<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
FILED BY THE REGISTRANT /X/
FILED BY A PARTY OTHER THAN THE REGISTRANT / /
CHECK THE APPROPRIATE BOX:
/X/ PRELIMINARY PROXY STATEMENT
/ /CONFIDENTIAL,FOR USE OF THE COMMISSION ONLY(AS PERMITTED BY RULE 14a-6(e)(2))
/ / DEFINITIVE PROXY STATEMENT
/ / DEFINITIVE ADDITIONAL MATERIALS
/ / SOLICITING MATERIAL PURSUANT TO RULE 14a-11(c) OR RULE 14a-12
PSINET INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
/X/ NO FEE REQUIRED.
/ / FEE COMPUTED ON TABLE BELOW PER EXCHANGE ACT RULES 14a-6(i)(1) AND 0-11.
(1) Title of each class of securities to which transaction
applies: N/A
(2) Aggregate number of securities to which transaction
applies: N/A
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined): N/A
(4) Proposed maximum aggregate value of transaction: N/A
(5) Total fee paid: N/A
/ / Fee paid previously with preliminary materials
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: N/A
(2) Form, Schedule or Registration Statement No.: N/A
(3) Filing Party: N/A
(4) Date Filed: N/A
<PAGE>
PSINET INC.
510 HUNTMAR PARK DRIVE
HERNDON, VIRGINIA 20170
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 15, 2000
The Annual Meeting of Shareholders of PSINET INC. (the "Company")
will be held at the Company's offices located at 44983 Knoll Square, Ashburn,
Virginia, on Monday, May 15, 2000, at 9:00 A.M. for the purpose of considering
and acting upon the following matters:
(1) The election of three directors for terms expiring at
the Company's 2002 Annual Meeting of Shareholders.
(2) The approval of an amendment to the Company's
Certificate of Incorporation to increase the number of authorized
shares of capital stock from 530 million shares to 2.06 billion
shares, of which 2.0 billion shares will be shares of Common Stock
and 60 million shares will be shares of Preferred Stock.
(3) The approval of amendments to the Company's Executive
Stock Incentive Plan and Strategic Stock Incentive Plan.
(4) The ratification or disapproval of the appointment by
the Board of Directors of PricewaterhouseCoopers LLP as independent
accountants for the year ending December 31, 2000.
(5) The transaction of such other business as may properly
come before the meeting and any adjournments thereof.
Pursuant to the provisions of the By-Laws of the Company, the Board
of Directors has fixed the close of business on March 20, 2000 as the record
date for determining the shareholders of the Company entitled to notice of and
to vote at the meeting and any adjournments thereof.
Please note that you may have the choice of voting over the Internet
or by telephone. Follow the instructions on your proxy card or, if your shares
are held in the name of a bank or broker, follow the instructions on the form
you receive from your bank or broker.
ALL SHAREHOLDERS ARE URGED TO CAST THEIR VOTE ON THE INTERNET OR BY
PHONE, OR TO COMPLETE, DATE, SIGN AND PROMPTLY MAIL THE ENCLOSED PROXY TO THE
COMPANY IN THE ACCOMPANYING POSTAGE PAID ENVELOPE.
By Order Of The Board Of Directors,
Kathleen B. Horne
SENIOR VICE PRESIDENT, GENERAL COUNSEL AND
CORPORATE SECRETARY
April 7, 2000
Herndon, Virginia
<PAGE>
PSINET INC.
510 HUNTMAR PARK DRIVE
HERNDON, VIRGINIA 20170
---------------------
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 15, 2000
SOLICITATION
This Proxy Statement is being mailed to shareholders on or about
April 7, 2000 in connection with the solicitation of proxies by the Board of
Directors of PSINET INC., a New York corporation ("PSINet" or the "Company"), to
be used at the Annual Meeting of Shareholders of the Company (the "Annual
Meeting"), to be held on May 15, 2000. Accompanying this Proxy Statement is a
Notice of Annual Meeting of Shareholders and a form of proxy. A copy of the 1999
Annual Report to Shareholders of the Company, which contains financial
statements and related data, also accompanies this Proxy Statement.
All proxies which are properly completed, signed and returned to the
Company, or cast electronically or by telephone in accordance with instructions
provided, in a timely manner will be voted in accordance with the instructions
thereon. Proxies may be revoked by any shareholder through written notice to the
Secretary of the Company prior to the exercise thereof or by voting by telephone
or Internet at a later time, and shareholders who are present at the Annual
Meeting may withdraw their proxies and vote in person if they so desire.
The expense of preparing, assembling, printing and mailing the form
of proxy and the material used in the solicitation of proxies will be borne by
the Company. In addition to the solicitation of proxies by use of the mails, the
Company may utilize the services of some of its officers and regular employees
to solicit proxies personally and by telephone and telegraph. The Company has
requested banks, brokers and other custodians, nominees and fiduciaries to
forward copies of the proxy materials to their principals and to request
authority for the execution of proxies and will reimburse such persons for their
services in doing so. The cost of such additional solicitation incurred
otherwise than by use of the mails is estimated not to exceed $5,000. In
addition, the Company has engaged the firm of MacKenzie Partners, Inc.
("MacKenzie") as its proxy solicitor in connection with the Annual Meeting for
an amount not to exceed $4,000 plus reimbursement of reasonable costs incurred
by MacKenzie.
The Board of Directors has fixed the close of business on March 20,
2000, as the record date for the determination of shareholders who are entitled
to notice of and to vote at the Annual Meeting and any adjournments thereof. As
of the record date, the Company had outstanding approximately 156,918,900
shares of its common stock, $.01 par value (the "Common Stock"). All references
to shares of the Company's Common Stock contained in this Proxy Statement give
effect to the Company's two-for-one common stock split effected on February 11,
2000. Holders of the Company's Common Stock are entitled to one vote per whole
share. Holders of fractional shares are entitled to exercise voting rights in
proportion to their fractional holdings.
A majority of the outstanding shares of the Company's Common Stock
entitled to vote at the Annual Meeting is required to establish a quorum at the
Annual Meeting. A plurality of the votes cast by the holders of the shares of
the Company's Common Stock entitled to vote at the Annual Meeting is required
for the election of directors. The affirmative vote of the holders of a majority
of the shares of the Company's Common Stock entitled to vote at the Annual
Meeting is required for the approval of the amendment to the Company's
Certificate of Incorporation to increase the number of authorized shares of the
Company's capital stock. The affirmative vote of the holders of a majority of
the shares of the Company's Common Stock present in person or by proxy at the
Annual Meeting is required for the approval of the amendments to the Company's
Executive Stock Incentive Plan and Strategic Stock Incentive Plan. A majority of
the votes cast by the holders of the Company's Common Stock entitled to vote at
the Annual Meeting is required for the ratification of the appointment of
independent accountants.
With regard to the election of directors, votes may be cast in favor
or withheld. Votes withheld from any director will be counted for purposes of
determining the presence or absence of a quorum for the transaction of
<PAGE>
business at the Annual Meeting, but will not affect the outcome of the voting in
such election. With regard to other proposals, abstentions may be specified. The
Company believes that abstentions are shares present and entitled to vote, but
do not constitute votes cast in respect of a particular matter. The Company,
therefore, intends to count abstentions and votes withheld in respect of voting
on any proposal to ratify the appointment of independent accountants for
purposes of determining the presence or absence of a quorum for the transaction
of business at the Annual Meeting but not as votes having been cast in respect
of such proposal. Accordingly, such abstentions and votes withheld will not
affect the outcome of the voting on that proposal. Abstentions in respect of the
proposal to approve the amendments to the Company's Certificate of Incorporation
and to the Company's Executive Stock Incentive Plan and Strategic Stock
Incentive Plan will be counted for purposes of determining both the presence or
absence of a quorum for the transaction of business and the total number of
shares present with respect to such proposal. Accordingly, such abstentions or
votes withheld in respect of this proposal will have the same effect as votes
against this proposal. Broker non-votes (that is, proxies from brokers or
nominees indicating that such persons have not received instructions from the
beneficial owners or other persons entitled to vote shares on a particular
matter as to which the brokers or nominees do not have discretionary power) may
be counted as present or represented for purposes of determining the presence or
absence of a quorum for the transaction of business, but not for purposes of
determining the voting power present with respect to proposals in respect of
which brokers do not have discretion (non-discretionary proposals).
PRINCIPAL SHAREHOLDERS
COMMON STOCK
The following table sets forth the beneficial ownership of the
Company's Common Stock, as of March 3, 2000, by (i) each person who is known by
the Company to own beneficially more than five percent of the Company's Common
Stock; (ii) each director and director nominee of the Company who owns shares of
the Company's Common Stock; (iii) each executive officer named in the Summary
Compensation Table appearing elsewhere herein; and (iv) all directors and
executive officers of the Company as a group.
<TABLE>
<CAPTION>
AMOUNT PERCENT
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) OF CLASS
------------------------ --------------------- --------
<S> <C> <C>
IXC Internet Services, Inc............................................ 20,459,578 (2) 13.7%
Janus Capital Corporation............................................. 17,884,282 (3) 12.0
William L. Schrader................................................... 11,346,944 (4) 7.6
T. Rowe Price Associates, Inc......................................... 10,001,448 (5) 6.7
FMR Corp.............................................................. 6,769,264 (6) 4.5
Harold S. Wills....................................................... 1,172,100 (7) *
David N. Kunkel....................................................... 907,819 (8) *
Ralph J. Swett........................................................ 319,740 (9) *
William H. Baumer..................................................... 188,976 (10) *
Chi H. Kwan........................................................... 86,458 (11) *
Ian P. Sharp.......................................................... 34,750 (12) *
Edward D. Postal...................................................... 18,654 (13) *
Executive officers and directors as a group (18 persons).............. 15,096,802 (14) 10.1
</TABLE>
- ----------------
* Less than 1%
(1) The persons named in the table have sole voting and dispositive power
with respect to all shares of the Company's 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 Cincinnati Bell Inc. (doing business as
Broadwing Inc.). Cincinnati Bell's address is 201 East Fourth Street,
P.O. Box 2301, Cincinnati, Ohio 45201. These shares include 6,000,000
shares of our common stock, which, according to IXC's Schedule 13D
Amendment No. 1 filed on June 17, 1999, IXC loaned to Merrill Lynch
International, which we refer to as MLI, in June 1999 in respect of a
forward-purchase agreement with MLI to be settled in the second
quarter of 2002 or sooner upon the occurrence of specified additional
3,000,000 shares of our common stock, which, according to IXC's
Schedule 13D Amendment
-2-
<PAGE>
No. 3 filed on July 19, 1999, IXC loaned to MLI in July 1999 in
respect of a forward-purchase agreement with MLI to be settled in the
first quarter of 2002 or sooner upon the occurrence of specified
events, pursuant to which MLI made a payment to IXC of
$59,750,860.68. In the amendments to its Schedule 13D, IXC stated
that it has waived the right to vote any of the loaned shares during
the term of these transactions. MLI has informed IXC and us that MLI
will sell the shares borrowed from IXC in connection with the hedge
of its obligations under the forward-purchase agreements with IXC. We
have effected a registration statement with respect to these
6,000,000 shares pursuant to a demand by IXC of its registration
rights.
(3) In a Schedule 13G dated February 9, 2000, Janus Capital Corporation
reported sole voting and dispositive power over all these shares.
Janus Capital Corporation's address is 101 Filmore Street, Denver,
Colorado 80206-4923.
(4) Includes 11,022,714 shares which are pledged with NationsBank in
respect of four lines of credit providing Mr. Schrader with up to
$25.0 million on an aggregate basis, of which approximately $22.8
million (including principal and interest) was outstanding as of
March 3, 2000, at an interest rate equal to the 30 day LIBOR rate
plus 0.9% per annum. Includes 2,000 shares held by Mr. Schrader and
his wife as joint tenants with rights of survivorship. Includes
approximately 92,200 shares that were transferred in December 1999 to
a foundation, of which Mr. Schrader is the trustee. Mr. Schrader
disclaims beneficial ownership of such shares. Also includes 300,000
shares held by a limited liability company of which Mr. Schrader and
his wife have shared voting and dispositive power. Does not include
2,125,224 shares beneficially owned by Mr. Schrader's wife, nor
223,764 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. Also includes 14,583 shares issuable upon
the exercise of vested options and options which are deemed to be
presently exercisable. Does not include 55,917 shares issuable upon
the exercise of options which are not deemed to be presently
exercisable.
(5) In a Schedule 13G dated February 14, 2000, T. Rowe Price Associates,
Inc. claimed sole voting power over 1,158,632 shares, sole
dispositive power over 10,001,448 shares and no shared voting or
shared dispositive power over any shares. T. Rowe Price Associates,
Inc.'s address is 100 East Pratt Street, Baltimore, Maryland 21202.
(6) In a Schedule 13G dated February 14, 2000, FMR Corp. claimed sole
voting power over 925,280 shares and sole dispositive power over
6,769,264 shares and no shared voting or shared dispositive power
over any shares. FMR Corp.'s address is 82 Devonshire Street, Boston,
Massachusetts 02109.
(7) Includes 1,060,738 shares issuable upon the exercise of vested
options and options which are deemed to be presently exercisable and
2,212 shares issuable pursuant to Mr. Wills' participation in the
Employee Stock Purchase Plan for the period from October 1, 1999
through March 31, 2000. Does not include 622,294 shares issuable upon
the exercise of options which are not deemed to be presently
exercisable.
(8) Includes 901,761 shares issuable upon the exercise of vested options
and options which are deemed to be presently exercisable. Does not
include 390,625 shares issuable upon the exercise of options which
are not deemed to be presently exercisable or 55,142 shares
beneficially owned by Mr. Kunkel's wife. Mr. Kunkel disclaims
beneficial ownership of the shares beneficially owned by his wife.
(9) Includes 11,250 shares issuable upon the exercise of vested options
and options which are deemed to be presently exercisable. Does not
include 18,750 shares issuable upon the exercise of options which are
not deemed to be presently exercisable.
(10) Includes 100,000 shares issuable upon the exercise of outstanding
warrants and 9,000 shares issuable upon the exercise of vested
options and options which are deemed to be presently exercisable.
Does not include 15,000 shares issuable upon the exercise of options
which are not deemed to be presently exercisable.
(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 163,543 shares issuable upon the
exercise of options which are not deemed presently exercisable.
-3-
<PAGE>
(12) Consists solely of shares issuable upon the exercise of vested
options and options which are deemed to be presently exercisable.
Does not include approximately 16,250 shares issuable upon the
exercise of options which are not deemed to be presently exercisable.
(13) Consists solely of shares issuable upon the exercise of vested
options and options which are deemed to be presently exercisable. Mr.
Postal resigned from the Company on March 1, 2000 and all unvested
options were cancelled at that time.
(14) See notes (4) and (7) through (13) above. Includes also
approximately 916,486 shares issuable upon the exercise of vested
options and options which are deemed to be presently exercisable
granted to four executive officers. Also includes approximately
9,773 shares issuable pursuant to participation in the Employee
Stock Purchase Plan by two executive officers. Does not include
approximately 1,906,761 shares issuable upon the exercise of
outstanding options granted to four executive officers which are not
deemed to be presently exercisable.
-4-
<PAGE>
PROPOSAL 1 - ELECTION OF DIRECTORS
The By-laws of the Company provide that the Board of Directors will
be divided into two classes consisting of at least three directors each and as
nearly equal in number as possible, and that directors will be elected for terms
of two years on a staggered basis. The Board of Directors is currently composed
of six directors, three whose terms expire in 2000 and three whose terms expire
in 2001. Unless authority to vote for the election of a director is specifically
withheld by appropriate designation (either electronically or on the face of the
proxy), it is the intention of the persons named in the accompanying form of
proxy to vote such proxy for the election at the Annual Meeting of William H.
Baumer, Ralph J. Swett and Harold S. Wills as directors to serve until the 2002
Annual Meeting of Shareholders and until their respective successors shall have
been elected and qualified.
All nominees presently are members of the Company's Board of
Directors. The proxies cannot be voted for a greater number of persons than
three. Management has no reason to believe that the named nominees will be
unable or unwilling to serve if elected to office. In such case, however, it is
intended that the individuals named in the enclosed proxy will vote for the
election of such substituted nominees as the Company's Board of Directors may
recommend.
Certain information concerning the nominees and directors continuing
in office is set forth in the following table.
PRINCIPAL OCCUPATION, BUSINESS
<TABLE>
<CAPTION>
NAME AGE EXPERIENCE AND DIRECTORSHIPS
- ---- --- ----------------------------
<S> <C> <C>
NOMINEES FOR TERMS EXPIRING IN 2002
William H. Baumer 67 Professor of Philosophy at the University at Buffalo since 1971. Acting
Chairman of the Department of Economics at the University at Buffalo
from June 1992 until June 1995. Treasurer and Vice President of NYSERNet
from January 1986 to December 1990 and from December 1989 to December
1990, respectively. Director of the Company since 1993.
Ralph J. Swett 65 Retired. Former Vice Chairman of the Board of Directors of IXC5
Communications, Inc., which formerly was the indirect parent company of
IXC ("IXC Communications"). 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, served as Chairman of the Board and Chief Executive
Officer of Communications Transmission, Inc. ("CTI"), a predecessor
entity to IXC Communications, from 1986 to 1992. From 1969 to 1986,
served in increasingly senior positions (Vice President, President and
Chairman) of Times Mirror Cable Television, a subsidiary of Times Mirror
and a previous owner of IXC Carrier, Inc., the direct parent company of
IXC ("IXC Carrier"), and as a Vice President of Times Mirror from 1981 to
1986. Served as Chairman of IXC Carrier since 1979 and served as its
Chief Executive Officer from 1986 to October 1997 and its President from
1991 to October 1997. Director of the Company since February 25, 1998,
effective upon the closing of the Company's transaction with IXC as
described herein under "Certain Relationships and Transactions--Strategic
Alliance with IXC."
