(s).]
No. __________ [$/EURO ]_________________
PSINet Inc., a New York corporation (herein called the "Company",
which term includes any successor Person under the Indenture), for value
received, hereby promises to pay to _______________ or registered assigns, the
principal sum of _______________ [United States Dollars/Euros] on August 1,
2009, at the office or agency of the Company referred to below, and to pay
interest thereon from July 23, 1999, or from the most recent Interest Payment
Date to which interest has been paid or duly provided for, semiannually on
February 1 and August 1, in each year, commencing February 1, 2000 at the rate
of 11% per annum, subject to adjustments as described in the second following
paragraph, in [United States Dollars/Euros], until the principal hereof is paid
or duly provided for. Interest shall be computed on the basis of a 360-day year
comprised of twelve 30-day months.
The interest so payable, and punctually paid or duly provided for,
on any Interest Payment Date will, as provided in the Indenture, be paid to the
Person in whose name this Note (or any Predecessor Note) is registered at the
close of business on the "Regular Record Date" for such interest, which shall be
the January 15 or July 15 (whether or not a Business Day), as the case may be,
next preceding such Interest Payment Date. Any such interest not so punctually
paid, or duly provided for, and interest on such Defaulted Interest at the
interest rate borne by the Notes, to the extent lawful, shall, as provided in
the Indenture, be paid to the Person in whose name this Note (or any Predecessor
Notes) is registered at the close of business on the "Special Record Date" for
such Defaulted Interest, such date to be fixed by the Company in a manner
satisfactory to the Trustee, notice whereof shall be given to Holders of Notes
not less than 15 days prior to such Special Record Date.
Payment of the principal of, premium, if any, and interest on, this
Note, and exchange or transfer of the Note, will be made at the office or agency
of the Company in [the City of New York/Luxembourg] maintained for that purpose
(which initially will be [the Trustee c/o Harris Trust Company of New York, 77
Water Street, New York, NY 10005/Kredietbank S.A. Luxembourgeoise, 43 Boulevard
Royal, L-2955 Luxembourg]), or at such other office or agency as may be
maintained for such purpose, or, at the option of the Company, payment of
interest may be made by check mailed to the address of the Person entitled
thereto as such address shall appear on the Register, and provided that payment
by wire transfer of immediately available funds will be required with respect to
principal of and interest on all Global Notes and all other Notes the Holders of
which shall have
<PAGE>
provided wire transfer instructions to the Company or the Paying Agent. Such
payment shall be in such coin or currency of [the United States of America in
the case of Notes issued in U.S. Dollars/ the European Union in the case of
Notes issued in Euros] as at the time of payment is legal tender for payment of
public and private debts.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly
executed by the Trustee referred to on the reverse hereof or by the
authenticating agent appointed as provided in the Indenture by manual signature
of an authorized signer, this Note shall not be entitled to any benefit under
the Indenture, or be valid or obligatory for any purpose.
[Signature Page Follows]
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be
duly executed by the manual or facsimile signature of its authorized officers.
PSINET INC.
By:____________________________
Title:
Attest:
___________________________
Authorized Officer
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the 11% Senior Notes due 2009 referred to in the
within-mentioned Indenture.
WILMINGTON TRUST COMPANY,
as Trustee
By:
_________________________________
Authorized Signer
Dated:
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company pursuant to
Section 10.12 or Section 10.14, as applicable, of the Indenture, check the Box:
[_].
If you wish to have a portion of this Note purchased by the Company
pursuant to Section 10.12 or Section 10.14, as applicable, of the Indenture,
state the amount (in original principal amount): [$/Euro] _______________.
Date: ___________________
Your Signature: ________________________
(Sign exactly as your name appears on the other side of this Note)
Signature Guarantee: __________________________________
[If applicable, signature must be guaranteed by an eligible Guarantor
Institution (banks, stock brokers, savings and loan associations and credit
unions) with membership in an approved guarantee medallion program pursuant to
Securities and Exchange Commission Rule 17Ad-15]
<PAGE>
[REVERSE SIDE OF NOTE]
PSINET INC.
11% Senior Note due 2009
This Note is one of a duly authorized issue of Notes of the Company
designated as its 11% Senior Notes due 2009 (herein called the "Notes"), limited
(except as otherwise provided in the Indenture referred to below) in aggregate
principal amount to [$1,050,000,000/Euro 150,000,000], issued under, entitled to
the benefits of and subject to the terms of an indenture (herein called the
"Indenture") dated as of July 23, 1999, between the Company and Wilmington Trust
Company, as trustee (herein called the "Trustee," which term includes any
successor trustee under the Indenture), to which Indenture and all indentures
supplemental thereto reference is hereby made for a statement of the respective
rights, limitations of rights, duties, obligations and immunities thereunder of
the Company, any Guarantors, the Trustee and the Holders of the Notes, and of
the terms upon which the Notes are, and are to be, authenticated and delivered.
The Indenture contains provisions for defeasance at any time of (a)
the entire Indebtedness on the Notes and (b) certain restrictive covenants and
related Defaults and Events of Default, in each case upon compliance with
certain conditions set forth therein.
The Notes are subject to redemption at any time on or after August
1, 2004, at the option of the Company, 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 [$1,000/Euro 1,000] or an integral multiple thereof, at the following
redemption prices (expressed as percentages of the principal amount), if
redeemed during the 12-month period beginning August 1 of the years indicated
below:
Year Dollar Notes Euro Notes
---- ------------ ----------
2004 105.500% 105.500%
2005 103.667% 103.667%
2006 101.833% 101.833%
2007 100.000% 100.000%
and thereafter at 100% of the principal amount, in each case, together with
accrued and unpaid interest, if any, to the Redemption Date (subject to the
rights of Holders of record on relevant record dates to receive interest due on
an Interest Payment Date).
<PAGE>
In addition, at any time on or prior to August 1, 2002, the Company
may, at its option, use the Net Cash Proceeds of one or more Public Equity
Offerings or the sale of Capital Stock of the Company to a Strategic Investor in
a single transaction or in a series of related transactions (other than
Disqualified Stock) in any 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 (a) in the case of the Euro
Notes, to 111.000% of the aggregate principal amount thereof, plus accrued and
unpaid interest thereon, if any, to the Redemption Date and (b) in the case of
the Dollar Notes, to 111.000% of the aggregate principal amount thereof, plus
accrued and unpaid interest thereon, if any, to the Redemption Date; provided
that, in each case, at least 65% of the original aggregate principal amount of
each of the Euro Notes and the Dollar Notes remains outstanding immediately
following such redemption. All determinations with respect to these provisions
shall be made in the manner set forth in the Indenture. In order to effect the
foregoing redemption, the Company must provide a notice of redemption no later
than 45 days after the closing of the related Public Equity Offering or sale to
a Strategic Investor and must consummate such 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 shall deem fair and reasonable, subject to the terms of
the Indenture.
Upon the occurrence of a Change of Control, subject to the terms of
the Indenture, each Holder may require the Company to purchase such Holder's
Notes in whole or in part in integral multiples of [$1,000/Euro 1,000], at a
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, pursuant to a Change of Control Offer in accordance with the
procedures set forth in the Indenture.
Under certain circumstances, subject to the terms of the Indenture,
in the event the Net Cash Proceeds received by the Company from any Asset Sale,
which proceeds are not used to repay any Pari Passu Indebtedness of the Company
or any Subsidiary (including the repurchase of Notes) or which will be invested
in Telecommunications Assets, exceeds a specified amount, the Company will be
required to apply such proceeds by making an offer to purchase Notes and certain
Indebtedness ranking pari passu in right of payment to the Notes.
In the case of any redemption of Notes in accordance with the
Indenture, interest installments whose Stated Maturity is on or prior to the
Redemption Date will be payable to the Holders of such Notes of record as of the
close of business on the relevant Regular Record Date or Special Record Date
referred to on the face hereof. Notes (or
<PAGE>
portions thereof) for whose redemption and payment provision is made in
accordance with the Indenture shall cease to bear interest from and after the
Redemption Date.
In the event of redemption of this Note in accordance with the
Indenture in part only, a new Note or Notes for the unredeemed portion hereof,
denominated in the same currency, shall be issued in the name of the Holder
hereof upon the cancellation hereof.
If an Event of Default shall occur and be continuing, the principal
amount of all the Notes may be declared due and payable in the manner and with
the effect provided in the Indenture.
The Indenture permits, with certain exceptions (including certain
amendments permitted without the consent of any Holders and certain amendments
which require the consent of all the Holders) as therein provided, the amendment
thereof and the modification of the rights and obligations of the Company and
any Guarantors and the rights of the Holders under the Indenture and the Notes
and any Guarantees at any time by the Company and the Trustee with the consent
of the Holders of at least a majority in aggregate principal amount of the Notes
at the time Outstanding. The Indenture also contains provisions permitting the
Holders of at least a majority in aggregate principal amount of the Notes (100%
of the Holders in certain circumstances) at the time Outstanding, on behalf of
the Holders of all the Notes, to waive compliance by the Company and any
Guarantors with certain provisions of the Indenture and the Notes and any
Guarantees and certain past Defaults under the Indenture and the Notes and any
Guarantees and their consequences. Any such consent or waiver by or on behalf of
the Holder of this Note shall be conclusive and binding upon such Holder and
upon all future Holders of this Note and of any Note issued upon the
registration of transfer hereof or in exchange herefor or in lieu hereof whether
or not notation of such consent or waiver is made upon this Note.
No reference herein to the Indenture and no provision of this Note
or of the Indenture shall alter or impair the obligation of the Company, any
Guarantor or any other obligor on the Notes (in the event such Guarantor or such
other obligor is obligated to make payments in respect of the Notes), which is
absolute and unconditional, to pay the principal of, premium, if any, and
interest on, this Note at the times, place and rate, and in the coin or
currency, herein prescribed.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Note is registrable in the Register,
upon surrender of this Note for registration of transfer at the office or agency
of the Company in the Borough of Manhattan, The City of New York or in
Luxembourg, duly endorsed by, or accompanied by a written instrument of transfer
in form satisfactory to the Company and the Registrar duly executed by,
<PAGE>
the Holder hereof or its attorney duly authorized in writing, and thereupon one
or more new Notes, denominated in the same currency, of authorized denominations
and for the same aggregate principal amount, will be issued to the designated
transferee or transferees.
Certificated securities shall be transferred to all beneficial
holders in exchange for their beneficial interests in the U.S. Global Notes or
the International Global Notes, as the case may be, if, among other things, (a)
the Depositary notifies the Company that it is unwilling or unable to continue
as depository for such Global Note and a successor depository is not appointed
by the Company within 120 days or (b) there shall have occurred and be
continuing an Event of Default and the Registrar has received a request from the
relevant Depositary. Upon any such issuance, the Trustee is required to register
such certificated Notes in the name of, and cause the same to be delivered to,
such Person or Persons (or the nominee of any thereof). All such certificated
Notes would be required to include the Legend.
Notes in certificated form are issuable only in registered form
without coupons in denominations of [$1,000/Euro 1,000] and any integral
multiple thereof. As provided in the Indenture and subject to certain
limitations therein set forth, the Notes are exchangeable for a like aggregate
principal amount of Notes of a differing authorized denomination, as requested
by the Holder surrendering the same.
At any time when the Company is not subject to Sections 13 or 15(d)
of the Exchange Act, upon the written request of a Holder of a Restricted Note,
the Company will promptly furnish or cause to be furnished such information as
is specified pursuant to Rule 144A(d)(4) under the Securities Act to such Holder
or to a prospective purchaser of such Note who such Holder informs the Company
is reasonably believed to be a "Qualified Institutional Buyer" within the
meaning of Rule 144A under the Securities Act, as the case may be, in order to
permit compliance by such Holder with Rule 144A under the Securities Act.
No service charge shall be made for any registration of transfer,
exchange or redemption of this Note, except for any tax or other governmental
charge that may be imposed in connection therewith, other than certain exchanges
not involving a transfer as more fully set forth in the Indenture.
Prior to due presentment of this Note for registration of transfer,
the Company, any Guarantor, the Paying Agents, the Transfer Agents, the
Registrar, the Trustee and any agent of the Company, any Guarantor, the Paying
Agents, the Transfer Agents, the Registrar or the Trustee may deem and treat the
Person in whose name this Note is registered as the absolute owner of that Note
for all purposes, whether or not this Note is overdue, and neither the Company,
any Guarantor, the Paying Agents, the Transfer Agents, the Registrant or the
Trustee nor any such agent shall be affected by notice to the contrary.
<PAGE>
THIS NOTE SHALL 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.
All terms used in this Note which are defined in the Indenture and
not otherwise defined herein shall have the meanings assigned to them in the
Indenture.
<PAGE>
APPENDIX I
FORM OF TRANSFER NOTICE
FOR VALUE RECEIVED, the undersigned registered holder hereby
sell(s), assign(s) and transfer(s) unto
Insert Taxpayer Identification No. ___________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Please print or typewrite name and address including zip code of assignee)
________________________________________________________________________________
the within Note and all rights thereunder, hereby irrevocably constituting and
appointing _____________________________________________________________________
attorney to transfer such Note on the books of the Company with full power of
substitution in the premises. [THE FOLLOWING PROVISION TO BE INCLUDED ON ALL
CERTIFICATES FOR RESTRICTED NOTES]. In connection with any transfer of this Note
occurring prior to the date which is the earlier of the date of an effective
Registration Statement or July 23, 2000, the undersigned confirms that without
utilizing any general solicitation or general advertising that:
[Check One]
[_] (a) this Note is being transferred in compliance with the
exemption from registration under the Securities Act of 1933, as amended,
provided by Rule 144A thereunder or
[_] (b) this Note is being transferred other than in accordance with
clause (a) above and documents are being furnished which comply with the
conditions of transfer set forth in this Note and the Indenture. If none of the
foregoing boxes is checked, the Trustee or other Registrar shall not be
obligated to register this Note in the name of any Person other than the Holder
hereof unless and until the conditions to any such transfer of registration set
forth herein and in Section 2.07 of the Indenture shall have been satisfied.
Date: ________________________________________________________
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the within-mentioned instrument in every particular,
without alteration or any change whatsoever.
<PAGE>
Signature Guarantee:
________________________
[If applicable, signature must be guaranteed by an eligible Guarantor
Institution (banks, stock brokers, savings and loan associations and credit
unions) with membership in an approved guarantee medallion program pursuant to
Securities and Exchange Commission Rule 17Ad-15.]
TO BE COMPLETED BY PURCHASER IF CLAUSE (a) ABOVE IS CHECKED. The
undersigned represents and warrants that it is purchasing this Note for its own
account or an account with respect to which it exercises sole investment
discretion and that it and any such account is a "qualified institutional buyer"
within the meaning of Rule 144A under the Securities Act of 1933, as amended,
and is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company as the
undersigned has requested pursuant to Rule 144A or has determined not to request
such information and that it is aware that the transferor is relying upon the
undersigned's foregoing representations in order to claim the exemption from
registration provided by Rule 144A.
Dated:________________________________________________________________
NOTICE: To be executed by an authorized signatory
<PAGE>
APPENDIX II
FORM OF TRANSFEREE CERTIFICATE
I or we assign and transfer this Note to:
Please insert social security or other identifying number of assignee
_____________________________________________________________________
Print or type name, address and zip code of assignee
_____________________________________________________________________
and irrevocably appoint ________________________________________________________
[Agent], to transfer this Note on the books of the Company. The Agent may
substitute another to act for him.
Dated __________________________
Signed _________________________
(Sign exactly as name appears on the other side of this Note)
[If applicable, signature must be guaranteed by an eligible Guarantor
Institution (banks, stock brokers, savings and loan associations and credit
unions) with membership in an approved guarantee medallion program pursuant to
Securities and Exchange Commission Rule 17 Ad-15]
<PAGE>
EXHIBIT 4.9
PSINET INC.
$1,050,000,000
11% SENIOR NOTES DUE 2009
and
EURO 150,000,000
11% SENIOR NOTES DUE 2009
-------
INDENTURE
Dated As Of July 23, 1999
-------
WILMINGTON TRUST COMPANY
Trustee
<PAGE>
CROSS-REFERENCE TABLE
Reconciliation and tie between Trust Indenture Act of 1939, as
amended, and Indenture, dated as of July 23, 1999.
Trust Indenture Indenture
Act Section Section
--------------- ---------
310(a)................. 6.05, 6.09, 6.11
(b).................... 6.05, 6.08
311(a)................. 6.05, 6.13
311(b)................. 6.05, 6.13
(b).................... 7.02
(c).................... 7.02
313(a)................. 7.03
(b)(2)................. 7.03
(c).................... 6.02, 7.03, 7.04
314(a)................. 7.04
(c)(1)................. 1.03
(c)(2)................. 1.03
(e).................... 1.03
315(a)................. 5.12, 6.01, 6.03
(b).................... 5.12, 6.01, 6.03
(c).................... 5.12, 6.01, 6.03
(d).................... 5.12, 6.01, 6.03
(e).................... 5.14
316(a)(last sentence).. 1.01("Outstanding")
(a)(1)(A).............. 5.12
(a)(1)(B).............. 5.13
(b).................... 5.08
(c).................... 1.05
317(a)(1).............. 5.03
(a)(2)................. 5.04
(b).................... 6.05
318(a)................. 1.08
<PAGE>
TABLE OF CONTENTS
ARTICLE I Definitions And Other Provisions of General Application.......1
Section 1.01. Construction................................................1
Section 1.02. Definitions.................................................3
Section 1.03. Compliance Certificates and Opinions.......................31
Section 1.04. Form of Documents Delivered to Trustee.....................31
Section 1.05. Acts of Holders............................................32
Section 1.06. Notices, etc., to the Trustee, the Company and any
Guarantor..................................................34
Section 1.07. Notice to Holders; Waiver..................................34
Section 1.08. Conflict with Trust Indenture Act..........................35
Section 1.09. Effect of Headings and Table of Contents...................36
Section 1.10. Successors and Assigns.....................................36
Section 1.11. Separability Clause........................................36
Section 1.12. Benefits of Indenture......................................36
Section 1.13. Governing Law..............................................36
Section 1.14. Legal Holidays.............................................37
Section 1.15. Independence of Covenants..................................37
Section 1.16. Schedules and Exhibits.....................................37
Section 1.17. Counterparts...............................................37
Section 1.18. No Adverse Interpretation of Other Agreements..............37
Section 1.19. No Recourse against Others.................................37
ARTICLE II The Notes....................................................38
Section 2.01. Form and Dating............................................38
Section 2.02. Execution and Authentication...............................39
Section 2.03. Registrar and Paying Agents................................40
Section 2.04. Holders to Be Treated as Owners; Payments of Interest......41
Section 2.05. Paying Agent to Hold Money in Trust........................42
Section 2.06. Noteholder Lists...........................................42
Section 2.07. Transfer and Exchange......................................42
Section 2.08. Replacement Notes..........................................50
Section 2.09. Outstanding Notes..........................................50
Section 2.10. Treasury Notes.............................................51
Section 2.11. Temporary Notes............................................51
Section 2.12. Cancellation...............................................51
Section 2.13. Defaulted Interest.........................................52
Section 2.14. CUSIP and ISIN Number; Common Code.........................52
<PAGE>
Page
----
Section 2.15. Deposit of Moneys; Payments by Principal Paying Agent......53
ARTICLE III Note Forms...................................................53
ARTICLE IV Defeasance and Covenant Defeasance...........................53
Section 4.01. Company's Option to Effect Defeasance or Covenant
Defeasance.................................................54
Section 4.02. Defeasance and Discharge...................................54
Section 4.03. Covenant Defeasance........................................54
Section 4.04. Conditions to Defeasance or Covenant Defeasance............55
Section 4.05. Deposited Money and Government Obligations to be Held in
Trust; Other Miscellaneous Provisions......................57
Section 4.06. Reinstatement..............................................58
ARTICLE V Remedies.....................................................59
Section 5.01. Events of Default..........................................59
Section 5.02. Acceleration of Maturity; Rescission and Annulment.........61
Section 5.03. Collection of Indebtedness and Suits for Enforcement
by Trustee.................................................62
Section 5.04. Trustee May File Proofs of Claim...........................63
Section 5.05. Trustee May Enforce Claims without Possession of Notes.....64
Section 5.06. Application of Money Collected.............................64
Section 5.07. Limitation on Suits........................................65
Section 5.08. Unconditional Right of Holders to Receive Principal,
Premium and Interest.......................................65
Section 5.09. Restoration of Rights and Remedies.........................66
Section 5.10. Rights and Remedies Cumulative.............................66
Section 5.11. Delay or Omission Not Waiver...............................66
Section 5.12. Control by Holders.........................................66
Section 5.13. Waiver of Past Defaults....................................67
Section 5.14. Undertaking for Costs......................................67
Section 5.15. Waiver of Stay, Extension or Usury Laws....................68
Section 5.16. Remedies Subject to Applicable Law.........................68
ARTICLE VI The Trustee..................................................68
Section 6.01. Duties of Trustee..........................................68
Section 6.02. Notice of Defaults.........................................70
Section 6.03. Certain Rights of Trustee..................................70
Section 6.04. Trustee Not Responsible for Recitals, Dispositions of
Notes or Application of Proceeds Thereof...................71
-ii-
<PAGE>
Page
----
Section 6.05. Trustee and Agents May Hold Notes; Collections; etc........72
Section 6.06. Money Held in Trust........................................72
Section 6.07. Compensation and Indemnification of Trustee and Its
Prior Claim................................................72
Section 6.08. Conflicting Interests......................................74
Section 6.09. Trustee Eligibility........................................74
Section 6.10. Resignation and Removal; Appointment of Successor Trustee..74
Section 6.11. Acceptance of Appointment by Successor.....................76
Section 6.12. Merger, Conversion, Consolidation or Succession to
Business...................................................76
Section 6.13. Preferential Collection of Claims Against Company..........77
ARTICLE VII Holders' Lists and Reports by Trustee and Company............77
Section 7.01. Company to Furnish Trustee Names and Addresses of Holders..77
Section 7.02. Disclosure of Names and Addresses of Holders...............78
Section 7.03. Reports by Trustee.........................................78
Section 7.04. Reports by Company.........................................78
ARTICLE VIII Consolidation, Merger, Sale of Assets........................79
Section 8.01. Company and Guarantors May Consolidate, etc.,
Only on Certain Terms......................................79
Section 8.02. Successor Substituted......................................81
ARTICLE IX Supplemental Indentures......................................81
Section 9.01. Supplemental Indentures and Agreements without Consent of
Holders....................................................81
Section 9.02. Supplemental Indentures and Agreements with
Consent of Holders.........................................82
Section 9.03. Execution of Supplemental Indentures and Agreements........83
Section 9.04. Effect of Supplemental Indentures..........................84
Section 9.05. Conformity with Trust Indenture Act........................84
Section 9.06. Reference in Notes to Supplemental Indentures..............84
Section 9.07. Notice of Supplemental Indentures..........................84
ARTICLE X Covenants...................................................84
Section 10.01. Payment of Principal, Premium and Interest................84
Section 10.02. Maintenance of Office or Agency...........................85
Section 10.03. Money for Note Payments to Be Held in Trust...............85
Section 10.04. Corporate Existence.......................................86
Section 10.05. Payment of Taxes and Other Claims.........................87
Section 10.06. Maintenance of Properties.................................87
-iii-
<PAGE>
Page
----
Section 10.07. Maintenance of Insurance..................................88
Section 10.08. Limitation on Indebtedness................................88
Section 10.09. Limitation on Restricted Payments.........................91
Section 10.10. Limitation on Transactions with Affiliates................95
Section 10.11. Limitation on Liens.......................................96
Section 10.12. Limitation on Sale of Assets..............................96
Section 10.13. Limitation on Issuances of Guarantees of Indebtedness.....98
Section 10.14. Purchase of Notes upon a Change of Control................98
Section 10.15. Limitation on Sale-Leaseback Transactions................102
Section 10.16. Limitation on Issuance and Sale of Subsidiary Capital
Stock.....................................................102
Section 10.17. Limitation on Dividends and Other Payment Restrictions
Affecting Subsidiaries...................................103
Section 10.18. Limitations on Unrestricted Subsidiaries.................104
Section 10.19. Provision of Financial Statements........................104
Section 10.20. Statement by Officers as to Default......................105
Section 10.21. Waiver of Certain Covenants..............................105
Section 10.22. Limitation on Business...................................106
ARTICLE XI Redemption of Notes........................................106
Section 11.01. Rights of Redemption.....................................106
Section 11.02. Applicability of Article.................................107
Section 11.03. Election to Redeem; Notice to Trustee....................107
Section 11.04. Selection by Trustee of Notes to Be Redeemed.............107
Section 11.05. Notice of Redemption.....................................108
Section 11.06. Deposit of Redemption Price..............................109
Section 11.07. Notes Payable on Redemption Date.........................109
Section 11.08. Notes Redeemed in Part...................................110
ARTICLE XII Satisfaction and Discharge.................................110
Section 12.01. Satisfaction and Discharge of Indenture..................110
Section 12.02. Application of Trust Money...............................111
-iv-
<PAGE>
INDENTURE, dated as of July 23, 1999, between PSINET INC., a New York
corporation ("Company"), and WILMINGTON TRUST COMPANY, a Delaware banking
corporation, as trustee ("Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the issuance, as a single series of
securities (ranking pari passu with each other), of (i) $1,050,000,000 aggregate
principal amount of its 11% Senior Notes due 2009 (the "Dollar Notes") and (ii)
Euro 150,000,000 aggregate principal amount of its 11% Senior Notes due 2009
(the "Euro Notes" and together with the Dollar Notes, the "Notes"), of
substantially the tenor and amount hereinafter set forth, and to provide
therefor the Company has duly authorized the execution and delivery of this
Indenture.
This Indenture is subject to, and shall be governed by, the
provisions of the Trust Indenture Act that are required to be part of and to
govern indentures qualified under the Trust Indenture Act.
All acts and things necessary have been done to make the Notes, when
duly issued and executed by the Company and authenticated and delivered
hereunder, the valid obligations of the Company and to make this Indenture a
valid instrument of the Company, in accordance with the terms of this Indenture.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Notes by the Holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all Holders of the Notes, as follows:
ARTICLE I
Definitions And Other Provisions of General Application
Section 1.01. Construction. For all purposes of this Indenture,
except as otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular;
<PAGE>
(b) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
(c) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP;
(d) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision;
(e) all references to (i) "$," "US$," "dollars," "Dollars" or
"United States dollars" shall refer to the lawful currency of the United States
of America and (ii) "Euro" shall refer to the lawful currency of the member
states of the European Union that adopt the single currency in accordance with
the Treaty establishing the European Communities, as amended;
(f) the Euro Notes and the Dollar Notes are being issued as a single
series of securities ranking pari passu with each other;
(g) "pro rata" means, whether in respect of any redemption or
otherwise, a determination made on the basis of the relative proportion of the
outstanding aggregate principal amount represented by the outstanding principal
amounts of the Dollar Notes and the United States Dollar Equivalent of the Euro
Notes as of the time of such determination, calculated in accordance with clause
(h) below;
(h) the United States Dollar Equivalent of Euros or any other
determination of a United States Dollar Equivalent for any purpose shall be
determined as of a date of determination (including, without limitation, the
Redemption Determination Date) as otherwise described in the definition of
"United States Dollar Equivalent" herein and, in any case, no subsequent change
in the United States Dollar Equivalent after the applicable date of
determination (including, without limitation, the Redemption Determination Date)
shall cause such determination to be modified;
(i) the aggregate principal amount, or any portion thereof, of the
Notes, at any date of determination, shall be the sum of (i) 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 (ii) the principal
amount, or portion thereof, as the case may be, of the Dollar Notes, at such
date of determination;
(j) with respect to any matter requiring the consent, waiver,
approval or other action of the holders of a specified percentage of the
principal amount of the Notes, such
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percentage shall be calculated, on the relevant date of determination, by
dividing (i) the principal amount, as of such date, of Notes the holders of
which have so consented by (ii) the aggregate principal amount, as of such date,
of the Notes then outstanding, in each case, as determined in accordance with
clause (i) above; and
(k) all references herein to particular Sections or Articles refer
to this Indenture unless otherwise so indicated.
Section 1.02. Definitions. Certain terms used principally in Article
IV are defined in Article IV. Certain other terms are defined elsewhere in the
Indenture.
"Acquired Indebtedness" means Indebtedness of a Person (i) existing
at the time such Person becomes a Subsidiary or (ii) 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 (i) 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 the Company or any
Subsidiary to any other Person, or any acquisition or purchase of Capital Stock
of any other Person by the Company or any Subsidiary, in either case pursuant to
which such Person shall become a Subsidiary or shall be consolidated, merged
with or into the Company or any Subsidiary or (ii) any acquisition by the
Company 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 the Company 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.
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"Applicable Procedures" means, with respect to any transfer,
exchange or other transaction involving a Global Note or beneficial interest
therein, the rules and procedures of DTC with respect to the Dollar Global Notes
and the "Operating Procedures of the Euroclear System," and "Terms and
Conditions Governing Use of Euroclear," of Euroclear and the "General Terms and
Conditions of Cedelbank" and "Customer Handbook" of Cedelbank with respect to
the Euro Global Notes, in each case, to the extent applicable to such
transaction and as in effect at the time of such transaction.
"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: (i) any
Capital Stock of any Subsidiary; (ii) all or substantially all of the properties
and assets of any division or line of business of the Company or its
Subsidiaries; or (iii) any other properties or assets of the Company 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 of Section 8.01,
(B) that is by the Company to any Wholly-Owned Subsidiary or by any Wholly-Owned
Subsidiary to the Company or any other Wholly-Owned Subsidiary in a manner that
does not violate the terms of this 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 in
Section 10.09, (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 the Company or such
Subsidiary under this clause (G), plus the Fair Market Value of any other
consideration paid or credited by the Company or such Subsidiary exceeds $10
million, such transaction shall require approval of the Board of Directors of
the Company.
"Average Life to Stated Maturity" means, as of the date of
determination with respect to any Indebtedness, the quotient obtained by
dividing (i) 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 (ii) 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.
"Board of Directors" means the board of directors of the Company or
any Guarantor, as the case may be, or any duly authorized committee of such
board.
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"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company or any Guarantor, as the case
may be, to have been duly adopted by the Board of Directors and to be in full
force and effect on the date of such certification, and delivered to the
Trustee.
"Book-Entry Depositaries" means the Dollar Book-Entry Depositary and
the Euro Book-Entry Depositary.
"Book-Entry Interests" means the Euro Book-Entry Interests and the
Dollar Book-Entry Interests.
"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, in London, England 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" means (i) 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 (ii) with
respect to any Person that is not a corporation, any and all partnership,
membership or other equity interests of such Person.
"Cash Equivalents" means (i) 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 United Kingdom, the
Federal Republic of Germany or the Federal Republic of France, or any
instrumentality or agency thereof, and guaranteed fully as to principal,
premium, if any, and interest by the issuing government, (ii) 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 provided that the long-term debt of
such member is rated "A-" or higher according to S&P or "A-3" or higher
according to Moody's, and in the case of clauses (ii)(A) and (ii)(B), such
banking institution, bank or trust company also has (A) combined capital and
surplus and undivided profits of not less than $500 million, and (B) short term
debt with a rating, at the time as of which any investment therein is made, of
"P-1" (or higher) according to
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Moody's or any successor rating agency or "A-1" (or higher) according to S&P or
any successor rating agency, (iii) 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 the Company), 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 the long-term debt of such member is rated "A-" or higher
according to S&P or "A-3" or higher according to Moody's, and (iv) any money
market accounts or funds at least 95% of the assets of which constitute Cash
Equivalents of the kinds described in clauses (i), (ii) or (iii) above.
"Cedelbank" means Cedelbank, societe anonyme, and its successors and
assigns.
"Change of Control" means the occurrence of any of the following
events: (i) 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 the Company; (ii) during any period of two
consecutive years, individuals who at the beginning of such period constituted
the Board of Directors of the Company (together with any new directors whose
election to such board or whose nomination for election by the stockholders of
the Company 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; (iii)
the Company 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 the Company in any such
event pursuant to a transaction in which the outstanding Voting Stock of the
Company is changed into or exchanged for cash, securities or other property,
other than any such transaction where the outstanding Voting Stock of the
Company is not changed or exchanged at all (except to the extent necessary to
reflect a change in the jurisdiction of incorporation of the Company 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 (iv) the Company is liquidated or dissolved or adopts a plan of
liquidation or dissolution other than in a transaction which complies with the
provisions described under Section 8.01. The good faith determination of the
Board, based upon the advice of outside counsel, of the beneficial ownership of
securities of the Company within the meaning of Rules 13d-3 and 13d-5 under the
Exchange Act shall be conclusive, absent contrary controlling judicial precedent
on contrary written interpretation published by the Commission.
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"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Exchange Act, or if at any time
after the execution of this Indenture such Commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act then the
body performing such duties at such time.
"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.
"Common Stock" means the common stock, par value $0.01 per share, of
the Company.
"Company" means PSINet Inc., a corporation incorporated under the
laws of New York, until a successor Person shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor Person.
"Company Request" or "Company Order" means a written request or
order signed in the name of the Company by any one of its Chairman of the Board,
its President, its Chief Executive Officer, its Chief Financial Officer or a
Vice President (regardless of Vice Presidential designation), and by any one of
its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary,
and delivered to the Trustee.
"Company Rights Agreement" means the Rights Agreement, dated as of
May 8, 1996, between the Company 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, (i) amortization of debt discount, (ii) the
net costs associated with Interest Rate Agreements, Currency Hedging
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Agreements and Commodity Price Protection Agreements (including amortization of
discounts), (iii) the interest portion of any deferred payment obligation and
(iv) accrued interest, plus (b) (i) 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 (ii) 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)(iv) above, plus (d) the aggregate amount
for such period of cash or non-cash dividends on any Redeemable Capital Stock or
Preferred Stock of the Company and its Subsidiaries, in each case as determined
on a Consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, with respect to any period, the net
income of the Company 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 the Company 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 the
Company's allocation portion of such Person's net income for such period is
actually received in cash by the Company 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 the Company 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 the Company
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
8
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to the extent they increase Consolidated Net Income (including the partial or
entire reversal of reserves taken in prior periods) for such period.
"Corporate Trust Office" means the office of the Trustee or an
affiliate or agent thereof at which at any particular time the corporate trust
business for the purposes of this Indenture shall be principally administered,
which office at the date of execution of this Indenture is located at Rodney
Square North, 1100 North Market Street, Wilmington, Delaware 19890-0001.
"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 the Company 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.
"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 the Company 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, (i) 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, (ii) 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 (iii) if the Company or any Subsidiary shall have in any manner (x) acquired
(through an Acquisition or the commencement of activities constituting such
operating business) or (y) disposed of (by an Asset Sale or the termination or
discontinuance of activities constituting such operating business) any operating
business during such Measurement
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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.
"Definitive Registered Note" means any Note issued in accordance
with Section 2.07(c), the form of which is attached hereto as Exhibit B.
"Depositary" means each of the Dollar Book-Entry Depositary and the
Euro Book-Entry Depositaries.
"Disinterested Director" means, with respect to any transaction or
series of related transactions, a member of the Board of Directors of the
Company 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; 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 Section 10.12 and Section 10.14
and such Capital Stock specifically provides that such person will not
repurchase or redeem any such stock pursuant to such provision prior to the
Company's repurchase of such Notes as are required to be repurchased pursuant to
Section 10.12 and Section 10.14.
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"Dollar Book-Entry Depositary" means DTC or any successor book-entry
depositary with respect to the Dollar Notes.
"Dollar Book-Entry Interest" means an indirect beneficial interest
in a Dollar Global Note held on, and transferred only through, records
maintained in book-entry form by DTC or a Dollar Book-Entry Depositary.
"Dollar Definitive Registered Notes" means the Dollar Restricted
Definitive Registered Notes and the Dollar Unrestricted Definitive Registered
Notes.
"Dollar Global Notes" means the Dollar U.S. Global Note(s), the
Dollar International Global Note(s) and, if applicable, the Dollar Unrestricted
Global Notes.
"Dollar International Global Note(s)" means one or more Global Notes
bearing the Legends in registered form without coupons that will be issued on
the Issue Date in a principal amount equal to the aggregate principal amount of
the Dollar Notes sold in reliance on Regulation S and deposited with the Dollar
Book-Entry Depositary.
"Dollar Notes" has the meaning stated in the first recital of this
Indenture.
"Dollar Restricted Definitive Registered Note" means a Definitive
Registered Note bearing the Legends issued in registered form without coupons in
a principal amount of $1,000 or integral multiples thereof.
"Dollar Restricted Notes" means the Dollar Restricted Definitive
Registered Notes, the Dollar U.S. Global Notes and the Dollar International
Global Notes.
"Dollar U.S. Global Note(s)" means one or more Global Note(s)
bearing the Legends in registered form without coupons that will be issued on
the Issue Date in a principal amount equal to the aggregate principal amount of
the Dollar Notes sold in reliance on Rule 144A and deposited with the Dollar
Book-Entry Depositary.
"Dollar Unrestricted Definitive Registered Note" means a Definitive
Registered Note not bearing the Legends issued in registered form without
coupons in a principal amount of $1,000 or integral multiples thereof.
"Dollar Unrestricted Global Note(s)" means one or more Global Notes
not bearing the Legends issued in registered form without coupons in a principal
amount of $1,000 or integral multiples thereof, and deposited with the Dollar
Book-Entry Depositary.
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"Dollar Unrestricted Notes" means the Dollar Unrestricted Definitive
Registered Notes and the Dollar Unrestricted Global Note(s).
"DTC" means The Depository Trust Company.
"Euro Book-Entry Depositaries" means Euroclear and Cedelbank,
collectively, or any successor Book-Entry Depositary or Depositaries with
respect to the Euro Notes.
"Euro Book-Entry Interest" means an indirect beneficial interest in
a Euro Global Note held on, and transferred only through, records maintained in
book-entry form by a Euro Book-Entry Depositary.
"Euro Definitive Registered Notes" means the Euro Restricted
Definitive Registered Notes and the Euro Unrestricted Definitive Registered
Notes.
"Euro Global Notes" means the Euro U.S. Global Note(s), the Euro
International Global Note(s) and, if applicable, the Euro Unrestricted Global
Note.
"Euro International Global Note(s)" means one or more Global Notes
bearing the Legends in registered form without coupons that will be issued on
the Issue Date in a principal amount equal to the aggregate principal amount of
the Euro Notes sold in reliance on Regulation S and deposited with the Note
Custodian.
"Euro Notes" has the meaning stated in the first recital of this
Indenture.
"Euro Restricted Definitive Registered Note" means a Definitive
Registered Note bearing the Legends issued in registered form without coupons in
a principal amount of Euro 1,000 or integral multiples thereof.
"Euro Restricted Global Notes" means the Euro U.S. Global Note(s)
and the Euro International Global Note(s).
"Euro Restricted Notes" means the Euro Restricted Definitive
Registered Notes and the Euro Restricted Global Note(s).
"Euro Unrestricted Definitive Registered Note" means a Definitive
Registered Note not bearing the Legends issued in registered form without
coupons in a principal amount of Euro 1,000 or integral multiples thereof.
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"Euro Unrestricted Global Note" means one or more Global Note(s) not
bearing the Legends issued in registered form without coupons in a principal
amount of Euro 1,000 or integral multiples thereof, and deposited with the Note
Custodian.
"Euro Unrestricted Notes" means the Euro Unrestricted Definitive
Registered Notes and the Euro Unrestricted Global Notes.
"Euro U.S. Global Note(s)" means one or more Global Note(s) bearing
the Legends in registered form without coupons that will be issued on the Issue
Date in a principal amount equal to the aggregate principal amount of the Euro
Notes sold in reliance on Rule 144A and deposited with the Euro Book-Entry
Depositaries.
"Euroclear" means Morgan Guaranty Trust Company of New York,
Brussels office, as operator of the Euroclear System, and its successors and
assigns.
"Event of Default" has the meaning specified in Section 5.01.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any successor statute.
"Exchange Offer" means the exchange offer by the Company of
Unrestricted Notes for Restricted Notes to be effected pursuant to the
Registration Rights Agreement.
"Exchange Offer Registration Statement" has the meaning set forth in
the Registration Rights Agreement.
"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 the Company
acting in good faith and shall be evidenced by a Board Resolution.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States, consistently applied, which
are in effect on the date hereof.
"Global Note(s)" means two or more registered definitive global
securities without coupons, substantially in the form of Exhibit A attached
hereto, which will represent all of the Notes outstanding at any time unless or
until Definitive Registered Notes are issued in respect of all or any
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Notes, in which case the Global Note(s) at any time will represent all those
Notes which are not at such time evidenced by Definitive Registered Notes.
"Government Securities" means, collectively, the European Government
Obligations and the U.S. Government Obligations.
"Guarantee" means the guarantee by any Guarantor of the Company'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 (i) to pay or purchase such Indebtedness or to advance or
supply funds for the payment or purchase of such Indebtedness, (ii) 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, (iii) 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), (iv) 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 (v) 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 a guarantor of the Notes,
including any Person that is required after the date hereof to execute a
guarantee of the Notes pursuant to Section 10.13 until a successor replaces such
party pursuant to the applicable provisions of this Indenture and, thereafter,
shall mean such successor.
"Holder" means a Person in whose name a Note is registered in the
Register.
"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 a Person existing at the time
such Person becomes a Subsidiary or is merged or consolidated with or into the
Company or any Subsidiary shall be deemed to be Incurred at such time.
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"Indebtedness" means, with respect to any Person, without
duplication, (i) 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, (ii) all obligations of such Person evidenced by bonds, notes,
debentures or other similar instruments, (iii) 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, (iv) all obligations under Interest Rate
Agreements, Currency Hedging Agreements or Commodity Price Protection Agreements
of such Person, (v) all Capital Lease Obligations of such Person, (vi) all
Indebtedness referred to in clauses (i) through (v) 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,
(vii) 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 (viii) any refinancing of any liability of the types
referred to in clauses (i) through (vii) 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 this 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" means this instrument as originally executed (including
all exhibits and schedules thereto) and as it may from time to time be
supplemented or amended by one or more indentures supplemental hereto entered
into pursuant to the applicable provisions hereof.
"Indenture Obligations" means the obligations of the Company and any
other obligor under this 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 this Indenture,
the Notes and the performance of all other obligations to the Trustee and the
holders under this Indenture and the Notes, according to the respective terms
thereof.
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"Indirect Participant" means a Person who holds a Book-Entry
Interest through a Participant.
"Initial Purchasers" means Donaldson, Lufkin & Jenrette
International, Bear Stearns International Limited and Chase Manhattan
International Limited.
"Interest Payment Date" means the Stated Maturity of an installment
of interest on the Notes.
"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.
"International Global Note(s)" means the Euro International Global
Note(s) and the Dollar International Global Note(s).
"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.
"Issue Date" means the date on which the Notes are originally issued
under this Indenture.
"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 the Company and IXC, as amended, pursuant to which the
Company 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 the Notes).
"Legends" means any of the restrictive legends pursuant to the
Securities Act initially set forth on the Restricted Notes attached hereto as
Exhibits A and B.
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"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 (i) any lease
properly classified as an operating lease under GAAP, (ii) intellectual property
licensing arrangements, or (iii) 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 this 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.
"Moody's" means Moody's Investors Service, Inc., or any successor
rating agency.
"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 the Company or any
Wholly-Owned Subsidiary) net of (i) brokerage commissions and other fees and
expenses (including fees and expenses of counsel and investment bankers) related
to such Asset Sale, (ii) provisions for all taxes payable as a result of such
Asset Sale, (iii) payments made to retire Indebtedness where payment of such
Indebtedness is secured by the assets or properties the subject of such Asset
Sale, (iv) amounts required to be paid to any Person (other than the Company or
any Subsidiary) owning a beneficial interest in the assets subject to the Asset
Sale and (v) amounts contractually required to be deposited into escrow or
similar trust arrangements and other appropriate amounts to be provided by the
Company 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
the Company 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
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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 in Section 10.09, 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 the Company 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.
"Non-U.S. Person" means a Person that is not a "U.S. Person" as
defined in Regulation S under the Securities Act.
"Note Custodian" means Kredietbank S.A. Luxembourgeoise, and its
successors and assigns, in its capacity as common depositary of the Euro Global
Notes on behalf of the Euro Book-Entry Depositaries.
"Noteholder" means any Holder of Notes.
"Notes" has the meaning stated in the first recital of this
Indenture.
"Officers' Certificate" means a certificate signed by the Chairman
of the Board, the President, the Chief Executive Officer, the Chief Financial
Officer or a Vice President (regardless of Vice Presidential designation), and
by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant
Secretary, of the Company or any Guarantor, as the case may be, and in form and
substance reasonably satisfactory to, and delivered to, the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company, any Guarantor or the Trustee, unless an Opinion of
Independent Counsel is required pursuant to the terms of this Indenture, and who
shall be reasonably acceptable to the Trustee, and which opinion shall be in
form and substance reasonably satisfactory to the Trustee.
"Opinion of Independent Counsel" means a written opinion of counsel,
who may be regular outside counsel for the Company, but which is issued by a
Person who is not an employee or consultant (other than non-employee legal
counsel) of the Company, or any Guarantor
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and who shall be reasonably acceptable to the Trustee, and which opinion shall
be in form and substance reasonably satisfactory to the Trustee.
"Outstanding" when used with respect to Notes means, as of the date
of determination, all Notes theretofore authenticated and delivered under this
Indenture, except:
(a) Notes theretofore canceled by the Trustee or delivered to the
Trustee for cancellation;
(b) Notes, or portions thereof, for whose payment or redemption
money in the necessary amount has been theretofore deposited with the Trustee or
any Paying Agent in trust or set aside for the Holders of such Notes; provided
that if such Notes are to be redeemed, notice of such redemption has been duly
given pursuant to this Indenture or provision therefor reasonably satisfactory
to the Trustee has been made;
(c) Notes, except to the extent provided in Sections 4.02 and 4.03,
with respect to which the Company has effected defeasance or covenant defeasance
as provided in Article IV; and
(d) Notes in exchange for or in lieu of which other Notes have been
authenticated and delivered pursuant to this Indenture, other than any such
Notes in respect of which there shall have been presented to the Trustee and the
Company proof reasonably satisfactory to each of them that such Notes are held
by a bona fide purchaser in whose hands the Notes are valid obligations of the
Company; provided, however, that in determining whether the Holders of the
requisite principal amount of Outstanding Notes have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Notes owned by
the Company, any Guarantor, or any other obligor upon the Notes or any Affiliate
of the Company, any Guarantor or such other obligor shall be disregarded and
deemed not to be Outstanding, except that, in determining whether the Trustee
shall be protected in relying upon any such request, demand, authorization,
direction, notice, consent or waiver, only Notes which the Trustee knows to be
so owned shall be so disregarded. Notes so owned which have been pledged in good
faith may be regarded as Outstanding if the pledgee establishes to the
reasonable satisfaction of the Trustee the pledgee's right so to act with
respect to such Notes and that the pledgee is not the Company, any Guarantor or
any other obligor upon the Notes or any Affiliate of the Company, any Guarantor
or such other obligor.
"Pari Passu Indebtedness" means (a) any Indebtedness of the Company
which ranks pari passu in right of payment to the Notes and (b) with respect to
any Guarantee, Indebtedness which ranks pari passu in right of payment to such
Guarantee.
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"Participant" means, with respect to DTC, Euroclear or Cedelbank,
Persons who have accounts with DTC, Euroclear or Cedelbank, respectively (and
with respect to DTC, shall include Euroclear and Cedelbank acting through their
agents, The Chase Manhattan Bank and Citibank, N.A., respectively, or such
agents' respective successors and assigns).
"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 (i) 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, the Company or any Wholly-Owned
Subsidiary; (ii) Indebtedness of the Company or a Subsidiary described under
clauses (iv) and (vii) of paragraph (b) of Section 10.08; (iii) Investments in
any of the Notes; (iv) Investments in Cash Equivalents; (v) Investments acquired
by the Company or any Subsidiary in connection with an Asset Sale permitted
under Section 10.12 to the extent such Investments are non-cash proceeds as
permitted under such covenant; (vi) 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; (vii) guarantees of Indebtedness of a Wholly-Owned Subsidiary given
by the Company or another Wholly-Owned Subsidiary and guarantees of Indebtedness
of the Company given by any Subsidiary, in each case, not otherwise in violation
of the terms of the Indenture; (viii) advances to employees or officers of the
Company 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; (ix) any
Investment in the Company by any Subsidiary of the Company; provided, that any
such Investment in the form of Indebtedness shall be Subordinated Indebtedness;
(x) accounts receivable created or acquired in the ordinary course of business
of the Company or any Subsidiary and Investments arising from transactions by
the Company 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); (xi) loans in the ordinary course of business to employees, officers or
directors of the Company or a Subsidiary to purchase Capital Stock of the
Company pursuant to the terms of stock benefit plans; (xii) Investments the
consideration of which is Capital Stock of the Company; (xiii) 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; (xiv) Investments in prepaid expenses, negotiable instruments held for
collection, and lease, utility and workers' compensation, performance and other
similar deposits; (xv) Investments, not to exceed, in the
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aggregate, $100 million at any one time outstanding, 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 the Company's business or in the Capital Stock of a
Person engaged in a Telecommunications Business; and (xvi) 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 the Company's Board of Directors) at the time of such
Investment.
"Permitted Joint Venture" means a corporation, partnership or other
Person engaged in a Telecommunications Business over which the Company 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 this Indenture;
(b) any Lien arising by reason of (I) 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; (II)
taxes not yet delinquent or which are being contested in good faith; (III)
security for payment of workers' compensation or other insurance or arising
under worker's compensation laws or similar legislation; (IV) good faith
deposits in connection with bids, tenders, leases, contracts (other than
contracts evidencing Indebtedness); (V) 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 the Company or any Subsidiary or
the value of such property for the purpose of such business; (VI) deposits to
secure public or statutory obligations, or in lieu of surety or appeal bonds; or
(VII) 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
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appeal bonds, letters of credit and other obligations of a like nature and
incurred in the ordinary course of business of the Company or any Subsidiary;
(d) any Lien securing obligations in connection with Indebtedness
permitted under clause (i) of paragraph (b) of Section 10.08 which attaches
within 180 days of the incurrence of such indebtedness or the date of delivery
of such property or asset; 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;
(f) any Lien securing obligations in connection with Indebtedness
permitted in clauses (ii), (iv) or (viii) of paragraph (b) of Section 10.08;
(g) any Lien in favor of the Company 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 the Company 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 the Company
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 the
Company 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
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(n) any Lien securing any refinancing, in whole or in part, of any
obligation or Indebtedness described in the foregoing clauses (a) through (d)
and (f) through (m) so long as no additional collateral is granted as security
thereby.
"Person" means any individual, corporation, limited liability
company, partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Predecessor Note" of any particular Note means every previous Note
evidencing all or a portion of the same debt as that evidenced by such
particular Note; and, for the purposes of this definition, any Note
authenticated and delivered under Section 2.08 in exchange for a mutilated Note
or in lieu of a lost, destroyed or stolen Note shall be deemed to evidence the
same debt as the mutilated, lost, destroyed or stolen Note.
"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.
"Prospectus" means the prospectus included in a Registration
Statement, including any preliminary prospectus, and any such prospectus as
amended or supplemented by any prospectus supplement, including any such
prospectus supplement with respect to the terms of the offering of any portion
of the Notes covered by a Shelf Registration Statement, and by all other
amendments and supplements to a prospectus, including post-effective amendments,
and in each case including all material incorporated by reference therein.
