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Rule No. 424(b)(3)
Registration No. 333-92157
PSINet Inc.
6,000,000 Shares of
Common Stock
____________________________________________
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:
This prospectus relates to the offer and sale of up to 6,000,000 shares of
our common stock, par value $.01 per share, by our shareholder IXC Internet
Services Inc., which we refer to as IXC. We are registering IXC's shares in
order to provide IXC with freely tradable shares of our common stock. We will
not receive any proceeds from the sale of IXC's shares of our common stock.
The 6,000,000 shares of common stock covered by this prospectus are part of
the 20,459,578 shares of common stock purchased by IXC from us pursuant to an
IRU and Stock Purchase Agreement in consideration of our acquisition of 20-year
non-cancellable indefeasible rights of use of fiber-based OC-48 network
bandwidth in portions of the IXC fiber optic telecommunications system. The
shares are being registered pursuant to a registration rights agreement between
us and IXC, which obligates us to register the shares being offered by this
prospectus.
The shares of our common stock offered under this prospectus may be sold by
IXC, its pledgees, donees, transferees and successors-in-interest, including
parties who borrow shares to settle short sales, directly or through agents,
underwriters or broker/dealers as designated from time to time, through public
or private transactions, on or off the Nasdaq Stock Market's National Market, or
through a combination of methods. To the extent required, the specific number
of shares to be sold, the terms of the offering, including price, the names of
any agent, broker/dealer or underwriter, and any applicable commission, discount
or other compensation with respect to a particular sale will be set forth in an
accompanying prospectus supplement.
Our common stock is listed for trading on the Nasdaq Stock Market's
National Market under the symbol "PSIX." On February 17, 2000, the last
reported sale price of our common stock was $46.3125.
__________________________
Investment in the shares of our common stock offered under this prospectus
involves risk. See "Risk Factors" beginning on page 3 of this prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved the securities being offered under this
prospectus, or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
_________________________
The date of this Prospectus is February 18, 2000
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TABLE OF CONTENTS
Page
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PROSPECTUS SUMMARY................................... 1
RISK FACTORS......................................... 3
USE OF PROCEEDS...................................... 14
CAPITALIZATION....................................... 14
DESCRIPTION OF CAPITAL STOCK......................... 16
DESCRIPTION OF CERTAIN INDEBTEDNESS.................. 26
SELLING SHAREHOLDER.................................. 29
PLAN OF DISTRIBUTION................................. 31
LEGAL MATTERS........................................ 32
EXPERTS.............................................. 33
DOCUMENTS INCORPORATED BY REFERENCE.................. 33
ABOUT THIS PROSPECTUS................................ 35
WHERE YOU CAN FIND MORE INFORMATION.................. 35
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PROSPECTUS SUMMARY
This summary highlights some information from this prospectus. Because
this is a summary, it may not contain all of the information that may be
important to you. You should read the entire prospectus, including the "Risk
Factors" section which begins on page 3 and the documents we incorporate by
reference, before making an investment decision.
On February 11, 2000 we effected a two-for-one split of our common stock,
in the form of a stock dividend, to holders of record of our common stock
as of the close of business on January 28, 2000. References in this prospectus
give effect to that stock split.
PSINET INC.
We are a leading independent global provider of Internet and eCommerce
solutions to businesses. As an Internet Super Carrier, or ISC, we offer global
distribution of our services over our worldwide fiber optic network, which is
capable of transmission speeds in excess of three terabits. We provide Internet
connectivity and Web hosting services to customers in 90 of the 100 largest
metropolitan statistical areas in the United States and the 20 largest global
telecommunications markets and operate in 27 countries. In addition to these
services, we also offer a suite of value-added products and services that are
designed to enable our customers, through their use of the Internet, to
communicate more efficiently with their customers, suppliers, business partners
and remote office locations. We conduct our business through operations
organized into five geographic operating segments--U.S./Canada, Latin America,
Europe, Asia/Pacific and India/Middle East/Africa. Our services and products
include access services that offer dedicated, dial-up, wireless and digital
subscriber line, or DSL, connections, Web hosting services, intranets, virtual
private networks, or VPNs, electronic commerce, or eCommerce, voice-over-
Internet protocol, e-mail and managed security services. We also provide
wholesale and private label network connectivity and related services to other
Internet service providers, known as ISPs, and telecommunications carriers to
further utilize our network capacity.
We operate one of the largest commercial data communications networks in
the world. Our Internet-optimized network has a footprint that extends around
the globe and is connected to over 700 sites, called 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. Our network architecture consists of
high capacity frame relay switches and routers designed to deliver superior
Internet connections, reliable packet control and intelligent data traffic
routing and is compatible with all of the most widely deployed transmission
technologies. We further expand the reach of our network by connecting with
other large ISPs through contractual arrangements, called peering agreements,
that permit the exchange of information between our network and the networks of
our peering partners. As part of our ISC strategy, we have opened seven global
Internet and eCommerce hosting facilities. These facilities are located in the
Los Angeles, New York City, Washington, D.C., Amsterdam, Basel, London and
Toronto metropolitan areas and contain a total of approximately 200,000 square
feet. We have two network operating centers that monitor and manage network
traffic 24-hours per day, seven days per week.
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PURPOSE OF THE OFFERING
This prospectus relates to the offer and sale of up to 6,000,000 shares of
our common stock, by our shareholder, IXC Internet Services Inc., which we refer
to as IXC. We are registering IXC's shares in order to provide IXC with freely
tradable shares of our common stock. We will not receive any proceeds from the
sale of IXC's shares of our common stock.
The 6,000,000 shares of common stock covered by this prospectus are part of
the 20,459,578 shares of common stock purchased by IXC from us pursuant to an
IRU and Stock Purchase Agreement in consideration for our acquisition from IXC
of 20-year non-cancellable indefeasible rights of use in up to 10,000 equivalent
route miles of fiber-based OC-48 network bandwidth in portions of the IXC fiber
optic telecommunications system. The shares are being registered pursuant to a
registration rights agreement between us and IXC, which obligates us to register
the shares being offered by this prospectus.
RECENT DEVELOPMENTS
Acquisition of Transaction Network Services. On November 23, 1999, we
acquired Transaction Network Services, Inc., which we refer to as TNI. We paid
shareholders of TNI approximately $340.8 million in cash and 15.2 million
shares of our common stock, which represented an aggregate value of
approximately $346.2 million, based upon a price per share of our common stock
of $22.859. We also assumed options to acquire approximately 463,000 shares of
TNI common stock, representing an aggregate value of approximately $13.0
million, which were exercisable into approximately 926,000 shares of our common
stock. We also repaid outstanding principal and interest under TNI's revolving
credit facility in the amount of $52.1 million as a condition to the closing.
10 1/2% Senior Notes. In December 1999, we completed an offering of
$600.0 million of 10 1/2% senior notes due 2006 and Euro 150.0 million of 10
1/2% senior notes due 2006. After deducting estimated discounts and commissions
of the initial purchasers and estimated expenses payable by us, the net proceeds
of the dollar and euro notes offering were approximately $736.2 million, based
upon an exchange rate of Euro 0.9692 to $1.00.
7% 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 $738.8 million after expenses (excluding
amounts paid by the purchasers of the convertible preferred stock into the
deposit account therefor).
_________________________
PSINet was incorporated in New York in 1988. Our principal executive
offices are located at 510 Huntmar Park Drive, Herndon, Virginia 20170. Our
telephone number is (703) 904-4100.
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RISK FACTORS
This offering involves risks. Please carefully consider the following risk
factors in addition to other information set forth in this prospectus before
investing.
We had approximately $3.3 billion of indebtedness at the end of last year, which
could restrict our operations and make us susceptible to economic downturns
At December 31, 1999 our total indebtedness was $3.3 billion. Our annual
interest expense increased from $63.9 million in 1998 to $120.8 million for the
nine months ended September 30, 1999. We estimate that our annual interest
expense for the year 2000 will be approximately $346.6 million, assuming that
we do not incur any additional indebtedness or refinance existing indebtedness.
If we are unable to generate sufficient cash from operations to service our
indebtedness, we will be adversely affected. We historically have been unable
to generate sufficient cash flow from operations to meet our operating needs and
have relied upon financings to fund our operations. We cannot assure you that
our business will generate cash flow from operations, or that future financings
will be available, sufficient to fund our operations or satisfy our debt service
or working capital requirements. Our leverage could adversely affect our ability
to obtain additional financing for working capital, acquisitions or for other
purposes. It could make us more susceptible to economic downturns, contractions
in the general market availability of equity or debt financing and competitive
pressures. Our leverage could also affect our liquidity as a substantial
portion of available cash from operations must be applied to debt service
requirements. In the event of a cash short-fall, we could be forced to reduce
expenditures or forego potential acquisitions and other elements of our business
plan to meet such requirements.
We may continue to incur substantial losses
Although revenue has increased each year from $84.4 million in 1996 to
$369.3 million for the nine months ended September 30, 1999, we had net losses
of $55.1 million, $46.0 million, $264.9 million and $210.4 million, and had
negative EBITDA of $28.0 million, $21.2 million, $42.1 million and $7.4 million,
for each of the years ended December 31, 1996, 1997 and 1998, and for the nine
months ended September 30, 1999, respectively. We may continue to have losses
and negative EBITDA as we continue our acquisition program and expansion of our
global network operations. During the nine months ended September 30, 1999, on a
pro forma basis after giving effect to our acquisition of TNI, the acquisition
of AT&T's Transaction Access Service, the other acquisitions, our offering
of 10 1/2% senior notes and our Series D preferred stock offering, we would
have incurred a net loss available to common shareholders of $343.3 million and
positive EBITDA of $29.5 million. At September 30, 1999, on a pro forma basis
after giving effect to our acquisition of TNI, we would have had an accumulated
deficit of $722.0 million.
