<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 4)*
PSINET, INC.
- --------------------------------------------------------------------------------
(Name of Issuer)
Common Stock, $.01 per share par value
- --------------------------------------------------------------------------------
(Title of Class of Securities)
74437C101
-----------------------------------------------------------
(CUSIP Number)
Jeffrey C. Smith with a copy to:
General Counsel Michael P. Whalen, Esq.
IXC Communications, Inc. Riordan & McKinzie
1122 Capital of Texas Highway South 695 Town Center Drive, Suite 1500
Austin, Texas 78746 Costa Mesa, California 92626
(512) 328-1112 (714) 433-2618
- --------------------------------------------------------------------------------
(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications)
July 6, 1999
-----------------------------------------------------------
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box [ ].
Check the following box if a fee is being paid with the statement [ ].
NOTE: Six copies of this statement, including all exhibits, should be filed with
the Commission. See Rule 13d-1(a) for other parties to whom copies are to be
sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
PAGE 1 OF 6
<PAGE> 2
SCHEDULE 13D
CUSIP No. 74437C101 Page 2 of 6 Pages
--------- ------- -------
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR IRS. IDENTIFICATION NO. OF ABOVE PERSON
IXC Internet Services, Inc.
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ]
(b) [ ]
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
OO (See Item 3)
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e) [ ]
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF -0-
SHARES -----------------------------------------------------------
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 10,229,789 (See Item 5)
EACH -----------------------------------------------------------
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON -0-
WITH -----------------------------------------------------------
10 SHARED DISPOSITIVE POWER
10,229,789 (See Item 5)
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
10,229,789 (See Item 5)
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
[ ]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
15.8%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
CO
- --------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
PAGE 2 OF 6
<PAGE> 3
SCHEDULE 13D
CUSIP No. 74437C101 Page 3 of 6 Pages
--------- ------- -------
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR IRS. IDENTIFICATION NO. OF ABOVE PERSON
IXC Communications Services, Inc.
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ]
(b) [ ]
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
OO (See Item 3)
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e) [ ]
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF -0-
SHARES ---------------------------------------------------------
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 10,229,789 (See Item 5)
EACH ---------------------------------------------------------
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON -0-
WITH ---------------------------------------------------------
10 SHARED DISPOSITIVE POWER
10,229,789 (See Item 5)
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
10,229,789 (See Item 5)
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
[ ]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
15.8%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
CO
- --------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
PAGE 3 OF 6
<PAGE> 4
SCHEDULE 13D
CUSIP No. 74437C101 Page 4 of 6 Pages
--------- ------- -------
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR IRS. IDENTIFICATION NO. OF ABOVE PERSON
IXC Communications, Inc.
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ]
(b) [ ]
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
OO (See Item 3)
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e) [ ]
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF -0-
SHARES ---------------------------------------------------------
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 10,229,789 (See Item 5)
EACH ---------------------------------------------------------
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON -0-
WITH ---------------------------------------------------------
10 SHARED DISPOSITIVE POWER
10,229,789 (See Item 5)
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
10,229,789 (See Item 5)
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
[ ]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
15.8%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
CO
- --------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
PAGE 4 OF 6
<PAGE> 5
STATEMENT ON SCHEDULE 13D
This Amendment No. 4 amends and supplements the statement on Schedule
13D filed on March 10, 1998, as amended by Amendment No. 1 thereto filed on June
17, 1999, Amendment No. 2 filed on June 29, 1999 and Amendment No. 3 filed on
July 19, 1999 by IXC Internet Services, Inc., a Delaware corporation
("Internet"), IXC Communications Services, Inc., a Delaware corporation
("Services"), and IXC Communications, Inc., a Delaware corporation ("IXC"), in
respect of the common stock, par value $0.01, CUSIP No. 74437C101 (the "Common
Stock"), of PSINet, Inc., a Delaware corporation (the "Issuer"). Internet,
Services and IXC are collectively referred to herein as the "Filing Persons."
Capitalized terms used and not otherwise defined herein shall have the meanings
ascribed to them to them in the initial filing.
This amendment files the confirmation of OTC Transaction as an exhibit.
Item 7. Material to be Filed as Exhibits.
The Filing Persons file as an exhibit the following:
Exhibit 1: Confirmation of OTC Transaction dated as of July 6,
1999 between MLI and Internet.
