Document:

<PAGE>

                                                                   EXHIBIT 10(h)

                       ASSIGNMENT AND ASSUMPTION AGREEMENT
                       -----------------------------------

          This ASSIGNMENT AND ASSUMPTION AGREEMENT (the "Assignment and
Assumption") is to be effectuated by the completion and execution of the
Assignment Execution Form attached hereto. A copy of the terms of the Assignment
and Assumption does not need to be physically attached to the Assignment
Execution Form, but rather these terms are incorporated therein by reference.
Terms defined in the Assignment Execution Form (or in the Loan Agreement
described therein) are used herein as therein defined.

          The Assignor and the Assignee agree as follows:

1.    Assignment; Effect of Certain Dates.
      -----------------------------------

          For value received, without recourse, representation or warranty
(except as expressly set forth herein or in the Loan Agreement) the Assignor
sells and assigns to the Assignee, and the Assignee purchases and assumes from
the Assignor, all of the Assignor's right, title and interest in and to, and all
of the Assignor's obligations with respect to, the applicable Assigned Shares
under the Loan Agreement. The Agent shall confirm by telecopy to the Assignor
and the Assignee that the Agent has received a fully completed Assignment
Execution Form signed by the Assignor and the Assignee on the date that the
Agent sends such confirmations, which shall in no event be later than October
29, 1999 (the "Contract Date"), the obligations of the Assignor and the Assignee
hereunder shall be irrevocable as between themselves. Upon its receipt of a
fully completed Assignment Execution Form signed by the Assignor and the
Assignee, the Agent will send a copy of such Assignment Execution Form to the
Canadian Borrower.  No (i) failure of any party to settle on the Settlement Date
any amount owed hereunder, (ii) dispute respecting settlement, or (iii)
bankruptcy, insolvency or other condition whatsoever respecting any Person shall
in any way impair, reduce or otherwise affect the transfer of the Assigned
Shares to the Assignee, and the release of the Assignor, as contemplated by this
Assignment and Assumption.

2.     Rights and Obligations of Assignee;
       Release of Assignor.
       -----------------------------------

     (a)  From and after the Settlement Date, the Assignee shall be entitled to
          all rights, powers and privileges of the Assignor and shall perform
          all of the duties and obligations of the Assignor under the Loan
          Agreement and the other Loan Documents, to the extent of the Assigned
          Shares, including without limitation (i) the right to receive all
          payments in respect of the Assigned Shares which are unpaid on the
          Settlement Date or become payable from and after the Settlement Date,
          whether on account of principal, interest, fees, indemnities,
          increased costs, additional amounts or otherwise, (ii) the right to
          vote and to instruct the Agent under the Loan Agreement to the extent
          of the Assigned Shares, (iii) the right to set off and to appropriate
          and apply deposits of the Canadian Borrower as set forth in the Loan
          Agreement or any other Loan Document, (iv) the right to receive
          notices, requests, demands and other communications from the Agent
          and/or any
<PAGE>

                                      -2-

          other party required to give notices, requests, demands or other
          communications, (v) the obligation to fund all payments required to be
          made by a Lender holding an Assigned Share, and (vi) the obligation to
          provide to the Agent any withholding tax forms and other information
          prescribed by the applicable taxation authority certifying as to the
          Assignee's status for purposes of determining exemption from
          withholding taxes with respect to all payments to be made to the
          Assignee under the Loan Agreement or such other documents as are
          necessary to indicate that all such payments are subject to such rates
          at a rate reduced by an applicable tax treaty. From and after the
          Settlement Date, the Assignor shall be released from all duties and
          obligations under the Loan Agreement and all other Loan Documents to
          the extent of the Assigned Shares.

     (b)  From and after the Settlement Date, Assignee shall be deemed a
          "Lender" and a "Canadian Lender" for all purposes in connection with
          the Loan Agreement and the other Loan Documents, as such term is
          defined in the Loan Agreement, and, subject to further adjustments,
          reductions, sales and assignments as provided for or contemplated in
          the Loan Agreement, (i) the "Commitment" of Assignee for all purposes
          under the Loan Agreement and the other Loan Documents shall be
          U.S.$50,000,000 under the Canadian Revolving Credit Facility, and (ii)
          the "Participation" of Assignee thereunder shall be equal to 100%,
          respectively.  Notwithstanding anything to the contrary contained
          herein or in the Assignment Execution Form, the assignment provided
          for herein shall be effective as of October ______, 1999 , which shall
          be deemed the "Settlement Date", as such term is used herein.  The
          term "Assigned Shares", as used herein and in the Assignment Execution
          Form, shall mean the aggregate of the Commitments of Assignor
          assigned, as set forth in Section 4 of the Assignment Execution Form.

2.    Representations and Warranties of Assignor.
      ------------------------------------------

          The Assignor (a) represents and warrants that it is the legal and
beneficial owner of its Assigned Share, and that such Assigned Share is free and
clear of any adverse claim or encumbrances; and (b) except for the
representations and warranties in subclause (a) above and in Section 4 below and
herein makes no representation or warranty and assumes no responsibility
whatsoever regarding the assignment affected hereby, including, without
limitation, with respect to any statements, warranties or representations made
in or in connection with the Loan Agreement or any other Loan Document or the
execution, legality, validity, enforceability, sufficiency or value of the Loan
Agreement or any other Loan Document, or the financial condition of each of the
Canadian Borrower, the Parent, the other Creditors, or any other Person, or the
performance or observance by each of the Canadian Borrower, the Parent, the
other Creditors or any other Party of any of its obligations under the Loan
Agreement or any other Loan Document.

