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                                                                 Exhibit 10.17


                              EMPLOYMENT AGREEMENT

                  This EMPLOYMENT AGREEMENT, dated as of November 6, 2000
(hereinafter "Agreement"), by and between PSINet Inc. (hereinafter "the
Company"), a New York corporation with its principal place of business located
at 44983 Knoll Square, Ashburn, Virginia 20147 and James F. Cragg (hereinafter
"the Executive").

                  WHEREAS, the Company has determined that it is in the best
interests of the Company to delegate certain management responsibilities of the
Company to the Executive;

                  WHEREAS, the Executive is willing to provide his services as
an employee of the Company for the inducements and on the terms and conditions
set forth below in this Agreement; and

                  NOW, THEREFORE, in consideration of the mutual covenants set
forth herein and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:

         1.       EMPLOYMENT POSITION.

                  (a) POSITION AND DUTIES. The Company hereby employs the
                  Executive to serve as Executive Vice President of the Company
                  and President and Chief Operating Officer, North America, and
                  the Executive hereby accepts such employment in the capacity
                  and subject to the terms and conditions hereinafter set forth.
                  This position is a corporate officer position and, as an
                  officer of the Company, the Executive must stand for election
                  by the Company's Board of Directors (the "Board") each year of
                  the Term (as defined in Section 2 hereof). The Executive shall
                  have such powers, duties, authority, and responsibilities as
                  are (i) consistent with such position, (ii) assigned to such
                  offices in the Company's By-laws, and (iii) reasonably
                  assigned to the Executive by the Chairman and Chief Executive
                  Officer of the Company. The Executive accepts such employment
                  and agrees to remain in the employ of the Company and provide
                  management services to the Company, as determined by and under
                  the direction of the Chairman and Chief Executive Officer.

                  (b) LOCATION OF EMPLOYMENT. The principal place of employment
                  of the Executive shall be in the greater Washington, D.C.
                  area. The Executive shall be available to travel to the extent
                  reasonably required to carry out the duties and
                  responsibilities as President and Chief Operating Officer,
                  North America or as otherwise may be reasonably required by
                  the business of the Company.

                  (c) MANAGEMENT RESPONSIBILITIES. The Executive shall at all
                  times perform his responsibilities and duties with appropriate
                  care and consistent with his position as may be assigned by
                  the Chairman and Chief Executive Officer of the Company and
                  shall at all times exercise reasonable judgment and discretion
                  in the performance of such responsibilities and duties.

             2.   TERM OF EMPLOYMENT. The initial term of the Executive's
employment under this Agreement shall commence as of the date of this Agreement
and shall terminate on the third anniversary hereof (the "Initial Term") subject
to earlier termination as provided in Section 6. After the Initial Term, this
Agreement shall be automatically extended each year for an additional

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one (1) year period (each, a "Renewal Term"). The Initial Term together with any
Renewal Term are referred to herein collectively as the "Term."

             3.   COMPENSATION.

                  (a) BASE SALARY. The Company shall pay the Executive a base
                  salary at a rate of $360,000.00 per year beginning on the date
                  hereof. Beginning on January 1, 2001 and January 1 of each
                  subsequent year thereafter, the Executive's base salary shall
                  be increased at a minimum by an amount equal to five percent
                  (5%) of the Executive's then current base salary. The
                  Executive's base salary shall be subject to additional
                  increases at the discretion of the Chairman and Chief
                  Executive Officer of the Company subject to the approval of
                  the Compensation Committee of the Board (the "Compensation
                  Committee"). The Executive's base salary shall be payable in
                  such installments as the Company regularly pays its other
                  salaried employees. All payments shall be subject to the
                  deduction of payroll withholdings taxes and similar
                  assessments as required by law or by further agreement with
                  the Executive.

                  (b) PERFORMANCE BONUS. The Company will pay the Executive a
                  bonus subject to the successful completion of the objectives
                  established for the Executive's performance for each calendar
                  year during the Term. The performance criteria will be issued
                  separately by the Chairman and Chief Executive Officer of the
                  Company with respect to each calendar year during the Term,
                  and may be changed, with mutual fairness, from time to time as
                  situations develop. The target bonus for the one-year period
                  ending December 31, 2000 will be a total of up to $360,000.00.
                  Separate criteria will be established for the Executive's
                  entitlement for the year starting January 1, 2001. Bonuses in
                  subsequent years during the Term will be at least equal to the
                  amount of the bonus during the previous calendar year.