PAGE 5 OF 6
<PAGE> 6
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: July 31, 1999 IXC INTERNET SERVICES, INC.
/s/ JEFFREY C. SMITH
----------------------------------------
By: Jeffrey C. Smith
Its: Senior Vice President,
General Counsel and Secretary
IXC COMMUNICATIONS SERVICES, INC.
/s/ JEFFREY C. SMITH
----------------------------------------
By: Jeffrey C. Smith
Its: Senior Vice President,
General Counsel and Secretary
IXC COMMUNICATIONS, INC.
/s/ JEFFREY C. SMITH
----------------------------------------
By: Jeffrey C. Smith
Its: Senior Vice President,
General Counsel and Secretary
PAGE 6 OF 6
<PAGE> 7
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--------- -----------
<S> <C>
Exhibit 1: Confirmation of OTC Transaction dated as of July 6,
1999 between MLI and Internet.
</TABLE>
<PAGE> 1
EXHIBIT 1
[LOGO]
CONFIRMATION OF OTC OPTION TRANSACTION
ML REF : 998797
DATED: JULY 6, 1999
TO : IXC INTERNET SERVICES, INC. ("COUNTERPARTY")
ATTENTION : JAMES F. GUTHRIE
Telephone: 800-847-5705 Fax: 512-328-7902
FROM : MERRILL LYNCH INTERNATIONAL ("MLI")
Tel: (212) 449-8675
Fax: (212) 449-2697
- --------------------------------------------------------------------------------
Dear Sir / Madam,
The purpose of this letter agreement (this "Confirmation") is to confirm the
terms and conditions of the above referenced transaction entered into between
Counterparty and MLI, through its agent Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("MLPFS"), on the Trade Date specified below (the "Transaction").
This Confirmation constitutes a "Confirmation" as referred to in the Master
Agreement specified below.
The definitions and provisions contained in the 1991 ISDA Definitions (as
supplemented by the 1998 Supplement, the "Swap Definitions") and in the 1996
ISDA Equity Derivatives Definitions (the "Equity Definitions", and together with
the Swap Definitions, the "Definitions"), in each case as published by the
International Swaps and Derivatives Association, Inc., are incorporated into
this Confirmation. In the event of any inconsistency between the Swap
Definitions and the Equity Definitions, the Equity Definitions will govern. In
the event of any inconsistency between this Confirmation and the Agreement (as
defined below) or the Definitions, the terms of this Confirmation shall govern.
1. This Confirmation supplements, forms part of, and is subject to, the Master
Agreement (including the Schedule thereto and the Credit Support Annex ("CSA")
incorporated therein), dated as of June 2, 1999, as amended and supplemented
from time to time (the "Agreement"), between you and us. All provisions
contained in the Agreement govern this Confirmation except as expressly modified
below.
2. The terms of the particular Transaction to which this Confirmation relates
are as follows:
GENERAL TERMS:
Trade Date: **, 1999
Termination Date: **, 2002 (or if not an Exchange Business Day, the
next succeeding Exchange Business Day).
Seller: Counterparty
Buyer: MLI
** Selected portions have been deleted as confidential pursuant to Rule
24b-2. Complete copies of the entire exhibit have been filed
separately with the Securities and Exchange Commission and marked
"CONFIDENTIAL TREATMENT."
Registered in England (No. 2312079) Regulated by The Securities and
Registered Office: 25 Ropemaker Street, Futures Authority Limited
London EC2Y 9LY Member of the London Stock Exchange
A Subsidiary of Merrill Lynch & Co. Inc. VAT No. GB 245 1224 93
Delaware, U.S.A.
1
<PAGE> 2
Shares: The common stock of PSINet Inc. (Symbol: PSIX)
Number of Shares: 1,500,000
Floor Price: **
Cap Price: **
Final Price: The closing price per Share on the Exchange at
the Valuation Time on the Valuation Date.
Initial Payment Amount: MLI shall pay to Counterparty on the Initial
Payment Date an amount equal to,
USD 59,750,860.68.
Initial Payment Date: July 9, 1999
Settlement Currency: USD
Exchange: NASDAQ
Related Exchange: Any exchange on which options contracts
related to the Shares are principally traded.
Business Days: New York
VALUATION:
Valuation Time: At the close of trading in respect of regular
trading hours on the Exchange, without regard
to any extended trading hours on the Exchange,
if any.
