<PAGE>
As filed with the Securities and Exchange Commission on April 28, 2000
Registration No. 333-___
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
PSINET INC.
(Exact name of registrant as specified in its charter)
New York 4813 16-1353600
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation or 510 Huntmar Park Drive
organization) Herndon, Virginia 20170
(703) 904-4100
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Kathleen B. Horne, Esq.
Senior Vice President and General Counsel
PSINet Inc.
510 Huntmar Park Drive, Herndon, Virginia 20170
Telephone: (703) 904-4100
Facsimile: (703) 397-5349
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------
Copies to:
Nixon Peabody LLP
437 Madison Avenue
New York, New York 10022
Attention: Richard F. Langan, Jr., Esq.
Telephone: (212) 940-3140
Facsimile: (212) 940-9940
--------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this registration statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this Form are being offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
Title of Class of Securities Amount to Be Amount of
to Be Registered Registered Registration Fee
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7% Series D cumulative convertible
preferred stock, $0.01 par value.......... $825,000,000 $217,800 (1)
- --------------------------------------------------------------------------------
Common stock, $0.01 par value (2).......... $330,527,736 $ 0 (3)
- --------------------------------------------------------------------------------
(1) Estimated solely for purposes of calculating the registration fee calculated
pursuant to the provisions of Rule 457(i) and Rule 457(o) under the
Securities Act of 1933 based upon the Amount to Be Registered multiplied by
the applicable filing fee ($0.000264).
(2) The common stock is being registered for resale. The Amount to Be Registered
was determined by multiplying the number of shares of common stock to be
registered by the closing price for the common stock as quoted on the Nasdaq
National Market on April 26, 2000. Includes 15,430,800 shares of common
stock that may be issued upon conversion of the 7% Series D preferred stock.
Includes a like number of preferred share purchase rights. Since no separate
consideration is paid for the rights, the registration fee is included in
the fee for the common stock. Also includes an indeterminate number of
shares that may be issued as dividends pursuant to the terms of the Series D
preferred stock or at the registrant's option from time to time in the
future in exchange for funds held in a deposit account on behalf of holders
of the Series D preferred stock. Also registers interests in the deposit
account to the extent such interests are required to be registered.
(3) No filing fee is due pursuant to Rule 457(i).
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with section 8(a) of
the Securities Act of 1933 or until this registration statement shall become
effective on such date as the Commission, acting pursuant to said section 8(a),
may determine.
================================================================================
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION - April 28, 2000
[LOGO OF PSINet]
16,500,000 Shares 7% Series D Cumulative Convertible Preferred Stock
15,430,800 Shares of Common Stock Issuable on Conversion
-------------------------------------
PSINet:
. We are a leading independent global provider of Internet and eCommerce
solutions to businesses.
. PSINet Inc.
510 Huntmar Park Drive
Herndon, Virginia 20170
(703) 904-4100
The Offering:
. All of the shares of Series D preferred stock are being offered by selling
shareholders.
. PSINet will not receive any proceeds from sales.
Market and Symbol:
. The Series D preferred stock will not be listed on Nasdaq or any exchange.
. The Series D preferred stock may be sold in transactions in the over-the-
counter market at prices then prevailing, in negotiated transactions, or
otherwise.
The Series D Convertible Preferred Stock:
. Liquidation Preference: $50 per share.
. Deposit Account: funds have been deposited into an account with a deposit
agent from which quarterly cash payments of $0.875 per share will be made
commencing May 15, 2000 or which may be used to purchase shares of common
stock from us for delivery to holders in lieu of cash payments. The funds
placed into the deposit account will, together with earnings on those funds,
be sufficient to make payments in cash or stock through February 15, 2001.
. Dividends: 7% cumulative annual dividends payable quarterly in arrears
commencing on May 15, 2001, in cash or, at our option, in shares of our
common stock or a combination thereof. Dividends will not accrue, however,
until the deposit account expires in 2001 or is earlier terminated.
. Conversion Price: $53.465 per share (equal to a conversion rate of 0.9352
shares of our common stock for each share of our Series D preferred stock),
subject to adjustment.
. Conversion Right: convertible at any time after February 15, 2000 into common
stock at any time at the applicable conversion price.
. Optional Redemption: beginning on February 15, 2003, shares of our Series D
preferred stock may be redeemed, at our option, at any time at the redemption
premiums stated herein (plus accumulated and unpaid dividends).
. Special Redemption: shares of our Series D preferred stock are redeemable, at
our option, at a redemption premium of 105.50% (plus accumulated and unpaid
dividends) on or after August 15, 2001 but prior to February 15, 2003 if the
trading price for the common stock equals or exceeds $80.20 per share for a
specified period. Additional payments will also be made by us to the holders
if we exercise our redemption rights under the foregoing circumstances.
This investment involves material risks. See "Risk Factors" beginning on page 7.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities, or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
__________________________________
May __, 2000
<PAGE>
TABLE OF CONTENTS
Page
----
About PSINet............................................................. 1
Risk Factors............................................................. 7
Selling Shareholders..................................................... 8
Plan of Distribution..................................................... 9
Description of Series D Preferred Stock.................................. 11
Description of Indebtedness.............................................. 21
Material Federal Income Tax Consequences................................. 24
Legal Matters............................................................ 32
Experts.................................................................. 32
Where You Can Find More Information...................................... 32
Documents Incorporated By Reference...................................... 33
--------------------
This prospectus contains "forward-looking statements" for purposes of
Section 27A of Securities Act of 1933 and Section 21E of the Securities Exchange
Act of 1934. These forward-looking statements may involve risks and
uncertainties that may cause our actual results to be materially different from
future results or performance expressed or implied by such statements. These
statements may be identified by the use of words such as "expect," "anticipate,"
"intend," "believe" and "plan." Factors that could contribute to such
differences are discussed under "Risk Factors," "Management's Discussion and
Analysis" and "Business."
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with different information. We are
not making an offer of these securities in any jurisdiction where the offer or
sale is not permitted. You should not assume that the information contained in
this prospectus is accurate as of any date other than the date on the front
cover of this prospectus.
--------------------
- i -
<PAGE>
ABOUT PSINET
General
We are a leading global provider of Internet and eCommerce solutions to
businesses. As an Internet Super Carrier, or ISC, we offer a robust suite of
products globally that enable our customers to utilize the Internet for mission
critical applications carried over a worldwide fiber optic network that is
capable of transmission speeds in excess of three terabits per second. We define
the elements of an ISC to include:
. Worldwide fiber network and related optronic equipment -- We operate one
of the largest global data communications networks. It is Internet
optimized and built with PSINet's fiber, satellite and wireless
facilities which circumnavigate the globe, and is designed to enable our
customers to connect to the Internet and access their corporate networks
and systems resources from most of the world's major business and
population centers.
. Multiple Internet and eCommerce hosting centers -- We currently have open
eight global Internet and eCommerce hosting centers located in Amsterdam,
Herndon (Virginia/DC), La Chaux-de-Fonds (Switzerland), London, Los
Angeles, New York City, Toronto and Tokyo. These data centers contain a
total of approximately 250,000 square feet. In addition, we plan to open
the following 16 global Internet and eCommerce hosting centers: eight in
our U.S./Canada segment (Atlanta, Austin, Boston, Dallas, Loudoun
(Virginia/DC), Miami, San Francisco and Toronto); three in our Europe
segment (Berlin, Geneva and Paris); three in our Asia/Pacific segment
(Hong Kong, Seoul and Sydney) and two in our Latin America segment
(Buenos Aires and Mexico City). These data centers are expected to range
from 60,000 to 360,000 square feet each. Once all of these hosting
facilities are completed, we will have more than two million square feet
of state-of-the-art infrastructure in key financial and business centers
around the world.
. Full suite of products -- We offer a full suite of Internet access and
eCommerce products for corporate customers in 27 countries that not only
allow them to access the Internet but also to host their mission critical
business applications. We have a private label business unit, serving
leading Internet Service Providers, or ISPs and telephone companies with
Internet services supporting nearly one million consumers. In addition,
through our Virtual ISP or VISP, programs, we provide a full private
label solution to organizations who wish to offer Internet services to
their customers, employees or members.
. Extensive global distribution -- We have over 1,000 sales personnel and
2,500 Value Added Resellers (VAR) systems integrators and Web design
professionals throughout the world.
. Global brand name recognition -- Our brand name is increasingly
recognized throughout the world for Internet and eCommerce services and
applications that meet the needs of business customers, supported by
local language sales, provisioning and service.
Our value-added products and services allow our customers, through their use
of the Internet, to more efficiently transact and conduct eCommerce with their
customers, suppliers, business partners and remote office locations. We provide
Internet connectivity and Web hosting services to more than 91,000 corporate
accounts, which together with our ISP, carrier, small office/home office (SOHO)
and consumer businesses around the world serve over 2.0 million end users. Our
services and products include dedicated, dial-up and digital subscriber line, or
DSL, Internet access services connections, Web hosting and collocation services,
transaction network services, virtual private networks, or VPNs, eCommerce
solutions, voice-over-Internet protocol, or IP, e-mail and managed security
services. We also provide wholesale and private label network connectivity and
related services to other ISPs and telecommunications carriers to further
utilize our network capacity. We serve approximately 90 of the 100 largest
metropolitan statistical areas in the U.S., have a presence in the 20 largest
telecommunications markets globally and operate in 27 countries. We conduct our
business through operations organized into
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<PAGE>
five geographic operating segments - U.S./Canada, Latin America, Europe,
Asia/Pacific and India/Middle East/Africa.
We operate one of the largest global commercial data communications
networks. Our Internet-optimized network extends around the globe and is
connected to more than 900 points of presence, or POPs, that enable our
customers to connect to the Internet. Our network reach allows our customers to
access their corporate network and systems resources through local calls in over
150 countries. We expand the reach of our network by connecting with other large
ISPs through contractual arrangements, called peering agreements, that permit
the exchange of information between our network and the networks of our peering
partners. We offer free peering to ISPs in more than 100 cities in the
continental U.S., which provides each party with the opportunity to bypass the
often congested and unreliable public exchange points, thereby improving overall
network performance and customer satisfaction. We currently have eight global
Internet and eCommerce hosting centers operating and plan to open 16 more
centers. We also have three network operating centers that monitor and manage
network traffic 24-hours per day, seven-days per week.
Our mission is to build the premier global IP-based communications company.
We have grown by using multiple sales channels, including direct sales and
resellers, and by acquiring other ISPs and related businesses in key markets. We
have increased revenues by providing services and products that enhance our
customers' business processes by helping them to effectively use the Internet.
We have embarked on an initiative to aggressively grow our hosting center
business through the construction of more than $1.0 billion of new facilities.
In February 2000, we announced the launch of PSINet Ventures, a new
corporate venture program. With a combination of cash investments and the
exchange of services for equity, PSINet Ventures will partner with innovative
Internet entrepreneurs through direct minority equity investments, typically
during early- and mid-stage financing. We will focus globally on application
service providers, or ASPs, content service providers, or CSPs, eCommerce
providers, Internet infrastructure providers, incubators, and other emerging
opportunities that enhance PSINet's financial and competitive technology and
service positions. The services for equity structure permits the start-up
company to purchase any PSINet service, including managed web hosting and VISP
services, in exchange for equity rather than cash.
During the past two years we have made significant acquisitions of fiber-
based bandwidth and related equipment to enhance our network infrastructure and
lower our per unit operating costs. In addition, we have acquired more than 60
companies throughout our five geographic operating regions, with many in the
same countries where the result is an overlapping network infrastructure. During
the first quarter of 2000, we completed and approved a plan to eliminate
redundancies, streamline operations, and take advantage of synergies created by
our mergers and acquisitions process. We believe this will result in a
restructuring charge in the quarter ended March 31, 2000.
Our principal executive offices are located at 510 Huntmar Park Drive,
Herndon, Virginia 20170. Our telephone number is (703) 904-4100.
Recent Developments
Inter.net
As a result of acquisitions in 1998 and 1999, we have amassed a significant
number of consumer customers throughout our operating regions. Our primary
strategic focus is on providing services to business customers and wholesale
customers. Accordingly, in February and March 2000 we announced that we are
consolidating our worldwide retail consumer operations into a new retail
business unit, known as Inter.net, that will be run by an experienced management
team and will consist of over 500 staff specialists in consumer sales,
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<PAGE>
marketing and customer support, together with existing billing and customer
support systems. Inter.net will initially serve approximately 550,000 consumer
accounts distributed throughout global markets (mostly outside of the United
States), with over 30 localized consumer portals in more than 20 countries. We
are currently assessing options regarding Inter.net, including a possible IPO
or spin-off of the business, to best maximize PSINet shareholder value.
Acquisition of Metamor Worldwide, Inc.
On March 21, 2000, we entered into an agreement to acquire Metamor
Worldwide, Inc., a leading provider of information technology, or IT, solutions.
Under the terms of the agreement with Metamor, the aggregate consideration to be
paid to Metamor stockholders consists of approximately 31.2 million shares of
our common stock (at a conversion ratio of 0.9 shares of our common stock for
each share of Metamor's common stock outstanding), which represents an aggregate
value of approximately $1.35 billion, based upon an average price per share of
our common stock of $43.35 for the period from March 20, 2000 through March 24,
2000. We will also assume options to acquire approximately 4.6 million shares of
Metamor common stock which, under the terms of the merger agreement, will be
exercisable into approximately 4.1 million shares of our common stock and
represent an aggregate fair value of approximately $142.5 million. Additionally,
we will transfer funds to a trustee immediately prior to the merger as a
condition to closing to be held in an escrow account for the redemption of
Metamor's 2.94% Convertible Subordinated Notes having a face amount of
approximately $227.0 million and will repay amounts outstanding under Metamor's
$80.0 million revolving credit facility ($40.2 million was outstanding or
committed as of April 26, 2000). Simultaneously with the merger, we have agreed
to invest $50.0 million in 8 1/2% preferred stock of Xpedior, a majority owned
subsidiary of Metamor. The source of the cash for the repayment of the Metamor
outstanding debt and the investment in Xpedior will be cash on hand. Completion
of the transaction is subject to a number of conditions, including the receipt
of shareholder approval from our and Metamor's shareholders. We cannot assure
you that the transaction will be completed.