"Public Equity Offering" means an underwritten offering of Capital
Stock (other than Disqualified Stock) of the Company with gross proceeds to the
Company of at least $25 million pursuant to a registration statement that has
been declared effective by the Commission pursuant to the Securities Act (other
than a registration statement on Form S-8 or otherwise relating to equity
securities issuable under any employee benefit plan of the Company).
"Purchase Money Obligation" means any Indebtedness secured by a Lien
on assets related to the business of the Company and any additions,
replacements, modifications and accessions thereto, which are purchased by the
Company at any time after the Notes are issued; provided that (i) 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
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products therefrom, (ii) 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 thereto and except in respect of fees
and other obligations in respect of such Indebtedness and (iii) (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 is entered into
exceed 100% of the purchase price to the Company 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.
"QIB" means a "Qualified Institutional Buyer" under Rule 144A under
the Securities Act.
"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 any such Stated Maturity, or is convertible into or
exchangeable for debt securities at any time prior to any such Stated Maturity
at the option of the holder thereof.
"Redemption Date" when used with respect to any Note to be redeemed
pursuant to any provision in this Indenture means the date fixed for such
redemption by or pursuant to this Indenture.
"Redemption Price" when used with respect to any Note to be redeemed
pursuant to any provision in this Indenture means the price at which it is to be
redeemed pursuant to this Indenture.
"Registration Default" has the meaning provided in Section 5 of the
Registration Rights Agreement.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of July 23, 1999, between the Company and the Initial
Purchasers.
"Registration Statement" has the meaning set forth in the
Registration Rights Agreement.
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"Regular Record Date" for the interest payable on any Interest
Payment Date means the January 15 or July 15 (whether or not a Business Day)
next preceding such Interest Payment Date.
"Regulation S" means Regulation S under the Securities Act, as
amended from time to time.
"Responsible Officer" when used with respect to the Trustee means
the Chairman of the Board, the President or any other officer or employee
assigned to the Corporate Trust Office or any agent of the Trustee appointed
hereunder, including any vice president, assistant vice president, secretary,
assistant secretary, or any other officer or assistant officer of the Trustee or
any agent of the Trustee appointed hereunder to whom any corporate trust matter
is referred because of his or her knowledge of and familiarity with the
particular subject.
"Restricted Definitive Registered Notes" means the Euro Restricted
Definitive Registered Notes and the Dollar Restricted Definitive Registered
Notes.
"Restricted Global Notes" means the U.S. Global Note(s) and the
International Global Note(s).
"Restricted Notes" means the Restricted Global Note(s) and the
Restricted Definitive Registered Notes.
"Rule 144A" means Rule 144A under the Securities Act, as amended
from time to time.
"Sale-Leaseback Transaction" means any transaction or series of
related transactions pursuant to which the Company 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.
"S&P" means Standard & Poor's Rating Group, a division of McGraw
Hill, Inc. or any successor rating agency.
"Securities Act" means the Securities Act of 1933, as amended, or
any successor statute.
"Shelf Registration Statement" has the meaning set forth in Section
4 of the Registration Rights Agreement.
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"Special Record Date" for the payment of any Defaulted Interest
means a date fixed by the Trustee in the manner set forth in Section 2.13
hereof.
"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 the Company 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 (i) 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 (ii) 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 the Company other than an
Unrestricted Subsidiary.
"Successor Note" of any particular Note means every Note issued
after, and evidencing all or a portion of the same debt as that evidenced by,
such particular Note; and, for the purposes of this definition, any Note
authenticated and delivered under Section 2.08 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Note shall be deemed to evidence the same
debt as the mutilated, destroyed, lost or stolen Note.
"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.
"Telecommunications Business" means, when used in reference to any
Person, that such Person is engaged primarily in (i) the business of
transmitting or providing services relating to the transmission of, voice, video
or data through owned or leased transmission facilities, (ii) the business of
creating, developing or marketing communications related network equipment or
26
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services or computer-based information or (iii) 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
the Company 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 (i) 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 (ii) the average
closing price of such common stock over the ten consecutive Trading Days ending
not earlier than ten 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 of
Directors in good faith and evidenced by a Board Resolution 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 the Person named as the Trustee in the first
paragraph of this Indenture, until a successor trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor trustee.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of
1939, as amended, or any successor statute.
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"U.S. Global Note(s)" means the Euro U.S. Global Note(s) and the
Dollar U.S. Global Note(s).
"United States Dollar Equivalent" means, with respect to any
monetary amount in a currency other than the Dollar, at or as of any time for
the determination thereof, the amount of Dollars obtained by converting such
foreign currency involved in such computation into Dollars at the spot rate for
the purchase of Dollars with the applicable foreign currency as quoted by
Reuters (or, if Reuters ceases to provide such spot quotations, by any other
reputable service as is providing such spot quotations, as selected by the
Company) 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 Section 10.10 can be undertaken (a "Tested
Transaction"), or for any other purpose hereunder including the redemption or
purchase of any Notes, the United States Dollar Equivalent of such Indebtedness,
Investment or transaction described in Section 10.10 or any other determination
of the United States Dollar Equivalent of Euros for any other purpose shall be
determined as of the date incurred, made or undertaken or otherwise as described
herein and, in each case, no subsequent change in the United States Dollar
Equivalent after such date of determination shall cause such Tested Transaction
or such other action to have been incurred, made or undertaken in violation of
this Indenture.
"Unrestricted Definitive Registered Note" means one or more
Definitive Registered Notes that do not and are not required to bear the Legend.
"Unrestricted Global Note" means one or more Global Notes that do
not and are not required to bear the Legend.
"Unrestricted Notes" means one or more Notes that do not and are not
required to bear the Legends.
"Unrestricted Subsidiary" means (i) any subsidiary of the Company
that at the time of determination shall be an Unrestricted Subsidiary (as
designated by the Board of Directors of the Company, as provided below) and (ii)
any subsidiary of an Unrestricted Subsidiary. The Board of Directors of the
Company may designate any subsidiary of the Company (including any newly
acquired or newly formed subsidiary) to be an Unrestricted Subsidiary if all of
the following conditions apply: (a) neither the Company 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
Section 10.18 and such Unrestricted Subsidiary is not party to any
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agreement, contract, arrangement or understanding at such time with the Company
or any Subsidiary of the Company unless the terms of any such agreement,
contract, arrangement or understanding are no less favorable to the Company or
such Subsidiary than those that might be obtained at the time from Persons who
are not Affiliates of the Company; and (v) such Unrestricted Subsidiary does not
own any Capital Stock in any subsidiary of the Company which is not
simultaneously being designated an Unrestricted Subsidiary. Any such designation
by the Board of Directors of the Company 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 the Company's Board of Directors. The Board of Directors of the Company
may designate any Unrestricted Subsidiary as a Subsidiary; provided that (i)
immediately after giving effect to such designation, the Company could incur
$1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to
Section 10.08(a) and (ii) 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 (i) as to which
neither the Company nor any Subsidiary is directly or indirectly liable (by
virtue of the Company or any such Subsidiary being the primary obligor on,
guarantor of, or otherwise liable in any respect to, such Indebtedness), except
Guaranteed Debt of the Company 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) the Company 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 (ii) which, upon the occurrence of a default with respect thereto, does not
result in, or permit any holder of any Indebtedness of the Company or any
Subsidiary to declare, a default on such Indebtedness of the Company 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 the Company 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
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maintain its limited liability status under, applicable law shall be disregarded
in determining the ownership of a Subsidiary.
Other Definitions.
Term Defined in Section
"Act".......................................................... 1.05
"Agent Members"................................................ 2.07
"Change of Control Offer"...................................... 10.14
"Change of Control Purchase Date".............................. 10.14
"Change of Control Purchase Notice"............................ 10.14
"Change of Control Purchase Price"............................. 10.14
"Covenant Defeasance".......................................... 4.03
"Defaulted Interest"........................................... 2.13
"Defeasance"................................................... 4.02
"Defeasance Redemption Date"................................... 4.04
"Defeased Notes"............................................... 4.01
"Dollars"...................................................... 1.01(e)
"Euro"......................................................... 1.01(e)
"European Government Obligations".............................. 4.04
"Excess Proceeds".............................................. 10.12
"Note Amount".................................................. 10.12
"Offer"........................................................ 10.12
"Offer Date"................................................... 10.12
"Offered Price"................................................ 10.12
"Pari Passu Debt Amount"....................................... 10.12
"Pari Passu Offer"............................................. 10.12
"Paying Agent"................................................. 2.03
"Permitted Indebtedness"....................................... 10.08
"Permitted Payment"............................................ 10.09
"Principal Paying Agent"....................................... 2.03
"pro rata"..................................................... 1.01(g)
"Redemption Determination Date"................................ 11.03
"Refinancing".................................................. 10.08
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Term Defined in Section
"Register"..................................................... 2.03
"Registrar".................................................... 2.03
"Required Filing Date"......................................... 10.19
"Restricted Payments".......................................... 10.09
"Special Payment Date"......................................... 2.13
"Surviving Entity"............................................. 8.01
"Tested Transaction"........................................... 1.02
"Transfer Agent"............................................... 2.03
"U.S. Government Obligations".................................. 4.04
Section 1.03. Compliance Certificates and Opinions.
Upon any application or request by the Company to the Trustee to
take any action under any provision of this Indenture, the Company and any
Guarantor (if applicable) and any other obligor on the Notes (if applicable)
shall furnish to the Trustee an Officers' Certificate in a form and substance
reasonably acceptable to the Trustee stating that all conditions precedent, if
any, provided for in this Indenture (including any covenant compliance with
which constitutes a condition precedent) relating to the proposed action have
been complied with, and an Opinion of Counsel in a form and substance reasonably
acceptable to the Trustee stating that in the opinion of such counsel all such
conditions precedent, if any, have been complied with, except that, in the case
of any such application or request as to which the furnishing of such
certificates or opinions is specifically required by any provision of this
Indenture relating to such particular application or request, no additional
certificate or opinion need be furnished.
Every Officers' Certificate or Opinion of Counsel with respect to
compliance with a condition or covenant provided for in this Indenture shall
include:
(a) a statement that each individual signing such certificate or
individual or firm signing such opinion has read and understands such covenant
or condition and the definitions herein relating thereto;
(b) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
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(c) a statement that, in the opinion of each such individual or such
firm, he or it has made such examination or investigation as is necessary to
enable him or it to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(d) a statement as to whether, in the opinion of each such
individual or such firm, such condition or covenant has been complied with.
Section 1.04. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by,
or covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate of an officer of the Company, any Guarantor or other
obligor on the Notes may be based, insofar as it relates to legal matters, upon
a certificate or opinion of, or representations by, counsel, unless such officer
knows, or in the exercise of reasonable care should know, that the certificate
or opinion or representations with respect to the matters upon which his or her
certificate or opinion is based are erroneous. Any such certificate or opinion
may be based, insofar as it relates to factual matters, upon a certificate or
opinion of, or representations by, an officer or officers of the Company, any
Guarantor or other obligor on the Notes stating that the information with
respect to such factual matters is in the possession of the Company, any
Guarantor or other obligor on the Notes, unless such officer or counsel knows,
or in the exercise of reasonable care should know, that the certificate or
opinion or representations with respect to such matters are erroneous. Opinions
of Counsel required to be delivered to the Trustee may have qualifications
customary for opinions of the type required and counsel delivering such Opinions
of Counsel may rely on certificates of the Company or government or other
officials customary for opinions of the type required, including certificates
certifying as to matters of fact, including that various financial covenants
have been complied with.
Any certificate or opinion of an officer of the Company, any
Guarantor or other obligor on the Notes may be based, insofar as it relates to
accounting matters, upon a certificate or opinion of, or representations by, an
accountant or firm of accountants in the employ of the Company, unless such
officer knows, or in the exercise of reasonable care should know, that the
certificate or opinion or representations with respect to the accounting matters
upon which his certificate or opinion may be based are erroneous. Any
certificate or opinion of any independent firm of public accountants filed with
the Trustee shall contain a statement that such firm is independent with respect
to the Company.
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Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Section 1.05. Acts of Holders.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by an agent duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" or "act" of the Holders
signing such instrument or instruments. Proof of execution of any such
instrument or of a writing appointing any such agent shall be sufficient for any
purpose of this Indenture and conclusive in favor of the Trustee and the
Company, if made in the manner provided in this Section 1.05.
(b) The ownership of Notes shall be proved by the Register.
(c) Any request, demand, authorization, direction, notice, consent,
waiver or other Act by the Holder of any Note shall bind every future Holder of
the same Note or the Holder of every Note issued upon the transfer thereof or in
exchange therefor or in lieu thereof, in respect of anything done, suffered or
omitted to be done by the Trustee, any Paying Agent or the Company, any
Guarantor or any other obligor of the Notes in reliance thereon, whether or not
notation of such action is made upon such Note.
(d) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which the Trustee deems sufficient.
(e) If the Company shall solicit from the Holders any request,
demand, authorization, direction, notice, consent, waiver or other Act, the
Company may, at its option, by or pursuant to a Board Resolution, fix in advance
a record date for the determination of such Holders entitled to give such
request, demand, authorization, direction, notice, consent, waiver or
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other Act, but the Company shall have no obligation to do so. Notwithstanding
Trust Indenture Act Section 316(c), any such record date shall be the record
date specified in or pursuant to such Board Resolution, which shall be a date
not more than 30 days prior to the first solicitation of Holders generally in
connection therewith and no later than the date such first solicitation is
completed.
If such a record date is fixed, such request, demand, authorization,
direction, notice, consent, waiver or other Act may be given before or after
such record date, but only the Holders of record at the close of business on
such record date shall be deemed to be Holders for purposes of determining
whether Holders of the requisite proportion of Notes then Outstanding have
authorized or agreed or consented to such request, demand, authorization,
direction, notice, consent, waiver or other Act, and for this purpose the Notes
then Outstanding shall be computed as of such record date; provided that no such
request, demand, authorization, direction, notice, consent, waiver or other Act
by the Holders on such record date shall be deemed effective unless it shall
become effective pursuant to the provisions of this Indenture not later than six
months after such record date.
(f) For purposes of this Indenture, any action by the Holders which
may be taken in writing may be taken by electronic means or as otherwise
reasonably acceptable to the Trustee.
Section 1.06. Notices, etc., to the Trustee, the Company and any
Guarantor.
Any request, demand, authorization, direction, notice, consent,
waiver or Act of Holders or other document provided or permitted by this
Indenture to be made upon, given or furnished to, or filed with:
(a) the Trustee by any Holder or by the Company or any Guarantor or
any other obligor on the Notes shall be sufficient for every purpose (except as
provided in Section 5.01(c)) hereunder if in writing and mailed, first-class
postage prepaid, or delivered by recognized overnight courier, to or with the
Trustee at its Corporate Trust Office, Attention: Corporate Trust
Administration, or at any other address previously furnished in writing to the
Holders or the Company, any Guarantor or any other obligor on the Notes by the
Trustee; or
(b) the Company or any Guarantor by the Trustee or any Holder shall
be sufficient for every purpose (except as provided in Section 5.01(c))
hereunder if in writing and mailed, first-class postage prepaid, or delivered by
recognized overnight courier, to the Company or such Guarantor addressed to
PSINet Inc., 510 Huntmar Park Drive, Herndon, VA 20170-5100, Attention: Chief
Financial Officer, with a copy to Nixon Peabody LLP, 437
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Madison Avenue, New York, NY 10022, Attention: Richard F. Langan, Jr., Esq., or
at any other address previously furnished in writing to the Trustee by the
Company or such Guarantor.
Section 1.07. Notice to Holders; Waiver.
Where this Indenture provides for notice to Holders of any event,
such notice shall be sufficiently given (unless otherwise herein expressly
provided) (i) if in writing and mailed, first-class postage prepaid, to each
Holder affected by such event, at its address as it appears in the Register, not
later than the latest date, and not earlier than the earliest date, prescribed
for the giving of such notice and (ii) by publication in accordance with the
rules and regulations of the Luxembourg Stock Exchange which shall initially be
in the Luxembourger Wort for so long as the Euro Notes are listed on the
Luxembourg Stock Exchange or, if the Euro Notes, are not listed on the
Luxembourg Stock Exchange in a leading daily English-language newspaper having
general circulation in Europe approved by the Trustee. In any case where notice
to Holders is given by mail, neither the failure to mail such notice, nor any
defect in any notice so mailed, to any particular Holder shall affect the
sufficiency of such notice with respect to other Holders. Any notice when mailed
to a Holder in the aforesaid manner shall be conclusively deemed to have been
received by such Holder whether or not actually received by such Holder. Any
notice pursuant to clause (ii) 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 above.
Where this Indenture provides for notice in any manner, such notice may be
waived in writing by the Person entitled to receive such notice, either before
or after the event, and such waiver shall be the equivalent of such notice.
Waivers of notice by Holders shall be filed with the Trustee, but such filing
shall not be a condition precedent to the validity of any action taken in
reliance upon such waiver.
In case by reason of the suspension of regular mail service or by
reason of any other cause, it shall be impracticable to mail notice of any event
as required by any provision of this Indenture, then any method of giving such
notice as shall be reasonably satisfactory to the Trustee shall be deemed to be
a sufficient giving of such notice.
To the extent that the Notes may be listed on the Luxembourg Stock
Exchange and the rules and regulations of the Luxembourg Stock Exchange so
require, the Company shall, 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 (initially 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.
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Section 1.08. Conflict with Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts with any
provision of the Trust Indenture Act or another provision which is required or
deemed to be included in this Indenture by any of the provisions of the Trust
Indenture Act, the provision or requirement of the Trust Indenture Act shall
control. If any provision of this Indenture modifies or excludes any provision
of the Trust Indenture Act that may be so modified or excluded, the latter
provision shall be deemed to apply to this Indenture as so modified or to be
excluded, as the case may be.
Whenever this Indenture refers to a provision of the Trust Indenture
Act, the provision shall be deemed incorporated by reference in and made a part
of this Indenture. The following Trust Indenture Act terms used in this
Indenture have the following meanings:
(a) "Commission" means the Securities and Exchange Commission;
(b) "indenture securities" means the Notes;
(c) "indenture security holder" means a Holder or Noteholder;
(d) "indenture to be qualified" means this Indenture;
(e) "indenture trustee" or "institutional trustee" means the
Trustee; and
(f) "obligor" on the indenture securities means the Company and
any other obligor on the Notes.
All other Trust Indenture Act terms used in this Indenture
that are defined by the Trust Indenture Act, defined in the Trust Indenture Act
by reference to another statute or defined by Commission rule and not otherwise
defined herein have the meanings so assigned to them therein.
Section 1.09. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents
are for convenience only and shall not affect the construction hereof.
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Section 1.10. Successors and Assigns.
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All covenants and agreements in this Indenture by the Company, the
Guarantors, if any, and the Trustee shall bind their respective successors and
assigns, whether so expressed or not.
Section 1.11. Separability Clause.
In case any provision in this Indenture or in the Notes shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
Section 1.12. Benefits of Indenture.
Nothing in this Indenture or in the Notes, express or implied, shall
give to any Person (other than the parties hereto and their successors
hereunder, any Paying Agent and the Holders) any benefit or any legal or
equitable right, remedy or claim under this Indenture.
Section 1.13. Governing Law.
THIS INDENTURE, THE NOTES AND ANY GUARANTEE SHALL 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.
Section 1.14. Legal Holidays.
In any case where any Interest Payment Date, Redemption Date,
Maturity or Stated Maturity of any Note shall not be a Business Day, then
(notwithstanding any other provision of this Indenture or of the Notes) 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
or Stated Maturity and no 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.
Section 1.15. Independence of Covenants.
All covenants and agreements in this Indenture shall be given
independent effect so that if a particular action or condition is not permitted
by any such covenants, the fact that it would be permitted by an exception to,
or be otherwise within the limitations of, another covenant
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shall not avoid the occurrence of a Default or an Event of Default if such
action is taken or condition exists.
Section 1.16. Schedules and Exhibits.
All schedules and exhibits attached hereto are by this reference
made a part hereof with the same effect as if herein set forth in full.
Section 1.17. Counterparts.
This Indenture may be executed in any number of counterparts, each
of which shall be deemed an original; but all such counterparts shall together
constitute but one and the same instrument.
Section 1.18. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture, loan
or debt agreement or instrument of the Company or a Subsidiary. Any such
indenture, loan or debt agreement or instrument may not be used to interpret
this Indenture.
Section 1.19. No Recourse against Others.
A director, officer, employee or shareholder, as such, of the
Company or any Guarantor shall not have any liability for any obligations of the
Company or any Guarantor under the Notes, any Guarantee or the Indenture or for
any claim based on, in respect of or by reason of, such obligations or their
creation; provided, however, that the foregoing shall not relieve the Company
from any of its liabilities or obligations under the Notes or this Indenture.
Each Holder by accepting any of the Notes and Guarantees waives and releases all
such liability. The waiver and release are part of the consideration for the
issue of the Notes and Guarantees.
ARTICLE II
The Notes
Section 2.01. Form and Dating.
(a) Global Notes.
Euro Notes offered and sold to QIBs in reliance on Rule 144A shall
be issued initially in the form of one Euro U.S. Global Note, which shall be
deposited with the Euro
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Book-Entry Depositaries on behalf of the purchasers of the Euro Notes
represented thereby, duly executed by the Company and authenticated by the
Trustee as hereinafter provided. Euro Notes offered and sold in reliance on
Regulation S shall be issued initially in the form of one Euro International
Global Note, which shall be deposited with the Euro Book-Entry Depositaries on
behalf of the purchasers of the Euro Notes represented thereby, duly executed by
the Company and authenticated by the Trustee as hereinafter provided. If and
when permitted under the Securities Act, one or more Euro Unrestricted Global
Notes may be issued from time to time in exchange for Euro Restricted Global
Notes representing a corresponding aggregate principal amount of Euro Notes in
accordance with the provisions of this Article II and shall be deposited with
the Euro Book-Entry Depositaries on behalf of the Holders of the Euro Notes
represented thereby, duly executed by the Company and authenticated by the
Trustee as hereinafter provided.
Dollar Notes offered and sold to QIBs in reliance on Rule 144A shall
be issued initially in the form of six Dollar U.S. Global Notes, which shall be
deposited with the Dollar Book-Entry Depositary on behalf of the purchasers of
the Dollar Notes represented thereby, duly executed by the Company and
authenticated by the Trustee as hereinafter provided. Dollar Notes offered and
sold in reliance on Regulation S shall be issued initially in the form of one
Dollar International Global Note, which shall be deposited with the Dollar
Book-Entry Depositary on behalf of the purchasers of the Dollar Notes
represented thereby, duly executed by the Company and authenticated by the
Trustee as hereinafter provided. If and when permitted under the Securities Act,
one or more Dollar Unrestricted Global Notes shall be issued from time to time
in exchange for Dollar Restricted Global Notes representing a corresponding
aggregate principal amount of Dollar Notes in accordance with the provisions of
this Article II and shall be deposited with the Dollar Book-Entry Depositary on
behalf of the Holders of the Dollar Notes represented thereby, duly executed by
the Company and authenticated by the Trustee as hereinafter provided.
Except as set forth in Section 2.07(a) hereof, the Dollar Global
Notes may be transferred, in whole and not in part, only to a successor of the
Dollar Book-Entry Depositary or its nominee and the Euro Global Notes may be
transferred, in whole and not in part, only to a successor of the Euro
Book-Entry Depositaries, the Note Custodian or their respective nominees.
(b) Definitive Registered Notes.
Definitive Registered Notes issued upon transfer of a Book-Entry
Interest or a Definitive Registered Note, or in exchange of a Book-Entry
Interest or a Definitive Registered Note, shall be issued in accordance with
this Indenture, duly executed by the Company and authenticated by the Trustee as
hereinafter provided.
(c) Book-Entry Provisions.
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Neither the Depositaries nor the Participants shall have any rights
either under this Indenture or under any Global Note with respect to such Global
Note held on their behalf by the Dollar Book-Entry Depositary's nominee, in the
case of the Dollar Global Notes, or by the Note Custodian, in the case of the
Euro Global Notes. Notwithstanding the foregoing, nothing herein shall prevent
the Company, the Trustee or any agent of the Company or the Trustee from giving
effect to any written certification, proxy, consent, authorization, approval, or
other writing furnished by the Book-Entry Depositaries or impair, as between the
Book-Entry Depositaries and their respective Participants, the operation of
customary practices of such Depositaries governing the exercise of the rights of
an owner of a beneficial interest in any Global Note.
(d) Dating.
Each Note shall be dated the date of its authentication.
Section 2.02. Execution and Authentication.
An Officer shall execute the Notes on behalf of the Company by
manual or facsimile signature. The Company's seal may but need not be impressed,
affixed, imprinted or reproduced on the Notes.
If the Officer whose signature is on a Note no longer holds that
office at the time the Trustee authenticates the Note or at any time thereafter,
the Note shall be valid nevertheless.
A Note shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Note. Such
signature shall be conclusive evidence that the Note has been authenticated
under this Indenture.
The Trustee shall authenticate Euro Notes on the Issue Date in an
aggregate principal amount not to exceed Euro 150 million, upon receipt of an
Officers' Certificate and a Company Order directing the Trustee to authenticate
the Euro Notes. The aggregate principal amount of Euro Notes Outstanding at any
time may not exceed Euro 150 million except as provided in Section 2.08.
The Trustee shall authenticate Dollar Notes on the Issue Date in an
aggregate principal amount not to exceed $1.05 billion, upon receipt of an
Officers' Certificate and a Company Order signed by an Officer directing the
Trustee to authenticate the Dollar Notes. The aggregate principal amount of
Dollar Notes Outstanding at any time may not exceed $1.05 billion except as
provided in Section 2.08.
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The Trustee may appoint one or more authenticating agents acceptable
to the Company to authenticate Notes. Unless limited by the terms of such
appointment, any such authenticating agent may authenticate Notes whenever the
Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by any such agent. Such authenticating agent
shall have the same rights as the Trustee in any dealings hereunder with the
Company or with any of the Company's Affiliates.
Section 2.03. Registrar and Paying Agents.
The Company shall maintain (i) an office or agency (the "Registrar"
and "Transfer Agent") in the Borough of Manhattan in the City of New York, State
of New York where Notes may be presented for registration of transfer and
exchange (subject to Section 2.07) and, so long as Euro Notes are listed on the
Luxembourg Stock Exchange, a co-transfer agent in Luxembourg where the Euro
Notes may be presented for registration of transfer and exchange (subject to
Section 2.07) and (ii) an office or agency in the Borough of Manhattan in the
City of New York, State of New York where Notes may be presented for payment
(the "Principal Paying Agent") and, so long as Euro Notes are outstanding, an
additional paying agent in Luxembourg where Euro Notes may be presented for
payment and (iii) an office or agency, which initially shall be the office of
the Principal Paying Agent and, so long as the Euro Notes are listed on, and it
is required by the rules of, the Luxembourg Stock Exchange, an office or agency
in Luxembourg where notices and demands to or upon the Company in respect of the
Notes and this Indenture may be served. The Registrar shall keep a register (the
"Register") of the Notes and of their transfer and exchange and each Transfer
Agent shall promptly inform the Registrar of its registration for transfer or
exchange of any Notes.
The Company, with the consent of the Trustee, may appoint one or
more co-transfer agents and one or more additional paying agents, provided that
in no event may the Company or any Affiliate of the Company act as Paying Agent.
The term "Paying Agent" shall include the Principal Paying Agent and any such
additional paying agent and the term "Transfer Agent" shall include the Transfer
Agent and any additional transfer agent or co-transfer agent. The Company may
change a Paying Agent, Registrar or Transfer Agent without prior notice to any
Holder or beneficial owner of Notes. The Company shall enter into an appropriate
agency agreement with any agent not a party to this Indenture, and such
agreement shall incorporate the provisions of the Trust Indenture Act and
implement the provisions of this Indenture (including the incorporation of the
Trust Indenture Act) that relate to such agent. The Company shall notify the
Trustee of the name and address of any such agent. If the Company fails to
maintain a Registrar, Transfer Agent or Paying Agent or fails to give the
foregoing notice, the Trustee shall act as such and shall be entitled to
appropriate compensation in accordance with Section 6.07.
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The Company hereby appoints (i) the Corporate Trust Office of the
Trustee located at Rodney Square North, 1100 North Market Street, Wilmington,
Delaware 19890 as Registrar and Transfer Agent, (ii) the corporate trust office
of the Trustee, c/o Wilmington Trust FSB, 520 Madison Avenue 33rd Floor, New
York, New York 10022 as Principal Paying Agent and (iii) Kredietbank S.A.
Luxembourgeoise, 43, Boulevard Royal, L-2955 Luxembourg as Paying Agent and
Transfer Agent in Luxembourg.
Section 2.04. Holders to Be Treated as Owners; Payments of Interest.
(a) The Company, any Guarantor, the Paying Agents, the Transfer
Agents, the Registrar, the Trustee and any agent of the Company, any Guarantor,
the Paying Agents, the Transfer Agents, the Registrar or the Trustee may deem
and treat the Person in whose name any Note is registered as the absolute owner
of such Note for the purpose of receiving payment of or on account of the
principal of and, subject to the provisions of this Indenture, interest and
Liquidated Damages on such Note and for all other purposes whether or not such
Note is overdue; and neither the Company, any Guarantor, any Paying Agent, any
Transfer Agent, the Registrar, the Trustee nor any agent of the Company, any
Guarantor, any Paying Agent, any Transfer Agent, the Registrar or the Trustee
shall be affected by any notice to the contrary. All such payments so made to
any such Person, or upon his order, shall be valid, and, to the extent of the
sum or sums so paid, effectual to satisfy and discharge the liability for moneys
payable upon any Note.
(b) The Person in whose name any Note is registered at the close of
business on any Regular Record Date with respect to any Interest Payment Date
shall be entitled to receive the interest and Liquidated Damages, if any,
payable on such Interest Payment Date notwithstanding any transfer or exchange
of such Note subsequent to such Regular Record Date and prior to such Interest
Payment Date, except if and to the extent that the Company shall default in the
payment of the interest or Liquidated Damages due on such Interest Payment Date,
in which case such Defaulted Interest or Liquidated Damages shall be paid in
accordance with Section 2.13. All payments of principal, interest and Liquidated
Damages by the Company 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 applicable law, rule or regulation (and if such withholding or deduction is
required, the Company will not be obligated to pay any additional amounts in
respect of such withholding or deduction).
Section 2.05. Paying Agent to Hold Money in Trust.
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Each Paying Agent shall hold in trust for the benefit of the Holders
all money held by such Paying Agent for the payment of principal of or interest
or Liquidated Damages, if any, on the Notes, and the Company and the Paying
Agents shall notify the Trustee of any default by the Company in making any such
payment. Money held in trust by any Paying Agent need not be segregated except
as required by law and in no event shall any Paying Agent be liable for any
interest on any money received by it hereunder. The Company at any time may
require any Paying Agent to pay all money held by it to the Trustee and to
account for any funds disbursed and the Trustee may at any time during the
continuance of any Event of Default specified in Sections 5.01(a) or (b) upon
written request to any Paying Agent, require such Paying Agent to pay forthwith
all money so held by it to the Trustee and to account for any funds disbursed.
Upon making such payment, a Paying Agent shall have no further liability for the
money delivered to the Trustee.
Section 2.06. Noteholder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it from the Registrar of the names
and addresses of the Holders of Notes. If the Trustee is not the Registrar, the
Company shall furnish to the Trustee and each Paying Agent at least five
Business Days before each Interest Payment Date, and at such other times as they
may request in writing, a list in such form and as of such date as they may
reasonably require of the names and addresses of the Holders of Notes.
Section 2.07. Transfer and Exchange.
Transfers and exchanges of Notes and beneficial interests in Notes
of the kinds specified in this Section 2.07 shall be made only in accordance
with this Section 2.07.
(a) U.S. Global Note to International Global Note.
(i) Subject to paragraph (d) below, if the owner of a
beneficial interest in the Dollar U.S. Global Note wishes at any time to
transfer such interest to a Person who wishes to acquire the same in the form of
a beneficial interest in the Dollar International Global Note, such transfer may
be effected only in accordance with the provisions of this clause (a)(i) and
subject to the Applicable Procedures. Upon receipt by the Registrar of (A) an
order given by the Dollar Book-Entry Depositary or its authorized representative
directing that a beneficial interest in the Dollar International Global Note in
a specified principal amount be credited to a specified Participant's account
and that a beneficial interest in the Dollar U.S. Global Note in an equal
principal amount be debited from a specified Participant's account and (B) if
such transfer is to occur with respect to a Restricted Note, a Regulation S
Certificate in the form attached hereto as Exhibit C, satisfactory to the
Trustee and duly executed by the owner of such beneficial interest in
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the Dollar U.S. Global Note or his attorney duly authorized in writing, then the
Registrar shall reduce the principal amount of the Dollar U.S. Global Note and
increase the principal amount of the Dollar International Global Note by such
specified principal amount as provided in clause (d)(v) below.
(ii) Subject to paragraph (d) below, if the owner of a
beneficial interest in the Euro U.S. Global Note wishes at any time to transfer
such interest to a Person who wishes to acquire the same in the form of a
beneficial interest in the Euro International Global Note, such transfer may be
effected only in accordance with the provisions of this clause (a)(ii) and
subject to the Applicable Procedures. Upon receipt by the Transfer Agent of (A)
an order given by the relevant Euro Book-Entry Depositary or its authorized
representative directing that a beneficial interest in the Euro International
Global Note in a specified principal amount be credited to a specified
Participant's account and that a beneficial interest in the Euro U.S. Global
Note in an equal principal amount be debited from a specified Participant's
account and (B) if such transfer is to occur with respect to a Restricted Note,
a Regulation S Certificate in the form attached hereto as Exhibit C,
satisfactory to the Trustee and duly executed by the owner of such beneficial
interest in the Euro U.S. Global Note or his attorney duly authorized in
writing, then the Transfer Agent shall reduce the principal amount of the Euro
U.S. Global Note and increase the principal amount of the Euro International
Global Note by such specified principal amount as provided in clause (d)(v)
below.
(b) International Global Note to U.S. Global Note.
(i) Subject to paragraph (d) below, if the owner of a
beneficial interest in the Dollar International Global Note wishes at any time
to transfer such interest to a Person who wishes to acquire the same in the form
of a beneficial interest in the Dollar U.S. Global Note, such transfer may be
effected only in accordance with this clause (b)(i) and subject to the
Applicable Procedures. Upon receipt by the Registrar of (A) an order given by
the Dollar Book-Entry Depositary or its authorized representative directing that
a beneficial interest in the Dollar U.S. Global Note in a specified principal
amount be credited to a specified Participant's account and that a beneficial
interest in the Dollar International Global Note in an equal principal amount be
debited from a specified Participant's account and (B) if such transfer is to
occur with respect to a Restricted Note, a Rule 144A Certificate in the form
attached hereto as Exhibit D, satisfactory to the Trustee and duly executed by
the owner of such beneficial interest in the Dollar International Global Note or
his attorney duly authorized in writing, then the Registrar shall reduce the
principal amount of the Dollar International Global Note and increase the
principal amount of the Dollar U.S. Global Note by such specified principal
amount as provided in clause (d)(v) below; provided that, prior to 40 days after
the date hereof, Dollar International Global Notes may only be transferred to
Non-U.S. Persons or in accordance with Rule 144A.
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(ii) Subject to paragraph (d) below, if the owner of a
beneficial interest in the Euro International Global Note wishes at any time to
transfer such interest to a Person who wishes to acquire the same in the form of
a beneficial interest in the Euro U.S. Global Note, such transfer may be
effected only in accordance with this clause (b)(ii) and subject to the
Applicable Procedures. Upon receipt by the Transfer Agent of (A) an order given
by the relevant Euro Book-Entry Depositary or its authorized representative
directing that a beneficial interest in the Euro U.S. Global Note in a specified
principal amount be credited to a specified Participant's account and that a
beneficial interest in the Euro International Global Note in an equal principal
amount be debited from a specified Participant's account and (B) if such
transfer is to occur with respect to a Restricted Note, a Rule 144A Certificate
in the form attached hereto as Exhibit D, satisfactory to the Trustee and duly
executed by the owner of such beneficial interest in the Euro International
Global Note or his attorney duly authorized in writing, then the Transfer Agent
shall reduce the principal amount of the Euro International Global Note and
increase the principal amount of the Euro U.S. Global Note by such specified
principal amount as provided in clause (d)(v) below; provided that, prior to 40
days after the date hereof, Euro International Global Notes may only be
transferred to Non-U.S. Persons or in accordance with Rule 144A.
(c) Global Note to Definitive Note. Subject to paragraph (d) below,
a beneficial interest in a Global Note may be exchanged for one or more
Definitive Notes denominated in the same currency, provided that, if such
interest is a beneficial interest in a U.S. Global Note, or if such interest is
a beneficial interest in an International Global Note and such exchange is to
occur with respect to a Restricted Note, then such Definitive Note(s) shall bear
the Legends (subject in each case to paragraph (e) below); provided further
that:
(i) Euro Global Notes will be exchanged by the Company for
Euro Definitive Notes bearing such Legends, if any, as are borne by the Notes
exchanged therefor if and only if (i) either Euro Book-Entry Depositary notifies
the Company that it is unwilling or unable to continue to act as a Depositary
and a successor Euro Book-Entry Depositary is not appointed by the Company
within 120 days; (ii) either Euro Book-Entry Depositary so requests following an
Event of Default; (iii) the Company in its sole discretion determines that the
Euro Global Notes should be exchanged (in whole but not in part) for Euro
Definitive Notes; or (iv) the owner of a Euro Book Entry Interest requests such
exchange in writing delivered through either Euroclear or Cedelbank following an
Event of Default. Upon the occurrence of any of the preceding events, Euro
Definitive Notes shall be issued in such names as the Euro Book-Entry Depositary
shall instruct the Registrar; and
(ii) Dollar Global Notes will be exchanged by the Company for
Dollar Definitive Notes bearing such Legends, if any, as are borne by the Notes
exchanged therefor if and only if (i) the Dollar Book-Entry Depositary notifies
the Company that it is unwilling or unable to continue to act as Dollar
Book-Entry Depositary or ceases to be a clearing agency registered under
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the Exchange Act and, in either case, a successor Dollar Book-Entry Depositary
registered as a clearing agency under the Exchange Act is not appointed by the
Company within 120 days; (ii) the Dollar Book-Entry Depositary so requests
following an Event of Default; (iii) the Company in its sole discretion
determines that the Dollar Global Notes should be exchanged (in whole but not in
part) for Dollar Definitive Notes; or (iv) the owner of a Dollar Book-Entry
Interest requests such exchange in writing delivered through the Dollar
Book-Entry Depositary (including following an Event of Default under this
Indenture). Upon the occurrence of any of the preceding events, Dollar
Definitive Notes shall be issued in such names as the Dollar Book-Entry
Depositary shall instruct the Registrar.
(d) Certain Restrictions; Transfer Mechanics.
(i) Global Notes may also be exchanged or replaced, in whole
or in part, as provided in Sections 2.08 and 2.11. Every Note authenticated and
delivered in exchange for, or in lieu of, a Global Note or any portion thereof,
pursuant to Section 2.08 or 2.11 hereof, shall be authenticated and delivered in
the form of, and shall be, a Global Note bearing such Legends, if any, as are
borne by the Note exchanged therefor or replaced thereby. A Global Note may not
be exchanged for another Note other than as provided in this Section 2.07.
(ii) Notwithstanding any other provision herein to the
contrary, including, without limitation, paragraphs (a) and (b) of this Section
2.07, Book-Entry Interests in a Euro Global Note cannot be exchanged for, or
transferred to a Person who takes delivery thereof in the form of, a Book-Entry
Interest in a Dollar Global Note or a Dollar Definitive Registered Note and
Book-Entry Interests in a Dollar Global Note cannot be exchanged for, or
transferred to a Person who takes delivery thereof in the form of, a Book-Entry
Interest in a Euro Global Note or a Euro Definitive Registered Note.
(iii) Each Global Note initially shall (A) be registered in
the name of the nominee of the relevant Depositary, (B) be deposited with, or on
behalf of, the relevant Depositary or with the Trustee or the Note Custodian for
such Depositary, and (C) bear the Legends. Participants in any Depositary shall
have no rights under this Indenture with respect to any Global Note held on
their behalf by such Depositary, the Trustee, or the Note Custodian, or under
such Global Note, and the Holder may be treated by the Company, the Trustee or
the Note Custodian and any agent of the Company, the Trustee or the Note
Custodian as the absolute owner of such Global Note for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall prevent the Company, the
Trustee or any agent of the Company, the Trustee or the Note Custodian from
giving effect to any written certification, proxy, consent, approval, or other
authorization furnished by any such Depositary or shall impair, as between such
Depositary and its Participants the operation of customary practices governing
the exercise of the rights of a holder of any Note.
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(iv) Interests of beneficial owners in a Global Note may be
transferred in accordance with the Applicable Procedures of the relevant
Depositary and the provisions of this Section 2.07. No such transfer shall be
effective unless the transferor or his attorney duly authorized in writing shall
have executed and delivered a Regulation S Certificate in the form attached
hereto as Exhibit C or a Rule 144A Certificate in the form attached hereto as
Exhibit D; provided, however, that interests in Dollar International Global
Notes and Euro International Global Notes may only be transferred to Non-U.S.
Persons prior to 40 days after the date hereof. Transfers of a Global Note shall
be limited to transfers of such Global Note in whole, but not in part, to such
Depositary, its successors or their respective nominees, except as otherwise
provided in this Section 2.07.
(v) If any Global Note is to be exchanged for other Notes or
canceled in whole, it shall be surrendered by or on behalf of the relevant
Depositary or its nominee to the Registrar for exchange or cancellation as
provided in this Article II. If any Global Note is to be exchanged for other
Notes or canceled in part, or if another Note is to be exchanged in whole or in
part for a beneficial interest in any Global Note, then either (i) such Global
Note shall be so surrendered for exchange or cancellation as provided in this
Article II or (ii) the principal amount thereof shall be reduced or increased by
an amount equal to the portion thereof to be so exchanged or canceled, or equal
to the principal amount of such other Note to be so exchanged for a beneficial
interest therein, as the case may be, by means of an appropriate adjustment made
on the records of the Registrar, whereupon the Registrar shall instruct the
relevant Depositary or its authorized representative to make a corresponding
adjustment to its records. Upon any such surrender or adjustment of a Global
Note, the Trustee shall, subject to this clause (d)(v) and as otherwise provided
in this Article II, authenticate and deliver any Notes issuable in exchange for
such Global Note (or any portion thereof) to or upon the order of, and
registered in such names as may be directed by, the relevant Depositary or its
authorized representative. Upon the request of the Trustee in connection with
the occurrence of any of the events specified in this paragraph, the Company
shall promptly make available to the Trustee a reasonable supply of Notes that
are not in the form of Global Notes. The Trustee shall be entitled to rely upon
any order, direction or request of the relevant Depositary or its authorized
representative which is given or made pursuant to this Article II.
(vi) Every certificated Note authenticated and delivered upon
registration of transfer of, or in exchange for or in lieu of, a Global Note or
any portion thereof, whether pursuant to this Article II or otherwise, shall be
authenticated and delivered in the form of, and shall be, a Global Note, unless
such certificated Note is registered in the name of a Person other than the
relevant Depositary for such Global Note or a nominee thereof.
(vii) Any Depositary or its nominee, as registered owner of a
Global Note, shall be the Holder of such Global Note for all purposes under this
Indenture and the Notes,
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and owners of beneficial interests in a Global Note shall hold such interests
pursuant to the Applicable Procedures. Accordingly, any such owner's beneficial
interest in a Global Note will be shown only on, and the transfer of such
interest shall be effected only through, records maintained by the relevant
Depositary or its nominee or its Participants.
(viii) At such time as all Book-Entry Interests therein have
been exchanged for Definitive Registered Notes, a Global Note shall be returned
to or retained and canceled by the Trustee in accordance with Section 2.12
hereof. No such transfer shall be effective unless the transferor or his
attorney duly authorized in writing shall have executed and delivered a
Regulation S Certificate in the form attached hereto as Exhibit C or a Rule 144A
Certificate in the form attached hereto as Exhibit D; provided, however, that
interests in Dollar International Global Notes and Euro International Global
Notes may only be transferred to Non-U.S. Persons prior to 40 days after the
date hereof.
(ix) To permit registrations of transfers and exchanges, the
Company shall execute and, upon receipt of a Company Order and an Officers'
Certificate, the Trustee shall authenticate Global Notes at the request of any
Paying Agent and the Registrar, and Definitive Registered Notes at the
Registrar's request.
(x) No service charge shall be made to a Holder for any
registration of transfer of exchange, but the Company may require the Holder to
furnish appropriate endorsements and transfer documents and to pay a sum
sufficient to cover any stamp or transfer tax, duty or governmental charge
payable in connection therewith (other than any such stamp or transfer taxes,
duties or similar governmental charge payable upon exchange or transfer pursuant
to Sections 2.11, 9.06, 10.12, 10.14 and 11.08 hereof).
(xi) All Global Notes and Definitive Registered Notes issued
upon any registration of transfer or exchange of Global Notes or Definitive
Registered Notes shall be the valid obligations of the Company, evidencing the
same debt, and entitled to the same benefits under this Indenture, as the Global
Notes or Definitive Registered Notes surrendered upon such registration of
transfer or exchange.
(xii) None of the Company, the Trustee or the Registrar shall
be required to register the transfer of or to exchange any Note (A) during a
period beginning at the opening of business 15 days before a Redemption Date and
ending at the close of business on such Redemption Date, (B) selected for
redemption, in whole or in part, under Section 11.04 hereof, except the
unredeemed portion of any such Note being redeemed in part, during
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a period beginning at the opening of business 15 days before the day of such
selection of Notes for redemption and ending at the close of business on the day
of such selection, (C) during a period beginning on a Regular Record Date or
Special Record Date , as the case may be, and ending at the close of business on
the next succeeding Interest Payment Date or Special Payment Date, as the case
may be, or (D) which the Holder has tendered (and not withdrawn) for repurchase
in connection with a Change of Control Offer or an Excess Proceeds Offer.
(xiii) Prior to due presentment for the registration of
transfer of any Note, the Trustee, the Paying Agents, the Registrar, the
Transfer Agent, any Guarantor and the Company and any of their respective agents
may deem and treat the Person in whose name any Note is registered as the
absolute owner of such Note for the purpose of receiving payment of principal of
and interest on such Note and for all other purposes, whether or not such Note
is overdue, and neither the Trustee, the Paying Agents, the Registrar, the
Transfer Agent, any Guarantor, the Company nor any of their respective agents
shall be affected by notice to the contrary.
(xiv) In the event of a transfer or exchange of a portion only
of a Definitive Registered Note, a new Definitive Registered Note shall be
issued to the transferee in respect of the principal amount of the portion so
transferred or exchanged, and a further new Definitive Registered Note in
respect of the balance of the principal amount not so transferred or exchanged
shall be issued to the transferor or to the Holder making the transfer or
exchange in each case in principal amounts of $1,000 or Euro 1,000, as
applicable, and integral multiples thereof.
(e) The U.S. Global Notes and their Successor Notes and the
International Global Notes and their Successor Notes shall bear the Legends, as
set forth on Exhibit A and Exhibit B attached hereto, subject to the following:
(i) subject to the following clauses of this paragraph (e), a
Note or any portion thereof which is exchanged, upon transfer or otherwise, for
a Global Note or any portion thereof shall bear the Legends borne by such Global
Note while represented thereby;
(ii) subject to the following clauses of this paragraph (e), a
new Note which is not a Global Note and is issued in exchange for another Note
(including a Global Note) or any portion thereof, upon transfer or otherwise,
shall bear the Legends borne by such other Note;
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(iii) Notes sold or otherwise disposed of pursuant to an
effective registration statement under the Securities Act, together with their
respective Successor Notes, shall not bear the Legends;
(iv) at any time after the Notes may be freely transferred
without registration under the Securities Act or without being subject to
transfer restrictions pursuant to the Securities Act, a new Note which does not
bear the Legends may be issued in exchange for or in lieu of a Note (other than
a Global Note) or any portion thereof which bears such Legends if the Trustee
has received an Unrestricted Notes certificate substantially in the form of
Exhibit E hereto, satisfactory to the Trustee and duly executed by the Holder of
such legended Note or his attorney duly authorized in writing, and after such
date and receipt of such certificate, the Trustee shall authenticate and deliver
such a new Note in exchange for or in lieu of such other Note as provided in
this Article II;
(v) a new Note which does not bear the Legends may be issued
in exchange for or in lieu of a Note (other than a Global Note) or any portion
thereof which bears such Legends if, in the Company's judgment, placing such
Legends upon such new Note is not necessary to ensure compliance with the
registration requirements of the Securities Act, and the Trustee, at the
direction of the Company by a Company Order and upon receipt of an Officer's
Certificate, shall authenticate and deliver such a new Note as provided in this
Article II; and
(vi) notwithstanding the foregoing provisions of this clause
(e), a Successor Note of a Note that does not bear a particular form of Legends
shall not bear such form of Legends unless the Company has reasonable cause to
believe that such Successor Note is a "restricted security" within the meaning
of Rule 144 under the Securities Act, in which case the Trustee, upon receipt of
a Company Order and Officers' Certificate, shall authenticate and deliver a new
Note bearing the Legends in exchange for such Successor Note as provided in this
Article II. By its acceptance of any Note bearing the Legends, each Holder of
such a Note acknowledges the restrictions on transfer of such Note set forth in
this Indenture and in the Legends and agrees that it will transfer such Note
only as provided in this Indenture.
The Registrar shall retain copies of all letters, notices and other
written communications received pursuant to this Section 2.07. The Company shall
have the right to inspect and make copies of all such letters, notices or other
written communications at any reasonable time upon the giving of reasonable
written notice to the Registrar.
In the event that Regulation S is amended during the term of this
Indenture to alter the applicable holding period, all references in this
Indenture to a holding period for Non-U.S. Persons will be deemed to include
such amendment.
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In addition to the Legends required by this Section 2.07, Notes
shall bear any legends required by the relevant Book-Entry Depositary.
Section 2.08. Replacement Notes.
If (a) any mutilated Note is surrendered to the Trustee, or (b) the
Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Note, and there is delivered to the Company,
any Guarantor or the Trustee, such security or indemnity, in each case, as may
be required by it to hold it harmless, then, in the absence of notice to the
Company, any Guarantor or the Trustee that such Note has been acquired by a bona
fide purchaser, the Company shall execute and upon a Company Request and
Officers' Certificate, the Trustee shall authenticate and make available for
delivery though any Transfer Agent, in exchange for any such mutilated Note or
in lieu of any such destroyed, lost or stolen Note, a replacement Note of like
tenor and principal amount, bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Note has
become or is about to become due and payable, the Company in its discretion may,
instead of issuing a replacement Note, pay such Note.
Upon the issuance of any replacement Notes under this Section, the
Company may require the Holder to furnish appropriate endorsements and transfer
documents and to pay 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.
Every replacement Note issued pursuant to this Section in lieu of
any destroyed, lost or stolen Note shall constitute an original additional
contractual obligation of the Company and any Guarantor, whether or not the
destroyed, lost or stolen Note shall be at any time enforceable by anyone, and
shall be entitled to all benefits of this Indenture equally and proportionately
with any and all other Notes duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Notes.
Section 2.09. Outstanding Notes.