Harold S. Wills 58 President and Chief Operating Officer of the Company since September 1998
and April 1996, respectively. Executive Vice President of the Company
from April
</TABLE>
-5-
<PAGE>
<TABLE>
<S> <C> <C>
1996 to September 1998. Acting Chief Financial Officer of the
Company from April 1996 to October 1996. Chief Operating Officer of
Hospitality Information Networks, Inc., a provider of information
services for the hospitality industry, from July 1995 through January
1996. Served in various capacities 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. Director of the Company since
April 1996.
DIRECTORS WHOSE TERMS EXPIRE IN 2001
David N. Kunkel 56 Vice Chairman of the Company since October 1999. Executive Vice
President and General Counsel of the Company since October 1998 and June
1995, respectively. Mr. Kunkel has served in a variety of senior
executive positions with the Company since July 1995. Senior Counsel to
Nixon, Hargrave, Devans & Doyle LLP, outside counsel for the Company,
from July 1995 through December 1995. Partner of Nixon, Hargrave, Devans
& Doyle LLP from January 1979 until July 1995. Outside counsel to
NYSERNet Inc. ("NYSERNet"), a provider of data networking services in New
York State, from 1986 until 1989 and to the Company from its inception
until July 1995. Director of the Company since 1995.
William L. Schrader 48 Founder of the Company. Chairman of the Board of Directors and Chief
Executive Officer of the Company since its inception. President of the
Company from its inception to September 1998. President and Chief
Executive Officer of NYSERNet from January 1986 to December 1989.
Co-founder and Executive Director of Cornell Theory Center, a
supercomputer center, from May 1984 until February 1987. Director of the
Company since its inception.
Ian P. Sharp 67 Retired. President and founder of I. P. Sharp Associates, a software
development company, from December 1964 through July 1989. Director of
the Company since September 1996.
</TABLE>
BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
The Board of Directors met 14 times during the year ended December
31, 1999. Each of the directors attended 75% or more of the meetings held by
the Board of Directors and any Committees of the Board of Directors on which
such person served during the last fiscal year.
The Company's Board of Directors has three standing committees: the
Audit Committee, the Compensation Committee and the Financing Committee. The
Board does not have a standing nominating committee. The Audit Committee met
seven times during the year ended December 31, 1999. The Audit Committee, among
other things, recommends the firm to be appointed as independent accountants to
audit the Company's financial statements, reviews significant accounting and
reporting issues and developments, reviews and discusses the scope and results
of each audit with the independent accountants, reviews with management and the
independent accountants the Company's interim and year-end operating results and
considers the adequacy of the internal accounting controls and audit procedures
of the Company. The Committee may also conduct inquiries into the Company's
operations, including, without limitation, inquiries to ensure compliance with
applicable laws, securities rules and regulations and accounting standards. The
current members of the Audit Committee are Messrs. Baumer, Sharp and Swett.
The Compensation Committee met 8 times during the year ended
December 31, 1999. The Compensation Committee reviews and recommends the
compensation arrangements for management of the Company and administers the
Company's Executive Stock Option Plan, Executive Stock Incentive Plan and
-6-
<PAGE>
Strategic Stock Incentive Plan. The current members of the Compensation
Committee are Messrs. Baumer, Schrader and Swett.
The Financing Committee did not meet during the year ended
December 31, 1999, although certain matters within the purview of such
committee, including debt issuances were approved by the full Board of
Directors. The Financing Committee may authorize and approve financings of
debt securities by the Company, lease financings and equity financings
subject to certain limitations. The current members of the Financing
Committee are Messrs. Baumer, Schrader and Sharp.
COMPENSATION OF DIRECTORS
Directors, other than those who also are employees or consultants of
the Company or are serving on the Board of Directors as representatives of a
shareholder, receive annual fees of $15,000, with Committee Chairmen receiving
an additional amount of $3,000 each per year, and are eligible for awards under
the Company's Directors Stock Incentive Plan (the "Directors' Plan"). The
Directors' Plan provides for initial option grants with respect to 10,000 shares
of Common Stock ("Initial Grants") to be made to each eligible director upon his
or her first election to the Company's Board of Directors and, thereafter, for
annual grants of options to purchase 5,000 shares of Common Stock to be made to
each eligible director who has served on the Company's Board of Directors for at
least 12 months. Options are exercisable for 10 years after the date of grant.
The exercise price for any option under the plan shall be equal to the fair
market value of the Common Stock at the time such option is granted. The plan
provides that Initial Grants thereunder vest over a four-year period in respect
of the exercise of one-sixteenth of the shares subject thereto on the last day
of each calendar quarter following such grant, and that annual option awards
vest over a two-year period in respect of one-half of the shares subject thereto
on each of the first and second anniversaries of the grant date. Each of Messrs.
Sharp and Swett received Initial Grants upon their election to the Company's
Board of Directors in accordance with the Directors' Plan. In addition,
directors who are not also officers of the Company receive fees of $1,000 per
day for Board and Committee meetings, $200 per day for Board and Committee
conference calls and $1,250 per day for on-site consultations not in conjunction
with a Board of Directors meeting. Committee Chairmen receive an additional $250
for each Committee meeting attended and $50 for each Committee conference call
attended. Directors also are reimbursed for certain reasonable expenses incurred
in attending Board or Committee meetings. The Company has issued to Mr. Baumer
warrants to purchase 50,000 shares of Common Stock for $.80 per share in return
for Mr. Baumer's services as a director of the Company through 1996. Mr. Baumer
also holds warrants to purchase an additional 50,000 shares in return for
consulting services previously rendered to the Company by Mr. Baumer. Each of
these warrants became fully vested effective September 9, 1996. Other than these
fees and awards and the warrants issued to Mr. Baumer, no member of the Board of
Directors receives any fees or other compensation for serving in such capacity.
EXECUTIVE OFFICERS
The following table sets forth certain information as of March 20,
2000 concerning the executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<S> <C> <C>
William L. Schrader 48 Chairman of the Board of Directors
and Chief Executive Officer (Founder)
Harold S. Wills 58 President, Chief Operating Officer and Director
David N. Kunkel 56 Vice Chairman, Executive Vice President and Director
Geoffrey E. Axton 42 Senior Vice President and President, U.S. Operations and
Corporate Development
James F. Cragg 48 Senior Vice President and President, U.S. Sales and Marketing
Edward A. Davis 54 Senior Vice President and President, PSINetworks Company
Harry G. Hobbs 46 Senior Vice President and President, PSINet Europe
Kathleen B. Horne 42 Senior Vice President, General Counsel and Corporate Secretary
Philippe J. Kuperman 56 Senior Vice President and President, PSINet Latin America
</TABLE>
-7-
<PAGE>
<TABLE>
<S> <C> <C>
Chi H. Kwan 49 Senior Vice President and President, PSINet Asia/Pacific
Michael J. Malesardi 39 Senior Vice President and Controller
John B. Muleta 35 Senior Vice President and President, Global Facilities
Development and IMEA (India, Middle East and Africa)
William A. Opet 43 Senior Vice President and President, Transaction Network Services
Division
Lawrence Winkler 33 Senior Vice President and Treasurer
</TABLE>
WILLIAM L. SCHRADER is the founder of the Company and has served as
Chairman of the Board of Directors and Chief Executive Officer of the Company
since its inception and as President of the Company from its inception to
September 1998. Prior to forming the Company, Mr. Schrader served as President
and Chief Executive Officer of 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.
HAROLD S. WILLS has served as President of the Company since
September 1998 and as a director and Chief Operating Officer of the Company
since April 1996, and as Executive Vice President of the Company from April 1996
to September 1998. Mr. Wills also served as Acting Chief Financial Officer of
the Company from April 1996 to October 1996. 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.
DAVID N. KUNKEL has served as Vice Chairman of the Company since
October 1999, as Executive Vice President of the Company since October 1998, as
Senior Vice President of the Company from September 1996 to October 1998, as
Vice President of the Company from July 1995 to September 1996, and as General
Counsel of the Company from June 1995 to September 1999. Mr. Kunkel has served
as a director of the Company since September 1995 and as Secretary of the
Company from September 1995 to October 1998. Mr. Kunkel also served as Vice
President of International Operations of the Company 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 the Company, 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 the Company from its inception
until July 1995.
GEOFFREY E. AXTON has served as Senior Vice President and
President, U.S. Operations and Corporate Development of the Company since
October 1999 and as Senior Vice President, Business and Corporate Development
of the Company from November 1998 to October 1999. Prior to joining the
Company, Mr. Axton was a founder executive and Vice President of Strategy and
Commercial Development for Concert Communications from May 1995 to October
1998. Prior thereto, Mr. Axton held a variety of positions at British Telecom
where he was employed for 18 years.
JAMES F. CRAGG has served as Senior Vice President and President,
U.S. Sales and Marketing of the Company since October 1999 and as Vice
President, Central Region President Sales and Marketing of the Company from
July 1999 to October 1999. Prior to joining the Company, Mr. Cragg served as
President and Chief Operating Officer of Advanced Communications from
January 1998 to June 1999. Prior thereto, Mr. Cragg served as Vice President,
Mid-America Region of Brooks Fiber from November 1996 to December 1997 and
prior to that he was Senior Vice President of Business Markets with Snyder
Communications from May 1995 to October 1996.
EDWARD A. "TED" DAVIS has served as Senior Vice President and
President, PSINetworks Company of the Company since October 1998. Prior to
joining the Company, 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.
-8-
<PAGE>
HARRY G. HOBBS has served as Senior Vice President and President,
PSINet Europe of the Company since September 1998 and as Vice President,
Customer Administration of the Company from September 1997 to September 1998.
Prior to joining the Company, 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.
KATHLEEN B. HORNE has served as Senior Vice President and General
Counsel of the Company since October 1999, as Vice President and Deputy
General Counsel of the Company from November 1998 to September 1999, and as
Assistant General Counsel of the Company from April 1996 to November 1998.
Since January 2000, Ms. Horne has served as Corporate Secretary of the
Company. Prior to joining the Company, Ms. Horne was a partner since January
1996 and for at least five years prior thereto was an associate with the law
firm of Nixon, Hargrave, Devans & Doyle LLP (now known as Nixon Peabody LLP).
PHILIPPE KUPERMAN has served as Senior Vice President and President,
PSINet Latin America of the Company 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 form 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 Senior Vice President and President, PSINet
Asia/Pacific of the Company since October 1998. Prior to joining the Company,
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. (a
manufacturer and seller of spectroscopy products), Finnegan-Mat Instruments Inc.
(a developer of analytical instruments) and H.B. Fuller Japan Inc. (a worldwide
manufacturer and marketer of specialty chemicals).
MICHAEL J. MALESARDI has served as Senior Vice President of the
Company since February 2000 and as Vice President and Controller of the Company
since July 1997. Prior to joining the Company, Mr. Malesardi served as Director
of Financial Administration of Watson Wyatt from April 1995 to May 1997 and as
Controller of Watson Wyatt from February 1992 to April 1995. From September 1982
to February 1992, Mr. Malesardi held various positions at Price Waterhouse LLP
(now known as PricewaterhouseCoopers LLP), the latest as Senior Audit Manager.
JOHN B. MULETA has served as Senior Vice President and President,
Global Facilities Development and IMEA (India, Middle East, Africa) of the
Company since October 1999 and as Vice President of Capacity Planning and
Service Delivery of the Company from February 1998 to September 1999. Prior
to joining the Company, Mr. Muleta was the Deputy Bureau Chief, Common
Carrier at the Federal Communications Commission (FCC) from September 1997 to
January 1998. Prior thereto, Mr. Muleta was with Coopers & Lybrand Telecom
and Media Communications Consulting Group.
WILLIAM A. OPET has served as Senior Vice President and President,
Transaction Network Services Division of the Company since November 1999 and
as Senior Vice President and President, Sales and Marketing of the Company
from March 1998 to September 1999. Prior to joining the Company, Mr. Opet was
at Geotek Communications as its President and Chief Executive Officer from
1994 to January 1998, its Senior Vice President of Business Development from
1996 to 1997 and as its Senior Vice President of Marketing from 1994 to 1996.
Prior thereto, Mr. Opet was Vice President of Marketing of LIN Broadcasting
from 1990 to 1994.
-9-
<PAGE>
LAWRENCE WINKLER has served as Senior Vice President of the Company
since February 2000, as Vice President of the Company from September 1998 to
February 2000, as Treasurer of the Company since September 1998 and as Director
of Capital Markets of the Company from November 1997 to September 1998. Prior to
joining the Company, Mr. Winkler was Director of Investor Relations for The
Mills Corporation from November 1996 to November 1997 where he was responsible
for investor relations and capital markets. From February 1995 to November 1996,
Mr. Winkler served as Manager of Financial Analysis and Investor Relations for
the Black and Decker Corporation. Prior thereto, Mr. Winkler served in various
senior financial management and consulting roles for CRI Inc. and Arthur
Andersen & Co./Andersen Consulting.
Each of the Company's executive officers serves at the pleasure of
the Board of Directors.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) ("Section 16(a)") of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and the rules promulgated thereunder
require the Company's officers and directors and persons who own more than ten
percent of a registered class of the Company's equity securities to file reports
of ownership and changes in ownership with the Securities and Exchange
Commission ("SEC") and to furnish to the Company copies of all such filings. The
Company has determined, based solely upon a review of those reports and
amendments thereto furnished to the Company during and with respect to the year
ended December 31, 1999 and written representations from certain reporting
persons, that Edward Postal and E.A. Davis were inadvertently late in filing
Forms 4 each due to technical errors, the former which was due on June 10, 1999
and was filed on June 12, 1999 and the latter which was due on January 10, 1999
and was filed on January 11, 1999. In addition, Ralph Swett was late in filing
three Forms 4 which were due on November 10, 1999, December 10, 1999 and January
10, 2000, in respect of transactions which occurred in October 1999, November
1999 and December 1999, respectively. A Form 5 reporting these three
transactions was filed late, on March 17, 2000.
-10-
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION. The following table sets forth in summary form
the compensation paid by the Company to its chief executive officer and to each
of its four most highly compensated executive officers other than the chief
executive officer as of December 31, 1999 for services rendered to the Company
in all capacities.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ---------------
--------------------------------------------- SECURITIES
NAME AND OTHER ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY (1)($) BONUS (1)($) COMPENSATION ($) OPTIONS (#) COMPENSATION ($)
- ------------------ ---- ------------- ------------ ---------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
William L. Schrader 1999 $487,500 $350,000 $3,300 (2) 100,000 (3) $1,150 (4)
Chairman and 1998 314,519 200,000 5,905 (2) -- 1,195 (4)
Chief Executive Officer 1997 248,519 150,000 7,457 (2) -- 3,135 (4)
Harold S. Wills 1999 $468,750 $262,500 $5,155 (5) 330,000 (6) $3,250 (7)
President and 1998 360,500 150,000 9,354 (5) 450,000 (6) 3,250 (7)
Chief Operating Officer 1997 252,654 100,000 9,929 (5) 500,000 (6) 3,125 (7)
Chi H. Kwan (8) 1999 $371,716 $161,403 $ -- 50,000 (10)
Senior Vice President and 1998 97,820 40,350 29,346 (9) 200,000 (10)
President, PSINet
Asia/Pacific
David N. Kunkel 1999 $350,000 $150,000 $5,835 (11) 190,000 (12) $3,250 (7)
Executive Vice President 1998 334,192 150,000 4,288 (11) 400,000 (12) 3,250 (7)
And General Counsel 1997 299,327 100,000 6,550 (11) 200,000 (12) 3,125 (7)
Edward D. Postal 1999 $286,250 $193,750 $5,792 (13) 250,000 (14) $3,250 (7)
Executive Vice President 1998 252,288 115,000 5,590 (13) 400,000 (14) 3,250 (7)
and Chief Financial 1997 204,077 75,000 6,880 (13) 150,000 (14) 3,125 (7)
Officer
</TABLE>
- ----------------
(1) Amounts reported in respect of a particular fiscal year reflect amounts
earned for services rendered in that fiscal year regardless of when paid.
(2) Consists of (i) $1,034 and $5,107 paid to Mr. Schrader with respect to
installation of a security system at Mr. Schrader's home in 1998 and 1997,
respectively, (ii) a car allowance of $3,300, $3,290 and $2,350 in 1999,
1998 and 1997, respectively, and (iii) a $1,581 taxable trip provided by
the Company to Mr. Schrader in 1998.
(3) Consists of 100,000 options issued under the Company's Executive Stock
Incentive Plan in 1999.
(4) Consists of: (i) matching contributions made to Mr. Schrader's account
under the Company's 401(k) Plan in the amounts of $1,150, $1,195 and 1,000
in 1999, 1998 and 1997, respectively, and (ii) insurance premiums in the
amount of $2,135 paid by the Company in 1997 with respect to the
proportionate beneficial interest of Mr. Schrader's spouse in an insurance
policy on Mr. Schrader's life.
(5) Consists of (i) $473 and $6,051 paid to Mr. Wills for installation of a
security system at his home in 1998 and 1997, respectively, (ii) car
allowances of $2,396, $3,173 and $3,878 paid to Mr. Wills in 1999, 1998 and
1997 respectively and (iii) taxable trips provided by the Company to Mr.
Wills in the amount of $2,759 in 1999 and $5,708 in 1998.
(footnotes continued on next page)
-11-
<PAGE>
(footnotes continued from previous page)
(6) Consists of (i) 260,000 and 250,000 options issued under the Company's
Strategic Stock Incentive Plan in 1999 and 1998, respectively, (ii) 70,000,
200,000 and 100,000 options issued under the Company's Executive Stock
Incentive Plan in 1999, 1998 and 1997, respectively, and (iii) 400,000
options issued under the Company's Executive Stock Option Plan in 1997.
