<PAGE>
As filed with the Securities and Exchange Commission on May 16, 2000
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
INTERLIANT, INC.
(Exact name of registrant as specified in its charter)
Delaware 7379 13-397-8980
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation or
organization)
Two Manhattanville Road
Purchase, New York 10577
(914) 640-9000
(Address, including zip code and telephone number,
including area code, of registrant's principal executive offices)
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Herbert R. Hribar
President and Chief Executive Officer
Interliant, Inc.
Two Manhattanville Road
Purchase, New York 10577
(914) 640-9000
(Name, address, including zip code and telephone number,
including area code, of agent for service)
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Copies to:
Bruce S. Klein, Esq.
Senior Vice President, General Counsel and Secretary
Interliant, Inc.
Two Manhattanville Road
Purchase, New York 10577
(914) 640-9000
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
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Proposed
Title Of Each Class Of Maximum Proposed Amount Of
Securities To Be Amount To Be Offering Price Maximum Aggregate Registration
Registered Registered Per Unit Offering Price Fee
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<S> <C> <C> <C> <C>
7% Convertible
Subordinated Notes due
2005.................. $154,825,000 59.625(1) $92,314,406 $24,371
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Common Stock, par value
$0.01................. 2,915,726(2) -(3) -(3) -(3)
</TABLE>
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(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c) and based on the average of the high and low
prices, on May 15, 2000, for the 7% Convertible Subordinated Notes due
2005, as traded on the PORTAL system.
(2) This number represents the number of shares of Common Stock that are
initially issuable upon conversion of the 7% Convertible Subordinated Notes
due 2005 (the "Notes") registered hereby. For purposes of estimating the
number of shares of Common Stock to be included in the Registration
Statement upon conversion of the Notes, the Company calculated the number
of shares issuable upon conversion of the Notes based on a conversion rate
of 18.8324 shares per $1,000 principal amount of the Notes. In addition to
the shares set forth in the table, pursuant to Rule 416 under the
Securities Act of 1933, as amended, the amount to be registered includes an
indeterminate number of shares of Common Stock issuable upon conversion of
the Notes, as this amount may be adjusted in certain circumstances outlined
in the prospectus. For more details, see "Description of the Notes" under
the heading "Conversion Rights."
(3) No additional consideration will be received for the Common Stock, and,
therefore, no registration fee is required pursuant to Rule 457(i).
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information contained in this prospectus is not complete and may be +
+changed. We may not sell these securities until the registration statement +
+filed with the Securities and Exchange Commission is effective. This +
+prospectus is not an offer to sell these securities and it is not soliciting +
+an offer to buy these securities in any state where the offer or sale is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated May 16, 2000
PROSPECTUS
[LOGO OF INTERLIANT]
7% Convertible Subordinated
Notes due 2005
This prospectus relates to the 7% Convertible Subordinated Notes due 2005 of
Interliant, Inc., a Delaware corporation, held by certain security holders who
may offer for sale the notes and the shares of our common stock into which the
notes are convertible at any time at market prices prevailing at the time of
sale or at privately negotiated prices. The selling security holders may sell
the notes or the common stock directly to purchasers or through underwriters,
broker-dealers or agents, who may receive compensation in the form of
discounts, concessions or commissions.
The holders of the notes may convert the notes into shares of our common
stock at any time before their maturity, unless we have previously redeemed or
repurchased them, at a conversion rate of 18.8324 shares per $1,000 principal
amount of notes. This is equivalent to a conversion price of approximately
$53.10 per share. On May 15, 2000 the last reported sale price of our common
stock, listed under the symbol "INIT", on the Nasdaq National Market was
$20.3125 per share.
We will pay interest on the notes on February 16 and August 16 of each year,
beginning August 16, 2000. The notes will mature on February 16, 2005. We may
redeem some or all of the notes at any time on or before February 18, 2003 at a
redemption price of $1,000 per $1,000 principal amount of notes, plus accrued
and unpaid interest, if any, to the redemption date, if the closing price of
our common stock has exceeded 150% of the conversion price then in effect for
at least 20 trading days within a period of 30 consecutive trading days ending
on the trading day before the date of mailing of the provisional redemption
notice. We will make an additional payment in cash with respect to the notes
called for provisional redemption in an amount equal to $152.54 per $1,000
principal amount of notes, less the amount of any interest actually paid on the
notes before the call for redemption. At any time after February 18, 2003, we
may redeem the notes, in whole or in part, at the redemption prices set forth
in this prospectus.
In the event of a Change of Control, as defined in this prospectus, each
holder of the notes may require us to repurchase the notes at 100% of the
principal amount of the notes plus accrued interest.
The notes are general, unsecured obligations that are subordinated in right
of payment to all of our existing and future senior indebtedness and
effectively subordinate to all existing and future liabilities of our
subsidiaries.
Our 7% Convertible Subordinated Notes are currently eligible for trading on
the PORTAL Market of the Nasdaq Stock Market.
Investing in the notes or our common stock involves significant risks,
including those described in the "Risk Factors" section beginning on page 3 of
this prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is trustful or complete. Any representation to the contrary is
a criminal offense.
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The date of this prospectus is , 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 3
Use of Proceeds.......................................................... 15
Dividend Policy.......................................................... 15
Price Range of Common Stock.............................................. 15
Selected Consolidated Financial Data..................................... 16
Ratio of Earnings to Fixed Charges....................................... 17
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 18
Business................................................................. 27
Management............................................................... 45
Related Party Transactions............................................... 56
Principal Stockholders................................................... 59
Selling Securityholders.................................................. 61
Description Of Notes..................................................... 62
Description Of Capital Stock............................................. 79
Certain United States Federal Income Tax Considerations.................. 81
Plan Of Distribution..................................................... 86
Legal Matters............................................................ 87
Experts.................................................................. 87
Where You Can Find More Information About Us............................. 88
Index to Financial Statements............................................ F-1
</TABLE>
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Interliant(R) is a registered trademark of Interliant, Inc. This prospectus
also includes trademarks of other companies. These trademarks are the property
of their respective holders.
You should rely only on the information contained in this prospectus. We
have not authorized any other person to provide you with different information.
If anyone provides you with different or inconsistent information, you should
not rely on it.
All references to "we," "us," "our" or "Interliant" in this prospectus means
Interliant, Inc., the issuer of the notes and the common stock issuable upon
conversion of the notes. For purposes of this prospectus, the company whose
business we acquired in March 1999, the name of which was Interliant, Inc., is
referred to as Interliant Texas. We changed our name from Sage Networks, Inc.
to Interliant, Inc. after acquiring Interliant Texas.
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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements relating to, among other
things, future results of operations, growth plans, acquisitions and
integration, sales, gross margin and expense trends, capital requirements,
strategic partnerships and general industry and business conditions applicable
to Interliant. These forward-looking statements are based largely on our
current expectations and are subject to a number of risks and uncertainties.
When used in this prospectus, the words "anticipate," "believe," "estimate" and
similar expressions are generally intended to identify forward-looking
statements. Actual results could differ materially from these forward-looking
statements. In addition to the other risks described elsewhere in the "Risk
Factors" discussion, important factors to consider in evaluating such forward-
looking statements include unforeseen difficulties in integrating acquisitions
or in completing profitable acquisitions in the future, changes in external
competitive market factors, changes in our business strategy or an inability to
execute our strategy due to unanticipated changes in our business, our industry
or the economy in general and various other factors that may prevent us from
competing successfully in existing or future markets. In light of these risks
and uncertainties, we cannot assure you that the forward-looking statements
contained in this prospectus will be in fact realized and we assume no duty to
update any information herein.
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PROSPECTUS SUMMARY
Our Company
We are a leading application service provider, or ASP, providing our
customers with a broad range of outsourced e-business solutions. Our customers
face significant challenges in doing business on the Internet due to its
technical complexity, their lack of technical skills, the time necessary to
implement solutions and the cost of implementation and ongoing support. By
providing comprehensive outsourced solutions that combine our hosting
infrastructure with Internet professional services expertise, we can rapidly
design, implement, deploy and effectively manage cost-effective e-business
solutions for our customers.
As an ASP, we provide:
. hosting infrastructure for our customers' network-based applications,
which allows our customers to store their databases, applications or Web
sites on equipment owned and maintained by us or on our customers'
equipment located in our data centers;
. Internet professional services for designing, implementing and deploying
these network-based applications; and
. operations support, systems and applications management and customer
care for our customers and their end-users.
Our services portfolio consists of the following solutions:
Web Hosting. We provide virtual, dedicated and co-located Web hosting
services. These range from simple, low-end, marketing-oriented Web sites on a
server shared by many customers to high-end, Web-based, mission-critical
applications on hardware dedicated to a specific customer.
Enterprise Resource Planning. Our enterprise resource planning, or ERP,
solutions include the implementation and hosting of PeopleSoft solutions. We
provide hosting services for outsourced human resources and finance solutions,
as well as implementation and management support to PeopleSoft customers.
E-Commerce. We provide e-commerce solutions based on IBM Net.Commerce,
Microsoft SiteServer, Mercantec SoftCart and other applications. Our e-commerce
solutions allow our customers to create and manage electronic storefronts and
provide end-to-end online e-commerce solutions.
Customer Relationship Management. Our Customer Relationship Management, or
CRM, solutions, which are based on software provided by companies such as Onyx,
provide geographically distributed sales and marketing organizations with all
the elements needed to deploy sales force automation, partner relationship
management and other CRM solutions quickly and at a reasonable cost.
Infrastructure/Security Solutions. Our infrastructure/security solutions
allow our customers to implement and deploy technologies that enhance the
performance of their hosted e-business solutions. These technologies include
managed firewall services, load balancing, and caching solutions from vendors
such as Cisco Systems, Check Point Software, ArrowPoint Communications, and
Alteon WebSystems.
Messaging/Knowledge Management. We offer a range of messaging and knowledge
management hosting solutions for the Lotus Notes/Domino and Microsoft Exchange
platforms. These solutions provide our customers with the infrastructure needed
to support e-mail and other messaging methods for internal and external
communication, project team collaboration and document sharing and to improve
business process automation and workflow. We also provide outsourced messaging
solutions based on industry-standard e-mail technologies, such as POP and SMTP,
as well as proprietary messaging solutions, including our eReach for messaging.
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Distributed Learning. Our distributed learning solutions, which are based on
software provided by Lotus, Macromedia and other companies, allow our customers
to create online learning and training environments.
Internet Professional Services. We implement, enhance and support all of our
ASP solutions with Internet professional services, either provided by our own
consultants or by our business partners. Our Internet professional services
include capabilities to create intranet, extranet and application hosting
solutions for our customers, as well as provide network implementation,
security implementation and back-end Web development projects. These services
are a key part of our ASP service delivery, enabling us to provide our
customers with an end-to-end outsourced solution.
We have four state-of-the-art primary data centers located in Houston,
Texas; Atlanta, Georgia; Vienna, Virginia and Columbus, Ohio. Our data centers
in Houston, Atlanta and Vienna are monitored on a 24x7 basis and include
sophisticated monitoring and diagnostics, 24x7 customer support, multiple high
speed network connections to the Internet and uninterruptible power supplies,
fire suppression and external fuel generators. Our Columbus data center is a
secured, raised-floor data center that provides continuous support, plus a
standby generator, hot and cold disaster recovery sites, and off-site data
storage and is monitored on a 24x7 basis.
We have grown rapidly since our inception in December 1997, acquiring 23
hosting and related Internet service businesses through March 31, 2000. In
addition, we have established strategic relationships that enable us to provide
complete, scalable and reliable ASP services to our customers and business
partners. Our current strategic alliances include partnerships with IBM, Dell
Computer, BMC Software, Lotus Development, Microsoft, UUNET Technologies,
Network Solutions, Cisco Systems and Onyx.
Our principal executive offices are located at Two Manhattanville Road,
Purchase, New York 10577 and our telephone number at that address is (914) 640-
9000.
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RISK FACTORS
Investing in the notes or shares of our common stock issuable upon
conversion of the notes entails significant risk. You should carefully consider
the risks and uncertainties described below and elsewhere in this prospectus
before making an investment decision. Additional risks and uncertainties not
presently known to us or that we currently deem immaterial may also impair our
business operations. If any of the following risks or uncertainties actually
occur, our business could be adversely affected. In this event, the trading
price of the notes and our common stock could decline and you could lose part
or all of your investment.
We are a young and developing company and as a result investing in the notes
or our stock presents the following risks.
We have a limited operating history and may not successfully implement our
business plan.
We have a limited operating history. We were incorporated in December 1997
and began offering Web hosting services in February 1998. Through March 31,
2000, we have completed 23 acquisitions. As a result of our limited operating
history and numerous acquisitions, our business model is still developing. Our
business and prospects must be considered in light of the risks frequently
encountered by companies in their early stages of development, particularly
companies in the new and rapidly evolving Internet services market. Some of
these risks relate to our ability to:
. implement our sales and marketing strategy to support our business and
build the Interliant brand;
. identify, acquire and integrate strategic acquisitions and then cross-
sell our expanding range of branded services to the customer bases of
the acquired companies;
. provide reliable and cost-effective services to our customers;
. continue to build our operations and accounting infrastructure to
accommodate additional customers;
. respond to technological developments and new products and services
offered by our competitors;
. develop and offer new products and services or differentiate such
products and services from those offered by our competitors;
. enter into strategic relationships with application software vendors and
other strategic partners that further advance our objective to become a
full service ASP;
. build, maintain and expand distribution channels; and
. attract and retain qualified personnel.
We may not be successful in accomplishing these objectives. If we are not
successful, our business could be adversely affected.
We have a history of significant losses and these losses may increase in the
future.
Since our inception in December 1997, we have experienced operating losses
for each quarterly and annual period. We experienced net losses of
approximately $53.9 million in the year ended December 31, 1999 and $28.6
million in the three months ended March 31, 2000. As of March 31, 2000, we had
an accumulated deficit of approximately $93.4 million. The revenue, cash flow
and income potential of our business model is unproven and our limited
operating history makes it difficult to evaluate our prospects. We anticipate
that we will incur increased expenses, losses, and cash flow deficits as we
expand our sales and marketing initiatives to continue to grow the Interliant
brand, fund greater levels of product development, continue to build out our
data centers, implement centralized billing, accounting and customer service
systems and continue our acquisition program.
3
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We have experienced significant growth in revenues, primarily attributable
to acquisitions. This growth rate is not necessarily indicative of future
operating results. Our future results will depend not only on continuing our
acquisition strategy but also on internal growth. We expect that future
acquisitions will increase our operating expenses and operating losses. As a
result, we expect to incur significant additional operating losses. We cannot
give any assurance that we will ever achieve profitability on a quarterly or
annual basis, or, if we achieve profitability, that it will be sustainable.
Our operating results may fluctuate in the future. As a result, period-to-
period comparisons of our results of operations are not necessarily meaningful
and should not be relied upon as indications of future performance.
Our operating results may fluctuate in the future as a result of a variety
of factors, some of which are outside of our control. These factors include:
. the quality and timing of acquisitions we complete and our ability to
successfully integrate these acquisitions into our business;
. the demand for our services, pricing pressures in our market and changes
in the mix of products and services sold by us and our competitors;
. technological issues, including technical difficulties affecting the
Internet generally or our hosting operations in particular and increased
technological demands of our customers;
. the amount and timing of our costs related to our marketing efforts and
service introductions by us or our reseller or referral partners; and
. economic conditions specific to the hosting and consulting industries.
Historically, fluctuations in our operating results have resulted
principally from completed acquisitions. Due to the factors described above,
our operating results may not be indicative of future operating results. In
addition, our future operating results for any particular period may differ
materially from our expectations or those of investors or security analysts. In
this event, the market price of the notes and our common stock would likely
fall dramatically.
We only recently began to offer many of our products and services and we intend
to offer new products and services in the future. If our products are not
accepted by the market or have reliability or quality problems, our business
may suffer.
We have recently introduced new hosting solutions such as our hosted
customer relationship management solutions as well as enhanced Internet
services such as e-commerce and consulting services. If these and other new
hosting solutions and enhanced Internet services that we may introduce in the
future fail to gain market acceptance, our business could be adversely
affected. In addition, if these newly introduced hosting solutions and enhanced
Internet services have reliability, quality or compatibility problems, market
acceptance of these products could be greatly hindered and our ability to
attract new customers could be adversely affected. We cannot offer any
assurance that these new solutions and services are free from any reliability,
quality or compatibility problems.
The continued growth of the market for our products and services may not
materialize.
Our market is new and rapidly evolving. Whether the market for our products
and services will continue to grow is uncertain. Our business would be
adversely affected if the hosting market does not continue to grow or if
businesses reduce or discontinue outsourcing their hosting business.
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Our success depends in part on continued growth in the use of the Internet.
Our business would be adversely affected if Internet usage does not continue to
grow. Internet usage may be inhibited for a number of reasons, such as:
. security and privacy concerns;
. uncertainty of legal and regulatory issues concerning the use of the
Internet;
. inconsistent quality of service; and
. lack of availability of cost-effective, high-speed connectivity.
We are growing rapidly, principally through acquisitions, which presents the
following risks.
The success of our business plan depends on our ability to make additional
acquisitions. Our acquisition program entails significant risks.
We intend to pursue opportunities to expand our business through the
acquisition of selected companies in targeted markets. The acquisition
candidates we review can be large, and their acquisition by us could have a
significant and lasting impact on our business. We cannot guarantee that:
. we will be able to identify appropriate acquisition candidates or
negotiate acquisitions on favorable terms; or
. we will be able to obtain the financing necessary to complete all
projected future acquisitions.
Acquisitions involve numerous risks, including adverse effects on our
operating results from increases in amortization of intangible assets,
inability to integrate acquired businesses, increased compensation expense
associated with newly hired employees and unanticipated liabilities and
expenses. In addition, we cannot guarantee that we will realize the benefits or
strategic objectives we are seeking to obtain by acquiring any particular
company and any acquired company could significantly underperform relative to
our expectations. In particular, acquired companies have often experienced
modest revenue declines immediately following the closing of the acquisition.
Because we have only recently completed many of our acquisitions, we are
currently facing all of these challenges and we have not established our
ability to meet them over the long term. As a result of all of the foregoing,
our acquisition strategy could adversely affect our business.
The success of our business plan depends on the successful integration of
acquisitions.
From February 1998 through March 31, 2000, we have acquired 23 businesses
and are currently pursuing additional acquisitions. Our future performance will
depend in large part on our ability to integrate these businesses or any future
acquired businesses with our existing operations successfully and profitably.
To integrate acquired businesses, it is often necessary or desirable to
accomplish one or more of the following:
. consolidate their billing and accounting systems into our systems and
implement financial and other control systems;
. relocate the servers and other equipment of acquired companies to one of
our facilities;
. migrate the operations of acquired companies onto our technology
platforms;
. integrate the customer accounts of acquired companies into our customer
service system;
. integrate the service offerings of acquired companies into the
Interliant brand; and
. identify resellers and referral partners of the services of acquired
companies and migrate them to our business partner program.
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We may not be able to successfully integrate acquired businesses with
existing operations without substantial costs, delays or other problems, if at
all. As we integrate acquired businesses:
. we may lose customers of acquired companies due to difficulties during
the integration process;
. we may not be able to bill customers of the acquired companies
accurately due to potential deficiencies in the internal controls of the
acquired companies, such as inadequate back-office systems of the
acquired companies and potential difficulties in migrating records onto
our own systems;
. we may experience difficulty in collecting bills rendered by acquired
companies due to inaccurate record keeping of the acquired companies;
. key employees of the acquired companies whom we wish to retain may
resign;
. management's attention and resources could be diverted from our ongoing
business concerns;
. we may not be able to integrate newly acquired technologies with our
existing technologies; and
. we may not be able to train, retain and motivate executives and
employees of the acquired companies.
The businesses we have acquired are in various stages of the integration
process. Our integration plan is constantly changing as a result of our
business activities, as well as future acquisitions. Because we employ a
strategy that includes a high level of acquisition activity, at any time there
are likely to be one or more operating businesses that have not been integrated
into our business. In addition, our acquisitions in February 2000 of reSOURCE
Partner, Inc. and Softlink, Inc., respectively, represent in the aggregate our
largest acquisition to date, and thus the integration risks set forth above
will likely be even more significant with respect to these two acquisitions.
A significant portion of our assets consists of intangible assets, the
recoverability of which is not certain and the amortization of which will
increase losses or reduce earnings in the future.
In connection with our acquisitions completed through March 31, 2000, $177.7
million of the aggregate purchase price has been allocated to intangible assets
such as covenants not to compete, customer lists, trade names, assembled work
force and goodwill. Annual amortization expense related to these intangible
assets in the current fiscal year will be approximately $46.9 million.
Amortization expense will increase as we acquire additional businesses. Our
business could suffer if changes in our industry or our inability to operate
the business successfully and produce positive cash flows from operations
result in an impairment in the value of our intangible assets and therefore
necessitate a write-off of all or part of these assets.
Our rapid growth and expansion has and may continue to significantly strain our
resources.
We are experiencing rapid growth, primarily due to acquisitions. This rapid
growth has placed and is likely to continue to place, a significant strain on
our operating and financial resources. Our future performance will partly
depend on our ability to manage our growth effectively, which will require that
we further develop our operating and financial system capabilities and
controls. We have invested and intend to continue to invest, significant
amounts in billing, accounts receivable, customer service and financial
systems. Because we employ a strategy that includes a high level of acquisition
activity, at any time there are likely to be one or more operating businesses
that have not been integrated into our core systems and continue to produce
financial and other information from their existing systems. As a result, our
ability to record, process, summarize and report financial data could be
adversely affected.
We may need additional funds which, if available, could result in an increase
in our interest expense or dilution of your shareholdings. If these funds are
not available, our business could be hurt.
To date, our cash flows from operations have been insufficient to fund our
operations and our acquisition and internal growth programs. We have funded our
operations principally from the proceeds of stock sales,
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sales of convertible notes and from other external sources. We cannot predict
when we will be able to fund our operations entirely from internally generated
cash flow. We may never be able to do so. As a result, we may need to raise
additional funds to conduct our operations and fund our growth programs.
We may raise funds through public or private debt or equity financing. If
funds are raised through the issuance of equity securities, the percentage
ownership of our then current stockholders may be reduced and such equity
securities may have rights, preferences or privileges senior to those of the
holders of our common stock. If additional funds are raised through the
issuance of debt securities, such securities would have certain rights,
preferences and privileges senior to those of the holders of our common stock
and the terms of such debt could impose restrictions on our operations. If
additional funds become necessary, additional financing may not be available on
terms favorable to us, or at all. If adequate funds are not available on
acceptable terms, we may not be able to continue to fund our operations and
growth or to continue our acquisition program. Our inability to raise capital
could adversely affect our business.
We operate in the young and rapidly evolving Internet services industry, which
presents the following risks.
We depend on the growth and stability of the Internet infrastructure.
If the use of the Internet continues to grow rapidly, its infrastructure may
not be able to support the demands placed on it by such growth and its
performance or reliability may decline. In addition, Web sites have experienced
interruptions in their service as a result of outages and other delays
occurring throughout the Internet network infrastructure. If these outages or
delays occur frequently, use of the Internet as a commercial or business medium
could, in the future, grow more slowly or decline, which would adversely affect
our business.
If we do not respond effectively and on a timely basis to rapid technological
change, our business could suffer.
The Internet industry is characterized by rapidly changing technology,
industry standards, customer needs and competition, as well as by frequent new
product and service introductions. Our future success will depend, in part, on
our ability to accomplish all of the following in a timely and cost-effective
manner, all while continuing to develop our business model and roll-out our
services:
. effectively use and integrate leading technologies;
. continue to develop our technical expertise;
. enhance our products and current networking services;
. develop new products and services that meet changing customer needs;
. advertise and market our products and services; and
. influence and respond to emerging industry standards and other changes.
We cannot assure you that we will successfully use or develop new
technologies, introduce new services or enhance our existing services on a
timely basis, or that new technologies or enhancements used or developed by us
will achieve market acceptance. Our pursuit of necessary technological advances
may require substantial time and expense.
Disruption of our services due to accidental or intentional security breaches
may adversely impact our business.
A significant barrier to the growth of e-commerce and communications over
the Internet has been the need for secure transmission of confidential
information. Despite our design and implementation of a variety of
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network security measures, unauthorized access, computer viruses, accidental or
intentional actions and other disruptions could occur. We may incur significant
costs to protect against the threat of security breaches or to alleviate
problems caused by such breaches. If someone were able to misappropriate our
users' personal or proprietary information or credit card information, we could
be subject to claims, litigation or other potential liabilities.
We operate in an uncertain regulatory and legal environment which may make it
more difficult to defend ourselves against any claims brought against us.
We are not currently subject to direct regulation by the Federal
Communications Commission or any other governmental agency, other than
regulations applicable to business in general. While there are currently few
laws or regulations which specifically regulate Internet communications, laws
and regulations directly applicable to online commerce or Internet
communications are becoming more prevalent. There is much uncertainty regarding
the marketplace impact of these laws. In addition, various jurisdictions
already have enacted laws covering intellectual property, privacy, libel and
taxation that could affect our business by virtue of their impact on online
commerce. In the future, we may become subject to regulation by the FCC or
another regulatory agency. Further, the growth of the Internet, coupled with
publicity regarding Internet fraud, may lead to the enactment of more stringent
consumer protection laws. If we become subject to claims that we have violated
any laws, even if we successfully defend against these claims, our business
could suffer. Moreover, new laws that impose restrictions on our ability to
follow current business practices or increase our costs of doing business could
hurt our business.
If states and countries in which we do not currently collect sales or other
taxes mandate that we do so, our business could suffer.
We collect sales or other taxes with respect to the sale of products or
services in states and countries where we believe we are required to do so. We
currently do not collect sales and other taxes in all states and countries in
which we have offices and may be required by law to do so. One or more
jurisdictions have sought to impose sales or other tax obligations on companies
that engage in online commerce within their jurisdictions. A successful
assertion by one or more jurisdictions that we should collect sales or other
taxes on our products and services, or remit payment of sales or other taxes
for prior periods, could have an adverse effect on our business.
We could face liability for information disseminated through our network.
It is possible that claims could be made against us in connection with the
nature and content of the materials disseminated through our networks. Several
private lawsuits are pending against other entities which seek to impose
liability upon online services companies and Internet service providers as a
result of the nature and content of materials disseminated over the Internet.
If any of these actions succeed, we might be required to respond by investing
substantial resources or discontinuing some of our product or service
offerings. The increased attention focused upon liability issues as a result of
these lawsuits and legislative proposals could impact the growth of Internet
use. Although we carry professional liability insurance, it may not be adequate
to compensate or may not cover us in the event we become liable for information
carried on or disseminated through our networks. Any costs not covered by
insurance incurred as a result of such liability or asserted liability could
adversely affect our business.
We operate in an extremely competitive market and may not be able to compete
effectively.
Our current and prospective competitors are numerous. Many of our
competitors have substantially greater financial, technical and marketing
resources, larger customer bases, longer operating histories, greater name
recognition and more established relationships in the industry than we do. We
may not be able to compete effectively. See "Business--Competition."
8
<PAGE>
We depend on the skills of key personnel.
We depend on the continued service of our key personnel. Our key personnel
are critical to our success, and many of them would be difficult to replace.
Many of them are not bound by employment agreements, and competitors in our
industry may attempt to recruit them. We currently have agreements to retain
the services of certain members of our management team. These agreements do
not, however, as a practical matter, guarantee our retention of these persons.
In addition, our Co-Chairmen, Mr. Fassler and Mr. Feld, are each currently
active in, and serve as directors and/or executive officers of, a number of
businesses other than Interliant. Although Mr. Feld spends a significant
portion of his time on our business, and both Mr. Fassler and Mr. Feld are
active in our management, they are not contractually committed to spend any
specific amount of time at Interliant. The loss of the services of one or more
of our key personnel could adversely affect our business.
We operate in an industry where it is difficult to attract and retain qualified
personnel.
We expect that we will need to hire additional personnel in all areas of our
business. The competition for personnel throughout our industry is intense. At
times, we have experienced difficulty in attracting qualified new personnel. If
we do not succeed in attracting new, qualified personnel or retaining and
motivating our current personnel, our business could suffer.
Our application hosting solutions depend on software applications we obtain
from third parties.
We obtain software products pursuant to agreements with vendors such as
Lotus and Microsoft and package them as part of our application hosting
solutions. The agreements are typically for terms ranging from one to three
years. We also license additional technologies that we use in our business from
other third parties. If these agreements were terminated or not renewed, we
might have to discontinue products or services that are central to our business
strategy or delay their introduction unless we could find, license and package
equivalent technology. Our business strategy also depends on obtaining
additional application software. We cannot be sure, however, that we will be
able to obtain the new and enhanced applications we may need to keep our
solutions competitive. If we cannot obtain these applications and as a result
must discontinue, delay or reduce the availability of our solutions or other
products and services, our business may be adversely affected. In addition, we
may become subject to infringement actions based upon the technologies licensed
from third parties. Any of these claims, with or without merit, could subject
us to costly litigation and divert the attention of our technical and
management personnel.
Our business operations present the following additional risks.
We intend to commit substantial funds to sales and marketing initiatives. Our
failure to develop brand recognition for the Interliant brand could hurt our
business.
Our sales and marketing expenses were $17.2 million and $2.6 million in the
years ended December 31, 1999 and 1998, respectively, and $8.0 million for the
three months ended March 31, 2000. A key component of our strategy is to
significantly increase our sales and marketing activities. This will include
the expansion of our sales force, development of reseller and referral partner
channels and increased marketing efforts. As a result, sales and marketing
expenses are likely to increase substantially in future periods. Our business
could be adversely affected if the Interliant brand is not well received by our
customers, our marketing efforts are not productive or we are otherwise
unsuccessful in increasing our brand awareness. We are currently marketing and
expect to continue to market many of our products and services under the brand
names of acquired companies. In most circumstances, we intend to change the
brand under which we offer these products and services to the Interliant brand.
If we are unsuccessful in these efforts, we may not achieve our revenues
objectives and the acquired operations could lose substantial value.
Our agreements with application software vendors are not exclusive and may not
provide us with any competitive advantage.
None of our agreements for application software and other technology are
exclusive. Our competitors may also license and utilize the same technology in
competition with us. We cannot be sure that the vendors of
9
<PAGE>
technology used in our products will continue to support this technology in its
current form. Nor can we be sure that we will be able to adapt our own products
to changes in this technology. In addition, we cannot be sure that potential
financial or other difficulties of third party vendors will not have an adverse
affect on the technologies incorporated in our products, or that, if these
technologies become unavailable, we will be able to find suitable alternatives.
We depend on our network infrastructure. If we do not have continued access to
a reliable network, our business will suffer.
Our success partly depends upon the capacity, scalability, reliability and
security of our network infrastructure, including the capacity leased from our
telecommunications network suppliers such as UUNET Technologies. We depend on
these companies to provide uninterrupted and "bug free" service. We would be
adversely affected if such services were not provided. In addition, we would be
adversely affected if:
. these companies greatly increased the prices of their services; or
. the telecommunications capacity available to us was insufficient for our
business purposes and we were unable to use alternative networks or pass
along any increased costs to our customers.
Our business and expansion models assume that we will be able to scale our
network infrastructure to support increasing numbers of customers and increased
traffic. However, the scalability of our network is unproven.
We must continue to develop and expand our network infrastructure to
accommodate:
. increases in the number of users we service;
. increases in the amount of information our customers wish to transport;
. increases in the number of products and services we offer; and
. changing customer requirements.
Our expansion and adaptation of our telecommunications and hosting facility
infrastructure will require substantial financial, operational and management
resources. If we are required to expand our network significantly and rapidly
due to increased usage, additional stress will be placed upon our network
hardware, traffic management systems and hosting facilities. As a result of the
limited deployment of our services to date, the ability of our network to
connect and manage a substantially larger number of customers at high
transmission speeds while achieving expected performance is unknown.
As our customers' bandwidth usage increases, we will need to make additional
investments in our infrastructure to maintain adequate data transmission
speeds, the availability of which may be limited and the cost of which may be
significant. Additional network capacity may not be available from third-party
suppliers as it is needed by us. As a result, our network may not be able to
achieve or maintain a sufficiently high capacity of data transmission,
especially if customers' usage increases. Any failure on our part to achieve or
maintain high-capacity data transmission could significantly reduce consumer
demand for our services and adversely affect our business.
We could experience system failures and capacity constraints, which could
affect our ability to compete.
To succeed, we must be able to operate our network infrastructure on a 24x7
basis without interruption. Our operations depend upon our ability to protect
our network infrastructure, equipment and customer files against damage from:
. human error;
. natural disasters;
10
<PAGE>
. power loss or telecommunications failures; and
. sabotage or other intentional acts of vandalism.
However, even if we take precautions, the occurrence of a natural disaster
or other unanticipated problems at our data centers could result in
interruptions in the services we provide to our customers.
At this time, we do not have a formal disaster recovery plan. In addition,
our data centers are subject to various single points of failure. As a result,
a problem with one of our routers, switches or fiber paths or with another
aspect of our network could cause an interruption in the services we provide to
some of our customers. We have experienced interruptions in service in the
past. Any future interruptions could:
. require us to spend substantial amounts of money replacing existing
equipment or adding redundant facilities;
. damage our reputation for reliable service;
. cause existing end users, resellers and referral partners to cancel
their contracts;
. cause end users to seek damages for losses incurred; or
. make it more difficult for us to attract new end users, resellers and
referral partners.
Any of these occurrences could adversely affect our business.
We have entered into service level agreements with some of our customers and
we anticipate that we will offer service level agreements to a larger group of
customers in the future. In that case, we could incur significant liability to
our customers in connection with any system downtime and those obligations may
adversely affect our business.
Currency fluctuations and different standards, regulations and laws relating to
our international operations may adversely affect our business.
Approximately 20.0% of our revenue for the year ended December 31, 1999 and,
on a pro forma basis, giving effect to acquisitions completed through March 31,
2000, 10.0% for the three months ended March 31, 2000 were to customers located
outside the United States, primarily in Europe, Asia and South America. Our
success may depend in part on expanding our international presence. Because our
sales overseas are denominated in U.S. dollars, currency fluctuations may
inhibit us from marketing our services to potential foreign customers or
collecting for services rendered to current foreign customers.
In February, 2000 we entered into a shareholders agreement with @viso
Limited. Pursuant to this agreement we agreed to form a corporation through
which we will launch Web hosting, application hosting and related services in
continental Europe. We expect that this arrangement will significantly expand
our international operations and, consequently, increase the related risks such
as managing operations across disparate geographic areas and differences in
privacy, censorship and liability standards and regulations.
We may be liable for defects or errors in the solutions we develop.
Many of the solutions we develop are critical to the operations of our
clients' businesses. Any defects or errors in these solutions could result in:
. delayed or lost client revenues;
. adverse customer reaction toward Interliant;
. negative publicity;
. additional expenditures to correct the problem; and
. claims against us.
11
<PAGE>
Claims against us may not be adequately covered by insurance, may result in
significant losses and, even if defended successfully, may raise our insurance
costs.
Risks related to the notes, our common stock and the securities markets
The recent substantial increase in our indebtedness due to our sale of the
notes may have important consequences to you.
As a result of our recent sales of convertible notes to the initial
purchasers in February 2000 and to Microsoft Corporation in March 2000, we
incurred approximately $164.8 million in aggregate principal amount of
additional indebtedness, increasing our ratio of debt to equity, expressed as a
percentage, from approximately 2.7% at December 31, 1999 to approximately 89.9%
as of March 31, 2000. Our other indebtedness is principally comprised of notes
payable. We may incur substantial additional indebtedness in the future. The
level of our indebtedness, among other things, could:
. make it more difficult for us to make payments on the notes;
. impair our ability to obtain additional financing in the future;
. reduce funds available to us for other purposes, including working
capital, capital expenditures, strategic acquisitions, research and
development, and other general corporate purposes;
. restrict our ability to introduce new products or exploit business
opportunities;
. increase our vulnerability to economic downturns and competitive
pressures in the industry in which we operate;
. limit our ability to dispose of assets; and
. place us at a competitive disadvantage.
If we cannot obtain a significant amount of cash to service our indebtedness,
we may not be able to pay our debt and other obligations.
Our ability to make payments on our indebtedness and to fund planned capital
expansion and development and operating costs will depend on our ability to
generate cash in the future through sales of our services. Our cash flow
generated during the year ended December 31, 1999 and the three months ended
March 31, 2000, would have been insufficient to pay the amount of interest
payable on the notes, and we cannot assure you that we will be able to pay
interest and other amounts due on the notes as and when they become due and
payable. We cannot assure you that our available liquidity will be sufficient
to service our indebtedness or to fund our other cash needs. We may need to
refinance all or a portion of our indebtedness on or before maturity, but we
may not be able to do so on commercially reasonable terms, or at all. Without
sufficient funds to service our indebtedness we would have serious liquidity
constraints and would need to seek additional financing from other sources, but
we may not be able to do so on commercially reasonable terms, or at all.
In addition, if we are unable to generate sufficient cash flow or otherwise
obtain funds necessary to make required payments on the notes or our other
obligations, we would be in default under the terms thereof, which would permit
the holders of the notes to accelerate the maturity of the notes and could also
cause defaults under future indebtedness we may incur. Any such default could
have a material adverse effect on our business, prospects, financial condition
and operating results.
You may encounter volatility in the market price of our common stock.
The trading price of our common stock has been and is likely to continue to
be highly volatile. Our stock price could be subject to wide fluctuations in
response to factors such as the following:
. actual or anticipated variations in quarterly results of operations;
. the addition or loss of customers, vendors or strategic partners;
12
<PAGE>
. our ability to hire and retain key personnel and other employees;
. announcements of technological innovations, new products or services by
us or our competitors;
. changes in financial estimates or recommendations by securities
analysts;
. conditions or trends in the Internet and online commerce industries;
. changes in the market valuations of other Internet or online service
companies; and
. our announcements of significant acquisitions, strategic partnerships,
joint ventures or capital commitments.
In addition, the stock market in general and the Nasdaq National Market and
the market for Internet and technology companies in particular, have
experienced extreme price and volume fluctuations that have often been
unrelated or disproportionate to the operating performance of these companies.
These broad market and industry factors may materially and adversely affect our
stock price, regardless of our operating performance. The trading prices of the
stocks of many technology companies are at or near historical highs and reflect
price-earnings ratios and revenue multiples that are substantially above
historical levels. These trading prices and price earnings ratios may not be
sustained. Consequently, you may not be able to sell the notes or the common
stock into which they are convertible at a price that is attractive to you.
Holders of senior indebtedness will be paid before holders of the notes are
paid.
The notes are subordinated to our existing and future senior indebtedness
and are structurally subordinated to all liabilities, including trade payables,
of our subsidiaries and us. As of March 31, 2000, the notes were junior to $4.1
million of outstanding senior indebtedness and effectively junior to $7.1
million of trade payables and other liabilities of our subsidiaries. If we
become bankrupt, liquidate or dissolve, our assets would be available to pay
obligations on the notes only after our senior indebtedness has been paid. We
cannot assure you that there will be sufficient assets to pay amounts due on
the notes.
If we fail to pay any of our designated senior indebtedness, we may make
payments on the notes only if we cure the default or the holders of the senior
indebtedness waive the default. Moreover, if any non-payment default exists
under our designated senior indebtedness and the holders of the designated
senior indebtedness elect to exercise their rights, we may not make any cash
payments on the notes for a period of up to 179 days in any 365 day period,
unless we cure the default, the holders of the senior indebtedness waive the
default or rescind acceleration of the indebtedness, or we repay the
indebtedness in full.
We may not be able to repurchase notes upon a change of control which would be
an event of default under the indenture.
Upon the occurrence of specified change of control events, we could be
required to repurchase all outstanding notes at a price equal to 100% of their
principal amount, plus accrued interest to the repurchase date. We cannot
assure you that we will have sufficient funds available to repurchase the notes
upon a change of control. Our failure to repurchase the notes would constitute
an event of default under the indenture.
You may be unable to sell your notes if a trading market for the notes does not
develop.
The liquidity of any market for the notes will depend on the number of
holders of the notes, the interest of securities dealers in making a market in
the notes and other factors. Accordingly, we cannot assure you as to the
development or liquidity of any market for the notes. If an active trading
market for the notes does not develop, the market price and liquidity of the
notes may be adversely affected. If the notes are traded, they may trade at a
discount from your original purchase price depending upon prevailing interest
rates, the market for similar securities, our performance and certain other
factors.
13
<PAGE>
Our existing principal stockholders, executive officers and directors control
Interliant and could delay or prevent a change in corporate control that
stockholders may believe will improve management and could depress our stock
price because purchasers cannot acquire a controlling interest.
As of March 31, 2000, our directors, executive officers and their affiliates
beneficially owned, in the aggregate, shares representing approximately 62% of
our common stock. As a result, these persons, acting together, will be able to
control all matters submitted to our stockholders for approval and to control
our management and affairs. This control could have the effect of delaying or
preventing a change of control that stockholders may believe would be
beneficial to their interests. In addition, this control could depress our
stock price because purchasers will not be able to acquire a controlling
interest in Interliant.
Our stock price may be affected by the availability of shares for sale. The
future sale of large amounts of our stock, or the perception that such sales
could occur, could negatively affect our stock price.
The market price of our common stock could drop as a result of a large
number of shares of our common stock in the market. As of March 31, 2000 there
were approximately 47.4 million shares of common stock outstanding,
substantially all of which are eligible for sale in the public market. Holders
of approximately 36.0 million restricted shares have registration rights with
respect to such shares, which if exercised would permit the holders to sell
their shares freely in the public markets. The filing of this registration
statement triggered piggyback registration rights held by the stockholders
described above, and we intend to file shortly a registration statement
covering substantially all of those 36.0 million shares, as well as the
convertible notes that we sold to Microsoft Corporation in March 2000 and the
common stock issuable upon conversion of those notes. Also, in connection with
this registration statement approximately 2.9 million shares of our common
stock would be issuable upon conversion, which represents approximately 6.5% of
our common stock currently outstanding. In addition, shares issuable upon
exercise of our outstanding options may be sold freely under our Form S-8
registration statement.
14
<PAGE>
USE OF PROCEEDS
The selling securityholders will receive all of the proceeds from the sale
of the securities sold pursuant to this prospectus. We will not receive any of
the proceeds from the sale of the notes or the common stock into which the
notes are convertible by the selling securityholders. See "Selling
Securityholders."
DIVIDEND POLICY
We have never paid or declared any cash dividends on our common stock. We
currently intend to retain any future earnings for our business and, therefore,
do not anticipate paying cash dividends in the foreseeable future. Future
dividends, if any, will depend on, among other things, our results of
operations, capital requirements, restrictions in loan agreements and on such
other factors that our Board of Directors may, in its discretion, consider
relevant.
PRICE RANGE OF COMMON STOCK
Our common stock commenced trading on the Nasdaq National Market under the
symbol "INIT" on July 8, 1999. The following table sets forth, for the periods
indicated, the intra-day high and low sales prices per share of common stock on
the Nasdaq National Market. Such prices reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not represent actual
transactions.
<TABLE>
<CAPTION>
1999 High Low
- ---- --------- -------
<S> <C> <C>
Third Quarter (from July 8, 1999)............................. $23 23/64 $10 1/2
Fourth Quarter................................................ $35 $ 9 1/4
<CAPTION>
2000
- ----
<S> <C> <C>
First Quarter................................................. 54 7/16 28 1/4
Second Quarter (through May 15)............................... 27 15/16 12 7/8
</TABLE>
The last reported sale price of our common stock on the Nasdaq National
Market on May 15, 2000 was $20 5/16 as reported by Nasdaq National Market. As
of March 31, 2000, there were approximately 171 stockholders of record of our
common stock.
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in thousands, except per share data)
The following selected consolidated financial data should be read in
conjunction with Interliant's Consolidated Financial Statements and Notes
thereto, the Unaudited Pro Forma Consolidated Financial Statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The statement of operations
data for the period ended December 31, 1997 and the years ended December 31,
1998 and 1999 and the balance sheet data as of December 31, 1998 and 1999, are
derived from the consolidated financial statements of Interliant that have been
audited by Ernst & Young LLP, independent auditors, whose report with respect
thereto is included elsewhere in this prospectus. The statement of operations
data for the three months ended March 31, 1999 and 2000 and the balance sheet
data as of March 31, 2000 have been derived from the unaudited financial
statements included in this prospectus. We believe that the unaudited
historical financial statements contain all adjustments needed to present
fairly the information in those statements and that the adjustments made
consist only of recurring adjustments.
The unaudited pro forma statement of operations data for the year ended
December 31, 1999 and for the three months ended March 31, 2000 assumes that
the acquisitions completed through March 31, 2000 had occurred on January 1,
1999 and includes the historical consolidated statements of operations of
Interliant, adjusted for the pro forma effects of such acquisitions.
Our historical results of operations are not necessarily indicative of
results of operations for future periods. Interliant's development and
expansion activities, including acquisitions, during the periods shown below
may significantly affect the comparability of this data from one period to
another. The unaudited pro forma statement of operations data is not
necessarily indicative of the results of operations that would actually have
occurred if the acquisitions had been consummated as of January 1, 1999 and is
not intended to indicate the expected results for any future period. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
Historical Pro Forma
---------------------------------------------------------- ----------------------
Period from
December 8,
1997 Three Three Three
(Inception) months months months
to Year ended Year ended ended ended Year ended ended
December 31, December 31, December 31, March 31, March 31, December 31, March 31,
1997 1998 1999 1999 2000 1999 2000
------------ ------------ ------------ --------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................ $ -- $ 4,905 $ 47,114 $ 5,434 $ 26,858 $133,039 $ 35,189
Costs and expenses:
Cost of revenues....... -- 3,236 27,514 3,251 18,534 86,407 25,012
Sales and marketing.... 2,555 17,236 1,896 7,999 25,639 9,155
General and
administrative........ 156 6,849 29,062 4,805 15,792 52,924 18,694
Depreciation........... 2 696 6,051 700 2,466 9,001 2,765
Amortization of
intangibles........... -- 2,439 22,069 2,594 9,316 46,911 11,728
------ -------- -------- ------- -------- -------- --------
158 15,775 101,932 13,246 54,107 220,882 67,354
------ -------- -------- ------- -------- -------- --------
Operating loss.......... (158) (10,870) (54,818) (7,812) (27,249) (87,843) (32,165)
Interest and other
income (expense), net.. -- 138 886 54 (112) 1,048 (109)
------ -------- -------- ------- -------- -------- --------
Loss before cumulative
effect of change in
accounting method...... (158) (10,732) (53,932) (7,758) (27,361) (86,795) (32,274)
Cumulative effect of
change in accounting
method................. (1,220) (1,220)
------ -------- -------- ------- -------- -------- --------
Net loss................ $ (158) $(10,732) $(53,932) $(7,758) $(28,581) $(86,795) $(33,494)
====== ======== ======== ======= ======== ======== ========
Net loss per share--
basic and diluted...... $(0.05) $ (1.22) $ (1.50) $ (0.31) $ (0.62) $ (2.22) $ (0.71)
====== ======== ======== ======= ======== ======== ========
Weighted average shares
outstanding basic and
diluted................ 3,000 8,799 35,838 24,770 45,989 39,109 46,854
====== ======== ======== ======= ======== ======== ========
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
As of December As of March 31,
31 2000
---------------- ---------------
1998 1999 Actual
------- -------- ---------------
<S> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and short-term
investments.............................. $ 6,813 $ 31,220 $178,279
Working capital........................... 3,755 26,886 175,927
Total assets.............................. 26,197 162,875 395,637
Total long term debt...................... -- 2,503 167,684
Total stockholders' equity................ 21,693 137,575 187,874
</TABLE>
<TABLE>
<CAPTION>
Historical Pro Forma
-------------------------------------------------- ----------------------
Period from
December 8, Three Three
1997 months months
(Inception) to Year ended Year ended ended Year ended ended
December 31, December 31, December 31, March 31, December 31, March 31,
1997 1998 1999 2000 1999 2000
-------------- ------------ ------------ --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Other Data:
EBITDA(1)............... $ (156) $ (6,902) $(24,711) $ (11,014) $(29,944) $(13,219)
Net cash flows from
operating activities... (59) (6,001) (24,152) (13,715)
Net cash flows from
investing activities... (29) (17,919) (46,459) (122,128)
Net cash flows from
financing activities... 1,000 29,821 91,406 186,107
Net capital
expenditures........... 29 4,322 12,084 6,465
</TABLE>
- --------
(1) EBITDA represents earnings before net interest expense, income taxes, non
cash compensation expense, depreciation and amortization and other income
(expense). EBITDA is presented because it is a widely accepted financial
indicator used by certain investors and analysts to analyze and compare
companies on the basis of operating performance and because our management
believes that EBITDA is an additional meaningful measure of performance and
liquidity. EBITDA is not intended to present cash flows for the period, nor
has it been presented as an alternative to operating income (loss) as an
indicator of operating performance and should not be considered in
isolation or as a substitute for measures of performance prepared in
accordance with generally accepted accounting principles. The items
excluded from the calculation of EBITDA are significant components in
understanding and assessing our financial performance. Our computation of
EBITDA may not be comparable to the computation of similarly titled
measures of other companies. EBITDA does not represent funds available for
discretionary uses. See Interliant's Consolidated Financial Statements and
Notes thereto appearing elsewhere in this prospectus.
RATIO OF EARNINGS TO FIXED CHARGES
The following table shows the deficiency of earnings to cover fixed charges
of Interliant for the last three years and the three month periods ended March
31, 1999 and 2000.
<TABLE>
<CAPTION>
Period from
December 8,
1997 Three Months
(Inception) to Year Ended December 31, Ended March 31,
December 31, ------------------------ -----------------
1997 1998 1999 1999 2000
-------------- ----------- ----------- ------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Deficiency of earnings
to cover fixed
charges(*)............ $(160) $ (10,865) $ (55,532) $(7,937) $(30,704)
</TABLE>
- --------
(*) Earnings consist of net loss plus fixed charges. Fixed charges consist of
interest expense, including amortization of debt issuance costs and the
portion of rent expense considered to be interest (one-third).
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
You should read the following description of our financial condition and
results of operations in conjunction with the Consolidated Financial Statements
and the Notes thereto included elsewhere in this prospectus. This discussion
contains forward-looking statements based upon current expectations that
involve risks and uncertainties. Any statements contained herein that are not
statements of historical fact are forward-looking statements. Our actual
results and the timing of certain events may differ significantly from the
results discussed in the forward-looking statements.
Overview
We are a leading application service provider, or ASP, providing our
customers with a broad range of outsourced e-business solutions. Our customers
face significant challenges in doing business on the Internet due to its
technical complexity, their lack of technical skills, the time necessary to
implement solutions and the cost of implementation and ongoing support. By
providing comprehensive outsourced solutions that combine our hosting
infrastructure with Internet professional services expertise, we can rapidly
design, implement, deploy and effectively manage cost-effective e-business
solutions for our customers.
As an ASP, we provide:
. hosting infrastructure for our customers' network-based applications,
which allows our customers to store their databases, applications or Web
sites on equipment owned and maintained by us or on our customers'
equipment located in our data centers;
. Internet professional services for designing, implementing and deploying
these network-based applications; and
. operations support, systems and applications management and customer
care for our customers and their end-users.
Our strategy has been to rapidly acquire operating companies in the Web
hosting, application hosting and Internet professional services businesses, to
build or acquire data centers, and to integrate the acquired hosting operations
into those data centers. We have acquired 23 operating businesses to date for
total consideration of approximately $188.2 million, including transaction
costs. We have accounted for all acquisitions using the purchase method of
accounting, which has resulted in the recognition of a substantial amount of
intangible assets on our balance sheet. Of the total consideration, we paid
$10.2 million of assumed seller debt and have allocated approximately $0.3
million to tangible net assets and $177.7 million to intangible assets, which
comprise covenants not to compete, customer lists, assembled work force, trade
names and goodwill. In accordance with APB 16, an allocation methodology was
applied to each acquisition to determine the value to be assigned to each type
of intangible asset where appropriate. Amounts not allocated to net tangible
assets and identifiable intangible assets have been recorded as goodwill.
Recoverability of our investment in intangible assets is dependent on our
ability to operate our businesses successfully and generate positive cash flows
from operations. Annual charges for amortization of intangible assets with
respect to acquisitions completed to date will be approximately $47.0 million,
which will result in increased losses or reduced net income. The purchase
consideration for the acquisitions was in the form of cash, stock or a
combination of cash and stock.
Since our inception in December 1997, we have experienced operating losses
and negative cash flows from operating activities for each quarterly and annual
period. As of March 31, 2000, we had an accumulated deficit of approximately
$93.4 million. Had the companies acquired to date been included since January
1, 1999, our accumulated deficit would have been approximately $106.0 million.
The revenue and income potential of our business is unproven and our limited
operating history makes an evaluation of us and our prospects difficult. We
anticipate increased operating expenses as we:
. significantly expand our sales and marketing initiatives to continue to
grow our brands;
. fund greater levels of product development;
18
<PAGE>
. continue to complete and equip our data centers;
. implement centralized billing, accounting and customer service systems;
and
. continue our acquisition program.
Although we have experienced revenue growth, primarily attributable to
acquisitions, we do not believe that this growth is necessarily indicative of
future operating results. Future acquisitions are expected to increase
operating expenses and operating losses and as a result, we expect to continue
to incur operating losses for the foreseeable future. We cannot assure you that
we will ever achieve profitability on a quarterly or annual basis, or, if
achieved, that we will sustain profitability.
Results of Operations
We derive our revenues from application hosting, Web hosting and Internet
professional and other services. Application hosting revenues primarily
comprise monthly usage fees per number of end users, including bandwidth fees
and one-time set up fees. Web hosting revenues consist primarily of hosting
fees and set up fees, which cover costs incurred by us to establish customers'
Web sites. We provide virtual, dedicated and co-located Web hosting. We charge
our Web hosting customers a fixed amount for bandwidth availability and
incremental fees if those fixed amounts are exceeded. In addition, our virtual
Web hosting customers are also charged for disk space on a server, dedicated
hosting customers are charged for use of one or more dedicated servers and our
co-location customers are charged for the amount of data center space such co-
location customers' servers occupy. We charge flat rates for our enhanced
Internet services. Internet professional service charges generally are fee-
based on a time and materials basis.
Our contracts with our application hosting customers range in length from
month-to-month to three years. Our contracts with our Web hosting customers
typically range in length from month-to-month to one year. A large proportion
of our Web hosting customer contracts are cancelable by either party with 30
days' notice. Revenues derived from hosting are recognized ratably over the
applicable contractual period. Payments received and billings in advance of
providing services are deferred until such services are provided. Revenues from
Internet professional services are recognized as the services are rendered.
Substantially all of our Internet professional services contracts call for
billings on a time and materials basis.
In December 1999, the SEC issued Staff Accounting Bulletin 101, "Revenue
Recognition in Financial Statements" (SAB 101), which provides guidance related
to revenue recognition based on interpretations and practices followed by the
SEC. SAB 101 allows companies to report any changes in revenue recognition
related to adopting its provisions as an accounting change at the time of
implementation in accordance with APB Opinion No. 20, "Accounting Changes." The
Company recorded a cumulative effect change in accounting principle, effective
January 1, 2000, for revenue recognized in 1999 for set up fees associated with
Web hosting and application hosting services. Effective January 1, 2000 such
fees are being amortized over one year, which generally represents the longer
of the contractual period or expected life of the customer relationship. For
the three months ended March 31, 2000, the Company recorded a cumulative effect
charge of $1.2 million to reflect the change in accounting principle.
Cost of revenues consists primarily of salaries and related expenses
associated with Internet professional services and data center operations
personnel, costs of hardware and software products sold to customers, and data
communications expenses, including one-time fees for circuit installation and
variable recurring circuit payments to network providers. Monthly circuit
charges vary based upon circuit type, distance and usage, as well as the term
of the contract with the carrier.
Sales and marketing expense consists of personnel costs associated with the
direct sales force, internal telesales, product development and product
marketing employees, as well as costs associated with marketing
19
<PAGE>
programs, advertising, product literature, external telemarketing costs and
corporate marketing activities, including public relations.
General and administrative expense includes the cost of customer service
functions, finance and accounting, human resources, legal and executive
salaries, corporate overhead, acquisition integration costs and fees paid for
professional services.
Three Months Ended March 31, 2000 and 1999
Revenues
Revenues increased $21.5 million, from $5.4 million for the three months
ended March 31, 1999 to $26.9 million for the corresponding 2000 period. The
increase in revenues was primarily due to the 11 acquisitions consummated
during 1999 and 2000. On a pro forma basis, giving effect to acquisitions
completed through March 31, 2000, revenues for the three months ended March
31, 2000 were $35.2 million.
For the three months ended March 31, 2000, on a pro forma basis:
. application hosting revenues comprise 27.5% of our revenues;
. Web hosting revenues comprise 16.4% of our revenues;
. Internet professional services revenues comprise 53.6% of our revenues;
and
. other services revenues comprise 2.5% of our revenues.
Cost of Revenues
Cost of revenues increased by $15.2 million, from $3.3 million for the
three months ended March 31, 1999 to $18.5 million for the corresponding 2000
period. This increase was due primarily to the 11 acquisitions consummated
during 1999 and 2000, and increased infrastructure costs to support current
and future revenue growth. In the future, cost of revenues will likely
increase due to capacity utilization, additional investments in existing and
new data centers, changes in the mix of services, fluctuations in bandwidth
costs and increased levels of staffing to support anticipated revenue growth.
On a pro forma basis, cost of revenues for the three months ended March 31,
2000 were $25.0 million.
For the three months ended March 31, 2000, gross margin on a pro forma
basis was 28.9% as compared to 31.0% on a historical basis. The lower pro
forma gross margins are the result of an increase in the proportion of revenue
from Internet professional services and product sales to total revenues
related to our recent acquisitions of Internet professional services
businesses, which typically generate lower gross margins as compared with our
hosting services.
Sales and Marketing
Sales and marketing expense increased by $6.1 million, from $1.9 million
for the three months ended March 31, 1999 to $8.0 million for the
corresponding 2000 period. This increase was attributable to the 11
acquisitions consummated during 1999 and 2000. A key component of our revenue
growth strategy is to significantly increase our sales and marketing
activities. We expect that this will include the continued expansion of our
sales force, increased marketing efforts to grow recognition of our brands,
and the development of reseller and referral partner channels. As a result,
sales and marketing expenses will increase substantially in future periods to
support anticipated revenue growth.
On a pro forma basis, sales and marketing expense for the three months
ended March 31, 2000 was $9.2 million. Sales and marketing costs as a
percentage of revenue was 29.8% on a historical basis versus 26.0% on a pro
forma basis due primarily to higher proportion of Internet professional
services revenues for the pro forma period, which businesses have historically
incurred lower marketing costs as a percentage of revenues.
20
<PAGE>
General and Administrative
General and administrative expense increased by $11.0 million, from $4.8
million for the three months ended March 31, 1999 to $15.8 million for the
corresponding 2000 period. This increase in general and administrative expense
was attributable to the 11 acquisitions consummated during 1999 and 2000, and
increased investments in infrastructure and levels of staffing with respect to
the customer service, billing, accounting and human resources functions to
support revenue growth. Substantial staffing and related increases are
expected to continue in future periods in order to support anticipated revenue
growth.
In February 2000, we issued options to purchase 1,500,000 shares of Common
Stock to our Chief Executive Officer at exercise prices that were below the
market price of our Common Stock at the date of grant. In total, such options
were valued at approximately $30.0 million, and for the three months ended
March 31, 2000, we charged $3.8 million to non-cash compensation expense in
connection with this arrangement.
On a pro forma basis, general and administrative expense for the three
months ended March 31, 2000 was $18.7 million.
Depreciation
Depreciation expense increased by $1.8 million, from $0.7 million for the
three months ended March 31, 1999 to $2.5 million for the corresponding 2000
period. The increase in depreciation expense was attributable to the 11
acquisitions consummated during 1999 and 2000, our investments in equipment,
furniture and construction to complete and equip our data centers in Atlanta,
Georgia, Houston, Texas and Vienna, Virginia, and investments in computer
equipment to support customer growth. On a pro forma basis, depreciation
expense for the three months ended March 31, 2000 was $2.8 million.
Amortization
Amortization expense increased by $6.7 million, from $2.6 million for the
three months ended March 31, 1999 to $9.3 million for the corresponding 2000
period. This increase in amortization expense was attributable to the 11
acquisitions consummated during 1999 and 2000. We expect amortization expense
to increase in future periods as we continue to make additional acquisitions.
On a pro forma basis, amortization expense for the three months ended March
31, 2000 was $11.7 million.
Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------
1998 % of 1999 % of 1999 % of
Historical Revenues Historical Revenues Pro Forma Revenues
---------- -------- ---------- -------- --------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $ 4,905 100% $ 47,114 100% $133,039 100%
Costs and expenses:
Cost of revenues...... 3,236 66% 27,514 58% 86,407 65%
Sales and marketing... 2,555 52% 17,236 37% 25,639 19%
General and
administrative....... 6,849 140% 29,062 62% 52,924 40%
Depreciation.......... 696 14% 6,051 13% 9,001 7%
Amortization of
intangibles.......... 2,439 50% 22,069 47% 46,911 35%
-------- -------- --------
15,775 322% 101,932 216% 220,882 166%
Interest and other
income, net.......... 138 3% 886 2% 1,048 -%
-------- -------- --------
Net loss................ $(10,732) -219% $(53,932) -114% $(86,795) -66%
======== ======== ========
</TABLE>
In the above table and the discussions below the unaudited pro forma
statement of operations data for the year ended December 31, 1999 assumes that
the acquisitions completed through March 31, 2000 had occurred on January 1,
1999.
21
<PAGE>
Revenues
Revenues increased $42.2 million, from $4.9 million in 1998 to $47.1 million
in 1999. The increase in revenues was due primarily to the 21 acquisitions
consummated during 1998 and 1999. On a pro forma basis, giving effect to
acquisitions completed through March 31, 2000, revenues for the year ended
December 31, 1999 were $133.0 million.
For the year ended December 31, 1999, on a pro forma basis:
. application hosting revenues comprised 29.8% of our revenues;
. Web hosting revenues comprised 13.5% of our revenues;
. Internet professional services revenues comprised 53.9% of our revenues;
and
. other services revenues comprised 2.8% of our revenues.
Cost of Revenues
Cost of revenues increased by $24.3 million, from $3.2 million in 1998 to
$27.5 million in 1999. This increase was due primarily to the 21 acquisitions
consummated during 1998 and 1999, and increased costs to support current and
future revenue growth. In the future, cost of revenues may fluctuate due to
capacity utilization, the timing of investments in data centers, changes in the
mix of services, fluctuations in bandwidth costs and increased levels of
staffing to support anticipated revenue growth.
On a pro forma basis, cost of revenues for the year ended December 31, 1999
were $86.4 million.
For 1999, gross margin on a pro forma basis was 35.6% as compared to 41.6%
on a historical basis. The lower pro forma gross margins are the result of an
increase in the proportion of revenue from Internet professional services to
total revenues related to our recent acquisitions of Internet professional
services businesses, which typically generate lower gross margins as compared
with our hosting services.
Sales and Marketing
Sales and marketing expense increased by $14.6 million, from $2.6 million in
1998 to $17.2 million in 1999. This increase was attributable to the 21
acquisitions consummated during 1998 and 1999. A key component of our revenue
growth strategy is to significantly increase our sales and marketing
activities. We expect that this will include the expansion of our sales force,
development of reseller and referral partner channels and increased marketing
efforts to grow recognition of our brands. As a result, sales and marketing
expenses will increase substantially in future periods to support anticipated
revenue growth.
On a pro forma basis, sales and marketing expense for the year ended
December 31, 1999 was $25.6 million. Sales and marketing costs as a percentage
of revenue was 36.6% on a historical basis versus 19.3% on a pro forma basis
due primarily to higher proportion of Internet professional services revenues
for the pro forma period, which businesses have historically incurred lower
marketing costs as a percentage of revenues.
General and Administrative
General and administrative expense increased by $22.3 million, from $6.8
million in 1998 to $29.1 million in 1999. This increase in general and
administrative expense was attributable to the 21 acquisitions consummated
during 1998 and 1999, and increased investments in infrastructure and levels of
staffing with respect to the billing, accounting, human resources and customer
service functions to support revenue growth. Substantial staffing and related
increases are expected to continue in future periods in order to support
anticipated revenue growth.
22
<PAGE>
In connection with an employment agreement executed in January 2000, which
included the grant of stock options to our new Chief Executive Officer, we
will incur non-cash compensation charges, aggregating approximately $30.0
million over the four-year vesting period of such stock options.
On a pro forma basis, general and administrative expense for the year ended
December 31, 1999 was $52.9 million.
Depreciation
Depreciation expense increased by $5.4 million, from $0.7 million in 1998
to $6.1 million in 1999. The increase in depreciation expense was attributable
to the 21 acquisitions consummated during 1998 and 1999 and our investment in
equipment, furniture and construction to complete and equip our data centers
in Atlanta, Georgia, Houston, Texas and Vienna, Virginia. On a pro forma
basis, depreciation expense for the year ended December 31, 1999 was $9.0
million.
Amortization
Amortization expense increased by $19.7 million, from $2.4 million in 1998
to $22.1 million in 1999. This increase in amortization expense was
attributable to the 21 acquisitions consummated during 1998 and 1999. We
expect amortization expense to increase in future periods as we continue to
make additional acquisitions as well as reflect amortization of intangibles
associated with acquisitions consummated to date.
On a pro forma basis, amortization expense for the year ended December 31,
1999 was $46.9 million.
Year Ended December 31, 1998 and the period December 8, 1997 (Inception) to
December 31, 1997
<TABLE>
<CAPTION>
1997 1998
Historical Historical
---------- ----------
(in thousands)
<S> <C> <C>
Revenues........................................... $ -- $ 4,905
Costs and expenses:
Cost of revenues................................. 3,236
Sales and marketing.............................. 2,555
General and administrative....................... 156 6,849
Depreciation..................................... 2 696
Amortization of intangibles...................... -- 2,439
----- --------
158 15,775
Interest income.................................. -- 138
----- --------
Net loss......................................... $(158) $(10,732)
===== ========
</TABLE>
Revenues
Revenues increased by $4.9 million for the year ended December 31, 1998.
This increase in revenues was primarily attributable to the 12 acquisitions
consummated during 1998.
Cost of Revenues
Cost of revenues increased by $3.2 million for the year ended December 31,
1998. This increase in cost of revenues was attributable to the 12
acquisitions consummated during 1998. In the future, cost of revenues may
fluctuate due to capacity utilization, the timing of investments in data
centers, changes in the mix of services, fluctuations in bandwidth costs and
increased levels of staffing.
23
<PAGE>
Sales and Marketing
Sales and marketing expense increased by $2.6 million for the year ended
December 31, 1998. This increase in sales and marketing expense was
attributable to the 12 acquisitions consummated during 1998. A key component of
our strategy is to significantly increase our sales and marketing activities
for Web hosting products. This will include the expansion of our sales force,
development of reseller and referral partner channels and increased marketing
efforts to grow recognition of our brands. As a result, sales and marketing
expenses are expected to increase substantially in future periods.
General and Administrative
General and administrative expense increased by $6.6 million, from $0.2
million in 1997 to $6.8 million in 1998. This increase in general and
administrative expense was attributable to the 12 acquisitions consummated
during 1998 and levels of staffing with respect to the billing, accounting,
human resources and customer service functions to support revenue growth.
Depreciation
Depreciation expense increased by $0.7 million, to $0.7 million in 1998.
This increase was due to the acquisition of approximately $5.7 million of
furniture, fixtures and equipment. This amount includes approximately $1.4
million acquired with operating businesses we acquired during 1998. Investments
included the construction of and acquisition of equipment for our Web hosting
facilities to ensure high levels of service to our customers and capacity for
future growth and of technology and infrastructure to implement centralized
billing, accounting and customer service systems to integrate the operations of
acquired companies.
Amortization
Amortization expense increased by approximately $2.4 million in 1998. The
amortization expense was attributable to intangible assets associated with the
12 acquisitions consummated during 1998.
Liquidity and Capital Resources
Summary
We have financed our operations and acquisitions primarily from private
placements of debt and equity, and our initial public offering of common stock.
We had $178.3 million in cash, cash equivalents and short-term investments at
March 31, 2000. Net cash used in operations for the three months ended March
31, 2000 was $13.7 million. This reflects primarily the net loss for the period
of $28.6 million along with changes in operating assets and liabilities, offset
by $2.5 million of depreciation expense and $9.3 million of amortization of
goodwill and other intangible assets and $4.8 million of other non-cash items
including provisions for bad debts and non-cash compensation charges. Net cash
used for investing activities for the three months ended March 31, 2000 was
$122.1 million, of which $96.8 million was for the purchases of short-term
investments in connection with proceeds received from financings completed
during the first quarter, $6.5 million for purchases of furniture, fixtures and
equipment and $18.9 million for acquisitions of businesses, net of acquired
cash. Net cash from financing activities for the three months ended March 31,
2000 was $186.1 million, primarily the result of the sale of $164.8 million of
7% Subordinated Convertible Notes and $27.5 million from private placements of
Common Stock, offset by $7.5 million in offering costs for such transactions.
First Quarter 2000 Activities
In January and February 2000, we raised $27.5 million in strategic funding
from equity investments by Dell Computer, Network Solutions and BMC Software.
In connection with these sales, we issued warrants to purchase 157,575 shares
of common stock with a weighted average exercise price of $34.90 per share,
which expire on December 31, 2000. We also entered into commercial agreements
with each of the strategic investors.
24
<PAGE>
We anticipate that these commercial agreements will result in significant
incremental revenues, expenses, EBITDA losses and capital expenditures for the
foreseeable future in the expectation that eventually they will result in
positive EBITDA and profits. The foregoing is a forward-looking statement and
is based on our current business plan and the assumptions on which that plan is
based. We cannot be sure that these arrangements will result in positive EBITDA
or profits.
In February 2000, we sold $154.8 million of 7% Convertible Subordinated
Notes in a private placement, including $4.8 million sold upon exercise of the
initial purchasers' over-allotment option. The notes are convertible at the
option of the holder, at any time on or prior to maturity, into Common Stock at
a conversion price of $53.10 per share, which is equal to a conversion rate of
approximately 18.8324 shares per $1,000 principal amount of notes. Semi-annual
interest payments of $5.4 million commence in August 2000. The notes mature on
February 16, 2005. Upon the occurrence of certain events, we may redeem the
notes prior to maturity.
In March 2000, we sold $10.0 million of 7% Convertible Subordinated Notes in
a private placement with Microsoft. Such notes have substantially the same
terms as the notes described above. We also entered into a commercial agreement
with Microsoft to develop application hosting services for Microsoft-based
platforms. We anticipate that this commercial agreement will indirectly result
in significant incremental revenues, expenses, EBITDA losses and capital
expenditures for the foreseeable future in the expectation that eventually it
will result in positive EBITDA and profits. The foregoing is a forward-looking
statement and is based on our current business plan and the assumptions on
which that plan is based. We cannot be sure that this arrangement will result
in positive EBITDA or profits.
In February and March 2000, we completed two acquisitions. The total cash
component of the consideration for these acquisitions amounted to approximately
$20.7 million.
In addition to funding ongoing operations and capital expenditures, our
principal commitments consist of non-cancelable operating leases and contingent
payments of earnouts to certain sellers of operating companies acquired by us.
In connection with certain acquisitions, we paid $1.4 million during the three
months ended March 31, 2000. If all targets for earnouts entered into through
March 31, 2000 are achieved in full, total consideration pursuant to these
earnouts will be $7.3 million and $16.5 million in cash in 2000 and 2001,
respectively. Certain agreements provide for issuance of common stock in lieu
of cash, at our option.
We currently believe that our existing cash, cash equivalents and short term
investments, will be adequate to meet operating needs through 2001, subject to
the use of additional cash for unspecified acquisitions, in which case the
period would be shortened. The foregoing is a forward-looking statement and is
based on our current business plan and the assumptions on which it is based,
including our ability to successfully integrate acquisitions and achieve the
expected benefits, such as operational efficiencies and revenue improvements
from cross-selling opportunities. Our plans also assume that we will complete a
given number of acquisitions, at given valuations using as consideration a
given mix of cash and stock. If our plans change or our assumptions prove to be
inaccurate, we may be required to seek additional capital sooner than we
currently anticipate. We may also seek to raise additional capital to take
advantage of favorable conditions in the capital markets. It is likely that
after 2001 we will need additional funds to conduct our operations, continue
our acquisition and internal growth programs, and fund debt service
obligations. In order to fund the repayment of our existing debt service
obligations, we will either have to increase revenues without a commensurate
increase in costs to generate sufficient cash from operations, refinance
existing debt obligations, raise additional equity, or execute a combination
thereof. We cannot be assured, however, that if we need or seek additional
capital that we will be successful in obtaining it.
Interest Rate Risk
We have limited exposure to financial market risks, including changes in
interest rates. At March 31, 2000, we had short-term investments of
approximately $100.4 million. These short-term investments consist of highly
liquid investments in debt obligations of highly rated entities with maturities
of between 90 days and one year.
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<PAGE>
These investments are subject to interest rate risk and will fall in value if
market interest rates increase. We expect to hold these investments until
maturity, and therefore expect to realize the full value of these investments,
even though changes in interest rates may affect their value prior to maturity.
If interest rates decline over time, this will result in a reduction of our
interest income as our cash is reinvested at lower rates.
26
<PAGE>
BUSINESS
We are a leading application service provider, or ASP, providing our
customers with a broad range of outsourced e-business solutions. Our customers
face significant challenges in doing business on the Internet due to its
technical complexity, their lack of technical skills, the time necessary to
implement solutions and the cost of implementation and ongoing support. By
providing comprehensive outsourced solutions that combine our hosting
infrastructure with Internet professional services expertise, we can rapidly
design, implement, deploy and effectively manage cost-effective e-business
solutions for our customers.
As an ASP, we provide:
. hosting infrastructure for our customers' network-based applications,
which allows our customers to store their databases, applications or Web
sites on equipment owned and maintained by us or on our customers'
equipment located in our data centers;
. Internet professional services for designing, implementing and deploying
these network-based applications; and
. operations support, systems and applications management and customer
care for our customers and their end-users.
Our services portfolio consists of the following solutions:
Web Hosting. We provide virtual, dedicated and co-located Web hosting
services. These range from simple, low-end, marketing-oriented Web sites on a
server shared by many customers to high-end, Web-based, mission-critical
applications on hardware dedicated to a specific customer.
Enterprise Resource Planning. Our enterprise resource planning, or ERP,
solutions include the implementation and hosting of PeopleSoft solutions. We
provide hosting services for outsourced human resources and finance solutions,
as well as implementation and management support to PeopleSoft customers
E-Commerce. We provide e-commerce solutions based on IBM Net.Commerce,
Microsoft SiteServer, Mercantec SoftCart and other applications. Our e-commerce
solutions allow our customers to create and manage electronic storefronts and
provide end-to-end online e-commerce solutions.
Customer Relationship Management. Our Customer Relationship Management, or
CRM, solutions, which are based on software provided by companies such as Onyx,
provide geographically distributed sales and marketing organizations with all
the elements needed to deploy sales force automation, partner relationship
management and other CRM solutions quickly and at a reasonable cost.
Infrastructure/Security Solutions. Our infrastructure/security solutions
allow our customers to implement and deploy technologies that enhance the
performance of their hosted e-business solutions. These technologies include
managed firewall services, load balancing, and caching solutions from vendors
such as Cisco Systems, Check Point Software, ArrowPoint Communications, and
Alteon WebSystems.
Messaging/Knowledge Management. We offer a range of messaging and knowledge
management hosting solutions for the Lotus Notes/Domino and Microsoft Exchange
platforms. These solutions provide our customers with the infrastructure needed
to support e-mail and other messaging methods for internal and external
communication, project team collaboration and document sharing and to improve
business process automation and workflow. We also provide outsourced messaging
solutions based on industry-standard e-mail technologies, such as POP and SMTP,
as well as proprietary messaging solutions, including our eReach for messaging.
27
<PAGE>
Distributed Learning. Our distributed learning solutions, which are based on
software provided by Lotus, Macromedia and other companies, allow our customers
to create online learning and training environments.
Internet Professional Services. We implement, enhance and support all of our
ASP solutions with Internet professional services, either provided by our own
consultants or by our business partners. Our Internet professional services
include capabilities to create intranet, extranet and application hosting
solutions for our customers, as well as provide network implementation,
security implementation and back-end Web development projects. These services
are a key part of our ASP service delivery, enabling us to provide our
customers with an end-to-end outsourced solution.
We have four state-of-the-art primary data centers located in Houston,
Texas; Atlanta, Georgia; Vienna, Virginia and Columbus, Ohio. Our data centers
in Houston, Altanta and Vienna are monitored on a 24x7 basis and include
sophisticated monitoring and diagnostics, 24x7 customer support, multiple high
speed network connections to the Internet and uninterruptible power supplies,
fire suppression and external fuel generators. Our Columbus data center is a
secured, raised-floor data center that provides continuous support, plus a
standby generator, hot and cold disaster recovery sites, and off-site data
storage and is monitored on a 24x7 basis.
We have grown rapidly since our inception in December 1997, acquiring 23
hosting and related Internet service businesses through March 31, 2000. In
addition, we have established strategic relationships that enable us to provide
complete, scalable and reliable ASP services to our customers and business
partners. Our current strategic alliances include partnerships with IBM, Dell
Computer, BMC Software, Lotus Development, Microsoft, UUNET Technologies,
Network Solutions, Cisco Systems and Onyx.
Industry Background
Growth of the Internet. The Internet is experiencing significant growth and
is emerging as a global medium for communications and commerce. International
Data Corporation ("IDC") estimates that the number of Web users worldwide will
increase from approximately 142.2 million at the end of 1998 to 502.4 million
by the end of 2003, a 29.0% compounded annual growth rate. IDC also estimates
that the number of Web users in the United States will increase from
approximately 62.8 million at the end of 1998 to 177.0 million by the end of
2003, a 23.0% compounded annual growth rate. During this same period, the
number of business Web sites in the United States is projected by Forrester
Research, Inc. to increase from approximately 650,000 in 1998 to approximately
2.6 million in 2002, a 41.1% compounded annual growth rate. This growth in the
number of Web users and number of Web sites is being driven by a number of
factors including the large and growing installed base of personal computers,
easier and less expensive alternatives for Internet access, an increase in the
number of networked applications and the proliferation of broadband
technologies that promise consumers faster, more convenient access to the
Internet.
Growth in Business Use of the Internet. The dramatic growth in usage
combined with enhanced functionality and accessibility have made the Internet
an increasingly attractive medium for businesses to disseminate information,
engage in e-commerce, build customer relationships, streamline and automate
data-intensive processes and communicate more efficiently with dispersed
employees.
In the last several years, businesses have emerged with operating models
that are exclusively dependent on the Internet, while traditional businesses of
all sizes are working quickly to establish a Web presence. Many of these
businesses establish their initial online presence with a simple, static
brochure for marketing purposes. As they become more familiar with the Internet
as a communications platform, an increasing number of businesses are
implementing more complex, mission-critical applications on the Web for sales,
customer service, customer acquisition and retention, employee communications
and e-commerce between suppliers and business partners. IDC projects that
worldwide commercial business commerce on the Internet will grow from
approximately $27.4 billion in 1998 to approximately $1.0 trillion by 2003, a
compounded annual growth rate of 104.5%.
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Trend Toward Outsourcing. According to IDC, firms worldwide are now spending
approximately 30% of their overall information technology, or IT, services
budgets on outsourcing. These services include network consulting and
integration, network and desktop outsourcing, information services consulting
and outsourcing and application outsourcing. Reasons for the growth in
outsourcing include the desire of companies to focus on their core businesses,
the increased costs that businesses experience in developing and maintaining
their networks and software applications, the fast pace of technological change
that shortens time to obsolescence and increases capital expenditures as
companies attempt to capitalize on leading-edge technologies, the challenges
faced by companies in hiring, motivating and retaining qualified application
engineers and IT employees and the desire of companies to reduce deployment
time and risk.
Emergence of the Application Service Provider Industry. Companies are
increasingly relying on software applications to improve business process and
functions, develop new sales channels, improve customer relationships and
reduce costs. In addition, both new and traditional businesses are developing
complex Web sites to leverage e-commerce opportunities. However, given the
shortage of qualified IT professionals, the increasing cost and complexity of
applications and the importance of time to market cycles, many companies are
finding it increasingly difficult to manage the quality of their IT assets.
Application service providers combine Internet professional services,
network and application management and hosting capabilities to deliver
applications as a service to their customers. Customers access applications
that are remotely hosted and managed by the ASP using the Internet or leased
lines. Typically, ASPs offer their services on a contractual basis, charging
customers a monthly fee. In contrast to traditional application outsourcing
arrangements, where the application outsourcer is responsible for managing
custom built applications for one customer, the ASP offers primarily packaged
applications and manages those applications for multiple customers from a
centrally located facility. Dataquest Research Services forecasts the worldwide
ASP market will grow from $889 million in 1998 to $22.7 billion in 2003,
representing a compounded annual growth rate of 91.2%.
We believe that the ASP model offers customers the following advantages:
. Improved time to market. With rapid implementation methodologies and
applications management expertise, ASPs enable customers to take
advantage of the functionality of new applications, without the
difficulties associated with long implementation cycles and attracting
qualified IT talent. In addition, ASPs attempt to minimize
customization, therefore reducing the time and total expense associated
with any specific application implementation;
. Improved performance. As the complexity of applications and networks
increases, customers are finding it difficult to manage and maintain the
performance of their IT systems. By offering service level agreements
and utilizing the latest technology, ASPs are able to offer guaranteed
levels of service that are not easily attainable by customers' internal
IT departments;
. Focus on core competencies. By outsourcing the delivery and management
of certain applications, customers can better utilize scarce internal IT
resources;
. Access to best-of-breed applications and technology. ASPs utilize the
latest data center technologies, network management tools and leading
applications to provide a wide range of solutions. Customers of ASPs,
therefore, have the flexibility to select the best-of-breed solutions,
from multiple technology vendors, for many of their mission-critical
functions; and
. Reduced total cost of ownership. Until recently, the implementation of
applications required either the development of in-house software
applications or the customization of existing packages, making each
implementation unique and costly. It also made implementation time
frames and costs unpredictable. By outsourcing to an ASP, companies are
able to better forecast and plan for monthly IT expenditures.
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Our Opportunity
The emerging ASP market is fragmented and is currently being served by a
range of companies, most of which, such as those described below, offer only a
portion of the services provided by full service ASPs:
. telecommunications companies and Internet service providers which
typically provide data center facilities and network connectivity;
. hosting companies, which typically provide data center facilities,
network connectivity and computer and storage hardware;
. software companies, which typically provide application and database
software; and
. IT services companies, which typically provide implementation services
and post implementation support.
As a full service ASP, we provide this entire range of services, including
data center facilities, network connectivity, computer and storage hardware,
systems and applications management, application development tools, application
and database software, implementation services and post-implementation support.
Through these capabilities, we can rapidly design, implement, deploy and
effectively manage cost effective e-business solutions for our customers. We
believe that a significant market opportunity exists for an internationally
recognized ASP with the scale and expertise to offer a wide range of outsourced
e-business solutions to businesses of all sizes.
Our Solution
We design, implement and deploy ASP solutions that enable our customers to
effectively manage e-business solutions in a rapid and cost effective manner.
We offer the technological expertise, partnering ability and understanding of
the business and licensing models which we believe are essential to succeed in
the ASP marketplace. We provide solutions to customers ranging from small
businesses to large enterprises in a variety of vertical markets across a wide
range of industries. We believe we have developed the infrastructure,
resources, systems and application management expertise and industry
relationships to capitalize on this emerging market opportunity.
We provide the following advantages to our customers:
Rapid Implementation. Designing, implementing, and deploying e-business
solutions is a complex problem requiring appropriate staff with the correct
skill sets. Our hosting solutions provide our customers with our pre-configured
infrastructure and our experienced team of consultants to rapidly implement
their e-business solutions.
Comprehensive Hosting Solutions. Our hosting solutions provide our customers
with continuously available remote access to mission-critical applications and
data. These solutions help to ensure that our customers' applications and Web
sites are continuously online and deliver data rapidly to users. Our state-of-
the-art data centers in Atlanta, Houston and Vienna, Virginia provide high-
quality performance and reliability through features such as a redundant, high-
speed, secure network architecture, continuous monitoring, alternate power
sources, environmental controls, regular data back-ups and a fault-tolerant
hosting platform. Our Network Operations Centers monitor our network on a 24x7
basis and allow our staff to minimize service interruptions.
Customer Service. We are dedicated to providing the highest quality customer
service. Our customer service organizations can address technical problems on a
24x7 basis. We have invested in advanced customer service software and call
routing technology to streamline the customer service process. We also offer a
self-service customer support alternative, which provides online access to
account and billing data and site statistics such as disk storage capacity and
bandwidth utilization.
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Cost-Effective Solutions. Our customers benefit from the capital and labor
investments that we have made to support hosting and other Internet services.
For customers to replicate our performance and reliability, they would be
required to make significant expenditures for hardware, data center facilities,
connectivity and personnel. We believe that our hosting solutions are
significantly more cost-effective and reliable than in-house solutions, both
for businesses with low-end application requirements as well as for those
businesses whose Internet operations are mission-critical and require
sophisticated application support.
Services
Our services portfolio consists of the following solutions:
Web Hosting Services
We offer a comprehensive suite of solutions to meet the current and future
Web hosting needs of our customers. We provide virtual, dedicated and co-
located hosting services. The following table sets forth certain information
with respect to our Web hosting services.
<TABLE>
<CAPTION>
Hosting
Services Price Web Site Profile Key Features Customer Benefits
- -------- ------------ ---------------------- --------------------- -------------------
<S> <C> <C> <C> <C>
Virtual $20-$350 Static Web pages, Shared space on Economical
per month moderately accessed Interliant-owned
sites server
Dedicated $100-$5,000 Dynamic Web content, Dedicated Interliant- Greater server
per month heavily accessed sites owned server in resources requiring
shared rack minimal customer
maintenance
Co- $500-$40,000 Mission-critical Secure cabinet for Greater customer
Located per month applications customer-owned server control/access to
hardware
</TABLE>
The foregoing prices are representative of products marketed under the
Interliant brand and may not be representative of our products marketed under
other brand names. Customers generally pay monthly, quarterly or annual fees
for the services used, as well as one-time fees for installation and any
equipment purchased by the customer.
Virtual Hosting. Our virtual hosting solution provides customers with all
the elements needed to establish a basic presence on the Web at a reasonable
cost, making it an economical solution for relatively simple or moderately
accessed Web sites. This entry-level service is known as virtual hosting
because the customer's home page has its own domain name and appears to exist
as a stand-alone server. It operates with the speed and efficiency of our high-
speed connections and its location at our facility remains invisible to Web
site visitors. Customers are able to have their own Web site with a domain name
at a fraction of the cost of maintaining it themselves. Because customers do
not need to invest in costly hardware or personnel to accommodate future
growth, we believe this solution also maximizes the customers' flexibility.
Dedicated Hosting. As companies increase the complexity, level of traffic or
reliance on their Web sites, they may prefer to host their Web site on a
dedicated server, which is typically owned and maintained by us. A dedicated
server provides greater server and network resources to our customers than
virtual hosting and allows them to configure their hardware to optimize site
performance. Customers receive a high level of site security, maintenance and
technical support without the prohibitive costs of setting up and maintaining
their own server and Internet connection. We support most leading Internet
hardware and software system vendor platforms, including Solaris, which
operates on a Sun Microsystems platform, Microsoft Windows NT, which operates
on an Intel/PC platform and Linux, which operates on a Cobalt Networks
platform.
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Co-located Hosting. We provide co-located hosting services in each of our
primary data centers for customers with sophisticated, mission-critical
applications. This solution allows the customer to own and access their servers
on a 24x7 basis while delegating the day-to-day management of their Web site to
our IT specialists. In addition, co-located servers are housed in separate,
limited-access rooms in our data centers.
Enterprise Resource Planning
Through our recent acquisitions of reSOURCE PARTNER, Inc. and Soft Link,
Inc, we have expanded our business process outsourcing services into the
Enterprise Resource Planning (ERP) market by extending our service offerings to
include the implementation and hosting of PeopleSoft solutions. We offer our
customers fully integrated outsource solutions including consulting services
such as design and integration; hosting services such as IT outsourcing
management as well as processing services such as payroll processing and
benefits administration.
E-Commerce Capabilities
We offer a variety of e-commerce solutions to help businesses create and
maintain a successful electronic commerce presence on the Web. E-commerce
provides businesses the ability to sell products and services on the Internet.
Our e-commerce offerings include:
. Net.Commerce from IBM, which allows our customers to rapidly plan,
create and implement a fully manageable e-commerce Web site using the
IBM Net.Commerce software platform;
. SiteServer from Microsoft, which allows our customers to rapidly plan,
create, and implement a fully manageable e-commerce Web site using the
Microsoft SiteServer software platform;
. SoftCart from Mercantec, which allows users to create sophisticated e-
commerce Web sites that include order taking, credit card processing and
order fulfillment;
. CyberCash from Cybercash, Inc., which offers users a full suite of
Internet payment solutions, including credit card services, micropayment
and Internet check transactions; and
. ShopSite from Open Market, which allows users to build and maintain
catalogs of products or services to sell over the Internet.
Customer Relationship Management
Our customer relationship management, or CRM, solutions provide
geographically distributed sales and marketing organizations with all the
elements needed to quickly deploy sales force automation, partner relationship
management or other customer relationship management solutions. Our CRM
offerings are based on software from leading CRM software providers such as
Onyx. Our solutions are hosted on both shared and dedicated servers at one of
our data centers or on the customer's premises.
Infrastructure/Security Solutions
Our infrastructure/security solutions allow our customers to implement and
deploy technologies that enhance the performance of their hosted e-business
solutions. These technologies include managed firewall services, load balancing
and caching solutions from vendors such as Cisco Systems, Check Point Software,
ArrowPoint Communications, and Alteon WebSystems.
Messaging/Knowledge Management
We offer our customers a broad spectrum of messaging/knowledge management
solutions. These solutions allow a customer's widely distributed work force to
share software applications hosted on computers owned
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and managed by us. Our messaging/knowledge management solutions provide
feature-rich e-mail and other types of messaging for internal and external
communication. These solutions also support workgroup and project team
collaboration and document sharing, business process automation and workflow,
as well as proprietary or custom applications built for this platform.
We provide hosting for messaging/knowledge management applications based on
the Lotus Notes/Domino and Microsoft Exchange platforms. We also provide
outsourced messaging solutions based on industry-standard e-mail technology,
such as POP and SMTP, as well as proprietary messaging solutions, including our
eReach for messaging. We host these solutions on both shared and dedicated
servers at one of our data centers or on the customer's premises. Customers can
connect to our servers using the Internet or a variety of private network
options, including frame relay, dedicated lines and local dialup access in more
than 100 countries.
Distributed Learning
Our distributed learning solutions allow our customers to create online
training and learning environments. We offer comprehensive solutions for
corporate and academic customers based on software from vendors such as Lotus.
These solutions include sophisticated course and student management systems and
online facilitation. Deployment of existing courses is very rapid, with
students typically able to access courses within a few days following
registration.
Internet Professional Services
We implement, enhance and support our ASP services with Internet
professional services, either provided by our own consultants or by our
business partners. These services are a key part of our ASP service portfolio,
enabling us to provide our customers with end-to-end outsourced solutions.
Our Internet professional services include capabilities to create intranet,
extranet and application hosting solutions for our customers, as well as
provide network implementation, security implementation and back-end Web
development projects. In addition, we provide support for our customers'
enterprise networking needs. We address the complete spectrum of services,
including desktop and network server support, network architecture and design,
strategic technology planning and application development and implementation.
We scale our Internet professional services to meet each client's needs.
Customers
We have established a diversified customer base across our service
offerings. Our customer contracts range in duration from one month to three
years. Our customers include end-users representing a variety of business
types, ranging from small businesses to large enterprises. We also sell our
services to Web consulting firms, Internet service providers, network
integration companies, system integrators and other Internet-related companies
who resell them to their customers. We do not believe that the loss of any one
customer would materially adversely affect us.
Strategic Relationships
Our strategic relationships and partnerships with leading technology
companies allow us to provide a wide range of services to meet our customers'
needs. The following is a description of selected companies with whom we have a
strategic relationship:
IBM. We are a Premier Partner in the IBM Partnerworld Business Partner
program for Service Providers, as well as an IBM Strategic Alliance Partner. We
began offering the IBM Net.Commerce Hosting Server product line in January 1999
as an end-to-end e-commerce solution. IBM currently lists Interliant on its Web
site as one of a select group of partners that are able to offer this product.
We are also hosting IBM Net.Commerce solutions, Start and Pro, for dedicated
server customers who maintain large e-stores and require large scale
implementations.
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On October 22, 1999 we signed an agreement to create a sales and marketing
alliance to deliver application hosting solutions that combine IBM e-business
hardware and software with our hosting services. The first two services being
addressed under this alliance are: Interliant's eReach application management
service and hosted e-commerce solutions deploying IBM WebSphere and IBM
Net.Commerce. These solutions will be brought to market through IBM's and our
direct sales forces and IBM's and our Business Partner channels. The alliance
agreement includes obligations for both parties to work together on joint
marketing and sales activities. This agreement will expire on December 31,
2000, unless terminated sooner upon 90 days advance written notice by either
party.
Lotus Development. We believe we are a leading partner of IBM's Lotus
software division and are a Lotus Net Service Provider/Alliance Partner. We
provide a variety of messaging and hosting services for Internet, intranet and
extranet applications operating on Lotus Notes/Domino. We are currently listed
by Lotus on several sections of Lotus' Web site as one of a select group of
partners that provide hosting services for Lotus Notes/Domino and other Lotus
application solutions and have twice been recognized with Lotus' highest
recognition, the Lotus Beacon Award, most recently in January 1999.
We are party to a Joint Development Agreement with Lotus Development, dated
April 27, 1998, which was scheduled to expire on April 27, 2000, subject to
automatic renewal for additional one-year terms unless terminated by either
party upon prior written notice. As of the date hereof, we have not received
written notice of termination from Lotus regarding this agreement. Under this
agreement, together with Lotus we co-developed Lotus' Domino Instant! Host now
known as the Lotus Hosting Management System, or LHMS, platform, which enables
application developers to deploy and offer Web-based collaborative
applications. Under the terms of this agreement, we share joint development
responsibilities with Lotus. Terms of this agreement include:
. We are obligated to contribute proprietary computer code owned by us, to
name one of our employees as the project liaison and to provide non-
dedicated architectural and project management assistance to Lotus.
. Lotus is obligated to contribute substantially similar type of
intellectual property and personnel resources to the project.
. Lotus is obligated to pay us a royalty equal to 25% of the net revenues
received from licensing LHMS. The royalty percentage may be adjusted at
the request of Lotus not more than once with respect to each new release
of LHMS, however, such adjustment may not reduce the royalty percentage
by more than half the percentage in effect at that time.
. We must pay Lotus at its standard rate for all copies of LHMS which we
desire to license.
. If Lotus engages in product development or promotional activities which
impact its ability to generate revenues from the sale of LHMS, the
agreement will terminate and Lotus will be obligated to pay us up to
$250,000 in penalties depending upon the amount of royalties paid to us
through the date of termination.
Microsoft. We are a Microsoft Certified Solution Provider, or MCSP, at the
Partner level. The Partner designation is the highest attainable level in this
program. We believe this designation provides us with preferred access to a
broad range of Microsoft resources and is a distinguishing factor for software
development firms and systems integrators looking to identify sources for
advanced hosting services such as those offered by us.
Our status with Microsoft provides us with the following:
. access to a local, field-based Microsoft representative;
. a corporate-based business development manager;
. designated points of contact in the customer units and product groups;
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. enhanced technical support;
. advance product notification;
. advance product releases;
. participation in beta programs;
. joint marketing programs; and
. sales leads and new business development opportunities generated by
Microsoft.
We are a designated Microsoft Application Service Provider, defined by
Microsoft as being able to provide superior infrastructure, service and
performance for hosted applications on the Microsoft platform.
We are also designated as a rapid deployment partner for various Microsoft
products. As such, we are responsible for providing feedback on Microsoft
products in the advanced hosting and managed application markets prior to
release of those products and by doing so we have been able to provide
services and gain expertise on these products before the general market.
Additionally, we are currently engaged in several strategic initiatives
with Microsoft, as described below.
We also have entered into a co-marketing and promotion agreement whereby
Microsoft will include our advertisements in a catalog that is inserted into
every FrontPage 2000 product box that is packaged for retail sale, as well as
a catalog that is inserted into every full package product version of Office
Developer, Office Standard, Office Small Business, Office Professional and
Office Premium. Microsoft has also agreed that it will issue a press release
on its Web site highlighting our joint involvement in the promotion of
FrontPage 2000. In return, we have agreed to feature Front Page 2000 on our
Web site with greater frequency and visibility than any competing product and
have agreed to offer either free Web hosting with a value of up to $105 or
free or reduced registration and set up fees with a value of up to $500, in
order to induce the public to host a FrontPage 2000 Web site. This agreement
remains in effect until the earlier of the initial release of the next version
of FrontPage, Microsoft ceasing to produce FrontPage, or December 31, 2000.
We are also participating in a Microsoft initiative called the Complete
Commerce program. In conjunction with selected other MCSP's, we will incent
customers seeking to engage in e-commerce activities on the Web to enter into
this program by offering a specially priced, all inclusive storefront hosting
package that integrates shipping, credit card processing and tax elements. The
service will also include consulting and development of the storefront
application Web site, back-end integration and hosting activities. Microsoft
will provide resources to help us market this program, including promotional
activities, marketing activities and participation in the customer engagement
activities. Our marketing activities for the Complete Commerce program
commenced in April 1999.
We are also participating in a Microsoft initiative called the Complete
Commerce Phase II program. This program will launch end-to-end hosting
solutions for corporate procurement, customer relationship management and
accounting customers.
We are participating in Microsoft's Office Online pilot program and have
plans to offer Microsoft's desktop productivity suite over the Internet. As
part of this strategic initiative, we will deliver hosted and customized
Office 2000 solutions, instant software updates and service releases. We will
allow customers to pay for services on a monthly basis. In addition, our
hosting of Office 2000 will provide small- to medium-sized businesses a new,
pay-per-use option for familiar Office applications including, Microsoft Word,
Microsoft Excel, Microsoft PowerPoint, Microsoft Access, Microsoft FrontPage
and Microsoft Outlook.
We are also engaged in research and development efforts with the Microsoft
Exchange 2000 Product Team to develop a robust hosting platform for
collaborative applications running on Exchange 2000.
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All of these initiatives supplement our current shared and advanced
dedicated server offerings for Microsoft NT 4.0, IIS 4.0, SQL, 6.5/7.0,
FrontPage 98, FrontPage 2000 and Office Server Extensions. Dedicated and shared
server offerings based on Windows 2000 are currently under development. We plan
to launch these service offerings in the second half of 2000.
In March 2000, we entered into a commercial agreement with Microsoft to
develop application hosting services on the Windows 2000 Server and Exchange
2000 Server platforms. Under this agreement, we and Microsoft are to work
together to develop tools to make it easier for independent software vendors
and solution providers to develop hosted, collaborative applications on the
Microsoft Exchange 2000 Server platform. We are also to develop and offer
services that help independent software vendors to develop hosted applications
for Microsoft's collaboration platform.
Network Solutions. We have entered into a strategic alliance with Network
Solutions, Inc. to deliver enhanced Internet identity and hosting services for
small and medium-sized businesses. Under the terms of this agreement,
Interliant and Network Solutions will offer and promote our respective products
and services to each other's existing and potential customers. In particular:
. We will continue to offer our customers the benefit of Network
Solutions' registration services in the .com, .net and .org top-level
domains to help them establish their unique Internet identities;
. We will provide access to the "dot com directory" through a link on our
Web site;
. Network Solutions will promote our services on its Web site, on the dot
com directory and in a variety of other promotional campaigns. Network
Solutions will continue to refer customers to us as an Alliance Program
member and the two companies will engage in joint sales efforts with the
goal of offering those customers the benefits of our hosting and both
parties' services;
. Network Solutions will also expedite the registration process for our
customers and will provide dedicated advanced account management for our
customers with 24x7 support; and
. Interliant and Network Solutions will explore joint development of a
rentable application offering that would allow small and medium-sized
businesses to leverage the power of an Internet-based hosted application
without the traditional infrastructure required to host and administer
one.
Cisco Systems. We have entered into a strategic relationship with Cisco
Systems to provide comprehensive solutions to our customers utilizing Cisco
Systems access and switching products. As part of an Interliant overall IT
solution including design, installation, project management and post-sales
support, we are authorized to distribute Cisco Systems products, both
domestically and on a multinational scale, at substantial discounts to the
retail prices available generally. This relationship also grants us substantial
discounts on Cisco Systems products allocated for our internal uses.
Onyx. We have entered into a strategic relationship with Onyx, a leader in
e-business software and a professional services provider, to provide
comprehensive solutions for Onyx's customer relationship management
applications, Onyx Front Office and Onyx Enterprise Portal. As part of this
relationship, we will provide European customers with application set up and
configuration at our data center, operating system and application level
administration as well as customer support for Onyx Front Office and Onyx
Enterprise Portal. Outside of Europe, these implementation services will be
initially offered through our partnerships with Onyx system integrators.
In addition to the above relationship, Onyx has selected Interliant as one
if its ASPiN partners. Onyx ASPiN is a global program that includes software,
hardware and services companies working together and independently to deliver a
wide-ranging set of unique hosted offerings based on the Onyx Front Office
product family.
Dell Computer Corporation. In February 2000, we entered into an alliance
agreement with Dell under which we will collaborate to bring Web-based services
to market. Under the terms of the agreement, Interliant will provide certain
services to Dell. As part of the deal, Dell has agreed to sell its PowerEdge
servers and PowerVault storage products to us for use in our hosting service.
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BMC Software. We have executed an agreement with BMC Software under which we
have agreed to standardize BMC Software's monitoring products to support our
hosting platforms and customer premise servers. BMC Software will also join us
in co-marketing activities intended to promote our respective products and
services. We will also promote one another's products and services to our
respective current and potential customers.
Interliant Europe. In February, 2000, we and @viso Limited, a company
incorporated under the laws of England and Wales and owned 50% by Softbank
Holdings, Inc. and 50% by Vivendi, S.A., agreed to form a corporation,
Interliant Europe B.V., owned 51% by us and 49% by @viso Limited. Under the
agreement, @viso committed, through its purchase of an equity interest and
loans to us, to invest up to $40.0 million in Interliant Europe. In April 2000,
as part of a $15.0 million initial investment in Interliant Europe, @viso
contributed approximately $7.3 million to purchase its initial equity interest
in Interliant Europe and loaned us the amount required to purchase our initial
equity interest in Interliant Europe (approximately $7.7 million). Of the
remaining balance of the $40.0 million commitment (approximately $25.0
million), @viso has agreed to loan us the amount required for our share of the
commitment (approximately $12.75 million). As part of the agreement, @viso will
also provide data center assets and other services to Interliant Europe,
including identification of local competitors and potential partners. We have
also agreed to license some of our technology and intellectual property to and
to enter into a service agreement with Interliant Europe.
VeriSign, Inc. In March 2000, we entered into a strategic agreement with
VeriSign, Inc., a leading provider of Internet trust services, to integrate
VeriSign's trust services, including website digital certificates and payment
services, with our Web hosting and e-commerce services. Under terms of the
alliance, we have joined VeriSign's Secure Site ISP/Web Host program as a
Premier Partner and have named VeriSign as our Preferred Provider of trust
services for our customer base. We intend to integrate VeriSign's Web site
digital certificates and payment services into our Web hosting packages and e-
commerce services, automating the customer enrollment and lifecycle process
using tools provided by VeriSign. To promote these joint offerings, Interliant,
VeriSign and Network Solutions. will collaborate on a range of co-marketing
programs. In addition, we and VeriSign have agreed to collaborate with Network
Solutions to develop a range of value-added e-commerce service offerings for
small, medium and large enterprise customers.
UUNET. We also have a strategic partnership with UUNET Technologies to be
our primary connectivity provider on a worldwide basis. See "Technology and
Network Operations--Connectivity."
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Acquisition Program
We have completed 23 acquisitions through March 31, 2000 and we intend to
seek additional acquisitions. We seek to identify businesses which will add
application expertise and service offerings, customers, sales capabilities
and/or geographic coverage while generating a positive rate of return on
investment. Furthermore, we intend to capitalize on the business practices of
acquired companies that we believe will best maintain our competitive
advantages and ensure ongoing delivery of high quality hosting services to our
customers. The acquisition candidates we review can be large, and their
acquisition by us could have a significant and lasting impact on our business.
The following table sets forth information with respect to the 23
acquisitions completed by us since our inception.
<TABLE>
<CAPTION>
Date Name Primary Focus Location of Acquisition
---- ---- ------------- -----------------------
<S> <C> <C> <C>
February 1998........... DirectNet Web hosting California
April 1998.............. Clever Computers Web hosting Georgia
April 1998.............. Server and network Web hosting Washington, D.C.
connectivity assets from
Knowledgelink
Interactive
May 1998................ Tri-Star Web Creations Web hosting New York
June 1998............... HostAmerica Web hosting Georgia
June 1998............... All Information Systems Web hosting Texas
July 1998............... Software Business Web hosting California
Technologies Web
Hosting business unit
July 1998............... Dev Com Web hosting California
July 1998............... Maikon Web hosting Texas
August 1998............. ICOM Web hosting California
September 1998.......... GEN International Web hosting Florida
December 1998........... Dialtone Web hosting Florida
February 1999........... DigiWeb Web hosting Washington, D.C.
February 1999........... Telephonics International Multimedia Florida
February 1999........... Net Daemons Associates Professional Services Massachusetts, California
and Colorado
March 1999.............. Interliant Texas Messaging, CRM, Texas and London,
e-Commerce, Distributed England
Learning
May 1999................ Advanced Web Creations Web Hosting New Jersey
August 1999............. Daily-e Professional Services New York
September 1999.......... Sales Technology CRM London, England
November 1999........... Triumph Technologies Professional Services, Massachusetts
and Triumph e-business security
Development solutions
December 1999........... The Jacobson Group Professional Services Massachusetts
February 2000........... reSOURCE PARTNER, Inc. ASP Ohio
February 2000........... Soft Link, Inc. Professional Services Minnesota
</TABLE>
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Once we acquire a company, a multi-disciplinary team engages in a detailed
integration process. Technical integration often involves physically moving the
acquired company's equipment into one of our facilities and migrating acquired
company customers onto our hosting platforms. Our platforms are typically more
robust than that of the acquired company and standardization allows us to
manage the servers more efficiently. We also intend to continue to integrate
customer service operations at our primary data centers. By centralizing
customer service, we believe that we can improve performance while reducing
cost. We also intend to continue transitioning acquired company operations onto
a consistent billing platform. This platform will be serviced by our personnel
at a centralized location and employ uniform systems and procedures to operate
multiple billing systems.
Sales and Distribution
Our sales and marketing group sells our ASP solutions to our customers
through the following sales channels:
Direct Sales, which sells ASP solutions to large enterprises and other
businesses whose Internet operations are mission-critical.
Telesales, which acquires new customers through inbound calls generated
through traditional media and outbound telesales to pre-qualified potential
customers.