Valuation Date: The Termination Date
SETTLEMENT TERMS: Settlement of this Transaction shall be either
Cash Settlement or Physical Settlement as
determined by Counterparty in writing to MLI no
less than ten (10) Business Days prior to the
Termination Date. In the event MLI is not
notified, the settlement method for this
Transaction shall be Physical Settlement.
Cash Settlement: If Cash Settlement applies, then on the Cash
Settlement Payment Date, Counterparty will pay
to MLI the Cash Settlement Amount.
Cash Settlement Amount: An amount determined by the Calculation Agent
on the Valuation Date based on the following
formula:
a) if the Final Price is less than the Floor
Price, an amount equal to:
Number of Shares x Final Price
**Selected portions have been deleted as confidential pursuant to Rule
24b-2. Complete copies of the entire exhibit have been filed
separately with the Securities and Exchange Commission and marked
"CONFIDENTIAL TREATMENT."
ML REF : 998797
2
<PAGE> 3
b) if the Final Price is less than or equal to
the Cap Price but greater than or equal to
the Floor Price, an amount equal to:
Floor Price x Number of Shares
and
c) if the Final Price is greater than the Cap
Price, an amount equal to:
[Floor Price + (Final Price - Cap Price)]
x Number of Shares
Cash Settlement
Payment Date: Three (3) Currency Business Days after the
Valuation Date.
Physical Settlement: If Physical Settlement applies, then on the
Settlement Date, Counterparty will deliver to
MLI the Number of Shares to be Delivered.
Number of Shares
to be Delivered: A number of Shares determined by the
Calculation Agent on the Valuation Date based
on the following formula:
a) if the Final Price is less than the Floor
Price, a number of Shares equal to:
Number of Shares
b) if the Final Price is less than or equal to
the Cap Price but greater than or equal to
the Floor Price, a number of Shares equal to:
Floor Price x Number of Shares
Final Price
and
c) if the Final Price is greater than the Cap
Price, a number of Shares equal to:
Floor Price + (Final Price - Cap Price) x Number of Shares
--------------------------------------
Final Price
Settlement Date: Three (3) Exchange Business Days after the
Valuation Date.
Failure to Deliver: Applicable
Clearance System(s): The principal domestic clearance system
customarily settling trades on a delivery
versus payment basis on the Shares.
ADJUSTMENTS:
Method of Adjustment: In the event of the occurrence of a Potential
Adjustment Event, the Calculation Agent will
determine whether such Potential Adjustment
Event has a diluting or concentrative effect on
the theoretical value of the Shares and, if so,
will (i) make the corresponding adjustment(s),
if any, to the Number of Shares, the Floor
Price and the Cap Price and, in any case, any
other variable relevant to the settlement or
payment terms of this
ML REF : 998797
3
<PAGE> 4
transaction as the Calculation Agent determines
appropriate to account for that diluting or
concentrative effect and (ii) determine the
effective date(s) of the adjustment(s).
EXTRAORDINARY EVENTS:
Consequences of Merger Event:
(a) Share-for-Share: Cancellation and Payment; provided, however, if
the New Shares are publicly traded on a United
States national securities exchange or on
NASDAQ, Alternative Obligation shall apply;
provided further that references to an "option"
in Section 9.7 of the Equity Definitions shall
be deemed to be references to a "forward".
(b) Share-for-Other: Cancellation and Payment
(c) Share-for-Combined: Cancellation and Payment; provided, however, if
any portion of the consideration for the
relevant shares consists of equity securities
that are publicly traded on a United States
national securities exchange or on NASDAQ (the
"Publicly Traded Securities Consideration"),
Alternative Obligation shall apply to that
portion of the Transaction corresponding to the
Publicly Traded Securities Consideration;
provided further that references to an "option"
in Section 9.7 of the Equity Definitions shall
be deemed to be references to a "forward".
Notwithstanding anything to the contrary in the
Equity Definitions, the amount payable under
this Transaction upon the occurrence of an
Extraordinary Event shall be calculated by the
Calculation Agent in good faith in accordance
with Section 9.7 of the Equity Definitions
using, among other things, the factors
identified in subparagraphs (i), (ii) and (iii)
therein, but without the requirement of
soliciting dealer quotations therefor.