                  (c) STOCK OPTIONS. On the first anniversary date of this
                  Agreement and each subsequent anniversary date during the
                  Term, the Company shall grant the Executive options to
                  purchase 25,000 shares of the Company's common stock (the
                  "Options") pursuant to the Company's Executive Stock Incentive
                  Plan (the "Plan") or another option plan of the Company, such
                  grant being subject to the terms of this Agreement and the
                  Executive's continued employment at the time of the grant and
                  evidenced by an option agreement in such form and under the
                  terms and conditions set forth in the applicable plan.

                  (d) VESTING OF STOCK OPTIONS. In the event of (i) a Change in
                  Control (as defined in Section 3(e) hereof); (ii) the
                  termination of the Executive's employment by the Company for
                  any reason other than for Cause (as defined in Section 6(c)
                  hereof); or (iii) the termination of the Executive by the
                  Company because of the Executive's death or disability, the
                  Company shall immediately vest all of the unvested stock
                  options the Executive has received prior to the date of the
                  Change in Control or Date of Termination (as defined in
                  Section 6(j) hereof), as applicable.

                  (e) CHANGE IN CONTROL. As used in this Agreement, "Change in
                  Control" shall mean: (i) the shareholders of the Company
                  approve an agreement for the sale of all or substantially all
                  of the assets of the Company; or (ii) the


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                  shareholders of the Company approve a merger or consolidation
                  of the Company with any other corporation (and the Company
                  implements it), other than (A) a merger or consolidation which
                  would result in the voting securities of the Company
                  outstanding immediately prior thereto continuing to represent
                  more than eighty percent (80%) of the combined voting power of
                  the voting securities of the Company, or such surviving
                  entity, outstanding immediately after such merger or
                  consolidation, or (B) a merger or consolidation effected to
                  implement a recapitalization of the Company (or similar
                  transaction) in which no "person" (as defined below) acquires
                  more than thirty percent (30%) of the combined voting power of
                  the Company's then-outstanding securities; or (iii) any
                  "person," as such term is used in Sections 13(d) and 14(d) of
                  the Securities Exchange Act of 1934, as amended (the "Exchange
                  Act") (other than (1) the Company or (2) any corporation
                  owned, directly or indirectly, by the Company or the
                  shareholders of the Company in substantially the same
                  proportions as their ownership of stock in the Company), is or
                  becomes the "beneficial owner" (as defined in Rule 13d-3 under
                  the Exchange Act), directly or indirectly, of securities of
                  the Company representing thirty percent (30%) or more of the
                  combined voting power of the Company's then outstanding
                  securities.

             4.   FRINGE BENEFITS; AUTOMOBILE ALLOWANCE.

                  (a) During the Term, the Executive shall be entitled to the
                  maximum benefits that are generally provided to all senior
                  executives of the Company under any life insurance, group
                  insurance, medical, retirement, pension or other employee
                  benefit or incentive plans or pursuant to other arrangements
                  or understandings (excluding any equity, equity option or
                  equity bonus plans), so long as any such plan, benefit,
                  arrangement or understanding remains generally available to
                  all other senior executive officers of the Company.

                  (b) During the Term, the Executive shall also receive an
                  automobile allowance of $800 per month or whatever greater
                  amount the Company pays to its Executives as a matter of
                  standard practice from time to time.

                  (c) During the Term, the Executive shall be entitled to
                  financial and tax advice at the Company's expense through the
                  Mason Companies up to a maximum amount of $7,000.00 per year.

                  (d) During the Term, the Executive shall be entitled to four
                  (4) weeks paid vacation each year which can accumulate to a
                  maximum of six (6) weeks.

                  (e) The Company shall reimburse the Executive up to
                  $100,000.00 ("Relocation Amount") for his reasonable moving,
                  packing, and travel expenses (including reasonable travel by
                  the Executive and his spouse to prospect for a home) incurred
                  in connection with the Executive's relocation from St. Louis,
                  Missouri to the greater Washington, D.C. area ("Relocation").
                  The Executive's "target" date for completing his Relocation to
                  the greater Washington D.C. area shall be July 31, 2001. The
                  Company agrees to provide the Executive with a gross up for
                  income taxes due by the Executive for the Relocation Amount
                  (the "Gross Up Amount"). In consideration of the Company
                  paying said Relocation Amount and Gross Up Amount to the
                  Executive, the Executive agrees that should he terminate his
                  employment with the Company without Good Reason