Internet Marketing programs that drive potential customers to our Web site
or our telesales group. Customers can purchase Web hosting services on a 24x7
basis from our Web site at www.interliant.com.
Indirect Sales consisting of reseller and referral partners, such as Web
consulting firms, Internet service providers, independent software vendors,
network integration companies and system integrators. These distribution
partners have established relationships with our prospective customer base as
well as sales forces capable of selling our ASP solutions. These indirect sales
channels extend our market reach and assist in the delivery of complete
solutions to meet customer needs. We offer our partners a discount from our
retail price on both products and services.
Marketing
We market our ASP solutions using a variety of media and channels. We intend
to continue investing in building the Interliant brand worldwide, using print
advertisements in key industry publications, broadcast advertising, direct
marketing and online advertising, such as general rotation and keyword-specific
Web banner advertisements, as well as other marketing techniques. In addition,
we intend to employ a number of other marketing tactics and communications
vehicles, such as product literature, trade shows, promotions with key hardware
and software vendors, direct response programs and our Web site to generate
leads and increase awareness of our brand. Our products are available from our
primary Web site at www.interliant.com as well as at www.appsonline.com. We
expect to significantly increase our marketing expenditures in order to support
our brand marketing and lead-generation efforts. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
When an acquired company's brand is already well-established, we may for a
period of time continue to market certain products and services under that
brand to capitalize on the competitive advantages the acquired brand may bring
to us. Our long-term goal, however, is to migrate most of our acquired product
offerings to our brands.
Technology and Network Operations
We have developed a secure, reliable, high-performance and scalable hosting
solution, which we believe provides a significant competitive advantage in the
market. This solution is comprised of multiple hosting
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platforms that incorporate automated functionality and a network infrastructure
that includes multiple Internet data centers and is monitored on a 24x7 basis.
Our strategy in developing our ASP solutions focuses on utilizing internally
created technological innovations that we integrate with leading software and
hardware providers.
ASP Hosting Platform. Although industry-standard Web servers are adequate
for basic Web hosting, we believe that efficiently managing large numbers of
Web sites and users on a single server or managing complex, Internet-based
applications requires significant technological innovations. We have developed
proprietary hosting platforms that permit us to integrate existing hardware and
software products, such as those from Microsoft, Cisco Systems, Compaq, Dell
and Network Appliance, to create our hosting platform. We have also developed
Web server applications designed to improve performance in a virtual server
environment and we have implemented resource monitoring tools designed to
report and address scarcity of shared computer processing units and memory
resources. Our solution is scalable, allowing servers to be added while being
monitored centrally, independent of where they are located.
Facilities and Operations. We have four primary data centers located in
Houston, Texas; Atlanta, Georgia; Vienna, Virginia and Columbus, Ohio. In
addition, we have contracted for a data center in London, United Kingdom which
we expect to be operational during the third quarter of 2000. Our customer
service and network monitoring infrastructures are based in our four primary
data centers. In order to provide our customers with high-quality service, we
have invested substantial resources in building our network infrastructure.
We have designed our network to minimize the effect of any interruptions.
Our high-speed network is designed to continue operating in the case of
software or hardware failures. Our data centers feature separate, redundant
fiber and power connections, back-up diesel generators, environmental control
systems and uninterruptible power supplies designed to provide on-site power
for up to four weeks. Systems receive full daily back-ups and off-site storage.
We also provide remote access management and reporting tools. Quality and
security are paramount concerns for our customer base. Consequently, we employ
several security measures, including firewall, intrusion monitoring and site
security monitoring, limited access electronic card key measures and the
physical separation of servers from administrative workstations. We have also
implemented monitoring systems to identify potential sources of failure, limit
downtime and notify our staff of any problems. Although we have attempted to
build redundancy into our network and hosting facilities, our data centers are
subject to various single points of failure and a problem with one of our
routers or switches could cause an interruption in the services we provide to
some of our customers.
Our Vienna, Virginia facility is a world-class data center located within a
mile of MAE-East, the major East Coast data hub to the Internet, facilitating
the most scalable Internet connectivity and reliable network services
available. Originally an America Online data center, this 22,270 square-foot
facility features the latest in state-of-the-art equipment and design,
including MGE Uninterruptible Power Systems, multi-carrier connectivity,
environmental monitoring and conditioning and end-to-end physical security
systems. We believe these features ensure stable, reliable operation of
applications.
Historically, our Houston data center housed our application hosting
operations and our Atlanta center housed our Web hosting operations. Each of
these centers, as well as our data center in Vienna, Virginia, are capable of
providing a full range of ASP hosting. Customer service for our ERP customers
is currently housed in our Columbus data center. We anticipate that over time
the functional distinctions between our data centers will diminish.
Our Network Operations Centers ("NOCs"), with the exception of our NOC in
our Columbus data center which is focused solely on our ERP hosted
applications, are responsible for monitoring our entire network, server farm
and hosted applications on a 24x7 basis. We monitor each piece of equipment,
including routers, switches and servers. The NOCs also monitor all Internet and
telecommunications connections and ensure that they are functional and properly
loaded. The design of the NOCs enables systems administrators and support
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staff to be promptly alerted to problems and we have established procedures for
rapidly resolving any technical problems that arise. The NOCs are fully
integrated into our customer service facilities.
Connectivity. We offer connectivity to our systems from virtually anywhere
in the world, enabling customers to deploy global solutions. Customers can
access us:
. via the Internet;
. through X.28 connections provided by Compuserve and Equant, N.V. in more
than 105 countries;
. through dedicated lines at a bandwidth they specify;
. over Frame Relay through AT&T, Sprint and MCI Worldcom; or
. domestically via a toll-free number.
We utilize multiple DS-3 connections to the Internet provisioned directly
off a SONET ring from our Atlanta, Houston and Vienna, Virginia data centers.
In addition, we currently utilize four OC/3 sized circuits from our Atlanta
facility and another single OC/3 connection from our Virginia facility.
Internally developed management and monitoring systems provide insight into the
performance of our entire network, as well as consistency of security measures
across all of our current hosting platforms.
By utilizing top tier connectivity providers and developing private peering
arrangement with bandwidth providers, we are able to offer highly resilient,
redundant and high speed connectivity between the Internet and each of our data
center facilities.
On February 17, 1999 we entered into an agreement with UUNET Technologies to
be our primary connectivity provider on a worldwide basis. The agreement is
scheduled to expire on February 19, 2002, subject to automatic renewal for an
additional year unless either party notifies the other of its intent not to
renew. Terms of this agreement include:
. UUNET Technologies has agreed to provide and we have agreed to purchase
monthly minimum levels of connectivity ranging from 100 Mbps to 600 Mbps
of bandwidth.
. Upon execution of this agreement we were committed to purchase 100 Mbps
of bandwidth per month.
. Our minimum monthly bandwidth purchase commitment increased to 300 Mbps
in December 1999 and will increase to 600 Mbps in December 2000.
. We have agreed that, if during the second and third years of this
agreement, we obtain over 600 Mbps of bandwidth per month for our
Internet traffic, we will purchase 51 % of all bandwidth in excess of
600 Mbps from UUNET Technologies. If we do not purchase 51% of all
bandwidth over 600 Mbps from UUNET Technologies, we are obligated to pay
UUNET Technologies $21.66 for each Mbps we are obligated but fail to
purchase from them.
Under the terms of the agreement, the connectivity may range in capacity
from T-1 to DS-3 to OC-12 which are the technical names of the physical
telecommunications connections or pipelines that will be used to transport
data. A larger pipeline can carry a greater volume of data at a greater speed.
For example, a T-1 can carry 1.544 megabytes per second; a DS-3 can carry
44.736 megabytes per second and an OC-12 can carry 622 megabytes per second. At
our Atlanta data center, we have four OC-3 connections to diverse hubs in UUNET
Technologies' network, each of which can carry 155.52 megabytes of data per
second and use diverse fiber for redundancy. In addition to the connectivity
provisions, our companies have agreed to develop and implement a joint
marketing program including:
. allowing us to resell UUNET Technologies services through our network of
resellers;
. cooperating on mutually beneficial hosting and co-located remarketing
agreements; and
. cooperating on an international co-location facilities agreement.
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Our minimum financial commitment during each year of the agreement is as
follows: $0.7 million in year one, $2.1 million in year two and $4.1 million in
year three.
Customer Service
We view customer service as a critical part of our business strategy. As of
March 31, 2000, our customer service group had 233 employees located mainly in
our primary data centers. This group is responsible for providing customer
service to our customers as well as our resellers and referral partners,
including helping customers to use our ASP solutions.
We have invested in advanced customer service software and call routing
technology to streamline the customer service process. Through our customer
service systems, customer service representatives can generally resolve any
issue in a timely manner via e-mail or our toll-free number. We also offer many
of our customers a self-service customer support alternative, which provides
online access to account and billing data and site statistics such as disk
storage capacity and bandwidth utilization. Certain customer accounts also have
access to dedicated support engineers who are familiar with each unique
configuration or requirement a larger customer may have.
A focused support team handles all the application hosting support
requirements via several mechanisms including a facilitated discussion database
environment available over the Internet where customers, application developers
and support technicians can discuss pertinent issues and build a relevant
knowledge base. Our Web hosting customer service operations are supported by
the Vantive Support system, a customer/asset management tracking application
that enables a customer service representative to view a customer's entire
account, including past and recent interactions with such customer. This
database categorizes all reported problems so that if a particular problem
reoccurs, customer service representatives can view its prior resolution and
provide timely and accurate customer service.
Competition
The market served by us is highly competitive. Although barriers to entry
and continued growth are increasing, there are still few substantial barriers
to entry. We expect that we will face additional competition from existing
competitors and new market entrants in the future. The principal competitive
factors in this market include:
. quality of service, including network capability, scalability,
reliability and functionality;
. customer service and support;
. variety of services and products offered;
. price;
. brand name;
. Internet system engineering and technical expertise;
. timing of introductions of additional value added services and products;
. network security;
. financial resources; and
. conformity with industry standards.
We may not have the resources, expertise or other competitive factors to
compete successfully in the future.
Our current and potential competitors include:
. other ASPs, such as USinternetworking, FutureLink and Corio;
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. other Web hosting and Internet services companies such as
Metromedia/AboveNet Communications, Exodus Communications, Digital
Island, GlobalCenter, Globix, NaviSite, Digex, Data Return and local and
regional hosting providers;
. national and regional Internet service providers such as Concentric
Network, MindSpring Enterprises, UUNET Technologies, PSINet and Verio;
. global telecommunications companies including AT&T, British
Telecommunications, Telecom Italia and Nippon Telegraph and Telephone;
. other Internet professional services companies such as iXL Enterprises,
USWeb/CKS and Breakaway Solutions; and
. regional and local telecommunications companies, including the regional
Bell operating companies such as Bell Atlantic and USWest.
Many of our competitors have substantially greater financial, technical and
marketing resources, larger customer bases, longer operating histories, greater
name recognition and more established relationships in the industry than we do.
As a result, certain of these competitors may be able to develop and expand
their network infrastructures and service offerings more rapidly, adapt to new
or emerging technologies and changes in customer requirements more quickly,
take advantage of acquisition and other opportunities more readily, devote
greater resources to the marketing and sale of their services and adopt more
aggressive pricing policies than we can. In addition, these competitors have
entered and will likely continue to enter into joint ventures or consortia to
provide additional services competitive with those provided by us.
Intellectual Property Rights
We rely on a combination of copyright, trademark, service mark, trade secret
laws and contractual restrictions to establish and protect certain proprietary
rights in our services. We have no patented technology that would preclude or
inhibit competitors from entering our market. The steps taken by us to protect
our intellectual property may not prove sufficient to prevent misappropriation
of our technology or to deter independent third-party development of similar
technologies. The laws of certain foreign countries may not protect our
services or intellectual property rights to the same extent as do the laws of
the United States. We also rely on certain technologies that we license from
third parties. These third-party technology licenses may not continue to be
available to us on commercially reasonable terms. The loss of the ability to
use such technology could require us to obtain the rights to use substitute
technology, which could be more expensive or offer lower quality or performance
and therefore have an adverse effect on our business.
To date, we have not been notified that our services infringe on the
proprietary rights of third parties, but third parties could claim infringement
by us with respect to current or future services. From time to time, we are
notified that the content of one of our customer's sites infringes on a third
party's trademark or copyright. In response, we take steps pursuant to the
Digital Millenium Copyright Act to inform the customer of such claim and, where
appropriate, terminate a customer's service. We expect that participants in our
markets will be increasingly subject to infringement claims as the number of
services and competitors in our industry segment grows. Any such claim, whether
meritorious or not, could be time-consuming, result in costly litigation, cause
service installation delays or require us to enter into royalty or licensing
agreements. Such royalty or licensing agreements might not be available on
terms acceptable to us or at all. As a result, any such claim could have an
adverse effect upon our business.
Government Regulation
We are not currently subject to direct federal, state or local government
regulation, other than regulations that apply to businesses generally. Only a
small body of laws and regulations currently applies specifically to hosting
and commerce activities, or access to the Internet. Due to the increasing
popularity and use of the
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Internet, however, it is possible that laws and regulations with respect to the
Internet may be adopted at international, federal, state and local levels,
covering issues such as user privacy, freedom of expression, pricing,
characteristics and quality of products and services, taxation, advertising,
intellectual property rights, information security and the convergence of
traditional telecommunications services with Internet communications. Although
sections of the Communication Decency Act of 1996 that, among other things,
proposed to impose criminal penalties on anyone distributing "indecent"
material to minors over the Internet were held to be unconstitutional by the
U.S. Supreme Court, similar laws may be proposed, adopted and upheld. The
nature of future legislation and the manner in which it may be interpreted and
enforced cannot be fully determined and, therefore, legislation similar to the
Communications Decency Act could subject us and/or our customers to potential
liability, which in turn could have a material adverse effect on our business,
results of operations and financial condition. The adoption of any such laws or
regulations might decrease the growth of the Internet, which in turn could
decrease the demand for our services, increase the cost of doing business or in
some other manner have an adverse effect on our business.
We collect sales and other taxes in the states we have offices and are
required by law to do so. We currently do not collect sales or other taxes with
respect to the sale of services or products in all states and countries in
which we have offices and may be required by law to do so. One or more
jurisdictions have sought to impose sales or other tax obligations on companies
that engage in online commerce within their jurisdictions. A successful
assertion by one or more jurisdictions that we should collect sales or other
taxes on our products and services, or remit payment of sales or other taxes
for prior periods, could have an adverse effect on our business.
In addition, applicability to the Internet of existing laws governing issues
such as property ownership, copyright and other intellectual property issues,
taxation, libel, obscenity and personal privacy is uncertain. The vast majority
of such laws were adopted prior to the advent of the Internet and related
technologies and, as a result, do not contemplate or address the unique issues
of the Internet and related technologies. Changes to such laws intended to
address these issues could create uncertainty in the marketplace that could
reduce demand for our services, increase the cost of doing business as a result
of costs of litigation or increased service delivery costs or could in some
other manner have an adverse effect on our business.
Any new legislation or regulation, or the application of laws or regulations
from jurisdictions whose laws do not currently apply to our business, could
have an adverse effect on our business.
Employees
As of March 31, 2000 we had 1,256 employees, of which 155 were in sales,
distribution and marketing, 664 were in engineering and service development,
233 were in customer service and technical support, 200 were in finance and
administration and 4 were in acquisition integration. None of our employees are
represented by a labor union and we believe that our employee relations are
good.
Facilities
Our executive offices, which we lease, are located in Purchase, New York. We
also lease the facilities that house our primary data centers in Atlanta,
Georgia; Houston, Texas; Vienna, Virginia and Columbus, Ohio, as well as other
facilities in the Washington, D.C. and Boston metropolitan areas.
Legal Proceedings
In the ordinary course of our business, we may be involved in legal
proceedings from time to time. As of the date of this prospectus, there are no
material legal proceedings against us.
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MANAGEMENT
Executive Officers and Directors
The following table sets forth certain information as of May 15, 2000 with
respect to the executive officers and directors of Interliant:
<TABLE>
<CAPTION>
Name Age Title
---- --- -----
<S> <C> <C>
Leonard J. Fassler............... 68 Co-Chairman, Director
Bradley A. Feld.................. 34 Co-Chairman, Director
Herbert R. Hribar................ 48 President, Chief Executive
Officer, Director
Francis J. Alfano................ 38 Senior Vice President, Web
Hosting Solutions and Mergers and
Acquisitions
Paul E. Chollett................. 40 Senior Vice President, Finance
and Administration
Kim A. Crane..................... 45 Senior Vice President, Marketing
Randy D. Kautto.................. 54 Senior Vice President, Strategy
and International
Bruce S. Klein................... 41 Senior Vice President, General
Counsel and Secretary
Jennifer J. Lawton............... 36 Senior Vice President, ASP
Solutions
Kristian Nelson.................. 36 Senior Vice President, Operations
Richard C. Rose.................. 52 Senior Vice President, Sales
William A. Wilson................ 54 Chief Financial Officer and
Treasurer
Thomas C. Dircks...................... 41 Director
Jay M. Gates.......................... 34 Director
Merril M. Halpern..................... 64 Director
John P. Landry........................ 51 Director
Charles R. Lax........................ 39 Director
Stephen W. Maggs...................... 46 Director
Patricia A. M. Riley.................. 57 Director
</TABLE>
Leonard J. Fassler is one of our co-founders and has been one of our Co-
Chairmen and a Director since our formation in December 1997. Mr. Fassler was
also our Secretary from December 1997 through April 1999. From 1992 to 1996,
Mr. Fassler was a Co-Chairman of AmeriData Technologies, Inc., a New York Stock
Exchange-listed reseller of computer equipment and provider of computer
consulting and other services that was acquired by General Electric Capital
Corporation in 1996. Mr. Fassler was a co-founder of AmeriData. Mr. Fassler
holds a bachelor's degree in business administration from City College of New
York and a law degree from Fordham Law School. Mr. Fassler is also a director
of Vestcom, Inc.
Bradley A. Feld is one of our co-founders and has been one of our Co-
Chairmen and a Director since our formation in December 1997. Since 1995, Mr.
Feld has been the President of Intensity Ventures Inc., a company that helps to
establish, advise and operate software companies. From 1993 to 1995, Mr. Feld
was the chief technology officer of AmeriData. From 1985 to 1993, he was
president of Feld Technologies, Inc., a computer consulting firm founded by Mr.
Feld to develop and implement information technology solutions for a wide
variety of businesses, which was acquired by AmeriData in 1993. Mr. Feld earned
a bachelor of science degree and a master of science degree from Massachusetts
Institute of Technology. Mr. Feld is a General Partner of SOFTBANK Technology
Ventures IV, L.P., SOFTBANK Technology Ventures V, L.P. and SOFTBANK Technology
Advisors Fund, L.P., venture capital funds. Mr. Feld is a director and co-
chairman of Message Media, Inc. and director of a number of privately held
companies.
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Herbert R. Hribar became our Chief Executive Officer and a Director
effective January 31, 2000. In addition, effective March 30, Mr. Hribar was
named our President. Prior to joining us and since July 1998, Mr. Hribar had
been President and Chief Operating Officer of Verio, Inc., a domain-based Web
hosting company. From March 1997 to July 1998, Mr. Hribar was President of
Ameritech Wireless in Chicago, Illinois and Managing Director of Ameritech
Europe from January 1996 to February 1997. Mr. Hribar is a graduate of the U.S.
Naval Academy in Annapolis and has advanced degrees in engineering, business,
and computer science.
Francis J. Alfano has served as our Senior Vice President, Mergers and
Acquisitions since December 1998. In March 2000, his title was changed to
Senior Vice President, Web Hosting and Mergers and Acquisitions. From January
1997 to November 1998, Mr. Alfano was Vice President of Business Development at
GE Capital Information Technology Solutions, Inc., formerly AmeriData. From
July 1994 to December 1996, Mr. Alfano was Director of Taxes at GE Capital
Information Technology Solutions, Inc. From January 1991 to June 1994, Mr.
Alfano was employed by Ernst & Young, an accounting, tax and consulting firm
and was a senior manager in the tax department at the time of his departure.
From 1984 to 1990, Mr. Alfano was employed as a Certified Public Accountant
with various public accounting firms. Mr. Alfano holds a bachelor of science
degree in business administration from the University of Arizona and is a
Certified Public Accountant.
Paul E. Chollett has served as our Senior Vice President, Finance and
Administration since March 1999. From July 1996 until he joined us, Mr.
Chollett was Senior Vice President and Chief Financial Officer of Interliant
Texas. From July 1993 to July 1996, Mr. Chollett was the Director of Finance
and Administration in the Audit Division of the accounting firm of Arthur
Andersen LLP. In this role, Mr. Chollett was responsible for managing the
financial, risk management and quality control aspects of the firm's audit
practice. Mr. Chollett holds a bachelor of science degree in accounting from
the University of Houston at Clear Lake City. Mr. Chollett is a Certified
Public Accountant.
Kim A. Crane has served as our Senior Vice President, Marketing since March
2000. In such role, she is responsible for the planning, development,
execution, and evaluation of all communications programs targeted to customers,
prospects, and other relevant external and internal audiences. Ms. Crane has
over 15 years of high tech marketing experience. Prior to joining Interliant in
March, 2000, Ms. Crane was at Alcatel, one of the largest telecommunications
companies in the world headquartered in Paris, France, where she served as Vice
President of Global Marketing Communications from March 1998 to April 1999 and
Assistant Vice President of Marketing Communications from September 1995
through February 1998. Prior to that time, she also held management positions
with International Data Group (IDG) and British Telecom.
Randy D. Kautto has served as our Senior Vice President, International and
Strategy since May, 2000. Previously, Mr. Kautto was Chairman, President and
CEO of reSOURCE PARTNER, Inc., an Application Service Provider founded by
Mr.Kautto. reSOURCE PARTNER was acquired by Interliant on February 29, 2000.
Mr. Kautto served as Senior Vice President, Human Resources and Corporate
Affairs for Borden, Inc. from February 1994 until January 1997. He was Vice
President, Employee Relations at Philip Morris Companies, Inc. from 1992 until
1994 and Vice President, Human Resources at General Foods Corporation from 1988
until 1992. Mr. Kautto received a Bachelor of Science degree from Arizona State
University, after which he served as Captain and aviator in the U.S. Army,
including a tour in Vietnam.
Bruce S. Klein has served as our Senior Vice President, General Counsel
since December 1998. In April 1999, Mr. Klein became our Secretary. From April
1998 to November 1998, he was our General Counsel, Vice President. Mr. Klein
had previously been of counsel to the law firm of McCarthy, Fingar, Donovan,
Drazen & Smith, L.L.P, prior to which he was of counsel to the law firm of
Spitzer & Feldman P.C., in each case engaged in the general practice of law,
with experience in mergers and acquisitions and general corporate and business
law. Mr. Klein is admitted to practice law in New York and Massachusetts and
holds a bachelor's degree in business administration from Rutgers University
and a law degree from Western New England College School of Law.
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Jennifer J. Lawton has served as our Senior Vice President, Consulting and
Technology since February 1999. In March 2000, her title was changed to Senior
Vice President, ASP Solutions. From May 1992 until she joined us, Ms. Lawton
was the Chief Executive Officer of Net Daemons Associates, Inc., a provider of
Web development and system integration activity for Internet and IT Networks
which was acquired by Interliant in February 1999. Ms. Lawton is a co-founder
of Net Daemons Associates, Inc. Ms. Lawton holds a bachelor of science degree
in applied mathematics from Union College.
Kristian Nelson has served as our Senior Vice President, Operations since
March 1999. From July 1997 until he joined us, Mr. Nelson was Senior Vice
President, Operations of Interliant Texas and was responsible for the direction
and control of all operational aspects of Interliant Texas's business including
product development, customer service and application and data center services.
From June 1996 through May 1997, Mr. Nelson served as Vice President,
Operations at GST Telecommunications, a full-service telecommunications
provider. In this role, Mr. Nelson was responsible for the oversight and
control of GST Internet Inc., the Internet subsidiary of GST
Telecommunications. From June 1995 to January 1996, Mr. Nelson was a Senior
Management Consultant in the Technology Strategy Practice area at Gartner
Group, Inc., a company which provides IT advisory services and consulting,
where his responsibilities included providing technical consulting services to
Fortune 500 companies. From May 1986 to May 1995, Mr. Nelson was the Product
Assurance Information Technology Director at Lockheed Martin Corporation, a
diversified technology company. At Lockheed Martin, Mr. Nelson was responsible
for developing and implementing information technology strategic planning for
the Product Assurance Group. Mr. Nelson holds a bachelor of science degree in
management science from Orlando College.
Richard C. Rose has served as Senior Vice President, Sales since January
2000. He served as President of Telephonetics, our wholly owned subsidiary,
from September 1999 to January 2000. From June 1998 until August 1999, Mr. Rose
was a Vice President at Compucom, a large computer support company, where he
was responsible for sales in the company's Southeast region. Prior to that
time, Mr. Rose was Chairman and Chief Executive Officer of Dataflex
Corporation, a full service computer integrator, from 1984 until June 1998. Mr.
Rose attended the U.S. Naval Academy and holds a bachelor of science degree in
mathematics from the University of Miami.
William A. Wilson has served as our Chief Financial Officer since September
1998 and as our Treasurer since August 1999. During the period from February
1998 to July 1998, Mr. Wilson served as Vice President, Finance and Chief
Financial Officer at XCOM Technologies, Inc., a competitive local exchange
carrier. From October 1997 to February 1998, Mr. Wilson served as a consultant
to several private companies. From June 1997 to October 1997, Mr. Wilson served
as Senior Vice President, Finance and Chief Financial Officer of Computervision
Corporation, a software publishing and development company. Prior thereto, Mr.
Wilson was Executive Vice President and Chief Financial Officer of Arch
Communications Group, Inc., a wireless messaging company, from June 1996 to
June 1997 and was Vice President, Finance and Chief Financial Officer of Arch
Communications Group, Inc. from January 1989 to June 1996. Mr. Wilson received
a bachelor of arts degree from Luther College, a master of science degree from
Northeastern University and a masters degree in business administration from
Babson College. Mr. Wilson is a Certified Public Accountant.
Mr. Dircks has been one of our Directors since our formation in December
1997 and is a Managing Director of Charterhouse Group International, Inc.
("Charterhouse"). Mr. Dircks has been employed as an officer of Charterhouse
since 1983. He was previously employed as a Certified Public Accountant at a
predecessor of PricewaterhouseCoopers LLP. He holds a bachelor of science
degree in accounting and a masters degree in business administration from
Fordham University. He is also a director of a number of privately held
companies.
Mr. Gates has been one of our Directors since our formation in December 1997
and is a Senior Vice President of Charterhouse. He joined Charterhouse in 1994
as an Analyst. Mr. Gates was previously employed as a Senior Analyst in the
Financial Consulting Advisory Group of the accounting firm of Arthur Andersen
LLP. Prior to that he was an Assistant Treasurer at Bankers Trust Corporation.
He holds a bachelor of arts degree from the State University of New York at
Binghamton and a masters degree in business administration
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from New York University, Leonard N. Stern School of Business. He is also a
director of a number of privately held companies.
Mr. Halpern has been one of our Directors since our formation in December
1997 and is Chairman and Chief Executive of Charterhouse, which he founded in
1973. Mr. Halpern is a director of Microwave Power Devices, Inc. and United
Road Services, Inc., as well as several private companies. He received a
bachelor of science degree from Rutgers University and a masters degree in
business administration from Harvard University.
Mr. Landry has been one of our Directors since July 1999. Mr. Landry is
currently Chairman of AnyDay.com and has been Strategic Technology Consultant
to senior management of IBM Corporation since June 1995. In addition, from
October 1995 to January 1999, he was Chairman of the Board of Narrative
Communications Corporation, an Internet-based interactive advertising company.
In January 1999, Narrative was acquired by At Home Networks. From 1990 to 1995,
Mr. Landry was Senior Vice President and Chief Technology Officer of Lotus
Development Corporation, a provider of software products and services. Mr.
Landry is also a director of a number of privately held companies.
Mr. Lax has been one of our Directors since January 1999. He has been a
General Partner of SOFTBANK Technology Ventures IV, L.P. since November 1997.
From March 1996 to November 1997, Mr. Lax was a Vice President of SOFTBANK
Holdings Inc. He was previously a venture partner at Vimac Partners LLC, a
venture capital firm specializing in investments in the information technology
and Internet-related industry. Mr. Lax holds a bachelor of science degree from
Boston University. He is also a director of a number of privately held
companies.
Mr. Maggs is one of our co-founders. Mr. Maggs has been a Director since our
formation in December 1997. Mr. Maggs was our Treasurer from our formation
until July 1999 and our Vice Chairman from June through August 1999. Mr. Maggs
held the positions of Chief Executive Officer and President from our formation
in December 1997 until June 1999. From December 1993 to December 1996, Mr.
Maggs held a variety of senior management positions with AmeriData, including
serving as an Executive Vice President of Operations and Chairman of AmeriData
Canada. From February 1992 to December 1993, he was the owner of Mericom
Systems Inc., a reseller of computer equipment and provider of computer
consulting and other services, which was acquired by AmeriData in 1993. From
1984 to 1991, he held various executive positions at Inacom Information
Systems, a provider of information technology products and services. Mr. Maggs
received a bachelor of science degree from Hillsdale College and is a Certified
Public Accountant.
Ms. Riley has been one of our Directors since our formation in December
1997. Ms. Riley is a Managing Director of Charterhouse and has been an
executive officer with the firm since 1977. She is a graduate of the Advanced
Management Program at Harvard Graduate School of Business Administration and
received a bachelor of arts degree from Hunter College.
Committees of the Board of Directors.
The three standing committees of the Board are: Audit, Compensation and
Executive. Members of each committee, who are elected by the full Board, are
named below.
Audit Committee
The Audit Committee consists of Messrs. Dircks, Landry and Lax. Among other
functions, the Audit Committee makes recommendations to our Board of Directors
regarding the selection of independent auditors, reviews the results and scope
of the audit and other services provided by our independent auditors, reviews
our financial statements and reviews and evaluates our internal control
functions.
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Compensation Committee
The Compensation Committee consists of Messrs. Dircks and Lax and Ms. Riley.
The Compensation Committee determines executive compensation and makes
recommendations to our Board of Directors concerning salaries and incentive
compensation for our employees and consultants. In addition, the Compensation
Committee has authorized a Grant Committee consisting of Mr. Dircks and either
a Co-Chairman or the Chief Executive Officer of Interliant. The Grant Committee
has the power and authority to review, approve and grant, in its discretion,
options to our employees on behalf of the Compensation Committee without any
further action or approval required of the Compensation Committee, provided
that such grants fall within guidelines established by the Compensation
Committee.
Executive Committee
The Executive Committee consists of Messrs. Dircks, Feld, Landry and Lax.
The Executive Committee is authorized to review and approve our 1999/2000
operating plan, to hear reports regarding our operations from our executive
officers, to review and approve acquisitions and to engage in certain other
limited activities.
Director Compensation
Our directors do not currently receive any cash compensation from us for
their service as members of the Board of Directors, although they are
reimbursed for reasonable travel and lodging expenses in connection with
attendance at Board and Committee meetings. Under our 1998 Stock Option Plan,
nonemployee directors are eligible to receive stock option grants at the
discretion of the Board of Directors or other administrator of the plan . See
"Stock Option Plans--1998 Stock Option Plan."
Director Nomination Rights.
SOFTBANK Technology Ventures IV, L.P. and SOFTBANK Technology Advisors, L.P.
(the "SOFTBANK Purchasers"), who are principal stockholders, have the right to
nominate one person for election to our Board of Directors and have the Board
cause that director to be a member of the Compensation Committee and/or the
Audit Committee. Mr. Lax is currently serving as a director. He is also a
member of the Audit and Compensation Committees pursuant to these rights. See
"Related Party Transactions--Sale of Stock to the SOFTBANK Purchasers."
In addition, for so long as the persons who received shares of common stock
in the Interliant Texas acquisition, together with certain of our option
holders, own in the aggregate at least 5% of our outstanding common stock, they
are entitled to nominate one person to our Board of Directors. To date, these
rights have not been exercised.
Compensation Committee Interlocks and Insider Participation.
Mr. Dircks, Mr. Lax and Ms. Riley served as members of our Compensation
Committee during the year-ended December 31, 1999. During 1999, no Compensation
Committee member was an officer or employee of ours. In addition, no
interlocking relationship exists between our Board of Directors or our
Compensation Committee and the board of directors or compensation committee of
any other company, nor has any such interlocking relationship existed in the
past.
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Executive Compensation
The following table sets forth the total compensation for the years ended
December 31, 1998 and December 31, 1999, respectively, for the persons listed
below:
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
---------------------------------------- -------------------------
Number of
Other Securities
Name and Current Annual Underlying All Other
Position Year Salary Bonus Compensation(1) Options/SARs Compensation
---------------- ---- -------- -------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Stephen W. Maggs(2)..... 1999 $180,673 -- -- 30,000 --
Director 1998 $130,232 -- -- -- --
Francis J. Alfano(3).... 1999 $164,583 $ 25,000 -- 25,000 --
Senior Vice President, 1998 $ 12,500(3) -- -- -- --
Mergers & Acquisitions
Bruce S. Klein(4)....... 1999 $187,500 $ 25,000 -- 25,000 --
Senior Vice President, 1998 $116,667 -- $15,635 -- --
General Counsel
James M. Lidestri(5).... 1999 $186,188 $117,500 -- 30,000 --
President 1998 N.A. N.A. -- N.A. N.A.
William A. Wilson(6).... 1999 $181,250 $ 75,000 -- 25,000 --
Chief Financial Officer 1998 $ 48,894 -- -- -- --
</TABLE>
- --------
(1) In accordance with SEC rules, other compensation in the form of perquisites
and other personal benefits has been omitted in those instances where such
perquisites and other personal benefits constituted less than the lesser of
$50,000 or 10% of the total annual salary and bonus for the executive
officer for each fiscal year.
(2) Mr. Maggs was our President and Chief Executive Officer from December 1997
until June 1999, when he became Vice Chairman. Effective January 1, 2000,
Mr. Maggs was no longer an employee.
(3) Mr. Alfano commenced his employment with us in December 1998.
(4) Mr. Klein commenced his employment with us in April 1998. Other annual
compensation represents amounts paid to Mr. Klein for services rendered as
a consultant prior to becoming an employee.
(5) Mr. Lidestri commenced his employment with us in March 1999. Effective
March 30, 2000, Mr. Lidestri was no longer an employee.
(6) Mr. Wilson commenced his employment with us in September 1998.
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Option Grants in Last Fiscal Year
The following table sets forth information regarding the option grants made
during the year ended December 31, 1999 to each of the executive officers named
in the Summary Compensation Table.
OPTION GRANTS
<TABLE>
<CAPTION>
Individual Grants
---------------------------------------------
Individual Grant
Values at Assumed
Percent of Annual Rates of
Total Options Stock Price
Number of Granted to Exercise Appreciation for
Securities Employees in or Base Option Term
Underlying the Year Price Expiration -----------------
Name Options Ended 1999 ($/Share) Date 5% 10%
---- ---------- ------------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Stephen W. Maggs........ 30,000 2.1% $8.00 3/09 $150,935 $382,498
Francis J. Alfano....... 25,000 1.7% $8.00 3/09 $125,779 $318,748
Bruce S. Klein.......... 25,000 1.7% $8.00 3/09 $125,779 $318,748
James M. Lidestri....... 30,000 2.1% $8.00 3/09 $150,935 $382,498
William A. Wilson....... 25,000 1.7% $8.00 3/09 $125,779 $318,748
</TABLE>
The following table sets forth information regarding exercise of options and
the number and value of options held at December 31, 1999, by each of the
executive officers listed below.
YEAR END OPTION VALUES
<TABLE>
<CAPTION>
Number of Value of Unexercised
Unexercised Options In-the-Money Options
Shares At December 31, 1999 At December 31, 1999(2)
Acquired on Value ------------------------- -------------------------
Exercise(#) Realized(1) Exercisable Unexercisable Exercisable Unexercisable
----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Stephen W. Maggs........ N.A. N.A. 0 30,000 N.A. $540,000
Francis J. Alfano....... N.A. N.A. 0 25,000 N.A. $450,000
Bruce S. Klein.......... N.A. N.A. 0 25,000 N.A. $450,000
James M. Lidestri....... 245,289 $1,962,312 32,306 30,000 $835,756 $540,000
William A. Wilson....... N.A. N.A. 0 25,000 N.A. $450,000
</TABLE>
- --------
(1) Based on the estimated fair value of our common stock on the date of
exercise.
(2) Based on the difference between the last sale price of our common stock on
December 31, 1999 of $26.00 as reported by the Nasdaq National Market and
the per share option exercise price, multiplied by the number of shares of
common stock underlying the options.
Limitations on Director Liability
Our certificate of incorporation provides that, to the fullest extent
permitted by the Delaware General Corporation Law, none of our directors will
be personally liable to us or our stockholders for monetary damages. Section
102(b)(7) of the Delaware General Corporation Law currently provides that a
director's liability for breach of fiduciary duty to a corporation may be
eliminated, except for liability:
. for any breach of the director's duty of loyalty to the corporation or
its stockholders;
. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. under Section 174 of the Delaware General Corporation Law, for unlawful
dividends or unlawful stock repurchases or redemptions; and
. for any transaction from which the director derives an improper personal
benefit.
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Any amendment to these provisions of the Delaware General Corporation Law
will automatically be incorporated by reference into our certificate of
incorporation without any vote on the part of our stockholders unless otherwise
required. Including this provision in our certificate of incorporation may,
however, discourage or deter stockholders or management from bringing a lawsuit
against directors for a breach of their fiduciary duties, even though such an
action, if successful, might otherwise have benefit us and our stockholders.
Our By-laws provide that we will indemnify our directors and officers to the
fullest extent permitted by Delaware law. Generally, we are required to
indemnify our directors and officers for all:
. judgments and fines;
. settlements; and
. legal fees and other expenses
incurred in connection with pending or threatened legal proceedings because
of the director's or officer's position with us.
Stock Option Plans
1998 Stock Option Plan.
In 1998, our Board of Directors adopted and our stockholders approved the
Interliant 1998 Stock Option Plan, under which stock options may be granted to
our officers, employees and consultants and to officers, employees and
consultants of our subsidiaries. In December 1999, the stock option plan was
amended to permit grants of options to our non-employee directors and to permit
a broker-assisted cashless exercise program. As of March 2000, the Board
approved, subject to stockholder approval at our annual meeting in June 2000,
further amendments to the stock option plan to do the following:
. increase the maximum number of shares available for grant under the
stock option plan from 3,800,000 to 8,500,000;
. permit the granting of below fair market value options;
. establish a Grant subcommittee of our Compensation Committee in order to
make the award process more efficient; and
. provide that a maximum of 500,000 shares subject to options may be
granted to any optionee during the applicable calendar year.
As of March 31, 2000, our Board has granted a total of 3,927,890 options.
Any options which have been granted but which expire or terminate unexercised
are returned to the Plan and may be granted at a later date to any qualified
recipient.
The Plan is administered by the Compensation Committee of the Board of
Directors. The Committee has the authority to determine:
. the persons to whom options will be granted;
. when options will be granted;
. the number of shares subject to each option;
. the exercise price of each option;
. the time or times at which the options will become exercisable;
. the duration of the exercise period; and
. provide for the acceleration of the exercise period.
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In addition, if we are involved in a merger, reorganization, stock split or
other type of corporate transaction that would diminish the value of our
outstanding options, the Compensation Committee may adjust the number of
options granted and/or the exercise price of such options in order to ensure
that option holders are treated equitably.
The Plan also permits the grant of stock options that qualify as incentive
stock options, or ISOs, under Section 422 of the Internal Revenue Code and
nonqualified stock options, or NSOs, which do not so qualify.
The maximum term of options granted under our stock option plan is 10 years
from the date of grant. ISOs granted to any employee who is a 10% shareholder
of Interliant are subject to special limitations relating to the exercise price
and term of the options. The value of common stock subject to ISOs that become
exercisable by any one employee in any one year is limited by the Internal
Revenue Code to $100,000. For this purpose, the value of common stock is
determined at the time of grant. Options granted under the Plan will generally
become vested and exercisable over a four-year period in equal annual
installments. However, if any of the events listed below occurs and provided
that no written provision has been made, in connection with any such event, for
(1) the continuation of the stock option plan and/or the assumption of all
outstanding options by a successor corporation, or (2) the substitution for
such options of new options covering the stock of a successor corporation then
each option that was not then vested prior to such event will become fully
vested and immediately exercisable:
. An acquisition by any person or group of related individuals of
beneficial ownership of 30% or more of either the outstanding shares of
our common stock or the combined voting power of our outstanding voting
securities;
. A change in the composition of our Board of Directors during any period
of two consecutive years which results in the directors in office at the
beginning of such period plus any newly elected or nominated directors
no longer constituting at least a majority of our Board of Directors;
. The approval by our stockholders of a merger, consolidation or
reorganization in which outstanding shares of our common stock are
converted into:
. shares of stock of another company, unless our stockholders end up
owning 80% or more of the voting power of such other company;
. other securities of our company or another company unless our
stockholders hold at least 80% of the voting power of our company or
such other company; or
. cash or other property;
. The approval by our stockholders of the sale or other disposition of all
or substantially all of our assets or our liquidation or dissolution; or
. The adoption by our Board of Directors of a resolution to the effect
that any person has acquired effective control of our business and
affairs.
All options granted under our stock option plan may not be transferred,
except upon the death of the optionholder in accordance with his will or
applicable law. In the event of an optionee's death or permanent and total
disability, outstanding options that have become exercisable will remain
exercisable for a period of one year, and the Compensation Committee will have
the discretion to determine the extent to which any unvested options shall
become vested and exercisable in connection with such death or disability. In
the case of any other termination of employment, except for a termination for
cause as described below, outstanding options that have previously become
vested will remain exercisable for a period of 90 days. All unexercised options
will be immediately forfeited by any employee who is terminated as a result of
any of the following:
. embezzlement or misappropriation of corporate funds;
. conviction for a felony;
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. misconduct resulting in material injury to us;
. significant activities harmful to our reputation of the reputation or
any of our subsidiaries;
. a significant violation of our corporate policies;
. willful refusal to perform, or substantial disregard of, the duties
properly assigned to the option holder; or
. a significant violation of any contractual, statutory or common law duty
of loyalty to us or any of our subsidiaries.
Under our stock option plan, the exercise price of an option is payable in
cash, in common stock or a combination of cash and common stock. An optionee
must satisfy all applicable tax withholding requirements at the time of
exercise.
Our stock option plan has a term of 10 years, and all options granted under
the Plan prior to its termination remain outstanding until they have been
exercised or are terminated in accordance with their terms. Our Board of
Directors may amend the Plan at any time.
2000 Employee Stock Purchase Plan.
In March 2000, the Board of Directors adopted our 2000 Employee Stock
Purchase Plan, subject to shareholder approval at our annual meeting in June
2000. If approved by our stockholders, we anticipate the purchase plan will be
effective July 1, 2000. We will reserve up to 1,500,000 shares of common stock
for issuance under this plan.
The employee stock purchase plan is intended to qualify under Section 423 of
the Internal Revenue Code. If this plan is approved by stockholders, we
anticipate the first offering period will begin on July 1, 2000, and end on the
last trading date on or before December 31, 2000. Thereafter, offering periods
will begin on January 1 and July 1, respectively, and end on June 30 and on
December 31, respectively of each calendar year. The Board of Directors has the
authority under the plan to set new offering or purchase periods.
The Compensation Committee of our Board of Directors will administer the
2000 Employee Stock Purchase Plan. The 1999 Employee Stock Purchase Plan
permits eligible employees to purchase our common stock through payroll
deductions, which may not exceed 15% of an employee's compensation. The
purchase price is equal to the lower of 85% of the fair market value of our
common stock at the beginning of each offering period or at the end of each
purchase period. Our employees, including officers and employee directors, are
eligible to participate in this plan if they are employed by us for at least 20
hours per week and more than five months per year. Employees may end their
participation in the plan at any time, and participation ends automatically on
termination of employment.
The 2000 Employee Stock Purchase Plan limits the number of stock purchase
rights that can be granted to any single employee. An employee cannot be
granted rights to purchase stock under this plan if his or her rights accrue at
a rate which exceeds $25,000 worth of stock in any calendar year. In addition,
no employee may purchase more than 1,250 shares of common stock during any one
purchase period (equivalent to a maximum of 2,500 shares in any one calendar
year).
In the event of certain changes in our outstanding common stock or capital
structure, such as a stock dividend, stock split, recapitalization,
reorganization, merger, consolidation, or corporate separation or division, or
change in the number of shares of our capital stock effected without receipt of
full consideration, the Compensation Committee will, in its discretion, make
appropriate adjustments or substitutions to reflect equitably the effects of
such changes to participants in the plan. The Compensation Committee will have
the power to amend or terminate the 2000 Employee Stock Purchase Plan and to
change or terminate offering periods as long as such action does not adversely
affect any outstanding rights to purchase stock thereunder.
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<PAGE>
Employment Agreements
We have entered into employment agreements with some of our officers. A
description of certain terms contained in those agreements is set forth below:
Term and Compensation. In November 1999, we entered into an employment
agreement with William Wilson, our Chief Financial Officer, for a term of two
years at an annual base salary of $200,000, as well as a guaranteed annual cash
bonus of $40,000, payable on a quarterly basis in equal installments. In
December 1999, Leonard Fassler, our Co-Chairman, renewed his employment
agreement with us for a one year term from January 1, 2000 at an annual
compensation rate of $180,000.
In January 2000, we entered into an employment agreement with Herbert
Hribar, our President and Chief Executive Officer for a term of three years
from January 31, 2000 at an annual base salary of $350,0000. Mr. Hribar is also
eligible for an annual incentive bonus of up to $350,000 based on meeting
certain performance milestones. In addition, pursuant to his agreement, Mr.
Hribar was granted 1.5 million stock options, of which 500,000 have an exercise
price of $12.00 per share, 500,000 have an exercise price of $18.00 per share
and 500,000 have an exercise price of $24.00 per share. These options vest in
equal amounts over four years and vest immediately upon a change of control.
In general, the above employment agreements will renew automatically for a
period of time ranging from month-to-month to one year unless we or the
employee deliver a notice of non-renewal prior to termination of the term.
Severance. Our employment agreements with Messrs. Fassler, Hribar and Wilson
include provisions that are effective upon the termination of their employment
by us without "cause":
. Mr. Fassler is entitled to receive a payment equal to the amount of his
base salary yet to be paid for the unexpired portion of the term of the
agreement, discounted based on a specified published interest rate.
. Mr. Hribar is entitled to receive a payment equal to one year's worth of
base salary paid as and when such amounts would have been paid in the
case of continued employment.
. Mr. Wilson is entitled to receive a payment equal to two year's base
salary, discounted based on a specified published interest rate.
In addition, the agreements with the above employees provide that, in
general, in the event of termination due to death or disability for a specified
period of time, the employee or the estate of each employee, as applicable,
shall be entitled to receive a payment based on his salary and we will continue
to provide the employee, his spouse and minor children, as applicable, with
certain medical and other benefits through the end of the term of the
agreement.
Employee Covenants. Our agreements with Messrs. Fassler and Wilson prohibit
each of them during and for a period of twenty-four months after the end of his
individual employment, from:
. soliciting any customers which are in any way related to our business;
. competing with our business; or
. disclosing or enabling anyone else to use any information he obtains
during his employment.
These agreements, as well as our agreement with Mr. Hribar, also prohibit the
employees from:
. tortiously interfering or attempting to disrupt our business
relationship with customers or suppliers; or
. soliciting our employees.
In addition, each of our agreements with these employees include restrictive
covenants for the benefit of Interliant relating to non-disclosure by the
employee of Interliant's confidential business information and Interliant's
right to inventions and improvements of the employee.
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<PAGE>
Consulting Agreements
Mr. Feld, through Intensity Ventures, Inc., entered into a one-year
consulting agreement with us effective January 1, 1999 with substantially
identical terms to the agreements described above, except that Mr. Feld is not
prohibited from competing with us and is not entitled to participate in our
employee benefit plans. His annual consulting fee of $180,000 will be paid to
Intensity Ventures, Inc. on a gross basis as an independent contractor. This
consulting agreement was renewed for a one-year period in December 1999.
Separation Agreement with Mr. Lidestri
On March 30, 2000, we entered into an agreement with Mr. Lidestri whereby
Mr. Lidestri resigned from all his positions as an officer of Interliant and
its subsidiaries. Under this separation agreement, (i) we paid Mr. Lidestri
$50,000 in lieu of paying the balance of a signing bonus payable to him under
his employment agreement with Interliant, (ii) we paid Mr. Lidestri a severance
payment in the amount of $250,000, payable in equal installments from the date
of the Separation Agreement through May 31, 2000, (iii) 30,000 unvested options
held by Mr. Lidestri were accelerated and (iv) Mr. Lidestri remains eligible to
participate in Interliant's customary benefit programs until March 1, 2001.
Until March 30, 2001, Mr. Lidestri is prohibited from engaging in the
following activities:
. Competing with us or any of our subsidiaries in any way, except as an
officer, director, stockholder or employee of ours or any of our
affiliates;
. Soliciting or interfering with, or attempting to hire:
. any person who was employed by us or one of our affiliates or
subsidiaries during the 12 months before the end of the agreement;
. any person who was a customer or client or requested or received a
proposal from us or one of our affiliates or subsidiaries during the
12 months before the end of the agreement;
. Using, disclosing or publishing any confidential material related to our
business or the business of any of our subsidiaries or affiliates which
he acquired while employed with us, unless the material is publicly
available, otherwise lawfully obtained or must be disclosed by law.
. Engaging in any act that is intended, or may be reasonably expected, to
harm the reputation, business, prospects or operations of Interliant.
RELATED PARTY TRANSACTIONS
Since our inception, SOFTBANK Technology Ventures IV, L.P. and SOFTBANK
Technology Advisors Fund L.P., who we refer to as the SOFTBANK Purchasers and
WEB Hosting Organization LLC, who we refer to as WEB, have each purchased
securities from us.
Sale of Stock to the SOFTBANK Purchasers
On January 28, 1999, the SOFTBANK Purchasers purchased from us an aggregate
of 2,647,658 shares of our Redeemable Convertible Preferred Stock and warrants
to purchase 749,625 shares of our common stock for an aggregate purchase price
of $13.0 million. On April 19, 1999, the SOFTBANK Purchasers exercised their
warrants at an aggregate exercise price of $5.0 million and acquired 749,625
shares of our common stock. Upon the consummation of our initial public
offering in July 1999, all of the outstanding shares of Redeemable Convertible
Preferred Stock automatically converted into an equal number of shares of our
common stock. As a result, the SOFTBANK Purchasers own approximately 7.2% of
our outstanding common stock at March 31, 2000. Bradley A. Feld, our Co-
Chairman and director, is a general partner of the SOFTBANK Purchasers. The
SOFTBANK Purchasers have certain demand and incidental registration rights. A
majority in interest of the
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<PAGE>
SOFTBANK Purchasers also have the right to nominate one person for election to
our Board of Directors and have the Board cause that director to be a member of
the Compensation Committee and/or the Audit Committee of the Board. Such
director is subject to removal by the SOFTBANK Purchasers at any time, with or
without cause and the SOFTBANK Purchasers have the right to call a special
meeting of stockholders at any time for the sole purpose of removing and
replacing such director. WEB Hosting Organization LLC has agreed to vote its
shares in a manner consistent with these terms. Mr. Charles R. Lax is currently
serving as a director and a member of the Audit and Compensation Committees of
our Board of Directors pursuant to such provisions.
Sale of Stock to WEB Hosting Organization LLC
WEB owns 25,200,000 shares, representing approximately 53.2%, of our
outstanding common stock at March 31, 2000. The shares were acquired for an
aggregate purchase price of $42.0 million in a series of six transactions in
December 1997, May 1998, June 1998, September 1998, December 1998 and February
1999, in each case at a price of $1.67 per share. The terms of the sale and
purchase of these shares are set forth in a subscription agreement dated
December 8, 1997 between WEB and us. The principal members of WEB are (1)
Charterhouse Equity Partners III, L.P., referred to as CEP III, which is an
affiliate of Charterhouse Group International, Inc. and (2) WHO Management LLC
(Charterhouse Equity Partners and WHO Management are collectively referred to
as the "WEB Members"), of which Leonard J. Fassler and Bradley A. Feld are the
member managers. The WEB Members have agreed that WEB shall be under the
exclusive direction of a management committee comprised of seven members and
will vote such member's interest in WEB so that a majority of the members of
such management committee will be designees of Charterhouse. WEB has certain
demand and incidental registration rights with respect to its shares of our
common stock.
Distributions by Our Significant Stockholder
Pursuant to the terms of the Limited Liability Company Agreement of WEB, the
WEB Members shall be entitled to receive a distribution of all cash funds or
other property of WEB available from any source other than the ordinary
operations of its subsidiaries, after payment of all expenses of WEB due at the
time of such distribution ("Total Proceeds"). The Total Proceeds shall be
distributed to the WEB Members in tranches with priority given to covering
members' federal tax liability, followed by return of capital and then as
necessary to achieve specified internal rates of return. Thereafter, portions
of the Total Proceeds will be distributed to WHO Management LLC.
Of the management distributions to WHO Management LLC, 70% are retained by
WHO Management LLC for distribution to our four co-founders, who include
Messrs. Fassler, Feld and Maggs and 30% are distributed to SMI Fund LLC, a New
York limited liability company, for distribution to its members.
As of March 31, 2000, there were 26 members of SMI, all of whom serve as
either Interliant executive officers, senior employees, employees who were
hired shortly after our formation or consultants. Of those 26 members, 6 are
presently members of our management team who collectively own 45% of SMI.
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The management distributions to WHO Management LLC increase as the WEB
Members realize specified internal rates of return on their investment in WEB.
The following diagram depicts the flow of the distribution of Total Proceeds to
the WEB Members. No Total Proceeds have been distributed to date.
[Interliant Chart]
Fees Paid by Us to Our Significant Stockholders
During 1999 and 1998, in connection with certain of our acquisitions, we
paid or accrued transaction fees of approximately $361,000 and $337,000,
respectively, to Charterhouse, which is an affiliate of Charterhouse Equity
Partners. Such fees were paid pursuant to the terms of the WEB LLC Agreement,
which requires WEB or its affiliates, which includes us, to pay Charterhouse 2%
of the total transaction costs of each acquisition or investment by WEB or its
affiliates, which includes us, in which Charterhouse or any of its affiliates
directly or indirectly provide all or a portion of the equity financing
therefor. Charterhouse has not received any fees with respect to this
arrangement since prior to our initial public offering and is not entitled to
receive any further fees in the future.
Consulting Agreements with Our Co-founders
During the years ended December 31, 1999 and 1998, and for the period
December 8, 1997 (inception) to December 31, 1997, we paid consulting fees of
$197,000, $120,000 and $17,000, respectively, to Intensity Ventures Inc., whose
principal is Mr. Feld, pursuant to a consulting agreement with Mr. Feld.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of March 31, 2000 by (1) each person or entity
known to us to own beneficially more than 5% of the outstanding shares of our
common stock, (2) each of our directors, (3) our five most highly compensated
officers during the year ended December 31, 1999 and Mr. Herbert Hribar, our
current President and Chief Executive Officer and (4) all directors and
executive officers as a group. Unless otherwise indicated below, to our
knowledge, all persons listed below have sole voting and investment power with
respect to their shares of common stock, except to the extent authority is
shared by spouses under applicable law.
<TABLE>
<CAPTION>
Shares
Beneficially Owned
(1)
------------------
Number Percent
---------- -------
<S> <C> <C>
Web Hosting Organization LLC(2).............................. 25,200,000 53.12%
c/o Charterhouse Group International, Inc.
535 Madison Avenue
New York, NY 10022
Charterhouse Group International, Inc.(2).................... 25,200,000 53.12
535 Madison Avenue
New York, NY 10022
Mathew Wolf(3)............................................... 3,712,090 7.83
1001 Fannin Street
Suite 2000
Houston, TX 77002
SOFTBANK Technology Ventures IV, L.P.(4)..................... 3,397,283 7.16
333 West San Carlos
Suite 1225
San Jose, CA
Leonard J. Fassler(5)(6)..................................... 25,211,500 53.14
Bradley A. Feld(5)(7)........................................ 28,607,371 60.29
Herbert R. Hribar............................................ -- *
Francis J. Alfano............................................ 7,250 *
James M. Lidestri(8)......................................... 308,595
Bruce S. Klein (9)........................................... 7,250 *
William A. Wilson(10)........................................ 10,250 *
Thomas C. Dircks(11)......................................... -- *
Jay M. Gates(11)............................................. -- *
Merril M. Halpern(11)........................................ -- *
John B. Landry............................................... 4,250 *
Charles R. Lax(12)........................................... 3,398,283 7.16
Stephen W. Maggs(5).......................................... 25,207,700 53.13
Patricia A.M. Riley(11)...................................... -- *
All directors and executive officers as a
group(5)(6)(7)(8)(9)(10)(11)(12)(12 persons)................ 29,419,593 61.82
</TABLE>
- --------
* Less than one percent.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, based on factors including voting and
investment power with respect to shares. Shares subject to options
currently exercisable within 60 days of March 31, 2000 are deemed
outstanding for the purpose of computing the percentage of ownership of the
person holding such options, but are not deemed outstanding for computing
the percentage ownership of any other person.
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<PAGE>
(2) The principal members of WEB are Charterhouse Equity Partners, an affiliate
of Charterhouse Group International, Inc. and WHO Management LLC. Their
respective ownership interests in WEB are as follows: Charterhouse Equity
Partners: 95.2% and WHO Management LLC: 4.8%. Leonard J. Fassler and
Bradley A. Feld are the member managers of and Stephen W. Maggs is a member
of, WHO Management LLC. The general partner of Charterhouse Equity Partners
is CHUSA Equity Investors III, L.P., whose general partner is Charterhouse
Equity III, Inc., a wholly-owned subsidiary of Charterhouse. As a result of
the foregoing, all of the shares of Interliant held by WEB would, for
purposes of Section 13(d) of the Securities Exchange Act of 1934 be
considered to be beneficially owned by Charterhouse.
(3) Includes 398,845 shares owned by the Ann Weltchek Wolf 1995 Marital Trust,
797,690 shares owned by the Mathew D. Wolf Children's Trust and 350,000
shares held in escrow until March 31, 2000. Mr. Wolf disclaims beneficial
ownership of all the shares owned by both of the trusts named above.
(4) Includes 63,869 shares held by SOFTBANK Technology Advisors Fund, L.P., an
affiliated entity.
(5) Includes 25,200,000 shares held by WEB. Messrs. Fassler, Feld and Maggs are
members of WHO Management LLC, which is a member of WEB. Each of Messrs.
Fassler, Feld and Maggs disclaim beneficial ownership of such shares other
than the shares attributable to each of them as a result of their
membership in WHO Management LLC.
(6) Includes 2,000 shares owned by Mr. Fassler's spouse. Mr. Fassler disclaims
beneficial ownership of these shares.
(7) Includes 3,333,414 shares held by SOFTBANK Technology Ventures IV, L.P. and
63,869 shares held by SOFTBANK Technology Advisors Fund, L.P. Mr. Feld, a
Co-Chairman and Director of Interliant, is a general partner of each of
SOFTBANK Technology Ventures IV, L.P. and SOFTBANK Technology Advisors
Fund, L.P. Mr. Feld disclaims beneficial ownership of such shares.
(8) Includes 1,000 shares owned by a trust for Mr. Lidestri's child. Mr.
Lidestri disclaims beneficial ownership of these shares.
(9) Includes 1,000 shares owned by Mr. Klein's spouse. Mr. Klein disclaims
beneficial ownership of these shares.
(10) Includes 2,000 shares owned by trusts for Mr. Wilson's children. Mr.
Wilson disclaims beneficial ownership of these shares.
(11) Excludes 25,200,000 shares held by WEB. Messrs. Halpern, Dircks, Gates and
Ms. Riley are directors and/or officers of Charterhouse. Charterhouse is
an affiliate of Charterhouse Equity Partners, which is a member of WEB.
Each of Messrs. Halpern, Dircks, Gates and Ms. Riley disclaims beneficial
ownership of these shares.
(12) Includes 3,333,414 shares held by SOFTBANK Technology Ventures IV, L.P.
and 63,869 shares held by SOFTBANK Technology Advisors Fund, L.P. Mr. Lax,
a director of Interliant, is a managing member of STV IV LLC, the general
partner of SOFTBANK Technology Ventures IV, L.P. Mr. Lax disclaims
beneficial ownership of such shares except to the extent of his pecuniary
interest therein
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<PAGE>
SELLING SECURITYHOLDERS
The notes offered in this prospectus were originally issued by us and sold
by the initial purchasers in a transaction exempt from the registration
requirements of the Securities Act to persons reasonably believed by the
Initial Purchasers to be qualified institutional buyers. Selling holders,
including their transferees, pledgees or donees or their successors, may from
time to time offer and sell pursuant to this prospectus any or all of the notes
and common stock into which the notes are convertible.
The following table sets forth information with respect to the selling
holders and the principal amounts of notes beneficially owned by each selling
holder that may be offered under this prospectus. The information is based on
information provided by or on behalf of the selling holders. The selling
holders may offer all, some or none of the notes or common stock into which the
notes are convertible. Because the selling holders may offer all or some
portion of the notes or the common stock, no estimate can be given as to the
amount of the notes or the common stock that will be held by the selling
holders upon termination of any sales. In addition, the selling holders
identified below may have sold, transferred or otherwise disposed of all or a
portion of their notes since the date on which they provided the information
regarding their notes in transactions exempt from the registration requirements
of the Securities Act.
<TABLE>
<CAPTION>
Principal Amount Common
of Notes Percent of Stock Common
Beneficially Owned Total Owned Prior Stock
and Offered Outstanding to the Note Offered
Hereby(1) Notes(2) Offering(3) Hereby(1)
NAME ------------------ ----------- ----------- --------
<S> <C> <C> <C> <C>
Argent Global Convertible
Securities Ltd.......... $ 3,800,000 2.5% 71,563 71,563
Black Diamond Offshore,
Ltd..................... 560,000 * 10,546 10,546
BNP Arbitrage SNC........ 5,000,000 3.2 94,162 94,162
Double Black Diamond
Offshore, LDC........... 1,797,000 1.2 33,841 33,841
ICI American Holdings
Trust................... 900,000 * 16,949 16,949
JMG Triton Offshore Fund,
Ltd..................... 14,050,000 9.1 264,595 264,595
Zeneca Holdings Trust.... 870,000 * 16,384 16,384
Worldwide Transactions,
Ltd..................... 143,000 * 2,693 2,693
</TABLE>
- --------
* Less than one percent.
(1) Assumes offer and sale of all notes and shares, although selling
securityholders are not obligated to sell any notes or shares of common
stock.
(2) Based upon an aggregate amount of $154,825,000 notes outstanding as of
April 30, 2000. This aggregate amount does not include the $10.0 million in
aggregate principal amount of convertible notes that were sold by us to
Microsoft Corporation in March 2000 which have substantially the same terms
as the notes offered herein and which will be registered under a separate
registration statement.
(3) Share amounts assume conversion of the notes, at an assumed conversion rate
of 18.8324 shares per $1,000 principal amount of notes.
None of the selling holders nor any of their affiliates, officers, directors
or principal equity holders has held any position or office or has had any
material relationship with us within the past three years. The selling holders
purchased all of the notes in private transactions on or after February 16,
2000. All of the notes were "restricted securities" under the Securities Act
prior to this registration.
Information concerning the selling holders may change from time to time and
any changed information will be set forth in supplements to this prospectus if
and when necessary. In addition, the conversion rate and therefore, the number
of shares of common stock issuable upon conversion of the notes, is subject to
adjustment under certain circumstances. Accordingly, the aggregate principal
amount of notes and the number of shares of common stock into which the notes
are convertible may increase or decrease.
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<PAGE>
DESCRIPTION OF NOTES
The notes were issued under the indenture (the "Indenture") between us and
The Chase Manhattan Bank, as trustee (the "Trustee").
We have summarized portions of the Indenture below. This summary is not
complete. We urge you to read the Indenture because it defines your rights as a
holder of the notes. Terms not defined in this description have the meanings
given them in the Indenture. In this section, "Interliant," "we," "our," and
"us" each refers only to Interliant, Inc. and not to any of its subsidiaries.
General
The notes are unsecured, subordinated obligations of Interliant in an
aggregate principal amount of $154,825,000, and will mature on February 16,
2005. The principal amount of each note is $1,000 and is payable at the office
of the Paying Agent, which currently is the Trustee, but may in the future be
an office or agency maintained by us for that purpose in the Borough of
Manhattan, The City of New York.
The notes bear interest at the rate of 7% per annum on the principal amount
from the date of issuance of the notes, or from the most recent date to which
interest has been paid or provided for until the notes are paid in full,
converted or funds are made available for payment in full of the notes in
accordance with the Indenture. Interest is payable at the date of maturity (or
earlier purchase, redemption or, in some circumstances, conversion) and
semiannually on February 16 and August 16 of each year (each an "Interest
Payment Date"), commencing on August 16, 2000, to holders of record at the
close of business on the February 1 and August 1 (whether or not a business
day) immediately preceding each Interest Payment Date (each a "Regular Record
Date"). Each payment of interest on the notes will include interest accrued
through the day before the applicable Interest Payment Date or the date of
maturity (or earlier purchase, redemption or, in some circumstances,
conversion), as the case may be. Any payment of principal and cash interest
required to be made on any day that is not a business day will be made on the
next succeeding business day. Interest will be computed on the basis of a 360-
day year composed of twelve 30-day months.
In the event of the maturity, conversion, purchase by us at the option of a
holder or redemption of a note, interest will cease to accrue on that note
under the terms and subject to the conditions of the Indenture. We may not
reissue a note that has matured or has been converted, redeemed or otherwise
cancelled, except for registration of transfer, exchange or replacement of that
note.
A holder of the notes may present the notes for conversion at the office of
the Conversion Agent and for exchange or registration of transfer at the office
of the Registrar. Each of these agents are currently the Trustee.
The Indenture does not contain any financial covenants or restrictions on
the payment of dividends, the incurrence of Senior Indebtedness (defined below)
or the issuance or repurchase of securities by us. The Indenture contains no
covenants or other provisions to protect holders of the notes in the event of a
highly leveraged transaction or a change in control, except to the extent
described below under "--Change in Control Permits Purchase of Notes at the
Option of the Holder."
Subordination
The notes are unsecured obligations and are subordinated in right of
payment, as provided in the Indenture, to the prior payment in full in cash or
other payment satisfactory to holders of Senior Indebtedness of all our
existing and future Senior Indebtedness.
At March 31, 2000, we had $4.1 million of Senior Indebtedness outstanding.
The Indenture does not restrict the incurrence by us or our subsidiaries of
indebtedness or other obligations.
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<PAGE>
The term "Senior Indebtedness" means that the principal, premium, if any,
interest (including all interest accrued subsequent to the commencement of any
bankruptcy or similar proceeding, whether or not a claim for post-petition
interest is allowable as a claim in any such proceeding) and all other amounts
owed in respect of all our Indebtedness (defined below), whether outstanding on
the date of the Indenture or thereafter created, incurred, assumed, guaranteed
or in effect guaranteed by us, including all deferrals, renewals, extensions,
refinancings, replacements, restatements or refundings of, or amendments,
modifications or supplements to, the foregoing, except for:
. any such Indebtedness that is by its terms subordinated to or ranking
equal with the notes; and
. any Indebtedness between or among us and any of our subsidiaries, a
majority of the voting stock of which we directly or indirectly own, or
any of our affiliates, including all other debt securities and
guarantees in respect of those debt securities issued to any trust, or
trustees of any trust, partnership or other entity affiliated with us
that is, directly or indirectly, a financing vehicle used by us in
connection with the issuance by that financing vehicle of preferred
securities or other securities that rank equal with, or junior to, the
notes.
The term "Indebtedness" means, with respect to any person:
. all indebtedness, obligations and other liabilities, contingent or
otherwise, of that person for borrowed money (including obligations of
that person in respect of overdrafts, foreign exchange contracts,
currency exchange or similar agreements, interest rate protection,
hedging or similar agreements, and any loans or advances from banks,
whether or not evidenced by notes or similar instruments) or evidenced
by bonds, debentures, notes or similar instruments (whether or not the
recourse of the holder is to the whole of the assets of that person or
only to a portion thereof), other than any account payable or other
accrued current liability or current obligation, in each case not
constituting indebtedness, obligations or other liabilities for borrowed
money and incurred in the ordinary course of business in connection with
the obtaining of materials or services;
. all reimbursement obligations and other liabilities, contingent or
otherwise, of that person with respect to letters of credit, bank
guarantees, bankers' acceptances, security purchase facilities or
similar credit transactions;
. all obligations and liabilities, contingent or otherwise, in respect of
deferred and unpaid balances on any purchase price of any property;
. all obligations and liabilities, contingent or otherwise, in respect of
leases of that person required, in conformity with generally accepted
accounting principles, to be accounted for as capitalized lease
obligations on the balance sheet of that person and all obligations and
other liabilities, contingent or otherwise, under any lease or related
document, including, without limitation, the balance deferred and unpaid
on any purchase price of any property and a purchase agreement, in
connection with the lease of real property that provides that the person
is contractually obligated to purchase or cause a third party to
purchase the leased property and thereby guarantee a minimum residual
value of the leased property to the lessor and the obligations of that
person under that lease or related document to purchase or to cause a
third party to purchase that leased property;
. all obligations of that person, contingent or otherwise, with respect to
an interest rate or other swap, cap or collar agreement or other similar
instrument or agreement or foreign currency hedge, exchange, purchase or
similar instrument or agreement;
. all direct or indirect guarantees or similar agreements by that person
in respect of, and obligations or liabilities, contingent or otherwise,
of that person to purchase or otherwise acquire or otherwise assure a
creditor against loss in respect of indebtedness, obligations or
liabilities of another person of the kind described in the above
clauses;
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<PAGE>
. recourse or repurchase obligations arising in connection with sales of
assets in transactions that are in the nature of asset-based financings,
whether or not such transactions are treated as sales under generally
accepted accounting principles or bankruptcy, tax or other applicable
laws, where such recourse or repurchase obligations arise out of the
failure of such assets to provide the economic benefit to which the
purchaser is entitled under the agreements relating to such
transactions;
. any indebtedness, or other obligations described in the above clauses
secured by any mortgage, pledge, lien or other encumbrance existing on
property that is owned or held by that person, regardless of whether the
indebtedness or other obligation secured thereby shall have been assumed
by that person; and
. any and all deferrals, renewals, extensions, refinancings, replacements,
restatements and refundings of, or amendments, modifications or
supplements to, or any indebtedness or obligation issued in exchange
for, any indebtedness, obligation or liability of the kind described in
the above clauses.
Any Senior Indebtedness will continue to be Senior Indebtedness and will be
entitled to the benefits of the subordination provisions irrespective of any
amendment, modification or waiver of any of its terms.
By reason of the application of the subordination provisions, in the event
of dissolution, insolvency, bankruptcy or other similar proceedings, upon any
distribution of our assets:
. the holders of the notes are required to pay over their share of that
distribution to the trustee in bankruptcy, receiver or other person
distributing our assets for application to the payment of all Senior
Indebtedness remaining unpaid, to the extent necessary to pay all
holders of Senior Indebtedness in full, in cash or other payment
satisfactory to the holders of Senior Indebtedness; and
. our unsecured creditors may recover less, ratably, than holders of our
Senior Indebtedness, and may recover more, ratably, than the holders of
notes.
In addition, we may not pay the principal amount, the Change in Control
Purchase Price (defined below), any redemption amounts or interest with respect
to any notes, and we may not acquire any notes for cash or property, except as
provided in the Indenture, if:
. any payment default on any Senior Indebtedness has occurred and is
continuing beyond any applicable grace period (including any payment
default arising from acceleration of any Senior Indebtedness); or
. any default, other than a payment default, with respect to Senior
Indebtedness occurs and is continuing that permits the acceleration of
the maturity of that Senior Indebtedness and that default is either the
subject of judicial proceedings or we receive a written notice of that
default (a "Senior Indebtedness Default Notice").
Notwithstanding the foregoing, payments with respect to the notes may resume
and we may acquire notes for cash when:
. the default with respect to the Senior Indebtedness is cured or waived
or ceases to exist; or
. in the case of a Senior Indebtedness Default Notice, 179 or more days
pass after notice of the default is received by us, provided that the
terms of the Indenture otherwise permit the payment or acquisition of
the notes at that time.
If we receive a Senior Indebtedness Default Notice, then a similar notice
received within nine months after receiving that Senior Indebtedness Default
Notice relating to the same default on the same issue of Senior Indebtedness
will not be effective to prevent the payment or acquisition of the notes as
provided above. In addition, no payment may be made on the notes if any notes
are declared due and payable prior to their Stated Maturity by reason of the
occurrence of an Event of Default until the earlier of:
. 120 days after the date of acceleration of the notes; or
. the payment in full of all Senior Indebtedness;
but only if payment on the notes is then otherwise permitted under the terms of
the Indenture.
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<PAGE>
Upon any payment or distribution of our assets to creditors upon any of our
dissolution, winding up, liquidation or reorganization, whether voluntary or
involuntary, or in bankruptcy, insolvency, receivership or other similar
proceedings, the holders of Senior Indebtedness will first be entitled to
receive payment in full, in cash or other payment satisfactory to the holders
of Senior Indebtedness, of all amounts due or to become due on the Senior
Indebtedness, or payment of those amounts must have been provided for, before
the holders of the notes will be entitled to receive any payment or
distribution with respect to any notes.
The notes are effectively subordinated to all existing and future
liabilities of our subsidiaries. Any rights of ours to receive assets of any
subsidiary upon its liquidation or reorganization, and the consequent right of
the holders of the notes to participate in those assets, will be subject to the
claims of that subsidiary's creditors, including trade creditors, except to the
extent that we ourselves are recognized as a creditor of that subsidiary, in
which case our claims would still be subordinate to any security interests in
the assets of that subsidiary and any indebtedness of that subsidiary senior to
that held by us. As of March 31, 2000, our subsidiaries had approximately $.9
million of liabilities to which the notes would be effectively subordinated.
Conversion Rights
A holder of a note is entitled to convert it into shares of common stock at
any time on or prior to maturity, provided, that if a note is called for
redemption, the holder is entitled to convert it at any time before the close
of business on the last business day prior to the redemption date. A note in
respect of which a holder has delivered a Change in Control Purchase Notice (as
defined below) exercising that holder's option to require us to purchase that
holder's note, may be converted only if the Change in Control Purchase Notice
is withdrawn by a written notice of withdrawal delivered by the holder to the
Paying Agent prior to the close of business on the Change in Control Purchase
Date, in accordance with the terms of the Indenture.
The initial conversion price for the notes is $53.10 per share of common
stock, which is equal to a Conversion Rate of approximately 18.8324 shares per
$1,000 principal amount of notes. The Conversion Rate is subject to adjustment
upon the occurrence of some events described below. A holder otherwise entitled
to a fractional share of common stock will receive cash in an amount equal to
the market value of that fractional share based on the closing sale price on
the trading day immediately preceding the Conversion Date. A holder may convert
a portion of that holder's notes so long as that portion is $1,000 principal
amount or an integral multiple of $1,000.
To convert a note, a holder must:
. complete and manually sign the conversion notice on the back of the
note, or complete and manually sign a facsimile of the note, and deliver
the conversion notice to the Conversion Agent, initially the Trustee, at
the office maintained by the Conversion Agent for that purpose;
. surrender the note to the Conversion Agent;
. if required, furnish appropriate endorsements and transfer documents;
and
. if required, pay all transfer or similar taxes.
Under the Indenture, the date on which all of these requirements have been
satisfied is the Conversion Date.
Upon conversion of a note, except as provided below, a holder will not
receive any cash payment representing accrued interest on the note. Our
delivery to the holder of the fixed number of shares of common stock into which
the note is convertible, together with any cash payment to be made instead of
any fractional
65
<PAGE>
shares, will satisfy our obligation to pay the principal amount of the note,
and the accrued and unpaid interest to the Conversion Date. Thus, the accrued
but unpaid interest to the Conversion Date will be deemed to be paid in full
rather than cancelled, extinguished or forfeited. Notwithstanding the
foregoing, accrued but unpaid cash interest will be payable upon any conversion
of notes at the option of the holder made concurrently with or after
acceleration of the notes following an Event of Default described under "--
Events of Default" below. Notes surrendered for conversion during the period
from the close of business on any Regular Record Date next preceding any
Interest Payment Date to the opening of business on that Interest Payment Date,
except notes to be redeemed on a date within that period, must be accompanied
by payment of an amount equal to the interest on the surrendered notes that the
registered holder is to receive. Except where notes surrendered for conversion
must be accompanied by payment as described above, no interest on converted
notes will be payable by us on any Interest Payment Date subsequent to the date
of conversion. The Conversion Rate will not be adjusted at any time during the
term of the notes for accrued interest.
A certificate for the number of full shares of common stock into which any
note is converted, and any cash payment to be made instead of any fractional
shares, will be delivered as soon as practicable, but in any event no later
than the seventh business day following the Conversion Date. For a summary of
the U.S. federal income tax treatment of a holder receiving common stock upon
conversion, see "Certain United States Federal Income Tax Considerations--
Conversion of Notes."
The Conversion Rate is subject to adjustment in some events, including:
. the issuance of shares of our common stock as a dividend or a
distribution with respect to common stock;
. some subdivisions and combinations of our common stock;
. the issuance to all holders of common stock of rights or warrants
entitling them, for a period not exceeding 45 days, to subscribe for
shares of our common stock at less than the current market price as
defined in the Indenture;
. the distribution to holders of common stock of evidences of our
indebtedness, securities or capital stock, cash or assets, including
securities, but excluding common stock distributions covered above,
those rights, warrants, dividends and distributions referred to above,
dividends and distributions paid exclusively in cash and distributions
upon mergers or consolidations resulting in a reclassification,
conversion, exchange or cancellation of common stock covered in a
Transaction adjustment described below;
. the payment of dividends and other distributions on common stock paid
exclusively in cash, if the aggregate amount of these dividends and
other distributions, when taken together with:
-- other all-cash distributions made within the preceding 12 months not
triggering a Conversion Rate adjustment, and
-- any cash and the fair market value, as of the expiration of the
tender or exchange offer referred to below, of consideration payable
in respect of any tender or exchange offer by us or one of our
subsidiaries for the common stock concluded within the preceding 12
months not triggering a Conversion Rate adjustment,
exceeds 10% of our aggregate market capitalization on the date of the
payment of those dividends and other distributions. The aggregate market
capitalization is the product of the current market price of our common
stock as of the trading day immediately preceding the date of declaration
of the applicable dividend multiplied by the number of shares of common
stock then outstanding; and
. payment to holders of common stock in respect of a tender or exchange
offer, other than an odd-lot offer, by us or one of our subsidiaries for
common stock as of the trading day next succeeding the
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<PAGE>
last date tenders or exchanges may be made pursuant to a tender or
exchange offer by us or one of our subsidiaries, which involves an
aggregate consideration that, together with:
-- any cash and the fair market value of other consideration payable in
respect of any tender or exchange offer by us or one of our
subsidiaries for the common stock concluded within the preceding 12
months not triggering a Conversion Rate adjustment, and
-- the aggregate amount of any all-cash distributions to all holders of
our common stock made within the preceding 12 months not triggering a
Conversion Rate adjustment,
exceeds 10% of our aggregate market capitalization.
However, adjustment is not necessary if holders may participate in the
transactions otherwise giving rise to an adjustment on a basis and with notice
that our Board of Directors determines to be fair and appropriate, or in some
other cases specified in the Indenture. In cases where the fair market value
of the portion of assets, debt securities or rights, warrants or options to
purchase our securities applicable to one share of common stock distributed to
stockholders exceeds the Average Sale Price (as defined in the Indenture) per
share of common stock, or the Average Sale Price per share of common stock
exceeds the fair market value of that portion of assets, debt securities or
rights, warrants or options so distributed by less than $1.00, rather than
being entitled to an adjustment in the Conversion Rate, the holder of a note
upon conversion of the note will be entitled to receive, in addition to the
shares of common stock into which that note is convertible, the kind and
amounts of assets, debt securities or rights, options or warrants comprising
the distribution that the holder of that note would have received if that
holder had converted that note immediately prior to the record date for
determining the stockholders entitled to receive the distribution. The
Indenture permits us to increase the Conversion Rate from time to time.
In the event that we become a party to any transaction, including, and with
some exceptions:
. any recapitalization or reclassification of the common stock;
. any consolidation of us with, or merger of us into, any other Person, or
any merger of another Person into us;
. any sale, transfer or lease of all or substantially all of our assets;
or
. any compulsory share exchange,
pursuant to which the common stock is converted into the right to receive
other securities, cash or other property (each of the above being referred to
as a "Transaction"), then the holders of notes then outstanding will have the
right to convert the notes only into the kind and amount of securities, cash
or other property receivable upon the consummation of that Transaction by a
holder of the number of shares of common stock issuable upon conversion of
those notes immediately prior to that Transaction.
In the case of a Transaction, each note will become convertible into the
securities, cash or property receivable by a holder of the number of shares of
the common stock into which the note was convertible immediately prior to that
Transaction. This change could substantially lessen or eliminate the value of
the conversion privilege associated with the notes in the future. For example,
if we were acquired in a cash merger each note would become convertible solely
into cash and would no longer be convertible into securities whose value would
vary depending on our future prospects and other factors.
In the event of a taxable distribution to holders of common stock that
results in an adjustment of the Conversion Rate, or in which holders otherwise
participate, or in the event the Conversion Rate is increased at our
discretion, the holders of the notes may, in some circumstances, be deemed to
have received a distribution subject to United States federal income tax as a
dividend. Moreover, in some other circumstances, the absence of an adjustment
to the Conversion Rate may result in a taxable dividend to holders of common
stock. See "United States Federal Income Tax Considerations--Adjustments to
Conversion Price."
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Provisional Redemption
We may redeem the notes, in whole or in part, at any time on or prior to
February 18, 2003, at a redemption price equal to $1,000 per $1,000 principal
amount of notes to be redeemed plus accrued and unpaid interest, if any, to the
provisional redemption date if (i) the closing price of our common stock has
exceeded 150% of the conversion price then in effect (as determined based on
the then effective Conversion Rate) for at least 20 trading days within a
period of 30 consecutive trading days ending on the trading day prior to the
date of mailing of the provisional redemption notice (which date shall be not
less than 10 nor more than 20 trading days prior to the provisional redemption
date) and (ii) the shelf registration statement covering resales of the notes
and the common stock issuable upon conversion of the notes is effective and
available for use and is expected to remain effective for the 30 days following
the provisional redemption date.
Upon any provisional redemption, we will make an additional payment in cash
with respect to the notes called for redemption to holders on the notice date
in an amount equal to 152.54 per $1,000 principal amount of notes, less the
amount of any interest actually paid on the notes prior to the notice date. WE
WILL BE OBLIGATED TO MAKE THIS ADDITIONAL PAYMENT ON ALL NOTES CALLED FOR
PROVISIONAL REDEMPTION, INCLUDING ANY NOTES CONVERTED AFTER THE NOTICE DATE AND
BEFORE THE PROVISIONAL REDEMPTION DATE.
Redemption of Notes At Our Option
There is no sinking fund for the notes. At any time after February 18, 2003,
we will be entitled to redeem the notes for cash as a whole at any time, or
from time to time in part, upon not less than 30 days' nor more than 60-days'
notice of redemption given by mail to holders of notes, unless a shorter notice
is satisfactory to the Trustee, at the redemption prices set out below plus
accrued cash interest to the redemption date. Any redemption of the notes must
be in integral multiples of $1,000 principal amount.
The table below shows redemption prices of a note per $1,000 principal
amount if redeemed during the periods described below.
<TABLE>
<CAPTION>
Redemption
Period Price
------ ----------
<S> <C>
February 19, 2003 through February 15, 2004................... 102.8%
Thereafter.................................................... 101.4%
</TABLE>
If fewer than all of the notes are to be redeemed, the Trustee will select
the notes to be redeemed in principal amounts at maturity of $1,000 or integral
multiples of $1,000 by lot, pro rata or by another method that complies with
the requirements of any exchange on which the notes are listed or quoted and
that the Trustee shall deem fair and appropriate. If a portion of a holder's
notes is selected for partial redemption and that holder converts a portion of
those notes prior to the redemption, the converted portion will be deemed,
solely for purposes of determining the aggregate principal amount of the notes
to be redeemed by us, to be of the portion selected for redemption.
Change In Control Permits Purchase of Notes at the Option of the Holder
In the event of any Change in Control (as defined below) of Interliant, each
holder of notes will have the right, at the holder's option, subject to the
terms and conditions of the Indenture, to require us to purchase all or any
part of the holder's notes, provided that the principal amount must be $1,000
or an integral multiple of $1,000. Each holder of notes will have the right to
require us to make that purchase on the date that is 45 business days after the
occurrence of the Change in Control (the "Change in Control Purchase Date") at
a price equal to 100% of the principal amount of that holder's notes plus
accrued interest to the Change in Control Purchase Date (the "Change in Control
Purchase Price").
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We may, at our option, instead of paying the Change in Control Purchase
Price in cash, pay the Change in Control Purchase Price in our common stock
valued at 95% of the average of the closing sales prices of our common stock
for the five trading days immediately preceding and including the third day
prior to the Change in Control Date. We cannot pay the Change in Control
Purchase Price in common stock unless we satisfy the conditions described in
the Indenture.
Within 30 business days after the Change in Control, we will mail to the
Trustee, each holder, and beneficial owners as required by applicable law, a
notice regarding the Change in Control, which will state, among other things:
. the date of the Change in Control and, briefly, the events causing the
Change in Control;
. the date by which the Change in Control Purchase Notice (as defined
below) must be given;
. the Change in Control Purchase Date;
. the Change in Control Purchase Price;
. the name and address of the Paying Agent and the Conversion Agent;
. the Conversion Rate and any adjustments to the Conversion Rate;
. the procedures that holders must follow to exercise these rights;
. the procedures for withdrawing a Change in Control Purchase Notice;
. that holders who want to convert notes must satisfy the requirements
provided in the notes; and
. briefly, the conversion rights of holders of notes.
If we do not mail the notice within 30 business days after the Change in
Control, an Event of Default will occur under the Indenture without the lapse
of additional time.
We will cause a copy of the notice regarding the Change in Control to be
published in The Wall Street Journal or another daily newspaper of national
circulation.
To exercise the purchase right, the holder must deliver written notice of
the exercise of the purchase right (a "Change in Control Purchase Notice") to
the Paying Agent or an office or agency maintained by us for that purpose in
the Borough of Manhattan, The City of New York, prior to the close of business,
on the Change in Control Purchase Date. Any Change in Control Purchase Notice
must state:
. the name of the holder;
. the certificate numbers of the notes to be delivered by the holder of
those notes for purchase by us;
. the portion of the principal amount of notes to be purchased, which
portion must be $1,000 or an integral multiple of $1,000; and
. that the notes are to be purchased by us pursuant to the applicable
provisions of the notes.
A holder may withdraw any Change in Control Purchase Notice by a written
notice of withdrawal delivered to the Paying Agent prior to the close of
business on the Change in Control Purchase Date. The notice of withdrawal must
state the principal amount and the certificate numbers of the notes as to which
the withdrawal notice relates and the principal amount, if any, which remains
subject to a Change in Control Purchase Notice.
Payment of the Change in Control Purchase Price for a note for which a
Change in Control Purchase Notice has been delivered and not withdrawn is
conditioned upon delivery of the note, together with necessary endorsements, to
the Paying Agent or an office or agency maintained by us for that purpose in
the Borough of
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Manhattan, The City of New York, at any time, whether prior to, on or after the
Change in Control Purchase Date, after the delivery of the Change in Control
Purchase Notice. Payment of the Change in Control Purchase Price for the note
will be made promptly following the later of the business day following the
Change in Control Purchase Date and the time of delivery of the note. If (i) we
elect to pay the Repurchase Price by delivery of shares of our common stock and
satisfy the conditions to this election set forth in the Indenture or (ii) the
Paying Agent holds, in accordance with the terms of the Indenture, money
sufficient to pay the Change in Control Purchase Price of that note on the
business day following the Change in Control Purchase Date, then, immediately
after the Change in Control Purchase Date, that note will cease to be
outstanding and interest on that note will cease to accrue and will be deemed
paid, whether or not that note is delivered to the Paying Agent, and all other
rights of the holder will terminate, other than the right to receive the Change
in Control Purchase Price upon delivery of that note.
If any Senior Indebtedness is outstanding at the time of the occurrence of a
Change in Control, and such Senior Indebtedness prohibits our purchase of the
notes upon the occurrence of a Change in Control, we must, before mailing the
notice regarding the Change in Control, either repay in full all obligations
and terminate all commitments under or in respect of all such Senior
Indebtedness or offer to repay in full all obligations and terminate all
commitments under or in respect of all such Senior Indebtedness and repay such
Senior Indebtedness owed to each holder who has accepted such offer or obtain
the requisite consents under all such Senior Indebtedness to permit the
repurchase of the notes as described above. We must first comply with this
covenant before we will be required to purchase notes in the event of a Change
in Control. However, our failure to comply with this covenant within 30
business days after the occurrence of a Change in Control would constitute an
Event of Default. As a result of the foregoing, a holder of the notes may not
be able to compel us to purchase the notes unless we are able at the time to
refinance all of the obligations under or in respect of all Senior Indebtedness
or obtain requisite consents under all Senior Indebtedness.
Under the Indenture, "Change in Control" of Interliant is deemed to have
occurred upon the occurrence of any of the following events:
. any "person" or "group" (as such terms are used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934 (the "Exchange Act")),
acquires the beneficial ownership (as defined in Rules 13d-3 and 13d-5
under the Exchange Act, except that a Person shall be deemed to have
"beneficial ownership" of all securities that such Person has the right
to acquire, whether such right is exercisable immediately or only after
the passage of time), directly or indirectly, through a purchase, merger
or other acquisition transaction, of more than 50% of the total voting
power of our total outstanding voting stock other than an acquisition by
us, any of our subsidiaries, any of our employee benefit plans or one or
more Permitted Holders;
. we consolidate with, or merge with or into, another Person or convey,
transfer, lease or otherwise dispose of all or substantially all of our
assets to any Person, or any Person consolidates with or merges with or
into us, in any such event pursuant to a transaction in which our
outstanding voting stock is converted into or exchanged for cash,
securities or other property, other than where:
. our voting stock is not converted or exchanged at all, except to the
extent necessary to reflect a change in our jurisdiction of
incorporation, or is converted into or exchanged for voting stock,
other than Redeemable Capital Stock, of the surviving or transferee
corporation; and
. immediately after such transaction, no "person" or "group" (as such
terms are used in Sections 13(d) and 14(d) of the Exchange Act),
other than one or more Permitted Holders or one or more Persons who
were the "beneficial owner" (as described below), directly or
indirectly, of more than 50% of the total voting power of all of our
voting stock immediately before such transaction, is the "beneficial
owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act,
except that a Person will be deemed to have "beneficial ownership"
of all
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securities that such Person has the right to acquire, whether such
right is exercisable immediately or only after the passage of time),
directly or indirectly, of more than 50% of the total outstanding
voting stock of the surviving or transferee corporation;
. during any consecutive two-year period, individuals who at the beginning
of that two-year period constituted our Board of Directors (together
with (i) any new directors whose election to such Board of Directors, or
whose nomination for election by our stockholders, was approved by a
vote of a majority of the directors then still in office who were either
directors at the beginning of such period or whose election or
nomination for election was previously so approved and (ii) any
representatives of a Permitted Holder) cease for any reason to
constitute a majority of our Board of Directors then in office; or
. our stockholders pass a special resolution approving a plan of
liquidation or dissolution and no additional approvals of our
stockholders are required under applicable law to cause a liquidation or
dissolution.
"Permitted Holders" means Web Hosting Organization LLC, Charterhouse Group
International, Inc., WHO Management LLC, and their respective controlled
Affiliates (other than their other portfolio companies), including any Person
(other than their other portfolio companies) in which any of the foregoing,
individually or collectively, owns beneficially more than 50% of the total
voting power of the shares, interests, participations or other equivalents of
corporate stock, partnership or limited liability company interests or any
other participation, right or other interest in the nature of an equity
interest of such Person.
"Redeemable Capital Stock" means any class or series of capital stock that,
either by its terms, by the terms of any security into which it is convertible
or exchangeable or by contract or otherwise, is, or upon the happening of an
event or passage of time would be, required to be redeemed prior to the final
stated maturity of the notes or is redeemable at the option of the holder of
the notes at any time prior to such final stated maturity, or is convertible
into or exchangeable for debt securities at any time prior to such final stated
maturity. Redeemable Capital Stock will not include any common stock the holder
of which has a right to put to us upon some terminations of employment.
The definition of Change in Control includes a phrase relating to the lease,
transfer, conveyance or other disposition of "all or substantially all" of our
assets. There is no precise established definition of the phrase "substantially
all" under applicable law. Accordingly, the ability of a holder of notes to
require us to repurchase such notes as a result of a lease, transfer,
conveyance or other disposition of less than all of our assets may be
uncertain.
The Indenture does not permit our Board of Directors to waive our obligation
to purchase notes at the option of the holder in the event of a Change in
Control of Interliant.
We will not be required to make an offer to purchase the notes upon a Change
in Control if a third party makes an offer to purchase the notes in the manner,
at the times and otherwise in compliance with the requirements set forth in the
Indenture for the offer to purchase we would otherwise be required to make and
that third party purchases all notes validly tendered to it and not withdrawn.
We will comply with the provisions of any tender offer rules under the
Exchange Act which may then be applicable, and will file any schedule required
under the Exchange Act in connection with any offer by us to purchase notes at
the option of the holders of notes upon a Change in Control. In some
circumstances, the Change in Control purchase feature of the notes may make
more difficult or discourage a takeover of us and thus the removal of incumbent
management. The Change in Control purchase feature, however, is not the result
of management's knowledge of any specific effort to accumulate shares of common
stock or to obtain control of us by means of a merger, tender offer,
solicitation or otherwise, or part of a plan by management to adopt a series of
anti-takeover provisions. Instead, the Change in Control purchase feature is
the result of negotiations between us and the initial purchasers of the notes.
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If a Change in Control were to occur, we cannot assure holders of the notes
that we would have funds sufficient to pay the Change in Control Purchase Price
for all of the notes that might be delivered by holders seeking to exercise the
purchase right, because we or our subsidiaries might also be required to prepay
some indebtedness or obligations having financial covenants with change of
control provisions in favor of the holders of that indebtedness or those
obligations. In addition, our other indebtedness or obligations may have cross-
default provisions that could be triggered by a default under the Change in
Control provisions thereby possibly resulting in acceleration of the maturity
of that other indebtedness or those obligations. In any of these circumstances,
the holders of the notes would be subordinated to the prior claims of the
holders of other indebtedness or obligations. In addition, our ability to
purchase the notes with cash may be limited by the terms of our then-existing
borrowing agreements. No notes may be purchased pursuant to the provisions
described above if there has occurred and is continuing an Event of Default
described under "--Events of Default" below (other than a default in the
payment of the Change in Control Purchase Price with respect to those notes).
Consolidation, Merger And Sale Of Assets
We, without the consent of any holders of outstanding notes, are entitled to
consolidate with or merge into, or transfer or lease our assets substantially
as an entirety to, any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof (each
a "Person"), and any Person is entitled to consolidate with or merge into, or
transfer or lease its assets substantially as an entirety to, us, provided
that:
. the Person, if other than us, formed by a consolidation or into which we
are merged, or the Person, if other than one of our subsidiaries, which
receives the transfer of our assets substantially as an entirety, is a
corporation, partnership, limited liability company or trust organized
and existing under the laws of any United States jurisdiction and
expressly assumes our obligations on the notes and under the Indenture;
. immediately after giving effect to the consolidation, merger, transfer
or lease, no Event of Default (as defined above), and no event which,
after notice or lapse of time or both, would become an Event of Default,
has happened and is continuing; and
. an officer's certificate and an opinion of counsel, each stating that
the consolidation, merger, transfer or lease complies with the
provisions of the Indenture, have been delivered by us to the Trustee.
Events Of Default
The Indenture provides that, if an Event of Default specified in the
Indenture occurs and is continuing, either the Trustee or the holders of not
less than 25% in aggregate principal amount of the notes then outstanding may
declare the principal amount of, and accrued interest to the date of that
declaration, on all the notes to be immediately due and payable. In the case of
some events of bankruptcy or insolvency, the principal of, and accrued interest
on, all the notes to the date of the occurrence of that event, will
automatically become and be immediately due and payable. Upon any acceleration
of the payment of principal and accrued interest with respect to the notes, the
subordination provisions of the Indenture will preclude any payment being made
to holders of notes until the earlier of:
. 120 days or more after the date of that acceleration; and
. the payment in full of all Senior Indebtedness.
but only if such payment is then otherwise permitted under the terms of the
Indenture. See "--Subordination."
Under some circumstances, the holders of a majority in aggregate principal
amount of the notes may rescind any acceleration with respect to the notes and
its consequences.
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Interest will continue to accrue and be payable on demand upon a default in:
. the payment of:
-- principal and interest when due,
-- redemption amounts, or
-- Change in Control Purchase Price;
. the delivery of shares of common stock to be delivered on conversion of
notes; or
. the payment of cash in lieu of fractional shares to be paid on
conversion of notes,
in each case to the extent that the payment of interest that is due is legally
enforceable.
Under the Indenture, Events of Default include:
. default in payment of the principal amount, interest when due (if that
default in payment of interest continues for 30 days), any redemption
amounts or the Change in Control Purchase Price with respect to any
note, when that principal amount, interest, redemption amount or Change
in Control Purchase Price becomes due and payable (whether or not that
payment is prohibited by the provisions of the Indenture);
. failure by us to deliver shares of common stock, together with cash
instead of fractional shares, when those shares of common stock, or cash
instead of fractional shares, are required to be delivered following
conversion of a note, and that default continues for 10 days;
. failure by us to give the notice regarding a Change in Control or to
perform the covenant requiring us to repay, or obtain certain consents
from the holders of, certain Senior Indebtedness upon the occurrence of
a Change in Control, in either case within 30 business days of the
occurrence of the Change in Control;
. failure by us to comply with any of our other agreements in the notes or
the Indenture, the receipt by us of notice of that default from the
Trustee or from holders of not less than 25% in aggregate principal
amount of the notes then outstanding and our failure to cure that
default within 60 days after our receipt of that notice;
. default under any bond, note or other evidence of indebtedness for money
borrowed by us having an aggregate outstanding principal amount in
excess of $10 million, which default shall have resulted in that
indebtedness being accelerated, without that indebtedness being
discharged or that acceleration having been rescinded or annulled within
60 days after our receipt of the notice of default from the Trustee or
receipt by us and the Trustee of the notice of default from the holders
of not less than 25% in aggregate principal amount of the notes then
outstanding, unless that default has been cured or waived; or
. some events of bankruptcy or insolvency.
The Trustee will, within 90 days after the occurrence of any default, mail
to all holders of the notes notice of all defaults of which the Trustee is
aware, unless those defaults have been cured or waived before the giving of
that notice. The Trustee may withhold notice as to any default other than a
payment default, if it determines in good faith that withholding the notice is
in the interests of the holders. The term default for the purpose of this
provision means any event that is, or after notice or lapse of time or both
would become, an Event of Default with respect to the notes.
The holders of a majority in aggregate principal amount of the outstanding
notes may direct the time, method and place of conducting any proceeding for
any remedy available to the Trustee or exercising any trust or power conferred
on the Trustee, provided that the direction must not be in conflict with any
law or the Indenture and the direction is subject to some other limitations.
The Trustee may refuse to perform any duty or
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exercise any right or power or extend or risk its own funds or otherwise incur
any financial liability unless it receives indemnity satisfactory to it against
any loss, liability or expense. No holder of any note will have any right to
pursue any remedy with respect to the Indenture or the notes, unless:
. that holder has previously given the Trustee written notice of a
continuing Event of Default;
. the holders of at least 25% in aggregate principal amount of the
outstanding notes have made a written request to the Trustee to pursue
the relevant remedy;
. the holder giving that written notice has, or the holders making that
written request have, offered to the Trustee reasonable security or
indemnity against any loss, liability or expense satisfactory to it;
. the Trustee has failed to comply with the request within 60 days after
receipt of that notice, request and offer of security or indemnity; and
. the holders of a majority in aggregate principal amount of the
outstanding notes have not given the Trustee a direction inconsistent
with that request within 60 days after receipt of that request.
The right of any holder:
. to receive payment of principal, any redemption amounts, the Change in
Control Purchase Price or interest in respect of the notes held by that
holder on or after the respective due dates expressed in the notes;
. to convert those notes; or
. to bring suit for the enforcement of any payment of principal, any
redemption amounts, the Change in Control Purchase Price or interest in
respect of those notes held by that holder on or after the respective
due dates expressed in the notes, or the right to convert;
will not be impaired or adversely affected without that holder's consent.
The holders of a majority in aggregate principal amount of notes at the time
outstanding may waive any existing default and its consequences except:
. any default in any payment on the notes;
. any default with respect to the conversion rights of the notes; or
. any default in respect of the covenants or provisions in the Indenture
that may not be modified without the consent of the holder of each note
as described in "--Modification, Waiver and Meetings" below.
When a default is waived, it is deemed cured and will cease to exist, but
that waiver does not extend to any subsequent or other default or impair any
consequent right.
We will be required to furnish to the Trustee annually a statement as to any
default by us in the performance and observance of our obligations under the
Indenture. In addition, we will be required to file with the Trustee written
notice of the occurrence of any default or Event of Default within five
business days of our becoming aware of the occurrence of any default or Event
of Default.
Modification, Waiver And Meetings
The Indenture or the notes may be modified or amended by us and the Trustee
with the consent of the holders of not less than a majority in aggregate
principal amount of the notes then outstanding. The Indenture or the notes may
not be modified or amended by us without the consent of each holder affected
thereby, to, among other things:
. reduce the principal amount, Change in Control Purchase Price or any
redemption amounts with respect to any note, or extend the stated
maturity of any note or alter the manner of payment or rate of interest
on any note or make any note payable in money or securities other than
that stated in the note;
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. make any reduction in the principal amount of notes whose holders must
consent to an amendment or any waiver under the Indenture or modify the
Indenture provisions relating to those amendments or waivers;
. make any change that adversely affects the right of a holder to convert
any note;
. modify the provisions of the Indenture relating to the ranking of the
notes in a manner adverse to the holders of the notes; or
. impair the right to institute suit for the enforcement of any payment
with respect to, or conversion of, the notes.
Without the consent of any holder of notes, we and the Trustee may amend the
Indenture to:
. cure any ambiguity, defect or inconsistency, provided, however, that the
amendment to cure any ambiguity, defect or inconsistency does not
materially adversely affect the rights of any holder of notes;
. provide for the assumption by a successor of our obligations under the
Indenture;
. provide for uncertificated notes in addition to certificated notes, as
long as those uncertificated notes are in registered form for United
States federal income tax purposes;
. make any change that does not adversely affect the rights of any holder
of notes;
. make any change to comply with any requirement of the Securities and
Exchange Commission in connection with the qualification of the
Indenture under the Trust Indenture Act of 1939, as amended;
. add to our covenants or our obligations under the Indenture for the
protection of holders of the notes; or
. surrender any right, power or option conferred by the Indenture on us.
Form, Denomination, Exchange, Registration, Transfer and Payment
The notes were initially issued in the form of one or more global notes. The
global notes were deposited with, or on behalf of The Depository Trust Company
("DTC"), and registered in the name of DTC or its nominee. The notes were
issued in denominations of $1,000 and $1,000 multiples.
The principal, any premium and any interest on the notes will be payable,
without coupons, and the exchange of and the transfer of the notes will be
registrable, at our office or agency maintained for that purpose in the Borough
of Manhattan, The City of New York and at any other office or agency maintained
for that purpose.
Holders may present the notes for exchange, and for registration of
transfer, with the form of transfer endorsed on those notes, or with a
satisfactory written instrument of transfer, duly executed, at the office of
the appropriate securities registrar or at the office of any transfer agent
designated by us for that purpose, without service charge and upon payment of
any taxes and other governmental charges as described in the Indenture. We will
appoint the Trustee of the notes as securities registrar under the Indenture.
We may at any time rescind designation of any transfer agent or approve a
change in the location through which any transfer agent acts, provided that we
maintain a transfer agent in each place of payment for the notes. We may at any
time designate additional transfer agents for the notes.
All monies paid by us to a paying agent for the payment of principal, any
premium or any interest, on any note which remains unclaimed for two years
after the principal, premium or interest has become due and payable may be
repaid to us, and after the two-year period, the holder of that note may look
only to us for payment.
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In the event of any redemption, we will not be required to:
. issue, register the transfer of or exchange notes during a period
beginning at the opening of business 15 days before the day of the
mailing of a notice of redemption of notes to be redeemed and ending at
the close of business on the day of that mailing; or
. register the transfer of or exchange any note called for redemption,
except, in the case of any notes being redeemed in part, any portion not
being redeemed.
Book-Entry System
Upon the issuance of a global note, DTC will credit, on its book-entry
registration and transfer system, the respective principal amounts of the notes
represented by that global note to the accounts of institutions or persons,
commonly known as participants, that have accounts with DTC or its nominee. The
accounts to be credited will be designated by the underwriters, dealers or
agents. Ownership of beneficial interests in a global note will be limited to
participants or persons that may hold interests through participants. Ownership
of interests in a global note will be shown on, and the transfer of those
ownership interests will be effected only through, records maintained by DTC
(with respect to participants' interests) and the participants (with respect to
the owners of beneficial interests in that global note). The laws of some
jurisdictions may require that some purchasers of securities take physical
delivery of the securities in definitive form. These limits and laws may impair
the ability to transfer beneficial interests in a global note.
So long as DTC, or its nominee, is the registered holder and owner of the
global note, DTC or its nominee, as the case may be, will be considered the
sole owner and holder for all purposes of the notes and for all purposes under
the Indenture. Except as described below, owners of beneficial interests in a
global note will not be entitled to have the notes represented by that global
note registered in their names, will not receive or be entitled to receive
physical delivery of notes in definitive form and will not be considered to be
the owners or holders of any notes under the Indenture or that global note.
Accordingly, each person owning a beneficial interest in a global note must
rely on the procedures of DTC and, if that person is not a participant, on the
procedures of the participant through which that person owns its interest, to
exercise any rights of a holder of notes under the Indenture of that global
note. We understand that under existing industry practice, in the event we
request any action of holders of notes or if an owner of a beneficial interest
in a global note desires to take any action that DTC, as the holder of that
global note, is entitled to take, DTC would authorize the participants to take
that action, and that the participants would authorize beneficial owners owning
through them to take those actions or would otherwise act upon the instructions
of beneficial owners owning through them.
Payments of principal of and any premium and any interest on the notes
represented by a global note will be made to DTC or its nominee, as the case
may be, as the registered owner and holder of that global note, against
surrender of the notes at the principal corporate trust office of the Trustee.
Interest payments will be made at the principal corporate trust office of the
Trustee or by a check mailed to the holder at its registered address.