The Notes outstanding at any time are all Notes that have been
authenticated by the Trustee except for (a) those canceled by it, (b) those
delivered to it for cancellation, (c) to the
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extent set forth in Sections 4.02 and 4.03, on or after the date on which the
conditions set forth in Section 4.04 have been satisfied, those Notes
theretofore authenticated and delivered by the Trustee hereunder and (d) those
described in this Section 2.09 as not outstanding. Subject to Section 2.10, a
Note does not cease to be outstanding because the Company or one of its
Affiliates holds the Note.
If a Note is replaced pursuant to Section 2.08, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note is held by a bona fide purchaser in whose hands such Note is a
legal, valid and binding obligation of the Company.
If the principal amount of any Note is considered to be paid under
Article XII, it ceases to be outstanding and interest thereon shall cease to
accrue.
Section 2.10. Treasury Notes.
In determining whether the Holders of the required principal amount
of Notes have concurred in any declaration of acceleration or notice of default
or direction, waiver or consent or any amendment, modification or other change
to this Indenture, Notes owned by the Company or an Affiliate of the Company
shall be disregarded as though they were not outstanding, except that for the
purposes of determining whether the Trustee shall be protected in relying on any
such direction, waiver or consent or any amendment, modification or other change
to this Indenture, only Notes that the Trustee actually knows are so owned shall
be so disregarded.
Section 2.11. Temporary Notes.
Until Definitive Registered Notes are prepared and ready for
delivery, the Company may prepare and the Trustee, upon receipt of a Company
Order and Officers' Certificate, shall authenticate temporary Notes. Temporary
Notes shall be substantially in the form of Definitive Registered Notes but may
have variations that the Company considers appropriate for temporary Notes.
Without unreasonable delay, the Company shall prepare and the Trustee, upon
receipt of a Company Order and Officers' Certificate, shall authenticate
Definitive Registered Notes in exchange for temporary Notes. Until such
exchange, temporary Notes shall be entitled to the same rights, benefits and
privileges as Definitive Registered Notes.
Section 2.12. Cancellation.
All Notes surrendered for payment, purchase, redemption,
registration of transfer or exchange shall be delivered to the Trustee and, if
not already canceled, shall, upon receipt of a Company Order and Officers'
Certificate, be promptly canceled by it. The Company and any Guarantor may at
any time deliver to the Trustee for cancellation any Notes previously
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authenticated and delivered hereunder which the Company or such Guarantor may
have acquired in any manner whatsoever, and all Notes so delivered shall, upon
receipt of a Company Order and Officers' Certificate, be promptly canceled by
the Trustee. No Notes shall be authenticated in lieu of or in exchange for any
Notes canceled as provided in this Section 2.12, except as expressly permitted
by this Indenture. All canceled Notes held by the Trustee shall, at the option
of the Trustee, be (a) returned to the Company or (b) destroyed, in which case
the Trustee shall provide a certificate to the Company identifying the Notes
that have been destroyed. The Trustee shall provide the Company a list of all
Notes that have been canceled from time to time as requested by the Company.
Section 2.13. Defaulted Interest.
If the Company defaults on a payment of interest or Liquidated
Damages on the Notes, it shall pay the defaulted interest or Liquidated Damages,
plus (to the extent permitted by law) any interest payable on the defaulted
interest (such defaulted interest and interest thereon herein collectively
called "Defaulted Interest"), in accordance with the terms hereof, to (a) the
Persons who are Holders of Definitive Registered Notes, if any, on a subsequent
record date (the "Special Record Date"), which date shall be at least five
Business Days prior to the payment date for such Defaulted Interest or
Liquidated Damages (the "Special Payment Date"), and (b) if a Global Note is
still outstanding, to the Holder of such Global Note on such Special Payment
Date. The Company shall fix such Special Record Date and Special Payment Date
and shall provide for the payment of such Defaulted Interest or Liquidated
Damages, if any, in each case, in a manner satisfactory to the Trustee. At least
15 days before such Special Record Date, the Company shall mail to each Holder
of Definitive Registered Notes, if any, and if any Global Note is still
outstanding, to the relevant Depositary, a notice that states the Special Record
Date, the Special Payment Date and the amount of Defaulted Interest or
Liquidated Damages, if any, to be paid.
Section 2.14. CUSIP and ISIN Number; Common Code.
The Company in issuing the Dollar Notes shall use "CUSIP" numbers
and, in issuing the Euro Notes, shall use "ISIN" numbers and common codes, and
such CUSIP or ISIN numbers and common codes shall be included in notices of
redemption, repurchase or exchange as a convenience to Holders; provided,
however, that any such notice may state that no representation is made as to the
correctness or accuracy of CUSIP or ISIN numbers or common codes printed in the
notice or on the Notes, and that reliance may be placed only on the other
identification numbers printed on the Notes. The Company will promptly notify
the Trustee, each Paying Agent and the Registrar of any change in any CUSIP or
ISIN number or common code.
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Section 2.15. Deposit of Moneys; Payments by Principal Paying Agent.
Prior to 10:00 a.m., Luxembourg time, with respect to the Euro
Notes, and 12:00 noon, New York City time, with respect to the Dollar Notes, on
each Interest Payment Date and on the Maturity Date, the Company shall deposit
with the Principal Paying Agent in immediately available funds United States
Dollars, with respect to the Dollar Notes, and Euros, with respect to the Euro
Notes, sufficient to make cash payments, if any, due on such Interest Payment
Date or Maturity Date.
Payments of principal will be made against presentation and
surrender (or, in the case of a partial payment, endorsement) of the 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 the Company and payments in respect of Euro Notes will be
made by Euro check drawn on, or by transfer from a Euro account maintained by
the Company.
Interest on the Notes shall be computed on the basis of a 360-day
year comprised of twelve 30-day months.
ARTICLE III
Note Forms
The provisions of the form of Notes contained in Exhibits A and B
hereto are incorporated herein by reference. The Notes shall be issued only in
registered form. The Notes shall be issued without coupons. The Euro Notes shall
be issued only in denominations of Euro 1,000 principal amount and the Dollar
Notes shall be issued only in denominations of $1,000 principal amount or, in
each case, any integral multiple thereof.
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ARTICLE IV
Defeasance and Covenant Defeasance
Section 4.01. Company's Option to Effect Defeasance or Covenant
Defeasance.
The Company may, at its option by Board Resolution, at any time,
with respect to the Notes, elect to have either Section 4.02 or Section 4.03 be
applied to all of the Outstanding Notes (the "Defeased Notes"), upon compliance
with the conditions set forth below in this Article IV.
Section 4.02. Defeasance and Discharge.
Upon the Company's exercise under Section 4.01 of the option
applicable to this Section 4.02, the Company, each Guarantor and any other
obligor upon the Notes, if any, shall be deemed to have been discharged from its
obligations with respect to the Defeased Notes on the date the conditions set
forth in Section 4.04 below are satisfied (hereinafter, "defeasance"). For this
purpose, such defeasance means that the Company, each Guarantor and any other
obligor upon the Notes shall be deemed to have paid and discharged the entire
Indebtedness represented by the Defeased Notes, which shall thereafter be deemed
to be "Outstanding" only for the purposes of Section 4.05 and the other Sections
of this Indenture referred to in (a) and (b) below, and to have satisfied all
its other obligations under such Notes and this Indenture insofar as such Notes
are concerned (and the Trustee, at the expense of the Company and upon Company
Request, shall execute proper instruments acknowledging the same), except for
the following which shall survive until otherwise terminated or discharged
hereunder: (a) the rights of Holders of Defeased Notes to receive, solely from
the trust fund described in Section 4.04 and as more fully set forth in such
Section, payments in respect of the principal of, premium, if any, and interest
on, such Notes, when such payments are due, (b) the Company's obligations with
respect to such Defeased Notes under Sections 2.07, 2.08, 2.11, 10.02 and 10.03,
(c) the rights, powers, trusts, duties and immunities of the Trustee hereunder,
including, without limitation, the Trustee's rights under Section 6.07, and (d)
this Article IV. Subject to compliance with this Article IV, the Company may
exercise its option under this Section 4.02 notwithstanding the prior exercise
of its option under Section 4.03 with respect to the Notes.
Section 4.03. Covenant Defeasance.
Upon the Company's exercise under Section 4.01 of the option
applicable to this Section 4.03, the Company and each Guarantor shall be
released from its obligations under any covenant or provision contained or
referred to in Sections 10.05 through 10.22, inclusive, and the provisions of
clauses (iii) and (v) of Section 8.01(a) with respect to the Defeased Notes on
and after the date the conditions set forth in Section 4.04 below are satisfied
(hereinafter, "covenant
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defeasance"), and the Defeased Notes shall thereafter be deemed to be not
"Outstanding" for the purposes of any direction, waiver, consent or declaration
or Act of Holders (and the consequences of any thereof) in connection with such
covenants, but shall continue to be deemed "Outstanding" for all other purposes
hereunder. For this purpose, such covenant defeasance means that, with respect
to the Defeased Notes, the Company and each Guarantor may omit to comply with
and shall have no liability in respect of any term, condition or limitation set
forth in any such Section, whether directly or indirectly, by reason of any
reference elsewhere herein to any such Section or by reason of any reference in
any such Section to any other provision herein or in any other document and such
omission to comply shall not constitute a Default or an Event of Default under
Section 5.01(c) but, except as specified above, the remainder of this Indenture
and such Defeased Notes shall be unaffected thereby.
Section 4.04. Conditions to Defeasance or Covenant Defeasance.
The following shall be the conditions to application of either
Section 4.02 or Section 4.03 to the Defeased Notes:
(a) The Company shall irrevocably have deposited or caused to be
deposited with the Trustee as trust funds in trust for the purpose of making the
following payments, specifically pledged as security for, and dedicated solely
to, the benefit of the Holders of such Notes, (1) in the case of the Euro Notes,
an amount in Euros or Government Securities of the United Kingdom, the Federal
Republic of Germany, the Republic of France denominated in Euros or a
combination thereof (collectively, the "European Government Obligations") and
(2) in the case of Dollar Notes, an amount in United States dollars or U.S.
Government Obligations, (as defined below) or a combination thereof, in the case
of each of clauses (1) and (2) above, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants or
a nationally recognized investment banking firm expressed in a written
certification thereof delivered to the Trustee, to pay and discharge, and which
shall be applied by the Trustee to pay and discharge, the principal of, premium,
if any, and interest on, the Defeased Notes, on the Stated Maturity of such
principal or interest (or on any date after August 1, 2004 (such date being
referred to as the "Defeasance Redemption Date"), if at or prior to electing to
exercise either its option applicable to Section 4.02 or its option applicable
to Section 4.03, the Company has delivered to the Trustee an irrevocable notice
to redeem the Defeased Notes on the Defeasance Redemption Date). For this
purpose, "U.S. Government Obligations" means securities that are (I) direct
obligations of the United States of America for the timely payment of which its
full faith and credit is pledged or (II) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the timely payment of which is unconditionally guaranteed as a full
faith and credit obligation by the United States of America, which, in either
case, are not callable or redeemable at the option of the issuer thereof, and
shall also include a depository receipt issued by a bank (as defined in Section
3(a)(2) of the Securities Act), as
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custodian with respect to any such U.S. Government Obligation or a specific
payment of principal of or interest on any such U.S. Government Obligation held
by such custodian for the account of the holder of such depository receipt,
provided that (except as required by law) such custodian is not authorized to
make any deduction from the amount payable to the holder of such depository
receipt from any amount received by the custodian in respect of the U.S.
Government Obligation or the specific payment of principal of or interest on the
U.S. Government Obligation evidenced by such depository receipt;
(b) In the case of an election under Section 4.02, the Company shall
have delivered to the Trustee an Opinion of Independent Counsel in the United
States stating that (1) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling or (2) since the date
hereof, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such Opinion of Independent
Counsel in the United States shall confirm that, the Holders of the Outstanding
Notes will not recognize income, gain or loss for federal income tax purposes as
a result of such defeasance and will be subject to federal income tax on the
same amounts, in the same manner and at the same times as would have been the
case if such defeasance had not occurred;
(c) In the case of an election under Section 4.03, the Company shall
have delivered to the Trustee an Opinion of Independent Counsel in the United
States to the effect that the Holders of the Outstanding Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such covenant defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such covenant defeasance had not occurred;
(d) No Default or Event of Default (other than a Default or Event of
Default under this Indenture resulting from the borrowing of funds to be applied
to such deposit) shall have occurred and be continuing on the date of such
deposit or insofar as Section 5.01(h) or (i) is concerned, at any time during
the period ending on the 91st day after the date of deposit (it being understood
that this condition shall not be deemed satisfied until the expiration of such
period);
(e) Such defeasance or covenant defeasance shall not cause the
Trustee for the Notes to have a conflicting interest for purposes of the Trust
Indenture Act with respect to any other securities of the Company or any
Guarantor;
(f) Such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a Default under, this Indenture or any
other material agreement or instrument to which the Company, any Guarantor or
any Subsidiary is a party or by which it is bound;
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(g) Such defeasance or covenant defeasance shall not result in the
trust arising from such deposit constituting an investment company within the
meaning of the Investment Company Act of 1940, as amended, unless such trust
shall be registered under such Act or exempt from registration thereunder;
(h) The Company shall have delivered to the Trustee an Opinion of
Independent Counsel in the United States to the effect that after the 91st day
following the deposit, the trust funds will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally;
(i) The Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the holders of the Notes or any Guarantee over the other creditors
of the Company or any Guarantor with the intent of defeating, hindering,
delaying or defrauding creditors of the Company, any Guarantor or others;
(j) No event or condition shall exist that would prevent the Company
from making payments of the principal of, premium, if any, and interest on the
Notes on the date of such deposit or at any time ending on the 91st day after
the date of such deposit; and
(k) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Independent Counsel, each stating that all
conditions precedent provided for relating to either the defeasance under
Section 4.02 or the covenant defeasance under Section 4.03 (as the case may be)
have been complied with. Opinions of Counsel or Opinions of Independent Counsel
required to be delivered under this Section shall be in form and substance
reasonably satisfactory to the Trustee may have qualifications customary for
opinions of the type required and counsel delivering such opinions may rely on
certificates of the Company or government or other officials customary for
opinions of the type required, which certificates shall be limited as to matters
of fact, including that various financial covenants have been complied with.
Section 4.05. Deposited Money and Government Obligations to be Held
in Trust; Other Miscellaneous Provisions.
Subject to the provisions of the last paragraph of Section 10.03,
all United States dollars and U.S. Government Obligations (including the
proceeds thereof), in the case of the Dollar Notes, and all European Government
Obligations, in the case of the Euro Notes, deposited with the Trustee pursuant
to Section 4.04 in respect of the Defeased Notes shall be held in trust and
applied by the Trustee, in accordance with the provisions of such Notes and this
Indenture, to the payment, either directly or through any Paying Agent
(excluding the Company or any of its Affiliates acting as Paying Agent), as the
Trustee may determine, to the Holders of such Notes of all sums
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due and to become due thereon in respect of principal, premium, if any, and
interest, but such money need not be segregated from other funds except to the
extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the Government Securities
deposited pursuant to Section 4.04 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is
imposed, assessed or for the account of the Holders of the Defeased Notes.
Anything in this Article IV to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon Company
Request any United States dollars or U.S. Government Obligations, in the case of
the Dollar Notes, or European Government Obligations, in the case of the Euro
Notes, held by it as provided in Section 4.04 which, in the opinion of a
nationally recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee, are in excess of the
amount thereof which would then be required to be deposited to effect defeasance
or covenant defeasance.
Section 4.06. Reinstatement.
If the Trustee or Paying Agent is unable to apply any United States
dollars or U.S. Government Obligations, in the case of the Dollar Notes, or
European Government Obligations, in the case of the Euro Notes, in accordance
with Section 4.02 or 4.03, as the case may be, by reason of any order or
judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, then the Company's obligations under
this Indenture and the Notes and any Guarantor's obligations under any Guarantee
shall be revived and reinstated, with present and prospective effect, as though
no deposit had occurred pursuant to Section 4.02 or 4.03, as the case may be,
until such time as the Trustee or Paying Agent is permitted to apply all such
United States dollars or U.S. Government Obligations, in the case of the Dollar
Notes, or European Government Obligations, in the case of the Euro Notes, in
accordance with Section 4.02 or 4.03, as the case may be; provided, however,
that if the Company makes any payment to the Trustee or Paying Agent of
principal of, premium, if any, or interest on any Note following the
reinstatement of its obligations, the Trustee or Paying Agent shall promptly pay
any such amount to the Holders of the Notes and the Company shall be subrogated
to the rights of the Holders of such Notes to receive such payment from the
United States dollars and U.S. Government Obligations, in the case of the Dollar
Notes, or European Government Obligations, in the case of the Euro Notes, held
by the Trustee or Paying Agent.
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ARTICLE V
Remedies
Section 5.01. Events of Default.
"Event of Default," wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
(a) 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;
(b) 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);
(c) (i) there shall be a default in the performance, or breach, of
any covenant or agreement of the Company or any Guarantor under this Indenture,
the Registration Rights Agreement or any Guarantee (other than a default in the
performance, or breach, of a covenant or agreement which is specifically dealt
with in clause (a), (b) or in clause (ii), (iii) or (iv) of this clause (c)) and
such default or breach shall continue for a period of 30 days after written
notice has been given, by certified mail, (x) to the Company by the Trustee or
(y) to the Company and the Trustee by the Holders of at least 25% in aggregate
principal amount of the outstanding Notes; (ii) there shall be a default in the
performance or breach of the provisions of Article VIII; (iii) the Company shall
have failed to make or consummate an Offer in accordance with the provisions of
Section 10.12; or (iv) the Company shall have failed to make or consummate a
Change of Control Offer in accordance with the provisions of Section 10.14;
(d) (i) any default by the Company 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 maturity
in accordance with its terms, the holder of such Indebtedness shall have the
right to accelerate such Indebtedness or (ii) any event of default as defined in
any agreement, indenture or instrument of the Company 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;
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(e) any Guarantee shall for any reason cease to be, or shall for any
reason be asserted in writing by any Guarantor or the Company not to be, in full
force and effect and enforceable in accordance with its terms, except to the
extent contemplated by this Indenture and any such Guarantee;
(f) one or more judgments, orders or decrees for the payment of
money in excess of $10 million, either individually or in the aggregate, shall
be rendered against the Company not paid or covered by financially sound third-
party insurers, or any Subsidiary or any of their respective properties and is
not discharged and 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;
(g) any holder or holders of at least $10 million in aggregate
principal amount of Indebtedness of the Company or any Subsidiary after a
default under such Indebtedness shall notify the Trustee of its commencement of
proceedings to foreclose on any assets of the Company 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 the
Company or any Subsidiary (including funds on deposit or held pursuant to lock-
box and other similar arrangements);
(h) there shall have been the entry by a court of competent
jurisdiction of (i) a decree or order for relief in respect of the Company or
any Significant Subsidiary in an involuntary case or proceeding under any
applicable Bankruptcy Law or (ii) a decree or order adjudging the Company or any
Significant Subsidiary bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment or composition of or in respect of the Company 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 the Company 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
(i) (i) the Company 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, (ii) the Company or
any Significant Subsidiary consents to the entry of a decree or order for relief
in respect of the Company 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, (iii) the Company or any
Significant Subsidiary files a petition or answer or consent seeking
reorganization or relief under any applicable
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federal or state law, (iv) the Company or any Significant Subsidiary (1)
consents to the filing of such petition or the appointment of, or taking
possession by, a custodian, receiver, liquidator, assignee, trustee,
sequestrator or similar official of the Company or such Significant Subsidiary
or of any substantial part of the Company's Consolidated properties, (2) makes
an assignment for the benefit of creditors or (3) admits in writing its
inability to pay its debts generally as they become due or (v) the Company or
any Significant Subsidiary takes any corporate action in furtherance of any such
actions in this paragraph (i).
Section 5.02. Acceleration of Maturity; Rescission and Annulment.
(a) If an Event of Default (other than an Event of Default specified
in Sections 5.01(h) and (i) with respect to the Company) shall occur and be
continuing with respect to this 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 the Company (and to the Trustee if given by
the Holders of the Notes) 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 (h) or (i) of Section 5.01 occurs with
respect to the Company 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, if any, 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 of the
Notes by appropriate judicial proceedings.
(b) After a declaration of acceleration with respect to the Notes,
but before a judgment or decree for payment of the money due has been obtained
by the Trustee as hereinafter in this Article provided, the Holders of a
majority in aggregate principal amount of the Notes then Outstanding, by written
notice to the Company and the Trustee, may rescind and annul such declaration
and its consequences if:
(i) the Company has paid or deposited with the Trustee sums
(in Euros and U.S. Dollars) sufficient to pay:
(1) all sums paid or advanced by the Trustee under this
Indenture and the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel,
(2) all overdue interest on all Outstanding Notes,
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(3) the principal of and premium, if any, on any
Outstanding Notes which have become due otherwise than by such declaration of
acceleration and interest thereon at a rate borne by the Notes, and
(4) to the extent that payment of such interest is
lawful, interest upon overdue interest at the rate borne by the Notes; and
(ii) 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 Section 5.13. No such
rescission shall affect any subsequent Default or impair any right consequent
thereon.
(c) The Company shall notify the Trustee within 30 days of the
occurrence of any Default unless such Default shall have been cured. The Company
shall 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.
Section 5.03. Collection of Indebtedness and Suits for Enforcement
by Trustee.
The Company and each Guarantor covenant that if:
(a) default is made in the payment of any interest on any Note when
such interest becomes due and payable and such default continues for a period of
30 days, or
(b) default is made in the payment of the principal of or premium,
if any, on any Note at the Stated Maturity thereof, the Company and such
Guarantor will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Notes, the whole amount then due and payable on such Notes for
principal and premium, if any, and interest, with interest upon the overdue
principal and premium, if any, and, to the extent that payment of such interest
shall be legally enforceable, upon overdue installments of interest, at the rate
borne by the Notes; and, in addition thereto, such further amount as shall be
sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
If the Company or any Guarantor, as the case may be, fails to pay
such amounts forthwith upon such demand, the Trustee, in its own name and as
trustee of an express trust, may institute a judicial proceeding for the
collection of the sums so due and unpaid and may prosecute such proceeding to
judgment or final decree, and may enforce the same against the Company or any
Guarantor or any other obligor upon the Notes and collect the moneys adjudged or
decreed
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to be payable in the manner provided by law out of the property of the Company,
any Guarantor or any other obligor upon the Notes, wherever situated.
If an Event of Default occurs and is continuing, the Trustee may in
its discretion proceed to protect and enforce its rights and the rights of the
Holders under this Indenture or any Guarantee by such appropriate private or
judicial proceedings as the Trustee shall deem most effectual to protect and
enforce such rights, including seeking recourse against any Guarantor pursuant
to the terms of any Guarantee, whether for the specific enforcement of any
covenant or agreement in this Indenture or in aid of the exercise of any power
granted herein or therein, or to enforce any other proper remedy, including,
without limitation, seeking recourse against any Guarantor pursuant to the terms
of a Guarantee, or to enforce any other proper remedy, subject however to
Section 5.12. No recovery of any such judgment upon any property of the Company
or any Guarantor shall affect or impair any rights, powers or remedies of the
Trustee or the Holders.
Section 5.04. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or
other judicial proceeding relative to the Company or any other obligor,
including any Guarantor, upon the Notes or the property of the Company or of
such other obligor or their creditors, the Trustee (irrespective of whether the
principal of the Notes shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Trustee shall have made
any demand on the Company for the payment of overdue principal or interest)
shall be entitled and empowered, by intervention in such proceeding or
otherwise:
(a) to file and prove a claim for the whole amount of principal, and
premium, if any, and interest owing and unpaid in respect of the Notes and to
file such other papers or documents as may be necessary or advisable in order to
have the claims of the Trustee (including any claim for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel) and of the Holders allowed in such judicial proceeding, and
(b) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same; and any custodian,
receiver, assignee, trustee, liquidator, sequestrator or similar official in any
such judicial proceeding is hereby authorized by each Holder to make such
payments to the Trustee and, in the event that the Trustee shall consent to the
making of such payments directly to the Holders, to pay the Trustee any amount
due it for the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 6.07.
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Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder thereof, or to authorize the Trustee to vote in respect
of the claim of any Holder in any such proceeding.
Section 5.05. Trustee May Enforce Claims without Possession of
Notes.
All rights of action and claims under this Indenture, the Notes or
the Guarantees may be prosecuted and enforced by the Trustee without the
possession of any of the Notes or the production thereof in any proceeding
relating thereto, and any such proceeding instituted by the Trustee shall be
brought in its own name and as trustee of an express trust, and any recovery of
judgment shall, after provision for the payment of the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, be
for the ratable benefit of the Holders of the Notes in respect of which such
judgment has been recovered.
Section 5.06. Application of Money Collected.
Any money collected by the Trustee pursuant to this Article or
otherwise on behalf of the Holders or the Trustee pursuant to this Article or
through any proceeding or any arrangement or restructuring in anticipation or in
lieu of any proceeding contemplated by this Article shall be applied, subject to
applicable law, in the following order, at the date or dates fixed by the
Trustee and, in case of the distribution of such money on account of principal,
premium, if any, or interest, upon presentation of the Notes and the notation
thereon of the payment if only partially paid and upon surrender thereof if
fully paid:
FIRST: To the payment of all amounts due the Trustee under Section
6.07;
SECOND: To the payment of the amounts then due and unpaid upon the
Notes for principal, premium, if any, and interest, in respect of which or for
the benefit of which such money has been collected, ratably, without preference
or priority of any kind, according to the amounts due and payable on such Notes
for principal, premium, if any, and interest; and
THIRD: The balance, if any, to the Person or Persons entitled
thereto, including the Company, provided that all sums due and owing to the
Holders and the Trustee have been paid in full as required by this Indenture.
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Section 5.07. Limitation on Suits.
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No Holder of any Notes shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture or the Notes,
or for the appointment of a receiver or trustee, or for any other remedy
hereunder, unless:
(a) such Holder has previously given written notice to the Trustee
of a continuing Event of Default;
(b) the Holders of not less than 25% in principal amount of the
Outstanding Notes shall have made written request to the Trustee to institute
proceedings in respect of such Event of Default in its own name as trustee
hereunder;
(c) such Holder or Holders have offered to the Trustee an indemnity
satisfactory to the Trustee against the costs, expenses and liabilities to be
incurred in compliance with such request;
(d) the Trustee for 30 days after its receipt of such notice,
request and offer (and if requested, provision) of indemnity has failed to
institute any such proceeding; and
(e) no direction inconsistent with such written request has been
given to the Trustee during such 30-day period by the Holders of a majority in
principal amount of the Outstanding Notes; it being understood and intended that
no one or more Holders shall have any right in any manner whatever by virtue of,
or by availing of, any provision of this Indenture, any Note or any Guarantee to
affect, disturb or prejudice the rights of any other Holders, or to obtain or to
seek to obtain priority or preference over any other Holders or to enforce any
right under this Indenture, any Note or any Guarantee, except in the manner
provided in this Indenture and for the equal and ratable benefit of all the
Holders.
Section 5.08. Unconditional Right of Holders to Receive Principal,
Premium and Interest.
Notwithstanding any other provision in this Indenture, the Holder of
any Note shall have the right based on the terms stated herein, which is
absolute and unconditional, to receive payment of the principal of, premium, if
any, and (subject to Section 3.09) interest on such Note on the respective
Stated Maturities expressed in such Note (or, in the case of redemption or
repurchase, on the Redemption Date or the repurchase date) and to institute suit
for the enforcement of any such payment, and such rights shall not be impaired
without the consent of such Holder.
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Section 5.09. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture or any Guarantee and such
proceeding has been discontinued or abandoned for any reason, or has been
determined adversely to the Trustee or to such Holder, then and in every such
case the Company, any Guarantor, any other obligor on the Notes, the Trustee and
the Holders shall, subject to any determination in such proceeding, be restored
severally and respectively to their former positions hereunder, and thereafter
all rights and remedies of the Trustee and the Holders shall continue as though
no such proceeding had been instituted.
Section 5.10. Rights and Remedies Cumulative.
No right or remedy herein conferred upon or reserved to the Trustee
or to the Holders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
Section 5.11. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Note to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Holders may be exercised from time to time, and as often
as may be deemed expedient, by the Trustee or by the Holders, as the case may
be.
Section 5.12. Control by Holders.
The Holders of not less than a majority in aggregate principal
amount of the then Outstanding Notes shall have the right to direct the time,
method and place of conducting any proceeding for exercising any remedy
available to the Trustee, or exercising any trust or power conferred on the
Trustee, provided that:
(a) such direction shall not be in conflict with any rule of law or
with this Indenture (including, without limitation, Section 5.07) or any
Guarantee, expose the Trustee to liability, or be unduly prejudicial to Holders
not joining therein; and
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(b) subject to the provisions of Section 315 of the Trust Indenture
Act, the Trustee may take any other action deemed proper by the Trustee which is
not inconsistent with such direction.
Section 5.13. Waiver of Past Defaults.
The Holders of not less than a majority in aggregate principal
amount of the then Outstanding Notes may on behalf of the Holders of all
Outstanding Notes waive any past Default hereunder and its consequences, except
a Default:
(a) in the payment of the principal of, premium, if any, or interest
on any Note; or
(b) in respect of a covenant or a provision hereof which under this
Indenture cannot be modified or amended without the consent of the Holder of
each Note Outstanding affected by such modification or amendment.
Upon any such waiver, such Default shall cease to exist, and any
Event of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other Default or impair any right consequent thereon.
Section 5.14. Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any Note by
his acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Indenture, or in any suit against the Trustee for any action taken,
suffered or omitted by it as Trustee, the filing by any party litigant in such
suit of an undertaking to pay the costs of such suit, and that such court may in
its discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant, but the
provisions of this Section shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Holder or group of Holders holding in the
aggregate more than 10% in principal amount of the Outstanding Notes, or to any
suit instituted by any Holder for the enforcement of the payment of the
principal of, premium, if any, or interest on, any Note on or after the
respective Stated Maturities expressed in such Note (or, in the case of
redemption, on or after the Redemption Date).
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Section 5.15. Waiver of Stay, Extension or Usury Laws.
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Each of the Company and the Guarantors, if any, covenants (to the
extent that it may lawfully do so) that it will not at any time insist upon, or
plead, or in any manner whatsoever claim or take the benefit or advantage of,
any stay or extension law or any usury or other law wherever enacted, now or at
any time hereafter in force, which would prohibit or forgive the Company or any
Guarantor from paying all or any portion of the principal of, premium, if any,
or interest on the Notes contemplated herein or in the Notes or which may affect
the covenants or the performance of this Indenture; and each of the Company and
the Guarantors, if any (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law, and covenants that it
will not hinder, delay or impede the execution of any power herein granted to
the Trustee, but will suffer and permit the execution of every such power as
though no such law had been enacted.
Section 5.16. Remedies Subject to Applicable Law.
All rights, remedies and powers provided by this Article V may be
exercised only to the extent that the exercise thereof does not violate any
applicable provision of law in the premises, and all the provisions of this
Indenture are intended to be subject to all applicable mandatory provisions of
law which may be controlling in the premises and to be limited to the extent
necessary so that they will not render this Indenture invalid, unenforceable or
not entitled to be recorded, registered or filed under the provisions of any
applicable law.
ARTICLE VI
The Trustee
Section 6.01. Duties of Trustee.
Subject to the provisions of Trust Indenture Act Sections 315(a)
through 315(d):
(a) if an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture and use the same degree of care and skill in its exercise thereof as a
prudent person would exercise or use under the circumstances in the conduct of
his own affairs;
(b) except during the continuance of an Event of Default:
(1) the Trustee need perform only those duties as are
specifically set forth in this Indenture and no covenants or obligations shall
be implied in this Indenture that are adverse to the Trustee; and
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(2) in the absence of bad faith or willful misconduct on its
part, the Trustee may conclusively rely, as to the truth of the statements and
the correctness of the opinions expressed therein, upon certificates or opinions
furnished to the Trustee and conforming to the requirements of this Indenture.
However, the Trustee shall examine the certificates and opinions to determine
whether or not they conform on their face to the requirements of this Indenture;
(c) the Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) this Subsection (c) does not limit the effect of
Subsection (b) of this Section 6.01;
(2) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer or Officers, unless it is proved
that the Trustee was negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action
it takes or omits to take in good faith, in accordance with a direction of the
Holders of a majority in principal amount of Outstanding Notes relating to the
time, method and place of conducting any proceeding for any remedy available to
the Trustee or for exercising any trust or power conferred upon the Trustee;
(d) the Trustee may refuse to follow any direction that conflicts
with law or this Indenture;
(e) no provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any liability. The Trustee shall
be under no obligation to exercise any of its rights or powers, or to perform
any duty under this Indenture at the request of any Holders unless such Holders
shall have offered to the Trustee security and indemnity, satisfactory to the
Trustee, against any loss, liability or expense;
(f) whether or not therein expressly so provided, every provision of
this Indenture that in any way relates to the Trustee is subject to Subsections
(a), (b), (c), (d) and (f) of this Section 6.01; and
(g) the Trustee shall not be liable for interest on any money or
assets received by it except as the Trustee may agree in writing with the
Company. Assets held in trust by the Trustee need not be segregated from other
assets except to the extent required by law.
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Section 6.02. Notice of Defaults.
If a Default or Event of Default occurs and is continuing and is
known to the Trustee, the Trustee shall give notice of such Default or Event of
Default within 90 days after the occurrence thereof to each Holder in the manner
and to the extent provided in Section 313(c) of the TIA. Except in the case of a
Default or Event of Default in payment of principal of or interest (including
Liquidated Damages) on any Note (including payments pursuant to the mandatory
redemption provisions of such Note, if any), the Trustee may withhold the notice
if and so long as a committee of its Responsible Officers in good faith
determines that the withholding of such notice is in the interests of the
Holders.
Section 6.03. Certain Rights of Trustee.
Subject to the provisions of Section 6.01 hereof and Trust Indenture
Act Sections 315(a) through 315(d):
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon receipt by it of any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture, note, other evidence of Indebtedness or other paper or
document believed by it to be genuine and to have been signed or presented by
the proper party or parties, and the Trustee need not investigate any fact or
matter stated therein;
(b) any request or direction of the Company mentioned herein shall
be sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a Board
Resolution;
(c) before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an Opinion of Counsel, or both. The Trustee shall
not be liable for any action it takes or omits to take in good faith reliance on
such Officers' Certificate or Opinion of Counsel. The Trustee may consult with
counsel of its selection, and any advice of such counsel or any Opinion of
Counsel shall be full and complete authorization and protection in respect of
any action taken, suffered or omitted by it hereunder in good faith and in
reliance thereon in accordance with such advice or Opinion of Counsel;
(d) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders pursuant to this Indenture, unless such Holders shall have
offered to the Trustee security or indemnity satisfactory to the Trustee against
the costs, expenses and liabilities which might be incurred by it thereby;
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(e) the Trustee shall not be liable for any action taken or omitted
by it in good faith and believed by it to be authorized or within the
discretion, rights or powers conferred upon it by this Indenture or
automatically provided for by the Trust Indenture Act other than any liabilities
arising out of the negligence, bad faith or willful misconduct of the Trustee;
(f) the Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
approval, appraisal, bond, debenture, note, coupon, security or other paper or
document unless requested in writing to do so by the Holders of not less than a
majority in aggregate principal amount of the Notes then Outstanding; provided
that, if the payment within a reasonable time to the Trustee of the costs,
expenses or liabilities likely to be incurred by it in the making of such
investigation is, in the opinion of the Trustee, not reasonably assured to the
Trustee by the security afforded to it by the terms of this Indenture, the
Trustee may require reasonable indemnity against such expenses or liabilities as
a condition to proceeding; the reasonable expenses of every such investigation
so requested by the Holders of not less than 25% in aggregate principal amount
of the Notes Outstanding shall be paid by the Company or, if paid by the Trustee
or any predecessor Trustee, shall be repaid by the Company upon demand;
provided, further, the Trustee in its discretion may make such further inquiry
or investigation into such facts or matters as it may deem fit, and, if the
Trustee shall determine to make such further inquiry or investigation, it shall
be entitled to examine the books, records and premises of the Company,
personally or by agent or attorney; provided, further, that no permissive power,
right or remedy conferred upon the Trustee under this Indenture shall be
construed to impose a duty to exercise such power, right or remedy; and
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it.
Section 6.04. Trustee Not Responsible for Recitals, Dispositions of
Notes or Application of Proceeds Thereof.
The recitals contained herein and in the Notes, except the Trustee's
certificates of authentication, shall be taken as the statements of the Company,
and the Trustee assumes no responsibility for their correctness. The Trustee
shall not be responsible for and makes no representations as to the validity or
sufficiency of this Indenture or of the Notes, and it shall not be responsible
for any statement or recital in this Indenture or any statement in the Notes or
any other document executed in connection with the sale of the Notes or pursuant
to this Indenture, except that the Trustee represents that it is duly authorized
to execute and deliver this Indenture, authenticate the Notes and perform its
obligations hereunder and that the statements made by it in
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any Statement of Eligibility and Qualification on Form T-1 supplied to the
Company are true and accurate subject to the qualifications set forth therein.
The Trustee shall not be accountable for the use or application by the Company
of Notes or the proceeds thereof.
Section 6.05. Trustee and Agents May Hold Notes; Collections; etc.
The Trustee, any Paying Agent, Registrar, Transfer Agent or any
other agent of the Company, in its individual or any other capacity, may become
the owner or pledgee of Notes, with the same rights it would have if it were not
the Trustee, Paying Agent, Registrar or such other agent and, subject to Trust
Indenture Act Sections 310 and 311, may otherwise deal with the Company and
receive, collect, hold and retain collections from the Company with the same
rights it would have if it were not the Trustee, Paying Agent, Registrar or such
other agent. Any Paying Agent, other than the Trustee, holding funds or
securities in trust for the benefit of the Holders or the Trustee shall give to
the Trustee notice of any default by any obligor upon the Notes in the making of
any such payment.
Section 6.06. Money Held in Trust.
All moneys received by the Trustee shall, until used or applied as
herein provided, be held in trust for the purposes for which they were received,
but need not be segregated from other funds except to the extent required by
mandatory provisions of law. Except for funds or securities deposited with the
Trustee pursuant to Article IV, the Trustee shall be required to invest all
moneys received by the Trustee, until used or applied as herein provided, in
Cash Equivalents in accordance with the directions of the Company; provided,
however, that nothing herein shall be deemed to require the Trustee or any other
Person acting as Paying Agent to invest or pay interest on funds held for the
payment of any Notes after the Maturity thereof. The Trustee shall not be liable
for any gain or loss on funds or securities deposited with the Trustee and
invested or maintained by the Trustee in accordance with the directions of the
Company.
Section 6.07. Compensation and Indemnification of Trustee and Its
Prior Claim.
The Company covenants and agrees to pay to the Trustee from time to
time, and the Trustee shall be entitled to, such compensation as the parties
shall agree in writing from time to time for all services rendered by it
hereunder (which compensation shall not be limited by any provision of law in
regard to the compensation of a trustee of an express trust) and the Company
covenants and agrees to pay or reimburse the Trustee and each predecessor
Trustee upon its request for all reasonable expenses, disbursements and advances
incurred or made by or on behalf of the Trustee in accordance with any of the
provisions of this Indenture (including the reasonable compensation and the
expenses and disbursements of its counsel and of all agents and other
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persons not regularly in its employ) except any such expense, disbursement or
advance as may arise from its negligence, bad faith or willful misconduct.
The Company also covenants and agrees to indemnify the Trustee and
each predecessor Trustee, and their respective officers, directors, agents and
employees, for, and to hold it harmless against, any claim, loss, liability,
tax, assessment or other governmental charge (other than taxes applicable to the
Trustee's compensation hereunder) or expense incurred without negligence, bad
faith or willful misconduct on its part, arising out of or in connection with
the acceptance or administration of this Indenture or the trusts hereunder and
its duties hereunder, including enforcement of this Section 6.07, and also
including any liability which the Trustee may incur as a result of failure to
withhold, pay or report any tax, assessment or other governmental charge, and
the costs and expenses of defending itself against or investigating any claim or
liability in connection with the exercise or performance of any of its powers or
duties hereunder.
If, in the opinion of the Trustee's counsel, the Trustee has an
interest adverse to the Company or a potential conflict of interest exists
between the Trustee and the Company, the Trustee may have separate counsel and
the Company shall pay the reasonable fees and expenses of such counsel.
The obligations of the Company under this Section 6.07 to compensate
and indemnify the Trustee and each predecessor Trustee and to pay or reimburse
the Trustee and each predecessor Trustee for reasonable expenses, disbursements
and advances shall constitute an additional obligation hereunder and shall
survive the satisfaction and discharge of this Indenture and the resignation or
removal of the Trustee and each predecessor Trustee. As security for the
performance of the obligations of the Company under this Section 6.07, the
Trustee shall have a lien prior to the Notes upon all property and funds held or
collected by the Trustee, except property or funds held in trust to pay
principal of and interest on, premium, if any, or Liquidated Damages on
particular Notes.
When the Trustee incurs expenses or renders services after an Event
of Default specified in Section 5.01(i) occurs, the expenses and the
compensation for the services (including the fees and expenses of its agents and
counsel) are intended to constitute administrative expenses under any Bankruptcy
Law without any need to demonstrate substantial contribution under Bankruptcy
Law.
Section 6.08. Conflicting Interests.
The Trustee shall comply with the provisions of Section 310(b) of
the Trust Indenture Act.
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Section 6.09. Trustee Eligibility.
There shall at all times be a Trustee hereunder which shall be
eligible to act as trustee under Trust Indenture Act Section 310(a) and which
shall have a combined capital and surplus of at least $100,000,000, to the
extent there is an institution eligible and willing to serve. If the Trustee
does not have a Corporate Trust Office in The City of New York, the Trustee may
appoint an agent in The City of New York reasonably acceptable to the Company to
conduct any activities which the Trustee may be required under this Indenture to
conduct in The City of New York. If such Trustee publishes reports of condition
at least annually, pursuant to law or to the requirements of federal, state,
territorial or District of Columbia supervising or examining authority, then for
the purposes of this Section 6.09, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published. If at any time the Trustee
shall cease to be eligible in accordance with the provisions of this Section
6.09, the Trustee shall resign immediately in the manner and with the effect
hereinafter specified in this Article.
Section 6.10. Resignation and Removal; Appointment of Successor
Trustee.
(a) No resignation or removal of the Trustee and no appointment of a
successor trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor trustee under Section 6.11.
(b) The Trustee, or any trustee or trustees hereafter appointed, may
at any time resign and be discharged from the trust hereby created by giving
written notice thereof to the Company. Upon receiving such notice or
resignation, the Company shall promptly appoint a successor trustee by written
instrument executed by authority of the Board of Directors of the Company, a
copy of which shall be delivered to the resigning Trustee and a copy to the
successor trustee. If an instrument of acceptance by a successor trustee shall
not have been delivered to the Trustee within 30 days after the giving of such
notice of resignation, the resigning Trustee may, or any Holder who has been a
bona fide Holder of a Note for at least six months may, on behalf of himself and
all others similarly situated, petition any court of competent jurisdiction for
the appointment of a successor trustee. Such court may thereupon, after such
notice, if any, as it may deem proper, appoint and prescribe a successor
trustee.
(c) The Trustee may be removed at any time for any cause or for no
cause by an Act of the Holders of not less than a majority in aggregate
principal amount of the Outstanding Notes, delivered to the Trustee and to the
Company in writing.
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(d) If at any time:
(1) the Trustee shall fail to comply with the provisions of
Trust Indenture Act Section 310(b) after written request therefor by the Company
or by any Holder who has been a bona fide Holder of a Note for at least six
months,
(2) the Trustee shall cease to be eligible under Section 6.09
and shall fail to resign after written request therefor by the Company or by any
Holder who has been a bona fide Holder of a Note for at least six months, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent, or a receiver of the Trustee or of its
property shall be appointed or any public officer shall take charge or control
of the Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation, then, in any case, (i) the Company by a Board
Resolution may remove the Trustee, or (ii) subject to Section 5.14, the Holder
of any Note who has been a bona fide Holder of a Note for at least six months
may, on behalf of himself and all others similarly situated, petition any court
of competent jurisdiction for the removal of the Trustee and the appointment of
a successor trustee. Such court may thereupon, after such notice, if any, as it
may deem proper and prescribe, remove the Trustee and appoint a successor
trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by a Board Resolution, shall promptly appoint a successor trustee and
shall comply with the applicable requirements of Section 6.11. If, within 60
days after such resignation, removal or incapability, or the occurrence of such
vacancy, the Company has not appointed a successor Trustee, a successor trustee
shall be appointed by the Act of the Holders of a majority in principal amount
of the Outstanding Notes delivered to the Company and the retiring Trustee. Such
successor trustee so appointed shall forthwith upon its acceptance of such
appointment become the successor trustee and supersede the successor trustee
appointed by the Company. If no successor trustee shall have been so appointed
by the Company or the Holders of the Notes and accepted appointment in the
manner hereinafter provided, the Trustee or the Holder of any Note who has been
a bona fide Holder for at least six months may, subject to Section 5.14, on
behalf of himself and all others similarly situated, petition any court of
competent jurisdiction for the appointment of a successor trustee.
The Company shall give notice of each resignation and each removal
of the Trustee and each appointment of a successor trustee by mailing written
notice of such event by first-class mail, postage prepaid, to the Holders of
Notes as their names and addresses appear in the Register. Each notice shall
include the name of the successor trustee and the address of its Corporate Trust
Office or agent hereunder.
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Section 6.11. Acceptance of Appointment by Successor.
Every successor trustee appointed hereunder shall execute,
acknowledge and deliver to the Company and to the retiring Trustee a written
instrument accepting such appointment, and thereupon the resignation or removal
of the retiring Trustee shall become effective and such successor trustee,
without any further act, deed or conveyance, shall become vested with all the
rights, powers, trusts and duties of the retiring Trustee as if originally named
as Trustee hereunder; but, nevertheless, on the written request of the Company
or the successor trustee, upon payment of its charges pursuant to Section 6.07
then unpaid, such retiring Trustee shall pay over to the successor trustee all
moneys at the time held by it hereunder and shall execute and deliver an
instrument transferring to such successor trustee all such rights, powers,
duties and obligations. Upon request of any such successor trustee, the Company
shall execute any and all instruments for more fully and certainly vesting in
and confirming to such successor trustee all such rights and powers.
No successor trustee with respect to the Notes shall accept
appointment as provided in this Section 6.11 unless at the time of such
acceptance such successor trustee shall be eligible to act as trustee under the
provisions of Trust Indenture Act Section 310(a) and this Article VI and shall
have a combined capital and surplus of at least $100,000,000 and have a
Corporate Trust Office or an agent selected in accordance with Section 6.09.
Upon acceptance of appointment by any successor trustee as provided
in this Section 6.11, the Company shall give notice thereof to the Holders of
the Notes, by mailing such notice to such Holders at their addresses as they
shall appear on the Register. If the acceptance of appointment is substantially
contemporaneous with the appointment, then the notice called for by the
preceding sentence may be combined with the notice called for by Section 6.10.
If the Company fails to give such notice within 10 days after acceptance of
appointment by the successor trustee, the successor trustee shall cause such
notice to be given at the expense of the Company.
Section 6.12. Merger, Conversion, Consolidation or Succession to
Business.
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee (including the trust created by this Indenture) shall be
the successor of the Trustee hereunder, provided that such corporation shall be
eligible under Trust Indenture Act Section 310(a) and this Article VI and shall
have a combined capital and surplus of at least $100,000,000 and have a
Corporate Trust Office or an agent selected in accordance with Section 6.09,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto.
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In case at the time such successor or successors to the Trustee
shall succeed to the trusts created by this Indenture any of the Notes shall
have been authenticated but not delivered, any such successor to the Trustee may
adopt the certificate of authentication of any predecessor Trustee and deliver
such Notes so authenticated; and, in case at that time any of the Notes shall
not have been authenticated, any successor to the Trustee may authenticate such
Notes either in the name of any predecessor hereunder or in the name of the
successor trustee; and in all such cases such certificate shall have the full
force which it is anywhere in the Notes or in this Indenture provided that the
certificate of the Trustee shall have; provided that the right to adopt the
certificate of authentication of any predecessor Trustee or to authenticate
Notes in the name of any predecessor Trustee shall apply only to its successor
or successors by merger, conversion or consolidation.
Section 6.13. Preferential Collection of Claims Against Company.
If and when the Trustee shall be or become a creditor of the Company
(or other obligor under the Notes), the Trustee shall be subject to the
provisions of Section 311(a) of the Trust Indenture Act regarding the collection
of claims against the Company (or any such other obligor), excluding any
creditor relationship listed in TIA Section 311(b). A Trustee who has resigned
or been removed shall be subject to Trust Indenture Act Section 311(a) to the
extent indicated therein.
ARTICLE VII
Holders' Lists and Reports by Trustee and Company
Section 7.01. Company to Furnish Trustee Names and Addresses of
Holders. The Company will furnish or cause to be furnished to the Trustee
(a) semiannually, not more than 15 days after each Regular Record
Date, a list, in such form as the Trustee may reasonably require, of the names
and addresses of the Holders as of such Regular Record Date; and
(b) at such other times as the Trustee may reasonably request in
writing, within 30 days after receipt by the Company of any such request, a list
of similar form and content to that in subsection (a) hereof as of a date not
more than 15 days prior to the time such list is furnished; provided, however,
that if and so long as the Trustee shall be the Registrar, no such list need be
furnished.
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Section 7.02. Disclosure of Names and Addresses of Holders.
Holders may communicate pursuant to Trust Indenture Act Section
312(b) with other Holders with respect to their rights under this Indenture or
the Notes, and the Trustee shall comply with Trust Indenture Act Section 312(b).
The Company, the Trustee, the Registrar and any other Person shall have the
protection of Trust Indenture Act Section 312(c). Further, every Holder of
Notes, by receiving and holding the same, agrees with the Company and the
Trustee that neither the Company nor the Trustee or any agent of either of them
shall be held accountable by reason of the disclosure of any information as to
the names and addresses of the Holders in accordance with Trust Indenture Act
Section 312, regardless of the source from which such information was derived,
and that the Trustee shall not be held accountable by reason of mailing any
material pursuant to a request made under Trust Indenture Act Section 312.
Section 7.03. Reports by Trustee.
(a) Within 60 days after May 15 of each year commencing with the
first May 15 after the issuance of Notes, the Trustee, if so required under the
Trust Indenture Act, shall transmit by mail to all Holders, in the manner and to
the extent provided in Trust Indenture Act Section 313(c), a brief report dated
as of such May 15 in accordance with and with respect to the matters required by
Trust Indenture Act Section 313(a). The Trustee shall also transmit by mail to
all Holders, in the manner and to the extent provided in Trust Indenture Act
Section 313(c), a brief report in accordance with and with respect to the
matters required by Trust Indenture Act Section 313(b)(2).
(b) A copy of each report transmitted to Holders pursuant to this
Section 7.03 shall, at the time of such transmission, be mailed to the Company
and filed with each stock exchange, if any, upon which the Notes are listed and
also with the Commission. The Company will notify the Trustee promptly if the
Notes are listed on any stock exchange.
Section 7.04. Reports by Company.