Exchange and Conversion of Series C Preferred Stock
In February and March 2000, we exchanged 8,155,192 newly issued shares of
our common stock for an aggregate of 4,629,335 shares of our outstanding Series
C preferred stock through individually negotiated transactions with a limited
number of holders of our Series C preferred stock. The implied premium of
approximately $1.7 million incurred in connection with the exchanges, net of
cash to be received from the deposit account relating to the exchanged shares,
will be recognized as a return to preferred shareholders in the first quarter of
2000. Subsequent to the exchange, we converted the exchanged Series C preferred
stock into 7,422,675 shares of our common stock, which is held as treasury
stock.
Common Stock Split
All information in this document gives effect to a two-for-one stock split
of our common stock, effected in the form of a stock dividend on February 11,
2000, to holders of record as of the close of business on January 28, 2000.
Issuance of Series D Preferred Stock
In February 2000, we completed an offering of 16,500,000 shares of 7%
Series D cumulative convertible preferred stock for aggregate net proceeds of
approximately $739.0 million after expenses (excluding amounts paid by the
purchasers of the Series D preferred stock into a deposit account established
for the benefit of the holders of the Series D preferred stock). The Series D
preferred stock has a liquidation preference of $50 per share.
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<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
(In millions of U.S dollars, except per share, share and operating data)
The following table sets forth for the periods indicated our summary
consolidated financial and operating data. The consolidated balance sheet data,
consolidated statement of operations data and consolidated cash flow data as of
and for the years ended December 31, 1995, 1996, 1997, 1998, and 1999 have been
derived from our audited consolidated financial statements. In 1998 and 1999,
we acquired a significant number of businesses, including Transaction Network
Services, Inc. (TNI), acquired a significant amount of global fiber optic
bandwidth, issued a significant amount of debt and equity and, in 1998, incurred
a non-recurring arbitration charge. In 1996, we sold our individual subscriber
accounts and certain related assets and in 1997 we sold our software subsidiary.
These transactions affect the comparability of our financial position, results
of operations and cash flows for those years. The following summary
consolidated financial and operating data should be read in conjunction with our
more detailed consolidated financial statements and related notes incorporated
by reference into this document.
EBITDA is used in the Internet services industry as one measure of a
company's operating performance and historical ability to service debt. EBITDA
is not determined in accordance with generally accepted accounting principles,
is not indicative of cash used by operating activities and should not be
considered in isolation or as an alternative to, or more meaningful than,
measures of performance determined in accordance with generally accepted
accounting principles. We define EBITDA as earnings (losses) from continuing
operations before interest expense and interest income, taxes, depreciation and
amortization, other non-operating income and expense, and charges for intangible
asset write-down and acquired in-process research and development. Our
definition of EBITDA may not be comparable to similarly titled measures used by
other companies.
For the purposes of computing the ratio of earnings to combined fixed
charges and preferred stock dividends, earnings consist of losses before income
taxes, equity in loss of affiliate, amortization of capitalized interest and
fixed charges. Fixed charges consist of interest on all indebtedness, including
amounts capitalized, amortization of debt financing costs and that portion of
rental expense which we believe to be representative of interest (deemed to be
one-third of rental expense).
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<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1995 1996 1997 1998 1999
------- ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Operations Data:
Revenues:
U.S................................................... $ 36.2 $ 77.6 $ 104.0 $ 156.0 $ 270.6
International......................................... 2.5 6.8 17.9 103.6 284.1
------- ------- ------- -------- ---------
38.7 84.4 121.9 259.6 554.7
Other income, net..................................... -- 5.4 -- -- --
------- ------- ------- -------- ---------
38.7 89.8 121.9 259.6 554.7
Operating costs and expenses:
Data communications and operations.................... 32.1 70.1 94.4 199.4 396.4
Sales and marketing................................... 23.9 27.1 25.8 57.0 103.8
General and administrative............................ 10.6 20.7 23.0 45.3 78.7
Depreciation and amortization......................... 14.8 28.0 28.3 63.4 166.5
Charge for acquired in-process research and -- -- -- 70.8 88.7
development..........................................
Intangible asset write-down........................... 9.9 -- -- -- --
------- ------- ------- -------- ---------
Total operating costs and expenses................... 91.3 145.9 171.5 435.9 834.1
------- ------- ------- -------- ---------
Loss from operations.................................. (52.6) (56.1) (49.6) (176.3) (279.4)
Interest expense...................................... (2.0) (5.0) (5.4) (63.9) (193.1)
Non-recurring arbitration charge...................... -- -- -- (49.0) --
Loss before income taxes.............................. (53.2) (55.3) (46.1) (262.7) (419.0)
Net loss.............................................. (53.2) (55.1) (45.6) (261.8) (416.2)
Return to preferred shareholders...................... -- -- (0.4) (3.1) (17.7)
Net loss available to common shareholders............. $ (53.2) $ (55.1) $ (46.0) $ (264.9) $ (433.9)
======= ======= ======= ======== =========
Basic and diluted loss per share...................... $ (1.01) $ (0.70) $ (0.57) $ (2.66) $ (3.49)
======= ======= ======= ======== =========
Shares used in computing basic and diluted loss per
share (in thousands)................................. 52,970 78,756 80,612 99,612 124,386
======= ======= ======= ======== =========
Other Financial Data:
EBITDA (as defined):
U.S................................................... $ (26.9) $ (20.5) $ (13.1) $ (26.2) $ (39.4)
International......................................... (1.0) (7.5) (8.1) (15.9) 15.2
------- ------- ------- -------- ---------
$ (27.9) $ (28.0) $ (21.2) $ (42.1) $ (24.2)
======= ======= ======= ======== =========
Capital expenditures.................................. $ 45.2 $ 38.4 $ 50.1 $ 303.6 $ 832.8
Ratio of earnings to combined fixed
charges and preferred stock dividends
(deficiency of earnings to cover combined
fixed charges and preferred stock dividends)......... $ (53.0) $(54.4) $ (46.5) $ (266.6) $ (442.9)
Consolidated Cash Flow Data:
Cash flows used in operating activities............... $ (30.1) $ (32.5) $ (15.6) $ (87.6) $(157.8)
Cash flows used in investing activities............... (22.0) (7.9) (15.6) (783.9) (1,558.6)
Cash flows provided by (used in) financing activities. 151.4 (10.5) 12.6 874.2 2,520.3
Operating Data:
Number of POPs........................................ 241 350 350 500 900
Number of business customer accounts.................. 8,200 17,800 26,400 54,700 91,000
Number of consumer customer accounts.................. 75,000 0 5,300 225,000 562,000
December 31,
---------------------------------------------------
1995 1996 1997 1998 1999
------- ------- ------- -------- ---------
Consolidated Balance Sheet Data:
Cash, cash equivalent, short-term investments and
marketable securities............................... $ 102.7 $ 56.4 $ 33.3 $ 322.5 $ 1,601.2
Restricted cash and short-term investments............ -- 0.9 20.7 162.5 154.1
Total assets.......................................... 201.8 177.1 186.2 1,284.2 4,492.3
Current portion of debt............................... 16.6 26.9 39.6 60.0 115.0
Long-term debt, less current portion.................. 24.1 26.9 33.8 1,064.6 3,185.2
Shareholders' equity (deficit)........................ 143.2 89.8 73.4 (120.2) 723.0
</TABLE>
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<PAGE>
SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION
(In millions of U.S dollars, except per share and share amounts)
The following Summary Unaudited Pro Forma Condensed Combined Financial
Information gives pro forma effect to our acquisition of Metamor as well as to
other transactions, as more fully discussed under "Unaudited Pro Forma Condensed
Combined Financial Information" incorporated herein by reference from our
Registration Statement on Form S-4, which we filed with the SEC on April 14,
2000 as if they had occurred on January 1, 1999 for the statement of operations
data and on December 31, 1999 for the balance sheet data.
If we had actually completed the Metamor acquisition in prior periods,
Metamor might have performed differently. You should not rely on the pro forma
financial information as an indication of the results we would have achieved if
the Metamor acquisition had taken place earlier or of the future results that
the companies will achieve after completion of the Metamor acquisition. For
further information concerning the following summary pro forma financial
information, including the adjustments made in preparing it, please refer to
"Unaudited Pro Forma Condensed Combined Financial Information" incorporated
herein by reference from our registration statement on Form S-4 which we filed
with the SEC on April 14, 2000.
<TABLE>
<CAPTION>
Pro Forma
Year Ended
December 31, 1999
Combined Statement of Operations Data: ------------------
<S> <C>
Internet access revenue................................................. $ 758.8
Services revenue........................................................ 577.0
--------
Total revenue.................................................... 1,335.8
Operating costs and expenses:
Data communications and operations...................................... 523.4
Cost of services revenue................................................ 341.0
Selling, general and administrative..................................... 403.2
Depreciation and amortization........................................... 350.1
Charge for acquired in-process R&D...................................... 88.7
--------
Total operating costs and expenses............................... 1,706.4
--------
Loss from operations...................................................... (370.6)
Interest expense.......................................................... (196.2)
Interest income........................................................... 56.0
Other income, net......................................................... 1.1
--------
Loss from continuing operations before income taxes....................... (509.7)
Income tax benefit (expense).............................................. --
--------
Loss from continuing operations........................................... (509.7)
Return to preferred shareholders.......................................... (55.8)
--------
Loss from continuing operations available to common shareholders.......... $ (565.5)
========
Basic and diluted loss per share from continuing operations............... $ (3.45)
========
Shares used in computing basic and diluted loss per share from continuing
operations (in thousands).............................................. 163,765
========
Pro Forma
December 31, 1999
Combined Balance Sheet Data: -----------------
Cash, cash equivalents, short-term investments and marketable securities $2,260.7
Restricted cash and short-term investments.............................. 154.1
Total assets............................................................ 7,142.9
Current portion of debt................................................. 115.0
Long-term debt, less current portion.................................... 3,394.4
Shareholders' equity.................................................... 2,990.4
</TABLE>
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<PAGE>
RISK FACTORS
This offering involves material risks. Please carefully read the following
risk factors in addition to the other information set forth in this document
before investing.
Risks Related to PSINet
There are a number of risks related to PSINet that are continuously
disclosed in our SEC filings which are incorporated in this document by
reference. Please read them carefully.
Risks Related to the Series D Preferred Stock
- --The Series D preferred stock will rank ratably with our Series C preferred
stock
The Series D preferred stock has been issued on parity with the Series C
preferred stock. This means that in the event of our dissolution, liquidation
or winding up, and in connection with payment of dividends, holders of our
Series C and Series D preferred stock will share ratably in any distribution of
our assets after we have satisfied our creditors or in the payment of dividend,
as the case may be. As of March 31, 2000, we had 4,570,665 shares of our Series
C preferred stock outstanding, with an aggregate liquidation preference of
$228.5 million.
- --Shares of our common stock eligible for future sale could affect the price of
our Series D preferred stock
The stock price of our Series D preferred stock may be affected by the
trading price of our common stock. We and our directors and executive officers
have agreed, subject to limited exceptions, not to sell any shares of common
stock or securities convertible into common stock until April 26, 2000; however,
we have recently registered for resale 6,000,000 shares of our common stock
being held by IXC, a principal shareholder pursuant to registration rights held
by IXC. Some of our other shareholders who have registration rights may also
require us to register their shares of common stock for resale. Sales of a large
number of shares of our common stock all at once could adversely affect the
price of our common stock and, as a result, impact the price of our Series D
preferred stock.
- 7 -
<PAGE>
SELLING SHAREHOLDERS
The selling shareholders listed below received their Series D preferred
stock in an offering made pursuant to Rule 144A under the Securities Act of
1933.
None of the selling shareholders has held any position or office or had a
material relationship with PSINet or any of its affiliates within the past three
years.
The following table sets forth information as of April 11, 2000 regarding
beneficial ownership of our Series D preferred stock and common stock by each
selling shareholder.
<TABLE>
<CAPTION>
Shares That
Shares May Be Sold
Beneficially Pursuant to This Shares Owned
Owned(1) Prospectus After Offering
------------------------------- ------------------------------- --------------------------------
Series D Series D Series D
Preferred Common Preferred Common Preferred Common
Stock Stock(2) Stock Stock Stock Stock
----------- ---------- ----------- --------- ------------- ----------
No. of No. of No. of No. of
Selling Shareholders Shares % Shares % Shares % Shares %
- -------------------------------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Donaldson, Lufkin & Jenrette
Securities Corporation........
Merrill Lynch, Pierce, Fenner &
Smith Incorporated............
Morgan Stanley & Co.
Incorporated..................
Bear, Stearns & Co. Inc.........
Chase Securities Inc............
BancBoston Robertson
Stephens Inc..................
Total....................
</TABLE>
___________________
(1) Includes any shares as to which the individual has sole or shared voting
power or investment power and also any shares which the individual has the
right to acquire within 60 days of the date of this prospectus. Unless
otherwise indicated in the footnotes, each person has sole voting and
investment power with respect to the shares shown as beneficially owned.