We expect that DTC, upon receipt of any payment of principal, and any
premium and any interest, in respect of a global note, will immediately credit
the participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of that global note as
shown on the records of DTC. We expect that payments by participants to owners
of beneficial interests in a global note held through those participants will
be governed by standing instructions and customary practices, as is now the
case with securities held for the accounts of customers in bearer form or
registered in 'street name,' and will be the responsibility of those
participants. We, our agent, the Trustee and its agent will not have any
responsibility or liability for any aspect of the records relating to, or
payments made on account of, beneficial ownership interests in a global note or
for maintaining, supervising or reviewing any records relating to those
beneficial ownership interests or for any other aspect of the relationship
between DTC and its participants or the relationship between those participants
and the owners of beneficial interests in that global note owning through those
participants.
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Unless and until it is exchanged in whole or in part for notes in definitive
form, a global note may not be transferred except as a whole by DTC to a
nominee of DTC or by a nominee of DTC to DTC or a successor to DTC selected or
approved by us or to a nominee of that successor to DTC.
The notes represented by a global note will be exchangeable for notes in
definitive form of like tenor as that global note in denominations of $1,000
and in any greater amount that is an integral multiple of $1,000 if:
. DTC notifies us and the Trustee that it is unwilling or unable to
continue as DTC for that global note or if at any time DTC ceases to be
a clearing agency registered under the Exchange Act and a successor
depositary is not appointed by us within 90 days;
. we, in our sole discretion, determine not to have all of the notes
represented by a global note and notify the Trustee of that
determination; or
. there is, or continues to be, an Event of Default or there is an event
which, with the giving of notice or lapse of time, or both, would
constitute an Event of Default with respect to the notes.
Any note that is exchangeable pursuant to the preceding sentence is
exchangeable for notes registered in the names which DTC will instruct the
Trustee. It is expected that DTC's instructions may be based upon directions
received by DTC from its participants with respect to ownership of beneficial
interests in that global note. Subject to the foregoing, a global note is not
exchangeable except for a global note or global notes of the same aggregate
denominations to be registered in the name of DTC or its nominee.
Notices
Except as otherwise provided in the Indenture, notices to holders of notes
will be given by mail to the addresses of holders of the notes as they appear
in the Security Register.
Replacement Of Notes
Any mutilated note will be replaced by us at the expense of the holder upon
surrender of that note to the Trustee. Notes that become destroyed, stolen or
lost will be replaced by us at the expense of the holder upon delivery to the
Trustee of notes or evidence of the destruction, loss or theft of the notes
satisfactory to us and the Trustee. In the case of a destroyed, lost or stolen
note, an indemnity satisfactory to the Trustee and us may be required at the
expense of the holder of that note before a replacement note will be issued.
Governing Law
The Indenture, the notes and the registration rights agreement will be
governed by, and construed in accordance with, the laws of the State of New
York.
Information Regarding The Trustee
The Chase Manhattan Bank is the Trustee, Securities Registrar, Paying Agent
and Conversion Agent under the Indenture.
Registration Rights of Holders of the Notes
We and the initial purchasers entered into a registration rights agreement
dated February 10, 2000.
Under the registration rights agreement, we generally agreed, for the
benefit of the holders of the notes and the shares of common stock issuable
upon conversion of the notes to:
. file, within 90 days after the date the notes were originally issued, a
shelf registration statement covering the notes and the common stock
issuable upon conversion of the notes;
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. use our best efforts to cause the shelf registration to become effective
as promptly as practicable; and
. use our best efforts to keep the shelf registration statement effective
until the earlier of the sale of all the transfer restricted securities
or two years after the latest date of original issuance.
When we use the term "transfer restricted securities" in this section, we
mean the common stock issued upon conversion until the earlier of the following
events:
. the date the note or common stock issued upon conversion has been
effectively registered under the Securities Act of 1933 and sold or
transferred pursuant to the shelf registration statement;
. the.date on which the note or common stock issued upon conversion is
distributed to the public pursuant to Rule 144 under the Securities Act
of 1933 or is available for sale pursuant to Rule 144(k) under the
Securities Act of 1933; or
. the date the note or common stock issued upon conversion ceases to be
outstanding.
We will be required to pay predetermined liquidated damages if one of the
following "registration defaults" occurs:
. we do not file the shelf registration statement within 90 days after the
date the notes were originally issued;
. the Securities and Exchange Commission does not declare the shelf
registration statement effective within 180 days after the date the
notes were originally issued; or
. after it has been declared effective, the shelf registration statement
ceases to be effective or available for more than 90 days in any period
of 365 consecutive days.
If a registration default occurs, liquidated damages initially will accrue
(a) for the notes that are transfer restricted securities, at the rate of $0.05
per week per $1,000 principal amount of the notes and (b) for any common stock
issued on conversion of the notes that are transfer restricted securities, at
an equivalent rate based on the conversion price. If the registration default
has not been cured within 90 days, the liquidated damages rate will increase by
$0.05 per week per $1,000 principal amount of the notes that are transfer
restricted securities (and an equivalent amount for any common stock issued
upon conversion that are transfer restricted securities) for each subsequent
90-day non-compliance period, up to a maximum rate of $0.25 per week per $1,000
principal amount of the notes that are transfer restricted securities.
Liquidated damages, as calculated by us, generally will be payable at the same
time as interest payments on the notes.
We may suspend the use of the shelf registration statement in certain
circumstances described in the registration rights agreement upon notice to the
holders of the transfer restricted securities, subject to the rights of the
holders of transfer restricted securities to receive liquidated damages in
accordance with the registration rights agreement. We will provide copies of
the prospectus and notify holders of notes and common stock issued upon
conversion when the shelf registration statement is filed and when it becomes
effective.
We will give notice to all holders of the filing and effectiveness of the
shelf registration statement. We refer to this form of notice and questionnaire
as the "questionnaire." Holders of the notes are required to complete and
deliver the questionnaire prior to the effectiveness of the shelf registration
statement so that they can be named as selling stockholders in the prospectus.
Upon receipt of a completed questionnaire from a holder of the notes after the
effectiveness of the shelf registration statement, we will, as promptly as
practicable but in any event within five business days of receipt, file any
amendments or supplements to the shelf registration statement so that such a
holder may use the prospectus, subject to our right to suspend as set forth
above. We will pay liquidated damages to a holder of the notes if we fail to
make this filing in the required time. If this filing requires a post-effective
amendment to the shelf registration statement, we will pay liquidated damages
if this amendment is not declared effective within 45 business days of the
filing of the post-effective amendment. Under the registration rights
agreement, a holder of the notes is required to deliver a prospectus to
purchasers and will be bound by the provisions of the agreement.
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DESCRIPTION OF CAPITAL STOCK
Authorized Stock; Issued and Outstanding Shares
Our authorized capital stock consists of 200,000,000 shares of common stock,
par value $0.01 per share and 1,000,000 shares of undesignated preferred stock,
par value $0.01 per share.
Common Stock
As of March 31, 2000, 47,435,200 shares of common stock were issued and
outstanding. All of the issued and outstanding shares of common stock are fully
paid and nonassessable.
The following summarizes the rights of holders of our common stock:
. each holder of shares of common stock is entitled to one vote per share
on all matters to be voted on by stockholders generally, including the
election of directors;
. there are no cumulative voting rights;
. the holders of our common stock are entitled to dividends which may be
paid in cash, property or shares of our capital stock and other
distributions as may be declared from time to time by our Board of
Directors out of funds legally available for that purpose, if any;
. upon our liquidation, dissolution or winding up, the holders of shares
of common stock will be entitled to share ratably in the distribution of
all of our assets remaining available for distribution after
satisfaction of all our debts and liabilities and the payment of the
liquidation preference of any outstanding preferred stock; and
. the holders of common stock have no preemptive or other subscription
rights to purchase shares of our stock, nor will holders be entitled to
the benefits of any redemption or sinking fund provisions.
Preferred Stock
Our certificate of incorporation authorizes our Board of Directors to create
and issue one or more series of preferred stock and determine the rights and
preferences of each series within the limits set forth in our certificate of
incorporation and applicable law. Among other rights, our Board of Directors
may determine, without further vote or action by our stockholders:
. the number of shares constituting the series and the distinctive
designation of the series;
. the dividend rate on the shares of the series, whether dividends will be
cumulative and if so, from which date or dates and the relative rights
of priority, if any, of payment of dividends on shares of the series;
. whether the series will have voting rights in addition to the voting
rights provided by law and, if so, the terms of such voting rights;
. whether the series will have conversion privileges and, if so, the terms
and conditions of conversion;
. whether or not the shares of the series will be redeemable or
exchangeable and if so, the dates, terms and conditions of redemption or
exchange, as the case may be;
. whether the series will have a sinking fund for the redemption or
purchase of shares of that series and, if so, the terms and amount of
the sinking fund; and
. the rights of the shares of the series in the event of our voluntary or
involuntary liquidation, dissolution or winding up and the relative
rights or priority, if any, of payment of shares of the series.
Unless otherwise provided by our Board of Directors, the shares of all
series of preferred stock will rank on a parity with respect to the payment of
dividends and to the distribution of assets upon liquidation. Although
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we have no present plans to issue any shares of preferred stock, any future
issuance of shares of preferred stock, or the issuance of rights to purchase
preferred shares, may have the effect of delaying, deferring or preventing a
change of control in our company or an unsolicited acquisition proposal. The
issuance of preferred stock also could decrease the amount of earnings and
assets available for distribution to the holders of common stock or could
adversely affect the rights and powers, including voting rights, of the holders
of the common stock. Accordingly, the issuance of shares of preferred stock may
discourage bids for the common stock at a premium or may otherwise adversely
affect the market price of the common stock.
Section 203 of the Delaware General Corporation Law
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. Under Section 203, business combinations between a Delaware
corporation whose stock is publicly traded or held of record by more than 2,000
stockholders and an interested stockholder are generally prohibited for a
three-year period following the date that such a stockholder became an
interested stockholder, unless:
. the corporation has elected in its original certificate of incorporation
not to be governed by Section 203, an election we did not make;
. the business combination was approved by the board of directors of the
corporation before the other party to the business combination became an
interested stockholder;
. upon consummation of the transaction that made it an interested
stockholder, the interested stockholder owned at least 85% of the voting
stock of the corporation outstanding at the commencement of the
transaction, excluding voting stock owned by directors who are also
officers or held in employee benefit plans in which the employees do not
have a confidential right to tender or vote stock held by the plan; or
. the business combination was approved by the board of directors of the
corporation and ratified by two-thirds of the voting stock not owned by
the interested stockholder.
The three-year prohibition also does not apply to some business combinations
proposed by an interested stockholder following the announcement or
notification of an extraordinary transaction involving the corporation and a
person who had not been an interested stockholder during the previous three
years or who became an interested stockholder with the approval of the majority
of the corporation's directors.
The term "business combination" is defined generally under Section 203 to
include mergers or consolidations between a Delaware corporation and an
interested stockholder, transactions with an interested stockholder involving
the assets or stock of the corporation or its majority-owned subsidiaries and
transactions which increase an interested stockholder's percentage ownership of
stock. The term "interested stockholder" is defined generally under Section 203
as a stockholder who, together with affiliates and associates, owns or within
three years prior did own 15% or more of a Delaware corporation's voting stock.
Section 203 could prohibit or delay a merger, takeover or other change in
control of us and therefore could discourage attempts to acquire us.
Our Board of Directors approved both the acquisition of common stock by WEB
as part of their approval of the investment by such purchasers and the
acquisition of preferred stock and warrants by the SOFTBANK Purchasers as part
of their approval of the investment by such purchasers and, accordingly, the
prohibitions under Section 203 will not apply to any business combination with
either WEB or the SOFTBANK Purchasers.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is ChaseMellon
Shareholder Services L.L.C.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of certain United States federal tax
consequences relating to an investment in the notes. This discussion is based
on existing provisions of the Internal Revenue Code of 1986, as amended, or the
Code, Treasury regulations promulgated thereunder, judicial decisions and
administrative rulings, all of which are subject to change with possible
retroactive effect. This summary does not discuss any state, local or foreign
tax considerations, and does not address all federal income tax consequences
applicable to all categories of investors, some of which may be subject to
special rules, such as life insurance companies, tax-exempt organizations,
dealers in securities or currency, banks or other financial institutions,
investors whose functional currency is not the U.S. dollar, and investors that
hold notes as part of a hedge, straddle or conversion transaction. In addition,
this summary is generally limited to notes and common stock that are held as
"capital assets" within the meaning of the Code. Federal tax considerations for
Non-U.S. Holders are discussed separately below.
Interest on Notes. Holders will be required to recognize ordinary interest
income when interest on the notes is paid or accrued, in accordance with the
holders' regular method of tax accounting. In certain circumstances, we may be
obligated to pay holders of the notes amounts in excess of stated interest or
principal. For example, we would have to pay liquidated damages to holders of
the notes in certain circumstances described in "Description of Notes--
Registration Rights of Holders of the Notes." If we are required to pay
liquidated damages, we believe that these payments would be insignificant
relative to the total expected amount of remaining payments on the notes.
Therefore, we will treat the possible payment of liquidated damages as an
incidental contingency. If we exercise our conditional call right, it is likely
that holders of the notes would convert them into common stock. Therefore, we
believe that the possibility that we will pay the prescribed redemption premium
is remote. Our determination that these contingencies are incidental or remote
is binding on holders unless they disclose their contrary position. If we pay
liquidated damages on the notes the holders of the notes would be required to
recognize additional interest income. If we pay a redemption premium in
connection with its exercise of our conditional call right, the premium would
probably be treated as capital gain under the rules described under "Sale or
Exchange of Notes or Shares of Common Stock."
Constructive Dividends. Certain corporate transactions, such as
distributions of assets to holders of common stock, may be treated as deemed
distributions to holders of the notes if the conversion price of the notes is
adjusted to reflect such transaction. Adjustments to the conversion price,
however, made pursuant to a bona fide, reasonable adjustment formula which has
the effect of preventing dilution of the interest of the holders of notes,
generally will not be considered to result in a deemed distribution. Such a
deemed distribution will be taxable as a dividend, return of capital, or
capital gain in accordance with the rules discussed below under "Dividends on
Shares of Common Stock" and holders of the notes may recognize income as a
result even though they will receive no cash or property.
Sale or Exchange of Notes or Shares of Common Stock. In general, a holder of
notes will recognize gain or loss upon the sale, redemption, retirement or
other disposition of notes measured by the difference between (1) the amount of
cash and the fair market value of any property received (except to the extent
attributable to accrued interest, which will generally be taxable as ordinary
income) and (2) such holder's adjusted tax basis in the notes. In general, each
holder of our common stock into which the notes have been converted will
recognize gain or loss upon the sale, exchange, or other disposition of our
common stock measured by the difference between (1) the amount of cash and the
fair market value of any property received and (2) the holder's adjusted basis
in our common stock. (For a discussion of the basis and holding period of
shares of our common stock, see "--Conversion of Notes," below.) Subject to the
market discount rules discussed below, the gain or loss on the disposition of
notes or common stock will be capital gain or loss and will be long-term gain
or loss if the notes or shares of common stock have been held for more than one
year at the time of such disposition.
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Conversion of Notes. A holder of notes will not recognize gain or loss on
the conversion of the notes solely into common stock except with respect to
cash in lieu of fractional shares. The holder's tax basis in the shares of
common stock received upon conversion of the notes will be equal to the
holder's aggregate basis in the notes exchanged therefor (less any portion
thereof allocable to cash received in lieu of a fractional share of common
stock). The holding period of common stock will generally include the period
during which such holder held the notes prior to conversion. Under current
ruling policy of the Internal Revenue Service, cash received in lieu of a
fractional share of common stock should generally be treated as a payment in
exchange for such fractional share rather than as a dividend. Gain or loss
recognized on the receipt of cash paid in lieu of such fractional shares
generally will equal the difference between the amount of cash received and the
amount of tax basis allocable to the fractional shares.
Market Discount. The notes may be affected by the "market discount"
provisions of the Code. For this purpose, the market discount on a note will
generally be equal to the amount, if any, by which the stated redemption price
at maturity of a note exceeds the holder's tax basis in the note immediately
after its acquisition. Subject to a de minimis exception, a holder of a note
acquired at a market discount will generally be required to treat as ordinary
income any gain recognized on the disposition of such note to the extent of the
accrued market discount on such note at the time of disposition. In general,
market discount will be treated as accruing on a straight-line basis over the
term of the note or, at the election of the holder, under a constant-yield
method. A holder of a note acquired at a market discount may be required to
defer the deduction of a portion of the interest on any indebtedness incurred
or maintained to purchase or carry such note until the note is disposed of in a
taxable transaction, unless the holder elects to include accrued market
discount in income currently. If a holder acquires a note at a market discount
and receives common stock upon conversion of the note, the amount of accrued
market discount through the date of conversion will be treated as ordinary
income upon the disposition of the common stock.
Dividends on Common Stock. Distributions on shares of common stock will
constitute dividends for United States federal income tax purposes to the
extent of our current or accumulated earnings and profits as determined under
United States federal income tax principles. Dividends paid to holders that are
United States corporations may qualify for the dividends-received deduction. To
the extent that a holder receives distributions on shares of common stock that
would otherwise constitute dividends for United States federal income tax
purposes but that exceed our current and accumulated earnings and profits, such
distributions will be treated first as a non-taxable return of capital reducing
the holder's basis in the shares of common stock. Any such distributions in
excess of the holder's basis in the shares of common stock will generally be
treated as capital gain.
Certain Federal Tax Considerations Applicable to Non-U.S. Holders.
For purposes of this summary, the term "U.S. Holder" means a beneficial
owner of notes or common stock that is (1) a citizen or resident of the United
States, (2) a corporation, partnership or other entity created or organized in
or under the laws of the United States or any State thereof (including the
District of Columbia) or a partnership otherwise treated as a United States
person under applicable U.S. Treasury Regulations, (3) an estate the income of
which is subject to United States federal income taxation regardless of its
source, and (4) a trust if (a) a court within the United States is able to
exercise primary supervision over the administration of the trust and (b) one
or more U.S. persons have the authority to control all substantial decisions of
the trust. The term "Non-U.S. Holder" means a beneficial owner of notes or
common stock other than a U.S. Holder.
Interest on Notes. Generally, interest paid on notes to a Non-U.S. Holder
will not be subject to United States federal income tax if (1) such interest is
not effectively connected with the conduct of a trade or business within the
United States by such Non-U.S. Holder, (2) the beneficial owner of the notes
does not actually or constructively own 10% or more of the total combined
voting power of all classes of stock of the Company entitled to vote, (3) the
beneficial owner of the notes is not a controlled foreign corporation that is
related to Interliant, (4) the beneficial owner is not a bank for United States
federal income tax purposes whose receipt of interest on the notes is described
in Section 881(c)(3)(A) of the Code and (5) Interliant or paying agent receives
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certification that the beneficial owner of the note is not a U.S. Holder. The
beneficial owner can meet the requirement of this clause (5) by providing a
signed I.R.S. Form W-8BEN or substitute form to us or our paying agent. If the
beneficial owner holds a note through a securities clearing organization, bank,
other financial institution, or other agent acting on the owner's behalf, the
certification requirement will be met if the beneficial owner provides a signed
I.R.S. Form W-8BEN or substitute form to the agent and the agent provides a
signed I.R.S. Form W-8IMY or substitute form along with a copy of the
beneficial owner's signed I.R.S. Form W-8BEN or substitute form to us or our
paying agent. Each person acting as custodian, broker, nominee or otherwise as
an agent for a beneficial owner must provide certification on a W-8IMY. For
purposes of determining ownership of our stock, a Non-U.S. Holder of notes will
be deemed to own the common stock into which the notes could be converted. A
Non-U.S. Holder that is not exempt from tax under the rules described above
will generally be subject to United States federal withholding tax at a rate of
30% unless the interest is effectively connected with the conduct of a United
States trade or business, in which case the interest will be subject to the
United States federal income tax on net income that applies to United States
persons generally. Non-U.S. Holders should consult applicable tax treaties,
which may provide different rules.
Special Rules may apply if the Notes are held by a foreign partnership. In
conjunction with Regulations relating to non-U.S. holders of certain debt
instruments recently promulgated by the Treasury Department which are effective
on December 31, 2000 (the "New Regulations"), the Internal Revenue Service has
issued revised tax forms to replace Form W-8, as well as Forms 1001 and 4224
(discussed below) which were valid prior to January 1, 1999. Although the New
Regulations are not effective until December 31, 2000, beneficial owners may be
asked to provide such revised forms in addition to, or instead of, the existing
IRS forms prior to such effective date. Existing Forms W-8 which were valid on
or after January 1, 1999 will continue to be valid until they expire, or
December 31, 2000, whichever date is earlier. The foregoing is based on the
conclusion that the notes will be treated as debt for federal income tax
purposes.
Even if a Non-U.S. Holder cannot satisfy the requirements of eligibility for
the Portfolio Interest Exemption, interest (including OID) earned by such Non-
U.S. Holder will not be subject to 30% withholding tax if the beneficial owner
of the notes provides the Company or its paying agent, as the case may be, with
a properly executed (1) IRS Form W-8BEN (or prior or successor form) claiming
an exemption from withholding under the benefit of a U.S. income tax treaty or
(2) IRS Form W-8ECI (or prior or successor form) stating that interest paid on
the notes is not subject to withholding tax because it is effectively connected
with the beneficial owner's conduct of a trade or business in the United
States.
Sales or Exchange of Notes or Shares of Common Stock. A Non-U.S. Holder
generally will not be subject to United States federal income or withholding
tax on gain realized on the sale or exchange of notes or common stock unless
(1) the holder is an individual who was present in the United States for 183
days or more during the taxable year and (a) such holder has a "tax home" in
the United States or (b) the gain is attributable to an office or other fixed
place of business maintained in the United States by such holder, (2) the gain
is effectively connected with the conduct of a trade or business of the holder
in the United States, or (3) we are or have been a "United States real property
holding corporation" at any time within the shorter of the five-year period
preceding such disposition or such holder's holding period. If we become a
"United States real property holding corporation," gain recognized on a
disposition of notes or common stock would not be subject to federal income tax
if (1) the common stock is "regularly traded on an established securities
market" within the meaning of the Code and (2) either (A) the Non-U.S. Holder
disposing of common stock did not own, actually or constructively, at any time
during the five-year period preceding the disposition, more than 5% of the
common stock, or (B) in the case of a disposition of notes, the Non-U.S. Holder
did not own, actually or constructively, notes which, as of any date on which
such holder acquired notes had a fair market value greater than that of 5% of
the common stock.
Dividends on Shares of Common Stock. Generally, to the extent a distribution
with respect to common stock is treated as a dividend (as described above under
"Dividends on Common Stock"), a Non-U.S. Holder will be subject to United
States federal income tax withholding at a rate of 30% unless the dividend is
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effectively connected with the conduct of a trade or business within the United
States by the Non-U.S. Holder. If the dividend is effectively connected with
the conduct of a trade or business within the United States, the dividend will
be subject to the United States federal income tax on net income that applies
to United States persons generally (and, with respect to corporate holders, the
branch profits tax under certain circumstances). Non-U.S. Holders should
consult any applicable income tax treaties, which may provide for a lower rate
of withholding or other rules different from those described above. A Non-U.S.
Holder (and in the case of Non-U.S. Holders that are treated as partnerships or
otherwise fiscally transparent the partners, shareholders or other
beneficiaries of such Non-U.S. Holders) may be required to satisfy certain
certification requirements in order to claim a reduction of or exemption from
withholding under the foregoing rules.
Estate Tax. Notes held by an individual who at the time of death is not a
United States citizen or resident, as specially defined for United States
estate tax purposes, will not be subject to United States federal estate tax
provided (1) the notes were not held in connection with a United States trade
or business and (2) the individual does not actually or constructively own 10%
or more of the total combined voting power of all classes of our stock entitled
to vote. Common stock owned by such an individual at the time of death, and in
certain circumstances transferred before death, will be includible in the
taxable estate and may be subject to United States federal estate tax unless
otherwise provided by an applicable tax treaty. Estates of nonresident aliens
are generally allowed a statutory credit which has the effect of offsetting
United States federal estate tax imposed on the first $60,000 of the taxable
estate.
Information Reporting and Backup Withholding
U.S. Holders. Information reporting and backup withholding may apply to
payments of interest or dividends on or the proceeds of the sale or other
disposition of the notes or shares of common stock made by us with respect to
certain noncorporate U.S. Holders. Such U.S. Holders generally will be subject
to backup withholding at a rate of 31% unless the recipient of such payment
supplies a taxpayer identification number, certified under penalties of
perjury, as well as certain other information, or otherwise establishes, in the
manner prescribed by law, an exemption from backup withholding. Any amount
withheld under backup withholding is allowable as a credit against the U.S.
Holder's federal income tax, upon furnishing the required information.
Non-U.S. Holders. Generally, information reporting and backup withholding of
United States federal income tax at a rate of 31% may apply to payments of
principal, interest and premium (if any) to Non-U.S. Holders if the payee fails
to certify that the holder is a non-U.S. person or if we or our paying agent
has actual knowledge that the payee is a United States person. The 31% backup
withholding tax generally will not apply to dividends paid to foreign holders
outside the United States that are subject to 30% withholding as discussed
above or that are subject to a tax treaty that reduces such withholding.
Special rules apply in case of foreign partnerships.
The payment of the proceeds on the disposition of notes or shares of common
stock to or through a United States office of a United States or foreign broker
will subject to information reporting and backup withholding unless the owner
provides the certification described above or otherwise establishes an
exemption. The proceeds of the disposition by a Non-U.S. Holder of notes or
shares of common stock to or through a foreign office of a broker will
generally not be subject to backup withholding. However, if such broker is a
U.S. person, a controlled foreign corporation for United States tax purposes,
or a foreign person 50% or more of whose gross income from all sources for
certain periods is effectively connected with a United States trade or
business, information reporting will apply unless such broker has documentary
evidence in its files of the Non-U.S. Holder's foreign status and has no actual
knowledge to the contrary or unless the Non-U.S. Holder otherwise establishes
an exemption. Both backup withholding and information reporting will apply to
the proceeds of such dispositions if the broker has actual knowledge that the
payee is a U.S. Holder.
Any amounts withheld under the backup withholding rules will be allowed as a
refund or a credit against the beneficial owner's United States federal income
tax liability provided the required information is furnished to the IRS, within
the beneficial owner's period of limitation for claiming a refund of tax.
84
<PAGE>
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED
FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A
HOLDER'S PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS
WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE OWNERSHIP AND DISPOSITION
OF THE NOTES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND
OTHER, TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES OR OTHER
TAX LAWS.
85
<PAGE>
PLAN OF DISTRIBUTION
The selling holders and their successors, including their transferees,
pledgees or donees or their successors, may sell the notes and the common stock
into which the notes are convertible directly to purchasers or through
underwriters, broker-dealers or agents, who may receive compensation in the
form of discounts, concessions or commissions from the selling holders or the
purchasers. These discounts, concessions or commissions as to any particular
underwriter, broker-dealer or agent may be in excess of those customary in the
types of transactions involved.
The notes and the common stock into which the notes are convertible may be
sold in one or more transactions at fixed prices, at prevailing market prices
at the time of sale, at prices related to the prevailing market prices, at
varying prices determined at the time of sale, or at negotiated prices. These
sales may be effected in transactions, which may involve crosses or block
transactions:
. on any national securities exchange or U.S. inter-dealer system of a
registered national securities association on which the notes or the
common stock may be listed or quoted at the time of sale;
. in the over-the-counter market;
. in transactions otherwise than on these exchanges or systems or in the
over-the-counter market;
. through the writing of options, whether the options are listed on an
options exchange or otherwise; or
. through the settlement of short sales.
In connection with the sale of the notes and the common stock into which the
notes are convertible or otherwise, the selling holders may enter into hedging
transactions with broker-dealers or other financial institutions, which may in
turn engage in short sales of the notes or the common stock into which the
notes are convertible in the course of hedging the positions they assume. The
selling holders may also sell the notes or the common stock into which the
notes are convertible short and deliver these securities to close out their
short positions, or loan or pledge the notes or the common stock into which the
notes are convertible to broker-dealers that in turn may sell these securities.
The aggregate proceeds to the selling holders from the sale of the notes or
common stock into which the notes are convertible offered by them will be the
purchase price of the notes or common stock less discounts and commissions, if
any. Each of the selling holders reserves the right to accept and, together
with their agents from time to time, to reject, in whole or in part, any
proposed purchase of notes or common stock to be made directly or through
agents. We will not receive any of the proceeds from this offering.
Our outstanding common stock is listed for trading on The Nasdaq National
Market. We do not intend to list the notes for trading on any national
securities exchange or on The Nasdaq National Market and can give no assurance
about the development of any trading market for the notes.
In order to comply with the securities laws of some states, if applicable,
the notes and common stock into which the notes are convertible may be sold in
these jurisdictions only through registered or licensed brokers or dealers. In
addition, in some states the notes and common stock into which the notes are
convertible may not be sold unless they have been registered or qualified for
sale or an exemption from registration or qualification requirements is
available and is complied with.
The selling holders and any underwriters, broker-dealers or agents that
participate in the sale of the notes and common stock into which the notes are
convertible may be "underwriters" within the meaning of Section 2(11) of the
Securities Act. Any discounts, commissions, concessions or profit they earn on
any resale of the shares may be underwriting discounts and commissions under
the Securities Act. Selling holders who are "underwriters" within the meaning
of Section 2(11) of the Securities Act will be subject to the prospectus
delivery requirements of the Securities Act. The selling holders have
acknowledged that they understand their obligations to comply with the
provisions of the Exchange Act and the rules thereunder relating to stock
manipulation, particularly Regulation M.
86
<PAGE>
In addition, any securities covered by this prospectus that qualify for sale
pursuant to Rule 144 or Rule 144A of the Securities Act may be sold under Rule
144 or Rule 144A rather than pursuant to this prospectus. A selling holder may
not sell any notes or common stock described in this prospectus and may not
transfer, devise or gift these securities by other means not described in this
prospectus.
To the extent required, the specific notes or common stock to be sold, the
names of the selling holders, the respective purchase prices and public
offering prices, the names of any agent, dealer or underwriter, and any
applicable commissions or discounts with respect to a particular offer will be
set forth in an accompanying prospectus supplement or, if appropriate, a post-
effective amendment to the registration statement of which this prospectus is a
part.
We entered into a registration rights agreement for the benefit of holders
of the notes to register their notes and common stock under applicable federal
and state securities laws under specific circumstances and at specific times.
The registration rights agreement provides for cross-indemnification of the
selling holders and us and their and our respective directors, officers and
controlling persons against specific liabilities in connection with the offer
and sale of the notes and the common stock, including liabilities under the
Securities Act. We will pay substantially all of the expenses incurred by the
selling holders incident to the offering and sale of the notes and the common
stock.
In March 2000, we sold $10.0 million in aggregate principal amount of
convertible notes to Microsoft Corporation. These notes have substantially the
same terms as the notes offered in this prospectus. We are obligated to file a
separate registration statement covering the notes issued to Microsoft and the
common stock issuable upon conversion of these notes.
LEGAL MATTERS
The validity of the issuance the securities offered hereby will be passed
upon for us by Dewey Ballantine LLP, New York, New York.
EXPERTS
The consolidated financial statements of Interliant, Inc. (formerly known as
Sage Networks, Inc.) at December 31, 1997, 1998 and 1999 and for the period
December 8, 1997 (inception) to December 31, 1997 and the years ended December
31, 1998 and 1999 appearing in this prospectus and registration statement have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein and are included in reliance upon the
authority of such firm as experts in accounting and auditing.
The consolidated financial statements of Sales Technology Limited at October
31, 1998, and for the year ended October 31, 1998, appearing in this prospectus
and registration statement, have been audited by Ernst & Young, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon the authority of such firm as experts in
accounting and auditing.
The balance sheet of Soft Link, Inc., as of December 31, 1998 and 1998 and
the related statements of operations and retained earnings, and cash flows for
the years then ended included in this prospectus have been so included in
reliance on the report of Smith Schafer & Associates, Ltd., independent
accountants given on the authority of said firm as experts in auditing and
accounting.
The financial statements of reSOURCE PARTNER, Inc., as of December 31, 1999
and for the year then ended included in this prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report
appearing herein and is included in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
87
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION ABOUT US
We are currently subject to the informational requirements of the Exchange
Act and file reports, proxy statements and other information with the SEC.
Such reports, proxy statements and other information can be inspected and
copied at the public reference facilities maintained by the SEC at:
<TABLE>
<S> <C> <C>
Room 1024 Suite 1400
450 Fifth Street, N.W. Northwest Atrium Center 13th Floor
Judiciary Plaza 500 West Madison Street Seven World Trade Center
Washington, D.C. 20549 Chicago, Illinois 60661 New York, New York 10048
</TABLE>
Copies of material can be obtained at prescribed rates from the Public
Reference Section of the SEC at:
450 Fifth Street, N.W.
Judiciary Plaza
Washington, D.C. 20549
The SEC maintains a World Wide Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the SEC. The address of the site is http://www.sec.gov.
Our common stock is quoted for trading on the Nasdaq National Market and
reports, proxy statements and other information concerning us also may be
inspected at the offices of the National Association of Securities Dealers at
9513 Key West Avenue, Rockville, Maryland 20850.
We provide Web hosting services to a customer whose primary residence is
located in Cuba, Mr. Osvaldo Martinez. Current information concerning business
between any person located in Cuba or the government of Cuba and Interliant
may be obtained from the Florida Department of Banking and Finance, Plaza
Level, The Capitol, Tallahassee, Florida 32399-0350, telephone number (904)
488-6311.
88
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INTERLIANT, INC.
Report of Independent Auditors............................................ F-2
Financial Statements:
Consolidated Balance Sheets as of December 31, 1999 and 1998 and March
31, 2000 (unaudited)................................................... F-3
Consolidated Statements of Operations for the Years ended December 31,
1999 and 1998 and the period December 8, 1997 (inception) to December
31, 1997 and the Three Months Ending March 31, 2000 and 1999
(unaudited)............................................................ F-4
Consolidated Statements of Stockholders' Equity for the years Ended
December 31, 1999 and 1998 and the period December 8, 1997 (inception)
to December 31, 1997 and the Three Months Ending March 31, 2000
(unaudited)............................................................ F-5
Consolidated Statements of Cash Flow for the Year ended December 31,
1999 and 1998 and the period December 8, 1997 (inception) to December
31, 1997 and the Three Months Ending March 31, 2000 (unaudited)........ F-6
Notes to Consolidated Financial Statements................................ F-7
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Pro Forma Consolidated Statement of Operations.......................... F-21
Notes to Pro Forma Consolidated Financial Statements.................... F-23
ACQUIRED COMPANY (SALES TECHNOLOGY LIMITED)
Independent Auditors' Report.............................................. F-25
Consolidated Balance Sheets as of October 31, 1998 and July 31, 1999
(unaudited)............................................................ F-26
Consolidated Profit and Loss Account for the Year Ended October 31, 1998
and for the Nine Months Ended July 31, 1998 and 1999 (unaudited)....... F-27
Consolidated Statement of Cash Flows for the Year Ended October 31, 1998
and for the Nine Months Ended July 31, 1998 and 1999 (unaudited)....... F-28
Notes to Consolidated Financial Statements................................ F-29
ACQUIRED COMPANY (SOFT LINK, INC.)
Independent Auditor's Report.............................................. F-37
Financial Statements:
Balance Sheets as of December 31, 1999 and 1998......................... F-38
Statements of Operations and Retained Earnings for the Years Ended
December 31, 1999 and 1998............................................. F-39
Statements of Cash Flows for the Years Ended December 31, 1999 and
1998................................................................... F-40
Notes to Financial Statements............................................. F-41
ACQUIRED COMPANY (reSOURCE PARTNER, INC.) AND SUBSIDIARY
Independent Auditors' Report.............................................. F-47
Consolidated Balance Sheet as of December 31, 1999...................... F-48
Consolidated Statement of Operations for the Year Ended December 31,
1999................................................................... F-49
Consolidated Statement of Cash Flows for the Year Ended December 31,
1999................................................................... F-50
Consolidated Statement of Shareholders' Deficit for the Year Ended
December 31, 1999...................................................... F-51
Notes to Financial Statements............................................. F-52
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Interliant, Inc.
We have audited the accompanying consolidated balance sheets of Interliant,
Inc. (the "Company") as of December 31, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the two years in the period ended December 31, 1999 and for the period
December 8, 1997 (inception) to December 31, 1997. Our audits also included the
financial statement schedule listed on page II-8. These financial statements
and schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Interliant,
Inc. at December 31, 1999 and 1998, and the consolidated results of its
operations and its cash flows for each of the two years in the period ended
December 31, 1999 and for the period December 8, 1997 (inception) to December
31, 1997, in conformity with accounting principles generally accepted in the
United States.
Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Boston, Massachusetts
January 31, 2000, except for Note 15, as to
which the date is March 2, 2000
F-2
<PAGE>
INTERLIANT, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------------------- March 31,
1998 1999 2000
----------- ------------ ------------
(unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents........... $ 6,813,360 $ 27,608,039 $ 77,872,009
Restricted cash..................... 1,011,772 1,156,780
Short-term investments.............. 3,612,229 100,406,660
Accounts receivable, net of
allowance of $320,000, $1,378,000,
and $1,407,000 at December 31,
1998, 1999 and March 31, 2000,
respectively....................... 806,322 13,981,358 21,490,102
Prepaid expenses and other current
assets............................. 639,662 3,469,763 7,153,610
Payroll and benefit funds held for
customers.......................... 7,925,805
----------- ------------ ------------
Total current assets.............. 8,259,344 49,683,161 216,004,966
----------- ------------ ------------
Furniture, fixtures and equipment,
net.................................. 5,103,123 18,199,010 28,371,207
Intangibles, net...................... 12,612,228 93,636,201 143,926,980
Other assets.......................... 222,172 1,356,696 7,333,517
----------- ------------ ------------
Total assets...................... $26,196,867 $162,875,068 $395,636,670
=========== ============ ============
Liabilities and stockholders' equity
Current liabilities:
Notes payable and current portion of
long-term debt and capital lease
obligations........................ $ 1,211,835 $ 1,281,234
Accounts payable.................... $ 787,412 8,359,040 7,100,834
Accrued expenses.................... 2,301,507 7,342,551 16,246,915
Deferred revenue.................... 1,414,969 5,883,549 7,523,269
Payroll and benefit funds held for
customers.......................... 7,925,805
----------- ------------ ------------
Total current liabilities......... 4,503,888 22,796,975 40,078,057
----------- ------------ ------------
Long-term debt and capital lease
obligations, less current portion.... 2,503,211 2,859,341
Convertible subordinated notes........ 164,825,000
Stockholders' equity:
Preferred stock, $.01 par value,
1,000,000 shares authorized, 0
shares issued and outstanding......
Common stock, $.01 par value;
200,000,000 and 100,000,000 shares
authorized; 19,217,197, 44, 601,141
and 47,435,200 shares issued and
outstanding at December 31, 1998,
1999 and March 31, 2000,
respectively....................... 192,172 446,011 474,352
Additional paid-in capital............ 34,160,334 201,922,128 280,875,674
Deferred compensation................. (1,769,429)
Accumulated deficit................... (10,890,098) (64,822,097) (93,403,062)
Accumulated other comprehensive
income............................... 28,840 (72,692)
----------- ------------ ------------
Total stockholders' equity........ 21,692,979 137,574,882 187,874,272
----------- ------------ ------------
Total liabilities and
stockholders' equity.............. $26,196,867 $162,875,068 $395,636,670
=========== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
INTERLIANT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period Three Months Ended March
December 8, 1997 Year Ended December 31, 31,
(inception) to -------------------------- -------------------------
December 31, 1997 1998 1999 1999 2000
----------------- ------------ ------------ ----------- ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Service............... $ 4,905,027 $ 47,114,095 $ 5,434,162 $ 21,440,686
Product............... 5,417,481
------------ ------------ ----------- ------------
Total Revenue......... 4,905,027 47,114,095 5,434,162 26,858,167
------------ ------------ ----------- ------------
Costs and expenses:
Cost of service
revenues............. 3,236,385 27,513,710 3,250,703 13,926,954
Cost of product
revenue.............. 4,606,662
Sales and marketing... 2,555,035 17,236,121 1,896,357 7,999,118
General and
administrative
(exclusive of non-
cash compensation
shown below)......... $ 155,898 6,015,744 27,075,902 4,237,191 11,339,031
Non-cash
compensation......... 832,821 1,986,694 567,562 4,453,187
Depreciation.......... 1,850 696,039 6,051,296 699,552 2,466,533
Amortization of
intangibles.......... 2,439,426 22,068,815 2,594,330 9,316,043
---------- ------------ ------------ ----------- ------------
157,748 15,775,450 101,932,538 13,245,695 54,107,528
---------- ------------ ------------ ----------- ------------
Operating loss.......... (157,748) (10,870,423) (54,818,443) (7,811,533) (27,249,361)
Interest income
(expense) net of
$468,408 of interest
expense in 1999 and
$1,686,927 in 2000..... 138,073 886,444 53,912 (111,892)
---------- ------------ ------------ ----------- ------------
Loss before cumulative
effect of change in
accounting method...... (157,748) (10,732,350) (53,931,999) (7,757,621) (27,361,253)
Cumulative effect of
change in accounting
method................. (1,219,712)
---------- ------------ ------------ ----------- ------------
Net loss................ $ (157,748) $(10,732,350) $(53,931,999) $(7,757,621) $(28,580,965)
========== ============ ============ =========== ============
Basic and diluted loss
per share:
Loss before cumulative
effect of change in
accounting method...... $ (0.05) $ (1.22) $ (1.50) $ (0.31) $ (0.59)
Cumulative effect of
change in accounting
method................. (0.03)
---------- ------------ ------------ ----------- ------------
Net loss................ $ (0.05) $ (1.22) $ (1.50) $ (0.31) $ (0.62)
========== ============ ============ =========== ============
Weighted average shares
outstanding--basic and
diluted................ 3,000,000 8,799,432 35,837,523 24,769,890 45,989,468
========== ============ ============ =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
INTERLIANT, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Other Total
Comprehensive -------------------- Paid-in Deferred Accumulated Comprehensive Stockholders'
Income (Loss) Shares Par Value Capital Compensation Deficit Income Equity
------------- ---------- --------- ------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales of common
stock in private
placements...... 3,000,000 $ 30,000 $ 4,970,000 $ 5,000,000
Net loss......... $ (157,748) $ (157,748) (157,748)
------------ ---------- -------- ------------ ---------- ------------ -------- ------------
Total
comprehensive
income (loss)... $ (157,748)
============
Balance as of
December 31,
1997............ 3,000,000 30,000 4,970,000 (157,748) 4,842,252
Sales of common
stock in private
placements...... 15,600,000 156,000 25,884,000 26,040,000
Deferred
compensation.... 475,000 4,750 2,600,750 (2,602,250) 3,250
Amortization of
deferred
compensation.... 832,821 832,821
Issuance of
common stock in
connection with
acquisitions.... 142,197 1,422 705,584 707,006
Net loss......... (10,732,350) (10,732,350) (10,732,350)
------------ ---------- -------- ------------ ---------- ------------ -------- ------------
Total
comprehensive
income (loss)... $(10,732,350)
============
Balance as of
December 31,
1998............ 19,217,197 192,172 34,160,334 (1,769,429) (10,890,098) 21,692,979
Sales of common
stock in private
placements...... 6,600,000 66,000 10,934,000 11,000,000
Exercise of stock
options and
warrants........ 1,524,491 15,244 5,671,875 5,687,119
Common stock
issued and stock
options granted
in connection
with
acquisitions.... 6,561,795 65,618 65,735,891 65,801,509
Conversion of
preferred
stock........... 2,647,658 26,477 12,973,524 13,000,001
Initial public
offering of
common stock,
net of offering
costs........... 8,050,000 80,500 72,446,504 72,527,004
Amortization of
deferred
compensation.... 1,769,429 1,769,429
Foreign currency
translation
adjustment...... 28,840 28,840 28,840
Net loss......... (53,931,999) (53,931,999) (53,931,999)
------------ ---------- -------- ------------ ---------- ------------ -------- ------------
Total
comprehensive
income (loss)... $(53,903,159)
============
Balance as of
December 31,
1999............ 44,601,141 446,011 201,922,128 (64,822,097) 28,840 137,574,882
Sales of common
stock in private
placements...... 787,881 7,879 25,967,383 25,975,262
Exercise of stock
options and
warrants........ 750,120 7,501 851,003 858,504
Common stock
issued in
connection with
acquisitions.... 1,296,058 12,961 47,681,973 47,694,934
Amortization of
deferred
compensation.... 4,453,187 4,453,187
Foreign currency
translation
adjustment...... (101,532) (101,532) (101,532)
Net loss......... $(28,580,965) (28,580,965) (28,580,965)
------------ ---------- -------- ------------ ---------- ------------ -------- ------------
Total
comprehensive
income (loss)... $(28,628,497)
============
Balance as of
March 31, 2000
(unaudited)..... 47,435,200 $474,352 $280,875,674 $(93,403,062) $(72,692) $187,874,272
========== ======== ============ ========== ============ ======== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
INTERLIANT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period Three Months
December 8, 1997 Year Ended Ended
(inception) to December 31, March 31,
December 31, -------------------------- ------------
1997 1998 1999 2000
---------------- ------------ ------------ ------------
(unaudited)
<S> <C> <C> <C> <C>
Operating activities
Net loss............... $ (157,748) $(10,732,350) $(53,931,999) $(28,580,965)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Provision for
uncollectible
accounts............ 320,000 1,585,254 309,453
Depreciation and
amortization........ 1,850 3,135,465 28,120,111 11,782,576
Non-cash
compensation,
including
amortization of
deferred
compensation........ 832,821 1,986,694 4,453,187
Cumulative effect of
accounting change... 1,219,712
Other non-cash
items............... 129,957 (101,532)
Changes in operating
assets and
liabilities:
Restricted cash...... (1,011,772) (145,008)
Accounts receivable.. (980,391) (4,947,423) 394,778
Prepaid expenses and
other current
assets.............. (14,000) (602,457) (1,873,117) (2,238,759)
Other assets......... (90,527) (435,822)
Accounts payable..... 84,389 639,607 3,478,876 (6,431,196)
Accrued expenses..... 26,507 1,140,135 1,111,999 6,248,741
Deferred revenue..... 246,502 1,289,453 (190,247)
----------- ------------ ------------ ------------
Net cash used in
operating
activities............ (59,002) (6,000,668) (24,152,494) (13,715,082)
----------- ------------ ------------ ------------
Investing activities
Purchases of
furniture, fixtures
and equipment......... (28,913) (4,321,577) (12,084,072) (6,464,743)
Payments issued in
connection with non-
compete agreements.... (2,000,000)
Investments in long-
term assets........... (952,969)
Purchases of short-
term investments...... (3,612,229) (96,794,431)
Acquisitions of
businesses, net of
cash acquired......... (13,597,558) (27,809,253) (18,869,248)
----------- ------------ ------------ ------------
Net cash used in
investing
activities............ (28,913) (17,919,135) (46,458,523) (122,128,422)
----------- ------------ ------------ ------------
Financing activities
Proceeds from sale of
common stock, net of
offering costs of
$0.2 million, $7.9
million and $1.5
million in 1998, 1999
and 2000,
respectively.......... 1,000,000 29,821,078 83,527,004 25,975,262
Proceeds from sale of
convertible notes net
of offering costs of
$6.0 million.......... 158,848,179
Proceeds from issuance
of Series A
redeemable
convertible preferred
stock................. 13,000,001
Proceeds from exercise
of options and
warrants.............. 5,469,854 858,504
Proceeds from capital
lease financing....... 2,550,303 936,544
Repayment of debt...... (13,141,466) (511,015)
----------- ------------ ------------ ------------
Net cash provided by
financing
activities............ 1,000,000 29,821,078 91,405,696 186,107,474
----------- ------------ ------------ ------------
Net increase in cash
and cash
equivalents........... 912,085 5,901,275 20,794,679 50,263,970
Cash and cash
equivalents at
beginning of period... 912,085 6,813,360 27,608,039
----------- ------------ ------------ ------------
Cash and cash
equivalents at end of
period................ $ 912,085 $ 6,813,360 $ 27,608,039 $ 77,872,009
=========== ============ ============ ============
Supplemental Disclosures
of Non-cash Investing
and Financing Activities
Cash paid for
interest.............. $ 468,408 $ 81,208
Stock issued and
options granted for
acquisitions.......... $ 707,006 $ 65,801,509 $ 47,694,934
Stock issued for
compensation
agreements............ $ 2,602,250
Conversion of Series A
redeemable
convertible preferred
stock into common
stock................. $ 13,000,001
Debt assumed or issued
in acquisitions....... $ 22,250,186
Stock subscription
receivable............ $ 4,000,000
</TABLE>
F-6
<PAGE>
INTERLIANT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the period from December 8, 1997 to December 31, 1997
and the years ended December 31, 1998 and 1999
and for the three months ended March 31, 1999 and 2000 (unaudited)
1. Business
Interliant, Inc. (the Company) is a leading Application Service Provider
(ASP), providing customers with a broad range of outsourced e-business
solutions. The Company's service offerings combine hosting infrastructure with
Internet professional service expertise, which enable the rapid design,
implementation, deployment and management of cost-effective e-business
solutions for customers.
The Company was organized under the laws of the State of Delaware on
December 8, 1997. Web Hosting Organization LLC (WEB), a Delaware Limited
Liability Company, is the majority and controlling shareholder of the Company.
WEB's investors comprise Charterhouse Equity Partners III, L.P. and Chef
Nominees Limited (collectively, CEP Members), and WHO Management, LLC (WHO).
2. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity (at date of purchase) of three months or less to be the
equivalent of cash. Cash equivalents, which consist primarily of money market
accounts and commercial paper, are carried at cost, which approximates market
value.
Short-term Investments
Short-term investments, which consist of commercial paper with maturities
ranging from three months to one year, are carried at cost, which approximates
market value.
Fair Value of Financial Instruments
Carrying amounts of financial instruments held by the Company, which include
cash equivalents, short-term investments, accounts receivable, accounts payable
and accrued expenses, approximate fair value due to their short duration.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations
of credit risk are comprised principally of cash, cash equivalents, short-term
investments and accounts receivable. As of December 31, 1999, the Company's
cash, cash equivalents and short-term investments are deposited with various
domestic and foreign financial institutions. With respect to accounts
receivable, the Company's customer base is dispersed across many geographic
areas. The Company monitors customer payment history, generally does not
require collateral and establishes reserves for uncollectible accounts as
warranted. In addition to individual customers, the Company also provides
services to resellers, who, in turn, provide services to their own customers.
F-7
<PAGE>
INTERLIANT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent liabilities, at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Furniture, Fixtures and Equipment
Furniture, fixtures and equipment are stated at cost. Major additions and
betterments are capitalized, while replacements maintenance and repairs that do
not improve or extend the life of the assets are charged to expense.
Depreciation and amortization has been provided using the straight-line method
over the estimated useful lives of the assets as follows:
<TABLE>
<C> <S>
Network software and equipment............ 3 years
Furniture, fixtures and office equipment.. 3 to 7 years
Leasehold improvements.................... Remaining lease term or useful
life, whichever is shorter
</TABLE>
Intangible Assets
Intangible assets consist primarily of customer lists, covenants not to
compete, assembled workforce, trade names and goodwill, all of which arose from
the acquisitions of 21 hosting and related Internet professional services
companies. Such assets are being amortized on a straight-line basis over
periods ranging from one to five years (see Note 4).
Impairment of Long-Lived Assets
The Company continually reviews amortization periods and the carrying value
of long-lived assets, including furniture, fixtures and equipment, and
intangible assets to determine whether there are any indications of reduction
in useful lives or impairment losses. With respect to intangible assets,
certain events that would cause the Company to conduct an impairment assessment
include significant losses of customers or acquired workforce, or if operating
results of acquired businesses continually failed to meet management's
performance expectations. If after conducting such assessment indications of
impairment are present in long-lived assets, the estimated future undiscounted
cash flows associated with the corresponding assets would be compared to its
carrying amount to determine if a change in useful life or a write-down to fair
value is necessary.
Revenue Recognition
The Company's revenues primarily are derived from Web hosting, application
hosting, and Internet professional services.
The Company sells its Web hosting services for contractual periods ranging
from one to twelve months. These contracts generally are cancelable by either
party without penalty. Revenues from these contracts are recognized ratably
over the contractual period as service is delivered. Incremental fees for
excess bandwidth usage and data storage are billed and recognized as revenues
in the period customers utilize such services. Payments received for billings
in advance of providing services are deferred until the period such services
are provided.
F-8
<PAGE>
INTERLIANT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Non-refundable set-up fees charged to Web hosting customers are separately
priced from hosting services and are recognized at the time a new customer
account is created. Set-up costs consist primarily of labor by technical
support personnel to activate the new Web site and are incurred at the time of
set-up. No future set-up costs are incurred, and there is no obligation of the
Company to perform any future set-up services. Following expiration of the
initial contract period and upon renewal of the contract by the customer, there
are no additional set-up charges and the renewal prices for Web hosting
services are generally unchanged from the original contract period.
Application hosting revenues comprise monthly usage fees, including
communications charges, and customization fees, all of which are recorded as
revenue at the time the services are used by the customer.
The Staff of the Securities and Exchange Commission has issued Staff
Accounting Bulletin No. 101 on the topic of revenue recognition, which the
Company adopted effective with the quarter beginning January 1, 2000. During
the first quarter of 2000, the Company changed its accounting method for set-up
fees and is amortizing such fees over one year which generally represents the
longer of the contractual period or expected life of the customer relationship.
In the first quarter of 2000, the Company recorded a cumulative effect charge
of $1.2 million to reflect the change in accounting method. The effect of
adopting the change was not material to the results of operations for the
quarter ended March 31, 2000. The estimated pro forma effect of this change was
not material to the results of operations for any of the periods presented.
Revenues from Internet professional services are recognized as the services
are rendered, provided that no significant obligations remain and collection of
the receivable is considered probable. Generally, contracts call for billings
on a time and materials basis; however, in instances when a fixed fee contract
is signed, revenue is recognized on a percentage-of-completion basis. In
connection with certain professional service arrangements, the Company provides
hardware and software to customers. Such products are purchased from third
party vendors as required. Revenue from the sale of products is generally
recorded over the period that the related professional services are performed.
Product revenues and cost of revenues were $3.4 million and $2.7 million for
the twelve months ended December 31, 1999, respectively.
Advertising Expenses
All advertising costs are expensed as incurred. Advertising expenses for the
year ended December 31, 1999 and 1998 were $6.0 million and $0.7 million,
respectively.
Income Taxes
The Company accounts for income taxes using the liability method under which
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
Net Loss Per Share
Net loss per share is presented in accordance with the provisions of
Statement of Financial Accounting Standards No. 128, Earnings Per Share. Basic
net loss per share is computed based on the weighted average number of shares
of common stock outstanding. Diluted loss per share does not differ from basic
loss per share since potential common shares to be issued upon exercise of
stock options are anti-dilutive for the periods presented. As of December 31,
1999, the number of potentially dilutive shares of common stock were 2.5
million shares, based on the number outstanding stock options as of that date.
F-9
<PAGE>
INTERLIANT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Stock-Based Compensation
The Company accounts for its stock-based compensation plan utilizing the
provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees (APB 25). The Company has adopted the disclosure provisions
only of Statement of Financial Accounting Standards No. 123, Accounting For
Stock-Based Compensation (SFAS 123).
Foreign Currency Translation
The financial statements of foreign subsidiaries have been translated into
U.S. dollars in accordance with FASB Statement No. 52, Foreign Currency
Translation. The functional currency of the Company's foreign operating units
is the local currency in the country that the entity operates. All balance
sheet accounts have been translated using the exchange rate in effect at the
balance sheet date. Statement of operations amounts have been translated using
the average exchange rate for the period. Adjustments resulting from such
translation have been reported separately as a component of other comprehensive
income in stockholders' equity.
Interim Financial Information
The interim financial information as of March 31, 2000 and for the three
months ended March 31, 2000 and 1999 is unaudited and has been prepared on the
same basis as the audited consolidated financial statements. In the opinion of
management, such unaudited information includes all adjustments (consisting
only of normal recurring adjustments) necessary for a fair presentation of the
interim information.
Reclassifications
Certain 1998 amounts have been reclassified to conform to the 1999
presentation.
3. Furniture, Fixtures and Equipment
Furniture, fixtures and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
----------------------
1998 1999
---------- -----------
<S> <C> <C>
Network software and equipment.................... $5,213,879 $18,693,426
Furniture, fixtures and office equipment.......... 303,742 2,081,599
Leasehold improvements............................ 283,391 3,800,282
---------- -----------
5,801,012 24,575,307
Less accumulated depreciation and amortization.. 697,889 6,376,297
---------- -----------
$5,103,123 $18,199,010
========== ===========
</TABLE>
Assets financed under capital leases were $0 million and $3.9 in 1998 and
1999, respectively. Depreciation expense, including amortization of leasehold
improvements, amounted to $1,850, $0.7 million and $6.1 million for the years
ended 1997, 1998 and 1999, respectively.
4. Intangible Assets
The Company has allocated the purchase price of acquired companies to
identifiable tangible assets and liabilities and intangible assets based on the
nature and the terms of the various purchase agreements and evaluation of the
acquired businesses. Covenants not to compete are amortized over periods not to
exceed the term of the respective agreement. Values are assigned to covenants
not to compete in accordance with Accounting Principles Board Opinion No. 16
(APB 16), using the Company's estimate of fair value of the covenant. Amounts
not allocated to tangible assets and liabilities and identifiable intangible
assets have been recorded as goodwill.
F-10
<PAGE>
INTERLIANT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Intangible assets consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------------ Amortization
1998 1999 Period
------------ ----------- ------------
<S> <C> <C> <C>
Covenants not to compete........... $ 3,759,202 $19,275,302 1-5 Years
Customer lists..................... 3,295,369 22,605,369 3 Years
Assembled work force............... 1,127,031 6,877,031 3 Years
Trade names........................ 573,982 6,773,983 3 Years
Goodwill........................... 6,296,070 62,610,535 5 Years
------------ -----------
15,051,654 118,142,220
Less accumulated amortization...... 2,439,426 24,506,019
------------ -----------
$ 12,612,228 $93,636,201
============ ===========
</TABLE>
Amortization expense amounted to $2.4 million and $22.1 million in 1998 and
1999, respectively.
5. Acquisitions
During 1999 and 1998, the Company acquired 21 businesses at an aggregate
cost of $118.6 million, excluding assumed liabilities. Each of the acquisitions
have been accounted for using the purchase method of accounting. The operations
of each of the acquired companies are included in the operating results of the
Company from their respective dates of acquisition.
The following is a summary of acquisitions:
1999 Acquisitions
In February 1999, the Company purchased the assets of Digiweb, Inc., a Web
hosting company. The purchase price consisted of cash of $5.0 million and
450,000 shares of the Company's common stock (Common Stock) valued at $6.67.
The agreement provides for contingent purchase consideration of $1.0 million,
which has been accrued and recorded as additional purchase price (goodwill) as
of December 31, 1999, due to the attainment of specified revenue and earnings
targets.
In February 1999, the Company purchased certain assets of Telephonetics
International, Inc., a provider of customized music and messages on hold
recording services to businesses utilizing on-hold telephone equipment. The
purchase price consisted of cash of $3.0 million and 140,000 shares of Common
Stock valued at $6.67 per share.
In February 1999, the Company purchased all of the outstanding stock of Net
Daemons Associates, Inc. (NDA), a provider of Web development and
Internetworking services. The purchase price consisted of cash of $0.5 million
and 425,000 shares of Common Stock valued at $6.67 per share. In addition, the
Company paid certain officers of NDA $2.4 million to induce them to enter into
non-compete agreements and paid approximately $0.4 million to cancel certain
NDA stock options. The agreement also provides for contingent purchase
consideration of $0.5 million in cash and 74,963 shares of Common Stock if
specified gross revenue and gross margin targets are achieved in the twelve-
month period following the acquisition. As of December 31, 1999, the Company
paid $0.3 million in cash and issued 37,481 shares of Common Stock, valued at
$10.91 per share, in connection with the attainment of specified targets. The
payment of contingent consideration has been recorded as additional purchase
price. The shares of stock and cash to be paid for the remaining contingent
purchase consideration have been deposited with an escrow agent.
F-11
<PAGE>
INTERLIANT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In March 1999, the Company purchased substantially all of the assets and
assumed specified liabilities of Interliant, Inc., a Texas corporation,
(hereinafter "Interliant Texas"), a provider of groupware hosting and
application outsourcing services. The purchase price consisted of $0.1 million
in cash and 4,091,642 shares of Common Stock valued at $6.67 per share, and
options to purchase up to 1,523,461 shares of Common Stock at $0.13 per share.
The difference between the fair value of the vested options at the date of
grant ($6.67 per share) and the exercise price has been included in the
purchase price allocation. In addition, at closing the Company paid $7.9
million on an outstanding note payable of Interliant Texas, and assumed a note
payable in the amount of $8.0 million, which was paid in full in July 1999 from
a portion of the proceeds from the Company's initial public offering of Common
Stock (IPO) (See Note 9).
In May 1999, the Company purchased certain assets and assumed specified
liabilities of Advanced Web Creations, Inc., a Web hosting company. The
purchase price consisted of cash of approximately $0.3 million, 225,000 shares
of Common Stock valued at $8.50 per share, and a promissory note in the amount
of $2.4 million, which was paid in full in July 1999 from a portion of the
proceeds from the Company's IPO (See Note 9). The agreement also provides for
contingent purchase consideration of $0.4 million, which has been accrued and
recorded as additional purchase price (goodwill) as of December 31, 1999, due
to the attainment of specified revenue targets.
In August 1999, the Company purchased substantially all of the assets of The
Daily-e Corporation, a provider of business process re-engineering and Web
development services. The purchase price consisted of 70,000 shares of the
Common Stock, valued at $11.13 per share. The agreement also provides for
contingent purchase consideration of up to $3.9 million, payable in cash,
Common Stock, or any combination thereof at the Company's option, if specified
net revenue and earnings targets are achieved for the twelve-month period
ending July 31, 2000. The payment of contingent consideration, if any, will be
recorded as additional purchase price. In 1999, contingent consideration of
$0.4 million was earned and paid in the form of Common Stock (38,952 shares).
In September 1999, the Company, through its wholly-owned subsidiary,
Interliant International, Inc., a Delaware corporation, acquired all of the
outstanding stock of Sales Technology Limited, a United Kingdom-based
professional services firm that provides Customer Relationship Management (CRM)
implementation solutions and groupware application services. The total
consideration consisted of cash of $0.4 million, 235,410 shares of Common Stock
valued at $11.23 per share, and assumed debt of $0.3 million. In addition,
contingent consideration of up to $3.6 million is payable in Common Stock, the
issuance of unsecured notes, or any combination thereof at the Company's
option, to certain sellers if specified revenue and earnings targets are
achieved during specified periods. The payment of contingent consideration, if
any, will be recorded as additional purchase price.
In November, 1999, the Company purchased all of the outstanding stock of
Triumph Technologies, Inc. and Triumph Development, Inc., an affiliated company
(collectively, "Triumph"), a provider of comprehensive Internet professional
services and e-business security solutions. The purchase price consisted of
cash of $3.2 million, 650,995 shares of Common Stock valued at $15.94 per
share, assumption of $2.0 million of bank debt which was paid shortly after
closing, and options to purchase 90,824 shares of Common Stock at $1.63 per
share. The difference between the fair value of the options at the date of
grant ($15.94 per share) and the exercise price has been included in the
purchase price allocation. The agreement also provides for contingent
consideration of up to $3.0 million in cash or shares of Common Stock, or any
combination thereof, if certain revenues and earnings targets are met for the
twelve month period from December 1, 1999 to November 30, 2000. The payment of
contingent consideration, if any, will be recorded as additional purchase
price.
In December, 1999, the Company purchased all of the outstanding stock of The
Jacobson Group, Inc., an Internet professional services firm specializing in
custom application development primarily using the Lotus
F-12
<PAGE>
INTERLIANT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Notes/Domino platform. The purchase price consisted of cash of $4.1 million and
159,832 shares of Common Stock valued at $24.50 per share. The agreement also
provides for contingent consideration up to $4.8 million if certain revenue and
earnings targets are met in the years ending December 31, 2000 and 2001. The
payment of contingent consideration, if any, will be recorded as additional
purchase price.
1998 Acquisitions
In February 1998, the Company purchased certain Web hosting assets of
Omnetrix, Inc., dba DirectNet, a Web hosting provider, for cash of
approximately $0.1 million.
In April 1998, the Company purchased the operating assets of Clever
Computers, Inc., a Web hosting company, for cash of approximately $2.5 million.
Pursuant to a three-year employment agreement, a shareholder of Clever received
150,000 shares of the Company's Common Stock, valued at $3.32 per share, which
vests and is being accounted for as compensation expense over the term of the
employment agreement.
In April 1998, the Company purchased certain Web hosting assets from
KnowledgeLink Interactive, Inc. for cash of approximately $0.6 million.
In May 1998, the Company purchased the operating assets of Tri Star Web
Creations, Inc., a Web hosting company, for cash of approximately $1.0 million
and 9,000 shares of Common Stock valued at $4.07 per share.
In June 1998, the Company purchased certain Web hosting assets of
HostAmerica, the Web hosting division of HomeCom Communications, Inc., for cash
of approximately $4.3 million.
In June 1998, the Company purchased the operating assets of All Information
Systems, Inc., a Web hosting company, for cash of approximately $0.2 million
and 115,707 shares of Common Stock valued at $5.00 per share.
In July 1998, the Company purchased certain Web hosting assets of Software
Business Technologies, Inc. for 12,000 shares of Common Stock valued at $5.00
per share.
In July 1998, the Company purchased certain Web hosting assets of DevCom,
the Web hosting division of Nextron, Inc., for cash of approximately $0.6
million.
In July 1998, the Company purchased certain Web hosting assets of BestWare,
Inc., dba Maikon, for cash of approximately $0.4 million and 5,490 shares of
Common Stock valued at $5.38 per share.
In August 1998, the Company purchased all of the outstanding stock of B.N.
Technology, Inc., dba ICOM, a Web hosting company, for cash of approximately
$2.0 million. The purchase agreement also provides for additional payments of
cash of up to $2.0 million to the shareholders of ICOM if certain earnings
targets are achieved. As of December 31, 1999, all of the earnings targets had
been achieved and $2.0 million has been paid. Pursuant to one-year employment
agreements, two shareholders of ICOM received a total of 300,000 shares of
Common Stock valued at $6.47 per share, which are vested as of December 31,
1999 and have been accounted for as compensation expense over the terms of the
agreements.
In September 1998, the Company purchased certain Web hosting assets of GEN
International, Inc. (GEN) for cash of $0.5 million and substantially all the
assets of Global Entrepreneurs Network, Inc. (a wholly-owned subsidiary of GEN)
for $0.3 million. Pursuant to a consulting agreement with a shareholder of GEN,
the Company issued 25,000 shares of Common Stock valued at $6.66 per share,
which is fully vested as of December 31, 1999 and has been accounted for as
compensation expense over the term of the consulting agreement.
F-13
<PAGE>
INTERLIANT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In December 1998, the Company purchased certain Web hosting assets of
Dialtone, Inc. a Web hosting company for cash of $0.4 million.
The allocation of purchase price for the acquisitions completed in 1999 as
reflected in the December 31, 1999 consolidated balance sheet is preliminary
based on the Company's initial assessment of the fair value of assets acquired.
The allocations may be modified between components of intangible assets as the
Company finalizes the purchase accounting for such acquisitions.
The following unaudited condensed pro forma information presents the
unaudited results of operations of the Company as if the acquisitions completed
through December 31, 1999 had occurred on January 1, 1998:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1998 1999
------------ ------------
<S> <C> <C>
Revenues...................................... $ 69,927,000 $ 80,074,000
Net loss...................................... (46,858,000) (65,630,000)
Net loss per share--basic and diluted......... $(2.73) $(1.74)
</TABLE>
6. Accrued Expenses
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
December 31,
---------------------
1998 1999
---------- ----------
<S> <C> <C>
Compensation and related costs...................... $ 226,641 $2,109,398
Communications costs................................ 121,000 376,343
Marketing and advertising........................... 758,101
Amounts due to former owners under contingent
consideration arrangements (see Note 5)............ 1,000,000 1,400,000
Other............................................... 953,866 2,698,709
---------- ----------
$2,301,507 $7,342,551
========== ==========
</TABLE>
7. Long-Term Debt and Capital Lease Obligations
At December 31, 1999 long-term debt consisted of the following:
<TABLE>
<S> <C>
Obligations related to the sale/leaseback of data center equipment,
approximate interest rate of 15%, payable in monthly installments
over 36 months.................................................... 2,350,102
Notes payable to former owners of acquired companies............... 1,031,684
Capital lease obligations and other debt........................... 333,260
----------
3,715,046
Less amounts included in current liabilities....................... 1,211,835
----------
$2,503,211
==========
</TABLE>
Maturities of long-term debt are as follows:
<TABLE>
<S> <C>
2000.............................. $1,211,835
2001.............................. 1,268,707
2002.............................. 976,499
2003.............................. 196,778
2004.............................. 61,227
----------
$3,715,046
==========
</TABLE>
F-14
<PAGE>
INTERLIANT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. Series A Redeemable Convertible Preferred Stock
In January 1999, the Company's Board of Directors and stockholders approved
an amendment to the Company's certificate of incorporation (Charter) to
authorize the issuance and sale of 2,647,658 shares of Preferred Stock, par
value $0.01 per share, all of which was designated as Series A Redeemable
Convertible Preferred Stock (Series A Preferred). In January 1999, pursuant to
a Securities Purchase Agreement (the Purchase Agreement), the Company sold to
SOFTBANK Technology Ventures IV L.P. and one of its affiliates (the SOFTBANK
Investors), 2,647,658 shares of its Series A Preferred at a price of $4.91 per
Series A Preferred share and issued warrants to purchase 749,625 shares of
Common Stock at $6.67 per share, for cash of $13.0 million. The warrants were
exercised in April 1999 for total proceeds of $5.0 million.
9. Stockholders' Equity
Preferred Stock
In May 1999, the Company's stockholders approved an amendment to the
Company's Charter to authorize the issuance of 1,000,000 shares of undesignated
preferred stock with a par value of $0.01 per share.
Common Stock
In May 1999, the Company's stockholders approved an amendment to the
Company's Charter to increase the number of authorized shares of Common Stock
to 200,000,000.
Pursuant to a Stock Subscription Agreement dated December 8, 1997 between
the Company and WEB, WEB purchased 6,600,000 shares of Common Stock during
1999, and 18,600,000 shares during the period December 8, 1997 (inception) to
December 31, 1998, all at $1.67 per share.
In July 1999, the Company sold 8,050,000 shares of Common Stock, including
shares sold through the exercise of the underwriters' over-allotment option, in
an underwritten IPO for net proceeds of approximately $72.5 million, after
deducting underwriters' discounts and commissions and offering costs paid
directly by the Company. Upon the consummation of the IPO, all of the 2,647,658
outstanding shares of Series A Preferred were converted into an equal number of
share of Common Stock (See Note 8).
During 1999, 6,561,795 shares of Common Stock were issued in connection with
acquisitions (See Note 5).
Stock Option Plan
In February 1998, the Company adopted its 1998 Stock Option Plan (the Plan),
which is administered by the Board of Directors (the Committee). Under the
terms of the Plan, the Committee may grant stock options to officers, employees
and consultants of the Company. The Plan permits the grant of incentive stock
options (ISOs) and nonqualified stock options (NSOs). In December 1999, the
Board of Directors amended the Plan to include directors of the Company among
the class of persons eligible to receive grants. As of December 31, 1999, the
Company has reserved 3.8 million shares of Common Stock for issuance under the
Plan. The Plan provides that stock options may not be granted at less than fair
market value of the Common Stock on the date of the grant and may not expire
more than ten years from the date of the grant. Options granted under the Plan
generally will become exercisable over a four-year period in equal annual
installments unless the Committee specifies a different vesting schedule. In
the event of a change in control of the Company, each option becomes
immediately vested and exercisable, provided that no written provision has been
made, in connection with any such event, for (1) the continuation of the stock
option plan and/or the assumption of all outstanding options by a successor
corporation or (2) the substitution for such options of new options covering
the stock of a successor
F-15
<PAGE>
INTERLIANT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
corporation. The Plan has a term of ten years, subject to earlier termination
or amendment by the Committee, and all options under the Plan prior to its
termination remain outstanding until they have been exercised or terminated.
The following table sets forth the Plan activity for the years ended
December 31, 1998 and 1999:
<TABLE>
<CAPTION>
1998 1999
------------------- -----------------------
Number
of Number of
Shares Price Range Shares Range Price
------- ----------- --------- ------------
<S> <C> <C> <C> <C>
Options outstanding, beginning
of year...................... 440,500 $1.67-$ 6.67
Options granted............... 440,500 $1.67-$6.67 2,998,815 $0.13-$29.50
Options exercised............. (768,867) $0.13-$ 6.67
Options terminated............ (135,850) $1.67-$14.00
------- ---------
Options outstanding, end of
year......................... 440,500 $1.67-$6.67 2,534,598 $0.13-$29.50
======= =========
</TABLE>
The weighted average exercise price of options granted was $5.61 and $4.11
in 1999 and 1998, respectively. In connection with certain acquisitions, the
Company granted options to purchase 1,523,461 shares of Common Stock at $0.13
per share in substitution for Interliant Texas vested options, and options to
purchase 90,824 shares of Common Stock at prices ranging from $1.63 to $3.79
per share in substitution for Triumph vested options. At December 31, 1999 and
1998, 1,030,385 and 0 options, respectively were vested.
Stock-Based Compensation
As discussed in Note 2, the Company applies APB 25 and related
interpretations in accounting for its stock option plan. During 1999, options
to purchase 40,250 shares of Common Stock were given accelerated vesting in
connection with termination arrangements, and as a result, the Company charged
approximately $0.3 million to compensation expense. During 1998, no
compensation expense was recognized relating to option grants in 1998.
As required under FAS 123, the following pro forma net loss and net loss per
share presentations reflect the amortization of the option grant fair value as
expense. For purposes of this disclosure, the estimated fair value of the
options is amortized to expense over the options' vesting periods. The
Company's pro forma information follows for the years ended December 31, 1999
and 1998:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1998 1999
----------- ------------
<S> <C> <C>
Pro forma net loss........................... $(9,756,000) $(54,574,000)
Pro forma net loss per share--basic and
diluted..................................... $(1.11) $(1.52)
</TABLE>
The weighted average grant date value was $10.90 and $0.83 for stock options
issued in 1999 and 1998, respectively, and the weighted-average remaining
contractual life for options outstanding as of December 31, 1999 is 9.2 years.
Significant assumptions used in determining this value include a risk free
interest rate of 6.0%, expected life of the options of four years, and a
dividend rate of zero.
The effects on pro forma disclosures of applying SFAS 123 are not likely to
be representative of the effects on pro forma disclosures in future years as
the period presented includes only two years of option grants under the Plan.
F-16
<PAGE>
INTERLIANT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10. Income Taxes
As of December 31, 1999, the Company has federal and state net operating
loss carryforwards of approximately $40.8 million. The net operating loss
carryforwards will expire at various dates beginning in the years 2003 through
2019 if not utilized.
Significant components of the Company's deferred tax assets and liabilities
for federal and state income taxes consist of the following at December 31,
1999:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1998 1999
----------- ------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards........... $ 3,063,000 $ 16,270,000
Depreciation............................... (14,000) 49,000
Other, net (principally related to
amortization of intangible assets)........ 813,000 8,000,000
----------- ------------
Total deferred tax assets, net............... 3,862,000 24,319,000
Valuation allowance.......................... (3,862,000) (24,319,000)
----------- ------------
Net deferred tax asset....................... $ -- $ --
=========== ============
</TABLE>
The Company believes that, based on a number of factors, the available
objective evidence creates sufficient uncertainty regarding the realization of
the deferred tax assets such that a full valuation allowance has been recorded.
The Company will continue to assess the realization of the deferred tax assets
based on actual and forecasted operating results. The valuation allowance
increased by $20.5 million from 1998 to 1999.
11. Leases
The Company leases its data centers and certain office space under
noncancelable operating leases, which expire at various dates through April
2010. Some of the leases contain renewal options. Total rent expense for all
operating leases was approximately $3.4 million, $0.4 million and $7,000 for
the years ended December 31, 1999, 1998 and 1997, respectively. In connection
with certain of the leases, the Company has given the landlords standby letters
of credit in the amount of approximately $0.8 million in lieu of security
deposits.
Future minimum lease commitments for noncancelable operating leases are as
follows at December 31, 1999:
<TABLE>
<S> <C>
2000............................. $ 3,932,000
2001............................. 3,768,000
2002............................. 3,275,000
2003............................. 2,883,000
2004............................. 2,731,000
Thereafter....................... 8,242,000
-----------
$24,831,000
===========
</TABLE>
12. Related-Party Transactions
In connection with the acquisitions of certain Web hosting assets of various
entities (see Note 5), the Company paid transaction fees of approximately
$361,000 and $337,000 for the years ended December 31, 1999 and 1998,
respectively, to Charterhouse Group International, Inc., a related party of
WEB. These fees are included in the respective purchase price allocations as
capitalized transaction costs.
F-17
<PAGE>
INTERLIANT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company received consulting services from Sage Equities, Inc. and
Intensity Ventures, Inc., whose principals are the co-chairmen of the Company
and members of WHO, for the purpose of identifying and executing potential
acquisitions as well as providing strategic management oversight. In 1999, the
principal of Sage Equities, Inc. was compensated as an employee of the Company.
For the year ended December 31, 1998, and for the period December 8, 1997
(inception) to December 31, 1997, the Company incurred costs of $120,000, and
$25,000, respectively, for Sage Equities, Inc. For the years ended December 31,
1999 and 1998, and for the period December 8, 1997 (inception) to December 31,
1997, the Company incurred costs of $338,000 (of which $141,000 were expenses),
$232,000 (of which $112,000 were expenses), and $17,000, respectively, for
Intensity Ventures.
13. Employee Benefit Plan
In 1998, the Company instituted a 401k Plan for all employees who have
attained age 19 and have been employed by the Company or by an acquired
business for one month. Participating employees may make contributions to the
plan up to 15% of their eligible compensation contributed to the 401k Plan. The
Plan provides that the Company may make discretionary contributions to the Plan
on behalf of participating employees. In 1999 the Company initiated a matching
contribution policy wherein it agreed to match the employee's contributions
100% up to 5% of the participating employee's compensation. The total amount
contributed by the Company during 1999 was $0.6 million, which was charged to
expense.
14. Segment Reporting
Pursuant to FAS 131, the Company has determined that it currently has three
reportable segments: Web hosting, application hosting, and Internet
Professional Services. For the year ended December 31, 1998 and the three
months ended March 31, 1999, the Company operated primarily in the Web hosting
segment. The results of operations for each of the segments is shown below.
Year ended December 31, 1999
<TABLE>
<CAPTION>
Internet
Application Professional
Web Hosting Hosting Services Other Total
------------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues................ $ 16,892,000 $15,639,000 $11,493,000 $ 3,090,095 $ 47,114,095
Operating income
(loss)................. (17,302,000) (6,173,000) 755,000 (32,098,443) (54,818,443)
Segment assets.......... $ 7,716,000 $11,223,000 $11,704,000 $132,232,068 $162,875,068
</TABLE>
Three months ended March 31, 2000 (unaudited)
<TABLE>
<CAPTION>
Internet
Application Professional
Web Hosting Hosting Services Other Total
----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues................ $ 5,770,248 $ 6,394,104 $13,813,092 $ 880,723 $ 26,858,167
Operating income
(loss)................. (2,845,165) (4,200,593) 715,736 (20,919,339) (27,249,361)
Segment assets.......... 15,059,298 32,870,586 20,829,415 326,877,371 395,636,670
</TABLE>
The Company's management generally reviews the results of operations of each
segment exclusive of depreciation and amortization (aggregating $28.1 million
for the year ended December 31, 1999 and $11.8 million for the three months
ended March 31, 2000) and interest related to each segment. Accordingly, such
expenses are excluded from the segment operating loss and are shown under the
Other caption. In addition, all intangible assets and corporate expenses of the
Company are included in the Other caption.
The Company believes that the reportable segments may change in future
periods as management continues to broaden its outsourced e-business solutions.
F-18
<PAGE>
INTERLIANT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For the years ended December 31, 1999 and 1998, approximately 16% and 19%,
respectively, of revenues were from sources outside the United States,
primarily from Europe, Latin America and Asia.
15. Subsequent Events
In January and February 2000, the Company sold 787,881 shares of Common
Stock in private placements for total proceeds of $27.5 million. In connection
with the sales, the Company issued warrants to purchase 157,575 shares of
Common Stock at an average exercise price of $34.90 per share which
approximated the market price at the date of issuance. The warrants expire
December 31, 2000.
In January 2000, the Company entered into a four-year employment agreement
with a new Chief Executive Officer. In connection with this agreement, the
Company issued this employee options to purchase 1,500,000 shares of Common
Stock, at an average exercise price of $18.00 per share. Such options were not
issued pursuant to the Plan. The exercise price of the options were below the
fair value of the Common Stock as of the measurement date, and as a result, the
Company will recognize approximately $30.0 million as compensation expense over
the four-year vesting period of the options.
In February 2000, the Company sold $154.8 million of 7% Convertible
Subordinated Notes, including $4.8 million sold upon exercise of the
underwriters' over-allotment option. The notes are convertible at the option of
the holder, at any time on or prior to maturity into Common Stock at a
conversion price of $53.10 per share, which is equal to a conversion rate of
18.8324 shares per $1,000 principal amount of notes. Interest is payable semi-
annually, beginning August 2000. The notes mature on February 16, 2005. Upon
the occurrence of certain events the Company may redeem the notes prior to
maturity.
In February 2000, the Company and @viso Limited (@viso), a company
incorporated under the laws of England and Wales and owned 50% by Softbank
Holdings, Inc. and 50% by Vivendi S.A., agreed to form a corporation,
Interliant Europe B.V., to be owned 51% by the Company, and 49% by @viso.
Through Interliant Europe, the Company plans to launch Web hosting, application
hosting and related services in continental Europe. @viso has loaned the
Company the amount required to purchase its equity interest in Interliant
Europe (approximately $7.7 million). The Company has also agreed to license
some of its technology and intellectual property to and enter into a service
agreement with Interliant Europe.
The note underlying the @viso loan agreement bears interest at 8% per annum,
and is repayable in full at the earlier of a sale of Interliant Europe's common
stock in an initial public offering or February 2005. The Company intends to
consolidate the operations of Interliant Europe with the results of operations
of the Company with appropriate adjustments for the minority interest's share
of the income or loss of Interliant Europe.
In February 2000, the Company acquired all of the outstanding stock of Soft
Link, Inc., a provider of Enterprise Resource Planning (ERP) solutions based on
PeopleSoft software. The purchase price consisted of $18.2 million in cash,
subject to adjustment based on the net worth of Soft Link, Inc. as of the
closing date, and 254,879 shares of Common Stock valued at approximately $37.00
per share. The agreement provides for contingent consideration, not to exceed
$10.0 million, if specified revenues and earnings targets are met for the
calendar year 2000. The contingent consideration is payable 50% in cash, and
the remaining 50% in cash or Common Stock at the Company's option. The payment
of contingent consideration, if any, will be recorded as additional purchase
price.
In February 2000, the Company purchased substantially all of the assets and
assumed certain liabilities of reSOURCE PARTNER, Inc., a provider of hosting
services for outsourced human resources and finance solutions primarily using
PeopleSoft software. The purchase price consisted of $2.5 million in cash,
subject to adjustment based on the determination of closing net equity, and the
issuance of 1,041,179 shares of Common Stock valued at approximately $37.00 per
share.
F-19
<PAGE>
INTERLIANT, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements
are presented for illustrative purposes only and are not necessarily indicative
of the combined results of operations for future periods or the results of
operations that actually would have been realized had Interliant, Soft Link and
reSOURCE PARTNER and the businesses acquired in 1999 been a combined company
during the specified periods. The unaudited pro forma combined condensed
financial statements, including the related notes, are qualified in their
entirety by reference to, and should be read in conjunction with, the
historical consolidated financial statements and related notes thereto of
Interliant, included in its Annual Report on Form 10-K, filed on March 29,
2000, and Soft Link and reSOURCE PARTNER, included elsewhere in this filing.
The following unaudited pro forma combined condensed financial statements
give effect to the acquisitions of Soft Link and reSOURCE PARTNER using the
purchase method of accounting. The pro forma combined condensed financial
statements are based on the respective historical audited and unaudited
consolidated financial statements of Interliant, Soft Link and reSOURCE PARTNER
and the businesses acquired in 1999. The pro forma adjustments are preliminary
and based on management's estimates of the value of the tangible and intangible
assets acquired.
The actual adjustments may differ materially from those presented in these
pro forma financial statements. A change in the pro forma adjustments would
result in a reallocation of the purchase price affecting the value assigned to
the long-term tangible and intangible assets or, in some circumstances, result
in a charge to the statement of operations. The effect of these changes on the
statement of operations will depend on the nature and amounts of the assets and
liabilities adjusted.
The pro forma combined condensed statements of operations assume all of the
acquisitions completed through the date of this report took place as of January
1, 1999, and combines Interliant's audited consolidated statement of operations
for the year ended December 31, 1999, with Soft Link's and reSOURCE PARTNER'S
respective audited statements of operations for the year ended December 31,
1999 as well as the results of operations for acquisitions completed in 1999
from January 1, 1999 through their respective acquisition dates.
F-20
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 2000
<TABLE>
<CAPTION>
rs SOURCE
Interliant Soft Link PARTNER Pro Forma
Historical (1) (1) Adjustments Pro Forma
------------ ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues................ $ 26,858,167 $5,234,897 $ 3,718,914 $ (623,149)(5) $ 35,188,829
Costs and expenses:
Cost of revenues...... 18,533,616 4,080,013 5,072,251 (2,673,933)(4),(5) 25,011,947
Sales and marketing... 7,999,118 349,638 806,610 9,155,366
General and
administrative....... 15,792,218 278,685 584,723 2,038,721(4) 18,694,347
Depreciation.......... 2,466,533 30,819 267,541 2,764,893
Amortization of
intangibles.......... 9,316,043 2,411,692(6) 11,727,735
------------ ---------- ------------ ----------- ------------
Total costs and
expenses............... 54,107,528 4,739,155 6,731,125 1,776,480 67,354,288
------------ ---------- ------------ ----------- ------------
Operating income
(loss)................. (27,249,361) 495,742 (3,012,211) (2,399,629) (32,165,459)
Interest income
(expense).............. (111,892) 2,800 (109,092)
------------ ---------- ------------ ----------- ------------
Income (loss) before
cumulative effect of
change in accounting
method................. (27,361,253) 498,542 (3,012,211) (2,399,629) (32,274,551)
Cumulative effect of
change in accounting
method................. (1,219,712) (1,219,712)
------------ ---------- ------------ ----------- ------------
Net income (loss)....... $(28,580,965) $ 498,542 $ (3,012,211) $(2,399,629) $(33,494,263)
============ ========== ============ =========== ============
Net loss per share--
basic and diluted...... $(0.62) $(0.71)
Weighted-average shares
outstanding............ 45,989,468 46,853,507
</TABLE>
See accompanying notes to pro forma financial statements.
F-21
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Year Ended December 31, 1999
<TABLE>
<CAPTION>
Companies Companies
Interliant Acquired in Acquired in Pro Forma
Historical 1999(2) 2000(3) Adjustments Pro Forma
------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Service revenues........ $ 47,114,095 $ 32,960,172 $ 57,560,457 $ (4,595,994)(5) $ 133,038,730
Costs and expenses:
Cost of service
revenues............. 27,513,710 23,027,220 49,524,350 (13,658,623)(4),(5) 86,406,657
Sales and marketing... 17,236,121 3,181,832 5,221,351 25,639,304
General and
administrative....... 29,062,596 8,079,910 5,542,238 10,239,480 (4) 52,924,224
Depreciation.......... 6,051,296 943,252 2,372,000 (365,704)(5) 9,000,844
Amortization of
intangibles.......... 22,068,815 24,842,127 (6) 46,910,942
------------ ------------ ------------ ------------- -------------
Total costs and
expenses............... 101,932,538 35,232,214 62,659,939 21,057,280 220,881,971
------------ ------------ ------------ ------------- -------------
Operating income
(loss)................. (54,818,443) (2,272,042) (5,099,482) (25,653,274) (87,843,241)
------------ ------------ ------------ ------------- -------------
Interest income
(expense).............. 886,444 (145,426) (479,710) 669,297 (5) 930,605
Other income (expense).. (4,877) 493,883 (371,675)(5) 117,331
------------ ------------ ------------ ------------- -------------
Income (loss) before
income tax............. (53,931,999) (2,422,345) (5,085,309) (25,355,652) (86,795,305)
Provision for income
tax.................... 193,166 120,000 (313,166)(7) --
------------ ------------ ------------ ------------- -------------
Net income (loss)....... $(53,931,999) $ (2,615,511) $ (5,205,309) $ (25,042,486) $ (86,795,305)
============ ============ ============ ============= =============
Net loss per share--
basic and diluted...... $(1.50) $(2.22)
Weighted-average shares
outstanding............ 35,837,523 39,108,877
</TABLE>
See accompanying notes to pro forma financial statements.
F-22
<PAGE>
Notes To Pro Forma Condensed Combined Financial Information
The following adjustments were applied to Interliant's Consolidated
Financial Statements and the financial data of the companies acquired by
Interliant since January 1, 1999 to arrive at the unaudited Pro Forma Combined
Financial Information.
(1) Historical results of operations from January 1, 2000 to February 29, 2000,
the dates of acquisition of the two acquired businesses.
(2) The following table presents the statements of operations for acquisitions
completed during 1999 for the period January 1, 1999 through the respective
acquisition dates. Acquisitions that were deemed insignificant as per Rule
3-05 of Regulation S-X are aggregated in the Other Acquisitions column.
<TABLE>
<CAPTION>
Net Companies
Daemons Interliant Sales Other Acquired in
Telephonetics Digiweb Associates Texas Technology Acquisitions 1999
------------- -------- ---------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Service revenues........ $331,182 $237,300 $836,289 $ 3,501,602 $1,205,887 $26,847,912 $ 32,960,172
Costs and expenses:
Cost of service reve-
nues................... 47,387 62,003 466,929 2,149,276 515,625 19,786,000 23,027,220
Sales and marketing..... 69,711 -- 12,122 1,508,576 -- 1,591,423 3,181,832
General and administra-
tive................... 201,261 82,979 285,395 1,289,018 674,679 5,546,578 8,079,910
Depreciation............ 6,000 25,000 16,206 532,192 50,000 313,854 943,252
Amortization of intangi-
bles................... --
-------- -------- -------- ------------ ---------- ----------- ------------
Total costs and ex-
penses................. 324,359 169,982 780,652 5,479,062 1,240,304 27,237,855 35,232,214
-------- -------- -------- ------------ ---------- ----------- ------------
Operating income
(loss)................. 6,823 67,318 55,637 (1,977,460) (34,417) (389,943) (2,272,042)
Interest income (ex-
pense)................. (1,873) (148,460) (26,903) 31,810 (145,426)
Other income (expense).. -- (4,877) (4,877)
-------- -------- -------- ------------ ---------- ----------- ------------
Income (loss) before in-
come tax............... 6,823 67,318 53,764 (2,125,920) (61,320) (363,010) (2,422,345)
Provision for income
tax.................... 13,313 179,853 193,166
-------- -------- -------- ------------ ---------- ----------- ------------
Net income (loss)....... $ 6,823 $ 67,318 $ 40,451 $ (2,125,920) $ (61,320) $ (542,863) $ (2,615,511)
======== ======== ======== ============ ========== =========== ============
</TABLE>
(3) The following table presents the statements of operations for acquisitions
completed during 2000 for the period January 1, 1999 through December 31,
1999.
<TABLE>
<CAPTION>
Companies
reSOURCE Acquired in
PARTNER Soft Link 2000
------------- ----------- ------------
<S> <C> <C> <C>
Service revenues....................... $ 25,113,669 $32,446,788 $ 57,560,457
Costs and expenses:
Cost of service revenues............... 27,097,363 22,426,987 49,524,350
Sales and marketing.................... 3,005,361 2,215,990 5,221,351
General and administrative............. 3,434,794 2,107,444 5,542,238
Depreciation........................... 2,372,000 2,372,000
Amortization of intangibles............ --
------------- ----------- ------------
Total costs and expenses............... 35,909,518 26,750,421 62,659,939
------------- ----------- ------------
Operating income (loss)................ (10,795,849) 5,696,367 (5,099,482)
Interest income (expense).............. (501,893) 22,183 (479,710)
Other income (expense)................. 371,675 122,208 493,883
------------- ----------- ------------
Income (loss) before income tax........ (10,926,067) 5,840,758 (5,085,309)
Provision for income tax............... 120,000 120,000
------------- ----------- ------------
Net income (loss)...................... $ (10,926,067) $ 5,720,758 $ (5,205,309)
============= =========== ============
</TABLE>
(4) To reclassify Interliant Texas customer service costs and reSOURCE PARTNER
general and administrative costs to conform to Interliant, Inc.'s
presentation.
F-23
<PAGE>
Notes To Pro Forma Condensed Combined Financial Information--(Continued)
(5) To carve-out results of operations and intercompany interest charges for
reSOURCE PARTNER businesses and intercompany liabilities which were not
acquired or assumed, respectively, but were included in the reSOURCE
PARTNER audited financial statements for the year ended December 31, 1999
and the unaudited financial statements for the period from January 1, 2000
to date of acquisition.
(6) To record amortization of intangibles arising as a result of acquisitions
for the period from January 1, 1999 to acquisition date based on
amortization periods ranging from one to five years.
(7) To record elimination of income tax provision due to consolidated pre-tax
loss.
F-24
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
Sales Technology Limited
We have audited the accompanying consolidated balance sheet of Sales
Technology Limited as of 31 October 1998 and the related consolidated profit
and loss account and statement of cash flows for the year ended 31 October
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with United Kingdom auditing standards
which do not differ in any significant respect from United States generally
accepted auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Sales
Technology Limited at 31 October 1998 and the consolidated results of its
operations and its consolidated cash flows for the year ended 31 October 1998,
in conformity with accounting principles generally accepted in the United
Kingdom.
/s/ Ernst & Young
London, England
November 22, 1999
F-25
<PAGE>
SALES TECHNOLOGY LIMITED
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Audited as at Unaudited
31 October as at 31 July
Notes 1998 1999
----- ------------- -------------
(Pounds) (Pounds)
<S> <C> <C> <C>
FIXED ASSETS
Tangible assets........................... 8 63,797 122,017
------- -------
CURRENT ASSETS
Debtors................................... 9 348,213 335,501
Cash at bank and in hand.................. 16,997 13
------- -------
365,210 335,514
CREDITORS: amounts falling due within one
year....................................... 10 269,575 345,395
------- -------
NET CURRENT ASSETS/(LIABILITIES)............ 95,635 (9,881)
------- -------
TOTAL ASSETS LESS CURRENT LIABILITIES....... 159,432 112,136
CREDITORS: amounts falling due after more
than one year.............................. 11 51,247 41,398
------- -------
108,185 70,738
======= =======
CAPITAL AND RESERVES
Called up share capital................... 17 562 562
Share premium............................. 18 137,702 137,702
Capital reserve........................... 18 14,626 14,626
Profit and loss account................... 18 (44,705) (82,152)
------- -------
SHAREHOLDERS' FUNDS......................... 18 108,185 70,738
======= =======
</TABLE>
The notes to the financial statements are an integral part of the financial
statements
F-26
<PAGE>
SALES TECHNOLOGY LIMITED
CONSOLIDATED PROFIT AND LOSS ACCOUNTS
<TABLE>
<CAPTION>
Unaudited Unaudited
Audited 9 months 9 months
year ended ended ended
31 October 31 July 31 July
Notes 1998 1999 1998
----- ---------- --------- ---------
(Pounds) (Pounds) (Pounds)
<S> <C> <C> <C> <C>
Turnover................................. 2 575,832 736,420 323,789
Cost of sales............................ 135,836 314,886 42,993
-------- ------- --------
Gross profit............................. 439,996 421,534 280,796
Administrative expenses.................. 726,962 442,552 475,564
-------- ------- --------
Operating loss........................... 3 (286,966) (21,018) (194,768)
Interest receivable...................... 557 -- 557
Interest payable......................... 6 (5,843) (16,429) (1,453)
-------- ------- --------
Loss on ordinary activities before
taxation ............................... (292,252) (37,447) (195,664)
Taxation................................. 7 22,363 -- --
-------- ------- --------
Loss for the financial year.............. (269,889) (37,447) (195,664)
======== ======= ========
</TABLE>
There were no recognised gains or losses other than those recorded above.
The notes to the financial statements are an integral part of the financial
statements.
F-27
<PAGE>
SALES TECHNOLOGY LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS
(all figures in (Pounds))
<TABLE>
<CAPTION>
Audited Nine Months Ended
Year Ended July 31,
October 31, -----------------------
Notes 1999 1999 1998
----- ----------- ----------- -----------
(unaudited) (unaudited)
----------- -----------
(Pounds) (Pounds) (Pounds)
<S> <C> <C> <C> <C>
NET CASH OUTFLOW FROM OPERATING
ACTIVITIES 3(b) (169,244) (73,802) (122,227)
-------- -------- --------
RETURNS ON INVESTMENTS AND
SERVICING OF FINANCE
Bank interest paid.............. (5,341) (14,647) (1,453)
Interest element of finance
lease rental payments.......... (502) (1,782) (376)
Interest received............... 557 -- 557
-------- -------- --------
NET CASH OUTFLOW FROM RETURNS ON
INVESTMENTS AND SERVICING OF
FINANCE.......................... (5,286) (16,429) (1,272)
-------- -------- --------
TAXATION
Corporation tax paid............ (23,608) -- (23,608)
-------- -------- --------
TAX PAID (23,608) -- (23,608)
-------- -------- --------
CAPITAL EXPENDITURE
Payments to acquire tangible
fixed assets................... (65,110) (64,867) (60,524)
Proceeds from sale of tangible
fixed assets................... 2,702 3,031 --
-------- -------- --------
NET CASH OUTFLOW FROM CAPITAL
EXPENDITURE...................... (62,408) (61,836) (60,524)
-------- -------- --------
NET CASH OUTFLOW BEFORE
FINANCING........................ (260,546) (152,067) (207,631)
-------- -------- --------
FINANCING
Issue of share capital.......... 97,844 -- 97,844
Net movement in short term
borrowings..................... 62,576 95,100 --
Net movement in long term
borrowings..................... 32,508 -- --
Repayments of capital element of
finance lease rentals.......... (4,234) (1,780) (3,104)
-------- -------- --------
NET CASH INFLOW FROM FINANCING.... 188,694 93,320 94,740
-------- -------- --------
DECREASE IN CASH.................. 15 (71,852) (58,747) (112,891)
======== ======== ========
</TABLE>
The notes to the financial statements are an integral part of the financial
statements
F-28
<PAGE>
SALES TECHNOLOGY LIMITED
NOTES TO FINANCIAL STATEMENTS
October 31, 1998
1. ACCOUNTING POLICIES
Accounting convention
The accounts are prepared under the historical cost convention, and in
accordance with applicable United Kingdom accounting standards.
Companies Act 1985
These financial statements do not comprise statutory accounts within the
meaning of section 240 of the Companies Act 1985 of Great Britain. Statutory
accounts for the year ended 31 October 1998 of Sales Technology Limited and
Sales Success Limited, have been delivered to the Registrar of Companies for
England and Wales. The auditors' reports on these accounts were unqualified.
Sales Technology Limited took advantage of exemptions for small groups
available under the Companies Act 1985 and did not prepare consolidated
statutory accounts for the year ended 31 October 1998.
Basis of consolidation
These financial statements consolidate the accounts of Sales Technology
Limited and its subsidiary undertaking, Sales Success Limited, drawn up to 31
October 1998.
The financial statements at 31 July 1999 and for the nine months ended 31
July 1999 and 1998 are unaudited but, in the opinion of the company's
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. Operating
results for the nine months ended 31 July 1999 are not necessarily indicative
of the results that may be expected for the year ended 31 October 1999.
Goodwill
Negative goodwill arising on the acquisition of the company's wholly owned
subsidiary has been taken to a capital reserve.
Depreciation
Depreciation is provided on all tangible fixed assets at rates calculated to
write off the cost or valuation, less estimated residual value, of each asset
evenly over its expected useful life, as follows:
<TABLE>
<S> <C>
Leasehold land and buildings............................. over the lease term
Fixtures and fittings.................................... 25% on cost
Office equipment......................................... 33%--50% on cost
Motor vehicles........................................... 25% on cost
</TABLE>
The carrying values of tangible fixed assets are reviewed for impairment in
periods if events or changes in circumstances indicate the carrying value may
not be recoverable.
Leasing and hire purchase agreements
Assets held under finance leases and hire purchase contracts are capitalised
in the balance sheet and are depreciated over their useful lives.
F-29
<PAGE>
SALES TECHNOLOGY LIMITED
NOTES TO FINANCIAL STATEMENTS--(Continued)
The interest element of the rental obligations is charged to the profit and
loss account over the period of the lease and represents a constant proportion
of the balance of capital repayments outstanding.
Rentals paid under operating leases are charged to income on a straight line
basis over the lease term.
Pensions
It is the policy of the company to contribute to defined contribution
pension schemes for certain employees by payment to insurance companies. The
assets of the scheme are held separately from those of the company. The
premiums payable are charged to the profit and loss account. Any difference
between amounts charged to the profit and loss account and contributions paid
is shown as a separately identified liability or asset in the balance sheet.
Deferred taxation
Deferred taxation is provided on the liability method on all timing
differences which are expected to reverse in the future without being replaced,
calculated at the rate at which it is estimated that taxation will be payable.
Advance corporation tax which is expected to be recoverable in the future is
deducted from the deferred taxation balance.
Deferred tax assets are only recognised if recovery without replacement by
equivalent debit balances is reasonably certain.
2. TURNOVER
Turnover, which is stated net of value added tax, represents amounts
invoiced to third parties in respect of the group's continuing activity, the
design and implementation of computerised sales management systems and computer
consultancy services.
All turnover arises from within the United Kingdom.
3. OPERATING LOSS
(a) This is stated after charging/(crediting):
<TABLE>
<CAPTION>
Year ended
31 Oct
1998
----------
(Pounds)
<S> <C>
Auditors' remuneration.......................................... 4,500
Depreciation of owned fixed assets.............................. 22,275
Depreciation of assets held under finance leases and hire
purchase contracts............................................. 3,011
Operating lease rentals--land and buildings..................... 34,868
Profit on sale of tangible fixed assets......................... (423)
======
</TABLE>
F-30
<PAGE>
SALES TECHNOLOGY LIMITED
NOTES TO FINANCIAL STATEMENTS--(Continued)
(b) Reconciliation of operating loss to net cash outflow from operating
activities:
<TABLE>
<CAPTION>
Year ended
31 Oct
1998
----------
(Pounds)
<S> <C>
Operating loss.................................................... (286,966)
Depreciation...................................................... 25,286
Decrease in operating debtors and prepayments..................... 59,800
Increase in operating creditors and accruals...................... 32,636
--------
(169,244)
========
</TABLE>
4. DIRECTORS' REMUNERATION
<TABLE>
<CAPTION>
Year ended
31 Oct
1998
----------
(Pounds)
<S> <C>
Emoluments........................................................ 135,655
Compensation to directors for loss of office...................... 9,375
-------
145,030
=======
<CAPTION>
No.
----------
<S> <C>
Members of defined contribution pension schemes................... 1
=======
</TABLE>
5. STAFF COSTS
<TABLE>
<CAPTION>
Year ended
31 Oct
1998
----------
(Pounds)
<S> <C>
Wages and salaries................................................ 222,946
Social security costs............................................. 41,199
Other pension costs............................................... 2,400
-------
266,545
=======
</TABLE>
The average weekly number of employees during the year was
<TABLE>
<CAPTION>
Year ended
31 Oct
1998
----------
(Pounds)
<S> <C>
Operational....................................................... 9
Administration.................................................... 4
---
13
===
</TABLE>
F-31
<PAGE>
SALES TECHNOLOGY LIMITED
NOTES TO FINANCIAL STATEMENTS--(Continued)
6. INTEREST PAYABLE
<TABLE>
<CAPTION>
Year ended
31 Oct
1998
----------
(Pounds)
<S> <C>
Interest on loans partially repayable within five years........... 5,341
Interest on finance leases........................................ 502
-----
5,843
=====
</TABLE>
7. TAXATION
<TABLE>
<CAPTION>
Year ended
31 Oct
1998
----------
(Pounds)
<S> <C>
Based on the loss for the year:
Corporation tax................................................. 22,363
======
</TABLE>
8. TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
Short Fixtures
Leasehold and Motor Office
improvements fittings vehicles equipment Total
------------ -------- -------- --------- --------
(Pounds) (Pounds) (Pounds) (Pounds) (Pounds)
<S> <C> <C> <C> <C> <C>
Cost:
At 1 November 1997.... -- 4,046 26,559 49,335 79,940
Additions............. 4,586 24,376 -- 36,148 65,110
Disposals............. -- -- (14,515) -- (14,515)
----- ------ ------- ------ -------
At 31 October 1998.... 4,586 28,422 12,044 85,483 130,535
----- ------ ------- ------ -------
Depreciation:
At 1 November 1997.... -- 2,739 10,442 40,084 53,265
Provided during the
year................. 358 2,750 6,640 15,538 25,286
Disposals............. -- -- (11,813) -- (11,813)
----- ------ ------- ------ -------
At 31 October 1998.... 358 5,489 5,269 55,622 66,738
----- ------ ------- ------ -------
Net book value:
At 31 October 1998.... 4,228 22,933 6,775 29,861 63,797
===== ====== ======= ====== =======
At 1 November 1997.... -- 1,307 16,117 9,251 26,675
===== ====== ======= ====== =======
</TABLE>
The net book value of office equipment above includes an amount of
(Pounds)6,775 in respect of assets held under finance leases and hire purchase
contracts.
F-32
<PAGE>
SALES TECHNOLOGY LIMITED
NOTES TO FINANCIAL STATEMENTS--(Continued)
9. DEBTORS
<TABLE>
<CAPTION>
As at
31 Oct
1998
--------
(Pounds)
<S> <C>
Trade debtors....................................................... 265,378
Other debtors....................................................... 42,534
Corporation tax..................................................... 22,363
Prepayments......................................................... 17,938
-------
348,213
=======
</TABLE>
Other debtors includes (Pounds)30,000 in respect of a rent deposit which is
repayable upon expiry of the lease under which it was paid. This is due to
expire in 2008.
10. CREDITORS: amounts falling due within one year
<TABLE>
<CAPTION>
As at
31 Oct
1998
--------
(Pounds)
<S> <C>
Bank loans (note 12).............................................. 62,576
Obligations under finance leases and hire purchase contracts (note
13).............................................................. 1,100
Trade creditors................................................... 53,757
Other taxes and social security costs............................. 40,689
Accruals and deferred income...................................... 111,453
-------
269,575
=======
</TABLE>
The bank loan is secured by a fixed and floating charge over all the assets
of Sales Success Limited. In addition the bank loan is secured by an unlimited
cross company guarantee between Sales Success Limited and Sales Technology
Limited.