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                  pursuant to Section 6(e) herein within two (2) years after the
                  date of his Relocation or be terminated by the Company for
                  Cause (as defined in Section 6(c) herein) within two (2) years
                  after the date of his Relocation, the Executive shall pay the
                  Company the Relocation Amount plus the Gross Up Amount within
                  thirty (30) days of his Date of Termination with the
                  understanding that the Relocation Amount and Gross Up Amount
                  for which the Executive shall be liable will be reduced by
                  one-twenty fourth (1/24th) for each full month of continuous
                  employment after the date of his Relocation. If the Executive
                  terminates its employment without Good Reason pursuant to
                  Section 6(e) herein at any time prior to his Relocation or is
                  terminated by the Company for Cause (as defined in Section
                  6(c) herein) at any time prior to his Relocation, then the
                  Executive is not entitled to any Relocation Amount or Gross Up
                  Amount.

             5.   EXPENSE REIMBURSEMENT. In addition to the compensation and
benefits provided in Sections 3 and 4, the Company shall, upon receipt of
appropriate documentation, reimburse the Executive for his reasonable travel,
lodging, entertainment, and other ordinary and necessary business expenses
incurred in the course of his duties on behalf of the Company during the Term.

             6.   TERMINATION.  The Term is subject to early termination as
provided below:

                  (a) TERMINATION BY THE COMPANY BECAUSE OF THE EXECUTIVE'S
                  DISABILITY. If at any time during the Term, the Company
                  determines in good faith that the Executive has been unable,
                  as a result of physical or mental illness or incapacity, to
                  perform his duties hereunder for a period of either (i) one
                  hundred eighty (180) consecutive days during any twelve-month
                  period or (ii) ninety (90) consecutive days during any
                  twelve-month period if the Executive's physical or mental
                  illness or incapacity would reasonably be expected to continue
                  for another consecutive ninety (90) day period after such
                  initial ninety (90) day period, the Term may be terminated by
                  the Company upon thirty (30) days' written notice to the
                  Executive. Should the Executive be terminated pursuant to this
                  Section 6(a), he shall be entitled to Termination Payments as
                  provided for in Section 6(g).

                  (b) TERMINATION BY THE COMPANY BECAUSE OF THE EXECUTIVE'S
                  DEATH. In the event that the Executive's death occurs prior to
                  the expiration of the Term, the Term shall terminate as of the
                  date of the Executive's death. Should the Executive be
                  terminated pursuant to this Section 6(b), he shall be entitled
                  to Termination Payments as provided for in Section 6(g).

                  (c) TERMINATION BY THE COMPANY FOR CAUSE. The Executive's
                  employment may be terminated by the Company at any time for
                  "Cause." In the event of a termination for Cause, all salary
                  and benefits otherwise payable to the Executive shall cease
                  immediately upon such termination. For purposes of this
                  Agreement, the Company shall have Cause for termination of the
                  Executive's employment under this Agreement by reason of (i)
                  any breach by the Executive of his agreement not to compete or
                  solicit pursuant to Section 7 hereof; (ii) any violation of
                  Company policy which materially and adversely affects the
                  business or reputation of the Company; (iii) any act or
                  omission by the Executive constituting willful misconduct or
                  gross negligence, (iv) the Executive's conviction of a felony
                  (or a plea of guilty or NOLO CONTENDRE thereto); (v) the
                  Executive's conviction of any other criminal action (or a plea
                  of guilty or NOLO CONTENDRE thereto) that has or might
                  reasonably be expected to have an adverse


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                  effect on the business or reputation of the Company or its
                  subsidiaries; (vi) the Executive's commission of an act of
                  fraud; (vii) a material breach by the Executive of any
                  provision of this Agreement which breach and the effects
                  thereof remain uncured for a period of thirty (30) days after
                  written notice, specifically identifying the breach, is given
                  to the Executive by the Company (however, it being expressly
                  understood that the Company need not provide any notice and
                  may terminate the Executive immediately where the Company in
                  good faith believes that the Executive's material breach is
                  not curable within thirty (30) days); or (viii) the
                  Executive's voluntary resignation without Good Reason and
                  without having given the Company at least thirty (30) days
                  prior written notice.

                  (d) TERMINATION BY THE COMPANY WITHOUT CAUSE. The Company may
                  terminate the employment of the Executive under this Agreement
                  at any time without cause with thirty (30) days' prior written
                  notice. Should the Executive be terminated pursuant to this
                  Section 6(d), he shall be entitled to Termination Payments as
                  provided for in Section 6(g).