(7) Consists of matching contributions made to the named officer's account
under the Company's 401(k) Plan in the years indicated.
(8) Mr. Kwan joined the Company in September 1998. Accordingly, no information
is provided for periods prior thereto with respect to Mr. Kwan.
Compensation listed is based on an exchange rate of (Y) .0097820 = U.S.$1
at December 31, 1999.
(9) Represents a signing bonus paid to Mr. Kwan at the end of his first month.
(10) Consists of (i) 50,000 options issued under the Company's Strategic Stock
Incentive Plan in 1999 and (ii) 200,000 options issued under the Company's
Executive Stock Incentive Plan in 1998.
(11) Consists of (i) car allowances of $5,835, $4,288 and $3,544 paid to Mr.
Kunkel in 1999, 1998 and 1997, respectively and (ii) payments made to Mr.
Kunkel in connection with his relocation as follows: $830 for certain
closing costs on the sale of his primary residence paid to Mr. Kunkel in
1997 and $2,176 for certain carrying costs for his residence pending such
sale paid to Mr. Kunkel in 1997.
(12) Consists of (i) 190,000 and 200,000 options issued under the Company's
Strategic Stock Incentive Plan in 1999 and 1998, respectively, (ii) 200,000
options issued under the Company's Executive Stock Incentive Plan in 1998
and (iii) 200,000 options issued pursuant to the Company's Executive Stock
Option Plan in 1997.
(13) Represents a car allowance to Mr. Postal.
(14) Consists of (i) 50,000 and 200,000 options issued under the Company's
Strategic Stock Incentive Plan in 1999 and 1998, respectively, (ii)
200,000, 200,000 and 72,100 options issued under the Company's Executive
Stock Incentive Plan in 1999, 1998 and 1997, respectively, and (iii) 77,900
options issued under the Company's Executive Stock Option Plan in 1997.
-12-
<PAGE>
OPTION GRANTS. The following table sets forth certain information, as
of December 31, 1999, concerning individual grants of stock options made during
the fiscal year ended December 31, 1999 to each of the persons named in the
Summary Compensation Table above.
------------------------------
OPTION GRANTS IN 1999
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
Number of
Securities Percent of Total Exercise Potential Realizable
Underlying Options Granted Or Base Value At Assumed Annual Rates Of
Options To Employees in Price Expiration Stock Price Appreciation
Name Granted(#) Fiscal Year(1) ($/sh) Date For Option Term
- ---- ---------- ----------------- ---------- ---------- ----------------------------------
5% ($) 10% ($)
-------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
William L. Schrader 100,000 (2) 0.85% $17.3750 10/01/09 $1,092,704 $2,769,128
Harold S. Wills 4,678 (3) 0.04% $21.3750 04/01/09 $62,885 $159,362
55,322 (3) 0.47% $21.3750 04/01/09 $743,673 $1,884,613
200,000 (3) 1.70% $24.3125 05/19/09 $3,058,000 $7,749,573
70,000 (2) 0.60% $17.3750 10/01/09 $764,893 $1,938,389
Chi H. Kwan 50,000 (3) 0.43% $24.3125 05/19/09 $764,500 $1,937,393
David N. Kunkel 3,334 (3) 0.03% $21.3750 04/01/09 $44,818 $113,577
36,666 (3) 0.31% $21.3750 04/01/09 $492,887 $1,249,073
1,180 (3) 0.01% $24.3125 05/19/09 $18,042 $45,722
148,820 (3) 1.27% $24.3125 05/19/09 $2,275,458 $5,766,457
Edward D. Postal 45,834 (3) 0.39% $21.3750 04/01/09 $616,129 $1,561,392
4,166 (3) 0.36% $21.3750 04/01/09 $56,002 $141,920
450 (2) 0.01% $24.3125 05/19/09 $6,881 $17,437
149,550 (2) 1.27% $24.3125 05/19/09 $2,286,620 $5,794,743
50,000 (2) 0.43% $17.3750 10/01/09 $546,352 $1,384,564
</TABLE>
- ----------------
(1) Based upon total grants of options in respect of 11,732,504 shares of
Common Stock made during 1999.
(2) Granted under the Company's Executive Stock Incentive Plan. Vest monthly
over 48 months from the anniversary of the grant, subject to continued
employment by the Company on each of such dates.
(3) Granted under the Company's Strategic Stock Incentive Plan. Vest monthly
over 48 months from the anniversary of the grant, subject to the continued
employment by the Company on each of such dates. Under each of the
Company's Executive Stock Incentive Plan, Executive Stock Option Plan,
Directors Stock Incentive Plan and Strategic Stock Incentive Plan, upon the
acquisition of beneficial ownership of 30% or more of the Company's
outstanding Common Stock by any person other than a wholly-owned subsidiary
of the Company or the occurrence of certain other change in control events
specified in such plans, including certain mergers, consolidations and
transfers of all or substantially all of the Company's assets, all options
and stock appreciation rights will become fully exercisable and all
restricted stock awards will become immediately vested.
-13-
<PAGE>
AGGREGATE YEAR-END OPTION VALUES. The following table provides
information concerning the number of unexercised options held by each of the
individuals named in the Summary Compensation Table as of December 31, 1999.
Also reported are the values for "in the money" options, which represent the
positive spread between the exercise price and the fair market value of the
Company's Common Stock as of December 31, 1999.
AGGREGATED OPTION EXERCISES IN 1999 AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised
Unexercised Options In-the-Money Options
At December 31, 1999 (#) At December 31, 1999 ($)(1)
------------------------------- ---------------------------------
Shares Acquired Value
Name On Exercise(#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- --------------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William L. Schrader 854,000 $13,935,030 4,166 95,834 $56,241 $1,293,759
Harold S. Wills 96,968 $ 2,678,741 909,698 773,334 $23,423,846 $15,380,060
Chi H. Kwan -- -- 65,625 184,375 $1,540,811 $3,906,054
David N. Kunkel -- -- 835,094 457,292 $21,522,735 $8,991,613
Edward D. Postal -- -- 449,905 550,095 $11,254,141 $10,635,161
</TABLE>
- -----------------
(1) Based upon a closing price of $30.875 on December 31, 1999, as reported on
The Nasdaq Stock Market.
EMPLOYMENT AGREEMENTS. The Company has employment agreements with
each of Messrs. Schrader, Wills, Kwan and Kunkel. The Company also has
employment agreements with its executive officers pursuant to which they serve
in their respective capacities.
Mr. Schrader's employment agreement provides for a four-year term
ending October 2003 and a current annual base salary of $750,000 with a minimum
annual increase of 5%. The agreement also provides for a performance bonus of
$450,000 per annum or such greater amount as may be determined by the
Compensation Committee, subject to achievement of certain performance objectives
established by the Compensation Committee.
Mr. Wills's employment agreement provides for a four-year term ending
October 2002 and a current annual base salary of $600,000, with a minimum annual
increase of 5%. The agreement also provides for a performance bonus of $400,000
per annum, or such greater amount as may be determined by the Compensation
Committee, subject to achievement of certain performance objectives established
by the Compensation Committee.
Mr. Kwan's employment agreement provides for a three-year term ending
August 2000, and a current annual base salary of (Y) 40,000,000 per annum, and
also provides for a signing bonus of (Y) 3,000,000, a performance bonus of (Y)
8,250,000 for the period ended March 1999 and an annual performance bonus of (Y)
16,500,000, subject to achievement of certain performance objectives established
by the Company's Chief Operating Officer.
Mr. Kunkel's employment agreement provides for a four-year term
ending October 2002 and a current annual base salary of $350,000, and also
provides for a performance bonus of $150,000 in 1998 and for performance bonuses
in subsequent years of $150,000 or greater, subject to achievement of certain
performance objectives established by the Company's Chairman.
These employment agreements also provide for standard employee
benefits, including, without limitation, participation in the Company's 401(k)
plan and bonus plan as well as life, health, accident and disability insurance.
These agreements also provide for a 24-month non-competition period. If the
Company elects to enforce such non-competition restrictions, these officers are
entitled, for a period of 24 months after termination of their employment, to
receive their then current base salary and all benefits being provided to them
at the time of termination. Each of these employment agreements (other than that
of Mr. Hobbs) provides that options awarded pursuant thereto are subject to
immediate vesting upon the occurrence of certain change in control events.
-14-
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee currently is composed of Messrs. Baumer
and Swett, each a non-employee director of the Company, and Mr. Schrader. The
Compensation Committee is responsible, subject to the approval of the Board of
Directors, for establishing the Company's compensation program.
COMPENSATION PHILOSOPHY AND POLICY
The Company's compensation program generally is designed to motivate
and reward the Company's executive officers and other personnel responsible for
attaining financial, operational and strategic objectives that will contribute
to the overall goal of enhancing shareholder value. In administering the plan,
the Compensation Committee assesses the performance of individuals and the
Company relative to those objectives. The Company's compensation program
generally provides incentives to achieve annual and longer term objectives. The
principal elements of the compensation plan include base salary, cash bonus
awards and stock awards in the form of grants of stock options and restricted
Common Stock. These elements generally are blended in order to provide
compensation packages which provide competitive pay, reward the achievement of
financial, operational and strategic objectives and align the interests of the
Company's executive officers and other high level personnel with those of the
Company's shareholders.
BASE SALARY. During 1999, the Company had employment agreements with
each of Messrs. Schrader, Wills, Kwan, Kunkel and Postal, as well as with most
of the other individuals who served as officers during such period, other than
Mr. Schrader. Mr. Schrader's compensation was determined based upon his
leadership of the Company in setting and pursuing its financial, operational and
strategic objectives. Mr. Schrader did not participate as a member of the
Compensation Committee in determining his compensation.
The Company considers the experience of the individual, the scope and
complexity of the position and the size and growth rate of the Company, the
salary payable to Mr. Schrader as well as the compensation paid by the Company's
competitors in setting base salaries for officers and employees. Due to the
increasingly competitive nature of the Company's industry segment, compensation
amounts paid by the Company's competitors are expected to continue to grow in
importance to the Company as it assesses its compensation structure in the
future in order to ensure its ability to continue to attract and retain highly
qualified executives.
BONUSES. All full-time employees of the Company, including executive
officers to the extent they are not already entitled to receive a bonus pursuant
to the terms of their respective employment agreements, are eligible to receive
bonuses from the Company subject to satisfaction of specified performance
criteria. For 1999, Messrs. Schrader, Wills, Kwan, Kunkel and Postal received
bonuses pursuant to the terms of their respective employment agreements. See
"Executive Compensation--Employment Agreements." In determining the level of
bonus paid to Mr. Schrader in 1999 the Compensation Committee, in addition to
consideration of Mr. Schrader' individual performance, took particular note of
the Company's overall increased revenues and successful debt and equity
offerings during 1999 and the acquisition by the Company of Transaction Network
Services, Inc., as well as the Company's continued expansion through the
successful completion of the acquisition of 60 Internet Service Providers in the
U.S., Canada, Latin America, Asia, Europe and the India/Middle East/Africa
region during the 24 months ended December 31, 1999.
STOCK AWARDS. To promote the Company's long-term objectives, stock
awards are made to directors, officers and employees who are in a position to
make a significant contribution to the Company's long-term success. The stock
awards are made to officers and employees pursuant to the Company's Executive
Stock Option Plan, in the form of incentive stock options and non-qualified
stock options, pursuant to the Company's Executive Stock Incentive Plan, in the
form of incentive stock options, non-qualified stock options, stock appreciation
rights and restricted stock awards, and to directors pursuant to the Company's
Directors Stock Incentive Plan, in the form of non-qualified stock options. The
Company also makes awards in the form of incentive stock options, non-qualified
stock options, stock appreciation rights and restricted stock grants to key
personnel in connection with acquisitions, mergers, strategic alliances and
other business combinations pursuant to its Strategic Stock Incentive Plan.
Stock options represent rights to purchase shares of the Company's
Common Stock in varying amounts pursuant to a vesting schedule determined by the
Compensation Committee at a price per share specified on the date of grant of
the option (which may not be less than the fair market value on the date of the
grant). Stock options expire at the conclusion of a fixed term (generally 10
years).
-15-
<PAGE>
Stock appreciation rights may be granted in tandem with options and,
upon exercise, entitle the holder to receive cash, Common Stock or a combination
thereof (at the discretion of the Compensation Committee) having a value equal
to the excess of fair market value per share of the Common Stock on the exercise
date multiplied by the number of shares with respect to which the right is
exercised over the option exercise price for such number of shares.
Restricted stock awards consist of a specified number of shares of
the Company's Common Stock with an appropriate restrictive legend affixed
thereto. Shares of restricted stock may not be sold or otherwise transferred
until ownership vests in the recipient, at the time and in the manner specified
by the Compensation Committee at the time of the award.
Since the stock options, stock appreciation rights and restricted
stock awards vest and may grow in value over time, these components of the
Company's compensation plan are designed to reward performance over a sustained
period and to enhance shareholder value through the achievement of corporate
objectives. The Company intends that these awards will strengthen the focus of
its directors, officers and employees on managing the Company from the
perspective of a person with an equity stake in the Company.
In selecting recipients and the size of grants, the Compensation
Committee considers various factors such as the potential of the recipient, the
salary of the recipient and competitive factors affecting the Company's ability
to attract and retain employees, prior grants, a comparison of awards made to
officers in comparable positions at similar companies and Company performance.
During 1999, Mr. Schrader was awarded options to purchase 100,000
shares of the Company's Common Stock under the Company's Executive Stock
Incentive Plan. In addition, Messrs. Wills was awarded options to purchase
70,000 shares under such plan. Also, during 1999, Messrs. Wills, Kunkel,
Postal and Kwan were awarded options to purchase 260,000, 190,000, 50,000 and
50,000, respectively, under the Company's Strategic Stock Incentive Plan.
Awards made to other executive officers during 1999 consisted of options to
purchase an aggregate of 570,000 shares under the Company's Executive Stock
Incentive Plan and 470,000 shares under the Company's Strategic Stock
Incentive Plan. Option awards under the Company's Executive Stock Incentive
Plan were made during 1999 with respect to an aggregate of 6,455,280 shares
of Common Stock. Options to purchase 5,247,224 shares of Common Stock were
awarded under the Company's Strategic Stock Incentive Plan during 1999.
Awards made to directors during 1999 consisted of options with respect to
30,000 shares of Common Stock under the Company's Directors Stock Incentive
Plan.
TAX DEDUCTIBILITY OF EXECUTIVE COMPENSATION. Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), imposes
limitations upon the federal income tax deductibility of compensation paid to
the Company's chief executive officer and to each of the other four most highly
compensated executive officers of the Company. Under these limitations, the
Company may deduct such compensation only to the extent that during any fiscal
year the compensation paid to any such officer does not exceed $1,000,000 or
meets certain specified conditions (such as certain performance-based
compensation that has been approved by the Company's shareholders). Based on the
Company's current compensation plans and policies and proposed regulations
interpreting the Internal Revenue Code, the Company and the Compensation
Committee believe that, for the near future, there is not a significant risk
that the Company will lose any significant tax deduction for executive
compensation. The Company's compensation plans and policies will be modified to
ensure full deductibility of executive compensation if the Company and the
Compensation Committee determine that such an action is in the best interests of
the Company.
COMPENSATION COMMITTEE
William H. Baumer, Chairman
William L. Schrader
Ralph J. Swett
-16-
<PAGE>
PROPOSAL 2 - APPROVAL OF AN AMENDMENT TO THE COMPANY'S CERTIFICATE OF
INCORPORATION INCREASING THE NUMBER OF AUTHORIZED SHARES OF
CAPITAL STOCK
The Board of Directors has voted unanimously to approve an amendment
to the Company's Certificate of Incorporation and to recommend such amendment to
the shareholders. The proposed amendment, if authorized, would increase the
aggregate number of authorized shares of capital stock. The text of the proposed
amendment is attached to this Proxy Statement as Exhibit A. If authorized by the
shareholders, the proposed amendment to the Company's Certificate of
Incorporation will become effective upon the filing of a Certificate of
Amendment with the Secretary of State of New York, which will occur as soon as
practicable after authorization.
The proposed amendment to Paragraph FOURTH of the Company's
Certificate of Incorporation, if approved by the Shareholders, will increase the
number of authorized shares of the Company's capital stock from 530 million to
2.06 billion shares, the number of authorized shares of the Company's Common
Stock from 500 million to 2.0 billion shares and the number of authorized shares
of the Company's Preferred Stock from 30 million shares to 60 million shares.
The Certificate of Incorporation of the Company currently
authorizes the issuance of 530 million shares, of which 500 million shares
are authorized to be issued as Common Stock and 30 million shares are
authorized to be issued as Preferred Stock. As of March 3, 2000, there were
approximately 149,520,373 shares of Common Stock outstanding and 1,767,396
shares of Common Stock in the Company's treasury. In addition, 23,754,200
shares are reserved for issuance upon conversion of the Company's Series C
Preferred Stock, 20,000,000 shares are reserved for issuance upon payment of
dividends on the Company's Series C Preferred Stock, 10,000,000 shares are
reserved for issuance and sale pursuant to the Deposit Agreement in
connection with the Company's Series C Preferred Stock, 13,092,800 shares are
reserved for issuance upon conversion of the Company's Series D Preferred
Stock, 10,000,000 shares are reserved for issuance upon payment of dividends
on the Company's Series D Preferred Stock, 2,000,000 shares are reserved for
issuance and sale pursuant to the Deposit Agreement in connection with the
Company's Series D Preferred Stock, approximately 28,043,809 shares of Common
Stock were reserved for issuance in connection with outstanding stock
options, 100,000 shares were reserved for issuance in connection with
outstanding warrants to purchase Common Stock and a total of 14,431,420
additional shares were reserved for issuance under the Company's stock plans.