11. CREDITORS: amounts falling due after more than one year
<TABLE>
<CAPTION>
As at
31 Oct
1998
--------
(Pounds)
<S> <C>
Bank loan (note 12)................................................. 32,508
Convertible loan stock.............................................. 7,950
Accruals and deferred income........................................ 10,789
------
51,247
======
</TABLE>
The convertible loan stock can be converted into 53 ordinary shares of
(Pounds)1 each at any time. Once issued, the shares will rank pari passu with
the existing ordinary shares in issue. The convertible loan stock does not
attract interest and cannot be repaid. The convertible loan stock is owned by
David Yuile, a director of the company.
F-33
<PAGE>
SALES TECHNOLOGY LIMITED
NOTES TO FINANCIAL STATEMENTS--(Continued)
12. LOANS
<TABLE>
<CAPTION>
As at
31 Oct
1998
--------
(Pounds)
<S> <C>
Wholly repayable within five years:
Bank loan......................................................... 95,084
Less: included in creditors: amounts falling due within one year.. (62,576)
-------
32,508
=======
Amounts repayable:
in one year or less or on demand.................................. 62,576
between one and two years......................................... 12,576
between two and five years........................................ 19,932
-------
95,084
=======
13. OBLIGATIONS UNDER FINANCE LEASES AND HIRE PURCHASE CONTRACTS
<CAPTION>
As at
31
October
1998
--------
(Pounds)
<S> <C>
Amounts payable:
within one year................................................... 1,160
Less: Finance charges allocated to future periods................. 60
-------
1,100
=======
14. DEFERRED TAXATION
Deferred tax amounts which have not been recognised are as follows:
<CAPTION>
As at
31
October
1998
--------
(Pounds)
<S> <C>
Capital allowances in arrears of depreciation..................... 627
Tax losses........................................................ 33,895
-------
34,522
=======
</TABLE>
F-34
<PAGE>
SALES TECHNOLOGY LIMITED
NOTES TO FINANCIAL STATEMENTS--(Continued)
15. RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET (DEBT)/FUNDS
<TABLE>
<CAPTION>
As at
31
October
1998
--------
(Pounds)
<S> <C>
DECREASE IN CASH................................................... (71,852)
Cash outflow from decrease in lease financing...................... 4,234
Loan repayments.................................................... 4,916
New loans.......................................................... (100,000)
--------
Change in net debt resulting from cash flows....................... (162,702)
--------
MOVEMENT IN NET DEBT IN THE YEAR................................... (162,702)
NET FUNDS AT 1 NOVEMBER............................................ 83,515
--------
NET DEBT AT 31 OCTOBER (NOTE 16)................................... (79,187)
========
</TABLE>
16. ANALYSIS OF NET FUNDS/(DEBT)
<TABLE>
<CAPTION>
At At
1 November Cash 31 October
1997 flow 1998
---------- -------- ----------
(Pounds) (Pounds) (Pounds)
<S> <C> <C> <C>
Cash at bank and in hand..................... 88,849 (71,852) 16,997
Bank loans due within one year............... -- (62,576) (62,576)
Bank loans due after one year................ -- (32,508) (32,508)
Finance leases............................... (5,334) 4,234 (1,100)
------ ------- -------
83,515 162,702 (79,187)
====== ======= =======
</TABLE>
17. SHARE CAPITAL
<TABLE>
<CAPTION>
Allotted, called
Authorised up
1998 and fully paid
No. 1998
---------- ----------------
(Pounds)
<S> <C> <C>
Ordinary shares of (Pounds)1 each................ 70,000 562
====== ===
</TABLE>
During the year the company issued 61 ordinary shares of (Pounds)1 each, at
a premium of (Pounds)1,603 per share, for cash consideration of (Pounds)97,843.
The shares were issued to fund the working capital of the business.
18. RECONCILIATION OF SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
Profit
and
Short Share Capital loss
capital premium reserve account Total
-------- -------- -------- -------- --------
(Pounds) (Pounds) (Pounds) (Pounds) (Pounds)
<S> <C> <C> <C> <C> <C>
At 1 November 1997.............. 501 39,919 14,626 225,184 280,230
Share issue..................... 61 97,783 -- -- 97,844
Retained loss for the year...... -- -- -- (269,889) (269,889)
--- ------- ------ -------- --------
At 31 October 1998.............. 562 137,702 14,626 (44,705) 108,185
=== ======= ====== ======== ========
</TABLE>
The capital reserve relates to negative goodwill arising on the acquisition
of the company's wholly owned subsidiary, Sales Success Limited.
F-35
<PAGE>
SALES TECHNOLOGY LIMITED
NOTES TO FINANCIAL STATEMENTS--(Continued)
19. OTHER FINANCIAL COMMITMENTS
Annual commitments under non-cancellable operating leases are as follows:
<TABLE>
<CAPTION>
Land and
buildings as at
31 October 1998
---------------
(Pounds)
<S> <C>
Operating leases which expire:
over five years.............................................. 55,275
</TABLE>
20. TRANSACTIONS WITH DIRECTORS
During the year, a car was sold to S McQuillan, one of the directors, for
(Pounds)3,125. This is considered to be the market value of the vehicle.
B Raynes, a director, has options to subscribe for 100 ordinary shares of
(Pounds)1 each in the company. In addition there is an agreement for B Raynes
to be awarded shares based on the performance of the group over the first five
years. One ordinary share would be issued for every thousand pounds of profit
for the year up to a maximum of 250 ordinary shares. At 31 October 1998 B
Raynes had been awarded a total of 250 profit related options.
21. OTHER RELATED PARTY TRANSACTIONS
During the year, Sales Success Limited paid J Raynes, the wife of B Raynes,
a director, (Pounds)6,350 for accountancy services. This is considered to be
the open market value of the services.
Adding Information Limited is a company controlled by J Raynes. During the
year, Adding Information Limited charged Sales Success Limited (Pounds)5,375
for accountancy work. At the year end an amount of (Pounds)3,375 was owed to
Adding Information Limited by Sales Success Limited, and is included within
trade creditors. These amounts are considered the market value of the services
provided.
Included within trade debtors is an amount of (Pounds)1,346 due from Dowell
& Associates who are one of the shareholders of Sales Technology Limited.
F-36
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Soft Link, Inc.
We have audited the accompanying balance sheets of Soft Link, Inc. (an S
corporation) as of December 31, 1999 and 1998, and the related statements of
operations and retained earnings and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits of these statements in accordance with generally
accepted auditing standards. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Soft Link, Inc. as of
December 31, 1999 and 1998, and the results of its operations and cash flows
for the years then ended in conformity with generally accepted accounting
principles.
/s/ Smith Schafer & Associates,
Ltd.
Maplewood, Minnesota
February 7, 2000
F-37
<PAGE>
SOFT LINK, INC.
BALANCE SHEETS
December 31, 1998 and 1999
<TABLE>
<CAPTION>
December 31,
---------------------
1998 1999
---------- ----------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents.............................. $ 189,318 $ 794,651
Accounts receivable, net............................... 6,157,535 6,508,922
Prepaid expenses....................................... 158,027 372,391
---------- ----------
Total current assets................................. 7,038,125 7,675,964
---------- ----------
Property and equipment, net............................ 533,245 362,737
---------- ----------
Total assets......................................... $7,038,125 $8,038,701
========== ==========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable....................................... $ 174,021 $ 96,943
Accrued wages.......................................... 1,470,282 1,455,233
Accrued liabilities.................................... 59,477 74,588
---------- ----------
Total current liabilities............................ 1,703,780 1,626,764
---------- ----------
Commitments and Contingencies (Note 8)
Stockholders' equity:
Common stock, no par value; 100,000 shares authorized;
1,000 shares issued and outstanding................... 1,000 1,000
Retained earnings...................................... 5,333,345 6,410,937
---------- ----------
Total stockholders' equity........................... 5,334,345 6,411,937
---------- ----------
Total liabilities and stockholders' equity........... $7,038,125 $8,038,701
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-38
<PAGE>
SOFT LINK, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(For the Years ended December 31, 1999 and 1998)
<TABLE>
<CAPTION>
December 31,
------------------------
1998 1999
----------- -----------
<S> <C> <C>
Services Revenue...................................... $24,218,730 $32,446,788
Cost of Services Revenue.............................. 16,913,234 22,426,987
----------- -----------
Gross Profit...................................... 7,305,496 10,019,801
----------- -----------
Operating Expenses
Sales and Marketing................................. 1,881,432 2,215,990
General and Administrative.......................... 1,563,050 2,107,444
----------- -----------
Total Operating Expenses.......................... 3,444,482 4,323,434
----------- -----------
Income from Operations................................ 3,861,014 5,696,367
----------- -----------
Other Income (Expense)
Other income........................................ -- 138,484
Interest income..................................... 11,689 22,183
Interest expense.................................... (807) --
Loss on disposal of fixed assets.................... -- (16,276)
----------- -----------
Total Other Income................................ 10,882 144,391
----------- -----------
Income Before Income Taxes............................ 3,871,896 5,840,758
Income Tax Provision.................................. 32,000 120,000
----------- -----------
Net Income............................................ 3,839,896 5,720,758
Retained Earnings, Beginning of Year.................. 3,255,023 5,333,345
Stockholder Distributions........................... (1,761,574) (4,643,166)
----------- -----------
Retained Earnings, End of Year........................ $ 5,333,345 $ 6,410,937
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-39
<PAGE>
SOFT LINK, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
------------------------
1998 1999
----------- -----------
<S> <C> <C>
Cash Flows From Operating Activities
Net income.......................................... $ 3,839,896 $ 5,720,758
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization expense.............. 144,567 294,491
Loss on disposal of fixed assets................... -- 16,276
Changes in assets and liabilities:
Accounts receivable.............................. (2,709,189) (351,387)
Employee advances................................ 53,590 --
Prepaid expenses................................. (61,819) (214,364)
Accounts payable................................. 76,462 (77,078)
Accrued wages and accrued liabilities............ 563,862 62
----------- -----------
Net Cash Provided By Operating Activities...... 1,907,369 5,388,758
----------- -----------
Cash Flows From Investing Activities
Purchase of property and equipment................. (261,736) (140,259)
----------- -----------
Net Cash Used In Investing Activities.......... (261,736) (140,259)
Cash Flows From Financing Activities
Stockholder distributions.......................... (1,761,574) (4,643,166)
----------- -----------
Net Cash Used In Financing Activities.......... (1,761,574) (4,643,166)
Net Increase (Decrease) In Cash And Cash
Equivalents......................................... (115,941) 605,333
Cash and Cash Equivalents, Beginning Of Year......... 305,259 189,318
----------- -----------
Cash and Cash Equivalents, End Of Year............... $ 189,318 $ 794,651
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash Paid During The Year For:
Interest......................................... $ 807 $ --
Income taxes..................................... $ 38,977 $ 97,983
</TABLE>
F-40
<PAGE>
SOFT LINK, INC.
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Soft Link, Inc. ("the Company") was incorporated in the state of Minnesota
in 1992. The Company provides information technology services, including
software implementation consulting for major providers of human resource and
financial management software. The Company is an implementation partner with
many software companies and is a service provider to Fortune 1000 and other
large and mid-sized companies.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
The Company enters into arrangements to provide services, usually billed on
a time and materials basis. Services consist of system requirements definition,
system design and analysis, customization and installation services, system
enhancements and training. Services revenue is recognized as the services are
performed, primarily on a time and materials basis.
Revenue on fixed price contracts is recognized using the percentage-of-
completion method and is comprised of the portion of expected total contract
earnings represented by actual costs incurred to date as a percentage of the
contract's total estimated costs at completion. Provisions for anticipated
contract losses are recognized at the time that they become evident. There were
no fixed price contracts in process as of December 31, 1999 and 1998.
Deferred revenue consists of the unearned portion of billings on fixed price
contracts as well as deposits paid by customers prior to the performance of
services. There was no deferred revenue balance as of December 31, 1999 and
1998.
Unbilled receivables result from revenue that has been earned but not yet
billed. The unbilled receivables can be invoiced at contractually defined
intervals as well as upon completion of the contract.
Cost of Services Revenue
Cost of services revenue is comprised primarily of salaries and benefits.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. As of
December 31, 1999 and 1998, the Company maintained a cash balance with a
financial institution that exceeded the $100,000 federally insured limit.
Additionally, the Company's cash balances exceeded the federally insured limit
at various times throughout 1999 and 1998.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets,
generally three years for computer equipment and software, five or
F-41
<PAGE>
SOFT LINK, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
seven years for furniture and fixtures, and the shorter of the useful life or
term of the lease for leasehold improvements. Upon retirement or disposition of
property and equipment, the related gain or loss is reflected in the statement
of operations.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations
of credit risk consist primarily of cash equivalents and accounts receivable.
The Company limits the amount of investment exposure in any one financial
investment and does not have any foreign currency investments nor does it
accept payment from customers in foreign currency. The Company sells services
to various companies without requiring collateral. However, the Company
routinely assesses the financial strength of its customers and maintains
allowances for anticipated losses.
There were two customers that represented 19% and 11%, respectively, of
total accounts receivable as of December 31, 1999 and no customers that
represented 10% or more of accounts receivable as of December 31, 1998.
One customer represented approximately 20% of revenue for the year ended
December 31, 1999. The same customer represented approximately 10% of revenue
for the year ended December 31, 1998.
For the years ended December 31, 1999 and 1998, over 90% of the Company's
revenues were derived from projects in which its consultants implemented or
provided training on software developed by a major provider of Enterprise
Resource Planning (ERP) software products.
Income Taxes
The Company, with the consent of its stockholders, has elected to be taxed
under the provisions of Subchapter S of the Internal Revenue Code. In lieu of
corporate income taxes, the stockholders of an S corporation are taxed on their
proportionate share of the Company's taxable income. Therefore, no provision or
liability for federal income taxes has been included in these financial
statements.
The majority of the states in which the Company does business recognize the
federal S election and the stockholders are liable for the state income taxes
in those states. However, certain states do not recognize the Company's status
as an S corporation and these states impose corporate level income taxes.
Certain states also impose minimum fees or other corporate level excise taxes
that have been included in the provision for income taxes. The amount of
corporate state income taxes included in the income tax provision for the year
ended December 31, 1999 and 1998 was $60,000 and $32,000, respectively.
In 1999, the Company became subject to Canadian nonresident withholding
taxes. The amount of Canadian income taxes included in the income tax provision
for the year ended December 31, 1999 is $60,000.
Comprehensive Income
The Company does not have any components of comprehensive income other than
net income.
Recent Accounting Pronouncements
In March 1998 the American Institute of Certified Professional Accountants
issued Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." The statement is effective
for the year ended December 31, 1999 and provides guidance for the costs of
F-42
<PAGE>
SOFT LINK, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
computer software developed or obtained for internal use. The Company's
adoption of this statement did not have a material impact on its financial
position or results of operations.
In 1998, the Company adopted SOP 97-2 "Software Revenue Recognition" and SOP
98-9 "Modification of SOP 97-2, Software Revenue Recognition, with Respect to
Certain Transactions," which did not significantly affect existing revenue
recognition policies.
Reclassifications
Certain reclassifications have been made in the 1998 financial statements to
conform to classifications used in the 1999 financial statements.
3. CHANGE IN ACCOUNTING ESTIMATE
During 1999, the Company changed the period of depreciation and amortization
over certain asset classes within property and equipment to more accurately
represent the useful lives of the assets.
Computer hardware and equipment, previously depreciated over a five year
period, have been assigned a useful life of three years. Leasehold
improvements, previously depreciated over a period ranging from ten to forty
years, have been assigned a useful life of five years. This corresponds with
the term of the related operating leases.
The change in these estimated useful lives resulted in additional
depreciation and amortization expense of $78,265 for the year ended December
31, 1999. The effect of this change did not impact the reported results of
operations for the year ended December 31, 1998.
4. ACCOUNTS RECEIVABLE
Accounts receivable as of December 31, 1999 and 1998 consisted of the
following:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Billed receivables................................... $4,019,663 $3,727,043
Unbilled receivables................................. 2,515,335 2,447,333
---------- ----------
6,534,998 6,174,376
Less allowance for doubtful accounts................. (26,076) (16,841)
---------- ----------
Accounts receivable, net............................. $6,508,922 $6,157,535
========== ==========
</TABLE>
5. PREPAID EXPENSES
Prepaid expenses as of December 31, 1999 and 1998 consisted of the
following:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Prepaid insurance......................................... $ 43,317 $ 27,513
Prepaid health insurance.................................. 74,350 39,600
Prepaid rent.............................................. 10,593 10,871
Other prepaid expenses.................................... 244,131 80,043
-------- --------
Total prepaid expenses.................................. $372,391 $158,027
======== ========
</TABLE>
F-43
<PAGE>
SOFT LINK, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Other prepaid expenses consists primarily of prepurchased airline tickets,
annual software license and maintenance renewals, prepurchased training and
annual membership dues and advertising expenses.
6. PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 1999 and 1998 consisted of the
following:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Computer equipment and software........................ $ 547,496 $ 499,225
Office equipment, furniture and fixtures............... 276,086 235,377
Leasehold improvements................................. 42,677 26,408
--------- ---------
866,259 761,010
Less accumulated depreciation.......................... (503,522) (227,765)
--------- ---------
Property and equipment, net............................ $ 362,737 $ 533,245
========= =========
</TABLE>
Depreciation expense was $294,491 and $144,567 for the years ended December
31, 1999 and 1998, respectively.
7. ACCRUED WAGES
Accrued wages as of December 31, 1999 and 1998 consisted of the following:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Accrued wages and payroll taxes....................... $ 689,993 $ 511,136
Accrued bonuses....................................... 525,579 714,851
Accrued leave......................................... 239,661 244,295
---------- ----------
Accrued wages......................................... $1,455,233 $1,470,282
========== ==========
</TABLE>
The Company offers two alternative pay plans for its consulting employees.
It is generally the consulting employee's option to determine which pay plan to
utilize. Employees under an hourly pay plan receive a higher base rate of pay
but are ineligible for an annual bonus, travel bonus, or leave pay. Salaried
employees are eligible to receive travel bonus and leave pay. Certain salaried
employees that were employed before May 1998 are also eligible for an annual
bonus as long as they remain on the salaried pay plan. The annual bonus is
determined utilizing a specific performance--based formula that is paid in the
following year. In addition, all salaried employees accrue leave pay at the
rate of one hour for every eight hours worked. The Company accrues leave pay at
the average hourly rate of the employee. A majority of the Company's
consultants opt to utilize the hourly pay plan.
8. COMMITMENTS AND CONTINGENCIES
. Lease Obligations
The Company leases certain office facilities, automobiles and equipment
under noncancelable operating lease arrangements with expiration dates
extending through May 2004. The total lease expense for the years ended
December 31, 1999 and 1998 was $144,042 and $108,671, respectively.
. The Company entered into an operating lease for the new corporate
headquarters on November 1, 1997. The lease term began February 1, 1998
and ends January 31, 2003. Required monthly rental
F-44
<PAGE>
SOFT LINK, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
payments include base rent of $5,209 and an estimated monthly operating
expense of $2,083. Also, the Company entered into an operating lease
agreement for additional space at the same location on July 6, 1998.
The lease term began upon occupancy in May 1999 and ends April 30,
2004. Required monthly rental payments for the additional space include
base rent of $3,125 and an estimated monthly operating expense of
$1,250. Both lease agreements contain a renewal option for an
additional five-year period. The Company is responsible for the cost of
real estate taxes, insurance, utilities and other operating costs of
both facilities.
Future minimum lease payments under noncancelable operating leases as of
December 31, 1999 are:
<TABLE>
<S> <C>
2000................................................................ $168,083
2001................................................................ 157,606
2002................................................................ 147,931
2003................................................................ 59,792
2004................................................................ 17,500
--------
Total............................................................. $550,912
========
</TABLE>
The future minimum lease payments shown above include the estimated monthly
operating expenses as outlined in the leases for the Company's headquarters.
. Purchase Obligations
In September 1999, the Company entered into an agreement to have vendor-
provided training available for the Company's consultants. Under the terms of
the agreement, the Company is required to make annual payments of $23,552 until
the expiration of the agreement on September 28, 2002. The Company may, at its
option, cancel the agreement in whole prior to September 28, 2001 for a
cancellation fee of $2,355. An additional commitment to make annual payments of
$7,500 in 2000 and 2001 for web hosting services is cancelable at the option of
the Company after the first 12-month period.
9. LINE OF CREDIT
In December 1999, the Company obtained a $1,000,000 line of credit, maturing
on December 24, 2000. The line of credit bears interest at the financial
institution's prime rate (8.50% as of December 31, 1999). The line is
collateralized by a lien on all corporate assets. As of December 31, 1999,
there were no outstanding borrowings under this line of credit. Interest
expense was not incurred under this line of credit for the year ended December
31, 1999.
10. RETIREMENT PLAN
Effective May 1, 1995, the Company implemented a qualified profit sharing
plan ("the Plan"), that includes a 401(k) elective deferral feature. During
1999, the Company amended and restated its plan for a change in trustee and
asset custodian. All other provisions of the plan remained unchanged. Profit
sharing and salary deferral matched contributions to the Plan by the Company
are discretionary. No employer contributions were made to the Plan for the
years ended December 31, 1999 or 1998. The Plan covers substantially all of the
Company's employees.
F-45
<PAGE>
SOFT LINK, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
11. SUBSEQUENT EVENTS
Sale of Company
In January 2000, the Company and the Company's shareholders signed a
nonbonding letter of intent to sell all of the Company's outstanding common
stock to a wholly-owned subsidiary of Interliant, Inc.
Stockholder Distributions
Distributions in the aggregate amount of $1,800,000 were made to the
principal stockholders in January 2000.
F-46
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
reSOURCE PARTNER, Inc.
We have audited the accompanying consolidated balance sheet of reSOURCE
PARTNER, Inc. (a subsidiary of Borden, Inc.) and its subsidiary as of December
31, 1999, and the related consolidated statements of operations, shareholders'
deficit, and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of reSOURCE PARTNER, Inc. and its
subsidiary at December 31, 1999, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
Columbus, Ohio
February 11, 2000
F-47
<PAGE>
reSOURCE PARTNER, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
As of December 31, 1999
(Dollars in thousands except per share amounts)
<TABLE>
<S> <C> <C>
ASSETS
Current Assets
Cash and equivalents....................................... $ 457
Trade accounts receivable.................................. $2,024
Affiliated accounts receivable............................. 1,100
Allowance for doubtful accounts............................ (633)
------
Total accounts receivable, net........................... 2,491
Prepaid maintenance contracts.............................. 466
Prepaid insurance and other current assets................. 697
--------
4,111
Payroll and benefit funds held for customers............... 4,156
--------
Total current assets..................................... 8,267
Equipment and Leasehold Improvements
Machinery and equipment.................................... 12,758
Leasehold improvements..................................... 1,227
--------
13,985
Less accumulated depreciation.............................. (7,631)
--------
6,354
--------
Other Assets................................................. 64
--------
TOTAL ASSETS................................................. $ 14,685
========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities
Accounts and drafts payable................................ $ 2,575
Affiliated payables........................................ 377
Affiliated borrowings...................................... 16,350
Other current liabilities.................................. 1,439
--------
20,741
Payroll and benefit funds held for customers................. 4,156
--------
Total current liabilities................................ 24,897
Other Liabilities
Postretirement benefit and other obligations............... 915
Pension benefit obligations................................ 653
--------
1,568
--------
Commitments and Contingencies (Note 7)
Shareholders' Deficit
Common stock -- $0.01 par value; 4,700,000 shares
authorized, 3,759,000 issued and 3,735,000 outstanding.... 38
Paid in capital............................................ 18,759
Accumulated deficit........................................ (30,508)
Common stock in treasury at cost -- 24,000 shares.......... (69)
--------
Total shareholders' deficit.................................. (11,780)
--------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT.................. $ 14,685
========
</TABLE>
See accompanying notes to consolidated financial statements.
F-48
<PAGE>
reSOURCE PARTNER, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1999
(Dollars in thousands, except per share amounts)
<TABLE>
<S> <C>
Net revenues
Affiliated........................................................ $ 15,931
Trade............................................................. 9,182
---------
Total net revenues................................................ 25,113
Cost of services.................................................... 27,097
---------
Gross margin (deficit).............................................. (1,984)
Sales and marketing expense......................................... 3,005
General and administrative expense.................................. 5,807
---------
Operating loss...................................................... (10,796)
Interest expense--affiliated........................................ (669)
Interest income..................................................... 167
---------
Loss before discontinued operations................................. (11,298)
Discontinued operations:
Loss from operations.............................................. (81)
Gain on disposal.................................................. 453
---------
Net loss............................................................ $ (10,926)
=========
Per Share Data
Loss before discontinued operations................................. $ (3.02)
Discontinued operations:
Loss from operations.............................................. (0.02)
Gain on disposal.................................................. 0.12
---------
Basic and diluted loss per common share............................. $ (2.92)
=========
Average number of common shares outstanding during the year......... 3,739,000
</TABLE>
See accompanying notes to consolidated financial statements.
F-49
<PAGE>
reSOURCE PARTNER, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Year Ended December 31, 1999
(Dollars in thousands)
<TABLE>
<S> <C>
Cash Flows From (Used In) Operating Activities
Net loss............................................................ $(10,926)
Adjustments to reconcile net loss to net cash used in operating
activities:
Loss from discontinued operations.................................. 81
Gain on disposal of discontinued operations........................ (453)
Depreciation and amortization...................................... 2,372
Net change in assets and liabilities:
Accounts receivable, net......................................... 1,923
Prepaid maintenance contracts.................................... 93
Prepaid and other current assets................................. (566)
Other assets..................................................... 29
Accounts and drafts payable...................................... (713)
Affiliated payables.............................................. 59
Other current liabilities........................................ (294)
Postretirement and other liabilities............................. 399
Pension benefit obligations...................................... (70)
--------
(8,066)
Net cash used by discontinued operations........................... (3)
--------
Cash Flows From (Used In) Investing Activities (8,069)
--------
Capital expenditures............................................... (1,374)
Proceeds from sale of discontinued operations...................... 1,518
--------
144
--------
Cash Flows From (Used) In Financing Activities
Affiliated borrowings--net......................................... 8,150
--------
Increase in cash and equivalents................................... 225
Cash and equivalents at beginning of year.......................... 232
--------
Cash and equivalents at end of year................................ $ 457
========
Supplemental Disclosure of Cash Flow Information
Cash paid--affiliated interest..................................... $ 656
========
</TABLE>
See accompanying notes to consolidated financial statements.
F-50
<PAGE>
reSOURCE PARTNER, Inc. and subsidiary
Consolidated Statement of Shareholders' Deficit
For the Year Ended December 31, 1999
(Dollars in thousands)
<TABLE>
<CAPTION>
Common Paid in Accumulated Treasury
Stock Capital Deficit Stock Total
------ ------- ----------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1998....... $38 $18,759 $(19,582) $(69) $ (854)
Net loss....................... (10,926) (10,926)
--- ------- -------- ---- --------
Balance, December 31, 1999....... $38 $18,759 $(30,508) $(69) $(11,780)
=== ======= ======== ==== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-51
<PAGE>
reSOURCE PARTNER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BACKGROUND AND NATURE OF OPERATIONS
reSOURCE PARTNER, Inc. ("the Company") is a subsidiary of Borden, Inc.
("Borden"). Borden beneficially owns 95% of the Company with key management
owning the remaining interest. The Company was formed to provide a broad range
of shared services primarily for affiliated businesses of Borden. The Company
owns an insurance brokerage company whose accounts are included in these
statements.
The Company owns a PeopleSoft Human Resource Management System (HRMS)
license and operates a PeopleSoft training center. The Company is a member in
the PeopleSoft Certified Outsourcing Partner Program and PeopleSoft Select
Alliance Partner Program.
The Company focuses its services in three related businesses linked together
by its applications and IT platform:
. Consulting, which includes design and integration of human resources and
financial systems, IT systems and payroll and benefit programs.
. Hosting, which includes application management of PeopleSoft HRMS and
financial systems and IT infrastructure--outsourcing management.
. Processing, which includes business process outsourcing for payroll, tax
and benefits and pension administration.
The Company's client base includes commercial clients and Borden related
entities ("affiliates") in the chemical and food manufacturing, health care,
hospitality, and information technology industries.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company operates as an independent division of Borden. The consolidated
financial statements include the accounts of the Company and its insurance
brokerage subsidiary, after elimination of intercompany accounts and
transactions.
The Company has incurred a $11,298 loss before discontinued operations and
used $8,069 of cash in operations during 1999. The ability of the Company to
continue to operate as a going concern is based on its ability to continue to
fund operations. Borden has agreed to fund the operations of the Company for a
reasonable period of time as long as it remains a subsidiary of Borden. As
discussed in Note 13, the Company has entered into a letter of intent to sell
substantially all of its assets and certain liabilities.
Cash and Equivalents
Cash and equivalents include cash on deposit and all highly liquid
investments purchased with an original maturity of three months or less.
Trade and Affiliated Accounts Receivable
Accounts receivable include amounts owed to the Company, by its customers,
for services rendered and contain balances owed by both trade and affiliated
customers. Affiliated receivables are for ongoing services provided by the
Company. Unbilled trade and affiliated revenues (included in accounts
receivable) of $559 and $169, respectively, at December 31, 1999 represent
revenues earned which have not yet been billed due to the timing of invoice
generation. The Company provides a reserve for uncollectible accounts.
Management believes such reserve is adequate at December 31, 1999.
F-52
<PAGE>
reSOURCE PARTNER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Prepaid Assets
Prepaid maintenance contracts and prepaid insurance are deferred and
expensed over the life of the agreements, which typically are for a one-year
term.
Payroll and Benefit Funds Held for Customers
As part of its payroll and payroll tax filing services, the Company collects
funds for federal, state and local employment taxes from its customers. The
Company also collects funds for medical claims and processes payments for its
customers. The Company receives deposits from customers for payroll tax
deposits and payment of benefit claims in advance of disbursing the funds.
Offsetting liabilities are recorded for funds held. All customer funds are held
in accounts separate from the Company's general operating funds.
Equipment and Leasehold Improvements
Equipment and leasehold improvements are stated at cost. Depreciation is
recorded on a straight-line basis over useful lives primarily ranging from 3 to
15 years. Major renewals and betterments are capitalized. Maintenance, repairs
and minor renewals are expensed as incurred. Depreciation expense for 1999 was
$2,372.
Financial Instruments
The carrying amount for cash and equivalents, receivables, accounts, drafts
and affiliated payables, affiliated short-term borrowings and other liabilities
approximates fair value due to the short maturities of these instruments.
Revenue Recognition
Affiliated and trade revenues are recognized when services are provided.
Amounts billed in advance are recorded as deferred revenue (included in other
current liabilities) and are recognized when services are provided, generally
the month subsequent to billing.
Cost of Services
Cost of goods sold includes the direct costs of providing services to
customers. Types of expenses included are salaries and benefits, rent,
depreciation, travel costs, outside fees and system costs associated with the
implementation and ongoing support of a customer. All costs relative to a
customer's implementation are expensed when incurred.
Sales and Marketing Expense
Production costs of future media advertising are expensed on the first
airdate or print release date of the advertising. All other advertising and
promotion expenses are expensed as incurred. Total advertising expense was $633
in 1999.
Pension and Retirement Savings Plan
The Company's employees are covered by a Borden pension plan. The Borden-
sponsored plan is accounted for under Statement of Financial Accounting
Standard ("SFAS") No. 87.
Substantially all of the Company's employees participate in Borden's
retirement savings plan. The Company's cost of providing the retirement savings
plan represents its matching of eligible contributions made by participating
employees and is recognized as a charge to income in the year the cost is
incurred.
F-53
<PAGE>
reSOURCE PARTNER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Non-pension Post Employment Benefits
The Company provides certain health and life insurance benefits for eligible
retirees and their dependents. The benefits are accounted for under SFAS No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions,"
whereby the cost of postretirement benefits is accrued during the employees'
working careers. The Company provides certain other postemployment benefits to
qualified former and inactive employees. The benefits are accounted for under
SFAS No. 112, "Employers' Accounting for Postemployment Benefits," which
requires that the cost of benefits provided to former or inactive employees
after employment, but before retirement, be accrued when it is probable that a
benefit will be provided.
Income Taxes
The Company utilizes SFAS No. 109, "Accounting for Income Taxes," which
requires the use of liability method of accounting for deferred income taxes.
The Company is included in the consolidated tax return of Borden. The Company
accounts for income taxes on a separate return basis under a tax sharing
agreement with Borden. The provisions of the agreement provide that the Company
will only realize the tax benefit of the net operating losses to the extent it
pays income taxes. Due to the uncertainty of future taxable income, the Company
fully reserves for the value of deferred tax assets.
General Insurance
The Company has insurance policies to cover potential losses and liabilities
relating to workers' compensation, health and welfare claims, physical damage
to property, business interruption and comprehensive general and product
liability. These policies generally have deductibles. Losses are accrued for
the estimated aggregate liability for claims incurred using certain actuarial
assumptions and the Company's experience.
Earnings Per Share
Basic and diluted loss per common share for 1999 is computed by dividing net
loss by the weighted average number of common shares outstanding during 1999.
Options issued that enable the holder to obtain additional shares of stock were
not assumed exercised because they were anti-dilutive for 1999. The Company has
no other potentially dilutive securities.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of temporary cash investments and accounts
receivable. The Company invests most of its excess cash with Borden, which in
turn places the funds in temporary cash investments and marketable securities
with high quality institutions and performs ongoing evaluations of the
financial condition of the institutions. Borden, by policy, limits the amount
of credit exposure to any one institution. The Company generally does not
require collateral or other security to support customer receivables. The
Company monitors its exposure to credit losses and maintains allowances for
anticipated losses. Sales to the Company's largest customers, Borden Foods
Corporation and Borden Chemical, Inc. were $6,816 and $4,853, respectively for
1999.
Impairment
The Company periodically evaluates the recoverability of equipment and
leasehold improvements by assessing whether the carrying value can be recovered
over its remaining useful life through expected future undiscounted cash flows.
In the opinion of management, no such impairment existed at December 31, 1999.
F-54
<PAGE>
reSOURCE PARTNER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Stock Options
The Financial Accounting Standards Board ("FASB") issued SFAS No. 123,
"Accounting for Stock-Based Compensation." As permitted by SFAS No. 123, the
Company will continue to apply its current accounting policy of the intrinsic
value method under Accounting Principles Board Opinion No. 25 and will include
the additional disclosures required by SFAS No. 123.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
Recently Issued Accounting Statements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This standard requires all derivatives be
measured at fair value and be recorded on a company's balance sheet as an asset
or liability, depending upon the company's underlying rights or obligations
associated with the derivative instrument. In June 1999, the FASB issued SFAS
No. 137, "Accounting for Derivative Instruments and Hedging Activities--
Deferral of the Effective Date of FASB Statement No. 133." This statement
defers the effective date of SFAS No. 133 to fiscal quarters of all fiscal
years beginning after June 15, 2000. The Company is currently considering the
impact of this pronouncement.
3. AFFILIATED BORROWINGS
The Company has a revolving loan agreement (the "Loan Agreement") to borrow
funds from Borden. The Loan Agreement, as informally amended, provides for a
revolving loan facility, at a variable interest rate equal to Borden's cost of
funds for 30 day LIBOR borrowings plus 0.50% and has no expiration date at this
time. A commitment fee of 0.10% is paid on the unused portion of the revolving
loan. The Company had $16,350 of borrowings under the revolving agreement at
December 31, 1999.
The Loan Agreement contains certain restrictions on the activities of the
Company and its subsidiary, including restrictions on liens, the incurrence of
indebtedness, mergers and consolidations, sales of assets, investments, payment
of dividends, changes in nature of business, prepayments of certain
indebtedness, transactions with affiliates, capital expenditures, changes in
control and the use of proceeds from asset sales.
4. PENSION AND RETIREMENT SAVINGS PLANS
All employees of the Company are covered under a non-contributory defined
benefit pension plan provided by Borden (the "Borden Plan"). The Borden Plan
provides benefits for employees based on eligible compensation and years of
credited service. Additionally, eligible employees may contribute up to 5% of
their pay (7% for certain longer service salaried employees) in a defined
contribution retirement savings plan, which is currently matched by the Company
at 50%. Charges to operations for matching contributions for the Company's
employees under the Borden's retirement savings plan in 1999 were $224.
A net pension liability of $653, which approximates the portion of the total
pension assets and liabilities of Borden that relates to the employees of the
Company, has been reflected in the Company's consolidated balance sheet. The
gross pension obligation was allocated to the Company based upon the
actuarially determined obligation relating to the Company's employees. The
pension expense allocated to the Company for Borden's Plan was $255 during
1999.
F-55
<PAGE>
reSOURCE PARTNER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Borden's funding of its pension plans equals or exceeds the minimum funding
requirements imposed by Federal and foreign laws and regulations. Plan assets
consist primarily of equity securities and corporate obligations.
For informational purposes, the funded status of the Borden Plan is as
follows:
<TABLE>
<CAPTION>
Borden Plan
1999
-----------
(in
millions)
<S> <C>
Change in Benefit Obligation
Benefit obligation at beginning of year.......................... $351.0
Service cost..................................................... 5.0
Interest cost.................................................... 22.2
Actuarial losses................................................. (5.8)
Foreign currency exchange rate changes........................... 0.2
Benefits paid.................................................... (42.0)
Plan amendments.................................................. 2.0
Settlements...................................................... (0.3)
------
Benefit obligation at end of year................................ $332.3
======
Change in Plan Assets
Fair value of plan assets at beginning of year................... $347.7
Actual return on plan assets..................................... 75.4
Foreign currency exchange rate changes........................... 0.2
Employer contribution............................................ 0.7
Benefits paid.................................................... (42.0)
Settlements...................................................... (1.0)
------
Fair value of plan assets at end of year......................... $381.0
======
Funded Status--plan assets in excess of benefit obligation....... $ 48.7
Unrecognized net actuarial loss.................................. 73.3
Unrecognized initial transition loss............................. (0.4)
Unrecognized prior service cost.................................. 6.1
------
Prepaid pension asset............................................ $127.7
</TABLE>
The weighted average rates used to determine 1999 net pension expense were
as follows:
<TABLE>
<S> <C>
Discount rate........................................................... 6.8%
Rate of increase in future compensation levels.......................... 4.2%
Expected long-term rate of return on plan assets........................ 8.0%
</TABLE>
The Company has a recorded liability of $483 at December 31, 1999 for other
pension benefits provided under non-qualified plans, which do not meet the
reporting requirements of SFAS No. 87. In 1999, the Company recorded expenses
of $115 related to these plans.
F-56
<PAGE>
reSOURCE PARTNER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. NON-PENSION POSTRETIREMENT BENEFIT
The Company uses Borden sponsored plans to provide certain health and life
insurance benefits for eligible retirees and their dependents. The cost of
postretirement benefits is accrued during employees' service. Participants who
are not eligible for Medicare are provided with the same medical benefits as
active employees, while those who are eligible for Medicare are provided with
supplemental benefits. The postretirement medical benefits are contributory and
the postretirement life insurance benefits are noncontributory. Benefits are
funded on a pay-as-you-go basis.
For informational purposes, the change in benefit obligations of Borden is
as follows:
<TABLE>
<CAPTION>
Borden
1999
------------
(in millions)
<S> <C>
Change in Benefit Obligation
Benefit obligation at beginning of year........................ $107.0
Interest cost.................................................. 6.7
Contributions by plan participants............................. 2.2
Actuarial losses............................................... 6.1
Benefits paid.................................................. (12.4)
Plan Amendment................................................. (6.5)
------
Benefit obligation at end of year.............................. 103.1
Unrecognized net actuarial gain................................ 32.0
Unrecognized prior service benefit............................. 32.4
------
Accrued postretirement obligation at end of year............... $167.5
======
</TABLE>
The weighted average discount rate used in determining the postretirement
benefit obligation at December 31, 1999 was 7.8%. For measurement purposes,
health care costs are assumed to increase 8.1% in 2000 grading down gradually
to a constant 5.8% annual increase for both pre-65 and post-65 benefits by the
year 2004.
Following are the components of Borden's net postretirement benefit
recognized for 1999:
<TABLE>
<CAPTION>
Borden 1999
-------------
(in millions)
<S> <C>
Interest cost on projected benefit obligation.................. $ 6.7
Amortization of prior service benefit.......................... (8.7)
Immediate recognition of initial obligation.................... 1.0
Recognized actuarial gain...................................... (2.7)
-----
Net postretirement benefit..................................... $(3.7)
=====
</TABLE>
Assumed health care cost trend rates have a significant effect on the
amounts reported for health care plans. A one-percentage-point change in the
assumed health care cost trend rates would have the following effects on the
Borden amounts:
<TABLE>
<CAPTION>
1% increase 1% decrease
----------- -----------
(in millions)
<S> <C> <C>
Effect on total service cost and interest cost
components....................................... $0.6 $(0.5)
Effect on postretirement benefit obligation....... 7.2 (6.5)
</TABLE>
F-57
<PAGE>
reSOURCE PARTNER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company has a recorded liability of $288 at December 31, 1999 for its
share of postretirement benefits provided by Borden. In 1999 the Company
recorded expenses of $23 related to these benefits.
6. INCOME TAXES
The Company is included in the consolidated income tax return of Borden. The
Company accounts for income taxes as if it were filing on a separate return
basis. The Company has a limited tax sharing agreement with Borden, whereby the
losses generated by the Company are utilized by Borden. The Company will not
receive benefit for such losses until and to the extent it pays income tax on
the separate return basis.
The Company did not provide any current or deferred United States federal,
state or foreign income tax provision or benefit because it experienced
operating losses since inception. The Company has provided a full valuation
allowance on the deferred tax asset, consisting of primarily net operating loss
carryforwards.
The tax effects of the Company's significant temporary differences and loss
carry forwards which comprise the deferred tax assets and liabilities at
December 31, 1999 follows:
<TABLE>
<S> <C>
Deferred tax assets:
Reserve for doubtful accounts...................................... $ 242
Employee benefits and related items................................ 417
General insurance.................................................. 97
Other long term liabilities........................................ 250
Loss carryforwards (under tax sharing agreement)................... 10,759
------
11,765
Valuation allowance................................................ (9,821)
------
Total deferred tax assets.......................................... 1,944
Deferred tax liabilities:
Prepaid and other assets........................................... 331
Equipment and leasehold improvements............................... 1,613
------
Total deferred tax liabilities..................................... 1,944
------
Net deferred tax asset............................................. $ 0
======
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
The Company leases office facilities and various types of equipment under
operating leases. Lease terms generally range from 3 to 5 years. A portion of
the Company's office space is through a sublease agreement with Borden.
Future minimum annual rentals under operating leases at December 31, 1999
are as follows:
<TABLE>
<CAPTION>
Non-
Affiliated Affiliated
---------- ----------
<S> <C> <C>
2000................................................... $ 1,374 $ 889
2001................................................... 1,446 687
2002................................................... 1,519 62
2003................................................... 1,591 59
2004................................................... -- 18
------- -------
Total................................................ $ 5,930 $ 1,715
======= =======
</TABLE>
Total rental expense in 1999 was $1,597, of which $1,446 was affiliated.
F-58
<PAGE>
reSOURCE PARTNER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. RELATED PARTIES
In addition to the affiliated borrowings, tax and lease agreements, the
Company is engaged in various transactions with Borden and its affiliated
companies in the ordinary course of business. Management believes costs
associated with these transactions are reasonable based on the agreements,
however, the amounts are not necessarily indicative of costs that would have
been incurred if the Company operated on a stand alone basis since the business
has historically been operated as a division of Borden. Although the Company is
a division of Borden, it operates independently. Management fees of $93 have
been allocated and are included in the Company's financial statements.
The Company provides certain administrative services to Borden and its
affiliated companies at negotiated fees. These services include: processing of
payroll as well as active and retiree group insurance claims, securing
insurance coverage for catastrophic claims and IT infrastructure outsourcing.
The Company is generally self-insured for general insurance claims and post-
employment benefits other than pensions; however, they do participate in Borden
sponsored plans with other affiliated businesses. The liabilities for these
obligations are included in the Company's financial statements.
The Company also invests excess cash funds held for customers with Borden in
one-day investments that totaled $2,750 at December 31, 1999. Interest income
from Borden for these one-day investments totaled $98 for 1999.
9. COMMON STOCK AND STOCK OPTIONS
The Company issued stock options under its Management Stockholders'
Agreement in which the fair value is determined by a formula (as defined) and
whereby the Company has the right to repurchase the stock and options at
certain determinable dates and events.
At December 31, 1999, the Company has granted options to purchase additional
574,655 shares of common stock at an exercise price of $5 per share. During
1999, options for 21,000 shares and 56,000 were cancelled and forfeited,
respectively, and 40,250 options were granted. The options expire 10 years from
the date of grant and vest ratably over 5 years. The options are generally not
transferable and exercisability of the options will accelerate upon a change of
control as defined.
The stock options have an exercise price of $5 per share (fair value at date
of grant) and a weighted average remaining life of 1.7 years. The fair value of
options at the grant date and at December 31, 1999 was less than the exercise
price for all options outstanding. Compensation expense for the Company's stock
option plan for 1999 based on the provisions of SFAS No. 123 is $106.
10. INSURANCE SUBSIDIARY
rSP Insurance Agency, Inc (a wholly owned subsidiary) handles the placement
of stop-loss, life and short-term disability insurance for selected customers
of the processing business. This subsidiary is a licensed insurance agency in
the State of Ohio. Commissions earned on the placement of policies were $694 in
1999.
11. DISCONTINUED OPERATIONS
In the first quarter of 1999, the Company sold its printing business for
cash proceeds of $1,518 resulting in a pretax gain of $453. This business was a
separate segment of the Company's business as defined by generally accepted
accounting principles and as such has been reclassified to discontinued
operations in the statements of operations and cash flows.
F-59
<PAGE>
reSOURCE PARTNER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
12. SEGMENT REPORTING
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" requires an enterprise to report financial and descriptive
information about its operating segments. In accordance with SFAS No. 131, the
Company determined its operating segments on the same basis that is used
internally to evaluate segment performance and allocate resources.
Each of the Company's operating segments offers different, but integrated,
services with different economic characteristics. The segments within the
Company include Consulting, Hosting and Processing services.
The remainder of the Company's results of operations represent general and
administrative and selling and marketing functions which are listed in the
"Administrative and other" category.
The results of the discontinued operations have not been included in the
segment reporting.
<TABLE>
<CAPTION>
1999
--------
<S> <C>
Affiliated Revenues
Consulting....................................................... $ 750
Hosting.......................................................... 11,443
Processing....................................................... 3,536
Other............................................................ 202
--------
Total............................................................ $ 15,931
========
Trade Revenues
Consulting....................................................... $ 2,241
Hosting.......................................................... 5,111
Processing....................................................... 1,724
Other............................................................ 106
--------
Total............................................................ $ 9,182
========
Gross Margin (Deficit)
Consulting....................................................... $ (1,741)
Hosting.......................................................... 753
Processing....................................................... (1,304)
Other............................................................ 308
--------
Total............................................................ $ (1,984)
========
Total Assets
Consulting....................................................... $ 1,664
Hosting.......................................................... 5,488
Processing....................................................... 5,545
Administrative and other......................................... 1,988
--------
Total............................................................ $ 14,685
========
Depreciation and Amortization
Consulting....................................................... $ 708
Hosting.......................................................... 1,008
Processing....................................................... 197
Administrative and other......................................... 459
--------
Total............................................................ $ 2,372
========
Capital Expenditures
Consulting....................................................... $ 194
Hosting.......................................................... 833
Processing....................................................... 249
Administrative and other......................................... 98
--------
Total............................................................ $ 1,374
========
</TABLE>
F-60
<PAGE>
reSOURCE PARTNER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. SUBSEQUENT EVENTS
Subsequent to December 31, 1999, Borden entered into a letter of intent to
sell substantially all the assets and certain liabilities of the Company. The
transaction has not yet been finalized.
F-61
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus. You must not rely on
any unauthorized information or representations. This prospectus is an offer to
sell only the notes offered hereby, but only under circumstances and in
jurisdictions where it is lawful to do so. The information contained in this
prospectus is current only as of its date.
[LOGO OF INTERLIANT]
7% Convertible Subordinated Notes due 2005
----------------
P R O S P E C T U S
----------------
, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following is an itemized statement of the estimated amounts of all
expenses payable by the Registrant in connection with the registration of the
common stock and notes offered hereby:
<TABLE>
<S> <C>
Registration Fee--Securities and Exchange Commission............. $26,105
Accountants' fees and expenses...................................
Legal fees and expenses.......................................... 10,000
Printing and engraving expenses..................................
Transfer agent and registrar fees................................
Miscellaneous....................................................
-------
Total.......................................................... $
=======
</TABLE>
Item 14. Indemnification of Directors and Officers
Section 145(a) of the General Corporation Law of the State of Delaware (the
"DGCL") provides that a Delaware corporation may indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the corporation)
by reason of the fact that he is or was a director, officer, employee or agent
of the corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses, judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation and, with respect to any criminal action or
proceeding, had no cause to believe his conduct was unlawful.
Section 145(b) of the DGCL provides that a Delaware corporation may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of
the corporation to procure a judgment in its favor by reason of the fact that
such person acted in any of the capacities set forth above, against expenses
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted under similar standards, except
that no indemnification may be made in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the court in which such action or suit was
brought shall determine that despite the adjudication of liability, such person
is fairly and reasonably entitled to be indemnified for such expenses which the
court shall deem proper.
Section 145 of the DGCL further provides that to the extent a director or
officer of a corporation has been successful in the defense of any action, suit
or proceeding referred to in subsections (a) and (b) or in the defense of any
claim, issue, or matter therein, he shall be indemnified against any expenses
actually and reasonably incurred by him in connection therewith; that
indemnification provided for by Section 145 shall not be deemed exclusive of
any other rights to which the indemnified party may be entitled; and that the
corporation may purchase and maintain insurance on behalf of a director,
officer, employee or agent of the corporation against any liability asserted
against him or incurred by him in any such capacity or arising out of his
status as such whether or not the corporation would have the power to indemnify
him against such liabilities under Section 145.
Section 102(b)(7) of the DGCL provides that a corporation in its original
certificate of incorporation or an amendment thereto validly approved by
stockholders may eliminate or limit personal liability of members of its board
of directors or governing body for breach of a director's fiduciary duty.
However, no such provision may eliminate or limit the liability of a director
for breaching his duty of loyalty, failing to act on good faith,
II-1
<PAGE>
engaging in intentional misconduct or knowingly violating a law, paying a
dividend or approving a stock repurchase which was illegal or obtaining an
improper personal benefit. A provision of this type has no effect on the
availability of equitable remedies, such as injunction or rescission, for
breach of fiduciary duty. Interliant's Restated Certificate of Incorporation
contains such a provision.
Interliant's Certificate of Incorporation and By-Laws provide that
Interliant shall indemnify officers and directors and, to the extent permitted
by the Board of Directors, employees and agents of Interliant, to the full
extent permitted by and in the manner permissible under the laws of the State
of Delaware. In addition, the By-Laws permit the Board of Directors to
authorize Interliant to purchase and maintain insurance against any liability
asserted against any director, officer, employee or agent of Interliant arising
out of his capacity as such.
Item 15. Recent Sales of Unregistered Securities
In the three years preceding the filing of this Registration Statement,
Interliant has issued securities that were not registered under the Securities
Act of 1933, as amended (the "Securities Act") to a limited number of persons,
as described below.
Interliant believes that the transactions described below were exempt from
registration under the Securities Act pursuant to Section 4(2) of the
Securities Act, or Regulation D promulgated thereunder, as transactions by an
issuer not involving public offering, or pursuant to Rule 701 promulgated under
Section 3(b) of the Securities Act, as transactions pursuant to written
compensatory benefit plans and contracts relating to compensation. The
recipients of securities in each of these transactions represented that they
were acquiring the securities for investment only and not with a view to or for
sale in connection with any distribution thereof and appropriate legends were
affixed to the share certificates issued in such transactions. All recipients
had adequate access, through their relationships with Interliant, to
information about Interliant, or were given an adequate opportunity to review
information about Interliant.
The following figures give effect to a three-for-one stock split of the
Common Stock of Interliant in July 1998.
(a) Issuance of Capital Stock.
Pursuant to a Stock Subscription Agreement dated December 8, 1997 between
Interliant and Web Hosting Organization LLC ("WEB"), Interliant issued to WEB,
for a purchase price of $5,000,000, 3,000,000 shares of common stock of
Interliant, $.01 par value and also granted WEB an option to purchase up to an
additional 6,600,000 shares of common stock at an exercise price of $1.67 per
share (the "Option").
On April 7, 1998, in connection with the acquisition of substantially all of
the assets of Clever Computers, Inc., ("Clever") and as consideration for
entering into an employment agreement with Interliant, Interliant issued
150,000 shares of common stock to the former president and founder of Clever,
Steven C. Dabbs.
On July 10, 1998, Interliant issued 9,000 shares of common stock to Jab Web,
Inc. (formerly Tri-Star Web Creations, Inc.), as part of the purchase price for
substantially all of the assets of Tri-Star Web Creations, Inc.
On July 10, 1998, Interliant issued to WEB, for a purchase price of
$11,000,000, 6,600,000 shares of common stock.
On July 10, 1998, Interliant issued 115,707 shares of common stock to All
Information Systems, Inc., as part of the purchase price for substantially all
of the assets of All Information Systems, Inc.
On July 10, 1998, Interliant issued 12,000 shares of common stock to
Software Business Technologies, Inc., as part of the purchase price for
substantially all of the Web hosting assets of Software Business Technologies,
Inc.
II-2
<PAGE>
On July 30, 1998, Interliant issued 5,490 shares of common stock to
BestWare, Inc. (dba "Maikon"), as part of the purchase price for substantially
all of the assets of BestWare, Inc. (dba "Maikon").
On August 31, 1998, in connection with the acquisition of B.N. Technology,
Inc. and as consideration for entering into employment agreements with
Interliant, Interliant issued 240,000 shares of common stock to Mr. Bernd
Neumann and Andrea Neumann, his wife and 60,000 shares of common stock to Mr.
Thomas Gorny.
On September 16, 1998, in connection with the acquisition of GEN
International Inc. and as consideration for entering into a consulting
agreement with Interliant, Interliant issued 25,000 shares of common stock to
Mr. Thomas Heimann and Patricia Karasy, his wife.
On September 18, 1998, Interliant issued to WEB, for a purchase price of
$7,500,000, 4,500,000 shares of common stock.
On December 4, 1998, Interliant issued to WEB, for a purchase price of
$7,500,000, 4,500,000 shares of common stock.
On January 28, 1999, Interliant issued 2,647,658 shares of Series A
Redeemable Convertible Preferred Stock, convertible into an equal amount of
shares of common stock and warrants to purchase 749,625 shares of common stock
to SOFTBANK Technology Ventures IV L.P. and one of its affiliates, SOFTBANK
Technology Advisors Fund, L.P. for a purchase price of $13,000,000.
On February 4, 1999, Interliant issued 450,000 shares of common stock to
DigiWeb, Inc. as part of the purchase price for substantially all of the assets
of DigiWeb, Inc.
On February 4, 1999, in connection with the acquisition of substantially all
of the assets of Telephonetics International, Inc., Interliant issued 140,000
shares of common stock to Telephonetics, International, Inc..
On February 4, 1999, Interliant issued to WEB, for a purchase price of
$11,000,000, 6,600,000 shares of common stock.
On February 17, 1999, in connection with the acquisition of Net Daemons
Associates, Inc., Interliant issued 425,000 shares of common stock to certain
stockholders of Net Daemons Associates, Inc.
On March 10, 1999, in connection with the acquisition of substantially all
of the assets of Interliant Texas, Interliant issued 2,748,555 shares of common
stock to Mathew Wolf, 398,845 shares of common stock to the Ann Weltchek Wolf
1995 Marital Trust, 797,690 shares of common stock to the Mathew D. Wolf
Children's Trust, 31,908 shares of common stock to Michael August and 114,644
shares of common stock to Broadview Holdings LLP.
On April 19, 1999, SOFTBANK Technology Ventures IV, L.P. and SOFTBANK
Technology Advisors Fund, L.P. exercised their warrants to purchase 749,625
shares of the common stock of Interliant for an aggregate exercise price of
$5,000,000.
On May 4, 1999, in connection with the acquisition of Advanced Web
Creations, Inc. Interliant issued 52,500 to Advanced Web Creations, Inc., 2,250
shares of common stock to Santa Fe Capital Group of New Mexico, Inc., 53,417
shares of common stock to Gary Rudd, 53,416 shares of common stock to Stephen
Rudd, 53,417 shares of common stock to Mark Lichtenstein and 10,000 shares of
common stock to Kevin Paul.
On May 19, 1999, as consideration for entering into a licensing arrangement,
Interliant issued 6,000 shares of common stock to Greg Stipe.
On August 25, 1999, in connection with the acquisition of substantially all
of the assets of The Daily-e Corporation, Interliant issued 35,000 shares of
common stock to David O'Neill and 35,000 shares of common stock to Eric
Ginsburg.
II-3
<PAGE>
On September 14, 1999, in connection with the acquisition of Sales
Technology Limited, Interliant issued 113,256 shares of common stock to Brett
Raynes, 34,206 shares of common stock to Juliet Raynes, 30,085 shares of common
stock to David Yuile, 21,870 shares of common stock to Dowell and Associates
Advertising Limited, 12,077 shares of common stock to Alastair Morrison, 12,077
shares of common stock to Susannah Morrison, 6,827 shares of common stock to
Geoff Dowell and 5,014 shares of common stock to Sheena McQuillan.
On November 17, 1999, in connection with the acquisition of Triumph
Technologies, Inc. and Triumph Development, Inc., Interliant issued 404,298
shares of common stock to Steven R. Munroe, 161,987 shares of common stock to
Robert F. Munroe, 75,933 shares of common stock to Brad D. Munroe and 8,776
shares of common stock to Peter Hawtrey
On December 21, 1999, in connection with the acquisition of The Jacobson
Group, Inc., Interliant issued 46,618 shares of common stock to Patricia K.
Jacobson, 46,618 shares of common stock to Barry H. Jacobson, 46,618 shares of
common stock to Richard W. Weissberg, 15,983 shares of common stock to Michael
S. Kirschenbaum and 3,995 shares of common stock to Elizabeth W. Reiland.
In January and February 2000, Interliant sold an aggregate of 787,881 shares
of common stock to three strategic partners for a total purchase price of $27.5
million. In connection with this sale and with related commercial agreements
entered into at the same time with these strategic partners, Interliant issued
warrants to purchase an aggregate of 157,575 shares of common stock with a
weighted average exercise price of $34.90 per share.
In February 2000, Interliant sold an aggregate principal amount of $154.8
million of 7% Convertible Subordinated Notes to the initial purchasers and in
March 2000, Interliant sold an aggregate principal amount of $10.0 million of
the same 7% Convertible Subordinated Notes to Microsoft Corporation.
On February 29, 2000, in connection with the acquisition of Soft Link, Inc,
Interliant issued, as partial consideration, 254,879 shares of common stock to
certain stockholders of SoftLink, Inc.
On February 29, 2000, in connection with the purchase of substantially all
of the assets and assumption of certain liabilities of reSOURCE PARTNER, Inc.,
Interliant issued, as partial consideration, 1,041,179 shares of common stock
to certain stockholders of reSOURCE PARTNER, Inc.
(b) Grants of Stock Options.
The Interliant, Inc. 1998 Stock Option Plan was adopted by Interliant's
Board of Directors on February 1, 1998. As of March 31, 2000, options to
purchase up to an aggregate 3,927,890 shares of common stock at prices ranging
from $0.13 to $42.88 per share, had been granted to employees of Interliant, of
which options to purchase up to an aggregate of 1,520,414 shares of common
stock, at a weighted average exercise price of $0.85 per share, were
outstanding as of such date.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<C> <S>
2.1 --Asset Purchase Agreement among Sage Networks Acquisition Corp., Sage
Networks, Inc., Interliant, Inc. and the shareholders of Interliant,
Inc., dated March 8, 1999.*
2.2 --Agreement to Deliver Shares between Interliant, Inc., Sage Networks
Acquisition Corp. and Sage Networks, Inc., dated as of March 10, 1999.*
2.3 --Agreement and Plan of Merger by and among Net Daemons, Inc., the
Shareholders Party hereto and Sage Networks, Inc. and Sage NDA
Acquisition Corp., dated as of February 17, 1999.*
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S>
2.4 --Asset Purchase Agreement between DigiWeb, Inc., a Delaware
corporation, Yi Wen Chung, Diane X. Chen and DigiWeb, Inc., a Maryland
corporation, dated February 4, 1999.*
2.5 --Asset Purchase Agreement between Telephonetics International, Inc.,
Alan Kvares and Telephonetics, Inc., dated February 4, 1999.*
2.6 --Asset Purchase Agreement between Sage Networks Acquisition Corp.,
Thomas Heimann and GEN International Inc., dated September 16, 1998.*
2.7 --Asset Purchase Agreement between Global Entrepreneurs Network, Inc.
and Sage Networks Acquisition Corp., dated as of September 16, 1998.*
2.8 --Stock Purchase Agreement among B.N. Technology, Inc., Bernd Neumann,
Annedore Somber and Sage Networks, Inc., dated August 31, 1998.*
2.9 --Asset Purchase Agreement between Sage Networks, Inc. and HomeCom
Communications, Inc. dated June 10, 1998.*
2.10 --Asset Purchase Agreement between Sage Networks Acquisition Corp.,
Bonnie Shimel, William Nicholson and James Kucharski, Alan Shimel and
Tri-Star Web Creations, Inc., dated May 1, 1998.*
2.11 --Asset Purchase Agreement between Sage Networks Acquisition Corp.,
Steven C. Dabbs and Clever Computers, Inc., dated April 7, 1998.*
2.12 --Share Purchase Agreement and certain related documents pertaining to
the acquisition of the entire issued share capital of Sales Technology
Limited, between Brett Raynes and others, and Interliant, Inc., and
Interliant International, Inc., dated September 14, 1999.**
2.13 --Stock Purchase Agreement pertaining to the acquisition of all of the
outstanding shares of Soft Link Inc., between Gretchen Artig-Swomley
and Dale Swomley, and Interliant, Inc., and its wholly owned
subsidiary Soft Link Holding Corp., dated February 29, 2000.***
2.14 --Asset Purchase Agreement dated February 29, 2000 pertaining to the
purchase of assets and assumption of certain liabilities of reSOURCE
PARTNER, Inc. by reSOURCE PARTNER Acquisition Corp., a wholly owned
subsidiary of Interliant, Inc.***
3.1 --Form of Amended and Restated Certificate of Incorporation of the
Registrant.*
3.2 --Form of Amended and Restated By-Laws of the Registrant.*
4.1 --Specimen Certificate for common stock of the Registrant.*
4.2 --Investors Agreement, dated as of January 28, 1999, by and among Sage
Networks, Inc., SOFTBANK Technology Ventures IV, L.P. and SOFTBANK
Technology Advisors Funds, L.P.*
4.3 --Securities Purchase Agreement between Sage Networks, Inc. and SOFTBANK
Technology Ventures IV, L.P. and SOFTBANK Technology Advisors Funds,
L.P. dated January 28, 1999.*
4.4 --Registration Rights Agreement, dated as of December 8, 1997, by and
between Sage Networks, Inc. and Web Hosting Organization LLC.*
4.5 --Shareholders Agreement by and among Sage Networks, Inc. and each of
the Stockholders of Sage Networks, Inc., dated as of March 10, 1999.*
4.6 --Letter Agreement, dated November 26, 1997, between Leonard J. Fassler,
Bradley A. Feld, Chef Nominees Limited and Charterhouse Equity
Partners III L.P. (Agreement has now been terminated.)*
4.7 --Piggyback Registration Rights Agreement, dated as of January 27, 2000
among Interliant, Inc. and the signatories thereto.+
4.8 --Indenture for the 7% Convertible Subordinated Notes due 2005, dated as
of February 16, 2000, by and between Interliant, Inc. and The Chase
Manhattan Bank, as trustee including the form of 7% Convertible
Subordinated Note due 2005.+
4.9 --Registration Rights Agreement, dated as of February 16, 2000, by and
among Interliant, Inc. and the Initial Purchasers.+
</TABLE>
II-5
<PAGE>
<TABLE>
<C> <S>
4.10 --Indenture for the 7% Convertible Subordinated Notes due 2005, dated as
of February 16, 2000, by and between Interliant, Inc. and The Chase
Manhattan Bank, as trustee including the form of 7% Convertible
Subordinated Note due 2005.+
4.11 --Registration Rights Agreement, dated as of March 10, 2000, by and
among Interliant, Inc. and Microsoft Corporation.+
5.1 --Opinion of Dewey Ballantine LLP.++
10.1 --Professional Services Agreement by and between Sage Networks, Inc. and
Portal Software, Inc., dated as of July 31, 1998.*
10.2 --Software License and Support Agreement by and between Sage Networks,
Inc. and Portal Software, Inc., dated as of July 31, 1998.*
10.3 --The Vantive Corporation Software License and Support Agreement by and
between Interliant Networks, Inc. and The Vantive Corporation, dated
as of September 29, 1998.*
10.4 --Addendum to The Vantive Corporation Software License and Support
Agreement by and between Sage Networks, Inc. and The Vantive
Corporation, dated as of September 29, 1998.*
10.5 --Master Discounted Internet Services Agreement by and between UUNET
Technologies, Inc. and Sage Networks, Inc., dated February 17, 1999.*
10.6 --Joint Development Agreement between Lotus Development Corporation and
Interliant, Inc., dated as of April 27, 1998.*
10.7 --Sage Networks, Inc. 1998 Stock Option Plan.*
10.8 --Form of ISO Award Agreement.*
10.9 --Form of Incentive Stock Option Award Agreement between Sage Networks,
Inc. and the individual Optionee.*
10.10 --Form of Nonqualified Stock Option Award Agreement between Sage
Networks, Inc. and the individual Optionee.*
10.11 --Employment Agreement by and between Sage Networks, Inc. and Leonard J.
Fassler, dated January 1, 1999.*
10.12 --Consulting Agreement by and between Sage Networks, Inc. and Intensity
Ventures, Inc., dated January 1, 1999.*
10.13 --Employment Agreement by and between Sage Networks, Inc. and Stephen W.
Maggs, dated January 1, 1999.*
10.14 --Employment Agreement by and between Sage Networks, Inc. and Rajat
Bhargava, dated January 1, 1999.*
10.15 --Employment Agreement between Sage Networks, Inc. and James M.
Lidestri, dated March 3, 1999.*
10.16 --Deed of Lease by and between Westwood Center, LLC and Sage Networks,
Inc., dated February 11, 1999.*
10.17 --Sublease Agreement by and between Southern Company Services, Inc. and
Sage Networks, Inc., dated May 29, 1998.*
10.18 --First Amendment to Sublease Agreement by and between Southern Company
Services, Inc. and Sage Networks, Inc., dated December 15, 1998.*
10.19 --Sublease Agreement by and between Leuko Site, Inc. and Sage Networks,
Inc., dated November 17, 1998.*
10.20 --Agreement for Terminal Facilities Collocation Space by and between
Comstor Corporation and Sage Networks, Inc., dated as of July 2,
1998.*
</TABLE>
II-6
<PAGE>
<TABLE>
<C> <S>
10.21 --Standard Lease Agreement, dated June 11, 1995, between LaSalle
Partners Management Limited (as agent for Fannin Street Limited
Partnership) and Wolf Communications Company.*
10.22 --First Amendment to Standard Lease, dated January 18, 1996, between
LaSalle Partners Management Limited (as agent for Fannin Street
Limited Partnership) and Wolf Communications Company.*
10.23 --Second Amendment to Standard Lease, dated August 8, 1996, between
LaSalle Partners Management Limited (as agent for Fannin Street
Limited Partnership) and Wolf Communications Company.*
10.24 --First Amendment to Lease Agreement, between Westwood Center, L.L.C.
and Interliant, Inc., dated June 28, 1999.*
10.25 --Master Lease Agreement between Leasing Technologies International,
Inc. and Interliant, Inc., dated June 9, 1999.*
10.26 --Agreement of Lease between Purchase Corporate Park Associates and
Courtaulds United States Inc., dated August 23, 1991.*
10.27 --Sublease, by and between Akzo Nobel Courtalds United States, Inc. and
Interliant, Inc., dated as of May 11, 1999.*
10.28 --Agreement of Lease, between Purchase Corporate Park Associates, L.P.
and Interliant, Inc., dated as of June 16, 1999 (Interliant I).*
10.29 --Agreement of Lease, between Purchase Corporate Park Associates, L.P.
and Interliant, Inc., dated as of June 16, 1999 (Interliant II).*
10.30 --Agreement of Lease, between Purchase Corporate Park Associates, L.P.
and Interliant, Inc., dated as of June 16, 1999 (Interliant III).*
10.31 --Employment Agreement by and between Sage Networks, Inc. and Jennifer
A. Lawton, dated February 17, 1999.****
10.32 --Second Amendment to Sublease Agreement, dated as of October 31, 1999,
between Interliant, Inc. and Southern Company Services, Inc.****
10.33 --Employment Agreement by and between Interliant, Inc. and William A.
Wilson, dated November 5, 1999.****
10.34 --Employment Agreement by and between Interliant, Inc. and Kristian
Nelson, dated as of January 1, 2000.****
10.35 --Employment Agreement by and between Interliant, Inc. and Herbert R.
Hribar, dated January 14, 2000.****
10.36 --Second Amendment to Lease Agreement, dated as of February 3, 2000,
Westwood Center L.L.C. and Interliant, Inc.****
10.37 --Third Amendment to Sublease Agreement, dated as of February 10, 2000,
by and between EOP-Perimeter Center, L.L.C. and Interliant, Inc.****
10.38 --Assignment and Consent of Sublease, dated as of February 29, 2000, by
and among reSOURCE Partner, Inc., reSOURCE Partner Acquisition Corp.
and Borden, Inc.+
21.1 --List of Subsidiaries.+
23.1 --Consent of Ernst & Young LLP with respect to the financial statements
of Interliant, Inc.+
23.2 --Consent of Ernst & Young with respect to the financial statements of
Sales Technology Limited+
23.3 --Consent of Deloitte & Touche LLP.+
23.4 --Consent of Smith Schafer & Associates, Ltd.+
24.1 --Power of Attorney (included on page II-9).+
25.1 --Form T-1 Statement of Eligibility under the Trust Indenture Act of
1939, as amended, of The Chase Manhattan Bank, as Trustee under the
Indenture included as Exhibit 4.8.++
</TABLE>
II-7
<PAGE>
<TABLE>
<C> <S>
25.2 --Form T-1 Statement of Eligibility under the Trust Indenture Act of
1939, as amended, of The Chase Manhattan Bank, as Trustee under the
Indenture included as Exhibit 4.10.++
27.1 --Financial Data Schedule.+
</TABLE>
- --------
* Incorporated by reference to the Registrant's Registration on Form S-1,
File No. 333-74403.
** Previously filed as an exhibit to the Company's Current Report on Form 8-K
dated September 14, 1999, and incorporated by reference herein.
*** Previously filed as an exhibit to the Company's Current Report on Form 8-K
dated February 16, 2000, and incorporated by reference herein.
**** Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the year ended December 31, 1999 and incorporated by reference herein.
+ Filed herewith
++ To be filed by amendment
(b) Consolidated Financial Statement Schedules
Schedule II Valuation and qualifying accounts
All other schedules have been omitted because they are not required or
because the required information is given in the Consolidated Financial
Statements or Notes thereto.
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein and this offering of such securities at the
time shall be deemed to be the initial bona fide offering thereof.
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on May 16, 2000.
INTERLIANT, INC.
By: /s/ Herbert R. Hribar
----------------------------------
Herbert R. Hribar
President and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each of the persons whose names
appear below appoint and constitute Leonard J. Fassler, Bradley A. Feld,
William A. Wilson and Bruce S. Klein and each of them, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to execute
any and all amendments to the within Registration Statement and to sign any and
all registration statements relating to the same offering of securities as this
Registration Statement that are filed pursuant to Rule 462(b) of the Securities
Act of 1933, as amended and to file the same, together with all exhibits
thereto, with the Securities and Exchange Commission, the National Association
of Securities Dealers, Inc. and such other agencies, offices and persons as may
be required by applicable law, granting unto each said attorney-in-fact and
agent, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that each said attorney-in-fact and agent may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons on May 16, 2000
in the capacities indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Leonard J. Fassler Co-Chairman of the Board May 16, 2000
___________________________________________
Leonard J. Fassler
/s/ Bradley A. Feld Co-Chairman of the Board May 16, 2000
___________________________________________
Bradley A. Feld
/s/ Herbert R. Hribar President, Chief Executive May 16, 2000
___________________________________________ Officer and Director
Herbert R. Hribar
/s/ William A. Wilson Chief Financial Officer May 16, 2000
___________________________________________ (Chief Financial and
William A. Wilson Accounting Officer)
/s/ Thomas C. Dircks Director May 16, 2000
___________________________________________
Thomas C. Dircks
</TABLE>
II-9
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Jay M. Gates Director May 16, 2000
___________________________________________
Jay M. Gates
/s/ Merril M. Halpern Director May 16, 2000
___________________________________________
Merril M. Halpern
/s/ John P. Landry Director May 16, 2000
___________________________________________
John P. Landry
/s/ Charles R. Lax Director May 16, 2000
___________________________________________
Charles R. Lax
/s/ Stephen W. Maggs Director May 16, 2000
___________________________________________
Stephen W. Maggs
/s/ Patricia A.M. Riley Director May 16, 2000
___________________________________________
Patricia A.M. Riley
</TABLE>
II-10
<PAGE>
Schedule II Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Additions
Balance at ------------------------- Balance at
Beginning of Charged to Charged to End of
Classification Period Expense Other accounts Deductions Period
- -------------- ------------ ---------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1999
Allowance for
uncollectible
accounts............ $320,000 $1,585,254 $507,078(1) $1,034,332 $1,378,000
Year ended December 31,
1998
Allowance for
uncollectible
accounts............ $ 320,000 $ 320,000
</TABLE>
- --------
(1) includes allowances of acquired companies
II-11
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
2.1 --Asset Purchase Agreement among Sage Networks Acquisition Corp., Sage
Networks, Inc., Interliant, Inc. and the shareholders of Interliant,
Inc., dated March 8, 1999.*
2.2 --Agreement to Deliver Shares between Interliant, Inc., Sage Networks
Acquisition Corp. and Sage Networks, Inc., dated as of March 10,
1999.*
2.3 --Agreement and Plan of Merger by and among Net Daemons, Inc., the
Shareholders Party hereto and Sage Networks, Inc. and Sage NDA
Acquisition Corp., dated as of February 17, 1999.*
2.4 --Asset Purchase Agreement between DigiWeb, Inc., a Delaware
corporation, Yi Wen Chung, Diane X. Chen and DigiWeb, Inc., a Maryland
corporation, dated February 4, 1999.*
2.5 --Asset Purchase Agreement between Telephonetics International, Inc.,
Alan Kvares and Telephonetics, Inc., dated February 4, 1999.*
2.6 --Asset Purchase Agreement between Sage Networks Acquisition Corp.,
Thomas Heimann and GEN International Inc., dated September 16, 1998.*
2.7 --Asset Purchase Agreement between Global Entrepreneurs Network, Inc.
and Sage Networks Acquisition Corp., dated as of September 16, 1998.*
2.8 --Stock Purchase Agreement among B.N. Technology, Inc., Bernd Neumann,
Annedore Somber and Sage Networks, Inc., dated August 31, 1998.*
2.9 --Asset Purchase Agreement between Sage Networks, Inc. and HomeCom
Communications, Inc. dated June 10, 1998.*
2.10 --Asset Purchase Agreement between Sage Networks Acquisition Corp.,
Bonnie Shimel, William Nicholson and James Kucharski, Alan Shimel and
Tri-Star Web Creations, Inc., dated May 1, 1998.*
2.11 --Asset Purchase Agreement between Sage Networks Acquisition Corp.,
Steven C. Dabbs and Clever Computers, Inc., dated April 7, 1998.*
2.12 --Share Purchase Agreement and certain related documents pertaining to
the acquisition of the entire issued share capital of Sales Technology
Limited, between Brett Raynes and others, and Interliant, Inc., and
Interliant International, Inc., dated September 14, 1999.**
2.13 --Stock Purchase Agreement pertaining to the acquisition of all of the
outstanding shares of Soft Link Inc., between Gretchen Artig-Swomley
and Dale Swomley, and Interliant, Inc., and its wholly owned
subsidiary Soft Link Holding Corp., dated February 29, 2000.***
2.14 --Asset Purchase Agreement dated February 29, 2000 pertaining to the
purchase of assets and assumption of certain liabilities of reSOURCE
PARTNER, Inc. by reSOURCE PARTNER Acquisition Corp., a wholly owned
subsidiary of Interliant, Inc.***
3.1 --Form of Amended and Restated Certificate of Incorporation of the
Registrant.*
3.2 --Form of Amended and Restated By-Laws of the Registrant.*
4.1 --Specimen Certificate for common stock of the Registrant.*
4.2 --Investors Agreement, dated as of January 28, 1999, by and among Sage
Networks, Inc., SOFTBANK Technology Ventures IV, L.P. and SOFTBANK
Technology Advisors Funds, L.P.*
4.3 --Securities Purchase Agreement between Sage Networks, Inc. and SOFTBANK
Technology Ventures IV, L.P. and SOFTBANK Technology Advisors Funds,
L.P. dated January 28, 1999.*
4.4 --Registration Rights Agreement, dated as of December 8, 1997, by and
between Sage Networks, Inc. and Web Hosting Organization LLC.*
4.5 --Shareholders Agreement by and among Sage Networks, Inc. and each of
the Stockholders of Sage Networks, Inc., dated as of March 10, 1999.*
</TABLE>
<PAGE>
<TABLE>
<C> <S>
4.6 --Letter Agreement, dated November 26, 1997, between Leonard J. Fassler,
Bradley A. Feld, Chef Nominees Limited and Charterhouse Equity
Partners III L.P. (Agreement has now been terminated.)*
4.7 --Piggyback Registration Rights Agreement, dated as of January 27, 2000
among Interliant, Inc. and the signatories thereto.+
4.8 --Indenture for the 7% Convertible Subordinated Notes due 2005, dated as
of February 16, 2000, by and between Interliant, Inc. and The Chase
Manhattan Bank, as trustee including the form of 7% Convertible
Subordinated Note due 2005.+
4.9 --Registration Rights Agreement, dated as of February 16, 2000, by and
among Interliant, Inc. and the Initial Purchasers.+
4.10 --Indenture for the 7% Convertible Subordinated Notes due 2005, dated as
of February 16, 2000, by and between Interliant, Inc. and The Chase
Manhattan Bank, as trustee including the form of 7% Convertible
Subordinated Note due 2005.+
4.11 --Registration Rights Agreement, dated as of March 10, 2000, by and
among Interliant, Inc. and Microsoft Corporation.+
5.1 --Opinion of Dewey Ballantine LLP.++
10.1 --Professional Services Agreement by and between Sage Networks, Inc. and
Portal Software, Inc., dated as of July 31, 1998.*
10.2 --Software License and Support Agreement by and between Sage Networks,
Inc. and Portal Software, Inc., dated as of July 31, 1998.*
10.3 --The Vantive Corporation Software License and Support Agreement by and
between Interliant Networks, Inc. and The Vantive Corporation, dated
as of September 29, 1998.*
10.4 --Addendum to The Vantive Corporation Software License and Support
Agreement by and between Sage Networks, Inc. and The Vantive
Corporation, dated as of September 29, 1998.*
10.5 --Master Discounted Internet Services Agreement by and between UUNET
Technologies, Inc. and Sage Networks, Inc., dated February 17, 1999.*
10.6 --Joint Development Agreement between Lotus Development Corporation and
Interliant, Inc., dated as of April 27, 1998.*
10.7 --Sage Networks, Inc. 1998 Stock Option Plan.*
10.8 --Form of ISO Award Agreement.*
10.9 --Form of Incentive Stock Option Award Agreement between Sage Networks,
Inc. and the individual Optionee.*
10.10 --Form of Nonqualified Stock Option Award Agreement between Sage
Networks, Inc. and the individual Optionee.*
10.11 --Employment Agreement by and between Sage Networks, Inc. and Leonard J.
Fassler, dated January 1, 1999.*
10.12 --Consulting Agreement by and between Sage Networks, Inc. and Intensity
Ventures, Inc., dated January 1, 1999.*
10.13 --Employment Agreement by and between Sage Networks, Inc. and Stephen W.
Maggs, dated January 1, 1999.*
10.14 --Employment Agreement by and between Sage Networks, Inc. and Rajat
Bhargava, dated January 1, 1999.*
10.15 --Employment Agreement between Sage Networks, Inc. and James M.
Lidestri, dated March 3, 1999.*
10.16 --Deed of Lease by and between Westwood Center, LLC and Sage Networks,
Inc., dated February 11, 1999.*
</TABLE>
<PAGE>
<TABLE>
<C> <S>
10.17 --Sublease Agreement by and between Southern Company Services, Inc. and
Sage Networks, Inc., dated May 29, 1998.*
10.18 --First Amendment to Sublease Agreement by and between Southern Company
Services, Inc. and Sage Networks, Inc., dated December 15, 1998.*
10.19 --Sublease Agreement by and between Leuko Site, Inc. and Sage Networks,
Inc., dated November 17, 1998.*
10.20 --Agreement for Terminal Facilities Collocation Space by and between
Comstor Corporation and Sage Networks, Inc., dated as of July 2,
1998.*
10.21 --Standard Lease Agreement, dated June 11, 1995, between LaSalle
Partners Management Limited (as agent for Fannin Street Limited
Partnership) and Wolf Communications Company.*
10.22 --First Amendment to Standard Lease, dated January 18, 1996, between
LaSalle Partners Management Limited (as agent for Fannin Street
Limited Partnership) and Wolf Communications Company.*
10.23 --Second Amendment to Standard Lease, dated August 8, 1996, between
LaSalle Partners Management Limited (as agent for Fannin Street
Limited Partnership) and Wolf Communications Company.*
10.24 --First Amendment to Lease Agreement, between Westwood Center, L.L.C.
and Interliant, Inc., dated June 28, 1999.*
10.25 --Master Lease Agreement between Leasing Technologies International,
Inc. and Interliant, Inc., dated June 9, 1999.*
10.26 --Agreement of Lease between Purchase Corporate Park Associates and
Courtaulds United States Inc., dated August 23, 1991.*
10.27 --Sublease, by and between Akzo Nobel Courtalds United States, Inc. and
Interliant, Inc., dated as of May 11, 1999.*
10.28 --Agreement of Lease, between Purchase Corporate Park Associates, L.P.
and Interliant, Inc., dated as of June 16, 1999 (Interliant I).*
10.29 --Agreement of Lease, between Purchase Corporate Park Associates, L.P.
and Interliant, Inc., dated as of June 16, 1999 (Interliant II).*
10.30 --Agreement of Lease, between Purchase Corporate Park Associates, L.P.
and Interliant, Inc., dated as of June 16, 1999 (Interliant III).*
10.31 --Employment Agreement by and between Sage Networks, Inc. and Jennifer
A. Lawton, dated February 17, 1999.****
10.32 --Second Amendment to Sublease Agreement, dated as of October 31, 1999,
between Interliant, Inc. and Southern Company Services, Inc.****
10.33 --Employment Agreement by and between Interliant, Inc. and William A.
Wilson, dated November 5, 1999.****
10.34 --Employment Agreement by and between Interliant, Inc. and Kristian
Nelson, dated as of January 1, 2000.****
10.35 --Employment Agreement by and between Interliant, Inc. and Herbert R.
Hribar, dated January 14, 2000.****
10.36 --Second Amendment to Lease Agreement, dated as of February 3, 2000,
Westwood Center L.L.C. and Interliant, Inc.****
10.37 --Third Amendment to Sublease Agreement, dated as of February 10, 2000,
by and between EOP-Perimeter Center, L.L.C. and Interliant, Inc.****
10.38 --Assignment and Consent of Sublease, dated as of February 29, 2000, by
and among reSOURCE Partner, Inc., reSOURCE Partner Acquisition Corp.
and Borden, Inc.+
</TABLE>
<PAGE>
<TABLE>
<C> <S>
21.1 --List of Subsidiaries.+
23.1 --Consent of Ernst & Young LLP with respect to the financial statements
of Interliant, Inc.+
23.2 --Consent of Ernst & Young with respect to the financial statements of
Sales Technology Limited+
23.3 --Consent of Deloitte & Touche LLP.+
23.4 --Consent of Smith Schafer & Associates, Ltd.+
24.1 --Power of Attorney (included on page II-9).+
25.1 --Form T-1 Statement of Eligibility under the Trust Indenture Act of
1939, as amended, of The Chase Manhattan Bank, as Trustee under the
Indenture included as Exhibit 4.8.++
25.2 --Form T-1 Statement of Eligibility under the Trust Indenture Act of
1939, as amended, of The Chase Manhattan Bank, as Trustee under the
Indenture included as Exhibit 4.10.++
27.1 --Financial Data Schedule.+
</TABLE>
- --------
* Incorporated by reference to the Registrant's Registration on Form S-1,
File No. 333-74403.
** Previously filed as an exhibit to the Company's Current Report on Form 8-K
dated September 14, 1999, and incorporated by reference herein.
*** Previously filed as an exhibit to the Company's Current Report on Form 8-K
dated February 16, 2000, and incorporated by reference herein.
**** Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the year ended December 31, 1999 and incorporated by reference herein.
+ Filed herewith
++ To be filed by amendment
(b) Consolidated Financial Statement Schedules
<PAGE>
Exhibit 4.7
PIGGYBACK REGISTRATION RIGHTS AGREEMENT
This Piggyback Registration Rights Agreement dated as of January 27,
2000 (this "Agreement") is entered into by and among Interliant, Inc., a
Delaware corporation (the "Company"), and each Person signatory hereto and each
Person that becomes signatory hereto after the date hereof as contemplated
hereby (each a "Stockholder" and together the "Stockholders").
W I T N E S S E T H :
WHEREAS, during the first quarter of 2000, the Company at one or more
closings is selling Equity Securities to certain Persons pursuant to certain
Securities Purchase Agreements between the Company and such Persons (the Persons
acquiring Equity Securities from the Company during the first quarter of 2000
are hereafter referred to as the "First Quarter 2000 Persons") and it is a
condition to the consummation of the transactions contemplated by those
agreements that the Company grant such First Quarter 2000 Persons certain
piggyback registration rights as contemplated by this Agreement;
WHEREAS, the Company has previously granted piggyback registration
rights to the Prior Piggyback Persons (as defined herein) pursuant to (1) that
certain Investors Agreement, dated as of January 28, 1999, (2) that certain
Registration Rights Agreement, dated as of December 8, 1997, (3) that certain
Shareholders Agreement, dated as of March 10, 1999, (4) that certain Agreement
and Plan of Merger (relating to Triumph Technologies, Inc.), dated November 12,
1999, (5) that certain Agreement and Plan of Merger (relating to Triumph
Development, Inc.) dated November 12, 1999 and (6) that certain Agreement and
Plan of Merger (relating to The Jacobson Group, Inc.) dated December 21, 1999;
WHEREAS, the parties hereto contemplate that after the date hereof,
some or all of the Prior Piggyback Persons shall become party to this Agreement
and shall become a Stockholder and Holder hereunder;
NOW, THEREFORE, in consideration of the mutual promises, agreements
and covenants set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties
hereto, intending legally to be bound, hereby agree as follows:
Article I.
DEFINITIONS
Section 1.01 Defined Terms. The following terms when used in this
Agreement, including its preamble and recitals, shall, except where the context
otherwise
<PAGE>
requires, have the following meanings, such meanings to be equally applicable to
the singular and plural forms thereof:
"Affiliate" shall mean, with respect to any Person, any person
that, directly or indirectly, controls, is controlled by or is under common
control with such Person. For the purposes of this definition, "control"
(including, with correlative meanings, the terms "controlled by" and "under
common control with"), as used with respect to any Person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities or by contract or otherwise.
"Common Stock" shall mean the common stock, par value $0.01
per share, of the Company.
"Equity Securities" shall mean any Common Stock, any
securities exercisable or exchangeable for or convertible into Common Stock and
any rights, options or warrants to acquire any of the foregoing.
"First Quarter 2000 Persons" shall mean those Stockholders
described in the recitals hereto.
"Holders" shall mean (1) the First Quarter 2000 Persons; (2)
any of the Prior Piggyback Persons who agree to become party to this Agreement;
and (3) New Purchasers, provided, however, that the First Quarter 2000 Persons
shall only be Holders hereunder on or after January 27, 2001.
"Jacobson Persons" shall mean Patricia K. Jacobson, Barry H.
Jacobson, Richard W. Weissberg, Michael S. Kirschenbaum and Elizabeth W.
Reiland.
"New Purchasers" shall mean Persons who acquire Equity
Securities of the Company in connection with an acquisition by the Company
following the date of this Agreement and who are granted piggyback rights which
are pari passu with the piggyback rights granted to the Holders hereunder.
"Non-Party Prior Piggyback Persons" shall mean such Prior
Piggyback Persons who do not become party to this Agreement.
"Person" shall mean and include an individual, a corporation,
a limited liability company, an association, a partnership, a joint venture, a
trust or estate, a government or any department or agency thereof, or any other
entity or governmental body.
"Prior Piggyback Person" shall mean any member (and "Prior
Piggyback Persons" shall mean all members) of the following groups: (1) the Wolf
Persons, (2) WHO, (3) the Softbank Persons, (4) the Triumph Persons and (5) the
Jacobson Persons.
"Registration Expenses" shall mean all expenses incident to
the Company's performance of or compliance with its obligations under Sections
2.01 and 2.04 hereof, including without limitation, all SEC, NASD and stock
exchange or NASDAQ registration and filing fees
2
<PAGE>
and expenses, fees and expenses of compliance with applicable state securities
or "blue sky" laws (including, without limitation, reasonable fees and
disbursements of counsel for the underwriters in connection with "blue sky"
qualifications of securities registered in accordance with this Agreement),
printing expenses, messenger and delivery expenses, the fees and expenses
incurred in connection with the listing of the securities to be registered on
each securities exchange or national market system on which such securities are
listed, fees and disbursements of counsel for the Company and all independent
certified public accountants retained by the Company (including the expenses of
any annual audit and "cold comfort" letters required by or incident to such
performance and compliance), all reasonable fees and expenses of one counsel to
the Holders participating in a Piggyback Registration, the fees and
disbursements of underwriters customarily paid by issuers or sellers of
securities (including the fees and expenses of any "qualified independent
underwriter" required by the NASD), the reasonable fees and expenses of any
special experts retained by the Company in connection with such registration,
fees and expenses of other Persons retained by the Company in connection with
such registration, all transfer taxes with respect to the shares of Common Stock
sold by a Stockholder and all other expenses incurred by Stockholders customary
for and incidental to the sale and delivery of the shares of Common Stock to be
sold by such Stockholders (but not including any underwriting discounts or
commission, if any, attributable to the sale of Common Stock by holders of such
Common Stock other than the Company).
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as
amended.
"Softbank Persons" shall mean Softbank Technologies Venture
IV, L.P. and Softbank Technologies Advisors Fund, L.P.
"Triumph Persons" shall mean Steven R. Munroe, Brad D. Munroe,
Peter Hawtrey and Robert F. Munroe.
"WHO" shall mean WEB Hosting Organization L.L.C., a Delaware
limited liability company.
"Wolf Persons" shall mean Mathew Wolf, Ann Weltchek Wolf 1995
Marital Trust, Mathew D. Wolf Children's Trust, Michael August and Broadview
Holdings LLP.
Article II.
REGISTRATION RIGHTS
Section 2.01 Piggyback Registration. (a) If the Company
proposes (including in connection with any demand registration which a Person
may have) to file any registration statement under the Securities Act with
respect to any Common Stock (other than pursuant to a registration statement on
Form S-4 or S-8 or any successor or similar forms in connection with an exchange
offer or any offering of securities solely to the Company's then existing
stockholders or employees of the Company and its subsidiaries), the Company
shall give written notice of such proposed filing to the Holders at least 30
days prior to such proposed filing. Such notice shall offer to the Holders the
opportunity to include in such registration statement for
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<PAGE>
resale by the Holders, such number of shares of Common Stock each may request in
a written notice to the Company (which notice shall specify the number of shares
to be disposed of by such Holder and the intended method of disposition thereof)
within 20 days after the receipt of such notice from the Company (a "Piggyback
Registration"). The Company shall permit, or shall cause the managing
underwriter of any such proposed offering to permit, the shares of Common Stock
requested to be included in the registration to be included on the same terms
and conditions as are applicable to the other shares of Common Stock included in
such registration statement, subject to Section 2.01(b) below. The Company shall
not be required to maintain the effectiveness of the registration statement
beyond the earlier to occur of (i) 180 days after the effective date of the
registration statement; and (ii) consummation of the distribution by the Holders
of the shares of Common Stock that are included in such registration statement.
(b) If the managing underwriter or underwriters, if any,
advise the Holders in writing that in its or their opinion, the number of shares
of Common Stock proposed to be sold in such registration (including shares of
Common Stock to be included pursuant to Section 2.01(a) above) will materially
adversely affect the success of such offering, the Company will include in such
registration the number of shares of Common Stock, if any, which in the opinion
of such underwriter or underwriters, or the Company, as the case may be, can be
sold as follows: (i) first, the shares the Company proposes to sell (or, in the
case of a demand registration, the shares of Common Stock the Person(s)
initiating such demand registration proposes to sell); and (ii) second, the
shares of Common Stock requested to be included in such registration by the
Holders and the Non-Party Prior Piggyback Persons; provided that (a) if all the
shares of Common Stock requested to be included in such Piggyback Registration
set forth above are not to be included, selection of shares of Common Stock to
be included shall be made pro rata based on the number of shares of Common Stock
that such Holder and the Non-Party Prior Piggyback Persons hold and (b) none of
the Holders shall have the right to register shares pursuant to this Section
2.01 if the Company is at such time, and has been continuously during the
immediately preceding three years, subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act and such Holder is then entitled to sell
all of its shares of Common Stock without any volume restrictions pursuant to
Rule 144 of the Securities Act or all of such shares of Common Stock may be sold
pursuant to Rule 144(k) of the Securities Act.
Section 2.02 Holdback Agreement. Notwithstanding any other
provision in this Article 2, the Company and the Stockholders each agree that it
will not, and the Company shall use its best efforts to not permit any Affiliate
to (and it shall be a condition to the rights of each Stockholder under this
Article 2 that such Stockholder does not) offer for public sale any shares of
Equity Securities, or effect any sale of securities pursuant to Rule 144, during
the 10 days prior to and the 180 days after the closing date of any underwritten
offering of Equity Securities unless such shares are covered by such
registration statement or such shorter period is agreed to by any managing
underwriter or underwriters of such offering.
Section 2.03 Expenses. All Registration Expenses,
disbursements and fees incurred by the Company and the Holders in connection
with any registration under this Article 2 shall be borne by the Company.
Section 2.04 Registration Procedures. In connection with the
registration of shares of Common Stock under the Securities Act pursuant to this
Agreement, the Company, will
4
<PAGE>
furnish each Holder whose shares of Common Stock are registered thereunder and
each underwriter, if any, with a copy of the registration statement (including
all exhibits thereto) and all amendments thereto and will supply each such
Holder and each underwriter, if any, with copies of any prospectus included
therein (including a preliminary prospectus and all amendments and supplements
thereto) in such quantities as may be reasonably necessary for the purposes of
the proposed sale or distribution covered by such registration.
Notwithstanding anything to the contrary herein, the only
securities which the Company shall be required to register subject to and
pursuant to this Article 2 shall be shares of Common Stock; provided, however,
that in any underwritten public offering, the Holders of any outstanding Equity
Securities shall be entitled to sell such Equity Securities to the underwriters
for exercise, exchange or conversion and sale of the shares of Common Stock
issued upon exercise, exchange or conversion thereof.
It is hereby agreed that the Holders shall have piggyback
registration rights, as described in this Article 2, only with respect to the
Equity Securities that such Person initially acquired from the Company,
provided, however, that to the extent that any of the Triumph Persons and/or the
Jacobson Persons become Holders hereunder, such Person shall have piggyback
registration rights with respect to any earnout shares that such Person may
receive from the Company pursuant to the terms of the merger agreement to which
such Persons, on the one hand, and the Company, on the other hand, are parties.
In connection with the Company's registration obligations
pursuant to this Article 2, the Company will use its best efforts to effect such
registration to permit the sale of such shares of Common Stock in accordance
with the intended method or methods of disposition thereof, and pursuant thereto
the Company will:
(a) prepare and file with the SEC, as soon as practicable
after receiving a written notice pursuant to Section 2.01, a registration
statement on any appropriate form under the Securities Act, which form shall be
selected by the Company (and shall be reasonably acceptable to any managing
underwriter chosen by holders of shares covered by such registration statement)
and shall be available for the sale of the shares in accordance with the
intended method or methods of distribution thereof, and use its reasonable
efforts to cause such registration statement to become effective; provided that
before filing a registration statement or any prospectus related thereto or any
amendments or supplements thereto, including documents incorporated by reference
after the initial filing of any registration statement, the Company will furnish
copies of all such documents proposed to be filed to the holders of the shares
covered by such registration statement and underwriters, if any, and make the
Company's representatives available for discussion of such documents and other
relevant matters and shall reasonably consider such changes in such documents
prior to the filing thereof as such holders or underwriters may timely and
reasonably request. If any Holder whose shares of Common Stock are covered by
such registration statement shall reasonably object to any disclosure in or
omission from any registration statement or any amendment thereto or any
prospectus or any supplement thereto (including documents incorporated by
reference) which the Company in good faith on the advice of counsel believes is
necessary or appropriate to be included therein or omitted therefrom, and prior
to the effectiveness of such registration advises the Company that it
5
<PAGE>
chooses not to participate in such offering, such Holder may choose not to
participate in such offering;
(b) prepare and file with the SEC such amendments and
post-effective amendments to the registration statement as may be necessary to
keep such registration statement effective for the required duration thereof;
cause the related prospectus to be supplemented by any required prospectus
supplement, and as so supplemented to be filed pursuant to Rule 424 under the
Securities Act; and comply with the relevant provisions of the Securities Act
during the applicable period in accordance with the intended methods of
disposition by the sellers thereof set forth in such registration statement or
supplement to such prospectus;
(c) notify the selling Holders and the managing underwriters,
if any, promptly, and (if requested by any such holders) confirm such advice in
writing, (A) when a prospectus or any prospectus supplement or post-effective
amendment has been filed, and, with respect to a registration statement or any
post-effective amendment, when the same has become effective, (B) of any request
by the SEC for amendments or supplements to a registration statement or related
prospectus or for additional information, (C) of the issuance by the SEC of any
stop order suspending the effectiveness of a registration statement or the
initiation of any proceedings for that purpose, (D) of the receipt by the
Company of any written notification with respect to the suspension of the
qualification of any of the shares for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose, and (E) of the
existence of any fact known to the Company which results in a registration
statement, a prospectus or any document incorporated therein by reference
containing an untrue statement of a material fact or omitting to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(d) use reasonable efforts to obtain the withdrawal of any
order suspending the effectiveness of a registration statement at the earliest
practicable moment;
(e) if reasonably requested by the managing underwriters or a
selling Holder, promptly incorporate in a prospectus supplement or
post-effective amendment such information as the managing underwriters or a
selling Holder agree should be included therein, subject to the last sentence of
Section 2.04(a); and promptly make all required filings of such prospectus
supplement or post-effective amendment as soon as notified of the matters to be
incorporated in such prospectus supplement or post-effective amendment;
(f) prior to any public offering of Common Stock, register or
qualify or cooperate with the selling Holders, the managing underwriters, if
any, and their respective counsel in connection with the registration or
qualification of such shares for offer and sale under the securities or "blue
sky" laws of such jurisdictions within the United States as any selling Holder
or underwriter reasonably requests in writing and do any and all other acts or
things reasonably necessary or advisable to enable the disposition in such
jurisdictions of the shares of Common Stock covered by the applicable
registration statement; provided that the Company will not be required to
qualify generally to do business in any jurisdiction where it would not
otherwise be required to be so qualified or to take any action which would
subject itself to taxation (other than a nominal amount) in any such
jurisdiction or to general service of process in any jurisdiction where it is
not then so subject;
6
<PAGE>
(g) cooperate with the selling Holders and the managing
underwriters, if any, to facilitate the timely preparation and delivery of
certificates representing shares of Common Stock to be sold and not bearing any
restrictive legends; and enable such shares to be in such denominations and
registered in such names as the managing underwriters may request at least two
business days prior to any sale of shares to the underwriters;
(h) use its best efforts to cause the shares covered by the
applicable registration statement to be listed or registered with or approved by
any stock exchange or quotation system on which the shares of Common Stock are
then listed and by such governmental agencies or authorities within the United
States as may be reasonably necessary to enable the seller or sellers thereof or
the underwriters, if any, to consummate the disposition of such shares;
(i) if any fact contemplated by Section 2.04(c)(E) shall
exist, prepare a supplement or post-effective amendment to the applicable
registration statement or the related prospectus or any document incorporated
therein by reference or file any other required document so that, as thereafter
delivered to the purchasers of the shares of Common Stock being sold thereunder,
such prospectus will not contain any untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading;
(j) provide a CUSIP number for all shares of Common Stock, no
later than the effective date of the applicable registration statement;
(k) enter into such agreements (including an underwriting
agreement) and take all such other actions in connection therewith in order to
expedite or facilitate the disposition of such shares of Common Stock and in
such connection, whether or not an underwriting agreement is entered into and
whether or not the registration is an underwritten registration: (A) make such
representations and warranties to the holders of such shares and the
underwriters, if any, in form, substance and scope as are customarily made by
issuers to underwriters in primary underwritten offerings; (B) obtain opinions
of counsel to the Company (including counsel which may be an employee of the
Company) and updates thereof which counsel and opinions (in form, scope and
substance) shall be reasonably satisfactory to the managing underwriters, if
any, covering the matters customarily covered in opinions requested by such
holders and underwriters; (C) obtain "cold comfort" letters and updates thereof
from the Company's independent certified public accountants, addressed to the
selling Holders and the underwriters, if any, such letters to be in customary
form and covering matters of the type customarily covered in "cold comforts"
letters to underwriters in connection with primary underwritten offerings; (D)
if any underwriting agreement is entered into, the same shall set forth in full
the indemnification provisions and procedures of Section 2.05 with respect to
all parties to be indemnified pursuant to such Section 2.05; and (E) the Company
shall deliver such documents and certificates as may be reasonably requested by
the Holders of the Common Stock being sold and the managing underwriters, if
any, to evidence compliance with clause (A) hereof and with any customary
conditions contained in the underwriting agreement or other agreement entered
into by the Company. The above shall be done at each closing under such
underwriting or similar agreement or as and to the extent otherwise reasonably
required thereunder;
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<PAGE>
(l) upon reasonable and timely request, make available for
inspection during normal business hours by a representative of each Holder, any
underwriter participating in any disposition pursuant to a registration
statement and any attorney or accountants retained by such selling Holders or
underwriter, all financial and other records, pertinent corporate documents and
properties of the Company, and cause the Company's officers, directors and
employees to supply all information reasonably requested by such representative,
underwriter, attorney or accountant in connection with such registration
statement; provided, that such Holders, underwriters, attorneys or accountants
execute prior thereto an agreement with the Company that all such records,
information or document shall be kept confidential by such persons unless (A)
disclosure of such records, information or documents is required by law or by
court or administrative order, or (B) such records, information or documents are
or become (but only when they become) generally available to the public other
than as a result of disclosure in violation of this paragraph; and
(m) otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC, and make generally available to the
Holders earnings statements satisfying the provisions of Section 1l(a) of the
Securities Act no later than 45 days after the end of any 12-month period (or 90
days, if such period is a fiscal year) (A) commencing at the end of any fiscal
quarter in which shares of Common Stock or Equity Securities are sold to
underwriters in an underwritten offering, or (B) if not sold to underwriters in
such an offering beginning with the first month of the Company's first fiscal
quarter commencing after the effective date of the registration statement, which
statements shall cover such 12-month periods.
The Company may require each Holder who is a party hereto as
to which any registration is being effected to furnish to the Company such
information and undertakings as it may reasonably request regarding such Holder
and the distribution of such securities as the Company may from time to time
reasonably request in writing.
Each Holder who is a party hereto agrees (i) that upon receipt
of any notice from the Company of the happening of any event of the kind
described in Section 2.04(c)(E) such Holder will forthwith discontinue such
Holder's disposition of shares of Common Stock pursuant to the registration
statement relating to such shares until such Holder's receipt of the copies of
the supplemented or amended prospectus contemplated by Section 2.04(i) and, if
so directed by the Company, will deliver to the Company (at the Company's
expense) all copies then in such Holder's possession of the prospectus relating
to such shares current at the time of receipt of such notice and (ii) that such
Holder will immediately notify the Company, at any time when a prospectus
relating to the registration of such shares is required to be delivered under
the Securities Act, of the happening of any event as a result of which
information previously furnished by such Holder to the Company in writing for
inclusion in such prospectus contains an untrue statement of a material fact or
omits to state any material fact required to be stated therein, or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
Section 2.05 Indemnification and Contribution(a) . (a)
Indemnification(i) . (i) In the event of any registration under the Securities
Act of any shares of Common Stock pursuant to this Article 2, the Company hereby
agrees to indemnify and hold harmless each Holder offering or selling such
shares and any underwriter, and their respective officers, directors,
stockholders,
8
<PAGE>
members, partners and affiliates, in connection with such offer or sale against
such losses, claims, damages, liabilities, costs or expenses (including
reimbursement for reasonable legal and other expenses) to which any such person
may become subject under the Securities Act or otherwise insofar as such losses,
claims, damages, liabilities, costs or expenses arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact contained
in any registration statement under which such shares were registered under the
Securities Act, any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement thereto, or any
application or other filing under any "blue sky" or state securities law, or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, provided that the
Company shall not be liable in any such case to the extent that any such loss,
claim, damage, liability (or action or proceeding in respect thereof), cost or
expense arises out of or is based upon an untrue statement or omission or
alleged omission made in such registration statement, preliminary prospectus,
final prospectus, summary prospectus, amendment or supplement, or application or
other filing, in reliance upon and in conformity with written information
furnished to the Company through an instrument duly executed by any Holder or
underwriter, specifically for inclusion in such documentation or filing.
(ii) In the event of any registration under the Securities Act of any shares of
Common Stock pursuant to this Article 2, each Stockholder whose shares of Common
Stock are included in such registration hereby agrees to indemnify and hold
harmless, (but only up to an amount, with respect to such Stockholder, not in
excess of the net proceeds realized by such Stockholder from the sale of its
shares of Common Stock registered pursuant to such registration statement), the
Company and its officers, directors, stockholders and affiliates, and any
underwriter, and their respective officers, directors, stockholders and
affiliates, in connection with such offer or sale against such losses, claims,
damages, liabilities, costs or expenses (including reimbursement for reasonable
legal and other expenses) to which any such person may become subject under the
Securities Act or otherwise insofar as such losses, claims, damages,
liabilities, costs or expenses arise out of or are based solely upon any untrue
statement or alleged untrue statement of any material fact contained in any
registration statement under which such shares were registered under the
Securities Act, any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement thereto, or any
application or other filing under any "blue sky" or state securities law, or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, to the extent that
such untrue statement or alleged untrue statement or omission or alleged
omission made in such registration statement, any such preliminary prospectus,
final prospectus, summary prospectus, amendment or supplement, or application or
other filing, is contained in any written information furnished to the Company
through an instrument duly executed by such Stockholder specifically for
inclusion in such documentation or filing.
