<PAGE>

                                                                  Exhibit 10.5


July 1, 1997


Mr. Michael J. Malesardi
347 Walker Road
Great Falls, Virginia  22066-3503

Dear Michael:

This letter confirms our offer to you of employment by PSINet Inc. (the 
"Company"), and sets forth the terms and conditions which shall govern such 
employment as outlined below. This offer is subject to satisfactory 
completion of reference checks and ratification by the Company's Board of 
Directors, but otherwise shall remain open until midnight on Tuesday, July 
1,1997.

1.  EMPLOYMENT:

a)  The Company agrees to employ you as Vice President and Controller, 
reporting to the Chief Financial Officer ("CFO") of the Company.  This is a 
corporate officer position and as an officer of the Company you must stand 
for election by the Board of Directors each year. You accept the employment 
and agree to begin work on or before July 15, 1997, and remain in the employ 
of the Company, and, except during vacation periods and sickness, to provide 
during standard business hours a minimum of forty hours per week of 
management services to the Company, as determined by and under the direction 
of the CFO.  

b)  During your employment you will, except during vacations, periods of 
illness, and other absences beyond your reasonable control, devote your best 
efforts, skill and attention to the performance of your duties on behalf of 
the Company.

2.  COMPENSATION:

a)  BASE SALARY.  The Company shall pay you a base salary at the rate of 
$130,000per annum.  Your base salary shall be subject to additional increases 
at the discretion of the Company's Board of Directors. Your base salary shall 
be payable in such installments as the Company regularly pays its other 
salaried employees, subject to such deductions and withholdings as may be 
required by law or by further agreement with you.

                                      56

<PAGE>


b)  BONUS COMPENSATION.  The Company will pay you a bonus upon the successful 
completion of the objectives established for your performance, which will be 
measured on or about January 30, 1998.  The performance criteria will be 
issued separately by the CFO, and may be changed, with mutual fairness, from 
time to time as situations develop.  The target bonus for the period ending 
December 31, 1997 for the period (start date through December 31, 1997) will 
be a total of up to $38,000.  Separate criteria will be established for your 
entitlement for the year starting January 1, 1998.

c)  INCENTIVE STOCK OPTIONS.  Effective upon your start date, PSINet Inc. 
shall grant you options, subject to Board approval, to purchase thirty 
thousand (30,000) shares of PSINet Inc.'s common stock (the "Options") 
pursuant to its Executive Stock Incentive Plan (the "Plan").  Such Options 
shall be evidenced by an option agreement in such form as required by the 
Plan.  Among other terms and provisions prescribed by the Plan, the option 
agreement shall provide that (a) the exercise price of the Options shall be 
the price per share of the Company's common stock as reported by the NASDAQ 
Stock Market at the close of business on your start date, (b) the Options 
shall not be exercisable after the expiration of ten years from the date such 
Options are granted, and (c) the stock shall vest ratably, monthly, over 
forty-eight months, provided that for each month's vesting purposes you 
continue to be employed full time by the Company or one of its subsidiaries 
during such month, and provided that the Company's Board of Directors 
ratifies, no less often than annually, that you have met the performance 
standards and criteria set for you for the preceding period.

3.  EMPLOYEE BENEFITS.  You shall be provided employee benefits, including 
(without limitation) 401(k), four weeks' paid vacation, and life, health, 
accident and disability insurance under the Company's plans, policies and 
programs available to employees in accordance with the provisions of such 
plans, policies, and programs.

4.  TERMINATION:

a)  Your employment with the Company may be terminated by the Company at any 
time for "Cause" as defined in Section 4(c) hereof.  Upon such termination, 
the Company will provide written notice whether it has elected to use the 
non-competition restrictions set forth in Section 5(a) hereof.  Your 
employment may also be terminated by the Company at any time without Cause 
provided the Company shall have given you thirty (30) days' prior written 
notice of such termination.  That written notice must state whether the 
Company has elected to use the non-Competition restriction (which decision 
may not be rescinded).  If you are terminated by the Company without cause 
within the initial one-year term of your employment, you will be paid ninety 
(90) days' severance pay.  In addition, your employment may be terminated by 
you at any time for any

                                      57


<PAGE>


reason, provided you shall have given the Company at least thirty (30) days' 
prior written notice of such termination.  By the 30th day the Company must 
notify you in writing whether it has elected to use the non-Competition 
restriction.  Such decision may not be rescinded.  Failure of the Company to 
so notify you shall result in the non-Competition restriction not being in 
place.

b)  Subject to your compliance with your obligations under Section 5 hereof, 
in the event that your employment terminates or is terminated by you or the 
Company for any reason other than for Cause, and the Company has elected to 
use the non-Competition restriction, you shall be entitled, for a period of 
twelve (12) months after termination of employment, to the following 
(collectively, the "Termination Payments"):  (i) your then current rate of 
base salary as provided in Section 2; (ii) all life insurance and health 
benefits, disability insurance and benefits and reimbursement theretofore 
being provided to you;  and (iii) Company contributions, to the extent 
permitted by applicable law, to a SEP-IRA, Keogh or other retirement 
mechanism selected by you sufficient to provide the same level of retirement 
benefits you would have received if you had remained employed by the Company 
during such 12-month period.  The Company shall make up the difference in 
cash payments directly to you to the extent that applicable law would not 
permit it to make such contributions. 

c)  The Company shall have "Cause" for your termination of your employment by 
reason of any breach of your agreement not to compete pursuant to Section 5 
hereof, your committing an act materially adversely affecting the Company 
which constitutes wanton or willful misconduct, your conviction of a felony,  
or any material breach by you of this Agreement.