(2) The Series D preferred stock is convertible into common at the conversion
rate of .9352 shares of common stock for each share of Series D preferred
stock.
- 8 -
<PAGE>
PLAN OF DISTRIBUTION
Any or all of the securities being registered hereby may be sold from time
to time to purchasers directly by the selling shareholders, their pledgees,
donees, transferees and successors-in-interest, including parties who borrow
shares to settle short sales. Alternatively, the selling shareholders, their
pledgees, donees, transferees and successors-in-interest, may from time to time
offer the securities through underwriters, broker/dealers or agents who may
receive compensation in the form of underwriting discounts, concessions or
commissions from the selling shareholders and/or the purchasers of securities
for whom they may act as agent. The selling shareholders, and any underwriters,
broker/dealers or agents that participate in the distribution of the securities
may be deemed to be underwriters, and any profit on the sale of the securities
by them and any profit on the resale of such securities purchased by them may be
deemed to be underwriting discounts, commissions or concessions under the
Securities Act of 1933. Any such securities may, without limitation, be so
offered or sold in the open market, in privately negotiated transactions, in an
underwritten offering, or a combination of such methods, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. To the extent required, the number of securities
to be sold, purchase price, public offering price, the name of any agent,
broker/dealer or underwriter and any applicable commission or discount or other
compensation arrangements with respect to a particular offering will be set
forth in an accompanying prospectus supplement. We will receive no proceeds from
the sale of the securities offered hereby. The selling shareholders may also
sell the securities being registered hereby in accordance with Rule 144 of the
Securities Act rather than pursuant to this prospectus.
The sale of the securities may be effected in transactions (which may
involve crosses, block transactions and borrowings, returns and reborrowings of
the securities, pursuant to stock loan agreements to settle short sales of the
securities):
. on any national securities exchange or quotation service on which the
securities may be listed or quoted at the time of the sale;
. in the over-the-counter market;
. in transactions otherwise than on such exchange or in the over-the-
counter market; or
. through the writing of options.
Such securities may also be delivered in connection with the issuance of
securities by issuers other than PSINet that are exchangeable (whether
optionally or mandatorily) or payable in shares of our common stock or pursuant
to which such shares may be distributed. This prospectus shall be available for
use by pledgees, donees, transferees and successors-in-interest of the selling
shareholders or by other persons acquiring securities, including parties who
borrow the securities to settle short sales.
All registration expenses incurred in connection with the registration of
the securities to which this prospectus relates will be borne by us.
Under applicable rules and regulations under the Securities Exchange Act of
1934, the selling shareholders will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder including, without
limitation, Regulation M, which provisions may limit the timing of purchases and
sales of the securities by the selling shareholders. All of the foregoing may
affect the marketability of the securities offered hereby.
Any sales by the selling shareholders are subject to compliance by the
selling shareholders with restrictions in the registration rights agreement
between PSINet and the selling shareholders, principally related to blackout
periods and the like.
- 9 -
<PAGE>
PSINet and the selling shareholders have also agreed to customary
indemnification terms with respect to the sale of securities covered by this
document.
- 10 -
<PAGE>
DESCRIPTION OF SERIES D PREFERRED STOCK
General
Under our certificate of incorporation, our board of directors is
authorized, without further shareholder action, to issue up to 30,000,000 shares
of our preferred stock, par value $.01 per share, in one or more series, and to
fix the rights, preferences, privileges, and restrictions of such series, and
such other qualifications, limitations or restrictions as are permitted by New
York law. With respect to dividends and upon liquidation, dissolution or
winding up, the Series D preferred stock will rank senior to our common stock,
ratably with our 6 3/4% Series C cumulative convertible preferred stock, and
senior to or ratably with any future offerings of preferred stock. As of the
date of this offering memorandum, we have 16,500,000 shares of Series D
preferred stock outstanding.
Our outstanding Series D preferred stock is fully paid and nonassessable,
subject to Section 630 of the New York Business Corporation Law. The transfer
agent, registrar, redemption, conversion and dividend disbursing agent for our
Series D preferred stock is First Chicago Trust Company, a division of
EquiServe. The transfer agent will send notices to shareholders of any special
meetings at which holders of Series D preferred stock have the right to vote.
Holders of our Series D preferred stock will have no preemptive rights with
respect to any shares of our capital stock or any of our other securities
convertible into or carrying rights or options to purchase any such shares.
Funds have been deposited into a deposit account sufficient to pay a
quarterly cash payment from that deposit account in an amount equal to $0.875
per share of Series D preferred stock, subject to the rights described below
which allow us to pay dividends in shares of our common stock in lieu of cash.
The quarterly cash payment from the deposit account is called the quarterly
return amount, and payments of those amounts will commence May 15, 2000 and
continue, subject to specified exceptions described below, until February 15,
2001. After such date, dividends will begin to accrue on the Series D preferred
stock, although, as we discuss below, they may begin to accrue at an earlier
time if the deposit account is terminated under the circumstances described
below. Wilmington Trust Company holds the deposit account and will act as the
deposit agent for the Series D preferred stock.
We describe below in more detail the terms of the Series D preferred stock
and the deposit account and the circumstances under which holders of shares of
Series D preferred stock may be expected to receive payments from the deposit
account.
The following summary of the Series D preferred stock and the deposit
account, while complete in material respects, is nonetheless a summary. It is
qualified in its entirety by reference to the provisions of our certificate of
incorporation and the amendment to our certificate of incorporation with respect
to our Series D preferred stock and the deposit agreement.
Deposit Account
The funds that the purchasers of the Series D preferred stock deposit in the
deposit account will be invested in U.S. Government obligations or U.S.
Government guaranteed obligations which together with the earnings on those
funds will be sufficient to pay the aggregate quarterly return amounts through
February 15, 2001, which date we call the deposit expiration date.
The quarterly return amount will be based on an annual rate of 7% of the
liquidation preference. The quarterly return amount payable on the Series D
preferred stock for each full quarterly period will be computed by dividing the
annual return amount (which is an amount equal to the annual rate on our
- 11 -
<PAGE>
Series D preferred stock multiplied by the liquidation preference) by four. The
quarterly return amount payable on the Series D preferred stock for any period
other than a full quarterly period will be computed on the basis of a 360-day
year consisting of twelve 30-day months.
Unless, on or prior to the notice date described below, we have delivered to
the deposit agent a direction notice instructing the deposit agent to purchase
shares of common stock from us, the deposit agent will deliver to each holder of
Series D preferred stock the quarterly return amount on February 15, May 15,
August 15 and November 15 of each year, each such date being called a deposit
payment date, commencing May 15, 2000 and continuing until the deposit
expiration date (or earlier if the deposit account is terminated in the manner
described below). The "notice date" will be a date occurring on or prior to the
tenth day prior to the applicable deposit payment date or deposit expiration
date, as the case may be. If we have delivered a direction notice to the
deposit agent on or prior to any notice date, the deposit agent will, as
instructed by us in the direction notice, purchase from us, for delivery to each
holder of Series D preferred stock in lieu of all or a portion of the quarterly
return amount (which has not been previously paid in cash or shares of our
common stock) on the next deposit payment date, that number of whole shares of
common stock determined by dividing such quarterly return amount by (a) if on
the date of such payment a registration statement covering the shares of common
stock so issued is effective, 97% of the market value of the common stock on the
record date and (b) if on the date of such payment a registration statement
covering the shares of common stock so issued is not effective or use of such
registration statement is otherwise not permissible for any reason within our
control, 93% of the market value of the common stock on the record date. Market
value will be calculated, as of any date, based on the average of the daily
closing price for the five consecutive trading days ending on such date. The
closing price for each day will be the last sales price or, in case no such
reported sales take place on such day, the average of the last reported bid and
asked price, in either case on the principal national securities exchange on
which our shares of common stock are admitted to trading or listed, or if not
listed or admitted to trading on such exchange, the representative closing bid
price as reported by the Nasdaq National Market or if not available, the fair
market price as determined in good faith by our board of directors.
Under the terms of the deposit agreement, we have agreed that, upon written
request of the deposit agent, we will deliver, for and on behalf of the deposit
agent, the shares of common stock acquired by the deposit agent directly to
holders of our Series D preferred stock. The deposit agreement also provides
that the obligation to purchase shares of common stock from us is secured by the
funds in the deposit account.
In the event of any conversion of the Series D preferred stock into shares
of our common stock prior to the deposit expiration date, in those circumstances
we will be paid any funds remaining in the deposit account allocable to those
shares of Series D preferred stock so converted (and as a result, holders of
Series D preferred stock will not receive any partial payment from the deposit
account if they convert their shares prior to receipt of a full quarterly return
amount).
Notwithstanding the foregoing we may, upon notice to the holders of Series D
preferred stock, elect early termination of the deposit account if:
. we obtain any required amendments to the covenants under our various debt
obligations that would permit us to pay cash dividends on our Series D
preferred stock prior to the deposit expiration date; and
. at the time we receive such amendments or at any time thereafter (so long
as the amendments remain effective) the trading price, on any date, for
the Series D preferred stock equals or exceeds the liquidation
preference.
- 12 -
<PAGE>
If we elect early termination of the deposit account, the Series D preferred
stock will begin to accrue dividends from the last deposit payment date.
On the deposit expiration date, after distributing all quarterly return
amounts, the deposit account agreement requires the deposit agent to pay to us
any cash remaining in the deposit account on such date and terminate the deposit
account.
Upon the final resolution (including the final resolution of all appeals or
rights to appeal in any court) of any voluntary or involuntary dissolution,
liquidation or winding up of our company, the deposit agent will be required to
return, upon our written direction, to the holders of the Series D preferred
stock any funds at the time remaining in the deposit account. While we consider
the funds placed in the deposit account to be the property of the purchasers of
the Series D preferred stock and not our property, we cannot be certain that, in
a bankruptcy proceeding, our creditors or a trustee in bankruptcy could not
claim that those funds constituted property of our bankrupt estate. If that
were to occur, access to the funds in the deposit account by the purchasers of
the Series D preferred stock could be delayed or, if the claims were successful,
even put in doubt.
Dividends
On and after the deposit expiration date, or upon earlier termination of the
deposit account, holders of the Series D preferred stock will be entitled to
receive cumulative dividends at an annual rate of 7% of the liquidation
preference, payable quarterly out of assets legally available on February 15,
May 15, August 15 and November 15 of each year when, as and if declared by our
board of directors. Dividends on the Series D preferred stock will accrue from
February 15, 2001 (or earlier if the deposit account is terminated), and, as a
result, we will not make any dividend payments on the Series D preferred stock
until May 15, 2001 (or earlier if the deposit account is terminated). Dividends,
to the extent declared by our board of directors, may, at our option, be paid in
cash, by delivery of fully paid and nonassessable shares of common stock, or a
combination thereof (subject to applicable law). Dividends will be payable to
holders of record as they appear on our stock register on such record dates, not
more than sixty days nor less than ten days preceding the payment dates thereof,
as fixed by our board of directors. Dividends payable on the Series D preferred
stock for each full dividend period will be computed by dividing the annual
dividend rate by four. Dividends payable on the Series D preferred stock for any
period less than a full dividend period will be computed on the basis of a 360-
day year consisting of twelve 30-day months. The Series D preferred stock will
not be entitled to any dividend, whether payable in cash, property, or
securities, in excess of the full cumulative dividends. No interest, or sum of
money in lieu of interest, will be payable in respect of any accumulated and
unpaid dividends.
If we elect to pay dividends in shares of our common stock, the number of
shares of our common stock that we distribute will be calculated by dividing the
dividend payment by (a) if on the date of such payment a registration statement
covering the shares of common stock so issued is effective, 97% of the market
value of the common stock on the record date and (b) if on the date of such
payment a registration statement covering the shares of common stock so issued
is not effective or use of such registration statement is otherwise not
permissible for any reasons within our control, 93% of the market value of the
common stock on the record date.
No dividends or distributions, other than a dividend or distribution in our
stock ranking junior to the Series D preferred stock as to dividends and upon
liquidation, dissolution or winding up, may be declared, made or paid or set
apart for payment upon any of our stock ranking junior to or ratably with the
Series D preferred stock as to dividends, nor may any of our stock ranking
junior to or ratably with the Series D preferred stock as to dividends or upon
liquidation be redeemed, purchased or otherwise acquired for any consideration
(or any moneys paid to or made available for a sinking fund for the redemption
of any shares of any such stock), by us (except, in general and in both cases,
by conversion
- 13 -
<PAGE>
into or exchange for stock of ours ranking junior to or ratably with the Series
D preferred stock as to dividends and upon liquidation and in the case that
moneys for such dividends, distributions, redemptions, purchases, or other
acquisitions are derived from the proceeds of the offering of such securities or
a concurrent offering of related securities) unless full cumulative dividends
have been or contemporaneously are paid or declared and a sum sufficient for the
payment thereof is set apart for such payment on the Series D preferred stock
for all dividend payment periods terminating on or prior to the date of such
declaration, payment, redemption, purchase or acquisition.
Notwithstanding the foregoing, if full dividends have not been declared and
paid or set apart on the Series D preferred stock and any other preferred stock
ranking ratably with the Series D preferred stock as to dividends, dividends may
be declared and paid on the Series D preferred stock and such other ratable
preferred stock, so long as the dividends are declared and paid pro rata so that
the amounts of dividends declared per share on the Series D preferred stock and
such other ratable preferred stock will in all cases bear to each other the same
ratio that accrued and unpaid dividends per share on the shares of the Series D
preferred stock and such other preferred stock bear to each other; provided,
that if such dividends are paid in cash on the other ratable preferred stock,
dividends will also be paid in cash on the Series D preferred stock.