                  (e) TERMINATION BY THE EXECUTIVE WITHOUT GOOD REASON. The
                  Executive may terminate his employment at any time without
                  Good Reason (as that term is defined in Section 6(f)),
                  provided that the Executive shall have given the Company at
                  least thirty (30) days prior written notice of such
                  termination. In the event of termination by the Executive
                  without Good Reason, the Executive's salary and benefits shall
                  continue during the notice period specified by the Executive
                  and shall cease thereafter.

                  (f) TERMINATION BY THE EXECUTIVE FOR GOOD REASON. The
                  Executive may terminate his employment at any time for Good
                  Reason. For purposes of this Agreement, "Good Reason" shall
                  mean any of the following occurrences but only if occurring
                  within twelve (12) months after a Change in Control:

                      (i)  the diminution or change, without the Executive's
                           written consent, of his position, title, authority,
                           duties or responsibilities as indicated in
                           Section 1(a) hereof;

                     (ii)  the Company requiring the Executive, without his
                           written consent, to be based at any office or
                           location or to relocate to any location other than
                           the Company's headquarters which shall be located in
                           the Washington, D.C. area;

                     (iii) any material breach by the Company of this Agreement
                           which is not cured within thirty (30) days after
                           notice is given to the Company in accordance with
                           this Agreement.

                  (g) TERMINATION PAYMENTS. A. If the Executive's employment is
                  terminated by the Company (1) without Cause pursuant to
                  Section 6(d) or (2) because of the Executive's death or
                  disability pursuant to Section 6(a) or (b) (each of the
                  circumstances in Section 6(g)(A)(1) and (2) being known as a
                  "Termination Event"), the Company shall provide the Executive
                  (or, in the case of his death, his estate, heirs or legal
                  representatives) the following (collectively, the "Termination
                  Payments"), to be paid or given


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                  within thirty (30) days of the Date of Termination (except
                  with respect to item (iii) below which will be granted and
                  given in accordance with Section 3(d) herein):

                  (i) a lump sum representing (1) the Executive's monthly base
                  salary as derived from the Executive's annual salary and
                  giving effect to all annual increases thereto as provided in
                  Section 3(a) herein, times the greater of (Y) the number of
                  months remaining in the current Term and (Z) twenty-four (24)
                  months; and (2) all other accrued and unpaid amounts due to
                  the Executive as of the Date of Termination (including,
                  without limitation, accrued vacation pay and reimbursement of
                  business expenses);

                  (ii) a lump sum representing all annual bonus amounts, as
                  provided for in Section 3(b) hereof, calculated on the
                  assumption that all performance criteria objectives would have
                  been exceeded, such that the Executive would receive the
                  maximum bonus established by the President and Chief Operating
                  Officer of the Company to which the Executive would have been
                  entitled had he remained employed by the Company for the
                  longer of (Y) the remainder of the current Term or (Z)
                  twenty-four (24) months after the Date of Termination; and

                  (iii) the vested options provided in Section 3(d).

                  Moreover, should the Company terminate the Executive without
         Cause pursuant to Section 6(d) herein, the Executive shall be entitled
         to the immediate vesting of such number of options as are equal to the
         number which would have vested, ratably, monthly, had the Executive
         remained employed for the longer of the remainder of the current Term
         or twenty-four (24) months after the Date of Termination.

                  B. If the Executive terminates his employment for Good Reason
         as defined in Section 6(f) or a Termination Event occurs within twelve
         months after a Change in Control, the Executive is entitled to the
         Termination Payments as stated in Section 6(g)(A)(i) (ii) and (iii)
         above as well as the following:

                  (iv) continuation of all life insurance and health benefits,
                  disability insurance and benefits and reimbursement
                  theretofore being provided to the Executive and/or his family,
                  or such other more favorable benefits applicable to any senior
                  executive officer of the Company, to which the Executive would
                  have been entitled had he remained employed by the Company for
                  the longer of (Y) the remainder of the current Term or (Z)
                  twenty-four (24) months after the Date of Termination, with
                  the exception of the car allowance as provided in Section 4(b)
                  herein;

                  (v) Company contributions, to the extent permitted by
                  applicable law, to a SEP-IRA, Keogh or other retirement
                  mechanism reasonably selected by the Executive sufficient to
                  provide the same level of retirement benefits the Executive
                  would have received if he had remained employed by the Company
                  for the longer of (Y) the remainder of the current Term or (Z)
                  twenty-four (24) months after the Date of


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                  Termination provided, however, that the Company shall make up
                  the difference in cash payments directly to the Executive to
                  the extent that applicable law would not permit it to make
                  such contributions;

                  C. In consideration of the Termination Payments provided in
         this Section 6(g)(A) and (B), the Executive agrees to execute a
         termination of employment agreement under which the Executive agrees to
         fully release all claims against the Company.