Factors that cause our operating results to fluctuate include:
. general economic conditions and specific economic conditions in the
Internet access industry;
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. user demand for Internet services;
. timing and amount of capital expenditures, other costs and expenses of
expanding our network;
. pricing changes, new product and new service introductions by us and our
competitors;
. the mix of services sold and the mix of channels through which those
services are sold;
. delays in obtaining sufficient supplies or inability to obtain
sufficient equipment from limited sources and telecom facilities: and
. potential adverse legislative and regulatory developments.
As a strategic response to a changing competitive environment, we may elect
from time to time to make pricing, service or marketing decisions that could
have a material adverse effect on our business, results of operations and cash
flow. As a result of these factors, we may continue to generate net losses and
negative EBITDA.
The terms of our financing arrangements may restrict our operations
Our financing arrangements with our equipment lessors are secured by some
of our assets and stock of some of our subsidiaries. These financing
arrangements require that we satisfy many financial covenants. Our ability to
satisfy these financial covenants may be affected by events beyond our control.
As a result, we cannot assure you that we will be able to continue to satisfy
such covenants. Some of our debt and equipment lease financing arrangements also
currently prohibit us from paying dividends and repurchasing our capital stock
without consent. Our failure to comply with covenants and restrictions in these
financing arrangements could lead to a default under the terms of these
agreements. In the event of a default under these financing arrangements, our
lenders would be entitled to accelerate the outstanding indebtedness and
foreclose upon any assets securing that indebtedness. Lenders would also be
entitled to be repaid from the proceeds of the liquidation of those assets
before the assets would be available for distribution to the holders of our
securities. In addition, the collateral security arrangements may adversely
affect our ability to obtain additional borrowings.
We partially depend on the cash flows of our subsidiaries in order to satisfy
our debt obligations
Our operating cash flow and consequently our ability to service our debt is
partially dependent upon the ability of our subsidiaries to distribute their
earnings to us in the form of dividends. We also depend on loans, advances or
other payments of funds to us by our subsidiaries. If for some reason, these
funds were restricted, we would be adversely affected. Our subsidiaries are
separate legal entities and have no obligation, contingent or otherwise, to pay
any amount due pursuant to our financing commitments or to make any funds
available for that purpose. Our subsidiaries' ability to make payments may be
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subject to the availability of sufficient surplus funds, the terms of such
subsidiaries' financings, applicable law and other factors. Our subsidiaries'
creditors generally will have priority to the assets of those subsidiaries over
the claims, if any, that we may have against those assets and claims that
holders of our indebtedness may indirectly have.
The growth of our eCommerce and Web hosting business is subject to a number of
risks and uncertainties
To successfully implement our business plan, we must continue to grow our
Internet and eCommerce hosting business. In order to do so, we will need to
locate and build Internet and eCommerce hosting centers. We cannot assure you
that we can locate suitable sites to build these centers along a fiber path on a
cost-effective basis. If we locate suitable sites, we will be subject to
construction risks, such as cost overruns and delays, and possible difficulty in
obtaining the hardware and telecommunications connectivity necessary to make the
Internet and eCommerce hosting centers operational. Also, once completed we
could experience difficulties in filling these centers to break even profit
capacity. Given the growing competition in our industry, speed to market is a
critical issue. To the extent we experience difficulties, delays and unexpected
costs, we may be adversely affected.
Acquisitions may strain our management, personnel, accounting, information
systems and other resources
During the two years ended December 31, 1999 and 1998, in addition to our
acquisition of TNI, we completed a total of 60 ISP acquisitions for aggregate
purchase prices and related payments of approximately $1.4 billion exclusive of
assumed debt. In order to successfully integrate these businesses into our own
existing business, we need to expand and refine our management, personnel,
accounting, information systems and other resources.
If we do not effectively expand our capabilities and deploy our resources
to meet these needs, our business may be disrupted and adversely affected.
Other risks include:
. Possible inability of management to incorporate licensed or acquired
technology and rights into our service offering; and
. Possible impairment of relationships with employees, customers and
suppliers as a result of changes in management.
We cannot assure you that we will be successful in overcoming these risks
or other problems encountered in connection with acquisitions, strategic
alliances or investments we make in other companies. We believe that after
eliminating redundant network architecture and administrative functions and
taking other actions to integrate the operations of acquired companies we will
be able to realize cost savings. However, although we have assembled teams to
help us integrate businesses acquired by us, we cannot assure you that our
integration process will be successfully accomplished. We may take charges or
make adjustments to the depreciable lives of our assets as we integrate acquired
companies and also seek to reduce our cost structure. Our inability to improve
the operating performance of businesses we acquire or to integrate successfully
the operations of those companies could have a material adverse effect on us. In
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addition, as we proceed with acquisitions in which the consideration consists of
cash, a substantial portion of our available cash may be used for those
purposes.
The purchase price of many of the businesses that might become attractive
acquisition candidates for us likely will significantly exceed the fair values
of the net assets of the acquired businesses. As a result, material goodwill and
other intangible assets would be required to be recorded which would result in
significant amortization charges in future periods.
In addition, an intangible asset that frequently arises in connection with
the acquisition of a technology company is "acquired in-process research and
development," which under U.S. accounting standards as presently in effect must
be expensed immediately upon acquisition. Such expenses, in addition to the
financial impact of acquisitions, could have a material adverse effect on us and
could cause substantial fluctuations in our quarterly and yearly operating
results. We have recently incurred an expense, estimated to be approximately
$84.0 million, for acquired in-process research and development in connection
with our TNI acquisition. Furthermore, in connection with acquisitions or
strategic alliances, we could incur substantial expenses including the expenses
of integrating the business of the acquired company or the strategic alliance
with our existing business.
Although we have been successful to date identifying acquisition candidates
at prices we consider to be reasonable, we cannot assure you that this will
continue. We expect that competition for appropriate acquisition candidates may
be significant. We may compete with other telecommunications companies with
similar acquisition strategies, many of which may be larger and have greater
resources than we have. Competition for Internet companies is based on a number
of factors including price, terms and conditions, size and access to capital,
ability to offer cash, stock or other forms of consideration and other matters.
We cannot assure you that we will be able to successfully identify and acquire
suitable companies on acceptable terms and conditions.
If we do not effectively expand our capabilities and deploy our resources
to meet these needs, our business may be disrupted and adversely affected.
Our success depends on providing increasing bandwidth to carry more
information faster than our competitors, which is expensive, requires us to make
significant future commitments and depends on technology that becomes obsolete
quickly
At December 31, 1999, we were obligated to make future cash payments
totaling $392.5 million for acquisitions of global fiber-based and satellite
telecommunications bandwidth, including IRUs or other rights. In addition, if
certain additional fiber-based bandwidth is delivered as expected in 2001, we
will have additional payment obligations ranging from $120.0 to $180.0 million,
depending on when the bandwidth is delivered. We also expect that there will be
additional costs, such as connectivity and equipment charges to take full
advantage of this acquired bandwidth and IRUs. Some of this fiber-based and
satellite telecommunications bandwidth may require acquisition and installation
of equipment necessary to access and light the bandwidth in order to make it
operational. At December 31, 1999, we expected to make estimated capital
expenditures totaling $245.8 million for such equipment. In addition, we
anticipate making significant investments to acquire and build-out new Internet
and eCommerce
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hosting centers in key financial and business centers throughout the world and
to purchase other facilities. We currently anticipate that these expenditures
could exceed $1.0 billion, of which $183.0 million was subject to firm
commitments at December 31, 1999. Additionally, in connection with our awards of
external and local wireless licenses in Hong Kong, we have committed to invest
approximately $387.0 million to build a next generation IP network. If we cannot
continue to provide bandwidth, our business will suffer.
Our network is susceptible to failure, shutdown and disruption
We have implemented many network security measures, such as limiting
physical and network access to our routers. Nonetheless, our network
infrastructure is potentially vulnerable to computer viruses, break-ins, denials
of service and similar disruptive problems that could lead to interruptions in
service, to our customers. Third parties could also potentially jeopardize the
security of confidential information stored in the computer systems of our
customers. Any one of these disruptions could deter potential customers, result
in loss of customer confidence and adversely affect our existing customer
relationships. We also cannot assure you that we will not experience failures or
shutdowns relating to individual POPs or even catastrophic failure of the entire
network, whether because of an "act of God" or otherwise.
These disruptions may also result in claims against us or liability on our
part. Such claims, regardless of their ultimate outcome, could result in costly
litigation and could have an adverse effect on us or our reputation or on our
ability to attract and retain customers for our products.
We may be liable for information distributed on our network
The law relating to liability of ISPs for information disseminated through
their networks is not completely settled. A number of lawsuits have sought to
impose such liability for defamatory speech, infringement of copyrighted
materials and other claims. A U.S. Supreme Court case held that an ISP was
protected by a provision of the Communications Decency Act from liability for
material posted on its system but this case may not be applicable in other
factual circumstances. Other courts have held that online service providers and
ISPs may, under some circumstances, be subject to damages for copying or
distributing copyrighted materials. However, in an effort to protect certain
qualified ISPs, the Digital Millennium Copyright Act provides qualified ISPs
with a "safe harbor" from liability for copyright infringement. We may not
qualify. In 1998, the Child Online Protection Act was enacted requiring
limitations on access to pornography and other material deemed "harmful to
minors." This legislation has been attacked in court as a violation of the
First Amendment. We are unable to predict the outcome of this case at this time.