3.     Mutual Representations and Warranties.
       -------------------------------------
<PAGE>

                                      -3-

          The Assignor and the Assignee severally represents and warrants to the
other of them as of the Contract Date and the Settlement Date as follows:

     (a)  it is duly organized and validly existing and has full power and
          authority, and has taken or will take all action necessary, to execute
          and deliver the Assignment Execution Form and to fulfil its
          obligations under, and to consummate the transactions contemplated by,
          this Assignment and Assumption;

     (b)  the making and performance by it of this Assignment and Assumption
          does not and will not violate any law or regulation of the
          jurisdiction of its incorporation or any other law or regulation
          applicable to it;

     (c)  the Assignment Execution Form has been duly executed and delivered by
          it and constitutes its legal, valid and binding obligation,
          enforceable in accordance with its terms, except as limited by (i)
          bankruptcy, insolvency or similar laws affecting the enforcement of
          creditors' rights generally and (ii) general equitable principles; and

     (d)  all approvals, authorizations or other actions by, or filings with,
          any Governmental Authority, if any, necessary for the validity or
          enforceability of its obligations under this Assignment and Assumption
          have been obtained or taken, as the case may be.

4.    Representations and Warranties of Assignee.
      ------------------------------------------

          The Assignee (i) confirms that it has received a copy of the Loan
Agreement and each of the other Loan Documents, which have in each case been
requested by it, together with copies of any financial statements requested by
it, and that it has, independently and without reliance on the Assignor, the
Agent or any other Person and based on such documents and information as it has
deemed appropriate, made its own credit analysis and decision to enter into this
Assignment and Assumption; (ii) agrees that it will, independently and without
reliance upon the Assignor, the Agent or any other Person and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under the Loan
Agreement and any other Loan Documents; (iii) represents that it is eligible to
become an assignee of the Assigned Shares pursuant to the terms, if any, of the
Loan Agreement which limit assignees to persons having specified characteristics
or falling within certain classes; and (iv) appoints the Agent to act in the
capacity set forth in the Loan Agreement.

5.    Single Net Payment.
      ------------------

          Unless the Assignor and Assignee agree otherwise, on the Settlement
Date a single, net, final payment shall be made, which shall be in an amount
mutually agreed upon by the
<PAGE>

                                      -4-

Assignor and the Assignee, taking into account the then outstanding principal
amount, if any, of the Assigned Shares, any fees payable to or by the Assignee,
and all accrued fees, interest and other amounts payable under the Loan
Agreement or any related documents.

6.    Governing Law.
      -------------

          This assignment and assumption shall be governed by, and shall be
construed and enforced in accordance with, the laws of the Province of Ontario,
without regard to principles of conflicts of laws.

7.    Counterparts; Amendments; Binding Effect.
      ----------------------------------------

          The Assignment Execution Form may be executed in any number of
counterparts and by different parties in separate counterparts, each of which
when so executed and delivered shall be deemed to be an original, but all such
counterparts together shall constitute one and the same agreement. The terms
hereof may not be amended or modified except in writing executed by the Assignor
and the Assignee. Any change in the Settlement Date to an earlier date than that
specified on the Assignment Execution Form shall require the consent of the
Agent. The terms hereof shall bind and inure to the benefit of and be
enforceable by the parties executing (or deemed to have consented to) the
Assignment Execution Form and their respective successors and permitted assigns.

8     Effectiveness of Notices.
      ------------------------

          Notices required to be given and other documents required to be
delivered pursuant to the terms hereof shall be deemed given or delivered when
actually received unless sent by facsimile transmission, in which case such
notice or other document shall be deemed given or delivered when sent (as
established by sender's facsimile transmission machine printout or similar
mechanical record).

9     Quebec Addendum.
      ---------------

          Addendum 1 to Exhibit "O" is hereby incorporated herein.
<PAGE>

                            ASSIGNMENT EXECUTION FORM
                            -------------------------

          This Assignment Execution Form incorporates by reference all of the
terms and conditions of the Assignment and Assumption Agreement which is
attached hereto. By executing this Assignment Execution Form, and pursuant to
the terms of such Assignment and Assumption Agreement, the Assignor sells and
assigns to the Assignee, and the Assignee purchases and assumes from the
Assignor, in each case without recourse, representation or warranty (except as
set forth in the Assignment and Assumption Agreement), all of the Assignor's
right, title and interest in and to, and all of the Assignor's obligations with
respect to, the Assigned Shares (as calculated herein), and the Assignor are
released from such obligations.

1   Loan Agreement:

    Title:                        Loan Agreement dated as of December 22, 1997
                                  among InterTAN Canada Ltd., as Canadian
                                  Borrower, Inter TAN U.K. Limited, as U.K.
                                  Borrower, InterTAN, Inc., as a guarantor, Bank
                                  of America Canada, as Agent and Lender and
                                  Bank of America N.T. & S.A. (London, England
                                  Branch Office), as a U.K. Lender, as amended
                                  by Rectification and Amendment No. 1 dated
                                  February 24, 1998, Second Amendment to Loan
                                  Agreement dated as of January, 1999, Third
                                  Amendment to Loan Agreement dated as of April
                                  12, 1999 and Fourth Amendment to Loan
                                  Agreement dated as of July 31, 1999.

     Date:                        December 22, 1997

     Name of Borrower(s):         InterTAN Canada Ltd.