(b) Contribution. (i) If the indemnification provided for in
Section 2.05(a) is unavailable to persons to be indemnified pursuant thereto in
respect of any losses, claims, damages, liabilities, costs or expenses referred
to therein, then the Company, in lieu of indemnifying such person, shall
contribute to the amount paid or payable by such person as a result of such
losses, claims, damages, liabilities, costs or expenses, in such proportion as
is
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<PAGE>
appropriate to reflect the relative fault of the Company and such persons in
connection with the actions which resulted in such losses, claims, damages,
liabilities, costs or expenses, as well as any other relevant equitable
considerations. The relative fault of the Company and such persons shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission to state a material fact, has been made by, or relates to
information supplied by, the Company or such persons, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such action. The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities, costs and expenses referred to above shall be
deemed to include any legal or other fees or expenses reasonably incurred by
such party in connection with any investigation or proceeding.
(ii) The parties hereto agree that it would not
be just and equitable if contribution
pursuant to this Section 2.05(b) were
determined by pro rata allocation or by any
other method of allocation which does not
take account of the equitable considerations
referred to in the immediately preceding
paragraph. Notwithstanding the provisions of
this Section 2.05(b), an indemnified person
shall not be required to contribute any
amounts in excess of the amount by which the
total price at which the shares of Common
Stock were sold by such indemnified person
and distributed to the public exceeds the
amount of any damages which such indemnified
person has otherwise been required to pay by
reason of such untrue or alleged untrue
statement or omission or alleged omission
and provided, however, that such
Stockholder's aggregate liability shall be
limited to the net proceeds realized by such
Stockholder in such offering. No person
guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the
Securities Act) shall be entitled to
contribution from any person who was not
guilty of such fraudulent misrepresentation.
(iii) If indemnification is available under this
Article 2, the Company shall indemnify each
indemnified party to the full extent
provided herein without regard to the
relative fault of the Company or the
indemnified party or any other equitable
consideration provided for in this Section
2.05(b).
(iv) In the event that any provisions of an
indemnification clause in an underwriting
agreement executed by or on behalf of a
Holder differs from a provision in this
Article 2, such provision in the
underwriting agreement shall determine such
Holder's rights in respect thereof.
Article III.
STOCKHOLDER CONSENT
Section 3.01 Consent. Each Stockholder hereby consents to the
inclusion of (x) any First Quarter 2000 Persons, (y) any Prior Piggyback Persons
and (z) any New Purchasers as Holders and Stockholders under this Agreement,
provided, however, that New Purchasers shall
10
<PAGE>
become Holders under this Agreement at such time as may be agreed by the Company
and such New Purchasers. Each First Quarter 2000 Person, Prior Piggyback Person
and New Purchaser shall become a party to this Agreement upon execution of a
counterpart signature page of this Agreement and delivery thereof to the
Company. Each Stockholder hereby consent to the amendment of Schedule I hereto
from time to time to add the name and notice address of a Stockholder when such
Person becomes party to this Agreement.
Section 3.02 Amendment. Each Stockholder agrees that if in
connection with the admission of any of the Persons identified in items (x), (y)
and (z) of Section 3.01 above as a party to this Agreement, such Person requests
an amendment to this Agreement which would be beneficial to all Stockholders,
the Company shall be entitled to effect such amendment to this Agreement without
the consent of the Stockholders. Notwithstanding anything set forth in this
Agreement, to the extent that an amendment to any provision of this Agreement
only affects a particular Stockholder, the Company may effect such amendment
without the consent of the other Stockholders.
Article IV.
MISCELLANEOUS
Section 4.01 Injunctive Relief. It is acknowledged that it
will be impossible to measure in money the damages that would be suffered if the
parties fail to comply with certain of the obligations imposed on them by this
Agreement, including, without limitation, those obligations set forth in Article
II and that in the event of any such failure, an aggrieved Person will be
irreparably damaged and will not have an adequate remedy at law. Any such Person
shall, therefore, be entitled to injunctive relief and/or specific performance
to enforce such obligations, and if any action should be brought in equity to
enforce any of such provisions of this Agreement, none of the parties hereto
shall raise the defense that there is an adequate remedy at law.
Section 4.02 Further Assurances. Each party hereto shall do
and perform or cause to be done and performed all such further acts and things
and shall execute and deliver all such other agreements, certificates,
instruments and documents as any other party hereto reasonably may request in
order to carry out the intent and accomplish the purposes of this Agreement and
the consummation of the transactions contemplated hereby.
Section 4.03 Governing Law. This Agreement shall be construed
and enforced in accordance with, and the rights of the parties shall be governed
by, the laws of the State of New York.
Section 4.04 Entire Agreement; Amendment; Waiver. This
Agreement (i) contains the entire agreement among the parties hereto with
respect to the subject matter hereof, (ii) supersedes all prior written
agreements and negotiations and oral understandings, if any, with respect
thereto, and (iii) may not be amended or supplemented except by an instrument or
counterparts thereof in writing signed by the Company and a majority in interest
of the Holders
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<PAGE>
(calculated on a fully diluted basis). No waiver of any term or provision shall
be effective unless in writing signed by the party to be charged and such waiver
shall not be effective as to any other provision of this Agreement.
Notwithstanding the foregoing, no written instrument shall be required to be
signed by any Stockholder in connection with the amendment of Schedule I as
contemplated by Section 3.01.
In compliance with and not in limitation of item (ii) above,
to the extent a Prior Piggyback Person becomes party to this Agreement, the
piggyback rights provision set forth below applicable to such Prior Piggyback
Person shall be automatically and expressly superseded by this Agreement:
(a) Registration Rights Agreement, dated as of December
8, 1997: Section 3
(b) Investors Agreement, dated as of January 28, 1999:
Article IV
(c) Shareholders Agreement, dated as of March 10, 1999:
Article IV
(d) Agreement and Plan of Merger (Triumph Technologies,
Inc.), dated as of November 12, 1999: Article VII
(e) Agreement and Plan of Merger (Triumph Development,
Inc.), dated as of November 12, 1999: Article VII
(f) Agreement and Plan of Merger (The Jacobson Group,
Inc.), dated as of December 21, 1999; Article VII.
Section 4.05 Binding Effect; Assignment. This Agreement shall
be binding on and inure to the benefit of the parties hereto and, subject to the
terms and provisions hereof, their respective legal representatives, successors
and permitted assigns. The rights granted to a Holder pursuant to this Agreement
may be assigned by such Holder to a transferee or assignee of such Holder in
connection with any transfer or assignment of Equity Securities held by such
Holder representing 25% or more of the Equity Securities initially acquired by
such Holder from the Company.
Section 4.06 Invalidity of Provision. The invalidity or
unenforceability of any provision of this Agreement in any jurisdiction shall
not affect the validity or enforceability of the remainder of this Agreement in
that jurisdiction or the validity or enforceability of this Agreement, including
that provision, in any other jurisdiction.
Section 4.07 Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, all of which taken together shall be
deemed but one and the same instrument.
Section 4.08 Notices. All notices and other communications
provided for or given or made hereunder shall be in writing (including delivery
by facsimile transmission) and, unless otherwise provided herein, shall be
deemed to have been given when received by the party to whom such notice is to
be given at its address set forth on Schedule I, or such other address for the
party as shall be specified by notice given pursuant hereto.
Any notice to the Company shall be given as follows: at Two
Manhattanville Road, Purchase, New York 10577, Attention: General Counsel, with
a copy to E. Ann Gill, Dewey Ballantine LLP, 1301 Avenue of the Americas, New
York, NY 10019.
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<PAGE>
Section 4.09 Headings. The descriptive headings of the several
paragraphs of this Agreement are inserted for convenience only and do not
constitute part of this Agreement.
Section 4.10 Confidentiality. Each Stockholder agrees to keep
confidential any information provided to them by the Company pursuant to this
Agreement and the agreement by which such Stockholder acquired securities of the
Company, provided, however, that (i) any of such information may be disclosed to
any such parties' partners, directors, officers, employees and advisors who need
to know such information (it being understood that such partners, directors,
officers, employees and advisors shall be informed by such party of the
confidential nature of such information and shall be directed to treat such
information confidentially), (ii) any such information may be disclosed
following prior notice if required by subpoena, applicable law or stock exchange
rules; and (iii) any disclosure of such information may be made with respect to
which the Company consents in writing. The provisions of this Section 4.10 shall
not apply to information which (i) is already known to such party, (ii) is or
becomes generally available to the public other than as a result of disclosure
by the partners, directors, officers, employees, agents or advisors of such
party, or (iii) becomes available to such party on a non-confidential basis from
a source other than the Company, provided that such source is not known by such
party to be bound by and obligation of confidentiality or secrecy to the
Company.
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<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by or on
behalf of each of the parties hereto as of the date first above written.
<PAGE>
SIGNATURE PAGE TO
THE PIGGYBACK REGISTRATION RIGHTS AGREEMENT
DATED AS OF JANUARY 27, 2000 AMONG INTERLIANT, INC. AND THOSE CERTAIN
STOCKHOLDERS SIGNATORY THERETO
INTERLIANT, INC.
By: /s/ Bradley Feld
-----------------
Bradley Feld
Title: Co-Chairman
---------------
DELL USA L.P.
By: Dell Gen. P. Corp.
its General Partner
By: /s/ Alex C. Smith
-----------------
Alex C. Smith
Title: Vice President
--------------
NETWORK SOLUTIONS, INC.
By: /s/ James P. Rutt
------------------
James P. Rutt
Title: Chief Executive Officer
-----------------------
BMC SOFTWARE, INC.
By: /s/ M. Brinkley Morse
---------------------
M. Brinkley Morse
Title: Senior Vice President
---------------------
MATTHEW WOLF
By: /s/ Matthew Wolf
----------------
Matthew Wolf
<PAGE>
SIGNATURE PAGE TO
THE PIGGYBACK REGISTRATION RIGHTS AGREEMENT
DATED AS OF JANUARY 27, 2000 AMONG INTERLIANT, INC. AND THOSE CERTAIN
STOCKHOLDERS SIGNATORY THERETO
MICHAEL AUGUST
By: /s/ Michael August
------------------
Michael August
MATHEW D. WOLF CHILDREN'S TRUST
By: /s/ Erving Wolf
---------------
Erving Wolf
Title: Trustee
-------
ANN WELTCHEK WOLF 1995 MARITAL TRUST
By: /s/ Erving Wolf
---------------
Erving Wolf
Title: Trustee
-------
STEVEN R. MUNROE, ROBERT F. MUNROE, BRAD D. MUNROE
AND PETER HAWTREY
By: /s/ Steven R. Munroe
--------------------
Steven R. Munroe
Title: Shareholders Representative
---------------------------
PATRICIA K. JACOBSON
By: /s/ Patricia K. Jacobson
------------------------
Patricia K. Jacobson
<PAGE>
SIGNATURE PAGE TO
THE PIGGYBACK REGISTRATION RIGHTS AGREEMENT
DATED AS OF JANUARY 27, 2000 AMONG INTERLIANT, INC. AND THOSE CERTAIN
STOCKHOLDERS SIGNATORY THERETO
BARRY H. JACOBSON
By: /s/ Barry H. Jacobson
---------------------
Barry H. Jacobson
RICHARD W. WEISSBERG
By: /s/ Richard W. Weissberg
------------------------
Richard W. Weissberg
MICHAEL S. KIRSCHENBAUM
By: /s/ Michael S. Kirschenbaum
---------------------------
Michael S. Kirschenbaum
ELIZABETH W. REILAND
By: /s/ Elizabeth W. Reiland
------------------------
Elizabeth W. Reiland
RUSSELL REYNOLDS ASSOCIATES
By: /s/ Albert Morris
-----------------
Albert Morris
<PAGE>
SCHEDULE I
NAME AND NOTICE ADDRESS OF STOCKHOLDERS
DELL USA L.P.
c/o Dell Computer Corporation, Mail Stop 8066, One Dell Way, Round Rock, Texas
78682, Attention: Paul Legris; with a copy to Thomas H. Welch, Jr., Vice
President and Deputy General Counsel, Legal Department, Dell Computer
Corporation, Mail Stop 8033, One Dell Way, Round Rock, Texas, 78682.
BMC SOFTWARE, INC.
2101 CityWest Blvd., Houston TX 77042, Attention: Robert H. Whilden, Jr.
NETWORK SOLUTIONS, INC.
505 Huntmar Park Drive, Herndon, Virginia 20170; Attention: General Counsel with
a copy to Song H. Pak, Piper Marbury Rudnick & Wolfe, 1200 Nineteenth St., NW,
Washington, DC 20036-2412.
<PAGE>
================================================================================
Exhibit 4.8
INTERLIANT, INC.
And
THE CHASE MANHATTAN BANK
as Trustee
INDENTURE
__________________________
Dated as of February 16, 2000
__________________________
7% Convertible Subordinated Notes due 2005
================================================================================
<PAGE>
Section 310(a)(1) ................................... 5.10
(a)(2) ................................... 5.10
(a)(3) ................................... Not Applicable
(a)(4) ................................... Not Applicable
(a)(5) ................................... 5.10
(b) ................................... 5.06
Section 311(a) ................................... 5.07
(b) ................................... 5.07
Section 312(a) ................................... 6.04(a)
................................... 6.01
(b) ................................... 6.01
(c) ................................... 6.01
Section 313(a) ................................... 6.02
(b) ................................... Not Applicable
(c) ................................... 6.02
(d) ................................... 6.02
Section 314(a) ................................... 6.03
(a)(4) ................................... 6.03
(b) ................................... Not Applicable
(c)(1) ................................... 1.03
(c)(2) ................................... 1.03
(c)(3) ................................... Not Applicable
(d) ................................... Not Applicable
(e) ................................... 1.03
Section 315(a) ................................... 5.01
(b) ................................... 5.05
(c) ................................... 5.01
(d) ................................... 5.01
(e) ................................... 4.15
Section 316(a)(1) ................................... 4.02
(a)(1)(A) ................................... 4.12
(a)(1)(B) ................................... 4.13
(a)(2) ................................... Not Applicable
(b) ................................... 4.08
(c) ................................... 1.05(d)
Section 317(a)(1) ................................... 4.03
(a)(2) ................................... 4.04(a)
(b) ................................... 9.03
Section 318(a) ................................... 1.15
- ----------------------
Note: This reconciliation and tie shall not, for any purpose, be deemed to be a
part of the Indenture.
<PAGE>
TABLE OF CONTENTS
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ARTICLE 1 Definitions and Other Provisions of General Application.....................................................1
Section 1.01. Definitions............................................................................1
Section 1.02. Other Definitions......................................................................8
Section 1.03. Compliance Certificates and Opinions...................................................9
Section 1.04. Form of Documents Delivered to Trustee................................................10
Section 1.05. Acts of Holders.......................................................................10
Section 1.06. Notices, Etc. to Trustee and Company..................................................12
Section 1.07. Notice to Holders; Waiver.............................................................12
Section 1.08. Effect of Headings and Table of Contents..............................................13
Section 1.09. Successors and Assigns................................................................13
Section 1.10. Separability Clause...................................................................13
Section 1.11. Benefits of Indenture.................................................................13
Section 1.12. Governing Law.........................................................................13
Section 1.13. Legal Holidays........................................................................13
Section 1.14. Personal Immunity from Liability for Incorporators, Stockholders, Etc.................14
Section 1.15. Conflict with Trust Indenture Act.....................................................14
ARTICLE 2 Securities Forms...........................................................................................14
Section 2.01. Forms of Securities...................................................................14
Section 2.02. Form of Trustee's Certificate of Authentication.......................................14
Section 2.03. Securities Issuable in Global Form....................................................15
ARTICLE 3 The Securities.............................................................................................16
Section 3.01. Title and Term........................................................................16
Section 3.02. Denominations.........................................................................16
Section 3.03. Execution, Authentication, Delivery and Dating........................................16
Section 3.04. Registration, Registration of Transfer and Exchange...................................17
Section 3.05. Mutilated, Destroyed, Lost and Stolen Securities......................................22
Section 3.06. Payment of Interest; Interest Rights Preserved........................................23
Section 3.07. Persons Deemed Owners.................................................................24
Section 3.08. Cancellation..........................................................................24
Section 3.09. Computation of Interest...............................................................25
Section 3.10. CUSIP Numbers.........................................................................25
ARTICLE 4 Remedies...................................................................................................25
Section 4.01. Events of Default.....................................................................25
Section 4.02. Acceleration of Maturity; Rescission and Annulment....................................27
Section 4.03. Collection of Indebtedness and Suits for Enforcement by Trustee.......................28
Section 4.04. Trustee May File Proofs of Claim......................................................29
Section 4.05. Trustee May Enforce Claims Without Possession of Securities...........................29
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Section 4.06. Application of Money Collected........................................................30
Section 4.07. Limitation on Suits...................................................................30
Section 4.08. Unconditional Right of Holders to Receive Principal, Premium, If Any, and
Interest..............................................................................31
Section 4.09. Restoration of Rights and Remedies....................................................31
Section 4.10. Rights and Remedies Cumulative........................................................31
Section 4.11. Delay or Omission Not Waiver..........................................................31
Section 4.12. Control by Holders of Securities......................................................32
Section 4.13. Waiver of Past Defaults...............................................................32
Section 4.14. Waiver of Usury, Stay or Extension Laws...............................................32
Section 4.15. Undertaking for Costs.................................................................33
ARTICLE 5 The Trustee................................................................................................33
Section 5.01. General...............................................................................33
Section 5.02. Certain Rights of Trustee.............................................................33
Section 5.03. Individual Rights of Trustee..........................................................35
Section 5.04. Trustee's Disclaimer..................................................................35
Section 5.05. Notice of Default.....................................................................35
Section 5.06. Conflicting Interests of Trustee......................................................35
Section 5.07. Compensation and Indemnity............................................................36
Section 5.08. Replacement of Trustee................................................................36
Section 5.09. Successor Trustee by Merger, Etc......................................................37
Section 5.10. Eligibility...........................................................................37
Section 5.11. Money Held in Trust...................................................................38
Section 5.12. Preferential Collection of Claims.....................................................38
Section 5.13. Trustee's Application for Instructions from the Company; Liquidated Damages...........38
ARTICLE 6 Holders' Lists And Reports By Trustee And Company..........................................................38
Section 6.01. Disclosure of Names and Addresses of Holders..........................................38
Section 6.02. Reports by Trustee....................................................................39
Section 6.03. Reports by Company....................................................................39
Section 6.04. Company to Furnish Trustee Names and Addresses of Holders.............................39
ARTICLE 7 Consolidation, Merger, Sale, Lease Or Conveyance...........................................................40
Section 7.01. Consolidations and Mergers of Company and Sales, Leases and Conveyances
Permitted Subject to Certain Conditions...............................................40
Section 7.02. Rights and Duties of Successor Corporation............................................40
Section 7.03. Officers' Certificate and Opinion of Counsel..........................................41
ARTICLE 8 Supplemental Indentures....................................................................................41
Section 8.01. Supplemental Indentures Without Consent of Holders....................................41
Section 8.02. Supplemental Indentures with Consent of Holders.......................................42
Section 8.03. Execution of Supplemental Indenture...................................................43
Section 8.04. Effect of Supplemental Indentures.....................................................43
Section 8.05. Conformity with Trust Indenture Act...................................................43
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Section 8.06. Reference in Securities to Supplemental Indentures....................................43
ARTICLE 9 Covenants..................................................................................................43
Section 9.01. Payment of Principal, Premium, If Any, and Interest...................................43
Section 9.02. Maintenance of Office or Agency.......................................................44
Section 9.03. Money for Securities Payments to Be Held in Trust.....................................44
Section 9.04. Existence.............................................................................45
Section 9.05. Payment of Taxes and Other Claims.....................................................46
Section 9.06. Statement as to Compliance; Notice of Default.........................................46
Section 9.07. Waiver of Certain Covenants...........................................................46
Section 9.08. Rule 144A Information Requirement.....................................................46
ARTICLE 10 Redemption Of Securities..................................................................................47
Section 10.01. Provisional and Optional Redemption by the Company....................................47
Section 10.02. Election to Redeem; Notice to Trustee.................................................48
Section 10.03. Selection by Trustee of Securities to Be Redeemed.....................................48
Section 10.04. Notice of Redemption..................................................................48
Section 10.05. Deposit of Redemption Price...........................................................50
Section 10.06. Securities Payable on Redemption Date.................................................50
Section 10.07. Securities Redeemed in Part...........................................................50
ARTICLE 11 Repurchase At Option Of Holders Upon Change In Control....................................................50
Section 11.01. Right to Require Repurchase...........................................................50
Section 11.02. Conditions to the Company's Election to Pay the Repurchase Price in Common
Stock.................................................................................51
Section 11.03. Notices; Method of Exercising Repurchase Right, Etc...................................51
Section 11.04. Certain Definitions...................................................................54
Section 11.05. Change in Control.....................................................................55
ARTICLE 12 Conversion................................................................................................56
Section 12.01. Conversion Privilege, Conversion Rate and Conversion Price............................56
Section 12.02. Exercise of Conversion Privilege......................................................56
Section 12.03. Fractions of Shares...................................................................58
Section 12.04. Adjustment of Conversion Rate.........................................................58
Section 12.05. Notice of Adjustments of Conversion Rate..............................................63
Section 12.06. Notice of Certain Corporate Action....................................................63
Section 12.07. Company's Obligation Regarding Common Stock...........................................64
Section 12.08. Taxes on Conversions..................................................................65
Section 12.09. Covenant as to Common Stock...........................................................65
Section 12.10. Cancellation of Converted Securities..................................................65
Section 12.11. Provisions in Case of Reclassification, Consolidation, Merger or Sale of Assets.......65
Section 12.12. Company's Obligation..................................................................66
ARTICLE 13 Subordination.............................................................................................66
Section 13.01. Securities Subordinate to Senior Indebtedness.........................................66
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Section 13.02. Payment over of Proceeds upon Dissolution, Etc........................................66
Section 13.03. No Payment When Senior Indebtedness in Default........................................67
Section 13.04. Payment Permitted If No Default.......................................................68
Section 13.05. Subrogation to Rights of Holders of Senior Indebtedness...............................69
Section 13.06. Provisions Solely to Define Relative Rights...........................................69
Section 13.07. Trustee to Effectuate Subordination...................................................69
Section 13.08. No Waiver of Subordination Provisions.................................................70
Section 13.09. Notice to Trustee.....................................................................70
Section 13.10. Reliance on Judicial Order or Certificate of Liquidating Agent........................71
Section 13.11. Trustee Not Fiduciary for Holders of Senior Indebtedness..............................71
Section 13.12. Rights of Trustee as Holder of Senior Indebtedness; Preservation of Trustee's
Rights................................................................................71
Section 13.13. Article Applicable to Paying Agents...................................................72
Section 13.14. Certain Conversions Deemed Payment....................................................72
SIGNATURES
EXHIBIT A - FORM OF SECURITY
</TABLE>
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<PAGE>
INDENTURE, dated as of February 16, 2000, between INTERLIANT, INC., a
Delaware corporation (the "Company"), having its principal office at Two
Manhattanville Road, Purchase, New York, New York 10577 and THE CHASE MANHATTAN
BANK, a New York banking company, as Trustee hereunder (the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the issue of its 7% Convertible
Subordinated Notes due 2005 (the "Securities"), and to provide for such
issuance, the Company has duly authorized the execution and delivery of this
Indenture.
Upon qualification of this Indenture under the Trust Indenture Act of 1939
(the "TIA"), it shall be subject to the provisions of such Act that are deemed
to be incorporated into this Indenture and shall, to the extent applicable, be
governed by such provisions.
All things necessary to make this Indenture a valid agreement of the
Company, in accordance with its terms, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Securities
by the holders thereof, it is mutually covenanted and agreed, for the equal and
proportionate benefit of all the holders of the Securities, as follows:
ARTICLE 1
Definitions and Other Provisions of General Application
SECTION 1.01. Definitions. For all purposes of this Indenture, except as
otherwise expressly provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular, and
references to he or him or she or her are intended to be gender neutral;
(2) all other terms used herein which are defined in the TIA, either
directly or by reference therein, have the meanings assigned to them therein;
(3) the word "including" means "including without limitation," and
(4) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
"Act," when used with respect to any Holder, has the meaning specified in
Section 1.05.
<PAGE>
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Authorized Newspaper" means a newspaper, printed in the English language
or in an official language of the country of publication, customarily published
on each Business Day, whether or not published on Saturdays, Sundays or
holidays, and of general circulation in each place in connection with which the
term is used or in the financial community of each such place. Whenever
successive publications are required to be made in Authorized Newspapers, the
successive publications may be made in the same or in different Authorized
Newspapers in the same city meeting the foregoing requirements and in each case
on any Business Day.
"Bankruptcy Law" has the meaning specified in Section 4.01.
"Board of Directors" means the board of directors of the Company, the
executive committee of that board or any committee of that board duly authorized
to act hereunder.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company to have been duly adopted by the Board
of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in the City of New York or,
when used with respect to any Place of Payment, such Place of Payment, are
authorized or obligated by law, regulation or executive order to close.
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Securities Exchange Act of 1934, or, if at
any time after execution of this instrument such Commission is not existing and
performing substantially the duties now assigned to it under the Trust Indenture
Act, then the body performing such duties on such date.
"Common Stock" means the common stock of the Company, $0.01 par value, as
it exists on the date of this Indenture and any shares of any class or classes
of capital stock of the Company resulting from any reclassification or
reclassifications thereof.
"Company" means the Person named as the "Company" in the first paragraph of
this Indenture until a successor corporation shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor corporation.
"Company Request" and "Company Order" mean, respectively, a written request
or order signed in the name of the Company by the Chairman of the Board of
Directors, any Co-Chairman of the Board of Directors, the Chief Executive
Officer, the President, the Chief Financial Officer or a
2
<PAGE>
Vice President of the Company and any of the foregoing or any Assistant Vice
President, the Treasurer, an Assistant Treasurer, the Secretary or an Assistant
Secretary of the Company, and delivered to the Trustee.
"Conversion Agent" means any Person authorized by the Company pursuant to
Section 9.02 to convert Securities in accordance with Article 12.
"Corporate Trust Office" means the office of the Trustee at which, at any
particular time, its corporate trust business as it relates to this Indenture
shall be principally administered and as to which notice to that effect has been
delivered to the Company and the Holders in accordance with the provisions
hereof, which office at the date hereof is located at The Chase Manhattan Bank,
450 West 33rd Street, 15th Floor, New York, New York 10001, Attention: Capital
Markets Fiduciary Services (Interliant, Inc. 7% Convertible Subordinated Notes
due 2005).
"corporation" means a corporation, association, partnership, company
(including limited liability company), joint-stock company or business trust.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Dollar" or "$" means a dollar or other equivalent unit in such coin or
currency of the United States of America as at the time shall be legal tender
for the payment of public and private debts.
"DTC" means The Depository Trust Company.
"Government Obligations" means securities that are (i) direct obligations
of the United States of America, for the payment of which its full faith and
credit is pledged, or (ii) obligations of a Person controlled or supervised by
and acting as an agency or instrumentality of the United States of America, the
payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America, which is not callable or redeemable
at the option of the issuer thereof, and shall also include a depository receipt
issued by a bank or trust company as custodian with respect to any such
Government Obligation or a specific payment of interest on or principal of any
such Government Obligation held by such custodian for the account of the holder
of a depository receipt, provided that (except as required by law) such
custodian is not authorized to make any deduction from the amount payable to the
holder of such depository receipt from any amount received by the custodian in
respect of the Government Obligation or the specific payment of interest on or
principal of the Government Obligation evidenced by such depository receipt.
"Holder" means the Person in whose name a Security is registered in the
Security Register.
"Indebtedness" means, with respect to any Person, and without duplication,
(a) all indebtedness, obligations and other liabilities, contingent or
otherwise, of such Person for borrowed money (including obligations of such
Person in respect of overdrafts, foreign exchange contracts, currency exchange
or similar agreements, interest rate protection, hedging or similar agreements,
and any loans or advances from banks, whether or not evidenced by notes or
similar instruments) or
3
<PAGE>
evidenced by bonds, debentures, notes or similar instruments (whether or not the
recourse of the holder is to the whole of the assets of such Person or to only a
portion thereof), other than any account payable or other accrued current
liability or current obligation, in each case not constituting indebtedness,
obligations or other liabilities for borrowed money and incurred in the ordinary
course of business in connection with the obtaining of materials or services;
(b) all reimbursement obligations and other liabilities, contingent or
otherwise, of such Person with respect to letters of credit, bank guarantees,
bankers' acceptances, security purchase facilities or similar credit
transactions; (c) all obligations and liabilities, contingent or otherwise, in
respect of deferred and unpaid balances on any purchase price of any property;
(d) all obligations and liabilities (contingent or otherwise) in respect of
leases of such Person required, in conformity with generally accepted accounting
principles, to be accounted for as capitalized lease obligations on the balance
sheet of such Person and all obligations and other liabilities, contingent or
otherwise, under any lease or related document, including, without limitation,
the balance deferred and unpaid on any purchase price of any property and a
purchase agreement in connection with the lease of real property that provides
that such Person is contractually obligated to purchase or cause a third party
to purchase the leased property and thereby guarantee a minimum residual value
of the leased property to the lessor and the obligations of such Person under
such lease or related document to purchase or to cause a third party to purchase
such leased property; (e) all obligations of such Person, contingent or
otherwise, with respect to an interest rate or other swap, cap or collar
agreement or other similar instrument or agreement or foreign currency hedge,
exchange, purchase or similar instrument or agreement; (f) all direct or
indirect guarantees or similar agreements by such Person in respect of, and
obligations or liabilities, contingent or otherwise, of such Person to purchase
or otherwise acquire or otherwise assure a creditor against loss in respect of,
indebtedness, obligations or liabilities of another Person of the kind described
in clauses (a) through (e); (g) recourse or repurchase obligations arising in
connection with sales of assets in transactions that are in the nature of asset-
based financings, whether or not such transactions are treated as sales under
generally accepted accounting principles or bankruptcy, tax or other applicable
laws, where such recourse or repurchase obligations arise out of the failure of
such assets to provide the economic benefit to which the purchaser is entitled
under the agreements relating to such transactions; (h) any indebtedness or
other obligations described in clauses (a) through (g) secured by any mortgage,
pledge, lien or other encumbrance existing on property that is owned or held by
such Person, regardless of whether the indebtedness or other obligation secured
thereby shall have been assumed by such Person; and (i) any and all deferrals,
renewals, extensions, refinancing, replacements, restatements and refundings of,
or amendments, modifications or supplements to, or any indebtedness or
obligation issued in exchange for, any indebtedness, obligation or liability of
the kind described in clauses (a) through (h).
"Indenture" means this instrument as originally executed or as it may from
time to time be supplemented or amended by one or more indentures supplemental
hereto entered into pursuant to the applicable provisions hereof.
"Initial Purchasers" means Merrill Lynch, Pierce, Fenner & Smith
Incorporated, CIBC World Markets Corp., Donaldson, Lufkin & Jenrette Securities
Corporation and C.E. Unterberg, Towbin.
4
<PAGE>
"Interest Payment Date" means, with respect to any Security, the Stated
Maturity of an installment of interest on such Security.
"Liquidated Damages" means additional interest that may accrue on the
Securities and be payable to Holders pursuant to and in accordance in each case
with the terms of the Registration Rights Agreement.
"Maturity" means the date on which the principal of the Securities becomes
due and payable as therein or herein provided, whether at the Stated Maturity or
upon conversion or by declaration of acceleration, notice of redemption, notice
of option to elect repayment or otherwise.
"Officers' Certificate" means a certificate signed by the Chairman of the
Board of Directors, any Co-Chairman of the Board of Directors, the President or
a Vice President and by any of the foregoing or the Treasurer, an Assistant
Treasurer, the Secretary or an Assistant Secretary of the Company, and delivered
to the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be counsel
for the Company or who may be an employee of or other counsel for the Company
and who shall be reasonably satisfactory to the Trustee.
"Outstanding," when used with respect to Securities, means, as of the date
of determination, all Securities theretofore authenticated and delivered under
this Indenture, except:
(i) Securities theretofore canceled by the Trustee or delivered to the
Trustee for cancellation;
(ii) Securities, or portions thereof, for whose payment or redemption
or repayment at the option of the Holder, money in the necessary amount has been
theretofore deposited with the Trustee or any Paying Agent (other than the
Company) in trust or set aside and segregated in trust by the Company (if the
Company shall act as its own Paying Agent) for the Holders of such Securities;
provided that, if such Securities are to be redeemed, notice of such redemption
has been duly given pursuant to this Indenture or provision therefor
satisfactory to the Trustee has been made;
(iii) Securities that have been paid pursuant to Section 3.05 or in
exchange for or in lieu of which other Securities have been authenticated and
delivered pursuant to this Indenture, other than any such Securities in respect
of which there shall have been presented to the Trustee proof satisfactory to it
that such Securities are held by a bona fide purchaser in whose hands such
Securities are valid obligations of the Company;
(iv) Securities converted into Common Stock pursuant to or in
accordance with this Indenture; and
(v) Securities repurchased by delivery of Shares of Common Stock in
accordance with Article 11;
5
<PAGE>
provided, however, that in determining whether the Holders of the requisite
principal amount of the Outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder or are present at
a meeting of Holders for quorum purposes, and for the purpose of making the
calculations required by TIA Section 313, Securities owned by the Company or any
other obligor upon the Securities under a supplemental indenture entered into in
accordance herewith or any Affiliate of the Company or of such other obligor
shall be disregarded and deemed not to be Outstanding, except that, in
determining whether the Trustee shall be protected in making such calculation or
in relying upon any such request, demand, authorization, direction, notice,
consent or waiver, only Securities that the Trustee knows to be so owned shall
be so disregarded. Securities so owned that have been pledged in good faith may
be regarded as Outstanding if the pledgee establishes to the satisfaction of the
Trustee the pledgee's right so to act with respect to such Securities and that
the pledgee is not the Company or any other obligor upon the Securities under a
supplemental indenture entered into in accordance herewith or any Affiliate of
the Company or of such other obligor.
"Paying Agent" means any Person (including the Company) authorized by the
Company to pay the principal of (and premium, if any) or interest (including any
Liquidated Damages) on any Securities on behalf of the Company.
"Permitted Holders" shall mean Web Hosting Organization LLC, Charterhouse
Group International, Inc., SOFTBANK Technology Ventures IV, L.P., WHO Management
LLC and SOFTBANK Technology Advisors Fund, L.P., and their respective controlled
Affiliates (other than their other portfolio companies), including any Person
(other than their other portfolio companies) in which any of the foregoing,
individually or collectively, owns beneficially more than 50% of the total
voting power of the shares, interests, participations or other equivalents of
corporate stock, partnership or limited liability company interests or any other
participation, right or other interest in the nature of an equity interest of
such Person.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof.
"Place of Payment" means the place or places where the principal of (and
premium, if any), interest on (including any Liquidated Damages) and the
Redemption Prices and the Repurchase Price with respect to the Securities are
payable as specified by Section 9.02.
"Predecessor Security" means, with respect to any Security, every previous
Security evidencing all or a portion of the same debt as that evidenced by such
Security; and, for the purposes of this definition, any Security authenticated
and delivered under Section 3.05 in exchange for or in lieu of a mutilated,
destroyed, lost or stolen Security shall be deemed to evidence the same debt as
the mutilated, destroyed, lost or stolen Security.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
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"Redemption Date," when used with respect to any Security to be redeemed,
in whole or in part, means the date fixed for such redemption by or pursuant to
this Indenture.
"Redemption Price," means the Optional Redemption Price, in the event of an
Optional Redemption, or the Provisional Redemption Price, in the event of a
Provisional Redemption, as the case may be.
"Registration Rights Agreement" means the Registration Rights Agreement,
dated as of February 16, 2000, between the Company and the Initial Purchasers.
"Regular Record Date" for the interest payable on any Interest Payment Date
on the Securities means the date specified for that purpose as contemplated by
Section 3.06, whether or not a Business Day.
"Responsible Officer," when used with respect to the Trustee, means the
chairman or any vice-chairman of the board of directors, the chairman or any
vice-chairman of the executive committee of the board of directors, the chairman
of the trust committee, the president, any vice president, the secretary, any
assistant secretary, the treasurer, any assistant treasurer, the cashier, any
assistant cashier, any trust officer or assistant trust officer, the controller
or any assistant controller or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject.
"Rule 144A" shall mean Rule 144A as promulgated under the Securities Act.
"Securities Act" shall mean the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Security" has the meaning stated in the first recital of this Indenture
and, more particularly, means any Security or Securities authenticated and
delivered under this Indenture.
"Senior Indebtedness" means the principal of, premium, if any, interest
(including all interest accruing subsequent to the commencement of any
bankruptcy or similar proceeding, whether or not a claim for post-petition
interest is allowable as a claim in any such proceeding) and all other amounts
owed in respect of all Indebtedness of the Company, whether outstanding on the
date of this Indenture or thereafter created, incurred, assumed, guaranteed or
in effect guaranteed by the Company (including all deferrals, renewals,
extensions, refinancings, replacements, restatements or refundings of, or
amendments, modifications or supplements to, the foregoing); except for (i) any
such Indebtedness that is by its terms subordinated to or ranking equal with the
Securities, and (ii) any Indebtedness between or among the Company and any of
its Subsidiaries or its Affiliates, including all other debt securities and
guarantees in respect of those debt securities issued to any trust, or trustees
of any trust, partnership or other entity affiliated with the Company that is,
directly or indirectly, a financing vehicle used by the Company in connection
with the issuance by that
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financing vehicle of preferred securities or other securities that rank equal
with, or junior to, the Securities.
"Significant Subsidiary" means any Subsidiary that is a "significant
subsidiary" (as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
under the Securities Act) of the Company.
"Special Record Date" for the payment of any Defaulted Interest on the
Securities means a date fixed by the Trustee pursuant to Section 3.06.
"Stated Maturity" means the date specified in the Securities as the fixed
date on which the principal of, or interest on, such Securities is due and
payable.
"Subsidiary" means a corporation a majority of the outstanding voting
securities of which is owned, directly or indirectly, by the Company or by one
or more other Subsidiaries of the Company, or by the Company and one or more
other Subsidiaries. For the purposes of this definition, "voting securities"
means shares, interests, participations or other equivalents of corporate stock,
partnership or limited liability company interests or any other participation,
right or other interest in the nature of an equity interest that ordinarily have
voting power for the election of directors, managers or trustees, whether at all
times or only so long as no senior class of equity interest has such voting
power by reason of any contingency.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939, and
the rules and regulations promulgated thereunder, as in force on the date this
Indenture is qualified thereunder; provided, however, that in the event the
Trust Indenture Act of 1939 or such rules and regulations are amended after such
date, "Trust Indenture Act" means, to the extent required by any such amendment,
the Trust Indenture Act of 1939 and such rules and regulations as so amended.
"Trustee" means the Person named as the "Trustee" in the first paragraph of
this Indenture until a successor Trustee shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Trustee" shall mean or
include each Person who is then a Trustee hereunder.
"United States" means the United States of America (including the states
and the District of Columbia), its territories, its possessions and other areas
subject to its jurisdiction.
SECTION 1.02. Other Definitions.
Term Defined in Section
"Act" 1.05
"Average Sale Price" 12.04
"Bankruptcy Law" 4.01
"Change in Control" 11.05
"Change in Control Purchase Notice" 11.03
"Closing Price" 12.03
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"Commencement Date" 12.04
"Company Notice" 11.03
"Conversion Price" 12.01
"Conversion Rate" 12.01
"Current Event" 12.04
"Custodian" 4.01
"Defaulted Interest" 3.06
"Event of Default" Article 4
"Ex-Dividend Time" 12.04
"Expiration Time" 12.04
"Indemnities" 5.07
"Make-Whole Payment" 10.01
"Material Adverse Effect" 9.04
"Notice Date" 10.01
"Notice of Default" 4.01
"Optional Redemption" 10.01
"Other Event" 12.04
"Provisional Redemption" 10.01
"Provisional Redemption Date" 10.01
"Purchased Shares" 12.04
"Redeemable Capital Stock" 11.05
"Reference Date" 12.04
"Repurchase Date" 11.01
"Repurchase Price" 11.01
"Restricted Securities" 3.04
"Security Register" 3.04
"Security Registrar" 3.04
"Senior Indebtedness Default Notice" 13.03
"Time of Determination" 12.04
"Trading Day" 12.03
Section 1.03. Compliance Certificates and Opinions. Upon any application or
request by the Company to the Trustee to take any action under any provision of
this Indenture, the Company shall furnish to the Trustee an Officers'
Certificate stating that all conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied with and an Opinion
of Counsel stating that in the opinion of such counsel all such conditions
precedent, if any, have been complied with, except that in the case of any such
application or request as to which the furnishing of such documents is
specifically required by any provision of this Indenture relating to such
particular application or request, no additional certificate or opinion need be
furnished.
Every certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture shall include:
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(a) a statement that each individual signing such certificate or
opinion has read such condition or covenant and the definitions herein relating
thereto;
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of each such individual, he has
made such examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such condition or covenant has been
complied with; and
(d) a statement as to whether, in the opinion of each such individual,
such condition or covenant has been complied with.
SECTION 1.04. Form of Documents Delivered to Trustee. In any case where
several matters are required to be certified by, or covered by an opinion of,
any specified Person, it is not necessary that all such matters be certified by,
or covered by the opinion of, only one such Person, or that they be so certified
or covered by only one document, but one such Person may certify or give an
opinion as to some matters and one or more other such Persons as to other
matters, and any such Person may certify or give an opinion as to such matters
in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon an Opinion of Counsel, or a
certificate or representations by counsel, unless such officer knows, or in the
exercise of reasonable care should know, that the opinion, certificate or
representations with respect to the matters upon which such certificate or
opinion is based are erroneous. Any such Opinion of Counsel or certificate or
representations may be based, insofar as it relates to factual matters, upon a
certificate or opinion of, or representations by, an officer or officers of the
Company stating that the information as to such factual matters is in the
possession of the Company, unless such counsel knows that the certificate or
opinion or representations as to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 1.05. Acts of Holders. (a) Any request, demand, authorization,
direction, notice, consent, waiver or other action provided by this Indenture to
be given or taken by Holders of the Outstanding Securities may be embodied in
and evidenced by one or more instruments of substantially similar tenor signed
by such Holders in person or by agents duly appointed in writing. Except as
herein otherwise expressly provided, such action shall become effective when
such instrument or instruments are delivered to the Trustee and, where it is
hereby expressly required, to the Company. Such instrument or instruments (and
the action embodied therein and evidenced thereby) are herein sometimes referred
to as the "Act" of the Holders signing such instrument or instruments. Proof of
execution of any such instrument or of a writing appointing any such agent, or
of the holding by any Person of a Security, shall be sufficient for any purpose
of this Indenture and
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conclusive in favor of the Trustee and the Company and any agent of the Trustee
or the Company, if made in the manner provided in this Section 1.05.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness to such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other reasonable manner which the Trustee deems sufficient.
(c) The ownership of the Securities shall be proved by the Security
Register.
(d) (i) If the Company shall solicit from the Holders any request,
demand, authorization, direction, notice, consent, waiver or other Act, the
Company may, at its option, in or pursuant to a Board Resolution, fix in advance
a record date for the determination of Holders entitled to effect such request,
demand, authorization, direction, notice, consent, waiver or other Act, but the
Company shall have no obligation to do so; provided that the Company shall not
be entitled to set a record date for, and the provisions of this paragraph shall
not apply with respect to, the giving or making of any notice, declaration,
request or direction referred to in clause 1.05(d)(iii) below. Notwithstanding
TIA Section 316(c), such record date shall be the record date specified in or
pursuant to such Board Resolution, which shall be a date not earlier than the
date 30 days prior to the first solicitation of Holders generally in connection
therewith and not later than the date such solicitation is completed. If such a
record date is fixed, such request, demand, authorization, direction, notice,
consent, waiver or other Act may be effected before or after such record date,
but only the Holders of record at the close of business on such record date
shall be deemed to be Holders for the purposes of determining whether Holders of
the requisite proportion of Outstanding Securities have authorized or agreed or
consented to such request, demand, authorization, direction, notice, consent,
waiver or other Act, and for that purpose the Outstanding Securities shall be
computed as of such record date; provided that no such authorization, agreement
or consent by the Holders on such record date shall be deemed effective unless
it shall become effective pursuant to the provisions of this Indenture not later
than eleven months after the record date.
(ii) Subject to clause 1.05(d)(iii) below, in the absence of any such
record date fixed by the Company, regardless as to whether any solicitation of
the Holders is occurring on behalf of the Company or any Holder, the Trustee
may, at its option, fix in advance a record date for the determination of such
Holders entitled to give such request, demand, authorization, direction, notice,
consent, waiver or other Act, but the Trustee shall have no obligation to do so.
Any such record date shall be a date not more than 30 days prior to the first
solicitation of Holders generally in connection therewith and no later than the
date of such solicitation.
(iii) The Trustee may set any day as a record date for the purpose of
determining the Holders of Outstanding Securities entitled to join in the giving
or making of (A) any notice of default, (B) any declaration of acceleration
referred to in Section 4.02, (C) any request to
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institute proceedings referred to in Section 4.07(b), or (D) any direction
referred to in Section 4.12, and may also set an expiration date by which the
relevant Act must be taken. If any record date is set pursuant to this
paragraph, the Holders of Outstanding Securities on such record date, and no
other Holders, shall be entitled to join in such notice, declaration, request or
direction, whether or not such Holders remain Holders after such record date;
provided that no such Act shall be effective hereunder unless taken on or prior
to any applicable expiration date by Holders of the requisite principal amount
of Outstanding Securities on such record date. Nothing in this paragraph shall
be construed to prevent the Trustee from setting a new record date for any
action (whereupon the record date previously set shall automatically and without
any action by any Person be canceled and of no effect), nor shall anything in
this paragraph be construed to render ineffective any Act taken by Holders of
the requisite principal amount of Outstanding Securities on the date such Act is
taken. Promptly after any record date is set pursuant to this paragraph, the
Trustee, at the Company's expense, shall cause notice of such record date, the
proposed Act by Holders and the applicable expiration date to be given to the
Company in writing and to each Holder of Outstanding Securities in the manner
set forth in Section 1.07.
(e) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Security shall bind every future Holder
of the same Security and the Holder of every Security issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof in
respect of anything done, omitted or suffered to be done by the Trustee, any
Security Registrar, any Paying Agent, any Conversion Agent or the Company in
reliance thereon, whether or not notation of such action is made upon such
Security.
SECTION 1.06. Notices, Etc. to Trustee and Company. Any request, demand,
authorization, direction, notice, consent, waiver or other Act of Holders or
other notice or communication provided or permitted by this Indenture to be made
upon, given or furnished to, or filed with:
(a) the Trustee by any Holder or by the Company shall be sufficient
for every purpose hereunder if made, given, furnished or filed in writing to or
with the Trustee, delivered in person, mailed by first class mail, postage
prepaid, or sent by facsimile or overnight courier, at its Corporate Trust
Office, Attention: Corporate Trust Administration (Interliant, Inc. 7%
Convertible Subordinated Notes due 2005); provided that notices or other
communications to the Trustee shall only be deemed given when actually received
by the Trustee,
(b) the Company by the Trustee or by any Holder shall be sufficient
for every purpose hereunder (unless otherwise herein expressly provided) if in
writing and delivered in person, mailed by first class mail, postage prepaid, or
sent by facsimile or overnight courier, to the Company addressed to it at the
address of its principal office specified in the first paragraph of this
Indenture; provided that the Company may, by notice furnished in writing to the
Trustee, designate additional or different addresses for subsequent notices or
communications by the Company.
SECTION 1.07. Notice to Holders; Waiver. Where this Indenture provides for
notice of any event to Holders by the Company or the Trustee, such notice shall
be sufficiently given (unless otherwise herein expressly provided) if in writing
and mailed, first-class postage prepaid, to
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each such Holder affected by such event, at his address as it appears in the
Security Register, not later than the latest date, and not earlier than the
earliest date, prescribed for the giving of such notice. In any case where
notice to Holders is given by mail, neither the failure to mail such notice, nor
any defect in any notice so mailed, to any particular Holder shall affect the
sufficiency of such notice with respect to other Holders given as provided
herein. Any notice mailed to a Holder in the manner herein prescribed shall be
conclusively deemed to have been received by such Holder, whether or not such
Holder actually receives such notice.
If by reason of the suspension of or irregularities in regular mail service
or by reason of any other cause it shall be impracticable to give such notice by
mail, then such notification to Holders as shall be made with the approval of
the Trustee shall constitute a sufficient notification to such Holders for every
purpose hereunder.
Any request, demand, authorization, direction, notice, consent, waiver or
other Act required or permitted under this Indenture shall be in the English
language, except that any published notice may be in an official language of the
country of publication.
Where this Indenture provides for notice in any manner, such notice may be
waived in writing by the Person entitled to receive such notice, either before
or after the event, and such waiver shall be the equivalent of such notice.
Waivers of notice by Holders shall be filed with the Trustee, but such filing
shall not be a condition precedent to the validity of any action taken in
reliance upon such waiver.
SECTION 1.08. Effect of Headings and Table of Contents. The Article and
Section headings herein and the Table of Contents are for convenience only and
shall not affect the construction hereof.
SECTION 1.09. Successors and Assigns. All covenants and agreements in this
Indenture by the Company shall bind its successors and assigns, whether so
expressed or not.
SECTION 1.10. Separability Clause. In case any provision in this Indenture
or in any Security shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
SECTION 1.11. Benefits of Indenture. Nothing in this Indenture or in the
Securities, express or implied, shall give to any Person, other than the parties
hereto, any Security Registrar, any Paying Agent, any Conversion Agent and their
successors hereunder and the Holders any benefit or any legal or equitable
right, remedy or claim under this Indenture.
SECTION 1.12. Governing Law. This Indenture and the Securities shall be
governed by and construed in accordance with the law of the State of New York
without regard to conflict of laws principles.
SECTION 1.13. Legal Holidays. In any case where any Interest Payment Date,
Redemption Date, Repurchase Date, Stated Maturity or Maturity of any Security or
the last date on
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which a Holder has the right to convert his Securities shall not be a Business
Day at any Place of Payment, then (notwithstanding any other provision of this
Indenture or any Security), payment of Redemption Price, Repurchase Price,
interest (including any Liquidated Damages) or principal (and premium, if any),
or conversion of the Securities, need not be made at such Place of Payment on
such date, but may be made on the next succeeding Business Day at such Place of
Payment with the same force and effect as if made on the Interest Payment Date,
Redemption Date, Repurchase Date or at the Stated Maturity or Maturity or on
such last day for conversion; provided that no interest shall accrue on the
amount so payable for the period from and after such Interest Payment Date,
Redemption Date, Repurchase Date, Stated Maturity or Maturity or on such last
day for conversion, as the case may be.
SECTION 1.14. Personal Immunity from Liability for Incorporators,
Stockholders, Etc. No recourse shall be had for the payment of the principal of
or premium, if any, or interest (including any Liquidated Damages), if any, on
any Security, or for any claim based thereon, or otherwise in respect of any
Security, or based on or in respect of this Indenture or any indenture
supplemental hereto, against any incorporator, or against any past, present or
future stockholder, director or officer, as such, of the Company or of any
successor corporation, whether by virtue of any constitution, statute or rule of
law, or by the enforcement of any assessment or penalty or otherwise, all such
liability being expressly waived and released as a condition of, and as
consideration for, the execution of this Indenture and the issue of Securities.
SECTION 1.15. Conflict with Trust Indenture Act. If any provision hereof
limits, qualifies or conflicts with a provision of the TIA that is required
under such Act to be a part of and govern this Indenture, the latter provision
shall control. If any provision of this Indenture modifies or excludes any
provision of the TIA that may be so modified or excluded, the latter provision
shall be deemed to apply to this Indenture as so modified or to be excluded, as
the case may be. To the extent that any provision of a Security conflicts with a
provision in this Indenture, the provision of this Indenture shall control.
ARTICLE 2
Securities Forms
SECTION 2.01. Forms of Securities. The Securities shall be in substantially
the form of Exhibit A hereto, and shall have notations, legends or endorsements
required by law, stock exchange rule or usage or as otherwise indicated in
Exhibit A hereto.
SECTION 2.02. Form of Trustee's Certificate of Authentication. The
Trustee's certificate of authentication shall be in substantially the following
form:
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This is one of the Securities described in the within-mentioned Indenture.
DATED: THE CHASE MANHATTAN BANK
as Trustee
By:_________________________________
Authorized Signatory
SECTION 2.03. Securities Issuable in Global Form. Except as otherwise
provided in this Section 2.03 or in Section 3.04, the Securities shall be
issuable only in global form and deposited with the Trustee, at its Corporate
Trust Office, as custodian for DTC or the nominees thereof, and any such
Security shall represent such of the Outstanding Securities as shall be set
forth in the books and records of the Trustee and may provide that it shall
represent the aggregate amount of Outstanding Securities from time to time as
adjusted in the books and records of the Trustee, and that the aggregate amount
of Outstanding Securities represented thereby may from time to time be increased
or decreased to reflect exchanges. Any adjustment of the aggregate amount of
Outstanding Securities represented by a Security in global form to reflect the
amount, or any increase or decrease in the amount, of Outstanding Securities
represented thereby shall be made by the Trustee in such manner and upon
instructions given by such Person or Persons as shall be specified therein or in
the Company Order to be delivered to the Trustee pursuant to Section 3.03.
Subject to the provisions of Section 3.03, the Trustee shall, if required,
deliver and redeliver any Security in global form in the manner and upon
instructions given by the Person or Persons specified therein or in the
applicable Company Order. If a Company Order pursuant to Section 3.03 has been,
or simultaneously is, delivered, any instructions by the Company with respect to
endorsement or delivery or redelivery of a Security in global form shall be in
writing but need not comply with Section 1.03 and need not be accompanied by an
Opinion of Counsel.
The provisions of the last sentence of Section 3.03 shall apply to any
Security represented by a Security in global form if such Security was never
issued and sold by the Company and the Company delivers to the Trustee the
Security in global form together with written instructions (which need not
comply with Section 1.03 and need not be accompanied by an Opinion of Counsel)
with regard to the reduction in the principal amount of Securities represented
thereby, together with the written statement contemplated by the last sentence
of Section 3.03.
Notwithstanding the provisions of Section 3.07, payment of principal of and
any premium and interest (including any Liquidated Damages) on any Security in
global form shall be made to the Person or Persons specified in such Security.
All Securities issued in global form shall bear the following legend:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW YORK, TO
THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND
ANY
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CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME
AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC, AND ANY PAYMENT IS MADE
TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC, ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL BECAUSE THE REGISTERED OWNER HEREOF,
CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE,
BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE.
ARTICLE 3
The Securities
SECTION 3.01. Title and Term. The Securities shall be and are hereby
authorized to be designated as "7% Convertible Subordinated Notes due 2005",
limited in aggregate principal amount to $150,000,000 (or to $172,500,000, if
the option set forth in Section 2(b) of the Purchase Agreement dated February
10, 2000 among the Company and the Initial Purchasers, is exercised in full).
The Securities shall mature and the principal thereof shall be due and payable,
together with all accrued and unpaid interest thereon, on February 16, 2005. The
Securities shall be convertible into shares of Common Stock. The Securities are
entitled to the payment of Liquidated Damages as set forth herein and in the
Registration Rights Agreement.
SECTION 3.02. Denominations. The Securities shall be issuable in
denominations of $1,000 and any integral multiple thereof.
SECTION 3.03. Execution, Authentication, Delivery and Dating. The
Securities shall be executed on behalf of the Company by the Chief Executive
Officer, the Chief Financial Officer, the Treasurer, the President or a Vice
President of the Company. The signature of any of these individuals on the
Securities may be a manual or facsimile signature of such authorized officer and
may be imprinted or otherwise reproduced on the Securities.
Securities bearing the manual or facsimile signatures of an individual who
was at any time the proper officer of the Company shall bind the Company,
notwithstanding that such individual shall have ceased to hold such office prior
to the authentication and delivery of such Securities or did not hold such
office at the date of such Securities.
At any time and from time to time after the execution and delivery of this
Indenture, the Company may deliver Securities, executed by the Company, to the
Trustee for authentication, together with a Company Order for the authentication
and delivery of such Securities, and the Trustee in accordance with the Company
Order shall authenticate and deliver such Securities.
Each Security shall be dated the date of its authentication.
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No Security shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for in Section
2.02, duly executed by the Trustee by manual signature of an authorized
signatory, and such certificate upon any Security shall be conclusive evidence,
and the only evidence, that such Security has been duly authenticated and
delivered hereunder and is entitled to the benefits of this Indenture.
Notwithstanding the foregoing, if any Security shall have been authenticated and
delivered hereunder but never issued and sold by the Company, and the Company
shall deliver such Security to the Trustee for cancellation as provided in
Section 3.08 together with a written statement (which need not comply with
Section 1.03 and need not be accompanied by an Opinion of Counsel) stating that
such Security has never been issued and sold by the Company, for all purposes of
this Indenture, such Security shall be deemed not to have been authenticated and
delivered hereunder and shall never be entitled to the benefits of this
Indenture.
SECTION 3.04. Registration, Registration of Transfer and Exchange.
(a) The Company shall cause to be kept at the Corporate Trust Office
of the Trustee or in any office or agency of the Company in a Place of Payment a
register for the Securities (the "Security Register") in which, subject to such
reasonable regulations as it may prescribe, the Company shall provide for the
registration of the Securities and of transfers of the Securities. The Security
Register shall be in written form or any other form capable of being converted
into written form within a reasonable time. The Trustee, at its Corporate Trust
Office, is hereby appointed "Security Registrar" for the purpose of registering
the Securities and transfers of the Securities on such Security Register as
herein provided. In the event that the Trustee shall cease to be Security
Registrar, it shall have the right to examine the Security Register at all
reasonable times.
Subject to the provisions of this Section 3.04 and except as otherwise
provided in any Security, including any legend thereon, upon surrender for
registration of transfer of any Security at any office or agency of the Company
in a Place of Payment, the Company shall execute, and the Trustee shall
authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Securities, of any authorized denominations and of
a like aggregate principal amount, bearing a number not contemporaneously
outstanding, and containing identical terms and provisions.
Subject to the provisions of this Section 3.04, at the option of the
Holder, the Securities may be exchanged for other Securities, of any authorized
denomination or denominations and of a like aggregate principal amount,
containing identical terms and provisions, upon surrender of the Securities to
be exchanged at any such office or agency. Whenever any such Securities are so
surrendered for exchange, the Company shall execute, and the Trustee shall
authenticate and deliver, the Securities that the Holder making the exchange is
entitled to receive.
Notwithstanding the foregoing, any global Security shall be exchangeable
only as provided in this paragraph. The depositary for the global Securities
shall be DTC, and the global Securities may be transferred, in whole but not in
part, only to a nominee of DTC, or by a nominee of DTC to DTC, or to a successor
to DTC for such global Security selected or approved by the Company or to a
nominee of such successor to DTC. If at any time DTC notifies the Company that
it is unwilling or unable to continue as depositary for the applicable global
Security or Securities or if at any time
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DTC ceases to be a clearing agency registered under the Securities Exchange Act
of 1934, if so required by applicable law or regulation, the Company shall
appoint a successor depositary with respect to such global Security or
Securities. If (x) a successor depositary for such global Security or Securities
is not appointed by the Company within 90 days after the Company receives such
notice or becomes aware of such unwillingness, inability or ineligibility, or
(y) a Default or an Event of Default has occurred and is continuing, or (z) the
Company, in its sole discretion, executes and delivers to the Trustee and the
Security Registrar an Officers' Certificate stating that definitive Securities
may be issued in exchange for interests in a global Security or Securities, then
the Company shall execute, and the Trustee shall authenticate and deliver,
definitive Securities of like rank, tenor and terms in definitive form,
registered in such names as DTC shall direct and bearing such legends as the
Company shall specify in writing, in an aggregate principal amount equal to the
principal amount of such global Security or Securities. If a Security is issued
in exchange for any portion of a global Security after the close of business at
the office or agency where such exchange occurs on (i) any Regular Record Date
and before the opening of business at such office or agency on the relevant
Interest Payment Date or (ii) any Special Record Date and before the opening of
business at such office or agency on the related proposed date for payment of
Defaulted Interest, interest or Defaulted Interest, as the case may be, shall
not be payable on such Interest Payment Date or proposed date for payment, as
the case may be, in respect of such Security, but will be payable on such
Interest Payment Date or proposed date for payment, as the case may be, only to
the Person to whom interest in respect of such portion of such global Security
is payable in accordance with the provisions of this Indenture.
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer or for
exchange or redemption shall (if so required by the Company or the Security
Registrar) be duly endorsed, or be accompanied by a written instrument of
transfer, in form satisfactory to the Company and the Security Registrar, duly
executed by the Holder thereof or his attorney duly authorized in writing.
No service charge shall be made to a Holder for any registration of
transfer or exchange of Securities, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Securities, other
than exchanges pursuant to Section 10.07 or 11.03(e) not involving any transfer.
The Company or the Trustee, as applicable, shall not be required (i) to
issue, register the transfer of or exchange any Security during a period
beginning at the opening of business 15 days before the date of the mailing of a
notice of redemption with respect to the Securities to be redeemed under Section
10.03 and ending at the close of business on the day of the mailing of the
relevant notice of redemption, or (ii) to register the transfer of or exchange
any Security so selected for redemption in whole or in part, except, in the case
of any Security to be redeemed in part, the portion thereof not to be redeemed,
or (iii) to issue, register the transfer of or exchange any Security that has
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been surrendered for repayment at the option of the Holder, except the portion,
if any, of such Security not to be so repaid.
(b) Every Security that bears or is required under this Section
3.04(b) to bear the legend set forth in this Section 3.04(b) (together with any
Common Stock issued upon conversion or exchange of the Securities (including any
exchange constituting payment of the Repurchase Price for Securities pursuant to
Article 11) and required to bear the legend set forth in Section 3.04(c),
collectively, the "Restricted Securities") shall be subject to the restrictions
on transfer set forth in this Section 3.04(b) (including one of the legends set
forth below), unless such restrictions on transfer shall be waived by written
consent of the Company, and the holder of each such Restricted Security, by such
holder's acceptance thereof, agrees to be bound by all such restrictions on
transfer. As used in Sections 3.04(b) and 3.04(c), the term "transfer"
encompasses any sale, pledge, transfer or other disposition whatsoever of any
Restricted Security. Upon the effectiveness of a filed registration statement
covering the Securities, the Company shall deliver an Officers' Certificate to
the Trustee informing the Trustee of the effectiveness of such registration and
instructing the Trustee regarding the issuance and delivery of unlegended
Securities.
Until two years after the original issuance date of any Security, any
certificate evidencing such Security (and all securities issued in exchange
therefor or substitution thereof, other than Common Stock, if any, issued upon
conversion thereof or upon payment of the Repurchase Price therefor pursuant to
Article 11, which shall bear the legend set forth in Section 3.04(c), if
applicable) shall bear a legend in substantially the following form (unless such
Securities have been transferred pursuant to a registration statement that has
been declared effective under the Securities Act (and which continues to be
effective at the time of such transfer), pursuant to the exemption from
registration provided by Rule 144 under the Securities Act, or unless otherwise
agreed by the Company in writing, with notice thereof to the Trustee in the form
of an Officers' Certificate):
THE SECURITY EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND
MAY NOT BE OFFERED OR SOLD EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY
ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT IT IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT); (2)
AGREES THAT IT WILL NOT WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THE
SECURITY EVIDENCED HEREBY RESELL OR OTHERWISE TRANSFER THE SECURITY EVIDENCED
HEREBY OR THE COMMON STOCK ISSUABLE UPON CONVERSION OR EXCHANGE OF SUCH SECURITY
EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED
INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C)
PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE
SECURITIES ACT (IF AVAILABLE) OR (D) PURSUANT TO A REGISTRATION STATEMENT THAT
HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT (AND WHICH CONTINUES TO BE
EFFECTIVE AT THE TIME OF SUCH TRANSFER); AND (3) AGREES THAT IT WILL DELIVER TO
EACH PERSON TO WHOM THE SECURITY EVIDENCED HEREBY IS TRANSFERRED
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(OTHER THAN A TRANSFER PURSUANT TO CLAUSE 2(D) ABOVE) A NOTICE SUBSTANTIALLY TO
THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THE SECURITY
EVIDENCED HEREBY WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF SUCH SECURITY
(OTHER THAN A TRANSFER PURSUANT TO CLAUSE 2(D) ABOVE), THE HOLDER MUST CHECK THE
APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH
TRANSFER AND SUBMIT THIS CERTIFICATE TO THE CHASE MANHATTAN BANK, AS TRUSTEE. IF
THE PROPOSED TRANSFER IS PURSUANT TO CLAUSE 2(C) ABOVE, THE HOLDER MUST, PRIOR
TO SUCH TRANSFER, FURNISH TO THE CHASE MANHATTAN BANK, AS TRUSTEE, SUCH
CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THE COMPANY MAY
REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT. THIS LEGEND WILL BE REMOVED UPON THE EARLIER
OF THE TRANSFER OF THE SECURITY EVIDENCED HEREBY PURSUANT TO CLAUSE 2(C) OR 2(D)
ABOVE OR THE EXPIRATION OF TWO YEARS FROM THE ORIGINAL ISSUANCE OF THE SECURITY
EVIDENCED HEREBY.
Any Security (or Security issued in exchange or substitution therefor) as
to which such restrictions on transfer shall have expired in accordance with
their terms may, upon surrender of such Security for exchange to the Security
Registrar in accordance with the provisions of this Section 3.04, be exchanged
for a new Security or Securities, of like tenor and aggregate principal amount,
which shall not bear the restrictive legend required by this Section 3.04(b).
At such time as all interests in the global Security have been redeemed,
converted, canceled, repurchased or transferred, the global Security shall be,
upon receipt thereof, canceled by the Trustee in accordance with standing
procedures and instructions existing between the depositary and the Custodian.
(c) Until two years after the original issuance date of any Security,
any stock certificate representing Common Stock issued upon conversion or
exchange of such Security (including any exchange constituting payment of the
Repurchase Price for any Securities pursuant to Article 11) of such Security
shall bear a legend in substantially the following form (unless such Common
Stock has been sold pursuant to the exemption from registration provided by Rule
144 under the Securities Act or pursuant to a registration statement that has
been declared effective under the Securities Act, and which continues to be
effective at the time of such transfer, or such Common Stock has been issued
upon conversion or exchange of Securities that have been transferred pursuant to
a registration statement that has been declared effective under the Securities
Act, or unless otherwise agreed by the Company with written notice thereof to
the Trustee (in the form of an Officers' Certificate) and any transfer agent for
the Common Stock):
THE COMMON STOCK EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS AND MAY NOT BE OFFERED OR SOLD EXCEPT AS SET
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FORTH IN THE FOLLOWING SENTENCE. THE HOLDER HEREOF AGREES THAT UNTIL THE
EXPIRATION OF TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THE SECURITY UPON THE
CONVERSION OR EXCHANGE OF WHICH THE COMMON STOCK EVIDENCED HEREBY WAS ISSUED,
(1) IT WILL NOT RESELL OR OTHERWISE TRANSFER THE COMMON STOCK EVIDENCED HEREBY
EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) TO A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN
COMPLIANCE WITH RULE 144A, (C) PURSUANT TO THE EXEMPTION FROM REGISTRATION
PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), OR (D) PURSUANT TO
A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES
ACT (AND WHICH CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER); (2)
PRIOR TO ANY SUCH TRANSFER (OTHER THAN A TRANSFER PURSUANT TO CLAUSE 1(D)
ABOVE), IT WILL FURNISH TO CHASEMELLON SHAREHOLDER SERVICES, L.L.C., AS TRANSFER
AGENT, SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THE COMPANY
MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO
AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT; AND (3) IT WILL DELIVER TO EACH PERSON TO
WHOM THE COMMON STOCK EVIDENCED HEREBY IS TRANSFERRED (OTHER THAN A TRANSFER
PURSUANT TO CLAUSE 1(D) ABOVE) A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS
LEGEND. THIS LEGEND WILL BE REMOVED UPON THE EARLIER OF THE TRANSFER OF THE
COMMON STOCK EVIDENCED HEREBY PURSUANT TO CLAUSE 1(C) OR 1(D) ABOVE OR THE
EXPIRATION OF TWO YEARS FROM THE ORIGINAL ISSUANCE OF THE SECURITY UPON THE
CONVERSION OR EXCHANGE OF WHICH THE COMMON STOCK EVIDENCED HEREBY WAS ISSUED.
Any such Common Stock as to which such restrictions on transfer shall have
expired in accordance with their terms may, upon surrender of the certificates
representing such shares of Common Stock for exchange in accordance with the
procedures of the transfer agent for the Common Stock, be exchanged for a new
certificate or certificates for a like aggregate number of shares of Common
Stock, which shall not bear the restrictive legend required by this Section
3.04(c).
(d) Any Security or Common Stock issued upon the conversion or
exchange of a Security that, prior to the expiration of the holding period
applicable to sales thereof under Rule 144(k) under the Securities Act (or any
successor provision), is purchased or owned by the Company or any Affiliate
thereof may not be resold by the Company or such Affiliate unless registered
under the Securities Act or resold pursuant to an exemption from the
registration requirements of the Securities Act in a transaction that results in
such Securities or Common Stock, as the case may be, no longer being "restricted
securities" (as defined under Rule 144).
(e) Notwithstanding any provision of Section 3.04 to the contrary, in
the event Rule 144(k) as promulgated under the Securities Act (or any successor
rule) is amended to change the two-year period under Rule 144(k) (or the
corresponding period under any successor rule), from
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and after receipt by the Trustee of the Officers' Certificate and Opinion of
Counsel provided for in this Section 3.04(e), (i) each reference in Section
3.04(b) to "two years" and in the restrictive legend set forth in such paragraph
to "TWO YEARS" shall be deemed for all purposes hereof to be references to such
changed period, (ii) each reference in Section 3.04(c) to "two years" and in the
restrictive legend set forth in such paragraph to "TWO YEARS" shall be deemed
for all purposes hereof to be references to such changed period and (iii) all
corresponding references in the Securities and the restrictive legends thereon
shall be deemed for all purposes hereof to be references to such changed period,
provided that such changes shall not become effective if they are otherwise
prohibited by, or would otherwise cause a violation of, the then-applicable
federal securities laws. As soon as practicable after the Company has knowledge
of the effectiveness of any such amendment to change the two-year period under
Rule 144(k) (or the corresponding period under any successor rule), unless such
changes would otherwise be prohibited by, or would otherwise cause a violation
of, the then-applicable securities law, the Company shall provide to the Trustee
an Officers' Certificate and Opinion of Counsel informing the Trustee of the
effectiveness of such amendment and the effectiveness of the foregoing changes
to Sections 3.04(b) and 3.04(c) and the Notes. The provisions of this Section
3.04(e) shall not be effective until such time as the Opinion of Counsel and
Officers' Certificate have been received by the Trustee hereunder. This Section
3.04(e) shall apply to successive amendments to Rule 144(k) (or any successor
rule) changing the holding period thereunder.
SECTION 3.05. Mutilated, Destroyed, Lost and Stolen Securities. If any
mutilated Security is surrendered to the Trustee or the Company, together with
such security or indemnity as may be required by the Company or the Trustee to
save each of them or any agent of either of them harmless, the Company shall, at
the relevant Holder's expense, execute and the Trustee shall authenticate and
deliver in exchange therefor a new Security of the same principal amount,
containing identical terms and provisions and bearing a number not
contemporaneously outstanding.
If there shall be delivered to the Company and to the Trustee (i) evidence
to their satisfaction of the destruction, loss or theft of any Security and (ii)
such security or indemnity as may be required by them to save each of them and
any agent of either of them harmless, then, in the absence of notice to the
Company or the Trustee that such Security has been acquired by a bona fide
purchaser, the Company, at the relevant Holder's expense, shall execute, and
upon the Company's request the Trustee shall authenticate and deliver, in lieu
of any such destroyed, lost or stolen Security, a new Security of the same
principal amount, containing identical terms and provisions and bearing a number
not contemporaneously outstanding, appertaining to such destroyed, lost or
stolen Security.
Notwithstanding the provisions of the previous two paragraphs, in case any
such mutilated, destroyed, lost or stolen Security has become or is about to
become due and payable, the Company in its discretion may, instead of issuing a
new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses (including
the fees and expenses of the Trustee) connected therewith.
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Every new Security issued pursuant to this Section in lieu of any
mutilated, destroyed, lost or stolen Security, shall constitute an original
additional contractual obligation of the Company, whether or not the mutilated,
destroyed, lost or stolen Security shall be at any time enforceable by anyone,
and shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities.
SECTION 3.06. Payment of Interest; Interest Rights Preserved. Interest on
any Security (including any Liquidated Damages) that is payable, and is
punctually paid or duly provided for, on any Interest Payment Date shall be paid
to the Person in whose name that Security (or one or more Predecessor
Securities) is registered at the close of business on the Regular Record Date
for such interest at the office or agency of the Company maintained for such
purpose pursuant to Section 9.02; provided, however, that each installment of
interest (including any Liquidated Damages) on any Security may at the Company's
option be paid by (i) mailing a check for such interest, payable to or upon the
written order of the Person entitled thereto pursuant to Section 3.07, to the
address of such Person as it appears on the Security Register or (ii) if the
Trustee shall have received written bank wire instructions prior to the Regular
Record Date for such payment, transfer to an account maintained by the payee
located inside the United States; provided, however, that payments to DTC shall
be made by wire transfer of immediately available funds to the account of DTC or
its nominee. The term "Regular Record Date" with respect to any Interest Payment
Date shall mean the February 1 or August 1 preceding February 16 or August 16,
respectively.
Any interest (including any Liquidated Damages) on any Security that is
payable, but is not punctually paid or duly provided for, on any Interest
Payment Date (herein called "Defaulted Interest") shall forthwith cease to be
payable to the registered Holder thereof on the relevant Regular Record Date by
virtue of having been such Holder, and such Defaulted Interest may be paid by
the Company, at its election in each case, as provided in clause 3.06(a) or
3.06(b) below:
(a) The Company may elect to make payment of any Defaulted Interest to
the Persons in whose names the Securities (or their respective Predecessor
Securities) are registered at the close of business on a Special Record Date for
the payment of such Defaulted Interest, which shall be fixed in the following
manner. The Company shall notify the Trustee in writing of the amount of
Defaulted Interest proposed to be paid on each Security and the date of the
proposed payment (which shall not be less than 30 days after such notice is
received by the Trustee) and at the same time the Company shall deposit with the
Trustee an amount of money equal to the aggregate amount proposed to be paid in
respect of such Defaulted Interest or shall make arrangements satisfactory to
the Trustee for such deposit on or prior to the date of the proposed payment,
such money when deposited to be held in trust for the benefit of the Persons
entitled to such Defaulted Interest as in this clause provided. Thereupon the
Company shall fix a Special Record Date for the payment of such Defaulted
Interest which shall be not more than 15 days and not less than 10 days prior to
the date of the proposed payment. The Company shall promptly notify the Trustee
of such
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Special Record Date and, in the name and at the expense of the Company, the
Trustee shall cause notice of the proposed payment of such Defaulted Interest
and the Special Record Date therefor to be mailed, first-class postage prepaid,
to each Holder of Securities at his address as it appears in the Security
Register not less than 10 days prior to such Special Record Date. The Trustee
may, in its discretion, in the name and at the expense of the Company, cause a
similar notice to be published at least once in an Authorized Newspaper in each
Place of Payment, but such publications shall not be a condition precedent to
the establishment of such Special Record Date. Notice of the proposed payment of
such Defaulted Interest and the Special Record Date therefor having been mailed
as aforesaid, such Defaulted Interest shall be paid to the Persons in whose
names the Securities (or their respective Predecessor Securities) are registered
at the close of business on such Special Record Date and shall no longer be
payable pursuant to the following clause (b).
(b) The Company may make payment of any Defaulted Interest on the
Securities in any other lawful manner not inconsistent with the requirements of
any securities exchange on which such Securities may be listed, and upon such
notice as may be required by such exchange, if, after notice given by the
Company to the Trustee of the proposed payment pursuant to this clause, such
manner of payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Security.
SECTION 3.07. Persons Deemed Owners. Prior to due presentment of a Security
for registration of transfer, the Company, the Trustee and any agent of the
Company or the Trustee may treat the Person in whose name such Security is
registered as the owner of such Security for the purpose of receiving payment of
principal of (and premium, if any), and (subject to Sections 3.04 and 3.06)
interest on, such Security and for all other purposes whatsoever, whether or not
such Security is overdue, and neither the Company, the Trustee nor any agent of
the Company or the Trustee shall be affected by notice to the contrary.
None of the Company, the Trustee, any Paying Agent or the Security
Registrar shall have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests of a Security in global form or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
Notwithstanding the foregoing, with respect to any global Security, nothing
herein shall prevent the Company, the Trustee, or any agent of the Company or
the Trustee, from giving effect to any written certification, proxy or other
authorization furnished by any depositary, as a Holder, with respect to such
global Security or impair, as between such depositary and owners of beneficial
interests in such global Security, the operation of customary practices
governing the exercise of the rights of such depositary (or its nominee) as a
Holder of such global Security.
SECTION 3.08. Cancellation. All Securities surrendered for payment,
redemption, repayment at the option of the Holder or registration of transfer or
exchange shall, if surrendered to
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any Person other than the Trustee, be delivered to the Trustee, and any such
Securities surrendered directly to the Trustee for any such purpose shall be
promptly canceled by it. The Company may at any time deliver to the Trustee for
cancellation any Securities previously authenticated and delivered hereunder
that the Company may have acquired in any manner whatsoever, and may deliver to
the Trustee (or to any other Person for delivery to the Trustee) for
cancellation any Securities previously authenticated hereunder that the Company
has not issued and sold, and all Securities so delivered shall be promptly
canceled by the Trustee. If the Company shall so acquire any of the Securities,
however, such acquisition shall not operate as a redemption or satisfaction of
the indebtedness represented by such Securities unless and until the same are
surrendered to the Trustee for cancellation. No Securities shall be
authenticated in lieu of or in exchange for any Securities canceled as provided
in this Section, except as expressly permitted by this Indenture. Canceled
Securities held by the Trustee shall be destroyed by the Trustee and the Trustee
shall deliver a certificate of such destruction to the Company, unless by a
Company Order the Company directs their return to it.
SECTION 3.09. Computation of Interest. Interest (including any Liquidated
Damages) on the Securities shall be computed on the basis of a 360-day year
consisting of twelve 30-day months.
SECTION 3.10. CUSIP Numbers. The Company in issuing the Securities shall
use "CUSIP" numbers, and the Trustee shall use CUSIP numbers in notices of
redemption as a convenience to Holders; provided however, that any such notice
may state that no representation is made as to the correctness of such numbers
either as printed on the Securities or as contained in any notice of a
redemption and that reliance may be placed only on the other identification
numbers printed on the Securities, and any such redemption shall not be affected
by any defect in or omission of such numbers. The Company shall promptly notify
the Trustee of any change in the CUSIP numbers applicable to the Securities.
ARTICLE 4
Remedies
SECTION 4.01. Events of Default. "Event of Default," wherever used herein
with respect to the Securities, means any one of the following events (whatever
the reason for such Event of Default and whether or not it shall be occasioned
by the provisions of Article 13 or be voluntary or involuntary or be effected by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(a) default in the payment of any interest (including any Liquidated
Damages) upon any Security, when such interest becomes due and payable, and
continuance of such default for a period of 30 days (whether or not such payment
is prohibited by the provisions of Article 13); or
(b) default in the payment of (i) the principal of (or premium, if
any, on) any Security when it becomes due and payable at its Maturity, or (ii)
the Redemption Price (including the Make-Whole Payment, if any) with respect to
any Security when it becomes due and payable (whether or not such payment is
prohibited by the provisions of Article 13); or
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(c) default in the payment of the Repurchase Price in respect of any
Security on the Repurchase Date therefor (whether or not such payment is
prohibited by the provisions of Article 13 and whether or not a Person other
than the Company has offered to repurchase Outstanding Securities as
contemplated by Section 11.03(k)); or
(d) failure by the Company to give the Company Notice in accordance
with Section 11.03(a) to all Holders of Outstanding Securities and to the
Trustee, or failure by the Company to comply with its covenants set forth in
Section 11.03(b); or
(e) failure by the Company to deliver shares of Common Stock (together
with cash in lieu of fractional shares) when such Common Stock (or cash in lieu
of fractional shares) is required to be delivered following conversion of a
Security and continuation of such default for a period of 10 days; or
(f) default in the performance, or breach, of any covenant or warranty
of the Company in this Indenture with respect to any Security (other than a
covenant or warranty a default in whose performance or whose breach is elsewhere
in this Section specifically dealt with) and continuance of such default or
breach for a period of 60 days after there has been given, by registered or
certified mail, to the Company by the Trustee or to the Company and the Trustee
by the Holders of at least 25% in principal amount of the Outstanding Securities
a written notice specifying such default or breach and requiring it to be
remedied and stating that such notice is a "Notice of Default" hereunder; or
(g) a default under any bonds, debentures, notes or other evidences of
indebtedness for money borrowed of the Company or under any mortgages,
indentures or instruments under which there may be issued or by which there may
be secured or evidenced any indebtedness for money borrowed by the Company,
whether such indebtedness now exists or shall hereafter be created, which
indebtedness, individually or in the aggregate, has a principal amount
outstanding in excess of $10,000,000, which default shall have resulted in such
indebtedness becoming or being declared due and payable prior to the date on
which it would otherwise have become due and payable, without such indebtedness
having been discharged, or such acceleration having been rescinded or annulled,
within a period of 60 days after there shall have been given, by registered or
certified mail, to the Company by the Trustee or to the Company and the Trustee
by the Holders of at least 25% in principal amount of the Securities then
Outstanding, a written notice specifying such default and requiring the Company
to cause such indebtedness to be discharged or cause such acceleration to be
rescinded or annulled and stating that such notice is a "Notice of Default"
hereunder (unless such default has been cured or waived); or
(h) the Company or any Significant Subsidiary pursuant to or within
the meaning of any Bankruptcy Law:
(i) commences a voluntary case,
(ii) consents to the entry of an order for relief against it in
an involuntary case,
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(iii) consents to the appointment of a Custodian of it or for all
or substantially all of its property, or
(iv) makes a general assignment for the benefit of its creditors;
or
(i) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(i) is for relief against the Company or any Significant
Subsidiary in an involuntary case,
(ii) appoints a Custodian of the Company or any Significant
Subsidiary or for all or substantially all of the property of any of them, or
(iii) orders the winding up or liquidation of the Company or any
Significant Subsidiary,
and the order or decree remains unstayed and in effect for 60 days.
As used in this Section 4.01 only, the term "Bankruptcy Law" means title
11, U.S. Code or any similar Federal or State law for the relief of debtors and
the term "Custodian" means any receiver, trustee, assignee, liquidator or other
similar official under any Bankruptcy Law.
SECTION 4.02. Acceleration of Maturity; Rescission and Annulment. If an
Event of Default with respect to Securities at the time Outstanding occurs and
is continuing, then and in every such case the Trustee, or the Holders of not
less than 25% in principal amount of the Outstanding Securities, may declare the
principal of all the Securities, and accrued interest thereon to the date of
such declaration, to be due and payable immediately, by a notice in writing to
the Company (and to the Trustee if given by the Holders), and upon any such
declaration such principal shall become immediately due and payable. If an Event
of Default specified in Section 4.01(h) or Section 4.01(i) occurs, the principal
of, and accrued interest on, all the Securities shall automatically, and without
any declaration or other action on the part of the Trustee or any Holder, become
immediately due and payable.
At any time after such a declaration of acceleration with respect to the
Securities has been made and before a judgment or decree for payment of the
money due has been obtained by the Trustee as hereinafter provided in this
Article, the Holders of a majority in principal amount of the Outstanding
Securities, by written notice to the Company and the Trustee, may rescind and
annul such declaration and its consequences if:
(a) the Company has paid or deposited with the Trustee a sum
sufficient to pay:
(i) all overdue installments of interest on all Outstanding
Securities,
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(ii) the principal of (and premium, if any, on) any Outstanding
Securities that have become due otherwise than by reason of such declaration of
acceleration and interest thereon at the rate or rates borne by or provided for
in such Securities,
(iii) to the extent that payment of such interest is lawful,
interest upon overdue installments of interest at the rate or rates borne by or
provided for in such Securities, and
(iv) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel; and
(b) all Events of Default with respect to the Securities, other than
the nonpayment of the principal of (or premium, if any) or interest on
Securities which have become due solely by reason of such declaration of
acceleration, have been cured or waived as provided in Section 4.13. ----
No such rescission shall affect any subsequent Default or Event of Default
or impair any right in respect thereof.
SECTION 4.03. Collection of Indebtedness and Suits for Enforcement by
Trustee. The Company covenants that if:
(a) default is made in the payment of any installment of interest
(including any Liquidated Damages) on any Security when such interest becomes
due and payable and such default continues for a period of 30 days, or
(b) default is made in the payment of the principal of (or premium, if
any, on) any Security at its Maturity,
then the Company shall, upon demand of the Trustee, pay to the Trustee, for
the benefit of the Holders of such Securities, the whole amount then due and
payable on such Securities for principal (and premium, if any) and interest
(including any Liquidated Damages), with interest upon any overdue principal
(and premium, if any) and, to the extent that payment of such interest shall be
legally enforceable, upon any overdue installments of interest (including any
Liquidated Damages), at the rate or rates borne by or provided for in such
Securities, and, in addition thereto, such further amount as shall be sufficient
to cover the costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel.
If the Company fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, and may
prosecute such proceeding to judgment or final decree, and may enforce the same
against the Company or any other obligor upon such Securities under a
supplemental indenture entered into in accordance herewith and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the property of the Company or any other such obligor upon such Securities,
wherever situated.
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If an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Holders of Securities by such appropriate judicial proceedings as the Trustee
shall deem most effectual to protect and enforce any such rights, whether for
the specific enforcement of any covenant or agreement in this Indenture or in
aid of the exercise of any power granted herein, or to enforce any other proper
remedy.
SECTION 4.04. Trustee May File Proofs of Claim. In case of the pendency of
any receivership, insolvency, liquidation, bankruptcy, reorganization,
arrangement, adjustment, composition or other judicial proceeding relative to
the Company or any other obligor upon the Securities under a supplemental
indenture entered into in accordance herewith or the property of the Company or
of such other obligor or the Company's, or any such other obligor's, creditors,
the Trustee (irrespective of whether the principal of the Securities shall then
be due and payable as therein expressed or by acceleration or otherwise and
irrespective of whether the Trustee shall have made any demand on the Company
for the payment of overdue principal, premium, if any, or interest) shall be
entitled and empowered, by intervention in such proceeding or otherwise:
(a) to file and prove a claim for the whole amount, or such lesser
amount as may be provided for in the Securities, of principal (and premium, if
any) and interest, owing and unpaid in respect of the Securities and to file
such other papers or documents as may be necessary or advisable in order to have
the claims of the Trustee (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel) and
of the Holders allowed in such judicial proceeding, and
(b) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator
(or other similar official) in any such judicial proceeding is hereby directed
by each Holder to make such payments to the Trustee, and in the event that the
Trustee shall request or consent to the making of such payments directly to the
Holders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee and any
predecessor Trustee, their agents and counsel, and any other amounts due the
Trustee or any predecessor Trustee under Section 5.07.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder of a
Security, any plan of reorganization, arrangement, adjustment or composition
affecting the Securities or the rights of any Holder thereof, or to authorize
the Trustee to vote in respect of the claim of any Holder of a Security in any
such proceeding; provided however, that the Trustee may, on behalf of the
Holders, vote for the election of a trustee in bankruptcy or similar official
and be a member of a creditors' or other similar committee.
SECTION 4.05. Trustee May Enforce Claims Without Possession of Securities.
All rights of action and claims under this Indenture or any of the Securities
may be prosecuted and enforced by the Trustee without the possession of any of
the Securities or the production thereof in any proceeding relating thereto, and
any such proceeding instituted by the Trustee shall be brought in its own name
as trustee of an express trust, and any recovery of judgment shall, after
provision for
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the payment of the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel, be for the ratable benefit of the
Holders of the Securities in respect of which such judgment has been recovered.
SECTION 4.06. Application of Money Collected. Any money collected by the
Trustee pursuant to this Article shall be applied in the following order, at the
date or dates fixed by the Trustee and, in case of the distribution of such
money on account of principal (or premium, if any) or interest, upon
presentation of the Securities, or both, as the case may be, and the notation
thereon of the payment if only partially paid and upon surrender thereof if
fully paid:
FIRST: To the payment of all amounts due the Trustee and any predecessor
Trustee under Section 5.07;
SECOND: To the holders of Senior Indebtedness to the extent required by
the provisions of Article 13.
THIRD: To the payment of the amounts then due and unpaid upon the
Securities for principal (and premium, if any) and interest (including
Liquidated Damages, if any) payable, in respect of which or for the benefit of
which such money has been collected, ratably, without preference or priority of
any kind, according to the aggregate amounts due and payable on such Securities
for principal (and premium, if any) and, interest (including Liquidated Damages,
if any), respectively; and
FOURTH: To the payment of the remainder, if any, to the Company.
SECTION 4.07. Limitation on Suits. No Holder of any Security shall have any
right to institute any proceeding, judicial or otherwise, with respect to this
Indenture, or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless:
(a) such Holder has previously given written notice to the Trustee of
a continuing Event of Default with respect to the Securities;
(b) the Holders of not less than 25% in principal amount of the
Outstanding Securities shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name as
Trustee hereunder;
(c) such Holder or Holders have offered to the Trustee security or
indemnity reasonably satisfactory to the Trustee against the costs, expenses and
liabilities to be incurred in compliance with such request;
(d) the Trustee for 60 days after its receipt of such notice, request
and offer of security or indemnity has failed to institute any such proceeding;
and
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(e) no direction inconsistent with such written request has been given
to the Trustee during such 60-day period by the Holders of a majority in
principal amount of the Outstanding Securities;
it being understood and intended that no one or more of such Holders shall
have any right in any manner whatever by virtue of, or by availing of, any
provision of this Indenture to affect, disturb or prejudice the rights of any
other of such Holders, or to obtain or to seek to obtain priority or preference
over any other of such Holders or to enforce any right under this Indenture,
except in the manner herein provided and for the equal and ratable benefit of
all such Holders.
SECTION 4.08. Unconditional Right of Holders to Receive Principal, Premium,
If Any, and Interest. Notwithstanding any other provision in this Indenture, the
Holder of any Security shall have the right, which is absolute and
unconditional, to receive payment of the principal of, and premium, if any,
including the Redemption Prices and Make-Whole Payment upon redemption pursuant
to Article 10, the Repurchase Price pursuant to Article 11 and (subject to
Sections 3.04 and 3.06) interest (including Liquidated Damages, if any) on such
Security on the respective due dates expressed in such Security (or, in the case
of redemption or repurchase, on the Redemption Date or Repurchase Date, as the
case may be) and to convert such Security in accordance with the provisions of
this Indenture and to institute suit for the enforcement of any such payment and
right to convert, and such rights shall not be impaired or adversely affected
without the consent of such Holder.
SECTION 4.09. Restoration of Rights and Remedies. If the Trustee or any
Holder of a Security has instituted any proceeding to enforce any right or
remedy under this Indenture and such proceeding has been discontinued or
abandoned for any reason, or has been determined adversely to the Trustee or to
such Holder, then and in every such case, the Company, the Trustee and the
Holders of Securities shall, subject to any determination in such proceeding, be
restored severally and respectively to their former positions hereunder and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.
SECTION 4.10. Rights and Remedies Cumulative. Except as otherwise provided
with respect to the replacement or payment of mutilated, destroyed, lost or
stolen Securities in the last paragraph of Section 3.05, no right or remedy
herein conferred upon or reserved to the Trustee or to the Holders of Securities
is intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
SECTION 4.11. Delay or Omission Not Waiver. No delay or omission of the
Trustee or of any Holder of any Security to exercise any right or remedy
accruing upon any Event of Default shall impair any such right or remedy or
constitute a waiver of any such Event of Default or an acquiescence therein.
Every right and remedy given by this Article or by law to the Trustee or to the
Holders may be exercised from time to time, and as often as may be deemed
expedient, by the Trustee or by the Holders of Securities, as the case may be.
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SECTION 4.12. Control by Holders of Securities. The Holders of not less
than a majority in principal amount of the Outstanding Securities shall have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee or exercising any trust or power conferred on
the Trustee with respect to the Securities, provided that:
(a) such direction shall not be in conflict with any rule of law or
with this Indenture,
(b) the Trustee may take any other action deemed proper by the Trustee
that is not inconsistent with such direction, and
(c) the Trustee need not take any action that might involve it in
personal liability or be unduly prejudicial to the Holders of Securities not
joining therein.
SECTION 4.13. Waiver of Past Defaults. The Holders of not less than a
majority in principal amount of the Outstanding Securities may on behalf of the
Holders of all the Securities waive any past Default or Event of Default
hereunder with respect to such Securities and its consequences, except a Default
or Event of Default:
(a) in the payment of the principal of (or premium, if any) or
interest (including Liquidated Damages) on any Security,
(b) in respect of the conversion by the Company of any Security into
Common Stock,
(c) in the payment of the Redemption Prices or Make-Whole Payment
pursuant to Article 10,
(d) in the payment of the Repurchase Price pursuant to Article 11, or
(e) in respect of a covenant or provision hereof that under Article 8
cannot be modified or amended without the consent of the Holder of each
Outstanding Security affected.
Upon any such waiver, such Default or Event of Default shall cease to
exist, and any Event of Default arising from any such Default shall be deemed to
have been cured, for every purpose of this Indenture; but no such waiver shall
extend to any subsequent or other Default or Event of Default or impair any
right consequent thereon.
SECTION 4.14. Waiver of Usury, Stay or Extension Laws. The Company
covenants (to the extent that it may lawfully do so) that it shall not at any
time insist upon, or plead, or in any manner whatsoever claim or take the
benefit or advantage of, any usury, stay or extension law wherever enacted, now
or at any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it shall not hinder,
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delay or impede the execution of any power herein granted to the Trustee, but
will suffer and permit the execution of every such power as though no such law
had been enacted.
SECTION 4.15. Undertaking for Costs. All parties to this Indenture agree,
and each Holder of any Security by his acceptance thereof shall be deemed to
have agreed, that any court may in its discretion require, in any suit for the
enforcement of any right or remedy under this Indenture, or in any suit against
the Trustee for any action taken or omitted by it as Trustee, the filing by any
party litigant in such suit of an undertaking to pay the costs of such suit, and
that such court may in its discretion assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in such suit having due
regard to the merits and good faith of the claims or defenses made by such party
litigant; but the provisions of this Section shall not apply to any suit
instituted by the Trustee, to any suit instituted by the Company, to any suit
instituted by any Holder, or group of Holders, holding in the aggregate more
than 10% in principal amount of the Outstanding Securities, or to any suit
instituted by any Holder for the enforcement of the payment of the principal of
(or premium, if any) or interest on any Security on or after the respective
Stated Maturities expressed in such Security (or, in the case of redemption or
repurchase, on or after the Redemption Date or the Repurchase Date,
respectively), or the right to convert any Security in accordance with Article
12.
ARTICLE 5
The Trustee
SECTION 5.01. General. The Trustee, prior to the occurrence of an Event of
Default and after the curing of all Events of Default that may have occurred,
undertakes to perform such duties and only such duties as are specifically set
forth in this Indenture. In case an Event of Default has occurred (that has not
been cured or waived), the Trustee shall exercise such of the rights and powers
vested in it by this Indenture, and use the same degree of care and skill in
their exercise, as a prudent man would exercise or use under the circumstances
in the conduct of his own affairs.
No provision of this Indenture shall be construed to relieve the Trustee
from liability for its own negligent action, its own negligent failure to act,
its own willful misconduct, its own recklessness or its own bad faith.
SECTION 5.02. Certain Rights of Trustee. Subject to TIA Sections 15(a)
through (d):
(a) the Trustee may rely, and shall be protected in acting or
refraining from acting, upon any resolution, certificate, statement, instrument,
facsimile transmission, opinion, report, notice, request, direction, consent,
order, bond, debenture, note, other evidence of indebtedness or other paper or
document believed by it to be genuine and to have been signed, made or presented
by the proper person, and may accept and rely upon the same as conclusive
evidence of the truth and accuracy of the statements and opinions contained
therein. The Trustee need not investigate any fact or matter stated in any such
document;
(b) before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel, which shall conform to Section
1.03. The Trustee shall not be liable for any action it takes or omits to take
in good faith in reliance on such certificate or opinion;
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(c) the Trustee may consult with counsel, and the written advice of
such counsel shall be full and complete authorization and protection with
respect to any action taken, suffered or omitted by it hereunder in good faith
and in reliance thereon, and may act through its attorneys and agents and shall
not be responsible for the misconduct or negligence of any attorney or agent
appointed with due care;
(d) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders, unless such Holders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
that might be incurred by it in complying with such request or direction;
(e) the Trustee shall not be liable for any action it takes or omits
to take in good faith that it believes to be authorized or within its rights or
powers or for any action it takes or omits to take in accordance with the
written direction of the holders of a majority in principal amount of the
Outstanding Securities relating to the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or exercising any trust or
power conferred upon the Trustee, under this Indenture;
(f) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other evidence
be herein specifically prescribed) may, in the absence of bad faith on its part,
rely upon an Officers' Certificate;
(g) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
note, other evidence of indebtedness or other paper or document, but the
Trustee, in its discretion, may make such further inquiry or investigation into
such facts or matters as it may see fit, and, if the Trustee shall determine to
make such further inquiry or investigation, it shall be entitled to examine the
books, records and premises of the Company personally or by agent or attorney;
(h) the Trustee shall not be required to take notice or be deemed to
have notice of any Default or Event of Default unless the Trustee be
specifically notified of such Default or Event of Default in writing by the
Company or any Holder, and in the absence of such notice the Trustee may
conclusively assume that there is no Default or event of Default; provided that
if the Trustee is acting as Paying Agent, the Trustee shall be required to take
and be deemed to have notice of its failure to receive payments of interest or
principal hereunder;
(i) except for information provided by the Trustee concerning the
Trustee, the Trustee shall have no responsibility with respect to any
information in any offering memorandum or other disclosure material distributed
with respect to the Securities, and the Trustee shall have no responsibility for
compliance with securities laws in connection with the issuance and sale, resale
or exchange of the Securities;
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(j) in the event the Trustee shall receive inconsistent or conflicting
requests and security or indemnity from two or more groups of Holders, each
representing at least 25% (but less than 50%) of the aggregate principal amount
of the Securities then Outstanding, the Trustee shall act in accordance with
instructions received by the Holders of the greater percentage thereof;
(k) except as otherwise expressly provided by the provisions of this
Indenture, the Trustee shall not be obligated, and may not be required to give
or furnish any notice, demand, report, request, reply, statement, advice or
opinion to any Holder or to the Company or any other Person, and the Trustee
shall not incur any liability for its failure or refusal to give or furnish the
same unless obligated or required to do so by the express provisions hereof; and
(l) the Trustee shall not be required to give any bond or surety with
respect to the performance of its duties or the exercise of its powers under
this Indenture.
SECTION 5.03. Individual Rights of Trustee. The Trustee, any Paying Agent,
Security Registrar or any other agent of the Company, in its individual or any
other capacity, may become the owner or pledgee of Securities and may otherwise
deal with the Company, its Subsidiaries or its Affiliates with the same rights
it would have if it were not the Trustee, Paying Agent, Security Registrar or
such other agent. Any registrar, co- registrar, paying agent, conversion agent
or authenticating agent may do the same with like rights. However, upon
qualification of this Indenture under the TIA, the Trustee shall be subject to
TIA Sections 310(b) and 311.
SECTION 5.04. Trustee's Disclaimer. The Trustee (i) makes no representation
as to the validity or adequacy of this Indenture, the Securities or the offering
documents relating to the Securities, (ii) shall not be accountable for the
Company's use or application of the proceeds from the Securities and (iii) shall
not be responsible for any statement in the Securities other than its
certificate of authentication.
SECTION 5.05. Notice of Default. If any Event of Default occurs and is
continuing and if the Trustee has actual knowledge of such Event of Default, the
Trustee shall mail to each holder in the manner and to the extent provided in
TIA Section 313(c) notice of the Event of Default within 90 days after it
occurs, unless such Event of Default has been cured or waived; provided,
however, that, except in the case of a Default in the payment of the principal
of (or premium, if any) or interest on any Security, the Trustee shall be
protected in withholding such notice if and so long as Responsible Officers of
the Trustee in good faith determine that the withholding of such notice is in
the interests of the Holders of the Securities; and provided further that in the
case of any Default or breach referred to in Section 4.01(e) with respect to the
Securities, no such notice to Holders shall be given until at least 90 days
after the occurrence thereof.
SECTION 5.06. Conflicting Interests of Trustee. If the Trustee has or shall
acquire a conflicting interest within the meaning of the TIA, the Trustee shall
either eliminate such interest or resign, to the extent and in the manner
provided by, and subject to the provisions of, the TIA and this Indenture.
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SECTION 5.07. Compensation and Indemnity. The Company shall pay to the
Trustee such compensation as shall be agreed upon in writing for its services.
The compensation of the Trustee shall not be limited by any law on compensation
of a trustee of an express trust. The Company shall reimburse the Trustee upon
request for all reasonable out-of- pocket expenses, disbursements and advances
incurred or made by the Trustee in accordance with this Indenture. Such expenses
shall include the reasonable compensation, expenses, disbursements and advances
of the Trustee's agents and counsel.
The Company shall indemnify and hold harmless the Trustee and its
directors, agents and employees (including officers ) (collectively the
"Indemnitees") against any and all losses, liabilities, obligations, damages,
penalties, fines, judgments, actions, suits, proceedings, reasonable costs and
expenses (including reasonable fees and disbursements of counsel) of any kind
whatsoever that may be incurred by or imposed on the Indemnities or any of them
arising out of or in connection with the acceptance or administration of the
Trustee's duties under this Indenture; provided, however, that the Company need
not reimburse any expense or indemnify against any loss, obligation, damage,
penalty, fine, judgment, action, suit, proceeding, reasonable cost or expense
(including reasonable fees and disbursements of counsel) of any kind whatsoever
that may be incurred by Indemnitees or any of them which results from the
negligence or willful misconduct of the Indemnitees or any of them. The Trustee
shall notify the Company promptly of any claim for which it may seek indemnity.
Failure by the Trustee to so notify the Company shall not relieve the Company of
its obligations hereunder, unless the Company is materially prejudiced thereby.
The Company shall defend the claim, and the Trustee shall cooperate in the
defense. Unless otherwise set forth herein, the Indemnitees or any of them, may
have separate counsel and the Company shall pay the reasonable fees and expenses
of such counsel. The Company need not pay for any settlement made without its
consent, which consent shall not be unreasonably withheld. The provisions of
this Section 5.07 shall survive the termination of this Indenture and the
resignation or removal of the Trustee for any reason, including any termination
under any bankruptcy law.
To secure the Company's payment obligations in this Section 5.07, the
Trustee shall have a lien prior to the Securities on all money or property held
or collected by the Trustee, in its capacity as Trustee, except money or
property held in trust to pay principal of, premium, if any, and interest on
particular Securities.
If the Trustee incurs expenses or renders services after the occurrence of
an Event of Default specified in Section 4.01(g) or Section 4.01(h), such
expenses, and the compensation due to the Trustee for such services, are
intended to constitute expenses of administration under Title 11 of the United
States Bankruptcy Code or any applicable federal or state law for the relief of
debtors.
SECTION 5.08. Replacement of Trustee. A resignation or removal of the
Trustee and appointment of a successor Trustee shall become effective only upon
the successor Trustee's acceptance of appointment as provided in this Section
5.08.
The Trustee may resign at any time by so notifying the Company in writing
at least thirty days prior to the date of the proposed resignation. The Holders
of a majority in principal amount of the Outstanding Securities may at any time,
by written notice to the Trustee and the Company,
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remove the Trustee and, with the prior consent of the Company, appoint a
successor Trustee. The Company may remove the Trustee if: (i) the Trustee is no
longer eligible under Section 5.10; (ii) the Trustee is adjudged a bankrupt or
an insolvent; (iii) a receiver or other public officer takes charge of the
Trustee or its property; or (iv) the Trustee becomes incapable of acting.
If the Trustee is removed without the concurrent appointment by the Holders
of a successor Trustee, if the Trustee resigns, or if a vacancy exists in the
office of Trustee for any other reason, the Company shall promptly appoint a
successor Trustee. If no successor Trustee has delivered its written acceptance
required by the next succeeding paragraph of this Section 5.08 within thirty
days after the retiring Trustee delivers notice of its resignation or is
removed, or after the occurrence of a vacancy in the office of Trustee for any
other reason, the retiring Trustee, the Company or the Holders of a majority in
principal amount of the Outstanding Securities may petition any court of
competent jurisdiction for the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its appointment
to the retiring Trustee and to the Company. Immediately after the delivery of
such written acceptance, subject to the lien provided in Section 5.07, (i) the
retiring Trustee shall transfer all property held by it as Trustee to the
successor Trustee, (ii) the resignation or removal of the retiring Trustee shall
become effective and (iii) the successor Trustee shall have all the rights,
powers and duties of the Trustee under this Indenture. A successor Trustee shall
mail notice of its succession to each Holder.
If the Trustee is no longer eligible under Section 5.10, any Holder who
satisfies the requirements of TIA Section 310(b) may petition any court of
competent jurisdiction for the removal of the Trustee and the appointment of a
successor Trustee.
The Company shall give notice of any resignation and any removal of the
Trustee and each appointment of a successor Trustee to all holders. Each notice
shall include the name of the successor Trustee and the address of its Corporate
Trust Office.
Notwithstanding replacement of the Trustee pursuant to this Section 5.08,
the Company's obligations under Section 5.07 shall continue for the benefit of
the retiring Trustee.
SECTION 5.09. Successor Trustee by Merger, Etc. If the Trustee consolidates
with, merges or converts into, or transfers all or substantially all of its
corporate trust business (including the administration of this Indenture) to,
another corporation or national banking association, the resulting, surviving or
transferee corporation or national banking association, without any further act,
shall be the successor Trustee with the same effect as if the successor Trustee
had been named as the Trustee herein.
SECTION 5.10. Eligibility. This Indenture shall always have a Trustee who
satisfies the requirements of TIA Section 310(a)(1). The Trustee (or the bank
holding company to which the Trustee is a member) shall have a combined capital
and surplus of at least $25 million as set forth in its most recent published
annual report of condition.
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SECTION 5.11. Money Held in Trust. Subject to the provisions of Section
9.03 and Sections 13.02, 13.03 and 13.09, all monies received by the Trustee
shall, until used or applied as herein provided, be held in trust for the
purposes for which they were received. The Trustee shall not be liable for
interest on any money received by it except as the Trustee may agree with the
Company. Money held in trust by the Trustee need not be segregated from other
funds except to the extent required by law.