         (h) TAX PROVISIONS. In the event that any payments under this Agreement
         or any other compensation, benefit or other amount from the Company for
         the benefit of the Executive are subject to the tax imposed by Section
         4999 of the Internal Revenue Code of 1986, as amended (the "Code")
         (including any applicable interest and penalties, the "Excise Tax"), no
         such payment ("Parachute Payment") shall be reduced (except for
         required tax withholdings) and the Company shall pay to the Executive
         by the earlier of the date such Excise Tax is withheld from payments
         made to the Executive or the date such Excise Tax becomes due and
         payable by the Executive, an additional amount (the "Gross-Up Payment")
         such that the net amount retained by the Executive (after deduction of
         any Excise Tax on the Parachute Payments, taxes based upon the Tax Rate
         (as defined below) upon the payment provided for by this Section 6(h)
         and Excise Tax upon the payment provided for by this Section 6(h)),
         shall be equal to the amount the Executive would have received if no
         Excise Tax had been imposed. A Tax counsel chosen by the Company's
         independent auditors, provided such person is reasonably acceptable to
         the Executive ("Tax Counsel"), shall determine in good faith whether
         any of the Parachute Payments are subject to the Excise Tax and the
         amount of any Excise Tax, and Tax Counsel shall promptly notify the
         Executive of its determination. The Company and the Executive shall
         file all tax returns and reports regarding such Parachute Payments in a
         manner consistent with the Company's reasonable good faith
         determination. For purposes of determining the amount of the Gross-Up
         Payment, the Executive shall be deemed to pay taxes at the Tax Rate
         applicable at the time of the Gross-Up Payment. In the event that the
         Excise Tax is subsequently determined to be less than the amount taken
         into account hereunder at the time a Parachute Payment is made, the
         Executive shall repay to the Company promptly following the date that
         the amount of such reduction in Excise Tax is finally determined the
         portion of the Gross-Up Payment attributable to such reduction (without
         interest). In the event that the Excise Tax is determined to exceed the
         amount taken into account hereunder at the time a Parachute Payment is
         made (including by reason of any payment the existence or amount of
         which cannot be determined at the time of the Gross-Up Payment), the
         Company shall pay the Executive an additional amount with respect to
         the Gross-Up Payment in respect of such excess (plus any interest or
         penalties payable in respect of such excess) at the time that the
         amount of such excess is finally determined. The Company shall
         reimburse the Executive for all reasonable fees, expenses, and costs
         related to determining the reasonableness of any Company position in
         connection with this paragraph and preparation of any tax return or
         other filing that is affected by any matter addressed in this
         paragraph, and any audit, litigation or other proceeding that is
         affected by any matter addressed in this Section 6(h) and an amount
         equal to the tax on such amounts at the Executive's Tax Rate. For the
         purposes of the foregoing, "Tax Rate" means the Executive's effective
         tax rate based upon the



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         combined federal and state and local income, earnings, Medicare and any
         other tax rates applicable to the Executive, all at the highest
         marginal rate of taxation in the country and state of the Executive's
         residence on the date of determination, net of the reduction in federal
         income taxes which could be obtained by deduction of such state and
         local taxes.

         (i) NOTICE OF TERMINATION. Any termination of the Executive's
         employment during the Term by the Company or by the Executive shall be
         communicated by Notice of Termination to the other party hereto given
         in accordance with Section 16 of this Agreement. For purposes of this
         Agreement, a "Notice of Termination" means a written notice which (i)
         indicates the specific termination provision in this Agreement relied
         upon, (ii) to the extent applicable, sets forth in reasonable detail
         the facts and circumstances claimed to provide a basis for termination
         of the Executive's employment under the provision so indicated, and
         (iii) if applicable, specifies a termination date. The failure by the
         Executive or the Company to set forth in the Notice of Termination any
         fact or circumstance which contributes to a showing of Good Reason or
         Cause shall not waive any right of the Executive or the Company
         hereunder or preclude the Executive or the Company, as applicable, from
         asserting such fact or circumstance in enforcing the Executive's or the
         Company's rights hereunder.