The holders of shares of Series D preferred stock at the close of business
on a dividend payment record date will be entitled to receive the dividend
payment on those shares on the corresponding dividend payment date
notwithstanding the subsequent conversion thereof or our default in payment of
the dividend due on that dividend payment date. Holders of shares called for
redemption on a redemption date between the record date and the dividend payment
date will be entitled to receive their dividend payment on such redemption date.
Except as provided in the immediately preceding sentences or as otherwise
described under "Special Redemption" below, we will make no payment or allowance
for unpaid dividends, whether or not in arrears, on converted shares or for
dividends on the shares of our common stock issued upon conversion.
Our ability to declare and pay dividends and make other distributions with
respect to our capital stock, including the Series D preferred stock, is limited
by provisions contained in various financing agreements, which currently
prohibit us from making cash dividend payments and in the provisions of our
certificate of incorporation relating to our Series C preferred stock. Our
ability to declare and pay dividends may also be limited by applicable New York
law.
Liquidation Preference
The shares of Series D preferred stock will be issued with a liquidation
preference equal to $50 per share. See also "Federal Income Tax Consequences."
If upon any voluntary or involuntary dissolution, liquidation or winding up of
our company, the amounts payable with respect to the liquidation preference of
the Series D preferred stock and any other shares of our stock ranking as to any
such distribution ratably with the Series D preferred stock (which includes our
Series C preferred stock) are not paid in full, the holders of the Series D
preferred stock and of such other shares will share pro rata in proportion to
the full distributable amounts to which they are entitled. After payment of the
full amount of the liquidating distribution to which they are entitled, the
holders of the Series D preferred stock will have no right or claim to any of
our remaining assets. Neither the sale of all or substantially all of our
property or business, other than in connection with the dissolution, liquidation
or winding up of the business, nor our merger or consolidation into or with any
other corporation, will be deemed to be a dissolution, liquidation or winding
up, voluntary or involuntary, of our company.
Optional Redemption
The Series D preferred stock is not subject to any sinking fund or other
similar provisions.
- 14 -
<PAGE>
Except for a special redemption discussed below, we may not redeem the
Series D preferred stock prior to February 15, 2003. Beginning on that date, we
may redeem shares of Series D preferred stock, during the twelve-month periods
commencing on February 15 of the years indicated below, at the following
redemption premiums (expressed as a percentage of the liquidation preference per
share), plus in each case all accumulated and unpaid dividends (whether or not
declared) to the redemption date:
Redemption
Premium
Year Per Share
---- ----------
2003......................................................... 104.000%
2004......................................................... 103.000%
2005......................................................... 102.000%
2006......................................................... 101.000%
2007 and thereafter.......................................... 100.000%
We may effect any redemption, in whole or in part, at our option, in cash,
by delivery of fully paid and nonassessable shares of our common stock or a
combination thereof (subject to applicable law), by delivering notice to the
holders of the Series D preferred stock not less than 20 nor more than 60 days
prior to the scheduled redemption date.
In the event that fewer than all the outstanding shares of Series D
preferred stock are to be redeemed, the shares to be redeemed will be determined
pro rata or by lot. If we elect to make redemption payments in shares of our
common stock, the number of shares of our common stock that we distribute will
be calculated by dividing the redemption payment by 97% of the market value of
our common stock calculated as described in the last sentence of this paragraph.
In order for us to exercise the option by paying the redemption price in its
common stock, a shelf registration statement must be effective between and
including the redemption notice date and the redemption date. The market value
of the common stock will be calculated based on the average of the daily closing
price for the five consecutive trading days ending two trading days prior to the
redemption date.
From and after the applicable redemption date, unless we default in the
payment of the redemption price, dividends on the shares of Series D preferred
stock to be redeemed on such redemption date shall cease to accumulate, such
shares shall no longer be deemed to be outstanding, and all rights of the holder
thereof as shareholders (except the right to receive the redemption price) will
cease.
If any dividends on the Series D preferred stock are in arrears, no shares
of Series D preferred stock will be redeemed.
Our ability to redeem any shares of Series D preferred stock is, and may
continue to be, limited by the terms of our other financing arrangements, our
Series C preferred stock and applicable law. In fact, we would currently be
prohibited by the terms of our outstanding senior notes from redeeming the
Series D preferred stock for cash.
Special Redemption
We may redeem the Series D preferred stock at a redemption premium of
105.50% of the liquidation preference, plus accumulated and unpaid dividends, if
any, whether or not declared, to the provisional redemption date on or after
August 15, 2001 but prior to February 15, 2003 ("provisional redemption"), if
the trading price of our common stock equals or exceeds $80.20 per share for 20
trading days within any 30 consecutive trading days ending one day prior to the
day on which we send out a
- 15 -
<PAGE>
provisional redemption notice. If we undertake a provisional redemption, holders
of Series D preferred stock that we call for redemption, will, in addition to
the payments required by the preceding sentence, also receive an "additional
payment" in an amount equal to the present value of the aggregate value of the
dividends that would thereafter have been payable on the Series D preferred
stock (whether or not declared) from the provisional redemption date to February
15, 2003 called the "additional period." The present value will be calculated
using the bond equivalent yield on U.S. Treasury notes or bills having a term
nearest in length to that of the additional period on the day immediately
preceding the date on which a notice of provisional redemption is mailed. We
will be obligated to make the additional payment on all Series D preferred stock
that we have called for provisional redemption, whether or not those shares of
Series D preferred stock are converted into shares of common stock prior to the
provisional redemption date.
Voting Rights
Except as set forth below and as required by law, holders of Series D
preferred stock will have no voting rights. Under New York law, holders of
Series D preferred stock will be entitled to vote as a class upon a proposed
amendment to our charter, whether or not entitled to vote thereon by the
designating amendment, if the amendment would:
. exclude or limit their right to vote on any matter, except as such right
may be limited by voting rights given to new shares then being authorized
of any existing or new class or series,
. increase or reduce the par value of the shares of such class, change any
shares into a different number of shares of the same class or into the
same or a different number of shares of any class or series thereof, or
change, fix or abolish the designation of such class or any of the
relative rights, preferences and limitations of the shares of such class,
provided that the shares of such class may be converted into shares of
any other class or into shares of any other series of the same class, or
alter the terms or conditions upon which their shares are convertible or
change the shares issuable upon conversion of their shares if such action
would adversely affect such holders, or
. subordinate their rights by authorizing shares having preferences that
would be in any respect superior to their rights.
If the dividends payable on the Series D preferred stock are in arrears for
six quarterly periods, the holders of Series D preferred stock voting separately
as a class with the shares of any other preferred stock or preference securities
having similar voting rights, including our Series C preferred stock, will be
entitled at the next regular or special meeting of our shareholders to elect two
directors to our board of directors. Such voting rights will continue only
until such time as the dividend arrearage on the Series D preferred stock has
been paid in full.
The affirmative vote or consent of the holders of at least 66 2/3% of the
outstanding Series D preferred stock will be required to permit us to issue any
class or series of stock, or security convertible into stock or evidencing a
right to purchase any shares of any class or series of stock ranking senior to
the Series D preferred stock as to dividends, liquidation rights or voting
rights, and for amendments to our charter that would affect adversely the rights
of holders of the Series D preferred stock. Notwithstanding the above, any
issuance of shares of preferred stock which rank ratably with the Series D
preferred stock (including the issuance of additional shares of our Series D
preferred stock) will not, by itself, be deemed to adversely affect the rights
of the holders of the Series D preferred stock. In all such cases, each share
of Series D preferred stock shall be entitled to one vote.
- 16 -
<PAGE>
Conversion Rights
The Series D preferred stock will be convertible at any time after February
15, 2000 at the option of the holder thereof into such number of whole shares of
our common stock as is equal to the liquidation preference divided by a
conversion price of $53.465, subject to adjustment as described below. We refer
to the present conversion price and the conversion price as further adjusted as
the conversion price. A share of Series D preferred stock called for redemption
will be convertible into shares of our common stock up to and including, but not
after, the close of business on the second business day prior to the date fixed
for redemption unless we default in the payment of the amount payable upon
redemption.
In our discretion, no fractional shares of our common stock or securities
representing fractional shares of our common stock will be issued upon
conversion. Any fractional interest in a share of our common stock resulting
from conversion will be paid in cash based on the last reported sales price of
our common stock on any national exchange or any level of Nasdaq, or any
national securities exchange or authorized quotation system on which our common
stock is then listed, at the close of business on the trading day next preceding
the date of conversion or such later time as we are legally and contractually
able to purchase such fractional shares.
The conversion price for the Series D preferred stock is subject, upon the
occurrence of specified events after the issuance of the Series D preferred
stock, to adjustment in accordance with formulas set forth in our designating
amendment, including:
. any redemption payment or payment of a dividend or other distribution
payable in shares of our common stock to all holders of any class of our
capital stock, other than the issuance of shares of our common stock in
connection with the payment in redemption for, of dividends on or the
conversion of the Series D preferred stock or any other preferred stock
that ranks ratably with the Series D preferred stock or the issuance of
any shares of our common stock pursuant to the deposit agreement or a
deposit agreement created for the benefit of holders of any other
preferred stock that ranks ratably with the Series D preferred stock or
to all holders of the Series D preferred stock or any other preferred
stock that ranks ratably with the Series D preferred stock based upon the
number of shares of our common stock into which the Series D preferred
stock or any other preferred stock that ranks ratably with the Series D
preferred stock is then convertible;
. any issuance to all holders of shares of our common stock of rights,
options or warrants entitling them to subscribe for or purchase shares of
our common stock or securities convertible into or exchangeable for
shares of our common stock at less than market value as of the date of
conversion or exchange; provided, however, that no adjustment will be
made with respect to such a distribution if the holder of shares of the
Series D preferred stock would be entitled to receive such rights,
options or warrants upon conversion at any time of shares of the Series D
preferred stock into our common stock and provided, further, that if such
rights, options or warrants are only exercisable upon the occurrence of
triggering events, then the Conversion Price will not be adjusted until
such triggering events occur;
. any subdivision, combination or reclassification of our common stock;
. any distribution consisting exclusively of cash (excluding any cash
distributed upon a merger or consolidation to which the last bullet point
of this paragraph applies) to all holders of shares of our common stock
in an aggregate amount that, combined together with (1) all other such
all cash distributions made within the then preceding 12 months in
respect of which no adjustment has been made and (2) any cash and the
fair market value of other consideration paid or payable in respect of
any tender offer by us or any of our subsidiaries for shares of our
common stock concluded within the then preceding 12 months in respect of
which no adjustment has been
- 17 -
<PAGE>
made, exceeds 15% of our market capitalization (defined as the product of
the then current market price of the our common stock times the number of
shares of our common stock then outstanding on the record date of such
distribution);
. the completion of a tender or exchange offer that we or any of our
subsidiaries make for shares of our common stock that involves an
aggregate consideration that, together with (1) any cash and other
consideration payable in a tender or exchange offer by us or any of our
subsidiaries for shares of any of our common stock expiring within the
then preceding 12 months in respect of which no adjustment has been made
and (2) the aggregate amount of any such cash distributions referred to
in the fourth bullet point of this paragraph to all holders of shares of
our common stock within the then preceding 12 months in respect of which
no adjustments have been made, exceeds 15% of our market capitalization
just prior to the expiration of such tender offer; or
. a distribution to all holders of our common stock consisting of evidences
of indebtedness, shares of capital stock other than our common stock or
assets, including securities, but excluding those dividends, rights,
options, warrants and distributions referred to above (other than in
connection with a merger effected solely to reflect a change in our
jurisdiction of incorporation).
No adjustment of the conversion price will be required to be made until the
cumulative adjustments, whether or not made, amount to 1.0% or more of the
conversion price as last adjusted. No conversion price adjustment will be made
as a result of the issuance of our common stock on conversion of the Series D
preferred stock. Each event requiring adjustment to the conversion price will
require only a single adjustment even though more than one of the adjustment
clauses may be applicable to such event. We reserve the right to make such
reductions in the conversion price in addition to those required in the
foregoing provisions as we consider to be advisable in order that any event
treated for federal income tax purposes as a dividend of stock or stock rights
will not be taxable to the recipients. In the event we elect to make such a
reduction in the conversion price, we will comply with the requirements of Rule
14e-1 under the Securities Exchange Act of 1934, and any other securities laws
and regulations thereunder if and to the extent that such laws and regulations
are applicable in connection with the reduction of the conversion price.
In the event that, after the issuance of the Series D preferred stock, we
distribute rights or warrants (other than those referred to in the second bullet
point of the second preceding paragraph) to all holders of our common stock, so
long as any such rights or warrants have not expired or been redeemed by us, the
holder of any shares of Series D preferred stock surrendered for conversion will
be entitled to receive upon such conversion, in addition to the shares of our
common stock then issuable upon such conversion, which we call the conversion
shares, a number of rights or warrants to be determined as follows: (1) if such
conversion occurs on or prior to the date for the distribution to the holders of
rights or warrants of separate certificates evidencing such rights or warrants,
called the distribution date, the same number of rights or warrants to which a
holder of a number of shares of our common stock equal to the number of
conversion shares is entitled at the time of such conversion in accordance with
the terms and provisions applicable to the rights or warrants, and (2) if such
conversion occurs after such distribution date, the same number of rights or
warrants to which a holder of the number of shares of our common stock into
which such Series D preferred stock was convertible immediately prior to such
distribution date would have been entitled on such distribution date in
accordance with the terms and provisions of and applicable to the rights or
warrants. In the event the holders of Series D preferred stock are not entitled
to receive such rights or warrants, the conversion price will be subject to
adjustment upon any declaration or distribution of such rights or warrants.