The imposition upon ISPs or Web server hosts of potential liability for
materials carried on or disseminated through their systems could require us to
implement measures to reduce our exposure to such liability. Such measures may
require that we spend substantial resources or discontinue some product or
service offerings. Any of these actions could have an adverse effect on our
business, operating results and financial condition.
The regulation and liability of ISPs regarding information disseminated
through their networks is also undergoing a process of development in other
countries. For example, a recent court decision in England held an ISP liable
for certain allegedly indecent content carried through its network under factual
circumstances in which the ISP had failed to delete it when asked to do so by
the complainant. Decisions, laws, regulations and other activities regarding
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regulation and content liability may significantly affect the development and
profitability of companies offering on-line and Internet access services,
including us.
One particular area of uncertainty in this regard results from the entry
into effect of European Union Directive 95/46/EC on the protection of
individuals with regard to the processing of personal data and on the free
movement of such data. The EU Directive imposes obligations in connection with
the protection of personal data collected or processed by third parties. Under
some circumstances, we may be regarded as subject to the EU Directive's
requirements. The United States and the European Union currently are negotiating
the application of the EU Directive to U.S. companies.
Asserting and defending intellectual property rights may adversely impact
results of operations regardless of the outcome
Competitors increasingly assert intellectual property infringement claims
against each other. The success of our business depends on our ability to
successfully defend our intellectual property. These types of claims may have a
material adverse impact on us regardless of whether or not we are successful.
From time to time, we have received claims that we have infringed rights of
others. If a competitor were successful bringing a claim against us, our
business might suffer. We cannot assure you that we will be successful defending
or asserting our intellectual property rights.
In order to compete effectively we need to continually develop new products
and services that gain market acceptance and keep the confidence of our
customers
We have introduced new enterprise service offerings, including value-added,
IP-based enterprise communication services and DSL-based Internet access
services. The failure of these services, particularly DSL-based services, to
gain market acceptance in a timely manner could have an adverse effect on us. To
the extent that new or enhanced services are introduced and are not reliable, or
there are quality or compatibility problems, it could negatively impact market
acceptance of such services and adversely affect our ability to attract or
retain customers and subscribers. Our services may contain undetected errors or
defects that could result in additional development or remediation costs and
loss of credibility with our customers and subscribers.
Additionally, if we are unable to meet customer demand for network
capacity, our network could become congested during peak periods. Congestion
could adversely affect the quality of service we are perceived to provide.
Conversely, due to the high fixed cost nature of our infrastructure, if our
network is under-utilized, it could adversely affect our ability to provide
cost-efficient services. Our failure to match network capacity to demand could
have an adverse effect on us.
If we do not continue to expand internationally, our business may suffer
A key component of our business strategy is our continued expansion into
international markets. Revenue from our non-U.S. operations continues to
increase as a percentage of consolidated results, comprising 53% of revenue in
the third quarter of 1999. By comparison, our non-U.S. operations comprised 40%
of revenue for all of 1998. As a result of our acquisition of TNI, our revenue
mix will likely change again in 2000 because TNI's revenues are derived
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primarily from U.S. operations. We may need to enter into joint ventures or
other strategic relationships with one or more third parties in order to conduct
our foreign operations successfully. To the extent that we cannot do so, our
business may be adversely affected. In addition, there are a number of risks
involved with doing business abroad including:
. unexpected changes in or delays resulting from foreign laws, regulatory
requirements, tariffs, customs, duties and other trade barriers;
. difficulties in staffing and managing foreign operations;
. longer payment cycles and problems in collecting accounts receivable;
. fluctuations in currency exchange rates and foreign exchange controls
which restrict or prohibit repatriation of funds;
. technology export and import restrictions;
. delays resulting from customs brokers or government agencies;
. seasonal reductions in business activity during the summer months in
Europe and other parts of the world; and
. potentially adverse tax consequences, which could adversely impact the
success of our international operations.
Asia-Pacific and Latin American countries in which we operate have
experienced economic difficulties and uncertainties during the past few years.
These economic difficulties and uncertainties could also adversely affect us.
Our growth and expansion may strain our ability to manage our operations and
our financial resources
Our rapid growth has placed a strain on our administrative, operational and
financial resources and has increased demands on our systems and controls. We
have more than 700 POPs and we plan to continue to expand the capacity of
existing POPs as customer-driven demand dictates. In addition, we have completed
a number of acquisitions of companies and telecommunications bandwidth during
1998 and 1999 and plan to continue to do so. We anticipate that we may be
required to continue enhancements to and expand our network. The process of
consolidating the businesses and implementing the strategic integration of
acquired businesses with our existing business may take a significant amount of
time. It may also place additional strain on our resources and could subject us
to additional expenses. We cannot assure you that we will be able to integrate
companies successfully or in a timely manner. In addition, we cannot assure you
that our existing operating and financial control systems and infrastructure
will be adequate to maintain and effectively monitor our growth. Our continued
growth may also increase our need for qualified personnel. We cannot assure you
that we will be successful in attracting, integrating and retaining such
personnel.
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The loss of key management personnel could have a material adverse effect on us
Our success is highly dependent upon the personal abilities of our senior
executive management, including William L. Schrader, our Chairman of the Board
and Chief Executive Officer and founder, Harold S. "Pete" Wills, our President
and Chief Operating Officer, and Edward D. Postal, our Executive Vice President
and Chief Financial Officer. We have employment agreements with each of these
senior executive officers. The loss of the services of any one of them could
have a material adverse effect on us.
We could be adversely affected by changes in suppliers or delays in delivery of
their products and services
From time to time, we are dependent on third party suppliers for our
leased-line connections, or bandwidth and some hardware components. Some of
these suppliers are or may become competitors. To the extent these suppliers
increase prices, we may be adversely affected. Moreover, any failure or delay on
the part of our network providers to deliver bandwidth to us or to provide
operations, maintenance and other services with respect to such bandwidth in a
timely or adequate fashion could adversely affect us.
In the case of hardware suppliers, although we attempt to maintain a
minimum of two vendors for each required product, we are not always able to do
so. Some components that we use to provide networking services are currently
supplied only by one source. We have from time to time experienced delays in the
receipt of hardware components and telecommunications facilities, including
delays in delivery of Primary Rate Interface telecommunications facilities,
which connect our dial-up customers to our network. A failure by a supplier to
deliver such products and services on a timely basis, or the inability to
develop alternative sources for such products and services could adversely
affect our business.
Recent legislative and regulatory actions may affect the prices that we are
charged by the regional bell operating companies and other bandwidth carriers,
which could adversely affect our business.
We are subject to foreign currency and exchange risks
During the nine months ended September 30, 1999, 52% of our revenue was
derived from operations outside the United States and 27% of our assets was
located outside the United States. We anticipate that a comparable percentage of
our future revenue and operating expenses will continue to be generated from
operations outside the United States, including investment in foreign companies.
Accordingly, we will be subject to significant foreign currency and exchange
risks. Our obligations and those of our customers in foreign currencies will be
subject to unpredictable and indeterminate fluctuations in the event that such
currencies change in value relative to U.S. dollars. Furthermore, we and our
customers may be subject to exchange control regulations which might restrict or
prohibit the conversion of such currencies into U.S. dollars. Although we have
not entered into hedging transactions to limit our foreign currency risks, as a
result of the increase in our foreign operations and our issuance of euro-
denominated indebtedness, we may implement such practices in the future. We
cannot assure you that we will
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be successful in these activities or that they will not have an adverse effect
on our financial condition.
TNI derives a substantial portion of its revenue from a small number of
customers
For the nine months ended September 30, 1999, approximately 45% of TNI's
total revenues was derived from its five largest customers. The loss of any one
or more of these customers could have a material adverse effect on TNI's
business, results of operations and financial condition and, as a result,
potentially ours. TNI has multi-year contracts with these customers. These
contracts expire between June 2000 and May 2002. We cannot assure you that these
contracts will be maintained or renewed.
We are subject to competitive pressures that may adversely impact us
The market for Internet connectivity and related services is extremely
competitive. Our current and prospective competitors include national, regional
and local ISPs, long distance and local exchange telecommunications companies,
cable television and direct broadcast satellite providers, wireless
communications providers and on-line service providers. While we believe that
our network, products and customer service distinguish us from our competitors,
some of these competitors have greater market presence, brand recognition, and
financial, technical and personnel resources.
New regulations may adversely affect us
Our activities subject us to varying degrees of federal, state and local
regulation. The FCC exercises jurisdiction over all facilities of, and services
offered by, telecommunications carriers to the extent that they involve the
provision, origination or termination of jurisdictionally interstate or
international communications. The state regulatory\\ commissions retain
jurisdiction over the same facilities and services to the extent they involve
origination or termination of jurisdictionally intrastate communications.\\
Our Internet operations are not currently subject to direct regulation by
the FCC or any other governmental agency, other than regulations applicable to
businesses generally. However, the FCC has indicated that some services offered
over the Internet, such as phone-to-phone IP telephony, may be functionally
indistinguishable from traditional telecommunications service offerings and
their non-regulated status may have to be re-examined. We are unable to predict
what regulations may be adopted in the future, or to what extent existing laws
and regulations may be found applicable, or the impact that any new or existing
laws may have on our business. We cannot assure you that new laws or regulations
relating to Internet services will not have an adverse effect on us. Although
the FCC has decided not to allow local telephone companies to impose per-minute
access charges on Internet service providers, and that decision has been upheld
by the reviewing court, further regulatory and legislative consideration of this
issue is likely. In addition, some telephone companies are seeking relief
through state regulatory agencies. Such rules, if adopted, would affect our
costs of serving dial-up customers and could have an adverse effect on us.