5.  AGREEMENT NOT TO COMPETE.

a)  In consideration of your employment pursuant to this Agreement and for 
other good and valuable consideration, the receipt and adequacy of which is 
hereby acknowledged, you covenant to and agree with the Company that, so long 
as you are 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), you shall not, without 
the prior written consent of the Company, either for yourself or for any 
other person, firm or corporation, manage, operate, control, participate in 
the management, operation or control of or be employed by any other person or 
entity which is engaged in providing Internet-related network or 
communications services competitive with the Internet-related network or 
communication services offered to customers by the Company as of the date of 
termination or within six (6) months thereafter.  The foregoing shall in no 
event restrict you from:  (i) writing or teaching, whether on behalf of 
for-profit, or not-for-profit institution(s);  (ii) investing (without 
participating in management or

                                       58


<PAGE>


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 network or communication services that are competitive with 
the Internet-related network or communications services offered by the 
Company as of the date of termination of employment or within six (6) months 
thereafter.

b)  You may request permission from the Company's Board of Director's to 
engage in activities which would otherwise be prohibited by Section 5(a).  
The Company shall respond to such request within thirty (30) days after 
receipt.  The Company will notify you in writing if it becomes aware of any 
breach or threatened breach of any of the provisions in Section 5(a), and you 
shall have thirty (30) days after receipt of such notice in which to cure or 
prevent the breach, to the extent that you are able to do so.  You and the 
Company acknowledge that any breach or threatened breach by you of any of the 
provisions in Section 5(a) 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 you breached any of such provisions, you shall 
not be entitled to any Termination Payments from and after date of the 
breach.  In such event, you 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 you 
did not breach such provision or determines such provision to be 
unenforceable as applied to your conduct, you 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.

6.  INTELLECTUAL PROPERTY    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 you 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.  You
automatically assign, and shall assign at the time of creation of the Work
Product, without any requirement of further consideration, any right, title, or
interest you may have in such Work Product, including any copyrights or other
intellectual property rights pertaining thereto.  Upon request of the Company,
you shall take such further actions, including execution and delivery of

                                       59


<PAGE>


instruments of conveyance, as may be appropriate to give full and proper effect
to such assignment.
 
7.  TRANSFERABILITY.

a)  As used in this Agreement, the term "Company" shall include any successor 
to all or part of the business or assets of the Company who shall assume and 
agree to perform this Agreement. 

This Agreement shall inure to the benefit of and be enforceable by you and 
your personal or legal representatives, executors, administrators, heirs, 
distributees, devisees and legatees.

b)  Except as provided under paragraph (a) of this Section 7, neither this
Agreement nor any of the rights or obligations hereunder shall be assigned or
delegated by any party hereto without the prior written consent of the other
party.

8.  SEVERABILITY.  The invalidity or unenforceability of any particular 
provision of this Agreement shall not affect the other provisions hereof, and 
this Agreement shall be construed in all respects as if such invalid or 
unenforceable provision were omitted.  If a court of competent jurisdiction 
determines that any particular provision of this Agreement is invalid or 
unenforceable, the court shall restrict the provision so as to be 
enforceable. However, if the provisions of Section 5 shall be restricted, a 
proportional reduction shall be made in the payments under Section 4.

9.  ENTIRE AGREEMENT;  WAIVERS.   This letter Agreement contains the entire 
agreement of the parties concerning the subject matter hereof and supersedes 
and cancels all prior agreements, negotiations, correspondence, undertakings 
and communications of the parties, oral or written.  No waiver or 
modification of any provision of this Agreement shall be effective unless in 
writing and signed by both parties.

10. NOTICES.  Any notices, requests, instruction or other document to be 
given hereunder shall be in writing and shall be sent certified mail, return 
receipt requested, addressed to the party intended to be notified at the 
address of such party as set for at the head of this agreement or such other 
address as such party may designate in writing to the other.

11. GOVERNING LAW. THIS LETTER AGREEMENT SHALL BE SUBJECT TO, GOVERNED BY AND 
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT 
REFERENCE TO ITS PRINCIPLES OF CONFLICTS OF LAW.

                                       60 

<PAGE>


12. COUNTERPARTS.  This letter 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.

    Please confirm your agreement with the forgoing by signing and returning 
one copy of this letter Agreement to the undersigned, whereupon this letter 
agreement shall become a binding agreement between you and the Company.

Sincerely,

PSINet Inc.


By: /s/ Edward D. Postal
    -----------------------------------------  
    Edward D. Postal, Chief Financial Officer



Accepted and Agreed to as of July 1, 1997:
                             ------  ----

By: /s/ Michael J. Malesardi
    ------------------------
    Michael J. Malesardi