     Name of Agent:               Bank of America Canada

2    Name of Assignor:            Congress Financial Corporation

     (The Agent must enter the date of delivery to it of this Assignment
     Execution Form, executed by Assignor and Assignee, and MUST INITIAL AND
     RETURN A COPY OF THIS PAGE TO Assignor.)

3    Name of Assignee:            Bank of America Canada

4    Assigned Shares:
<PAGE>

     (a)     Total Loan Agreement Commitment for All       U.S.:  $50,000,000
             Lenders as of Contract Date
--------------------------------------------------------------------------------

     (b)     Assigned Share of Assignor                    U.S.:  $16,666,666.66
--------------------------------------------------------------------------------

     (c)     Percentage Amount of Assigned Share of        33%
             Assignor of Total Commitments
--------------------------------------------------------------------------------

     (d)     Total Loans Outstanding for All Lenders as    U.S.:  $nil
             of Contract Date (exclusive of Letters of
             Credit)
--------------------------------------------------------------------------------

     (e)     Outstanding Amount of Assigned Loans           U.S.:  $nil
--------------------------------------------------------------------------------

5    Sales Price of Assigned Shares: See Schedule I (Schedule I may be omitted
     when form is sent to the Agent).

Consent to/Acknowledged by as of October 28, 1999.

BANK OF AMERICA CANADA                         Assignor)
                                               CONGRESS FINANCIAL CORPORATION

By:    /s/Robert Kizell                        By:    /s/ Vicky Geist
Name:  Robert Kizell                           Name:  Vicky Geist
Title: Vice-President                          Title: Vice President

(Assignee)
BANK OF AMERICA CANADA

By:    /s/Robert Kizell
Name:  Robert Kizell
Title: Vice-President

The undersigned hereby intervene in the foregoing Assignment and Assumption
Agreement and unconditionally acquiesces in the assignment referred to therein
and agrees to pay the "Termination Fee" referred to in Schedule I.

INTERTAN CANADA LTD.

By:    /s/James G. Gingerich
Name:  James G. Gingerich
Title: Vice President
<PAGE>

                                      -3-

                                   Schedule I
                             Attached to Assignment
                            Execution Form executed
                 by Congress Financial Corporation, as Assignor
                    and Bank of America Canada, as Assignee

Principal Amount to be paid for Assigned Shares      U.S.:  $0

Canadian Unused Line Fee                             U.S.:  $

L/C Fee                                              U.S.:  $

Termination Fee (to be paid by Canadian Borrower)    U.S.:  $

Net Payment due by Assignee                          U.S.:  $<PAGE>

                                                                     Exhibit 4.1
                                  PSINET INC.

                               DEPOSIT AGREEMENT

          DEPOSIT AGREEMENT, dated as of February 1, 2000, by and between PSINet
Inc., a New York corporation (the "Company"), and Wilmington Trust Company  (the
"Deposit Agent"), as deposit agent for the benefit of the registered holders
(the "Holders") of the 7% Series D Cumulative Convertible Preferred Stock (the
"Preferred Stock").

          This Agreement is made to induce all present and future Holders to
purchase  the Preferred Stock by providing a non-interest bearing trust deposit
account (the "Deposit Account") to secure the obligation of the Holders to
acquire from the Company common stock, par value $0.01 per share, of the Company
(the "Common Stock"), on each Deposit Payment Date (as defined below) as
provided herein and to provide for  a quarterly cash payment to the Holders in
an amount equal to $0.875 per share of Preferred Stock (the "Quarterly Return
Amount") for each full quarterly period (provided, however, that the Quarterly
                                         --------  -------
Return Amount shall equal $1.0208 per share for the May 15, 2000 Deposit Payment
Date) in the manner hereinafter provided.

          NOW, THEREFORE, the parties hereto agrees as follows:

          1.   Establishment of Deposit Account.
               --------------------------------

          (a)  The Deposit Account shall be established in connection with the
offering (the "Offering"), of 14,000,000 shares of Preferred Stock and 2,500,000
additional shares of Preferred Stock (the "Over-Allotment Shares") subject to
acquisition in connection with the Offering, and shall be held subject to the
terms and conditions of this Agreement.

          (b)  Simultaneously with each closing in respect of the Offering, the
Initial Purchasers of the Offering shall deliver, at the request of the
purchasers of the Preferred Stock and on their behalf, an amount in cash equal
to approximately 7.25% of the purchase price of the Preferred Stock (or
approximately $3.65 of the $48.375 purchase price) payable by the Initial
Purchasers pursuant to that certain Purchase Agreement, dated January 26, 2000
in respect of the Offering (the "Purchase Agreement"), plus a ratable amount to
be deposited in respect of any Over-Allotment Shares purchased by the Initial
Purchasers, sufficient to pay, together with the earnings thereon, any Quarterly
Return Amount from the Deposit Account required to be made hereunder prior to
the Deposit Expiration Date, as defined below (such amount together with any
earnings, interest and other proceeds of investments are referred to as the
"Deposit Fund"), to the Deposit Agent against the Deposit Agent's written
acknowledgment and receipt of such amount, in the form attached hereto as
Exhibit A, which amount the Deposit Agent will deposit into the Deposit Account
and hold pursuant to the terms of this Agreement.  Funds placed in the Deposit
Account will be the property of the Holders, and not of the Company.  The
Deposit Account will secure the obligation of the Holders to acquire from the
Company shares of its Common Stock at the election of the Company on each
Deposit Payment Date, as set forth herein.  The Deposit Fund shall be invested
<PAGE>

as provided on Exhibit B to be attached at the closing of the Offering (and
which may be amended by delivery by the Company of a revised Exhibit B in the
event of the issuance of the Over-Allotment Shares), which investment will
provide sufficient funds, without any further investment, to equal the aggregate
Quarterly Return Amount due on the outstanding Preferred Stock, as such
Quarterly Return Amount becomes due, on each Deposit Payment Date.  The Deposit
Agent shall have no responsibility for determining whether funds held in the
Deposit Account shall have been invested in a such a manner so as to comply with
the requirements of this Section 1(b).  This Agreement may be amended in
connection with the deposit of additional monies in respect of the purchase of
Over-Allotment Shares.