The Company and any Guarantor, as the case may be, shall:
(a) file with the Trustee, within 15 days after the Company or any
Guarantor, as the case may be, is required to file the same with the Commission,
copies of the annual reports and of the information, documents and other reports
(or copies of such portions of any of the foregoing as the Commission may from
time to time by rules and regulations prescribe) which the Company or any
Guarantor may be required to file with the Commission pursuant to Section 13 or
Section 15(d) of the Exchange Act; or, if the Company or any Guarantor, as the
case may be, is not required to file information, documents or reports pursuant
to either of said Sections, then
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it shall (i) deliver to the Trustee annual audited financial statements of the
Company and its Subsidiaries, prepared on a consolidated basis in conformity
with GAAP, within 120 days after the end of each fiscal year of the Company, and
(ii) file with the Trustee and, to the extent permitted by law, the Commission,
in accordance with the rules and regulations prescribed from time to time by the
Commission, such of the supplementary and periodic information, documents and
reports which may be required pursuant to Section 13 of the Exchange Act in
respect of a security listed and registered on a national securities exchange as
may be prescribed from time to time in such rules and regulations;
(b) file with the Trustee and the Commission, in accordance with the
rules and regulations prescribed from time to time by the Commission, such
additional information, documents and reports with respect to compliance by the
Company or any Guarantor, as the case may be, with the conditions and covenants
of this Indenture as are required from time to time by such rules and
regulations (including such information, documents and reports referred to in
Trust Indenture Act Section 314(a)); and
(c) within 15 days after the filing thereof with the Trustee,
transmit by mail to all Holders in the manner and to the extent provided in
Trust Indenture Act Section 313(c), such summaries of any information, documents
and reports required to be filed by the Company or any Guarantor, as the case
may be, pursuant to Section 10.20 hereunder and subsections (a) and (b) of this
Section as are required by rules and regulations prescribed from time to time by
the Commission.
ARTICLE VIII
Consolidation, Merger, Sale of Assets
Section 8.01. Company and Guarantors May Consolidate, etc., Only on
Certain Terms.
(a) The Company 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 the Company 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:
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(i) either (a) the Company will be the continuing corporation
in the case of a consolidation or merger involving the Company or (b) the Person
(if other than the Company) formed by such consolidation or into which the
Company 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 the Company 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 the Company under the Notes, this Indenture and the Registration Rights
Agreement, as the case may be, and the Notes, this Indenture and the
Registration Rights Agreement will remain in full force and effect as so
supplemented;
(ii) immediately after giving effect to such transaction on a
pro forma basis (and treating any Indebtedness not previously an obligation of
the Company or any of its Subsidiaries which becomes the obligation of the
Company 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;
(iii) immediately after giving effect to such transaction on a
pro forma basis, the Company (or the Surviving Entity if the Company is not the
continuing obligor hereunder) could incur $1.00 of additional Indebtedness
(other than Permitted Indebtedness) under Section 10.08(a);
(iv) 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 this Indenture and under the Notes; and
(v) at the time of the transaction the Company 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 this
Indenture.
(b) Notwithstanding the foregoing, the provisions of Section 8.01(a)
shall not apply to (i) a merger or consolidation between or among the Company
and any one or more of its Wholly-Owned Subsidiaries, and (ii) a merger or
consolidation of the Company into any Person in a transaction designed solely
for the purpose of effecting a change in the jurisdiction of incorporation of
the Company within the United States of America.
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Section 8.02. Successor Substituted.
In the event of any transaction (other than a lease) described in
and complying with the conditions listed in Section 8.01 in which the Company is
not the Surviving Person, such Surviving Person shall succeed to, and be
substituted for, and may exercise every right and power of, the Company and the
Company shall be discharged from all obligations and covenants under this
Indenture, the Notes and the Registration Rights Agreement.
ARTICLE IX
Supplemental Indentures
Section 9.01. Supplemental Indentures and Agreements without Consent
of Holders.
Without the consent of any Holders, the Company, the Guarantors, if
any, and any other obligor under the Notes when authorized by a Board
Resolution, and the Trustee, at any time and from time to time, may enter into
one or more indentures supplemental hereto or agreements or other instruments
with respect to any Guarantee, in form and substance satisfactory to the
Trustee, for any of the following purposes:
(a) to evidence the succession of another Person to the Company or a
Guarantor and the assumption by any such successor of the covenants of the
Company or such Guarantor herein and in the Notes, the Registration Rights
Agreement and in any Guarantee in accordance with Article VIII;
(b) to add to the covenants, undertakings or obligations of the
Company, any Guarantor or any other obligor upon the Notes for the benefit of
the Holders, or to surrender any right or power conferred upon the Company or
any Guarantor or any other obligor upon the Notes, as applicable, herein, in the
Notes or in any Guarantee;
(c) to cure any ambiguity, or to correct or supplement any provision
herein or in any supplemental indenture, the Notes or any Guarantee which may be
defective or inconsistent with any other provision herein or any supplemental
indenture or in the Notes or any Guarantee or to make any other provisions with
respect to matters or questions arising under this Indenture, any supplemental
indenture, the Notes or any Guarantee; provided that, in each case, such
provisions shall not adversely affect the interest of the Holders;
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(d) to comply with the requirements of the Commission in order to
effect or maintain the qualification of this Indenture under the Trust Indenture
Act, as contemplated by Section 9.05 or otherwise;
(e) to add a Guarantor pursuant to the requirements of Section
10.13;
(f) to evidence and provide the acceptance of the appointment of a
successor trustee hereunder; 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 the Company's or any Guarantor's Indenture
Obligations, 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 this Indenture or otherwise.
Section 9.02. Supplemental Indentures and Agreements with Consent of
Holders.
Except as permitted by Section 9.01, with the consent of the Holders
of at least a majority in aggregate principal amount of the Outstanding Notes,
by act of said Holders delivered to the Company, each Guarantor, if any, and the
Trustee, the Company and each Guarantor (if a party thereto) when authorized by
Board Resolutions, and the Trustee may (i) enter into an indenture or indentures
supplemental hereto or agreements or other instruments with respect to any
Guarantee in form and substance satisfactory to the Trustee, for the purpose of
adding any provisions to or amending, modifying or changing in any manner or
eliminating any of the provisions of this Indenture, the Notes or any Guarantee
(including but not limited to, for the purpose of modifying in any manner the
rights of the Holders under this Indenture, the Notes or any Guarantee) or (ii)
waive compliance with any provision in this Indenture, the Notes or any
Guarantee (other than waivers of past Defaults covered by Section 5.13 and
waivers of covenants which are covered by Section 10.21); provided, however,
that no such supplemental indenture, agreement or instrument shall, without the
consent of the Holder of each Outstanding Note affected thereby:
(a) 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 Note or any premium or the interest thereon is
payable, or impair the right to institute suit for the enforcement of any such
payment on or after the Stated Maturity thereof (or, in the case of redemption,
on or after the Redemption Date);
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(b) amend, change or modify the obligation of the Company to make
and consummate an Offer with respect to any Asset Sale or Asset Sales in
accordance with Section 10.12 or the obligation of the Company to make and
consummate a Change of Control Offer in the event of a Change of Control in
accordance with Section 10.14, including, in each case, amending, changing or
modifying any definitions relating thereto;
(c) reduce the percentage in principal amount of the 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 this Indenture;
(d) modify any of the provisions of this Section 9.02 or Section
5.13 or 10.21, except to increase the percentage of such Outstanding Notes
required for any such actions or to provide that certain other provisions of
this Indenture cannot be modified or waived without the consent of the Holder of
each such Note affected thereby;
(e) except as otherwise permitted under Article VIII, consent to the
assignment or transfer by the Company or any Guarantor of any of its rights and
obligations hereunder; or
(f) amend or modify any of the provisions of this Indenture in any
manner which subordinates the Notes issued hereunder in right of payment to any
other Indebtedness of the Company or which subordinates any Guarantee in right
of payment to any other Indebtedness of the Guarantor issuing such Guarantee.
Upon the written request of the Company and each Guarantor, if any,
accompanied by a copy of Board Resolutions authorizing the execution of any such
supplemental indenture or Guarantee, and upon the filing with the Trustee of
evidence of the consent of Holders as aforesaid, the Trustee shall join with the
Company and each Guarantor in the execution of such supplemental indenture or
Guarantee.
It shall not be necessary for any act of Holders under this Section
9.02 to approve the particular form of any proposed supplemental indenture or
Guarantee or agreement or instrument relating to any Guarantee, but it shall be
sufficient if such act shall approve the substance thereof.
Section 9.03. Execution of Supplemental Indentures and Agreements.
In executing, or accepting the additional trusts created by, any
supplemental indenture, agreement, instrument or waiver permitted by this
Article IX or the modifications thereby of the trusts created by this Indenture,
the Trustee shall be entitled to receive, and (subject to Trust
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Indenture Act Sections 315(a) through 315(d) and Section 6.03 hereof) shall be
fully protected in relying upon, an Opinion of Counsel and an Officers'
Certificate stating that the execution of such supplemental indenture, agreement
or instrument is authorized or permitted by this Indenture. The Trustee may, but
shall not be obligated to, enter into any such supplemental indenture, agreement
or instrument which affects the Trustee's own rights, duties or immunities under
this Indenture, any Guarantee or otherwise.
Section 9.04. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Notes theretofore or thereafter authenticated and delivered hereunder shall
be bound thereby.
Section 9.05. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article IX
shall conform to the requirements of the Trust Indenture Act as then in effect.
Section 9.06. Reference in Notes to Supplemental Indentures.
Notes authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article IX may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Notes so modified as to conform, in the opinion of the Trustee and the Board
of Directors, to any such supplemental indenture may be prepared and executed by
the Company and each Guarantor and authenticated and delivered by.
Section 9.07. Notice of Supplemental Indentures.
Promptly after the execution by the Company, any Guarantor and the
Trustee of any supplemental indenture pursuant to the provisions of Section
9.02, the Company shall give notice thereof to the Holders of each Outstanding
Note affected, in the manner provided for in Section 1.06, setting forth in
general terms the substance of such supplemental indenture. Any failure of the
Company to mail such notice, or any defect therein, shall not, however, in any
way impair or affect the validity of any such supplemental indenture.
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ARTICLE X
Covenants
Section 10.01. Payment of Principal, Premium and Interest.
The Company shall duly and punctually pay the principal of, premium,
if any, and interest on the Notes in accordance with the terms of the Notes and
this Indenture.
Section 10.02. Maintenance of Office or Agency.
The Company shall maintain an office or agency where Notes may be
presented or surrendered for payment in accordance with the terms and conditions
set forth in Section 2.03 hereof. The Company will give prompt written notice to
the Trustee of the location and any change in the location of any such offices
or agencies. If at any time the Company shall fail to maintain any such required
offices or agencies or shall fail to furnish the Trustee with the address
thereof, such presentations, surrenders, notices and demands may be made or
served at the office of the Trustee and the Company hereby appoints the Trustee
such agent as its agent to receive all such presentations, surrenders, notices
and demands.
The Company may from time to time designate one or more other
offices or agencies (in or outside of The City of New York and Luxembourg) where
the Notes may be presented or surrendered for any or all such purposes, and may
from time to time rescind such designation. The Company will give prompt written
notice to the Trustee of any such designation or rescission and any change in
the location of any such office or agency.
Section 10.03. Money for Note Payments to Be Held in Trust.
The Company will, on or before each due date of the principal of,
premium, if any, or interest on any of the Notes, deposit with a Paying Agent a
sum in same day funds sufficient to pay the principal, premium, if any, or
interest so becoming due, such sum to be held in trust for the benefit of the
Persons entitled to such principal, premium or interest, and (unless such Paying
Agent is the Trustee) the Company will promptly notify the Trustee of such
action or any failure so to act.
The Company will cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will:
(a) hold all sums held by it for the payment of the principal of,
premium, if any, or interest on the Notes in trust for the benefit of the
Persons entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided;
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(b) give the Trustee notice of any Default by the Company or any
Guarantor (or any other obligor upon the Notes) in the making of any payment of
principal, premium, if any, or interest on the Notes;
(c) at any time during the continuance of any such Default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so held in
trust by such Paying Agent; and
(d) acknowledge, accept and agree to comply in all aspects with the
provisions of this Indenture relating to the duties, rights and disabilities of
such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such money.
Any money deposited with the Trustee or any Paying Agent, or then
held by the Company, in trust for the payment of the principal of, premium, if
any, or interest on any Note and remaining unclaimed for two years after such
principal and premium, if any, or interest has become due and payable shall
promptly be paid to the Company on Company Request, net of any amounts due the
Trustee or such Paying Agent, as the case may be, or (if then held by the
Company) shall be discharged from such trust; and the Holder of such Note shall
thereafter, as an unsecured general creditor, look only to the Company for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Company as trustee
thereof, shall thereupon cease; provided, however, that the Trustee or such
Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in the New York Times, The
Wall Street Journal (national edition) and a leading daily newspaper with
general circulation in Luxembourg (or, if Notes are not listed on the Luxembourg
Stock Exchange and it is not practicable to so publish, in a leading daily
English language newspaper having general circulation in Europe previously
approved by the Trustee), and mail to each such Holder, notice that such money
remains unclaimed and that, after a date specified therein, which shall not be
less than 30 days from the date of such notification, publication and mailing,
any unclaimed balance of such money then remaining will promptly be repaid to
the Company.
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Section 10.04. Corporate Existence.
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Subject to Article VIII, the Company shall do or cause to be done
all things necessary to preserve and keep in full force and effect the corporate
existence and related rights and franchises (charter and statutory) of the
Company and each Subsidiary; provided, however, that the Company shall not be
required to preserve any such right or franchise or the corporate existence of
any such Subsidiary if the Board of Directors of the Company shall determine
that the preservation thereof is no longer necessary or desirable in the conduct
of the business of the Company and its Subsidiaries as a whole; and provided,
further, however, that the foregoing shall not prohibit a sale, transfer or
conveyance of a Subsidiary or any of the assets of the Company or any Subsidiary
not in violation of the terms of this Indenture.
Section 10.05. Payment of Taxes and Other Claims.
The Company shall pay or discharge or cause to be paid or
discharged, on or before the date the same shall become due and payable, (a) all
taxes, assessments and governmental charges levied or imposed upon the Company
or any of its Subsidiaries shown to be due on any return of the Company or any
of its Subsidiaries or otherwise assessed or upon the income, profits or
property of the Company or any of its Subsidiaries if failure to pay or
discharge the same could reasonably be expected to have a material adverse
effect on the ability of the Company or any Guarantor to perform its obligations
hereunder and (b) all lawful claims for labor, materials and supplies, which, if
unpaid, would by law become a Lien upon the property of the Company or any of
its Subsidiaries, except for any Lien permitted to be incurred under Section
10.11, if failure to pay or discharge the same could reasonably be expected to
have a material adverse effect on the ability of the Company or any Guarantor to
perform its obligations hereunder; provided, however, that the Company shall not
be required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith by appropriate proceedings properly instituted and
diligently conducted and in respect of which appropriate reserves (in the good
faith judgment of management of the Company) are being maintained in accordance
with GAAP.
Section 10.06. Maintenance of Properties.
The Company shall cause all material properties owned by the Company
or any of its Subsidiaries or used or held for use in the conduct of its
business or the business of any of its Subsidiaries to be maintained and kept in
good condition, repair and working order (ordinary wear and tear excepted) and
supplied with all necessary equipment and will cause to be made all necessary
repairs, renewals, replacements, betterments and improvements thereof, all as in
the reasonable judgment of the Company may be consistent with sound business
practice and necessary so that the business carried on in connection therewith
may be properly conducted at all times; provided, however, that nothing in this
Section shall prevent the Company from discontinuing the maintenance of any of
such properties if such discontinuance is, in the reasonable
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judgment of the Company, desirable in the conduct of its business or the
business of any of its Subsidiaries; and provided, further, however, that the
foregoing shall not prohibit a sale, transfer or conveyance of a Subsidiary or
any of its properties or assets in compliance with the terms of this Indenture.
Section 10.07. Maintenance of Insurance.
The Company shall at all times keep all of its and its Subsidiaries'
properties which are of an insurable nature insured with insurers, believed by
the Company in good faith to be financially sound and responsible, against loss
or damage to the extent that property of similar character is usually so insured
by corporations similarly situated and owning like properties in the same
general geographic areas in which the Company and its Subsidiaries operate,
except where the failure to do so could not reasonably be expected to have a
material adverse effect on the condition (financial or otherwise), earnings,
business affairs or prospects of the Company and its Subsidiaries, taken as a
whole.
Section 10.08. Limitation on Indebtedness.
(a) The Company shall not, and shall not cause or permit any
Subsidiary to, directly or indirectly, Incur any Indebtedness (other than the
Notes); provided, however, that the Company may Incur Indebtedness, and the
Company 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 foregoing limitations of paragraph (a) of this Section 10.08
will not apply to any of the following (collectively, "Permitted Indebtedness"),
each of which shall be given independent effect:
(i) the Incurrence by the Company 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 thereof 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;
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(ii) the Incurrence by the Company or any of its Subsidiaries
of any Indebtedness, and any refinancings (as defined below) of such
Indebtedness, so long as the aggregate principal amount of such Indebtedness
shall not exceed $100 million at any one time outstanding;
(iii) the Incurrence by the Company of Indebtedness in an
aggregate principal amount not to exceed (A) two (2.0) times the sum of the Net
Cash Proceeds received by the Company 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
aggregate principal amount of Notes issued on the date of this Indenture
(determined on a United States Dollar Equivalent basis as of July 16, 1999) but
only to the extent that such Net Cash Proceeds have not been used pursuant to
clause (a)(3) or (b)(vii) of Section 10.09; 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;
(iv) the Incurrence by the Company or any Subsidiary of any
Indebtedness entered into in the ordinary course of business (a) pursuant to
Interest Rate Agreements entered into to protect the Company or any Subsidiary
against fluctuations in interest rates in respect of Indebtedness of the Company
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, (b) under any Currency Hedging Arrangements entered into to
protect the Company or any Subsidiary against fluctuations in the value of any
currency or (c) under any Commodity Price Protection Agreements entered into to
protect the Company or any Subsidiary against fluctuations in the price of any
commodity;
(v) the Incurrence by the Company 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;
(vi) Indebtedness outstanding under the Notes or the Indenture
(or Guarantees of the Notes issued under the Indenture) or other Indebtedness
existing on the date of this Indenture (other than Indebtedness incurred
pursuant to clause (viii) below);
(vii) the Incurrence of (a) Indebtedness of any Subsidiary
owed to and held by the Company or another Subsidiary and (b) Indebtedness of
the Company owed to and held by any Subsidiary or represented by a guarantee of
Indebtedness of any Subsidiary which such Subsidiary is otherwise permitted to
Incur under the Indenture; provided that upon either (i) the transfer or other
disposition by a Subsidiary or the Company of any Indebtedness so permitted to a
Person other than the Company or a Subsidiary or (ii) the issuance, sale,
transfer or other
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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 the Company or a Subsidiary, the provisions of this clause (vii)
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;
(viii) Indebtedness incurred by the Company or any Subsidiary
under a Permitted Credit Facility or Debt Securities, provided that the
aggregate principal amount at any time outstanding under this clause (viii)
(including any amounts pursuant to this clause (viii) that may be, or have been,
refinanced pursuant to this or any other clause or provision) does not exceed
$350 million; and
(ix) any amendments, supplements, modifications, deferrals,
renewals, extensions, substitutions, refundings, refinancings or replacements
(collectively, a "refinancing") of any Indebtedness described in clauses (i),
(ii), (iii), (vi), (vii) and (viii) above, and this clause (ix), including any
successive refinancings so long as the borrower under such refinancing is the
Company or, if not the Company, 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 (I) 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 (II) 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 the Company 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 Section 10.13.
(d) For purposes of determining compliance with this covenant, in
the event that an item of Indebtedness may be Incurred through the first
paragraph of this covenant or by meeting the criteria of one or more of the
types of Indebtedness described in the second paragraph of this covenant (or the
definitions of the terms used therein), the Company, in its sole discretion, (i)
may classify such item of Indebtedness under and comply with either of such
paragraphs (or any
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of such definitions), as applicable, (ii) may classify and divide such item of
Indebtedness into more than one of such paragraphs (or definitions), as
applicable, and (iii) may elect to comply with such paragraphs (or definitions),
as applicable, in any order.
Section 10.09. Limitation on Restricted Payments.
(a) The Company shall not, and shall not permit any Subsidiary to,
directly or indirectly:
(i) declare or pay any dividend on, or make any distribution
on any shares of the Company's Capital Stock (other than dividends or
distributions payable solely in shares of its Qualified Capital Stock or in
options, warrants or other rights to acquire shares of such Qualified Capital
Stock);
(ii) purchase, redeem or otherwise acquire or retire for
value, directly or indirectly, the Company's Capital Stock or any Capital Stock
of any Affiliate of the Company (other than Capital Stock of any Wholly-Owned
Subsidiary of the Company) or options, warrants or other rights to acquire such
Capital Stock;
(iii) 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;
(iv) declare or pay any dividend or distribution on any
Capital Stock of any Subsidiary to any Person (other than (a) to the Company 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
(v) make any Investment in any Person (other than any
Permitted Investments) (any of the foregoing actions described in clauses (i)
through (v), 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, as determined, in good faith, by the Board of
Directors of the Company, whose determination shall be conclusive and evidenced
by a board resolution);
unless (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, the Company
could incur $1.00 of additional Indebtedness (other than
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Permitted Indebtedness) under the provisions described in Section 10.08(a); and
(3) 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 the following:
(A) (i) the Cumulative Operating Cash Flow determined at
the time of such Restricted Payment less (ii) 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 the Company is required to be
available;
(B) the aggregate Net Cash Proceeds received after April
13, 1998 by the Company from the issuance or sale (other than to any of its
Subsidiaries) of Qualified Capital Stock of the Company or any options, warrants
or rights to purchase such Qualified Capital Stock of the Company (except to the
extent such proceeds are used to purchase, redeem or otherwise retire Capital
Stock or Subordinated Indebtedness as set forth below in clause (ii) or (iii) of
paragraph (b) below);
(C) the aggregate Net Cash Proceeds received after April
13, 1998 by the Company (other than from any of its Subsidiaries) upon the
exercise of any options, warrants or rights to purchase Qualified Capital Stock
of the Company;
(D) the aggregate Net Cash Proceeds received after April
13, 1998 by the Company from the conversion or exchange, if any, of debt
securities or Redeemable Capital Stock of the Company or its Subsidiaries into
or for Qualified Capital Stock of the Company 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; and
(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.
(b) Notwithstanding the foregoing, and in the case of clauses (ii)
through (vi) below, so long as there is no Default or Event of Default
continuing, the foregoing provisions shall not prohibit the following actions
(each of clauses (i) through (x) being referred to as a "Permitted Payment"):
(i) 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
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paragraph (a) of this Section and such payment shall have been deemed to have
been paid on such date of declaration;
(ii) the repurchase, redemption, or other acquisition or
retirement for value of any shares of any class of Capital Stock of the Company
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 the Company; provided
that the Net Cash Proceeds from the issuance of such shares of Qualified Capital
Stock are excluded from clause (3)(B) of paragraph (a) of this Section 10.09;
(iii) 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 the Company) of any Qualified Capital Stock of
the Company, provided that the Net Cash Proceeds from the issuance of such
shares of Qualified Capital Stock are excluded from clause (3)(B) of paragraph
(a) of this Section 10.09;
(iv) 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 the Company, provided
that any such new Subordinated Indebtedness (1) 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 (I)
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 (II) 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 the Company incurred in connection with such refinancing; (2) has an
Average Life to Stated Maturity greater than the remaining Average Life to
Stated Maturity of the Notes; (3) 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 (4) is expressly subordinated in right of
payment to the Notes at least to the same extent as the Subordinated
Indebtedness to be refinanced;
(v) the repurchase, redemption, defeasance, retirement,
refinancing, acquisition for value or payment of any Redeemable Capital Stock
through the substantially
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concurrent issuance of new Redeemable Capital Stock of the Company, provided
that any such new Redeemable Capital Stock (1) shall have an aggregate
liquidation preference that does not exceed the aggregate liquidation preference
of the amount so refinanced; (2) has an Average Life to Stated Maturity greater
than the remaining Average Life to Stated Maturity of the Notes; and (3) has a
Stated Maturity later than the Stated Maturity for the final scheduled principal
payment of the Notes;
(vi) the repurchase of shares of, or options to purchase
shares of, common stock of the Company or any of its Subsidiaries from
employees, officers, consultants or directors or any former employees, officers,
consultants or directors of the Company 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 (vi);
(vii) 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 (vii) does
not exceed the sum of (A) the amount of the Net Cash Proceeds received by the
Company 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 the Company (less one-half of the aggregate principal amount of
Notes issued on the date of this Indenture (determined on a United States Dollar
Equivalent basis as of July 16, 1999)), except to the extent that such Net Cash
Proceeds are used to Incur Indebtedness pursuant to Section 10.08(b)(iii) or to
make Restricted Payments pursuant to Section 10.09(a)(3), or Section 10.09(b)
(ii), (iii) or (iv) plus (B) the net reduction in Investments made pursuant to
this clause (vii) 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");
(viii) 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;
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(ix) 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
(x) the acquisition of Capital Stock of the Company by the
Company in connection with the cashless exercise of any options, warrants or
similar rights issued by the Company on or prior to January 1, 1998.
In determining the amount of Restricted Payments permissible under
this covenant, amounts expended pursuant to clauses (i), (vi), (vii), (viii),
and (ix) shall be included, without duplication, as Restricted Payments and
shall not be deemed a Permitted Payment for purposes of the calculation required
by paragraph (a) of this Section 10.09.
Section 10.10. Limitation on Transactions with Affiliates.
The Company 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 the Company (other than the Company 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 the Company 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, the Company 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
the Company, or in the event there is only one Disinterested Director, by such
Disinterested Director, or (B) the Company 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 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 the Company or such Subsidiary from a financial point of view; provided,
however, that this covenant shall not apply to: (a) compensation, severance and
employee benefit arrangements with any officer, director or employee of the
Company, including under any stock option or stock incentive plans, in the
ordinary course of business; (b) any transaction solely between or among the
Company and/or any Subsidiaries, if such transaction otherwise does not violate
the terms of the Indenture; (c) any transaction otherwise permitted by Section
10.09; (d) the execution and delivery of or payments made under any tax sharing
agreement between or
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among any of the Company and any Subsidiary; (e) licensing or sublicensing of
use of any intellectual property by the Company or any Subsidiary to the Company
any other Subsidiary of the Company 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 the Company or any such Subsidiary as determined in good faith by
the Board of Directors; (f) arrangements between the Company and any Subsidiary
of the Company for the purpose of providing services or employees to such
Subsidiary; and (g) 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 the Notes).
Section 10.11. Limitation on Liens.
The Company shall not, and shall 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 the Company 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.
Section 10.12. Limitation on Sale of Assets.
(a) The Company will not, and will not permit any of its
Subsidiaries to, directly or indirectly, consummate an Asset Sale unless (i) at
least 75% of the consideration from such Asset Sale is received in cash or other
comparable consideration (as described below), and (ii) the Company 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 the Company and evidenced in a board
resolution). The following types of consideration shall be deemed "comparable
consideration" for the purposes of this covenant: (A) Cash Equivalents, (B)
liabilities (contingent or otherwise) of the Company or a Subsidiary assumed by
the transferee (or its designee) such that the Company or such Subsidiary has no
further liability therefor, and (C) any securities, notes or other obligations
received by the Company or any such Subsidiary from such transferee that within
60 days after receipt, are converted by the Company or such Subsidiary into
cash.
(b) The Company 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
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Indebtedness of the Company 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, the Company will apply the Excess Proceeds to the repayment of the
Notes and any other Pari Passu Indebtedness outstanding with similar provisions
requiring the Company to make an offer to purchase such Indebtedness with the
proceeds from any Asset Sale as follows: (A) the Company will make an offer to
purchase (an "Offer") from all Holders, on a pro rata basis, the maximum
principal amount (expressed as a multiple of $1,000 or Euro 1,000, as
applicable) of Notes, determined as of the second Business Day preceding the
making of such offer, 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, the
Company 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 the Company 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, if any, to the date (the "Offer Date") such
Offer is consummated (the "Offered Price"), in accordance with the procedures
set forth herein. 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, the Company 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) If the Company becomes obligated to make an Offer pursuant to
clause (c) above, the Notes and the Pari Passu Indebtedness shall be purchased
by the Company, at the option of the holders thereof, in whole or in part in
integral multiples of Euro 1,000 or $1,000, as applicable, on a date that is not
earlier than 30 days and not later than 60 days from the date the
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notice of the Offer is given to holders, or such later date as may be necessary
for the Company to comply with the requirements under the Exchange Act.
(e) The Company will comply with the applicable tender offer rules,
including Rule 14e-1 under the Exchange Act, and any other applicable securities
laws or regulations in connection with an Offer, including those regulations
that may be imposed by any securities exchange on which the Notes may then be
listed for trading.
Section 10.13. Limitation on Issuances of Guarantees of
Indebtedness.
(a) The Company 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 the
Company unless such Subsidiary simultaneously executes and delivers a
supplemental indenture to this 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 Section 10.11 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 clauses (i), (ii), (iv),
(v), (vii) and (viii) of subsection (b) of Section 10.08.
(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 the Company, of
all of the Company's Capital Stock in, or all or substantially all the assets
of, such Subsidiary, which transaction is in compliance with the terms of this
Indenture and pursuant to which transaction such Subsidiary is released from all
guarantees, if any, by it of other Indebtedness of the Company or any
Subsidiaries.
Section 10.14. Purchase of Notes upon a Change of Control.
(a) If a Change of Control shall occur at any time, then each Holder
shall have the right to require that the Company purchase all such Holder's
Notes in whole or in part in integral multiples of $1,000 or Euro 1,000, as the
case may be, at a purchase price (the "Change of Control Purchase Price") in
relevant currencies 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
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in this Section 10.14 (the "Change of Control Offer") and in accordance with the
other procedures set forth in subsections (b), (c), (d) and (e) of this Section
10.14.
(b) Within 30 days of any Change of Control, the Company shall
notify the Trustee thereof and give notice (a "Change of Control Purchase
Notice") of such Change of Control to each Holder stating among other things:
(1) that a Change of Control has occurred, the date of such
event, and that such Holder has the right to require the Company to repurchase
such Holder's Notes at the Change of Control Purchase Price;
(2) the circumstances and relevant facts regarding such Change
of Control;
(3) that the Change of Control Offer is being made pursuant to
this Section 10.14 and that all Notes properly tendered pursuant to the Change
of Control Offer will be accepted for payment at the Change of Control Purchase
Price;
(4) the Change of Control Purchase Date, which shall be a
Business Day no earlier than 30 days and not later than 60 days from the date
such notice is mailed, or such later date as is necessary to comply with
requirements under the Exchange Act or any securities exchange on which the
Notes are listed for trading;
(5) the Change of Control Purchase Price;
(6) the names and addresses of the relevant Paying Agents and
the offices or agencies referred to in Section 2.03;
(7) that Notes must be surrendered on or prior to the Change
of Control Purchase Date to the relevant Paying Agent at the office of such
Paying Agent or to an office or agency referred to in Section 2.03 to collect
payment;
(8) that the Change of Control Purchase Price for any Note
which has been properly tendered and not withdrawn will be paid promptly
following the Change of Control Offer Purchase Date;
(9) the procedures that a Holder must follow to accept a
Change of Control Offer or to withdraw such acceptance;
(10) that any Note not tendered will continue to accrue
interest; and
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(11) that, unless the Company 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.
(c) Upon receipt by the Company of the proper tender of Notes, the
Holder of the Note in respect of which such proper tender was made shall (unless
the tender of such Note is properly withdrawn) thereafter be entitled to receive
solely the Change of Control Purchase Price with respect to such Note. Upon
surrender of any such Note for purchase in accordance with the foregoing
provisions, such Note shall be paid by the Company at the Change of Control
Purchase Price; provided, however, that installments of interest whose Stated
Maturity is on or prior to the Change of Control Purchase Date shall be payable
to the Holders of such Notes, or one or more Predecessor Notes, registered as
such on the relevant Regular Record Dates according to the terms and the
provisions of Section 2.13. If any Note tendered for purchase in accordance with
the provisions of this Section 10.14 shall not be so paid upon surrender
thereof, the principal thereof (and premium, if any, thereon) shall, until paid,
bear interest from the Change of Control Purchase Date at the rate borne by such
Note. Holders electing to have Notes purchased will be required to surrender
such Notes to the relevant Paying Agent at the address specified in the Change
of Control Purchase Notice prior to 5:00 p.m. (New York time) at least one
Business Day prior to the Change of Control Purchase Date. Any Note that is to
be purchased only in part shall be surrendered to the relevant Paying Agent at
the office of such Paying Agent (with, if the Company, the Registrar or the
Trustee so requires, due endorsement by, or a written instrument of transfer in
form satisfactory to the Company and the Registrar or the Trustee, as the case
may be, duly executed by the Holder thereof or such Holder's attorney duly
authorized in writing), and the Company shall execute and the Trustee shall
authenticate and deliver to the Holder of such Note, without service charge to
the Holder, one or more new Notes, denominated in the same currency as such
Note, of any authorized denomination as requested by such Holder in an aggregate
principal amount equal to, and in exchange for, the portion of the principal
amount of the Note so surrendered that is not purchased.
(d) The Company shall (i) not later than the Change of Control
Purchase Date, accept for payment Notes or portions thereof tendered pursuant to
the Change of Control Offer, (ii) not later than 12:00 a.m. (New York time) on
the Change of Control Purchase Date, deposit with the Trustee or with a Paying
Agent an amount of money in same day funds (or next day funds for value on or
prior to the Change of Control Purchase Date) sufficient to pay the aggregate
Change of Control Purchase Price of all the Notes or portions thereof which are
to be purchased as of the Change of Control Purchase Date and (iii) not later
than 12:00 a.m. (New York time) on the Change of Control Purchase Date, deliver
to the Paying Agents an Officers' Certificate stating the aggregate principal
amount of Notes or portions thereof being purchased by the Company. The Paying
Agents shall promptly mail or deliver to Holders of Notes so accepted payment in
an amount equal to the Change of Control Purchase Price of the Notes purchased
from each such
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Holder, and the Company shall execute and the Trustee shall promptly
authenticate and mail or deliver to such Holders a new Note equal in principal
amount to any unpurchased portion of the Note surrendered. Any Notes not so
accepted shall be promptly mailed or delivered by the Paying Agents at the
Company's expense to the Holder thereof. The Company will publicly announce the
results of the Change of Control Offer on the Change of Control Purchase Date.
(e) A tender made in response to a Change of Control Purchase Notice
may be withdrawn if the Company or its agent receives, not later than 5:00 p.m.
(New York time) one Business Day prior to the Change of Control Purchase Date, a
signed letter, delivered to the address specified in the change of Control
Purchase Notice specifying, as applicable:
(1) the name of the Holder;
(2) the certificate number of the Note in respect of
which such notice of withdrawal is being submitted;
(3) the principal amount of the Note (which shall be
$1,000 or Euro 1,000, as applicable, or integral multiples thereof) delivered
for purchase by the Holder as to which such notice of withdrawal is being
submitted;
(4) a statement that such Holder is withdrawing his
election to have such principal amount of such Note purchased; and
(5) the principal amount, if any, of such Note (which
shall be $1,000 or Euro 1,000, as applicable, or an integral multiple thereof)
that remains subject to the original Change of Control Purchase Notice and that
has been or will be delivered for purchase by the Company.
(f) Subject to applicable escheat laws, the Trustee and the Paying
Agents shall return to the Company any cash that remains unclaimed, together
with interest or dividends, if any, thereon, held by them for the payment of the
Change of Control Purchase Price; provided, however, that, (x) to the extent
that the aggregate amount of cash deposited by the Company pursuant to clause
(ii) of paragraph (d) above exceeds the aggregate Change of Control Purchase
Price of the Notes or portions thereof to be purchased, then the Trustee shall
hold such excess for the Company and (y) unless otherwise directed by the
Company in writing, promptly after the Business Day following the Change of
Control Purchase Date the Trustee shall return any such excess to the Company
together with interest, if any, thereon.
(g) The Company shall comply, to the extent applicable, with the
applicable tender offer rules, including Rule 14e-1 under the Exchange Act, and
any other applicable securities
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laws or regulations in connection with a Change of Control Offer, including
those regulations that may be imposed by any securities exchange on which the
Notes may then be listed for trading.
Notwithstanding the foregoing, the Company will not be required to
make a Change of Control Offer if a third party makes the Change of Control
Offer, in the manner, at the times and otherwise in compliance with the
requirements set forth in this Indenture applicable to a Change of Control Offer
made by the Company and purchases all the Notes validly tendered and not
withdrawn under such Change of Control Offer.
Section 10.15. Limitation on Sale-Leaseback Transactions.
(a) The Company will not, and will not permit any Subsidiary of the
Company to, directly or indirectly, enter into any Sale-Leaseback Transaction
with respect to any property or assets (whether now owned or hereafter
acquired), unless (i) the sale or transfer of such property or assets to be
leased is treated as an Asset Sale and complies with the provisions of Section
10.12 and (ii) the Company or such Subsidiary would be entitled under Section
10.08 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-Leaseback Transaction.
(b) The foregoing restriction does not apply to any Sale-Leaseback
Transaction if (i) the lease is for a period, including renewal rights, not in
excess of three years; (ii) the transaction is solely between the Company and
any Wholly Owned Subsidiary or any Wholly-Owned Subsidiary and any other
Wholly-Owned Subsidiary; and (iii) the transaction is consummated within 180
days of the acquisition by the Company 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 or
assets (or 270 days in the event that the only condition delaying such
consummation is the receipt of applicable regulatory approvals).
Section 10.16. Limitation on Issuance and Sale of Subsidiary Capital
Stock.
The Company will not permit (a) any Subsidiary of the Company to
issue any Capital Stock, except for (i) Capital Stock issued or sold to, held by
or transferred to the Company or a Wholly-Owned Subsidiary, and (ii) Capital
Stock issued by a Person prior to the time (A) such Person becomes a Subsidiary,
(B) such Person merges with or into a Subsidiary or (C) 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
subclause (A), (B) or (C) (excluding for purposes of this proviso, shares of
Capital Stock issued in connection with customary accelerated vesting provisions
contained in option or similar
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plans or agreements which are accelerated as a result of a change of control of
such Person and which option or similar plans were not adopted or implemented
solely in anticipation of or in connection with such transaction) or (b) any
Person (other than the Company or a Wholly-Owned Subsidiary) to acquire Capital
Stock of any Subsidiary from the Company or any Subsidiary, except, in the case
of clause (a) or (b), (1) upon the acquisition of all the outstanding Capital
Stock of such Subsidiary in accordance with the terms hereof, (2) 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 the provisions of Section 10.09 if made on the date of such issuance
or sale, (3) 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 (4) issuances or sales of common stock of a Subsidiary,
provided that the Company or such Subsidiary applies the Net Cash Proceeds, if
any, in a manner which does not violate the provisions of this 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
were not adopted or implemented solely in anticipation of or in connection with
such transaction).
Section 10.17. Limitation on Dividends and Other Payment
Restrictions Affecting Subsidiaries.
The Company 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 (i) pay dividends or make any other distribution on its Capital Stock, (ii)
pay any Indebtedness owed to the Company or any other Subsidiary, (iii) make any
Investment in the Company or any other Subsidiary or (iv) transfer any of its
properties or assets to the Company or any other Subsidiary, except for:
(a) any encumbrance or restriction, with respect to a Subsidiary
that was not a Subsidiary of the Company on April 13, 1998, in existence at the
time such Person becomes a Subsidiary of the Company and not incurred in
connection with, or in contemplation of, such Person becoming a Subsidiary;
(b) encumbrances or restrictions
(i) by reason of applicable law,
(ii) under this Indenture, or
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(iii) in any agreement, instrument or indenture governing or
relating to Indebtedness in respect of any Permitted Credit Facility;
(c) customary non-assignment provisions of any contract or lease of
any Subsidiary entered into in the ordinary course of business;
(d) 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 property or assets subject to
such Permitted Lien;
(e) 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
(f) 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 (a) through (e), or in
this clause (f), 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.
Section 10.18. Limitations on Unrestricted Subsidiaries.
The Company 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 Section 10.09. 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 the Company.
Section 10.19. 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 the Company is subject to Section 13(a) or 15(d) of the Exchange
Act, the Company will, to the extent permitted under the Exchange Act, file with
the Commission the annual reports, quarterly reports and other documents which
the Company would have been required to file with the Commission pursuant to
Sections 13(a) or 15(d) if the Company were so subject, such documents to be
filed with the Commission on or prior to the date (the "Required Filing Date")
by which the Company would have been required so to file such documents if the
Company were so subject. The Company will also in any event (x) within 15 days
of each Required Filing Date (i) transmit by mail to all Holders,
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as their names and addresses appear in the Register, without cost to such
Holders and (ii) file with the Trustee and the Paying Agents copies (which shall
be available to Holders upon request to any of the Company, the Trustees or a
Paying Agent) of the annual reports, quarterly reports and other documents which
the Company would have been required to file with the Commission pursuant to
Sections 13(a) or 15(d) of the Exchange Act if the Company were subject to
either of such Sections and (y) if filing such documents by the Company with the
Commission is not permitted under the Exchange Act, promptly upon written
request and payment of the reasonable cost of duplication and delivery, supply
copies of such documents to any prospective Holder at the Company's cost. If any
Guarantor's financial statements would be required to be included in the
financial statements filed or delivered pursuant to this Indenture if the
Company were subject to Section 13(a) or 15(d) of the Exchange Act, the Company
shall include such Guarantor's financial statements in any filing or delivery
pursuant to the Indenture. In addition, so long as any of the Notes remain
outstanding, the Company 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, until the
earlier of such time as the Company has completed its Exchange Offer or such
time as the Holders thereof have disposed of such Notes pursuant to an effective
registration statement under the Securities Act.
Section 10.20. Statement by Officers as to Default.
(a) The Company will deliver to the Trustee, on or before a date not
more than 120 days after the end of each fiscal year of the Company ending after
the date hereof, and 60 days after the end of each fiscal quarter ending after
the date hereof, a written statement signed by the principal executive officer,
principal financial officer or principal accounting officer of the Company in
his or her capacity as an officer of the Company, as to compliance herewith,
including whether or not, after a review of the activities of the Company during
such year and of the Company's performance and the performance of each
Guarantor, if any, under this Indenture, to the best knowledge (based on such
review) of the signers thereof, the Company and each Guarantor, if any, have
fulfilled all of their respective obligations and are in compliance with all
conditions and covenants under this Indenture throughout such year and, if there
has been a Default specifying each Default and the nature and status thereof and
any actions being taken by the Company with respect thereto.
(b) When any Default or Event of Default has occurred and is
continuing, or if the Trustee or any Holder or the trustee for or the holder of
any other evidence of Indebtedness of the Company or any Subsidiary gives any
notice or takes any other action with respect to a claimed default, the Company
shall deliver to the Trustee by registered or certified mail or facsimile
transmission followed by an originally executed copy of an Officers' Certificate
specifying such Default, Event of Default, notice or other action, the status
thereof and what actions the Company
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is taking or proposes to take with respect thereto, within five Business Days
after the occurrence of such Default or Event of Default.
Section 10.21. Waiver of Certain Covenants.
The Company may omit in any particular instance to comply with any
covenant or condition set forth in Sections 10.06 through 10.11, 10.12(a),
10.13, 10.15 through 10.20 and 10.22, if, before or after the time for such
compliance, the Holders of not less than a majority in aggregate principal
amount of the Notes at the time Outstanding shall, by Act of such Holders, waive
such compliance in such instance with such covenant or provision, but no such
waiver shall extend to or affect such covenant or condition except to the extent
so expressly waived, and, until such waiver shall become effective, the
obligations of the Company and the duties of the Trustee in respect of any such
covenant or condition shall remain in full force and effect.
Section 10.22. Limitation on Business.
The Company will not, and will not permit any of the Subsidiaries
to, engage in a business which is not substantially a Telecommunications
Business.
ARTICLE XI
Redemption of Notes
Section 11.01. Rights of Redemption.
(a) The Notes are subject to redemption at any time on or after
August 1, 2004, at the option of the Company, in whole or in part, subject to
the conditions, and at the Redemption Prices, specified in the form of Note,
together with accrued and unpaid interest, if any, to the Redemption Date
(subject to the right of Holders of record on relevant Regular Record Dates and
Special Record Dates to receive interest due on relevant Interest Payment Dates
and Special Payment Dates).
(b) In addition, at any time on or prior to August 1, 2002, the
Company may, at its option, use the Net Cash Proceeds of one or more Public
Equity Offerings or the sale of Capital Stock of the Company to a Strategic
Investor in a single transaction or in a series of related transactions, in each
case, to redeem, on a pro rata basis, up to an aggregate of 35% of the aggregate
principal amount of the Euro Notes and 35% of the aggregate principal amount of
the Dollar Notes, as applicable, originally issued under this Indenture at a
redemption price equal (i) in the case of the Euro Notes, to 111.000% of the
principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, thereon, to the Redemption Date and
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(ii) in the case of the Dollar Notes, to 111.000% of the principal amount
thereof, plus accrued and unpaid interest and Liquidated Damages, if any,
thereon, to the Redemption Date; provided that, in each case, at least 65% of
the aggregate principal amount of each of the Euro Notes and the Dollar Notes
originally issued under this Indenture would be outstanding if the redemption
had occurred on the Redemption Determination Date (determined in accordance with
the definition of the United States Dollar Equivalent and the provisions of
Section 11.03 hereof). In order to effect the foregoing redemption, the Company
must provide a notice of redemption pursuant to Section 11.05 no later than 45
days after the closing of the related Public Equity Offering or sale to a
Strategic Investor and must consummate such redemption within 60 days of the
closing of the Public Equity Offering or sale to a Strategic Investor.
Section 11.02. Applicability of Article.
Redemption of Notes at the election of the Company or otherwise, as
permitted or required by any provision of this Indenture, shall be made in
accordance with such provision and this Article XI.
Section 11.03. Election to Redeem; Notice to Trustee.
If the Company elects to redeem Notes pursuant to Section 11.01, it
shall furnish to the Trustee, at least 15 but not more than 30 days before
notice of any redemption is to be provided to Holders (or such shorter time as
may be satisfactory to the Trustee), a Company Order and an Officers'
Certificate stating (i) that the Company has elected to redeem Notes pursuant to
Section 11.01, (ii) the date notice of redemption is to be provided to Holders,
(iii) the Redemption Determination Date, (iv) the principal amount of Euro Notes
(in Euros) and Dollar Notes (in Dollars) to be redeemed, (v) the Redemption
Date, (vi) the aggregate principal amount of each of the Euro Notes and the
Dollar Notes to be redeemed, the aggregate principal amount of Euro Notes and
Dollar Notes originally issued and the aggregate principal amount of Euro Notes
and Dollar Notes that will be outstanding after the Redemption Date, calculated
as if the redemption had occurred on the Redemption Determination Date, (vii)
the Redemption Price for the Dollar Notes (in Dollars) and the Euro Notes (in
Euros), (viii) the amount of accrued and unpaid interest and Liquidated Damages,
if any, on such Notes, in Euros or Dollars, as applicable, to be paid on the
Redemption Date and (ix) an Opinion of Counsel that the Company is entitled to
redeem the Notes pursuant to Section 11.01. The date of determination (the
"Redemption Determination Date") of the United States Dollar Equivalent for all
purposes
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under this Article XI shall be two Business Days prior to the date the Company
Order and Officers' Certificate required under this Section 11.03 is furnished
to the Trustee.
Section 11.04. Selection by Trustee of Notes to Be Redeemed.
If less than all the Notes are to be redeemed, the particular Notes
or portions thereof to be redeemed shall be selected not more than 30 days prior
to the Redemption Date. The Trustee shall select the Notes or portions thereof
to be redeemed pro rata, by lot or by any other method the Trustee shall deem
fair and reasonable. The amounts to be redeemed shall be equal to $1,000 or Euro
1,000, as applicable, or any integral multiples thereof. The Trustee shall
promptly notify the Company and the Registrar in writing of the Notes selected
for redemption and, in the case of any Notes selected for partial redemption,
the principal amount thereof to be redeemed. For all purposes of this Indenture,
unless the context otherwise requires, all provisions relating to redemption of
Notes shall relate, in the case of any Note redeemed or to be redeemed only in
part, to the portion of the principal amount of such Note which has been or is
to be redeemed.
Section 11.05. Notice of Redemption.
Notice of redemption shall be provided not less than 30 days nor
more than 60 days prior to the Redemption Date to each Holder of Notes to be
redeemed, at its address appearing in the Register and, to the extent required
pursuant to Section 1.07, published as provided in Section 1.07. All notices of
redemption shall state:
(a) the Redemption Date;
(b) the Redemption Price in the relevant currencies;
(c) if less than all Outstanding Notes are to be redeemed, the
identification of the particular Notes to be redeemed;
(d) in the case of a Note to be redeemed in part, the principal
amount of such Note to be redeemed and that after the Redemption Date upon
surrender of such Note, a new Note or Notes in the principal amount equal to the
unredeemed portion thereof will be issued;
(e) that Notes called for redemption must be surrendered to the
relevant Paying Agent to collect the Redemption Price;
(f) that on the Redemption Date the Redemption Price will become due
and payable upon each such Note or portion thereof to be redeemed, and that
(unless the Company
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shall default in payment of the Redemption Price) interest thereon shall cease
to accrue on and after said date;
(g) the names and addresses of the relevant Paying Agents and the
offices or agencies referred to in Section 2.03 where such Notes are to be
surrendered for payment of the Redemption Price;
(h) the CUSIP or ISIN numbers or common codes, if any, relating to
such Notes; and
(i) the procedures that a Holder must follow to surrender the Notes
to be redeemed. Notice of redemption of Notes to be redeemed at the election of
the Company shall be given by the Company or, at the Company's written request,
by the Trustee in the name and at the expense of the Company. If the Company
elects to give notice of redemption, it shall provide the Trustee with a
certificate stating that such notice has been given in compliance with the
requirements of this Section 11.05.
The notice if provided in the manner herein provided shall be
conclusively presumed to have been given, whether or not the Holder receives
such notice. In any case, failure to give such notice in the manner provided or
any defect in the notice to the Holder of any Note designated for redemption as
a whole or in part shall not affect the validity of the proceedings for the
redemption of any other Note.
Section 11.06. Deposit of Redemption Price.
On or prior to any Redemption Date, the Company shall deposit with
the Trustee or with the Paying Agent or Paying Agents an amount of money in same
day funds sufficient to pay the Redemption Price of, and (except if the
Redemption Date shall be an Interest Payment Date or Special Payment Date)
accrued interest on, all the Notes or portions thereof which are to be redeemed
on that date. The Paying Agents shall promptly mail or deliver to Holders of
Notes so redeemed and surrendered pursuant to Sections 11.07 and 11.08 hereof
payment in an amount equal to the Redemption Price of the Notes purchased from
each such Holder. All money, if any, earned on funds held in trust by the
Trustee or any Paying Agent prior to the Redemption Date shall be remitted to
the Company.
Section 11.07. Notes Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Notes so to
be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified and from and after such date (unless the
Company shall default in the payment of the Redemption
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Price and accrued interest) such Notes shall cease to bear interest. Holders
will be required to surrender the Notes to be redeemed to the relevant Paying
Agent at the address specified in the notice of redemption at least one Business
Day prior to the Redemption Date. Upon surrender of any such Note for redemption
in accordance with said notice, such Note shall be paid by the Company at the
Redemption Price together with accrued interest to the Redemption Date;
provided, however, that installments of interest whose Stated Maturity is on or
prior to the Redemption Date shall be payable to the Holders of such Notes, or
one or more Predecessor Notes, registered as such on the relevant Regular Record
Dates and Special Record Dates, as applicable.