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<PAGE>
If we become subject to provisions of the Investment Company Act of 1940, our
business operations may be restricted
We have significant amounts of cash and pending our utilization of all the
net proceeds from our debt and equity offerings will have an even greater amount
of cash invested in short-term investment grade and government securities. The
Investment Company Act of 1940 places restrictions on the capital structure and
business activities of companies registered thereunder. We have active business
operations in the Internet industry and do not propose to engage in investment
activities in a manner or to an extent which would require us to register as an
investment company under the Investment Company Act of 1940. The Investment
Company Act of 1940 permits a company to avoid becoming subject to it for a
period of up to one year despite the holding of investment securities in excess
of such amount if, among other things, its board of directors has adopted a
resolution which states that it is not the company's intention to become an
investment company. Our board of directors has adopted such a resolution that
would become effective in the event we are deemed to fall within the definition
of an investment company. If we were to be determined to be an investment
company, our business would be adversely affected.
We do not anticipate paying cash dividends on our common stock
We have never declared or paid any cash dividends on our common stock and
do not anticipate paying cash dividends on our common stock in the foreseeable
future. In addition, our debt securities contain limitations on our ability to
declare and pay cash dividends.
Not all of our systems have been confirmed year 2000 compliant
Prior to entering the year 2000, or Y2K, we developed detailed plans for
implementing, testing and completing any necessary modifications to our key
computer systems and equipment with embedded chips to ensure that they were Y2K
compliant. We also developed a test bed of our U.S. internal systems to
implement and complete testing of the requisite minor changes and completed an
inventory of our internal systems that we use outside of the United States to
determine the status of their Y2K compliance. Now that we have entered the year
2000, we have tested our key computer systems and to date, we have not
encountered any material Y2K related disruptions or failures of our systems or
services, nor have we been notified of any disruptions or failures in the
systems of any of our third parties with whom we deal. There is an ongoing risk
that Y2K related problems could still occur and we will continue to evaluate
these risks. However, we believe that the Y2K issue will not pose any
significant operational problems for us.
Forward looking statements
Information contained in this prospectus contains forward-looking
statements. Forward-looking statements can be identified by the use of
terminology such as "believes," "expects," "may," "will," "should,"
"anticipates" or similar words. These statements may discuss our future
expectations or contain projections of our results of operations or financial
condition or expected benefits to us resulting from acquisitions, investments or
transactions. Actual results may differ materially from those expected. Factors
that effect or may contribute to any differences include
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those discussed in sections entitled "Risk Factors," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business"
included or incorporated by reference in this prospectus.
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USE OF PROCEEDS
The shares of our common stock covered by this prospectus are being offered
by IXC and not by us. Consequently, we will not receive any proceeds from the
sale of the shares of our common stock offered hereby.
CAPITALIZATION
The following table sets forth the cash, cash equivalents, short-term
investments and marketable securities, restricted cash and short-term
investments and capitalization as of September 30, 1999 on:
(1) an actual basis; and
(2) a pro forma basis, which adjusts the actual amounts to give effect to
the following as if each had occurred on September 30, 1999;
. our acquisition of TNI on November 23, 1999. We paid shareholders of
TNI aggregate consideration of approximately $340.8 million of cash
and 15.2 million shares of our common stock. We also assumed options
to acquire approximately 463,000 shares of TNI common stock, which
are exercisable into approximately 926,000 shares of our common
stock. Additionally, we repaid outstanding principal and interest
under TNI's revolving credit facility in the amount of $52.1
million;
. our 10 1/2% senior notes offering in December 1999 for net proceeds
of approximately $736.2 million; and
. our February 2000 offering of 7% Series D cumulative convertible
preferred stock for net proceeds of $738.8 million (excluding
amounts paid by the initial purchasers into the deposit account).
This table should be read in conjunction with the section entitled "Use of
Proceeds" and our consolidated financial statements and notes thereto and other
financial and operating data included or incorporated by reference in this
prospectus. Except as otherwise disclosed in this prospectus, there has been no
material change in the capitalization of PSINet since September 30, 1999.
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<TABLE>
<CAPTION>
September 30, 1999
------------------------------------
Actual Pro Forma
------------- ---------------
(In millions of U.S. Dollars)
Cash, cash equivalents, short-term investments and marketable
<S> <C> <C>
securities............................................................ $1,573.3 $2,672.0
======== ========
Restricted cash and short-term investments............................. $ 137.5 $ 137.5
======== ========
Current portion of long-term debt...................................... $ 89.5 $ 89.6
-------- --------
Long-term debt:
10% Senior Notes...................................................... 600.0 600.0
11 1/2% Senior Notes (plus unamortized premium of $2,725)............. 352.7 352.7
11% Senior Notes (Euro 150,000)(1).................................... 160.3 160.3
11% Senior Notes...................................................... 1,050.0 1,050.0
10 1/2% Senior Notes.................................................. -- 600.0
10 1/2% Senior Notes (Euro 150,000)(2)................................ -- 154.8
Notes payable......................................................... 30.8 30.8
Capital lease obligations............................................. 209.0 209.1
-------- --------
Total long-term debt................................................. 2,402.8 3,157.7
-------- --------
Shareholders' equity:
Preferred stock, $.01 par value; 30,000,000 shares authorized
Preferred stock, Series A, 1,000,000 shares designated and no
shares issued and outstanding actual and pro forma................. -- --
Convertible preferred stock, Series C, 9,200,000 shares
designated, issued and outstanding actual and pro forma............ 368.8 368.8
Convertible preferred stock, Series D, no shares designated,
issued or outstanding, actual; 16,500,000 shares designated, -- 738.8
issued and outstanding, pro forma..................................
Common stock, $.01 par value; 500,000,000 authorized
129,947,746 shares outstanding actual; 145,147,746 shares
outstanding pro forma (3)(4)......................................... 1.3 1.3
Capital in excess of par value(4)..................................... 825.3 1,184.5
Accumulated deficit................................................... (638.0) (722.0)
Treasury stock, 199,112 shares, at cost(4)............................ (2.0) (2.0)
Accumulated other comprehensive income................................ 54.0 54.0
Bandwidth asset to be delivered under IXC agreement................... (122.9) (122.9)
-------- --------
Total shareholders' equity........................................... 486.5 1,500.5
-------- --------
Total capitalization................................................. $2,978.8 $4,747.8
======== ========
</TABLE>
- --------------------
(1) Assuming an exchange rate of Euro 0.9360 to $1.00 as of September 30, 1999.
(2) Assuming an exchange rate of Euro 0.9692 to $1.00 as of November 23, 1999.
(3) Authorized shares effective as of November 1999.
(4) Gives effect to our two-for-one common stock split as of February 11, 2000.
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DESCRIPTION OF CAPITAL STOCK
The following summary of our capital stock is subject in all respects to
applicable New York law, our certificate of incorporation, by-laws and
shareholder rights plan. This summary is qualified in its entirety by reference
to the provisions of our certificate of incorporation, by-laws and shareholders
rights plan. Copies of our certificate of incorporation, by-laws and
shareholders rights plan have been filed with the SEC.
Our authorized capital stock consists of 500,000,000 shares of common
stock, par value $.01 per share, and 30,000,000 shares of preferred stock, par
value $.01 per share.
Common Stock
After giving effect to our common stock split, as of December 31, 1999,
approximately 146,495,756 shares of our common stock were outstanding. In
addition, a total of approximately 29,714,664 shares of common stock were
reserved for issuance in connection with outstanding stock options, 100,000
shares were reserved for issuance in connection with outstanding warrants to
purchase common stock and a total of 17,681,706 shares were reserved for
issuance under our stock option and employee stock purchase plans.
Holders of our common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the shareholders. Holders of our
common stock are not entitled to cumulative voting rights with respect to the
election of directors and, as a consequence, minority shareholders will not be
able to elect directors on the basis of their votes alone. Subject to
preferences that may be applicable to any shares of preferred stock issued in
the future, holders of common stock are entitled to receive ratably such
dividends as may be declared from time to time by our Board of Directors out of
funds legally available for payment. In the event of a liquidation, dissolution
or winding up of PSINet, holders of our common stock are entitled to share
ratably in all of our assets remaining after payment of liabilities and the
liquidation preference of any then outstanding preferred stock. Holders of
common stock have no preemptive rights and no right to convert their common
stock into any other securities. There are no redemption or sinking fund
provisions applicable to our common stock. All shares of our common stock to be
outstanding upon completion of this offering will by fully paid and non-
assessable, subject to Section 630 of the New York Business Corporation Law.
Under Section 630 of the New York Business Corporation Law, our ten largest
shareholders may become personally liable for unpaid wages and debts to our
employees if our capital stock ceases to be listed on a national securities
exchange or regularly quoted in the over-the-counter market.
Preferred Stock
Our board of directors has the authority to issue up to 30,000,000 shares
of our preferred stock in one or more series and to fix the rights, preferences,
privileges and restrictions of such series, including dividend rights,
conversion rights, voting rights, terms of redemption, liquidation preferences,
sinking fund terms and the number of shares constituting any series or
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the designation of such series, without any further vote or action by
shareholders. As of the date of this prospectus, 1,000,000 shares of our
preferred stock were designated as Series A Junior Participating Preferred
Stock, $.01 par value per share, in connection with our shareholder rights plan,
no shares of which have been issued, 9,200,000 shares of our preferred stock
were designated as 6 3/4% Series C cumulative convertible preferred stock, all
of which are issued and outstanding, and 16,500,000 shares of our preferred
stock were designated as 7% Series D cumulative convertible preferred stock, all
of which are issued and outstanding. Our board of directors may designate and
authorize the issuance of new series of our preferred stock with voting and
other rights that could adversely affect the voting power of holders of our
common stock and the likelihood that such holders will receive dividend payments
and payments upon our liquidation and could have the effect of delaying,
deferring or preventing a change in control of PSINet.