As a result, the Company has available for issuance 227,290,002 shares of
Common Stock. If the proposed amendments to the Executive Stock Incentive
Plan and Strategic Stock Incentive Plan are approved (see Proposal 3), the
Company will be required to reserve an additional 25,000,000 for issuance
under those Plans. Assuming all of the Plan proposals are approved and based
upon the number of shares authorized for issuance as of March 3, 2000, the
Company would have available for issuance 202,290,002 additional shares of
Common Stock.
The Company anticipates that it will continue to seek to acquire
assets and businesses of companies providing services complementary to its
existing business in furtherance of its strategy to maintain a leadership
position as an Internet Super Carrier. In connection with these acquisitions,
the Company may issue Common Stock or Preferred Stock that is convertible into
Common Stock. The Board of Directors believes that it is advantageous for the
Company to be able to act promptly with respect to investment and acquisition
opportunities as well as other transactions and that the proposed increase in
the number of authorized shares of capital stock is desirable in order to have
the additional authorized shares of capital stock available, as needed, for
possible future financing and acquisition transactions, stock dividends or
splits, employee stock plans and for other general corporate purposes determined
by the Board of Directors to be in the best interests of the Company. Having
such additional authorized shares available for issuance in the future would
give the Company greater flexibility and allow shares of Common Stock,
convertible Preferred Stock or other securities exercisable, exchangeable or
convertible into Common Stock to be issued without the expense and delay of a
shareholders' meeting, except as may be required by applicable law or
regulations. The holders of Common Stock do not have any preemptive rights to
subscribe for or purchase any additional shares of Common Stock that may be
issued. The issuance of additional shares might reduce the shareholders'
proportional interest in the Company.
The increase in authorized shares is not being proposed to provide
additional authorized shares of Common Stock that could be issued in an attempt
to make more difficult a change in control or takeover of the Company, and the
Company has no present intention of issuing additional shares of Common Stock
for that purpose. Nevertheless, the additional authorized shares of Common Stock
could be issued to make any attempt to change control of the Company more
difficult if the Board were to determine that such an attempt was not in the
best interests of the Company.
Approval of the proposed amendment to the Company's Certificate of
Incorporation to increase the number of authorized shares of the Company's
capital stock requires the affirmative vote by holders of a majority of the
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<PAGE>
outstanding shares of Common Stock. Unless marked to the contrary, proxies
received will be voted for approval of this proposed amendment.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
APPROVAL OF THE PROPOSED AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION
INCREASING THE NUMBER OF AUTHORIZED SHARES OF ITS CAPITAL STOCK.
PROPOSAL 3 - APPROVAL OF AMENDMENTS TO THE EXECUTIVE STOCK INCENTIVE PLAN AND
THE STRATEGIC STOCK INCENTIVE PLAN
EXECUTIVE STOCK INCENTIVE PLAN
The Board of Directors has unanimously adopted and recommends that
the shareholders approve an amendment to the Company's Executive Stock
Incentive Plan to increase the number of shares of the Company's Common Stock
available for issuance thereunder from a maximum of 31,600,000 shares
(subject to adjustment in the event of any stock dividend, stock split,
recapitalization or similar event) to a maximum of 43,600,000 shares (subject
to adjustment in the event of any stock dividend, stock split,
recapitalization or similar event). The effective date of the proposed
amendment will be the date on which such amendment is approved by the
shareholders.
REQUIRED VOTE
Approval of the adoption of the amendment to the Executive Stock
Incentive Plan requires the affirmative vote of the holders of a majority of
shares of the Company's Common Stock present in person or by proxy and entitled
to vote at the Annual Meeting. Abstentions and broker non-votes will be counted
as present for purposes of determining whether a quorum is present, and broker
non-votes will not be treated as entitled to vote on this matter at the Annual
Meeting.
PLAN ACTIVITY
As of March 17, 2000, options to purchase an aggregate of 18,363,770
shares of the Company's Common Stock were outstanding under the Executive Stock
Incentive Plan and, without taking into account the proposed amendments to the
plan 7,424,234 shares remained available for future grants under the plan.
The table under the caption "Option Grants in 1999" provides
information with respect to the grant of options under the Executive Stock
Incentive Plan during fiscal year 1999 to the executive officers of the Company
appearing in the Summary Compensation Table. The following table sets forth
additional information with respect to options granted under the Executive Stock
Incentive Plan during fiscal year 1999 to certain groups:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE OPTIONS
IDENTITY OF GROUP EXERCISE PRICE GRANTED(#)
---------------- --------------
<S> <C> <C>
All executive officers as a group (14 persons) $ 22.61 860,000
Non-executive directors as a group (3 persons) $ -- --
Non-executive officer employees as a group (approximately 933 persons) $ 23.42 5,595,286
</TABLE>
GENERAL
The purpose of the Executive Stock Incentive Plan is to enable the
Company to attract and retain employees and consultants and provide them with an
incentive to maintain and enhance the Company's long-term performance record. In
the view of the Board of Directors, the plan as well as predecessor plans have
been successful in achieving these objectives. In light of the Company's recent
expansion and strategy for continued growth, the Board of Directors believes
that the proposed amendments to the plan are necessary to ensure that an
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<PAGE>
adequate number of shares are available for awards so that the plan can continue
to make a significant contribution to the morale and motivation of the Company's
and its subsidiaries' employees and consultants in the future.
The Company's Executive Stock Incentive Plan was adopted by the
Company's Board of Directors on March 1, 1995 and approved by the shareholders
of the Company on April 8, 1995. The plan has been amended three times to
increase the number of shares of the Company's Common Stock eligible for
issuance thereunder in November 1995 and in May and September 1999. The plan
presently provides that up to 31,600,000 shares of the Company's Common Stock
(subject to adjustment in the event of any stock dividend, stock split,
recapitalization or similar event) will be available for awards under the plan.
As noted above, the proposed amendment would increase the maximum number of
shares available for awards under the plan to 43,600,000 (subject to
adjustment in the event of any stock dividend, stock split, recapitalization or
similar event). Awards under the plan will be made to persons who have the
capability of making a substantial contribution to the success of the Company
and may be in the form of incentive stock options, non-qualified stock options,
stock appreciation rights or restricted stock awards. Employees may be awarded
any type of award under the plan. Consultants may be awarded any type of award
except incentive stock options.
STRATEGIC STOCK INCENTIVE PLAN
The Board of Directors has unanimously adopted and recommends that
the shareholders approve an amendment to the Company's Strategic Stock Incentive
Plan to increase the number of shares of the Company's Common Stock available
for issuance thereunder from a maximum of 16,000,000 shares (subject to
adjustment in the event of any stock dividend, stock split, recapitalization or
similar event) to a maximum of 29,000,000 shares (subject to adjustment in the
event of any stock dividend, stock split, recapitalization or similar event).
The effective date of the proposed amendment will be the date on which such
amendment is approved by the shareholders.
REQUIRED VOTE
Approval of the adoption of the amendment to the Strategic Stock
Incentive Plan requires the affirmative vote of the holders of a majority of
shares of the Company's Common Stock present in person or by proxy and entitled
to vote at the Annual Meeting. Abstentions and broker non-votes will be counted
as present for purposes of determining whether a quorum is present, and broker
non-votes will not be treated as entitled to vote on this matter at the Annual
Meeting.
PLAN ACTIVITY
As of March 17, 2000, options to purchase an aggregate of 6,752,937
shares of the Company's Common Stock were outstanding under the Strategic Stock
Incentive Plan and, without taking into account the proposed amendments to the
plan 8,092,246 shares remained available for future grants under the plan.
The table under the caption "Option Grants in 1999" provides
information with respect to the grant of options under the Strategic Stock
Incentive Plan during fiscal year 1999 to the executive officers of the Company
appearing in the Summary Compensation Table. The following table sets forth
additional information with respect to options granted under the Strategic Stock
Incentive Plan during fiscal year 1999 to certain groups:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
EXERCISE PRICE OPTIONS
IDENTITY OF GROUP ($/SH) GRANTED (#)
- ----------------- ----------------- -----------
<S> <C> <C>
All executive officers as a group (14 persons) $ 23.22 1,020,000
Non-executive directors as a group (3 persons) $ -- --
Non-executive officer employees as a group (approximately 1,229 persons) $ 22.55 4,227,224
</TABLE>
GENERAL
The purpose of the Strategic Stock Incentive Plan is to enable the
Company and its subsidiaries in connection with acquisitions, mergers, strategic
alliances, joint ventures and other business combination transactions, to
attract and retain employees and consultants and provide them with an incentive
to maintain and
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<PAGE>
enhance the Company's and its subsidiaries' long-term performance record by
creating a long-term mutuality of interests among the employees and consultants
and the shareholders of the Company. The plan provides for the issuance to
persons who have the capability of making a substantial contribution to the
success of the Company or any one or more of its subsidiaries of incentive stock
options, non-qualified stock options, stock appreciation rights and restricted
stock grants in connection with acquisitions, mergers, strategic alliances and
other business combinations and transactions effected by the Company and/or one
or more of its subsidiaries. In light of the Company's recent expansion,
especially through mergers and acquisitions, and strategy for continued growth,
the Board of Directors believes that the proposed amendments to the plan are
necessary to ensure that an adequate number of shares are available for awards
so that the plan can continue to make a significant contribution to the morale
and motivation of the Company's and its subsidiaries' employees and consultants
in the future.
The Company's Strategic Stock Incentive Plan was adopted by the
Company's Board of Directors on June 5, 1995 and approved by the shareholders
of the Company on November 11, 1995. The plan has been amended to increase
the number of shares of the Company's Common Stock eligible for issuance
thereunder in May and September 1999. Currently, awards under the plan may be
made in respect of up to 16,000,000 shares of the Company's Common Stock
(subject to adjustment in the event of any stock dividend, stock split,
recapitalization or similar event). As noted above, the proposed amendment
would increase the maximum number of shares available for awards under the
plan to 29,000,000 (subject to adjustment in the event of any stock dividend,
stock split, recapitalization or similar event). The total number of shares
with respect to which restricted stock awards may be granted to any one
participant shall not exceed 20,000 per calendar year (subject to
substitution or adjustment in the event to any stock dividend, stock split,
recapitalization or similar event). Employees may be awarded any type of
award offered under the plan. Consultants may be awarded any type of award
except incentive stock options. No awards may be made under the plan after
the tenth anniversary thereof.
SUMMARY OF PLAN FEATURES
The following is a summary of certain features common to both the
Executive Stock Incentive Plan and the Strategic Stock Incentive Plan (together,
the "Plans"). The summary is qualified in its entirety by reference to the
Plans, copies of each of which are together annexed hereto as Exhibit B.
ADMINISTRATION. The Plans are administered by the Compensation
Committee of the Board of Directors, none of the members of which, during the
one-year period prior to commencement of service thereon or during such service,
has been or will be granted any awards pursuant to either of the Plans, subject
to certain permitted exceptions.
The Compensation Committee has the power to determine the persons to
whom, and the time or times at which, awards shall be granted, the type of award
to be granted and the number of shares to be subject to each award, to interpret
the Plans and to prescribe rules, regulations and procedures in connection with
the operation of the Plans. All questions of interpretation and application of
the Plans, or as to awards granted under the Plans, are subject to the
determination of the Compensation Committee, which will be conclusive and
binding.
AWARDS. Awards granted under the Plans are evidenced by agreements
between the individual employee or consultant and the Company. Incentive stock
options within the meaning of Section 422 of the Internal Revenue Code as well
as options which do not meet the requirements of that section may be granted
alone or in tandem with stock appreciation rights. All options will expire not
more than 10 years after the date of grant except for incentive stock options
granted to holders of more than 10% of the voting power of the Company, which
will expire not more than five years after the date of grant. The exercise price
for any option issued under the Plans shall be equal to the fair market value of
the Company's Common Stock at the time such option is granted provided that, in
the case of incentive stock options granted to holders of more than 10% of the
voting power of the Company, the exercise price shall equal at least 110% of
fair market value. Payment of an option's exercise price may be made in cash, by
check or, in certain circumstances, by delivery of shares of Common Stock
assigned to the Company, or by a combination of the foregoing. The Company may
loan employees amounts in respect of the exercise of options under the Plans
provided that such loans are evidenced by interest bearing promissory notes and
secured by a pledge of the Company's Common Stock having an aggregate purchase
price on the date of exercise at least equal to the principal amount of the
note. Options are not transferable other than by will or by the laws of descent
and distribution, pursuant to a qualified domestic relations order or, to the
extent permitted under the option agreement or under interpretation of the
Compensation Committee under Rule 16b-3 of the Exchange Act, by gift to family
members or other permitted transferees. Options may be exercised only by the
optionee, his or her guardian, his or her legal representative or his or her
permitted transferee.
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<PAGE>
Stock appreciation rights may be granted in tandem with options
granted under the Plans. Upon exercise of a stock appreciation right, the
grantee will receive from the Company cash, Common Stock or a combination
thereof (at the discretion of the Compensation Committee) having a value equal
to the excess of the fair market value per share of the Company's Common Stock
on the exercise date multiplied by the number of shares with respect to which
the right is being exercised over the option exercise price for such number of
shares.
Restricted stock also may be granted under the Plans provided that
any one participant may not receive awards in respect to more than 20,000 shares
per year. The Compensation Committee will determine the restrictions that apply
to each such grant. During the restricted period, the grantee may not sell or
otherwise transfer the restricted stock, but will have the right to vote the
restricted stock and to receive dividends, if any.
Upon the acquisition of beneficial ownership of 30% or more of the
Company's Common Stock by any person other than a wholly-owned subsidiary of the
Company or the occurrence of certain other change of control events specified in
the Plans, including certain mergers and consolidations and transfers of all or
substantially all of the Company's assets, all options and stock appreciation
rights shall become fully exercisable and all restricted stock awards shall
become immediately vested.
AMENDMENTS. The Plans may be amended by the Compensation Committee or
the shareholders, provided that the Compensation Committee may not, without
shareholder approval, materially increase the benefits accruing to participants
under the Plans, materially increase the maximum number of shares as to which
awards may be granted under the Plans, increase the number of restricted stock
grants per year per participant or change the basis of making performance-based
awards for participants whose compensation is subject to Section 162(m) of the
Internal Revenue Code, change the minimum exercise price of options or stock
appreciation rights, change the class of eligible persons, extend the period for
which awards may be granted or exercised or withdraw the authority to administer
one or both of the Plans from the Compensation Committee.
CERTAIN INCOME TAX CONSEQUENCES. A participant who is awarded a stock
option will not realize any income, nor will the Company be entitled to any
deduction, at the time of grant. If a participant who is not an "insider"
subject to Section 16(b) of the Exchange Act exercises a non-qualified option,
he or she will realize ordinary income equal to the difference between the
option price and the fair market value of the shares on the date of exercise and
the holding period for capital gain and loss purposes will begin on the date of
exercise. In the case of a participant who is a Section 16(b) insider, upon
exercise of an option, he or she will realize ordinary income on the first day
on which a sale of shares at a profit would not expose the participant to
Section 16(b) liability (the "date of taxation"). The amount of income
recognized will be equal to the excess of the fair market value of the shares on
the date of taxation over the option price and the holding period for capital
gains and losses will begin on the date of taxation. An insider may elect to be
taxed according to the rules applicable to non-insiders by filing an election
with the Internal Revenue Service under Section 83(b) of the Internal Revenue
Code within 30 days from the date of exercise.
If the exercise price of a non-qualified option is paid by
surrendering stock of the Company, the participant will recognize no gain or
loss on the shares that he or she surrenders to pay the option price (the
"surrendered shares"). The number of shares that the participant receives upon
exercise of the option in excess of the surrendered shares are considered
"additional shares." The participant will recognize ordinary income upon
exercise equal to the fair market value of the additional shares on the date of
exercise, less any cash paid towards the exercise price. The basis of the
additional shares will be equal to their fair market value on the date of
exercise, and their holding period will begin on that date. The shares that the
participant receives upon exercise equal to the surrendered shares will have a
basis and holding period equal to that of the surrendered shares.
If a participant exercises an incentive stock option, he or she will
not recognize any income at that time (although the difference between the
option price and the fair market value of shares may be subject to the
alternative minimum tax) and the Company will not be entitled to any tax
deduction. If the option price of an incentive stock option is paid by
surrendering stock of the Company, the Internal Revenue Service treats such an
exchange as if there were two transactions. The first transaction is treated as
a non-taxable exchange of the previously acquired shares for an equal number of
new shares, both having the same market value. The basis of the new shares will
be the same as that of the shares surrendered and the holding period will
include the holding period of the shares surrendered. The second transaction
concerns the additional shares that a participant will receive pursuant to the
exercise. This exchange also results in no gain or loss being recognized at the
time of the exchange. The basis of these additional shares, however will equal
zero (i.e., the participant is treated as having paid nothing for these shares).
The holding period for the additional shares begins on the date of the exchange.
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<PAGE>
The Company will be entitled to a deduction for federal tax purposes
at the same time and in the same amount as the participant is considered to have
realized ordinary income with respect to any option. When a participant disposes
of Common Stock acquired through the exercise of a non-qualified option, any
amount received in excess of the fair market value of the shares on the date of
exercise will be subject to taxation as long-term or short-term capital gains,
depending on the holding period of the shares. If the amount received is less
than such fair market value of the shares, the difference will be treated as a
capital loss for tax purposes. When a participant ultimately sells Common Stock
acquired through exercise of an incentive stock option, he or she will recognize
long-term capital gain or loss on the difference between the amount received
upon disposition and the option price of the shares on the date of exercise
provided that the requisite holding periods are satisfied.
Under current federal tax laws, no income will be recognized by a
participant at the time a stock appreciation right is granted to the
participant. Ordinary income will be recognized by the participant upon exercise
of a stock appreciation right equal to the amount of cash received plus the fair
market value, on the date of exercise, of any shares issued. The Company will be
entitled to a deduction equal to the amount the participant recognizes as
ordinary income and at the time the participant recognizes income.