If any Note called for redemption shall not be so paid upon
surrender thereof for redemption, the principal and premium, if any, shall,
until paid, bear interest from the Redemption Date at the rate borne by such
Note.
Section 11.08. Notes Redeemed in Part.
Any Note which is to be redeemed only in part shall be surrendered
to the relevant Paying Agent at the office or agency maintained for such purpose
pursuant to Section 2.03 (with, if the Company, the Registrar or the Trustee so
requires, due endorsement by, or a written instrument of transfer in form
satisfactory to the Company, the Registrar or the Trustee, as the case may be,
duly executed by, the Holder thereof or such Holder's attorney duly authorized
in writing), and the Company shall execute, and the Trustee, upon receipt of a
Company Order and Officers' Certificate, shall authenticate and deliver to the
Holder of such Note without service charge, a new Note or Notes denominated in
the same currency as such Note, of any authorized denomination as requested by
such Holder in aggregate principal amount equal to, and in exchange for, the
unredeemed portion of the principal of the Note so surrendered that is not
redeemed.
ARTICLE XII
Satisfaction and Discharge
Section 12.01. Satisfaction and Discharge of Indenture.
This Indenture shall be discharged and shall cease to be of further
effect (except as to surviving rights of registration of transfer or exchange of
Notes as expressly provided for herein) as to all Outstanding Notes hereunder,
and the Trustee, upon Company Request and at the expense of the Company, shall
execute proper instruments acknowledging satisfaction and discharge of this
Indenture, when:
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(a) either (1) all the Notes theretofore authenticated and delivered
(other than (i) lost, stolen or destroyed Notes which have been replaced or paid
as provided in Section 2.08 or (ii) all Notes whose payment has theretofore been
deposited in trust or segregated and held in trust by the Company and thereafter
repaid to the Company or discharged from such trust as provided in Section
10.03) have been delivered to the Trustee for cancellation; or
(2) all such Notes not theretofore delivered to the
Trustee for cancellation (i) have become due and payable, (ii) will become due
and payable at their Stated Maturity within one year or (iii) 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 the Company; and the Company or any Guarantor has irrevocably
deposited or caused to be deposited with the Trustee as trust funds in trust (A)
in the case of the Euro Notes, an amount in Euros or European Governmental
Obligations and (B) in the case of the Dollar Notes, an amount in United States
dollars or United States Government Securities, in each case sufficient to pay
and discharge the entire Indebtedness on such Notes, as applicable, not
theretofore delivered to the Trustee for cancellation, including the principal
of, premium, if any, and accrued interest on, such Notes at such Maturity,
Stated Maturity or Redemption Date;
(b) the Company or any Guarantor has paid or caused to be paid all
other sums payable hereunder by the Company and any Guarantor; and
(c) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Independent Counsel, in form and substance
reasonably satisfactory to the Trustee, each stating that (i) all conditions
precedent herein relating to the satisfaction and discharge hereof have been
complied with and (ii) such satisfaction and discharge will not result in a
breach or violation of, or constitute a default under, this Indenture or any
other material agreement or instrument to which the Company, any Guarantor or
any Subsidiary is a party or by which the Company, any Guarantor or any
Subsidiary is bound.
Notwithstanding the satisfaction and discharge hereof, the
obligations of the Company to the Trustee under Section 6.06 and, if United
States dollars or United States Government Securities in the case of the Dollar
Notes and Euros or Government Securities of the United Kingdom, the Federal
Republic of Germany or the Republic of France denominated in Euros in the case
of Euro Notes shall have been deposited with the Trustee pursuant to subclause
(2) of subsection (a) of this Section 12.01, the obligations of the Trustee
under Section 12.02 and the last paragraph of Section 10.03 shall survive.
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Section 12.02. Application of Trust Money.
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Subject to the provisions of the last paragraph of Section 10.03,
all U.S. dollars, United States Government Securities, Euros and European
Governmental Obligations deposited with the Trustee pursuant to Section 12.01
shall be held in trust and applied by it, in accordance with the provisions of
the Notes and this Indenture, to the payment, either directly or through any
Paying Agent as the Trustee may determine, to the Persons entitled thereto, of
the principal of, premium, if any, and interest on, the Notes for whose payment
such U.S. dollars, United States Government Securities, Euros or
Euro-denominated Government Securities, as the case may be, have been deposited
with the Trustee.
118
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, all as of the day and year first above written.
PSINET INC.
By:
------------------------------------
Name:
Title:
WILMINGTON TRUST COMPANY
By:
------------------------------------
Name:
Title:
<PAGE>
EXHIBIT A
FORM OF GLOBAL NOTE
THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER
REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE OF A
DEPOSITARY OR A SUCCESSOR DEPOSITARY. TRANSFERS OF THIS GLOBAL NOTE SHALL BE
LIMITED TO TRANSFERS TO NOMINEES OF [CEDE & CO./KREDIETBANK S.A.
LUXEMBOURGEOISE] OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE
WITH THE RESTRICTIONS SET FORTH IN SECTION 2.07 OF THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF [THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC")/EUROCLEAR SYSTEM OR
CEDELBANK], TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER OR
EXCHANGE, OR FOR PAYMENT AND ANY SUCH CERTIFICATE ISSUED IS REGISTERED IN THE
NAME OF [CEDE & CO./KREDIETBANK S.A. LUXEMBOURGEOISE] OR IN SUCH OTHER NAME AS
IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF [DTC/EUROCLEAR SYSTEM OR
CEDELBANK] (AND ANY PAYMENT IS MADE TO [CEDE & CO./KREDIETBANK S.A.
LUXEMBOURGEOISE] OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF [DTC/EUROCLEAR SYSTEM OR CEDELBANK]), ANY TRANSFER, PLEDGE, OR
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH
AS THE REGISTERED OWNER HEREOF, [CEDE & CO./KREDIETBANK S.A. LUXEMBOURGEOISE],
HAS AN INTEREST HEREIN.
PSINET INC.
[FOR RESTRICTED NOTES ONLY] THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF,
UNITED STATES PERSONS, EXCEPT AS SET FORTH IN THE NEXT SENTENCE. BY ITS
ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER:
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<PAGE>
(1) REPRESENTS THAT (A) (I) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED
IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB") OR (II) IT IS NOT A UNITED
STATES PERSON AND HAS ACQUIRED THIS NOTE IN AN OFFSHORE TRANSACTION IN
COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT AND (B) IT IS HEREBY
NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF
SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER OR ANOTHER
EXEMPTION UNDER THE SECURITIES ACT.
(2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO
THE COMPANY OR ANY OF ITS SUBSIDIARIES, (B) TO A PERSON WHOM THE SELLER
REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT
OF A QIB IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (C) IN AN
OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR 904 OF THE
SECURITIES ACT, (D) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER
THE SECURITIES ACT, (E) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF
COUNSEL ACCEPTABLE TO THE COMPANY) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS
OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION.
(3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE OR AN INTEREST
HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.
AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND "UNITED STATES" HAVE THE
MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT. THE
INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY
TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING.
-------------------
A-2
<PAGE>
11% SENIOR NOTE DUE 2009
[CUSIP No(s). / ISIN No(s). / Common Code No(s).]
No. __________ [$/EURO ]_________________
PSINet Inc., a New York corporation (herein called the "Company",
which term includes any successor Person under the Indenture), for value
received, hereby promises to pay to _______________ or registered assigns, the
principal sum of _______________ [United States Dollars/Euros] on August 1,
2009, at the office or agency of the Company referred to below, and to pay
interest thereon from July 23, 1999, or from the most recent Interest Payment
Date to which interest has been paid or duly provided for, semiannually on
February 1 and August 1, in each year, commencing February 1, 2000 at the rate
of 11% per annum, subject to adjustments as described in the second following
paragraph, in [United States Dollars/Euros], until the principal hereof is paid
or duly provided for. Interest shall be computed on the basis of a 360-day year
comprised of twelve 30-day months.
[NOT FOR EXCHANGE NOTES] The Holder of this Note is entitled to the
benefits of the Registration Rights Agreement between the Company and the
Initial Purchasers, dated as of July 23, 1999, pursuant to which, subject to the
terms and conditions thereof, the Company is obligated to consummate the
Exchange Offer pursuant to which the Holder of this Note shall have the right to
exchange this Note for a new 11% Senior Note due 2009 in like principal amount
as provided therein.
[NOT FOR EXCHANGE NOTES] In the event that (a) the Exchange Offer
Registration Statement is not filed with the Commission on or prior to the date
specified in the Registration Rights Agreement, (b) the Exchange Offer
Registration Statement is not declared effective on or prior to the date
specified in the Registration Rights Agreement, (c) the Exchange Offer is not
consummated on or prior to the date specified in the Registration Rights
Agreement, (d) if obligated to file the Shelf Registration Statement, the
Company fails to file the Shelf Registration Statement with the Commission on or
prior to the date specified in the Registration Rights Agreement, (e) if
obligated to file the Shelf Registration Statement, the Shelf Registration
Statement is not declared effective on or prior to the date specified in the
Registration Rights Agreement, or (f) the Shelf Registration Statement or the
Exchange Offer Registration Statement is declared effective but thereafter
ceases to be effective or usable in connection with resales of the Restricted
Notes during the periods specified in the Registration Rights Agreement (each
such
A-3
<PAGE>
event referred to in clauses (a) through (f) above, a "Registration Default"),
the Company agrees to pay to each Holder of Restricted Notes liquidated damages
("Liquidated Damages") in an amount equal to 0.25% per annum per [$1,000/Euro
1,000] in principal amount of the Restricted Notes held by such Holder for each
year or portion thereof that the Registration Default continues for the first 90
day period immediately following the occurrence of such Registration Default.
The amount of Liquidated Damages shall increase by an additional 0.25% per annum
per [$1,000/Euro 1,000] in principal amount of the Restricted Notes with respect
to each subsequent 90 day period until all Registration Defaults have been
cured, up to a maximum amount of Liquidated Damages of 1.50% per annum per
[$1,000/Euro 1,000] in principal amount of the Notes. The Company shall not be
required to pay Liquidated Damages for more than one Registration Default at any
given time. Following the cure of all Registration Defaults, the accrual of
Liquidated Damages shall cease. All accrued Liquidated Damages shall be paid by
the Company to Holders entitled thereto in the manner provided for the payment
of interest in the Indenture and herein, on each Interest Payment Date, as more
fully set forth in the Indenture and herein.
The interest so payable, and punctually paid or duly provided for,
on any Interest Payment Date will, as provided in the Indenture, be paid to the
Person in whose name this Note (or any Predecessor Note) is registered at the
close of business on the "Regular Record Date" for such interest, which shall be
the January 15 or July 15 (whether or not a Business Day), as the case may be,
next preceding such Interest Payment Date. Any such interest not so punctually
paid, or duly provided for, and interest on such Defaulted Interest at the
interest rate borne by the Notes, to the extent lawful, shall, as provided in
the Indenture, be paid to the Person in whose name this Note (or any Predecessor
Notes) is registered at the close of business on the "Special Record Date" for
such Defaulted Interest, such date to be fixed by the Company in a manner
satisfactory to the Trustee, notice whereof shall be given to Holders of Notes
not less than 15 days prior to such Special Record Date.
Payment of the principal of, premium, if any, and interest on, this
Note, and exchange or transfer of the Note, will be made at the office or agency
of the Company in [the City of New York/Luxembourg] maintained for that purpose
(which initially will be [the Trustee c/o Harris Trust Company of New York, 77
Water Street, New York, NY 10005/Kredietbank S.A. Luxembourgeoise, 43 Boulevard
Royal, L-2955 Luxembourg]), or at such other office or agency as may be
maintained for such purpose, or, at the option of the Company, payment of
interest may be made by check mailed to the address of the Person entitled
thereto as such address shall appear on the Register, and provided that payment
by wire transfer of immediately available funds will be required with respect to
principal of and interest on all Global Notes and all other Notes the Holders of
which shall have provided wire transfer instructions to the Company or the
Paying Agent. Such payment shall be in such coin or currency of [the United
States of America in the case of Notes issued in
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<PAGE>
U.S. Dollars/ the European Union in the case of Notes issued in Euros] as at the
time of payment is legal tender for payment of public and private debts.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly
executed by the Trustee referred to on the reverse hereof or by the
authenticating agent appointed as provided in the Indenture by manual signature
of an authorized signer, this Note shall not be entitled to any benefit under
the Indenture, or be valid or obligatory for any purpose.
[Signature Page Follows]
A-5
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be
duly executed by the manual or facsimile signature of its authorized officers.
PSINET INC.
By:_________________________________
Title:
Attest:
________________________________
Authorized Officer
A-6
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the 11% Senior Notes due 2009 referred to in the
within-mentioned Indenture.
WILMINGTON TRUST COMPANY,
as Trustee
By: _______________________________
Authorized Signer
Dated:_________________________
A-7
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company pursuant to
Section 10.12 or Section 10.14, as applicable, of the Indenture, check the Box:
|_|.
If you wish to have a portion of this Note purchased by the Company
pursuant to Section 10.12 or Section 10.14, as applicable, of the Indenture,
state the amount (in original principal amount): [$/Euro] _______________.
Date: ___________________
Your Signature: _____________________
(Sign exactly as your name appears on the other side of this Note)
Signature Guarantee: __________________________________
[If applicable, signature must be guaranteed by an eligible Guarantor
Institution (banks, stock brokers, savings and loan associations and credit
unions) with membership in an approved guarantee medallion program pursuant to
Securities and Exchange Commission Rule 17Ad-15]
A-8
<PAGE>
[REVERSE SIDE OF NOTE]
PSINET INC.
11% Senior Note due 2009
This Note is one of a duly authorized issue of Notes of the Company
designated as its 11% Senior Notes due 2009 (herein called the "Notes"), limited
(except as otherwise provided in the Indenture referred to below) in aggregate
principal amount to [$1,050,000,000/Euro 150,000,000], issued under, entitled to
the benefits of and subject to the terms of an indenture (herein called the
"Indenture") dated as of July 23, 1999, between the Company and Wilmington Trust
Company, as trustee (herein called the "Trustee," which term includes any
successor trustee under the Indenture), to which Indenture and all indentures
supplemental thereto reference is hereby made for a statement of the respective
rights, limitations of rights, duties, obligations and immunities thereunder of
the Company, any Guarantors, the Trustee and the Holders of the Notes, and of
the terms upon which the Notes are, and are to be, authenticated and delivered.
The Indenture contains provisions for defeasance at any time of (a)
the entire Indebtedness on the Notes and (b) certain restrictive covenants and
related Defaults and Events of Default, in each case upon compliance with
certain conditions set forth therein.
The Notes are subject to redemption at any time on or after August
1, 2004, at the option of the Company, 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 [$1,000/Euro 1,000] or an integral multiple thereof, at the following
redemption prices (expressed as percentages of the principal amount), if
redeemed during the 12-month period beginning August 1 of the years indicated
below:
Year Dollar Notes Euro Notes
---- ------------ ----------
2004 105.500% 105.500%
2005 103.667% 103.667%
2006 101.833% 101.833%
2007 100.000% 100.000%
and thereafter at 100% of the principal amount, in each case, together with
accrued and unpaid interest, if any, to the Redemption Date (subject to the
rights of Holders of record on relevant record dates to receive interest due on
an Interest Payment Date).
A-9
<PAGE>
In addition, at any time on or prior to August 1, 2002, the Company
may, at its option, use the Net Cash Proceeds of one or more Public Equity
Offerings or the sale of Capital Stock of the Company to a Strategic Investor in
a single transaction or in a series of related transactions (other than
Disqualified Stock) in any 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 (a) in the case of the Euro
Notes, to 111.000% of the aggregate principal amount thereof, plus accrued and
unpaid interest thereon, if any, to the Redemption Date and (b) in the case of
the Dollar Notes, to 111.000% of the aggregate principal amount thereof, plus
accrued and unpaid interest thereon, if any, to the Redemption Date; provided
that, in each case, at least 65% of the original aggregate principal amount of
each of the Euro Notes and the Dollar Notes remains outstanding immediately
following such redemption. All determinations with respect to these provisions
shall be made in the manner set forth in the Indenture. In order to effect the
foregoing redemption, the Company must provide a notice of redemption no later
than 45 days after the closing of the related Public Equity Offering or sale to
a Strategic Investor and must consummate such 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 shall deem fair and reasonable, subject to the terms of
the Indenture.
Upon the occurrence of a Change of Control, subject to the terms of
the Indenture, each Holder may require the Company to purchase such Holder's
Notes in whole or in part in integral multiples of [$1,000/Euro 1,000], at a
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, pursuant to a Change of Control Offer in accordance with the
procedures set forth in the Indenture.
Under certain circumstances, subject to the terms of the Indenture,
in the event the Net Cash Proceeds received by the Company from any Asset Sale,
which proceeds are not used to repay any Pari Passu Indebtedness of the Company
or any Subsidiary (including the repurchase of Notes) or which will be invested
in Telecommunications Assets, exceeds a specified amount, the Company will be
required to apply such proceeds by making an offer to purchase Notes and certain
Indebtedness ranking pari passu in right of payment to the Notes.
In the case of any redemption of Notes in accordance with the
Indenture, interest installments whose Stated Maturity is on or prior to the
Redemption Date will be payable to the Holders of such Notes of record as of the
close of business on the relevant Regular Record Date or Special Record Date
referred to on the face hereof. Notes (or portions thereof) for whose
A-10
<PAGE>
redemption and payment provision is made in accordance with the Indenture shall
cease to bear interest from and after the Redemption Date.
In the event of redemption of this Note in accordance with the
Indenture in part only, a new Note or Notes for the unredeemed portion hereof,
denominated in the same currency, shall be issued in the name of the Holder
hereof upon the cancellation hereof.
If an Event of Default shall occur and be continuing, the principal
amount of all the Notes may be declared due and payable in the manner and with
the effect provided in the Indenture.
The Indenture permits, with certain exceptions (including certain
amendments permitted without the consent of any Holders and certain amendments
which require the consent of all the Holders) as therein provided, the amendment
thereof and the modification of the rights and obligations of the Company and
any Guarantors and the rights of the Holders under the Indenture and the Notes
and any Guarantees at any time by the Company and the Trustee with the consent
of the Holders of at least a majority in aggregate principal amount of the Notes
at the time Outstanding. The Indenture also contains provisions permitting the
Holders of at least a majority in aggregate principal amount of the Notes (100%
of the Holders in certain circumstances) at the time Outstanding, on behalf of
the Holders of all the Notes, to waive compliance by the Company and any
Guarantors with certain provisions of the Indenture and the Notes and any
Guarantees and certain past Defaults under the Indenture and the Notes and any
Guarantees and their consequences. Any such consent or waiver by or on behalf of
the Holder of this Note shall be conclusive and binding upon such Holder and
upon all future Holders of this Note and of any Note issued upon the
registration of transfer hereof or in exchange herefor or in lieu hereof whether
or not notation of such consent or waiver is made upon this Note.
No reference herein to the Indenture and no provision of this Note
or of the Indenture shall alter or impair the obligation of the Company, any
Guarantor or any other obligor on the Notes (in the event such Guarantor or such
other obligor is obligated to make payments in respect of the Notes), which is
absolute and unconditional, to pay the principal of, premium, if any, and
interest on, this Note at the times, place and rate, and in the coin or
currency, herein prescribed.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Note is registrable in the Register,
upon surrender of this Note for registration of transfer at the office or agency
of the Company in the Borough of Manhattan, The City of New York or in
Luxembourg, duly endorsed by, or accompanied by a written instrument of transfer
in form satisfactory to the Company and the Registrar duly executed by, the
Holder hereof or its attorney duly authorized in writing, and thereupon one or
more new Notes, denominated in the
A-11
<PAGE>
same currency, of authorized denominations and for the same aggregate principal
amount, will be issued to the designated transferee or transferees.
Certificated securities shall be transferred to all beneficial
holders in exchange for their beneficial interests in the U.S. Global Notes or
the International Global Notes, as the case may be, if, among other things, (a)
the Depositary notifies the Company that it is unwilling or unable to continue
as depository for such Global Note and a successor depository is not appointed
by the Company within 120 days or (b) there shall have occurred and be
continuing an Event of Default and the Registrar has received a request from the
relevant Depositary. Upon any such issuance, the Trustee is required to register
such certificated Notes in the name of, and cause the same to be delivered to,
such Person or Persons (or the nominee of any thereof). All such certificated
Notes would be required to include the Legend.
Notes in certificated form are issuable only in registered form
without coupons in denominations of [$1,000/Euro 1,000] and any integral
multiple thereof. As provided in the Indenture and subject to certain
limitations therein set forth, the Notes are exchangeable for a like aggregate
principal amount of Notes of a differing authorized denomination, as requested
by the Holder surrendering the same.
At any time when the Company is not subject to Sections 13 or 15(d)
of the Exchange Act, upon the written request of a Holder of a Restricted Note,
the Company will promptly furnish or cause to be furnished such information as
is specified pursuant to Rule 144A(d)(4) under the Securities Act to such Holder
or to a prospective purchaser of such Note who such Holder informs the Company
is reasonably believed to be a "Qualified Institutional Buyer" within the
meaning of Rule 144A under the Securities Act, as the case may be, in order to
permit compliance by such Holder with Rule 144A under the Securities Act.
No service charge shall be made for any registration of transfer,
exchange or redemption of this Note, except for any tax or other governmental
charge that may be imposed in connection therewith, other than certain exchanges
not involving a transfer as more fully set forth in the Indenture.
Prior to due presentment of this Note for registration of transfer,
the Company, any Guarantor, the Paying Agents, the Transfer Agents, the
Registrar, the Trustee and any agent of the Company, any Guarantor, the Paying
Agents, the Transfer Agents, the Registrar or the Trustee may deem and treat the
Person in whose name this Note is registered as the absolute owner of that Note
for all purposes, whether or not this Note is overdue, and neither the Company,
any Guarantor, the Paying Agents, the Transfer Agents, the Registrant or the
Trustee nor any such agent shall be affected by notice to the contrary.
A-12
<PAGE>
THIS NOTE SHALL 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.
All terms used in this Note which are defined in the Indenture and
not otherwise defined herein shall have the meanings assigned to them in the
Indenture.
A-13
<PAGE>
EXHIBIT B
FORM OF DEFINITIVE REGISTERED NOTE
PSINET INC.
[FOR RESTRICTED NOTES ONLY] THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF,
UNITED STATES PERSONS, EXCEPT AS SET FORTH IN THE NEXT SENTENCE. BY ITS
ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER:
(1) REPRESENTS THAT (A) (I) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED
IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB") OR (II) IT IS NOT A UNITED
STATES PERSON AND HAS ACQUIRED THIS NOTE IN AN OFFSHORE TRANSACTION IN
COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT AND (B) IT IS HEREBY
NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF
SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER OR ANOTHER
EXEMPTION UNDER THE SECURITIES ACT.
(2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO
THE COMPANY OR ANY OF ITS SUBSIDIARIES, (B) TO A PERSON WHOM THE SELLER
REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT
OF A QIB IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (C) IN AN
OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR 904 OF THE
SECURITIES ACT, (D) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER
THE SECURITIES ACT, (E) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF
COUNSEL ACCEPTABLE TO THE COMPANY) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS
OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION.
B-1
<PAGE>
(3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE OR AN INTEREST
HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS
USED HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND "UNITED STATES" HAVE THE
MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT. THE
INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY
TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING.
-------------------
11% SENIOR NOTE DUE 2009
[CUSIP No(s). / ISIN No(s). / Common Code No(s).]
No. __________ [$/EURO ]_________________
PSINET INC., a New York corporation (herein called the "Company,"
which term includes any successor Person under the Indenture), for value
received, hereby promises to pay to _____________ or registered assigns, the
principal sum of _______________ [United States Dollars/Euros] on August 1,
2009, at the office or agency of the Company referred to below, and to pay
interest thereon from July 23, 1999, or from the most recent Interest Payment
Date to which interest has been paid or duly provided for, semiannually on
February 1 and August 1 in each year, commencing February 1, 2000 at the rate of
11% per annum, in [United States Dollars/EURO], until the principal hereof is
paid or duly provided for; provided that to the extent interest has not been
paid or duly provided for with respect to the Note exchanged for this Note,
interest on this Note shall accrue from the most recent Interest Payment Date to
which interest on the Initial Note which was exchanged for this Initial Note has
been paid or duly provided for. Interest shall be computed on the basis of a
360-day year comprised of twelve 30-day months.
The interest so payable, and punctually paid or duly provided for,
on any Interest Payment Date will, as provided in the Indenture, be paid to the
Person in whose name this Note (or any Predecessor Note) is registered at the
close of business on the "Regular Record Date" for such interest, which shall be
the January 15 or July 15 (whether or not a Business Day), as the
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<PAGE>
case may be, next preceding such Interest Payment Date. Any such interest not so
punctually paid, or duly provided for, and interest on such Defaulted Interest
at the interest rate borne by this Note, to the extent lawful, shall, as
provided in the Indenture, be paid to the Person in whose name this Note (or any
Predecessor Notes) is registered at the close of business on the "Special Record
Date" for such Defaulted Interest, such date to be fixed by the Company in a
manner satisfactory to the Trustee, notice whereof shall be given to Holders of
Notes not less than 15 days prior to such Special Record Date.
Payment of the principal of, premium, if any, and interest on, this
Note, and exchange or transfer of the Note, will be made at the office or agency
of the Company in [the City of New York/Luxembourg] maintained for such purpose
(which initially will be [the Trustee c/o Harris Trust Company of New York, 77
Water Street, New York, NY 10005/Kredietbank S.A. Luxembourgeoise, 43, Boulevard
Royal, L-2955 Luxembourg]), or at such other office or agency as may be
maintained for such purpose, or at such other office or agency as may be
maintained for such purpose, or, at the option of the Company, payment of
interest may be made by check mailed to the address of the Person entitled
thereto as such address shall appear on the Register, and provided that payment
by wire transfer of immediately available funds will be required with respect to
principal of and interest on all Global Notes and all other Notes the Holders of
which shall have provided wire transfer instructions to the Company or the
Paying Agent. Such payment shall be in [such coin or currency of the United
States of America/the European Union] as at the time of payment is legal tender
for payment of public and private debts.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly
executed by the Trustee referred to on the reverse hereof or by the
authenticating agent appointed as provided in the Indenture by manual signature
of an authorized signer, this Note shall not be entitled to any benefit under
the Indenture, or be valid or obligatory for any purpose.
[Signature Page Follows]
B-3
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be
duly executed by the manual or facsimile signature of its authorized officers.
PSINET INC.
By:__________________________________
Title:_________________________________
Attest:
________________________________
Authorized Officer
B-4
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the 11% Senior Notes due 2009 referred to in the
within-mentioned Indenture.
WILMINGTON TRUST COMPANY
as Trustee
By: ________________________________
Authorized Signer
Dated:
B-5
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company pursuant to
Section 10.12 or Section 10.14, as applicable, of the Indenture, check the Box:
|_|.
If you wish to have a portion of this Note purchased by the Company
pursuant to Section 10.12 or Section 10.14, as applicable, of the Indenture,
state the amount (in original principal amount): [$/Euro] _______________.
Date: ___________________ Your Signature: _____________________
(Sign exactly as your name appears on the other side of this Note)
Signature Guarantee: __________________________________
[If applicable, signature must be guaranteed by an eligible Guarantor
Institution (banks, stock brokers, savings and loan associations and credit
unions) with membership in an approved guarantee medallion program pursuant to
Securities and Exchange Commission Rule 17Ad-15]
B-6
<PAGE>
[REVERSE SIDE OF NOTE]
PSINET INC.
11% Senior Note due 2009
This Note is one of a duly authorized issue of Notes of the Company
designated as its 11% Senior Notes due 2009 (herein called the "Notes"), limited
(except as otherwise provided in the Indenture referred to below) in aggregate
principal amount to [$1,050,000,000/Euro 150,000,000], issued under, entitled to
the benefits of and subject to the terms of an indenture (herein called the
"Indenture") dated as of July 23, 1998, between the Company and Wilmington Trust
Company, as trustee (herein called the "Trustee," which term includes any
successor trustee under the Indenture), to which Indenture and all indentures
supplemental thereto reference is hereby made for a statement of the respective
rights, limitations of rights, duties, obligations and immunities thereunder of
the Company, any Guarantors, the Trustee and the Holders of the Notes, and of
the terms upon which the Notes are, and are to be, authenticated and delivered.
The Indenture contains provisions for defeasance at any time of (a)
the entire Indebtedness on the Notes and (b) certain restrictive covenants and
related Defaults and Events of Default, in each case upon compliance with
certain conditions set forth therein.
The Notes are subject to redemption at any time on or after August
1, 2004, at the option of the Company, 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 [$1,000/Euro 1,000] or an integral multiple thereof, at the following
redemption prices (expressed as percentages of the principal amount), if
redeemed during the 12-month period beginning August 1 of the years indicated
below:
Year Dollar Notes Euro Notes
---- ------------ ----------
2004 105.500% 105.500%
2005 103.667% 103.667%
2006 101.833% 101.833%
2007 100.000% 100.000%
and thereafter at 100% of the principal amount, in each case, together with
accrued and unpaid interest, if any, to the Redemption Date (subject to the
rights of Holders of record on relevant record dates to receive interest due on
an Interest Payment Date).
B-7
<PAGE>
In addition, at any time on or prior to August 1, 2002, the Company
may, at its option, use the Net Cash Proceeds of one or more Public Equity
Offerings or the sale of Capital Stock of the Company to a Strategic Investor in
a single transaction or in a series of related transactions (other than
Disqualified Stock), 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 (i) in the case of the Euro Notes to 111.000% of the
aggregate principal amount thereof, plus accrued and unpaid interest thereon, if
any, to the Redemption Date and (ii) in the case of the Dollar Notes, to
111.000% of the aggregate principal amount thereof, plus accrued and unpaid
interest thereon, if any, to the Redemption Date; provided that, in each case,
at least 65% of the original aggregate principal amount of each of the Euro
Notes and the Dollar Notes remains outstanding immediately following such
redemption. All determinations with respect to these provisions shall be made in
the manner set forth in the Indenture. In order to effect the foregoing
redemption, the Company must provide a notice of redemption no later than 45
days after the closing of the related Public Equity Offering or to a Strategic
Investor and must consummate such 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 shall deem fair and reasonable, subject to the terms of
the Indenture.
Upon the occurrence of a Change of Control, subject to the terms of
the Indenture, each Holder may require the Company to purchase such Holder's
Notes in whole or in part in integral multiples of [$1,000/Euro 1,000], at a
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, pursuant to Change of Control Offer and in accordance with the
procedures set forth in the Indenture.
Under certain circumstances, subject to the terms of the Indenture,
in the event the Net Cash Proceeds received by the Company from any Asset Sale,
which proceeds are not used to repay any Pari Passu Indebtedness of the Company
or any Subsidiary (including the repurchase of Notes) or which will be invested
in Telecommunications Assets, exceeds a specified amount, the Company will be
required to apply such proceeds by making an offer to purchase Notes and certain
Indebtedness ranking pari passu in right of payment to the Notes.
In the case of any redemption of Notes in accordance with the
Indenture, interest installments whose Stated Maturity is on or prior to the
Redemption Date will be payable to the Holders of such Notes of record as of the
close of business on the relevant Regular Record Date or Special Record Date
referred to on the face hereof. Notes (or portions thereof) for whose
B-8
<PAGE>
redemption and payment provision is made in accordance with the Indenture shall
cease to bear interest from and after the Redemption Date.
In the event of redemption of this Note in accordance with the
Indenture in part only, a new Note or Notes for the unredeemed portion hereof,
denominated in the same currency shall be issued in the name of the Holder
hereof upon the cancellation hereof.
If an Event of Default shall occur and be continuing, the principal
amount of all the Notes may be declared due and payable in the manner and with
the effect provided in the Indenture.
The Indenture permits, with certain exceptions (including certain
amendments permitted without the consent of any Holders and certain amendments
which required the consent of all of the Holders) as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and any Guarantors and the rights of the Holders under the Indenture and
the Notes and any Guarantees at any time by the Company and the Trustee with the
consent of the Holders of at least a majority in aggregate principal amount of
the Notes at the time Outstanding. The Indenture also contains provisions
permitting the Holders of at least a majority in aggregate principal amount of
the Notes (100% of the Holders in certain circumstances) at the time
Outstanding, on behalf of the Holders of all the Notes, to waive compliance by
the Company and any Guarantors with certain provisions of the Indenture and the
Notes and any Guarantees and certain past Defaults under the Indenture and the
Notes and any Guarantees and their consequences. Any such consent or waiver by
or on behalf of the Holder of this Note shall be conclusive and binding upon
such Holder and upon all future Holders of this Note and of any Note issued upon
the registration of transfer hereof or in exchange herefor or in lieu hereof
whether or not notation of such consent or waiver is made upon this Note.
No reference herein to the Indenture and no provision of this Note
or of the Indenture shall alter or impair the obligation of the Company, any
Guarantor or any other obligor on the Notes (in the event such Guarantor or such
other obligor is obligated to make payments in respect of the Notes), which is
absolute and unconditional, to pay the principal of, and premium, if any, and
interest on, this Note at the times, place and rate, and in the coin or
currency, herein prescribed.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Note is registrable in the Register,
upon surrender of this Note for registration of transfer at the office or agency
of the Company in the Borough of Manhattan, The City of New York or in
Luxembourg, duly endorsed by, or accompanied by a written instrument of transfer
in form satisfactory to the Company and the Registrar duly executed by, the
Holder hereof or its attorney duly authorized in writing, and thereupon one or
more new Notes, denominated in the
B-9
<PAGE>
same currency of authorized denominations and for the same aggregate principal
amount, will be issued to the designated transferee or transferees.
Certificated securities shall be transferred to all beneficial
holders in exchange for their beneficial interest in the U.S. Global Notes as
the case may be, if, among other things, (a) the Depositary notifies the Company
that it is unwilling or unable to continue as depository for such Global Note
and a successor depository is not appointed by the Company within 120 days or
(b) there shall have occurred and be continuing an Event of Default and the
Registrar has received a request from the relevant Depositary. Upon any such
issuance, the Trustee is required to register such certificated Notes in the
name of, and cause the same to be delivered to, such Person or Persons (or the
nominee of any thereof).
Notes in certificated form are issuable only in registered form
without coupons in denominations of [$1,000/Euro 1,000] and any integral
multiple thereof. As provided in the Indenture and subject to certain
limitations therein set forth, the Notes are exchangeable for a like aggregate
principal amount of Notes of a differing authorized denomination, as requested
by the Holder surrendering the same.
At any time when the Company is not subject to Sections 13 or 15(d)
of the Exchange Act, upon the written request of a Holder of a Restricted Note,
the Company will promptly furnish or cause to be furnished such information as
is specified pursuant to Rule 144A(d)(4) under the Securities Act to such Holder
or to a prospective purchaser of such Note who such Holder informs the Company
is reasonably believed to be a "Qualified Institutional Buyer" within the
meaning of Rule 144A under the Securities Act, as the case may be, in order to
permit compliance by such Holder with Rule 144A under the Securities Act.
No service charge shall be made for any registration of transfer,
exchange or redemption of this note, except for any tax or other governmental
charge that may be imposed in connection therewith, other than certain exchanges
not involving a transfer as more fully set forth in the Indenture.
Prior to due presentment of this Note for registration of transfer,
the Company, any Guarantor, the Paying Agents, the Transfer Agents, the
Registrar, the Trustee and any agent of the Company, the Paying Agents, the
Transfer Agents, the Registrar, any Guarantor or the Trustee may deem and treat
the Person in whose name this Note is registered as the absolute owner of that
note for all purposes, whether or not this Note is overdue, and neither the
Company, any Guarantor, the Paying Agents, the Transfer Agents, the Registrar or
the Trustee nor any such agent shall be affected by notice to the contrary.
B-10
<PAGE>
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAW
PRINCIPLES THEREOF.
All terms used in this Note which are defined in the Indenture and
not otherwise defined herein shall have the meanings assigned to them in the
Indenture.
B-11
<PAGE>
EXHIBIT C
REGULATION S CERTIFICATE
(For transfers pursuant to Section 2.07(a) of the Indenture)
Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, DE 19890-0001
Re: 11% Senior Notes due 2009 of PSINet Inc. (the "Notes")
Reference is made to the Indenture, dated as of July 23, 1999 (the
"Indenture"), between PSINet Inc. (the "Company") and Wilmington Trust Company,
as Trustee. Terms used herein and defined in the Indenture or in Regulation S or
Rule 144 under the U.S. Securities Act of 1933 (the "Securities Act") are used
herein as so defined. This certificate relates to [US$/EURO]____________
principal amount of Notes, which are evidenced by the following certificate(s)
(the "Specified Notes"):
CUSIP No(s).____________________________
ISIN No(s). ____________________________
CERTIFICATE No(s). _____________________
The person in whose name this certificate is executed below (the
"Undersigned") hereby certifies that either (i) it is the sole beneficial owner
of the Specified Notes or (ii) it is acting on behalf of all the beneficial
owners of the Specified Notes and is duly authorized by them to do so. Such
beneficial owner or owners are referred to herein collectively as the "Owner."
The Specified Notes are represented by a Global Note and are held through the
Depositary or an agent member of such Depositary in the name of the Undersigned,
as or on behalf of the Owner. The Owner has requested that the Specified Notes
be transferred to a person (the "Transferee") who will take delivery in the form
of an International Global Note. In connection with such transfer, the Owner
hereby certifies that, unless such transfer is being effected pursuant to an
effective registration statement under the Securities Act, it is being effected
in accordance with Rule 904 or Rule 144 under the Securities Act and with all
applicable securities laws of the states of the United States and other
jurisdictions. Accordingly, the Owner hereby further certifies as follows:
C-1
<PAGE>
(1) Rule 904 Transfers. If the transfer is being effected in
accordance with Rule 904:
(A) the Owner is not a distributor of the Specified Notes, an
affiliate of the Company or any such distributor or a person acting on behalf of
any of the foregoing;
(B) the offer of the Specified Notes was not made to a person
in the United States;
(C) either
(i) at the time the buy order was originated, the
Transferee was outside the United States or the Owner and any person acting on
its behalf reasonably believed that the Transferee was outside the United
States, or
(ii) the transaction is being executed in, on or through
the facilities of the Eurobond market, as regulated by the Association of
International Bond Dealers, or another designated offshore securities market
described in Rule 902(a) of Regulation S and neither the Owner nor any person
acting on its behalf knows that the transaction has been prearranged with a
buyer in the United States;
(D) no "directed selling efforts" within the meaning of Rule
902(b) of Regulation S have been made in the United States by or on behalf of
the Owner or any affiliate thereof; or
(E) if the Owner is a dealer in securities, as defined in
Section 2(12) of the Securities Act, or has received a selling concession, fee
or other remuneration in respect of the Specified Notes, and the transfer is to
occur during the restricted period, then:
(i) neither the Owner nor any person acting on behalf of
the Owner knows that the Transferee of the Specified Notes is a U.S. person; and
(ii) if the Owner or any person acting on the Owner's
behalf knows that the Transferee is a dealer, as defined in Section 2(12) of the
Securities Act, or is a person receiving a selling concession, fee or other
remuneration in respect of the Specified Notes, the Owner or a person acting on
the Owner's behalf has sent to the Transferee a confirmation or other notice
stating that the Specified Notes may be offered and sold during the Restricted
Period only: (x) in accordance with Regulation S; (y) pursuant to registration
of the Specified Notes under the Securities Act; or (z) pursuant to an available
exemption from the registration requirements of the Securities Act; and
C-2
<PAGE>
(iii) the transaction is not part of a plan or scheme to
evade the registration requirements of the Securities Act.
(2) Rule 144 Transfers. If the transfer is being effected pursuant
to Rule 144:
(A) the transfer is occurring after a holding period of at
least one year (computed in accordance with paragraph (d) of Rule 144) has
elapsed since the Specified Notes were acquired by the Owner, and is being
effected in accordance with the applicable amount, manner of sale and notice
requirements of Rule 144; or
(B) the transfer is occurring after a holding period of at
least two years has elapsed since the Specified Notes were acquired by the Owner
and the Owner is not, and during the preceding three months has not been, an
affiliate of the Company.
[Signature Page Follows]
C-3
<PAGE>
This certificate and the statements contained herein are made for
your benefit and the benefit of the Company and the Initial Purchasers.
Dated: __________________
(Print the name of the Undersigned, as such term is defined in the
third paragraph of this certificate.)
BY:_______________________________________________________
Name:
Title:
(If the Undersigned is a corporation, partnership or fiduciary, the
title of the person signing on behalf of the Undersigned must be stated.)
C-4
<PAGE>
EXHIBIT D
RULE 144A CERTIFICATE
(For transfers pursuant to Section 2.07(b) of the Indenture)
Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, DE 19890-0001
Re: 11% Senior Notes due 2009 of PSINet Inc. (the "Notes")
Reference is made to the Indenture, dated as of July 23, 1999 (the
"Indenture"), between PSINet Inc. (the "Company") and Wilmington Trust Company,
as Trustee. Terms used herein and defined in the Indenture or in Rule 144A or
Rule 144 under the U.S. Securities Act of 1933 (the "Securities Act") are used
herein as so defined. This certificate relates to [US$/Euro] _____________
principal amount of Notes, which are evidenced by the following certificate(s)
(the "Specified Notes"):
CUSIP No(s). ___________________________
ISIN No(s)._____________________________
CERTIFICATE No(s). _____________________
The person in whose name this certificate is executed below (the
"Undersigned") hereby certifies that either (i) it is the sole beneficial owner
of the Specified Notes or (ii) it is acting on behalf of all the beneficial
owners of the Specified Notes and is duly authorized by them to do so. Such
beneficial owner or owners are referred to herein collectively as the "Owner."
The Specified Notes are represented by a Global Note and are held through the
Depositary or an agent member of such Depositary in the name of the Undersigned,
as or on behalf of the Owner. The Owner has requested that the Specified Notes
be transferred to a person (the "Transferee") who will take delivery in the form
of a Restricted Note. In connection with such transfer, the Owner hereby
certifies that, unless such transfer is being effected pursuant to an effective
registration statement under the Securities Act, it is being effected in
accordance with Rule 144A or Rule 144 under the Securities Act and with all
applicable securities laws of the states of the United States and other
jurisdictions. Accordingly, the Owner hereby further certifies as follows:
D-1
<PAGE>
(1) Rule 144A Transfers. If the transfer is being effected in
accordance with Rule 144A:
(A) the Specified Notes are being transferred to a person that
the Owner and any person acting on its behalf reasonably believe is a "qualified
institutional buyer" within the meaning of Rule 144A, acquiring for its own
account or for the account of a qualified institutional buyer; and
(B) the Owner and any person acting on its behalf have taken
reasonable steps to ensure that the Transferee is aware that the Owner may be
relying on Rule 144A in connection with the transfer; and
(2) Rule 144 Transfers. If the transfer is being effected pursuant
to Rule 144:
(A) the transfer is occurring after a holding period of at
least one year (computed in accordance with paragraph (d) of Rule 144) has
elapsed since the Specified Notes were acquired by the Owner and is being
effected in accordance with the applicable amount, manner of sale and notice
requirements of Rule 144; or
(B) the transfer is occurring after a holding period of at
least two years has elapsed since the Specified Notes were acquired by the
Owner, and the Owner is not, and during the preceding three months has not been,
an affiliate of the Company.
[Signature Page Follows]
D-2
<PAGE>
This certificate and the statements contained herein are made for
your benefit and the benefit of the Company and the Initial Purchasers.
Dated:
___________________________
(Print the name of the Undersigned, as such term is defined in the
third paragraph of this certificate.)
By:_____________________________________________________
Name:
Title:
(If the Undersigned is a corporation, partnership or fiduciary, the
title of the person signing on behalf of the Undersigned must be stated.)
D-3
<PAGE>
EXHIBIT E
UNRESTRICTED NOTES CERTIFICATE
(For removal of Securities Act Legends pursuant to Section 2.07(e)
of the Indenture)
Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, DE 19890-0001
Re: 11% Senior Notes due 2009 of PSINet Inc. (the "Notes")
Reference is made to the Indenture, dated as of July 23, 1999 (the
"Indenture"), between PSINet Inc. (the "Company") and Wilmington Trust Company,
as Trustee. Terms used herein and defined in the Indenture or in Rule 144 under
the U.S. Securities Act of 1933 (the "Securities Act") are used herein as so
defined. This certificate relates to [US$/Euro] _____________ principal amount
of Notes, which are evidenced by the following certificate(s) (the "Specified
Notes"):
CUSIP No(s). __________________________
ISIN No(S). ___________________________
CERTIFICATE No(s). ____________________
The person in whose name this certificate is executed below (the
"Undersigned") hereby certifies that either (i) it is the sole beneficial owner
of the Specified Notes or (ii) it is acting on behalf of all the beneficial
owners of the Specified Notes and is duly authorized by them to do so. Such
beneficial owner or owners are referred to herein collectively as the "Owner."
If the Specified Notes are represented by a Global Note, they are held through
the Depositary or an agent member of such Depositary in the name of the
Undersigned, as or on behalf of the Owner. If the Specified Notes are not
represented by a Global Note, they are registered in the name of the
Undersigned, as or on behalf of the Owner. The Owner has requested that the
Specified Notes be exchanged for Notes bearing no Legends pursuant to Section
2.07(e) of the Indenture. In connection with such exchange, the Owner hereby
certifies that the exchange is occurring after a holding period of at least two
years (computed in accordance with paragraph (d) of Rule 144) has elapsed since
the Specified Notes were acquired by the Owner, and the Owner is not, and during
the preceding three months has not been, an affiliate of the Company. The Owner
also acknowledges that any future transfers of the Specified Notes must comply
with all applicable securities laws of the states of the United States and other
jurisdictions.
E-1
<PAGE>
This certificate and the statements contained herein are made for
your benefit and the benefit of the Company and the Initial Purchasers.
Dated: _________________
(Print the name of the Undersigned, as such term is defined in the
third paragraph of this certificate.)
By:____________________________________
Name:
Title:
(If the Undersigned is a corporation, partnership or fiduciary, the
title of the person signing on behalf of the Undersigned must be stated.)
E-2
<PAGE>
APPENDIX I
FORM OF TRANSFER NOTICE
FOR VALUE RECEIVED, the undersigned registered holder hereby
sell(s), assign(s) and transfer(s) unto
Insert Taxpayer Identification No.______________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Please print or typewrite name and address including zip code of assignee)
________________________________________________________________________________
the within Note and all rights thereunder, hereby irrevocably constituting and
appointing
________________________________________________________________________________
attorney to transfer such Note on the books of the Company with full power of
substitution in the premises. [THE FOLLOWING PROVISION TO BE INCLUDED ON ALL
CERTIFICATES FOR RESTRICTED NOTES]. In connection with any transfer of this Note
occurring prior to the date which is the earlier of the date of an effective
Registration Statement or July 23, 2000, the undersigned confirms that without
utilizing any general solicitation or general advertising that:
[Check One]
|_| (a) this Note is being transferred in compliance with the
exemption from registration under the Securities Act of 1933, as amended,
provided by Rule 144A thereunder or
|_| (b) this Note is being transferred other than in accordance with
clause (a) above and documents are being furnished which comply with the
conditions of transfer set forth in this Note and the Indenture. If none of the
foregoing boxes is checked, the Trustee or other Registrar shall not be
obligated to register this Note in the name of any Person other than the Holder
hereof unless and until the conditions to any such transfer of registration set
forth herein and in Section 2.07 of the Indenture shall have been satisfied.
Date: ________________________________________________________
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the within-mentioned instrument in every particular,
without alteration or any change whatsoever.
<PAGE>
Signature Guarantee:
________________________
[If applicable, signature must be guaranteed by an eligible Guarantor
Institution (banks, stock brokers, savings and loan associations and credit
unions) with membership in an approved guarantee medallion program pursuant to
Securities and Exchange Commission Rule 17Ad-15.]
TO BE COMPLETED BY PURCHASER IF CLAUSE (a) ABOVE IS CHECKED. The undersigned
represents and warrants that it is purchasing this Note for its own account or
an account with respect to which it exercises sole investment discretion and
that it and any such account is a "qualified institutional buyer" within the
meaning of Rule 144A under the Securities Act of 1933, as amended, and is aware
that the sale to it is being made in reliance on Rule 144A and acknowledges that
it has received such information regarding the Company as the undersigned has
requested pursuant to Rule 144A or has determined not to request such
information and that it is aware that the transferor is relying upon the
undersigned's foregoing representations in order to claim the exemption from
registration provided by Rule 144A.
Dated:________________________________________________________________
NOTICE: To be executed by an authorized signatory
2
<PAGE>
APPENDIX II
FORM OF TRANSFEREE CERTIFICATE
I or we assign and transfer this Note to:
Please insert social security or other identifying number of
assignee
_____________________________________________________________
Print or type name, address and zip code of assignee
_____________________________________________________________
and irrevocably appoint __________________________________________________
[Agent], to transfer this Note on the books of the Company. The Agent may
substitute another to act for him.
Dated __________________________
Signed _________________________
(Sign exactly as name appears on the other side of this Note)
[If applicable, signature must be guaranteed by an eligible Guarantor
Institution (banks, stock brokers, savings and loan associations and credit
unions) with membership in an approved guarantee medallion program pursuant to
Securities and Exchange Commission Rule 17 Ad-15]
<PAGE>
Exhibit 5
NIXON PEABODY LLP
437 Madison Avenue
New York, New York 10022
August 6, 1999
PSINet Inc.
510 Huntmar Park Drive
Herndon, Virginia 20170
Ladies and Gentlemen:
We have acted as counsel to PSINet Inc., a New York corporation (the
"Company"), in connection with the preparation of a Registration Statement on
Form S-4 (the "Registration Statement") to be filed by the Company on or about
August 6, 1999 with the Securities and Exchange Commission (the "Commission")
under the Securities Act of 1933, as amended (the "Act"), relating to the offer
by the Company of $1,050,000,000 aggregate principal amount of the Company's new
11% Senior Notes Due 2009 and Euro 150,000,000 aggregate principal amount of the
Company's new 11% Senior Notes Due 2009, which will be registered under the Act
(collectively, the "Exchange Notes"), to be issued under the Indenture dated as
of July 23, 1999 (the "Indenture") by and between the Company and Wilmington
Trust Company, as trustee (the "Trustee"), in exchange for a like principal
amount of each of the Company's outstanding dollar-denominated and
euro-denominated 11% Senior Notes Due 2009, which have not been registered under
the Act (collectively, the "Initial Notes" and, together with the Exchange
Notes, the "Notes"), as contemplated by 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 "Exchange
Offer").
In connection with the foregoing, we have examined the Registration
Statement and the preliminary prospectus contained in the Registration Statement
(the "Preliminary Prospectus"), the Indenture, the Registration Rights Agreement
and the form of Exchange Notes set forth in the Indenture and the form of
Statement of Eligibility and Qualification on Form T-1 of the Trustee filed as
an exhibit to the Registration Statement. We have also examined originals or
copies, certified or otherwise identified to our satisfaction, of such corporate
records, certificates and other documents and have made such investigations of
law as we have deemed necessary or appropriate as a basis for the opinions
expressed below.
As to questions of fact material to our opinions expressed herein, we
have, when relevant facts were not independently established, relied upon
certificates of, and information received from, the Company, the Trustee and/or
representatives of the Company and/or the Trustee. We
<PAGE>
PSINet Inc.