In case of any reclassification, consolidation or merger of our company with
or into another person or any merger of another person with or into our company,
with specific exceptions, or in case of any
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sale, transfer or conveyance of all or substantially all of the assets of our
company, computed on a consolidated basis, each share of Series D preferred
stock then outstanding will, without the consent of any holder of Series D
preferred stock, become convertible only into the kind and amount of securities,
cash and other property receivable upon such reclassification, consolidation,
merger, sale, transfer or conveyance by a holder of the number of shares of our
common stock into which such share of Series D preferred stock was convertible
immediately prior thereto, after giving effect to any adjustment event.
In the case of any distribution by us to our shareholders of substantially
all of our assets, each holder of Series D preferred stock will participate pro
rata in such distribution based on the number of shares of our common stock into
which such holders' shares of Series D preferred stock would have been
convertible immediately prior to such distribution.
Change of Control
Notwithstanding the foregoing, upon a change of control of our company,
holders of Series D preferred stock will, if the market value of our common
stock at such time is less than the conversion price, have a one time option,
upon not less than 30 days of notice nor more than 60 days of notice, to convert
all of their outstanding shares of Series D preferred stock into shares of our
common stock at an adjusted conversion price equal to the greater of (1) the
market value of our common stock as of the date of the change of control and (2)
$28.98. In lieu of issuing the shares of our common stock issuable upon
conversion in the event of a change of control, we may, at our option, make a
cash payment equal to the market value of such common stock otherwise issuable.
Our designating amendment defines change of control as any of the following
events:
. any "person" or "group," as such terms are used in Sections 13(d) and
14(d) of the Exchange Act of 1934, is or becomes the "beneficial owner"
(as defined in Rules l3d-3 and l3d-5 under the Exchange Act of 1934,
except that a person will be deemed to have beneficial ownership of all
shares that such person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time) directly or
indirectly, of more than 50% of our total outstanding voting stock;
. during any period of two consecutive years, individuals who at the
beginning of such period constituted our board of directors, together
with any new directors whose election to our board of directors or whose
nomination for election by our shareholders was approved by a vote of a
majority of the directors then still in office who were either at the
beginning of such period or whose election or nomination for election was
previously so approved, cease for any reason to constitute a majority of
our board of directors then in office;
. our company consolidates with or merges with or into any person or
conveys, transfers or leases all or substantially all, computed on a
consolidated basis, of our assets to any person, or any corporation
consolidates with or merges into or with our company in any such event
pursuant to a transaction in which our outstanding voting stock is
changed into or exchanged for cash, securities or other property, other
than any such transaction where our outstanding voting stock is not
changed or exchanged at all, except to the extent necessary to reflect a
change in the jurisdiction of incorporation of our company or where no
person or group owns, immediately after such transaction, directly or
indirectly, more than 50% of the total outstanding voting stock of the
surviving corporation; or
. our company is liquidated or dissolved or adopts a plan of liquidation or
dissolution.
The good faith determination of our board of directors, based upon the
advice of outside counsel, of the beneficial ownership of securities of our
company within the meaning of Rules 13d-3 and 13d-5
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under the Exchange Act will be conclusive, absent contrary controlling judicial
precedent or contrary written interpretation published by the SEC.
The phrase "all or substantially all" of the assets of our company is likely
to be interpreted by reference to applicable state law at the relevant time, and
will be dependent on the facts and circumstances existing at such time. As a
result, there may be a degree of uncertainty in ascertaining whether a sale or
transfer is of "all or substantially all" of our assets.
Registration Rights
Pursuant to a registration rights agreement, we have agreed to use our
reasonable best efforts to keep this registration statement continuously
effective under the Securities Act of 1933 generally until, the earlier of (i)
sale of all registerable securities pursuant to the shelf registration, or (ii)
February 1, 2002. Use of this prospectus may be suspended under customary
conditions, for example, during blackout periods preceding an underwritten
offering of PSINet securities.
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DESCRIPTION OF INDEBTEDNESS
The following are summaries of our existing indebtedness. While complete in
material respects, these descriptions are nonetheless summaries. These
descriptions are qualified in their entirety by reference to the provisions of
the various agreements and indentures related to them.
10% Senior Notes
We have outstanding $600.0 million aggregate principal amount of 10% senior
notes due 2005. The 10% senior notes are senior unsecured obligations ranking
equivalent in right of payment to all of our existing and future unsecured and
unsubordinated indebtedness and senior in right of payment to all of our
existing and future indebtedness. The 10% senior notes were issued under an
indenture dated as of April 13, 1998 between us and Wilmington Trust Company, as
Trustee.
The 10% senior note will mature on February 15, 2005. Interest on the 10%
senior notes is payable semi-annually on August 15 and February 15 of each year,
commencing August 15, 1998. The 10% senior notes are redeemable at our option,
in whole or in part, at any time on or after February 15 of 2002, 2003 and 2004
at 105.0%, 102.5% and 100.0% of the principal amount thereof, respectively, in
each case, plus accrued and unpaid interest to the date of redemption. In
addition, on or prior to February 15, 2001, we may redeem up to 35% of the
original aggregate principal amount of the 10% senior notes at a redemption
price of 110% of the principal amount thereof, plus accrued and unpaid interest
to the date of redemption, with the net cash proceeds of certain public equity
offerings or the sale of stock to one or more strategic investors, provided that
at least 65% of the original aggregate principal amount of the 10% senior notes
remains outstanding immediately after such redemption. Upon the occurrence of a
"change of control" (as defined in the 10% senior notes indenture), we will be
required to make an offer to purchase all of the 10% senior notes at a purchase
price equal to 101% of the principal amount thereof, plus accrued and unpaid
interest, if any, to the date of repurchase. We may not have sufficient funds or
the financial resources necessary to satisfy its obligations to repurchase the
10% senior notes upon a change of control.
The 10% senior notes indenture contains certain financial covenants with
which we must comply, including the following matters:
. limitation on our payment of cash dividend, repurchase of capital stock,
payment of principal on subordinated indebtedness and making of certain
investments, unless after giving effect to each such payment, repurchase
or investment, certain operating cash flow coverage tests are met,
excluding certain permitted payments and investments;
. limitation on our and our subsidiaries' incurrence of additional
indebtedness, unless at the time of such incurrence, our ratio of debt to
annualized operating cash flow would be less than or equal to 6.0 to 1.0
prior to April 1, 2001 and less than or equal to 5.5 to 1.0 on or after
April 1, 2001, excluding certain permitted incurrences of debt;
. limitation on our and our subsidiaries' incurrence of liens, unless the
10% senior notes are secure equally and ratably with the obligation or
liability secured by such line, excluding certain permitted liens;
. limitation on the ability of any subsidiary of us to create or otherwise
cause to exist any encumbrance or restriction on the payment of dividends
or other distributions on our capital stock, payment of indebtedness owed
to us or any other subsidiary, making of investments in us or any other
subsidiary, or transfer of any properties or assets to us or any other
subsidiary, excluding certain permitted encumbrances and restrictions;
. limitation on certain mergers, consolidations and sales of assets by us
or our subsidiaries;
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. limitation on certain transactions with our affiliates;
. limitation on the ability of any subsidiary of us to guarantee or
otherwise become liable with respect to any indebtedness of us unless
such subsidiary provides for a guarantee of the 10% senior notes on the
same terms as the guarantee of such indebtedness;
. limitation on certain sale and leaseback transactions by us or our
subsidiaries;
. limitation on certain issuances and sales of capital stock of
subsidiaries of us; and
. limitation on the ability of us or our subsidiaries to engage in any
business not substantially related to a telecommunications business.
The events of default under the 10% senior notes indenture include various
events of default customary for such type of agreement, including, among others,
the failure to pay principal and interest when due on the 10% senior notes,
cross-defaults on other indebtedness for borrowed monies in excess of $10
million, certain judgments or orders for payment of money in excess of $10
million, and certain events of bankruptcy, insolvency and reorganization.
10 1/2% Senior Notes
We have outstanding approximately $600.0 million and Euro 150.0 million
aggregate principal amount of 10 1/2% senior notes due 2006. The 10 1/2% senior
notes are our senior unsecured obligations ranking equivalent in right of
payment to all our existing and future unsecured and unsubordinated indebtedness
and senior in right of payment to all our existing and future subordinated
indebtedness. The 10 1/2% senior notes were issued under an indenture dated as
of December 2, 1999 between us and Wilmington Trust Company, as Trustee.
The 10 1/2% senior notes will mature on December 1, 2006. Interest on the
10 1/2% senior notes is payable semi-annually on June 1 and December 1 of each
year, commencing June 1, 2000. The 10 1/2% senior notes are not redeemable.
Upon the occurrence of a change of control (as defined in the 10 1/2% senior
notes indenture), we will be required to make an offer to purchase all of the
10 1/2% senior notes at a purchase price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the date of repurchase.
We may not have sufficient funds or the financial resources necessary to satisfy
our obligations to repurchase the 10 1/2% senior notes upon a change of control.
The 10 1/2% senior notes indenture contains certain financial covenants with
which we must comply which are substantially identical to those contained in the
indentures governing our other senior notes. These financial covenants are
described above under "-- 10% Senior Notes."
The events of default under the 10 1/2% senior notes are substantially
identical to those contained in the indentures governing our other senior notes
and are described above under "-- 10% Senior Notes."
11% Senior Notes
We have outstanding approximately $1.05 billion and Euro 150 million
aggregate principal amount of our 11% senior notes due 2009. The 11% senior
notes are our senior unsecured obligations ranking equivalent in right of
payment to all our existing and future unsecured and unsubordinated indebtedness
and senior in right of payment to all our existing and future subordinated
indebtedness. The 11% senior notes were issued under an indenture dated as of
July 23, 1999, as amended, between us and Wilmington Trust company, as Trustee.
The 11% senior notes will mature on August 1, 2009. Interest on the 11%
senior notes is payable semi-annually on February 1 and August 1 of each year,
commencing February 1, 2000. The 11% senior notes are redeemable at our option,
in whole or in part, any time on or after August 1 of 2004, 2005, 2006
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and 2007 at 105.500%, 103.667%, 101.833% and 100.000% of the principal amount
thereof, respectively, in each case, plus accrued and unpaid interest to the
date of redemption. In addition, on or prior to August 1, 2002, we may redeem up
to 35% of the original aggregate principal amount thereof, plus accrued and
unpaid interest to the date of redemption, with the net cash proceeds of certain
public equity offerings or the sale of stock to one or more strategic investors,
provided that at least 65% of the original aggregate principal amount of the 11%
senior notes remains outstanding immediately after such redemption. Upon the
occurrence of a change of control (as defined in the 11% senior notes
indenture), we will be required to make an offer to purchase all of the 11%
senior notes at a purchase price equal to 101% of the principal amount thereof,
plus accrued and unpaid interest, if any, to the date of repurchase. We may not
have the sufficient funds or the financial resources necessary to satisfy our
obligations to repurchase the 11% senior notes upon a change of control.
The 11% senior notes indenture contains certain financial covenants with
which we must comply, which are substantially identical to those contained in
the indenture governing our 10% senior notes described above under "-- 10%
Senior Notes."
The events of default under the 11% senior notes indenture are substantially
identical to those contained in the indenture governing our 10% senior notes
described above under "-- 10% Senior Notes."
11 1/2% Senior Notes
We have outstanding $350.0 million aggregate principal amount of our 11 1/2%
senior notes due 2008. The 11 1/2% senior notes are our senior unsecured
obligations ranking equivalent in right of payment to all our existing and
future unsecured and unsubordinated indebtedness and senior in right of payment
to all our existing and future subordinated indebtedness. The 11 1/2% senior
notes were issued under an indenture dated as of November 3, 1998, as amended,
between us and Wilmington Trust Company, as Trustee.
The 11 1/2% senior notes will mature on November 1, 2008. Interest on the
11 1/2% senior notes is payable semi-annually on May 1 and November 1 of each
year, commencing May 1, 1999. The 11 1/2% senior notes are redeemable at our
option, in whole or in part, any time on or after November 1, of 2003, 2004,
2005 and 2006 at 105.750%, 103.833%, 101.917% and 100.000% of the principal
amount thereof, respectively, in each case, plus accrued and unpaid interest to
the date of redemption. In addition, on or prior November 1, 2001, we may redeem
up to 35% of the original aggregate principal amount thereof, plus accrued and
unpaid interest to the date of redemption, with the net cash proceeds of certain
public equity offerings or the sale of stock to one or more strategic investors,
provided that at least 65% of the original aggregate principal amount of the 11
1/2% senior notes remains outstanding immediately after such redemption. Upon
the occurrence of a change of control (as defined in the 11 1/2% senior notes
indenture), we will be required to make an offer to purchase all of the 11 1/2%
senior notes at a purchase price equal to 101% of the principal amount thereof,
plus accrued and unpaid interest, if any, to the date of repurchase. We may not
have sufficient funds or the financial resources necessary to satisfy our
obligations to repurchase the 11 1/2% senior notes upon a change of control.
The 11 1/2% senior notes indenture contains certain financial covenants with
which we must comply, which are substantially identical to those contained in
the indenture governing our 10% senior notes described above under "-- 10%
Senior Notes."
The events of default under the 11 1/2% senior notes indenture are
substantially identical to those contained in the indenture governing our 10%
senior notes described above under "-- 10% Senior Notes."