In November 1997, we issued 600,000 shares of our Series B 8% convertible
preferred stock in a private placement for approximately $30.0 million. During
the first quarter of 1999, all outstanding shares of the Series B preferred
stock, which accrued dividends at an annual rate of 8%, were converted into an
aggregate of 6,000,000 shares of our common stock. Effective upon this
conversion, the formerly outstanding shares of Series B preferred stock resumed
the status of authorized and unissued shares of our preferred stock undesignated
as to series, and are available for future issuance as described in the
immediately preceding paragraph.
In May 1999, we issued 9,200,000 shares of our 6 3/4% Series C cumulative
convertible preferred stock in a public offering for net proceeds of $358.2
million after underwriting discounts and commissions and other offering expenses
(excluding amounts paid by the purchasers of the Series C preferred stock into
the deposit account described below). Simultaneously with the issuance of the
Series C preferred stock, the purchasers of the Series C preferred stock
deposited funds into an account called the deposit account, from which quarterly
cash payments of $0.84375 per share will be made or which may be used at our
option to purchase shares of common stock from us at 95% of the then current
market price of our common stock for delivery to holders of the Series C
preferred stock in lieu of cash payments. The deposit account is not an asset of
ours. The funds placed in the deposit account by the purchasers of the Series C
preferred stock will, together with the earnings on those funds, be sufficient
to make payments, in cash or stock, through May 15, 2002. Holders of Series C
preferred stock received quarterly payments from the deposit account of
approximately $7.8 million on each of August 15, 1999, November 15, 1999 and
February 15, 2000. Until the expiration of the deposit account, we will accrete
a return to preferred shareholders each quarter from the date of issuance at an
annual rate of approximately 6 3/4% of the liquidation preference per share.
Such amount will be recorded as a deduction from net income to determine net
income available to common shareholders. Upon the expiration of the deposit
account, which is expected to occur on May 15, 2002, unless earlier terminated,
the Series C preferred stock will begin to accrue dividends at an annual rate of
6 3/4% of the liquidation preference payable, at our option, in cash or in
shares of our common stock at 95% of the market price of our common stock on
that date. Under specified circumstances, we can elect to terminate the deposit
account prior to May 15, 2002, at which time the remaining funds in the deposit
account would be distributed to us and the Series C preferred stock would begin
to accrue dividends.
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Each share of the Series C preferred stock will be convertible at any time
at the option of the holders into 1.6034 shares of our common stock (after
giving effect to our common stock split), equal to an initial conversion price
of $31.18375 per share (after giving effect to our common stock split), subject
to adjustment. The shares of Series C preferred stock will be entitled to a
liquidation preference equal to $50 per share.
We may redeem the Series C preferred stock at a redemption premium of
101.929% of the liquidation preference (plus accumulated and unpaid dividends,
if any) on or after November 15, 2000 and prior to May 15, 2002, if the trading
price for the Series C preferred stock equals or exceeds $124.74 per share for a
specified trading period. Additional payments will also be made from the
deposit account or by us to the holders of the Series C preferred stock if we
redeem Series C preferred stock under the foregoing circumstances. Except in
the foregoing circumstances, we may not redeem the Series C preferred stock
prior to May 15, 2002. Beginning on May 15, 2002, we may redeem shares of the
Series C preferred stock at an initial redemption premium of 103.857% of the
liquidation preference, declining to 100.00% on May 15, 2006 and thereafter,
plus in each case all accumulated and unpaid dividends to the redemption date.
We may effect any redemption, in whole or in part, at our option, in cash or 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 C preferred stock.
Holders of Series C preferred stock have no voting rights, except:
. as required by law,
. if dividends payable on the Series C preferred stock are in arrears for
six quarterly periods, the holders of Series C preferred stock voting
separately as a class with shares of any other preferred stock or
preference securities having similar voting rights, including the Series
D preferred stock, will be entitled to elect two directors to our board
of directors, and
. the affirmative vote or consent of the holders of at least 66 2/3% of
the outstanding Series C preferred stock will be required to permit us
to issue any class of 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 C preferred stock as to
dividends, liquidation rights or voting rights, and for amendments to
our charter that would adversely affect the rights of holders of Series
C preferred stock.
In the event of a "change of control" (as defined in the charter amendment
designating the Series C preferred stock), holders of Series C preferred stock
will, if the market value of our common stock at such time is less than the
conversion price for the Series C preferred stock, have a one time option to
convert all of their shares of Series C preferred stock into shares of our
common stock at a conversion price equal to the greater of the market value of
our common stock as of the date of the change in control and $19.365 (after
giving effect to our common stock split). In lieu of issuing shares of common
stock 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 the common stock
otherwise issuable.
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<PAGE>
In February 2000, we issued 16,500,000 shares of our 7% Series D cumulative
convertible preferred stock in a public offering for net proceeds of $738.8
million after discounts and commissions and estimated offering expenses
(including amounts paid by the purchasers of the Series D preferred stock into
the deposit account described below). Simultaneously with the issuance of the
Series D preferred stock, the purchasers of the Series D preferred stock
deposited funds into an account called the deposit account, from which quarterly
cash payments of $0.875 per share will be made or which may be used at our
option to purchase shares of common stock at either 93% or 97% of the then
current market price of our common stock (depending on whether the registration
statement covering the shares is effective) for delivery to holders of the
Series D preferred stock in lieu of cash payments. The deposit account is not
an asset of ours. The funds placed in the deposit account by the purchasers of
the Series D preferred stock will, together with the earnings on those funds, be
sufficient to make payments, in cash or stock, through February 15, 2001.
Holders of Series D preferred stock will receive quarterly payments from the
deposit account on each of February 15, May 15, August 15 and November 15 of
each year, commencing May 15, 2000. Until the expiration of the deposit
account, we will accrete a return to preferred shareholders each quarter from
the date of issuance at an annual rate of 7% of the liquidation preference per
share. Such amount will be recorded as a deduction from net income to determine
net income available to common shareholders. Upon the expiration of the deposit
account, which is expected to occur on February 15, 2001, unless earlier
terminated, the Series D preferred stock will begin to accrue dividends at an
annual rate of 7% of the liquidation preference payable, at our option, in cash
or in shares of our common stock at either 93% or 97% of the then market price
of our common stock (depending on whether the registration statement covering
the shares is effective). Under specified circumstances, we can elect to
terminate the deposit account prior to February 15, 2001, at which time the
remaining funds in the deposit account would be distributed to us and the Series
D preferred stock would begin to accrue dividends.
Each share of the Series D preferred stock will be convertible at any time
after February 15, 2000 at the option of the holders into 0.9352 shares of our
common stock (after giving effect to our common stock split), equal to an
initial conversion price of $53.465 per share (after giving effect to our
common stock split), subject to adjustment upon the occurrence of specified
events. The shares of Series D preferred stock will be entitled to a liquidation
preference equal to $50 per share.
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) on or after August 15, 2001, if the trading price for the Series D
preferred stock equals or exceeds $160.40 per share for a specified trading
period. We will also make additional payments to the holders of the Series D
preferred stock if we redeem the Series D preferred stock under the foregoing
circumstances. Except in the foregoing circumstances, we may not redeem the
Series D preferred stock prior to February 15, 2003. Beginning on February 15,
2003, we may redeem shares of the Series D preferred stock at an initial
redemption premium of 104.00% of the liquidation preference, declining to
100.00% on February 15, 2007 and thereafter, plus in each case all accumulated
and unpaid dividends to the redemption date. We may effect any redemption, in
whole or in part, at our option, in cash or 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.
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Holders of Series D preferred stock have no voting rights, except:
. as required by law,
. if 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 shares of any other preferred stock or
preference securities having similar voting rights, including the Series
C preferred stock, will be entitled to elect two directors to our board
of directors, and
. 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 of 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 adversely affect the rights of holders of Series
D preferred stock.
In the event of a "change of control" (as defined in the charter amendment
designating the Series D preferred stock), holders of Series D preferred stock
will, if the market value of our common stock at such time is less than the
conversion price for the Series D preferred stock, have a one time option to
convert all of their shares of Series D preferred stock into shares of our
common stock at a conversion price equal to the greater of the market value of
our common stock as of the date of the change in control and $28.98 (after
giving effect to our common stock split). In lieu of issuing shares of common
stock 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 the common stock
otherwise issuable.
Registration Rights
Pursuant to a registration rights agreement among us and the original
holders of approximately 43.4 million shares of common stock (after giving
effect to our common stock split), until September 30, 2006, the holders and
their permitted transferees may make up to six demands of us to file a
registration statement under the Securities Act which would permit them to sell
all or a portion of their common stock. Those holders may also require us form
time to time prior to January 12, 2005 to register their shares on Form S-3.
In connection with acquisitions, we granted registration rights with
respect to an aggregate of approximately 9.8 million shares of our common stock
(after giving effect to our common stock split). If, prior to May 8, 2000, we
propose to register any of our securities under the Securities Act of 1933, the
holders of registrable shares will be entitled to notice thereof and, subject to
restrictions, to include their registrable shares in the registration. Holders
of registrable shares may require us on up to five occasions prior to September
30, 2006 to register their shares on Form S-3, subject to specified conditions
and limitations. Certain of these holders are also entitled to require us to
effect Form S-3 registrations for them.