August 6, 1999
Page 2
have made no independent investigation of the facts stated in such certificates
or as to any information received from the Company, the Trustee and/or
representatives of the Company and/or the Trustee and do not opine as to the
accuracy of such factual matters. We also have relied, without investigation,
upon certificates and other documents from, and conversations with, public
officials.
In rendering the following opinions, we have assumed, without
investigation, the authenticity of any document or other instrument submitted to
us as an original, the conformity to the originals of any document or other
instrument submitted to us as a copy, the genuineness of all signatures on such
originals or copies, and the legal capacity of natural persons who executed any
such document or instrument at the time of execution thereof. We assume also
that the Exchange Notes have been or will be duly and validly authenticated.
Additionally, we have assumed, but not independently verified, that the factual
matters set forth in the statements made in the Registration Statement,
including, without limitation, those matters set forth and statements made in
the Preliminary Prospectus under the caption "Certain U.S. Federal Income Tax
Considerations", are true and correct and we have relied upon such factual
matters and statements in rendering the opinion expressed herein.
Members of our firm involved in the preparation of this opinion are
licensed to practice law in the State of New York and we do not purport to be
experts on, or to express any opinion herein concerning, the laws of any other
jurisdiction other than the law of the State of New York and the federal law of
the United States of America.
Based upon and subject to the foregoing and the other qualifications
and limitations contained herein, we are of the opinion that:
1. After (a) the Commission shall have entered an appropriate order
declaring effective the Registration Statement, as amended, and (b) the Exchange
Notes have, if required, been duly qualified or registered, as the case may be,
for sale under applicable state and foreign securities laws, and duly issued,
executed, authenticated and delivered by each of the Company and the Trustee
upon consummation of the Exchange Offer against receipt of the Initial Notes
surrendered in exchange therefor in accordance with the terms of the Exchange
Offer and the Indenture, the Exchange Notes will be valid and binding
obligations of, and enforceable against, the Company in accordance with their
terms, except as limited by bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium, liquidation and other similar laws relating to or
affecting creditors' rights generally and by general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law), including, without limitation, principles of commercial
reasonableness and materiality and an implied covenant of good faith and fair
dealing.
2. The opinions referred to as the opinions of counsel in the
Preliminary Prospectus under the caption "Certain U.S. Federal Income Tax
Considerations", are our opinions, insofar as they are statements of United
States federal income tax law or conclusions with respect to United States
federal income tax law. Our opinions are based upon existing United States
federal income tax law and present interpretations thereof. We can give no
assurance that such opinions
<PAGE>
PSINet Inc.
August 6, 1999
Page 3
will continue to be our opinions if existing United States federal income tax
laws, or the interpretations thereof, are changed or modified hereafter.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name as it appears under the
captions "Certain U.S. Federal Income Tax Considerations" and "Legal Matters" in
the Preliminary Prospectus.
We wish to advise you that certain attorneys with Nixon Peabody LLP own
certain shares of the Company's common stock and that we represent the Trustee
from time to time on certain matters.
Very truly yours,
/s/ Nixon Peabody LLP
<PAGE>
EXHIBIT 10.99
May 24, 1999
Mr. Thomas A. Leach
5008 Timber Circle
McKinney, Texas 75070
Dear Tom:
This letter confirms our offer to you of employment by PSINet Inc. (the
"Company"), and sets forth the terms and conditions which shall govern such
employment as outlined below. This offer is subject to satisfactory completion
of reference checks and ratification by the Company's Board of Directors, but
otherwise shall remain open until 12:00 PM on Friday, May 28, 1999.
1. EMPLOYMENT.
a) The Company agrees to employ you as President, Western Region, reporting to
the Chief Operating Officer (COO) of the Company or his designee. This is a
corporate officer position and as an officer of the Company you must stand for
election by the Board of Directors each year. You accept the employment and
agree to begin work on or before Tuesday, July 6, 1999 (your "Start Date"), and
remain in the employ of the Company, and, except during vacation periods and
sickness, to provide during standard business hours a minimum of forty (40)
hours per week of management services to the Company, as determined by and under
the direction of the COO.
b) During your employment you will, except during vacations, periods of illness,
and other absences beyond your reasonable control, devote your best efforts,
skill and attention to the performance of your duties on behalf of the Company.
2. TERM OF EMPLOYMENT. The term of the employment shall commence on your Start
Date, and shall continue for a period of one (1) year.
3. COMPENSATION.
a) BASE SALARY. The Company shall pay you a base salary at the rate of $140,000
per annum. Your base salary shall be subject to additional increases at the
discretion of the Company's Board of Directors. Your base salary shall be
payable in such installments as the Company regularly pays its other salaried
employees, subject to such deductions and withholdings as may be required by law
or by further agreement with you.
b) BONUS COMPENSATION. The Company will pay you a bonus upon the successful
completion of the objectives established for your performance, which will be
measured on or about December 31, 1999. The performance criteria will be issued
<PAGE>
separately by the COO, and may be changed, with mutual fairness, from time to
time as situations develop. The target bonus for the period ending December 31,
1999 (Start Date through December 31, 1999) will be a total of up to $70,000.
Separate criteria will be established for your entitlement for the year starting
January 1, 2000.
c) INCENTIVE STOCK OPTIONS. Effective upon your Start Date, PSINet Inc. shall
grant you options, subject to Board approval, to purchase 25,000 shares of
PSINet Inc.'s common stock (the "Options") pursuant to its Executive Stock
Incentive Plan (the "Plan"). Such Options shall be evidenced by an option
agreement in such form as required by the Plan. Among other terms and provisions
prescribed by the Plan, the option agreement shall provide that (a) the exercise
price of the Options shall be the price per share of the Company's common stock
as reported by the NASDAQ Stock Market at the close of business on your Start
Date, (b) the Options shall not be exercisable after the expiration of ten (10)
years from the date such Options are granted, and (c) the stock shall vest
ratably, monthly, over forty-eight (48) months, provided that for each month's
vesting purposes you continue to be employed full time by the Company or one of
its subsidiaries during such month, and provided that the Company's Board of
Directors ratifies, no less often than annually, that you have met the
performance standards and criteria set for you for the preceding period. You
also may be eligible to receive additional options periodically during your
employment by the Company.
4. EMPLOYEE BENEFITS. You shall be provided employee benefits, including
(without limitation) 401(k), four (4) weeks' paid vacation per year, and life,
health, accident and disability insurance under the Company's plans, policies
and programs available to employees in accordance with the provisions of such
plans, policies, and programs.
5. RELOCATION PACKAGE. Your "target" date for completing your relocation to the
Los Angeles area (within reasonable commuting distance of Marina del Rey) shall
be Tuesday, July 6, 1999. The Company will provide you with a relocation
allowance of up to $50,000 to assist you in relocating your residence from Texas
to the Los Angeles area. The relocation allowance will cover house-hunting
trips, reasonable expenses of sale, moving, interim living and resettlement into
the new home. Income taxes will be withheld from this sum. You may be eligible
for a refund of some portion of the taxes withheld upon filing your current
year's US tax return. Should you voluntarily terminate your employment with
PSINet within one year from the date you commence employment, you agree to
reimburse PSINet for the entire sum of this allowance within 90 days of your
date of termination.
6. TERMINATION.
a) Your employment with the Company may be terminated by the Company at any time
for "Cause" as defined in Section 6(c) hereof. Upon such termination, the
Company will provide you with written notice whether it has elected to use the
non-competition restrictions set forth in Section 7(a) hereof. Your employment
may also be terminated by the Company at any time without Cause provided the
Company shall have given you six (6) months' prior written notice of such
termination. That written notice must state whether the Company has elected to
use the non-Competition restriction (which decision
2
<PAGE>
may not be rescinded). Your employment may be terminated by you at any time for
any reason, provided you shall have given the Company at least thirty (30) days'
prior written notice of such termination. By the thirtieth day the Company must
notify you in writing whether it has elected to use the non-Competition
restriction. Such decision may not be rescinded. Failure of the Company to so
notify you shall result in the non-Competition restriction not being in place.
b) Subject to your compliance with your obligations under Section 7 hereof, in
the event that your employment terminates or is terminated by you or the Company
for any reason other than for Cause, and the Company has elected to use the
non-Competition restriction, you shall be entitled, for a period of twelve (12)
months after termination of employment, to the following (collectively, the
"Termination Payments"): (i) your then current rate of base salary as provided
in Section 3; (ii) all life insurance and health benefits, disability insurance
and benefits and reimbursement theretofore being provided to you; and (iii)
Company contributions, to the extent permitted by applicable law, to a SEP-IRA,
Keogh or other retirement mechanism selected by you sufficient to provide the
same level of retirement benefits you would have received if you had remained
employed by the Company during such twelve (12) month period. The Company shall
make up the difference in cash payments directly to you to the extent that
applicable law would not permit it to make such contributions.
c) The Company shall have "Cause" for termination of your employment by reason
of any breach of your agreement not to compete pursuant to Section 7 hereof,
your committing an act materially adversely affecting the Company which
constitutes reckless or willful misconduct, your conviction of a felony, or any
material breach by you of this Agreement.
7. AGREEMENT NOT TO COMPETE.
a) In consideration of your employment pursuant to this Agreement and for other
good and valuable consideration, the receipt and adequacy of which is hereby
acknowledged, you covenant to and agree with the Company that, so long as you
are employed by the Company under this Agreement and for a period of twelve (12)
months following the termination of such employment (but only if the Company has
elected to enforce the restriction), you shall not, without the prior written
consent of the Company, either for yourself or for any other person, firm or
corporation, manage, operate, control, participate in the management, operation
or control of or be employed by any other person or entity which is engaged in
providing Internet-related network or communications services competitive with
the Internet-related network or communications services offered to customers by
the Company as of the date of termination or within six (6) months thereafter.
The foregoing shall in no event restrict you from: (i) writing or teaching,
whether on behalf of for-profit, or not-for-profit institution(s); (ii)
investing (without participating in management or operation) in the securities
of any private or publicly traded corporation or entity; or (iii) after
termination of employment, becoming employed by a hardware, software or other
vendor to the Company, provided that such vendor does not offer network or
communications services that are competitive with the Internet-related network
or communications services offered
3
<PAGE>
by the Company as of the date of termination of employment or within six (6)
months thereafter.
b) You may request permission from the Company's Board of Directors to engage in
activities which would otherwise be prohibited by Section 7(a). The Company
shall respond to such request within thirty (30) days after receipt. The Company
will notify you in writing if it becomes aware of any breach or threatened
breach of any of the provisions in Section 7(a), and you shall have thirty (30)
days after receipt of such notice in which to cure or prevent the breach, to the
extent that you are able to do so. You and the Company acknowledge that any
breach or threatened breach by you of any of the provisions in Section 7(a)
above cannot be remedied by the recovery of damages, and agree that in the event
of any such breach or threatened breach which is not cured with such thirty (30)
day period, the Company may pursue injunctive relief for any such breach or
threatened breach. If a court of competent jurisdiction determines that you
breached any of such provisions, you shall not be entitled to any Termination
Payments from and after date of the breach. In such event, you shall promptly
repay any Termination Payments previously made plus interest thereon from the
date of such payment(s) at twelve percent (12%) per annum. If, however, the
Company has suspended making such Termination Payments and a court of competent
jurisdiction finally determines that you did not breach such provision or
determines such provision to be unenforceable as applied to your conduct, you
shall be entitled to receive any suspended Termination Payment, plus interest
thereon from the date when due at twelve percent (12%) per annum. The Company
may elect (once) to continue paying the Termination Payments before a final
decision has been made by the court.
8. INTELLECTUAL PROPERTY; OWNERSHIP OF WORK PRODUCT. All copyrights, patents,
trade secrets, or other intellectual property rights associated with any ideas,
concepts, techniques, inventions, processes, or works of authorship developed or
created by you during the course of performing the Company's work (collectively
the "Work Product") shall belong exclusively to the Company and shall, to the
extent possible, be considered a work made for hire for the Company within the
meaning of Title 17 of the United States Code. You automatically assign, and
shall assign at the time of creation of the Work Product, without any
requirement of further consideration, any right, title, or interest you may have
in such Work Product, including any copyrights or other intellectual property
rights pertaining thereto. Upon request of the Company, you shall take such
further actions, including execution and delivery of instruments of conveyance,
as may be appropriate to give full and proper effect to such assignment.
9. NONDISCLOSURE AGREEMENT. You agree to sign the Company's Nondisclosure
Agreement before commencing employment with PSINet Inc.
4
<PAGE>
10. TRANSFERABILITY.
a) As used in this Agreement, the term "Company" shall include any successor to
all or part of the business or assets of the Company who shall assume and agree
to perform this Agreement.
This Agreement shall inure to the benefit of and be enforceable by you and your
personal or legal representatives, executors, administrators, heirs,
distributees, devisees and legatees.
b) Except as provided under paragraph (a) of this Section 10, neither this
Agreement nor any of the rights or obligations hereunder shall be assigned or
delegated by any party hereto without the prior written consent of the other
party.
11. SEVERABILITY. The invalidity or unenforceability of any particular provision
of this Agreement shall not affect the other provisions hereof, and this
Agreement shall be construed in all respects as if such invalid or unenforceable
provision were omitted. If a court of competent jurisdiction determines that any
particular provision of this Agreement is invalid or unenforceable, the court
shall restrict the provision so as to be enforceable. However, if the provisions
of Section 7 shall be restricted, a proportional reduction shall be made in the
payments under Section 6.
12. ENTIRE AGREEMENT; WAIVERS. This letter Agreement contains the entire
agreement of the parties concerning the subject matter hereof and supersedes and
cancels all prior agreements, negotiations, correspondence, undertakings and
communications of the parties, oral or written. No waiver or modification of any
provision of this Agreement shall be effective unless in writing and signed by
both parties.
13. NOTICES. Any notices, requests, instruction or other document to be given
hereunder shall be in writing and shall be sent certified mail, return receipt
requested, addressed to the party intended to be notified at the address of such
party as set for at the head of this agreement or such other address as such
party may designate in writing to the other.
14. GOVERNING LAW. THIS LETTER AGREEMENT SHALL BE SUBJECT TO, GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS TO BE PERFORMED WHOLLY WITHIN THAT STATE.
5
<PAGE>
15. COUNTERPARTS. This letter Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which shall
be one and the same instrument.
Please confirm your agreement with the foregoing by signing and returning one
copy of this letter Agreement to the undersigned, whereupon this letter
agreement shall become a binding agreement between you and the Company.
Sincerely,
PSINet Inc.
By: /s/Harold S. ("Pete") Wills
President and COO
Accepted and Agreed to as of ________________________, 1999:
By: /s/Thomas A. Leach
6
<PAGE>
EXHIBIT 10.100
May 24, 1999
Mr. James F. Cragg
609 Wyndham Crossings Circle
St. Louis, Missouri 63131
Dear Jim:
This letter confirms our offer to you of employment by PSINet Inc. (the
"Company"), and sets forth the terms and conditions which shall govern such
employment as outlined below. This offer is subject to satisfactory completion
of reference checks and ratification by the Company's Board of Directors, but
otherwise shall remain open until 12:00 PM on Friday, May 29, 1999.
1. EMPLOYMENT.
a) The Company agrees to employ you as President, Central Region, reporting to
the Chief Operating Officer (COO) of the Company or his designee. This is a
corporate officer position and as an officer of the Company you must stand for
election by the Board of Directors each year. You accept the employment and
agree to begin work on or before Tuesday, July 6, 1999 (your "Start Date"), and
remain in the employ of the Company, and, except during vacation periods and
sickness, to provide during standard business hours a minimum of forty (40)
hours per week of management services to the Company, as determined by and under
the direction of the COO.
b) During your employment you will, except during vacations, periods of illness,
and other absences beyond your reasonable control, devote your best efforts,
skill and attention to the performance of your duties on behalf of the Company.
2. TERM OF EMPLOYMENT. The term of the employment shall commence on your Start
Date, and shall continue for a period of one (1) year.
3. BASE SALARY. The Company shall pay you a base salary at the rate of $180,000
per annum. Your base salary shall be subject to additional increases at the
discretion of the Company's Board of Directors. Your base salary shall be
payable in such installments as the Company regularly pays its other salaried
employees, subject to such deductions and withholdings as may be required by law
or by further agreement with you.
4. OTHER COMPENSATION.
a) BONUS. The Company will pay you a bonus upon the successful completion of the
objectives established for your performance, which will be measured on or about
December 31, 1999. The performance criteria will be issued separately by the
COO, and
<PAGE>
may be changed, with mutual fairness, from time to time as situations develop.
The target bonus for the period ending December 31, 1999 (Start Date through
December 31, 1999) will be a total of up to $180,000. 1999 Will be pro rata of
$180,000 paid 1/2 (1/4 once per quarter on sales performance) and 1/2 on full
year results at end of the year. This will vary on a prorata basis should your
Start Date not be July 6, 1999. Separate criteria will be established for your
entitlement for the year starting January 1, 2000.
b) INCENTIVE STOCK OPTIONS. Effective upon your Start Date, PSINet Inc. shall
grant you options, subject to Board approval, to purchase 100,000 shares of
PSINet Inc.'s common stock (the "Options") pursuant to its Executive Stock
Incentive Plan (the "Plan"). Such Options shall be evidenced by an option
agreement in such form as required by the Plan. Among other terms and provisions
prescribed by the Plan, the option agreement shall provide that (a) the exercise
price of the Options shall be the price per share of the Company's common stock
as reported by the NASDAQ Stock Market at the close of business on your Start
Date, (b) the Options shall not be exercisable after the expiration of ten (10)
years from the date such Options are granted, and (c) the stock shall vest
ratably, monthly, over forty-eight (48) months, provided that for each month's
vesting purposes you continue to be employed full time by the Company or one of
its subsidiaries during such month, and provided that the Company's Board of
Directors ratifies, no less often than annually, that you have met the
performance standards and criteria set for you for the preceding period. You
also may be eligible to receive additional options periodically during your
employment by the Company.
5. EMPLOYEE BENEFITS. You shall be provided employee benefits, including
(without limitation) 401(k), four (4) weeks' paid vacation per year, and life,
health, accident and disability insurance under the Company's plans, policies
and programs available to employees in accordance with the provisions of such
plans, policies, and programs.
6. TERMINATION.
a) Your employment with the Company may be terminated by the Company at any time
for "Cause" as defined in Section 6(c) hereof. Upon such termination, the
Company will provide you with written notice whether it has elected to use the
non-competition restrictions set forth in Section 7(a) hereof. Your employment
may also be terminated by the Company at any time without Cause provided the
Company shall have given you six (6) months' prior written notice of such
termination. That written notice must state whether the Company has elected to
use the non-Competition restriction (which decision may not be rescinded). Your
employment may be terminated by you at any time for any reason, provided you
shall have given the Company at least thirty (30) days' prior written notice of
such termination. By the thirtieth day the Company must notify you in writing
whether it has elected to use the non-Competition restriction. Such decision may
not be rescinded. Failure of the Company to so notify you shall result in the
non-Competition restriction not being in place.
b) Subject to your compliance with your obligations under Section 7 hereof, in
the event that your employment terminates or is terminated by you or the Company
for any reason other than for Cause, and the Company has elected to use the
non-Competition
2
<PAGE>
restriction, you shall be entitled, for a period of twelve (12) months after
termination of employment, to the following (collectively, the "Termination
Payments"): (i) your then current rate of base salary as provided in Section 3;
(ii) all life insurance and health benefits, disability insurance and benefits
and reimbursement theretofore being provided to you; and (iii) Company
contributions, to the extent permitted by applicable law, to a SEP-IRA, Keogh or
other retirement mechanism selected by you sufficient to provide the same level
of retirement benefits you would have received if you had remained employed by
the Company during such twelve (12) month period. The Company shall make up the
difference in cash payments directly to you to the extent that applicable law
would not permit it to make such contributions.
c) The Company shall have "Cause" for termination of your employment by reason
of any breach of your agreement not to compete pursuant to Section 7 hereof,
your committing an act materially adversely affecting the Company which
constitutes reckless or willful misconduct, your conviction of a felony, or any
material breach by you of this Agreement.
7. AGREEMENT NOT TO COMPETE.
a) In consideration of your employment pursuant to this Agreement and for other
good and valuable consideration, the receipt and adequacy of which is hereby
acknowledged, you covenant to and agree with the Company that, so long as you
are employed by the Company under this Agreement and for a period of twelve (12)
months following the termination of such employment (but only if the Company has
elected to enforce the restriction), you shall not, without the prior written
consent of the Company, either for yourself or for any other person, firm or
corporation, manage, operate, control, participate in the management, operation
or control of or be employed by any other person or entity which is engaged in
providing Internet-related network or communications services competitive with
the Internet-related network or communications services offered to customers by
the Company as of the date of termination or within six (6) months thereafter.
The foregoing shall in no event restrict you from: (i) writing or teaching,
whether on behalf of for-profit, or not-for-profit institution(s); (ii)
investing (without participating in management or operation) in the securities
of any private or publicly traded corporation or entity; or (iii) after
termination of employment, becoming employed by a hardware, software or other
vendor to the Company, provided that such vendor does not offer network or
communications services that are competitive with the Internet-related network
or communications services offered by the Company as of the date of termination
of employment or within six (6) months thereafter.
b) You may request permission from the Company's Board of Directors to engage in
activities which would otherwise be prohibited by Section 7(a). The Company
shall respond to such request within thirty (30) days after receipt. The Company
will notify you in writing if it becomes aware of any breach or threatened
breach of any of the provisions in Section 7(a), and you shall have thirty (30)
days after receipt of such notice in which to cure or prevent the breach, to the
extent that you are able to do so. You and the Company acknowledge that any
breach or threatened breach by you of any of the provisions in Section 7(a)
above cannot be remedied by the recovery of damages, and
3
<PAGE>
agree that in the event of any such breach or threatened breach which is not
cured with such thirty (30) day period, the Company may pursue injunctive relief
for any such breach or threatened breach. If a court of competent jurisdiction
determines that you breached any of such provisions, you shall not be entitled
to any Termination Payments from and after date of the breach. In such event,
you shall promptly repay any Termination Payments previously made plus interest
thereon from the date of such payment(s) at twelve percent (12%) per annum. If,
however, the Company has suspended making such Termination Payments and a court
of competent jurisdiction finally determines that you did not breach such
provision or determines such provision to be unenforceable as applied to your
conduct, you shall be entitled to receive any suspended Termination Payment,
plus interest thereon from the date when due at twelve percent (12%) per annum.
The Company may elect (once) to continue paying the Termination Payments before
a final decision has been made by the court.
8. INTELLECTUAL PROPERTY; OWNERSHIP OF WORK PRODUCT. All copyrights, patents,
trade secrets, or other intellectual property rights associated with any ideas,
concepts, techniques, inventions, processes, or works of authorship developed or
created by you during the course of performing the Company's work (collectively
the "Work Product") shall belong exclusively to the Company and shall, to the
extent possible, be considered a work made for hire for the Company within the
meaning of Title 17 of the United States Code. You automatically assign, and
shall assign at the time of creation of the Work Product, without any
requirement of further consideration, any right, title, or interest you may have
in such Work Product, including any copyrights or other intellectual property
rights pertaining thereto. Upon request of the Company, you shall take such
further actions, including execution and delivery of instruments of conveyance,
as may be appropriate to give full and proper effect to such assignment.
9. NONDISCLOSURE AGREEMENT. You agree to sign the Company's Nondisclosure
Agreement before commencing employment with PSINet Inc.
10. TRANSFERABILITY.
a) As used in this Agreement, the term "Company" shall include any successor to
all or part of the business or assets of the Company who shall assume and agree
to perform this Agreement.
This Agreement shall inure to the benefit of and be enforceable by you and your
personal or legal representatives, executors, administrators, heirs,
distributees, devisees and legatees.
b) Except as provided under paragraph (a) of this Section 10, neither this
Agreement nor any of the rights or obligations hereunder shall be assigned or
delegated by any party hereto without the prior written consent of the other
party.
11. SEVERABILITY. The invalidity or unenforceability of any particular provision
of this Agreement shall not affect the other provisions hereof, and this
Agreement shall be construed in all respects as if such invalid or unenforceable
provision were omitted. If a court of competent jurisdiction determines that any
particular provision of this
4
<PAGE>
Agreement is invalid or unenforceable, the court shall restrict the provision so
as to be enforceable. However, if the provisions of Section 7 shall be
restricted, a proportional reduction shall be made in the payments under Section
6.
12. ENTIRE AGREEMENT; WAIVERS. This letter Agreement contains the entire
agreement of the parties concerning the subject matter hereof and supersedes and
cancels all prior agreements, negotiations, correspondence, undertakings and
communications of the parties, oral or written. No waiver or modification of any
provision of this Agreement shall be effective unless in writing and signed by
both parties.
13. NOTICES. Any notices, requests, instruction or other document to be given
hereunder shall be in writing and shall be sent certified mail, return receipt
requested, addressed to the party intended to be notified at the address of such
party as set for at the head of this agreement or such other address as such
party may designate in writing to the other.
14. GOVERNING LAW. THIS LETTER AGREEMENT SHALL BE SUBJECT TO, GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS TO BE PERFORMED WHOLLY WITHIN THAT STATE.
15. COUNTERPARTS. This letter Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which shall
be one and the same instrument.
Please confirm your agreement with the foregoing by signing and returning one
copy of this letter Agreement to the undersigned, whereupon this letter
agreement shall become a binding agreement between you and the Company.
Sincerely,
PSINet Inc.
By: /s/Harold S. ("Pete") Wills
President and COO
Accepted and Agreed to as of 5/29/99:
By: /s/James F. Cragg
5
<PAGE>
EXHIBIT 10.101
May 27, 1999
Mr. Philippe J. Kuperman
1950 Limb Tree Lane
Vienna, Virginia 22182
Dear Philippe:
This letter confirms our offer to you of employment by PSINet Inc. (the
"Company"), and sets forth the terms and conditions which shall govern such
employment as outlined below. This offer is subject to satisfactory completion
of reference checks and ratification by the Company's Board of Directors, but
otherwise shall remain open until 12:00 PM on Friday, May 28, 1999.
1. EMPLOYMENT.
a) The Company agrees to employ you as Senior Vice President of PSINet Inc. and
President, PSINet Latin America, reporting to the Chief Operating Officer (COO)
of the Company or his designee. This is a corporate officer position and as an
officer of the Company you must stand for election by the Board of Directors
each year. You accept the employment and agree to begin work on or before
Monday, June 14, 1999 (the actual date you begin work will be your "Start
Date"), and remain in the employ of the Company, and, except during vacation
periods and sickness, to provide during standard business hours a minimum of
forty (40) hours per week of management services to the Company, as determined
by and under the direction of the COO.
b) During your employment you will, except during vacations, periods of illness,
and other absences beyond your reasonable control, devote your best efforts,
skill and attention to the performance of your duties on behalf of the Company.
2. TERM OF EMPLOYMENT. The term of the employment shall commence on your Start
Date, and shall continue for a period of one (1) year.
3. BASE SALARY. The Company shall pay you a base salary at the rate of $200,000
per annum. Your base salary shall be subject to additional increases at the
discretion of the Company's Board of Directors. Your base salary shall be
payable in such installments as the Company regularly pays its other salaried
employees, subject to such deductions and withholdings as may be required by law
or by further agreement with you.
4. OTHER COMPENSATION.
a) BONUS. The Company will pay you a bonus upon the successful completion of the
objectives established for your performance, which will be measured on or about
December 31, 1999. The performance criteria will be issued separately by the
COO, and may be changed, with mutual fairness, from time to time as situations
develop. The target bonus for the period ending December 31, 1999 will be the
appropriate prorata amount (based on the number of weeks from your Start Date
through December 31, 1999) of an annual bonus of up to $100,000. Separate
criteria will be established for your entitlement for the year starting January
1, 2000.
<PAGE>
b) INCENTIVE STOCK OPTIONS. Effective upon your Start Date, PSINet Inc. shall
grant you options, subject to Board approval, to purchase 100,000 shares of
PSINet Inc.'s common stock (the "Options") pursuant to its Executive Stock
Incentive Plan (the "Plan"). Such Options shall be evidenced by an option
agreement in such form as required by the Plan. Among other terms and provisions
prescribed by the Plan, the option agreement shall provide that (a) the exercise
price of the Options shall be the price per share of the Company's common stock
as reported by the NASDAQ Stock Market at the close of business on your Start
Date, (b) the Options shall not be exercisable after the expiration of ten (10)
years from the date such Options are granted, and (c) the stock shall vest
ratably, monthly, over forty-eight (48) months, provided that for each month's
vesting purposes you continue to be employed full time by the Company or one of
its subsidiaries during such month, and provided that the Company's Board of
Directors ratifies, no less often than annually, that you have met the
performance standards and criteria set for you for the preceding period. You
also may be eligible to receive additional options periodically during your
employment by the Company.
c) CAR ALLOWANCE. The Company plans to implement a Company car policy for which
you would be eligible. Until such a policy is implemented, the Company will
cover the rental or short term leasing cost (through normal expense
reimbursement) of a suitable executive vehicle up to the value of $750 per
month.
5. EMPLOYEE BENEFITS. You shall be provided employee benefits, including
(without limitation) 401(k), four (4) weeks' paid vacation per year, and life,
health, accident and disability insurance under the Company's plans, policies
and programs available to employees in accordance with the provisions of such
plans, policies, and programs.
6. TERMINATION.
a) Your employment with the Company may be terminated by the Company at any time
for "Cause" as defined in Section 6(c) hereof. Upon such termination, the
Company will provide you with written notice whether it has elected to use the
non-competition restrictions set forth in Section 7(a) hereof. Your employment
may also be terminated by the Company at any time without Cause provided the
Company shall have given you one-hundred eighty (180) days' prior written notice
of such termination. That written notice must state whether the Company has
elected to use the non-Competition restriction (which decision may not be
rescinded). Your employment may be terminated by you at any time for any reason,
provided you shall have given the Company at least thirty (30) days' prior
written notice of such termination. By the thirtieth day the Company must notify
you in writing whether it has elected to use the non-Competition restriction.
Such decision may not be rescinded. Failure of the Company to so notify you
shall result in the non-Competition restriction not being in place.
b) Subject to your compliance with your obligations under Section 7 hereof, in
the event that your employment terminates or is terminated by you or the Company
for any reason other than for Cause, and the Company has elected to use the
non-Competition restriction, you shall be entitled, for a period of twelve (12)
months after termination of employment, to the following (collectively, the
"Termination Payments"): (i) your then current rate of base salary as provided
in Section 3; (ii) all life insurance and health benefits, disability insurance
and benefits and reimbursement theretofore being provided
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to you; and (iii) Company contributions, to the extent permitted by applicable
law, to a SEP-IRA, Keogh or other retirement mechanism selected by you
sufficient to provide the same level of retirement benefits you would have
received if you had remained employed by the Company during such twelve (12)
month period. The Company shall make up the difference in cash payments directly
to you to the extent that applicable law would not permit it to make such
contributions.
c) The Company shall have "Cause" for termination of your employment by reason
of any breach of your agreement not to compete pursuant to Section 7 hereof,
your committing an act materially adversely affecting the Company which
constitutes reckless or willful misconduct, your conviction of a felony, or any
material breach by you of this Agreement.
7. AGREEMENT NOT TO COMPETE.
a) In consideration of your employment pursuant to this Agreement and for other
good and valuable consideration, the receipt and adequacy of which is hereby
acknowledged, you covenant to and agree with the Company that, so long as you
are employed by the Company under this Agreement and for a period of twelve (12)
months following the termination of such employment (but only if the Company has
elected to enforce the restriction), you shall not, without the prior written
consent of the Company, either for yourself or for any other person, firm or
corporation, manage, operate, control, participate in the management, operation
or control of or be employed by any other person or entity which is engaged in
providing Internet-related network or communications services competitive with
the Internet-related network or communications services offered to customers by
the Company as of the date of termination or within six (6) months thereafter.
The foregoing shall in no event restrict you from: (i) writing or teaching,
whether on behalf of for-profit, or not-for-profit institution(s); (ii)
investing (without participating in management or operation) in the securities
of any private or publicly traded corporation or entity; or (iii) after
termination of employment, becoming employed by a hardware, software or other
vendor to the Company, provided that such vendor does not offer network or
communications services that are competitive with the Internet-related network
or communications services offered by the Company as of the date of termination
of employment or within six (6) months thereafter.
b) You may request permission from the Company's Board of Directors to engage in
activities which would otherwise be prohibited by Section 7(a). The Company
shall respond to such request within thirty (30) days after receipt. The Company
will notify you in writing if it becomes aware of any breach or threatened
breach of any of the provisions in Section 7(a), and you shall have thirty (30)
days after receipt of such notice in which to cure or prevent the breach, to the
extent that you are able to do so. You and the Company acknowledge that any
breach or threatened breach by you of any of the provisions in Section 7(a)
above cannot be remedied by the recovery of damages, and agree that in the event
of any such breach or threatened breach which is not cured with such thirty (30)
day period, the Company may pursue injunctive relief for any such breach or
threatened breach. If a court of competent jurisdiction determines that you
breached any of such provisions, you shall not be entitled to any Termination
Payments from and after date of the breach. In such event, you shall promptly
repay any Termination Payments previously made plus interest thereon from the
date of such
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payment(s) at twelve percent (12%) per annum. If, however, the Company has
suspended making such Termination Payments and a court of competent jurisdiction
finally determines that you did not breach such provision or determines such
provision to be unenforceable as applied to your conduct, you shall be entitled
to receive any suspended Termination Payment, plus interest thereon from the
date when due at twelve percent (12%) per annum. The Company may elect (once) to
continue paying the Termination Payments before a final decision has been made
by the court.
8. INTELLECTUAL PROPERTY; OWNERSHIP OF WORK PRODUCT. All copyrights, patents,
trade secrets, or other intellectual property rights associated with any ideas,
concepts, techniques, inventions, processes, or works of authorship developed or
created by you during the course of performing the Company's work (collectively
the "Work Product") shall belong exclusively to the Company and shall, to the
extent possible, be considered a work made for hire for the Company within the
meaning of Title 17 of the United States Code. You automatically assign, and
shall assign at the time of creation of the Work Product, without any
requirement of further consideration, any right, title, or interest you may have
in such Work Product, including any copyrights or other intellectual property
rights pertaining thereto. Upon request of the Company, you shall take such
further actions, including execution and delivery of instruments of conveyance,
as may be appropriate to give full and proper effect to such assignment.
9. NONDISCLOSURE AGREEMENT. You agree to sign the Company's Nondisclosure
Agreement before commencing employment with PSINet Inc.
10. TRANSFERABILITY.
a) As used in this Agreement, the term "Company" shall include any successor to
all or part of the business or assets of the Company who shall assume and agree
to perform this Agreement.
This Agreement shall inure to the benefit of and be enforceable by you and your
personal or legal representatives, executors, administrators, heirs,
distributees, devisees and legatees.
b) Except as provided under paragraph (a) of this Section 10, neither this
Agreement nor any of the rights or obligations hereunder shall be assigned or
delegated by any party hereto without the prior written consent of the other
party.
11. SEVERABILITY. The invalidity or unenforceability of any particular provision
of this Agreement shall not affect the other provisions hereof, and this
Agreement shall be construed in all respects as if such invalid or unenforceable
provision were omitted. If a court of competent jurisdiction determines that any
particular provision of this Agreement is invalid or unenforceable, the court
shall restrict the provision so as to be enforceable. However, if the provisions
of Section 7 shall be restricted, a proportional reduction shall be made in the
payments under Section 6.
12. ENTIRE AGREEMENT; WAIVERS. This letter Agreement contains the entire
agreement of the parties concerning the subject matter hereof and supersedes and
cancels all prior agreements, negotiations, correspondence, undertakings and
communications of the parties, oral or written. No waiver or modification of any
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provision of this Agreement shall be effective unless in writing and signed by
both parties.
13. NOTICES. Any notices, requests, instruction or other document to be given
hereunder shall be in writing and shall be sent certified mail, return receipt
requested, addressed to the party intended to be notified at the address of such
party as set for at the head of this agreement or such other address as such
party may designate in writing to the other.
14. GOVERNING LAW. THIS LETTER AGREEMENT SHALL BE SUBJECT TO, GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS TO BE PERFORMED WHOLLY WITHIN THAT STATE.
15. COUNTERPARTS. This letter Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which shall
be one and the same instrument.
Please confirm your agreement with the foregoing by signing and returning one
copy of this letter Agreement to the undersigned, whereupon this letter
agreement shall become a binding agreement between you and the Company.
Sincerely,
PSINet Inc.
By: /s/Harold S. ("Pete") Wills
President and COO
Accepted and Agreed to as of May 27, 1999:
By: /s/Philippe J. Kuperman
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<PAGE>
EXHIBIT 10.107
REGISTRATION RIGHTS AGREEMENT
Dated as of July 23, 1999
by and among
PSINet Inc.
and
Donaldson, Lufkin & Jenrette International
Bear Stearns International Limited
and
Chase Manhattan International Limited
<PAGE>
This Registration Rights Agreement (this "Agreement") is made and
entered into as of July 23, 1999, by and among PSINet Inc., a New York
corporation (the "Company"), and Donaldson, Lufkin & Jenrette International,
Bear Stearns International Limited and Chase Manhattan International Limited
(each an "Initial Purchaser" and, collectively, the "Initial Purchasers"), each
of whom (or their respective affiliates) has agreed to purchase the Company's
$1,050,000,000 11% Senior Notes due 2009 (the "Dollar Notes") and Euro
150,000,000 11% Senior Notes due 2009 (the "Euro Notes" and, together with the
Dollar Notes, the "Notes") pursuant to the Purchase Agreement (as defined
below).
This Agreement is made pursuant to the Purchase Agreement, dated July
16, 1999 (the "Purchase Agreement"), by and among the Company and the Initial
Purchasers. In order to induce the Initial Purchasers to purchase the Notes, the
Company has agreed to provide the registration rights set forth in this
Agreement. The execution and delivery of this Agreement is a condition to the
obligations of the Initial Purchasers set forth in Section 3 of the Purchase
Agreement. Capitalized terms used herein and not otherwise defined shall have
the meaning assigned to them in the Indenture, dated as of July 23, 1999 between
the Company and Wilmington Trust Company, as Trustee, relating to the Notes and
the Exchange Notes (as defined below) (the "Indenture").
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have
the following meanings:
Act: The Securities Act of 1933, as amended.
Affiliate: As defined in Rule 144 of the Commission under the Act.
Affiliated Market Maker: A Broker-Dealer who is deemed to be an
Affiliate of the Company.
Broker-Dealer: Any broker or dealer registered under the Exchange
Act.
Business Day: A day other than Saturday, Sunday or a day on which
banking institutions located in New York City, Luxembourg, London, England or in
the place in which the Company maintains its principal office are authorized or
obligated by law, regulation or executive order to be closed.
Certificated Securities: Physical Notes, as defined in the Indenture.
Closing Date: The date hereof.
Commission: The Securities and Exchange Commission.
<PAGE>
Consummate: An Exchange Offer shall be deemed "Consummated" for
purposes of this Agreement upon the occurrence of (a) the filing and
effectiveness under the Act of the Exchange Offer Registration Statement
relating to the Exchange Notes to be issued in the Exchange Offer, (b) the
maintenance of the continuing effectiveness of such Exchange Offer Registration
Statement and the keeping of the Exchange Offer open for a period not less than
the period required pursuant to Section 3(b) hereof and (c) the delivery by the
Company to the Registrar under the Indenture of Exchange Notes in the same
aggregate principal amount as the aggregate principal amount of Notes validly
tendered by Holders thereof pursuant to the Exchange Offer. The term
"Consummation" shall have a correlative meaning.
Consummation Deadline: As defined in Section 3(b) hereof.
Effectiveness Deadline: As defined in Sections 3(a) and 4(a) hereof.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Exchange Notes: The Company's 11% Senior Notes due 2009 to be issued
pursuant to the Indenture: (i) in the Exchange Offer or (ii) as contemplated by
Section 4 hereof.
Exchange Offer: The exchange and issuance by the Company of an
aggregate principal amount of Exchange Notes (which shall be registered pursuant
to the Exchange Offer Registration Statement) equal to the outstanding aggregate
principal amount of Notes that are tendered by such Holders in connection with
such exchange and issuance.
Exchange Offer Registration Statement: The Registration Statement
relating to the Exchange Offer, including the related Prospectus.
Exempt Resales: The transactions in which the Initial Purchasers
propose to resell the Notes to certain "qualified institutional buyers," as such
term is defined in Rule 144A under the Act and pursuant to Regulation S under
the Act.
Filing Deadline: As defined in Sections 3(a) and 4(a) hereof.
Holders: As defined in Section 2 hereof.
Person: Any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
Prospectus: The prospectus included in a Registration Statement at
the time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such prospectus.
Recommencement Date: As defined in Section 6(d) hereof.
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Registration Default: As defined in Section 5 hereof.
Registration Statement: Any registration statement of the Company
relating to (a) an offering of Exchange Notes pursuant to the Exchange Offer or
(b) the registration for resale of Transfer Restricted Securities pursuant to
the Shelf Registration Statement, in each case, (i) that is filed pursuant to
the provisions of this Agreement and (ii) including the Prospectus included
therein, all amendments and supplements thereto (including post-effective
amendments) and all exhibits and material incorporated by reference therein.
Regulation S: Regulation S promulgated under the Act.
Shelf Registration Statement: As defined in Section 4 hereof.
Suspension Notice: As defined in Section 6(d) hereof.
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb)
as in effect on the date of the Indenture.
Transfer Restricted Securities: Each Note, until the earliest to
occur of (a) the date on which such Note is exchanged in the Exchange Offer for
a Exchange Note which is entitled to be resold to the public by the Holder
thereof without complying with the prospectus delivery requirements of the Act,
(b) the date on which such Note has been disposed of in accordance with a Shelf
Registration Statement (and the purchasers thereof have been issued Exchange
Notes), or (c) the date on which such Note is entitled to be distributed to the
public pursuant to Rule 144 under the Act (and purchasers thereof have been
issued Exchange Notes), and each Exchange Note until the date on which such
Exchange Note is disposed of by a Broker-Dealer pursuant to the "Plan of
Distribution" contemplated by the Exchange Offer Registration Statement
(including the delivery of the Prospectus contained therein).
SECTION 2. HOLDERS
A Person is deemed to be a holder of Transfer Restricted Securities
(each, a "Holder") whenever such Person owns Transfer Restricted Securities.
SECTION 3. REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permitted by applicable
federal law (after the procedures set forth in Section 6(a)(i) below have been
complied with), the Company shall (i) cause the Exchange Offer Registration
Statement to be filed with the Commission as soon as practicable after the
Closing Date, but in no event later than 75 days after the Closing Date (such
75th day being the "Filing Deadline"), (ii) use its best efforts to cause such
Exchange Offer Registration Statement to become effective at the earliest
possible time (consistent with existing contractual obligations of the Company),
but
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in no event later than 150 days after the Closing Date (such 150th day being the
"Effectiveness Deadline"), (iii) in connection with the foregoing, (A) file all
pre-effective amendments to such Exchange Offer Registration Statement as may be
necessary in order to cause it to become effective, (B) file, if applicable, a
post-effective amendment to such Exchange Offer Registration Statement pursuant
to Rule 430A under the Act and (C) cause all necessary filings, if any, in
connection with the registration and qualification of the Exchange Notes to be
made under the Blue Sky laws of such jurisdictions as are necessary to permit
Consummation of the Exchange Offer, and (iv) upon the effectiveness of such
Exchange Offer Registration Statement, commence and Consummate the Exchange
Offer. The Exchange Offer shall be on the appropriate form permitting (i)
registration of the Exchange Notes to be offered in exchange for the Notes that
are Transfer Restricted Securities and (ii) resales of Exchange Notes by
Broker-Dealers that tendered into the Exchange Offer the Notes that such
Broker-Dealer acquired for its own account as a result of market making
activities or other trading activities (other than Notes acquired directly from
the Company or any of its Affiliates) as contemplated by Section 3(c) below.
(b) The Company shall use its best efforts to cause the Exchange
Offer Registration Statement to be effective continuously and shall keep the
Exchange Offer open for a period of not less than the minimum period required
under applicable federal and state securities laws to Consummate the Exchange
Offer; provided, however, that, in no event shall such period be less than 20
Business Days. The Company shall cause the Exchange Offer to comply with all
applicable federal and state securities laws, and, if applicable, the rules and
regulations of the Luxembourg Stock Exchange. No securities other than the
Exchange Notes shall be included in the Exchange Offer Registration Statement.
The Company shall use its best efforts to cause the Exchange Offer to be
Consummated on the earliest practicable date after the Exchange Offer
Registration Statement has become effective, but in no event later than 30
Business Days thereafter (such 30th day being the "Consummation Deadline").
(c) The Company shall include a "Plan of Distribution" section in the
Prospectus contained in the Exchange Offer Registration Statement and indicate
therein that any Broker-Dealer who holds Transfer Restricted Securities that
were acquired for the account of such Broker-Dealer as a result of market-making
activities or other trading activities (other than Notes acquired directly from
the Company or any Affiliate of the Company), may exchange such Transfer
Restricted Securities pursuant to the Exchange Offer; however, such
Broker-Dealer may be deemed to be an "underwriter" within the meaning of the Act
and must, therefore, deliver a prospectus meeting the requirements of the Act in
connection with any resales of the Exchange Notes received by such Broker-Dealer
in the Exchange Offer, which prospectus delivery requirement may be satisfied by
the delivery by such Broker-Dealer of the Prospectus contained in the Exchange
Offer Registration Statement. Such "Plan of Distribution" section shall also
contain all other information with respect to such sales by such Broker-Dealers
that the Commission may require in order to permit such sales pursuant thereto,
but such "Plan of Distribution" shall not name any such Broker-Dealer or
disclose the amount of Transfer Restricted Securities held by any such
Broker-Dealer, except to the extent required by the Commission as a result of a
change in policy, rules or regulations after the date of this Agreement. The
letter of transmittal or similar documentation to be executed by a Holder in
order to participate in the Exchange Offer will include, among other things, a
provision to the effect that, if the Holder is a Broker-Dealer holding Notes
acquired for its own account as a result of market-making activities or other
trading activities, such Holder acknowledges that it will deliver a prospectus
meeting the requirements of the Act in connection with any resale of Exchange
Notes received in respect of Notes pursuant to the Exchange Offer.
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Because such Broker-Dealer may be deemed to be an "underwriter"
within the meaning of the Act and must, therefore, deliver a prospectus meeting
the requirements of the Act in connection with its initial sale of any Exchange
Notes received by such Broker-Dealer in the Exchange Offer, the Company shall
permit the use of the Prospectus contained in the Exchange Offer Registration
Statement by such Broker-Dealer to satisfy such prospectus delivery requirement.
To the extent necessary to ensure that the prospectus contained in the Exchange
Offer Registration Statement is available for sales of Exchange Notes by
Broker-Dealers, the Company agree to use its best efforts to keep the Exchange
Offer Registration Statement continuously effective, supplemented, amended and
current as required by and subject to the provisions of Section 6(a) and (c)
hereof and in conformity with the requirements of this Agreement, the Act and
the policies, rules and regulations of the Commission as announced from time to
time, for a period of one year from the Consummation Deadline or such shorter
period as will terminate when all Transfer Restricted Securities covered by such
Registration Statement have been sold pursuant thereto. The Company shall
provide sufficient copies of the latest version of such Prospectus to such
Broker-Dealers, promptly upon request, and in no event later than two Business
Days after such request, at any time during such period.
SECTION 4. SHELF REGISTRATION
(a) Shelf Registration. If (i) the Exchange Offer is not permitted by
applicable law (after the Company has complied with the procedures set forth in
Section 6(a)(i) below) or (ii) if any Holder of Transfer Restricted Securities
shall notify the Company within 20 Business Days following the Consummation
Deadline that (A) such Holder was prohibited by law or Commission policy from
participating in the Exchange Offer, (B) such Holder may not resell the Exchange
Notes acquired by it in the Exchange Offer to the public without delivering a
prospectus and the Prospectus contained in the Exchange Offer Registration
Statement is not appropriate or available for such resales by such Holder or (C)
such Holder is a Broker-Dealer and holds Notes acquired directly from the
Company or any of its Affiliates, then the Company shall:
(x) cause to be filed, on or prior to 30 days after the earlier
of (i) the date on which the Company determines that the Exchange Offer
Registration Statement cannot be filed as a result of clause (a)(i) above
or (ii) the date on which the Company receives the notice specified in
clause (a)(ii) above (such earlier date, the "Filing Deadline"), a shelf
registration statement pursuant to Rule 415 under the Act (which may be an
amendment to the Exchange Offer Registration statement (the "Shelf
Registration Statement")), relating to all Transfer Restricted Securities,
the Holders of which shall have provided the information required pursuant
to Section 4(b) hereof, and
(y) use its best efforts to cause such Shelf Registration
Statement to become effective on or prior to 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 the
Company) (such 60th day or longer period the "Effectiveness Deadline").
If, after the Company has filed an Exchange Offer Registration
Statement that satisfies the requirements of Section 3(a) above, the Company is
required to file and make effective a Shelf Registration Statement solely
because the Exchange Offer is not permitted under applicable federal law (i.e.,
clause (a)(i)
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above), then the filing of the Exchange Offer Registration Statement shall be
deemed to satisfy the requirements of clause (x) above; provided, that, in such
event, the Company shall remain obligated to meet the Effectiveness Deadline set
forth in clause (y) above.
To the extent necessary to ensure that the Shelf Registration
Statement is available for sales of Transfer Restricted Securities by the
Holders thereof entitled to the benefit of this Section 4(a) and the other
securities required to be registered therein pursuant to Section 6(b)(ii)
hereof, the Company shall use its best efforts to keep any Shelf Registration
Statement required by this Section 4(a) continuously effective, supplemented,
amended and current as required by and subject to the provisions of Sections
6(b) and (c) hereof and in conformity with the requirements of this Agreement,
the Act and the policies, rules and regulations of the Commission as announced
from time to time, for a period of at least two years (as extended pursuant to
Section 6(c)(i)) following the Closing Date, or such shorter period as will
terminate when all Transfer Restricted Securities covered by such Shelf
Registration Statement have been sold pursuant thereto.
(b) Provision by Holders of Certain Information in Connection with
the Shelf Registration Statement. No Holder of Transfer Restricted Securities
may include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Company in writing, within 10 Business Days after receipt of a request
therefor, such information as the Company may reasonably request for use in
connection with any Shelf Registration Statement or Prospectus or preliminary
prospectus included therein, including, without limitation, the information
specified in Item 507 or 508 of Regulation S-K, as applicable, under the Act for
use in connection with any Shelf Registration Statement or Prospectus or
preliminary prospectus included therein. No Holder of Transfer Restricted
Securities shall be entitled to liquidated damages pursuant to Section 5 hereof
unless and until such Holder shall have provided all such information. Each
selling Holder as to which any Shelf Registration Statement is being effected
agrees to notify the Company as promptly as practicable of any inaccuracy or
change in information previously furnished by such Holder to the Company or the
happening of any event, in either case as a result of which the Shelf
Registration Statement contains any untrue statement of a material fact
regarding such Holder or the distribution of Transfer Restricted Securities or
omits to state any material fact regarding such Holder or the distribution of
such Transfer Restricted Securities required to be stated therein or necessary
to make the statement therein, in light of the circumstances under which they
are made, not misleading or any Prospectus relating to such Shelf Registration
Statement contains any untrue statement of a material fact regarding such Holder
or the distribution of such Transfer Restricted Securities or omits to state any
material fact regarding such Holder or the distribution of such Transfer
Restricted Securities necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and to furnish
promptly to the Company any additional information (i) required to correct and
update any previously furnished information or (ii) required so that the Shelf
Registration Statement or any Prospectus shall not contain any such untrue
statement of a material fact or any such omission to state a material fact.