NATIONALIZATION OR
INSOLVENCY: Negotiated Close-out
3. CALCULATION AGENT: MLI, provided that if the Counterparty objects
to any calculation, the parties agree to be
bound by the determination of a leading,
independent dealer in derivative instruments of
this type selected by agreement between the
parties, whose fees and expenses, if any shall
be met equally by them both (the "Substitute
Calculation Agent"). If unable to agree on a
Substitute Calculation agent, each party shall
select an independent dealer in derivative
instruments of this type, and such independent
dealers shall agree on a third party, who shall
be deemed to be the Substitute Calculation
Agent. The Calculation Agent or the Substitute
Calculation Agent shall have no liability or
responsibility to the parties for any error or
omission in making any determination in
connection with this Transaction.
4. NON-RELIANCE: Each party represents to the other party that
it is acting for its own account, and has made
its own independent decisions to enter into
this Transaction and as to whether this
Transaction is appropriate or proper for it
based on its own judgment and upon advice from
such advisors as it has deemed necessary. It is
not relying on any communication (written or
oral) of the other party as investment advice
or as a recommendation to enter into this
Transaction, it being understood that
information and explanations related to the
terms and conditions of this Transaction shall
not be considered investment advice or a
recommendation to enter into this Transaction.
No communication (written or oral) received
from the other party shall be deemed to be an
assurance or guarantee as to the expected
results of this Transaction.
ML REF : 998797
4
<PAGE> 5
5. GOVERNING LAW: The laws of the State of New York (without
reference to choice of law doctrine)
6. COLLATERAL:
Independent Amount: Independent Amount with respect to Counterparty
and this Transaction means a number of Shares
equal to the Number of Shares (the "Pledged
Shares").
Eligible Collateral: The Pledged Shares will constitute Eligible
Collateral with respect to this Transaction. In
the event that MLI borrows the Pledged Shares
pursuant to the Securities Loan Agreement dated
as of June 2, 1999 between MLI and Counterparty
(the "Securities Loan Agreement"), the
Collateral (as defined in the Securities Loan
Agreement) delivered by MLI to Counterparty
pursuant to the Securities Loan Agreement shall
constitute Posted Collateral for purposes of
the CSA; provided, however, that such
Collateral will be disregarded for purposes of
determining the Interest Amount under the CSA.
Exposure: The Exposure of this Transaction will be
disregarded for purposes of determining the
Credit Support Amount under the CSA.
7. ADDITIONAL
TERMINATION EVENTS: The following shall constitute Additional
Termination Events under Section 5(b)(v) of the
Agreement:
(a)(i) MLI is no longer able, or it becomes
more costly, to borrow (or maintain a
borrowing of) Shares in connection with this
Transaction, (ii) MLI notifies Counterparty
of such inability or increased cost; and
(iii) on or before the fifth Exchange
Business Day following such notice,
Counterparty fails to provide, either
directly or indirectly, for a loan to MLI of
either (x) the Pledged Shares, pursuant to,
and in accordance with, the Securities Loan
Agreement or (y) Shares (other than the
Pledged Shares) that are freely tradable in
an amount equal to the Number of Shares, upon
terms consistent with then-applicable law. In
the event that such an agreement is executed
and the Pledged Shares or such other Shares
so borrowed, MLI shall adjust the terms of
this Transaction accordingly (and in its sole
discretion) taking into account the costs
incurred by MLI in borrowing (or maintaining
a borrowing of) the Number of Shares.
(b) At any time after the loan of the Pledged
Shares by Counterparty to MLI pursuant to the
Securities Loan Agreement, Counterparty
demands the return of the Pledged Shares
pursuant to the Securities Loan Agreement
and, at the time of such demand, MLI is not
able, or it is more costly, to borrow (or
maintain a borrowing of) Shares in connection
with this Transaction.
(c) A registration statement, accompanied by
Satisfactory Ancillary Documents, covering
the delivery of the Loaned Shares (as defined
in the Securities Loan Agreement) by MLI in
connection with its hedging activities
relating to this Transaction, is not
effective within 153 days from the Trade Date
of this Transaction.
"Satisfactory Ancillary Documents" means an
agreement of PSINet Inc. containing
representations, warranties, covenants and
indemnification provisions substantially
identical to those contained in, as well as
legal opinions and a comfort letter
substantially identical to those delivered in
connection with, the Underwriting Agreement
in respect of 8,000,000 Shares of Common
Stock of
ML REF : 998797
5
<PAGE> 6
of PSINet Inc. dated April 28, 1999 between
PSINet Inc. and the underwriters named
therein.