In connection with the transactions contemplated by the IRU and Stock
Purchase Agreement, we granted registration rights to IXC with respect to the
shares of our common stock
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acquired by IXC pursuant to that agreement. These registration rights are
substantially similar to those described in the immediately preceding paragraph
except that IXC is entitled to notice and piggyback registration rights at any
time. IXC may make up to three separate demands to have us file a registration
statement under the Securities Act with respect to an underwritten public
offering, and IXC is entitled to Form S-3 registrations form time to time. The
Registration Statement on Form S-3 of which this prospectus is a part was filed
as a result of a registration demand received from IXC.
Subject to limitations, we are required to bear all registration, legal
(for no more than one independent legal counsel for all selling holders of
registrable shares) and other expenses in connection with these registrations,
other than underwriting discounts and commissions, and must provide appropriate
indemnification. These registration rights rank ratably.
We believe that, with the exception of William Schrader who is our founder,
Chairman and Chief Executive Officer, and IXC, the original holders of the
registration rights described above would be eligible to sell the shares of our
common stock held by them in the public market pursuant to SEC Rule 144(k) and,
consequently, could dispose of the shares without exercising their registration
rights.
New York Anti-Takeover Law, Certain Charter and By-law Provisions and Other
Anti-takeover Considerations
We are subject to the provisions of Section 912 of the New York Business
Corporation Law and will continue to be so subject if and for so long as we have
a class of securities registered under Section 12 of the Securities Exchange Act
of 1934, at least 25% of our total employees are employed primarily within New
York or at least 250 employees are so employed and at least 10% of our voting
stock is owned beneficially by residents of the State of New York. Section 912
provides, with certain exceptions, which include transactions with shareholders
who became interested prior to the effective date of an amendment to the New
York corporation's certificate of incorporation providing that the corporation
would be subject to Section 912 if such corporation did not then have a class of
stock registered pursuant to Section 12 of the Exchange Act, that a New York
corporation may not engage in a "business combination" (e.g., merger,
consolidation, recapitalization or disposition of stock) with any "interested
shareholder" for a period of five years from the date that such person first
became an interested shareholder unless:
(1) the transaction resulting in a person becoming an interested
shareholder, or the business combination, was approved by the board of
directors of the corporation prior to that person becoming an
interested shareholder;
(2) the business combination is approved by the holders of a majority of
the outstanding voting stock not beneficially owned by such interested
shareholder; or
(3) the business combination meets certain valuation requirements for the
stock of the New York corporation.
An "interested shareholder" is defined as any person that:
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(a) is the beneficial owner of 20% or more of the outstanding voting stock
of a New York corporation; or
(b) is an affiliate or associate of the corporation that at any time
during the prior five years was the beneficial owner, directly or
indirectly, of 20% or more of the then outstanding voting stock.
These provisions are likely to impose greater restrictions on an
unaffiliated shareholder than on the existing shareholders who will continue to
own a majority of our outstanding common stock after this offering.
Our certificate of incorporation and by-laws contain provisions intended to
enhance the likelihood of continuity and stability in the composition of our
board of directors and of the policies formulated by the board of directors
which may discourage a future unsolicited takeover of us. These provisions
could have the effect of discouraging some attempts to acquire us or remove
incumbent management. This is true even if a majority of our shareholders
believe removal would be in their best interests.
Our certificate of incorporation or by-laws, as applicable, among other
things:
(1) provide that the number of directors will be not fewer than three nor
more than nine. The exact number of directors will be determined from
time to time by resolution adopted by a majority of our board of
directors;
(2) provide for a classified board of directors consisting of two classes
of directors having staggered terms of two years each, with each of
the classes required to consist of at least three directors;
(3) subject to any rights of holders of our preferred stock which may be
granted by our board of directors in the future and except as
otherwise provided by Section 706(d) of the New York Business
Corporation Law, provide that directors may be removed only for cause;
(4) subject to any rights of holders of our preferred stock which may be
granted by our board of directors in the future, permit vacancies on
the board of directors that may occur between annual meetings and any
newly created seats to be filled only by the board of directors and
not by the shareholders;
(5) limit the right of shareholders to call special meetings of
shareholders;
(6) prohibit shareholders from proposing amendments to our certificate of
incorporation;
(7) require any shareholder who wished to bring any proposal before a
meeting of our shareholders or to nominate a person to serve as a
director to give written notice thereof and certain related
information at least 60 days prior to the date one year from the date
of our immediately preceding annual meeting, if such proposal or
nomination is to be submitted at an annual meeting, and within ten
days of the
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giving of notice to our shareholders, if such proposal or nomination
is to be submitted at a special meeting;
(8) require the affirmative vote of at least two-thirds of our capital
stock entitled to vote to amend certain provisions of our certificate
of incorporation and to amend our by-laws; and
(9) provide that our board of directors, without action by our
shareholders, may issue and fix the rights and preferences of shares
of our preferred stock.
These provisions may have the effect of delaying, deferring or preventing a
change of control of us without further action by our shareholders. These
provisions may also discourage bids for our common stock at a premium over
market price and may adversely affect the market price of, and the voting and
other rights of the holders of, common stock.
Shareholder Rights Plan
Each outstanding share of our common stock has attached to it one-half of
a preferred stock purchase right. The rights also attach to most future
issuances of common stock. Subject to exceptions, each right will entitle the
registered holder to buy one one-thousandth of a share of our Series A preferred
stock at an exercise price of $275 per right, subject to adjustment. The rights
will generally become exercisable upon the occurrence of the earlier of:
. an announcement that a person or group of affiliated or associated
persons (each, an "acquiring person") has acquired beneficial ownership
of 20.50% or more of our outstanding common stock (other than persons
who acquire ownership pursuant to a tender offer or exchange offer which
is for all outstanding shares of our common stock, or persons who
acquire ownership directly from us, William L. Schrader, our Chairman
and Chief Executive Officer, or his or our affiliates so long as such
persons beneficially own less than 50% of our outstanding common stock);
or
. an announcement or commencement of an intention to make a tender offer
or exchange offer the consummation of which would result in the
beneficial ownership by a person or group of 20.50% or more of the
outstanding shares of our common stock (the earlier of such dates being
called the "distribution date").
In such event, each holder of a right, other than rights beneficially owned
by the acquiring person, will thereafter have the right, subject to exceptions,
to receive upon exercise thereof a number of shares (or portions of shares) of
Series A preferred stock or, at the discretion of our board of directors, a
number of additional shares of common stock as set forth in the rights plan.
The acquisition of shares of our common stock by IXC or its controlled
affiliates pursuant to the IRU and Stock Purchase Agreement between IXC and us,
however, did not render it an acquiring person. In addition, Ralph J. Swett, a
former officer and director of IXC and its parent corporation will not become an
acquiring person solely by reason of the issuance or exercise of options, if
any, granted to him in his capacity as one of our directors.
All rights expire on November 5, 2009, unless the rights are earlier
redeemed or exchanged by us or expire earlier upon the consummation of certain
transactions. Shares of our
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Series A preferred stock purchasable upon exercise of the rights will not be
redeemable. Each share of Series A preferred stock will be entitled, when, as
and if declared, to an aggregate dividend of 1,000 times the dividend declared
per share of our common stock. No dividend may be declared on the common stock
without the concurrent declaration of a dividend on the Series A preferred
stock. In the event of liquidation, holders of the Series A preferred stock will
be entitled to a minimum preferential liquidation payment of $1,000 per share,
plus any accrued but unpaid dividends, but will be entitled to an aggregate
payment of 1,000 times the payment made per share of common stock; thereafter,
holders of the Series A preferred stock and the holders of common stock will
share pari passu per share in any of our remaining assets. Each share of our
Series A preferred stock will have 1,000 votes, voting together with our common
stock. Finally, in the event of any merger, consolidation or other transaction
in which shares of common stock are converted or exchanged, each share of Series
A preferred stock will be entitled to receive 1,000 times the amount received
per share of common stock.
In the event that any person or group of affiliated or associated persons
becomes an acquiring person, each holder of a right, other than rights
beneficially owned by the acquiring person which will thereupon become void,
will thereafter have the right (the "flip-in right") to receive, upon exercise
of a right at the then current exercise price of the right, that number of one
one-thousandths of a share of Series A preferred stock or, in the discretion of
our board of directors, that number of shares of common stock or, in certain
circumstances, other of our securities, having a market value of two times the
exercise price of the right. The flip-in right provisions do not apply to a
merger or other business combination with a person who has acquired shares of
our common stock pursuant to certain transactions approved by our board of
directors (each, a "permitted offer").
In the event that, after a person or group has become an acquiring person,
we are acquired in a merger or other business combination transaction or 50% or
more of our consolidated assets or earning power are sold or transferred, except
pursuant to a permitted offer, proper provision will be made so that each holder
of a right, other than rights beneficially owned by an acquiring person which
will have become void, will thereafter have the right (the "flip-over right") to
receive, upon the exercise thereof at the then current exercise price of the
right, that number of shares of common stock of the person with which we have
engaged in the foregoing transaction (or its parent), which number of shares at
the time of such transaction will have a market value of two times the exercise
price of the right. The holder of a right will continue to have the flip-over
right whether or not such holder exercises or surrenders the flip-in right.
At any time prior to the earlier to occur of a person becoming an acquiring
person or the expiration of the rights, and under other specified circumstances,
we may redeem the rights at a redemption price of $.01 per right. We may, at
our option, pay the redemption price in shares of our common stock. After the
date that a person becomes an acquiring person, we may redeem the then
outstanding rights, at the redemption price, provided that such redemption is in
connection with a merger or other business combination transaction or series of
transactions involving us in which all holders of shares of common stock are
treated alike.