The basis of a share acquired pursuant to the exercise of a stock
appreciation right will be the amount included in income due to receipt of the
share. When the participant disposes of shares acquired pursuant to the exercise
of a stock appreciation right, any amount realized in excess of the basis of the
shares will be treated as long-term or short-term capital gain, depending on the
holding period of the shares. If the amount realized is less than the basis of
the shares, the loss will be treated as long-term or short-term capital loss,
depending on the holding period of the shares.
Unless the participant otherwise elects, receipt of a grant of
restricted shares of Common Stock will not result in the recognition of income
by the participant. At the time of vesting of ownership of any such shares, the
participant will recognize ordinary income equal to the fair market value of
such shares. At that time, the Company will be entitled to a deduction. The
deduction will be equal to the amount which is taxable to the participant as
ordinary income.
The participant may elect to recognize ordinary income at the time of
grant. Any such election must be made within 30 days of grant pursuant to
regulations issued under Section 83(b) of the Internal Revenue Code. The amount
of such income will be equal to the fair market value of the shares of stock
without regard to the restrictions. In such a case, the Company would be
entitled to a deduction equal to the amount which is taxable to the participant
as ordinary income.
The basis of a share acquired under a restricted stock grant will be
the amount included in ordinary income due to receipt of the share. When the
participant disposes of shares acquired under a restricted stock grant, any
amount realized in excess of the basis of the shares will be treated as
long-term or short-term capital gain, depending on the holding period of the
shares (measured from the time the participant recognized ordinary income from
the receipt of such shares). If the amount realized is less than the basis of
the shares, the loss will be treated as long-term or short-term loss, depending
on the holding period of the shares.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL
OF THE ADOPTION BY THE BOARD OF DIRECTORS OF THE AMENDMENTS TO EACH OF THE
EXECUTIVE STOCK INCENTIVE PLAN AND THE STRATEGIC STOCK INCENTIVE PLAN.
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<PAGE>
STOCK PRICE PERFORMANCE
Set forth below is a line graph comparing the cumulative total
shareholder return on the Company's Common Stock, based upon the market price of
the Company's Common Stock as reported by The Nasdaq Stock Market, with the
cumulative total return of companies in the Nasdaq Composite Index and the
Nasdaq Telecommunications Index for the period from May 2, 1995 through December
31, 1999. Prior to May 2, 1995, the Company's Common Stock was not publicly
traded.
[A Graph Appears Here]
<TABLE>
<CAPTION>
5/2/95 6/30/95 9/30/95 12/31/95 3/31/96 6/30/96 9/30/96 12/31/96
------ ----- ------ --------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PSINet Inc. 100.00 99.61 140.98 150.00 63.52 75.41 71.31 71.31
NASDAQ Composite Index 100.00 110.97 124.04 125.10 131.64 142.38 147.45 154.70
NASDAQ Telecom Index 100.00 111.11 125.21 127.12 133.69 137.91 129.82 129.99
</TABLE>
<TABLE>
<CAPTION>
3/31/97 6/30/97 9/30/97 12/31/97 3/31/98 6/30/98 9/30/98 12/31/98
------ ----- ------ --------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PSINet Inc. 48.36 49.18 52.87 33.61 72.95 85.25 91.40 136.89
NASDAQ Composite Index 146.89 173.81 203.21 190.30 222.72 228.83 206.49 268.33
NASDAQ Telecom Index 120.52 151.04 174.93 189.75 241.52 255.42 225.59 314.45
</TABLE>
<TABLE>
<CAPTION>
3/31/99 6/30/99 9/30/99 12/31/99
------- ------- ------- --------
<S> <C> <C> <C> <C>
PSINet Inc. 279.10 286.89 235.86 404.92
NASDAQ Composite Index 300.74 329.07 337.05 496.58
NASDAQ Telecom Index 395.08 418.89 382.47 555.87
</TABLE>
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the year ended December 31, 1999, the members of the
Compensation Committee of the Company's Board of Directors consisted of Messrs.
Baumer, Schrader and Swett. Mr. Schrader is the Chairman of the Company's Board
of Directors and Chief Executive Officer of the Company. None of such persons
other than Mr. Schrader is an executive officer or employee of the Company.
CERTAIN RELATIONSHIPS AND TRANSACTIONS
STRATEGIC ALLIANCE WITH IXC
IRU AND STOCK PURCHASE AGREEMENT. In February 1998, the Company
acquired from IXC Internet Services, Inc. ("IXC") 20-year noncancellable
indefeasible rights of use ("IRUs") in up to 10,000 equivalent route miles of
fiber-based OC-48 network bandwidth (the "PSINet IRUs") in selected portions
across the IXC fiber optic telecommunications system within the United States.
The PSINet IRUs were acquired in exchange for the issuance to IXC of 20,459,578
shares of Common Stock representing approximately 20% of the issued and
outstanding Common Stock of the Company after giving effect to such issuance and
having an aggregate market value of $78,641,502 based on the closing market
price per share of the Common Stock as reported by The Nasdaq Stock Market on
such date of $3.84375 (the "IXC Shares") and a contingent payment obligation
pursuant to an IRU and Stock Purchase Agreement, dated as of July 22, 1997,
between the Company and IXC, as amended (the "IRU Purchase Agreement"). The
contingent payment obligation terminated in January 1999 without the payment of
any additional amounts or the issuance of any additional shares of Common Stock
to IXC.
IXC has been granted certain demand and "piggyback" registration
rights with respect to the IXC Shares pursuant to a registration rights
agreement between IXC and the Company. In January 2000, the Company caused the
registration of 6,000,000 of the IXC Shares pursuant to a demand by IXC under
the registration rights agreement. Pursuant to the IRU Purchase Agreement, Ralph
J. Swett, the former chairman of IXC Communications, was elected, effective as
of the closing of the transaction, to the Company's Board of Directors. The IRU
Purchase Agreement provides that the Company's Chairman will recommend that Mr.
Swett continue to be re-elected to the Company's Board for so long as IXC
continues to own at least 95% of the IXC Shares. IXC has entered into
transactions that may cause or have caused this provision to no longer be
effective. 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, the Company has a right of first offer to acquire the shares proposed to
be sold at the closing market price per share of the Common Stock as reported by
The Nasdaq Stock Market or the principal securities exchange on which the Common
Stock is then listed on the date notice of such proposed sale is given to the
Company. 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.
PSINET IRUS. As of January 1, 2000, approximately 16,248 route miles
of OC-12 (equivalent to approximately 4,062 route miles of OC-48) bandwidth have
been delivered to PSINet. The Company expects to take delivery of the remaining
bandwidth from IXC through the term of the contract. IXC has granted the Company
a security interest in, among other collateral, a portion of the IRUs underlying
the PSINet IRUs granted to IXC by IXC Carrier 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 is obligated to provide customary operation and maintenance services with
respect to the bandwidth delivered to the Company at specified prices and terms,
the total cost of which to the Company on an annual basis is expected to be
approximately $1.2 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 the Company at agreed upon fees.
CERTAIN RESTRICTIONS ON USE AND TRANSFER OF BANDWIDTH. The Company
may use the bandwidth acquired from IXC for any purpose in connection with the
provision of Internet services and at a rate of DS-3 (45 Mbps) or less for
non-Internet telecommunications transport, but is restricted from using such
bandwidth to deliver any private line or long distance switched telephone
services (based on non-Internet telephone switching technologies) to any third
party. In addition, the Company may not effect any sale, swap, lease or other
transfer of such bandwidth to any unaffiliated third party except (i) in
connection with the offering of Internet connectivity services or (ii) in
connection with a bona fide financing arrangement. Any transferee of bandwidth
acquired from IXC, other than in
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connection with a bankruptcy of the Company, will be subject to the terms and
conditions of the IRU Purchase Agreement, including, without limitation, the
foregoing restrictions.
JOINT MARKETING AND SERVICES AGREEMENT. In connection with this
transaction, the Company 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, the Company has 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 the
Company of the PSINet IRUs and the Company's other arrangements with IXC
described herein, the Company has agreed will be, or will be equal to, the
lowest offered by the Company.
IRU AGREEMENT. In September, 1999, the Company acquired IRUs in an
additional four fibers in approximately 55,124 fiber miles pursuant to an IRU
Agreement with IXC Communications Services, Inc., a predecessor to Broadwing
Communications Services Inc. ("Broadwing"). Under the terms of the Agreement,
the Company will pay an aggregate of $165,372,000. The initial term of the grant
is for a period of 20 years with a 5 year renewal option by the Company. In
addition, the Company may acquire up to an additional 12 fibers from Broadwing.
If Broadwing delivers the additional bandwidth, which would be in 2001, the
Company would be committed to make cash payments at that time of between $120
million and $180 million.
FIBER CAPACITY PROVISION AND MAINTENANCE AGREEMENT WITH MARCA-TEL
GENERAL. On March 6, 2000, PSINet Mexico, S.A. de C.V. ("PSINet
Mexico") entered into a Long Term Fiber Capacity Provision and Maintenance
Agreement (the "Capacity Agreement") with Marca-Tel, S.A. de C.V. ("Marca-Tel").
Broadwing (an affiliate of IXC), has an indirect interest in the parent company
of Marca-Tel. Pursuant to the Capacity Agreement, PSINet Mexico paid Marca-Tel
$40.0 million for the exclusive right to the capacity of 4 to 18 fibers along
Marca-Tel's fiber optic route, which comprises approximately 40% of the
available fiber along the route consisting of 36,960 strand kilometers of fiber.
The initial term of the grant is for a period of twenty years with a five year
renewal option by the Company.
GUARANTY. In connection with the Capacity Agreement, the parties have
entered into a Guaranty Agreement dated as of March 6, 2000 whereby Broadwing
has guaranteed to each of the Company and PSINet Mexico the payment, performance
and discharge of the obligations of Marca-Tel with respect to the collocation,
optical amplifer sites and regen sites work to be provided pursuant to the terms
of the Capacity Agreement up to a maximum of $1.5 million.
In addition, the parties have entered into a Guaranty and Agreement
dated as of March 6, 2000 (the "Guaranty and Agreement") relating to a pending
proceeding involving Marca-Tel and certain other holders of concessions for
rendering communications services in Mexico. The proceeding challenges an
administrative resolution issued in May 1997 by the Mexican Commission Federal
de Telecomunicaciones (the "Administrative Determination") which sets forth
certain amounts which Telmex is entitled to charge Marca-Tel and other carriers
as compensation for interconnection projects undertaken by Telmex. Pursuant to
the terms of the Guaranty and Agreement, Broadwing has guaranteed to each of
PSINet Mexico and the Company the payment of any amounts payable by Marca-Tel,
up to a maximum of $20 million, in satisfaction of or in connection with any
final decision with respect to such proceeding if Marca-Tel fails to pay any
such amount and, as a result of such failure any action is taken which may or
does adversely affect Marca-Tel's ability to fully perform its obligations under
the Capacity Agreement, or if the decision causes a loss by Marca-Tel of any
concession or license required to render public telecommunication services or to
operate its network in Mexico or causes the interruption of any service on
Marca-Tel's network.
OPTION. Under the terms of the Guaranty and Agreement, Broadwing has
also agreed to use its best efforts to obtain all necessary governmental and
third party authorizations in order to offer the Company an option to pay up to
$8.0 million of any amounts payable by Broadwing under the Guaranty and the
Agreement in return for the transfer and assignment to the Company or its
affiliates, of 50% of Broadwing's ownership interest in Marca-Tel.
OTHER TRANSACTIONS. In addition to the transactions described above,
the Company and IXC Communications or its affiliates are parties to transactions
in the ordinary course of business which the Company believes are on terms no
more favorable than could be obtained on an arms' length basis with independent
third parties.
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PROPOSAL 4 - RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors, on the recommendation of the Audit Committee
of the Board, has appointed the firm of PricewaterhouseCoopers LLP, independent
accountants, to audit and report on the financial statements of the Company for
the year ending December 31, 2000. PricewaterhouseCoopers LLP, or its
predecessor entity, Price Waterhouse LLP, has been employed by the Company as
its independent accountants since 1990.
It is expected that a representative of PricewaterhouseCoopers LLP
will be present at the Annual Meeting to answer questions of shareholders and
will have the opportunity, if desired, to make a statement.
REQUIRED VOTE
The ratification of the appointment of PricewaterhouseCoopers LLP
requires a majority of the votes cast by holders of the Company's Common Stock
entitled to vote at the Annual Meeting. Abstentions and broker non-votes will be
counted as present for purposes of determining whether a quorum is present, and
broker non-votes will not be treated as entitled to vote on this matter at the
Annual Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE
RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP.
SHAREHOLDER PROPOSALS
The Company's Certificate of Incorporation and By-laws require any
shareholder who wishes to bring any proposal before a meeting of shareholders or
to nominate a person to serve as a director to give written notice thereof and
certain related information to the Company at least 60 days prior to the date
one year from the date of the immediately preceding annual meeting, if such
proposal or nomination is to be submitted at an annual meeting, and within ten
days of the giving of notice to the shareholders, if such proposal or nomination
is to be submitted at a special meeting. The written notice must set forth with
particularity (i) the name and business address of the shareholder submitting
such proposal and all persons acting in concert with such shareholder; (ii) the
name and address of the persons identified in clause (i), as they appear on the
Company's books (if they so appear); (iii) the class and number of shares of the
Company's stock beneficially owned by the persons identified in clause (i); (iv)
a description of the proposal containing all material information relating
thereto, including, without limitation, the reasons for submitting such
proposal; and (v) such other information as the Board of Directors reasonably
determines is necessary or appropriate to enable the Board of Directors and
shareholders of the Company to consider such proposal.
Management does not know of any matters which are likely to be
brought before the Annual Meeting other than those referred to in this Proxy
Statement. However, in the event that any other matters properly come before the
Annual Meeting, the persons named in the enclosed proxy will vote in accordance
with their judgment on such matters.
The presiding officer at the Annual Meeting may determine that any
shareholder proposal was not permissible under or was not made in accordance
with the foregoing procedures or is otherwise not in accordance with law and, if
he so determines, he may refuse to allow the shareholder proposal or nomination
to be considered at the Annual Meeting.
Under the rules of the SEC, shareholder proposals intended to be
presented at the next annual meeting (to be held in 2001) must be received by
the Company on or before December 8, 2000 in order to be included in the proxy
statement and proxy for that meeting. Proposals should be directed to the
Corporate Secretary, PSINet Inc., 510 Huntmar Park Drive, Herndon, Virginia
20170.
A copy of the Company's Annual Report to Shareholders, which includes
financial statements and related data, accompanies this Proxy Statement.
According to SEC rules, the information presented in this Proxy
Statement under the captions "Compensation Committee Report on Executive
Compensation" and "Stock Price Performance" shall not be deemed to be
"soliciting material" or to be filed with the SEC under the Securities Act of
1933 or the Securities
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Exchange Act of 1934 and nothing contained in any previous filings made by the
Company under such Acts shall be interpreted as incorporating by reference the
information presented under the specified captions.
By Order Of The Board Of Directors,
Kathleen B. Horne
SENIOR VICE PRESIDENT, GENERAL COUNSEL AND
CORPORATE SECRETARY
Dated: April 7, 2000
Herndon, Virginia
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EXHIBIT A
PROPOSED AMENDMENT TO CERTIFICATE OF INCORPORATION OF PSINET INC.
The first four sentences of Article FOURTH of the Certificate of Incorporation
would be amended to read in their entirety as follows:
The Corporation is authorized to issue two classes of shares to be
designated, respectively, Common Stock ("Common Stock") and Preferred
Stock ("Preferred Stock"). The total number of shares of capital
stock that the Corporation is authorized to issue is Two Billion
Sixty Million (2,060,000,000). The total number of shares of Common
Stock that the Corporation shall have authority to issue is Two
Billion (2,000,000,000). The total number of shares of Preferred
Stock that the Corporation shall have the authority to issue is Sixty
Million (60,000,000).
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EXHIBIT B
PSINET INC.
EXECUTIVE STOCK INCENTIVE PLAN
(AS AMENDED ON MAY 15, 2000)
1. BACKGROUND AND PURPOSE
PSINet Inc. (the "Company") hereby establishes the PSINet Inc.
Executive Stock Incentive Plan (the "Plan"). The purpose of this Plan is to
enable the Company to attract and retain employees and consultants and provide
them with an incentive to maintain and enhance the Company's long-term
performance record. It is intended that this purpose will best be achieved by
granting eligible employees incentive stock options ("ISO's"), non-qualified
stock options ("NQSO's"), stock appreciation rights ("SAR's") and restricted
stock grants, individually or in combination, under this Plan pursuant to the
rules set forth in Sections 83, 162(m), 421 and 422 of the Internal Revenue Code
of 1986, as amended (the "Code").
2. ADMINISTRATION
The Plan shall be administered by a Committee of the Company's Board
of Directors (the "Committee"). This Committee shall consist of at least three
members of the Company's Board of Directors each of whom shall, unless the Board
determines otherwise, be "outside directors" as this term is defined in Code
Section 162(m) and regulations thereunder and none of whom during the one-year
period prior to commencement of service on the Committee, or during such
service, has been granted or awarded any equity security or derivative security
of the Company pursuant to the Plan or, except as permitted by Rule 16b-3
(c)(2)(i), or any successor provision, promulgated pursuant to the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), any other plan of the
Company or any of its affiliates. Subject to the provisions of the Plan, the
Committee shall possess the authority, in its discretion, (a) to determine the
employees of the Company to whom, and the time or times at which, ISO's and/or
NQSO's (ISO's and NQSO's are collectively referred to as "options"), SARs and
restricted stock grants (all four types of grants are collectively referred to
as "awards") shall be granted; (b) to determine at the time of grant whether an
award will be an ISO, a NQSO, a restricted stock grant or a combination of these
awards and the number of shares to be subject to each award; (c) if options are
granted to a participant, whether SARs related to such options shall be granted
to such participant; (d) to prescribe the form of the award agreements and any
appropriate terms and conditions applicable to the awards and to make any
amendments to such agreements or awards; (e) to interpret the Plan; (f) to make
and amend rules and regulations relating to the Plan; and (g) to make all other
determinations necessary or advisable for the administration of the Plan. The
Committee's determinations shall be conclusive and binding. No member of the
Committee shall be liable for any action taken or decision made in good faith
relating to the Plan or any award granted hereunder.