SECTION 5.12. Preferential Collection of Claims. If and when the Trustee
shall be or become a creditor of the Company (or any other obligor upon the
Securities under a supplemental indenture entered into in accordance herewith),
the Trustee shall be subject to the provisions of the Trust Indenture Act
regarding the collection of the claims against the Company (or any such other
obligor).
SECTION 5.13. Trustee's Application for Instructions from the Company;
Liquidated Damages. (a) Any application by the Trustee for written instructions
from the Company (other than with regard to any action proposed to be taken or
omitted to be taken by the Trustee that affects the rights of the Holders or
holders of Senior Indebtedness under this Indenture, including, without
limitation, under Article 13 hereof) may, at the option of the Trustee, set
forth in writing any -- action proposed to be taken or omitted by the Trustee
under this Indenture and the date on and/or after which such action shall be
taken or such omission shall be effective. The Trustee shall not be liable for
any action taken by, or omission of, the Trustee in accordance with a proposal
included in such application on or after the date specified in such application
(which date shall not be less than ten Business Days after the date any officer
of the Company actually receives such application, unless any such officer shall
have consented in writing to any earlier date) unless prior to taking any such
action (or the effective date in the case of an omission), the Trustee shall
have received written instructions in response to such application specifying
the action to be taken or omitted. (b) If Liquidated Damages are payable to
Holders pursuant to the terms of the Registration Rights Agreement, the Company
shall deliver to the Trustee a certificate to that effect stating (i) the amount
of Liquidated Damages that is payable and (ii) the date on which such amount of
Liquidated Damages is payable. Unless and until a Responsible Officer of the
Trustee receives at the Corporate Trust Office such a certificate, the Trustee
may assume without inquiry that no Liquidated Damages are payable. Upon receipt
of a Company Request together with a sum sufficient to pay such Liquidated
Damages so becoming due, the Trustee shall pay such Liquidated Damages to the
Holders in the same manner as interest on the Securities. If the Company has
paid Liquidated Damages directly to the Persons entitled to them, the Company
shall deliver to the Trustee a certificate setting forth the particulars of such
payment.
ARTICLE 6
Holders' Lists And Reports By Trustee And Company
SECTION 6.01. Disclosure of Names and Addresses of Holders. Every Holder of
Securities, by receiving and holding the same, agrees with the Company and the
Trustee that neither the Company or the Trustee, nor any Paying Agent or any
Security Registrar, shall be held accountable by reason of the disclosure of any
information as to the names and addresses of the
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Holders of Securities in accordance with TIA Section 312, regardless of the
source from which such information was derived, and that the Trustee shall not
be held accountable by reason of mailing any material pursuant to a request made
under TIA Section 312(b).
SECTION 6.02. Reports by Trustee. Within 60 days after October 15 of each
year, commencing with the first October 15 to occur after the qualification of
this Indenture, the Trustee shall transmit by mail to all Holders of Securities
as provided in TIA Section 313(c), if required by TIA Section 313(a), a brief
report dated as of such October 15. A copy of each such report shall at the time
of such transmission to Holders be filed by the Trustee with the Company.
SECTION 6.03. Reports by Company. The Company shall:
(a) file with the Trustee, within 15 days after the Company is
required to file the same with the Commission, copies of the annual reports and
of the information, documents and other reports (or copies of such portions of
any of the foregoing as the Commission may from time to time by rules and
regulations prescribe) that the Company may be required to file with the
Commission pursuant to Sections 13(a) or 13(b) or Section 15(d) of the
Securities Exchange Act of 1934; or, if the Company is not required to file
information, documents or reports pursuant to any of such Sections, then it
shall file with the Trustee, in accordance with rules and regulations prescribed
from time to time by the Commission, such of the supplementary and periodic
information, documents and reports that may be required pursuant to Section 13
of the Securities Exchange Act of 1934 in respect of a security listed and
registered on a national securities exchange as may be prescribed from time to
time in such rules and regulations;
(b) file with the Trustee and the Commission, in accordance with rules
and regulations prescribed from time to time by the Commission, such additional
information, documents and reports with respect to compliance by the Company
with the conditions and covenants of this Indenture as may be required from time
to time by such rules and regulations; and
(c) file with the Trustee and the Commission, if applicable, and
transmit by mail to the Holders, within thirty days after the filing thereof
with the Trustee, in the manner and to the extent provided in TIA Section
313(c), such summaries of any information, documents and reports required to be
filed by the Company pursuant to paragraphs (1) and (2) of this Section as may
be required by rules and regulations prescribed from time to time by the
Commission and sell other information as may be required pursuant to the TIA, at
the time and in the manner provided pursuant to such Act.
SECTION 6.04. Company to Furnish Trustee Names and Addresses of Holders.
(a) The Company shall furnish or cause to be furnished to the Trustee:
(i) semi-annually, not later than 10 days after the Regular
Record Date for the payment of interest on the Securities, a list, in such form
as the Trustee may reasonably require, of the names and addresses of the Holders
as of such Regular Record Date; and
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(ii) at such other times as the Trustee may request in writing,
within 30 days after the receipt by the Company of any such request, a list of
similar form and content as of a date not more than 15 days prior to the time
such list is furnished,
provided, however, that, so long as the Trustee is the Security Registrar,
no such list shall be required to be furnished.
(b) The Company shall provide the Trustee with at least thirty days'
prior notice of any change in location of its principal executive offices or
other principal place of business.
ARTICLE 7
Consolidation, Merger, Sale, Lease Or Conveyance
SECTION 7.01. Consolidations and Mergers of Company and Sales, Leases and
Conveyances Permitted Subject to Certain Conditions. The Company may consolidate
with, or sell, lease, transfer, convey or otherwise dispose of all or
substantially all of its assets to, or merge with or into any other Person,
provided however, that in any such case, (1) either the Company shall be the
continuing corporation, or the Person (if other than the Company) formed by such
consolidation or into which the Company is merged or the Person (if other than a
Subsidiary of the Company) that acquires or leases the Company's assets
substantially as an entirety is a corporation organized and existing under the
laws of any United States jurisdiction and expressly assumes the due and
punctual payment of the principal of (and premium, if any) and any interest
(including Liquidated Damages, if any) payable pursuant to this Indenture on all
of the Securities, according to their tenor, and the due and punctual
performance and observance of all of the covenants and conditions of this
Indenture to be performed by the Company and shall have provided for conversion
rights, if applicable, in accordance with the provisions of Article 12 hereof,
by supplemental indenture, complying with Article 8 hereof, satisfactory to the
Trustee, executed and delivered to the Trustee by such corporation and (2)
immediately after giving effect to such transaction, no Default or Event of
Default, shall have occurred and be continuing. For purposes of the foregoing,
the transfer (by lease, assignment, sale or otherwise) of the properties and
assets of one or more Subsidiaries (other than to the Company or another
Subsidiary), which, if such assets were owned by the Company, would constitute
all or substantially all of the properties and assets of the Company, shall be
deemed to be the transfer of all or substantially all of the properties and
assets of the Company.
SECTION 7.02. Rights and Duties of Successor Corporation. In case of any
such consolidation, merger, sale, lease, conveyance or other disposition and
upon any such assumption by the successor Person, such successor Person shall
succeed to and be substituted for the Company, with the same effect as if it had
been named herein as the party of the first part, and the predecessor
corporation, except in the event of a lease, shall be relieved of any further
obligation under this Indenture and the Securities. Such successor Person
thereupon may cause to be signed, and may issue either in its own name or in the
name of the Company, any or all of the Securities issuable hereunder that
theretofore shall not have been signed by the Company and delivered to the
Trustee; and, upon the order of such successor Person, instead of the Company,
and subject to all the terms, conditions and limitations in this Indenture
prescribed, the Trustee shall authenticate and shall deliver any Securities that
previously shall have been signed and delivered by the officers of the
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Company to the Trustee for authentication, and any Securities that such
successor Person thereafter shall cause to be signed and delivered to the
Trustee for that purpose. All the Securities so issued shall in all respects
have the same legal rank and benefit under this Indenture as the Securities
theretofore or thereafter issued in accordance with the terms of this Indenture
as though all of such Securities had been issued at the date of the execution
hereof.
In case of any such consolidation, merger, sale, lease, conveyance or other
disposition, such changes in phraseology and form (but not in substance) may be
made in the Securities thereafter to be issued as may be appropriate.
SECTION 7.03. Officers' Certificate and Opinion of Counsel. Any
consolidation, merger, sale, lease, transfer, conveyance or other disposition
permitted under Section 7.01 is also subject to the condition that the Trustee
receive an Officers' Certificate and an Opinion of Counsel to the effect that
any such consolidation, merger, sale, lease, transfer, conveyance or other
disposition complies with the provisions of this Article. Such opinion of
counsel shall state that any supplemental indenture executed and delivered by a
successor Person pursuant to this Article 7 constitutes the legal, valid and
binding obligation of such successor Person, subject to customary exceptions.
ARTICLE 8
Supplemental Indentures
SECTION 8.01. Supplemental Indentures Without Consent of Holders. Without
the consent of any Holders of Securities, the Company, when authorized by or
pursuant to a Board Resolution, and the Trustee, at any time and from time to
time, may enter into one or more indentures supplemental hereto, in form
satisfactory to the Trustee, for any of the following purposes:
(a) to evidence the succession of another Person to the Company and
the assumption by any such successor of the covenants of the Company contained
herein and the Securities issued hereunder;
(b) to add to the covenants of the Company for the equal and ratable
benefit of the Holders or to surrender any right, power or option herein
conferred upon the Company;
(c) to add any Events of Default for the benefit of the Holders
proposed by the Company in a Company Request and, in respect of any such
additional Events of Default such supplemental indenture may provide for a
particular period of grace after default (which period may be shorter or longer
than that allowed in the case of other defaults) or may provide for an immediate
enforcement upon such Event of Default, or may limit the remedies available to
the Trustee upon such Event of Default or limit the right of the Holders of a
majority in aggregate principal amount of those Securities to which such
additional Events of Default apply to waive such default, all as set forth in
the Company Request;
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(d) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee and to add to or change any of the provisions
of this Indenture as shall be necessary to provide for or facilitate the
administration of the trusts hereunder by more than one Trustee;
(e) to cure any ambiguity or to correct or supplement any provision
herein that may be defective or inconsistent with any other provision herein;
provided such provisions shall not adversely affect the interests of the Holders
of Securities in any material respect;
(f) to make any change that does not adversely affect the rights of
any holder of Securities or to surrender any right, power or option conferred on
the Company hereunder;
(g) to make any change to comply with any requirement of the
Commission in connection with the qualification of the Indenture under TIA; or
(h) to provide for the issuance of uncertificated Securities in
addition to or in place of certificated Securities; provided, however that the
uncertificated Securities are issued in registered form for purposes of Section
163(f) of the Internal Revenue Code of 1986.
The Company and the Trustee may not enter into a supplemental indenture
pursuant to this Section 8.01 if such supplemental indenture modifies in any
respect any Event of Default relating to any covenant in this Indenture in
effect immediately prior to the time such supplemental indenture becomes
effective.
SECTION 8.02. Supplemental Indentures with Consent of Holders. With the
consent of the Holders of not less than a majority in principal amount of the
Outstanding Securities affected by such supplemental indenture, by Act of said
Holders delivered to the Company and the Trustee, the Company, when authorized
by or pursuant to a Board Resolution, and the Trustee may enter into an
indenture or indentures supplemental hereto for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Indenture or of modifying in any manner the rights of the Holders;
provided, however, that no such supplemental indenture shall, without the
consent of the Holder of each Outstanding Security affected thereby:
(a) reduce the principal amount, Repurchase Price or Redemption Price
with respect to any Security, or extend the Stated Maturity of any Security or
alter the manner of payment or rate of interest on any Security or make any
Security (including any Liquidated Damages or Redemption Price or Repurchase
Price in respect of such Security) payable in money or securities other than
that stated in the Security;
(b) reduce the percentage in principal amount of the Outstanding
Securities the consent of whose Holders is required for any such supplemental
indenture or the consent of whose Holders is required for any waiver with
respect to Securities (or for any waiver of compliance with certain provisions
of this Indenture or certain Defaults or Events of Default and their
consequences);
(c) make any change that adversely affects the right to convert any
Security;
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(d) modify the provisions of the Indenture relating to the ranking of
the Securities in a manner adverse to the Holders of the Securities; or
(e) impair the right to institute suit for the enforcement of any
payment with respect to, or conversion of, the Securities.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
SECTION 8.03. Execution of Supplemental Indenture. In executing, or
accepting the additional trusts created by, any supplemental indenture permitted
by this Article or the modification thereby of the trusts created by this
Indenture, the Trustee shall be entitled to receive, and (subject to Article 5)
shall be fully protected in relying upon, an Opinion of Counsel stating that (i)
the execution of such supplemental indenture is authorized or permitted by this
Indenture, (ii) all conditions precedent to its execution and delivery have been
complied with, and (iii) such supplemental indenture constitutes the valid and
binding obligation of the Company. The Trustee may, but shall not be obligated
to, enter into any such supplemental indenture that affects the Trustee's own
rights, duties or immunities under this Indenture or otherwise.
SECTION 8.04. Effect of Supplemental Indentures. Upon the execution of any
supplemental indenture under this Article, this Indenture shall be modified in
accordance therewith, and such supplemental indenture shall form a part of this
Indenture for all purposes; and every Holder of Securities theretofore or
thereafter authenticated and delivered hereunder shall be bound thereby.
SECTION 8.05. Conformity with Trust Indenture Act. Every supplemental
indenture executed pursuant to this Article shall conform to the requirements of
the Trust Indenture Act as then in effect.
SECTION 8.06. Reference in Securities to Supplemental Indentures.
Securities authenticated and delivered after the execution of any supplemental
indenture pursuant to this Article may, and shall, if required by the Trustee,
bear a notation in form approved by the Trustee as to any matter provided for in
such supplemental indenture. If the Company shall so determine, new Securities
so modified as to conform, in the opinion of the Trustee and the Company, to any
such supplemental indenture may be prepared and executed by the Company and
authenticated and delivered by the Trustee in exchange for Outstanding
Securities.
ARTICLE 9
Covenants
SECTION 9.01. Payment of Principal, Premium, If Any, and Interest. The
Company covenants and agrees for the benefit of the Holders of Securities that
it shall duly and punctually pay the principal of (and premium, if any),
interest on (including Liquidated Damages, if any), and the Repurchase Price,
the Redemption Price and the Make Whole Payment with respect to, the
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Securities in accordance with the terms of the Securities and this Indenture. At
the option of the Company, all payments of principal with respect to any
Security may be paid by check to the registered Holder of the Security or other
Person entitled thereto against surrender of such Security. The conversion of
any Securities pursuant to Article 12 hereof and payment of the Repurchase Price
by delivery of shares of Common Stock in accordance with Article 11, together
with the making of any cash payments required to be made in accordance with the
terms of the Securities and this Indenture, shall satisfy the Company's
obligations under this Section 9.01 with respect to such Securities.
SECTION 9.02. Maintenance of Office or Agency. The Company shall maintain a
Place of Payment for the Securities in the Borough of Manhattan, The City of New
York, which shall be an office or agency where the Securities may be presented
or surrendered for payment or conversion, exchange or redemption, where the
Securities may be surrendered for registration of transfer or exchange and where
notices and demands to or upon the Company in respect of the Securities and this
Indenture may be served. The Corporate Trust Office shall initially be such
office or agency of the Company, unless and until the Company shall designate
and maintain some other office or agency for one or more of such purposes. The
Company shall give prompt written notice to the Trustee of the location, and any
change in the location, of each such office or agency. If at any time the
Company shall fail to maintain any such required office or agency or shall fail
to furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the Corporate Trust Office of the
Trustee, and the Company hereby appoints the Trustee its agent to receive all
such presentations, surrenders, notices and demands.
The Company may from time to time designate one or more other offices or
agencies (in or outside of The City of New York) where the Securities may be
presented or surrendered for any or all of such purposes, and may from time to
time rescind such designations; provided, however, that no such designation or
rescission shall in any manner relieve the Company of its obligation to maintain
an office or agency in accordance with the requirements set forth above for such
purposes. The Company shall give prompt written notice to the Trustee of any
such designation or rescission and of any change in the location of any such
other office or agency.
SECTION 9.03. Money for Securities Payments to Be Held in Trust. If the
Company shall at any time act as its own Paying Agent with respect to any
Securities, it shall, on or before each due date of the principal of (and
premium, if any), or interest on, the Securities, segregate and hold in trust
for the benefit of the Persons entitled thereto a sum sufficient to pay the
principal (and premium, if any) or interest so becoming due until such sums
shall be paid to such Persons or otherwise disposed of as herein provided, and
shall promptly notify the Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents for the
Securities, it shall, before each due date of the principal of (and premium, if
any), or interest on, the Securities, deposit with a Paying Agent a sum
sufficient to pay the principal (and premium, if any) or interest, so becoming
due, such sum to be held in trust for the benefit of the Persons entitled to
such principal,
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premium or interest and (unless such Paying Agent is the Trustee) the Company
shall promptly notify the Trustee of its action or failure so to act.
The Company shall cause each Paying Agent other than the Trustee to execute
and deliver to the Trustee an instrument pursuant to which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent shall:
(a) hold all sums held by it for the payment of principal of (and
premium, if any,) or interest on the Securities, in trust for the benefit of the
Persons entitled thereto, until such sums shall be paid to such Persons or
otherwise disposed of as herein provided;
(b) give the Trustee notice of any default by the Company (or any
other obligor upon the Securities under a supplemental indenture entered into in
accordance herewith) in the making of any such payment of principal (and
premium, if any) or interest; and
(c) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so held in
trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, pay, or by Company
Order direct any Paying Agent to pay, to the Trustee all sums held in trust by
the Company or such Paying Agent, such sums to be held by the Trustee upon the
same trusts as those upon which such sums were held by the Company or such
Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such
Paying Agent shall be released from all further liability with respect to such
sums.
Any money deposited with the Trustee or any Paying Agent, or then held by
the Company, in trust for the payment of the principal of (and premium, if any)
or interest on any Security and remaining unclaimed for two years after such
principal (and premium, if any) or interest has become due and payable shall be
paid to the Company upon Company Request or (if then held by the Company) shall
be discharged from such trust; and the Holder of such Security shall thereafter,
as an unsecured general creditor, look only to the Company for payment of such
principal of (and premium, if any) or interest on any Security, without interest
thereon, and all liability of the Trustee or such Paying Agent with respect to
such trust money, and all liability of the Company as trustee thereof, shall
thereupon cease; provided, however, that the Trustee or such Paying Agent,
before being required to make any such repayment, may at the expense of the
Company cause to be published once, in an Authorized Newspaper, notice that such
money remains unclaimed and that, after a date specified therein, which shall
not be less than 30 days from the date of such publication, any unclaimed
balance of such money then remaining shall be repaid to the Company.
SECTION 9.04. Existence. Subject to Article 7, the Company shall do or
cause to be done all things necessary to preserve and keep in full force and
effect the corporate existence of the Company and its Subsidiaries, and their
respective rights (charter and statutory) and franchises, except to the extent
that the Board of Directors shall determine that the failure to do so would not
have a material adverse effect on the business, assets, financial condition or
results of operation of the Company (a "Material Adverse Effect"); provided,
however, that the Company shall not be
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required to preserve any right or franchise if the Board of Directors shall
determine that the preservation thereof is no longer desirable in the conduct of
the business of the Company and that the loss thereof is not disadvantageous in
any material respect to the Holders.
SECTION 9.05. Payment of Taxes and Other Claims. The Company shall pay or
discharge, or cause to be paid or discharged, before the same shall become
delinquent, (1) all taxes, assessments and governmental charges levied or
imposed upon it or any Subsidiary or upon the income, profits or property of the
Company or any Subsidiary, and (2) all lawful claims for labor, materials and
supplies which, if unpaid, might by law become a lien upon the property of the
Company or any Subsidiary and have a Material Adverse Effect; provided, however,
that the Company shall not be required to pay or discharge or cause to be paid
or discharged any such tax, assessment, charge or claim, the amount,
applicability or validity of which is being contested in good faith by
appropriate proceedings.
SECTION 9.06. Statement as to Compliance; Notice of Default. The Company
shall deliver to the Trustee, within 120 days after the end of each fiscal year
of the Company, a certificate from the Company's Chief Executive Officer, Chief
Financial Officer or principal accounting officer as to his or her knowledge of
the Company's compliance with all terms, conditions and provisions under this
Indenture and, in the event of any noncompliance, specifying such noncompliance
and the nature and status thereof. As of the date hereof, the Company's fiscal
year ends on December 31. For purposes of this Section 9.06, such compliance
shall be determined without regard to any period of grace or requirement of
notice under this Indenture. The Company, within five Business Days of becoming
aware of the occurrence of any Default or Event of Default, shall deliver
written notice to the Trustee of the occurrence thereof.
SECTION 9.07. Waiver of Certain Covenants. The Company may omit in any
particular instance to comply with any term, provision or condition set forth in
Section 9.04 or 9.05 if, before the time for such compliance, the Holders of at
least a majority in principal amount of the Outstanding Securities, by Act of
such Holders, either waive such compliance in such instance or generally waive
compliance with such covenant or condition, but no such waiver shall extend to
or affect such covenant or condition except to the extent so expressly waived,
and, until such waiver shall become effective, the obligations of the Company
and the duties of the Trustee in respect of any such term, provision or
condition shall remain in full force and effect.
SECTION 9.08. Rule 144A Information Requirement. Within the period prior to
the expiration of the holding period applicable to sales thereof under Rule
144(k) under the Securities Act (or any successor provision), the Company
covenants and agrees that it shall, during any period in which it is not subject
to Section 13 or 15(d) under the Exchange Act, make available to any Holder or
beneficial owner of Securities that continue to be Restricted Securities, in
connection with any sale thereof, and to any prospective purchaser of Securities
from such holder or beneficial owner, the information required pursuant to Rule
144A(d)(4) under the Securities Act upon the request of any such holder or
beneficial owner of the Securities, and the Company shall take such further
action as any holder or beneficial owner of such Securities may reasonably
request, all to the extent required from time to time to enable such holder or
beneficial owner to sell its Securities
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without registration under the Securities Act within the limitation of the
exemption provided by Rule 144A, as such rule may be amended from time to time.
ARTICLE 10
Redemption Of Securities
SECTION 10.01. Provisional and Optional Redemption by the Company.
(a) The Securities may be redeemed at the election of the Company, as
a whole or in part, from time to time, at any time on or before February 18,
2003 (a "Provisional Redemption"), upon notice as set forth in Section 10.04, at
a redemption price equal to $1,000 per $1,000 principal amount of the Securities
redeemed plus accrued and unpaid interest (including Liquidated Damages, if
any), if any (such amount, together with the Make-Whole Payment described below,
the "Provisional Redemption Price"), to but excluding the date of redemption
(the "Provisional Redemption Date") if (i) the Closing Price of the Common Stock
has exceeded 150% of the Conversion Price (as defined in Article 12 and as such
may be adjusted from time to time) then in effect for at least 20 Trading Days
in any period of 30 consecutive Trading Days ending on the Trading Day prior to
the date of mailing of the provisional notice of redemption pursuant to Section
10.04 (the "Notice Date"), and (ii) a registration statement covering resales of
the Securities and the Common Stock issuable upon conversion thereof is
effective and available for use and is expected to remain effective for the 30
days following the Provisional Redemption Date.
Upon any such Provisional Redemption, the Company shall make an additional
payment in cash (the "Make-Whole Payment") with respect to the Securities called
for redemption to holders on the Notice Date in an amount equal to $152.54 per
$1,000 principal amount of the Securities, less the amount of any interest
actually paid on such Securities prior to the Notice Date. The Company shall
make the Make-Whole Payment on all Securities called for Provisional Redemption,
including those Securities converted into Common Stock between the Notice Date
and the Provisional Redemption Date, and shall deliver an Officers' Certificate
to the Trustee setting forth the amount of such interest and the amount of the
Make-Whole Payment reduced thereby per $1,000 in aggregate principal amount of
Securities.
(b) The Securities may be redeemed at the election of the Company, as a whole
or from time to time in part, at any time after February 18, 2003, and
prior to maturity (an "Optional Redemption"), upon notice as set forth in
Section 10.04, at the following optional redemption prices (expressed as
percentages of the principal amount), together in each case with accrued
and unpaid interest (including Liquidated Damages, if any), if any, up to
but not including the date fixed for redemption (the "Optional Redemption
Price"), if redeemed during the periods described below:
<TABLE>
<CAPTION>
Period Redemption Price
------ ----------------
<S> <C>
February 19, 2003 through February 15, 2004 102.8%
Thereafter 101.4%
</TABLE>
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SECTION 10.02. Election to Redeem; Notice to Trustee. The election of the
Company to redeem any Securities shall be evidenced by a Board Resolution. In
case of any redemption at the election of the Company of all or any part of the
Securities pursuant to Section 10.01 (Provisional Redemption or Optional
Redemption), the Company shall, at least 15 days prior to the giving of the
notice of redemption in Section 10.04 to the Holders (unless a shorter notice
shall be satisfactory to the Trustee), notify the Trustee of the Redemption Date
and of the principal amount of Securities to be redeemed. In the case of any
redemption of Securities prior to the expiration of any restriction on such
redemption provided in the terms of such Securities or elsewhere in this
Indenture, the Company shall furnish the Trustee with an Officers' Certificate
evidencing compliance with all such restrictions.
SECTION 10.03. Selection by Trustee of Securities to Be Redeemed. If less
than all the Securities are to be redeemed, the particular Securities to be
redeemed shall be selected not more than 60 days and not less than 30 days prior
to the Redemption Date by the Trustee, from the Outstanding Securities not
previously called for redemption, by lot, pro rata or any other method that
complies with the requirements of any exchange on which the Securities are
listed or quoted and that the Trustee shall deem fair and appropriate.
If any Security selected for partial redemption is converted in part before
termination of the conversion right with respect to the portion of the Security
so selected, the converted portion of such Security shall be deemed, solely for
purposes of determining the aggregate principal amount of the Securities to be
redeemed, to be the portion selected for redemption (provided, however, that the
Holder of such Security so converted and deemed redeemed shall not be entitled
to any interest payment as a result of such deemed redemption except for such
interest payment as such Holder would have otherwise been entitled to receive
upon conversion of such Security). Securities that have been converted during a
selection of Securities to be redeemed may be treated by the Trustee as
Outstanding for the purpose of such selection.
Securities in denominations of $1,000 may only be redeemed in whole. The
Trustee may select for redemption portions (equal to $1,000 or any integral
multiple thereof) of the principal of Securities that have denominations larger
than $1,000.
The Trustee shall promptly notify the Company and the Security Registrar
(if other than itself) in writing of the Securities selected for redemption and,
in the case of any Securities selected for partial redemption, the principal
amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise requires,
all provisions relating to the redemption of Securities shall relate, in the
case of any Security redeemed or to be redeemed only in part, to the portion of
the principal amount of such Security which has been or is to be redeemed.
SECTION 10.04. Notice of Redemption. Notice of redemption shall be given in
the manner provided in Section 1.07, (i) at least 10 Trading Days, but not more
than 20 Trading Days, prior to the Provisional Redemption Date in the case of a
Provisional Redemption, to each Holder of Securities to be redeemed, and (ii) at
least 30 days, but not more than 60 days, prior to the
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Redemption Date in the case of an Optional Redemption; provided, in each case,
that failure to give such notice in the manner herein provided to the Holder of
any Security designated for redemption as a whole or in part, or any defect in
the notice to any such Holder, shall not affect the validity of the proceedings
for the redemption of any other such Security or portion thereof.
All notices of redemption shall state:
(a) the Redemption Date;
(b) the Redemption Price;
(c) if less than all Outstanding Securities are to be redeemed, the
identification (and, in the case of partial redemption, the principal amount) of
the particular Securities to be redeemed;
(d) if any Security is to be redeemed in part only, the portion of the
principal amount of such Security to be redeemed, and the notice that relates to
such Security shall state that on and after the Redemption Date, upon surrender
of such Security, the holder shall receive, without a charge, a new Security or
Securities of authorized denominations for the principal amount thereof
remaining unredeemed;
(e) whether the redemption is a Provisional Redemption or an Optional
Redemption;
(f) that on the Redemption Date, the Redemption Price shall become due
and payable upon each such Security, or the portion thereof, to be redeemed and,
if applicable, that interest thereon shall cease to accrue on and after said
date;
(g) the Place or Places of Payment where such Securities are to be
surrendered for payment of the Redemption Price;
(h) that Securities called for redemption must be presented and
surrendered to the Paying Agent to collect the redemption price;
(i) the then current Conversion Price and Make-Whole Payment, if any;
(j) that the Securities called for redemption may be converted at any
time before the close of business on the last Business Day prior to the
Redemption Date;
(k) the CUSIP number of such Security, if any; and
(l) that a Holder of Securities who desires to convert Securities must
satisfy the requirements for conversion contained in such Securities.
Notice of redemption of Securities to be redeemed shall be given by the
Company or, at the Company's request, by the Trustee in the name and at the
expense of the Company.
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SECTION 10.05. Deposit of Redemption Price. Not later than 11:00 a.m. New
York City time on the Redemption Date, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust as provided in Section 9.03) an amount of
money sufficient to pay, on the Redemption Date, the Redemption Price of all the
Securities or portions thereof that are to be redeemed on that date, other than
Securities or portions thereof called for redemption on that date that have been
delivered by the Company to the Trustee for cancellation or have been converted.
Upon written request, the Trustee or the Paying Agent, as the case may be, shall
return to the Company no later than 5 Business Days after such request any money
not required to pay such Redemption Price.
SECTION 10.06. Securities Payable on Redemption Date. Notice of redemption
having been given as aforesaid, the Securities so to be redeemed shall, on the
Redemption Date, become due and payable at the Redemption Price therein
specified, and from and after such date (unless the Company shall default in the
payment of the Redemption Price) such Securities shall cease to bear interest.
Upon surrender of any such Security for redemption in accordance with said
notice, such Security shall be paid by the Company at the Redemption Price
provided, however, that if the Provisional Redemption Date is an Interest
Payment Date, the semi-annual payment of interest becoming due on such date
shall be payable to the Holders of such Securities registered as such on the
relevant Regular Record Date according to their terms and the provisions of
Section 3.06, and with respect to a Provisional Redemption, the holder of any
Securities converted into Common Stock pursuant to the terms hereof after the
Notice Date and prior to the Provisional Redemption Date shall have the right to
the Make-Whole Payment regardless of the conversion of such Securities.
If any Security called for redemption shall not be so paid upon surrender
thereof for redemption, the Redemption Price, shall, until paid, bear interest
from the Redemption Date at the rate borne by the Security and such Security
shall remain convertible into Common Stock until the Redemption Price, and any
such accrued interest, shall have been paid or duly provided for.
SECTION 10.07. Securities Redeemed in Part. Any Security that is to be
redeemed only in part (pursuant to the provisions of this Article) shall be
surrendered at a Place of Payment therefor (with, if the Company or the Trustee
so requires, due endorsement by, or a written instrument of transfer in form
satisfactory to the Company and the Trustee duly executed by, the Holder thereof
or his attorney duly authorized in writing) and the Company shall execute and
the Trustee shall authenticate and deliver to the Holder of such Security
without service charge a new Security or Securities, of any authorized
denomination as requested by such Holder in aggregate principal amount equal to
and in exchange for the unredeemed portion of the principal of the Security so
surrendered.
ARTICLE 11
Repurchase At Option Of Holders Upon Change In Control
SECTION 11.01. Right to Require Repurchase. In the event that a Change in
Control shall occur, each Holder shall have the right, at the Holder's option,
to require the Company to repurchase (subject to the provisions of Section
13.03) all of such Holder's Securities, or any portion
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of the principal amount thereof that is an integral multiple of $1,000 (provided
that no single Security may be repurchased in part unless the portion of the
principal amount of such Security to be outstanding after such repurchase is
equal to $1,000 or an integral multiple of $1,000), on the date (the "Repurchase
Date") that is 45 Business Days after the date of the occurrence of a Change in
Control at a purchase price equal to 100% of the principal amount plus interest
(including Liquidated Damages, if any) accrued and unpaid to the Repurchase Date
(the "Repurchase Price"). At the option of the Company, the Repurchase Price may
be paid in cash or, subject to the fulfillment by the Company of the conditions
set forth in Section 11.02, by delivery of that number of shares of Common Stock
equal to the quotient of (i) the Repurchase Price divided by (ii) 95% of the
average of the Closing Prices of the Common Stock for the five consecutive
Trading Days ending on and including the third Trading Day immediately preceding
the date of the occurrence of the Change in Control.
SECTION 11.02. Conditions to the Company's Election to Pay the Repurchase
Price in Common Stock.
The Company may elect to pay the Repurchase Price by delivery of shares of
Common Stock pursuant to Section 11.01 if and only if the following conditions
have been satisfied:
(a) The shares of Common Stock delivered in payment of the Repurchase
Price are listed for trading on a U.S. national securities exchange or approved
for trading in the NASDAQ National Market; and
(b) All shares of Common Stock delivered in payment of the Repurchase
Price are issued out of the Company's authorized but unissued Common Stock and
shall, upon issue, be duly and validly issued and fully paid and non-assessable
and free of any preemptive rights.
If all of the conditions set forth in this Section 11.02 are not satisfied
in accordance with the terms hereof, the Repurchase Price shall be paid by the
Company only in cash.
SECTION 11.03. Notices; Method of Exercising Repurchase Right, Etc. (a)
Unless the Company shall have theretofore called for redemption all of the
Outstanding Securities, on or before the date that is 30 Business Days after the
occurrence of a Change in Control, the Company shall give notice to all Holders
of Outstanding Securities and to the Trustee (the "Company Notice") of the
occurrence of the Change in Control and of the repurchase right set forth herein
arising as a result thereof.
Each Company Notice shall state:
(i) the date of such Change in Control and, briefly, the events
causing such Change in Control;
(ii) the date by which the Change in Control Purchase Notice (as
defined below) must be delivered;
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(iii) the Repurchase Date;
(iv) the Repurchase Price, and whether the Repurchase Price shall
be paid by the Company in cash or by delivery of shares of Common Stock;
(v) a description of the procedure that a Holder must follow to
exercise a repurchase right;
(vi) the procedures for withdrawing a Change in Control Purchase
Notice;
(vii) the place or places where such Securities are to be
surrendered for payment of the Repurchase Price or for conversion;
(viii) briefly, the conversion rights of Holders of Securities;
(ix) the Conversion Rate and any adjustments thereto; and
(x) that Holders who want to convert Securities must satisfy the
requirements set forth in the Securities.
Promptly after giving the Company Notice to the Holders of Outstanding
Securities and to the Trustee, the Company shall cause a copy of the Company
Notice to be published in The Wall Street Journal or another daily newspaper of
national circulation.
(b) If any Senior Indebtedness is outstanding at the time of the
occurrence of a Change in Control, and such Senior Indebtedness prohibits by its
terms the Company's repurchase of its Securities upon the occurrence of a Change
in Control, the Company shall prior to giving the Company Notice either:
(i) repay in full all obligations and terminate all commitments
under or in respect of all such Senior Indebtedness or offer to repay in full
all obligations and terminate all commitments under or in respect of all such
Senior Indebtedness and repay such Senior Indebtedness owed to each holder
thereof who has accepted such offer; or
(ii) obtain the requisite consents under all such Senior
Indebtedness to permit the Company to repurchase the Securities in accordance
herewith.
(c) To exercise a repurchase right, a Holder must deliver to the
Trustee or a Paying Agent at an office or agency maintained by the Company for
such purpose in the Borough of Manhattan, The City of New York, prior to the
close of business on or before the Repurchase Date, (i) written notice of the
Holder's exercise of such right (the "Change in Control Purchase Notice"), which
notice shall set forth (A) the name of the Holder, (B) the certificate numbers
of the Securities with respect to which the repurchase right is being exercised,
(C) the principal amount of the Securities to be repurchased (and, if any
Security is to be repurchased in part, the portion of the principal amount
thereof to be repurchased, which shall be in integral multiples of $1,000) and
(D) a
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statement that an election to exercise the repurchase right is being made
thereby pursuant to the applicable provisions of the Securities and (ii)
surrender the Securities subject to the Change in Control Purchase Notice.
(d) Unless the Company has elected to pay the Repurchase Price by
delivery of shares of Common Stock, on or prior to the Repurchase Date the
Company shall deposit with the Trustee or with the Paying Agent (or, if the
Company is acting as its own Paying Agent, segregate and hold in trust as
provided in Section 9.03) an amount of money sufficient to pay the Repurchase
Price of the Securities that are to be repaid on the Repurchase Date. On the
Repurchase Date, the Trustee, a Paying Agent (or, if the Company is acting as
its own Paying Agent, the Company) shall repurchase all such Securities validly
tendered prior to such date.
In the event that a Holder has previously delivered a Change in Control
Purchase Notice, but failed to surrender the Security with respect to which such
Change in Control Purchase Notice relates, then so long as either (i) the
Company has elected to pay the Repurchase Price by delivery of shares of Common
Stock or (ii) the Trustee or the Paying Agent holds (or, if the Company is
acting as its own Paying Agent, the Company segregates and holds in trust as
provided in Section 9.03) money sufficient to pay the Repurchase Price in
respect of such Security, then such Security shall cease to be Outstanding for
the purposes of this Indenture on the Repurchase Date and all rights of the
Holder thereof other than the right to receive the Repurchase Price shall
terminate.
(e) If any Security (or portion thereof) surrendered for repurchase
shall not have been repurchased on the Business Day following the Repurchase
Date, the Repurchase Price in respect of such Security shall, until paid, bear
interest from the Business Day following the Repurchase Date at the rate borne
by the Security and such Security shall remain convertible into Common Stock
until the Repurchase Price and any such accrued interest shall have been paid or
duly provided for.
(f) Any Security that is to be repurchased only in part shall be
surrendered to the Trustee or any such Paying Agent (or if the Company is acting
as its own Paying Agent, the Company) and the Company shall execute, and the
Trustee shall authenticate and deliver to the Holder of such Security without
service charge, a new Security or Securities, containing identical terms and
conditions, each in an authorized denomination in aggregate principal amount
equal to and in exchange for the portion of the principal of the Security so
surrendered that was not repurchased.
(g) Any Holder that has delivered a Change in Control Purchase Notice
shall have the right to withdraw such notice by delivery of a written notice of
withdrawal to the Trustee or any such Paying Agent prior to the close of
business on the Business Day immediately preceding the Repurchase Date. The
notice of withdrawal shall state the principal amount and the certificate
numbers of the Securities as to which the withdrawal notice relates and the
principal amount, if any, that remains subject to the Change in Control Purchase
Notice. A Security in respect of which a Holder has exercised its right to
require repurchase upon a Change in Control may thereafter be converted into
Common Stock only if, and at such time as, such Holder withdraws its Change in
Control Purchase Notice in accordance with the preceding sentence.
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(h) Any issuance of shares of Common Stock in respect of the
Repurchase Price shall be deemed to have been effected immediately prior to the
close of business on the Repurchase Date and the person or persons in whose name
or names any certificate or certificates for shares of Common Stock shall be
issuable upon such repurchase shall be deemed to have become on the Repurchase
Date the holder or holders of record of the shares represented thereby.
(i) No fractional shares of Common Stock or scrip representing
fractional shares shall be issued upon repurchase of Securities. If more than
one Security shall be repurchased from the same Holder and the Repurchase Price
shall be payable in shares of Common Stock, the number of full shares that shall
be issued upon repurchase shall be computed on the basis of the aggregate
principal amount of the Securities (or specified portions thereof to the extent
permitted hereby) so repurchased from such Holder. If any fractional share of
stock otherwise would be issuable upon repurchase of any Security or Securities,
the Company shall make an adjustment therefor by paying to the Holder thereof an
amount of cash calculated at the price per share at which the Common Stock is
valued for purposes of Section 11.01.
(j) The issue of stock certificates on repurchase of Securities shall
be made without charge to the Holder of Securities being repurchased for any tax
in respect of the issue thereof. The Company shall not, however, be required to
pay any tax that may be payable in respect of any transfer involved in the issue
and delivery of stock in any name other than that of the Holder of any Security
repurchased, and the Company shall not be required to issue or deliver any such
stock certificate unless and until the person or persons requesting the issue
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
(k) Notwithstanding anything to the contrary in this Section 11.03,
the Company shall not be required to give the Company Notice following the
occurrence of a Change in Control if, in the manner, at the time and otherwise
in compliance with the requirements set forth herein regarding the Company's
obligation to offer to repurchase the Outstanding Securities following the
occurrence of a Change in Control, (A) another Person makes an offer to
repurchase the Outstanding Securities by giving a notice containing the
information set forth in clauses (i) through (x) of Section 11.03(a) to the
Holders of all Outstanding Securities and to the Trustee, (B) such Person
repurchases all Outstanding Securities validly tendered and not withdrawn, and
(C) such Person makes all payments with respect thereto. This Section 11.03(k)
shall not relieve the Company of any of its obligations under this Indenture or
any Security; provided, however, that if another Person makes the offer to
repurchase Outstanding Securities as set forth in this Section, the Company
shall not be obligated to give the Company Notice.
SECTION 11.04. Certain Definitions. For purposes of this Article 11:
(a) the terms "beneficial owner" and "beneficial ownership" shall be
determined in accordance with Rules 13d-3 and 13d-5 promulgated by the
Commission pursuant to the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), except that a Person shall be deemed to have "beneficial
ownership" of all securities that such Person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time; and
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(b) the term "Person" shall include any syndicate or group that would
be deemed to be a "person" under Section 13(d)(3) or Section 14(d)(2) of the
Exchange Act.
SECTION 11.05. Change in Control. A "Change in Control" shall be deemed to
have occurred at such time after the original issuance of the Securities as:
(a) any Person acquires the beneficial ownership, directly or
indirectly, through a purchase, merger or other acquisition transaction, of more
than 50% of the total voting power of the total outstanding voting stock of the
Company other than an acquisition by the Company, any of its Subsidiaries, any
of its employee benefit plans or one or more Permitted Holders;
(b) the Company shall consolidate with, or merge with or into, another
Person or convey, transfer, lease or otherwise dispose of all or substantially
all of its assets to any Person, or any Person consolidates with or merges with
or into the Company, in any such event pursuant to a transaction in which the
Company's outstanding voting stock is converted into or exchanged for cash,
securities or other property, other than any such transactions where:
(i) the Company's voting stock is not converted or exchanged at
all (except to the extent necessary to reflect a change in the Company's
jurisdiction of incorporation) or is converted into or exchanged for voting
stock (other than Redeemable Capital Stock) of the surviving or transferee
corporation, and
(ii) immediately after such transaction, no Person, other than
one or more Permitted Holders or one or more Persons who were the beneficial
owner, directly or indirectly, of more than 50% of the total voting power of all
of the Company's voting stock immediately before such transaction, is the
beneficial owner, directly or indirectly, of more than 50% of the total
outstanding voting stock of the surviving or transferee corporation;
(c) during any consecutive two-year period, individuals who at the
beginning of such period constituted the Board of Directors (but not a committee
thereof), together with (i) any new directors whose election to such Board of
Directors (but not a committee thereof), or whose nomination for election by the
Company's stockholders, was approved by a vote of a majority of the directors
then still in office who were either directors at the beginning of such period
or whose election or nomination for election was previously so approved and (ii)
any representative of a Permitted Holder, cease for any reason to constitute a
majority of the Board of Directors (but not a committee thereof) then in office;
(d) a special resolution is passed by the Company's stockholders
approving a plan of liquidation or dissolution of the Company (other than in a
transaction that complies with the provisions described in Article 7), and no
additional approvals of the Company's stockholders are required under applicable
law to cause such a liquidation or dissolution.
"Redeemable Capital Stock" means any class or series of capital stock that,
either by its terms, by the terms of any security into which it is convertible
or exchangeable or by contract or otherwise, is, or upon the happening of an
event or passage of time would be, required to be
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redeemed prior to the Stated Maturity of the Securities or is redeemable at the
option of the holder thereof at any time prior to such Stated Maturity, or is
convertible into or exchangeable for debt securities at any time prior to such
Stated Maturity; provided, however, that Redeemable Capital Stock shall not
include any Common Stock which the holder may cause the Company to repurchase or
redeem upon termination of such holder's employment.
ARTICLE 12
Conversion
SECTION 12.01. Conversion Privilege, Conversion Rate and Conversion Price.
Subject to and upon compliance with the provisions of this Article 12, at the
option of the Holder thereof, any Security or any portion of the principal
amount thereof that is $1,000 or an integral multiple of $1,000 may be converted
at any time after original issuance thereof through the close of business on
February 16, 2005 into that number of fully paid and non-assessable shares of
Common Stock obtained by multiplying the Conversion Rate then in effect by each
$1,000 principal amount of Securities surrendered for conversion. In case a
Security or portion thereof has previously been called for redemption at the
election of the Company, such conversion right in respect of the Security or
portion so called shall expire at the close of business, New York City time, on
the last Business Day prior to the Redemption Date, unless the Company defaults
in making the payment due upon redemption. A Security in respect of which a
Holder has delivered a Change in Control Purchase Notice (as defined in Article
11 hereof) exercising the option of such Holder to require the Company to
purchase such Security may be converted only if such notice and the Security is
withdrawn by a written notice of withdrawal delivered by the Holder to the
Trustee or any Paying Agent prior to the close of business on the Repurchase
Date, in accordance with the terms of this Indenture.
The price at which shares of Common Stock shall be delivered upon
conversion (herein called the "Conversion Price") shall be initially $53.10 per
share of Common Stock, which is equal to a conversion rate of 18.8324 shares per
$1,000 principal amount of the Securities (the "Conversion Rate"). The
Conversion Rate shall be adjusted in certain instances as provided in Section
12.04 and, in every instance in which an adjustment is made to the Conversion
Rate, a corresponding adjustment shall be made to the Conversion Price. The
adjusted Conversion Price shall equal at any time 1,000 divided by the then
adjusted Conversion Rate.
SECTION 12.02. Exercise of Conversion Privilege. In order to exercise the
conversion privilege with respect to any Security in definitive form, the Holder
of any Security to be converted shall surrender such Security, duly endorsed or
assigned to the Company or in blank, at any office or agency maintained by the
Company pursuant to Section 9.02, accompanied by (a) written notice to the
Company in substantially the form of conversion notice attached to the form of
Security attached as Exhibit A hereto at such office or agency that the Holder
elects to convert such Security or, if less than the entire principal amount
thereof is to be converted, the portion thereof to be converted, (b) the funds,
if any, required by this Section 12.02, and (c) if shares or any portion of such
Security not to be converted are to be issued in the name of a Person other than
the Holder thereof, the name
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of the Person in which to issue such shares and the transfer taxes, if any,
required to be paid by the Holder pursuant to Section 12.08.
In order to exercise the conversion privilege with respect to any interest
in a global Security, the beneficial owner must complete, or cause to be
completed, the appropriate instruction form for conversion pursuant to the
depositary's book-entry conversion program, deliver, or cause to be delivered,
by book-entry delivery, an interest in such global Security, furnish appropriate
endorsements and transfer documents if required by the Company or the Trustee or
other agent, and pay the funds, if any, required by this Section 12.02 and any
transfer taxes if required pursuant to Section 12.08.
As promptly as practicable after satisfaction of the requirements for
conversion set forth above, the Company shall issue and shall deliver to such
Holder a certificate or certificates for the number of full shares of Common
Stock issuable upon the conversion of such Security or portion thereof in
accordance with the provisions of this Article and a check or cash in respect of
any fractional interest in respect of a share of Common Stock arising upon such
conversion, as provided in Section 12.03. In case any Security of a
denomination greater than $1,000 shall be surrendered for partial conversion,
and subject to Article 2, the Company shall execute, and the Trustee shall
authenticate and deliver to the holder of the Security so surrendered, without
charge, a new Security or Securities in authorized denominations in an aggregate
principal amount equal to the unconverted portion of the surrendered Security.
Each conversion shall be deemed to have been effected as to any such
Security (or portion thereof) on the date on which the requirements set forth
above in this Section 12.02 have been satisfied as to such Security (or portion
thereof), and the Person in whose name any certificate or certificates for
shares of Common Stock shall be issuable upon such conversion shall be deemed to
have become on said date the holder of record of the shares represented thereby;
provided however that any such surrender on any date when the stock transfer
books of the Company shall be closed shall constitute the Person in whose name
the certificates are to be issued as the record holder thereof for all purposes
on the next succeeding day on which such stock transfer books are open, but such
conversion shall be at the Conversion Rate in effect on the date upon which such
Security shall be surrendered.
Any Security or portion thereof surrendered for conversion during the
period from the close of business on the record date for any interest payment
date to the close of business on the Business Day next preceding the following
interest payment date that has not been called for redemption during such
period, shall be accompanied by payment, in immediately available funds or other
funds acceptable to the Company, of an amount equal to the interest otherwise
payable on such interest payment date on the principal amount being converted;
provided however that no such payment need be made to the extent any overdue
interest shall exist at the time of conversion with respect to any such Security
or portion thereof. Except as provided above in this Section 12.02, no payment
or other adjustment shall be made for interest accrued on any Security converted
or for dividends on any shares issued upon the conversion of such Security as
provided in this Article.
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Upon the conversion of an interest in a global Security, the Trustee (or
other conversion agent appointed by the Company), shall make a notation on such
global Security as to the reduction in the principal amount represented thereby.
The Company shall notify the Trustee in writing of any conversions of Securities
effected through any Conversion Agent other than the Trustee.
SECTION 12.03. Fractions of Shares. No fractional shares of Common Stock
shall be issued upon conversion of Securities. If more than one Security shall
be surrendered for conversion at one time by the same Holder, the number of full
shares that shall be issuable upon conversion thereof shall be computed on the
basis of the aggregate principal amount of the Securities (or specified portions
thereof) so surrendered. Instead of any fractional share of Common Stock that
would otherwise be issuable upon conversion of any Security (or specified
portions thereof), the Company shall pay a cash adjustment in respect of such
fraction in an amount equal to the same fraction of the Closing Price per share
of the Common Stock at the close of business on the Trading Day immediately
preceding such day.
"Trading Day" shall mean each day on which the primary securities exchange
or quotation system that is used to determine the Closing Price is open for
trading or quotation.
"Closing Price" of a single share of Common Stock on any Trading Day shall
mean the closing sale price per share for the Common Stock (or if no closing
sale price is reported, the average of the bid and ask prices) on such Trading
Day on the principal United States national securities exchange on which the
Common Stock is traded or, if the Common Stock is not listed on a United States
national stock exchange, as reported by the Nasdaq National Market.
SECTION 12.04. Adjustment of Conversion Rate.
(a) In case the Company shall pay or make a dividend or other
distribution on its Common Stock exclusively in Common Stock, the Conversion
Rate in effect at the opening of business on the earlier of the day next
following such dividend or other distribution or the date fixed for the
determination of stockholders entitled to receive such dividend or other
distribution shall be adjusted so that a Holder upon conversion shall be
entitled to receive that number of shares of Common Stock it would have been
entitled to after such dividend or other distribution if it had converted its
Security immediately prior to such dividend or other distribution.
(b) In case the Company shall pay or make a dividend or other
distribution on its Common Stock consisting exclusively of, or shall otherwise
issue to all holders of its Common Stock, rights, warrants or options entitling
the holders thereof, for a period not exceeding 45 days, to subscribe for or
purchase shares of Common Stock at a price per share less than the current
market price per share (determined as provided in Section 12.04(g)) of the
Common Stock on the date fixed for the determination of stockholders entitled to
receive such rights, warrants or options, the Conversion Rate in effect at the
opening of business on the day following the date fixed for such determination
shall be increased by multiplying such Conversion Rate by a fraction of which
the numerator shall be the number of shares of Common Stock
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outstanding at the close of business on the date fixed for such determination
plus the number of shares of Common Stock so offered for subscription or
purchase and the denominator shall be the number of shares of Common Stock
outstanding at the close of business on the date fixed for such determination
plus the number of shares of Common Stock which the aggregate price of the total
number of shares so offered would purchase at the current market price per share
(determined as provided in Section 12.04(g)), such increase to become effective
immediately after the opening of business on the day following the date fixed
for such determination.
(c) In case outstanding shares of Common Stock shall be subdivided
into a greater number of shares of Common Stock, the Conversion Rate in effect
at the opening of business on the day following the day upon which such
subdivision becomes effective shall be proportionately increased, and,
conversely, in case outstanding shares of Common Stock shall each be combined
into a smaller number of shares of Common Stock, the Conversion Rate in effect
at the opening of business on the day following the day upon which such
combination becomes effective shall be proportionately reduced, such increase or
reduction, as the case may be, to become effective immediately after the opening
of business on the day following the day upon which such subdivision or
combination becomes effective.
(d) In case the Company shall, by dividend or otherwise, distribute to
all holders of its Common Stock evidences of its indebtedness, shares of any
class of capital stock, securities, cash or assets (excluding any rights,
warrants or options referred to in Section 12.04(b), any dividend or
distribution paid exclusively in cash and any dividend or distribution referred
to in Section 12.04(a)), the Conversion Rate shall be adjusted by multiplying
the Conversion Rate in effect immediately prior to the earlier of such
distribution or the determination of stockholders entitled to receive such
distribution by a fraction of which the numerator shall be the current market
price per share (determined as provided in Section 12.04(g)) and the denominator
shall be such current market price less the fair market value (as determined in
good faith by the Board of Directors, whose determination shall be conclusive
and described in a Board Resolution), on the date of such effectiveness, of the
portion of the evidences of indebtedness, shares of capital stock, securities,
cash and assets so distributed applicable to one share of Common Stock, such
adjustment to become effective immediately prior to the opening of business on
the day next following the later of (i) the date fixed for the payment of such
distribution and (ii) the date 20 days after the notice relating to such
distribution is given pursuant to Section 12.06 (such later date of (i) and (ii)
being referred to as the "Reference Date"). The provisions of this Section
12.04(d) shall not be applicable to an event covered by Section 12.04(j). For
purposes of this Section 12.04(d) and Sections 12.04(a) and 12.04(b), any
dividend or distribution for which an adjustment is being made pursuant to this
Section 12.04(d) that also includes shares of Common Stock or rights, warrants
or options to subscribe for or purchase shares of Common Stock shall be deemed
instead to be (A) a dividend or distribution of the evidences of indebtedness,
cash, property, shares of capital stock or securities other than such shares of
Common Stock or such rights, warrants or options (making any Conversion Rate
adjustment required by this Section 12.04(d)) immediately followed by (B) a
dividend or distribution of such shares of Common Stock or such rights (making
any further Conversion Rate adjustment required by Sections 12.04(a) or
12.04(b)), except (1) the record date of such dividend or distribution as
defined in this Section 12.04(d) shall be substituted as "the date fixed for the
determination of stockholders entitled to receive such dividend or other
distributions", "the date fixed for the determination of stockholders entitled
to receive such rights, warrants or options"
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and "the date fixed for such determination" within the meaning of Sections
12.04(a) and 12.04(b) and (2) any shares of Common Stock included in such
dividend or distribution shall not be deemed "outstanding at the close of
business on the date fixed for such determination" within the meaning of this
12.04(d).
(e) In case the Company shall, by dividend or otherwise, make a
distribution to all holders of its Common Stock exclusively in cash in an
aggregate amount that, together with (i) the aggregate amount of any other
distributions to all holders of its Common Stock made exclusively in cash within
the 12 months preceding the date of payment of such distribution and in respect
of which no Conversion Rate adjustment pursuant to this Section 12.04(e) has
been made and (ii) the aggregate of any cash plus the fair market value (as
determined in good faith by the Board of Directors, whose determination shall be
conclusive and described in a Board Resolution), as of the expiration of the
tender or exchange offer referred to below, of consideration payable in respect
of any tender or exchange offer by the Company or a Subsidiary for all or any
portion of the Common Stock concluded within the 12 months preceding the date of
payment of such distribution and in respect of which no Conversion Rate
adjustment pursuant to this Section 12.04(e) has been made, exceeds 10% of the
product of the current market price per share (determined as provided in Section
12.04(g)) of the Common Stock as of the Trading Day immediately preceding the
record date fixed for stockholders entitled to receive such distribution times
the number of shares of Common Stock outstanding on such record date, the
Conversion Rate shall be increased so that the same shall equal the price
determined by multiplying the Conversion Rate in effect immediately prior to the
close of business on the date fixed for the determination of the stockholders of
record entitled to such distribution by a fraction of which (i) the denominator
shall be the current market price per share (determined as provided in Section
12.04(g)) on such date less an amount equal to the quotient of (x) the excess of
such combined amount over such 10% and (y) the number of shares of Common Stock
outstanding on the record date and (ii) the numerator shall be equal to the
current market price on such date, such adjustment to become effective
immediately prior to the opening of business on the day following the record
date fixed for the payment of such distribution.
(f) In case a successful tender or exchange offer, other than an odd
lot offer, made by the Company or any Subsidiary for all or any portion of the
Common Stock shall involve an aggregate consideration having a fair market value
(as determined in good faith by the Board of Directors, whose determination
shall be conclusive and described in a Board Resolution) at the last time (the
"Expiration Time") tenders or exchanges may be made pursuant to such tender or
exchange offer (as it may be amended) that, together with (i) the aggregate of
the cash plus the fair market value (as determined in good faith by the Board of
Directors, whose determination shall be conclusive and described in a Board
Resolution), as of the expiration of the other tender or exchange offer referred
to below, of consideration payable in respect of any other tender or exchange
offer by the Company or a Subsidiary for all or any portion of the Common Stock
concluded within the preceding 12 months and in respect of which no Conversion
Rate adjustment pursuant to this Section 12.04(f) has been made and (ii) the
aggregate amount of any distributions to all holders of the Common Stock made
exclusively in cash within the preceding 12 months and in respect of which no
Conversion Rate adjustment pursuant to Section 12.04(e) has been made, exceeds
10% of the product of the current market price per share (determined as provided
in Section 12.04(d)) of the
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Common Stock outstanding (including any tendered shares) on the Expiration Time,
the Conversion Rate shall be adjusted by multiplying the Conversion Rate in
effect immediately prior to the Expiration Time by a fraction of which (i) the
denominator shall be (x) the product of the current market price per share
(determined as provided in Section 12.04(g)) of the Common Stock on the Trading
Day next succeeding the Expiration Time times the number of shares of Common
Stock outstanding (including any tendered or exchanged shares) at the Expiration
Time minus (y) the fair market value (determined as aforesaid) of the aggregate
consideration payable to stockholders based on the acceptance (up to any maximum
specified in the terms of the tender or exchange offer) of all shares validly
tendered or exchanged and not withdrawn as of the Expiration Time (the shares
deemed so accepted, up to any such maximum, being referred to as the "Purchased
Shares") and (ii) the numerator shall be the product of (x) such current market
price per share (determined in accordance with Section 12.04(g)) on the Trading
Day next succeeding the Expiration Time times (y) such number of outstanding
shares at the Expiration Time less the number of Purchased Shares, such increase
to become effective immediately prior to the opening of business on the day
following the Expiration Time.
(g) For the purpose of any computation under Sections 12.04(b), (d)
and (e), the current market price per share of Common Stock on any date in
question shall be deemed to be the average of the daily Closing Prices per share
of Common Stock for the ten consecutive Trading Days immediately prior to the
date in question; provided, however, that (i) if the "ex" date (as hereinafter
defined) for any event (other than the issuance or distribution requiring such
computation) that requires an adjustment to the Conversion Rate pursuant to
Section 12.04(a), (b), (c), (d), (e) or (f) ("Other Event") occurs on or after
the 20th Trading Day prior to the date in question and prior to the "ex" date
for the issuance or distribution requiring such computation (the "Current
Event"), the Closing Price for each Trading Day prior to the "ex" date for such
Other Event shall be adjusted by multiplying such Closing Price by the
reciprocal of the fraction by which the Conversion Rate is so required to be
adjusted as a result of such Other Event, (ii) if the "ex" date for any Other
Event occurs after the "ex" date for the Current Event and on or prior to the
date in question, the Closing Price for each Trading Day on and after the "ex"
date for such Other Event shall be adjusted by multiplying such Closing Price by
the fraction by which the Conversion Rate is so required to be adjusted as a
result of such Other Event, (iii) if the "ex" date for any Other Event occurs on
the "ex" date for the Current Event, one of those events shall be deemed for
purposes of clauses (i) and (ii) of this proviso to have an "ex" date occurring
prior to the "ex" date for the Other Event, and (iv) if the "ex" date for the
Current Event is on or prior to the date in question, after taking into account
any adjustment required pursuant to clause (ii) of this proviso, the Closing
Price for each Trading Day on or after such "ex" date shall be adjusted by
adding thereto the amount of any cash and the fair market value on the date in
question (as determined in good faith by the Board of Directors in a manner
consistent with any determination of such value for purposes of Section 12.04(d)
or (e), whose determination shall be conclusive and described in a Board
Resolution) of the portion of the rights, warrants, options, evidences of
indebtedness, shares of capital stock, securities, cash or property being
distributed applicable to one share of Common Stock. For the purpose of any
computation under Section 12.04(f), the current market price per share of Common
Stock on any date in question shall be deemed to be the average of the daily
Closing Prices for the five consecutive Trading Days selected by the Company
commencing on or after the latest (the
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"Commencement Date") of (i) the date 20 Trading Days before the date in
question, (ii) the date of commencement of the tender or exchange offer
requiring such computation and (iii) the date of the last amendment, if any, of
such tender or exchange offer involving a change in the maximum number of shares
for which tenders are sought or a change in the consideration offered, and
ending not later than the Trading Day next succeeding the Expiration Time of
such tender or exchange offer (or, if such Expiration Time occurs before the
close of trading on a Trading Day, not later than the Trading Day during which
the Expiration Time occurs); provided, however, that if the "ex" date for any
Other Event (other than the tender or exchange offer requiring such computation)
occurs on or after the Commencement Date and on or prior to the Trading Day next
succeeding the Expiration Time for the tender or exchange offer requiring such
computation, the Closing Price for each Trading Day prior to the "ex" date for
such Other Event shall be adjusted by multiplying such Closing Price by the
reciprocal of the same fraction by which the Conversion Rate is so required to
be adjusted as a result of such other event. For purposes of this paragraph, the
term "ex" date, (i) when used with respect to any issuance or distribution,
means the first date on which the Common Stock trades regular way on the
relevant exchange or in the relevant market from which the Closing Price was
obtained without the right to receive such issuance or distribution, (ii) when
used with respect to any subdivision or combination of shares of Common Stock,
means the first date on which the Common Stock trades regular way on such
exchange or in such market after the time at which such subdivision or
combination becomes effective, and (iii) when used with respect to any tender or
exchange offer means the first date on which the Common Stock trades regular way
on such exchange or in such market after the Expiration Time of such tender or
exchange offer.
(h) The Company may make such increases in the Conversion Rate, in
addition to those required by paragraphs (a), (b), (c), (d), (e) and (f) of this
Section 12.04, as it considers to be advisable.
(i) No adjustment in the Conversion Rate shall be required unless such
adjustment would require an increase or decrease of at least 1% in the
Conversion Rate; provided, however, that any adjustments, which by reason of
this Section 12.04(i) are not required to be made, shall be carried forward and
taken into account in any subsequent adjustment.
(j) In the event that the Company distributes assets, debt securities,
rights, warrants or options (other than those referred to in Section 12.04(b)
pro rata to holders of Common Stock, and the fair market value of the portion of
assets, debt securities, rights, warrants or options applicable to one share of
Common Stock distributed to holders of Common Stock exceeds the Average Sale
Price (as defined below) per share of Common Stock, or such Average Sale Price
exceeds such fair market value by less than $1.00, then so long as any such
assets, debt securities, rights, options or warrants have not expired or been
redeemed by the Company, the Company shall make proper provision so that the
Holder of any Security upon conversion, rather than being entitled to an
adjustment in the Conversion Rate, will be entitled to receive upon such
conversion, in addition to the shares of Common Stock otherwise issuable upon
conversion, the kind and amount of assets, debt securities, rights, warrants and
options such Holder would have received had such Holder converted its Security
immediately prior to the date of determination of the holders entitled to such
distribution.
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"Average Sale Price" means the average of the Closing Prices of the Common
Stock for the shorter of (i) 30 consecutive Trading Days ending on the last full
Trading Day prior to the Time of Determination (as defined below) with respect
to the rights, options, warrants or distribution in respect of which the Average
Sale Price is being calculated, or (ii) the period (x) commencing on the date
next succeeding the first public announcement of (a) the issuance of rights,
options or warrants or (b) the distribution, in each case, in respect of which
the Average Sale Price is being calculated and (y) proceeding through the last
full Trading Day prior to the Time of Determination with respect to the rights,
options, warrants or distribution in respect of which the Average Sale Price is
being calculated, or (iii) the period, if any, (x) commencing on the date next
succeeding the Ex-Dividend Time (as defined below) with respect to the next
preceding (a) issuance of rights, warrants or options or (b) distribution, in
each case, for which an adjustment is required by the provisions of Section
12.04(b) or Section 12.04(j) and (y) proceeding through the last full Trading
Day prior to the Time of Determination with respect to the rights, options,
warrants, or distribution in respect of which the Average Sale Price is being
calculated. If the Ex-Dividend Time (or in the case of a subdivision,
combination or reclassification, the effective date with respect thereto) with
respect to a dividend, subdivision, combination or reclassification to which
Section 12.04(a), (b) or (c) applies occurs during the period applicable for
calculating "Average Sale Price" pursuant to the definition in the preceding
sentence, "Average Sale Price" shall be calculated for such period in a manner
determined in good faith by the Board of Directors to reflect the impact of such
dividend, subdivision, combination or reclassification on the Closing Price of
the Common Stock during such period.
"Time of Determination" means the time and date of the earlier of (i) the
determination of stockholders entitled to receive rights, warrants or options or
a distribution, in each case, to which this Section 12.04 applies and (ii) the
time ("Ex-Dividend Time") immediately prior to the commencement of "ex-dividend"
trading for such rights, options, warrants or distribution on the New York Stock
Exchange or such other national or regional exchange or market on which the
shares of Common Stock are listed or quoted.
SECTION 12.05. Notice of Adjustments of Conversion Rate. Whenever the
Conversion Rate and Conversion Price are adjusted as herein provided, the
Company shall compute the adjusted Conversion Rate and Conversion Price in
accordance with Section 12.04 and shall prepare a certificate signed by the
Chief Financial Officer of the Company setting forth the adjusted Conversion
Rate and Conversion Price and showing in reasonable detail the facts upon which
such adjustment is based, and such certificate shall forthwith be filed (with a
copy to the Trustee) at each office or agency maintained for the purpose of
conversion of Securities pursuant to Section 9.02; and the Company shall
forthwith cause a notice setting forth the adjusted Conversion Rate and
Conversion Price to be mailed, first class postage prepaid, to each Holder of
Securities at its address appearing on the Security Register. Unless and until
the Trustee shall receive such notice, the Trustee may assume without inquiry
that the Conversion Rate and Conversion Price have not been, and are not
required to be, adjusted and that the last Conversion Rate and Conversion Price
of which it has written notice remain in effect.
SECTION 12.06. Notice of Certain Corporate Action. In case:
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(a) the Company shall declare a dividend (or any other distribution)
on its Common Stock that would require a Conversion Rate adjustment pursuant to
Section 12.04(e); or
(b) the Company shall authorize the granting to all holders of its
Common Stock of rights, warrants or options to subscribe for or purchase any
shares of capital stock of any class or of any other rights (excluding rights
distributed pursuant to any stockholder rights plan); or
(c) of any reclassification of the Common Stock of the Company (other
than a subdivision or combination of its outstanding shares of Common Stock), or
of any consolidation or merger to which the Company is a party and for which
approval of any stockholders of the Company is required, or of the sale or
transfer of all or substantially all of the assets of the Company; or
(d) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company; or
(e) the Company or any Subsidiary of the Company shall commence a
tender or exchange offer for all or a portion of the Company's outstanding
shares of Common Stock (or shall amend any such tender or exchange offer);
then the Company shall cause to be filed at each office or agency
maintained for the purpose of conversion of Securities pursuant to Section 9.02,
and shall cause to be mailed to all Holders at their last addresses as they
shall appear in the Security Register, at least 20 days (or 10 days in any case
specified in clause 12.06(a) or 12.06(b) above) prior to the applicable record,
effective or expiration date hereinafter specified, a notice stating (x) the
date on which a record is to be taken for the purpose of such dividend,
distribution or granting of rights, warrants or options, or, if a record is not
to be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distribution, rights, warrants or options are to be
determined, or (y) the date on which such reclassification, consolidation,
merger, sale, transfer, dissolution, liquidation or winding up is expected to
become effective, and the date as of which it is expected that holders of Common
Stock of record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding up,
or (z) the date on which such tender offer commenced, the date on which such
tender offer is scheduled to expire unless extended, the consideration offered
and the other material terms thereof (or the material terms of any amendment
thereto).
SECTION 12.07. Company's Obligation Regarding Common Stock. The Company
shall at all times reserve and keep available, free from preemptive rights, out
of its authorized but unissued Common Stock, solely for the purpose of effecting
the conversion of Securities, the whole number of shares of Common Stock then
issuable upon the conversion in full of all Outstanding Securities.
Before taking any action which would cause an adjustment reducing the
Conversion Price below the then par value, if any, of the shares of Common Stock
issuable upon conversion of the Securities, the Company shall take all corporate
action that may, in the opinion of its counsel, be
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necessary in order that the Company may validly and legally issue shares of such
Common Stock at such adjusted Conversion Price.
The Company covenants that if any shares of Common Stock to be provided for
the purpose of conversion of Securities hereunder require registration with or
approval of any governmental authority under any federal or state law before
such shares may be validly issued upon conversion, the Company shall in good
faith and as expeditiously as practicable endeavor to secure such registration
or approval, as the case may be.
The Company further covenants that so long as the Common Stock shall be
listed or quoted on the New York Stock Exchange, the Nasdaq Stock Market
(National Market), or any other national securities exchange the Company shall,
if permitted by the rules of such exchange, list and keep listed so long as the
Common Stock shall be so listed on such market or exchange, all Common Stock
issuable upon conversion of the Securities.
SECTION 12.08. Taxes on Conversions. The Company shall pay any and all
taxes that may be payable in respect of the issue or delivery of shares of
Common Stock on conversion of Securities pursuant hereto. The Company shall not,
however, be required to pay any tax that may be payable in respect of any
transfer involved in the issue and delivery of shares of Common Stock in a name
other than that of the Holder of the Security or Securities to be converted, and
no such issue or delivery shall be made unless and until the Person requesting
such issue has paid to the Company the amount of any such tax, or has
established to the satisfaction of the Company that such tax has been paid.
SECTION 12.09. Covenant as to Common Stock. The Company covenants that all
shares of Common Stock that may be issued upon conversion of Securities shall
upon issue be newly issued (and not treasury shares) and shall be duly
authorized, validly issued, fully paid and nonassessable and, except as provided
in Section 12.08, the Company shall pay all taxes, liens and charges with
respect to the issue thereof.
SECTION 12.10. Cancellation of Converted Securities. All Securities
delivered for conversion shall be delivered to the Trustee to be cancelled by or
at the direction of the Trustee, which shall dispose of the same as provided in
Section 3.08.
SECTION 12.11. Provisions in Case of Reclassification, Consolidation,
Merger or Sale of Assets. In the event that the Company shall be a party to any
transaction (including any (i) recapitalization or reclassification of the
Common Stock (other than a change in par value, or from par value to no par
value, or from no par value to par value, or as a result of a subdivision or
combination of the Common Stock), (ii) any consolidation of the Company with, or
merger of the Company into, any other person, any merger of another person into
the Company (other than a merger that does not result in a reclassification,
conversion, exchange or cancellation of outstanding shares of Common Stock of
the Company), (iii) any sale, lease, transfer, conveyance or other disposition
of all or substantially all of the assets of the Company or (iv) any compulsory
share exchange) pursuant to which the Common Stock is converted into the right
to receive other securities, cash or other property, then lawful provision shall
be made as part of the terms of such
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transaction whereby the Holder of each Security then Outstanding shall have the
right thereafter to convert such Security only into (subject to funds being
legally available for such purpose under applicable law at the time of such
conversion) the kind and amount of securities, cash and other property
receivable upon such transaction by a holder of the number of shares of Common
Stock into which such Security might have been converted immediately prior to
such transaction. The Company or the Person formed by such consolidation or
resulting from such merger or that acquired such assets or that acquired the
Company's shares of Common Stock, as the case may be, shall execute and deliver
to the Trustee a supplemental indenture establishing such rights. Such
supplemental indenture shall provide for adjustments that, for events subsequent
to the effective date of such supplemental indenture, shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Article. The above provisions of this Section 12.11 shall similarly apply to
successive transactions of the foregoing type.
SECTION 12.12. Company's Obligation. All calculations, adjustments,
conversions and other determinations under this Article 12 shall be the sole
responsibility and obligation of the Company. The Trustee (a) shall have no
obligation to review, challenge or contest any such calculation, adjustment,
conversion or other determination and (b) shall not be liable for any default or
error by the Company under this Article 12.
ARTICLE 13
Subordination
SECTION 13.01. Securities Subordinate to Senior Indebtedness. The Company
covenants and agrees, and each Holder of Securities, by such Holder's acceptance
thereof, likewise covenants and agrees, that, to the extent and in the manner
hereinafter set forth in this Article 13, the indebtedness represented by the
Securities and the payment of the principal of (and premium, if any), and
interest on (including Liquidated Damages, if any) and all other amounts payable
under the Securities are hereby expressly made subordinate and subject in right
of payment to the prior payment in full of all Senior Indebtedness.
SECTION 13.02. Payment over of Proceeds upon Dissolution, Etc. In the event
of any payment by, or distribution of the assets of, the Company in connection
with (a) any insolvency or bankruptcy case or proceeding, or any receivership,
liquidation, reorganization or other similar case or proceeding in connection
therewith, relative to the Company or its assets, (b) any liquidation,
dissolution or other winding-up of the Company, whether voluntary or involuntary
and whether or not involving insolvency or bankruptcy, or (c) any assignment for
the benefit of creditors or any other marshaling of assets and liabilities of
the Company, then and in any such event the holders of Senior Indebtedness shall
be entitled to receive payment in full of all amounts due in respect of all
Senior Indebtedness, or provision shall be made for such payment in cash or cash
equivalents or otherwise in a manner satisfactory to the holders of Senior
Indebtedness, before the Holders of the Securities are entitled to receive any
payment on account of principal of (or premium, if any), or interest on
(including Liquidated Damages, if any) or any other amount payable under the
Securities, and to that end, the holders of Senior Indebtedness shall be
entitled to receive, for application to the payment of such Senior Indebtedness,
ratably according to the aggregate amounts remaining unpaid
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on account of such Senior Indebtedness held by them after giving effect to any
concurrent payment or distribution, or provision therefor, to the holders of
such Senior Indebtedness, any payment or distribution of any kind or character,
whether in cash, property or securities, that may be payable or deliverable in
respect of the Securities in any such case, proceeding, dissolution, liquidation
or other winding-up or event.
In the event that, notwithstanding the foregoing provisions of this Section
13.02, the Trustee or the Holder of Securities shall have received any payment
or distribution of assets of the Company prohibited by the foregoing paragraph
of any kind or character, whether in cash, property or securities, before all
Senior Indebtedness is paid in full or payment thereof provided for, and if, at
or prior to the time of such payment or distribution, written notice that such
payment or distribution is prohibited by the foregoing paragraph shall have been
actually given to a Responsible Officer of the Trustee or, as the case may be,
such Holder, then and in such event such payment or distribution shall be paid
over or delivered forthwith to holders of such Senior Indebtedness remaining
unpaid or their representatives, ratably according to the aggregate amounts
remaining unpaid on account of the Senior Indebtedness held by them, for
application to the payment thereof to the extent necessary to pay all Senior
Indebtedness in full after giving effect to any concurrent payment or
distribution, or provision therefor, to the holders of such Senior Indebtedness.
For purposes of this Article 13 only, the words "cash, property or
securities" shall not be deemed to include shares of capital stock of the
Company as reorganized or readjusted, or securities of the Company or any other
corporation provided for by a plan of reorganization or readjustment that in
either case are subordinated in right of payment to all Senior Indebtedness that
may at the time be outstanding to substantially the same extent as, or to a
greater extent than, the Securities are so subordinated as provided in this
Article 13. The consolidation of the Company with, or the merger of the Company
into, another Person or the liquidation or dissolution of the Company following
the sale, lease, conveyance, transfer or other disposition of its properties and
assets substantially as an entirety to another Person upon the terms and
conditions set forth in Article 7 shall not be deemed a dissolution, winding-up,
liquidation, reorganization, assignment for the benefit of creditors or
marshaling of assets and liabilities of the Company for the purposes of this
Section 13.02 if the Person formed by such consolidation or into which the
Company is merged or that acquires by sale, lease, conveyance, transfer or other
disposition such properties and assets substantially as an entirety, as the case
may be, shall, as a part of such consolidation, merger, sale, lease, conveyance,
transfer or other disposition, comply with the conditions set forth in Article
7.
SECTION 13.03. No Payment When Senior Indebtedness in Default. (a) In the
event and during the continuation of any default in the payment of principal of
(or premium, if any) or interest on any Senior Indebtedness beyond any
applicable grace period with respect thereto (unless and until such payment
default shall have been cured or waived in writing by the holders of such Senior
Indebtedness), including any payment default arising from the acceleration of
any Senior Indebtedness, or (b) any default (other than a payment default) with
respect to Senior Indebtedness occurs and is continuing that permits the
acceleration of the maturity thereof and judicial proceedings shall be pending
with respect to any such default or the Company receives written notice of such
default (a "Senior Indebtedness Default Notice"), then no payment shall be made
by
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the Company on account of principal of (or premium, if any) or interest on
(including Liquidated Damages, if any) the Securities or on account of all other
amounts payable under the Securities. Notwithstanding the foregoing, payments
with respect to the Securities may resume, and the Company may acquire
Securities for cash or property, when (x) the default with respect to the Senior
Indebtedness is cured or waived or ceases to exist or (y) in the case of a
default described in clause (b) of this Section 13.03, 179 or more days pass
after the Senior Indebtedness Default Notice is received by the Company,
provided that the terms hereof otherwise permit such payment or acquisition of
Securities at such time. If the Company receives a Senior Indebtedness Default
Notice, then a similar notice received within nine months thereafter relating to
the default that was the basis of such Senior Indebtedness Default Notice, on
the same issue of Senior Indebtedness, shall not be effective to prevent the
payment or acquisition of the Securities as described in the first sentence of
this Section 13.03(a). In addition, no payment may be made on the Securities, in
respect of principal, premium, interest (including Liquidated Damages, if any)
or any other amount, and no acquisition of Securities for cash or property may
be effected, if any Securities are declared due and payable prior to their
Stated Maturity by reason of the occurrence of an Event of Default until the
earlier of (i) 120 days after the date of such acceleration of the maturity of
the Securities or (ii) the payment in full of all Senior Indebtedness, provided
that such payment or acquisition of Securities may be made then only if the
terms hereof otherwise permit such payment or acquisition of Securities at such
time.
In the event that, notwithstanding the foregoing, the Company shall make
any payment to the Trustee or the Holder of Securities prohibited by the
foregoing provisions of this Section 13.03 before all Senior Indebtedness is
paid in full, or effective provisions made for its payment, and if, at or prior
to the time of such payment, written notice that such payment is prohibited by
the foregoing paragraph shall have been actually given to a Responsible Officer
of the Trustee or, as the case may be, such Holder, then and in such event (but
subject to the provisions of Section 13.09) such payment shall be paid over and
delivered forthwith to the holders of such Senior Indebtedness remaining unpaid
or their representatives, ratably on account of the Senior Indebtedness held by
them, for application to the payment thereof to the extent necessary to pay all
Senior Indebtedness in full after giving effect to any concurrent payment or
distribution, or provision therefor, to the holders of such Senior Indebtedness.
The provisions of this Section 13.03 shall not apply to any payment with
respect to which Section 13.02 would be applicable.
SECTION 13.04. Payment Permitted If No Default. Nothing contained in this
Article 13 or elsewhere herein or in any of the Securities shall prevent (a) the
Company, at any time except during the pendency of any case, proceeding,
dissolution, liquidation or other winding-up, assignment for the benefit of
creditors or other marshaling of assets and liabilities of the Company referred
to in Section 13.02, except under the conditions described in Section 13.03,
from making payments at any time of principal of (and premium, if any), or
interest on, or any other amount payable under the Securities, or (b) the
application by the Trustee of any money deposited with it hereunder to the
payment of or on account of the principal of (and premium, if any), or interest
on, or any other amount payable under the Securities, or the retention of such
payment by the Holders,
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if, by the close of business on the date that was two Business Days prior to
such application by the Trustee, the Trustee had not received written notice
that such payment would be prohibited by the provisions of this Article 13.
SECTION 13.05. Subrogation to Rights of Holders of Senior Indebtedness.
Upon payment in full of all Senior Indebtedness, the Holders of the Securities
shall be subrogated (equally and ratably with the holders of all Indebtedness of
the Company that by its express terms is subordinated to Indebtedness of the
Company to substantially the same extent as the Securities are subordinated to
Senior Indebtedness) to the rights of the holders of such Senior Indebtedness to
receive payments and distributions of cash, property and securities applicable
to the Senior Indebtedness to the extent that payments and distributions
otherwise payable to Holders of Securities have been applied to the payment of
Senior Indebtedness as provided by this Article 13. For purposes of such
subrogation, no payments or distributions to the holders of the Senior
Indebtedness of any cash, property or securities to which the Holders of the
Securities or the Trustee would be entitled, except for the provisions of this
Article 13, and no payments over pursuant to the provisions of this Article 13
to the holders of Senior Indebtedness by Holders of the Securities or the
Trustee, shall, as among the Company, its creditors other than holders of Senior
Indebtedness and the Holders of the Securities, be deemed to be a payment or
distribution by the Company to or on account of the Senior Indebtedness.
SECTION 13.06. Provisions Solely to Define Relative Rights. The provisions
of this Article 13 are and are intended solely for the purpose of defining the
relative rights of the Holders of the Securities on the one hand and the holders
of Senior Indebtedness on the other hand. Nothing contained in this Article 13
or elsewhere herein or in the Securities is intended to or shall:
(a) impair, as among the Company, its creditors other than holders of
Senior Indebtedness and the Holders of the Securities, the obligation of the
Company, which is absolute and unconditional (and which, subject to the rights
under this Article 13 of the holders of Senior Indebtedness, is intended to rank
equally with all other general obligations of the Company), to pay to the
Holders of the Securities the principal of (and premium, if any), and interest
(including Liquidated Damages, if any) on, and any other amount payable under
the Securities, as and when the same shall become due and payable in accordance
with their terms;
(b) affect the relative rights against the Company of the Holders of
the Securities and other creditors of the Company, other than Holders' rights in
relation to the holders of Senior Indebtedness; or
(c) prevent the Trustee or the Holder of any Securities from
exercising all remedies available upon a Default or Event of Default under this
Indenture, subject to the rights, if any, under this Article 13 of the holders
of Senior Indebtedness to receive cash, property and securities otherwise
payable or deliverable to the Trustee or such Holder.
SECTION 13.07. Trustee to Effectuate Subordination. Each Holder of
Securities by its acceptance thereof authorizes and directs the Trustee on its
behalf to take such action as may be necessary or appropriate to effectuate the
subordination provided in this Article 13 and appoints the
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<PAGE>
Trustee its attorney-in-fact for any and all such purposes, including the
immediate filing of a claim for the unpaid balance of such Holder's Securities
in any insolvency or bankruptcy proceeding, or any receivership, liquidation,
reorganization or similar case or proceeding, in the form required in such
proceeding, and the taking of such actions as may be required to cause such
claim to be approved. If the Trustee does not file a proper claim in the form
required in such proceeding on or prior to thirty days before the expiration of
the time to file such claim or claims, then the holders of Senior Indebtedness
or their representatives are hereby authorized to file such claim for and on
behalf of the Holders.
SECTION 13.08. No Waiver of Subordination Provisions. No right of any
present or future holder of any Senior Indebtedness to enforce subordination as
herein provided shall at any time in any way be prejudiced or impaired by any
act or failure to act on the part of the Company or by any act or failure to
act, in good faith, by any such holder, or by any noncompliance by the Company
with the terms, provisions and covenants of this Indenture, regardless of any
knowledge thereof any such holder may have or be otherwise charged with.
Without in any way limiting the generality of the foregoing paragraph, the
holders of Senior Indebtedness may, at any time and from time to time, without
the consent of or notice to the Trustee or the Holders of the Securities,
without incurring responsibility to the Holders of the Securities and without
impairing or releasing the subordination provided in this Article 13 or the
obligations hereunder of the Holders of the Securities to the holders of Senior
Indebtedness, do any one or more of the following:
(a) change the manner, place or terms of payment or extend the time of
payment of, or renew or alter, Senior Indebtedness, or otherwise amend or
supplement in any manner Senior Indebtedness or any instrument evidencing the
same or any agreement under which Senior Indebtedness is outstanding;
(b) sell, exchange, release or otherwise deal with any property
pledged, mortgaged or otherwise securing Senior Indebtedness;
(c) release any Person liable in any manner for the collection of
Senior Indebtedness; and
(d) exercise or refrain from exercising any rights against the Company
and any other Person.
SECTION 13.09. Notice to Trustee. The Company shall give prompt written
notice to the Trustee if, to the Company's knowledge, any payment to or by the
Trustee in respect of the Securities is prohibited by this Article 13.
Notwithstanding the provisions of this Article 13 or any other provision of this
Indenture, the Trustee shall not be charged with knowledge that any payment to
or by the Trustee in respect of the Securities is prohibited by this Article 13,
unless and until a Responsible Officer of the Trustee shall have received
written notice thereof from the Company or a holder of Senior Indebtedness or
from any trustee therefor or other representative thereof; and, prior to the
receipt of any such written notice, the Trustee, subject to the provisions of
Section 1.05, shall
70
<PAGE>
be entitled in all respects to assume that no facts exist that would prohibit
any payment in respect of the Securities; provided, however, that if a
Responsible Officer of the Trustee shall not have received at the Corporate
Trust Office of the Trustee the notice provided for in this Section 13.09 by the
close of business on the date that is two Business Days prior to the date upon
which by the terms hereof any money may become payable for any purpose
(including the payment of the principal of (and premium, if any) or interest
(including Liquidated Damages, if any) on any Security), then, anything herein
contained to the contrary notwithstanding, the Trustee shall have full power and
authority to receive such money and to apply the same to the purpose for which
such money was received and shall not be affected by any notice to the contrary
which may be received by it after the close of business on the date that is two
Business Days prior to such date.
Subject to the provisions of Article 5, the Trustee shall be entitled to
rely on the delivery to it of a written notice by a Person representing itself
to be a holder of Senior Indebtedness (or a representative thereof) to establish
that such notice has been given by a holder of Senior Indebtedness (or a
representative thereof). In the event that the Trustee determines in good faith
that further evidence is required with respect to the right of any Person as a
holder of Senior Indebtedness to participate in any payment or distribution
pursuant to this Article 13, the Trustee may request such Person to furnish
evidence to the reasonable satisfaction of the Trustee as to the amount of
Senior Indebtedness held by such Person, the extent to which such Person is
entitled to participate in such payment or distribution and any other facts
pertinent to the rights of such Person under this Article 13, and if such
evidence is not furnished, the Trustee may defer any payment to such Person
pending judicial determination as to the right of such Person to receive such
payment.
SECTION 13.10. Reliance on Judicial Order or Certificate of Liquidating
Agent. Upon any payment or distribution of assets of the Company referred to in
this Article 13, the Trustee, subject to the provisions of Article 5, and the
Holders of the Securities shall be entitled to rely upon any order or decree
entered by any court of competent jurisdiction in which such insolvency,
bankruptcy, receivership, liquidation, reorganization, dissolution, winding up
or similar case or proceeding is pending, or a certificate of the trustee in
bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit
of creditors, agent or other Person making such payment or distribution,
delivered to the Trustee or to the Holders of Securities, for the purpose of
ascertaining the Persons entitled to participate in such payment or
distribution, the holders of the Senior Indebtedness and other indebtedness of
the Company, the amount thereof or payable thereon, the amount or amounts paid
or distributed thereon and all other facts pertinent thereto or to this Article
13.
SECTION 13.11. Trustee Not Fiduciary for Holders of Senior Indebtedness.
The Trustee shall not be deemed to owe any fiduciary duty to the holders of
Senior Indebtedness and shall not be liable to any such holders if it shall in
good faith mistakenly pay over or distribute to Holders of Securities or to the
Company or to any other Person cash, property or securities to which any holders
of Senior Indebtedness shall be entitled by virtue of this Article 13 or
otherwise.
SECTION 13.12. Rights of Trustee as Holder of Senior Indebtedness;
Preservation of Trustee's Rights. The Trustee in its individual capacity shall
be entitled to all the rights set forth in
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<PAGE>
this Article 13 with respect to any Senior Indebtedness which may at any time be
held by it, to the same extent as any other holder of Senior Indebtedness, and
nothing in this Indenture shall deprive the Trustee of any of its rights as such
holder.
Nothing in this Article 13 shall apply to claims of, or payments to, the
Trustee under or pursuant to Section 5.07.
SECTION 13.13. Article Applicable to Paying Agents. In case at any time any
Paying Agent other than the Trustee shall have been appointed by the Company and
be then acting hereunder, the term "Trustee" as used in this Article 13 shall in
such case (unless the context otherwise requires) be construed as extending to
and including such Paying Agent within its meaning as fully for all intents and
purposes as if such Paying Agent were named in this Article 13 in addition to or
in place of the Trustee; provided, however, that Section 13.13 shall not apply
to the Company or any Affiliate of the Company if it or such Affiliate acts as
Paying Agent.
SECTION 13.14. Certain Conversions Deemed Payment. For the purposes of this
Article 13 only, (1) the issuance and delivery of junior securities upon
conversion of Securities in accordance with Article 12 or in respect to the
Repurchase Price in accordance with Article 11 shall not be deemed to constitute
a payment or distribution on account of the principal of, premium or interest
(including Liquidated Damages, if any) on, or other amount payable with respect
to, Securities or on account of the redemption, purchase or other acquisition of
Securities, and (2) the payment, issuance or delivery of cash, property or
securities (other than junior securities) upon conversion of a Security shall be
deemed to constitute payment on account of the principal of, premium or interest
on, or other amount payable with respect to, such Security. For the purposes of
this Section 13.14, the term "junior securities" means (a) shares of any stock
of any class of the Company and (b) securities of the Company that are
subordinated in right of payment to the prior payment in full of all Senior
Indebtedness that may be outstanding at the time of issuance or delivery of such
securities to substantially the same extent as, or to a greater extent than, the
Securities are so subordinated as provided in this Article 13. Nothing contained
in this Article 13 or elsewhere in this Indenture or in the Securities is
intended to or shall impair, as among the Company, its creditors other than
holders of Senior Indebtedness and the Holders of the Securities, the right,
which is absolute and unconditional, of the Holder of any Security to convert
such Security in accordance with Article 12.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed all as of the day and year first above written.
INTERLIANT, INC.
By: /s/ William A. Wilson
---------------------
Name: William A. Wilson
Title: Chief Financial Officer and
Treasurer
THE CHASE MANHATTAN BANK as Trustee
By: /s/ R.J. Halleran
---------------------------------------
Name: R.J. Halleran
Title: Second Vice President
<PAGE>
EXHIBIT A
INTERLIANT, INC.
7% CONVERTIBLE SUBORDINATED NOTE DUE 2005
No. $
CUSIP NO.
INTERLIANT, INC., a corporation duly organized and existing under the laws
of the State of Delaware (herein called the "Company," which term includes any
successor entity under the Indenture hereinafter referred to), for value
received, hereby promises to pay to ___________, or registered assigns, the
principal sum of ________________ Million Dollars ($___,000,000) at the office
or agency of the Company referred to below, on February 16, 2005 in such coin or
currency of the United States of America as at the time of payment shall be
legal tender for the payment of public and private debts, and to pay interest on
said principal sum semiannually on February 16 and August 16 of each year,
commencing August 16, 2000 (each an "Interest Payment Date"), at said office or
agency, in like coin or currency, at the rate of 7% per annum, until the
principal hereof is paid or made available for payment. The interest so
payable, and punctually paid or duly provided for, on any Interest Payment Date
shall, as provided in such Indenture, be paid to the Person in whose name this
Security (or one or more Predecessor Securities) is registered at the close of
business on the Regular Record Date for such interest, which shall be the
February 1 or August 1 (whether or not a Business Day), as the case may be, next
preceding such Interest Payment Date. Any such interest not so punctually paid
or duly provided for shall forthwith cease to be payable to the Holder on such
Regular Record Date and may either be paid to the Person in whose name this
Security (or one or more Predecessor Securities) is registered at the close of
business on a Special Record Date for the payment of such Defaulted Interest to
be fixed by the Trustee, notice whereof shall be given to Holders of Securities
not less than 10 days prior to such Special Record Date, or be paid at any time
in any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and upon such notice
as may be required by such exchange, all as more fully provided in said
Indenture.
Payment of the principal of, premium, if any, and interest on this Security
shall be made at the office or agency of the Company maintained for such
purpose, which initially shall be the Corporate Trust Office of the Trustee
referred to on the reverse side hereof, in such coin or currency of the United
States of America as at the time of payment is legal tender for payment of
public and private debts, provided that the Company may make such payment either
by (i) mailing a check in the amount of such payment, payable to or upon the
written order of the Person entitled thereto pursuant to Section 3.07 of the
Indenture (as defined therein) or (ii) transfer to an account maintained by the
payee located inside the United States.
1
<PAGE>
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
DATED: ____, 2000 INTERLIANT, INC.
By:_______________________________
Name:
Title:
Attest:
By:______________________________
Name:
Title:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities referred to in the within-mentioned Indenture.
DATED: ____, 2000 THE CHASE MANHATTAN BANK
as Trustee
By:___________________________________
Authorized Signatory
2
<PAGE>
REVERSE OF SECURITY
Interliant, Inc.
7% CONVERTIBLE SUBORDINATED NOTE DUE 2005
This Security is one of a duly authorized issue of securities of the
Company designated as its 7% Convertible Subordinated Notes due 2005 (herein
called the "Securities"), limited in aggregate principal amount to $150,000,000
(or to $172,500,000, if the option set forth in Section 2(b) of the Purchase
Agreement dated as of February 10, 2000 among the Company and the Initial
Purchasers named therein is exercised in full) as adjusted from time to time on
the books and records of the Trustee, which may be issued under an Indenture,
dated as of February 16, 2000 (the "Indenture"), between the Company and THE
CHASE MANHATTAN BANK, as Trustee for the Holders of Securities issued under said
Indenture (herein called the "Trustee", which term includes any successor
trustee under the Indenture), to which Indenture and all indentures supplemental
thereto reference is hereby made for a statement of the respective rights,
limitations of rights, duties and immunities thereunder of the Company, the
Trustee, the holders of Senior Indebtedness and the Holders of the Securities
and of the terms upon which the Securities are, and are to be, authenticated and
delivered.
The Holder of this Security (including any Person that has a beneficial
interest in this Security) and the Common Stock of the Company issuable upon
conversion hereof is entitled to the benefits of a Registration Rights
Agreement, dated as of February 16, 2000 executed by the Company (the
"Registration Rights Agreement"). Pursuant to the Registration Rights
Agreement, the Company has agreed for the benefit of the Holders from time to
time of the Registrable Securities to pay additional interest on this Security
("Liquidated Damages") in accordance with the terms of the Registration Rights
Agreement. Whenever in this Security there is a reference, in any context, to
the payment of the principal of, premium, if any, or interest on, or in respect
of, any Security, such mention shall be deemed to include mention of the payment
of Liquidated Damages payable as described in this paragraph to the extent that,
in such context, Liquidated Damages are, were or would be payable in respect of
such Security and express mention of the payment of Liquidated Damages (if
applicable) in any provisions of this Security shall not be construed as
excluding Liquidated Damages in those provisions of this Security where such
express mention is not made.
Subject to and upon compliance with the provisions of the Indenture, the
Holder of this Security is entitled, at its option, at any time on or before
maturity of the Securities, or in case this Security or a portion hereof is
called for redemption, then in respect of this Security or such portion hereof
until and including, but (unless the Company defaults in making the payment due
upon redemption or repurchase) not after, the close of business on the Business
Day immediately preceding the Redemption Date or Repurchase Date, as the case
may be, to convert this Security (or any portion of the principal amount hereof
which is U.S. $1,000 or an integral multiple thereof), at the principal amount
hereof, or of such portion, into fully paid and nonassessable shares of Common
3
<PAGE>
Stock of the Company at a Conversion Rate of 18.8324 shares of common stock per
$1,000 principal amount of the Securities (or at the current adjusted Conversion
Rate if an adjustment has been made as provided in Article 12 of the Indenture)
by surrender of this Security, duly endorsed or assigned to the Company or in
blank, to the Company at its office or agency maintained for such purpose,
accompanied by the conversion notice hereon executed by the Holder hereof
evidencing such Holder's election to convert this Security, or if less than the
entire principal amount hereof is to be converted, the portion hereof to be
converted, and, in case such surrender shall be made during the period from the
close of business on any Regular Record Date to the opening of business on the
corresponding Interest Payment Date (unless this Security or the portion hereof
being converted has been called for redemption on a Redemption Date within such
period between and including such Regular Record Date and such Interest Payment
Date), also accompanied by payment in funds acceptable to the Company of an
amount equal to the interest payable on such Interest Payment Date on the
principal amount of this Security then being converted. Subject to the aforesaid
requirement for payment of interest and, in the case of a conversion after the
close of business on any Regular Record Date and on or before the corresponding
Interest Payment Date, to the right of the Holder of this Security (or any
Predecessor Security) of record at such Regular Record Date to receive an
installment of interest (even if the Security has been called for redemption on
a Redemption Date within such period), no payment or adjustment is to be made on
conversion for interest accrued hereon or for dividends on the Common Stock
issued on conversion. No fractions of shares or scrip representing fractions of
shares will be issued on conversion, but instead of any fractional interest the
Company shall pay a cash adjustment as provided in Article 12 of the Indenture.
The Conversion Rate and Conversion Price are subject to adjustment as provided
in Article 12 of the Indenture. In addition, the Indenture provides that in case
of certain reclassifications, consolidations, mergers, sales or transfers of
assets or other transactions pursuant to which the Common Stock is converted
into the right to receive other securities, cash or other property, the
conversion privilege shall be modified so that this Security, if then
outstanding, will be convertible thereafter, during the period this Security
shall be convertible as specified above, only into the kind and amount of
securities, cash and other property receivable upon the transaction by a holder
of the number of shares of Common Stock into which this Security might have been
converted immediately prior to such transaction.
The Securities may be redeemed at the election of the Company, as a whole
or from time to time in part, at any time on or before February 18, 2003 (a
"Provisional Redemption"), at a Redemption Price equal to $1,000 per $1,000
principal amount of the Securities plus accrued and unpaid interest, if any, to
but excluding the date of redemption (the "Provisional Redemption Date") if (i)
the Closing Price of the Common Stock has exceeded 150% of the Conversion Price
(as defined in Article 12 of the Indenture and as such may be adjusted from time
to time) then in effect for at least 20 Trading Days in any period of 30
consecutive Trading Days ending on the Trading Day prior to the date of mailing
of the provisional notice of redemption pursuant to Section 10.04 (the "Notice
Date"), and (ii) a registration statement covering resales of the Securities and
Common Stock issuable upon the conversion thereof is effective and available for
use and is expected to remain effective for the 30 days following the
Provisional Redemption Date.
4
<PAGE>
Upon any such Provisional Redemption, the Company shall make an additional
payment in cash (the "Make-Whole Payment") to holders of the Securities called
for redemption, including those Securities converted into Common Stock between
the Notice Date and the Provisional Redemption Date, in an amount equal to
$152.54 per $1,000 principal amount of the Securities, less the amount of any
interest actually paid on the Securities before the Notice Date.
The Securities (other than those Securities that have been converted in
accordance with the terms of the Indenture) are subject to redemption at the
option of the Company upon not less than 30 days' or more than 60 days' notice
by mail, as a whole or from time to time in part, at any time after February 18,
2003. The redemption prices (expressed as percentages of the principal amount)
shall be as set forth below for Securities redeemed during the following periods
described below:
<TABLE>
<CAPTION>
Period Redemption Price
------ ----------------
<S> <C>
February 19, 2003 through February 15, 2004 102.8%
Thereafter 101.4%
</TABLE>
together, in the case of any such redemption, with accrued interest to (but not
including) the Redemption Date (subject to the right of holders of record on the
Regular Record Date to receive interest on the related Interest Payment Date).
Any redemption of Securities must be in integral multiples of $1,000.
If fewer than all of the Securities are to be redeemed, the Trustee shall
select the Securities to be redeemed in principal amounts at maturity of $1,000
or integral multiples thereof by lot, pro rata or by any other method that
complies with the requirements of any exchange on which the Securities are
listed or quoted and that the Trustee considers fair and appropriate. If a
portion of a Holder's Securities is selected for partial redemption and that
holder converts a portion of those Securities prior to the redemption, the
converted portion shall be deemed, solely for purposes of determining the
aggregate principal amount of the Securities to be redeemed by the Company, to
be of the portion selected for redemption.
In certain circumstances involving a Change in Control, each Holder shall
have the right to require the Company to repurchase all or part of its
Securities at a repurchase price equal to 100% of the principal amount thereof,
together with accrued and unpaid interest through the Repurchase Date (subject
to the right of holders of record on the Regular Record Date to receive interest
on the related Interest Payment Date). At the option of the Company, the
Repurchase Price may be paid in cash or, subject to the conditions provided in
the Indenture, by delivery of shares of Common Stock.
The Securities do not have the benefit of any sinking fund.
In the event of redemption, conversion or repurchase of this Security in
part only, a new Security or Securities for the unredeemed, unconverted or
unrepurchased portion hereof shall be issued in the name of the Holder hereof
upon the cancellation hereof.
5
<PAGE>
The indebtedness evidenced by this Security is, to the extent provided in
the Indenture, subordinate and subject in right of payment to the prior payment
in full of all Senior Indebtedness, and this Security is issued subject to the
provisions of the Indenture with respect thereto. Each Holder of this Security,
by accepting the same, (a) agrees to and shall be bound by such provisions, (b)
authorizes and directs the Trustee on his behalf to take such action as may be
necessary or appropriate to effectuate the subordination so provided and (c)
appoints the Trustee his attorney-in-fact for any and all such purposes.
If an Event of Default shall occur and be continuing, the principal of all
the Securities may be declared due and payable in the manner and with the effect
provided in Article 4 of the Indenture.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities under the Indenture at
any time by the Company and the Trustee with (or, in the limited circumstances
set forth in the Indenture, without) the consent of the Holders of a majority in
aggregate principal amount of the Securities at the time Outstanding. The
Indenture also contains provisions permitting the Holders of a majority in
aggregate principal amount of the Securities at the time Outstanding, on behalf
of the Holders of all the Securities, to waive compliance by the Company with
certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder of
this Security shall be conclusive and binding upon such Holder and upon all
future Holders of this Security and of any Security issued upon the registration
of transfer hereof or in exchange herefor or in lieu hereof, whether or not
notation of such consent or waiver is made upon this Security.
No reference herein to the Indenture and no provision of this Security or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of, premium, if any, and
interest (including Liquidated Damages) on this Security at the times, place and
rate, and in the coin or currency, herein prescribed or to convert this Security
as provided in the Indenture.
As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Security is registrable in the Security Register,
upon surrender of this Security for registration of transfer at the Corporate
Trust Office duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to the Company and the Security Registrar duly
executed by, the Holder hereof or his attorney duly authorized in writing, and
thereupon one or more new Securities, of authorized denominations and for the
same aggregate principal amount, will be issued to the designated transferee or
transferees.
The Securities are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof.
No service charge shall be made to a Holder for any such registration of
transfer or exchange, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
6
<PAGE>
Prior to due presentment of this Security for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name this Security is registered as the owner hereof for all
purposes and neither the Company, the Trustee nor any such agent shall be
affected by notice to the contrary.
Interest (including Liquidated Damages) on this Security shall be computed
on the basis of a 360-day year of twelve 30-day months. In the event that any
date on which interest (including Liquidated Damages) is payable on the
Securities is not a Business Day, then payment of interest payable on such date
will be made on the next succeeding day which is a Business Day (and without any
interest or other payment in respect of any such delay).
All terms used in this Security which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
THE INDENTURE AND THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF
LAWS PRINCIPLES.
7
<PAGE>
CONVERSION NOTICE
To: INTERLIANT, INC.
The undersigned Holder of this Security hereby irrevocably exercises the
option to convert this Security, or the portion hereof (which is $1,000 or an
integral multiple thereof) below designated, at any time following the date of
original issuance thereof, into shares of Common Stock in accordance with the
terms of the Indenture referred to in this Security, and directs that the shares
issuable and deliverable upon conversion, together with any check in payment for
a fractional share and any Security representing any unconverted principal
amount hereof, be issued and delivered to the registered owner hereof unless a
different name has been provided below. If shares or any portion of this
Security not converted are to be issued in the name of a person other than the
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto and is delivering herewith a certificate in proper form certifying that
the applicable restrictions on transfer have been complied with. Any amount
required to be paid by the undersigned on account of interest accompanies this
Security.
Dated: By:
Signature of Registered Holder*
If shares or Securities are to be registered in Principal amount to be
the name of a Person other than the Holder, converted (if less than
please print such Person's name and address: all):$______,000
- ------------------------------------------
Name
- ------------------------------------------
Social Security or Taxpayer Identification
Number
- ------------------------------------------
Street Address
- ------------------------------------------
City, State and Zip Code
* Signature(s) must be guaranteed by an eligible guarantor institution
(banks, stock brokers, savings and loan associations and credit unions with
membership in an approved signature guarantee medallion program) pursuant to
Securities and Exchange Commission Rule 17Ad-15 if shares of Common Stock are to
be delivered, or unconverted Securities are to be issued, other than to and in
the name of the registered owner.
1
<PAGE>
ELECTION OF HOLDER TO REQUIRE REPURCHASE
(1) Pursuant to Article 11.01 of the Indenture, the undersigned hereby
elects to have this Security repurchased by the Company.
(2) The undersigned hereby directs the Trustee or the Company to pay it or
______________ an amount in cash or, at the Company's election, Common Stock
valued as set forth in the Indenture, equal to 100% of the principal amount to
be repurchased (as set forth below), plus interest (including Liquidated
Damages, if any) accrued to the Repurchase Date, as provided in the Indenture.
Dated:
- ------------------------------------------
- ------------------------------------------
Signature(s)
Signature(s) must be guaranteed by an Eligible
Guarantor Institution with membership in an
approved signature guarantee program pursuant
to Rule 17Ad-15 under the Securities Exchange
Act of 1934.
- ------------------------------------------
Signature Guaranteed
Principal amount to be repurchased (at least
U.S. $1,000 or an integral multiple of $1,000
in excess thereof): ___________________
Remaining principal amount following such
repurchase (not less than U.S. $1,000):
______________
NOTICE: The signature to the foregoing Election must correspond to the Name as
written upon the face of this Security in every particular, without alteration
or any change whatsoever.