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MATERIAL FEDERAL INCOME TAX CONSEQUENCES
General
The following is a summary by Nixon Peabody LLP, special tax counsel to
PSINet, of the material United States federal income tax consequences of owning,
holding and disposing of Series D preferred stock and any shares of common stock
received as dividends thereon or in connection with an ownership interest in the
deposit account. This summary is based upon the Internal Revenue Code of 1986,
as amended, existing and proposed treasury regulations, published rulings and
court decisions in effect on the date hereof, all of which are subject to
retroactive change at any time. Our counsel has relied upon our representations
with respect to factual matters for purposes of this summary. This summary is
not binding on the Internal Revenue Service or on the courts. No ruling will be
requested from the Internal Revenue Service on any issues described below. We
cannot assure you that the Internal Revenue Service will not take a different
position concerning the matters discussed below.
This summary applies only to persons who hold the Series D preferred stock
as "capital assets" within the meaning of Section 1221 of the Code. It does not
address tax consequences to taxpayers who are subject to special rules (such as
financial institutions, dealers in securities, tax-exempt organizations,
insurance companies, persons that hold the Series D preferred stock as part of a
straddle or conversion transaction, holders subject to the alternative minimum
tax and, except as discussed below under "Consequences to Non-U.S. Holders of
Series D Preferred Stock," persons who are not "U.S. Holders"). A "U.S. Holder"
means a beneficial owner of Series D preferred stock who purchased it pursuant
to this offering and that for U.S. federal income tax purposes is (1) a citizen
or resident of the United States; (2) a corporation, partnership or other entity
created or organized in or under the laws of the United States or any political
subdivision thereof; (3) an estate the income of which is subject to U.S.
federal income taxation regardless of its source; or (4) a trust if (A) a court
within the United States is able to exercise primary supervision over the
administration of the trust and (B) one or more U.S. fiduciaries have the
authority to control all substantial decisions of the trust.
THE FOLLOWING DISCUSSION IS FOR GENERAL INFORMATION ONLY. EACH PURCHASER OF
SERIES D PREFERRED STOCK IS STRONGLY URGED TO CONSULT WITH SUCH PURCHASER'S OWN
TAX ADVISORS TO DETERMINE THE IMPACT OF SUCH PURCHASER'S PERSONAL TAX SITUATION
ON THE ANTICIPATED TAX CONSEQUENCES, INCLUDING THE TAX CONSEQUENCES UNDER STATE,
LOCAL, FOREIGN OR OTHER TAX LAWS, OF THE ACQUISITION, OWNERSHIP AND DISPOSITION
OF THE SERIES D PREFERRED STOCK.
Consequences to Holders of Series D Preferred Stock
Inclusion in Income. Pursuant to the terms of the deposit agreement, each
holder of Series D preferred stock will be treated as owning a pro rata portion
of the cash deposited in the deposit account and we will not treat such cash as
received in exchange for the Series D preferred stock. Accordingly, the
liquidation preference with respect to each share of Series D preferred stock
will exceed the amount we receive upon the issuance of the Series D preferred
stock. Additionally, dividends will not begin to accrue on the Series D
preferred stock until February 15, 2001 (or earlier if the deposit account is
terminated). The precise treatment of Series D preferred stock with these terms
is not entirely clear. However, we intend to treat the Series D preferred stock
as if it were purchased at a discount from its liquidation preference and
provided for accretion in its liquidation preference equal to $0.875 per share
(in respect of each full quarter) on each quarterly deposit payment date, so
long as the Series D preferred stock remains outstanding.
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Under Section 305(c) of the Code, the accretion in the liquidation
preference of the Series D preferred stock on each deposit payment date should
be treated as a dividend taxable as ordinary income to the Series D preferred
stock holders to the extent of our current and accumulated earnings and profits
as determined under U.S. federal income tax principles. The amount of the
distribution on each share of Series D preferred stock will equal the fair
market value of the accretion in the liquidation preference with respect to the
Series D preferred stock. To the extent that the value of the accretion in
liquidation preference on the Series D preferred stock exceeds current and
accumulated earnings and profits, such accretion will be treated as a nontaxable
return of capital and will be applied against and reduce the adjusted tax basis
of such Series D preferred stock in the hands of each holder (but not below
zero). However, such reduction will be exactly offset by an increase in basis
resulting from the holder's receipt of the additional liquidation preference.
If the value of any accretion in liquidation preference exceeds the adjusted tax
basis of the Series D preferred stock in the hands of the holder, such excess
will be treated as capital gain and will be long-term if such holder's holding
period for the Series D preferred stock exceeds one year.
On or after August 15, 2001 but prior to February 15, 2003, we may redeem
shares of the Series D preferred stock at a redemption premium of 105.50% if the
trading price of our common stock equals or exceeds $80.20 per share for a
specified trading period. In the event we have elected an early termination of
the deposit account, a holder of Series D preferred stock whose stock is so
redeemed will also be entitled to the additional payment we described under
"Description of Series D Preferred Stock -- Special Redemption." We do not
intend to treat premium in excess of the liquidation preference (including any
additional payment) as resulting in constructive distribution treatment under
Section 305(c) of the Code. Under treasury regulations issued pursuant to
Section 305(c) of the Code, the constructive distribution provisions could apply
if the issuer has a redemption right, but only if, based on all the facts and
circumstances as of the issue date, redemption pursuant to the right is more
likely than not to occur. A safe harbor treats a redemption right as not more
likely to occur if, among other requirements, exercise of the redemption right
would not reduce the Series D preferred shareholder's yield. In the event of
redemption of Series D preferred stock by reason of the trading price of our
common stock equaling or exceeding $80.20 per share for the specified trading
period, the premium paid (including any additional payment) would not reduce the
Series D preferred shareholder's yield.
On and after the deposit expiration date, a holder of Series D preferred
stock will be entitled to receive dividends at an annual rate of 7% of the
liquidation preference in cash or, at our option, our common stock or a
combination thereof. In the event we exercise our right to pay dividends in our
common stock (after the expiration of the deposit agreement) the number of
shares of such common stock to be distributed shall be determined by dividing
the amount of cash that would be paid by 97% (or, in some circumstances, 93%) of
the market value of the common stock. A holder of Series D preferred stock must
include in income as ordinary income the amount of any such cash distributions
and the fair market value of any common stock distributions to the extent that
we have current or accumulated earnings and profits. If we have no current or
accumulated earnings and profits, distributions are first treated as a return of
capital to the extent of the Series D preferred stock holder's basis, and
thereafter as capital gain.
We presently do not have any current or accumulated earnings and profits as
determined under United States federal income tax principles. As a result,
until such time as we have earnings and profits, an increase in the liquidation
preference on a distribution will reduce the adjusted tax basis (but not below
zero) in the hands of each holder of the shares of Series D preferred stock.
The basis reduction should be offset for each share of Series D preferred stock
by a corresponding increase in tax basis for a holder resulting from the
increase in liquidation preference. Further, until we have current or
accumulated earnings and profits, any accretion in the liquidation preference or
other distributions with respect to the Series D preferred stock will not be
treated as dividends for United States federal income tax purposes and, thus,
will not qualify for any dividends received deduction as described below.
Holders will
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recognize gain to the extent that any distribution exceeds current or
accumulated earnings and profits and their basis in their Series D preferred
stock.
Dividends to Corporate Shareholders. In general, a distribution that is
treated as a dividend for federal income tax purposes and that is made to a
corporate shareholder with respect to the Series D preferred stock will qualify
for the 70% dividends-received deduction under Section 243 of the Code. Holders
should note, however, that we cannot assure you that we will have current or
accumulated earnings and profits in the future. Accordingly, we cannot assure
you that the dividends-received deduction will apply to distributions on the
Series D preferred stock.
In addition, there are many exceptions and restrictions relating to the
availability of the dividends-received deduction such as restrictions relating
to (1) the holding period of stock the dividends on which are sought to be
deducted, (2) debt-financed portfolio stock, (3) dividends treated as
"extraordinary dividends" for purposes of Section 1059 of the Code, and (4)
taxpayers that pay alternative minimum tax. Corporate shareholders should
consult their own tax advisors regarding the extent, if any, to which exceptions
and restrictions may apply to their particular factual situation.
Common Stock-Holding Period. A shareholder's holding period for shares of
common stock received in lieu of cash dividends (after the expiration of the
deposit agreement) or in connection with our right to transfer shares of common
stock under the deposit agreement will commence on the day following the date of
transfer and will not include such shareholders' holding period for the shares
of Series D preferred stock with respect to which the shares of common stock
were distributed. However, a shareholder's holding period for common stock
received on conversion of the Series D preferred stock will include the
shareholder's holding period for the Series D preferred stock.
Sale or Redemption. Upon a sale or other disposition (other than a
redemption or a conversion of Series D preferred stock into common stock) of
Series D preferred stock, a holder will generally recognize capital gain or loss
equal to the difference between the amount of cash and the fair market value of
property received by the holder in such sale or other disposition and such
holder's adjusted tax basis in such shares. Such gain or loss will be long-term
gain or loss if the holder's holding period for such Series D preferred stock or
common stock is more than 12 months. In the case of individuals, long-term
capital gains with respect to property held for more than 12 months are taxed at
a maximum 20% federal tax rate. Net capital gain of corporations is taxed the
same as ordinary income, with a maximum federal tax rate of 35%.
Any gain or loss recognized by a holder upon redemption of the Series D
preferred stock will be treated as gain or loss from the sale or exchange of
Series D preferred stock or common stock, if, taking into account stock that is
actually or constructively owned as determined under Section 318 of the Code:
(1) such holder's interest in our Series D preferred stock is completely
terminated as a result of the redemption, (2) such holder's percentage ownership
in our voting stock immediately after the redemption is less than 80% of such
percentage ownership immediately before such redemption, or (3) the redemption
is "not essentially equivalent to a dividend" (within the meaning of Section 302
of the Code). Sales and acquisitions of our stock occurring contemporaneously
with a redemption of Series D preferred stock, which are made pursuant to an
integrated plan on the part of the holder, may be considered for purposes of
determining whether the preceding tests are met. If a redemption of the Series
D preferred stock is treated as a distribution that is taxable as a dividend,
the holder will be taxed on the payment received in the same manner as described
above, and the holder's adjusted tax basis in the redeemed Series D preferred
stock or common stock will be transferred to any remaining shares held by such
holder.
In the event we have elected an early termination of the deposit account and
a holder of the Series D preferred stock whose stock is redeemed receives the
additional payment, such additional
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payment should be treated as additional cash proceeds received in the redemption
of such Series D preferred stock.
Conversion or Exchange of Series D Preferred Stock. A holder of Series D
preferred stock will generally not recognize gain or loss by reason of receiving
our common stock in exchange for Series D preferred stock upon the redemption or
conversion of the Series D preferred stock, except that gain or loss will be
recognized with respect to any cash received in lieu of fractional shares and
the fair market value of any shares of our common stock attributable to dividend
arrearages will be treated as a constructive distribution as described above.
The adjusted tax basis of the common stock (including fractional share
interests) so acquired will be equal to the tax basis of the shares of Series D
preferred stock exchanged therefor and the holding period of the common stock
received upon conversion will include the holding period of the shares of Series
D preferred stock exchanged. The tax basis of any common stock treated as a
constructive distribution taxable as a dividend will be equal to its fair market
value on the date of the exchange.
Adjustment of Conversion Price. If at any time we make a distribution of
property to holders of our common stock that would be taxable to such
shareholders as a dividend for federal income tax purposes and, in accordance
with the antidilution provisions, the conversion price of the Series D preferred
stock is decreased, the amount of such decrease may be deemed to be the payment
of a taxable dividend to holders of Series D preferred stock. For example, a
decrease in the conversion price in the event of distributions of our
indebtedness or our assets will generally result in deemed dividend treatment to
holders of the Series D preferred stock, but generally a decrease in the event
of stock dividends or the distribution of rights to subscribe for our common
stock will not result in a taxable stock dividend.
Deposit Account. Pursuant to the terms of the deposit agreement, each
holder of Series D preferred stock will be treated as owning a pro rata portion
of the cash deposited in the deposit account. Although there is no authority
directly applicable to the treatment of the deposit account, we believe that the
intended treatment is appropriate, because (1) such cash is intended to not be
subject to the claims of our creditors, and (2) we will not be entitled to
receive the cash in the deposit account except under limited circumstances.
Each holder of Series D preferred stock should not treat its portion of the
cash deposited in the deposit account as part of the cost of the Series D
preferred stock for purposes of determining the holder's adjusted tax basis in
such stock.
Cash distributions of $0.875 per share of Series D preferred stock (in
respect of each full quarter) on each quarterly deposit payment date for each
quarterly period should be treated as withdrawals by the holders of the Series D
preferred stock of amounts deposited in the deposit account. In the event
Series D preferred stock is redeemed and amounts in the deposit account are
distributed to holders of the Series D preferred stock such distributions should
be treated as withdrawals by such holders of amounts deposited in the deposit
account to the extent such distribution is of amounts originally deposited in
the deposit account. Income earned on the cash deposited in the deposit
account, if any, will be included in income by each holder of shares of Series D
preferred stock pro rata in proportion to the number of shares of Series D
preferred stock held by such holder. Each holder will include such amounts in
income in the same manner as though the holder directly owned a pro rata share
of the cash in the deposit account.
Distributions of common stock by the deposit agent to the holders of the
Series D preferred stock following our election to transfer common stock to the
deposit agent should be treated as a purchase by each holder of Series D
preferred stock of such common stock for an amount equal to the Series D
preferred shareholder's share of the cash deposited in the deposit account
allocated to such purchase. To the extent that the fair market value of the
common stock exceeds the amount paid for such common stock, the excess will be
treated as a distribution on the Series D preferred stock.