          2.   Distribution, Reduction and Termination of Deposit Account.
               ----------------------------------------------------------

          (a)  Unless on or prior to the Notice Date (as defined in Section
2(h)), the Company shall have delivered to the Deposit Agent a Direction Notice
(as defined in Section 2(h)) in respect of a Deposit Payment Date or the Deposit
Expiration Date), the Deposit Agent shall deliver to each Holder of Record (as
defined in Section 3) appearing on the list provided to the Deposit Agent in
accordance with Section 3, the Quarterly Return Amount on February 15, May 15,
August 15 and November 15 of each year (each such date being a "Deposit Payment
Date"), commencing May 15, 2000 and continuing until the earlier of (i) February
15, 2001 (the "Deposit Expiration Date") and (ii) such earlier time as the
Deposit Account is terminated in accordance with Section 2(f) below.  The sole
source of funds for each Quarterly Return Amount delivered to Holders of Record
by the Deposit Agent in accordance herewith shall be the Deposit Account and the
Deposit Agent shall have no liability in respect of any deficiency thereof
(subject to Section 6(d)).

          (b)  If the Company shall have delivered a Direction Notice to the
Deposit Agent on or prior to the Notice Date relating to a Deposit Payment Date
or the Deposit Expiration Date, the Deposit Agent shall, as instructed by the
Company in such Direction Notice, purchase, on behalf of the Holders of Record,
from the Company, with funds from the Deposit Account, that number of whole
shares of Common Stock as is determined by the Company (as set forth in the
Direction Notice) by dividing all or such portion of the Quarterly Return Amount
as set forth in the Direction Notice (the "Share Consideration") as the Company
shall direct by (a) if on the date of such payment a registration statement
covering the shares of Common Stock so issued is effective, 97% of the Market
Value of the Common Stock on the record date, and (b) if on the date of such
payment a registration statement covering the shares of Common Stock so issued
is not effective, 93% of the Market Value of the Common Stock on the record
date.  "Market Value" shall have the meaning set forth in Section 2(h).  The
Deposit Agent shall pay the Share Consideration from the Deposit Account to the
Company in consideration for such purchase of shares and the Deposit Agent, or
the Company upon the written request of the Deposit Agent, shall transfer such
shares of Common Stock on such Deposit Payment Date or Deposit Expiration Date
to Holders of Record appearing on the list provided to the Deposit Agent in
accordance with Section 3, each such Holder of Record to receive the number of
such shares of Common Stock as is directed by the Company in writing.  The
Deposit Agent shall transfer to Holders of Record on the next Deposit Payment
Date or Deposit Expiration Date any portion of such Quarterly Return Amount as
is not utilized to purchase Common Stock from the Company.  The Deposit Agent's
obligation hereunder to cause shares of Common Stock to be purchased by the
Deposit Account from the Company shall be secured by, and limited

                                      -2-
<PAGE>

to, the funds in the Deposit Account, and the Deposit Agent shall have no
liability to the Company, the Holders (or any other holder of Preferred Stock)
or any other person to the extent that there are not sufficient funds in the
Deposit Account to make any purchase, payment or transfer required under this
Agreement.

          (c)  In the event of any conversion of the Preferred Stock into shares
of Common Stock prior to the Deposit Expiration Date, and provided that, at the
                                                          --------
time of such conversion, the Company has not delivered a redemption notice,
then, in those circumstances, the Company will be paid any funds remaining in
the Deposit Account allocable to those shares of Preferred Stock so converted
(and as a result, holders of Preferred Stock will  not receive any partial
payment from the Deposit Account if they convert their shares prior to receipt
of a full Quarterly Return Amount).  If, however, the Company has delivered a
redemption notice, and a Holder converts its Preferred Stock into shares of
Common Stock between the date of the redemption notice and the second day
preceding the redemption date (and, in any case, prior to the Deposit Expiration
Date or the termination of the Deposit Account), then, in those circumstances,
any funds remaining in the Deposit Account allocable to those shares of
Preferred Stock converted in the circumstances described in this sentence will
be paid to the Holders of Record of shares that have been converted. The Company
will deliver a statement and written directions to the Deposit Agent setting
forth the allocation of funds pro rata based upon the number of shares of
Preferred Stock so converted and directions regarding the payment of such funds.

          (d)  In the event of any redemption of Preferred Stock (written notice
of which shall be provided to the Deposit Agent by the Company) prior to the
earlier of (i) the Deposit Expiration Date and (ii) such earlier time as the
Deposit Account is terminated in accordance with Section 2(f) below, the Deposit
Agent shall, at the written direction of the Company, make a payment to the
Holders whose shares of Preferred Stock have been redeemed of any funds
remaining in the Deposit Account allocable to such Holders' shares so redeemed
(to the extent that the Deposit Account has not been terminated as described in
clause (g) hereof). The Company shall give such notice promptly after any such
redemption and shall include in its written direction (i) the Holders whose
shares have been so redeemed, (ii) the number of shares registered in the name
of each such Holder that have been so redeemed, and (iii) the amount of the
payment per share redeemed to be made to each such Holder.