3. ELIGIBLE EMPLOYEES
Awards may be granted under the Plan only to employees and
consultants of the Company and its subsidiaries (which shall include all
corporations of which at least fifty percent of the voting stock is owned by the
Company directly or through one or more corporations at least fifty percent of
the voting stock of which is so owned) who have the capability of making a
substantial contribution to the success of the Company. Employees may be awarded
any type of award offered under the Plan. Consultants may be awarded any type of
award except ISOs.
4. SHARES AVAILABLE
The total number of shares of the Company's Common Stock (par value
of $0.01 per share) available in the aggregate for awards under this Plan is
43,600,000. Shares to be granted may be authorized and unissued shares or may
be treasury shares.
The total number of shares with respect to which restricted stock
awards may be granted to any one participant shall not exceed 20,000 per
calendar year (subject to substitution or adjustment as provided in Section 11).
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If an award expires, terminates or is cancelled without being
exercised or becoming vested, new awards may thereafter be granted under the
Plan covering such shares unless Rule 16b-3 provides otherwise. No award may be
granted more than 10 years after the effective date of the Plan.
5. TERMS AND CONDITIONS OF ISO'S
Each ISO granted under the Plan shall be evidenced by an ISO option
agreement in such form as the Committee shall approve from time to time, which
agreement shall conform with this Plan and contain the following terms and
conditions:
(a) EXERCISE PRICE. The exercise price under each option
shall equal the fair market value of the Common Stock at the time
such option is granted. If an option is granted to an officer or
employee who at the time of grant owns stock possessing more than ten
percent of the total combined voting power of all classes of stock of
the Company (a "10-percent Shareholder"), the purchase price shall be
at least 110 percent of the fair market value of the stock subject to
the option.
(b) DURATION OF OPTION. Each option by its terms shall not
be exercisable after the expiration of ten years from the date such
option is granted. In the case of an option granted to a 10-percent
Shareholder, the option by its terms shall not be exercisable after
the expiration of five years from the date such option is granted.
(c) OPTIONS NONTRANSFERABLE. Each option by its terms shall
not be transferable by the participant otherwise than (i) by will or
the laws of descent and distribution, (ii) pursuant to a qualified
domestic relations order, or (iii) to the extent permitted under the
option agreement or interpretation of the Committee and under Rule
16b-3 promulgated under the Exchange Act, by gift to family members
or entities beneficially owned by family members or other permitted
transferees under Rule 16b-3 promulgated under the Exchange Act, and
shall be exercisable, during the participant's lifetime, only by the
participant, the participant's guardian or the participant's legal
representative, the participant's transferee under a qualified
domestic relations order or other permitted transferee under this
section. To the extent required for the option grant and/or exercise
to be exempt under Rule 16b-3, options (or the shares of Common Stock
underlying the options) must be held by the participant for at least
six months following the date of grant.
(d) EXERCISE TERMS. Each option granted under the Plan
shall become exercisable on a schedule to be determined by the
Committee at the time of grant, which schedule may vary from one
grant to another. Options may be partially exercised from time to
time during the period extending from the time they first become
exercisable until the tenth anniversary (fifth anniversary for a
10-percent Shareholder) of the date of grant.
No outstanding option may be exercised by any person if the
employee to whom the option is granted is, or at any time after the
date of grant has been, in competition with the Company. The
Committee has the sole discretion to determine whether an employee's
actions constitute competition with the Company or an affiliated
company. The Committee may impose such other terms and conditions on
the exercise of options as it deems appropriate to serve the purposes
for which this Plan has been established.
(e) MAXIMUM VALUE OF ISO SHARES. No ISO shall be granted to
an employee under this Plan or any other ISO plan of the Company or
its subsidiaries to purchase shares as to which the aggregate fair
market value (determined as of the date of grant) of the Common Stock
which first become exercisable by the employee in any calendar year
exceeds $100,000.
(f) PAYMENT OF EXERCISE PRICE. An option shall be exercised
upon written notice to the Company accompanied by payment in full for
the shares being acquired. The payment shall be made in cash, by
check or, if the option agreement so permits, by delivery of shares
of Common Stock of the Company beneficially owned by the participant,
duly assigned to the Company with the assignment guaranteed by a
bank, trust company or member firm of the New York Stock Exchange, or
by a combination of the foregoing. Any such shares so delivered shall
be deemed to have a value per share equal to the fair market value of
the shares on such date. For this purpose, fair market value shall
equal the closing price of the Company's Common Stock on the Nasdaq
National Market System on the date the option is exercised, or,
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if there was no trading in such stock on the date of such exercise,
the closing price on the last preceding day on which there was such
trading.
Subject to the approval of the Board of Directors upon
recommendation by the Committee, in respect of the exercise of
options, the Company may loan to the employee a sum equal to an
amount which is not in excess of 100% of the purchase price of the
shares so purchased upon exercise, such loan to be evidenced by the
execution and delivery of a promissory note. Interest shall be paid
on the unpaid balance of the promissory note at such times and at
such rate as shall be determined by the Board of Directors. Such
promissory note shall be secured by the pledge to the Company of
shares having an aggregate purchase price on the date of exercise
equal to or greater than the principal amount of such note. An
optionee shall have, as to such pledged shares, all rights of
ownership, including the right to vote such shares and to receive
dividends paid on such shares, subject to the security interest of
the Company. Such shares shall not be released by the Company from
the pledge unless the proportionate amount of the note secured
thereby has been repaid to the Company. All notes executed hereunder
shall be payable at such times and in such amounts and shall contain
such other terms as shall be specified by the Board of Directors,
provided, however, that such terms shall conform to requirements
contained in any applicable regulations which are issued by any
governmental authority.
6. TERMS AND CONDITIONS FOR NQSO'S
Each NQSO granted under the Plan shall be evidenced by a NQSO option
agreement in such form as the Committee shall approve from time to time, which
agreement shall conform to this Plan and contain the same terms and conditions
as the ISO option agreement except that the 10-percent Shareholder restrictions
in Sections 5(a) and 5(b) and the maximum value of share rules of Section 5(e)
shall not apply to NQSO grants. To the extent an option initially designated as
an ISO exceeds the value limit of Section 5(e), it shall be deemed a NQSO and
shall otherwise remain in full force and effect.
7. TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS
To the extent permitted under Rule 16b-3 promulgated under the
Exchange Act, the Committee may, in its discretion, award stock appreciation
rights to any eligible employee of the Company who is subject to Section 16(b)
of the Exchange Act in conjunction with incentive stock options or nonqualified
stock options then being granted to him, or to be attached to one or more such
options theretofore granted and at the time held unexercised by such employee
which shall entitle the employee to receive payment from the Company in
accordance with the following provisions and such other terms and conditions as
the Committee shall determine from time to time:
(a) An SAR granted hereunder may be made part of an option at
the time of grant of the option or at any time thereafter
up to six months prior to the expiration of the option.
(b) Such SAR will entitle the holder to elect to receive, in
lieu of exercising the option to which it relates, an
amount (in cash or in Common Stock, or a combination
thereof, all in the sole discretion of the Committee) equal
to 100% of the excess of:
(1) the fair market value per share of the Company's
Common Stock on the date of exercise of such
right, multiplied by the number of shares with
respect to which the right is being exercised,
over
(2) the aggregate option exercise price for such
number of shares.
(c) Such SAR will be exercisable only to the extent that it has
a positive value and the option to which it relates is
exercisable, except that no SAR shall be exercisable during
the first six (6) months after the date of its grant.
(d) Upon exercise of an SAR, the option (or portion thereof)
with respect to which such right is exercised shall be
surrendered and shall not thereafter be exercisable.
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(e) The exercise of an SAR will reduce the number of shares
purchasable pursuant to the related option and available
under the Plan to the extent of the number of shares with
respect to which the right is exercised.
8. TERMS AND CONDITIONS OF RESTRICTED STOCK GRANTS
The Committee may, evidenced by such written agreement as the
Committee shall from time to time prescribe, grant to an eligible employee a
specified number of shares of the Company's Common Stock which shall vest only
after the attainment of the relevant restrictions described below ("restricted
stock"). Such restricted stock shall have an appropriate restrictive legend
affixed thereto. A restricted stock grant shall be neither an option nor a sale,
but shall be subject to the following conditions and restrictions:
(a) Restricted stock may not be sold or otherwise
transferred by the participant until ownership vests, provided
however, to the extent required for the restricted stock grant to be
exempt under Rule 16b-3, the restricted stock must be held by the
participant for at least six months following the date of vesting.
(b) Ownership shall vest only following satisfaction of one
or more of the following criteria as the Committee may prescribe:
(1) the passage of three years, or such longer period
of time as the Committee in its discretion may
provide, from the date of grant.
(2) the attainment of performance-based goals
established by the Committee as of the date of
grant. If the participant's compensation is
subject to the $1 million cap of Code Section
162(m), the Committee may establish such
performance goals based on one or more of the
following targets:
- total shareholder return
- earnings per share growth
- cash flow growth
- return on equity and/or
If the participant's compensation is not subject to the $1
million cap of Code Section 162(m), the Committee may
establish the performance goal on the basis of the
preceding four targets or any other target it may from time
to time deem appropriate in its discretion.
(3) any other conditions the Committee may
prescribe, including a non-compete requirement.
(c) Unless the Committee shall determine otherwise with
respect to participants whose compensation is not governed by Code
Section 162(m), the Committee shall grant and administer all
performance-based awards under (b)(2) above with the intent of
meeting the criteria of Code Section 162(m) for performance-based
compensation. To this end, the outcome of all targeted goals shall be
substantially uncertain on the date of grant; the goals shall be
established no later than 90 days following the commencement of
service to which the goals relate; the minimum period for attaining
each performance goal shall be one year; and the Committee shall
certify at the conclusion of the performance period whether the
performance-based goals have been attained. Such certification may be
made by noting the attainment of the goals in the minutes of the
Committee's meetings.
(d) Except as otherwise determined by the Committee, all
rights and title to restricted stock granted to a participant under
the Plan shall terminate and be forfeited to the Company upon failure
to fulfill all conditions and restrictions applicable to such
restricted stock.
(e) Except for the restrictions set forth in this Plan and
those specified by the Committee in any restricted stock agreement, a
holder of restricted stock shall possess all the rights of a holder
of the
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Company's Common Stock (including voting and dividend rights);
provided, however, that prior to vesting the certificates
representing such shares of restricted stock (and the amount of any
dividends issued with respect thereto) shall be held by the Company
for the benefit of the participant and the participant shall deliver
to the Company a stock power executed in blank covering such shares.
As the shares vest, certificates representing such shares shall be
released to the participant.
(f) All other provisions of the Plan not inconsistent with
this section shall apply to restricted stock or the holder thereof,
as appropriate, unless otherwise determined by the Committee.
9. GENERAL RESTRICTION ON ISSUANCE OF STOCK CERTIFICATES
The Company shall not be required to deliver any certificate upon the
grant, vesting or exercise of any award or option until it has been furnished
with such opinion, representation or other document as it may reasonably deem
necessary to ensure compliance with any law or regulation of the Securities and
Exchange Commission or any other governmental authority having jurisdiction
under this Plan. Certificates delivered upon such grant, vesting or exercise may
bear a legend restricting transfer absent such compliance. Each award shall be
subject to the requirement that, if at any time the Committee shall determine,
in its discretion, that the listing, registration or qualification of the shares
subject to such award upon any securities exchange or under any state or federal
law, or the consent or approval of any governmental regulatory body, is
necessary or desirable as a condition of, or in connection with, the granting of
such awards or the issue or purchase of shares thereunder, such awards may not
vest or be exercised in whole or in part unless such listing, registration,
qualification, consent or approval shall have been effected or obtained free of
any conditions not acceptable to the Committee in the exercise of its reasonable
judgment.
10. IMPACT OF TERMINATION OF EMPLOYMENT
(a) OPTIONS
If the employment of a participant terminates by reason of death or
disability (as determined by the Committee), any option may be exercised by the
participant or, in the event of the participant's death, by the participant's
personal representative any time prior to the earlier of the expiration date of
the option or the expiration of one year after the date of termination, but only
if, and to the extent that, the participant was entitled to exercise the option
at the date of such termination. Upon termination of the participant's
employment for any reason other than death or disability, any vested option that
was exercisable immediately preceding termination may be exercised at any time
prior to the earlier of the expiration date of the option or the expiration of
three months after the date of such termination. In the event of retirement, the
three month period specified in the preceding sentence shall be extended to one
year in the case of NQSOs. Notwithstanding the foregoing, an option may not be
exercised after termination of employment if the Committee reasonably determines
that the termination of employment of such participant resulted from willful
acts or failure to act by the participant detrimental to the Company or any of
its subsidiaries.
(b) RESTRICTED STOCK GRANTS
(i) PASSAGE OF TIME VESTING. If a participant has been
awarded restricted stock whose vesting is conditioned solely on the passage of
time, any termination of employment for any reason, shall result in the
forfeiture of all restricted stock awards that were not vested prior to the
termination of employment except as otherwise provided by the Committee.
(ii) PERFORMANCE-BASED VESTING. If a participant has been
awarded restricted stock whose vesting is based solely on the attainment of
performance-based goals or partly on the attainment of performance-based goals
and partly on the passage of time, any termination of employment except death,
disability or retirement shall result in the forfeiture of all restricted stock
awards that were not vested prior to the termination of employment. A
participant who terminates employment on account of death, disability or
retirement may, if the performance-based criteria are eventually attained, be
awarded (or, in the event of death, the participant's designated beneficiary or
personal representative if there is no designated beneficiary shall be awarded)
up to a pro rata portion of the restricted shares based on the participant's
length of service as of his or her termination of employment over the length of
the award period ending on the date the performance-based criteria are satisfied
(or the passage of time would have been satisfied, if later, for an award based
in part on performance goals and in part on the passage of
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time). The Committee shall have the discretion whether to grant a full pro rata
portion of the restricted shares, a lesser portion or no shares at all under
this subsection (b)(ii).
(c) SARS
If a participant terminates employment while holding an
unexercised SAR, the participant, or his designated beneficiary (or legal
representative if there is no designated beneficiary) in the event of his death,
may exercise the SAR to the same extent as the option to which it is related may
be exercised following termination of employment.
(d) Miscellaneous Termination Provisions
Unless otherwise determined by the Committee, an authorized
leave of absence shall not constitute a termination of employment for purposes
of this Plan.
For purposes of this section, retirement means that a
participant terminates employment at or after the date on which the participant
reaches any normal retirement age specified in any policy adopted by the Board
or, in the absence of such policy, age 65.
If the employment of a participant terminates for any
reason other than disability, retirement or death, any unpaid balance on any
promissory note used in the purchase of stock shall become due and payable upon
not less than three months' notice from the Company, which notice may be given
at any time after such termination; provided, however, that such unpaid balance
on such promissory note shall become due and payable five years from the date of
such termination, unless the note has an earlier due date. In the case of
termination due to death, any unpaid balance remaining on such note on the date
of death shall become due and payable one year from such date.
11. ADJUSTMENT OF SHARES
In the event of any change in the Common Stock of the
Company by reason of any stock dividend, stock split, recapitalization,
reorganization, merger, consolidation, split-up, combination, or exchange of
shares, or of any similar change affecting the Common Stock, the number and kind
of shares authorized under Section 4, the number and kind of shares which
thereafter are subject to an award under the Plan and the number and kind of
unexercised options and unvested shares set forth in awards under outstanding
agreements and the price per share shall be adjusted automatically consistent
with such change to prevent substantial dilution or enlargement of the rights
granted to, or available for, participants in the Plan.
12. WITHHOLDING TAXES
All cash payable to a participant under the terms of this
Plan shall be subject to such federal, state and local income and employment tax
withholdings as payments of this type are normally subject. Whenever the Company
proposes or is required to issue or transfer shares of Common Stock under the
Plan, or whenever restricted stock vests, the Company shall have the right to
require the recipient to remit to the Company an amount sufficient to satisfy
any federal, state and/or local income and employment withholding tax
requirements prior to the delivery of any certificate or certificates for such
shares or to take any other appropriate action to satisfy such withholding
requirements. Notwithstanding the foregoing, subject to such rules as the
Committee may promulgate and compliance with any requirements under Rule 16b-3,
the recipient may satisfy such obligation in whole or in part by electing to
have the Company withhold shares of Common Stock from the shares to which the
recipient is otherwise entitled.
13. NO EMPLOYMENT RIGHTS
The Plan and any awards granted under the Plan shall not
confer upon any participant any right with respect to continuance as an employee
of the Company or any subsidiary, nor shall they interfere in any way with the
right of the Company or any subsidiary to terminate the participant's position
as an employee at any time.
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14. RIGHTS AS A SHAREHOLDER
The recipient of any option under the Plan shall have no
rights as a shareholder with respect thereto unless and until certificates
for the underlying shares of Common Stock are issued to the recipient. The
recipient of a restricted stock grant shall have all rights of a shareholder
except as otherwise limited by the terms of this Plan.