         (j) DATE OF TERMINATION. For purposes of this Agreement, "Date of
         Termination" means (i) if the Executive's employment is terminated by
         reason of death, the date of death; or (ii) if the Executive's
         employment is terminated under any other circumstances, the date of
         receipt of the Notice of Termination by the party being so notified or
         any later date specified therein. For purposes of this Agreement, the
         Executive will be deemed to be employed through the end of the calendar
         day on the Date of Termination.

             7.   COVENANTS OF EXECUTIVE

         (a) COVENANT NOT TO COMPETE. In consideration of the Executive's
         employment pursuant to this Agreement and for other good and
         valuable consideration, the receipt and adequacy of which is hereby
         acknowledged, the Executive agrees that, so long as the Executive is
         employed by the Company under this Agreement and for a period of
         twelve (12) months following the termination of such employment (but
         only if the Company has elected to enforce the restriction), the
         Executive shall not, without the prior written consent of the
         Company, either for the Executive or for any other person, firm or
         corporation, own, manage, operate, control, be employed by,
         participate in or be associated in any manner with the ownership,
         management, operation or control of any business providing
         Internet-related, E-commerce, web-hosting, network or communication
         services competitive with the Company as of the Date of Termination
         or within six (6) months thereafter. The foregoing shall in no event
         restrict the Executive from: (i) writing or teaching, whether on
         behalf of for-profit, or not-for-profit institution(s); (ii)
         investing (without participating in management or operation) in the
         securities of any private or publicly traded corporation or entity;
         or (iii) after termination of employment, becoming employed by a
         hardware, software or other vendor to the Company, provided that
         such vendor does not offer Internet-related, E-commerce,
         web-hosting, network

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         or communication services that are competitive with the services
         offered by the Company as of the Date of Termination or within six
         (6) months thereafter.

         (b) NONSOLICITATION. In consideration of the Executive's employment
         pursuant to this Agreement and for other good and valuable
         consideration, the receipt and adequacy of which is hereby
         acknowledged, the Executive agrees that, so long as the Executive is
         employed by the Company under this Agreement and for a period of
         eighteen (18) months following the termination of such employment,
         the Executive agrees not to hire, solicit, nor attempt to solicit
         for himself or any third party, the services of any employee or
         subcontractor of the Company or any of the Company's subsidiaries or
         affiliates without the Company's prior written consent; provided,
         however, that the Executive is not prevented from employing such
         person who contacts the Executive on his or her own initiative and
         without any direct or indirect solicitation by the Executive.

         (c) BREACH/THREATENED BREACH. The Executive may request permission
         from the Company's Board of Director's to engage in activities which
         would otherwise be prohibited by Section 7(a) or (b). The Company
         shall respond to such request within thirty (30) days after receipt.
         The Company shall notify the Executive in writing if it becomes
         aware of any breach or threatened breach of any of the provisions in
         Section 7(a) or (b), and the Executive shall have thirty (30) days
         after receipt of such notice in which to cure or prevent the breach,
         to the extent that the Executive is able to do so. The Executive and
         the Company acknowledge that any breach or threatened breach by the
         Executive of any of the provisions in Section 7(a) or (b) above
         cannot be remedied by the recovery of damages, and agree that in the
         event of any such breach or threatened breach which is not cured
         with such 30-day period, the Company may pursue injunctive relief
         for any such breach or threatened breach. If a court of competent
         jurisdiction determines that the Executive breached any of such
         provisions, the Executive shall not be entitled to any Termination
         Payments from and after date of the breach. In such event, the
         Executive shall promptly repay any Termination Payments previously
         made plus interest thereon from the date of such payment(s) at 12%
         per annum. If, however, the Company has suspended making such
         Termination Payments and a court of competent jurisdiction finally
         determines that the Executive did not breach such provision or
         determines such provision to be unenforceable as applied to the
         Executive's conduct, the Executive shall be entitled to receive any
         suspended Termination Payment, plus interest thereon from the date
         when due at 12% per annum. The Company may elect (once) to continue
         paying the Termination Payments before a final decision has been
         made by the court.

         (d) OWNERSHIP OF WORK PRODUCt. All copyrights, patents, trade
         secrets, or other intellectual property rights associated with any
         ideas, concepts, techniques, inventions, processes, or works of
         authorship developed or created by the Executive during the course
         of performing the Company's work (collectively the "Work Product")
         shall belong exclusively to the Company and shall, to the extent
         possible, be considered a work made for hire for the Company within
         the meaning of Title 17 of the United States Code. The Executive
         automatically assigns, and shall assign at the time of creation of
         the Work Product, without any requirement of further consideration,
         any right, title, or interest the Executive may have in such Work
         Product, including any copyrights or other intellectual

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         property rights pertaining thereto. Upon request of the Company, the
         Executive shall take such further actions, including execution and
         delivery of instruments of conveyance, as may be appropriate to give
         full and proper effect to such assignment.