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<PAGE>
In the event that we exercise our right to have the deposit account paid to
us, the holders of the Series D preferred stock will be treated as having made
an additional payment to us with respect to their Series D preferred stock, and
accordingly, will receive an increase in the tax basis of their Series D
preferred stock. In the event of the conversion of the Series D preferred stock
into shares of our common stock prior to the deposit expiration date, we will be
paid any remaining funds in the deposit account allocated to such stock. In
such cases, holders of the common stock received in the conversion will be
treated as having made additional payments to us with respect to our stock, and
the tax basis of their common stock will reflect such increase.
Backup Withholding. Under the backup withholding provisions of the Code and
applicable treasury regulations, a holder of Series D preferred stock or common
stock may be subject to backup withholding at the rate of 31% with respect to
dividends paid on, or the proceeds of a sale, exchange or redemption of, Series
D preferred stock or common stock unless such holder (a) is a corporation or
comes within other exempt categories and when required demonstrates this fact or
(b) provides a taxpayer identification number, certifies as to no loss of
exemption from backup withholding, and otherwise complies with applicable
requirements of the backup withholding rules. The amount of any backup
withholding from a payment to a holder will be allowed as a credit against the
holder's federal income tax liability and may entitle such holder to a refund,
provided that the required information is furnished to the Internal Revenue
Service.
Consequence of Original Issue Discount. In connection with the initial sale
of the Series D preferred stock, $49.1 million was placed in a deposit account.
As a result, and in light of the fact that dividends will not accrue on the
Series D preferred stock until February 15, 2001, the shares of Series D
preferred stock will be considered as having been issued for federal tax
purposes at a substantial discount from their liquidation preference amount.
Consequently, purchasers of the Series D preferred stock generally will be
required to include amounts in gross income for federal income tax purposes in
advance of receipt of the cash payments to which the income is attributable.
If a bankruptcy petition is filed by or against us under the United States
Bankruptcy Code after the issuance of the Series D preferred stock, it is
possible that the claim of a holder of Series D preferred stock with respect to
the liquidation preference thereof may be limited to an amount equal to the sum
of (1) the liquidation preference for the preferred stock less the discount at
which such shares of Series D preferred stock are deemed to have been issued;
and (2) that portion of the original discount that is not deemed to constitute
"unmatured interest" or accretion within the meaning of the United States
Bankruptcy Code. Any original issue discount that was not amortized as of any
such bankruptcy filing could constitute "unmatured interest."
Consequences to Non-U.S. Holders of Series D Preferred Stock
The following is a general discussion of United States federal income and
estate tax consequences of the ownership and disposition of the Series D
preferred stock or common stock by a person who is a not a U.S. Holder (a "Non-
U.S. Holder").
Dividends. Generally, dividends paid to a Non-U.S. Holder are subject to
United States withholding tax either at a rate of 30% of the gross amount of the
dividend or such lower rate as may be specified by an applicable tax treaty.
Although there is no authority on point with respect to the application of the
withholding tax to stock similar to the Series D preferred stock which provides
for an accreting liquidation preference, we intend to treat the accretion of the
liquidation preference to Non-U.S. Holders in a manner analogous to original
issue discount notes. Accordingly, although the accretion in the liquidation
preference of the Series D preferred stock on each deposit payment date will be
subject to United States tax at a rate of 30% of the fair market value of the
accretion in the liquidation preference, or
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such lower rate as may be specified by an applicable tax treaty, such tax will
be collected by withholding only when amounts are actually paid by us (or our
agent) to such Non-U.S. Holder.
On and after the deposit expiration date, dividends paid in cash or common
stock will be subject to withholding at the rate of 30% (or lower treaty rate).
To the extent we elect to make dividend payments in common stock, we intend to
withhold a number of shares of our common stock with a fair market value equal
to the withholding tax. Cash dividends paid to a Non-U.S. Holder with respect
to our common stock also will be subject to withholding at 30% or lower treaty
rate.
Dividends that are effectively connected with the conduct of a trade or
business by the Non-U.S. Holder within the United States and, where a tax treaty
applies, are attributable to a United States permanent establishment of the Non-
U.S. Holder, are not subject to the withholding tax (provided the Non-U.S.
Holder files appropriate documentation, including, under current law, Form 4224,
with us or our agent), but instead are subject to United States federal income
tax on a net income basis at applicable graduated individual or corporate rates.
Any such effectively connected dividends received by a Non-U.S. Holder that is a
corporation may, under some circumstances, be subject to an additional "branch
profits tax" at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty.
In order to claim the benefit of an applicable tax treaty, we (or our agent)
may require a Non-U.S. Holder of common stock or Series D preferred stock to
provide us or our agent an exemption or reduced treaty rate certificate or
letter in accordance with the terms of the treaty. In addition, backup
withholding, as discussed below, may apply in some circumstances if applicable
certification and other requirements are not met.
A Non-U.S. Holder of Series D preferred stock or our common stock eligible
for a reduced rate of United States withholding tax pursuant to an income tax
treaty may obtain a refund of any excess amounts withheld by filing an
appropriate claim for refund with the Internal Revenue Service.
Non-U.S. Holders should be aware that distributions in excess of current and
accumulated earnings and profits have generally been treated as dividends for
purposes of the foregoing discussion. However, recently promulgated treasury
regulations allow corporations, in some circumstances, to treat payments with
respect to stock as distributions other than dividends subject to withholding to
the extent of insufficient earnings and profits. Holders should consult their
own tax advisors regarding such regulations.
Sale or Exchange. A Non-U.S. Holder will not be subject to United States
income tax on any gain realized upon the sale or exchange of the Series D
preferred stock or common stock if such holder has no connection with the United
States other than holding the Series D preferred stock or common stock and in
particular (1) such gain is not effectively connected with a trade or business
in the United States of the Non-U.S. Holder, (2) in the case of a Non-U.S.
Holder who is an individual that has a "tax home" (as defined in Section
911(d)(3) of the Code) in the United States, such Non-U.S. Holder is not
present in the United States for 183 days or more in the taxable year of such
disposition, and (3) we are not nor have been a "U.S. real property holding
corporation" for United States federal income tax purposes at any time within
the shorter of the five-year period preceding such disposition or the period
the Non-U.S. Holder held the common stock.
We have not determined whether we are or have been within the prescribed
period a "U.S. real property holding corporation" for federal income tax
purposes. In general, we will be treated as a U.S. real property holding
corporation if the fair market value of our U.S. real property interests equals
or exceeds 50% of the total fair market value of our U.S. and non-U.S. real
property interests and our other assets used or held in a trade or business. If
we are, have been or become a U.S. real property holding corporation, so long as
our common stock continues to be regularly traded on an established securities
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market within the meaning of Section 897(c)(3), only a Non-U.S. Holder who holds
or held, at any time during the shorter of the five-year period preceding the
date of disposition or the holder's holding period, more than 5% of our common
stock will be subject to U.S. federal income tax on the disposition of our
common stock.
A Non-U.S. Holder engaged in a trade or business in the United States whose
income from the Series D preferred stock or common stock (including gain from
the sale or exchange thereof) is effectively connected with the conduct of such
trade or business will generally be subject to regular United States federal
income tax on such income in the same manner as if it were a U.S. person. Any
such effectively connected dividends received by a Non-U.S. Holder that is a
corporation may, under some circumstances, be subject to an additional "branch
profits tax" at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty.
Deposit Account. Because we will treat cash distributions from the deposit
account as non-taxable withdrawals, a Non-U.S. Holder generally will not be
subject to United States tax on such distributions. Distributions from the
deposit account attributable to interest earned on amounts held in the deposit
account and invested in United States government obligations also should be
exempt from United States withholding tax as portfolio interest provided that
the Non-U.S. Holder provides a properly completed Internal Revenue Service Form
W-8.
Federal Estate Tax. An individual Non-U.S. Holder who is treated as the
owner of the Series D preferred stock or common stock at the time of such
individual's death or has made certain lifetime transfers of an interest in the
Series D preferred stock or common stock will be required to include the value
of such Series D preferred stock or common stock in such individual's gross
estate for United States federal estate tax purposes and may be subject to
United States federal estate tax, unless an applicable tax treaty provides
otherwise.
Backup Withholding and Information Reporting. Under some circumstances, the
Internal Revenue Service requires "information reporting" and "backup
withholding" at a rate of 31% with respect to payments of dividends and
interest. Non-U.S. Holders generally would be exempt from Internal Revenue
Service reporting requirements and United States backup withholding with respect
to dividends payable on the Series D preferred stock. A Non-U.S. Holder of
Series D preferred stock that fails to certify its Non-U.S. Holder status in
accordance with the requirements of the proposed regulations would under some
circumstances be subject to United States backup withholding at a rate of 31% on
payments of dividends and interest. The application for exemption is available
by providing a properly completed Internal Revenue Service Form W-9.
The payment of the proceeds on the disposition of the Series D preferred
stock by a Non-U.S. Holder to or through the United States office of a broker or
through a non-United States branch of a United States broker generally will be
subject to information reporting and backup withholding at a rate of 31% unless
the holder either certifies its status as a Non-U.S. Holder under penalties of
perjury or otherwise establishes an exemption. The payment of the proceeds of
the disposition by a Non-U.S. Holder of Series D preferred stock to or through a
non-United States office of a non-United States broker will not be subject to
backup withholding or information reporting unless the non-United States broker
has specified United States relationships.
Any amounts withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be refunded (or credited against the holder's United States
federal income tax liability, if any) provided that the required information is
furnished to the Internal Revenue Service.
New Regulations. Recent treasury regulations provide for new information
reporting and withholding rules with respect to Non-U.S. Holders. In general,
these regulations are effective after
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December 31, 2000 (subject to transition rules). Non-U.S. Holders should consult
their own tax attorneys regarding the effect of such regulations.
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LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for us by
Nixon Peabody LLP, New York, New York. Some of the attorneys with Nixon Peabody
LLP currently own in the aggregate less than one percent of our common stock.
EXPERTS
The consolidated financial statements of PSINet Inc. incorporated in this
document by reference to PSINet Inc.'s Annual Report on Form 10-K for the year
ended December 31, 1999, have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
such firm as experts in auditing and accounting.
The consolidated financial statements of Metamor Worldwide, Inc. appearing
in Metamor Worldwide, Inc.'s Annual Report (Form 10-K) for the year ended
December 31, 1999, have been audited by Ernst & Young LLP, independent auditors,
as set forth in their report thereon included therein and incorporated herein by
reference. Such consolidated financial statements are incorporated herein
document by reference in reliance upon such report given on the authority of
such firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We file reports and other information with the SEC on a regular basis that
contain financial information and results of operations. You may read and copy
materials that we have filed with the SEC at the SEC's public reference room at
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, DC 20549. You
can also obtain copies of filed documents, at prescribed rates, by mail from the
Public Reference Section of the SEC at its Judiciary Plaza location, listed
above, or by telephone at 1-800-SEC-0330, or electronically through the SEC's
Web Site at www.sec.gov.
Our common stock and our Series C preferred stock are listed on the Nasdaq
National Market under the symbols "PSIX" and "PSIXP," respectively. Our SEC
filings can also be read and obtained at the following address:
The Nasdaq Stock Market
Reports Section
1735 K Street, N.W.
Washington, D.C. 20006
We furnish our shareholders with annual reports containing our audited
financial statements and with proxy material for our annual meetings complying
with the proxy requirements of the Securities Exchange Act of 1934.
We have filed a registration statement on Form S-3 with the SEC with respect
to the securities being registered of which this document is a part. This
document does not contain all of the information contained in the registration
statement, certain portions of which have been omitted as permitted by SEC
rules. While complete in material respects, descriptions of documents in this
document are nonetheless summaries. Please refer to the full text of documents
filed as exhibits for complete descriptions.
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<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
PSINet
We are incorporating by reference in this document the following documents
that have been filed with the SEC:
1. Annual report on Form 10-K for the year ended December 31,
1999 (SEC File No. 0-25812). This report contains:
. risk factors;
. audited consolidated balance sheets for PSINet and its subsidiaries
as of December 31, 1999 and 1998;
. audited consolidated statements of operations, of changes in
shareholders' equity and of cash flows for the years ended December
31, 1999, 1998 and 1997; and
. notes to those consolidated financial statements.
2. Current reports on Form 8-K (SEC File No. 0-25812) dated:
. January 10, 2000
. January 18, 2000
. January 26, 2000
. January 28, 2000
. February 9, 2000
. February 11, 2000
. March 22, 2000
3. The sections captioned "Risk Factors" and "Unaudited Pro Forma Condensed
Combined Financial Information" contained in our registration statement on Form
S-4, as amended (SEC File No. 333-34802).
4. Registration statement on Form 8-A dated April 7, 1995, as amended
(SEC File No. 0-25812).
5. Registration statement on Form 8-A dated June 4, 1996, as amended
(SEC File No. 0-25812).
Metamor
We are incorporating by reference in this document the risk factors and the
following financial statements that have been filed by Metamor with the SEC
(SEC File No. 0-26970) in its annual report on Form 10-K for the year ended
December 31, 1999:
. audited consolidated balance sheets for Metamor and its subsidiaries
as of December 31, 1999 and 1998;
. audited consolidated statements of operations, stockholders' equity
and cash flows for each of the three years in the period ended
December 31, 1999; and
. notes to those consolidated financial statements.
Subsequent Filings
We also incorporate by reference additional documents that may be filed by
us with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act of
1934 after the date of this document. These include periodic reports, such as
annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K, and proxy statements.