The rights have anti-takeover effects. The rights will cause substantial
dilution to a person or group that attempts to acquire us without conditioning
the offer on the rights being redeemed, a substantial number of rights being
acquired, or the offer being deemed a permitted
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<PAGE>
offer under the rights plan. However, the rights should not interfere with any
merger or other business combination in connection with a permitted offer or
that is approved by us because the rights are redeemable under specified
circumstances.
Transfer Agent and Registrar
First Chicago Trust Company, a division of EquiServe, is the transfer agent
and registrar for our common stock, our Series C preferred stock and our
Series D preferred stock. Its telephone number is (201) 222-4099.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
The summaries contained herein of certain of our existing indebtedness do
not purport to be complete and are qualified in their entirety by reference to
the provisions of the various agreements and indentures related thereto, copies
of which have been filed with the SEC and to which reference is hereby made.
10% Senior Notes
We have outstanding $600.0 million aggregate principal amount of our 10%
Senior Notes due 2005. The 10% senior notes are 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% senior notes were issued
under an Indenture dated as of April 13, 1998 between us and Wilmington Trust
Company, as trustee.
The 10% senior notes will mature on February 15, 2005. Interest on the 10%
senior notes is payable semi-annually on August 15 and February 15 of each year,
commencing August 15, 1998. The 10% senior notes are redeemable at our option,
in whole or in part, at any time on or after February 15 of 2002, 2003 and 2004
at 105%, 102.5% and 100% of the principal amount thereof, respectively, in each
case, plus accrued and unpaid interest to the date of redemption. In addition,
on or prior to February 15, 2001, we may redeem up to 35% of the original
aggregate principal amount of the 10% senior notes at a redemption price of 110%
of the principal amount thereof, plus accrued and unpaid interest to the date of
redemption, with the net cash proceeds of certain public equity offerings or the
sale of stock to one or more strategic investors, provided that at least 65% of
the original aggregate principal amount of the 10% senior notes remains
outstanding immediately after such redemption. Upon the occurrence of a "change
of control" (as defined in the 10% senior notes indenture), we will be required
to make an offer to purchase all of the 10% senior notes at a purchase price
equal to 101% of the principal amount thereof, plus accrued and unpaid interest,
if any, to the date of repurchase. We may not have sufficient funds or the
financial resources necessary to satisfy our 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 relating to, among other things, the following matters:
(1) limitation on our payment of cash dividends, repurchase of capital
stock, payment of principal on subordinated indebtedness and making of
certain investments, unless after giving effect to each such payment,
repurchase or investment, certain operating cash flow coverage tests
are met, excluding certain permitted payments and investments;
(2) limitation on our and our subsidiaries' incurrence of additional
indebtedness, unless at the time of such incurrence, our ratio of debt
to annualized operating cash flow would be less than or equal to 6.0
to 1.0 prior to April 1, 2001 and less than or equal to 5.5 to 1.0 on
or after April 1, 2001, excluding certain permitted incurrences of
debt;
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(3) limitation on our and our subsidiaries' incurrence of liens, unless
the 10% senior notes are secured equally and ratably with the
obligation or liability secured by such lien, excluding certain
permitted liens;
(4) limitation on the ability of any of our subsidiaries to create or
otherwise cause to exist any encumbrance or restriction on the payment
of dividends or other distributions on its capital stock, payment of
indebtedness owed to us or any of our other subsidiaries, making of
investments in us or any other of our subsidiaries, or transfer of any
properties or assets to us or any of our other subsidiaries, excluding
permitted encumbrances and restrictions;
(5) limitation on certain mergers, consolidations and sales of assets by
us or our subsidiaries;
(6) limitation on certain transactions with our affiliates;
(7) limitation on the ability of any or our subsidiaries to guarantee or
otherwise become liable with respect to any of our indebtedness unless
such subsidiary provides for a guarantee of the 10% senior notes on
the same terms as the guarantee of such indebtedness;
(8) limitation on certain sale and leaseback transactions by us or our
subsidiaries;
(9) limitation on certain issuances and sales of capital stock of our
subsidiaries; and
(10) limitation on the ability of us or our subsidiaries to engage in any
business not substantially related to a telecommunications business.
The events of default under the 10% senior notes indenture include various
events of default customary for such type of agreement, including, among others,
the failure to pay principal and interest when due on the 10% senior notes,
cross-defaults on other indebtedness for borrowed monies in excess of $10
million, which indebtedness would therefore include 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 $754.8 million aggregate principal amount
of our 10 1/2% senior notes due 2006, consisting of $600.0 million aggregate
principal amount of 10 1/2% senior notes due 2006 and Euro 150.0 million
aggregate principal amount of 10 1/2% senior notes due 2006, assuming an
exchange rate of Euro 0.9692 to U.S. $1.00 as of November 23, 1999. 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.
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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 10% senior notes
described above under "--10% Senior Notes."
11% Senior Notes
We have outstanding $1.05 billion 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 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, at any time after August 1, 2004, 2005, 2006 and 2007 at
105.500%, 103.667%, 101.833% and 100% of the principal amount thereof,
respectively, in each case, plus accrued and unpaid interest to the date of
redemption. In addition, on or prior to August 1, 2002, we may redeem up to 35%
of the original aggregate principal amount of the 11% senior notes at a
redemption price of 111.000% 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 each of
the euro notes and the dollar 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 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
indentures governing our other senior notes. These financial covenants are
described above under "--10% Senior Notes."
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The events of default under the 11% senior notes are substantially
identical to those contained in the indentures 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, at any time on or after November 1 of 2003, 2004,
2005 and 2006 at 105.70%, 103.833%, 101.917% and 100% of the principal amount
thereof, respectively, in each case, plus accrued and unpaid interest to the
date of redemption. In addition, on or prior to November 1, 2001, we may redeem
up to 35% of the original aggregate principal amount of the 11 1/2% senior notes
at a redemption price of 111.5% 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 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 other 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."
SELLING SHAREHOLDER
The 6,000,000 shares of our common stock covered by this prospectus, which
we refer to as the Shares, are part of the 20,459,578 shares of our common stock
purchased by IXC Internet Services, Inc. from us on February 25, 1998 pursuant
to an IRU and Stock Purchase Agreement dated as of July 22, 1997, as amended,
which we refer to as the IRU Purchase Agreement, in consideration for our
acquisition from IXC of 20-year non-cancellable indefeasible rights of use in up
to 10,000 equivalent route miles of fiber-based OC-48 network bandwidth in
selected portions across the IXC fiber optic telecommunications system within
the United States.
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We are registering the Shares in order to provide IXC with freely tradable
shares of our common stock. The Shares are being registered pursuant to the
terms of a registration rights agreement dated as of February 25, 1998 between
us and IXC. Pursuant to the registration rights agreement, we are obligated to
file with the Securities and Exchange Commission the registration statement of
which this prospectus is a part. We have agreed to use our reasonable best
efforts to maintain a continuously effective registration statement on Form S-3,
of which this prospectus is a part, with respect to the Shares requested by IXC
to be registered for a period of 60 days, so long as the Shares requested to be
registered are not eligible for resale under the provisions of Rule 144(k) under
the Securities Act. IXC, its pledgees, donees, transferees and successors-in-
interest may sell the Shares offered under this prospectus at prices which are
current when the sales take place or at other prices upon which the parties
agree. We will pay all of the expenses associated with the registration of the
Shares and this prospectus.
The table below sets forth (a) the number of shares and percentage of our
outstanding common stock beneficially owned by IXC prior to the offering of the
Shares covered by this prospectus; (b) the number of Shares offered pursuant to
this prospectus by IXC; and (c) the number of shares and percentage of our
outstanding common stock beneficially owned by IXC after giving effect to the
offering of the Shares covered by this prospectus. The information contained in
this table gives effect to our two-for-one common stock split and may be amended
or supplemented from time to time.
<TABLE>
<CAPTION>
Shares
Shares Beneficially Owned Offered Shares Beneficially Owned
Prior to Offering (1)(2) Hereby(3) After Offering (1)
-------------------------- --------- -------------------------
Name Number Percentage Number Percentage
- ---- ------ ---------- ------ ----------
<S> <C> <C> <C> <C>
IXC Internet Services, Inc. 20,459,578 15.7% 6,000,000 14,459,578 11.1%
</TABLE>
___________
(1) The shares could be deemed to be beneficially owned by the members of the
Board of Directors of Cincinnati Bell Inc. (doing business as Broadwing
Inc.). Cincinnati Bell's address is 201 East Fourth Street, P.O. Box 2301,
Cincinnati, Ohio 45201.
(2) The Shares include 3,000,000 shares of our common stock, which, according to
IXC's Schedule 13D Amendment No. 1 filed on June 17, 1999, IXC loaned to
Merrill Lynch International, which we refer to as MLI, in June 1999 in
respect of a forward-purchase agreement with MLI, to be settled in the
second quarter of 2002 or sooner upon the occurrence of certain specified
events, pursuant to which MLI made a payment to IXC of $51,963,068.36. The
Shares also include an additional 3,000,000 shares of our common stock
which, according to IXC's Schedule 13D Amendment No. 3 filed on July 19,
1999, IXC loaned to MLI in July 1999 in respect of a forward-purchase
agreement with MLI, to be settled in the first quarter of 2002 or sooner
upon the occurrence of certain specified events, pursuant to which MLI made
a payment to IXC of $59,750,860.68. In the amendments to its Schedule 13D,
IXC stated that it has waived the right to vote any of the loaned Shares
during the term of these transactions.