SECTION 5. LIQUIDATED DAMAGES
If (i) any Registration Statement required by this Agreement is not
filed with the Commission on or prior to the applicable Filing Deadline, (ii)
any such Registration Statement has not been declared
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effective by the Commission on or prior to the applicable Effectiveness
Deadline, (iii) the Exchange Offer has not been Consummated on or prior to the
Consummation Deadline, or (iv) any Registration Statement required by this
Agreement is filed and declared effective but shall thereafter cease to be
effective or fail to be usable for its intended purpose without being succeeded
immediately (subject to the terms of this Agreement) by a post-effective
amendment to such Registration Statement that cures such failure and that is
itself declared effective immediately (each such event referred to in clauses
(i) through (iv), a "Registration Default"), then the Company hereby agrees to
pay to each Holder of Transfer Restricted Securities affected thereby liquidated
damages in an amount equal to 0.25% per annum per $1,000 or Euro 1000, as the
case may be, in principal amount of Transfer Restricted Securities held by such
Holder for each year or portion thereof that the Registration Default continues
for the first 90-day period immediately following the occurrence of such
Registration Default. The amount of the liquidated damages shall increase by an
additional 0.25% per annum per $1,000 or Euro 1000, as the case may be, in
principal amount of Transfer Restricted Securities with respect to each
subsequent 90-day period until all Registration Defaults have been cured, up to
a maximum amount of liquidated damages of 1.50% per annum per $1,000 or Euro
1000, as the case may be, in principal amount of Transfer Restricted Securities;
provided, that, the Company shall in no event be required to pay liquidated
damages for more than one Registration Default at any given time.
Notwithstanding anything to the contrary set forth herein, (1) upon filing of
the Exchange Offer Registration Statement (and/or, if applicable, the Shelf
Registration Statement), in the case of clause (i) above, (2) upon the
effectiveness of the Exchange Offer Registration Statement (and/or, if
applicable, the Shelf Registration Statement), in the case of clause (ii) above,
(3) upon Consummation of the Exchange Offer, in the case of clause (iii) above,
or (4) upon the filing of a post-effective amendment to the Registration
Statement or an additional Registration Statement that causes the Exchange Offer
Registration Statement (and/or, if applicable, the Shelf Registration Statement)
to again be declared effective or made usable in the case of clause (iv) above,
the liquidated damages payable with respect to the Transfer Restricted
Securities as a result of such clause (i), (ii), (iii) or (iv), as applicable,
shall cease.
All accrued liquidated damages shall be paid to the Holders entitled
thereto, in the manner provided for the payment of interest in the Indenture, on
each Interest Payment Date, as more fully set forth in the Indenture and the
Notes. Notwithstanding the fact that any securities for which liquidated damages
are due cease to be Transfer Restricted Securities, all obligations of the
Company to pay liquidated damages with respect to such securities outstanding
prior to the time such securities ceased to be Transfer Restricted Securities
shall survive until such time as such obligations with respect to such
securities shall have been satisfied in full.
In the event any Notes or Exchange Notes are listed on the Luxembourg
Stock Exchange, the Company shall (i) notify the Luxembourg Stock Exchange of
the amount of any liquidated damages payable with respect to listed Notes in
accordance with this Section 5 and (ii) arrange to have a notice of the amount
of any such liquidated damages with respect to listed Notes published in a
newspaper having a general circulation in Luxembourg in accordance with the
rules and regulations of the Luxembourg Stock Exchange, which initially shall be
the Luxembourger Wort.
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SECTION 6. REGISTRATION PROCEDURES
(a) Exchange Offer Registration Statement. In connection with the
Exchange Offer, the Company shall (x) comply with all applicable provisions of
Section 6(c) below, (y) use its best efforts to effect such exchange and to
permit the resale of Exchange Notes by Broker-Dealers that tendered in the
Exchange Offer Notes that such Broker-Dealer acquired for its own account as a
result of its market making activities or other trading activities (other than
Notes acquired directly from the Company or any of its Affiliates) being sold in
accordance with the intended method or methods of distribution thereof, and (z)
comply with all of the following provisions:
(i) If, following the date hereof there has been announced a
change in Commission policy with respect to exchange offers such as the
Exchange Offer that in the reasonable opinion of counsel to the Company
raises a substantial question as to whether the Exchange Offer is
permitted by applicable federal law, the Company hereby agrees to seek a
no-action letter or other favorable decision from the Commission allowing
the Company to Consummate an Exchange Offer for such Transfer Restricted
Securities. The Company hereby agrees to pursue the issuance of such a
decision to the Commission staff level. In connection with and subject to
the foregoing, the Company hereby agrees to take all such other actions as
may be reasonably requested by the Commission or otherwise required in
connection with the issuance of such decision, including, without
limitation, (A) participating in telephonic conferences with the
Commission, (B) delivering to the Commission staff an analysis prepared by
counsel to the Company setting forth the legal bases, if any, upon which
such counsel has concluded that such an Exchange Offer should be permitted
and (C) diligently pursuing a resolution (which need not be favorable) by
the Commission staff.
(ii) As a condition to its participation in the Exchange Offer,
each Holder of Transfer Restricted Securities (including, without
limitation, any Holder who is a Broker-Dealer) shall furnish, upon the
request of the Company, prior to the Consummation of the Exchange Offer, a
written representation to the Company (which may be contained in the
letter of transmittal contemplated by the Exchange Offer Registration
Statement) to the effect that (A) it is not an Affiliate of the Company,
(B) 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 of the Exchange Notes to be issued in the Exchange Offer and
(C) it is acquiring the Exchange Notes in its ordinary course of business.
In addition, all such Holders of Transfer Restricted Securities shall
otherwise reasonably cooperate to the extent necessary in the Company's
preparations for the Exchange Offer. Each Holder using the Exchange Offer
to participate in a distribution of the Exchange Notes hereby acknowledges
and agrees that, if the resales are of Exchange Notes obtained by such
Holder in exchange for Notes acquired directly from the Company or an
Affiliate thereof, it (1) could not, under Commission policy as in effect
on the date of this Agreement, rely on the position of the Commission
enunciated in Morgan Stanley and Co., Inc. (available June 5, 1991) and
Exxon Capital Holdings Corporation (available May 13, 1988), as
interpreted in the Commission's letter to Shearman & Sterling dated July
2, 1993, and similar no-action letters (including, if applicable, any
no-action letter obtained pursuant to clause (i) above), and (2) must
comply with the registration and prospectus delivery requirements of the
Act in connection with a secondary resale
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transaction and that such a secondary resale transaction must be covered
by an effective registration statement containing the selling security
holder information required by Item 507 or 508, as applicable, of
Regulation S-K under the Act.
(iii) Prior to the effectiveness of the Exchange Offer
Registration Statement, the Company shall provide a supplemental letter to
the Commission (A) stating that the Company is registering the Exchange
Offer in reliance on the position of the Commission enunciated in Exxon
Capital Holdings Corporation (available May 13, 1988), Morgan Stanley and
Co., Inc. (available June 5, 1991) as interpreted in the Commission's
letter to Shearman & Sterling dated July 2, 1993, and, if applicable, any
no-action letter obtained pursuant to clause (i) above, (B) including a
representation that the Company has not entered into any arrangement or
understanding with any Person to distribute the Exchange Notes to be
received in the Exchange Offer, and to the extent that the Company is
capable of so representing, to the best of the Company's information and
belief, each Holder participating in the Exchange Offer is acquiring the
Exchange Notes in its ordinary course of business and has no arrangement
or understanding with any Person to participate in the distribution of the
Exchange Notes received in the Exchange Offer and (C) including any other
undertaking or representation required by the Commission as set forth in
any no-action letter obtained pursuant to clause (i) above, if applicable.
(b) Shelf Registration Statement. In connection with the Shelf
Registration Statement, the Company shall (i) (x) comply with all the provisions
of Section 6(c) below and (y) use its best efforts to effect such registration
to permit the sale of the Transfer Restricted Securities being sold in
accordance with the intended method or methods of distribution thereof (as
indicated in the information furnished to the Company pursuant to Section 4(b)
hereof), and pursuant thereto the Company will prepare and file with the
Commission a Registration Statement relating to the registration on any
appropriate form under the Act, which form shall be available for the sale of
the Transfer Restricted Securities in accordance with the intended method or
methods of distribution thereof within the time periods and otherwise in
accordance with the provisions hereof; and (ii) issue, upon the request of any
Holder or purchaser of Notes covered by any Shelf Registration Statement
contemplated by this Agreement, Exchange Notes having an aggregate principal
amount equal to the aggregate principal amount of Notes sold pursuant to the
Shelf Registration Statement and surrendered to the Company for cancellation;
the Company shall register Exchange Notes on the Shelf Registration Statement
for this purpose and issue the Exchange Notes to the purchaser(s) of securities
subject to the Shelf Registration Statement in the names as such purchaser(s)
shall designate.
(c) General Provisions. In connection with any Registration Statement
and any related Prospectus required by this Agreement, the Company shall:
(i) use its best efforts to keep such Registration Statement
continuously effective and provide all requisite financial statements for
the period specified in Section 3 or 4 of this Agreement, as applicable.
Upon the occurrence of any event that would cause any such Registration
Statement or the Prospectus contained therein (A) to contain an untrue
statement of material fact or omit to state any material fact necessary to
make the statements therein not misleading or (B) not to be effective and
usable for resale of Transfer Restricted Securities during the period
required by this Agreement, the Company shall file promptly an appropriate
amendment to such Registration
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<PAGE>
Statement curing such defect, and, if Commission review is required, use
its best efforts to cause such amendment to be declared effective as soon
as practicable;
(ii) prepare and file with the Commission such amendments and
post-effective amendments to the applicable Registration Statement as may
be necessary to keep such Registration Statement effective for the
applicable period set forth in Section 3 or 4 hereof, as the case may be;
cause the Prospectus to be supplemented by any required Prospectus
supplement, and as so supplemented to be filed pursuant to Rule 424 under
the Act, and to comply fully with the applicable provisions of Rules 424,
430A and 462, as applicable, under the Act in a timely manner; and comply
with the provisions of the Act with respect to the disposition of all
securities covered by such Registration Statement during the applicable
period in accordance with the intended method or methods of distribution
by the sellers thereof set forth in such Registration Statement or
supplement to the Prospectus;
(iii) advise each Holder and each Initial Purchaser who is
required to deliver a prospectus in connection with sales or market making
activities (as further defined in Section 1 hereof an "Affiliated Market
Maker") promptly and, if requested by such Holder or Person, confirm such
advice in writing, (A) when the Prospectus or any Prospectus supplement or
post-effective amendment has been filed, and, with respect to any
applicable Registration Statement or any post-effective amendment thereto,
when the same has become effective, (B) of any request by the Commission
for amendments to the Registration Statement or amendments or supplements
to the Prospectus or for additional information relating thereto, (C) of
the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement under the Act or of the
suspension by any state securities commission of the qualification of the
Transfer Restricted Securities for offering or sale in any jurisdiction,
or the initiation of any proceeding for any of the preceding purposes, (D)
of the existence of any fact or the happening of any event that makes any
statement of a material fact made in the Registration Statement, the
Prospectus, any amendment or supplement thereto or any document
incorporated by reference therein untrue, or that requires the making of
any additions to or changes in the Registration Statement in order to make
the statements therein not misleading, or that requires the making of any
additions to or changes in the Prospectus in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. If at any time the Commission shall issue any stop order
suspending the effectiveness of the Registration Statement, or any state
securities commission or other regulatory authority shall issue an order
suspending the qualification or exemption from qualification of the
Transfer Restricted Securities under state securities or Blue Sky laws or
if the Euro Notes are listed on the LSE and, at any time, the Luxembourg
Stock Exchange orders a suspension of trading of the Euro Notes, the
Company shall use its best efforts to obtain the withdrawal or lifting of
such order at the earliest practical time;
(iv) subject to Section 6(c)(i) above, if any fact or event
contemplated by Section 6(c)(iii)(D) above shall exist or have occurred,
prepare a supplement or post-effective amendment to the Registration
Statement or related Prospectus or any document incorporated therein by
reference or file any other required document so that, as thereafter
delivered to the purchasers of Transfer Restricted Securities, the
Prospectus will not contain an untrue statement of a material fact
10
<PAGE>
or omit to state any material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading;
(v) furnish to each Holder and each Affiliated Market Maker in
connection with such exchange or sale, if any, before filing with the
Commission, copies of any Registration Statement or any Prospectus
included therein or any amendments or supplements to any such Registration
Statement or Prospectus (including all documents incorporated by reference
after the initial filing of such Registration Statement), which documents
will be subject to the review and comment of such Holders in connection
with such sale, if any, for a period of at least five Business Days, and
the Company will not file any such Registration Statement or Prospectus or
any amendment or supplement to any such Registration Statement or
Prospectus (including all such documents incorporated by reference) to
which such Holders shall reasonably object within five Business Days after
the receipt thereof. A Holder shall be deemed to have reasonably objected
to such filing if such Registration Statement, amendment, Prospectus or
supplement, as applicable, as proposed to be filed, contains an untrue
statement of a material fact or omits to state any material fact necessary
to make the statements therein not misleading or fails to comply with the
applicable requirements of the Act which has been specifically identified
by such Holder or Affiliated Market Maker;
(vi) promptly prior to the filing of any document that is to be
incorporated by reference into a Registration Statement or Prospectus,
provide copies of such document to each Holder and each Affiliated Market
Maker in connection with such exchange or sale, if any, make the Company's
representatives available at reasonable times for discussion of such
document and other customary due diligence matters, and include such
information in such document prior to the filing thereof as such Holders
may reasonably request;
(vii) make available, at reasonable times, for inspection by
each Holder and each Affiliated Market Maker and any attorney or
accountant retained by such Holders all financial and other records,
pertinent corporate documents of the Company and cause the Company's
officers, directors and employees to supply all information reasonably
requested by any such Holder or attorney or accountant in connection with
such Registration Statement or any post-effective amendment thereto
subsequent to the filing thereof and prior to its effectiveness; provided,
however, that such Persons shall first agree in writing with the Company
that any information that is reasonably and in good faith designated by
the Company in writing as confidential at the time of delivery of such
information shall be kept confidential by such Persons, unless (i)
disclosure of such information is required by court or administrative
order or is necessary to respond to inquiries of regulatory authorities,
(ii) disclosure of such information is required by law (including any
disclosure requirements pursuant to federal securities laws in connection
with the filing of such Registration Statement or the use of any
Prospectus), (iii) such information becomes generally available to the
public other than as a result of a disclosure or failure to safeguard such
information by such Person or (iv) such information becomes available to
such Person from a source other than the Company and its subsidiaries and
such source is not known, after due inquiry, by such Person to be bound by
a confidentiality agreement; provided further, that the foregoing
investigation shall be coordinated on behalf of such Persons by one
representative designated by and on behalf of such Persons and any such
confidential information shall be available from such representative to
such Persons so long as any Person agrees to be bound by such
confidentiality agreement;
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(viii) if requested by any Holders in connection with such
exchange or sale or any Affiliated Market Maker, promptly include in any
Registration Statement or Prospectus, pursuant to a supplement or
post-effective amendment if necessary, such information as such Holders
may reasonably request to have included therein, including, without
limitation, information relating to the "Plan of Distribution" of the
Transfer Restricted Securities and the use of the Registration Statement
or Prospectus for market making activities, except to the extent that the
Company, upon receipt of an opinion of counsel, reasonably believes that
the inclusion of such information could result in a violation of federal
or state securities laws; and make all required filings of such Prospectus
supplement or post-effective amendment as soon as practicable after the
Company is notified of the matters to be included in such Prospectus
supplement or post-effective amendment;
(ix) furnish to each Holder in connection with such exchange or
sale and each Affiliated Market Maker, without charge, at least one copy
of the Registration Statement, as first filed with the Commission, and of
each amendment thereto, including all documents incorporated by reference
therein and all exhibits (including exhibits incorporated therein by
reference);
(x) deliver to each Holder and each Affiliated Market Maker,
without charge, as many copies of the Prospectus (including each
preliminary prospectus) and any amendment or supplement thereto as such
Persons reasonably may request; the Company hereby consents to the use (in
accordance with law) of the Prospectus and any amendment or supplement
thereto by each selling Holder in connection with the offering and the
sale of the Transfer Restricted Securities covered by the Prospectus or
any amendment or supplement thereto and all market making activities of
such Affiliated Market Maker, as the case may be;
(xi) upon the request of any Holder, enter into such agreements
(including underwriting agreements) and make such representations and
warranties as are customarily made by issuers to underwriters in primary
underwritten offerings and take all such other actions in connection
therewith in order to expedite or facilitate the disposition of the
Transfer Restricted Securities pursuant to any applicable Registration
Statement contemplated by this Agreement as may be reasonably requested by
any Holder in connection with any sale or resale pursuant to any
applicable Registration Statement. In such connection, and also in
connection with market making activities by any Affiliated Market Maker,
the Company shall:
(A) upon request of any Holder furnish (or in the case of
paragraphs (2) and (3) below, use its best efforts to cause to be
furnished) to each Holder upon Consummation of the Exchange Offer or
upon the effectiveness of the Shelf Registration Statement, in such
substance and scope and as are customarily made by issuers to
underwriters in primary underwritten offerings, as the case may be:
(1) a certificate, dated such date, signed on behalf of
the Company by (x) the President or any Vice President and (y)
a principal financial or accounting officer of the Company,
confirming, as of the date thereof, the matters set forth in
Sections 6(y), 9(a) and 9(b) of the Purchase Agreement and such
other similar matters as such Holders may reasonably request;
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<PAGE>
(2) an opinion, dated the date of Consummation of the
Exchange Offer or the date of effectiveness of the Shelf
Registration Statement, as the case may be, of counsel for the
Company covering matters similar to those set forth in Section
9(e) of the Purchase Agreement and such other matters as such
Holder may reasonably request, and in any event including a
statement to the effect that such counsel has participated in
conferences with officers and other representatives of the
Company, representatives of the independent public accountants
for the Company, the underwriters' representatives and the
underwriters' counsel in connection with the preparation of
such Registration Statement and the related Prospectus, and
have considered the matters required to be stated therein and
the statements contained therein, although such counsel has not
independently verified the accuracy, completeness or fairness
of such statements; and that such counsel advises that, on the
basis of the foregoing (relying as to materiality to the extent
such counsel deems appropriate upon the statements of officers
and other representatives of the Company and without
independent check or verification), no facts came to such
counsel's attention that caused such counsel to believe that
the applicable Registration Statement, at the time such
Registration Statement or any post-effective amendment thereto
became effective and, in the case of the Exchange Offer
Registration Statement, as of the date of Consummation of the
Exchange Offer, contained an untrue statement of a material
fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not
misleading, or that the Prospectus contained in such
Registration Statement as of its date and, in the case of the
opinion dated the date of Consummation of the Exchange Offer,
as of the date of Consummation, contained an untrue statement
of a material fact or omitted to state a material fact
necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not
misleading. Without limiting the foregoing, such counsel may
state further that such counsel assumes no direct or indirect
responsibility, explicitly or implicitly, for, and has not
independently verified, the accuracy, completeness or fairness
of the financial statements (including, without limitation, pro
forma financial statements), notes and schedules and other
financial, numerical, statistical and accounting information
and data included in any Registration Statement contemplated by
this Agreement or the related Prospectus; and
(3) a customary comfort letter, dated the date of
Consummation of the Exchange Offer, or as of the date of
effectiveness of the Shelf Registration Statement, as the case
may be, from the Company's independent accountants, in the
customary form and covering matters of the type customarily
covered in comfort letters to underwriters in connection with
underwritten offerings, and affirming the matters set forth in
the comfort letters delivered pursuant to Section 9(g) of the
Purchase Agreement; and
(B) deliver such other documents and certificates as may be
reasonably requested by the selling Holders or such Persons to
evidence compliance with the matters covered in
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clause (A) above and with any customary conditions contained in the
underwriting or other agreement entered into by the Company pursuant
to this clause (xi);
(xii) prior to any public offering of Transfer Restricted
Securities, cooperate with the selling Holders and their counsel in
connection with the registration and qualification of the Transfer
Restricted Securities under the securities or Blue Sky laws of such
jurisdictions as the selling Holders may request and do any and all other
acts or things necessary or advisable to enable the disposition in such
jurisdictions of the Transfer Restricted Securities covered by the
applicable Registration Statement; provided, however, that the Company
shall not be required to register or qualify as a foreign corporation
where it is not now so qualified or to take any action that would subject
it to the service of process in suits or to taxation, other than as to
matters and transactions relating to the Registration Statement, in any
jurisdiction where it is not now so subject;
(xiii) in connection with any sale of Transfer Restricted
Securities that will result in such securities no longer being Transfer
Restricted Securities, cooperate with the Holders to facilitate the timely
preparation and delivery of certificates representing Transfer Restricted
Securities to be sold and not bearing any restrictive legends; and to
register such Transfer Restricted Securities in such denominations and
such names as the selling Holders may request at least two Business Days
prior to such sale of Transfer Restricted Securities;
(xiv) use its best efforts to cause the disposition of the
Transfer Restricted Securities covered by the Registration Statement to be
registered with or approved by such other governmental agencies or
authorities as may be necessary to enable the seller or sellers thereof to
consummate the disposition of such Transfer Restricted Securities, subject
to the proviso contained in clause (xii) above;
(xv) provide (A) CUSIP numbers, ISIN numbers and common codes,
as applicable, for all Transfer Restricted Securities not later than the
effective date of a Registration Statement covering such Transfer
Restricted Securities and provide the Trustee under the Indenture with
printed certificates for the Transfer Restricted Securities which are in a
form eligible for deposit with the Depository Trust Company and, to the
extent necessary or appropriate, a common depositary for the Euroclear
System or Cedelbank, as the case may be;
(xvi) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make generally
available to its security holders with regard to any applicable
Registration Statement, as soon as practicable, a consolidated earnings
statement meeting the requirements of Rule 158 (which need not be audited)
covering a twelve-month period beginning after the effective date of the
Registration Statement (as such term is defined in paragraph (c) of Rule
158 under the Act);
(xvii) use its best efforts to cause the Indenture to be
qualified under the TIA not later than the effective date of the first
Registration Statement required by this Agreement and, in connection
therewith, cooperate with the Trustee and the Holders to effect such
changes to the Indenture as may be required for such Indenture to be so
qualified in accordance with the terms of the TIA; and execute and use its
best efforts to cause the Trustee to execute, all documents that may
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be required to effect such changes and all other forms and documents
required to be filed with the Commission to enable such Indenture to be so
qualified in a timely manner;
(xviii) provide promptly to each Holder and Affiliated Market
Maker, upon request, each document filed with the Commission pursuant to
the requirements of Section 13 or Section 15(d) of the Exchange Act; and
(xix) in the event any Notes are listed on the Luxembourg Stock
Exchange (A) make an application for an equal principal amount of Exchange
Notes to be listed on the Luxembourg Stock Exchange and (B) use its
reasonable best efforts to make available for inspection all documents
prepared in connection with the Exchange Offer at the office of
Kredietbank S.A. Luxembourgeoise, as common depositary, in Luxembourg.
(d) Restrictions on Holders. Each Holder agrees by acquisition of a
Transfer Restricted Security and each Affiliated Market Maker agrees that, upon
receipt of the notice referred to in Section 6(c)(iii)(C) hereof or any notice
from the Company of the existence of any fact of the kind described in Section
6(c)(iii)(D) hereof (in each case, a "Suspension Notice"), such Holder or Person
will forthwith discontinue disposition of Transfer Restricted Securities
pursuant to the applicable Registration Statement until (i) such Holder or
Person has received copies of the supplemented or amended Prospectus
contemplated by Section 6(c)(iv) hereof, or (ii) such Holder or Person is
advised in writing by the Company that the 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"). Each Holder or Person receiving a Suspension Notice hereby agrees that
it will either (i) destroy any Prospectuses, other than permanent file copies,
then in such Holder's or Person's possession which have been replaced by the
Company with more recently dated Prospectuses or (ii) deliver to the Company (at
the Company's expense) all copies, other than permanent file copies, then in
such Holder's Person's possession of the Prospectus covering such Transfer
Restricted Securities that was current at the time of receipt of the Suspension
Notice. The time period regarding the effectiveness of such Registration
Statement set forth in Section 3 or 4 hereof, as applicable, shall be extended
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.
SECTION 7. REGISTRATION EXPENSES
(a) All expenses incident to the Company's performance of or
compliance with this Agreement will be borne by the Company, regardless of
whether a Registration Statement becomes effective, including without
limitation: (i) all registration and filing fees and expenses; (ii) all fees and
expenses of compliance with federal securities and state Blue Sky or securities
laws; (iii) all expenses of printing (including printing certificates for the
Exchange Notes to be issued in the Exchange Offer and printing of Prospectuses
whether for exchanges, sales, market making or otherwise), messenger and
delivery services and telephone; (iv) all fees and disbursements of counsel for
the Company and one counsel for the Holders of Transfer Restricted Securities as
provided in Section 7(b) below; (v) all application and filing fees in
connection with listing the Exchange Notes on a national securities exchange or
automated quotation system pursuant to the requirements hereof; (vi) all
application and filing fees in connection with listing any Exchange Notes on the
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Luxembourg Stock Exchange; and (vii) all fees and disbursements of independent
certified public accountants of the Company (including the expenses of any
special audit and comfort letters required by or incident to such performance).
The Company will, in any event, bear its internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expenses of any annual
audit and the fees and expenses of any Person, including special experts,
retained by the Company.
(b) In connection with any Registration Statement required by this
Agreement (including, without limitation, the Exchange Offer Registration
Statement and the Shelf Registration Statement), the Company will reimburse the
Initial Purchasers and the Holders of Transfer Restricted Securities who are
tendering Notes in the Exchange Offer and/or selling or reselling Notes or
Exchange Notes pursuant to the "Plan of Distribution" contained in the Exchange
Offer Registration Statement or the Shelf Registration Statement, as applicable,
for the reasonable fees and disbursements of not more than one counsel, who
shall be Paul, Hastings, Janofsky & Walker LLP, unless another firm shall be
chosen by the Holders of a majority in principal amount of the Transfer
Restricted Securities for whose benefit such Registration Statement is being
prepared.
SECTION 8. INDEMNIFICATION
(a) The Company agrees to indemnify and hold harmless each Holder,
its directors, officers and each Person, if any, who controls such Holder
(within the meaning of Section 15 of the Act or Section 20 of the Exchange Act),
from and against any and all losses, claims, damages, liabilities or judgments
(including without limitation, any legal or other expenses incurred in
connection with investigating or defending any matter, including any action that
could give rise to any such losses, claims, damages, liabilities or judgments)
caused by any untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement, preliminary prospectus or Prospectus
(or any amendment or supplement thereto) provided by the Company to any Holder
or any prospective purchaser of Exchange Notes or registered Notes, or caused by
any omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, liabilities or judgments are
caused by (i) an untrue statement or omission or alleged untrue statement or
omission that is based upon information relating to any of the Holders furnished
in writing to the Company by any of the Holders or (ii) an untrue statement or
alleged untrue statement or omission or alleged omission in any preliminary
prospectus that was corrected by the Prospectus and such Holder failed to comply
with such Prospectus delivery requirements as are applicable to it and such
loss, claim, damage, liability or judgment would not have arisen if such
Prospectus had been so delivered.
(b) Each Holder of Transfer Restricted agrees, severally and not
jointly, to indemnify and hold harmless the Company and its directors and
officers, and each Person, if any, who controls (within the meaning of Section
15 of the Act or Section 20 of the Exchange Act) the Company, to the same extent
as the foregoing indemnity from the Company set forth in clause (a) above, but
only (i) with reference to information relating to such Holder furnished in
writing to the Company by such Holder expressly for use in any Registration
Statement or (ii) if an untrue statement or alleged untrue statement or omission
or alleged
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omission in any preliminary prospectus was corrected by the Prospectus and such
Holder failed to comply with such Prospectus delivery requirements as are
applicable to it and such loss, claim, damage, liability or judgment would not
have arisen if such Prospectus had been so delivered. In no event shall any
Holder, its directors, officers or any Person who controls such Holder be liable
or responsible for any amount in excess of the amount by which the total amount
received by such Holder with respect to its sale of Transfer Restricted
Securities pursuant to a Registration Statement exceeds (i) the amount paid by
such Holder for such Transfer Restricted Securities and (ii) the amount of any
damages that such Holder, its directors, officers or any Person who controls
such Holder has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission or failure to comply
with such Prospectus delivery requirements as are applicable to it.
(c) In case any action shall be commenced involving any Person in
respect of which indemnity may be sought pursuant to Section 8(a) or 8(b) hereof
(the "indemnified party"), the indemnified party shall promptly notify the
person against whom such indemnity may be sought (the "indemnifying person") in
writing and the indemnifying party shall assume the defense of such action,
including the employment of counsel reasonably satisfactory to the indemnified
party and the payment of all fees and expenses of such counsel, as incurred
(except that in the case of any action in respect of which indemnity may be
sought pursuant to both Sections 8(a) and 8(b) hereof, a Holder shall not be
required to assume the defense of such action pursuant to this Section 8(c), but
may employ separate counsel and participate in the defense thereof, but the fees
and expenses of such counsel, except as provided below, shall be at the expense
of the Holder). Any indemnified party shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of the indemnified party
unless (i) the employment of such counsel shall have been specifically
authorized in writing by the indemnifying party, (ii) the indemnifying party
shall have failed to assume the defense of such action or employ counsel
reasonably satisfactory to the indemnified party or (iii) the named parties to
any such action (including any impleaded parties) include both the indemnified
party and the indemnifying party, and the indemnified party shall have been
advised by such counsel that there may be one or more legal defenses available
to it which are different from or additional to those available to the
indemnifying party (in which case the indemnifying party shall not have the
right to assume the defense of such action on behalf of the indemnified party).
In any such case, the indemnifying party shall not, in connection with any one
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the fees and expenses of more than one separate firm of attorneys (in
addition to any local counsel) for all indemnified parties and all such fees and
expenses shall be reimbursed as they are incurred. Such firm shall be designated
in writing by a majority of the Holders, in the case of the parties indemnified
pursuant to Section 8(a) hereof, and by the Company in the case of parties
indemnified pursuant to Section 8(b) hereof. The indemnifying party shall
indemnify and hold harmless the indemnified party from and against any and all
losses, claims, damages, liabilities and judgments by reason of any settlement
of any action (i) effected with its written consent or (ii) effected without its
written consent if the settlement is entered into more than 20 Business Days
after the indemnifying party shall have received a request from the indemnified
party for reimbursement for the fees and expenses of counsel (in any case where
such fees and expenses are at the expense of the indemnifying party) and, prior
to the date of such settlement, the indemnifying party shall have failed to
comply with such reimbursement request. No indemnifying party shall, without the
prior written consent of the indemnified party, effect any settlement or
compromise of, or consent to the entry of judgment with respect to, any pending
or threatened action in
17
<PAGE>
respect of which the indemnified party is or could have been a party and
indemnity or contribution may be or could have been sought hereunder by the
indemnified party, unless such settlement, compromise or judgment (i) includes
an unconditional release of the indemnified party from all liability on claims
that are or could have been the subject matter of such action and (ii) does not
include a statement as to or an admission of fault, culpability or a failure to
act, by or on behalf of the indemnified party.
(d) To the extent that the indemnification provided for in this
Section 8 is unavailable to an indemnified party in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities or judgments (i) in such proportion
as is appropriate to reflect the relative benefits received by the Company, on
the one hand, and the Holders, on the other hand, from their sale of Transfer
Restricted Securities or (ii) if the allocation provided by clause (i) is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company, on the one hand, and of the Holder, on the other hand, in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or judgments, as well as any other relevant
equitable considerations. The relative fault of the Company, on the one hand,
and of the Holder, on the other hand, shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to (A)
information supplied by the Company on the one hand, or by the Holder, on the
other hand, or (B) an untrue statement or alleged untrue statement or omission
or alleged omission therein that was corrected by the Prospectus and any Holder
failed to comply with such Prospectus delivery requirements as are applicable to
it and such loss, claim, damage, liability or judgment would not have arisen if
such Prospectus had been so delivered, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The amount paid or payable by a party as a result of the
losses, claims, damages, liabilities and judgments referred to above shall be
deemed to include, subject to the limitations set forth in the second paragraph
of Section 8(a), any legal or other fees or expenses reasonably incurred by such
party in connection with investigating or defending any action or claim.
The Company and each Holder agree that it would not be just and
equitable if contribution pursuant to this Section 8(d) were determined by pro
rata allocation (even if the Holders were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any matter. Notwithstanding
the provisions of this Section 8, no Holder, its directors, its officers or any
Person, if any, who controls such Holder shall be required to contribute, in the
aggregate, any amount in excess of the amount by which the total amount received
by such Holder with respect to the sale of Transfer Restricted Securities
pursuant to a Registration Statement exceeds (i) the amount paid by such Holder
for such Transfer Restricted Securities and (ii) the amount of any damages which
such Holder has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission or failure to comply
with such Prospectus delivery requirements as are applicable to it. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to
18
<PAGE>
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Holders' obligations to contribute pursuant to this
Section 8(c) are several in proportion to the respective principal amount of
Transfer Restricted Securities held by each Holder hereunder and not joint.
(e) The Company agrees that the indemnity and contribution provisions
of this Section 8 shall apply to Affiliated Market Makers to the same extent, on
the same conditions, as it applies to Holders.
SECTION 9. RULE 144A AND RULE 144
The Company agrees with each Holder, for so long as any Transfer
Restricted Securities remain outstanding and during any period in which the
Company (i) is not subject to Section 13 or 15(d) of the Exchange Act, to make
available, upon request of any Holder, to such Holder or beneficial owner of
Transfer Restricted Securities in connection with any sale thereof and any
prospective purchaser of such Transfer Restricted Securities designated by such
Holder or beneficial owner, the information required by Rule 144A(d)(4) under
the Act in order to permit resales of such Transfer Restricted Securities
pursuant to Rule 144A, and (ii) is subject to Section 13 or 15(d) of the
Exchange Act, to make all filings required thereby in a timely manner in order
to permit resales of such Transfer Restricted Securities pursuant to Rule 144.
SECTION 10. MISCELLANEOUS
(a) Remedies. The Company acknowledges and agrees that any failure by
it to comply with its obligations under Sections 3 and 4 hereof may result in
material irreparable injury to the Initial Purchasers or the Holders or
Affiliated Market Makers for which there is no adequate remedy at law, that it
will not be possible to measure damages for such injuries precisely and that, in
the event of any such failure, the Initial Purchasers or any Holder or
Affiliated Market Makers may obtain such relief as may be required to
specifically enforce the Company's obligations under Sections 3 and 4 hereof.
The Company further agrees to waive the defense in any action for specific
performance that a remedy at law would be adequate.
(b) No Inconsistent Agreements. The Company will not, on or after the
date of this Agreement, enter into any agreement with respect to its securities
that is inconsistent with the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof. Except as set forth on Schedule
A attached hereto, there are no agreements between the Company and any Person
granting such Person any registration rights with respect to its securities.
Except as set forth on Schedule A attached hereto, the rights granted to the
Holders hereunder do not conflict with the rights granted to the holders of the
Company's securities under any agreement in effect on the date hereof.
(c) Amendments and Waivers. The provisions of this Agreement may not
be amended, modified or supplemented, and waivers or consents to or departures
from the provisions hereof may not be given unless (i) in the case of Section 5
hereof and this Section 10(c)(i), the Company has obtained the written consent
of Holders of all outstanding Transfer Restricted Securities and (ii) in the
case of all other provisions hereof, the Company has obtained the written
consent of Holders of a majority of the outstanding principal amount of Transfer
Restricted Securities (excluding Transfer Restricted Securities held by the
Company or its Affiliates). Notwithstanding the foregoing, a waiver or consent
to departure from the provisions hereof
19
<PAGE>
that relates exclusively to the rights of Holders whose Transfer Restricted
Securities are being tendered pursuant to the Exchange Offer, and that does not
affect directly or indirectly the rights of other Holders whose Transfer
Restricted Securities are not being tendered pursuant to such Exchange Offer,
may be given by the Holders of a majority of the outstanding principal amount of
Transfer Restricted Securities subject to such Exchange Offer.
(d) Third Party Beneficiary. The Holders and Affiliated Market Makers
shall be third party beneficiaries to the agreements made hereunder between the
Company, on the one hand, and the Initial Purchasers, on the other hand, and
shall have the right to enforce such agreements directly to the extent they may
deem such enforcement necessary or advisable to protect its rights or the rights
of Holders and Affiliated Market Makers hereunder.
(e) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the records of
the Registrar under the Indenture, with a copy to the Registrar under the
Indenture; and
(ii) if to the Company:
PSINet Inc.
510 Huntmar Park Drive
Herndon, VA 20170-5100
Telecopier No.: (703) 904-9527
Attention: David N. Kunkel
Executive Vice President and General Counsel
With a copy to:
Nixon Peabody LLP
437 Madison Avenue
New York, NY 10022
Telecopier No.: (212) 940-3111
Attention: Richard F. Langan, Jr.
All such notices and communications shall be deemed to have been
duly given: at the time delivered by hand, if personally delivered; five
Business Days after being deposited in the mail, postage prepaid, if mailed;
when receipt acknowledged, if telecopied; and on the next business day, if
timely delivered to an air courier guaranteeing overnight delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
20
<PAGE>
Upon the date of filing of the Exchange Offer or a Shelf
Registration Statement, as the case may be, notice shall be delivered to
Donaldson, Lufkin & Jenrette International on behalf of the Initial Purchasers
(in the form attached hereto as Exhibit A) and shall be addressed to: Attention:
(Compliance Department), 99 Bishopsgate, London, EC2M 3XD, England, with a copy
to Donaldson Lufkin & Jenrette Securities Corporation, 277 Park Avenue, New
York, NY 10172, Attention: Syndicate Department.
(f) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including, without limitation and without the need for an express
assignment, subsequent Holders; provided, that nothing herein shall be deemed to
permit any assignment, transfer or other disposition of Transfer Restricted
Securities in violation of the terms hereof or of the Purchase Agreement or the
Indenture. If any transferee of any Holder shall acquire Transfer Restricted
Securities in any manner permitted by this Agreement, the Purchase Agreement and
the Indenture, whether by operation of law or otherwise, such Transfer
Restricted Securities shall be held subject to all of the terms of this
Agreement, the Purchase Agreement and the Indenture, and by taking and holding
such Transfer Restricted Securities, such Person shall be conclusively deemed to
have agreed to be bound by and to perform all of the terms and provisions of
this Agreement, the Purchase Agreement and the Indenture, including the
restrictions on resale set forth in this Agreement, the Purchase Agreement and
the Indenture, and such Person shall be entitled to receive the benefits hereof.
(g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO
THE CONFLICTS OF LAW RULES THEREOF.
(j) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
(k) Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted with respect to the Transfer
Restricted Securities. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
21
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
PSINET INC.
By:_________________________________
Name:
Title:
DONALDSON, LUFKIN & JENRETTE
INTERNATIONAL
By: ____________________________
Name:
Title:
BEAR STEARNS INTERNATIONAL LIMITED
By: ____________________________
Name:
Title:
CHASE MANHATTAN INTERNATIONAL LIMITED
By: ____________________________
Name:
Title:
22
<PAGE>
EXHIBIT A
NOTICE OF FILING OF
EXCHANGE OFFER REGISTRATION STATEMENT
To: Donaldson, Lufkin & Jenrette International
99 Bishopsgate
London, EC2M 3YH
England
Facsimile: 011-44-171-655-7903
From: PSINet Inc.
11% Senior Notes due 2009
Date: ___, 199_
For your information only (NO ACTION REQUIRED):
Today, ______, 199__, we filed [an Exchange Registration Statement/a
Shelf Registration Statement] with the Securities and Exchange Commission. We
currently expect this registration statement to be declared effective within ___
business days of the date hereof.
23
<PAGE>
Exhibit 12
STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Three Three
Months Months
Ended Ended
March 31, March 31,
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) $(29,072) $ (58,687)
Equity in loss of affiliate 35 204 807 - - - -
Interest expense 731 1,964 5,025 5,362 63,914 2,579 29,581
Interest portion of rental expense 230 692 1,200 1,359 4,183 676 1,592
--------- ---------- ---------- ---------- ----------- ---------- -----------
Earnings/(loss) $(4,346) $(50,300) $(48,224) $(39,357) $(194,620) $(25,817) $(27,514 )
========= ========== ========== ========== =========== ========== ===========
Fixed charges:
Interest expense 731 1,964 5,025 5,362 63,914 2,579 29,581
Interest portion of rental expense 230 692 1,200 1,359 4,183 676 1,592
--------- ---------- ---------- ---------- ----------- ---------- -----------
Total fixed charges 961 2,656 6,225 6,721 68,097 3,255 31,173
Preferred stock dividend
requirement (1) - - - 411 3,079 782 574
--------- ---------- ---------- ---------- ----------- ---------- -----------
Total fixed charges and preferred $ 961 $ 2,656 $ 6,225 $ 7,132 $ 71,176 $ 4,037 $ 31,747
dividends ========= ========== ========== ========== =========== ========== ===========
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) $(29,854) $ (59,261)
========= ========== ========== ========== =========== ========== ===========
</TABLE>
_________________
(1) We have loss carryforwards, therefore the preferred stock dividend
requirement has not been tax effected. Also, our Series B preferred stock
was issued in November 1997 and, therefore, there were no adjustments prior
to this date. During the first quarter of 1999, all outstanding shares of
our Series B preferred stock were converted into 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.
<PAGE>
Exhibit 23.2
------------
Consent of Independent Accountants
----------------------------------
We hereby consent to the use in this 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 of PSINet Inc., which appears
in such Registration Statement. We also consent to the application of such
report to the Financial Statement Schedule for each of the three years in the
period ended December 31, 1998 listed under Item 21 of this Registration
Statement when such schedule is read in conjunction with the financial
statements referred to in our report. The audits referred to in such report also
included this schedule. 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
August 6, 1999
<PAGE>
EXHIBIT 25
Registration No.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2)
WILMINGTON TRUST COMPANY
(Exact name of trustee as specified in its charter)
Delaware 51-0055023
(State of incorporation) (I.R.S. employer identification no.)
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
(Address of principal executive offices)
Cynthia L. Corliss
Vice President and Trust Counsel
Wilmington Trust Company
Rodney Square North
Wilmington, Delaware 19890
(302) 651-8516
(Name, address and telephone number of agent for service)
PSINET INC.
(Exact name of obligor as specified in its charter)
New York 16-11353600
(State of incorporation) (I.R.S. employer identification no.)
510 Huntmar Park Drive
Herndon, Virginia 20170
(Address of principal executive offices) (Zip Code)
11% Senior Notes Due 2009
(Title of the indenture securities)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ITEM 1. GENERAL INFORMATION.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority
to which it is subject.
Federal Deposit Insurance Co. State Bank Commissioner
Five Penn Center Dover, Delaware
Suite #2901
Philadelphia, PA
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
ITEM 2. AFFILIATIONS WITH THE OBLIGOR.
If the obligor is an affiliate of the trustee, describe each
affiliation:
Based upon an examination of the books and records of the
trustee and upon information furnished by the obligor, the obligor
is not an affiliate of the trustee.
ITEM 3. LIST OF EXHIBITS.
List below all exhibits filed as part of this Statement of
Eligibility and Qualification.
A. Copy of the Charter of Wilmington Trust Company, which
includes the certificate of authority of Wilmington Trust
Company to commence business and the authorization of
Wilmington Trust Company to exercise corporate trust powers.
B. Copy of By-Laws of Wilmington Trust Company.
C. Consent of Wilmington Trust Company required by Section
321(b) of Trust Indenture Act.
D. Copy of most recent Report of Condition of Wilmington Trust
Company.
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, Wilmington Trust Company, a corporation organized and
existing under the laws of Delaware, has duly caused this Statement of
Eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of Wilmington and State of Delaware on the 4th day
of August, 1999.
WILMINGTON TRUST COMPANY
[SEAL]
Attest: /s/ Patricia A. Evans By: /s/ Mary Ann Rich
------------------------------ ----------------------------
Assistant Secretary Name: Mary Ann Rich
Title: Vice President
2
<PAGE>
EXHIBIT A
AMENDED CHARTER
Wilmington Trust Company
Wilmington, Delaware
As existing on May 9, 1987
<PAGE>
Amended Charter
or
Act of Incorporation
of
Wilmington Trust Company
Wilmington Trust Company, originally incorporated by an Act of the
General Assembly of the State of Delaware, entitled "An Act to Incorporate the
Delaware Guarantee and Trust Company", approved March 2, A.D. 1901, and the name
of which company was changed to "Wilmington Trust Company" by an amendment filed
in the Office of the Secretary of State on March 18, A.D. 1903, and the Charter
or Act of Incorporation of which company has been from time to time amended and
changed by merger agreements pursuant to the corporation law for state banks and
trust companies of the State of Delaware, does hereby alter and amend its
Charter or Act of Incorporation so that the same as so altered and amended shall
in its entirety read as follows:
First: - The name of this corporation is Wilmington Trust Company.
Second: - The location of its principal office in the State of
Delaware is at Rodney Square North, in the City of Wilmington,
County of New Castle; the name of its resident agent is Wilmington
Trust Company whose address is Rodney Square North, in said City. In
addition to such principal office, the said corporation maintains
and operates branch offices in the City of Newark, New Castle
County, Delaware, the Town of Newport, New Castle County, Delaware,
at Claymont, New Castle County, Delaware, at Greenville, New Castle
County Delaware, and at Milford Cross Roads, New Castle County,
Delaware, and shall be empowered to open, maintain and operate
branch offices at Ninth and Shipley Streets, 418 Delaware Avenue,
2120 Market Street, and 3605 Market Street, all in the City of
Wilmington, New Castle County, Delaware, and such other branch
offices or places of business as may be authorized from time to time
by the agency or agencies of the government of the State of Delaware
empowered to confer such authority.
Third: - (a) The nature of the business and the objects and purposes
proposed to be transacted, promoted or carried on by this
Corporation are to do any or all of the things herein mentioned as
fully and to the same extent as natural persons might or could do
and in any part of the world, viz.:
(1) To sue and be sued, complain and defend in any Court of
law or equity
<PAGE>
and to make and use a common seal, and alter the seal at
pleasure, to hold, purchase, convey, mortgage or otherwise
deal in real and personal estate and property, and to
appoint such officers and agents as the business of the
Corporation shall require, to make by-laws not inconsistent
with the Constitution or laws of the United States or of
this State, to discount bills, notes or other evidences of
debt, to receive deposits of money, or securities for money,
to buy gold and silver bullion and foreign coins, to buy and
sell bills of exchange, and generally to use, exercise and
enjoy all the powers, rights, privileges and franchises
incident to a corporation which are proper or necessary for
the transaction of the business of the Corporation hereby
created.
(2) To insure titles to real and personal property, or any
estate or interests therein, and to guarantee the holder of
such property, real or personal, against any claim or
claims, adverse to his interest therein, and to prepare and
give certificates of title for any lands or premises in the
State of Delaware, or elsewhere.
(3) To act as factor, agent, broker or attorney in the
receipt, collection, custody, investment and management of
funds, and the purchase, sale, management and disposal of
property of all descriptions, and to prepare and execute all
papers which may be necessary or proper in such business.
(4) To prepare and draw agreements, contracts, deeds,
leases, conveyances, mortgages, bonds and legal papers of
every description, and to carry on the business of
conveyancing in all its branches.
(5) To receive upon deposit for safekeeping money, jewelry,
plate, deeds, bonds and any and all other personal property
of every sort and kind, from executors, administrators,
guardians, public officers, courts, receivers, assignees,
trustees, and from all fiduciaries, and from all other
persons and individuals, and from all corporations whether
state, municipal, corporate or private, and to rent boxes,
safes, vaults and other receptacles for such property.
(6) To act as agent or otherwise for the purpose of
registering, issuing, certificating, countersigning,
transferring or underwriting the stock, bonds or other
obligations of any corporation, association, state or
municipality, and may receive and manage any sinking fund
therefor on such terms as may be agreed upon between the two
parties, and in like manner may act as Treasurer of any
corporation or municipality.
2
<PAGE>
(7) To act as Trustee under any deed of trust, mortgage,
bond or other instrument issued by any state, municipality,
body politic, corporation, association or person, either
alone or in conjunction with any other person or persons,
corporation or corporations.
(8) To guarantee the validity, performance or effect of any
contract or agreement, and the fidelity of persons holding
places of responsibility or trust; to become surety for any
person, or persons, for the faithful performance of any
trust, office, duty, contract or agreement, either by itself
or in conjunction with any other person, or persons,
corporation, or corporations, or in like manner become
surety upon any bond, recognizance, obligation, judgment,
suit, order, or decree to be entered in any court of record
within the State of Delaware or elsewhere, or which may now
or hereafter be required by any law, judge, officer or court
in the State of Delaware or elsewhere.
(9) To act by any and every method of appointment as
trustee, trustee in bankruptcy, receiver, assignee, assignee
in bankruptcy, executor, administrator, guardian, bailee, or
in any other trust capacity in the receiving, holding,
managing, and disposing of any and all estates and property,
real, personal or mixed, and to be appointed as such
trustee, trustee in bankruptcy, receiver, assignee, assignee
in bankruptcy, executor, administrator, guardian or bailee
by any persons, corporations, court, officer, or authority,
in the State of Delaware or elsewhere; and whenever this
Corporation is so appointed by any person, corporation,
court, officer or authority such trustee, trustee in
bankruptcy, receiver, assignee, assignee in bankruptcy,
executor, administrator, guardian, bailee, or in any other
trust capacity, it shall not be required to give bond with
surety, but its capital stock shall be taken and held as
security for the performance of the duties devolving upon it
by such appointment.
(10) And for its care, management and trouble, and the
exercise of any of its powers hereby given, or for the
performance of any of the duties which it may undertake or
be called upon to perform, or for the assumption of any
responsibility the said Corporation may be entitled to
receive a proper compensation.
(11) To purchase, receive, hold and own bonds, mortgages,
debentures, shares of capital stock, and other securities,
obligations, contracts and evidences of indebtedness, of any
private, public or municipal corporation within and without
the State of Delaware, or of the Government of the United
States, or of any state, territory, colony, or possession
thereof, or of any
3
<PAGE>
foreign government or country; to receive, collect, receipt
for, and dispose of interest, dividends and income upon and
from any of the bonds, mortgages, debentures, notes, shares
of capital stock, securities, obligations, contracts,
evidences of indebtedness and other property held and owned
by it, and to exercise in respect of all such bonds,
mortgages, debentures, notes, shares of capital stock,
securities, obligations, contracts, evidences of
indebtedness and other property, any and all the rights,
powers and privileges of individual owners thereof,
including the right to vote thereon; to invest and deal in
and with any of the moneys of the Corporation upon such
securities and in such manner as it may think fit and
proper, and from time to time to vary or realize such
investments; to issue bonds and secure the same by pledges
or deeds of trust or mortgages of or upon the whole or any
part of the property held or owned by the Corporation, and
to sell and pledge such bonds, as and when the Board of
Directors shall determine, and in the promotion of its said
corporate business of investment and to the extent
authorized by law, to lease, purchase, hold, sell, assign,
transfer, pledge, mortgage and convey real and personal
property of any name and nature and any estate or interest
therein.