         (e) EQUITABLE RELIEF. The Executive acknowledges and agrees that the
         covenants and obligations of Executive contained in Section 7 hereof
         relate to special, unique and extraordinary matters and are
         reasonable and necessary to protect the legitimate interests of the
         Company and that a breach of any of the terms of such covenants and
         obligations will cause the Company irreparable harm and injury for
         which adequate remedies at law are not available. The Executive
         therefore agrees that the Company need not prove actual damages in
         order to obtain injunctive relief, a restraining order, an order of
         specific performance or any other equitable relief (together,
         "Equitable Relief") with respect to any of Executive's obligations
         under Section 7. The Executive hereby waives any claim or defense
         therein that the Company has an adequate remedy at law or that money
         damages would provide an adequate remedy. It shall, however, be the
         option of the Company whether or not to seek Equitable Relief.

             8.   REPRESENTATION AND WARRANTIES.

                  (a) THE COMPANY. The Company hereby represents and warrants
                  to the Executive as follows:

                      (i)  the Company is duly organized, validly existing and
                           in good standing under the laws of the State of New
                           York;

                     (ii)  this Agreement has been duly authorized, executed and
                           delivered by the Company and will constitute the
                           legal, valid and binding obligation of the Company,
                           enforceable against the Company in accordance with
                           its terms, subject to applicable bankruptcy,
                           insolvency, moratorium or other similar laws
                           affecting the rights of creditors generally and to
                           general principles of equity whether considered in a
                           suit at law or in equity; and

                     (iii) the execution and delivery of this Agreement by the
                           Company, the performance by the Company of its
                           obligations hereunder and the consummation by the
                           Company of the transactions contemplated hereby will
                           not violate any agreement to which the Company is a
                           party.

                  (b) EXECUTIVE. The Executive hereby represents and warrants to
                  the Company as follows:

                      (i)  this Agreement has been duly executed and delivered
                           by the Executive and will constitute the legal, valid
                           and binding obligation of the Executive, enforceable
                           against the Executive in accordance with its terms,
                           subject to applicable bankruptcy, insolvency,
                           moratorium or other similar laws affecting the rights


                                       10
<PAGE>

                           of creditors generally and to general principles of
                           equity whether considered in a suit at law or in
                           equity;

                     (ii)  the execution and delivery of this Agreement by
                           Executive, the performance by the Executive of his
                           obligations hereunder and the consummation by the
                           Executive of the transactions contemplated hereby
                           will not violate any agreement to which he is a
                           party; and

                     (iii) the Executive has made such investigations of the
                           business and properties of the Company as he deems
                           necessary or appropriate before entering into this
                           Agreement.

             9.   TRANSFERABILITY.

                  (a) This Agreement is personal to the Executive and without
                  the prior written consent of the Company shall not be
                  assignable by the Executive otherwise than by will or the laws
                  of descent and distribution. This Agreement shall inure to the
                  benefit of and be enforceable by the Executive's legal
                  representatives.

                  (b) This Agreement shall inure to the benefit of and be
                  binding upon the Company, its successors and assigns.

                  (c) The Company shall require any successor (whether direct or
                  indirect, by purchase, merger, consolidation, share exchange
                  or otherwise) to all or substantially all of the business
                  and/or assets of the Company to expressly assume in writing
                  and agree to perform this Agreement in the same manner and to
                  the same extent that the Company would be required to perform
                  it if no such succession had taken place. As used in this
                  Agreement, "Company" shall mean the Company as defined herein
                  and any successor to its businesses and/or assets as aforesaid
                  that assumes and agrees to perform this Agreement by operation
                  of law, or otherwise. A failure of the Company to cause a
                  successor to assume this Agreement in any such transaction
                  shall be a breach of this Agreement by the Company.

             10.  NONEXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any
benefit, plan, program, policy or practice provided by the Company and for which
the Executive may qualify (except with respect to any benefit to which the
Executive has waived his rights in writing), nor shall anything herein limit or
otherwise affect such rights as the Executive may have under any other contract
or agreement entered into after the date of this Agreement with the Company.
Amounts which are vested benefits or which the Executive is otherwise entitled
to receive under any benefit, plan, policy, practice or program of, or any
contract or agreement entered into with, the Company shall be payable in
accordance with such benefit, plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.