          (e)  On the Deposit Expiration Date, the Deposit Agent shall deliver
to the Holders of Record appearing on the list provided to the Deposit Agent in
accordance with Section 3, on a pro rata basis, any cash remaining in the
Deposit Account on such date unless, prior thereto, the Company delivers a
Direction Notice to the Deposit Agent requiring the Deposit Agent to purchase
with funds from the Deposit Account from the Company for transfer to Holders of
Record that number of whole shares of Common Stock determined by dividing the
Share Consideration by (a) if on the date of such payment a registration
statement covering the shares of Common Stock so issued is effective, 97% of the
Market Value of the Common Stock on the record date, and (b) if on the date of
such payment a registration statement covering the shares of Common Stock so
issued is not effective, 93% of the Market Value of the Common Stock on the
record date. "Market Value" shall have the meaning set forth in Section 2(h).

                                      -3-
<PAGE>

          (f)  Notwithstanding any provision herein to the contrary, if (A) the
Company obtains any required amendments to the covenants under its various debt
obligations that would permit the Company to pay cash dividends on the Preferred
Stock prior to the Deposit Expiration Date and (B) at the time the Company
obtains such amendments or at any time thereafter (so long as the amendments
remain effective), the trading price, on any date, for the Preferred Stock
equals or exceeds the liquidation preference in respect thereof, then, in such
event, the Company may thereafter, upon notice to the Holders, elect to exchange
the Deposit Account for an obligation to accrue dividends on the Preferred Stock
from the Deposit Payment Date immediately preceding the date of such election by
instructing the Deposit Agent in writing to distribute the remaining balance of
the Deposit Account to the Company in accordance with this clause (f).  If the
Company elects to so terminate the Deposit Account, the Preferred Stock will
begin to accrue dividends from the last Deposit Payment Date preceding such
election.

          (g)  Upon the final resolution (including the final resolution of all
appeals or rights to appeal in any court) of any voluntary or involuntary
dissolution, liquidation or winding up of the Company, the Deposit Agent shall,
upon the written direction of the Company, return to the Holders any funds at
the time remaining in the Deposit Account.

          (h)  For purposes of this Agreement: (i) the term "Notice Date" means
the tenth day prior to the applicable Deposit Payment Date or Deposit Expiration
Date, as the case may be; (ii) the term "Market Value" means, as of any date,
the average of the daily closing price for the five consecutive trading days
ending on such date; the closing price for each day shall be the last sales
price or, in case no such reported sales take place on such day, the average of
the last reported bid and asked price, in either case on the principal national
securities exchange on which the shares of the Common Stock are admitted to
trading or listed, or if not listed or admitted to trading on such exchange, the
representative closing bid price as reported by the Nasdaq National Market, or
other similar organization if the Nasdaq National Market is no longer reporting
such information, or if not so available, the fair market price as determined,
in good faith, by the Board of Directors of the Company and (iii) the term
"Direction Notice" means a notice from the Company, in the form attached as
Exhibit C, delivered to the Deposit Agent directing the Deposit Agent to use
funds from the Deposit Account to purchase Common Stock from the Company to
distribute to Holders of Preferred Stock.

          (i)  This Agreement shall remain in full force and effect until all
amounts held hereunder by the Deposit Agent have been finally distributed in
accordance herewith.

          3.   Record Date.  The Quarterly Return Amount or, if a Direction
               -----------
Notice has been delivered by the Company, Common Stock, shall be returned or
delivered to the Holders of Record of the Preferred Stock, as they appear on the
stock register of the Company or its transfer agent or registrar 10 business
days prior to each Deposit Payment Date ("Holders of Record").  A list of the
Holders of Record, including the number of shares of Preferred Stock held by
each such Holder, shall be delivered to the Deposit Agent by the Company or its
transfer agent or registrar at least 5 days prior to each Deposit Payment Date.

                                      -4-
<PAGE>

          4.   Expenses.  The Deposit Agent shall be entitled to customary fees
               --------
and expenses for performing its duties hereunder, as may be agreed from time to
time by the Company and the Deposit Agent.  The Deposit Agent shall be entitled
to prompt reimbursement of all reasonable expenses incurred by the Deposit Agent
in carrying out its duties hereunder, including, without limitation, reasonable
travel and other out-of-pocket expenses and reasonable fees and expenses of its
legal counsel arising in connection with the entering into this Agreement or the
negotiation, interpretation or enforcement of any provision hereof or any
arbitration or other proceeding hereunder.  The fees and expenses of the Deposit
Agent in carrying out its duties hereunder shall be paid or reimbursed by the
Company.  In the event the Deposit Agent renders any extraordinary services in
connection with the Deposit Account or otherwise under this Agreement at the
request of the Company or the Holders, the Deposit Agent shall be entitled to
reasonable additional compensation therefor.  The terms of this Section 4 shall
survive termination of this Deposit Agreement.