<PAGE>
Exhibit 4.9
7% CONVERTIBLE SUBORDINATED NOTES
DUE 2005
REGISTRATION RIGHTS AGREEMENT
Dated as of February 16, 2000
by and among
INTERLIANT, INC.,
as the Company,
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED,
CIBC WORLD MARKETS CORP.,
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
And
C.E. UNTERBERG, TOWBIN,
as Initial Purchasers
<PAGE>
TABLE OF CONTENTS
____________
Page
SECTION 1. Definitions......................................................1
SECTION 2. Shelf Registration Statement.....................................5
SECTION 3. Liquidated Damages...............................................7
SECTION 4. Registration Procedures..........................................9
SECTION 5. Registration Expenses...........................................15
SECTION 6. Indemnification.................................................16
SECTION 7. Underwritten Registration.......................................19
SECTION 8. Miscellaneous...................................................19
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This Registration Rights Agreement is made and entered into as of February
16, 2000 by and among INTERLIANT, INC., a Delaware corporation (the "Company"),
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED, CIBC WORLD MARKETS CORP.,
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION and C.E. UNTERBERG, TOWBIN
(the "Initial Purchasers") who have purchased or have the right to purchase up
to $150,000,000 principal amount of 7% Convertible Subordinated Notes due 2005
(the "Notes") of the Company with the option to purchase a further $22,500,000
in principal amount of Notes pursuant to the Purchase Agreement (as such term is
defined below).
This Agreement is made pursuant to the Purchase Agreement, dated February
16, 2000, among the Company and the Initial Purchasers (the "Purchase
Agreement"). In order to induce the Initial Purchasers to enter into the
Purchase Agreement, the Company has agreed to provide the registration rights
provided for in this Agreement to the Initial Purchasers and their respective
direct and indirect transferees (i) for the benefit of the Initial Purchasers,
(ii) for the benefit of the holders from time to time of the Notes (including
the Initial Purchasers), (iii) for the benefit of the holders from time to time
of the Common Stock issuable or issued upon conversion of the Notes, and (iv)
for the benefit of the holders from time to time of the securities constituting
the Transfer Restricted Securities (as defined below). The execution of this
Agreement is a condition to the closing of the transactions contemplated by the
Purchase Agreement, and each Holder (as defined below) by participating in a
Registration Statement agrees to be bound by this Agreement.
The parties hereby agree as follows:
SECTION 1. Definitions. As used in this Agreement, the following terms
shall have the following meanings:
Act: As defined in this Section 1.
Affiliate: An affiliate of any specified person shall mean any other person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified person. For the purposes of this definition,
"control," when used with respect to any person, means the power to direct the
management and policies of such person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise and the terms
"affiliated," "controlling" and "controlled" have meanings correlative to the
foregoing.
Agreement: This Registration Rights Agreement, as the same may be amended,
supplemented or modified from time to time in accordance with the terms hereof.
<PAGE>
Business Day: Each Monday, Tuesday, Wednesday, Thursday and Friday that is
not a day on which banking institutions in New York, New York are authorized or
obligated by law or executive order to close.
Closing Date: February 16, 2000.
Common Stock: Common Stock, $.01 par value per share, of the Company and
any other shares of common stock as may constitute "Common Stock" for purposes
of the Indenture as issuable or issued upon conversion of the Notes.
Company: Interliant, Inc., a Delaware corporation, and any successor
corporation thereto.
Controlling Person: As defined in Section 6(a) hereof.
Damages Payment Date: Each of the semi-annual interest payment dates
provided in the Notes.
Effectiveness Period: As defined in Section 2(a) hereof.
Effectiveness Target Date: The 180th day following the Closing Date.
Exchange Act: The Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated by the SEC thereunder.
Filing Date: The 90th day after the Closing Date.
Holder: Each owner of any Transfer Restricted Securities.
Indemnified Person: As defined in Section 6(a) hereof.
Indenture: The Indenture, dated as of the date hereof, between the Company
and the Trustee, pursuant to which the Notes are to be issued, as the same may
be amended, modified or supplemented from time to time in accordance with the
terms thereof.
Initial Purchasers: As defined in the first paragraph hereof.
Liquidated Damages: As defined in Section 3(a) hereof.
Notice and Questionnaire: The Notice and Questionnaire attached hereto as
Exhibit A.
Proceeding: An action, claim, suit or proceeding (including, without
limitation, an investigation or partial proceeding, such as a deposition),
whether commenced or threatened.
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<PAGE>
Prospectus: The prospectus included in any Registration Statement
(including, without limitation, a prospectus that discloses information
previously omitted from a prospectus filed in reliance upon Rule 430A), as
amended or supplemented by any prospectus supplement, with respect to the resale
of any of the Transfer Restricted Securities covered by such Registration
Statement, and all other amendments and supplements to any such prospectus,
including post-effective amendments, and all materials incorporated by reference
or deemed to be incorporated by reference, if any, in such prospectus.
Purchase Agreement: As defined in the second paragraph hereof.
Record Holder: (i) with respect to any Damages Payment Date relating to any
shares of Common Stock as to which any such Liquidated Damages have accrued, the
registered Holder of such shares 15 days prior to the next succeeding Damages
Payment Date; and (ii) with respect to any Damages Payment Date relating to any
Notes as to which any such Liquidated Damages has accrued, the registered Holder
of such Notes 15 days prior to the next succeeding Damages Payment Date.
Registration Default: As defined in Section 3(a) hereof.
Registration Statement: Any registration statement of the Company filed
with the SEC pursuant to the Securities Act that covers the resale of any of the
Transfer Restricted Securities pursuant to the provisions of this Agreement,
including the Prospectus, amendments and supplements to such registration
statement or Prospectus, including pre- and post-effective amendments, all
exhibits thereto, and all material incorporated by reference or deemed to be
incorporated by reference, if any, in such registration statement.
Requisite Information: As defined in Section 2(c) hereof.
Rule 144: Rule 144 promulgated by the SEC pursuant to the Securities Act,
as such Rule may be amended from time to time, or any successor rule or
regulation.
Rule 144A: Rule 144A promulgated by the SEC pursuant to the Securities Act,
as such Rule may be amended from time to time, or any successor rule or
regulation.
Rule 158: Rule 158 promulgated by the SEC pursuant to the Securities Act,
as such Rule may be amended from time to time, or any successor rule or
regulation.
Rule 415: Rule 415 promulgated by the SEC pursuant to the Securities Act,
as such Rule may be amended from time to time, or any successor rule or
regulation.
3
<PAGE>
Rule 424: Rule 424 promulgated by the SEC pursuant to the Securities Act,
as such Rule may be amended from time to time, or any successor rule or
regulation.
Rule 430A: Rule 430A promulgated by the SEC pursuant to the Securities
Act, as such Rule may be amended from time to time, or any successor rule or
regulation.
SEC: The Securities and Exchange Commission.
Securities Act: The Securities Act of 1933, as amended, and the rules and
regulations promulgated by the SEC thereunder.
Shelf Registration Statement: As defined in Section 2(a) hereof.
TIA: The Trust Indenture Act of 1939, as amended, and the rules and
regulations promulgated by the SEC thereunder.
Transfer Restricted Securities: The Notes, the shares of Common Stock into
which such Notes are converted or convertible (including any shares of Common
Stock issued or issuable thereon upon any stock split, stock combination, stock
dividend or the like), upon original issuance thereof and at all times
subsequent thereto, and associated related rights, if any, until the earliest of
(i) the date on which the resale thereof has been effectively registered under
the Securities Act and disposed of in accordance with the Registration Statement
relating thereto, (ii) the date on which such security has been distributed to
the public pursuant to Rule 144 or is saleable pursuant to paragraph (k) of Rule
144 or (iii) the date on which it ceases to be outstanding.
Transfer Agent: The registrar and transfer agent for the Company's Common
Stock.
Trustee: The trustee under the Indenture.
References herein to the term "Holders of a majority in interest of
Transfer Restricted Securities" or words to a similar effect shall mean, with
respect to any request, notice, demand, objection or other action by the Holders
hereunder or pursuant hereto (each, an "Act"), registered Holders of a number of
shares of then outstanding Common Stock constituting Transfer Restricted
Securities and an aggregate amount of then outstanding Notes constituting
Transfer Restricted Securities, such that the sum of such shares of Common Stock
and the shares of Common Stock issuable upon conversion of such Notes
constitutes in excess of 50% of the sum of all of the then outstanding shares of
Common Stock constituting Transfer Restricted Securities and the number of
shares of Common Stock issuable upon conversion of then outstanding Notes
constituting Transfer Restricted Securities. For purposes of the preceding
sentence, Transfer Restricted
4
<PAGE>
Securities owned, directly or indirectly, by the Company or its Affiliates shall
be deemed not to be outstanding.
SECTION 2. Shelf Registration Statement.
(a) The Company agrees to file with the SEC as soon as reasonably
practicable after the Closing Date, but in no event later than the Filing Date,
a Registration Statement for an offering to be made on a continuous basis
pursuant to Rule 415 covering all of the Transfer Restricted Securities or
separate Registration Statements for an offering to be made on a continuous
basis pursuant to Rule 415 covering all of the Common Stock and Notes
constituting Transfer Restricted Securities, respectively (such Registration
Statement or Statements, collectively, the "Shelf Registration Statement") Each
Shelf Registration Statement shall be on Form S-3 under the Securities Act or
another appropriate form selected by the Company permitting registration of such
Transfer Restricted Securities for resale by the Holders in the manner or
manners reasonably designated by Holders of a majority in interest of Transfer
Restricted Securities being sold. The Company shall not permit any securities
other than the Transfer Restricted Securities to be included in any Shelf
Registration Statement. The Company shall use all reasonable efforts to cause
each Shelf Registration Statement to be declared effective pursuant to the
Securities Act as soon as reasonably practicable following the filing thereof
and to use all reasonable efforts to keep such Shelf Registration Statement
continuously effective under the Securities Act, subject to Section 2(d) hereof,
for two years after the date on which all of the Transfer Restricted Securities
are sold (including those sold pursuant to the option granted to the Initial
Purchasers in the Purchase Agreement) to the Initial Purchasers (the
"Effectiveness Period"), or such shorter period ending when there cease to be
any Transfer Restricted Securities outstanding.
(b) Supplements and Amendments. The Company shall use all reasonable
efforts to keep each Shelf Registration Statement continuously effective by
supplementing and amending the Shelf Registration Statement if required by the
rules, regulations or instructions applicable to the registration form used for
such Shelf Registration Statement, if required by the Securities Act or if
reasonably requested by the Holders of a majority in interest of the Transfer
Restricted Securities or by any underwriter of such Transfer Restricted
Securities.
(c) Selling Securityholder Information. Each Holder wishing to sell
Transfer Restricted Securities pursuant to a Shelf Registration Statement and
related Prospectus agrees to deliver a Notice and Questionnaire that confirms
such Holder's agreement to be bound by the terms of this Agreement and includes
such information regarding it and the distribution of its Transfer Restricted
Securities as is required by law to be disclosed by the Holder in the applicable
Registration Statement (the "Requisite Information") to the Company prior to the
5
<PAGE>
effectiveness of the Shelf Registration Statement. The Company shall not be
required to include in any Shelf Registration Statement and related Prospectus
the Transfer Restricted Securities of any Holder that does not provide the
Company with a Notice and Questionnaire in accordance with this Section 2(c).
The Company shall file, within five Business Days after the receipt of a Notice
and Questionnaire from any Holder which includes the Requisite Information with
respect to such Holder, a Prospectus supplement pursuant to Rule 424 or
otherwise amend or supplement such Registration Statement to include in the
Prospectus the Requisite Information as to such Holder (and the Transfer
Restricted Securities held by such Holder), and the Company shall provide such
Holder within five Business Days after receipt of such Notice and Questionnaire
with a copy of such Prospectus as so amended or supplemented containing the
Requisite Information in order to permit such Holder to comply with the
Prospectus delivery requirements of the Securities Act in a timely manner with
respect to any proposed disposition of such Holder's Transfer Restricted
Securities and to file the same with the SEC. Each Holder shall promptly notify
the Company of any material changes to the Requisite Information contained in
the Notice and Questionnaire provided to the Company by such Holder. If the
Company shall fail to file the appropriate supplement or amendment within five
Business Days of receipt of such notice (except where such failure to file is
due to the objection to filing any such amendment or supplement by the holders
of a majority in interest of the Transfer Restricted Securities, or the managing
underwriters, if any, pursuant to Section 4(a)), the Company shall pay the
Holder Liquidated Damages in the manner set forth in Section 3. Furthermore, if
the filing requires a post-effective amendment to the Registration Statement and
such amendment is not declared effective within 45 Business Days of the filing
of the post-effective amendment, the Company shall pay the Holder Liquidated
Damages in the manner set forth in Section 3.
If any such Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of the Company, then such Holder shall
have the right to require, in the event that such reference to such Holder by
name or otherwise is not required by the Securities Act or any similar Federal
statute then in force, the deletion of the reference to such Holder in such
Registration Statement at the time subsequent to the time that such reference
ceases to be required and the Company otherwise intends to amend our supplement
the Shelf Registration Statement.
(d) Material Events; Suspension of Sales. Notwithstanding the provisions
contained in this Section 2, in the event that, in the judgment of the Company's
Board of Directors, it is advisable to suspend use of the Prospectus due to
pending corporate developments, public filings with the SEC or similar events,
the Company shall promptly deliver a written certificate to each registered
Holder, the Trustee, the Transfer Agent and the managing underwriters, if any,
to the effect that the use of the Prospectus is to be suspended until the
Company shall
6
<PAGE>
deliver a written notice that the use of the Prospectus may be resumed.
Thereafter, the use of the Prospectus shall be suspended, and the Company shall
not be required to maintain the effectiveness of, or amend or update the Shelf
Registration Statement, or amend or supplement the Prospectus; provided,
however, that the Company shall only be permitted to suspend the use of the
Prospectus for a period not to exceed 30 days in any six-month period or two
periods not to exceed an aggregate of 60 days in any 12-month period. The
Company will use its best efforts to ensure that the use of the Prospectus may
be resumed as soon as, in the judgment of the Company's Board of Directors,
disclosure of the material relating to such pending development, filing or event
would not have a material adverse effect on the Company.
(e) Additional Agreements of Holders. Each Holder agrees not to dispose of
Transfer Restricted Securities pursuant to the Shelf Registration Statement
without complying with the prospectus delivery requirements under the Act and
the provisions of paragraph (d) above regarding use of the Prospectus. Each
Holder further agrees that it will comply fully with applicable federal and
state securities laws in connection with the distribution of any Transfer
Restricted Securities pursuant to the Shelf Registration Statement. Each Holder
further acknowledges having been advised by the Company that applicable federal
securities laws prohibit Holders from trading in securities of the Company at
any time while in possession of material non-public information about the
Company.
SECTION 3. Liquidated Damages.
(a) The Company and the Initial Purchasers agree that the Holders will
suffer damages if the Company fails to fulfill its obligations pursuant to
Section 2 hereof and that it would not be possible to ascertain the extent of
such damages. Accordingly, the Company hereby agrees to pay liquidated damages
("Liquidated Damages") to each Holder under the circumstances and to the extent
set forth below:
(i) if the Shelf Registration Statement has not been filed with the
SEC on or prior to the Filing Date; or
(ii) if each Shelf Registration Statement is not declared effective by
the SEC on or prior to the applicable Effectiveness Target Date;
or
(iii) any Shelf Registration Statement ceases to be effective or
usable at any time during the Effectiveness Period (without being
succeeded on the same day immediately by a post-effective
amendment or supplement to such Registration Statement that cures
such failure and that is itself, in the case of post-effective
amendment, immediately declared effective) for a period of time
which shall
7
<PAGE>
exceed 90 days in the aggregate in any period of 365 consecutive
days; (any of the foregoing, a "Registration Default").
In the event of a Registration Default, the Company will pay Liquidated
Damages to each holder of Transfer Restricted Securities, during the first
90-day period immediately following the occurrence of such Registration Default
in an amount equal to $0.05 per week per $1,000 principal amount of Notes
adjusted to an equivalent per share basis in accordance with the conversion
price. The rate of accrual of the Liquidated Damages will increase by $0.05 per
week per $1,000 principal amount of Notes or Common Stock constituting Transfer
Restricted Securities (adjusted to an equivalent per share basis in accordance
with the conversion price for Common Stock constituting Transfer Restricted
Securities) for each subsequent 90-day period until the applicable Registration
Statement is filed, the applicable Registration Statement is declared effective
and becomes available for effecting sales of securities, or the Shelf
Registration Statement again becomes effective and becomes available for
effecting sales of securities, as the case may be, up to a maximum amount of
Liquidated Damages of $0.25 per week per $1,000 principal amount of Notes
adjusted to an equivalent per share basis in accordance with the conversion
price. Following the cure of a Registration Default, Liquidated Damages will
cease to accrue with respect to such Registration Default (without in any way
limiting the effect of any subsequent Registration Default). All accrued
Liquidated Damages shall be paid to the holders of (i) Notes constituting
Transfer Restricted Securities, pursuant to the terms of the Indenture with
respect to the payment of interest and (ii) shares of Common Stock, in the
manner as interest payments on the Notes on semiannual payment dates that
correspond to interest payment dates for the Notes. The parties hereto agree and
acknowledge that the payment of Liquidated Damages to holders of Common Stock
upon a Registration Default pursuant to this Agreement shall not be a dividend
on such shares of Common Stock.
(b) The Company shall notify the Transfer Agent or the Trustee, as the case
may be, within five Business Days after each and every date on which a
Registration Default occurs. Liquidated Damages , as calculated by the Company,
shall be paid by the Company to the Record Holders of Common Stock on each
Damages Payment Date by wire transfer of immediately available funds to the
accounts specified by them or by mailing checks to their registered addresses as
they appear in the register of the Company for the Common Stock, if no such
accounts have been specified in the Notice and Questionnaire on or before the
Damages Payment Date; and Liquidated Damages shall be paid by the Company to the
Record Holders of the Notes on each semi-annual interest payment date together
with interest to be paid on the Notes pursuant to the terms of the Indenture, by
wire transfer of immediately available funds to the accounts specified by them
or by mailing checks to their registered addresses as they appear in the Notes
Register (as defined in the Indenture) if no such accounts have been specified
in the Notice and Questionnaire on or before the Damages
8
<PAGE>
Payment Date; provided, however, that any Liquidated Damages accrued with
respect to any Notes or portion thereof called for redemption on a redemption
date, repurchased on a repurchase date, or converted into shares of Common Stock
on a conversion date prior to the Damages Payment Date shall, in any such event,
be paid instead to the Holder who submitted such Notes or portion thereof for
redemption, repurchase or conversion on the applicable redemption date,
repurchase date or conversion date, as the case may be, on such date.
SECTION 4. Registration Procedures. In connection with the Company's
registration obligations hereunder, the Company shall effect such registrations
on the appropriate form selected by the Company to permit the resale of Transfer
Restricted Securities in accordance with the intended method or methods of
disposition thereof, and pursuant thereto the Company shall as expeditiously as
reasonably possible:
(a) No fewer than five Business Days prior to the initial filing of a
Registration Statement or Prospectus and no fewer than two Business Days prior
to the filing of any amendment or supplement thereto (excluding, unless
requested, any document that would be incorporated or deemed to be incorporated
therein by reference and then only to the Holder who so requested), furnish to
the Holders whose Transfer Restricted Securities are required to be included in
such Registration Statement or Prospectus pursuant to Section 2(c) hereof and
the managing underwriters, if any, copies of all such documents proposed to be
filed (excluding, unless requested, those incorporated or deemed to be
incorporated by reference and then only to the Holder who so requested) and
cause the officers and directors of the Company, counsel to the Company and
independent certified public accountants to the Company to respond to such
inquiries as shall be necessary in connection with such Registration Statement,
in the opinion of counsel to the underwriters, if any, to conduct a reasonable
investigation within the meaning of the Securities Act. The Company shall not
file any such Registration Statement or related Prospectus or any amendments or
supplements thereto (excluding any document that would be incorporated or deemed
incorporated by reference) to which the Holders of a majority in interest of the
Transfer Restricted Securities or the managing underwriters, if any, shall
reasonably object on a timely basis.
(b) Prepare and file with the SEC such amendments, including post-effective
amendments, to each Registration Statement as may be necessary to keep such
Registration Statement continuously effective for the applicable time period set
forth in Section 2(a) hereof; subject to Section 2(d) hereof, cause the related
Prospectus to be supplemented by any required Prospectus supplement, and as so
supplemented to be filed pursuant to Rule 424 under the Securities Act and the
Exchange Act with respect to the disposition of all securities covered by such
Registration Statement during such period in accordance with the intended method
or methods of disposition by the Holder set forth in such Registration
9
<PAGE>
Statement as so amended or in such Prospectus as so supplemented (including,
without limitation, the filing of any Prospectus supplement pursuant to Rule 424
in order to add or change any selling security holder information (including any
such supplements or amendments pursuant to Section 2(c) hereof, provided such
Holder to which such change applies complies with the Requisite Information
requirements of Section 2(c) hereof))
(c) Notify the Holders and the managing underwriters, if any, promptly (and in
the case of an event specified by clause (i) of this paragraph in no event fewer
than two Business Days prior to such filing), and (if requested by any such
person), confirm such notice in writing, (i) when a Prospectus or any Prospectus
supplement or post-effective amendment is proposed to be filed, and, with
respect to a Registration Statement or any post-effective amendment, when the
same has become effective, (ii) of any request of the SEC or any other Federal
or state governmental authority for amendments or supplements to such
Registration Statement or related Prospectus or for additional information
related thereto, (iii) of the issuance by the SEC, any state securities
commission, any other governmental agency or any court of any stop order, order
or injunction suspending or enjoining the use or the effectiveness of the
Registration Statement or the initiation of any proceedings for that purpose,
(iv) if at any time any of the representations and warranties of the Company
contained in any agreement (including any underwriting agreement) contemplated
by Section 4(m) hereof are not true and correct in all material respects, (v) of
the receipt by the Company of any notification with respect to the suspension of
the qualification or exemption from qualification of any of the Transfer
Restricted Securities for sale in any jurisdiction, or the initiation or
threatening of any proceeding for such purpose, and (vi) of the existence of any
fact and the happening of any event that makes any statement made in such
Registration Statement or related Prospectus untrue in any material respect, or
that requires the making of any changes in such Registration Statement or
Prospectus so that in the case of the Registration Statement, it will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading and that, in the case of the Prospectus, such Prospectus will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
(d) Use all reasonable efforts to avoid the issuance of, or, if issued, to
obtain the withdrawal of any stop order or order enjoining or suspending the use
or effectiveness of a Registration Statement or the lifting of any suspension of
the qualification (or exemption from qualification) of any of the Transfer
Restricted Securities for sale in any jurisdiction, at the earliest practicable
moment.
(e) If requested by the managing underwriters, if any, or the Holders of a
majority in interest of the Transfer Restricted Securities being sold in
connection with such offering, promptly include in a Prospectus supplement or
post-effective
10
<PAGE>
amendment such information as the managing underwriters, if any, and such
Holders agree should, in their reasonable judgment, be included therein, and
make all required filings of such Prospectus supplement or such post-effective
amendment as soon as reasonably practicable after the Company has received
notification of the matters to be included in such Prospectus supplement or
post-effective amendment; provided, however, that the Company shall not be
required to take any action pursuant to this Section 4(e) that, in the opinion
of counsel for the Company, would violate applicable law;
(f) Furnish to each Holder who so requests and each managing underwriter,
if any, without charge, at least one conformed copy of each Registration
Statement and each amendment thereto, including financial statements (but
excluding schedules, all documents incorporated or deemed to be incorporated
therein by reference and all exhibits, unless requested in writing by such
Holder or any managing underwriter);
(g) Deliver to each Holder and the underwriters, if any, without charge, as
many copies of the Prospectus or Prospectuses (including each form of
Prospectus) and each amendment or supplement thereto to as such persons may
reasonably request; and, unless the Company shall have given notice to such
Holder pursuant to Section 2(d), the Company hereby consents to the use of such
Prospectus and each amendment or supplement thereto by each of the selling
Holders of Transfer Restricted Securities and the underwriters, if any, in
connection with the offering and sale of the Transfer Restricted Securities
covered by such Prospectus and any amendment or supplement thereto, provided,
however, that no Holder shall be entitled to use the Prospectus unless and until
such Holder shall have furnished to the Company any and all Requisite
Information pursuant to Section 2(c) hereof;
(h) Use all reasonable efforts to register or qualify, or cooperate with
the Holders of Transfer Restricted Securities to be sold or tendered for, the
underwriters, if any, and their respective counsel in connection with the
registration or qualification (or exemption from such registration or
qualification) of, such Transfer Restricted Securities for offer and sale under
the securities or Blue Sky laws of such jurisdictions within the United States
as any Holder or underwriter reasonably requests in writing, keep each such
registration or qualification (or exemption therefrom) effective during the
period such Registration Statement is required to be kept effective and do any
and all other acts or things necessary legally to enable the disposition in such
jurisdictions of the Transfer Restricted Securities covered by the applicable
Registration Statement; provided, however, that the Company shall not be
required to qualify generally to do business in any jurisdiction where it is not
then so qualified, take any action that would subject it to general service of
process in any such jurisdiction where it is not then so subject or subject the
Company to any tax in any such jurisdiction where it is not then so subject;
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<PAGE>
(i) In connection with any sale or transfer of Transfer Restricted
Securities that will result in such securities no longer being Transfer
Restricted Securities, cooperate with the Holders and the managing underwriters,
if any, to facilitate the timely preparation and delivery of certificates
representing Transfer Restricted Securities to be sold, which certificates shall
not bear any restrictive legends, shall bear a CUSIP number different from the
CUSIP number for the Transfer Restricted Securities and shall be in a form
eligible for deposit with The Depository Trust Company and enable such Transfer
Restricted Securities to be in such denominations and registered in such names
as the managing underwriters, if any, or Holders may reasonably request at least
two Business Days prior to any sale of Transfer Restricted Securities;
(j) Use all reasonable efforts to cause the offering of the Transfer
Restricted Securities covered by the Registration Statement to be registered
with or approved by such other governmental agencies or authorities within the
United States, except as may be required as a consequence of the nature of a
Holder's business, in which case the Company will cooperate in all reasonable
respects with the filing of such Registration Statement and the granting of such
approvals as may be reasonably necessary to enable the seller or sellers thereof
or the underwriters, if any, to consummate the disposition of such Transfer
Restricted Securities; provided, however, that the Company shall not be required
to register the Transfer Restricted Securities in any jurisdiction that would
require the Company to qualify to do business in any jurisdiction where it is
not then so qualified, subject it to general service of process in any such
jurisdiction where it is not then so subject or subject the Company to any tax
in any such jurisdiction where it is not then so subject or to;
(k) Upon the occurrence of any event contemplated by Section 4 (vi) hereof,
as promptly as reasonably practicable (subject to any suspension of sales
pursuant to Section 2(d) hereof), prepare a supplement or amendment, including,
if appropriate, a post-effective amendment, to each Registration Statement or a
supplement to the related Prospectus or any document incorporated or deemed to
be incorporated therein by reference, and file any other required document so
that, as thereafter delivered, such Prospectus will not contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(l) Prior to the effective date of the first Registration Statement
relating to the Transfer Restricted Securities, to provide a CUSIP number for
the Transfer Restricted Securities to be sold pursuant to the Registration
Statement;
(m) Enter into such agreements (including any underwriting agreements in
form, scope and substance as are customary in underwritten offerings) reasonably
satisfactory to the Company and take all such other reasonable actions in
12
<PAGE>
connection therewith (including those reasonably requested by the managing
underwriters, if any, or the Holders of a majority in interest of the Transfer
Restricted Securities being sold) in order to expedite or facilitate the sale of
such Transfer Restricted Securities; provided, however, that the Company is not
required to facilitate an underwritten offering without its consent. In such
connection, whether or not an underwriting agreement is entered into and whether
or not the registration is an underwritten registration, the Company will: (i)
make such representations and warranties to the Holders of such Transfer
Restricted Securities and the underwriters, if any, with respect to the business
of the Company and its subsidiaries (including with respect to businesses or
assets acquired or to be acquired by any of them), and the Registration
Statement, Prospectus and documents, if any, incorporated or deemed to be
incorporated by reference therein, in each case, in form, substance and scope as
are customarily made by issuers to underwriters in underwritten offerings and
reasonably acceptable to the Company, and confirm the same if and when
requested; (ii)seek to obtain opinions of counsel to the Company and updates
thereof (which counsel and opinions (in form, scope and substance) shall be
reasonably satisfactory to the managing underwriters, if any, addressed to each
selling Holder of Transfer Restricted Securities and each of the underwriters,
if any, covering the matters customarily covered in opinions requested in
underwritten offerings (including any such matters as may be reasonably
requested by such underwriters); (iii) use all reasonable efforts to obtain
customary "cold comfort" letters and updates thereof from the independent
certified public accountants of the Company (and, if necessary, any other
independent certified public accountants of any subsidiary of the Company or of
any business acquired by the Company for which financial statements and
financial data is, or is required to be, included in the Registration
Statement), addressed (where reasonably possible) to each selling Holder of
Transfer Restricted Securities and each of the underwriters, if any, such
letters to be in customary form and covering matters of the type customarily
covered in "cold comfort" letters in connection with underwritten offerings;
(iv) if an underwriting agreement is entered into, the same shall contain
indemnification provisions and procedures no less favorable to the selling
Holders of Transfer Restricted Securities and the underwriters, if any, than
those set forth in Section 6 hereof (or such other provisions and procedures
acceptable to Holders of a majority in interest of the Transfer Restricted
Securities covered by such Registration Statement and the managing
underwriters); and (v) deliver such documents and certificates as may be
reasonably requested by the Holders of majority interest of the Transfer
Restricted Securities being sold or the managing underwriters, if any, to
evidence the continued validity of the representations and warranties made
pursuant to clause (i) of this Section 4(m) and to evidence compliance with any
customary conditions contained in the underwriting agreement or other agreement
entered into by the Company;
(n) Make available for inspection by a representative of the Holders of
Transfer Restricted Securities being sold, any underwriter participating in any
13
<PAGE>
such disposition of Transfer Restricted Securities, if any, and any attorney,
consultant or accountant retained by such selling Holders or underwriter, at the
offices where normally kept, during reasonable business hours, all financial and
other records, pertinent corporate documents and properties of the Company and
its subsidiaries as they may reasonably request, and cause the officers,
directors, agents and employees of the Company and its subsidiaries to supply
all information in each case reasonably requested by any such representative,
underwriter, attorney, consultant or accountant in connection with such
Registration Statement, provided, however, that such persons shall first agree
in writing with the Company that any information that is reasonably and in good
faith designated by the Company in writing as confidential at the time of
delivery or inspection (as the case may be) of such information shall be kept
confidential by such persons, unless (i) in the reasonable opinion of the
Company or its counsel, disclosure of such information is required by court or
administrative order or is necessary to respond to inquiries of regulatory
authorities, (ii) in the reasonable opinion of the Company or its counsel,
disclosure of such information is required by law (including any disclosure
requirements pursuant to Federal securities laws in connection with the filing
of any Registration Statement or the use of any Prospectus), (iii) such
information becomes generally available to the public other than as a result of
a disclosure or failure to safeguard by any such person or (iv) such information
becomes available to any such person from a source other than the Company and
such source is not bound by a confidentiality agreement.
(o) Use all reasonable efforts to cause the Indenture to be qualified under
the TIA not later than the effective date of the first Registration Statement
relating to the Transfer Restricted Securities; and in connection therewith,
cooperate with the Trustee and the Holders of Notes or Common Stock constituting
Transfer Restricted Securities to effect such changes to the Indenture, if any,
as may be required for such Indenture to be so qualified in accordance with the
terms of the TIA; and execute, and use its best efforts to cause the Trustee to
execute, all customary documents as may be required to effect such changes, and
all other forms and documents (including Form T-1) required to be filed with the
SEC to enable the Indenture to be so qualified under the TIA in a timely manner.
(p) Comply with applicable rules and regulations of the SEC and make
generally available to its security holders earning statements satisfying the
provisions of Section 11(a) of the Securities Act or Rule 158 (or any similar
rule promulgated under the Securities Act), no later than 45 days after the end
of any 12-month period (or 90 days after the end of any 12- month period if such
period is a fiscal year) commencing at the end of any fiscal quarter in which
Transfer Restricted Securities are sold to underwriters in a firm commitment or
best efforts underwritten offering and if not sold to underwriters in such an
offering, commencing on the first day of the first fiscal quarter after the
effective date of a
14
<PAGE>
Registration Statement, which statement shall cover said period, consistent with
the requirements of Rule 158; and
(q) (i) list all shares of Common Stock covered by any Registration
Statements on any securities exchange on which the Common Stock is then listed
or (ii) authorize for quotation on the SmallCap Market or the National Market of
the National Association of Securities Dealers Automated Quotation System
("Nasdaq") all Common Stock covered by all such Registration Statements if the
Common Stock is then so authorized for quotation.
SECTION 5. Registration Expenses.
All fees and expenses incident to the performance of or compliance with
this Agreement by the Company shall be borne by it whether or not any
Registration Statement is filed or becomes effective and whether or not any
securities are offered or sold pursuant to any Registration Statement. The fees
and expenses referred to in the foregoing sentence shall include, without
limitation, (i) all registration and filings fees (including, without
limitation, fees and expenses with respect to filings required to be made with
the National Association of Securities Dealers, Inc. and in compliance with
securities or Blue Sky laws (including, without limitation and in addition to
that provided for in this Section 5, fees and disbursements of counsel for the
underwriters in connection with Blue Sky qualifications of the Transfer
Restricted Securities and determination of the eligibility of the Transfer
Restricted Securities for investment under the laws of such jurisdictions as the
managing underwriters, if any, or Holders of a majority in interest of Transfer
Restricted Securities, may designate)), (ii) printing expenses (including,
without limitation, of printing Prospectuses if the printing of Prospectuses is
required by the managing underwriters, if any, or by the Holders of a majority
in interest of the Transfer Restricted Securities included), (iii) messenger,
telephone and delivery expenses, (iv) reasonable fees and disbursements of
counsel for the Company (plus any local counsel deemed appropriate by the
Holders of a majority in interest of the Transfer Restricted Securities) in
accordance with the provisions of this Section 5 hereof, (v) fees and
disbursements of all independent certified public accountants referred to in
Section 4(m)(iii) (including, without limitation, the expenses of any special
audit and "comfort" letters required by or incident to such performance), (vi)
fees and expenses of all other persons retained by the Company. In addition,
the Company shall pay its internal expenses (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of an annual audit and the fees and expenses
incurred in connection with the listing of the securities to be registered on
any securities exchange or the Nasdaq SmallCap Market or the Nasdaq National
Market. Notwithstanding anything in this Agreement to the contrary, each Holder
shall pay all underwriting discounts and brokerage commissions with respect to
any Transfer Restricted Securities sold by it.
15
<PAGE>
SECTION 6. Indemnification.
(a) The Company agrees to indemnify and hold harmless each of (i) the
Initial Purchasers, (ii) each Holder, (iii) each person, if any, who controls
(within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act) any of the foregoing (any of the persons referred to in this
clause (iii) being hereinafter referred to as a "controlling person"), and (iv)
the respective officers, directors, partners, employees, representatives and
agents of the Initial Purchasers, the Holders (including predecessor Holders),
or any controlling person (any person referred to in clause (i), (ii), (iii) or
(iv) may hereinafter be referred to as an "Indemnified Person"), from and
against any and all losses, claims, damages, liabilities, expenses and judgments
caused by any untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement or Prospectus or in any amendment or
supplement thereto or in any preliminary Prospectus, or caused by any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein (in the case of any
Prospectus or supplement thereto, in the light of the circumstances under which
they were made) not misleading, except insofar as such losses, claims, damages,
liabilities, expenses or judgments are caused by any such untrue statement or
omission or alleged untrue statement or omission based upon information relating
to any Indemnified Person furnished to the Company by or on behalf of such
Indemnified Person expressly for use therein (which shall include, without
limitation, the Requisite Information in the Notice and Questionnaire provided
to the Company by such Indemnified Person); provided, however, that the
foregoing indemnity with respect to any preliminary Prospectus shall not inure
to the benefit of any Indemnified Person from whom the person asserting such
losses, claims, damages, liabilities, expenses and judgments purchased
securities if such untrue statement or omission or alleged untrue statement or
omission made in such preliminary Prospectus is eliminated or remedied in the
Prospectus and a copy of the Prospectus shall not have been furnished to such
person in a timely manner due to the wrongful action or wrongful inaction of
such Indemnified Person, whether as a result of negligence or otherwise.
(b) In case any action shall be brought against any Indemnified Person,
based upon any Registration Statement or any such Prospectus or any amendment or
supplement thereto and with respect to which indemnity may be sought against the
Company, such Indemnified Person shall promptly notify the Company in writing
and the Company shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to such Indemnified Person and payment of all
fees and expenses. Any Indemnified Person shall have the right to employ
separate counsel in any such action and participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such
Indemnified Person, unless the employment of such counsel shall have been
specifically authorized in writing by the Company, the Company shall have failed
16
<PAGE>
to assume the defense and employ counsel or such Indemnified Person or Persons
shall have been advised by counsel that there may be a conflict between the
positions of the indemnifying party or parties and of the indemnified party or
parties in conducting the defense of such action or proceeding or that there may
be legal defenses available to such Indemnified Person or Persons different from
or in addition to those available to the indemnifying party or parties (in which
case the Company shall not have the right to assume the defense of such action
on behalf of such Indemnified Person, it being understood, however, that the
Company shall not, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for the fees and
expenses of more than one separate firm of attorneys (in addition to any local
counsel) for all such Indemnified Persons, which firm shall be designated in
writing by such Indemnified Persons, and that all such fees and expenses shall
be reimbursed as they are incurred). The Company shall not be liable for any
settlement of any such action effected without its written consent but if
settled with the written consent of the Company, the Company agrees to indemnify
and hold harmless any Indemnified Person from and against any loss or liability
by reason of such settlement. No indemnifying party shall, without the prior
written consent of the indemnified party, effect any settlement of any pending
or threatened proceeding in respect of which any indemnified party is or could
have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such proceeding.
(c) In connection with any Registration Statement pursuant to which any
Holder (or predecessor Holder) sold or offered for resale Transfer Restricted
Securities, such Holder agrees, severally and not jointly, to indemnify and hold
harmless the Company, its directors, officers, employees, representatives and
agents and any person controlling the Company within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act, to the same extent as
the foregoing indemnity from the Company to each Indemnified Person but only
with reference to information relating to such Indemnified Person furnished by
or on behalf of such Indemnified Person expressly for use in such Registration
Statement (which shall include, without limitation, the Requisite Information in
the Notice and Questionnaire provided to the Company by such Indemnified
Person). In case any action shall be brought against the Company, any of its
directors, officers, employees, representatives and agents, or any person
controlling the Company based on such Registration Statement and in respect of
which indemnity may be sought against any Indemnified Person, the Indemnified
Person shall have the rights and duties given to the Company (except that if the
Company shall have assumed the defense thereof, such Indemnified Person shall
not be required to do so, but may employ separate counsel therein and
participate in defense thereof but the fees and expenses of such counsel shall
be at the expense of such Indemnified Person), and the Company, its directors,
officers,
17
<PAGE>
employees, representatives and agents, and any person controlling the Company
shall have the rights and duties given to the Indemnified Person by Section 6(b)
hereof.
(d) If the indemnification provided for in this Section 6 is applicable by
its terms but unavailable to an indemnified party in respect of any losses,
claims, damages, liabilities, expenses or judgments referred to therein, then
each indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities, expenses and judgments (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and each Indemnified Person on the other hand pursuant
to the Purchase Agreement or from the offering for resale of the Transfer
Restricted Securities or (ii) if the allocation provided by clause (i) above is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above but also the
relative fault of the Company and each such Indemnified Person in connection
with the statements or omissions which resulted in such losses, claims, damages,
liabilities, expenses or judgments, as well as any other relevant equitable
considerations. The relative fault of the Company and each such Indemnified
Person shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission to state a
material fact relates to information supplied by the Company or such Indemnified
Person and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The Company, the Holders and the Initial Purchasers agree that it would not
be just and equitable if contribution pursuant to this Section 6(d) were
determined by pro rata allocation (even if the Indemnified Person were treated
as one entity for such purpose) or by any other method of allocation which does
not take account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities, expenses or judgments
referred to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 6, no Indemnified Person shall be required to contribute any amount in
excess of the amount by which the total net profit received by it in connection
with the sale of the Transfer Restricted Securities pursuant to this Agreement
exceeds the amount of any damages which such Indemnified Person has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Indemnified
18
<PAGE>
Persons' obligations to contribute pursuant to this Section 6(d) are several in
proportion to the respective amount of Transfer Restricted Securities included
in and sold pursuant to any such Registration Statement by each Indemnified
Person and not joint.
SECTION 7. Underwritten Registration.
If any of the Transfer Restricted Securities covered by any Shelf
Registration Statement are to be sold in an underwritten offering, the
investment banker or investment bankers and manager or managers that will
administer the offering will be investment bankers of recognized national
standing selected by the Holders of a majority in interest of such Transfer
Restricted Securities included in such offering, subject to the consent of the
Company (which will not be unreasonably withheld or delayed).
No person may participate in any underwritten registration hereunder unless
such person agrees to sell such person's Transfer Restricted Securities on the
basis reasonably provided in any underwriting arrangements approved by the
persons entitled hereunder to approve such arrangements and completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements, lock-up agreements and other documents reasonably required under the
terms of such underwriting arrangements.
SECTION 8. Miscellaneous.
(a) Remedies. In the event of a breach by the Company or by a Holder of any
of their respective obligations under this Agreement, each Holder or the
Company, in addition to being entitled to exercise all rights granted by law,
including, without limitation, recovery of damages, will be entitled to specific
performance of its rights under this Agreement. The Company and each Holder
agree that monetary damages would not be adequate compensation for any loss
incurred by reason of a breach by it of any of the provisions of this Agreement
and hereby further agree that, in the event of any action for specific
performance in respect of such breach, they shall waive the defense that a
remedy at law would be adequate. This Section 8(a) shall not apply to any breach
for which Liquidated Damages have been specifically provided hereunder.
(b) No Inconsistent Agreements. The Company shall not enter into any
agreement with respect to its securities that is inconsistent with the rights
granted to the Holders in this Agreement or otherwise conflicts with the
provisions hereof. The Company is not currently a party to any agreement
granting any registration rights with respect to any of its securities to any
person which conflicts with the Company's obligations hereunder. Without
limiting the generality of the foregoing, without the written consent of the
Holders of a majority in interest of the Transfer Restricted Securities, the
Company shall not grant to any person the right to request it to register any of
its securities under the Securities Act unless
19
<PAGE>
the rights so granted are subject in all respect to the prior rights of the
Holders set forth herein, and are not otherwise in conflict or inconsistent with
the provisions of this Agreement.
(c) No Adverse Action Affecting the Transfer Restricted Securities. The
Company will not take any action with respect to the Transfer Restricted
Securities which would adversely affect the ability of any of the Holders to
include such Transfer Restricted Securities in a registration undertaken
pursuant to this Agreement.
(d) No Piggyback on Registrations. After the date hereof, the Company shall
not grant to any of its security holders (other than the Holders in such
capacity) the right to include any of its securities in any Shelf Registration
Statement.
(e) Amendments and Waivers. The provisions of this Agreement, including the
provisions of this sentence, may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof, may not be given,
without the written consent of the Holders of a majority in interest of the
Transfer Restricted Securities; provided, however, that, for the purposes of
this Agreement, Transfer Restricted Securities that are owned, directly or
indirectly, by either the Company or an Affiliate of the Company are not deemed
outstanding. Notwithstanding the foregoing, a waiver or consent to depart from
the provisions hereof with respect to a matter that relates exclusively to the
rights of Holders whose Transfer Restricted Securities are being sold pursuant
to an underwritten offering and that does not directly or indirectly affect the
rights of other Holders may be given by Holders of a majority in interest of the
Transfer Restricted Securities being sold by such Holders pursuant to such an
underwritten offering; provided, however, that the provisions of this sentence
may not be amended, modified, or supplemented except in accordance with the
provisions of the immediately preceding sentence.
(f) Notices. All notices and other communications provided for herein shall
be made in writing by hand-delivery, next day air courier, certified first-class
mail, return receipt requested or telecopy:
(i) if to a Holder, to the address of such Holder as it appears
in the Notice and Questionnaire, or, if not so specified, in the
Common Stock or Notes register of the Company, as applicable;
20
<PAGE>
(ii) if to the Company, to:
Interliant, Inc.
2 Manhattanville Road
Purchase, NY 10577
Attn.: General Counsel
Telecopy No.: 914-640-9000
Except as otherwise provided in this Agreement, all such communications
shall be deemed to have been duly given, when delivered by hand, if personally
delivered; one Business Day after being timely delivered to a next-day air
courier, five Business Days after being deposited in the mail, postage prepaid,
if mailed; and when receipt is acknowledged by the recipient's telecopier
machine, if telecopied.
(g) Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors and permitted assigns of each of the parties
and shall inure to the benefit of each existing and future Holder. The Company
may not assign its rights or obligations hereunder without the prior written
consent of the Holders of a majority in interest of the Transfer Restricted
Securities, other than by operation of law pursuant to a merger or consolidation
to which the Company is a party.
(h) Counterparts. This Agreement may be executed in any number of
counterparts by the parties hereto, each of which when so executed shall be
deemed to be an original and all of which taken together shall constitute one
and the same instrument.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE
AND PERFORMED WITHIN THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW.
(j) Severability. The remedies provided herein are cumulative and not
exclusive of any remedies provided by law. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their best efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.
21
<PAGE>
(k) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof. All
references made in this Agreement to "Section" and "paragraph" refer to such
Section or paragraph of this Agreement, unless expressly stated otherwise.
(l) Attorneys' Fees. In any action or proceeding brought to enforce any
provision of this Agreement, or where any provision hereof is validly asserted
as a defense, the prevailing party, as determined by the court, shall be
entitled to recover its reasonable attorneys' fees in addition to any other
available remedy.
22
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of the date first written above.
INTERLIANT, INC.
By: /s/ William A. Wilson
---------------------
Name: William A. Wilson
Title: Chief Financial Officer and Treasurer
The foregoing Registration Rights Agreement is hereby confirmed and agreed to as
of the date first written above.
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
CIBC WORLD MARKETS
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
C.E. UNTERBERG, TOWBIN
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: /s/ Jason Sunderland
--------------------
Authorized Signatory
Acting on behalf of itself and the Initial Purchasers
23
<PAGE>
Exhibit A
Notice
The undersigned beneficial owner (the "Selling Securityholder") of Transfer
Restricted Securities hereby gives notice to the Company of its intention to
sell or otherwise dispose of Transfer Restricted Securities beneficially owned
by it and listed below in Item (3), unless otherwise specified in Item (3),
pursuant to the Shelf Registration Statement. The undersigned, by signing and
returning this Notice and Questionnaire, understands and agrees that it will be
bound by the terms and conditions of this Notice and Questionnaire and the
Registration Rights Agreement.
Pursuant to the Registration Rights Agreement, the undersigned has agreed
to indemnify and hold harmless the Company, the Company's directors and the
Company's officers who sign the Shelf Registration Statement and each person, if
any, who controls the Company within the meaning of either Section 15 of the
Securities Act or Section 20 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), from and against certain losses arising in connection with
statements concerning the undersigned made in the Shelf Registration Statement
or the related prospectus in reliance upon the information provided in this
Notice and Questionnaire.
The undersigned hereby provides the following information to the Company
and represents and warrants that such information is accurate and complete:
Questionnaire
1. (a) Full Legal Name of Selling Securityholder:
-----------------------------------------------------------------
(b) Full Legal Name of Registered Holder (if not the same as (a) above)
through which Transfer Restricted Securities listed in Item (3)
below are held:
-----------------------------------------------------------------
(c) Full Legal Name of DTC Participant (if applicable and if not the
same as (b) above) through which Transfer Restricted Securities
listed in Item (3) below are held:
-----------------------------------------------------------------
A-1
<PAGE>
2. Address for Notices to Selling Securityholder:
-----------------------------------------------------------------
Telephone:_______________________________________________________
Fax:_____________________________________________________________
Contact Person:__________________________________________________
3. Beneficial Ownership of Transfer Restricted Securities:
(a) Type and Amount of Transfer Restricted Securities beneficially owned:
-----------------------------------------------------------------
(b) CUSIP No(s). of such Transfer Restricted Securities beneficially owned:
-----------------------------------------------------------------
(c) Type and Amount of Transfer Restricted Securities to be registered:
-----------------------------------------------------------------
4. Beneficial Ownership of Other Securities of the Company owned by the
Selling Securityholder:
Except as set forth below in this Item (4), the undersigned is not the
beneficial or registered owner of any securities of the Company other than
the Transfer Restricted Securities listed above in Item (3).
(a)Type and Amount of Other Securities beneficially owned:
-----------------------------------------------------------------
(b)CUSIP No(s). of such Other Securities beneficially owned:
-----------------------------------------------------------------
5. Relationship with the Company:
Except as set forth below, neither the undersigned nor any of its
affiliates, officers, directors or principal equity holders (5% or more)
has held any position or office or has had any other material relationship
with the Company (or its predecessors or affiliates) during the past three
years.
State any exceptions here:
-----------------------------------------------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
A-2
<PAGE>
6. Plan of Distribution:
Except as set forth below, the undersigned (including its donees or
pledgees) intends to distribute the Transfer Restricted Securities listed
above in Item (3) pursuant to the Shelf Registration Statement only as
follows (if at all): Such Transfer Restricted Securities may be sold from
time to time directly by the undersigned or alternatively, through
underwriters, broker-dealers or agents. If the Transfer Restricted
Securities are sold through underwriters or broker-dealers, the Selling
Securityholder will be responsible for underwriting discounts and
commissions and/or agent's commissions. Such Transfer Restricted
Securities may be sold in one or more transactions at fixed prices, at
prevailing market prices at the time of sale, at varying prices determined
at the time of sale, or at negotiated prices. Such sales may be effected
in transactions (which may involve cresses or block transactions) (i) on
any national securities exchange or quotation service on which the Transfer
Restricted Securities may be listed or quoted at the time of sale, (ii) in
the over-the-counter market, (iii) in transactions otherwise than on such
exchanges or services or in the over-the-counter market, or (iv) through
the writing of options. In connection with sales of the Transfer
Restricted Securities or otherwise, the undersigned may enter into hedging
transactions with broker-dealers, which may in turn engage in short sales
of the Transfer Restricted Securities in the course of hedging the
positions they assume. The Selling Securityholder may also sell Transfer
Restricted Securities short and deliver Transfer Restricted Securities to
close out such short positions, or loan or pledge Transfer Restricted
Securities to broker-dealers that in turn may sell such securities.
State any exceptions here:
-----------------------------------------------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
Note: In no event will such method(s) of distribution take the form of an
underwritten offering of the Transfer Restricted Securities without the
prior agreement of the Company.
The undersigned acknowledges that it understands its obligation to comply
with the provisions of the Exchange Act and the rules thereunder relating to
stock manipulation, particularly Regulation M thereunder (or any successor rules
or regulations), in connection with any offering of Transfer Restricted
Securities pursuant to the Shelf Registration Statement. The undersigned agrees
that neither it nor any person acting on its behalf will engage in any
transaction in violation of such provisions.
A-3
<PAGE>
The Selling Securityholder hereby acknowledges its obligations under the
Registration Rights Agreement to indemnify and hold harmless certain persons as
set forth therein. Pursuant to the Registration Rights Agreement, the Company
has agreed under certain circumstances to indemnify the Selling Securityholders
against certain liabilities.
In accordance with the undersigned's obligation under the Registration
Rights Agreement to provide such information as may be required by law for
inclusion in the Shelf Registration Statement, the undersigned agrees to
promptly notify the Company of any inaccuracies or changes in the information
provided herein that may occur subsequent to the date hereof at any time while
the Shelf Registration Statement remains effective. All notices hereunder and
pursuant to the Registration Rights Agreement shall be made in writing, by hand
delivery, first-class mail or air courier guaranteeing overnight delivery at the
address set forth below. In the absence of any such notification, the Company
shall be entitled to continue to rely on the accuracy of the information in this
Notice and Questionnaire.
By signing below, the undersigned consents to the disclosure of the
information contained herein in its answers to items (1) through (6) above and
inclusion of such information in the Shelf Registration Statement and the
Prospectus. The undersigned understands that such information will be relied
upon by the Company in connection with the preparation, amendment or
supplementation of the Shelf Registration Statement and the Prospectus.
The terms of this Notice and Questionnaire, and the representations and
warranties contained herein, shall be binding upon, shall inure to the benefit
of and shall be enforceable by the respective successors, heirs, personal
representatives, and assigns of the Company and the Selling Securityholder with
respect to the Transfer Restricted Securities beneficially owned by the Selling
Securityholder and listed in Item (3) above. This agreement shall be governed
by, and construed and enforced in accordance with, the laws of the State of New
York applicable to contracts made in the State of New York.
IN WITNESS WHEREOF, the undersigned, by authority duly given, has caused
this Notice and Questionnaire to be executed and delivered either in person or
by its duly authorized agent.
Date:__________________ ------------------------------------------------------
Selling Securityholder (Print or type full legal name
of beneficial owner of Transfer Restricted Securities)
By:_____________________________
Name:
Title:
A-4
<PAGE>
PLEASE RETURN THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE TO:
Interliant, Inc.
2 Manhattanville Road
Purchase, NY 10577
Attention: Bruce S. Klien
with a copy to:
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, NY 10019
Attention: E. Ann Gill
A-5
<PAGE>
================================================================================
Exhibit 4.10
INTERLIANT, INC.
And
THE CHASE MANHATTAN BANK
as Trustee
INDENTURE
__________________________
Dated as of February 16, 2000
__________________________
7% Convertible Subordinated Notes due 2005
(Additional Issue)
================================================================================
<PAGE>
Section 310(a)(1) ................................... 5.10
(a)(2) ................................... 5.10
(a)(3) ................................... Not Applicable
(a)(4) ................................... Not Applicable
(a)(5) ................................... 5.10
(b) ................................... 5.06
Section 311(a) ................................... 5.07
(b) ................................... 5.07
Section 312(a) ................................... 6.04(a)
................................... 6.01
(b) ................................... 6.01
(c) ................................... 6.01
Section 313(a) ................................... 6.02
(b) ................................... Not Applicable
(c) ................................... 6.02
(d) ................................... 6.02
Section 314(a) ................................... 6.03
(a)(4) ................................... 6.03
(b) ................................... Not Applicable
(c)(1) ................................... 1.03
(c)(2) ................................... 1.03
(c)(3) ................................... Not Applicable
(d) ................................... Not Applicable
(e) ................................... 1.03
Section 315(a) ................................... 5.01
(b) ................................... 5.05
(c) ................................... 5.01
(d) ................................... 5.01
(e) ................................... 4.15
Section 316(a)(1) ................................... 4.02
(a)(1)(A) ................................... 4.12
(a)(1)(B) ................................... 4.13
(a)(2) ................................... Not Applicable
(b) ................................... 4.08
(c) ................................... 1.05(d)
Section 317(a)(1) ................................... 4.03
(a)(2) ................................... 4.04(a)
(b) ................................... 9.03
Section 318(a) ................................... 1.15
- ----------------------
Note: This reconciliation and tie shall not, for any purpose, be deemed to be a
part of the Indenture.
<PAGE>
TABLE OF CONTENTS
<TABLE>
Page
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<S> <C> <C>
ARTICLE 1 Definitions and Other Provisions of General Application....................................1
Section 1.01. Definitions............................................................................1
Section 1.02. Other Definitions......................................................................9
Section 1.03. Compliance Certificates and Opinions..................................................10
Section 1.04. Form of Documents Delivered to Trustee................................................10
Section 1.05. Acts of Holders.......................................................................11
Section 1.06. Notices, Etc. to Trustee and Company..................................................12
Section 1.07. Notice to Holders; Waiver.............................................................13
Section 1.08. Effect of Headings and Table of Contents..............................................13
Section 1.09. Successors and Assigns................................................................13
Section 1.10. Separability Clause...................................................................14
Section 1.11. Benefits of Indenture.................................................................14
Section 1.12. Governing Law.........................................................................14
Section 1.13. Legal Holidays........................................................................14
Section 1.14. Personal Immunity from Liability for Incorporators, Stockholders, Etc.................14
Section 1.15. Conflict with Trust Indenture Act.....................................................14
ARTICLE 2 Securities Forms..........................................................................15
Section 2.01. Forms of Securities...................................................................15
Section 2.02. Form of Trustee's Certificate of Authentication.......................................15
Section 2.03. Securities Issuable in Definitive or Global Form......................................15
ARTICLE 3 The Securities............................................................................16
Section 3.01. Title and Term........................................................................16
Section 3.02. Denominations.........................................................................16
Section 3.03. Execution, Authentication, Delivery and Dating........................................16
Section 3.04. Registration, Registration of Transfer and Exchange...................................17
Section 3.05. Mutilated, Destroyed, Lost and Stolen Securities......................................22
Section 3.06. Payment of Interest; Interest Rights Preserved........................................23
Section 3.07. Persons Deemed Owners.................................................................24
Section 3.08. Cancellation..........................................................................24
Section 3.09. Computation of Interest...............................................................25
Section 3.10. CUSIP Numbers.........................................................................25
ARTICLE 4 Remedies..................................................................................25
Section 4.01. Events of Default.....................................................................25
Section 4.02. Acceleration of Maturity; Rescission and Annulment....................................27
Section 4.03. Collection of Indebtedness and Suits for Enforcement by Trustee.......................28
Section 4.04. Trustee May File Proofs of Claim......................................................29
Section 4.05. Trustee May Enforce Claims Without Possession of Securities...........................30
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Section 4.06. Application of Money Collected........................................................30
Section 4.07. Limitation on Suits...................................................................30
Section 4.08. Unconditional Right of Holders to Receive Principal, Premium, If Any, and Interest....31
Section 4.09. Restoration of Rights and Remedies....................................................31
Section 4.10. Rights and Remedies Cumulative........................................................31
Section 4.11. Delay or Omission Not Waiver..........................................................32
Section 4.12. Control by Holders of Securities......................................................32
Section 4.13. Waiver of Past Defaults...............................................................32
Section 4.14. Waiver of Usury, Stay or Extension Laws...............................................33
Section 4.15. Undertaking for Costs.................................................................33
ARTICLE 5 The Trustee...............................................................................33
Section 5.01. General...............................................................................33
Section 5.02. Certain Rights of Trustee.............................................................34
Section 5.03. Individual Rights of Trustee..........................................................35
Section 5.04. Trustee's Disclaimer..................................................................35
Section 5.05. Notice of Default.....................................................................36
Section 5.06. Conflicting Interests of Trustee......................................................36
Section 5.07. Compensation and Indemnity............................................................36
Section 5.08. Replacement of Trustee................................................................37
Section 5.09. Successor Trustee by Merger, Etc......................................................38
Section 5.10. Eligibility...........................................................................38
Section 5.11. Money Held in Trust...................................................................38
Section 5.12. Preferential Collection of Claims.....................................................38
Section 5.13. Trustee's Application for Instructions from the Company; Liquidated Damages...........38
ARTICLE 6 Holders' Lists And Reports By Trustee And Company.........................................39
Section 6.01. Disclosure of Names and Addresses of Holders..........................................39
Section 6.02. Reports by Trustee....................................................................39
Section 6.03. Reports by Company....................................................................39
Section 6.04. Company to Furnish Trustee Names and Addresses of Holders.............................40
ARTICLE 7 Consolidation, Merger, Sale, Lease Or Conveyance..........................................40
Section 7.01. Consolidations and Mergers of Company and Sales, Leases and Conveyances
Permitted Subject to Certain Conditions...............................................40
Section 7.02. Rights and Duties of Successor Corporation............................................41
Section 7.03. Officers' Certificate and Opinion of Counsel..........................................41
ARTICLE 8 Supplemental Indentures...................................................................41
Section 8.01. Supplemental Indentures Without Consent of Holders....................................41
Section 8.02. Supplemental Indentures with Consent of Holders.......................................42
Section 8.03. Execution of Supplemental Indenture...................................................43
Section 8.04. Effect of Supplemental Indentures.....................................................43
Section 8.05. Conformity with Trust Indenture Act...................................................43
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
Section 8.06. Reference in Securities to Supplemental Indentures....................................43
ARTICLE 9 Covenants.................................................................................44
Section 9.01. Payment of Principal, Premium, If Any, and Interest...................................44
Section 9.02. Maintenance of Office or Agency.......................................................44
Section 9.03. Money for Securities Payments to Be Held in Trust.....................................44
Section 9.04. Existence.............................................................................46
Section 9.05. Payment of Taxes and Other Claims.....................................................46
Section 9.06. Statement as to Compliance; Notice of Default.........................................46
Section 9.07. Waiver of Certain Covenants...........................................................46
Section 9.08. Rule 144A Information Requirement.....................................................47
ARTICLE 10 Redemption Of Securities.................................................................47
Section 10.01. Provisional and Optional Redemption by the Company...................................47
Section 10.02. Election to Redeem; Notice to Trustee................................................48
Section 10.03. Selection by Trustee of Securities to Be Redeemed....................................48
Section 10.04. Notice of Redemption.................................................................49
Section 10.05. Deposit of Redemption Price..........................................................50
Section 10.06. Securities Payable on Redemption Date................................................50
Section 10.07. Securities Redeemed in Part..........................................................50
ARTICLE 11 Repurchase At Option Of Holders Upon Change In Control...................................51
Section 11.01. Right to Require Repurchase..........................................................51
Section 11.02. Conditions to the Company's Election to Pay the Repurchase Price in Common Stock.....51
Section 11.03. Notices; Method of Exercising Repurchase Right, Etc..................................51
Section 11.04. Certain Definitions..................................................................54
Section 11.05. Change in Control....................................................................55
ARTICLE 12 Conversion...............................................................................56
Section 12.01. Conversion Privilege, Conversion Rate and Conversion Price...........................56
Section 12.02. Exercise of Conversion Privilege.....................................................56
Section 12.03. Fractions of Shares..................................................................58
Section 12.04. Adjustment of Conversion Rate........................................................58
Section 12.05. Notice of Adjustments of Conversion Rate.............................................63
Section 12.06. Notice of Certain Corporate Action...................................................63
Section 12.07. Company's Obligation Regarding Common Stock..........................................64
Section 12.08. Taxes on Conversions.................................................................65
Section 12.09. Covenant as to Common Stock..........................................................65
Section 12.10. Cancellation of Converted Securities.................................................65
Section 12.11. Provisions in Case of Reclassification, Consolidation, Merger or Sale of Assets......65
Section 12.12. Company's Obligation.................................................................66
ARTICLE 13 Subordination............................................................................66
Section 13.01. Securities Subordinate to Senior Indebtedness........................................66
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C> <C>
Section 13.02. Payment over of Proceeds upon Dissolution, Etc........................................66
Section 13.03. No Payment When Senior Indebtedness in Default........................................67
Section 13.04. Payment Permitted If No Default.......................................................68
Section 13.05. Subrogation to Rights of Holders of Senior Indebtedness...............................68
Section 13.06. Provisions Solely to Define Relative Rights...........................................69
Section 13.07. Trustee to Effectuate Subordination...................................................69
Section 13.08. No Waiver of Subordination Provisions.................................................69
Section 13.09. Notice to Trustee.....................................................................70
Section 13.10. Reliance on Judicial Order or Certificate of Liquidating Agent........................71
Section 13.11. Trustee Not Fiduciary for Holders of Senior Indebtedness..............................71
Section 13.12. Rights of Trustee as Holder of Senior Indebtedness; Preservation of Trustee's Rights..71
Section 13.13. Article Applicable to Paying Agents...................................................71
Section 13.14. Certain Conversions Deemed Payment....................................................71
</TABLE>
SIGNATURES
EXHIBIT A - FORM OF SECURITY
iv
<PAGE>
INDENTURE, dated as of February 16, 2000, between INTERLIANT, INC., a
Delaware corporation (the "Company"), having its principal office at Two
Manhattanville Road, Purchase, New York, New York 10577 and THE CHASE MANHATTAN
BANK, a New York banking company, as Trustee hereunder (the "Trustee").
RECITALS OF THE COMPANY
The Company has issued $154,825,000 principal amount of its 7% Convertible
Subordinated Notes due 2005 pursuant to the Initial Indenture (as defined
below).
The Company has duly authorized an additional $10,000,000 issue of its 7%
Convertible Subordinated Notes due 2005 (the "Securities"), and may wish to
authorize another $40,000,000 of the Securities for subsequent issuance. To
provide for such issuances, the Company has duly authorized the execution and
delivery of this Indenture.
Upon qualification of this Indenture under the Trust Indenture Act of 1939
(the "TIA"), it shall be subject to the provisions of such Act that are deemed
to be incorporated into this Indenture and shall, to the extent applicable, be
governed by such provisions.
All things necessary to make this Indenture a valid agreement of the
Company, in accordance with its terms, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Securities
by the holders thereof, it is mutually covenanted and agreed, for the equal and
proportionate benefit of all the holders of the Securities, as follows:
ARTICLE 1
Definitions and Other Provisions of General Application
SECTION 1.01. Definitions. For all purposes of this Indenture, except as
otherwise expressly provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular, and
references to he or him or she or her are intended to be gender neutral;
(2) all other terms used herein which are defined in the TIA, either
directly or by reference therein, have the meanings assigned to them therein;
(3) the word "including" means "including without limitation," and
(4) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
<PAGE>
"Act," when used with respect to any Holder, has the meaning specified in
Section 1.05.
----
"Adjusted Outstanding Securities" means, as of any date of calculation, the
sum of (a) the principal amount of all Outstanding Initial Securities plus (b)
the principal amount of all Outstanding Securities.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Authorized Newspaper" means a newspaper, printed in the English language
or in an official language of the country of publication, customarily published
on each Business Day, whether or not published on Saturdays, Sundays or
holidays, and of general circulation in each place in connection with which the
term is used or in the financial community of each such place. Whenever
successive publications are required to be made in Authorized Newspapers, the
successive publications may be made in the same or in different Authorized
Newspapers in the same city meeting the foregoing requirements and in each case
on any Business Day.
"Bankruptcy Law" has the meaning specified in Section 4.01.
----
"Board of Directors" means the board of directors of the Company, the
executive committee of that board or any committee of that board duly authorized
to act hereunder.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company to have been duly adopted by the Board
of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in the City of New York or,
when used with respect to any Place of Payment, such Place of Payment, are
authorized or obligated by law, regulation or executive order to close.
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Securities Exchange Act of 1934, or, if at
any time after execution of this instrument such Commission is not existing and
performing substantially the duties now assigned to it under the Trust Indenture
Act, then the body performing such duties on such date.
"Common Stock" means the common stock of the Company, $0.01 par value, as
it exists on the date of this Indenture and any shares of any class or classes
of capital stock of the Company resulting from any reclassification or
reclassifications thereof.
"Company" means the Person named as the "Company" in the first paragraph of
this Indenture until a successor corporation shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor corporation.
2
<PAGE>
"Company Request" and "Company Order" mean, respectively, a written request
or order signed in the name of the Company by the Chairman of the Board of
Directors, any Co-Chairman of the Board of Directors, the Chief Executive
Officer, the President, the Chief Financial Officer or a Vice President of the
Company and any of the foregoing or any Assistant Vice President, the Treasurer,
an Assistant Treasurer, the Secretary or an Assistant Secretary of the Company,
and delivered to the Trustee.
"Conversion Agent" means any Person authorized by the Company pursuant to
Section 9.02 to convert Securities in accordance with Article 12.
---- --
"Corporate Trust Office" means the office of the Trustee at which, at any
particular time, its corporate trust business as it relates to this Indenture
shall be principally administered and as to which notice to that effect has been
delivered to the Company and the Holders in accordance with the provisions
hereof, which office at the date hereof is located at The Chase Manhattan Bank,
450 West 33rd Street, 15th Floor, New York, New York 10001, Attention: Capital
Markets Fiduciary Services (Interliant, Inc. 7% Convertible Subordinated Notes
due 2005).
"corporation" means a corporation, association, partnership, company
(including limited liability company), joint-stock company or business trust.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Dollar" or "$" means a dollar or other equivalent unit in such coin or
currency of the United States of America as at the time shall be legal tender
for the payment of public and private debts.
"DTC" means The Depository Trust Company.
"Government Obligations" means securities that are (i) direct obligations
of the United States of America, for the payment of which its full faith and
credit is pledged, or (ii) obligations of a Person controlled or supervised by
and acting as an agency or instrumentality of the United States of America, the
payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America, which is not callable or redeemable
at the option of the issuer thereof, and shall also include a depository receipt
issued by a bank or trust company as custodian with respect to any such
Government Obligation or a specific payment of interest on or principal of any
such Government Obligation held by such custodian for the account of the holder
of a depository receipt, provided that (except as required by law) such
custodian is not authorized to make any deduction from the amount payable to the
holder of such depository receipt from any amount received by the custodian in
respect of the Government Obligation or the specific payment of interest on or
principal of the Government Obligation evidenced by such depository receipt.
"Holder" means the Person in whose name a Security is registered in the
Security Register.
"Indebtedness" means, with respect to any Person, and without duplication,
(a) all indebtedness, obligations and other liabilities, contingent or
otherwise, of such Person for borrowed money (including obligations of such
Person in respect of overdrafts, foreign exchange contracts, currency exchange
or similar agreements, interest rate protection, hedging or similar agreements,
3
<PAGE>
and any loans or advances from banks, whether or not evidenced by notes or
similar instruments) or evidenced by bonds, debentures, notes or similar
instruments (whether or not the recourse of the holder is to the whole of the
assets of such Person or to only a portion thereof), other than any account
payable or other accrued current liability or current obligation, in each case
not constituting indebtedness, obligations or other liabilities for borrowed
money and incurred in the ordinary course of business in connection with the
obtaining of materials or services; (b) all reimbursement obligations and other
liabilities, contingent or otherwise, of such Person with respect to letters of
credit, bank guarantees, bankers' acceptances, security purchase facilities or
similar credit transactions; (c) all obligations and liabilities, contingent or
otherwise, in respect of deferred and unpaid balances on any purchase price of
any property; (d) all obligations and liabilities (contingent or otherwise) in
respect of leases of such Person required, in conformity with generally accepted
accounting principles, to be accounted for as capitalized lease obligations on
the balance sheet of such Person and all obligations and other liabilities,
contingent or otherwise, under any lease or related document, including, without
limitation, the balance deferred and unpaid on any purchase price of any
property and a purchase agreement in connection with the lease of real property
that provides that such Person is contractually obligated to purchase or cause a
third party to purchase the leased property and thereby guarantee a minimum
residual value of the leased property to the lessor and the obligations of such
Person under such lease or related document to purchase or to cause a third
party to purchase such leased property; (e) all obligations of such Person,
contingent or otherwise, with respect to an interest rate or other swap, cap or
collar agreement or other similar instrument or agreement or foreign currency
hedge, exchange, purchase or similar instrument or agreement; (f) all direct or
indirect guarantees or similar agreements by such Person in respect of, and
obligations or liabilities, contingent or otherwise, of such Person to purchase
or otherwise acquire or otherwise assure a creditor against loss in respect of,
indebtedness, obligations or liabilities of another Person of the kind described
in clauses (a) through (e); (g) recourse or repurchase obligations arising in
connection with sales of assets in transactions that are in the nature of asset-
based financings, whether or not such transactions are treated as sales under
generally accepted accounting principles or bankruptcy, tax or other applicable
laws, where such recourse or repurchase obligations arise out of the failure of
such assets to provide the economic benefit to which the purchaser is entitled
under the agreements relating to such transactions; (h) any indebtedness or
other obligations described in clauses (a) through (g) secured by any mortgage,
pledge, lien or other encumbrance existing on property that is owned or held by
such Person, regardless of whether the indebtedness or other obligation secured
thereby shall have been assumed by such Person; and (i) any and all deferrals,
renewals, extensions, refinancing, replacements, restatements and refundings of,
or amendments, modifications or supplements to, or any indebtedness or
obligation issued in exchange for, any indebtedness, obligation or liability of
the kind described in clauses (a) through (h).
"Indenture" means this instrument as originally executed or as it may from
time to time be supplemented or amended by one or more indentures supplemental
hereto entered into pursuant to the applicable provisions hereof.
"Initial Indenture" means the Indenture between the Company and The Chase
Manhattan Bank, as trustee, dated as of February 16, 2000, relating to up to
$172,500,000 aggregate principal amount of the Company's 7% Convertible
Subordinated Notes due 2005 certificated and delivered
4
<PAGE>
pursuant thereto (as it may from time to time be supplemented or amended
pursuant to the applicable provisions thereof).
"Initial Securities" means the Company's 7% Convertible Subordinated Notes
due 2005 authenticated and delivered pursuant to the Initial Indenture.
"Initial Securities Holders" means the "Holders", as such term is defined
in the Initial Indenture, of the Outstanding Initial Securities.
"Interest Payment Date" means, with respect to any Security, the Stated
Maturity of an installment of interest on such Security.
"Liquidated Damages" means additional interest that may accrue on the
Securities and be payable to Holders pursuant to and in accordance in each case
with the terms of the Registration Rights Agreement.
"Maturity" means the date on which the principal of the Securities becomes
due and payable as therein or herein provided, whether at the Stated Maturity or
upon conversion or by declaration of acceleration, notice of redemption, notice
of option to elect repayment or otherwise.
"Officers' Certificate" means a certificate signed by the Chairman of the
Board of Directors, any Co-Chairman of the Board of Directors, the President or
a Vice President and by any of the foregoing or the Treasurer, an Assistant
Treasurer, the Secretary or an Assistant Secretary of the Company, and delivered
to the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be counsel
for the Company or who may be an employee of or other counsel for the Company
and who shall be reasonably satisfactory to the Trustee.
"Outstanding," when used with respect to Securities, means, as of the date
of determination, all Securities theretofore authenticated and delivered under
this Indenture, except:
(i) Securities theretofore canceled by the Trustee or delivered to the
Trustee for cancellation;
(ii) Securities, or portions thereof, for whose payment or redemption or
repayment at the option of the Holder, money in the necessary amount has been
theretofore deposited with the Trustee or any Paying Agent (other than the
Company) in trust or set aside and segregated in trust by the Company (if the
Company shall act as its own Paying Agent) for the Holders of such Securities;
provided that, if such Securities are to be redeemed, notice of such redemption
has been duly given pursuant to this Indenture or provision therefor
satisfactory to the Trustee has been made;
(iii) Securities that have been paid pursuant to Section 3.05 or in
exchange for or in lieu of which other Securities have been authenticated and
delivered pursuant to this Indenture, other than any such Securities in respect
of which there shall have been presented to the Trustee
5
<PAGE>
proof satisfactory to it that such Securities are held by a bona fide purchaser
in whose hands such Securities are valid obligations of the Company;
(iv) Securities converted into Common Stock pursuant to or in accordance
with this Indenture; and
(v) Securities repurchased by delivery of Shares of Common Stock in
accordance with Article 11;
provided, however, that in determining whether the Holders of the requisite
principal amount of the Outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder or are present at
a meeting of Holders for quorum purposes, and for the purpose of making the
calculations required by TIA Section 313, Securities owned by the Company or any
other obligor upon the Securities under a supplemental indenture entered into in
accordance herewith or any Affiliate of the Company or of such other obligor
shall be disregarded and deemed not to be Outstanding, except that, in
determining whether the Trustee shall be protected in making such calculation or
in relying upon any such request, demand, authorization, direction, notice,
consent or waiver, only Securities that the Trustee knows to be so owned shall
be so disregarded. Securities so owned that have been pledged in good faith may
be regarded as Outstanding if the pledgee establishes to the satisfaction of the
Trustee the pledgee's right so to act with respect to such Securities and that
the pledgee is not the Company or any other obligor upon the Securities under a
supplemental indenture entered into in accordance herewith or any Affiliate of
the Company or of such other obligor.
"Outstanding Initial Securities" means all Initial Securities that are
"Outstanding", as such term is defined in the Initial Indenture.
"Paying Agent" means any Person (including the Company) authorized by the
Company to pay the principal of (and premium, if any) or interest (including any
Liquidated Damages) on any Securities on behalf of the Company.
"Permitted Holders" shall mean Web Hosting Organization LLC, Charterhouse
Group International, Inc., SOFTBANK Technology Ventures IV, L.P., WHO Management
LLC and SOFTBANK Technology Advisors Fund, L.P., and their respective controlled
Affiliates (other than their other portfolio companies), including any Person
(other than their other portfolio companies) in which any of the foregoing,
individually or collectively, owns beneficially more than 50% of the total
voting power of the shares, interests, participations or other equivalents of
corporate stock, partnership or limited liability company interests or any other
participation, right or other interest in the nature of an equity interest of
such Person.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof.
6
<PAGE>
"Place of Payment" means the place or places where the principal of (and
premium, if any), interest on (including any Liquidated Damages) and the
Redemption Prices and the Repurchase Price with respect to the Securities are
payable as specified by Section 9.02.
----
"Predecessor Security" means, with respect to any Security, every previous
Security evidencing all or a portion of the same debt as that evidenced by such
Security; and, for the purposes of this definition, any Security authenticated
and delivered under Section 3.05 in exchange for or in lieu of a mutilated,
----
destroyed, lost or stolen Security shall be deemed to evidence the same debt as
the mutilated, destroyed, lost or stolen Security.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
"Redemption Date," when used with respect to any Security to be redeemed,
in whole or in part, means the date fixed for such redemption by or pursuant to
this Indenture.
"Redemption Price," means the Optional Redemption Price, in the event of an
Optional Redemption, or the Provisional Redemption Price, in the event of a
Provisional Redemption, as the case may be.
"Registration Rights Agreement" means the Registration Rights Agreement,
dated as of March 10, 2000, between the Company and Microsoft Corporation.
"Regular Record Date" for the interest payable on any Interest Payment Date
on the Securities means the date specified for that purpose as contemplated by
Section 3.06, whether or not a Business Day.
----
"Requisite Holders of Initial Securities" means, (a) in the case of an
action under the Initial Indenture to be taken by Initial Securities Holders of
at least 25% in principal amount of the Outstanding Initial Securities, Initial
Securities Holders of a principal amount of Initial Securities equal to (w)
25% of the Adjusted Outstanding Securities minus (x) the principal amount of the
Securities whose Holders have taken correlative action (if any) under this
Indenture, and (b) in the case of an action under the Initial Indenture to be
taken by Initial Securities Holders of at least a majority in principal amount
of the Outstanding Initial Securities, Initial Securities Holders of a principal
amount of Initial Securities equal to (y) a majority of the Adjusted Outstanding
Securities minus (z) the principal amount of the Securities whose Holders have
taken correlative action (if any) under this Indenture.
"Responsible Officer," when used with respect to the Trustee, means the
chairman or any vice-chairman of the board of directors, the chairman or any
vice-chairman of the executive committee of the board of directors, the chairman
of the trust committee, the president, any vice president, the secretary, any
assistant secretary, the treasurer, any assistant treasurer, the cashier, any
assistant cashier, any trust officer or assistant trust officer, the controller
or any assistant controller or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject.
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"Rule 144A" means Rule 144A as promulgated under the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Security" has the meaning stated in the first recital of this Indenture
and, more particularly, means any Security or Securities authenticated and
delivered under this Indenture.
"Senior Indebtedness" means the principal of, premium, if any, interest
(including all interest accruing subsequent to the commencement of any
bankruptcy or similar proceeding, whether or not a claim for post-petition
interest is allowable as a claim in any such proceeding) and all other amounts
owed in respect of all Indebtedness of the Company, whether outstanding on the
date of this Indenture or thereafter created, incurred, assumed, guaranteed or
in effect guaranteed by the Company (including all deferrals, renewals,
extensions, refinancings, replacements, restatements or refundings of, or
amendments, modifications or supplements to, the foregoing); except for (a) any
Indebtedness that is by its terms subordinated to or ranking equal with the
Securities; (b) Indebtedness representing the Initial Securities and the payment
of the principal of (and premium, if any) and interest on (including Liquidated
Damages, if any) and all other amounts payable under the Initial Securities; and
(c) Indebtedness between or among the Company and any of its Subsidiaries or its
Affiliates, including all other debt securities and guarantees in respect of
those debt securities issued to any trust, or trustees of any trust, partnership
or other entity affiliated with the Company that is, directly or indirectly, a
financing vehicle used by the Company in connection with the issuance by that
financing vehicle of preferred securities or other securities that rank equal
with, or junior to, the Securities.
"Significant Subsidiary" means any Subsidiary that is a "significant
subsidiary" (as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
under the Securities Act) of the Company.
"Special Record Date" for the payment of any Defaulted Interest on the
Securities means a date fixed by the Trustee pursuant to Section 3.06.
----
"Stated Maturity" means the date specified in the Securities as the fixed
date on which the principal of, or interest on, such Securities is due and
payable.
"Subsidiary" means a corporation a majority of the outstanding voting
securities of which is owned, directly or indirectly, by the Company or by one
or more other Subsidiaries of the Company, or by the Company and one or more
other Subsidiaries. For the purposes of this definition, "voting securities"
means shares, interests, participations or other equivalents of corporate stock,
partnership or limited liability company interests or any other participation,
right or other interest in the nature of an equity interest that ordinarily have
voting power for the election of directors, managers or trustees, whether at all
times or only so long as no senior class of equity interest has such voting
power by reason of any contingency.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939, and
the rules and regulations promulgated thereunder, as in force on the date this
Indenture is qualified thereunder; provided, however, that in the event the
Trust Indenture Act of 1939 or such rules and regulations
8
<PAGE>
are amended after such date, "Trust Indenture Act" means, to the extent required
by any such amendment, the Trust Indenture Act of 1939 and such rules and
regulations as so amended.
"Trustee" means the Person named as the "Trustee" in the first paragraph of
this Indenture until a successor Trustee shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Trustee" shall mean or
include each Person who is then a Trustee hereunder.
"United States" means the United States of America (including the states
and the District of Columbia), its territories, its possessions and other areas
subject to its jurisdiction.
SECTION 1.02. Other Definitions
Term Defined in Section
"Act" 1.05
-----
"Average Sale Price" 12.04
-----
"Bankruptcy Law" 4.01
-----
"Change in Control" 11.05
-----
"Change in Control Purchase Notice" 11.03
-----
"Closing Price" 12.03
-----
"Commencement Date" 12.04
-----
"Company Notice" 11.03
-----
"Conversion Price" 12.01
-----
"Conversion Rate" 12.01
-----
"Current Event" 12.04
-----
"Custodian" 4.01
-----
"Defaulted Interest" 3.06
-----
"Event of Default" Article 4
---------
"Ex-Dividend Time" 12.04
-----
"Expiration Time" 12.04
-----
"Indemnities" 5.07
-----
"Make-Whole Payment" 10.01
-----
"Material Adverse Effect" 9.04
-----
"Notice Date" 10.01
-----
"Notice of Default" 4.01
-----
"Optional Redemption" 10.01
-----
"Other Event" 12.04
-----
"Provisional Redemption" 10.01
-----
"Provisional Redemption Date" 10.01
-----
"Purchased Shares" 12.04
-----
"Redeemable Capital Stock" 11.05
-----
"Reference Date" 12.04
-----
"Repurchase Date" 11.01
-----
"Repurchase Price" 11.01
-----
"Restricted Securities" 3.04
-----
9
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"Security Register" 3.04
-----
"Security Registrar" 3.04
-----
"Senior Indebtedness Default Notice" 13.03
-----
"Time of Determination" 12.04
-----
"Trading Day" 12.03
-----
Section 1.03. Compliance Certificates and Opinions. Upon any application or
request by the Company to the Trustee to take any action under any provision of
this Indenture, the Company shall furnish to the Trustee an Officers'
Certificate stating that all conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied with and an Opinion
of Counsel stating that in the opinion of such counsel all such conditions
precedent, if any, have been complied with, except that in the case of any such
application or request as to which the furnishing of such documents is
specifically required by any provision of this Indenture relating to such
particular application or request, no additional certificate or opinion need be
furnished.
Every certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture shall include:
(a) a statement that each individual signing such certificate or opinion
has read such condition or covenant and the definitions herein relating thereto;
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of each such individual, he has made
such examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such condition or covenant has been
complied with; and
(d) a statement as to whether, in the opinion of each such individual, such
condition or covenant has been complied with.
SECTION 1.04. Form of Documents Delivered to Trustee. In any case where
several matters are required to be certified by, or covered by an opinion of,
any specified Person, it is not necessary that all such matters be certified by,
or covered by the opinion of, only one such Person, or that they be so certified
or covered by only one document, but one such Person may certify or give an
opinion as to some matters and one or more other such Persons as to other
matters, and any such Person may certify or give an opinion as to such matters
in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon an Opinion of Counsel, or a
certificate or representations by counsel, unless such officer knows, or in the
exercise of reasonable care should know, that the opinion, certificate or
representations with respect to the matters upon which such certificate or
opinion is based are erroneous. Any such Opinion of Counsel or certificate or
representations may be based, insofar as it relates to factual matters, upon a
certificate or opinion of, or representations by, an officer or officers of the
Company stating that the information as to such factual matters is in the
possession of the
10
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Company, unless such counsel knows that the certificate or opinion or
representations as to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 1.05. Acts of Holders. (a) Any request, demand, authorization,
direction, notice, consent, waiver or other action provided by this Indenture to
be given or taken by Holders of the Outstanding Securities may be embodied in
and evidenced by one or more instruments of substantially similar tenor signed
by such Holders in person or by agents duly appointed in writing. Except as
herein otherwise expressly provided, such action shall become effective when
such instrument or instruments are delivered to the Trustee and, where it is
hereby expressly required, to the Company. Such instrument or instruments (and
the action embodied therein and evidenced thereby) are herein sometimes referred
to as the "Act" of the Holders signing such instrument or instruments. Proof of
execution of any such instrument or of a writing appointing any such agent, or
of the holding by any Person of a Security, shall be sufficient for any purpose
of this Indenture and conclusive in favor of the Trustee and the Company and any
agent of the Trustee or the Company, if made in the manner provided in this
Section 1.05.
(b) The fact and date of the execution by any Person of any such instrument
or writing may be proved by the affidavit of a witness to such execution or by a
certificate of a notary public or other officer authorized by law to take
acknowledgments of deeds, certifying that the individual signing such instrument
or writing acknowledged to him the execution thereof. Where such execution is by
a signer acting in a capacity other than his individual capacity, such
certificate or affidavit shall also constitute sufficient proof of his
authority. The fact and date of the execution of any such instrument or writing,
or the authority of the Person executing the same, may also be proved in any
other reasonable manner which the Trustee deems sufficient.
(c) The ownership of the Securities shall be proved by the Security
Register.
(d) (i) If the Company shall solicit from the Holders any request, demand,
authorization, direction, notice, consent, waiver or other Act, the Company may,
at its option, in or pursuant to a Board Resolution, fix in advance a record
date for the determination of Holders entitled to effect such request, demand,
authorization, direction, notice, consent, waiver or other Act, but the Company
shall have no obligation to do so; provided that the Company shall not be
entitled to set a record date for, and the provisions of this paragraph shall
not apply with respect to, the giving or making of any notice, declaration,
request or direction referred to in clause 1.05(d)(iii) below. Notwithstanding
TIA Section 316(c), such record date shall be the record date specified in or
pursuant to such Board Resolution, which shall be a date not earlier than the
date 30 days prior to the first solicitation of Holders generally in connection
therewith and not later than the date such solicitation is completed. If such a
record date is fixed, such request, demand, authorization, direction, notice,
consent, waiver or other Act may be effected before or after such record date,
but only the Holders of record at the close of business on such record date
shall be deemed to be Holders for the purposes of determining whether Holders of
the requisite proportion of Outstanding Securities have authorized or agreed or
consented to such request, demand, authorization, direction,
11
<PAGE>
notice, consent, waiver or other Act, and for that purpose the Outstanding
Securities shall be computed as of such record date; provided that no such
authorization, agreement or consent by the Holders on such record date shall be
deemed effective unless it shall become effective pursuant to the provisions of
this Indenture not later than eleven months after the record date.
(ii) Subject to clause 1.05(d)(iii) below, in the absence of any such
record date fixed by the Company, regardless as to whether any solicitation of
the Holders is occurring on behalf of the Company or any Holder, the Trustee
may, at its option, fix in advance a record date for the determination of such
Holders entitled to give such request, demand, authorization, direction, notice,
consent, waiver or other Act, but the Trustee shall have no obligation to do so.
Any such record date shall be a date not more than 30 days prior to the first
solicitation of Holders generally in connection therewith and no later than the
date of such solicitation.
(iii) The Trustee may set any day as a record date for the purpose of
determining the Holders of Outstanding Securities entitled to join in the giving
or making of (A) any notice of default, (B) any declaration of acceleration
referred to in Section 4.02, (C) any request to institute proceedings referred
to in Section 4.07(b), or (D) any direction referred to in Section 4.12, and may
also set an expiration date by which the relevant Act must be taken. If any
record date is set pursuant to this paragraph, the Holders of Outstanding
Securities on such record date, and no other Holders, shall be entitled to join
in such notice, declaration, request or direction, whether or not such Holders
remain Holders after such record date; provided that no such Act shall be
effective hereunder unless taken on or prior to any applicable expiration date
by Holders of the requisite principal amount of Outstanding Securities on such
record date. Nothing in this paragraph shall be construed to prevent the Trustee
from setting a new record date for any action (whereupon the record date
previously set shall automatically and without any action by any Person be
canceled and of no effect), nor shall anything in this paragraph be construed to
render ineffective any Act taken by Holders of the requisite principal amount of
Outstanding Securities on the date such Act is taken. Promptly after any record
date is set pursuant to this paragraph, the Trustee, at the Company's expense,
shall cause notice of such record date, the proposed Act by Holders and the
applicable expiration date to be given to the Company in writing and to each
Holder of Outstanding Securities in the manner set forth in Section 1.07.
(e) Any request, demand, authorization, direction, notice, consent, waiver
or other Act of the Holder of any Security shall bind every future Holder of the
same Security and the Holder of every Security issued upon the registration of
transfer thereof or in exchange therefor or in lieu thereof in respect of
anything done, omitted or suffered to be done by the Trustee, any Security
Registrar, any Paying Agent, any Conversion Agent or the Company in reliance
thereon, whether or not notation of such action is made upon such Security.
SECTION 1.06. Notices, Etc. to Trustee and Company. Any request, demand,
authorization, direction, notice, consent, waiver or other Act of Holders or
other notice or communication provided or permitted by this Indenture to be made
upon, given or furnished to, or filed with:
(a) the Trustee by any Holder or by the Company shall be sufficient for
every purpose hereunder if made, given, furnished or filed in writing to or with
the Trustee, delivered in
12
<PAGE>
person, mailed by first class mail, postage prepaid, or sent by facsimile or
overnight courier, at its Corporate Trust Office, Attention: Corporate Trust
Administration (Interliant, Inc. 7% Convertible Subordinated Notes due 2005);
provided that notices or other communications to the Trustee shall only be
deemed given when actually received by the Trustee,
(b) the Company by the Trustee or by any Holder shall be sufficient for
every purpose hereunder (unless otherwise herein expressly provided) if in
writing and delivered in person, mailed by first class mail, postage prepaid, or
sent by facsimile or overnight courier, to the Company addressed to it at the
address of its principal office specified in the first paragraph of this
Indenture; provided that the Company may, by notice furnished in writing to the
Trustee, designate additional or different addresses for subsequent notices or
communications by the Company.
SECTION 1.07. Notice to Holders; Waiver. Where this Indenture provides for
notice of any event to Holders by the Company or the Trustee, such notice shall
be sufficiently given (unless otherwise herein expressly provided) if in writing
and mailed, first-class postage prepaid, to each such Holder affected by such
event, at his address as it appears in the Security Register, not later than the
latest date, and not earlier than the earliest date, prescribed for the giving
of such notice. In any case where notice to Holders is given by mail, neither
the failure to mail such notice, nor any defect in any notice so mailed, to any
particular Holder shall affect the sufficiency of such notice with respect to
other Holders given as provided herein. Any notice mailed to a Holder in the
manner herein prescribed shall be conclusively deemed to have been received by
such Holder, whether or not such Holder actually receives such notice.
If by reason of the suspension of or irregularities in regular mail service
or by reason of any other cause it shall be impracticable to give such notice by
mail, then such notification to Holders as shall be made with the approval of
the Trustee shall constitute a sufficient notification to such Holders for every
purpose hereunder.
Any request, demand, authorization, direction, notice, consent, waiver or
other Act required or permitted under this Indenture shall be in the English
language, except that any published notice may be in an official language of the
country of publication.
Where this Indenture provides for notice in any manner, such notice may be
waived in writing by the Person entitled to receive such notice, either before
or after the event, and such waiver shall be the equivalent of such notice.
Waivers of notice by Holders shall be filed with the Trustee, but such filing
shall not be a condition precedent to the validity of any action taken in
reliance upon such waiver.
SECTION 1.08. Effect of Headings and Table of Contents. The Article and
Section headings herein and the Table of Contents are for convenience only and
shall not affect the construction hereof.
SECTION 1.09. Successors and Assigns. All covenants and agreements in this
Indenture by the Company shall bind its successors and assigns, whether so
expressed or not.
13
<PAGE>
SECTION 1.10. Separability Clause. In case any provision in this Indenture
or in any Security shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
SECTION 1.11. Benefits of Indenture. Nothing in this Indenture or in the
Securities, express or implied, shall give to any Person, other than the parties
hereto, any Security Registrar, any Paying Agent, any Conversion Agent and their
successors hereunder and the Holders any benefit or any legal or equitable
right, remedy or claim under this Indenture.
SECTION 1.12. Governing Law. This Indenture and the Securities shall be
governed by and construed in accordance with the law of the State of New York
without regard to conflict of laws principles.
SECTION 1.13. Legal Holidays. In any case where any Interest Payment Date,
Redemption Date, Repurchase Date, Stated Maturity or Maturity of any Security or
the last date on which a Holder has the right to convert his Securities shall
not be a Business Day at any Place of Payment, then (notwithstanding any other
provision of this Indenture or any Security), payment of Redemption Price,
Repurchase Price, interest (including any Liquidated Damages) or principal (and
premium, if any), or conversion of the Securities, need not be made at such
Place of Payment on such date, but may be made on the next succeeding Business
Day at such Place of Payment with the same force and effect as if made on the
Interest Payment Date, Redemption Date, Repurchase Date or at the Stated
Maturity or Maturity or on such last day for conversion; provided that no
interest shall accrue on the amount so payable for the period from and after
such Interest Payment Date, Redemption Date, Repurchase Date, Stated Maturity or
Maturity or on such last day for conversion, as the case may be.
SECTION 1.14. Personal Immunity from Liability for Incorporators,
Stockholders, Etc. No recourse shall be had for the payment of the principal of
or premium, if any, or interest (including any Liquidated Damages), if any, on
any Security, or for any claim based thereon, or otherwise in respect of any
Security, or based on or in respect of this Indenture or any indenture
supplemental hereto, against any incorporator, or against any past, present or
future stockholder, director or officer, as such, of the Company or of any
successor corporation, whether by virtue of any constitution, statute or rule of
law, or by the enforcement of any assessment or penalty or otherwise, all such
liability being expressly waived and released as a condition of, and as
consideration for, the execution of this Indenture and the issue of Securities.
SECTION 1.15. Conflict with Trust Indenture Act. If any provision hereof
limits, qualifies or conflicts with a provision of the TIA that is required
under such Act to be a part of and govern this Indenture, the latter provision
shall control. If any provision of this Indenture modifies or excludes any
provision of the TIA that may be so modified or excluded, the latter provision
shall be deemed to apply to this Indenture as so modified or to be excluded, as
the case may be. To the extent that any provision of a Security conflicts with a
provision in this Indenture, the provision of this Indenture shall control.
14
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ARTICLE 2
Securities Forms
SECTION 2.01. Forms of Securities. The Securities shall be in substantially
the form of Exhibit A hereto, and shall have notations, legends or endorsements
required by law, stock exchange rule or usage or as otherwise indicated in
Exhibit A hereto.
SECTION 2.02. Form of Trustee's Certificate of Authentication. The
Trustee's certificate of authentication shall be in substantially the following
form:
This is one of the Securities described in the within-mentioned Indenture.
DATED: THE CHASE MANHATTAN BANK
as Trustee
By: ____________________________________________
Authorized Signatory
SECTION 2.03. Securities Issuable in Definitive or Global Form. The
Securities shall be issuable either in definitive registered form without
coupons or in global form. If the Securities are issued in global form, they
shall be deposited with the Trustee, at its Corporate Trust Office, as custodian
for DTC or the nominees thereof, and any such Security shall represent such of
the Outstanding Securities as shall be set forth in the books and records of the
Trustee and may provide that it shall represent the aggregate amount of
Outstanding Securities from time to time as adjusted in the books and records of
the Trustee, and that the aggregate amount of Outstanding Securities represented
thereby may from time to time be increased or decreased to reflect exchanges.
Any adjustment of the aggregate amount of Outstanding Securities represented by
a Security in global form to reflect the amount, or any increase or decrease in
the amount, of Outstanding Securities represented thereby shall be made by the
Trustee in such manner and upon instructions given by such Person or Persons as
shall be specified therein or in the Company Order to be delivered to the
Trustee pursuant to Section 3.03. Subject to the provisions of Section 3.03, the
Trustee shall, if required, deliver and redeliver any Security in global form in
the manner and upon instructions given by the Person or Persons specified
therein or in the applicable Company Order. If a Company Order pursuant to
Section 3.03 has been, or simultaneously is, delivered, any instructions by the
Company with respect to endorsement or delivery or redelivery of a Security in
global form shall be in writing but need not comply with Section 1.03 and need
not be accompanied by an Opinion of Counsel.
The provisions of the last sentence of Section 3.03 shall apply to any
Security represented by a Security in global form if such Security was never
issued and sold by the Company and the Company delivers to the Trustee the
Security in global form together with written instructions (which need not
comply with Section 1.03 and need not be accompanied by an Opinion of Counsel)
with regard to the reduction in the principal amount of Securities represented
thereby, together with the written statement contemplated by the last sentence
of Section 3.03.
15
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Notwithstanding the provisions of Section 3.07, payment of principal of and
----
any premium and interest (including any Liquidated Damages) on any Security in
global form shall be made to the Person or Persons specified in such Security.
All Securities issued in global form shall bear the following legend:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW YORK, TO
THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND
ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC, AND ANY PAYMENT IS
MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC, ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL BECAUSE THE REGISTERED OWNER HEREOF,
CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE,
BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE.
ARTICLE 3
The Securities
SECTION 3.01. Title and Term. The Securities shall be and are hereby
authorized to be designated as "7% Convertible Subordinated Notes due 2005",
limited in aggregate principal amount to $50,000,000. The Securities shall
mature and the principal thereof shall be due and payable, together with all
accrued and unpaid interest thereon, on February 16, 2005. The Securities shall
be convertible into shares of Common Stock. The Securities are entitled to the
payment of Liquidated Damages as set forth herein and in the Registration Rights
Agreement.
SECTION 3.02. Denominations. The Securities shall be issuable in
denominations of $1,000 and any integral multiple thereof.
SECTION 3.03. Execution, Authentication, Delivery and Dating. The
Securities shall be executed on behalf of the Company by the Chief Executive
Officer, the Chief Financial Officer, the Treasurer, the President or a Vice
President of the Company. The signature of any of these individuals on the
Securities may be a manual or facsimile signature of such authorized officer and
may be imprinted or otherwise reproduced on the Securities.
Securities bearing the manual or facsimile signatures of an individual who
was at any time the proper officer of the Company shall bind the Company,
notwithstanding that such individual shall have ceased to hold such office prior
to the authentication and delivery of such Securities or did not hold such
office at the date of such Securities.
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<PAGE>
At any time and from time to time after the execution and delivery of this
Indenture, the Company may deliver Securities, executed by the Company, to the
Trustee for authentication, together with a Company Order for the authentication
and delivery of such Securities, and the Trustee in accordance with the Company
Order shall authenticate and deliver such Securities.
Each Security shall be dated the date of its authentication; provided,
however, that each Security comprising part of the first issuance of Securities
hereunder shall be dated February 16, 2000, and each subsequent issuance of
Securities may, at the Company's option, also be dated February 16, 2000.
No Security shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for in Section
2.02, duly executed by the Trustee by manual signature of an authorized
- ----
signatory, and such certificate upon any Security shall be conclusive evidence,
and the only evidence, that such Security has been duly authenticated and
delivered hereunder and is entitled to the benefits of this Indenture.
Notwithstanding the foregoing, if any Security shall have been authenticated and
delivered hereunder but never issued and sold by the Company, and the Company
shall deliver such Security to the Trustee for cancellation as provided in
Section 3.08 together with a written statement (which need not comply with
----
Section 1.03 and need not be accompanied by an Opinion of Counsel) stating that
----
such Security has never been issued and sold by the Company, for all purposes of
this Indenture, such Security shall be deemed not to have been authenticated and
delivered hereunder and shall never be entitled to the benefits of this
Indenture.
SECTION 3.04. Registration, Registration of Transfer and Exchange.
(a) The Company shall cause to be kept at the Corporate Trust Office of the
Trustee or in any office or agency of the Company in a Place of Payment a
register for the Securities (the "Security Register") in which, subject to such
reasonable regulations as it may prescribe, the Company shall provide for the
registration of the Securities and of transfers of the Securities. The Security
Register shall be in written form or any other form capable of being converted
into written form within a reasonable time. The Trustee, at its Corporate Trust
Office, is hereby appointed "Security Registrar" for the purpose of registering
the Securities and transfers of the Securities on such Security Register as
herein provided. In the event that the Trustee shall cease to be Security
Registrar, it shall have the right to examine the Security Register at all
reasonable times.
Subject to the provisions of this Section 3.04 and except as otherwise
----
provided in any Security, including any legend thereon, upon surrender for
registration of transfer of any Security at any office or agency of the Company
in a Place of Payment, the Company shall execute, and the Trustee shall
authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Securities, of any authorized denominations and of
a like aggregate principal amount, bearing a number not contemporaneously
outstanding, and containing identical terms and provisions.
Subject to the provisions of this Section 3.04, at the option of the
----
Holder, the Securities may be exchanged for other Securities (including the
exchange of all Outstanding definitive Securities for a global Security if the
Company has made the Securities eligible at DTC and has created a global
security for that purpose), of any authorized denomination or denominations and
of a like aggregate
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principal amount, containing identical terms and provisions, upon surrender of
the Securities to be exchanged at any such office or agency. Whenever any such
Securities are so surrendered for exchange, the Company shall execute, and the
Trustee shall authenticate and deliver, the Securities that the Holder making
the exchange is entitled to receive.
Notwithstanding the foregoing, any global Security shall be exchangeable
only as provided in this paragraph. The depositary for the global Securities
shall be DTC, and the global Securities may be transferred, in whole but not in
part, only to a nominee of DTC, or by a nominee of DTC to DTC, or to a successor
to DTC for such global Security selected or approved by the Company or to a
nominee of such successor to DTC. If at any time DTC notifies the Company that
it is unwilling or unable to continue as depositary for the applicable global
Security or Securities or if at any time DTC ceases to be a clearing agency
registered under the Securities Exchange Act of 1934, if so required by
applicable law or regulation, the Company shall appoint a successor depositary
with respect to such global Security or Securities. If (x) a successor
depositary for such global Security or Securities is not appointed by the
Company within 90 days after the Company receives such notice or becomes aware
of such unwillingness, inability or ineligibility, or (y) a Default or an Event
of Default has occurred and is continuing, or (z) the Company, in its sole
discretion, executes and delivers to the Trustee and the Security Registrar an
Officers' Certificate stating that definitive Securities may be issued in
exchange for interests in a global Security or Securities, then the Company
shall execute, and the Trustee shall authenticate and deliver, definitive
Securities of like rank, tenor and terms in definitive form, registered in such
names as DTC shall direct and bearing such legends as the Company shall specify
in writing, in an aggregate principal amount equal to the principal amount of
such global Security or Securities. If a Security is issued in exchange for any
portion of a global Security after the close of business at the office or agency
where such exchange occurs on (i) any Regular Record Date and before the opening
of business at such office or agency on the relevant Interest Payment Date or
(ii) any Special Record Date and before the opening of business at such office
or agency on the related proposed date for payment of Defaulted Interest,
interest or Defaulted Interest, as the case may be, shall not be payable on such
Interest Payment Date or proposed date for payment, as the case may be, in
respect of such Security, but will be payable on such Interest Payment Date or
proposed date for payment, as the case may be, only to the Person to whom
interest in respect of such portion of such global Security is payable in
accordance with the provisions of this Indenture.
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer or for
exchange or redemption shall (if so required by the Company or the Security
Registrar) be duly endorsed, or be accompanied by a written instrument of
transfer, in form satisfactory to the Company and the Security Registrar, duly
executed by the Holder thereof or his attorney duly authorized in writing.
No service charge shall be made to a Holder for any registration of
transfer or exchange of Securities, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer or
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exchange of Securities, other than exchanges pursuant to Section 10.07 or
11.03(e) not involving any transfer.
The Company or the Trustee, as applicable, shall not be required (i) to
issue, register the transfer of or exchange any Security during a period
beginning at the opening of business 15 days before the date of the mailing of a
notice of redemption with respect to the Securities to be redeemed under Section
10.03 and ending at the close of business on the day of the mailing of the
relevant notice of redemption, or (ii) to register the transfer of or exchange
any Security so selected for redemption in whole or in part, except, in the case
of any Security to be redeemed in part, the portion thereof not to be redeemed,
or (iii) to issue, register the transfer of or exchange any Security that has
been surrendered for repayment at the option of the Holder, except the portion,
if any, of such Security not to be so repaid.
(b) Every Security that bears or is required under this Section 3.04(b) to
bear the legend set forth in this Section 3.04(b) (together with any Common
Stock issued upon conversion or exchange of the Securities (including any
exchange constituting payment of the Repurchase Price for Securities pursuant to
Article 11) and required to bear the legend set forth in Section 3.04(c),
collectively, the "Restricted Securities") shall be subject to the restrictions
on transfer set forth in this Section 3.04(b) (including one of the legends set
forth below), unless such restrictions on transfer shall be waived by written
consent of the Company, and the holder of each such Restricted Security, by such
holder's acceptance thereof, agrees to be bound by all such restrictions on
transfer. As used in Sections 3.04(b) and 3.04(c), the term "transfer"
encompasses any sale, pledge, transfer or other disposition whatsoever of any
Restricted Security. Upon the effectiveness of a filed registration statement
covering the Securities, the Company shall deliver an Officers' Certificate to
the Trustee informing the Trustee of the effectiveness of such registration and
instructing the Trustee regarding the issuance and delivery of unlegended
Securities.