(b) In furtherance of, and not in limitation, of the powers
conferred by the laws of the State of Delaware, it is hereby
expressly provided that the said Corporation shall also have the
following powers:
(1) To do any or all of the things herein set forth, to the
same extent as natural persons might or could do, and in any
part of the world.
(2) To acquire the good will, rights, property and
franchises and to undertake the whole or any part of the
assets and liabilities of any person, firm, association or
corporation, and to pay for the same in cash, stock of this
Corporation, bonds or otherwise; to hold or in any manner to
dispose of the whole or any part of the property so
purchased; to conduct in any lawful manner the whole or any
part of any business so acquired, and to exercise all the
powers necessary or convenient in and about the conduct and
management of such business.
(3) To take, hold, own, deal in, mortgage or otherwise lien,
and to lease, sell, exchange, transfer, or in any manner
whatever dispose of property, real, personal or mixed,
wherever situated.
(4) To enter into, make, perform and carry out contracts of
every kind with any person, firm, association or
corporation, and, without limit as to amount, to draw, make,
accept, endorse, discount, execute and issue promissory
notes,
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drafts, bills of exchange, warrants, bonds, debentures, and
other negotiable or transferable instruments.
(5) To have one or more offices, to carry on all or any of
its operations and businesses, without restriction to the
same extent as natural persons might or could do, to
purchase or otherwise acquire, to hold, own, to mortgage,
sell, convey or otherwise dispose of, real and personal
property, of every class and description, in any State,
District, Territory or Colony of the United States, and in
any foreign country or place.
(6) It is the intention that the objects, purposes and
powers specified and clauses contained in this paragraph
shall (except where otherwise expressed in said paragraph)
be nowise limited or restricted by reference to or inference
from the terms of any other clause of this or any other
paragraph in this charter, but that the objects, purposes
and powers specified in each of the clauses of this
paragraph shall be regarded as independent objects, purposes
and powers.
Fourth: - (a) The total number of shares of all classes of stock
which the Corporation shall have authority to issue is forty-one
million (41,000,000) shares, consisting of:
(1) One million (1,000,000) shares of Preferred stock, par
value $10.00 per share (hereinafter referred to as
"Preferred Stock"); and
(2) Forty million (40,000,000) shares of Common Stock, par
value $1.00 per share (hereinafter referred to as "Common
Stock").
(b) Shares of Preferred Stock may be issued from time to time in one
or more series as may from time to time be determined by the Board
of Directors each of said series to be distinctly designated. All
shares of any one series of Preferred Stock shall be alike in every
particular, except that there may be different dates from which
dividends, if any, thereon shall be cumulative, if made cumulative.
The voting powers and the preferences and relative, participating,
optional and other special rights of each such series, and the
qualifications, limitations or restrictions thereof, if any, may
differ from those of any and all other series at any time
outstanding; and, subject to the provisions of subparagraph 1 of
Paragraph (c) of this Article Fourth, the Board of Directors of the
Corporation is hereby expressly granted authority to fix by
resolution or resolutions adopted prior to the issuance of any
shares of a particular series of Preferred Stock, the voting powers
and the designations, preferences and relative, optional and other
special rights, and the qualifications, limitations and
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restrictions of such series, including, but without limiting the
generality of the foregoing, the following:
(1) The distinctive designation of, and the number of shares
of Preferred Stock which shall constitute such series, which
number may be increased (except where otherwise provided by
the Board of Directors) or decreased (but not below the
number of shares thereof then outstanding) from time to time
by like action of the Board of Directors;
(2) The rate and times at which, and the terms and
conditions on which, dividends, if any, on Preferred Stock
of such series shall be paid, the extent of the preference
or relation, if any, of such dividends to the dividends
payable on any other class or classes, or series of the same
or other class of stock and whether such dividends shall be
cumulative or non-cumulative;
(3) The right, if any, of the holders of Preferred Stock of
such series to convert the same into or exchange the same
for, shares of any other class or classes or of any series
of the same or any other class or classes of stock of the
Corporation and the terms and conditions of such conversion
or exchange;
(4) Whether or not Preferred Stock of such series shall be
subject to redemption, and the redemption price or prices
and the time or times at which, and the terms and conditions
on which, Preferred Stock of such series may be redeemed.
(5) The rights, if any, of the holders of Preferred Stock of
such series upon the voluntary or involuntary liquidation,
merger, consolidation, distribution or sale of assets,
dissolution or winding-up, of the Corporation.
(6) The terms of the sinking fund or redemption or purchase
account, if any, to be provided for the Preferred Stock of
such series; and
(7) The voting powers, if any, of the holders of such series
of Preferred Stock which may, without limiting the
generality of the foregoing include the right, voting as a
series or by itself or together with other series of
Preferred Stock or all series of Preferred Stock as a class,
to elect one or more directors of the Corporation if there
shall have been a default in the payment of dividends on any
one or more series of Preferred Stock or under such
circumstances and on such conditions as the Board of
Directors may determine.
(c) (1) After the requirements with respect to preferential
dividends on the Preferred
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Stock (fixed in accordance with the provisions of section (b) of
this Article Fourth), if any, shall have been met and after the
Corporation shall have complied with all the requirements, if any,
with respect to the setting aside of sums as sinking funds or
redemption or purchase accounts (fixed in accordance with the
provisions of section (b) of this Article Fourth), and subject
further to any conditions which may be fixed in accordance with the
provisions of section (b) of this Article Fourth, then and not
otherwise the holders of Common Stock shall be entitled to receive
such dividends as may be declared from time to time by the Board of
Directors.
(2) After distribution in full of the preferential amount,
if any, (fixed in accordance with the provisions of section
(b) of this Article Fourth), to be distributed to the
holders of Preferred Stock in the event of voluntary or
involuntary liquidation, distribution or sale of assets,
dissolution or winding-up, of the Corporation, the holders
of the Common Stock shall be entitled to receive all of the
remaining assets of the Corporation, tangible and
intangible, of whatever kind available for distribution to
stockholders ratably in proportion to the number of shares
of Common Stock held by them respectively.
(3) Except as may otherwise be required by law or by the
provisions of such resolution or resolutions as may be
adopted by the Board of Directors pursuant to section (b) of
this Article Fourth, each holder of Common Stock shall have
one vote in respect of each share of Common Stock held on
all matters voted upon by the stockholders.
(d) No holder of any of the shares of any class or series of stock
or of options, warrants or other rights to purchase shares of any
class or series of stock or of other securities of the Corporation
shall have any preemptive right to purchase or subscribe for any
unissued stock of any class or series or any additional shares of
any class or series to be issued by reason of any increase of the
authorized capital stock of the Corporation of any class or series,
or bonds, certificates of indebtedness, debentures or other
securities convertible into or exchangeable for stock of the
Corporation of any class or series, or carrying any right to
purchase stock of any class or series, but any such unissued stock,
additional authorized issue of shares of any class or series of
stock or securities convertible into or exchangeable for stock, or
carrying any right to purchase stock, may be issued and disposed of
pursuant to resolution of the Board of Directors to such persons,
firms, corporations or associations, whether such holders or others,
and upon such terms as may be deemed advisable by the Board of
Directors in the exercise of its sole discretion.
(e) The relative powers, preferences and rights of each series of
Preferred Stock in relation to the relative powers, preferences and
rights of each other series of
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Preferred Stock shall, in each case, be as fixed from time to time
by the Board of Directors in the resolution or resolutions adopted
pursuant to authority granted in section (b) of this Article Fourth
and the consent, by class or series vote or otherwise, of the
holders of such of the series of Preferred Stock as are from time to
time outstanding shall not be required for the issuance by the Board
of Directors of any other series of Preferred Stock whether or not
the powers, preferences and rights of such other series shall be
fixed by the Board of Directors as senior to, or on a parity with,
the powers, preferences and rights of such outstanding series, or
any of them; provided, however, that the Board of Directors may
provide in the resolution or resolutions as to any series of
Preferred Stock adopted pursuant to section (b) of this Article
Fourth that the consent of the holders of a majority (or such
greater proportion as shall be therein fixed) of the outstanding
shares of such series voting thereon shall be required for the
issuance of any or all other series of Preferred Stock.
(f) Subject to the provisions of section (e), shares of any series
of Preferred Stock may be issued from time to time as the Board of
Directors of the Corporation shall determine and on such terms and
for such consideration as shall be fixed by the Board of Directors.
(g) Shares of Common Stock may be issued from time to time as the
Board of Directors of the Corporation shall determine and on such
terms and for such consideration as shall be fixed by the Board of
Directors.
(h) The authorized amount of shares of Common Stock and of Preferred
Stock may, without a class or series vote, be increased or decreased
from time to time by the affirmative vote of the holders of a
majority of the stock of the Corporation entitled to vote thereon.
Fifth: - (a) The business and affairs of the Corporation shall be
conducted and managed by a Board of Directors. The number of
directors constituting the entire Board shall be not less than five
nor more than twenty-five as fixed from time to time by vote of a
majority of the whole Board, provided, however, that the number of
directors shall not be reduced so as to shorten the term of any
director at the time in office, and provided further, that the
number of directors constituting the whole Board shall be
twenty-four until otherwise fixed by a majority of the whole Board.
(b) The Board of Directors shall be divided into three classes, as
nearly equal in number as the then total number of directors
constituting the whole Board permits, with the term of office of one
class expiring each year. At the annual meeting of stockholders in
1982, directors of the first class shall be elected to hold office
for a term expiring at the next succeeding annual meeting, directors
of the second class shall be elected to hold office for a
8
<PAGE>
term expiring at the second succeeding annual meeting and directors
of the third class shall be elected to hold office for a term
expiring at the third succeeding annual meeting. Any vacancies in
the Board of Directors for any reason, and any newly created
directorships resulting from any increase in the directors, may be
filled by the Board of Directors, acting by a majority of the
directors then in office, although less than a quorum, and any
directors so chosen shall hold office until the next annual election
of directors. At such election, the stockholders shall elect a
successor to such director to hold office until the next election of
the class for which such director shall have been chosen and until
his successor shall be elected and qualified. No decrease in the
number of directors shall shorten the term of any incumbent
director.
(c) Notwithstanding any other provisions of this Charter or Act of
Incorporation or the By-Laws of the Corporation (and notwithstanding
the fact that some lesser percentage may be specified by law, this
Charter or Act of Incorporation or the By-Laws of the Corporation),
any director or the entire Board of Directors of the Corporation may
be removed at any time without cause, but only by the affirmative
vote of the holders of two-thirds or more of the outstanding shares
of capital stock of the Corporation entitled to vote generally in
the election of directors (considered for this purpose as one class)
cast at a meeting of the stockholders called for that purpose.
(d) Nominations for the election of directors may be made by the
Board of Directors or by any stockholder entitled to vote for the
election of directors. Such nominations shall be made by notice in
writing, delivered or mailed by first class United States mail,
postage prepaid, to the Secretary of the Corporation not less than
14 days nor more than 50 days prior to any meeting of the
stockholders called for the election of directors; provided,
however, that if less than 21 days' notice of the meeting is given
to stockholders, such written notice shall be delivered or mailed,
as prescribed, to the Secretary of the Corporation not later than
the close of the seventh day following the day on which notice of
the meeting was mailed to stockholders. Notice of nominations which
are proposed by the Board of Directors shall be given by the
Chairman on behalf of the Board.
(e) Each notice under subsection (d) shall set forth (i) the name,
age, business address and, if known, residence address of each
nominee proposed in such notice, (ii) the principal occupation or
employment of such nominee and (iii) the number of shares of stock
of the Corporation which are beneficially owned by each such
nominee.
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(f) The Chairman of the meeting may, if the facts warrant, determine
and declare to the meeting that a nomination was not made in
accordance with the foregoing procedure, and if he should so
determine, he shall so declare to the meeting and the defective
nomination shall be disregarded.
(g) No action required to be taken or which may be taken at any
annual or special meeting of stockholders of the Corporation may be
taken without a meeting, and the power of stockholders to consent in
writing, without a meeting, to the taking of any action is
specifically denied.
Sixth: - The Directors shall choose such officers, agent and
servants as may be provided in the By-Laws as they may from time to
time find necessary or proper.
Seventh: - The Corporation hereby created is hereby given the same
powers, rights and privileges as may be conferred upon corporations
organized under the Act entitled "An Act Providing a General
Corporation Law", approved March 10, 1899, as from time to time
amended.
Eighth: - This Act shall be deemed and taken to be a private Act.
Ninth: - This Corporation is to have perpetual existence.
Tenth: - The Board of Directors, by resolution passed by a majority
of the whole Board, may designate any of their number to constitute
an Executive Committee, which Committee, to the extent provided in
said resolution, or in the By-Laws of the Company, shall have and
may exercise all of the powers of the Board of Directors in the
management of the business and affairs of the Corporation, and shall
have power to authorize the seal of the Corporation to be affixed to
all papers which may require it.
Eleventh: - The private property of the stockholders shall not be
liable for the payment of corporate debts to any extent whatever.
Twelfth: - The Corporation may transact business in any part of the
world.
Thirteenth: - The Board of Directors of the Corporation is expressly
authorized to make, alter or repeal the By-Laws of the Corporation
by a vote of the majority of the entire Board. The stockholders may
make, alter or repeal any By-Law whether or not adopted by them,
provided however, that any such additional By-Laws, alterations or
repeal may be adopted only by the affirmative vote of the holders of
two-thirds or more of the outstanding shares of capital stock of the
Corporation
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entitled to vote generally in the election of directors (considered
for this purpose as one class).
Fourteenth: - Meetings of the Directors may be held outside
of the State of Delaware at such places as may be from time to time
designated by the Board, and the Directors may keep the books of the
Company outside of the State of Delaware at such places as may be
from time to time designated by them.
Fifteenth: - (a) (1) In addition to any affirmative vote required by
law, and except as otherwise expressly provided in sections (b) and
(c) of this Article Fifteenth:
(A) any merger or consolidation of the Corporation or any
Subsidiary (as hereinafter defined) with or into (i) any
Interested Stockholder (as hereinafter defined) or (ii) any
other corporation (whether or not itself an Interested
Stockholder), which, after such merger or consolidation,
would be an Affiliate (as hereinafter defined) of an
Interested Stockholder, or
(B) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of related
transactions) to or with any Interested Stockholder or any
Affiliate of any Interested Stockholder of any assets of the
Corporation or any Subsidiary having an aggregate fair
market value of $1,000,000 or more, or
(C) the issuance or transfer by the Corporation or any
Subsidiary (in one transaction or a series of related
transactions) of any securities of the Corporation or any
Subsidiary to any Interested Stockholder or any Affiliate of
any Interested Stockholder in exchange for cash, securities
or other property (or a combination thereof) having an
aggregate fair market value of $1,000,000 or more, or
(D) the adoption of any plan or proposal for the liquidation
or dissolution of the Corporation, or
(E) any reclassification of securities (including any
reverse stock split), or recapitalization of the
Corporation, or any merger or consolidation of the
Corporation with any of its Subsidiaries or any similar
transaction (whether or not with or into or otherwise
involving an Interested Stockholder) which has the effect,
directly or indirectly, of increasing the proportionate
share of the outstanding shares of any class of equity or
convertible securities of the Corporation or any Subsidiary
which is directly or indirectly owned by any Interested
Stockholder, or any Affiliate of any Interested Stockholder,
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shall require the affirmative vote of the holders of at least two-thirds of the
outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors, considered for the purpose of this
Article Fifteenth as one class ("Voting Shares"). Such affirmative vote shall be
required notwithstanding the fact that no vote may be required, or that some
lesser percentage may be specified, by law or in any agreement with any national
securities exchange or otherwise.
(2) The term "business combination" as used in this
Article Fifteenth shall mean any transaction which is
referred to any one or more of clauses (A) through (E) of
paragraph 1 of the section (a).
(b) The provisions of section (a) of this Article Fifteenth
shall not be applicable to any particular business
combination and such business combination shall require only
such affirmative vote as is required by law and any other
provisions of the Charter or Act of Incorporation of By-Laws
if such business combination has been approved by a majority
of the whole Board.
(c) For the purposes of this Article Fifteenth:
(1) A "person" shall mean any individual firm, corporation or other
entity.
(2) "Interested Stockholder" shall mean, in respect of any business
combination, any person (other than the Corporation or any
Subsidiary) who or which as of the record date for the determination
of stockholders entitled to notice of and to vote on such business
combination, or immediately prior to the consummation of any such
transaction:
(A) is the beneficial owner, directly or indirectly, of more
than 10% of the Voting Shares, or
(B) is an Affiliate of the Corporation and at any time
within two years prior thereto was the beneficial owner,
directly or indirectly, of not less than 10% of the then
outstanding voting Shares, or
(C) is an assignee of or has otherwise succeeded in any
share of capital stock of the Corporation which were at any
time within two years prior thereto beneficially owned by
any Interested Stockholder, and such assignment or
succession shall have occurred in the course of a
transaction or series of transactions not involving a public
offering within the meaning of the Securities Act of 1933.
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(3) A person shall be the "beneficial owner" of any Voting Shares:
(A) which such person or any of its Affiliates and
Associates (as hereafter defined) beneficially own, directly
or indirectly, or
(B) which such person or any of its Affiliates or Associates
has (i) the right to acquire (whether such right is
exercisable immediately or only after the passage of time),
pursuant to any agreement, arrangement or understanding or
upon the exercise of conversion rights, exchange rights,
warrants or options, or otherwise, or (ii) the right to vote
pursuant to any agreement, arrangement or understanding, or
(C) which are beneficially owned, directly or indirectly, by
any other person with which such first mentioned person or
any of its Affiliates or Associates has any agreement,
arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of any shares of capital stock
of the Corporation.
(4) The outstanding Voting Shares shall include shares deemed owned
through application of paragraph (3) above but shall not include any
other Voting Shares which may be issuable pursuant to any agreement,
or upon exercise of conversion rights, warrants or options or
otherwise.
(5) "Affiliate" and "Associate" shall have the respective meanings
given those terms in Rule 12b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as in effect on December
31, 1981.
(6) "Subsidiary" shall mean any corporation of which a majority of
any class of equity security (as defined in Rule 3a11-1 of the
General Rules and Regulations under the Securities Exchange Act of
1934, as in effect in December 31, 1981) is owned, directly or
indirectly, by the Corporation; provided, however, that for the
purposes of the definition of Investment Stockholder set forth in
paragraph (2) of this section (c), the term "Subsidiary" shall mean
only a corporation of which a majority of each class of equity
security is owned, directly or indirectly, by the Corporation.
(d) majority of the directors shall have the power and duty
to determine for the purposes of this Article Fifteenth on
the basis of information known to them, (1) the number of
Voting Shares beneficially owned by any person (2) whether a
person is an Affiliate or Associate of another, (3) whether
a person has an agreement, arrangement or understanding with
another as to the matters referred to in paragraph (3) of
section (c), or (4) whether the assets subject to
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any business combination or the consideration received for
the issuance or transfer of securities by the Corporation,
or any Subsidiary has an aggregate fair market value of
$1,000,000 or more.
(e) Nothing contained in this Article Fifteenth shall be
construed to relieve any Interested Stockholder from any
fiduciary obligation imposed by law.
Sixteenth: Notwithstanding any other provision of this Charter or
Act of Incorporation or the By-Laws of the Corporation (and in
addition to any other vote that may be required by law, this Charter
or Act of Incorporation by the By-Laws), the affirmative vote of the
holders of at least two-thirds of the outstanding shares of the
capital stock of the Corporation entitled to vote generally in the
election of directors (considered for this purpose as one class)
shall be required to amend, alter or repeal any provision of
Articles Fifth, Thirteenth, Fifteenth or Sixteenth of this Charter
or Act of Incorporation.
Seventeenth: (a) a Director of this Corporation shall not be liable
to the Corporation or its stockholders for monetary damages for
breach of fiduciary duty as a Director, except to the extent such
exemption from liability or limitation thereof is not permitted
under the Delaware General Corporation Laws as the same exists or
may hereafter be amended.
(b) Any repeal or modification of the foregoing paragraph
shall not adversely affect any right or protection of a
Director of the Corporation existing hereunder with respect
to any act or omission occurring prior to the time of such
repeal or modification."
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EXHIBIT B
BY-LAWS
WILMINGTON TRUST COMPANY
WILMINGTON, DELAWARE
As existing on January 16, 1997
<PAGE>
BY-LAWS OF WILMINGTON TRUST COMPANY
ARTICLE I
Stockholders' Meetings
Section 1. The Annual Meeting of Stockholders shall be held on the
third Thursday in April each year at the principal office at the Company or at
such other date, time, or place as may be designated by resolution by the Board
of Directors.
Section 2. Special meetings of all stockholders may be called at any
time by the Board of Directors, the Chairman of the Board or the President.
Section 3. Notice of all meetings of the stockholders shall be given
by mailing to each stockholder at least ten (10) days before said meeting, at
his last known address, a written or printed notice fixing the time and place of
such meeting.
Section 4. A majority in the amount of the capital stock of the
Company issued and outstanding on the record date, as herein determined, shall
constitute a quorum at all meetings of stockholders for the transaction of any
business, but the holders of a small number of shares may adjourn, from time to
time, without further notice, until a quorum is secured. At each annual or
special meeting of stockholders, each stockholder shall be entitled to one vote,
either in person or by proxy, for each shares of stock registered in the
stockholder's name on the books of the Company on the record date for any such
meeting as determined herein.
ARTICLE II
Directors
Section 1. The number and classification of the Board of Directors
shall be as set forth in the Charter of the Bank.
Section 2. No person who has attained the age of seventy-two (72)
years shall be nominated for election to the Board of Directors of the Company,
provided, however, that this limitation shall not apply to any person who was
serving as director of the Company on September 16, 1971.
Section 3. The class of Directors so elected shall hold office for
three years or until their successors are elected and qualified.
Section 4. The affairs and business of the Company shall be managed
and conducted by the Board of Directors.
<PAGE>
Section 5. The Board of Directors shall meet at the principal office
of the Company or elsewhere in its discretion at such times to be determined by
a majority of its members, or at the call of the Chairman of the Board of
Directors or the President.
Section 6. Special meetings of the Board of Directors may be called
at any time by the Chairman of the Board of Directors or by the President, and
shall be called upon the written request of a majority of the directors.
Section 7. A majority of the directors elected and qualified shall
be necessary to constitute a quorum for the transaction of business at any
meeting of the Board of Directors.
Section 8. Written notice shall be sent by mail to each director of
any special meeting of the Board of Directors, and of any change in the time or
place of any regular meeting, stating the time and place of such meeting, which
shall be mailed not less than two days before the time of holding such meeting.
Section 9. In the event of the death, resignation, removal,
inability to act, or disqualification of any director, the Board of Directors,
although less than a quorum, shall have the right to elect the successor who
shall hold office for the remainder of the full term of the class of directors
in which the vacancy occurred, and until such director's successor shall have
been duly elected and qualified.
Section 10. The Board of Directors at its first meeting after its
election by the stockholders shall appoint an Executive Committee, a Trust
Committee, an Audit Committee and a Compensation Committee, and shall elect from
its own members a Chairman of the Board of Directors and a President who may be
the same person. The Board of Directors shall also elect at such meeting a
Secretary and a Treasurer, who may be the same person, may appoint at any time
such other committees and elect or appoint such other officers as it may deem
advisable. The Board of Directors may also elect at such meeting one or more
Associate Directors.
Section 11. The Board of Directors may at any time remove, with or
without cause, any member of any Committee appointed by it or any associate
director or officer elected by it and may appoint or elect his successor.
Section 12. The Board of Directors may designate an officer to be in
charge of such of the departments or division of the Company as it may deem
advisable.
<PAGE>
ARTICLE III
Committees
Section 1. Executive Committee
(A) The Executive Committee shall be composed of not
more than nine members who shall be selected by the
Board of Directors from its own members and who shall hold office during the
pleasure of the Board.
(B) The Executive Committee shall have all the powers of
the Board of Directors when it is not in session to transact all business for
and in behalf of the Company that may be brought before it.
(C) The Executive Committee shall meet at the principal
office of the Company or elsewhere in its discretion at such times to be
determined by a majority of its members, or at the call of the Chairman of the
Executive Committee or at the call of the Chairman of the Board of Directors.
The majority of its members shall be necessary to constitute a quorum for the
transaction of business. Special meetings of the Executive Committee may be held
at any time when a quorum is present.
(D) Minutes of each meeting of the Executive Committee
shall be kept and submitted to the Board of Directors at its next meeting.
(E) The Executive Committee shall advise and superintend
all investments that may be made of the funds of the Company, and shall direct
the disposal of the same, in accordance with such rules and regulations as the
Board of Directors from time to time make.
(F) In the event of a state of disaster of sufficient
severity to prevent the conduct and management of the affairs and business of
the Company by its directors and officers as contemplated by these By-Laws any
two available members of the Executive Committee as constituted immediately
prior to such disaster shall constitute a quorum of that Committee for the full
conduct and management of the affairs and business of the Company in accordance
with the provisions of Article III of these By-Laws; and if less than three
members of the Trust Committee is constituted immediately prior to such disaster
shall be available for the transaction of its business, such Executive Committee
shall also be empowered to exercise all of the powers reserved to the Trust
Committee under Article III Section 2 hereof. In the event of the
unavailability, at such time, of a minimum of two members of such Executive
Committee, any three available directors shall constitute the Executive
Committee for the full conduct and management of the affairs and business of the
Company in accordance with the foregoing provisions of this Section. This By-Law
shall be subject to implementation by Resolutions of the Board of Directors
presently existing or hereafter passed from time to time
3
<PAGE>
for that purpose, and any provisions of these By-Laws (other than this Section)
and any resolutions which are contrary to the provisions of this Section or to
the provisions of any such implementary Resolutions shall be suspended during
such a disaster period until it shall be determined by any interim Executive
Committee acting under this section that it shall be to the advantage of the
Company to resume the conduct and management of its affairs and business under
all of the other provisions of these By-Laws.
Section 2. Trust Committee
(A) The Trust Committee shall be composed of not more
than thirteen members who shall be selected by the Board of Directors, a
majority of whom shall be members of the Board of Directors and who shall hold
office during the pleasure of the Board.
(B) The Trust Committee shall have general supervision
over the Trust Department and the investment of trust funds, in all matters,
however, being subject to the approval of the Board of Directors.
(C) The Trust Committee shall meet at the principal
office of the Company or elsewhere in its discretion at such times to be
determined by a majority of its members or at the call of its chairman. A
majority of its members shall be necessary to constitute a quorum for the
transaction of business.
(D) Minutes of each meeting of the Trust Committee shall
be kept and promptly submitted to the Board of Directors.
(E) The Trust Committee shall have the power to appoint
Committees and/or designate officers or employees of the Company to whom
supervision over the investment of trust funds may be delegated when the Trust
Committee is not in session.
Section 3. Audit Committee
(A) The Audit Committee shall be composed of five
members who shall be selected by the Board of Directors from its own members,
none of whom shall be an officer of the Company, and shall hold office at the
pleasure of the Board.
(B) The Audit Committee shall have general supervision
over the Audit Division in all matters however subject to the approval of the
Board of Directors; it shall consider all matters brought to its attention by
the officer in charge of the Audit Division, review all reports of examination
of the Company made by any governmental agency or such independent auditor
employed for that purpose, and make such recommendations to the Board of
Directors with respect thereto or with respect to any other matters pertaining
to auditing the
4
<PAGE>
Company as it shall deem desirable.
(C) The Audit Committee shall meet whenever and wherever
the majority of its members shall deem it to be proper for the transaction of
its business, and a majority of its Committee shall constitute a quorum.
Section 4. Compensation Committee
(A) The Compensation Committee shall be composed of not
more than five (5) members who shall be selected by the Board of Directors from
its own members who are not officers of the Company and who shall hold office
during the pleasure of the Board.
(B) The Compensation Committee shall in general advise
upon all matters of policy concerning the Company brought to its attention by
the management and from time to time review the management of the Company, major
organizational matters, including salaries and employee benefits and
specifically shall administer the Executive Incentive Compensation Plan.
(C) Meetings of the Compensation Committee may be called
at any time by the Chairman of the Compensation Committee, the Chairman of the
Board of Directors, or the President of the Company.
Section 5. Associate Directors
(A) Any person who has served as a director may be
elected by the Board of Directors as an associate director, to serve during the
pleasure of the Board.
(B) An associate director shall be entitled to attend
all directors meetings and participate in the discussion of all matters brought
to the Board, with the exception that he would have no right to vote. An
associate director will be eligible for appointment to Committees of the
Company, with the exception of the Executive Committee, Audit Committee and
Compensation Committee, which must be comprised solely of active directors.
Section 6. Absence or Disqualification of Any Member of a Committee
(A) In the absence or disqualification of any member of
any Committee created under Article III of the By-Laws of this Company, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absence or disqualified member.
5
<PAGE>
ARTICLE IV
Officers
Section 1. The Chairman of the Board of Directors shall preside at
all meetings of the Board and shall have such further authority and powers and
shall perform such duties as the Board of Directors may from time to time confer
and direct. He shall also exercise such powers and perform such duties as may
from time to time be agreed upon between himself and the President of the
Company.
Section 2. The Vice Chairman of the Board. The Vice Chairman of the
------------------------------
Board of Directors shall preside at all meetings of the Board of Directors at
which the Chairman of the Board shall not be present and shall have such further
authority and powers and shall perform such duties as the Board of Directors or
the Chairman of the Board may from time to time confer and direct.
Section 3. The President shall have the powers and duties pertaining
to the office of the President conferred or imposed upon him by statute or
assigned to him by the Board of Directors in the absence of the Chairman of the
Board the President shall have the powers and duties of the Chairman of the
Board.
Section 4. The Chairman of the Board of Directors or the President
as designated by the Board of Directors, shall carry into effect all legal
directions of the Executive Committee and of the Board of Directors, and shall
at all times exercise general supervision over the interest, affairs and
operations of the Company and perform all duties incident to his office.
Section 5. There may be one or more Vice Presidents, however
denominated by the Board of Directors, who may at any time perform all the
duties of the Chairman of the Board of Directors and/or the President and such
other powers and duties as may from time to time be assigned to them by the
Board of Directors, the Executive Committee, the Chairman of the Board or the
President and by the officer in charge of the department or division to which
they are assigned.
Section 6. The Secretary shall attend to the giving of notice of
meetings of the stockholders and the Board of Directors, as well as the
Committees thereof, to the keeping of accurate minutes of all such meetings and
to recording the same in the minute books of the Company. In addition to the
other notice requirements of these By-Laws and as may be practicable under the
circumstances, all such notices shall be in writing and mailed well in advance
of the scheduled date of any other meeting. He shall have custody of the
corporate seal and shall affix the same to any documents requiring such
corporate seal and to attest the same.
6
<PAGE>
Section 7. The Treasurer shall have general supervision over all
assets and liabilities of the Company. He shall be custodian of and responsible
for all monies, funds and valuables of the Company and for the keeping of proper
records of the evidence of property or indebtedness and of all the transactions
of the Company. He shall have general supervision of the expenditures of the
Company and shall report to the Board of Directors at each regular meeting of
the condition of the Company, and perform such other duties as may be assigned
to him from time to time by the Board of Directors of the Executive Committee.
Section 8. There may be a Controller who shall exercise general
supervision over the internal operations of the Company, including accounting,
and shall render to the Board of Directors at appropriate times a report
relating to the general condition and internal operations of the Company.
There may be one or more subordinate accounting or controller
officers however denominated, who may perform the duties of the Controller and
such duties as may be prescribed by the Controller.
Section 9. The officer designated by the Board of Directors to be in
charge of the Audit Division of the Company with such title as the Board of
Directors shall prescribe, shall report to and be directly responsible only to
the Board of Directors.
There shall be an Auditor and there may be one or more Audit
Officers, however denominated, who may perform all the duties of the Auditor and
such duties as may be prescribed by the officer in charge of the Audit Division.
Section 10. There may be one or more officers, subordinate in rank
to all Vice Presidents with such functional titles as shall be determined from
time to time by the Board of Directors, who shall ex officio hold the office
Assistant Secretary of this Company and who may perform such duties as may be
prescribed by the officer in charge of the department or division to whom they
are assigned.
Section 11. The powers and duties of all other officers of the
Company shall be those usually pertaining to their respective offices, subject
to the direction of the Board of Directors, the Executive Committee, Chairman of
the Board of Directors or the President and the officer in charge of the
department or division to which they are assigned.
ARTICLE V
Stock and Stock Certificates
Section 1. Shares of stock shall be transferrable on the books of
the Company and a
7
<PAGE>
transfer book shall be kept in which all transfers of stock shall be recorded.
Section 2. Certificate of stock shall bear the signature of the
President or any Vice President, however denominated by the Board of Directors
and countersigned by the Secretary or Treasurer or an Assistant Secretary, and
the seal of the corporation shall be engraved thereon. Each certificate shall
recite that the stock represented thereby is transferrable only upon the books
of the Company by the holder thereof or his attorney, upon surrender of the
certificate properly endorsed. Any certificate of stock surrendered to the
Company shall be cancelled at the time of transfer, and before a new certificate
or certificates shall be issued in lieu thereof. Duplicate certificates of stock
shall be issued only upon giving such security as may be satisfactory to the
Board of Directors or the Executive Committee.
Section 3. The Board of Directors of the Company is authorized to
fix in advance a record date for the determination of the stockholders entitled
to notice of, and to vote at, any meeting of stockholders and any adjournment
thereof, or entitled to receive payment of any dividend, or to any allotment or
rights, or to exercise any rights in respect of any change, conversion or
exchange of capital stock, or in connection with obtaining the consent of
stockholders for any purpose, which record date shall not be more than 60 nor
less than 10 days proceeding the date of any meeting of stockholders or the date
for the payment of any dividend, or the date for the allotment of rights, or the
date when any change or conversion or exchange of capital stock shall go into
effect, or a date in connection with obtaining such consent.
ARTICLE VI
Seal
Section 1. The corporate seal of the Company shall be in the
following form:
Between two concentric circles the words
"Wilmington Trust Company" within the inner
circle the words "Wilmington, Delaware."
ARTICLE VII
Fiscal Year
Section 1. The fiscal year of the Company shall be the calendar
year.
8
<PAGE>
ARTICLE VIII
Execution of Instruments of the Company
Section 1. The Chairman of the Board, the President or any Vice
President, however denominated by the Board of Directors, shall have full power
and authority to enter into, make, sign, execute, acknowledge and/or deliver and
the Secretary or any Assistant Secretary shall have full power and authority to
attest and affix the corporate seal of the Company to any and all deeds,
conveyances, assignments, releases, contracts, agreements, bonds, notes,
mortgages and all other instruments incident to the business of this Company or
in acting as executor, administrator, guardian, trustee, agent or in any other
fiduciary or representative capacity by any and every method of appointment or
by whatever person, corporation, court officer or authority in the State of
Delaware, or elsewhere, without any specific authority, ratification, approval
or confirmation by the Board of Directors or the Executive Committee, and any
and all such instruments shall have the same force and validity as though
expressly authorized by the Board of Directors and/or the Executive Committee.
ARTICLE IX
Compensation of Directors and Members of Committees
Section 1. Directors and associate directors of the Company, other
than salaried officers of the Company, shall be paid such reasonable honoraria
or fees for attending meetings of the Board of Directors as the Board of
Directors may from time to time determine. Directors and associate directors who
serve as members of committees, other than salaried employees of the Company,
shall be paid such reasonable honoraria or fees for services as members of
committees as the Board of Directors shall from time to time determine and
directors and associate directors may be employed by the Company for such
special services as the Board of Directors may from time to time determine and
shall be paid for such special services so performed reasonable compensation as
may be determined by the Board of Directors.
ARTICLE X
Indemnification
Section 1. (A) The Corporation shall indemnify and hold harmless, to
the fullest extent permitted by applicable law as it presently exists or may
hereafter be amended, any person who was or is made or is threatened to be made
a party or is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (a "proceeding") by reason of
the fact that he, or a person for whom he is the legal representative, is or was
a director, officer, employee or agent of the Corporation or is or was
9
<PAGE>
serving at the request of the Corporation as a director, officer, employee,
fiduciary or agent of another corporation or of a partnership, joint venture,
trust, enterprise or non-profit entity, including service with respect to
employee benefit plans, against all liability and loss suffered and expenses
reasonably incurred by such person. The Corporation shall indemnify a person in
connection with a proceeding initiated by such person only if the proceeding was
authorized by the Board of Directors of the Corporation.
(B) The Corporation shall pay the expenses incurred in
defending any proceeding in advance of its final disposition, provided, however,
that the payment of expenses incurred by a Director officer in his capacity as a
Director or officer in advance of the final disposition of the proceeding shall
be made only upon receipt of an undertaking by the Director or officer to repay
all amounts advanced if it should be ultimately determined that the Director or
officer is not entitled to be indemnified under this Article or otherwise.
(C) If a claim for indemnification or payment of
expenses, under this Article X is not paid in full within ninety days after a
written claim therefor has been received by the Corporation the claimant may
file suit to recover the unpaid amount of such claim and, if successful in whole
or in part, shall be entitled to be paid the expense of prosecuting such claim.
In any such action the Corporation shall have the burden of proving that the
claimant was not entitled to the requested indemnification of payment of
expenses under applicable law.
(D) The rights conferred on any person by this Article X
shall not be exclusive of any other rights which such person may have or
hereafter acquire under any statute, provision of the Charter or Act of
Incorporation, these By-Laws, agreement, vote of stockholders or disinterested
Directors or otherwise.
(E) Any repeal or modification of the foregoing
provisions of this Article X shall not adversely affect any right or protection
hereunder of any person in respect of any act or omission occurring prior to the
time of such repeal or modification.
ARTICLE XI
Amendments to the By-Laws
Section 1. These By-Laws may be altered, amended or repealed, in
whole or in part, and any new By-Law or By-Laws adopted at any regular or
special meeting of the Board of Directors by a vote of the majority of all the
members of the Board of Directors then in office.
10
<PAGE>
EXHIBIT C
Section 321(b) Consent
Pursuant to Section 321(b) of the Trust Indenture Act of 1939, as
amended, Wilmington Trust Company hereby consents that reports of examinations
by Federal, State, Territorial or District authorities may be furnished by such
authorities to the Securities and Exchange Commission upon requests therefor.
WILMINGTON TRUST COMPANY
Dated: August 4, 1999 By: /s/ Mary Ann Rich
--------------------------
Name: Mary Ann Rich
Title: Vice President
<PAGE>
EXHIBIT D
NOTICE
This form is intended to assist state nonmember banks and
savings banks with state publication requirements. It has not
been approved by any state banking authorities. Refer to your
appropriate state banking authorities for your state
publication requirements.
R E P O R T O F C O N D I T I O N
Consolidating domestic subsidiaries of the
WILMINGTON TRUST COMPANY of WILMINGTON
- ---------------------------------------------------------- -----------------
Name of Bank City
in the State of DELAWARE , at the close of business on March 31, 1999.
------------
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Thousands of dollars
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coins................................................196,035
Interest-bearing balances.............................................................................. 0
Held-to-maturity securities................................................................................. 44,909
Available-for-sale securities.............................................................................1,396,028
Federal funds sold and securities purchased under agreements to resell......................................127,340
Loans and lease financing receivables:
Loans and leases, net of unearned income. . . . . . . 4,176,290
LESS: Allowance for loan and lease losses. . . . . . 68,543
LESS: Allocated transfer risk reserve. . . . . . . . 0
Loans and leases, net of unearned income, allowance, and reserve.................................4,107,747
Assets held in trading accounts...................................................................................0
Premises and fixed assets (including capitalized leases)....................................................139,843
Other real estate owned...................................................................................... 1,055
Investments in unconsolidated subsidiaries and associated companies...........................................1,225
Customers' liability to this bank on acceptances outstanding......................................................0
Intangible assets............................................................................................ 5,265
Other assets................................................................................................ 99,075
Total assets..............................................................................................6,118,520
</TABLE>
CONTINUED ON NEXT PAGE
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES
<S> <C>
Deposits:
In domestic offices.......................................................................................4,332,124
Noninterest-bearing . . . . . . . . 959,777
Interest-bearing. . . . . . . . . . 3,372,347
Federal funds purchased and Securities sold under agreements to repurchase................................. 432,395
Demand notes issued to the U.S. Treasury.....................................................................28,906
Trading liabilities (from Schedule RC-D)..........................................................................0
Other borrowed money:.......................................................................................///////
With original maturity of one year or less.........................................................715,000
With original maturity of more than one year........................................................43,000
Bank's liability on acceptances executed and outstanding..........................................................0
Subordinated notes and debentures.................................................................................0
Other liabilities (from Schedule RC-G).................................................................... 93,311
Total liabilities.........................................................................................5,644,736
<CAPTION>
EQUITY CAPITAL
<S> <C>
Perpetual preferred stock and related surplus.....................................................................0
Common Stock....................................................................................................500
Surplus (exclude all surplus related to preferred stock).....................................................62,118
Undivided profits and capital reserves......................................................................408,053
Net unrealized holding gains (losses) on available-for-sale securities....................................... 3,113
Total equity capital........................................................................................473,784
Total liabilities, limited-life preferred stock, and equity capital.......................................6,118,520
</TABLE>
2
<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 __________, 1999
THIS EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME (10:00
P.M., LONDON TIME), ON ________, 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
<TABLE>
<CAPTION>
<S> <C>
By Registered or Certified Mail or
Overnight Courier: By Hand:
Wilmington Trust Company
Attn: Kristin Long Wilmington Trust Company
Corporate Trust Operations Attn: Corporate Trust Operations
1100 North Market Street c/o c/o Harris Trust Co. of New York as Agent
Rodney Square North 88 Pine Street, 19th Floor
Wilmington, DE 19890-0001 Wall Street Plaza
New York, New York 10005
</TABLE>
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).
<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.
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 ________, 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
2
<PAGE>
"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 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,
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
3
<PAGE>
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, 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, 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, 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.
4
<PAGE>
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:
BOX 1
DESCRIPTION OF INITIAL NOTES TENDERED
(See Instructions 3 and 4 Below)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
If Blank, Please Print Certificate Number(s) Aggregate Principal Aggregate Principal
Name(s) And Addresses(es) Initial Notes Amount Represented By Amount of Initial Notes
Of Registered Holder(s), Certificates* Being 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 $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 WITH 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 ("ATOP") and by
complying with applicable ATOP procedures with respect to the Exchange
6
<PAGE>
Offer should transmit their acceptance to DTC, which will edit and verify the
acceptance and execute a book-entry delivery to the Exchange 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, 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 ATOP.
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 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, 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>
BOX 6
TENDERING HOLDER SIGNATURE
(See Instructions 1 and 5)
In Addition, Complete Substitute Form W-9
<TABLE>
<CAPTION>
<S> <C>
X .................................................... Signature Guarantee
(If required by Instruction 5)
X ....................................................
(Signature of registered holder(s) or Authorized Signatory(ies) Authorized Signature
X...............................
</TABLE>
Note: The above lines must be signed by the registered holder(s) of Initial
Notes as their name(s) appear(s) on the Initial Notes or by person(s) authorized
to become registered holder(s) (evidence of which authorization must be
transmitted with this Letter of Transmittal). If signature is by a trustee,
executor, administrator, guardian, attorney-in-fact, officer, or other person
acting in a fiduciary or representative capacity, such person must set forth his
or her full title below. See Instruction 5.
<TABLE>
<CAPTION>
<S> <C>
Name(s): ............................................ Name: ...............................................
(please print)
.........................................
Title: ..............................................
.........................................
Name of Firm: .......................................
Capacity: ......................................... (Must be an Eligible Institution as
defined in Instruction 1)
......................................... Address: ............................................
Street Address: ...................................... .........................................
......................................... .........................................
(include Zip Code)
.........................................
(include Zip Code)
Area Code and Telephone Number:
Area Code and Telephone Number:
......................................... .........................................
Tax Identification or Social Security Number: Dated: .......................................
.........................................
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
BOX 7 BOX 8
SPECIAL EXCHANGE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 1, 5 and 6 Below) (See Instructions 1, 5 and 6 Below)
To be completed ONLY if Certificates for the Initial Notes not To be completed ONLY if Certificates for the Initial Notes not
exchanged and/or Certificates for the Exchange Notes are to be exchanged and/or Certificates for the Exchange Notes are to be sent
issued in the name of someone other than the registered holder to someone other than the registered holder of the Initial Notes
of the Initial Notes whose name(s) appear(s) above. whose name(s) 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>
BOX 9
PAYOR'S NAME: WILMINGTON TRUST COMPANY
<TABLE>
<CAPTION>
<S> <C> <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
Internal Revenue Service List account number(s) here (optional)
Part 1 - PLEASE PROVIDE YOUR TAXPAYER Social Security Number or
IDENTIFICATION NUMBER ("TIN") IN THE BOX AT TIN
RIGHT AND CERTIFY BY SIGNING AND DATING 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, Part 3 --
I CERTIFY THAT 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. 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,
14
<PAGE>
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
New York Stock Exchange 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), 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.
15
<PAGE>
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 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.
16
<PAGE>
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 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
17
<PAGE>
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.
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.
18
<PAGE>
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 DOLLAR-DENOMINATED
11 % SENIOR NOTES DUE 2009
OF
PSINET INC.
The undersigned hereby acknowledges receipt of the Prospectus dated
___________, 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:...........................................................................
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>
<S> <C>
FOR THIS TYPE OF ACCOUNT: GIVE THE SOCIAL SECURITY OR EMPLOYER IDENTIFICATION NUMBER OF:
1. Individual The individual
2. Two or more individuals The actual owner of the account or, if combined funds, the first
(joint account) individual on the account (1)
3. Custodian account of a minor (Uniform Gift to Minors Act) The minor(2)
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
5. Sole proprietorship The actual owner(1)
6. A valid trust, estate or pension trust The owner(3)
7. Corporate Legal entity(4)
8. Association, club, religious, charitable, educational or other The corporation
tax exempt organization
9. Partnership The organization
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 99.2
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 __________, 1999
- --------------------------------------------------------------------------------
THIS EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME (10:00 P.M.,
LONDON TIME), ON ________, 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 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.
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 or Cedelbank 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 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
________, 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
2
<PAGE>
"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.
By tendering Initial Notes and executing 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
3
<PAGE>
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, 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, 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, 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.
4
<PAGE>
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 Amount Aggregate Principal Amount
Name(s) And Address(es) Of Initial Notes Represented By Certificates* of Initial Notes Being
Registered Holder(s), 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 EXCHANGE AGENT WITH DTC 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 Exchange Agent's account at
Euroclear or Cedelbank, as applicable, in accordance with Euroclear or
Cedelbank's Automated Tender Offer Program ("ATOP") and by complying with
applicable
6
<PAGE>
ATOP 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 Exchange Agent's account
at Euroclear or Cedelbank, as applicable. Euroclear or Cedelbank, as applicable,
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, 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,
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 ATOP.
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 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, 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>
Signature Guarantee
X ____________________________________________________ (If required by Instruction 5)
X ___________________________________________________ Authorized Signature
(Signature of registered holder(s) or Authorized
Signatory(ies)) X ___________________________________________________
Note: The above lines must be signed by the registered Name: _______________________________________________
holder(s) of Initial Notes as their name(s) appear(s) on (please print)
the Initial Notes or by person(s) authorized to become
registered holder(s) (evidence of which authorization must Title: ______________________________________________
be transmitted with this Letter of Transmittal). If
signature is by a trustee, executor, administrator, Name of Firm: _______________________________________
guardian, attorney-in-fact, officer, or other person (Must be an Eligible Institution as
acting in a fiduciary or representative capacity, such defined in Instruction 1)
person must set forth his or her full title below. See
Instruction 5. Address: ____________________________________________
Name(s): ____________________________________________ ______________________________________________________
- ------------------------------------------------------- ------------------------------------------------------
(include Zip Code)
- -------------------------------------------------------
Capacity: _________________________________________ Area Code and Telephone Number:
----------------------------------------- ------------------------------------------------------
Street Address: ______________________________________
Dated: _______________________________________
-----------------------------------------
-----------------------------------------
(include Zip Code)
Area Code and Telephone Number:
-----------------------------------------
Tax Identification or Social Security Number:
-----------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
- --------------------------------------------------------------------------------
BOX 7
SPECIAL EXCHANGE INSTRUCTIONS
(See Instructions 1, 5 and 6 Below)
To be completed ONLY if Certificates for the
Initial Notes not exchanged and/or Certificates for the
Exchange Notes are to be issued in the name of
someone other than the registered
holder of the Initial Notes whose name(s) appear(s) above.
Name: ___________________________________________________________
(Please Print)
Address: ________________________________________________________
---------------------------------------------------
(Include Zip Code)
- ------------------------------------------------------------------
(Tax Identification or Social Security Number)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BOX 8
SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 1, 5 and 6 Below)
To be completed ONLY if Certificates for the Initial
Notes not exchanged and/or Certificates for the
Exchange Notes are to be sent to someone other than the
registered holder of the Initial Notes whose name(s)
appear(s) above, or to such registered holder(s) at an
address other than that shown above.
Name: ___________________________________________________________
(Please Print)
Address: ________________________________________________________
---------------------------------------------------
(Include Zip Code)
- ------------------------------------------------------------------
(Tax Identification or Social Security Number)
- --------------------------------------------------------------------------------
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 Social Security Number
NUMBER ("TIN") IN THE BOX AT RIGHT AND CERTIFY BY SIGNING or TIN
AND DATING 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 Part 3--
THAT THE INFORMATION PROVIDED ON THIS FORM IS TRUE,
CORRECT, AND COMPLETE.
Signature: ___________________________ Date: ___________ Awaiting TIN|_|
- ------------------------------------------------------------------------------------------------------------------------
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.
</TABLE>
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. The term "Agent's Message"
means a message, transmitted by Euroclear or Cedelbank, as applicable, to and
received by 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 Exchange Agent's account 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 Agent on or prior to the Expiration Date; and (3) the Certificates (or
a book-entry confirmation (as defined
14
<PAGE>
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 New York Stock Exchange 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), 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, 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 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
15
<PAGE>
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 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 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,
16
<PAGE>
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, 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.
17
<PAGE>
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.
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
18
<PAGE>
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
___________, 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) , (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:
- -----------------------------------------------------------------
FOR THIS TYPE OF ACCOUNT:
- -----------------------------------------------------------------
1. Individual
2. Two or more individuals
(joint account)
3. Custodian account of a minor (Uniform Gift to Minors Act)
4. a. Revocable savings trust (grantor is also trustee)
b. So-called trust account that is not a legal or valid
trust under State law
5. Sole proprietorship
6. A valid trust, estate or pension trust
7. Corporate
8. Association, club, religious, charitable, educational or
other tax exempt organization
9. Partnership 10. A broker or registered nominee
11. Account with the Department of Agriculture
- -----------------------------------------------------------------
- -----------------------------------------------------------------
GIVE THE SOCIAL SECURITY OR EMPLOYER IDENTIFICATION NUMBER OF:
- -----------------------------------------------------------------
- -----------------------------------------------------------------
The individual
The actual owner of the account or, if combined funds, the
first individual on
the account (1) The minor(2)
The grantor-trustee(1)
The actual owner(1)
The owner(3)
Legal entity(4)
The corporation
The organization
The partnership
The broker or nominee
The public entity
- -----------------------------------------------------------------
(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 _________, 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 Signature(s)
Account No.:
-----------------------------------
- -----------------------------------
-----------------------------------
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 _________, 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:
- ----------------------------------- ------------------------------------
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 Exchange Agent's account 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.