          5.   Notices.  All notices, requests, demands and other communications
               -------
hereunder shall be deemed to have been duly given on the next business day after
being sent if by hand or if by overnight courier service for next business day
delivery, or five days after being sent if mailed, certified or registered mail,
return receipt requested, with postage prepaid:

          (a)  if to the Holders, to their address as set forth in the stock
transfer records of the Company, and to Paul, Hastings, Janofsky & Walker LLP,
399 Park Avenue, New York, NY 10022, Attention: Scott M. Wornow, Esq.;

          (b)  if to the Company, to PSINet Inc., 510 Huntmar Park Drive,
Herndon, Virginia 20170, Attention: Treasurer, or to such other person or
address as the Company shall designate in writing, with a copy to PSINet Inc.,
510 Huntmar Park Drive, Herndon, Virginia 20170, Attention: General Counsel, and
to Nixon Peabody LLP, 437 Madison Avenue, New York, New York 10022, Attention:
Richard F. Langan, Jr., Esq.; and

          (c)  if to the Deposit Agent, to Wilmington Trust Company, Rodney
Square North, 1100 North Market Street, Wilmington, Delaware 19890, Attention:
Bruce L. Bisson.

Any party may change the address (or the person to whose attention such notice
is directed) by notice given to the other parties hereto as aforesaid.

          6.   Concerning the Deposit Agent.  In order to induce the Deposit
               ----------------------------
Agent to act as deposit agent hereunder, the Company hereby covenants and agrees
with the Deposit Agent as follows:

          (a)  The Deposit Agent shall not in any way be bound or affected by
any amendment, modification or cancellation of this Deposit Agreement, unless
the same shall have been agreed to in writing by the Deposit Agent.

          (b)  The Deposit Agent shall be entitled conclusively to rely, and
shall be protected in acting in reliance upon, any Direction Notice or other
notice, letter, statement, list,

                                      -5-
<PAGE>

instruction or direction or any signature furnished to the Deposit Agent
pursuant to this Deposit Agreement and shall be entitled to treat as genuine,
and as the document it purports to be, any letter, notice, statement, list,
instruction, direction or other document or instrument and any signature
delivered to the Deposit Agent hereunder and believed by the Deposit Agent to be
genuine and to have been presented by the proper party or parties, without being
required to determine (and the Deposit Agent shall be permitted to so assume)
the authenticity or correctness thereof and of any fact stated therein, the
propriety or validity thereof, or the authority or authorization of the party or
parties making and/or delivering the same.

          (c)  This Agreement sets forth exclusively the duties and obligations
of the Deposit Agent with respect to any and all matters pertinent to its acting
as deposit agent under this Agreement.

          (d)  The Deposit Agent undertakes to perform only such duties as are
expressly set forth in this Deposit Agreement, and no implied duties or implied
obligations shall be read into this Deposit Agreement against the Deposit Agent.
Neither the Deposit Agent nor any of its directors, officers, employees or
agents shall be in any manner liable or responsible to the Company, any holder
(or any other holder of Preferred Stock) or any other person or entity for or in
respect of any loss, claim, damage or liability (collectively, "Loss") resulting
from, or arising out of, any action or failure or omission to act hereunder or
for any mistake of fact or error of judgment, including, but not limited to, any
Loss that may occur by reason of the exercise of the Deposit Agent's discretion
in connection with to the Deposit Agreement or Deposit Account in any particular
matter or for any other reason, except for any Loss which is the result of gross
negligence or willful misconduct on the part of the Deposit Agent or such
director, officer, employee or agent.

          (e)  The Company covenants and agrees to indemnify and hold the
Deposit Agent and each of its directors, officers, employees and agents (the
Deposit Agent and any such person or entity seeking indemnification hereunder
being hereinafter referred to as an "Indemnified Party") harmless from and
against, and upon demand reimburse each Indemnified Party for, any and all
losses, claims, damages, liabilities, costs and expenses, actions, suits or
proceedings at law or in equity, and any other expenses, fees or charges of any
character or nature (including reasonable costs of investigation and fees and
disbursements of its legal counsel) (collectively, "Indemnified Losses"), which
may be paid, incurred or suffered by such Indemnified Party or to which such
Indemnified Party may become subject by reason of or in connection with its
acting as deposit agent hereunder or arising out of the Deposit Account
(including, but not limited to, any action taken or omitted by the Deposit Agent
in connection with this Agreement or any action allegedly so taken or omitted)
or by reason of, or as a result of, the Deposit Agent's compliance with the
instructions set forth herein or with any instructions delivered to the Deposit
Agent pursuant hereto, except with respect to Indemnified Losses which shall be
the result of gross negligence or willful misconduct on the part of such
Indemnified Party. The terms of this Section 6(e) shall survive the termination
of this Deposit Agreement.

          (f)  In the event of any controversy or dispute hereunder, or with
respect to any question as to the construction of this Agreement or any action
to be taken by it hereunder,

                                      -6-
<PAGE>

the Deposit Agent may, in its discretion, obtain the advice of counsel
reasonably satisfactory to it and shall incur no liability for, and shall be
fully protected in, acting in accordance with the advice or opinion of such
counsel.

          (g)  If any part of the Deposit Fund is at any time attached,
garnished or levied upon or under any court order, or in case the payment,
assignment, transfer, conveyance or delivery of any of the Deposit Fund shall be
stayed or enjoined by any court order, or in case any order, writ, judgment or
decree shall be made or entered by any court affecting the Deposit Fund or any
part thereof, then and in any of such events, the Deposit Agent is authorized,
in its sole discretion, to rely upon and comply with any such order, writ,
judgment or decree. The Deposit Agent shall not be liable to any of the parties
hereto, to any Holder or to any holder of Preferred Stock, or to any other
person, firm or corporation by reason of such compliance even though such order,
writ, judgment or decree may be subsequently reversed, modified, annulled, set
aside, vacated, found to have been entered without jurisdiction, or found to be
in violation of or beyond the scope of a constitution or a law.