(d) on or prior to the fourteenth day
following the Trade Date Counterparty fails
to execute and deliver to PSINet Inc. a
letter requesting PSINet Inc. to remove from
the certificates evidencing the Pledged
Shares the legends restricting the transfer
of such Shares.
For purposes of the foregoing Termination
Events, Counterparty will be the Affected
Party.
8. REPRESENTATIONS OF
COUNTERPARTY: Counterparty (a) has such knowledge and
experience in financial and business affairs as
to be capable of evaluating the merits and
risks of entering into the Transaction; (b)
qualifies as an "accredited investor" under
Regulation D of the Securities Act of 1933, as
amended (the "Securities Act"); (c) has
consulted with its own legal, financial,
accounting and tax advisors in connection with
the Transaction; (d) is entering into the
Transaction for a bona fide business purpose to
hedge an existing position; (e) acknowledges
that in return for downside protection against
a decline in the market price of the Shares
below the Floor Price, Counterparty is
foregoing the upside value of an increase in
the market price of the Shares above the Cap
Price; and (f) in exchange for prepayment of
the purchase price under the Transaction,
Counterparty agrees to sell (and physically
deliver) the Shares to MLI on the Settlement
Date (unless Counterparty elects Cash
Settlement in the manner specified herein).
Counterparty has no knowledge of any non-public
material information regarding the Issuer of
the Shares.
Counterparty has furnished MLI with copies of
all material agreements or contracts to which
it is a party, by which it is bound, or by
which the Pledged Shares are bound, that relate
to the Pledged Shares.
The Initial Payment Amount received by
Counterparty will not be used for the purpose
of purchasing, refinancing or carrying margin
stock, as defined in Regulation U promulgated
by the Board of Governors of The Federal
Reserve System.
In the event that MLI sells any Pledged Shares
borrowed pursuant to the Securities Loan
Agreement, Counterparty represents and warrants
that the following will be true as of each
Representation Date (defined below): (i) the
Registration Statement of the Issuer of the
Shares as filed with the Securities and
Exchange Commission and any related prospectus
(and any supplement thereto) (the "Registration
Statement"), as of its respective dates, to
Counterparty's knowledge, does not contain any
untrue statement of a material fact or omit to
state a material fact required to be stated
therein or necessary to make the statements
therein not misleading and (ii) since the
respective dates as of which information is
given in the Registration Statement and any
such prospectus (and any supplement thereto),
except as otherwise stated therein, to
Counterparty's knowledge, there has been no
material adverse change in the condition,
financial or otherwise, or in the earnings,
business affairs or business prospects of the
Issuer of the Shares and its subsidiaries
considered as one enterprise, whether or not
arising in the ordinary course of business.
"Representation Dates" means: (i) the date on
which Counterparty delivers any prospectus (and
any supplement thereto) under the Registration
Statement, (ii) the date of each sale of
Pledged Shares by MLI; and (iii) the settlement
date of each sale of Pledged Shares by MLI.
ML REF : 998797
6
<PAGE> 7
Counterparty was not or will not be insolvent
at the time this Transaction was consummated,
and was not or will not be rendered insolvent
or will not be insolvent as a result thereof.
Counterparty has not engaged or will not engage
in any business or transaction with MLI after
which the property remaining with Counterparty
was or will be unreasonably small in relation
to its business. At the time of any transfer to
or for the benefit of MLI, Counterparty did not
intend or will not intend to incur, and did not
incur or will not incur, debts that were beyond
the ability of Counterparty to pay as they
mature.
Counterparty has not received from PSINet Inc.
notice of exercise by PSINet Inc. of its
purchase rights under the IRU and Stock
Purchase Agreement dated July 22, 1997, in
respect of the Shares subject to this
Transaction and the option of PSINet Inc. to
exercise such right under the letter from
Counterparty to PSINet Inc. dated May 31, 1999
has expired.
Neither Counterparty nor any person
attributable to Counterparty for purposes of
Rule 144 under the Securities Act ("Rule 144")
has sold any Shares during the preceding three
(3) months prior to the Trade Date of this
Transaction and Counterparty covenants and
agrees that, until a registration statement is
effective with respect to the delivery of the
Loaned Shares and MLI has notified Counterparty
that it has delivered all of the Loaned Shares
pursuant thereto, it will not sell, nor will it
permit any person attributable to it for
purposes of Rule 144 to sell, Shares without
the prior consent of MLI.