             11.  FULL SETTLEMENT; MITIGATION; COSTS AFTER A CHANGE IN CONTROL.
In no event shall the Executive be obligated to seek other employment or take
any other action by way of mitigation of the amounts (including amounts for
damages for breach) payable to the Executive under any of the provisions of this
Agreement, and such amounts shall not be reduced whether or


                                       11
<PAGE>

not the Executive obtains other employment. In addition, following a Change in
Control only, the Company's obligation to make the payments provided for in this
Agreement and otherwise to perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim, right
or action which the Company may have against the Executive or others.
Notwithstanding any other provisions in this Agreement to the contrary, in the
event that, following a Change in Control, any successor in interest to the
Company unsuccessfully contests and/or challenges any of the Executive's rights
under this Agreement, then the successor in interest to the Company shall pay
the Executive's reasonable attorney's fees and costs incurred in such contest or
challenge.

             12.  NO WAIVER. The Executive's or the Company's failure to
insist upon strict compliance with any provision of this Agreement or the
failure to assert any right the Executive or the Company may have hereunder
shall not be deemed to be a waiver of such provision or right or any other
provision or right of this Agreement.

             13.  ARBITRATION. With the exception of disputes arising under
Section 7 hereof, any dispute arising under this Agreement shall be settled by
arbitration in accordance with the rules of the American Arbitration Association
and judgment upon the award rendered by the arbitrator may be rendered in any
court having jurisdiction thereof. Arbitration hereunder shall be by a single
arbitrator appointed by agreement of the parties. The parties shall agree that
any arbitration award shall be final and binding on the parties. Except as
stated otherwise in Paragraph 11 of this Agreement, each party shall bear its
own costs and attorneys' fees associated with the arbitration.

             14.  SEVERABILITY. The provisions of this Agreement will be
deemed severable, and if any part of any provision is held to be illegal, void,
voidable, invalid, nonbinding, or unenforceable in its entirety or partially or
as to any party, for any reason, such provision may be changed, consistent with
the intent of the parties hereto, to the extent reasonably necessary to make the
provision, as so changed, legal, valid, binding, and enforceable. If any
provision of this Agreement is held to be illegal, void, voidable, invalid,
nonbinding, or unenforceable in its entirety or partially or as to any party,
for any reason, and if such provision cannot be changed consistent with the
intent of the parties hereto to make it fully legal, valid, binding, and
enforceable, then such provision will be stricken from this Agreement, and the
remaining provisions of this Agreement will not in any way be affected or
impaired, but will remain in full force and effect.

             15.  ENTIRE AGREEMENT/AMENDMENTS. This Agreement contains and
its terms constitute the entire agreement of the parties and supersedes all
prior agreements regarding the subject matter herein. This Agreement supersedes
and replaces any prior or contemporaneous agreements, negotiations,
correspondence, undertakings and communications of the parties, oral or written
regarding the subject matter herein. No amendment or modification of any
provision of this Agreement shall be effective unless in writing and signed by
the party against whom enforcement of such amendment or modification is sought.

             16.  NOTICES. All notices required to be given or which may be
given under this Agreement shall be in writing, delivered in accordance with one
or more of the following and deemed received upon the earlier of (i) when it is
personally delivered to the party, (ii) three (3) days after having been mailed
by certified mail, postage prepaid, return receipt requested, (iii) two (2) days
after having been sent via overnight delivery by a recognized overnight delivery
service or (iv) one (1) day after having been sent via facsimile transmission,
in each case


                                       12
<PAGE>

addressed to the party intended to be notified at the address of such party as
set forth in the records of the Company or such other address as such party may
designate in writing to the other.

             17.  GOVERNING LAW. This Agreement shall be governed by the
laws of the Commonwealth of Virginia without giving effect to the conflicts of
law principles thereof.

             18.  SURVIVAL. All provisions which may reasonably be
interpreted or construed to survive the expiration or termination of this
Agreement shall survive the expiration or termination of this Agreement.

             19.  COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original and all of which
shall be one and the same instrument.

             20.  EXECUTION. This Agreement shall be deemed effective upon
the execution by the Company and the Executive.

             IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered as the date first written above.



Executive:


/S/ JAMES F. CRAGG
--------------------------------------------
James F. Cragg



PSINet Inc. ("Company"):


By: /S/ WILLIAM L. SCHRADER
    ---------------------------------
Title: Chairman and Chief Executive Officer