          (h)  Notwithstanding anything to the contrary contained herein, if the
Deposit Agent shall be uncertain as to its duties or rights hereunder, shall
receive any notice, advice, direction, or other document from the Company with
respect to the Deposit Fund which, in its opinion, is in conflict with any of
the provisions of this Agreement, should be advised that a dispute has arisen
with respect to the payment, ownership, or right of possession of the Deposit
Fund or any part thereof (or as to the delivery, non-delivery, or content of any
notice, advice, direction, or other document) or if any obligation of the
Deposit Agent under this Agreement shall, in the opinion of the Deposit Agent,
expose the Deposit Agent to liability due to actual or potential conflicting
claims to the Deposit Account, the Deposit Agent shall be entitled (but not
obligated), without liability to anyone, to refrain from taking any action other
than to hold the Deposit Fund in accordance with this Agreement until such
uncertainty, conflict, dispute or obligation is resolved to the reasonable
satisfaction of the Deposit Agent, including by (and, notwithstanding anything
to the contrary, it shall be reasonable for the Deposit Agent not to act until
it has received) an order, decree or judgment of a court of competent
jurisdiction which has been finally affirmed on appeal or which by lapse of time
or otherwise is no longer subject to appeal, but the Deposit Agent shall be
under no duty to institute or to defend any proceeding, although it may
institute or defend such proceedings.

          (i)  The Company shall have the right to cause the Deposit Agent to be
relieved of its duties hereunder and to select a substitute deposit agent, upon
the expiration of 30 days following delivery of written notice of substitution
to the Deposit Agent.  Upon selection of such substitute deposit agent, such
substitute deposit agent and the Company shall enter into an agreement
substantially identical to this Agreement and, thereafter, the replaced deposit
agent shall be relieved of its duties and obligations to perform hereunder,
except that the replaced deposit agent shall transfer to the substitute deposit
agent upon request therefor the Deposit Funds and copies of all books, records,
plans and other documents in the replaced deposit agent's possession relating to
such funds or this Agreement.

                                      -7-
<PAGE>

          (j)  Upon not less than 30 days' written notice to the Company and the
Holders of its intention to resign under this Agreement, the Deposit Agent may
resign as deposit agent hereunder by selecting, as a successor deposit agent,
any other deposit agent as directed or approved by the Company (which approval
shall not be unreasonably withheld).  Such resignation shall take effect upon
delivery by the resigning Deposit Agent of the Deposit Fund to such successor
deposit agent; the resigning Deposit Agent shall thereupon be discharged of all
its duties and obligations hereunder.  In addition, the Deposit Agent shall be
discharged of all of its duties and obligations hereunder upon its deposit of
the Deposit Fund with a court of competent jurisdiction.  The Company, the
Holders (and any other holder of Preferred Stock) each hereby irrevocably
consents and submits to the jurisdiction of such court in any such action and
waives all rights to contest the jurisdiction of such court.

          (k)  The Company hereby authorizes the Deposit Agent, (i) to institute
a bill of interpleader in any court of competent jurisdiction to determine the
rights of any person (including the Initial Holders, the Holders (and any other
holder of Preferred Stock), the Company and any other person) to the Deposit
Account and the Company shall pay all reasonable costs, expenses and
disbursements of the Deposit Agent in connection therewith, including reasonable
attorney's fees and (ii) to deposit the Deposit Account with the clerk of that
court.

          (l)  The Deposit Agent's duties, obligations and liabilities
hereunder, except as a result of the Deposit Agent's gross negligence or willful
misconduct, will terminate upon its delivery of all of the Deposit Fund under
any provision of this Agreement. The provisions of this Section 6(l) shall
survive any such termination.

          7.   Specific Performance.  In the event of the failure by a party
               --------------------
hereto to give any notice required under the terms of this Agreement, the other
parties hereto shall be entitled to specific performance by such non-performing
party.

          8.   Miscellaneous.
               -------------

          (a)  Continuance of Agreement.  This Agreement shall be binding upon
               ------------------------
the parties hereto and their respective heirs, personal representatives,
successors and assigns.

          (b)  Counterparts.  This Agreement may be executed in any number of
               ------------
counterparts all of which, taken together shall constitute the same agreement.

          (c)  No Amendments. This Agreement may not be modified or amended, nor
               -------------
may any provision hereof be waived, except (i) by a writing duly executed by the
Deposit Agent, the Company and by a majority of the Holders or (ii) as provided
in Section 1(b).

          (d)  Governing Law.  This Agreement shall be governed and construed in
               -------------
accordance with the laws of the State of New York without reference to its
principles of conflicts of law.

                                      -8-
<PAGE>

          IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and the year first above written.

                                   PSINET INC.

                                   By: /s/ Edward D. Postal
                                      -----------------------------------
                                      Name:  Edward D. Postal
                                      Title: Executive Vice President and
                                               Chief Financial Officer

                                   WILMINGTON TRUST COMPANY

                                   By: /s/ James J. McGinley
                                      -----------------------------------
                                      Name:  James J. McGinley
                                      Title: Authorized Signor
<PAGE>

                                   Exhibit A

                                    RECEIPT

          The undersigned Initial Purchasers, as defined in Schedule I to that
certain Purchase Agreement dated as of January 26, 2000 on behalf of themselves,
hereby deliver, at the request of the Holders of the 7% Series D Cumulative
Convertible Preferred Stock, $.01 par value, of the Company, to Wilmington Trust
Company, a Delaware banking corporation (the "Deposit Agent"), as deposit agent
under the Deposit Agreement (the "Deposit Agreement") dated as of February 1,
2000 by and between the Deposit Agent and the Company, in immediately available
funds paid by wire transfer, the amount of $49,081,517.02 to the Deposit Account
(as defined in the Deposit Agreement) in accordance with the provisions of the
Deposit Agreement.