(3) MLI has informed IXC and us that MLI will sell the Shares borrowed from IXC
in connection with the hedge of its obligations under the forward-purchase
agreements with IXC. We have agreed to enter into a registration agreement
with MLI in respect of the shares borrowed from IXC. Under the registration
agreement, we will agree to keep this prospectus updated during the 60-day
period specified in the agreement to allow MLI to satisfy its prospectus
delivery requirements with respect to its sales of the borrowed shares.
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<PAGE>
Pursuant to the IRU Purchase Agreement, Ralph J. Swett, the former Chairman
of IXC Communications, was elected, effective as of the closing of the
transactions under the IRU Purchase Agreement, to our Board of Directors. The
IRU Purchase Agreement provides that our Chairman will recommend that Mr. Swett
continue to be re-elected to our Board for so long as IXC continues to own at
least 95% of the shares of our common stock we issued to IXC pursuant to the IRU
Purchase Agreement. The transactions IXC recently entered into with MLI, as
described in the preceding paragraph, may cause or have caused this provision to
be no longer effective. In addition, the sale of 1,022,979 (i.e., equivalent to
5% of the 20,459,578 shares of our common stock owned by IXC as of the date of
this prospectus) or more Shares pursuant to this prospectus will also result in
this provision being no longer effective.
In connection with the transactions under the IRU Purchase Agreement, IXC
and we also entered into a Joint Marketing and Services Agreement, which we
refer to as the Marketing Agreement, pursuant to which each party is entitled to
market the products and services of the other under its own brand. Pursuant to
the Marketing Agreement, we have agreed to provide IXC with managed connectivity
services, value-added services and opportunity consulting services for specified
fees which, in light of the strategic importance to us of the OC-48 bandwidth
acquired from IXC and our other arrangements with IXC, we have agreed will be,
or will be equal to, the lowest offered by us.
In September 1999, we entered into an agreement to acquire from Broadwing
Communications Services Inc., formerly IXC Communications Services, Inc., which
we refer to as Broadwing, long-term rights in up to 16 dark fiber optic strands
covering over 13,000 route miles across the continental United States.
Broadwing will also provide us collocation space and interconnection services
with respect to this fiber at agreed upon prices. We expect to place into
operation the first four strands of this fiber prior to the end of 2000.
In addition to the transactions described above, Broadwing or its
affiliates and we are parties to transactions in the ordinary course of business
which we believe are on terms no more favorable than could be obtained on an
arms' length basis with independent third parties. On November 9, 1999, IXC
Communications, Inc. was acquired by Cincinnati Bell Inc. On January 12, 2000,
IXC Communications, Inc. changed its name to Broadwing Communications Inc.
PLAN OF DISTRIBUTION
Any or all of the Shares being registered hereby may be sold from time to
time to purchasers directly by IXC, its pledgees, donees, transferees and
successors-in-interest, including parties who borrow shares to settle short
sales. Alternatively, IXC, its pledgees, donees, transferees and successors-in-
interest may from time to time offer the Shares through underwriters,
broker/dealers or agents who may receive compensation in the form of
underwriting discounts, concessions or commissions from IXC and/or the
purchasers of Shares for whom they may act as agent. IXC, and any such
underwriters, broker/dealers or agents that participate in the distribution of
the Shares, may be deemed to be underwriters, and any profit on the sale of the
Shares by them and any profit on the resale of such Shares purchased by them may
be deemed to be underwriting discounts, commissions or concessions under the
Securities Act. Any such Shares may, without limitation, be so offered or sold
in the open market, on The Nasdaq Stock Market's National Market, in privately
negotiated transactions, in an underwritten
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<PAGE>
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 Shares 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 Shares offered hereby. IXC may also sell the Shares being registered hereby
in accordance with Rule 144 of the Securities and Exchange Commission, rather
than pursuant to this prospectus.
The sale of the Shares may be effected in transactions (which may involve
crosses, block transactions and borrowings, returns and reborrowings of the
Shares pursuant to stock loan agreements to settle short sales of shares of our
common stock):
. on any national securities exchange or quotation service on which the
shares of our common stock 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.
Shares 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-intetest of IXC or by other
persons acquiring Shares, including parties who borrow the Shares to settle
short sales.
All registration expenses incurred in connection with the registration of
the Shares to which this prospectus relates will be borne by us. As and when we
are required to update this prospectus, we may incur additional expenses in
excess of this estimated amount. "Registration expenses" means all fees and
expenses incident to the registration of the Shares to which this prospectus
relates, including fees and expenses of counsel to us and IXC (limited, in the
case of counsel to IXC, to $10,000) but excluding, in the case of an
underwritten offering, all fees and disbursements of any underwriters (including
discounts and commissions), their counsel and accountants and all registration
and filing fees.
Under applicable rules and regulations under the Exchange Act, IXC 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 Shares by IXC.
All of the foregoing may affect the marketability of the Shares.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon by Nixon
Peabody LLP, New York, New York, counsel for PSINet. Certain attorneys with
Nixon Peabody LLP currently own in the aggregate less than one percent of our
common stock.
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EXPERTS
The consolidated financial statements of PSINet Inc. incorporated in this
prospectus by reference to PSINet's Annual Report on Form 10-K for the year
ended December 31, 1998 have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The consolidated financial statements of Transaction Network Services, Inc.
("TNI") as of December 31, 1998 and 1997 and for each of the three years in the
period ended December 31, 1998 are incorporated by reference in this prospectus
from our Current Report on Form 8-K dated November 23, 1999, which incorporates
by reference such consolidated financial statements from TNI's Annual Report on
Form 10-K for the year ended December 31, 1998. Such consolidated financial
statements have been audited by Arthur Andersen LLP, independent public
accountants, as stated in their report incorporated by reference in our November
23, 1999 Form 8-K and incorporated by reference herein in reliance upon the
authority of such firm as experts in giving said reports.
DOCUMENTS INCORPORATED BY REFERENCE
The Commission allows us to "incorporate by reference" the information we
file with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this prospectus, and information that we file later with
the Commission will automatically update and supersede this information. We are
incorporating by reference in this prospectus the following documents:
1. Our annual report on Form 10-K for our fiscal year ended December 31,
1998. This report contains:
. audited consolidated balance sheets for us and our subsidiaries
as of December 31, 1998 and 1997
. related consolidated statements of operations, of changes in
shareholders' equity and of cash flows for the years ended
December 31, 1998, 1997 and 1996
2. Our quarterly reports on Form 10-Q for the quarters ended March 31,
1999, June 30, 1999 and September 30, 1999.
3. Our current reports on Form 8-K dated
. February 1, 2000
. January 27, 2000
. January 26, 2000
. January 24, 2000
. January 16, 2000
. January 10, 2000
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. April 27, 1999
. May 7, 1999
. July 6, 1999
. July 16, 1999
. August 22, 1999
. August 22, 1999
. November 5, 1999
. November 17, 1999
. November 23, 1999
. November 23, 1999
. November 24, 1999
. July 31, 1997 (solely insofar as it relates to our Shareholder
Rights Agreement dated May 8, 1996, as amended)
. August 20, 1997
4. Our registration statement on Form 8-A dated April 7, 1995, as amended
(registration no. 0-25812)
5. Our registration statement on Form 8-A dated June 4, 1996, as amended
(registration no. 0-25812)
We are also incorporating by reference in this prospectus all reports and
other documents that we file after the date of this prospectus pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the termination
of the offering of securities under this prospectus. These reports and
documents will be incorporated by reference in and considered to be a part of
this prospectus as of the date of filing of such reports and documents.
Any statement contained in this prospectus or in a document which is
incorporated by reference herein will be modified or superseded for purposes of
this prospectus to the extent that a statement in any document that we file
after the date of this prospectus that also is incorporated by reference herein
modifies or supersedes such prior statement. Any such statement so modified or
superseded will not, except as so modified or superseded, constitute a part of
this prospectus.
This prospectus incorporates by reference documents which are not presented
in this prospectus or delivered to you with it. You may request, and we will
send to you, without charge, copies of these documents, other than exhibits to
these documents, which we will send to you for a reasonable fee. Requests
should be directed to the Office of the Secretary, PSINet Inc., 510 Huntmar Park
Drive, Herndon, Virginia 20170 (telephone (703) 904-4100).
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ABOUT THIS PROSPECTUS
This prospectus does not contain all of the information included in the
registration statement. We have omitted parts of the registration statement as
permitted by the rules and regulations of the Commission. For further
information, we refer you to the registration statement on Form S-3, including
its exhibits. Statements contained in this prospectus and any accompanying
prospectus supplement about the provisions or contents of any agreement or other
document are not necessarily complete. If Commission rules and regulations
require that any agreement or document be filed as an exhibit to the
registration statement, you should refer to that agreement or document for a
complete description of these matters. You should not assume that the
information in this prospectus or any prospectus supplement is accurate as of
any date other than the date on the front of each document.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Commission. You may read and copy materials that we have
file with the Commission, including the registration statement, at the following
Commission public reference rooms:
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 Commission at its Judiciary Plaza
location, listed above, or by telephone at 1-800-SEC-0330 or electronically
through the Commission's Web Site at http://www.sec.gov.
Our common stock is listed on the Nasdaq Stock Market's National Market
under the symbol "PSIX," and our Commission filings can also be read and
obtained at the following Nasdaq address:
The Nasdaq Stock Market
Reports Section
1735 K Street, N.W.
Washington, D.C. 20006
We furnish our stockholders with annual reports containing our audited
financial statements and with proxy material for our annual meetings complying
with the proxy requirements of the Exchange Act.
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