15. AMENDMENT AND DISCONTINUANCE
This Plan may be amended, modified or terminated by the
Committee or by the shareholders of the Company, except that the Committee may
not, without approval of a majority of the shareholders present in person or by
proxy, materially increase the benefits accruing to participants under the Plan,
materially increase the maximum number of shares as to which awards may be
granted under the Plan, increase the number of restricted stock grants per year
per participant or change the basis for making performance-based awards for
participants whose compensation is subject to Code Section 162(m), change the
minimum exercise price of options or SARs, change the class of eligible persons,
extend the period for which awards may be granted or exercised, or withdraw the
authority to administer the Plan from the Committee or a committee of the
Committee consisting solely of outside directors unless the Board determines
that inside directors may serve on the Committee. Notwithstanding the foregoing,
to the extent permitted by law, the Committee may amend the Plan without the
approval of shareholders, to the extent it deems necessary to cause the Plan to
comply with Securities and Exchange Commission Rule 16b-3 or any successor rule,
as it may be amended from time to time or as otherwise permitted under Rule
16b-3 promulgated under the Exchange Act and the Code. Except as required by
law, no amendment, modification, or termination of the Plan may, without the
written consent of a participant to whom any award shall theretofore have been
granted, adversely affect the rights of such participant under such award.
16. CHANGE IN CONTROL
(a) Notwithstanding other provisions of the Plan, in the
event of a change in control of the Company (as defined in subsection (c)
below), all of a participant's restricted stock awards shall become immediately
vested to the same extent as if all restrictions had been satisfied and all
options and SARs shall become immediately vested and exercisable, unless
directed otherwise by a resolution of the Committee adopted prior to and
specifically relating to the occurrence of such change in control.
(b) In the event of a change in control each participant
holding an exercisable option (i) shall have the right at any time thereafter
during the term of such option to exercise the option in full notwithstanding
any limitation or restriction in any option agreement or in the Plan, and (ii)
if no related SAR has been granted with respect to an option, may, subject to
Committee approval and after written notice to the Company within 60 days after
the change in control, or, if the participant is an officer subject to Section
16 of the Exchange Act and to the extent required to exempt the transaction
under Rule 16b-3, during the period beginning on the third business day and
ending on the twelfth business day following the first release for publication
by the Company after such change of control of a quarterly or annual summary
statement of earnings, which release occurs at least six months following grant
of the option, whichever period is longer, receive, in exchange for the
surrender of the option or any portion thereof to the extent the option is then
exercisable in accordance with clause (i), an amount of cash equal to the
difference between the fair market value (as determined by the Committee) on the
date of surrender of the Common Stock covered by the option or portion thereof
which is so surrendered and the option price of such Common Stock under the
option.
(c) For purposes of this section, "change in control"
means:
(1) there shall be consummated
i. any consolidation or merger of the
Company in which the Company is not
the continuing or surviving
corporation or pursuant to which any
shares of the Company's common stock
are to be converted into cash,
securities or other property, provided
that the consolidation or merger is
not with a corporation which was a
wholly-owned subsidiary of the Company
immediately before the consolidation
or merger; or
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ii. any sale, lease, exchange or other
transfer (in one transaction or a
series of related transactions) of
all, or substantially all, of the
assets of the Company (other than to
one or more directly or indirectly
wholly-owned subsidiaries of the
Company); or
(2) the shareholders of the Company approve any plan or
proposal for the liquidation or dissolution of the Company;
or
(3) any person (as such term is used in Sections 13(d) and
14(d) of the Exchange Act) shall become the beneficial
owner (within the meaning of Rule 13d-3 under the Exchange
Act), directly or indirectly, of 30% or more of the
Company's then outstanding common stock, provided that such
person shall not be a wholly-owned subsidiary of the
Company immediately before it becomes such 30% beneficial
owner; or
(4) individuals who constitute the Company's Board of
Directors on the date hereof (the "Incumbent Board") cease
for any reason to constitute at least a majority thereof,
provided that any person becoming a director subsequent to
the date hereof whose election, or nomination for election
by the Company's shareholders, was approved by a vote of at
least three quarters of the directors comprising the
Incumbent Board (either by a specific vote or by approval
of the proxy statement of the Company in which such person
is named as a nominee for director, without objection to
such nomination) shall be, for purposes of this clause (d),
considered as though such person were a member of the
Incumbent Board.
17. EFFECTIVE DATE
The effective date of the Plan is March 1, 1995 provided
that within 12 months of this date the Plan is approved by the affirmative vote
of the owners of a majority of the Company's outstanding shares of Common Stock.
18. DEFINITIONS
Any terms or provisions used herein which are defined in
Sections 83, 162(m), 421, or 422 of the Internal Revenue Code as amended, or the
regulations thereunder or corresponding provisions of subsequent laws and
regulations in effect at the time awards are made hereunder, shall have the
meanings as therein defined.
19. GOVERNING LAW
To the extent not inconsistent with the provisions of the
Internal Revenue Code that relate to awards, this Plan and any award agreement
adopted pursuant to it shall be construed under the laws of the State of New
York.
Amended as of May 15, 2000
PSINET INC.
By: /s/ WILLIAM L. SCHRADER
------------------------
Chairman and CEO
Date of Shareholder Approval: May 15, 2000
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PSINET INC.
STRATEGIC STOCK INCENTIVE PLAN
(AS AMENDED ON MAY 17, 2000)
1. BACKGROUND AND PURPOSE
PSINet Inc. (the "Company") hereby establishes the PSINet Inc.
Strategic Stock Incentive Plan (the "Plan"). The purpose of this Plan is to
enable the Company and its subsidiaries, in connection with acquisitions,
mergers, strategic alliances, joint ventures and other business combinations and
transactions, to attract and retain employees and consultants and provide them
with an incentive to maintain and enhance the Company's and its subsidiaries'
long-term performance record. It is intended that this purpose will best be
achieved by granting eligible employees and, subject to the terms of this Plan,
consultants incentive stock options ("ISOs"), non-qualified stock options
("NQSOs"), stock appreciation rights ("SARs") and restricted stock grants,
individually or in combination, under this Plan pursuant to the rules set forth
in Sections 83, 162(m), 421 and 422 of the Internal Revenue Code of 1986, as
amended (the "Code"). It is intended that ISOs, SARs, NQSOs and restricted stock
grants will be awarded under this Plan in connection with acquisitions, mergers,
strategic alliances and other business combinations and transactions effected or
to be effected by the Company and/or one or more of its subsidiaries.
2. ADMINISTRATION
The Plan shall be administered by a Committee of the Company's Board
of Directors (the "Committee"). This Committee shall consist of at least three
members of the Company's Board of Directors each of whom shall, unless the Board
determines otherwise, be "outside directors" as this term is defined in Code
Section 162(m) and regulations thereunder and none of whom during the one-year
period prior to commencement of service on the Committee, or during such
service, has been granted or awarded any equity security or derivative security
of the Company pursuant to the Plan or, except as permitted by Rule 16b-3
(c)(2)(i), or any successor provision, promulgated pursuant to the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), any other plan of the
Company or any of its affiliates. Subject to the provisions of the Plan, the
Committee shall possess the authority, in its discretion, (a) to determine the
employees or consultants of the Company or a subsidiary to whom, and the time or
times at which, ISOs and/or NQSOs (ISOs and NQSOs are collectively referred to
as "options"), SARs and restricted stock grants (all four types of grants are
collectively referred to as "awards") shall be granted; (b) to determine at the
time of grant whether an award will be an ISO, a NQSO, a restricted stock grant
or a combination of these awards and the number of shares to be subject to each
award; (c) if options are granted to a participant, whether SARs related to such
options shall be granted to such participant; (d) to prescribe the form of the
award agreements and any appropriate terms and conditions applicable to the
awards and to make any amendments to such agreements or awards; (e) to interpret
the Plan; (f) to make and amend rules and regulations relating to the Plan; and
(g) to make all other determinations necessary or advisable for the
administration of the Plan. The Committee's determinations shall be conclusive
and binding. No member of the Committee shall be liable for any action taken or
decision made in good faith relating to the Plan or any award granted hereunder.
3. ELIGIBLE EMPLOYEES
Awards may be granted under the Plan only to employees and
consultants of the Company and its subsidiaries (which shall include all
corporations of which at least fifty percent of the voting stock is owned by the
Company directly or through one or more corporations at least fifty percent of
the voting stock of which is so owned) who have the capability of making a
substantial contribution to the success of the Company or any or more of its
subsidiaries. Employees may be awarded any type of award offered under the Plan.
Consultants may be awarded any type of award except ISOs.
4. SHARES AVAILABLE
The total number of shares of the Company's Common Stock (par
value of $0.01 per share) available in the aggregate for awards under this
Plan shall not exceed Twenty-Nine Million (29,000,000) shares. Shares to be
granted may be authorized and unissued shares or may be treasury shares.
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The total number of shares with respect to which restricted stock
awards may be granted to any one participant shall not exceed 10,000 per
calendar year (subject to substitution or adjustment as provided in Section 11).
If an award expires, terminates or is cancelled without being
exercised or becoming vested, new awards may thereafter be granted under the
Plan covering such shares unless Rule 16b-3 provides otherwise. No award may be
granted more than 10 years after the effective date of the Plan.
5. TERMS AND CONDITIONS OF ISOS
Each ISO granted under the Plan shall be evidenced by an ISO option
agreement in such form as the Committee shall approve from time to time, which
agreement shall conform with this Plan and contain the following terms and
conditions:
(a) EXERCISE PRICE. The exercise price under each option
shall equal the fair market value of the Common Stock at the time
such option is granted. If an option is granted to an officer or
employee who at the time of grant owns stock possessing more than ten
percent (10%) of the total combined voting power of all classes of
stock of the Company (a "10-percent Shareholder"), the purchase price
shall be at least 110 percent (110%) of the fair market value of the
stock subject to the option.
(b) DURATION OF OPTION. Each option by its terms shall not
be exercisable after the expiration of ten years from the date such
option is granted. In the case of an option granted to a 10-percent
Shareholder, the option by its terms shall not be exercisable after
the expiration of five years from the date such option is granted.
(c) OPTIONS NONTRANSFERABLE. Each option by its terms shall
not be transferable by the participant otherwise than (i) by will or
the laws of descent and distribution, (ii) pursuant to a qualified
domestic relations order, or (iii) to the extent permitted under the
option agreement or interpretation of the Committee and under Rule
16b-3 promulgated under the Exchange Act, by gift to family members
or entities beneficially owned by family members or other permitted
transferees under Rule 16b-3 promulgated under the Exchange Act, and
shall be exercisable, during the participant's lifetime, only by the
participant, the participant's guardian or the participant's legal
representative, the participant's transferee under a qualified
domestic relations order or other permitted transferee under this
section. To the extent required for the option grant and/or exercise
to be exempt under Rule 16b-3, options (or the shares of Common Stock
underlying the options) must be held by the participant for at least
six months following the date of grant.
(d) EXERCISE TERMS. Each option granted under the Plan
shall become exercisable on a schedule to be determined by the
Committee at the time of grant, which schedule may vary from one
grant to another. Options may be partially exercised from time to
time during the period extending from the time they first become
exercisable until the tenth anniversary (fifth anniversary for a
10-percent Shareholder) of the date of grant.
No outstanding option may be exercised by any person if the
employee to whom the option is granted is, or at any time after the
date of grant has been, in competition with the Company. The
Committee has the sole discretion to determine whether an employee's
actions constitute competition with the Company or an affiliated
company. The Committee may impose such other terms and conditions on
the exercise of options as it deems appropriate to serve the purposes
for which this Plan has been established.
(e) MAXIMUM VALUE OF ISO SHARES. No ISO shall be granted to
an employee under this Plan or any other ISO plan of the Company or
its subsidiaries to purchase shares as to which the aggregate fair
market value (determined as of the date of grant) of the Common Stock
which first become exercisable by the employee in any calendar year
exceeds $100,000.
(f) PAYMENT OF EXERCISE PRICE. An option shall be exercised
upon written notice to the Company accompanied by payment in full for
the shares being acquired. The payment shall be made in cash, by
check or, if the option agreement so permits, by delivery of shares
of Common Stock of the Company beneficially owned by the participant,
duly assigned to the Company with the assignment guaranteed by a
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<PAGE>
bank, trust company or member firm of the New York Stock Exchange, or
by a combination of the foregoing. Any such shares so delivered shall
be deemed to have a value per share equal to the fair market value of
the shares on such date. For this purpose, fair market value shall
equal the closing price of the Company's Common Stock on the Nasdaq
National Market System on the date the option is exercised, or, if
there was no trading in such stock on the date of such exercise, the
closing price on the last preceding day on which there was such
trading.
Subject to the approval of the Board of Directors upon
recommendation by the Committee, in respect of the exercise of
options, the Company may loan to the employee a sum equal to an
amount which is not in excess of 100% of the purchase price of the
shares so purchased upon exercise, such loan to be evidenced by the
execution and delivery of a promissory note. Interest shall be paid
on the unpaid balance of the promissory note at such times and at
such rate as shall be determined by the Board of Directors. Such
promissory note shall be secured by the pledge to the Company of
shares having an aggregate purchase price on the date of exercise
equal to or greater than the principal amount of such note. An
optionee shall have, as to such pledged shares, all rights of
ownership, including the right to vote such shares and to receive
dividends paid on such shares, subject to the security interest of
the Company. Such shares shall not be released by the Company from
the pledge unless the proportionate amount of the note secured
thereby has been repaid to the Company. All notes executed hereunder
shall be payable at such times and in such amounts and shall contain
such other terms as shall be specified by the Board of Directors,
provided, however, that such terms shall conform to requirements
contained in any applicable regulations which are issued by any
governmental authority.
6. TERMS AND CONDITIONS FOR NQSOS
Each NQSO granted under the Plan shall be evidenced by a NQSO option
agreement in such form as the Committee shall approve from time to time, which
agreement shall conform to this Plan and contain the same terms and conditions
as the ISO option agreement except that the 10-percent Shareholder restrictions
in Sections 5(a) and 5(b) and the maximum value of share rules of Section 5(e)
shall not apply to NQSO grants. To the extent an option initially designated as
an ISO exceeds the value limit of Section 5(e), it shall be deemed a NQSO and
shall otherwise remain in full force and effect.
7. TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS
To the extent permitted under Rule 16b-3 promulgated under the
Exchange Act, the Committee may, in its discretion, award stock appreciation
rights to any eligible employee of the Company who is subject to Section 16(b)
of the Exchange Act in conjunction with incentive stock options or nonqualified
stock options then being granted to him, or to be attached to one or more such
options theretofore granted and at the time held unexercised by such employee
which shall entitle the employee to receive payment from the Company in
accordance with the following provisions and such other terms and conditions as
the Committee shall determine from time to time:
(a) An SAR granted hereunder may be made part of an option
at the time of grant of the option or at any time thereafter up to
six months prior to the expiration of the option.
(b) Such SAR will entitle the holder to elect to receive,
in lieu of exercising the option to which it relates, an amount (in
cash or in Common Stock, or a combination thereof, all in the sole
discretion of the Committee) equal to 100% of the excess of:
(1) the fair market value per share of the Company's
Common Stock on the date of exercise of such
right, multiplied by the number of shares with
respect to which the right is being exercised,
over
(2) the aggregate option exercise price for such
number of shares.
(c) Such SAR will be exercisable only to the extent that it
has a positive value and the option to which it relates is
exercisable, except that no SAR shall be exercisable during the first
six (6) months after the date of its grant.
(d) Upon exercise of an SAR, the option (or portion
thereof) with respect to which such right is exercised shall be
surrendered and shall not thereafter be exercisable.
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<PAGE>
(e) The exercise of an SAR will reduce the number of shares
purchasable pursuant to the related option and available under the
Plan to the extent of the number of shares with respect to which the
right is exercised.
8. TERMS AND CONDITIONS OF RESTRICTED STOCK GRANTS
The Committee may, evidenced by such written agreement as the
Committee shall from time to time prescribe, grant to an eligible employee a
specified number of shares of the Company's Common Stock which shall vest only
after the attainment of the relevant restrictions described below ("restricted
stock"). Such restricted stock shall have an appropriate restrictive legend
affixed thereto. A restricted stock grant shall be neither an option nor a sale,
but shall be subject to the following conditions and restrictions:
(a) Restricted stock may not be sold or otherwise transferred by the
participant until ownership vests, provided however, to the extent required for
the restricted stock grant to be exempt under Rule 16b-3, the restricted stock
must be held by the participant for at least six months following the date of
vesting.
(b) Ownership shall vest only following satisfaction of one or more
of the following criteria as the Committee may prescribe:
(1) the passage of three years, or such longer period
of time as the Committee in its discretion may
provide, from the date of grant.
(2) the attainment of performance-based goals
established by the Committee as of the date of
grant. If the participant's compensation is
subject to the $1 million cap of Code Section
162(m), the Committee may establish such
performance goals based on one or more of the
following targets:
- total shareholder return
- earnings per share growth
- cash flow growth
- return on equity and/or
If the participant's compensation is not subject
to the $1 million cap of Code Section 162(m), the
Committee may establish the performance goal on
the basis of the preceding four targets or any
other target it may from time to time deem
appropriate in its discretion.
(3) any other conditions the Committee may
prescribe, including a non-compete requirement.
(c) Unless the Committee shall determine otherwise with
respect to participants whose compensation is not governed by Code
Section 162(m), the Committee shall grant and administer all
performance-based awards under (b)(2) above with the intent of
meeting the criteria of Code Section 162(m) for performance-based
compensation. To this end, the outcome of all targeted goals shall be
substantially uncertain on the date of grant; the goals shall be
established no later than 90 days following the commencement of
service to which the goals relate; the minimum period for attaining
each performance goal shall be one year; and the Committee shall
certify at the conclusion of the performance period whether the
performance-based goals have been attained. Such certification may be
made by noting the attainment of the goals in the minutes of the
Committee's meetings.
(d) Except as otherwise determined by the Committee, all
rights and title to restricted stock granted to a participant under
the Plan shall terminate and be forfeited to the Company upon failure
to fulfill all conditions and restrictions applicable to such
restricted stock.