                [Remainder of the Page Intentionally Left Blank]
<PAGE>

Date:     February 1, 2000

                                 DONALDSON, LUFKIN & JENRETTE
                                     SECURITIES CORPORATION
                                 MERRILL LYNCH & CO.
                                 MERRILL LYNCH, PIERCE FENNER & SMITH
                                     INCORPORATED
                                 MORGAN STANLEY & CO. INCORPORATED
                                 BEAR, STEARNS & CO. INC.
                                 CHASE SECURITIES INC.
                                 BANCBOSTON ROBERTSON STEPHENS INC.

                                 By: DONALDSON, LUFKIN & JENRETTE
                                      SECURITIES CORPORATION

                                 By: /s/ Raymond Cleeman
                                    -----------------------------------
                                     Name:  Raymond Cleeman
                                     Title: Vice President

Receipt and deposit in the Deposit
Account of the above-mentioned wire
transfer is hereby acknowledged

WILMINGTON TRUST COMPANY,
    as Deposit Agent

By: /s/ James J. McGinley
   ---------------------------------
    Name:  James J. McGinley
    Title: Authorized Signor
<PAGE>

                                   Exhibit B

                                  Investments

          The funds that the purchasers of the 7% Series D Cumulative
Convertible Preferred Stock deposit in the Deposit Account will be invested in
U.S. government obligations or U.S. government guaranteed obligations as
provided on the attachment hereto.

          This Exhibit B shall be amended in the event of any issuance of the
Over-Allotment Shares.

          In the event that investments made pursuant to this Exhibit B shall
mature or otherwise require reinvestment, the Deposit Agent shall make overnight
(or, if requested in writing by the Company, other) investment of available
funds in U.S. government obligations or U.S. government guaranteed obligations
which shall mature as required to make payments required under the Deposit
Agreement.

                                  PSINet Inc.

                           DEPOSIT ACCOUNT PURCHASES
                                   Amendment

                        Trade Settlement Date: 02/01/00

   CUSIP #      FACE VALUE              ISSUE             PRICE         COST
--------------------------------------------------------------------------------

912833FL9     $14,156,000.00     U.S. TREASURY STRIP     0.98398  $13,929,220.88
                                 DUE 5/15/00

912833CC2     $12,250,000.00     U.S. TREASURY STRIP     0.96934  $11,874,415.00
                                 DUE 8/15/00

912820AY3     $12,250,000.00     U.S. TREASURY STRIP     0.95287  $11,672,657.50
                                 DUE 11/15/00

912820AZ0     $12,250,000.00     U.S. TREASURY STRIP     0.93670  $11,474,575.00
                                 DUE 2/15/01

Total Value   $50,906,000.00                                      $48,950,868.38
               =============                                       =============

<PAGE>

                                   Exhibit C

                            Form of Direction Notice

                          [Letterhead of the Company]

                                     [Date]

[Deposit Agent]

                         Re: Direction Notice No. [___]

Ladies and Gentlemen:

          We refer to the Deposit Agreement (the "Deposit Agreement") dated as
of the 1st day of February, 2000 between you, as Deposit Agent, and PSINet Inc.,
a New York corporation (the "Company").  Unless otherwise specified, capitalized
terms used herein shall have the meaning given in the Deposit Agreement.  This
letter constitutes a Direction Notice under the Deposit Agreement.

          [The undersigned hereby notifies you that you are directed, pursuant
to Section 2(b) of the Deposit Agreement, to purchase from the Company, for
delivery to each Holder of Record of Preferred Stock in lieu of the Quarterly
Return Amount on the next Deposit Payment Date or the Deposit Expiration Date,
as applicable, ___ shares of Common Stock for $____ of Quarterly Return Amount.]

          [The undersigned hereby notifies you of the conversion of [_________]
shares of Preferred Stock by certain Holders, and that you are directed,
pursuant to Section 2(c) of the Deposit Agreement, to pay to the Company any
funds remaining in the Deposit Account allocable to the shares of Preferred
Stock so converted.]

          [The undersigned hereby notifies you of the redemption of [____]
shares of Preferred Stock by certain Holders, and that you are directed,
pursuant to Section 2(d) of the Deposit Agreement, to pay $[_____] to the
Company, representing funds remaining in the Deposit Account allocable to the
shares of Preferred Stock so redeemed.]

          [The undersigned hereby notifies you that you are directed, pursuant
to Section 2(e) of the Deposit Agreement, to purchase from the Company for
delivery to each Holder of Record of Preferred Stock in lieu of the Quarterly
Return Amount on the Deposit Expiration Date ___ shares of Common Stock for
$____ of Quarterly Return Amount.]

          In connection with the requested disbursement, the undersigned hereby
notifies you that: (i) you may elect to have the Company deliver, for and on
your behalf, the shares of Common Stock acquired by you directly to the
appropriate Holders of the Preferred Stock and (ii) your obligation to purchase
shares of Common Stock is secured by the funds in the Deposit Account.  The
Deposit Agent is entitled to rely on the foregoing in disbursing funds relating
to this Deposit Notice.
<PAGE>

                                          PSINET INC.

                                          By:______________________________
                                             Name:
                                             Title:

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