This prospectus incorporates by reference documents that are not presented
or delivered to you with it. We will send you copies of these documents,
exclusive of exhibits, at no cost to you. Please direct your requests to the
Office of the Secretary, PSINet Inc., 510 Huntmar Park Drive, Herndon, Virginia
20170 ((703) 904-4100).
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
PSINet Inc. will pay all expenses incident to the sale of shares being
registered other than any commissions and discounts of underwriters, dealers or
agents and any transfer taxes. Such expenses are set forth in the following
table. All of the amounts shown are estimates except the SEC registration fee.
SEC registration fee.................................. $217,800
Legal fees and expenses............................... $ 50,000
Accounting fees and expenses.......................... $ 30,000
Miscellaneous expenses................................ $ 10,000
--------
Total.............................................. $307,800
========
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Under Sections 721 through 725 of the Business Corporation Law of the State
of New York ("BCL"), the registrant has broad powers to indemnify its directors,
officers and other employees. These sections (i) provide that the statutory
indemnification and advancement of expenses provision of the BCL are not
exclusive, provided that no indemnification may be made to or on behalf of any
director or officer if a judgment or other final adjudication adverse to the
director or officer establishes that his acts were committed in bad faith or
were the result of active and deliberate dishonesty and were material to the
cause of action as adjudicated, or that he personally gained in fact a financial
profit or other advantage to which he was not legally entitled, (ii) establish
procedures for indemnification and advancement of expenses that may be contained
in the certificate of incorporation or by-laws, or, when authorized by either of
the foregoing, set forth in a resolution of the shareholders or directors of an
agreement providing for indemnification and advancement of expenses, (iii) apply
a single standard for statutory indemnification for third-party and derivative
suits by providing that indemnification is available if the director or officer
acted in good faith, for a purpose which he reasonably believed to be in the
best interests of the corporation, and, in criminal actions, had no reasonable
cause to believe that his conduct was unlawful and (iv) permit the advancement
of litigation expenses upon receipt of an undertaking to repay such advance if
the director or officer is ultimately determined not to be entitled to
indemnification or to the extent the expenses advanced exceed the
indemnification to which the director or officer is entitled. Section 726 of
the BCL permits the purchase of insurance to indemnify a corporation or its
officers and directors to the extent permitted.
As permitted by Section 721 of the BCL, the registrant's by-laws provide
that the registrant shall indemnify its officers and directors, as such, to the
fullest extent permitted by applicable law, and that expenses reasonably
incurred by any such officer or director in connection with a threatened or
actual action or proceeding shall be advanced or promptly reimbursed by the
registrant in advance of the final disposition of such action or proceeding upon
receipt of an undertaking by or on behalf of such officer or director to repay
such amount if and to the extent that it is ultimately determined that such
officer or director is not entitled to indemnification.
Article EIGHTH of the registrant's certificate of incorporation provides
that no director of the registrant shall be held personally liable to the
registrant or its shareholders for damages for any breach of duty in his
capacity as a director occurring after authorization of such Article EIGHTH by
the shareholders unless a judgment or other final adjudication adverse to him
establishes that (1) his acts or
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omissions were in bad faith or involved intentional misconduct or a knowing
violation of law, or (2) he personally gained in fact a financial profit or
other advantage to which he was not legally entitled, or (3) his acts violated
section 719 of the BCL. The registrant has entered into indemnity agreements
with its directors and certain key officers pursuant to which the registrant
generally is obligated to indemnify its directors and such officers to the full
extent permitted by the BCL as described above. PSINet also has purchased
directors' and officers' liability insurance.
ITEM 16. EXHIBITS
The following is a list of all exhibits filed as part of this registration
statement:
Exhibit
Number Exhibit Description
------- -------------------
3.1 Restated certificate of incorporation dated November 9, 1999
(Incorporated by reference from Form 8-K filed December 12, 1999, SEC
File No. 0-25812)
3.2 Certificate of correction of restated certificate of incorporation
dated as of December 2, 1999 (Incorporated by reference from Form 8-K
filed December 6, 1999, SEC File No. 0-25812)
3.3 Certificate of amendment of certificate of incorporation dated as of
January 31, 2000 (Incorporated by reference from Form S-4 filed
February 9, 2000, SEC File No. 333-96459)
3.4 Amended and restated bylaws of PSINet (Incorporated by reference from
Form 10-K filed March 22, 2000, SEC File No. 0-25812)
4.1 Form of 7% Series D cumulative convertible preferred stock certificate
(Incorporated by reference from Form 8-K filed February 11, 2000, SEC
File No. 0-25812)
4.2 Deposit agreement dated as of February 1, 2000 between PSINet and
Wilmington Trust Company, as deposit agent (Incorporated by reference
from Form 8-K filed February 11, 2000, SEC File No. 0-25812)
4.3 First amendment to deposit agreement dated as of February 7, 2000,
between PSINet and Wilmington Trust Company, as deposit agent
(Incorporated by reference from Form 8-K filed February 11, 2000, SEC
File No. 0-25812)
5* Opinion of Nixon Peabody LLP regarding legality of shares registered
12 Statement re computation of ratio of earnings to combined fixed
charges and preferred stock dividends
23.1 Consent of Nixon Peabody LLP (contained in Exhibit 5)
23.2 Consent of PricewaterhouseCoopers LLP
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23.3 Consent of Ernst & Young LLP
24 Powers of attorney
99.1 Registration rights agreement dated February 1, 2000 between PSINet
and selling shareholders (Incorporated by reference from Form S-4
filed February 9, 2000, SEC File No. 333-96459)
99.2 Amendment No. 1 to registration rights agreement dated February 1,
2000 between PSINet and selling shareholders (Incorporated by
reference from Form 8-K filed February 11, 2000 SEC file No. 0-25812)
- ----------
* To be filled by amendment or Form 8-K.
FINANCIAL STATEMENTS AND SCHEDULES:
Financial Statements and Financial Statement Schedules:
Incorporated by reference in this registration statement from PSINet's
Annual Report on Form 10-K for the fiscal year ended December 31, 1999 filed
March 22, 2000, SEC File No. 0-25812.
Incorporated by reference in this registration statement from Metamor
Worldwide Inc.'s Annual Report on Form 10-K for the fiscal year ended
December 31, 1999 filed March 30, 2000, SEC File No. 0-26970.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the SEC pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) of this
section do not apply if the registration statement is on Form S-3,
Form S-8 or Form F-3, and the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic
reports filed with or furnished to the SEC by the registrant pursuant
to Section
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13 or 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) If the registrant is a foreign private issuer, to file a post-
effective amendment to the registration statement to include any
financial statements required by Section 210.3-19 of this chapter at
the start of any delayed offering or throughout a continuous offering.
Financial statements and information otherwise required by Section
10(a)(3) of the Act need not be furnished, provided that the
registrant includes in the prospectus, by means of a post-effective
amendment, financial statements required pursuant to this paragraph
(a)(4) and other information necessary to ensure that all other
information in the prospectus is at least as current as the date of
those financial statements. Notwithstanding the foregoing, with
respect to registration statements on Form F-3, a post-effective
amendment need not be filed to include financial statements and
information required by Section 10(a)(3) of the Act or Section 210.3-
19 of this chapter if such financial statements and information are
contained in periodic reports filed with or furnished to the SEC by
the registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference on
the Form F-3 .
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) The undersigned registrant hereby undertakes that insofar as
indemnification for liabilities arising under the Securities Act of 1933, as
amended ("Act") may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Herndon, Commonwealth of Virginia on April 28, 2000.
PSINet Inc.
By: /s/ William L. Schrader
---------------------------------
William L. Schrader, Chairman and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Name Title Date
---- ----- ----
/s/ William L. Schrader Chairman, Chief Executive April 28, 2000
- -------------------------- Officer and Director
William L. Schrader (Principal
Executive Officer)
/s/ * President, April 28, 2000
- -------------------------- Chief Operating Officer
Harold S. Wills and Director
/s/ * Executive Vice President, April 28, 2000
- -------------------------- Vice Chairman
David N. Kunkel and Director
/s/ * Director April 28, 2000
- --------------------------
William H. Baumer
/s/ David L. Moir Vice President, Director of Finance April 28, 2000
- -------------------------- (Principal Financial Officer)
David L. Moir
/s/ Jorge R. Forgues Acting Controller April 28, 2000
- -------------------------- (Principal Accounting Officer)
Jorge R. Forgues
/s/ * Director April 28, 2000
- --------------------------
Ralph J. Swett
/s/ * Director April 28, 2000
- --------------------------
Ian P. Sharp
/s/ William L. Schrader April 28, 2000
- --------------------------
William L. Schrader
Attorney-in-Fact
II-5
<PAGE>
EXHIBIT 12
PSINET INC. COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
(in millions of U.S. dollars)
<TABLE>
<CAPTION>
December 31,
---------------------------------------------
1995 1996 1997 1998 1999
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Loss before income taxes $(53.2) $(55.3) $(46.1) $(262.7) $(419.0)
Equity in loss of affiliate 0.2 0.9 - - -
Interest expense 2.0 5.0 5.4 63.9 193.1
Interest portion of rental expense 0.7 1.2 1.7 4.2 8.6
--------------------------------------------
Earnings/(loss) $(50.3) $(48.2) $(39.0) $(194.6) $(217.3)
============================================
Fixed charges:
Interest expenses 2.0 5.0 5.4 63.9 193.1
Capitalized interest 0.8 6.2
Interest portion of rental expense 0.7 1.2 1.7 4.2 8.6
--------------------------------------------
Total fixed charges 2.7 6.2 $ 7.1 68.9 207.9
Preferred stock dividend requirement - - 0.4 3.1 17.7
--------------------------------------------
Total combined fixed charges and
preferred stock dividends $ 2.7 $ 6.2 $ 7.5 $ 72.0 $ 225.6
============================================
Ratio of earnings to combined
fixed charges and preferred
stock dividends - - - - -
--------------------------------------------
Deficiency of earnings to cover
combined fixed charges and
preferred dividends $(53.0) $(54.4) $(46.5) $(266.6) $(442.9)
============================================
</TABLE>
<PAGE>
EXHIBIT 23.2
Consent of Independent Accountants
----------------------------------
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-3 of our report dated March 20, 2000 relating to the
consolidated financial statements and financial statement schedule, which
appears in PSINet Inc.'s Annual Report on Form 10-K for the year ended December
31, 1999. We also consent to the reference to us under the heading "Experts" in
such Registration Statement.
/s/ PricewaterhouseCoopers LLP
Washington, DC
April 26, 2000
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 8, 2000, with respect to the financial
statements of Metamor Worldwide incorporated by reference in the Registration
Statement (Form S-3) and related Prospectus of PSINet Inc. For the registration
of 16,500,000 shares of its 7% Series D cumulative convertible preferred stock.
/s/ Ernst & Young LLP
Houston, Texas
April 26, 2000
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints William L. Schrader, Harold S. Wills,
David N. Kunkel, Kathleen B. Horne and Emory Donelson, and each or any of them,
his true and lawful attorney-in-fact and agent, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to execute the following documents:
(i) any registration statement relating to the registration of the 7%
Series D cumulative convertible preferred stock of PSINet Inc., and the
common stock of PSINet Inc. issuable in connection therewith; and
(ii) any registration statement on Form S-8 relating to the transactions
contemplated by the Agreement and Plan of Merger dated as of March 21, 2000
between PSINet Inc., PSINet Shelf IV Inc. and Metamor Worldwide, Inc.,
including any registration statements filed pursuant to Rule 462(b) under the
Securities Act of 1933 and any and all amendments (including post-effective
amendments) to the registration statement and to any registration statement
filed pursuant to Rule 462(b), and to file the same, with all exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission.
The undersigned hereby give and grant unto each said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the foregoing, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or any of them, or their,
his or her substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
/s/ William L. Schrader Dated as of April 7, 2000
__________________________
William L. Schrader
/s/ Harold S. Wills
__________________________
Harold S. Wills
/s/ David H. Kunkel
__________________________
David H. Kunkel
/s/ William H. Baumer
__________________________
William H. Baumer
/s/ Ralph J. Swett
__________________________
Ralph J. Swett
/s/ Ian P. Sharp
__________________________
Ian P. Sharp
- 1 -
<PAGE>
/s/ Michael J. Malesardi
__________________________
Michael J. Malesardi
/s/ Lawrence S. Winkler
__________________________
Lawrence S. Winkler
- 2 -
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints William L. Schrader, Harold S. Wills,
David N. Kunkel, Kathleen B. Horne and Emory Donelson, and each or any of them,
his true and lawful attorney-in-fact and agent, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to execute the following documents:
(i) any registration statement relating to the registration of the 7%
Series D cumulative convertible preferred stock of PSINet Inc., and the
common stock of PSINet Inc. issuable in connection therewith; and
(ii) any registration statement on Form S-8 relating to the transactions
contemplated by the Agreement and Plan of Merger dated as of March 21, 2000
between PSINet Inc., PSINet Shelf IV Inc. and Metamor Worldwide, Inc.,
including any registration statements filed pursuant to Rule 462(b) under the
Securities Act of 1933 and any and all amendments (including post-effective
amendments) to the registration statement and to any registration statement
filed pursuant to Rule 462(b), and to file the same, with all exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission.
The undersigned hereby give and grant unto each said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the foregoing, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or any of them, or their,
his or her substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Dated as of April 27, 2000
/s/ David L. Moir
------------------
David L. Moir
/s/ Jorge R. Forgues
----------------------
Jorge R. Forgues