(e) Except for the restrictions set forth in this Plan and
those specified by the Committee in any restricted stock agreement, a
holder of restricted stock shall possess all the rights of a holder
of the
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Company's Common Stock (including voting and dividend rights);
provided, however, that prior to vesting the certificates
representing such shares of restricted stock (and the amount of any
dividends issued with respect thereto) shall be held by the Company
for the benefit of the participant and the participant shall deliver
to the Company a stock power executed in blank covering such shares.
As the shares vest, certificates representing such shares shall be
released to the participant.
(f) All other provisions of the Plan not inconsistent with
this section shall apply to restricted stock or the holder thereof,
as appropriate, unless otherwise determined by the Committee.
9. GENERAL RESTRICTION ON ISSUANCE OF STOCK CERTIFICATES
The Company shall not be required to deliver any certificate upon the
grant, vesting or exercise of any award or option until it has been furnished
with such opinion, representation or other document as it may reasonably deem
necessary to ensure compliance with any law or regulation of the Securities and
Exchange Commission or any other governmental authority having jurisdiction
under this Plan. Certificates delivered upon such grant, vesting or exercise may
bear a legend restricting transfer absent such compliance. Each award shall be
subject to the requirement that, if at any time the Committee shall determine,
in its discretion, that the listing, registration or qualification of the shares
subject to such award upon any securities exchange or under any state or federal
law, or the consent or approval of any governmental regulatory body, is
necessary or desirable as a condition of, or in connection with, the granting of
such awards or the issue or purchase of shares thereunder, such awards may not
vest or be exercised in whole or in part unless such listing, registration,
qualification, consent or approval shall have been effected or obtained free of
any conditions not acceptable to the Committee in the exercise of its reasonable
judgment.
10. IMPACT OF TERMINATION OF EMPLOYMENT
(a) OPTIONS
If the employment of an participant terminates by reason of death or
disability (as determined by the Committee), any option may be exercised by the
participant or, in the event of the participant's death, by the participant's
personal representative any time prior to the earlier of the expiration date of
the option or the expiration of one year after the date of termination, but only
if, and to the extent that, the participant was entitled to exercise the option
at the date of such termination. Upon termination of the participant's
employment for any reason other than death or disability, any vested option that
was exercisable immediately preceding termination may be exercised at any time
prior to the earlier of the expiration date of the option or the expiration of
three months after the date of such termination. In the event of retirement, the
three month period specified in the preceding sentence shall be extended to one
year in the case of NQSOs. Notwithstanding the foregoing, an option may not be
exercised after termination of employment if the Committee reasonably determines
that the termination of employment of such participant resulted from willful
acts or failure to act by the participant detrimental to the Company or any of
its subsidiaries.
(b) RESTRICTED STOCK GRANTS
(i) PASSAGE OF TIME VESTING. If a participant has been
awarded restricted stock whose vesting is conditioned solely on the passage of
time, any termination of employment for any reason, shall result in the
forfeiture of all restricted stock awards that were not vested prior to the
termination of employment except as otherwise provided by the Committee.
(ii) PERFORMANCE-BASED VESTING. If a participant has been
awarded restricted stock whose vesting is based solely on the attainment of
performance-based goals or partly on the attainment of performance-based goals
and partly on the passage of time, any termination of employment except death,
disability or retirement shall result in the forfeiture of all restricted stock
awards that were not vested prior to the termination of employment. A
participant who terminates employment on account of death, disability or
retirement may, if the performance-based criteria are eventually attained, be
awarded (or, in the event of death, the participant's designated beneficiary or
personal representative if there is no designated beneficiary shall be awarded)
up to a pro rata portion of the restricted shares based on the participant's
length of service as of his or her termination of employment over the length of
the award period ending on the date the performance-based criteria are satisfied
(or the passage of time would have been satisfied, if later, for an award based
in part on performance goals and in part on the passage of
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time). The Committee shall have the discretion whether to grant a full pro rata
portion of the restricted shares, a lesser portion or no shares at all under
this subsection (b)(ii).
(c) SARS
If a participant terminates employment while holding an unexercised
SAR, the participant, or his designated beneficiary (or legal representative if
there is no designated beneficiary) in the event of his death, may exercise the
SAR to the same extent as the option to which it is related may be exercised
following termination of employment.
(d) MISCELLANEOUS TERMINATION PROVISIONS
Unless otherwise determined by the Committee, an authorized leave of
absence shall not constitute a termination of employment for purposes of this
Plan.
For purposes of this section, retirement means that a participant
terminates employment at or after the date on which the participant reaches any
normal retirement age specified in any policy adopted by the Board or, in the
absence of such policy, age 65.
If the employment of a participant terminates for any reason other
than disability, retirement or death, any unpaid balance on any promissory note
used in the purchase of stock shall become due and payable upon not less than
three months' notice from the Company, which notice may be given at any time
after such termination; provided, however, that such unpaid balance on such
promissory note shall become due and payable five years from the date of such
termination, unless the note has an earlier due date. In the case of termination
due to death, any unpaid balance remaining on such note on the date of death
shall become due and payable one year from such date.
11. ADJUSTMENT OF SHARES
In the event of any change in the Common Stock of the Company by
reason of any stock dividend, stock split, recapitalization, reorganization,
merger, consolidation, split-up, combination, or exchange of shares, or of any
similar change affecting the Common Stock, the number and kind of shares
authorized under Section 4, the number and kind of shares which thereafter are
subject to an award under the Plan and the number and kind of unexercised
options and unvested shares set forth in awards under outstanding agreements and
the price per share shall be adjusted automatically consistent with such change
to prevent substantial dilution or enlargement of the rights granted to, or
available for, participants in the Plan.
12. WITHHOLDING TAXES
All cash payable to a participant under the terms of this Plan shall
be subject to such federal, state and local income and employment tax
withholdings as payments of this type are normally subject. Whenever the Company
proposes or is required to issue or transfer shares of Common Stock under the
Plan, or whenever restricted stock vests, the Company shall have the right to
require the recipient to remit to the Company an amount sufficient to satisfy
any federal, state and/or local income and employment withholding tax
requirements prior to the delivery of any certificate or certificates for such
shares or to take any other appropriate action to satisfy such withholding
requirements. Notwithstanding the foregoing, subject to such rules as the
Committee may promulgate and compliance with any requirements under Rule 16b-3,
the recipient may satisfy such obligation in whole or in part by electing to
have the Company withhold shares of Common Stock from the shares to which the
recipient is otherwise entitled.
13. NO EMPLOYMENT RIGHTS
The Plan and any awards granted under the Plan shall not confer upon
any participant any right with respect to continuance as an employee of the
Company or any subsidiary, nor shall they interfere in any way with the right of
the Company or any subsidiary to terminate the participant's position as an
employee at any time.
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14. RIGHTS AS A SHAREHOLDER
The recipient of any option under the Plan shall have no rights as a
shareholder with respect thereto unless and until certificates for the
underlying shares of Common Stock are issued to the recipient. The recipient of
a restricted stock grant shall have all rights of a shareholder except as
otherwise limited by the terms of this Plan.
15. AMENDMENT AND DISCONTINUANCE
This Plan may be amended, modified or terminated by the Committee or
by the shareholders of the Company, except that the Committee may not, without
approval of a majority of the shareholders present in person or by proxy,
materially increase the benefits accruing to participants under the Plan,
materially increase the maximum number of shares as to which awards may be
granted under the Plan, increase the number of restricted stock grants per year
per participant or change the basis for making performance-based awards for
participants whose compensation is subject to Code Section 162(m), change the
minimum exercise price of options or SARs, change the class of eligible persons,
extend the period for which awards may be granted or exercised, or withdraw the
authority to administer the Plan from the Committee or a committee of the
Committee consisting solely of outside directors unless the Board determines
that inside directors may serve on the Committee. Notwithstanding the foregoing,
to the extent permitted by law, the Committee may amend the Plan without the
approval of shareholders, to the extent it deems necessary to cause the Plan to
comply with Securities and Exchange Commission Rule 16b-3 or any successor rule,
as it may be amended from time to time or as otherwise permitted under Rule
16b-3 promulgated under the Exchange Act and the Code. Except as required by law
or as provided in Section 17 hereof, no amendment, modification, or termination
of the Plan may, without the written consent of a participant to whom any award
shall theretofore have been granted, adversely affect the rights of such
participant under such award.
16. CHANGE IN CONTROL
(a) Notwithstanding other provisions of the Plan, in the
event of a change in control of the Company (as defined in subsection (c)
below), all of a participant's restricted stock awards shall become immediately
vested to the same extent as if all restrictions had been satisfied and all
options and SARs shall become immediately vested and exercisable, unless
directed otherwise by a resolution of the Committee adopted prior to and
specifically relating to the occurrence of such change in control.
(b) In the event of a change in control each participant
holding an exercisable option (i) shall have the right at any time thereafter
during the term of such option to exercise the option in full notwithstanding
any limitation or restriction in any option agreement or in the Plan, and (ii)
if no related SAR has been granted with respect to an option, may, subject to
Committee approval and after written notice to the Company within 60 days after
the change in control, or, if the participant is an officer subject to Section
16 of the Exchange Act and to the extent required to exempt the transaction
under Rule 16b-3, during the period beginning on the third business day and
ending on the twelfth business day following the first release for publication
by the Company after such change of control of a quarterly or annual summary
statement of earnings, which release occurs at least six months following grant
of the option, whichever period is longer, receive, in exchange for the
surrender of the option or any portion thereof to the extent the option is then
exercisable in accordance with clause (i), an amount of cash equal to the
difference between the fair market value (as determined by the Committee) on the
date of surrender of the Common Stock covered by the option or portion thereof
which is so surrendered and the option price of such Common Stock under the
option.
(c) For purposes of this section, "change in control"
means:
(1) there shall be consummated
i. any consolidation or merger of the
Company in which the Company is not
the continuing or surviving
corporation or pursuant to which any
shares of the Company's common stock
are to be converted into cash,
securities or other property,
provided that the consolidation or
merger is not with a corporation
which was a wholly-owned subsidiary
of the Company immediately before
the consolidation or merger; or
B-15
<PAGE>
ii. any sale, lease, exchange or other
transfer (in one transaction or a
series of related transactions) of
all, or substantially all, of the
assets of the Company (other than to
one or more directly or indirectly
wholly-owned subsidiaries of the
Company); or
(2) the shareholders of the Company approve
any plan or proposal for the liquidation
or dissolution of the Company; or
(3) any person (as such term is used in
Sections 13(d) and 14(d) of the Exchange
Act) shall become the beneficial owner
(within the meaning of Rule 13d-3 under
the Exchange Act), directly or
indirectly, of 30% or more of the
Company's then outstanding common stock,
provided that such person shall not be a
wholly-owned subsidiary of the Company
immediately before it becomes such 30%
beneficial owner; or
(4) individuals who constitute the Company's
Board of Directors on the date hereof
(the "Incumbent Board") cease for any
reason to constitute at least a majority
thereof, provided that any person
becoming a director subsequent to the
date hereof whose election, or nomination
for election by the Company's
shareholders, was approved by a vote of
at least three quarters of the directors
comprising the Incumbent Board (either by
a specific vote or by approval of the
proxy statement of the Company in which
such person is named as a nominee for
director, without objection to such
nomination) shall be, for purposes of
this clause (d), considered as though
such person were a member of the
Incumbent Board.
17. EFFECTIVE DATE
The effective date of the Plan is June 5, 1995 provided that within
12 months of this date the Plan is approved by the affirmative vote of the
owners of a majority of the Company's outstanding shares of Common Stock. In the
event that such approval is not given within such 12-month period, all ISOs
granted under this Plan shall be deemed to be NQSOs and this Plan and all awards
made hereunder shall otherwise continue to be in full force and effect.
18. DEFINITIONS
Any terms or provisions used herein which are defined in Sections 83,
162(m), 421, or 422 of the Internal Revenue Code as amended, or the regulations
thereunder or corresponding provisions of subsequent laws and regulations in
effect at the time awards are made hereunder, shall have the meanings as therein
defined.
19. GOVERNING LAW
To the extent not inconsistent with the provisions of the Internal
Revenue Code that relate to awards, this Plan and any award agreement adopted
pursuant to it shall be construed under the laws of the State of New York.
Amended as of May 15, 2000 PSINET INC.
By: /s/ WILLIAM L. SCHRADER
----------------------------
Chairman and CEO
Date of Shareholder Approval: May 15, 2000
B-16
<PAGE>
PSINET INC.
510 HUNTMAR PARK DRIVE
HERNDON, VIRGINIA 20170
SOLICITED BY THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF
SHAREHOLDERS ON MAY 15, 2000
The undersigned hereby appoints as Proxies, David N. Kunkel and Kathleen B.
Horne, each with the power to appoint his substitute, and hereby authorizes them
to represent and to vote, as designated below, all shares of Common Stock of
PSINet Inc. (the "Company") held of record by the undersigned on March 20, 2000
at the Annual Meeting of Shareholders to be held on May 15, 2000 and any
adjournments thereof.
ELECTION OF DIRECTORS:
For terms expiring in 2002:
01 William H. Baumer
02 Ralph J. Swett
03 Harold S. Wills
SEE REVERSE SIDE
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
You may also vote the shares held in this account by telephone or electronically
through the Internet. Voting by telephone or via the Internet will eliminate the
need to mail voted proxy card(s) representing shares held in this account. To
vote by telephone or electronically please follow the steps below:
- - HAVE YOUR PROXY CARD AND SOCIAL SECURITY NUMBER AVAILABLE.
- - BE READY TO ENTER THE PIN NUMBER INDICATED ON THE REVERSE SIDE OF THE CARD
JUST BELOW THE PERFORATION.
To vote using the telephone:
- - USING A TOUCH-TONE TELEPHONE, DIAL 1-877-PRX-VOTE (1-800-779-8683) 24 HOURS
A DAY 7 DAYS A WEEK.
To vote using the Internet:
- - LOG ON TO THE INTERNET AND GO TO THE WEBSITE HTTP://WWW.EPROXYVOTE.COM/PSIX
Both voting systems preserve the confidentiality of your vote and will confirm
your voting instructions with you. You may also change your selections on any or
all of the proposals to be voted.
YOUR VOTE IS IMPORTANT TO US. THANK YOU FOR VOTING.
- --------------------------------------------------------------------------------
<PAGE>
PLEASE MARK YOUR
X VOTES AS IN THIS
EXAMPLE.
THIS PROXY, WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED. IF NO DIRECTION IS
GIVEN WITH RESPECT TO A PARTICULAR PROPOSAL, THIS PROXY WILL BE VOTED FOR SUCH
PROPOSAL.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2, 3 AND 4.
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FOR / / WITHHOLD / / FOR / / AGAINST / / ABSTAIN / / FOR / / AGAINST / / ABSTAIN / /
1. ELECTION OF DIRECTORS 2. APPROVAL OF AN 3. APPROVAL OF AMENDMENTS TO
(See Reverse) AMENDMENT TO THE THE COMPANY'S EXECUTIVE STOCK
COMPANY'S CERTIFICATE INCENTIVE PLAN AND STRATEGIC
Instruction: To withhold OF INCORPORATION STOCK INCENTIVE PLAN.
authority to vote for any TO INCREASE THE
individual nominee(s), NUMBER OF FOR / / AGAINST / / ABSTAIN / /
write that name in the AUTHORIZED
space provided below. SHARES OF 4. RATIFICATION OF
ITS CAPITAL PRICEWATERHOUSECOOPERS LLP
AS INDEPENDENT ACCOUNTANTS.
- -------------------------- STOCK.
5. IN THEIR DISCRETION, THE
PROXIES ARE AUTHORIZED TO VOTE
UPON ANY OTHER BUSINESS THAT MAY
PROPERLY COME BEFORE THE MEETING.
I PLAN TO ATTEND THE / /
ANNUAL MEETING
IF SHARES ARE REGISTERED IN MORE THAN ONE NAME,
THE SIGNATURES OF ALL SUCH PERSONS ARE REQUIRED.
A CORPORATION SHOULD SIGN IN ITS FULL CORPORATE
NAME BY A DULY AUTHORIZED OFFICER STATING HIS
TITLE. TRUSTEES, GUARDIANS, EXECUTORS AND OTHER
FIDUCIARIES SHOULD SIGN IN THEIR OFFICIAL
CAPACITY GIVING THEIR FULL TITLE AS SUCH. IF
A PARTNERSHIP, PLEASE SIGN IN THE PARTNERSHIP
NAME BY AUTHORIZED PERSONS. NOTE: PLEASE SIGN
EXACTLY AS NAME APPEARS HEREON.
PLEASE MARK, DATE, SIGN AND RETURN THIS PROXY CARD PROMPTLY, USING ------------------------------------------------
THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED
STATES OF AMERICA. ------------------------------------------------
SIGNATURE(S) DATE
</TABLE>
- ------------------------------------------------------------------------------
FOLD AND DETACH HERE
PSINET INC.
510 HUNTMAR PARK DRIVE
HERNDON, VA 20170
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders of PSINet
Inc., which will be held at the Company's offices located at 44983 Knoll Square,
Ashburn, Virginia, at 9:00 a.m., on Monday, May 15, 2000.
The accompanying Notice of Annual Meeting of Shareholders and Proxy Statement
describe the items to be considered and acted upon by the Shareholders. Please
mark the boxes on the proxy card to indicate how your shares are to be voted.
Alternatively, you may vote your shares by telephone or electronically through
the Internet. Please see reverse.
Whether or not you plan to attend this meeting, please sign, date
and return your proxy form above (or vote via telephone or the Internet) as soon
as possible so that your shares can be voted at the meeting in accordance with
your instructions. If you attend the meeting, you may revoke your proxy, if you
wish, and vote in person. It is very important that your shares be represented.
Sincerely,
PSINet Inc.