9. ACKNOWLEDGEMENTS: The parties hereto intend for:
(i) This Transaction to be a "securities
contract" as defined in Section 741(7) of the
Bankruptcy Code, qualifying for the protection
under Section 555 of the Bankruptcy Code. (ii)
A party's right to liquidate this Transaction
and to exercise any other remedies upon the
occurrence of any Event of Default under the
Agreement with respect to the other party to
constitute a "contractual right" as defined in
the Bankruptcy Code. (iii) Any cash, securities
or other property provided as performance
assurance, credit, support or collateral with
respect to this Transaction to constitute
"margin payments" as defined in the Bankruptcy
Code. (iv) All payments for, under or in
connection with this Transaction, all payments
for the Shares and the transfer of such Shares
to constitute "settlement payments" as defined
in the Bankruptcy Code. (v) "Bankruptcy Code"
means Title 11 of the United States Code.
10. TAX TREATMENT: MLI and Counterparty hereby agree to treat, for
United States Federal, state and local tax
purposes, this Transaction as a pre-paid
forward contract, which does not constitute, in
whole or in part, indebtedness, pursuant to
which MLI is obligated to purchase and
Counterparty is obligated to deliver the Number
of Shares to be Delivered (subject to
Counterparty's right to elect Cash Settlement).
Notwithstanding the foregoing, as used herein,
the term "forward contract" does not mean a
"forward contract" as referred to in either
Section 101(49)(B)(iii) of the Bankruptcy Code
or Section 1259(d)(1) of the Internal Revenue
Code of 1986, as amended.
11. INDEMNIFICATION: Counterparty agrees to indemnify MLI and its
Affiliates and their respective directors,
officers, employees, agents and controlling
persons (MLI and each such person being
ML REF : 998797
7
<PAGE> 8
an "Indemnified Party") from and against any
and all losses, claims, damages and
liabilities, joint or several, to which such
Indemnified Party may become subject under any
applicable federal or state law or otherwise,
and related to or arising out of any of the
transactions contemplated by this Confirmation,
and will reimburse any Indemnified Party for
all expenses (including reasonable counsel fees
and expenses) as they are incurred in
connection with the investigation of,
preparation for or defense or settlement of any
pending or threatened claim or any action or
proceeding arising therefrom, whether or not
such Indemnified Party is a party and whether
or not such claim, action or proceeding is
initiated or brought by or on behalf of
Counterparty. Counterparty will not be liable
under the foregoing indemnification provision
to the extent that any loss, claim, damage,
liability or expense is found in a
nonappealable judgment by a court to have
resulted from MLI's willful misconduct or gross
negligence. The provisions of this Section 11
shall survive any termination of the Agreement
or completion of the transactions contemplated
by this Confirmation.
12. INTERPRETATION: For purposes of the Equity Definitions, this
Transaction will be deemed to be a
Physically-settled Share Option Transaction if
Physical Settlement applies and a Cash-settled
Share Option Transaction if Cash Settlement
applies, in either case with an Exercise Date
equal to the Valuation Date.
13. AGENCY: Counterparty understands and agrees that MLPFS
will act as its agent with respect to this
Transaction. MLPFS is acting hereunder solely
in its capacity as agent for MLI and
Counterparty pursuant to instructions from MLI
and Counterparty. MLPFS shall not be liable to
MLI or Counterparty as a result of any failure
by MLI or Counterparty to pay or perform any
obligation hereunder. Each of MLI and
Counterparty agrees to proceed solely against
the other or any Credit Support Provider to
collect or recover any amount owing to it or
enforce any of its rights in connection with or
as a result of the Transaction.
MLI is regulated by The Financial Services
Authority and has entered into this Transaction
as principal.
ML REF : 998797
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<PAGE> 9
Please confirm that the foregoing correctly sets forth the terms of our
agreement by executing the copy of this Confirmation enclosed for that purpose
and returning it to us by facsimile transmission to the Attention of: Rich Ledee
(Telecopier No. 212 449-2697).
Very truly yours,
MERRILL LYNCH INTERNATIONAL
By: _______________________
Name:
Title:
Confirmed as of the date first above written:
IXC INTERNET SERVICES, INC.
By: _____________________________
Name:
Title:
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