Until two years after the original issuance date of any Security, any
certificate evidencing such Security (and all securities issued in exchange
therefor or substitution thereof, other than Common Stock, if any, issued upon
conversion thereof or upon payment of the Repurchase Price therefor pursuant to
Article 11, which shall bear the legend set forth in Section 3.04(c), if
applicable) shall bear a legend in substantially the following form (unless such
Securities have been transferred pursuant to a registration statement that has
been declared effective under the Securities Act (and which continues to be
effective at the time of such transfer), pursuant to the exemption from
registration provided by Rule 144 under the Securities Act, or unless otherwise
agreed by the Company in writing, with notice thereof to the Trustee in the form
of an Officers' Certificate):
THE SECURITY EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND
MAY NOT BE OFFERED OR SOLD EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY
ITS ACQUISITION HEREOF, THE HOLDER; (1) AGREES THAT IT WILL NOT WITHIN TWO YEARS
AFTER THE ORIGINAL ISSUANCE OF THE SECURITY EVIDENCED HEREBY RESELL OR OTHERWISE
TRANSFER THE SECURITY EVIDENCED HEREBY OR THE COMMON STOCK ISSUABLE UPON
CONVERSION OR EXCHANGE OF SUCH SECURITY EXCEPT (A) TO THE COMPANY OR ANY
SUBSIDIARY THEREOF, (B) PURSUANT TO THE EXEMPTION FROM
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REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (C)
PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE
SECURITIES ACT (AND WHICH CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH
TRANSFER); AND (2) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE
SECURITY EVIDENCED HEREBY IS TRANSFERRED (OTHER THAN A TRANSFER PURSUANT TO
CLAUSE 2(C) ABOVE) A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN
CONNECTION WITH ANY TRANSFER OF THE SECURITY EVIDENCED HEREBY WITHIN TWO YEARS
AFTER THE ORIGINAL ISSUANCE OF SUCH SECURITY (OTHER THAN A TRANSFER PURSUANT TO
CLAUSE 2(C) ABOVE), THE HOLDER MUST SUBMIT THIS CERTIFICATE TO THE CHASE
MANHATTAN BANK, AS TRUSTEE. IF THE PROPOSED TRANSFER IS PURSUANT TO CLAUSE 2(B)
ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE CHASE MANHATTAN
BANK, AS TRUSTEE, SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS
THE COMPANY MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE
PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THIS LEGEND WILL BE REMOVED
UPON THE EARLIER OF THE TRANSFER OF THE SECURITY EVIDENCED HEREBY PURSUANT TO
CLAUSE 2(B) OR 2(C) ABOVE OR THE EXPIRATION OF TWO YEARS FROM THE ORIGINAL
ISSUANCE OF THE SECURITY EVIDENCED HEREBY.
Any Security (or Security issued in exchange or substitution therefor) as
to which such restrictions on transfer shall have expired in accordance with
their terms may, upon surrender of such Security for exchange to the Security
Registrar in accordance with the provisions of this Section 3.04, be exchanged
----
for a new Security or Securities, of like tenor and aggregate principal amount,
which shall not bear the restrictive legend required by this Section 3.04(b).
-------
At such time as all interests in the global Security have been redeemed,
converted, canceled, repurchased or transferred, the global Security shall be,
upon receipt thereof, canceled by the Trustee in accordance with standing
procedures and instructions existing between the depositary and the Custodian.
(c) Until two years after the original issuance date of any Security, any
stock certificate representing Common Stock issued upon conversion or exchange
of such Security (including any exchange constituting payment of the Repurchase
Price for any Securities pursuant to Article 11) of such Security shall bear a
legend in substantially the following form (unless such Common Stock has been
sold pursuant to the exemption from registration provided by Rule 144 under the
Securities Act or pursuant to a registration statement that has been declared
effective under the Securities Act, and which continues to be effective at the
time of such transfer, or such Common Stock has been issued upon conversion or
exchange of Securities that have been transferred pursuant to a registration
statement that has been declared effective under the Securities Act, or unless
otherwise agreed by the Company with written notice thereof to the Trustee (in
the form of an Officers' Certificate) and any transfer agent for the Common
Stock):
THE COMMON STOCK EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR
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ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED OR SOLD EXCEPT AS SET FORTH IN
THE FOLLOWING SENTENCE. THE HOLDER HEREOF AGREES THAT UNTIL THE EXPIRATION OF
TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THE SECURITY UPON THE CONVERSION OR
EXCHANGE OF WHICH THE COMMON STOCK EVIDENCED HEREBY WAS ISSUED, (1) IT WILL NOT
RESELL OR OTHERWISE TRANSFER THE COMMON STOCK EVIDENCED HEREBY EXCEPT (A) TO THE
COMPANY OR ANY SUBSIDIARY THEREOF, (B) PURSUANT TO THE EXEMPTION FROM
REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), OR
(C) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER
THE SECURITIES ACT (AND WHICH CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH
TRANSFER); (2) PRIOR TO ANY SUCH TRANSFER (OTHER THAN A TRANSFER PURSUANT TO
CLAUSE 1(C) ABOVE), IT WILL FURNISH TO CHASEMELLON SHAREHOLDER SERVICES, L.L.C.,
AS TRANSFER AGENT, SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS
THE COMPANY MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE
PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT; AND (3) IT WILL DELIVER TO EACH
PERSON TO WHOM THE COMMON STOCK EVIDENCED HEREBY IS TRANSFERRED (OTHER THAN A
TRANSFER PURSUANT TO CLAUSE 1(C) ABOVE) A NOTICE SUBSTANTIALLY TO THE EFFECT OF
THIS LEGEND. THIS LEGEND WILL BE REMOVED UPON THE EARLIER OF THE TRANSFER OF THE
COMMON STOCK EVIDENCED HEREBY PURSUANT TO CLAUSE 1(B) OR 1(C) ABOVE OR THE
EXPIRATION OF TWO YEARS FROM THE ORIGINAL ISSUANCE OF THE SECURITY UPON THE
CONVERSION OR EXCHANGE OF WHICH THE COMMON STOCK EVIDENCED HEREBY WAS ISSUED.
Any such Common Stock as to which such restrictions on transfer shall have
expired in accordance with their terms may, upon surrender of the certificates
representing such shares of Common Stock for exchange in accordance with the
procedures of the transfer agent for the Common Stock, be exchanged for a new
certificate or certificates for a like aggregate number of shares of Common
Stock, which shall not bear the restrictive legend required by this Section
3.04(c).
(d) Any Security or Common Stock issued upon the conversion or exchange of
a Security that, prior to the expiration of the holding period applicable to
sales thereof under Rule 144(k) under the Securities Act (or any successor
provision), is purchased or owned by the Company or any Affiliate thereof may
not be resold by the Company or such Affiliate unless registered under the
Securities Act or resold pursuant to an exemption from the registration
requirements of the Securities Act in a transaction that results in such
Securities or Common Stock, as the case may be, no longer being "restricted
securities" (as defined under Rule 144).
(e) Notwithstanding any provision of Section 3.04 to the contrary, in the
event Rule 144(k) as promulgated under the Securities Act (or any successor
rule) is amended to change the two-year period under Rule 144(k) (or the
corresponding period under any successor rule), from and after receipt by the
Trustee of the Officers' Certificate and Opinion of Counsel provided for in this
Section 3.04(e), (i) each reference in Section 3.04(b) to "two years" and in the
restrictive legend set forth in such paragraph to "TWO YEARS" shall be deemed
for all purposes hereof to be
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references to such changed period, (ii) each reference in Section 3.04(c) to
"two years" and in the restrictive legend set forth in such paragraph to "TWO
YEARS" shall be deemed for all purposes hereof to be references to such changed
period and (iii) all corresponding references in the Securities and the
restrictive legends thereon shall be deemed for all purposes hereof to be
references to such changed period, provided that such changes shall not become
effective if they are otherwise prohibited by, or would otherwise cause a
violation of, the then-applicable federal securities laws. As soon as
practicable after the Company has knowledge of the effectiveness of any such
amendment to change the two-year period under Rule 144(k) (or the corresponding
period under any successor rule), unless such changes would otherwise be
prohibited by, or would otherwise cause a violation of, the then-applicable
securities law, the Company shall provide to the Trustee an Officers'
Certificate and Opinion of Counsel informing the Trustee of the effectiveness of
such amendment and the effectiveness of the foregoing changes to Sections
3.04(b) and 3.04(c) and the Notes. The provisions of this Section 3.04(e) shall
not be effective until such time as the Opinion of Counsel and Officers'
Certificate have been received by the Trustee hereunder. This Section 3.04(e)
shall apply to successive amendments to Rule 144(k) (or any successor rule)
changing the holding period thereunder.
SECTION 3.05. Mutilated, Destroyed, Lost and Stolen SecuritiesZ. If any
mutilated Security is surrendered to the Trustee or the Company, together with
such security or indemnity as may be required by the Company or the Trustee to
save each of them or any agent of either of them harmless, the Company shall, at
the relevant Holder's expense, execute and the Trustee shall authenticate and
deliver in exchange therefor a new Security of the same principal amount,
containing identical terms and provisions and bearing a number not
contemporaneously outstanding.
If there shall be delivered to the Company and to the Trustee (i) evidence
to their satisfaction of the destruction, loss or theft of any Security and (ii)
such security or indemnity as may be required by them to save each of them and
any agent of either of them harmless, then, in the absence of notice to the
Company or the Trustee that such Security has been acquired by a bona fide
purchaser, the Company, at the relevant Holder's expense, shall execute, and
upon the Company's request the Trustee shall authenticate and deliver, in lieu
of any such destroyed, lost or stolen Security, a new Security of the same
principal amount, containing identical terms and provisions and bearing a number
not contemporaneously outstanding, appertaining to such destroyed, lost or
stolen Security.
Notwithstanding the provisions of the previous two paragraphs, in case any
such mutilated, destroyed, lost or stolen Security has become or is about to
become due and payable, the Company in its discretion may, instead of issuing a
new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses (including
the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of any
mutilated, destroyed, lost or stolen Security, shall constitute an original
additional contractual obligation of the Company, whether or not the mutilated,
destroyed, lost or stolen Security shall be at any time enforceable by
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anyone, and shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities.
SECTION 3.06. Payment of Interest; Interest Rights Preserved. Interest on
any Security (including any Liquidated Damages) that is payable, and is
punctually paid or duly provided for, on any Interest Payment Date shall be paid
to the Person in whose name that Security (or one or more Predecessor
Securities) is registered at the close of business on the Regular Record Date
for such interest at the office or agency of the Company maintained for such
purpose pursuant to Section 9.02; provided, however, that each installment of
interest (including any Liquidated Damages) on any Security may at the Company's
option be paid by (i) mailing a check for such interest, payable to or upon the
written order of the Person entitled thereto pursuant to Section 3.07, to the
address of such Person as it appears on the Security Register or (ii) if the
Trustee shall have received written bank wire instructions prior to the Regular
Record Date for such payment, transfer to an account maintained by the payee
located inside the United States; provided, however, that payments to DTC shall
be made by wire transfer of immediately available funds to the account of DTC or
its nominee. The term "Regular Record Date" with respect to any Interest Payment
Date shall mean the February 1 or August 1 preceding February 16 or August 16,
respectively.
Any interest (including any Liquidated Damages) on any Security that is
payable, but is not punctually paid or duly provided for, on any Interest
Payment Date (herein called "Defaulted Interest") shall forthwith cease to be
payable to the registered Holder thereof on the relevant Regular Record Date by
virtue of having been such Holder, and such Defaulted Interest may be paid by
the Company, at its election in each case, as provided in clause 3.06(a) or
3.06(b) below:
(a) The Company may elect to make payment of any Defaulted Interest to
the Persons in whose names the Securities (or their respective Predecessor
Securities) are registered at the close of business on a Special Record Date for
the payment of such Defaulted Interest, which shall be fixed in the following
manner. The Company shall notify the Trustee in writing of the amount of
Defaulted Interest proposed to be paid on each Security and the date of the
proposed payment (which shall not be less than 30 days after such notice is
received by the Trustee) and at the same time the Company shall deposit with the
Trustee an amount of money equal to the aggregate amount proposed to be paid in
respect of such Defaulted Interest or shall make arrangements satisfactory to
the Trustee for such deposit on or prior to the date of the proposed payment,
such money when deposited to be held in trust for the benefit of the Persons
entitled to such Defaulted Interest as in this clause provided. Thereupon the
Company shall fix a Special Record Date for the payment of such Defaulted
Interest which shall be not more than 15 days and not less than 10 days prior to
the date of the proposed payment. The Company shall promptly notify the Trustee
of such Special Record Date and, in the name and at the expense of the Company,
the Trustee shall cause notice of the proposed payment of such Defaulted
Interest and the Special Record Date therefor to be mailed, first-class postage
prepaid, to each Holder of Securities at his address as it appears in the
Security Register not less than 10 days prior to such Special Record Date. The
Trustee may, in its discretion, in the name and at the expense of the Company,
cause a similar notice to be published at
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least once in an Authorized Newspaper in each Place of Payment, but such
publications shall not be a condition precedent to the establishment of such
Special Record Date. Notice of the proposed payment of such Defaulted Interest
and the Special Record Date therefor having been mailed as aforesaid, such
Defaulted Interest shall be paid to the Persons in whose names the Securities
(or their respective Predecessor Securities) are registered at the close of
business on such Special Record Date and shall no longer be payable pursuant to
the following clause (b).
(b) The Company may make payment of any Defaulted Interest on the
Securities in any other lawful manner not inconsistent with the requirements of
any securities exchange on which such Securities may be listed, and upon such
notice as may be required by such exchange, if, after notice given by the
Company to the Trustee of the proposed payment pursuant to this clause, such
manner of payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Security.
SECTION 3.07. Persons Deemed Owners. Prior to due presentment of a Security
for registration of transfer, the Company, the Trustee and any agent of the
Company or the Trustee may treat the Person in whose name such Security is
registered as the owner of such Security for the purpose of receiving payment of
principal of (and premium, if any), and (subject to Sections 3.04 and 3.06)
interest on, such Security and for all other purposes whatsoever, whether or not
such Security is overdue, and neither the Company, the Trustee nor any agent of
the Company or the Trustee shall be affected by notice to the contrary.
None of the Company, the Trustee, any Paying Agent or the Security
Registrar shall have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests of a Security in global form or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
Notwithstanding the foregoing, with respect to any global Security, nothing
herein shall prevent the Company, the Trustee, or any agent of the Company or
the Trustee, from giving effect to any written certification, proxy or other
authorization furnished by any depositary, as a Holder, with respect to such
global Security or impair, as between such depositary and owners of beneficial
interests in such global Security, the operation of customary practices
governing the exercise of the rights of such depositary (or its nominee) as a
Holder of such global Security.
SECTION 3.08. Cancellation. All Securities surrendered for payment,
redemption, repayment at the option of the Holder or registration of transfer or
exchange shall, if surrendered to any Person other than the Trustee, be
delivered to the Trustee, and any such Securities surrendered directly to the
Trustee for any such purpose shall be promptly canceled by it. The Company may
at any time deliver to the Trustee for cancellation any Securities previously
authenticated and delivered hereunder that the Company may have acquired in any
manner whatsoever, and may deliver to the Trustee (or to any other Person for
delivery to the Trustee) for cancellation any Securities previously
authenticated hereunder that the Company has not issued and sold, and all
Securities so delivered
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shall be promptly canceled by the Trustee. If the Company shall so acquire any
of the Securities, however, such acquisition shall not operate as a redemption
or satisfaction of the indebtedness represented by such Securities unless and
until the same are surrendered to the Trustee for cancellation. No Securities
shall be authenticated in lieu of or in exchange for any Securities canceled as
provided in this Section, except as expressly permitted by this Indenture.
Canceled Securities held by the Trustee shall be destroyed by the Trustee and
the Trustee shall deliver a certificate of such destruction to the Company,
unless by a Company Order the Company directs their return to it.
SECTION 3.09. Computation of Interest. Interest (including any Liquidated
Damages) on the Securities shall be computed on the basis of a 360-day year
consisting of twelve 30-day months.
SECTION 3.10. CUSIP Numbers. The Company in issuing the Securities shall
use "CUSIP" numbers, and the Trustee shall use CUSIP numbers in notices of
redemption as a convenience to Holders; provided however, that any such notice
may state that no representation is made as to the correctness of such numbers
either as printed on the Securities or as contained in any notice of a
redemption and that reliance may be placed only on the other identification
numbers printed on the Securities, and any such redemption shall not be affected
by any defect in or omission of such numbers. The Company shall promptly notify
the Trustee of any change in the CUSIP numbers applicable to the Securities.
ARTICLE 4
Remedies
SECTION 4.01. Events of Default. "Event of Default," wherever used herein
with respect to the Securities, means any one of the following events (whatever
the reason for such Event of Default and whether or not it shall be occasioned
by the provisions of Article 13 or be voluntary or involuntary or be effected by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(a) default in the payment of any interest (including any Liquidated
Damages) upon any Security, when such interest becomes due and payable, and
continuance of such default for a period of 30 days (whether or not such payment
is prohibited by the provisions of Article 13); or
(b) default in the payment of (i) the principal of (or premium, if
any, on) any Security when it becomes due and payable at its Maturity, or (ii)
the Redemption Price (including the Make-Whole Payment, if any) with respect to
any Security when it becomes due and payable (whether or not such payment is
prohibited by the provisions of Article 13); or
(c) default in the payment of the Repurchase Price in respect of any
Security on the Repurchase Date therefor (whether or not such payment is
prohibited by the provisions of Article 13 and whether or not a Person other
than the Company has offered to repurchase Outstanding Securities as
contemplated by Section 11.03(k)); or
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(d) failure by the Company to give the Company Notice in accordance
with Section 11.03(a) to all Holders of Outstanding Securities and to the
Trustee, or failure by the Company to comply with its covenants set forth in
Section 11.03(b); or
(e) failure by the Company to deliver shares of Common Stock (together
with cash in lieu of fractional shares) when such Common Stock (or cash in lieu
of fractional shares) is required to be delivered following conversion of a
Security and continuation of such default for a period of 10 days; or
(f) default in the performance, or breach, of any covenant or warranty
of the Company in this Indenture with respect to any Security (other than a
covenant or warranty a default in whose performance or whose breach is elsewhere
in this Section specifically dealt with) and continuance of such default or
breach for a period of 60 days after there has been given, by registered or
certified mail, to the Company by the Trustee or to the Company and the Trustee
by the Holders of at least 25% in principal amount of the Outstanding Securities
a written notice specifying such default or breach and requiring it to be
remedied and stating that such notice is a "Notice of Default" hereunder;
provided, however, that such notice shall be ineffective unless and until a
Responsible Officer of the Trustee has received notice from the Company that
Requisite Holders of Initial Securities have given to the Company a written
notice specifying a default or breach in accordance with Section 4.01 (f) of the
Initial Indenture and requiring it to be remedied and stating that such notice
is a "Notice of Default" under the Initial Indenture; or
(g) a default under any bonds, debentures, notes or other evidences of
indebtedness for money borrowed of the Company or under any mortgages,
indentures or instruments under which there may be issued or by which there may
be secured or evidenced any indebtedness for money borrowed by the Company,
whether such indebtedness now exists or shall hereafter be created, which
indebtedness, individually or in the aggregate, has a principal amount
outstanding in excess of $10,000,000, which default shall have resulted in such
indebtedness becoming or being declared due and payable prior to the date on
which it would otherwise have become due and payable, without such indebtedness
having been discharged, or such acceleration having been rescinded or annulled,
within a period of 60 days after there shall have been given, by registered or
certified mail, to the Company by the Trustee or to the Company and the Trustee
by the Holders of at least 25% in principal amount of the Securities then
Outstanding, a written notice specifying such default and requiring the Company
to cause such indebtedness to be discharged or cause such acceleration to be
rescinded or annulled and stating that such notice is a "Notice of Default"
hereunder (unless such default has been cured or waived); provided, however,
that such notice shall be ineffective unless and until a Responsible Officer of
the Trustee has received notice from the Company that Requisite Holders of
Initial Securities have given to the Company a written notice specifying a
default in accordance with Section 4.01(g) of the Initial Indenture and
requiring the Company to cause such indebtedness to be discharged or cause such
acceleration to be rescinded or annulled and stating that such notice is a
"Notice of Default" under the Initial Indenture; or
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(h) the Company or any Significant Subsidiary pursuant to or within
the meaning of any Bankruptcy Law:
(i) commences a voluntary case,
(ii) consents to the entry of an order for relief against it in
an involuntary case,
(iii) consents to the appointment of a Custodian of it or for all
or substantially all of its property, or
(iv) makes a general assignment for the benefit of its creditors;
or
(v) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(vi) is for relief against the Company or any Significant
Subsidiary in an involuntary case,
(vii) appoints a Custodian of the Company or any Significant
Subsidiary or for all or substantially all of the property of any of them, or
(viii) orders the winding up or liquidation of the Company or any
Significant Subsidiary,
and the order or decree remains unstayed and in effect for 60 days.
As used in this Section 4.01 only, the term "Bankruptcy Law" means title
11, U.S. Code or any similar Federal or State law for the relief of debtors and
the term "Custodian" means any receiver, trustee, assignee, liquidator or other
similar official under any Bankruptcy Law.
SECTION 4.02. Acceleration of Maturity; Rescission and Annulment. If an
Event of Default with respect to Securities at the time Outstanding occurs and
is continuing, then and in every such case the Trustee, or the Holders of not
less than 25% in principal amount of the Outstanding Securities, may declare the
principal of all the Securities, and accrued interest thereon to the date of
such declaration, to be due and payable immediately, by a notice in writing to
the Company (and to the Trustee if given by the Holders), and upon any such
declaration such principal shall become immediately due and payable; provided,
however, that such notice shall be ineffective unless and until a Responsible
Officer of the Trustee has received notice from the Company that Requisite
Holders of Initial Securities have given to the Company a written notice
declaring the principal of all the Initial Securities, and accrued interest
thereon to the date of such declaration, to be immediately due and payable in
accordance with Section 4.02 of the Initial Indenture. If an Event of Default
specified in Section 4.01(h) or Section 4.01(i) occurs, the principal of, and
accrued interest on, all the Securities shall automatically, and without any
declaration or other action on the part of the Trustee or any Holder, become
immediately due and payable.
At any time after such a declaration of acceleration with respect to the
Securities has been made and before a judgment or decree for payment of the
money due has been obtained by the
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Trustee as hereinafter provided in this Article, the Holders of a majority in
principal amount of the Outstanding Securities, by written notice to the Company
and the Trustee, may rescind and annul such declaration and its consequences if:
(a) the Company has paid or deposited with the Trustee a sum
sufficient to pay:
(i) all overdue installments of interest on all Outstanding
Securities,
(ii) the principal of (and premium, if any, on) any Outstanding
Securities that have become due otherwise than by reason of such declaration of
acceleration and interest thereon at the rate or rates borne by or provided for
in such Securities,
(iii) to the extent that payment of such interest is lawful,
interest upon overdue installments of interest at the rate or rates borne by or
provided for in such Securities, and
(iv) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel; and
(b) all Events of Default with respect to the Securities, other than
the nonpayment of the principal of (or premium, if any) or interest on
Securities which have become due solely by reason of such declaration of
acceleration, have been cured or waived as provided in Section 4.13.
No such rescission and annulment shall affect any subsequent Default or
Event of Default or impair any right in respect thereof.
A rescission and annulment of such declaration and its consequences shall
be automatic, and without any declaration or other action on the part of the
Trustee or any Holder, immediately upon a Responsible Officer of the Trustee
receiving notice from the Company that Initial Securities Holders of a principal
amount of the Outstanding Initial Securities equal to a majority in principal
amount of the Adjusted Outstanding Securities have rescinded a correlative
declaration of acceleration with respect to the Initial Securities. The
provisions of Section 316(a)(1) of the TIA are excluded from this Indenture to
the extent inconsistent with the immediately preceding sentence.
SECTION 4.03. Collection of Indebtedness and Suits for Enforcement by
Trustee. The Company covenants that if:
(a) default is made in the payment of any installment of interest
(including any Liquidated Damages) on any Security when such interest becomes
due and payable and such default continues for a period of 30 days, or
(b) default is made in the payment of the principal of (or premium, if
any, on) any Security at its Maturity,
then the Company shall, upon demand of the Trustee, pay to the Trustee, for
the benefit of the Holders of such Securities, the whole amount then due and
payable on such Securities for principal (and premium, if any) and interest
(including any Liquidated Damages), with interest upon any overdue principal
(and premium, if any) and, to the extent that payment of such interest shall be
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legally enforceable, upon any overdue installments of interest (including any
Liquidated Damages), at the rate or rates borne by or provided for in such
Securities, and, in addition thereto, such further amount as shall be sufficient
to cover the costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel.
If the Company fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, and may
prosecute such proceeding to judgment or final decree, and may enforce the same
against the Company or any other obligor upon such Securities under a
supplemental indenture entered into in accordance herewith and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the property of the Company or any other such obligor upon such Securities,
wherever situated.
If an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Holders of Securities by such appropriate judicial proceedings as the Trustee
shall deem most effectual to protect and enforce any such rights, whether for
the specific enforcement of any covenant or agreement in this Indenture or in
aid of the exercise of any power granted herein, or to enforce any other proper
remedy.
SECTION 4.04. Trustee May File Proofs of Claim. In case of the pendency of
any receivership, insolvency, liquidation, bankruptcy, reorganization,
arrangement, adjustment, composition or other judicial proceeding relative to
the Company or any other obligor upon the Securities under a supplemental
indenture entered into in accordance herewith or the property of the Company or
of such other obligor or the Company's, or any such other obligor's, creditors,
the Trustee (irrespective of whether the principal of the Securities shall then
be due and payable as therein expressed or by acceleration or otherwise and
irrespective of whether the Trustee shall have made any demand on the Company
for the payment of overdue principal, premium, if any, or interest) shall be
entitled and empowered, by intervention in such proceeding or otherwise:
(a) to file and prove a claim for the whole amount, or such lesser amount
as may be provided for in the Securities, of principal (and premium, if any) and
interest, owing and unpaid in respect of the Securities and to file such other
papers or documents as may be necessary or advisable in order to have the claims
of the Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and of the
Holders allowed in such judicial proceeding, and
(b) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator
(or other similar official) in any such judicial proceeding is hereby directed
by each Holder to make such payments to the Trustee, and in the event that the
Trustee shall request or consent to the making of such payments directly to the
Holders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee and any
predecessor Trustee, their agents and counsel, and any other amounts due the
Trustee or any predecessor Trustee under Section 5.07.
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Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder of a
Security, any plan of reorganization, arrangement, adjustment or composition
affecting the Securities or the rights of any Holder thereof, or to authorize
the Trustee to vote in respect of the claim of any Holder of a Security in any
such proceeding; provided however, that the Trustee may, on behalf of the
Holders, vote for the election of a trustee in bankruptcy or similar official
and be a member of a creditors' or other similar committee.
SECTION 4.05. Trustee May Enforce Claims Without Possession of Securities.
All rights of action and claims under this Indenture or any of the Securities
may be prosecuted and enforced by the Trustee without the possession of any of
the Securities or the production thereof in any proceeding relating thereto, and
any such proceeding instituted by the Trustee shall be brought in its own name
as trustee of an express trust, and any recovery of judgment shall, after
provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Securities in respect of which such
judgment has been recovered.
SECTION 4.06. Application of Money Collected. Any money collected by the
Trustee pursuant to this Article shall be applied in the following order, at the
date or dates fixed by the Trustee and, in case of the distribution of such
money on account of principal (or premium, if any) or interest, upon
presentation of the Securities, or both, as the case may be, and the notation
thereon of the payment if only partially paid and upon surrender thereof if
fully paid:
FIRST: To the payment of all amounts due the Trustee and any predecessor
Trustee under Section 5.07;
----
SECOND: To the holders of Senior Indebtedness to the extent required by
the provisions of Article 13.
--
THIRD: To the payment of the amounts then due and unpaid upon the
Securities for principal (and premium, if any) and interest (including
Liquidated Damages, if any) payable, in respect of which or for the benefit of
which such money has been collected, ratably, without preference or priority of
any kind, according to the aggregate amounts due and payable on such Securities
for principal (and premium, if any) and, interest (including Liquidated Damages,
if any), respectively; and
FOURTH: To the payment of the remainder, if any, to the Company. SECTION
4.07. Limitation on Suits. No Holder of any Security shall have any right to
institute any proceeding, judicial or otherwise, with respect to this Indenture,
or for the appointment of a receiver or trustee, or for any other remedy
hereunder, unless:
(a) such Holder has previously given written notice to the Trustee of a
continuing Event of Default with respect to the Securities;
(b) the Holders of not less than 25% in principal amount of the Outstanding
Securities shall have made written request to the Trustee to institute
proceedings in respect of such Event of Default in its own name as Trustee
hereunder and a Responsible Officer of the Trustee shall
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have received notice from the Company that Requisite Holders of Initial
Securities have made a written request to the trustee under the Initial
Indenture to institute proceedings in respect of the correlative event of
default under the Initial Indenture in its own name as trustee under the Initial
Indenture;
(c) such Holder or Holders have offered to the Trustee security or
indemnity reasonably satisfactory to the Trustee against the costs, expenses and
liabilities to be incurred in compliance with such request;
(d) the Trustee for 60 days after its receipt of such notice, request and
offer of security or indemnity has failed to institute any such proceeding; and
(e) no direction inconsistent with such written request has been given to
the Trustee during such 60-day period by the Holders of a majority in principal
amount of the Outstanding Securities;
it being understood and intended that no one or more of such Holders shall
have any right in any manner whatever by virtue of, or by availing of, any
provision of this Indenture to affect, disturb or prejudice the rights of any
other of such Holders, or to obtain or to seek to obtain priority or preference
over any other of such Holders or to enforce any right under this Indenture,
except in the manner herein provided and for the equal and ratable benefit of
all such Holders.
SECTION 4.08. Unconditional Right of Holders to Receive Principal, Premium,
If Any, and Interest. Notwithstanding any other provision in this Indenture, the
Holder of any Security shall have the right, which is absolute and
unconditional, to receive payment of the principal of, and premium, if any,
including the Redemption Prices and Make-Whole Payment upon redemption pursuant
to Article 10, the Repurchase Price pursuant to Article 11 and (subject to
Sections 3.04 and 3.06) interest (including Liquidated Damages, if any) on such
Security on the respective due dates expressed in such Security (or, in the case
of redemption or repurchase, on the Redemption Date or Repurchase Date, as the
case may be) and to convert such Security in accordance with the provisions of
this Indenture and to institute suit for the enforcement of any such payment and
right to convert, and such rights shall not be impaired or adversely affected
without the consent of such Holder.
SECTION 4.09. Restoration of Rights and Remedies. If the Trustee or any
Holder of a Security has instituted any proceeding to enforce any right or
remedy under this Indenture and such proceeding has been discontinued or
abandoned for any reason, or has been determined adversely to the Trustee or to
such Holder, then and in every such case, the Company, the Trustee and the
Holders of Securities shall, subject to any determination in such proceeding, be
restored severally and respectively to their former positions hereunder and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.
SECTION 4.10. Rights and Remedies Cumulative. Except as otherwise provided
with respect to the replacement or payment of mutilated, destroyed, lost or
stolen Securities in the last paragraph of Section 3.05, no right or remedy
herein conferred upon or reserved to the Trustee or to the Holders of Securities
is intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right
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and remedy given hereunder or now or hereafter existing at law or in equity or
otherwise. The assertion or employment of any right or remedy hereunder, or
otherwise, shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.
SECTION 4.11. Delay or Omission Not Waiver. No delay or omission of the
Trustee or of any Holder of any Security to exercise any right or remedy
accruing upon any Event of Default shall impair any such right or remedy or
constitute a waiver of any such Event of Default or an acquiescence therein.
Every right and remedy given by this Article or by law to the Trustee or to the
Holders may be exercised from time to time, and as often as may be deemed
expedient, by the Trustee or by the Holders of Securities, as the case may be.
SECTION 4.12. Control by Holders of Securities. The Holders of not less
than a majority in principal amount of the Outstanding Securities shall have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee or exercising any trust or power conferred on
the Trustee with respect to the Securities, provided that:
(a) such direction shall not be in conflict with any rule of law or with
this Indenture,
(b) the Trustee may take any other action deemed proper by the Trustee that
is not inconsistent with such direction,
(c) the Trustee need not take any action that might involve it in personal
liability or be unduly prejudicial to the Holders of Securities not joining
therein, and
(d) a Responsible Officer of the Trustee has received notice from the
Company that Requisite Holders of Initial Securities have given the trustee
under the Initial Indenture an identical directive with respect to the Initial
Securities.
SECTION 4.13. Waiver of Past Defaults. The Holders of not less than a
majority in principal amount of the Outstanding Securities may on behalf of the
Holders of all the Securities waive any past Default or Event of Default
hereunder with respect to such Securities and its consequences, except a Default
or Event of Default:
(a) in the payment of the principal of (or premium, if any) or interest
(including Liquidated Damages) on any Security,
(b) in respect of the conversion by the Company of any Security into Common
Stock,
(c) in the payment of the Redemption Prices or Make-Whole Payment pursuant
to Article 10,
(d) in the payment of the Repurchase Price pursuant to Article 11, or
(e) in respect of a covenant or provision hereof that under Article 8
cannot be modified or amended without the consent of the Holder of each
Outstanding Security affected.
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Any past Default or Event of Default hereunder with respect to the
Securities and its consequences, except a Default or Event of Default described
in clauses (a) through (e) of this Section 4.13, shall be automatically waived,
without any declaration or other action on the part of the Trustee or any
Holder, immediately upon a Responsible Officer of the Trustee receiving notice
from the Company that Initial Securities Holders of a principal amount of the
Outstanding Initial Securities equal to a majority of the Adjusted Outstanding
Securities have rescinded the correlative default or event of default with
respect to the Initial Securities. The provisions of Section 316(a)(1) of the
TIA are excluded from this Indenture to the extent inconsistent with the
immediately preceding sentence.
Upon any such waiver, such Default or Event of Default shall cease to
exist, and any Event of Default arising from any such Default shall be deemed to
have been cured, for every purpose of this Indenture; but no such waiver shall
extend to any subsequent or other Default or Event of Default or impair any
right consequent thereon.
SECTION 4.14. Waiver of Usury, Stay or Extension Laws. The Company
covenants (to the extent that it may lawfully do so) that it shall not at any
time insist upon, or plead, or in any manner whatsoever claim or take the
benefit or advantage of, any usury, stay or extension law wherever enacted, now
or at any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it shall not hinder, delay or impede the execution of
any power herein granted to the Trustee, but will suffer and permit the
execution of every such power as though no such law had been enacted.
SECTION 4.15. Undertaking for Costs. All parties to this Indenture agree,
and each Holder of any Security by his acceptance thereof shall be deemed to
have agreed, that any court may in its discretion require, in any suit for the
enforcement of any right or remedy under this Indenture, or in any suit against
the Trustee for any action taken or omitted by it as Trustee, the filing by any
party litigant in such suit of an undertaking to pay the costs of such suit, and
that such court may in its discretion assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in such suit having due
regard to the merits and good faith of the claims or defenses made by such party
litigant; but the provisions of this Section shall not apply to any suit
instituted by the Trustee, to any suit instituted by the Company, to any suit
instituted by any Holder, or group of Holders, holding in the aggregate more
than 10% in principal amount of the Outstanding Securities, or to any suit
instituted by any Holder for the enforcement of the payment of the principal of
(or premium, if any) or interest on any Security on or after the respective
Stated Maturities expressed in such Security (or, in the case of redemption or
repurchase, on or after the Redemption Date or the Repurchase Date,
respectively), or the right to convert any Security in accordance with Article
12.
ARTICLE 5
The Trustee
SECTION 5.01. General. The Trustee, prior to the occurrence of an Event of
Default and after the curing of all Events of Default that may have occurred,
undertakes to perform such duties and only such duties as are specifically set
forth in this Indenture. In case an Event of Default has occurred (that has not
been cured or waived), the Trustee shall exercise such of the rights and
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powers vested in it by this Indenture, and use the same degree of care and skill
in their exercise, as a prudent man would exercise or use under the
circumstances in the conduct of his own affairs.
No provision of this Indenture shall be construed to relieve the Trustee
from liability for its own negligent action, its own negligent failure to act,
its own willful misconduct, its own recklessness or its own bad faith.
SECTION 5.02. Certain Rights of Trustee. Subject to TIA Sections 15(a)
through (d):
(a) the Trustee may rely, and shall be protected in acting or refraining
from acting, upon any resolution, certificate, statement, instrument, facsimile
transmission, opinion, report, notice, request, direction, consent, order, bond,
debenture, note, other evidence of indebtedness or other paper or document
believed by it to be genuine and to have been signed, made or presented by the
proper person, and may accept and rely upon the same as conclusive evidence of
the truth and accuracy of the statements and opinions contained therein. The
Trustee need not investigate any fact or matter stated in any such document;
(b) before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel, which shall conform to Section
1.03. The Trustee shall not be liable for any action it takes or omits to take
in good faith in reliance on such certificate or opinion;
(c) the Trustee may consult with counsel, and the written advice of such
counsel shall be full and complete authorization and protection with respect to
any action taken, suffered or omitted by it hereunder in good faith and in
reliance thereon, and may act through its attorneys and agents and shall not be
responsible for the misconduct or negligence of any attorney or agent appointed
with due care;
(d) the Trustee shall be under no obligation to exercise any of the rights
or powers vested in it by this Indenture at the request or direction of any of
the Holders, unless such Holders shall have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities that might be
incurred by it in complying with such request or direction;
(e) the Trustee shall not be liable for any action it takes or omits to
take in good faith that it believes to be authorized or within its rights or
powers or for any action it takes or omits to take in accordance with the
written direction of the holders of a majority in principal amount of the
Outstanding Securities relating to the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or exercising any trust or
power conferred upon the Trustee, under this Indenture;
(f) whenever in the administration of this Indenture the Trustee shall deem
it desirable that a matter be proved or established prior to taking, suffering
or omitting any action hereunder, the Trustee (unless other evidence be herein
specifically prescribed) may, in the absence of bad faith on its part, rely upon
an Officers' Certificate;
(g) the Trustee shall not be bound to make any investigation into the facts
or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
note, other evidence of indebtedness or other paper or
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document, but the Trustee, in its discretion, may make such further inquiry or
investigation into such facts or matters as it may see fit, and, if the Trustee
shall determine to make such further inquiry or investigation, it shall be
entitled to examine the books, records and premises of the Company personally or
by agent or attorney;
(h) the Trustee shall not be required to take notice or be deemed to have
notice of any Default or Event of Default unless the Trustee be specifically
notified of such Default or Event of Default in writing by the Company or any
Holder, and in the absence of such notice the Trustee may conclusively assume
that there is no Default or event of Default; provided that if the Trustee is
acting as Paying Agent, the Trustee shall be required to take and be deemed to
have notice of its failure to receive payments of interest or principal
hereunder;
(i) except for information provided by the Trustee concerning the Trustee,
the Trustee shall have no responsibility with respect to any information in any
offering memorandum or other disclosure material distributed with respect to the
Securities, and the Trustee shall have no responsibility for compliance with
securities laws in connection with the issuance and sale, resale or exchange of
the Securities;
(j) in the event the Trustee shall receive inconsistent or conflicting
requests and security or indemnity from two or more groups of Holders, each
representing at least 25% (but less than 50%) of the aggregate principal amount
of the Securities then Outstanding, the Trustee, if such requests are effective
requests under this Indenture, shall act in accordance with instructions
received by the Holders of the greater percentage thereof;
(k) except as otherwise expressly provided by the provisions of this
Indenture, the Trustee shall not be obligated, and may not be required to give
or furnish any notice, demand, report, request, reply, statement, advice or
opinion to any Holder or to the Company or any other Person, and the Trustee
shall not incur any liability for its failure or refusal to give or furnish the
same unless obligated or required to do so by the express provisions hereof; and
(l) the Trustee shall not be required to give any bond or surety with
respect to the performance of its duties or the exercise of its powers under
this Indenture.
SECTION 5.03. Individual Rights of Trustee. The Trustee, any Paying Agent,
Security Registrar or any other agent of the Company, in its individual or any
other capacity, may become the owner or pledgee of Securities and may otherwise
deal with the Company, its Subsidiaries or its Affiliates with the same rights
it would have if it were not the Trustee, Paying Agent, Security Registrar or
such other agent. Any registrar, co- registrar, paying agent, conversion agent
or authenticating agent may do the same with like rights. However, upon
qualification of this Indenture under the TIA, the Trustee shall be subject to
TIA Sections 310(b) and 311.
SECTION 5.04. Trustee's Disclaimer. The Trustee (i) makes no representation
as to the validity or adequacy of this Indenture, the Securities or the offering
documents relating to the Securities, (ii) shall not be accountable for the
Company's use or application of the proceeds from the Securities and (iii) shall
not be responsible for any statement in the Securities other than its
certificate of authentication.
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SECTION 5.05. Notice of Default. If any Event of Default occurs and is
continuing and if the Trustee has actual knowledge of such Event of Default, the
Trustee shall mail to each holder in the manner and to the extent provided in
TIA Section 313(c) notice of the Event of Default within 90 days after it
occurs, unless such Event of Default has been cured or waived; provided,
however, that, except in the case of a Default in the payment of the principal
of (or premium, if any) or interest on any Security, the Trustee shall be
protected in withholding such notice if and so long as Responsible Officers of
the Trustee in good faith determine that the withholding of such notice is in
the interests of the Holders of the Securities; and provided further that in the
case of any Default or breach referred to in Section 4.01(e) with respect to the
Securities, no such notice to Holders shall be given until at least 90 days
after the occurrence thereof.
SECTION 5.06. Conflicting Interests of Trustee. If the Trustee has or shall
acquire a conflicting interest within the meaning of the TIA, the Trustee shall
either eliminate such interest or resign, to the extent and in the manner
provided by, and subject to the provisions of, the TIA and this Indenture.
SECTION 5.07. Compensation and Indemnity. The Company shall pay to the
Trustee such compensation as shall be agreed upon in writing for its services.
The compensation of the Trustee shall not be limited by any law on compensation
of a trustee of an express trust. The Company shall reimburse the Trustee upon
request for all reasonable out-of- pocket expenses, disbursements and advances
incurred or made by the Trustee in accordance with this Indenture. Such expenses
shall include the reasonable compensation, expenses, disbursements and advances
of the Trustee's agents and counsel.
The Company shall indemnify and hold harmless the Trustee and its
directors, agents and employees (including officers ) (collectively the
"Indemnitees") against any and all losses, liabilities, obligations, damages,
penalties, fines, judgments, actions, suits, proceedings, reasonable costs and
expenses (including reasonable fees and disbursements of counsel) of any kind
whatsoever that may be incurred by or imposed on the Indemnities or any of them
arising out of or in connection with the acceptance or administration of the
Trustee's duties under this Indenture; provided, however, that the Company need
not reimburse any expense or indemnify against any loss, obligation, damage,
penalty, fine, judgment, action, suit, proceeding, reasonable cost or expense
(including reasonable fees and disbursements of counsel) of any kind whatsoever
that may be incurred by Indemnitees or any of them which results from the
negligence or willful misconduct of the Indemnitees or any of them. The Trustee
shall notify the Company promptly of any claim for which it may seek indemnity.
Failure by the Trustee to so notify the Company shall not relieve the Company of
its obligations hereunder, unless the Company is materially prejudiced thereby.
The Company shall defend the claim, and the Trustee shall cooperate in the
defense. Unless otherwise set forth herein, the Indemnitees or any of them, may
have separate counsel and the Company shall pay the reasonable fees and expenses
of such counsel. The Company need not pay for any settlement made without its
consent, which consent shall not be unreasonably withheld. The provisions of
this Section 5.07 shall survive the termination of this Indenture and the
----
resignation or removal of the Trustee for any reason, including any termination
under any bankruptcy law.
To secure the Company's payment obligations in this Section 5.07, the
----
Trustee shall have a lien prior to the Securities on all money or property held
or collected by the Trustee, in its capacity
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as Trustee, except money or property held in trust to pay principal of, premium,
if any, and interest on particular Securities.
If the Trustee incurs expenses or renders services after the occurrence of
an Event of Default specified in Section 4.01(g) or Section 4.01(h), such
------- -------
expenses, and the compensation due to the Trustee for such services, are
intended to constitute expenses of administration under Title 11 of the United
States Bankruptcy Code or any applicable federal or state law for the relief of
debtors.
SECTION 5.08. Replacement of Trustee. A resignation or removal of the
Trustee and appointment of a successor Trustee shall become effective only upon
the successor Trustee's acceptance of appointment as provided in this Section
5.08.
The Trustee may resign at any time by so notifying the Company in writing
at least thirty days prior to the date of the proposed resignation. The Holders
of a majority in principal amount of the Outstanding Securities may at any time,
by written notice to the Trustee and the Company, remove the Trustee and, with
the prior consent of the Company, appoint a successor Trustee. The Company may
remove the Trustee if: (i) the Trustee is no longer eligible under Section
5.10; (ii) the Trustee is adjudged a bankrupt or an insolvent; (iii) a receiver
- ----
or other public officer takes charge of the Trustee or its property; or (iv) the
Trustee becomes incapable of acting.
If the Trustee is removed without the concurrent appointment by the Holders
of a successor Trustee, if the Trustee resigns, or if a vacancy exists in the
office of Trustee for any other reason, the Company shall promptly appoint a
successor Trustee. If no successor Trustee has delivered its written acceptance
required by the next succeeding paragraph of this Section 5.08 within thirty
----
days after the retiring Trustee delivers notice of its resignation or is
removed, or after the occurrence of a vacancy in the office of Trustee for any
other reason, the retiring Trustee, the Company or the Holders of a majority in
principal amount of the Outstanding Securities may petition any court of
competent jurisdiction for the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its appointment
to the retiring Trustee and to the Company. Immediately after the delivery of
such written acceptance, subject to the lien provided in Section 5.07, (i) the
----
retiring Trustee shall transfer all property held by it as Trustee to the
successor Trustee, (ii) the resignation or removal of the retiring Trustee shall
become effective and (iii) the successor Trustee shall have all the rights,
powers and duties of the Trustee under this Indenture. A successor Trustee shall
mail notice of its succession to each Holder.
If the Trustee is no longer eligible under Section 5.10, any Holder who
----
satisfies the requirements of TIA Section 310(b) may petition any court of
competent jurisdiction for the removal of the Trustee and the appointment of a
successor Trustee.
The Company shall give notice of any resignation and any removal of the
Trustee and each appointment of a successor Trustee to all holders. Each notice
shall include the name of the successor Trustee and the address of its Corporate
Trust Office.
Notwithstanding replacement of the Trustee pursuant to this Section 5.08,
----
the Company's obligations under Section 5.07 shall continue for the benefit of
----
the retiring Trustee.
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SECTION 5.09. Successor Trustee by Merger, Etc. If the Trustee consolidates
with, merges or converts into, or transfers all or substantially all of its
corporate trust business (including the administration of this Indenture) to,
another corporation or national banking association, the resulting, surviving or
transferee corporation or national banking association, without any further act,
shall be the successor Trustee with the same effect as if the successor Trustee
had been named as the Trustee herein.
SECTION 5.10. Eligibility. This Indenture shall always have a Trustee who
satisfies the requirements of TIA Section 310(a)(1). The Trustee (or the bank
holding company to which the Trustee is a member) shall have a combined capital
and surplus of at least $25 million as set forth in its most recent published
annual report of condition.
SECTION 5.11. Money Held in Trust. Subject to the provisions of Section
9.03 and Sections 13.02, 13.03 and 13.09, all monies received by the Trustee
shall, until used or applied as herein provided, be held in trust for the
purposes for which they were received. The Trustee shall not be liable for
interest on any money received by it except as the Trustee may agree with the
Company. Money held in trust by the Trustee need not be segregated from other
funds except to the extent required by law.
SECTION 5.12. Preferential Collection of Claims. If and when the Trustee
shall be or become a creditor of the Company (or any other obligor upon the
Securities under a supplemental indenture entered into in accordance herewith),
the Trustee shall be subject to the provisions of the Trust Indenture Act
regarding the collection of the claims against the Company (or any such other
obligor).
SECTION 5.13. Trustee's Application for Instructions from the Company;
Liquidated Damages. (a) Any application by the Trustee for written instructions
from the Company (other than with regard to any action proposed to be taken or
omitted to be taken by the Trustee that affects the rights of the Holders or
holders of Senior Indebtedness under this Indenture, including, without
limitation, under Article 13 hereof) may, at the option of the Trustee, set
forth in writing any action proposed to be taken or omitted by the Trustee under
this Indenture and the date on and/or after which such action shall be taken or
such omission shall be effective. The Trustee shall not be liable for any action
taken by, or omission of, the Trustee in accordance with a proposal included in
such application on or after the date specified in such application (which date
shall not be less than ten Business Days after the date any officer of the
Company actually receives such application, unless any such officer shall have
consented in writing to any earlier date) unless prior to taking any such action
(or the effective date in the case of an omission), the Trustee shall have
received written instructions in response to such application specifying the
action to be taken or omitted.
(b) If Liquidated Damages are payable to Holders pursuant to the terms of
the Registration Rights Agreement, the Company shall deliver to the Trustee a
certificate to that effect stating (i) the amount of Liquidated Damages that is
payable and (ii) the date on which such amount of Liquidated Damages is payable.
Unless and until a Responsible Officer of the Trustee receives at the Corporate
Trust Office such a certificate, the Trustee may assume without inquiry that no
Liquidated Damages are payable. Upon receipt of a Company Request together with
a sum sufficient to pay such Liquidated Damages so becoming due, the Trustee
shall pay such Liquidated Damages
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to the Holders in the same manner as interest on the Securities. If the Company
has paid Liquidated Damages directly to the Persons entitled to them, the
Company shall deliver to the Trustee a certificate setting forth the particulars
of such payment.
ARTICLE 6
Holders' Lists And Reports By Trustee And Company
SECTION 6.01. Disclosure of Names and Addresses of Holders. Every Holder of
Securities, by receiving and holding the same, agrees with the Company and the
Trustee that neither the Company or the Trustee, nor any Paying Agent or any
Security Registrar, shall be held accountable by reason of the disclosure of any
information as to the names and addresses of the Holders of Securities in
accordance with TIA Section 312, regardless of the source from which such
information was derived, and that the Trustee shall not be held accountable by
reason of mailing any material pursuant to a request made under TIA Section
312(b).
SECTION 6.02. Reports by Trustee. Within 60 days after October 15 of each
year, commencing with the first October 15 to occur after the qualification of
this Indenture, the Trustee shall transmit by mail to all Holders of Securities
as provided in TIA Section 313(c), if required by TIA Section 313(a), a brief
report dated as of such October 15. A copy of each such report shall at the time
of such transmission to Holders be filed by the Trustee with the Company.
SECTION 6.03. Reports by Company. The Company shall:
(a) file with the Trustee, within 15 days after the Company is required to
file the same with the Commission, copies of the annual reports and of the
information, documents and other reports (or copies of such portions of any of
the foregoing as the Commission may from time to time by rules and regulations
prescribe) that the Company may be required to file with the Commission pursuant
to Sections 13(a) or 13(b) or Section 15(d) of the Securities Exchange Act of
1934; or, if the Company is not required to file information, documents or
reports pursuant to any of such Sections, then it shall file with the Trustee,
in accordance with rules and regulations prescribed from time to time by the
Commission, such of the supplementary and periodic information, documents and
reports that may be required pursuant to Section 13 of the Securities Exchange
Act of 1934 in respect of a security listed and registered on a national
securities exchange as may be prescribed from time to time in such rules and
regulations;
(b) file with the Trustee and the Commission, in accordance with rules and
regulations prescribed from time to time by the Commission, such additional
information, documents and reports with respect to compliance by the Company
with the conditions and covenants of this Indenture as may be required from time
to time by such rules and regulations; and
(c) file with the Trustee and the Commission, if applicable, and transmit
by mail to the Holders, within thirty days after the filing thereof with the
Trustee, in the manner and to the extent provided in TIA Section 313(c), such
summaries of any information, documents and reports required to be filed by the
Company pursuant to paragraphs (1) and (2) of this Section as may be required by
rules and regulations prescribed from time to time by the Commission and sell
other
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information as may be required pursuant to the TIA, at the time and in the
manner provided pursuant to such Act.
SECTION 6.04. Company to Furnish Trustee Names and Addresses of Holders.
(a) The Company shall furnish or cause to be furnished to the Trustee:
(i) semi-annually, not later than 10 days after the Regular Record
Date for the payment of interest on the Securities, a list, in such form as the
Trustee may reasonably require, of the names and addresses of the Holders as of
such Regular Record Date; and
(ii) at such other times as the Trustee may request in writing, within
30 days after the receipt by the Company of any such request, a list of similar
form and content as of a date not more than 15 days prior to the time such list
is furnished,
provided, however, that, so long as the Trustee is the Security Registrar,
no such list shall be required to be furnished.
(b) The Company shall provide the Trustee with at least thirty days' prior
notice of any change in location of its principal executive offices or other
principal place of business.
(c) The Company shall promptly give notice to the Trustee of any action
taken by the Initial Securities Holders that affect the rights of the Holders of
the Securities.
ARTICLE 7
Consolidation, Merger, Sale, Lease Or Conveyance
SECTION 7.01. Consolidations and Mergers of Company and Sales, Leases and
Conveyances Permitted Subject to Certain Conditions. The Company may consolidate
with, or sell, lease, transfer, convey or otherwise dispose of all or
substantially all of its assets to, or merge with or into any other Person,
provided however, that in any such case, (1) either the Company shall be the
continuing corporation, or the Person (if other than the Company) formed by such
consolidation or into which the Company is merged or the Person (if other than a
Subsidiary of the Company) that acquires or leases the Company's assets
substantially as an entirety is a corporation organized and existing under the
laws of any United States jurisdiction and expressly assumes the due and
punctual payment of the principal of (and premium, if any) and any interest
(including Liquidated Damages, if any) payable pursuant to this Indenture on all
of the Securities, according to their tenor, and the due and punctual
performance and observance of all of the covenants and conditions of this
Indenture to be performed by the Company and shall have provided for conversion
rights, if applicable, in accordance with the provisions of Article 12 hereof,
by supplemental indenture, complying with Article 8 hereof, satisfactory to the
Trustee, executed and delivered to the Trustee by such corporation and (2)
immediately after giving effect to such transaction, no Default or Event of
Default, shall have occurred and be continuing. For purposes of the foregoing,
the transfer (by lease, assignment, sale or otherwise) of the properties and
assets of one or more Subsidiaries (other than to the Company or another
Subsidiary), which, if such assets were owned by the Company, would constitute
all or substantially all of the properties and assets of the Company, shall be
deemed to be the transfer of all or substantially all of the properties and
assets of the Company.
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SECTION 7.02. Rights and Duties of Successor Corporation. In case of any
such consolidation, merger, sale, lease, conveyance or other disposition and
upon any such assumption by the successor Person, such successor Person shall
succeed to and be substituted for the Company, with the same effect as if it had
been named herein as the party of the first part, and the predecessor
corporation, except in the event of a lease, shall be relieved of any further
obligation under this Indenture and the Securities. Such successor Person
thereupon may cause to be signed, and may issue either in its own name or in the
name of the Company, any or all of the Securities issuable hereunder that
theretofore shall not have been signed by the Company and delivered to the
Trustee; and, upon the order of such successor Person, instead of the Company,
and subject to all the terms, conditions and limitations in this Indenture
prescribed, the Trustee shall authenticate and shall deliver any Securities that
previously shall have been signed and delivered by the officers of the Company
to the Trustee for authentication, and any Securities that such successor Person
thereafter shall cause to be signed and delivered to the Trustee for that
purpose. All the Securities so issued shall in all respects have the same legal
rank and benefit under this Indenture as the Securities theretofore or
thereafter issued in accordance with the terms of this Indenture as though all
of such Securities had been issued at the date of the execution hereof.
In case of any such consolidation, merger, sale, lease, conveyance or other
disposition, such changes in phraseology and form (but not in substance) may be
made in the Securities thereafter to be issued as may be appropriate.
SECTION 7.03. Officers' Certificate and Opinion of Counsel. Any
consolidation, merger, sale, lease, transfer, conveyance or other disposition
permitted under Section 7.01 is also subject to the condition that the Trustee
receive an Officers' Certificate and an Opinion of Counsel to the effect that
any such consolidation, merger, sale, lease, transfer, conveyance or other
disposition complies with the provisions of this Article. Such opinion of
counsel shall state that any supplemental indenture executed and delivered by a
successor Person pursuant to this Article 7 constitutes the legal, valid and
binding obligation of such successor Person, subject to customary exceptions.
ARTICLE 8
Supplemental Indentures
SECTION 8.01. Supplemental Indentures Without Consent of Holders. Without
the consent of any Holders of Securities, the Company, when authorized by or
pursuant to a Board Resolution, and the Trustee, at any time and from time to
time, may enter into one or more indentures supplemental hereto, in form
satisfactory to the Trustee, for any of the following purposes:
(a) to evidence the succession of another Person to the Company and the
assumption by any such successor of the covenants of the Company contained
herein and the Securities issued hereunder;
(b) to add to the covenants of the Company for the equal and ratable
benefit of the Holders or to surrender any right, power or option herein
conferred upon the Company;
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(c) to add any Events of Default for the benefit of the Holders proposed by
the Company in a Company Request and, in respect of any such additional Events
of Default such supplemental indenture may provide for a particular period of
grace after default (which period may be shorter or longer than that allowed in
the case of other defaults) or may provide for an immediate enforcement upon
such Event of Default, or may limit the remedies available to the Trustee upon
such Event of Default or limit the right of the Holders of a majority in
aggregate principal amount of those Securities to which such additional Events
of Default apply to waive such default, all as set forth in the Company Request;
(d) to evidence and provide for the acceptance of appointment hereunder by
a successor Trustee and to add to or change any of the provisions of this
Indenture as shall be necessary to provide for or facilitate the administration
of the trusts hereunder by more than one Trustee;
(e) to cure any ambiguity or to correct or supplement any provision herein
that may be defective or inconsistent with any other provision herein; provided
such provisions shall not adversely affect the interests of the Holders of
Securities in any material respect;
(f) to make any change that does not adversely affect the rights of any
holder of Securities or to surrender any right, power or option conferred on the
Company hereunder;
(g) to make any change to comply with any requirement of the Commission in
connection with the qualification of the Indenture under TIA; or
(h) to provide for the issuance of uncertificated Securities in addition to
or in place of certificated Securities; provided, however that the
uncertificated Securities are issued in registered form for purposes of Section
163(f) of the Internal Revenue Code of 1986.
The Company and the Trustee may not enter into a supplemental indenture
pursuant to this Section 8.01 if such supplemental indenture modifies in any
respect any Event of Default relating to any covenant in this Indenture in
effect immediately prior to the time such supplemental indenture becomes
effective.
SECTION 8.02. Supplemental Indentures with Consent of Holders. With the
consent of the Holders of not less than a majority in principal amount of the
Outstanding Securities affected by such supplemental indenture, by Act of said
Holders delivered to the Company and the Trustee, the Company, when authorized
by or pursuant to a Board Resolution, and the Trustee may enter into an
indenture or indentures supplemental hereto for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Indenture or of modifying in any manner the rights of the Holders;
provided, however, that without any action on the part of any Holder, the
Trustee shall enter into an indenture or indentures supplemental hereto in
substantially the form of any indenture supplemental to the Initial Indenture to
which Initial Securities Holders of not less than a majority in principal amount
of the Outstanding Initial Securities have consented; and provided further, that
no such supplemental indenture shall, without the consent of the Holder of each
Outstanding Security affected thereby:
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(a) reduce the principal amount, Repurchase Price or Redemption Price with
respect to any Security, or extend the Stated Maturity of any Security or alter
the manner of payment or rate of interest on any Security or make any Security
(including any Liquidated Damages or Redemption Price or Repurchase Price in
respect of such Security) payable in money or securities other than that stated
in the Security;
(b) reduce the percentage in principal amount of the Outstanding Securities
the consent of whose Holders is required for any such supplemental indenture or
the consent of whose Holders is required for any waiver with respect to
Securities (or for any waiver of compliance with certain provisions of this
Indenture or certain Defaults or Events of Default and their consequences);
(c) make any change that adversely affects the right to convert any
Security;
(d) modify the provisions of the Indenture relating to the ranking of the
Securities in a manner adverse to the Holders of the Securities; or
(e) impair the right to institute suit for the enforcement of any payment
with respect to, or conversion of, the Securities.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
SECTION 8.03. Execution of Supplemental Indenture. In executing, or
accepting the additional trusts created by, any supplemental indenture permitted
by this Article or the modification thereby of the trusts created by this
Indenture, the Trustee shall be entitled to receive, and (subject to Article 5)
shall be fully protected in relying upon, an Opinion of Counsel stating that (i)
the execution of such supplemental indenture is authorized or permitted by this
Indenture, (ii) all conditions precedent to its execution and delivery have been
complied with, and (iii) such supplemental indenture constitutes the valid and
binding obligation of the Company. The Trustee may, but shall not be obligated
to, enter into any such supplemental indenture that affects the Trustee's own
rights, duties or immunities under this Indenture or otherwise.
SECTION 8.04. Effect of Supplemental Indentures. Upon the execution of any
supplemental indenture under this Article, this Indenture shall be modified in
accordance therewith, and such supplemental indenture shall form a part of this
Indenture for all purposes; and every Holder of Securities theretofore or
thereafter authenticated and delivered hereunder shall be bound thereby.
SECTION 8.05. Conformity with Trust Indenture Act. Every supplemental
indenture executed pursuant to this Article shall conform to the requirements of
the Trust Indenture Act as then in effect.
SECTION 8.06. Reference in Securities to Supplemental Indentures.
Securities authenticated and delivered after the execution of any supplemental
indenture pursuant to this Article may, and shall, if required by the Trustee,
bear a notation in form approved by the Trustee as to any matter provided for in
such supplemental indenture. If the Company shall so determine, new
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Securities so modified as to conform, in the opinion of the Trustee and the
Company, to any such supplemental indenture may be prepared and executed by the
Company and authenticated and delivered by the Trustee in exchange for
Outstanding Securities.
ARTICLE 9
Covenants
SECTION 9.01. Payment of Principal, Premium, If Any, and Interest. The
Company covenants and agrees for the benefit of the Holders of Securities that
it shall duly and punctually pay the principal of (and premium, if any),
interest on (including Liquidated Damages, if any), and the Repurchase Price,
the Redemption Price and the Make Whole Payment with respect to, the Securities
in accordance with the terms of the Securities and this Indenture. At the option
of the Company, all payments of principal with respect to any Security may be
paid by check to the registered Holder of the Security or other Person entitled
thereto against surrender of such Security. The conversion of any Securities
pursuant to Article 12 hereof and payment of the Repurchase Price by delivery of
shares of Common Stock in accordance with Article 11, together with the making
of any cash payments required to be made in accordance with the terms of the
Securities and this Indenture, shall satisfy the Company's obligations under
this Section 9.01 with respect to such Securities.
SECTION 9.02. Maintenance of Office or Agency. The Company shall maintain a
Place of Payment for the Securities in the Borough of Manhattan, The City of New
York, which shall be an office or agency where the Securities may be presented
or surrendered for payment or conversion, exchange or redemption, where the
Securities may be surrendered for registration of transfer or exchange and where
notices and demands to or upon the Company in respect of the Securities and this
Indenture may be served. The Corporate Trust Office shall initially be such
office or agency of the Company, unless and until the Company shall designate
and maintain some other office or agency for one or more of such purposes. The
Company shall give prompt written notice to the Trustee of the location, and any
change in the location, of each such office or agency. If at any time the
Company shall fail to maintain any such required office or agency or shall fail
to furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the Corporate Trust Office of the
Trustee, and the Company hereby appoints the Trustee its agent to receive all
such presentations, surrenders, notices and demands.
The Company may from time to time designate one or more other offices or
agencies (in or outside of The City of New York) where the Securities may be
presented or surrendered for any or all of such purposes, and may from time to
time rescind such designations; provided, however, that no such designation or
rescission shall in any manner relieve the Company of its obligation to maintain
an office or agency in accordance with the requirements set forth above for such
purposes. The Company shall give prompt written notice to the Trustee of any
such designation or rescission and of any change in the location of any such
other office or agency.
SECTION 9.03. Money for Securities Payments to Be Held in Trust. If the
Company shall at any time act as its own Paying Agent with respect to any
Securities, it shall, on or before each due date of the principal of (and
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premium, if any), or interest on, the Securities, segregate and hold in trust
for the benefit of the Persons entitled thereto a sum sufficient to pay the
principal (and premium, if any) or interest so becoming due until such sums
shall be paid to such Persons or otherwise disposed of as herein provided, and
shall promptly notify the Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents for the
Securities, it shall, before each due date of the principal of (and premium, if
any), or interest on, the Securities, deposit with a Paying Agent a sum
sufficient to pay the principal (and premium, if any) or interest, so becoming
due, such sum to be held in trust for the benefit of the Persons entitled to
such principal, premium or interest and (unless such Paying Agent is the
Trustee) the Company shall promptly notify the Trustee of its action or failure
so to act.
The Company shall cause each Paying Agent other than the Trustee to execute
and deliver to the Trustee an instrument pursuant to which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent shall:
(a) hold all sums held by it for the payment of principal of (and premium,
if any,) or interest on the Securities, in trust for the benefit of the Persons
entitled thereto, until such sums shall be paid to such Persons or otherwise
disposed of as herein provided;
(b) give the Trustee notice of any default by the Company (or any other
obligor upon the Securities under a supplemental indenture entered into in
accordance herewith) in the making of any such payment of principal (and
premium, if any) or interest; and
(c) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so held in
trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, pay, or by Company
Order direct any Paying Agent to pay, to the Trustee all sums held in trust by
the Company or such Paying Agent, such sums to be held by the Trustee upon the
same trusts as those upon which such sums were held by the Company or such
Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such
Paying Agent shall be released from all further liability with respect to such
sums.
Any money deposited with the Trustee or any Paying Agent, or then held by
the Company, in trust for the payment of the principal of (and premium, if any)
or interest on any Security and remaining unclaimed for two years after such
principal (and premium, if any) or interest has become due and payable shall be
paid to the Company upon Company Request or (if then held by the Company) shall
be discharged from such trust; and the Holder of such Security shall thereafter,
as an unsecured general creditor, look only to the Company for payment of such
principal of (and premium, if any) or interest on any Security, without interest
thereon, and all liability of the Trustee or such Paying Agent with respect to
such trust money, and all liability of the Company as trustee thereof, shall
thereupon cease; provided, however, that the Trustee or such Paying Agent,
before being required to make any such repayment, may at the expense of the
Company cause to be published once, in an Authorized Newspaper, notice that such
money remains unclaimed and that, after a date specified therein, which shall
not be less than 30 days from the date of such publication, any unclaimed
balance of such money then remaining shall be repaid to the Company.
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SECTION 9.04. Existence. Subject to Article 7, the Company shall do or
cause to be done all things necessary to preserve and keep in full force and
effect the corporate existence of the Company and its Subsidiaries, and their
respective rights (charter and statutory) and franchises, except to the extent
that the Board of Directors shall determine that the failure to do so would not
have a material adverse effect on the business, assets, financial condition or
results of operation of the Company (a "Material Adverse Effect"); provided,
however, that the Company shall not be required to preserve any right or
franchise if the Board of Directors shall determine that the preservation
thereof is no longer desirable in the conduct of the business of the Company and
that the loss thereof is not disadvantageous in any material respect to the
Holders.
SECTION 9.05. Payment of Taxes and Other Claims. The Company shall pay or
discharge, or cause to be paid or discharged, before the same shall become
delinquent, (1) all taxes, assessments and governmental charges levied or
imposed upon it or any Subsidiary or upon the income, profits or property of the
Company or any Subsidiary, and (2) all lawful claims for labor, materials and
supplies which, if unpaid, might by law become a lien upon the property of the
Company or any Subsidiary and have a Material Adverse Effect; provided, however,
that the Company shall not be required to pay or discharge or cause to be paid
or discharged any such tax, assessment, charge or claim, the amount,
applicability or validity of which is being contested in good faith by
appropriate proceedings.
SECTION 9.06. Statement as to Compliance; Notice of Default. The Company
shall deliver to the Trustee, within 120 days after the end of each fiscal year
of the Company, a certificate from the Company's Chief Executive Officer, Chief
Financial Officer or principal accounting officer as to his or her knowledge of
the Company's compliance with all terms, conditions and provisions under this
Indenture and, in the event of any noncompliance, specifying such noncompliance
and the nature and status thereof. As of the date hereof, the Company's fiscal
year ends on December 31. For purposes of this Section 9.06, such compliance
shall be determined without regard to any period of grace or requirement of
notice under this Indenture. The Company, within five Business Days of becoming
aware of the occurrence of any Default or Event of Default, shall deliver
written notice to the Trustee of the occurrence thereof.
SECTION 9.07. Waiver of Certain Covenants. The Company may omit in any
particular instance to comply with any term, provision or condition set forth in
Section 9.04 or 9.05 if, before the time for such compliance, the Holders of at
least a majority in principal amount of the Outstanding Securities, by Act of
such Holders, either waive such compliance in such instance or generally waive
compliance with such term, provision or condition, but no such waiver shall
extend to or affect such term, provision or condition except to the extent so
expressly waived, and, until such waiver shall become effective, the obligations
of the Company and the duties of the Trustee in respect of any such term,
provision or condition shall remain in full force and effect.
Any such waiver of compliance with any term, provision or condition set
forth in Section 9.04 or 9.05 and its consequences shall be automatic and
without any other Act of such Holders, or other action on the part of the
Trustee, immediately upon a Responsible Officer of the Trustee receiving notice
from the Company that Initial Securities Holders of a principal amount of the
Outstanding Initial Securities equal to a majority in principal amount of the
Adjusted Outstanding
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Securities have waived a correlative covenant or condition set forth in Section
9.04 or 9.05 of the Initial Indenture.
SECTION 9.08. Rule 144A Information Requirement. Within the period prior to
the expiration of the holding period applicable to sales thereof under Rule
144(k) under the Securities Act (or any successor provision), the Company
covenants and agrees that it shall, during any period in which it is not subject
to Section 13 or 15(d) under the Exchange Act, make available to any Holder or
beneficial owner of Securities that continue to be Restricted Securities, in
connection with any sale thereof, and to any prospective purchaser of Securities
from such holder or beneficial owner, the information required pursuant to Rule
144A(d)(4) under the Securities Act upon the request of any such holder or
beneficial owner of the Securities, and the Company shall take such further
action as any holder or beneficial owner of such Securities may reasonably
request, all to the extent required from time to time to enable such holder or
beneficial owner to sell its Securities without registration under the
Securities Act within the limitation of the exemption provided by Rule 144A, as
such rule may be amended from time to time.
ARTICLE 10
Redemption Of Securities
SECTION 10.01. Provisional and Optional Redemption by the Company.
(a) The Securities may be redeemed at the election of the Company, as a
whole or in part, from time to time, at any time on or before February 18, 2003
(a "Provisional Redemption"), upon notice as set forth in Section 10.04, at a
redemption price equal to $1,000 per $1,000 principal amount of the Securities
redeemed plus accrued and unpaid interest (including Liquidated Damages, if
any), if any (such amount, together with the Make-Whole Payment described below,
the "Provisional Redemption Price"), to but excluding the date of redemption
(the "Provisional Redemption Date") if (i) the Closing Price of the Common Stock
has exceeded 150% of the Conversion Price (as defined in Article 12 and as such
may be adjusted from time to time) then in effect for at least 20 Trading Days
in any period of 30 consecutive Trading Days ending on the Trading Day prior to
the date of mailing of the provisional notice of redemption pursuant to Section
10.04 (the "Notice Date"), and (ii) a registration statement covering resales of
the Securities and the Common Stock issuable upon conversion thereof is
effective and available for use and is expected to remain effective for the 30
days following the Provisional Redemption Date.
Upon any such Provisional Redemption, the Company shall make an additional
payment in cash (the "Make-Whole Payment") with respect to the Securities called
for redemption to holders on the Notice Date in an amount equal to $152.54 per
$1,000 principal amount of the Securities, less the amount of any interest
actually paid on such Securities prior to the Notice Date. The Company shall
make the Make-Whole Payment on all Securities called for Provisional Redemption,
including those Securities converted into Common Stock between the Notice Date
and the Provisional Redemption Date, and shall deliver an Officers' Certificate
to the Trustee setting forth the amount of such interest and the amount of the
Make-Whole Payment reduced thereby per $1,000 in aggregate principal amount of
Securities.
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(b) The Securities may be redeemed at the election of the Company, as a
whole or from time to time in part, at any time after February 18, 2003, and
prior to maturity (an "Optional Redemption"), upon notice as set forth in
Section 10.04, at the following optional redemption prices (expressed as
percentages of the principal amount), together in each case with accrued and
unpaid interest (including Liquidated Damages, if any), if any, up to but not
including the date fixed for redemption (the "Optional Redemption Price"), if
redeemed during the periods described below:
Period Redemption Price
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February 19, 2003 through February 15, 2004 102.8%
Thereafter 101.4%
SECTION 10.02. Election to Redeem; Notice to Trustee. The election of the
Company to redeem any Securities shall be evidenced by a Board Resolution. In
case of any redemption at the election of the Company of all or any part of the
Securities pursuant to Section 10.01 (Provisional Redemption or Optional
Redemption), the Company shall, at least 15 days prior to the giving of the
notice of redemption in Section 10.04 to the Holders (unless a shorter notice
shall be satisfactory to the Trustee), notify the Trustee of the Redemption Date
and of the principal amount of Securities to be redeemed. In the case of any
redemption of Securities prior to the expiration of any restriction on such
redemption provided in the terms of such Securities or elsewhere in this
Indenture, the Company shall furnish the Trustee with an Officers' Certificate
evidencing compliance with all such restrictions.
SECTION 10.03. Selection by Trustee of Securities to Be Redeemed. If less
than all the Securities are to be redeemed, the particular Securities to be
redeemed shall be selected not more than 60 days and not less than 30 days prior
to the Redemption Date by the Trustee, from the Outstanding Securities not
previously called for redemption, by lot, pro rata or any other method that
complies with the requirements of any exchange on which the Securities are
listed or quoted and that the Trustee shall deem fair and appropriate.
If any Security selected for partial redemption is converted in part before
termination of the conversion right with respect to the portion of the Security
so selected, the converted portion of such Security shall be deemed, solely for
purposes of determining the aggregate principal amount of the Securities to be
redeemed, to be the portion selected for redemption (provided, however, that the
Holder of such Security so converted and deemed redeemed shall not be entitled
to any interest payment as a result of such deemed redemption except for such
interest payment as such Holder would have otherwise been entitled to receive
upon conversion of such Security). Securities that have been converted during a
selection of Securities to be redeemed may be treated by the Trustee as
Outstanding for the purpose of such selection.
Securities in denominations of $1,000 may only be redeemed in whole. The
Trustee may select for redemption portions (equal to $1,000 or any integral
multiple thereof) of the principal of Securities that have denominations larger
than $1,000.
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The Trustee shall promptly notify the Company and the Security Registrar
(if other than itself) in writing of the Securities selected for redemption and,
in the case of any Securities selected for partial redemption, the principal
amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise requires,
all provisions relating to the redemption of Securities shall relate, in the
case of any Security redeemed or to be redeemed only in part, to the portion of
the principal amount of such Security which has been or is to be redeemed.
SECTION 10.04. Notice of Redemption. Notice of redemption shall be given in
the manner provided in Section 1.07, (i) at least 10 Trading Days, but not more
than 20 Trading Days, prior to the Provisional Redemption Date in the case of a
Provisional Redemption, to each Holder of Securities to be redeemed, and (ii) at
least 30 days, but not more than 60 days, prior to the Redemption Date in the
case of an Optional Redemption; provided, in each case, that failure to give
such notice in the manner herein provided to the Holder of any Security
designated for redemption as a whole or in part, or any defect in the notice to
any such Holder, shall not affect the validity of the proceedings for the
redemption of any other such Security or portion thereof.
All notices of redemption shall state:
(a) the Redemption Date;
(b) the Redemption Price;
(c) if less than all Outstanding Securities are to be redeemed, the
identification (and, in the case of partial redemption, the principal amount) of
the particular Securities to be redeemed;
(d) if any Security is to be redeemed in part only, the portion of the
principal amount of such Security to be redeemed, and the notice that relates to
such Security shall state that on and after the Redemption Date, upon surrender
of such Security, the holder shall receive, without a charge, a new Security or
Securities of authorized denominations for the principal amount thereof
remaining unredeemed;
(e) whether the redemption is a Provisional Redemption or an Optional
Redemption;
(f) that on the Redemption Date, the Redemption Price shall become due and
payable upon each such Security, or the portion thereof, to be redeemed and, if
applicable, that interest thereon shall cease to accrue on and after said date;
(g) the Place or Places of Payment where such Securities are to be
surrendered for payment of the Redemption Price;
(h) that Securities called for redemption must be presented and surrendered
to the Paying Agent to collect the redemption price;
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(i) the then current Conversion Price and Make-Whole Payment, if any;
(j) that the Securities called for redemption may be converted at any time
before the close of business on the last Business Day prior to the Redemption
Date;
(k) the CUSIP number of such Security, if any; and
(l) that a Holder of Securities who desires to convert Securities must
satisfy the requirements for conversion contained in such Securities.
Notice of redemption of Securities to be redeemed shall be given by the
Company or, at the Company's request, by the Trustee in the name and at the
expense of the Company.
SECTION 10.05. Deposit of Redemption Price. Not later than 11:00 a.m. New
York City time on the Redemption Date, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust as provided in Section 9.03) an amount of
money sufficient to pay, on the Redemption Date, the Redemption Price of all the
Securities or portions thereof that are to be redeemed on that date, other than
Securities or portions thereof called for redemption on that date that have been
delivered by the Company to the Trustee for cancellation or have been converted.
Upon written request, the Trustee or the Paying Agent, as the case may be, shall
return to the Company no later than 5 Business Days after such request any money
not required to pay such Redemption Price.
SECTION 10.06. Securities Payable on Redemption Date. Notice of redemption
having been given as aforesaid, the Securities so to be redeemed shall, on the
Redemption Date, become due and payable at the Redemption Price therein
specified, and from and after such date (unless the Company shall default in the
payment of the Redemption Price) such Securities shall cease to bear interest.
Upon surrender of any such Security for redemption in accordance with said
notice, such Security shall be paid by the Company at the Redemption Price
provided, however, that if the Provisional Redemption Date is an Interest
Payment Date, the semi-annual payment of interest becoming due on such date
shall be payable to the Holders of such Securities registered as such on the
relevant Regular Record Date according to their terms and the provisions of
Section 3.06, and with respect to a Provisional Redemption, the holder of any
Securities converted into Common Stock pursuant to the terms hereof after the
Notice Date and prior to the Provisional Redemption Date shall have the right to
the Make-Whole Payment regardless of the conversion of such Securities.
If any Security called for redemption shall not be so paid upon surrender
thereof for redemption, the Redemption Price, shall, until paid, bear interest
from the Redemption Date at the rate borne by the Security and such Security
shall remain convertible into Common Stock until the Redemption Price, and any
such accrued interest, shall have been paid or duly provided for.
SECTION 10.07. Securities Redeemed in Part. Any Security that is to be
redeemed only in part (pursuant to the provisions of this Article) shall be
surrendered at a Place of Payment therefor (with, if the Company or the Trustee
so requires, due endorsement by, or a written instrument of transfer in form
satisfactory to the Company and the Trustee duly executed by, the Holder thereof
or
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his attorney duly authorized in writing) and the Company shall execute and the
Trustee shall authenticate and deliver to the Holder of such Security without
service charge a new Security or Securities, of any authorized denomination as
requested by such Holder in aggregate principal amount equal to and in exchange
for the unredeemed portion of the principal of the Security so surrendered.
ARTICLE 11
Repurchase At Option Of Holders Upon Change In Control
SECTION 11.01. Right to Require Repurchase. In the event that a Change in
Control shall occur, each Holder shall have the right, at the Holder's option,
to require the Company to repurchase (subject to the provisions of Section
13.03) all of such Holder's Securities, or any portion of the principal amount
thereof that is an integral multiple of $1,000 (provided that no single Security
may be repurchased in part unless the portion of the principal amount of such
Security to be outstanding after such repurchase is equal to $1,000 or an
integral multiple of $1,000), on the date (the "Repurchase Date") that is 45
Business Days after the date of the occurrence of a Change in Control at a
purchase price equal to 100% of the principal amount plus interest (including
Liquidated Damages, if any) accrued and unpaid to the Repurchase Date (the
"Repurchase Price"). At the option of the Company, the Repurchase Price may be
paid in cash or, subject to the fulfillment by the Company of the conditions set
forth in Section 11.02, by delivery of that number of shares of Common Stock
equal to the quotient of (i) the Repurchase Price divided by (ii) 95% of the
average of the Closing Prices of the Common Stock for the five consecutive
Trading Days ending on and including the third Trading Day immediately preceding
the date of the occurrence of the Change in Control.
SECTION 11.02. Conditions to the Company's Election to Pay the Repurchase
Price in Common Stock.
The Company may elect to pay the Repurchase Price by delivery of shares of
Common Stock pursuant to Section 11.01 if and only if the following conditions
have been satisfied:
(a) The shares of Common Stock delivered in payment of the Repurchase Price
are listed for trading on a U.S. national securities exchange or approved for
trading in the NASDAQ National Market; and
(b) All shares of Common Stock delivered in payment of the Repurchase Price
are issued out of the Company's authorized but unissued Common Stock and shall,
upon issue, be duly and validly issued and fully paid and non-assessable and
free of any preemptive rights.
If all of the conditions set forth in this Section 11.02 are not satisfied
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in accordance with the terms hereof, the Repurchase Price shall be paid by the
Company only in cash.
SECTION 11.03. Notices; Method of Exercising Repurchase Right, Etc. (a)
Unless the Company shall have theretofore called for redemption all of the
Outstanding Securities, on or before the date that is 30 Business Days after the
occurrence of a Change in Control, the Company shall give notice to all Holders
of Outstanding Securities and to the Trustee (the "Company Notice") of
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the occurrence of the Change in Control and of the repurchase right set forth
herein arising as a result thereof.
Each Company Notice shall state:
(i) the date of such Change in Control and, briefly, the events causing
such Change in Control;
(ii) the date by which the Change in Control Purchase Notice (as defined
below) must be delivered;
(iii) the Repurchase Date;
(iv) the Repurchase Price, and whether the Repurchase Price shall be paid
by the Company in cash or by delivery of shares of Common Stock;
(v) a description of the procedure that a Holder must follow to exercise a
repurchase right;
(vi) the procedures for withdrawing a Change in Control Purchase Notice;
(vii) the place or places where such Securities are to be surrendered for
payment of the Repurchase Price or for conversion;
(viii) briefly, the conversion rights of Holders of Securities;
(ix) the Conversion Rate and any adjustments thereto; and
(x) that Holders who want to convert Securities must satisfy the
requirements set forth in the Securities.
Promptly after giving the Company Notice to the Holders of Outstanding
Securities and to the Trustee, the Company shall cause a copy of the Company
Notice to be published in The Wall Street Journal or another daily newspaper of
national circulation.
(b) If any Senior Indebtedness is outstanding at the time of the occurrence
of a Change in Control, and such Senior Indebtedness prohibits by its terms the
Company's repurchase of its Securities upon the occurrence of a Change in
Control, the Company shall prior to giving the Company Notice either:
(i) repay in full all obligations and terminate all commitments under
or in respect of all such Senior Indebtedness or offer to repay in full all
obligations and terminate all commitments under or in respect of all such Senior
Indebtedness and repay such Senior Indebtedness owed to each holder thereof who
has accepted such offer; or
(ii) obtain the requisite consents under all such Senior Indebtedness
to permit the Company to repurchase the Securities in accordance herewith.
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(c) To exercise a repurchase right, a Holder must deliver to the Trustee or
a Paying Agent at an office or agency maintained by the Company for such purpose
in the Borough of Manhattan, The City of New York, prior to the close of
business on or before the Repurchase Date, (i) written notice of the Holder's
exercise of such right (the "Change in Control Purchase Notice"), which notice
shall set forth (A) the name of the Holder, (B) the certificate numbers of the
Securities with respect to which the repurchase right is being exercised, (C)
the principal amount of the Securities to be repurchased (and, if any Security
is to be repurchased in part, the portion of the principal amount thereof to be
repurchased, which shall be in integral multiples of $1,000) and (D) a statement
that an election to exercise the repurchase right is being made thereby pursuant
to the applicable provisions of the Securities and (ii) surrender the Securities
subject to the Change in Control Purchase Notice.
(d) Unless the Company has elected to pay the Repurchase Price by delivery
of shares of Common Stock, on or prior to the Repurchase Date the Company shall
deposit with the Trustee or with the Paying Agent (or, if the Company is acting
as its own Paying Agent, segregate and hold in trust as provided in Section
9.03) an amount of money sufficient to pay the Repurchase Price of the
Securities that are to be repaid on the Repurchase Date. On the Repurchase Date,
the Trustee, a Paying Agent (or, if the Company is acting as its own Paying
Agent, the Company) shall repurchase all such Securities validly tendered prior
to such date.
In the event that a Holder has previously delivered a Change in Control
Purchase Notice, but failed to surrender the Security with respect to which such
Change in Control Purchase Notice relates, then so long as either (i) the
Company has elected to pay the Repurchase Price by delivery of shares of Common
Stock or (ii) the Trustee or the Paying Agent holds (or, if the Company is
acting as its own Paying Agent, the Company segregates and holds in trust as
provided in Section 9.03) money sufficient to pay the Repurchase Price in
----
respect of such Security, then such Security shall cease to be Outstanding for
the purposes of this Indenture on the Repurchase Date and all rights of the
Holder thereof other than the right to receive the Repurchase Price shall
terminate.
(e) If any Security (or portion thereof) surrendered for repurchase shall
not have been repurchased on the Business Day following the Repurchase Date, the
Repurchase Price in respect of such Security shall, until paid, bear interest
from the Business Day following the Repurchase Date at the rate borne by the
Security and such Security shall remain convertible into Common Stock until the
Repurchase Price and any such accrued interest shall have been paid or duly
provided for.
(f) Any Security that is to be repurchased only in part shall be
surrendered to the Trustee or any such Paying Agent (or if the Company is acting
as its own Paying Agent, the Company) and the Company shall execute, and the
Trustee shall authenticate and deliver to the Holder of such Security without
service charge, a new Security or Securities, containing identical terms and
conditions, each in an authorized denomination in aggregate principal amount
equal to and in exchange for the portion of the principal of the Security so
surrendered that was not repurchased.
(g) Any Holder that has delivered a Change in Control Purchase Notice shall
have the right to withdraw such notice by delivery of a written notice of
withdrawal to the Trustee or any such Paying Agent prior to the close of
business on the Business Day immediately preceding the
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Repurchase Date. The notice of withdrawal shall state the principal amount and
the certificate numbers of the Securities as to which the withdrawal notice
relates and the principal amount, if any, that remains subject to the Change in
Control Purchase Notice. A Security in respect of which a Holder has exercised
its right to require repurchase upon a Change in Control may thereafter be
converted into Common Stock only if, and at such time as, such Holder withdraws
its Change in Control Purchase Notice in accordance with the preceding sentence.
(h) Any issuance of shares of Common Stock in respect of the Repurchase
Price shall be deemed to have been effected immediately prior to the close of
business on the Repurchase Date and the person or persons in whose name or names
any certificate or certificates for shares of Common Stock shall be issuable
upon such repurchase shall be deemed to have become on the Repurchase Date the
holder or holders of record of the shares represented thereby.
(i) No fractional shares of Common Stock or scrip representing fractional
shares shall be issued upon repurchase of Securities. If more than one Security
shall be repurchased from the same Holder and the Repurchase Price shall be
payable in shares of Common Stock, the number of full shares that shall be
issued upon repurchase shall be computed on the basis of the aggregate principal
amount of the Securities (or specified portions thereof to the extent permitted
hereby) so repurchased from such Holder. If any fractional share of stock
otherwise would be issuable upon repurchase of any Security or Securities, the
Company shall make an adjustment therefor by paying to the Holder thereof an
amount of cash calculated at the price per share at which the Common Stock is
valued for purposes of Section 11.01.
(j) The issue of stock certificates on repurchase of Securities shall be
made without charge to the Holder of Securities being repurchased for any tax in
respect of the issue thereof. The Company shall not, however, be required to pay
any tax that may be payable in respect of any transfer involved in the issue and
delivery of stock in any name other than that of the Holder of any Security
repurchased, and the Company shall not be required to issue or deliver any such
stock certificate unless and until the person or persons requesting the issue
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
(k) Notwithstanding anything to the contrary in this Section 11.03, the
Company shall not be required to give the Company Notice following the
occurrence of a Change in Control if, in the manner, at the time and otherwise
in compliance with the requirements set forth herein regarding the Company's
obligation to offer to repurchase the Outstanding Securities following the
occurrence of a Change in Control, (A) another Person makes an offer to
repurchase the Outstanding Securities by giving a notice containing the
information set forth in clauses (i) through (x) of Section 11.03(a) to the
Holders of all Outstanding Securities and to the Trustee, (B) such Person
repurchases all Outstanding Securities validly tendered and not withdrawn, and
(C) such Person makes all payments with respect thereto. This Section 11.03(k)
shall not relieve the Company of any of its obligations under this Indenture or
any Security; provided, however, that if another Person makes the offer to
repurchase Outstanding Securities as set forth in this Section, the Company
shall not be obligated to give the Company Notice.
SECTION 11.04. Certain Definitions. For purposes of this Article 11:
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(a) the terms "beneficial owner" and "beneficial ownership" shall be
determined in accordance with Rules 13d-3 and 13d-5 promulgated by the
Commission pursuant to the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), except that a Person shall be deemed to have "beneficial
ownership" of all securities that such Person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time; and
(b) the term "Person" shall include any syndicate or group that would be
deemed to be a "person" under Section 13(d)(3) or Section 14(d)(2) of the
Exchange Act.
SECTION 11.05. Change in Control. A "Change in Control" shall be deemed to
have occurred at such time after the original issuance of the Securities as:
(a) any Person acquires the beneficial ownership, directly or indirectly,
through a purchase, merger or other acquisition transaction, of more than 50% of
the total voting power of the total outstanding voting stock of the Company
other than an acquisition by the Company, any of its Subsidiaries, any of its
employee benefit plans or one or more Permitted Holders;
(b) the Company shall consolidate with, or merge with or into, another
Person or convey, transfer, lease or otherwise dispose of all or substantially
all of its assets to any Person, or any Person consolidates with or merges with
or into the Company, in any such event pursuant to a transaction in which the
Company's outstanding voting stock is converted into or exchanged for cash,
securities or other property, other than any such transactions where:
(i) the Company's voting stock is not converted or exchanged at all
(except to the extent necessary to reflect a change in the Company's
jurisdiction of incorporation) or is converted into or exchanged for voting
stock (other than Redeemable Capital Stock) of the surviving or transferee
corporation, and
(ii) immediately after such transaction, no Person, other than one or
more Permitted Holders or one or more Persons who were the beneficial owner,
directly or indirectly, of more than 50% of the total voting power of all of the
Company's voting stock immediately before such transaction, is the beneficial
owner, directly or indirectly, of more than 50% of the total outstanding voting
stock of the surviving or transferee corporation;
(c) during any consecutive two-year period, individuals who at the
beginning of such period constituted the Board of Directors (but not a committee
thereof), together with (i) any new directors whose election to such Board of
Directors (but not a committee thereof), or whose nomination for election by the
Company's stockholders, was approved by a vote of a majority of the directors
then still in office who were either directors at the beginning of such period
or whose election or nomination for election was previously so approved and (ii)
any representative of a Permitted Holder, cease for any reason to constitute a
majority of the Board of Directors (but not a committee thereof) then in office;
(d) a special resolution is passed by the Company's stockholders approving
a plan of liquidation or dissolution of the Company (other than in a transaction
that complies with the
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provisions described in Article 7), and no additional approvals of the Company's
stockholders are required under applicable law to cause such a liquidation or
dissolution.
"Redeemable Capital Stock" means any class or series of capital stock that,
either by its terms, by the terms of any security into which it is convertible
or exchangeable or by contract or otherwise, is, or upon the happening of an
event or passage of time would be, required to be redeemed prior to the Stated
Maturity of the Securities or is redeemable at the option of the holder thereof
at any time prior to such Stated Maturity, or is convertible into or
exchangeable for debt securities at any time prior to such Stated Maturity;
provided, however, that Redeemable Capital Stock shall not include any Common
Stock which the holder may cause the Company to repurchase or redeem upon
termination of such holder's employment.
ARTICLE 12
Conversion
SECTION 12.01. Conversion Privilege, Conversion Rate and Conversion Price.
Subject to and upon compliance with the provisions of this Article 12, at the
option of the Holder thereof, any Security or any portion of the principal
amount thereof that is $1,000 or an integral multiple of $1,000 may be converted
at any time after original issuance thereof through the close of business on
February 16, 2005 into that number of fully paid and non-assessable shares of
Common Stock obtained by multiplying the Conversion Rate then in effect by each
$1,000 principal amount of Securities surrendered for conversion. In case a
Security or portion thereof has previously been called for redemption at the
election of the Company, such conversion right in respect of the Security or
portion so called shall expire at the close of business, New York City time, on
the last Business Day prior to the Redemption Date, unless the Company defaults
in making the payment due upon redemption. A Security in respect of which a
Holder has delivered a Change in Control Purchase Notice (as defined in Article
11 hereof) exercising the option of such Holder to require the Company to
purchase such Security may be converted only if such notice and the Security is
withdrawn by a written notice of withdrawal delivered by the Holder to the
Trustee or any Paying Agent prior to the close of business on the Repurchase
Date, in accordance with the terms of this Indenture.
The price at which shares of Common Stock shall be delivered upon
conversion (herein called the "Conversion Price") shall be initially $53.10 per
share of Common Stock, which is equal to a conversion rate of 18.8324 shares per
$1,000 principal amount of the Securities (the "Conversion Rate"). The
Conversion Rate shall be adjusted in certain instances as provided in Section
12.04 and, in every instance in which an adjustment is made to the Conversion
Rate, a corresponding adjustment shall be made to the Conversion Price. The
adjusted Conversion Price shall equal at any time 1,000 divided by the then
adjusted Conversion Rate.
SECTION 12.02. Exercise of Conversion Privilege. In order to exercise the
conversion privilege with respect to any Security in definitive form, the Holder
of any Security to be converted shall surrender such Security, duly endorsed or
assigned to the Company or in blank, at any office or agency maintained by the
Company pursuant to Section 9.02, accompanied by (a) written notice to the
Company in substantially the form of conversion notice attached to the form of
Security attached as Exhibit A hereto at such office or agency that the Holder
elects to convert such Security or, if less
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than the entire principal amount thereof is to be converted, the portion thereof
to be converted, (b) the funds, if any, required by this Section 12.02, and (c)
if shares or any portion of such Security not to be converted are to be issued
in the name of a Person other than the Holder thereof, the name of the Person in
which to issue such shares and the transfer taxes, if any, required to be paid
by the Holder pursuant to Section 12.08.
In order to exercise the conversion privilege with respect to any interest
in a global Security, the beneficial owner must complete, or cause to be
completed, the appropriate instruction form for conversion pursuant to the
depositary's book-entry conversion program, deliver, or cause to be delivered,
by book-entry delivery, an interest in such global Security, furnish appropriate
endorsements and transfer documents if required by the Company or the Trustee or
other agent, and pay the funds, if any, required by this Section 12.02 and any
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transfer taxes if required pursuant to Section 12.08.
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As promptly as practicable after satisfaction of the requirements for
conversion set forth above, the Company shall issue and shall deliver to such
Holder a certificate or certificates for the number of full shares of Common
Stock issuable upon the conversion of such Security or portion thereof in
accordance with the provisions of this Article and a check or cash in respect of
any fractional interest in respect of a share of Common Stock arising upon such
conversion, as provided in Section 12.03. In case any Security of a
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denomination greater than $1,000 shall be surrendered for partial conversion,
and subject to Article 2, the Company shall execute, and the Trustee shall
-
authenticate and deliver to the holder of the Security so surrendered, without
charge, a new Security or Securities in authorized denominations in an aggregate
principal amount equal to the unconverted portion of the surrendered Security.
Each conversion shall be deemed to have been effected as to any such
Security (or portion thereof) on the date on which the requirements set forth
above in this Section 12.02 have been satisfied as to such Security (or portion
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thereof), and the Person in whose name any certificate or certificates for
shares of Common Stock shall be issuable upon such conversion shall be deemed to
have become on said date the holder of record of the shares represented thereby;
provided however that any such surrender on any date when the stock transfer
books of the Company shall be closed shall constitute the Person in whose name
the certificates are to be issued as the record holder thereof for all purposes
on the next succeeding day on which such stock transfer books are open, but such
conversion shall be at the Conversion Rate in effect on the date upon which such
Security shall be surrendered.
Any Security or portion thereof surrendered for conversion during the
period from the close of business on the record date for any interest payment
date to the close of business on the Business Day next preceding the following
interest payment date that has not been called for redemption during such
period, shall be accompanied by payment, in immediately available funds or other
funds acceptable to the Company, of an amount equal to the interest otherwise
payable on such interest payment date on the principal amount being converted;
provided however that no such payment need be made to the extent any overdue
interest shall exist at the time of conversion with respect to any such Security
or portion thereof. Except as provided above in this Section 12.02, no payment
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or other adjustment shall be made for interest accrued on any Security converted
or for dividends on any shares issued upon the conversion of such Security as
provided in this Article.
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Upon the conversion of an interest in a global Security, the Trustee (or
other conversion agent appointed by the Company), shall make a notation on such
global Security as to the reduction in the principal amount represented thereby.
The Company shall notify the Trustee in writing of any conversions of Securities
effected through any Conversion Agent other than the Trustee.
SECTION 12.03. Fractions of Shares. No fractional shares of Common Stock
shall be issued upon conversion of Securities. If more than one Security shall
be surrendered for conversion at one time by the same Holder, the number of full
shares that shall be issuable upon conversion thereof shall be computed on the
basis of the aggregate principal amount of the Securities (or specified portions
thereof) so surrendered. Instead of any fractional share of Common Stock that
would otherwise be issuable upon conversion of any Security (or specified
portions thereof), the Company shall pay a cash adjustment in respect of such
fraction in an amount equal to the same fraction of the Closing Price per share
of the Common Stock at the close of business on the Trading Day immediately
preceding such day.
"Trading Day" shall mean each day on which the primary securities exchange
or quotation system that is used to determine the Closing Price is open for
trading or quotation.
"Closing Price" of a single share of Common Stock on any Trading Day shall
mean the closing sale price per share for the Common Stock (or if no closing
sale price is reported, the average of the bid and ask prices) on such Trading
Day on the principal United States national securities exchange on which the
Common Stock is traded or, if the Common Stock is not listed on a United States
national stock exchange, as reported by the Nasdaq National Market.
SECTION 12.04. Adjustment of Conversion Rate.
(a) In case the Company shall pay or make a dividend or other distribution
on its Common Stock exclusively in Common Stock, the Conversion Rate in effect
at the opening of business on the earlier of the day next following such
dividend or other distribution or the date fixed for the determination of
stockholders entitled to receive such dividend or other distribution shall be
adjusted so that a Holder upon conversion shall be entitled to receive that
number of shares of Common Stock it would have been entitled to after such
dividend or other distribution if it had converted its Security immediately
prior to such dividend or other distribution.
(b) In case the Company shall pay or make a dividend or other distribution on
its Common Stock consisting exclusively of, or shall otherwise issue to all
holders of its Common Stock, rights, warrants or options entitling the
holders thereof, for a period not exceeding 45 days, to subscribe for or
purchase shares of Common Stock at a price per share less than the current
market price per share (determined as provided in Section 12.04(g)) of the
Common Stock on the date fixed for the determination of stockholders
entitled to receive such rights, warrants or options, the Conversion Rate
in effect at the opening of business on the day following the date fixed
for such determination shall be increased by multiplying such Conversion
Rate by a fraction of which the numerator shall be the number of shares of
Common Stock outstanding at the close of business on the date fixed for
such determination plus the number of shares of Common Stock so offered for
subscription or purchase and the denominator shall be the number of shares
of Common Stock outstanding at the close of business on the date fixed for
such determination plus the number of
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shares of Common Stock which the aggregate price of the total number of shares
so offered would purchase at the current market price per share (determined as
provided in Section 12.04(g)), such increase to become effective immediately
after the opening of business on the day following the date fixed for such
determination.
(c) In case outstanding shares of Common Stock shall be subdivided into a
greater number of shares of Common Stock, the Conversion Rate in effect at the
opening of business on the day following the day upon which such subdivision
becomes effective shall be proportionately increased, and, conversely, in case
outstanding shares of Common Stock shall each be combined into a smaller number
of shares of Common Stock, the Conversion Rate in effect at the opening of
business on the day following the day upon which such combination becomes
effective shall be proportionately reduced, such increase or reduction, as the
case may be, to become effective immediately after the opening of business on
the day following the day upon which such subdivision or combination becomes
effective.
(d) In case the Company shall, by dividend or otherwise, distribute to all
holders of its Common Stock evidences of its indebtedness, shares of any class
of capital stock, securities, cash or assets (excluding any rights, warrants or
options referred to in Section 12.04(b), any dividend or distribution paid
exclusively in cash and any dividend or distribution referred to in Section
12.04(a)), the Conversion Rate shall be adjusted by multiplying the Conversion
Rate in effect immediately prior to the earlier of such distribution or the
determination of stockholders entitled to receive such distribution by a
fraction of which the numerator shall be the current market price per share
(determined as provided in Section 12.04(g)) and the denominator shall be such
current market price less the fair market value (as determined in good faith by
the Board of Directors, whose determination shall be conclusive and described in
a Board Resolution), on the date of such effectiveness, of the portion of the
evidences of indebtedness, shares of capital stock, securities, cash and assets
so distributed applicable to one share of Common Stock, such adjustment to
become effective immediately prior to the opening of business on the day next
following the later of (i) the date fixed for the payment of such distribution
and (ii) the date 20 days after the notice relating to such distribution is
given pursuant to Section 12.06 (such later date of (i) and (ii) being referred
to as the "Reference Date"). The provisions of this Section 12.04(d) shall not
be applicable to an event covered by Section 12.04(j). For purposes of this
Section 12.04(d) and Sections 12.04(a) and 12.04(b), any dividend or
distribution for which an adjustment is being made pursuant to this Section
12.04(d) that also includes shares of Common Stock or rights, warrants or
options to subscribe for or purchase shares of Common Stock shall be deemed
instead to be (A) a dividend or distribution of the evidences of indebtedness,
cash, property, shares of capital stock or securities other than such shares of
Common Stock or such rights, warrants or options (making any Conversion Rate
adjustment required by this Section 12.04(d)) immediately followed by (B) a
dividend or distribution of such shares of Common Stock or such rights (making
any further Conversion Rate adjustment required by Sections 12.04(a) or
12.04(b)), except (1) the record date of such dividend or distribution as
defined in this Section 12.04(d) shall be substituted as "the date fixed for the
determination of stockholders entitled to receive such dividend or other
distributions", "the date fixed for the determination of stockholders entitled
to receive such rights, warrants or options" and "the date fixed for such
determination" within the meaning of Sections 12.04(a) and 12.04(b) and (2) any
shares of Common Stock included in such dividend or distribution shall not be
deemed
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"outstanding at the close of business on the date fixed for such determination"
within the meaning of this 12.04(d).
(e) In case the Company shall, by dividend or otherwise, make a
distribution to all holders of its Common Stock exclusively in cash in an
aggregate amount that, together with (i) the aggregate amount of any other
distributions to all holders of its Common Stock made exclusively in cash within
the 12 months preceding the date of payment of such distribution and in respect
of which no Conversion Rate adjustment pursuant to this Section 12.04(e) has
been made and (ii) the aggregate of any cash plus the fair market value (as
determined in good faith by the Board of Directors, whose determination shall be
conclusive and described in a Board Resolution), as of the expiration of the
tender or exchange offer referred to below, of consideration payable in respect
of any tender or exchange offer by the Company or a Subsidiary for all or any
portion of the Common Stock concluded within the 12 months preceding the date of
payment of such distribution and in respect of which no Conversion Rate
adjustment pursuant to this Section 12.04(e) has been made, exceeds 10% of the
product of the current market price per share (determined as provided in Section
12.04(g)) of the Common Stock as of the Trading Day immediately preceding the
record date fixed for stockholders entitled to receive such distribution times
the number of shares of Common Stock outstanding on such record date, the
Conversion Rate shall be increased so that the same shall equal the price
determined by multiplying the Conversion Rate in effect immediately prior to the
close of business on the date fixed for the determination of the stockholders of
record entitled to such distribution by a fraction of which (i) the denominator
shall be the current market price per share (determined as provided in Section
12.04(g)) on such date less an amount equal to the quotient of (x) the excess of
such combined amount over such 10% and (y) the number of shares of Common Stock
outstanding on the record date and (ii) the numerator shall be equal to the
current market price on such date, such adjustment to become effective
immediately prior to the opening of business on the day following the record
date fixed for the payment of such distribution.
(f) In case a successful tender or exchange offer, other than an odd lot
offer, made by the Company or any Subsidiary for all or any portion of the
Common Stock shall involve an aggregate consideration having a fair market value
(as determined in good faith by the Board of Directors, whose determination
shall be conclusive and described in a Board Resolution) at the last time (the
"Expiration Time") tenders or exchanges may be made pursuant to such tender or
exchange offer (as it may be amended) that, together with (i) the aggregate of
the cash plus the fair market value (as determined in good faith by the Board of
Directors, whose determination shall be conclusive and described in a Board
Resolution), as of the expiration of the other tender or exchange offer referred
to below, of consideration payable in respect of any other tender or exchange
offer by the Company or a Subsidiary for all or any portion of the Common Stock
concluded within the preceding 12 months and in respect of which no Conversion
Rate adjustment pursuant to this Section 12.04(f) has been made and (ii) the
aggregate amount of any distributions to all holders of the Common Stock made
exclusively in cash within the preceding 12 months and in respect of which no
Conversion Rate adjustment pursuant to Section 12.04(e) has been made, exceeds
10% of the product of the current market price per share (determined as provided
in Section 12.04(d)) of the Common Stock outstanding (including any tendered
shares) on the Expiration Time, the Conversion Rate shall be adjusted by
multiplying the Conversion Rate in effect immediately prior to the Expiration
Time by a fraction of which (i) the denominator shall be (x) the product of the
current market price per share (determined as provided in Section 12.04(g)) of
the Common Stock on the
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Trading Day next succeeding the Expiration Time times the number of shares of
Common Stock outstanding (including any tendered or exchanged shares) at the
Expiration Time minus (y) the fair market value (determined as aforesaid) of the
aggregate consideration payable to stockholders based on the acceptance (up to
any maximum specified in the terms of the tender or exchange offer) of all
shares validly tendered or exchanged and not withdrawn as of the Expiration Time
(the shares deemed so accepted, up to any such maximum, being referred to as the
"Purchased Shares") and (ii) the numerator shall be the product of (x) such
current market price per share (determined in accordance with Section 12.04(g))
on the Trading Day next succeeding the Expiration Time times (y) such number of
outstanding shares at the Expiration Time less the number of Purchased Shares,
such increase to become effective immediately prior to the opening of business
on the day following the Expiration Time.
(g) For the purpose of any computation under Sections 12.04(b), (d) and
(e), the current market price per share of Common Stock on any date in question
shall be deemed to be the average of the daily Closing Prices per share of
Common Stock for the ten consecutive Trading Days immediately prior to the date
in question; provided, however, that (i) if the "ex" date (as hereinafter
defined) for any event (other than the issuance or distribution requiring such
computation) that requires an adjustment to the Conversion Rate pursuant to
Section 12.04(a), (b), (c), (d), (e) or (f) ("Other Event") occurs on or after
the 20th Trading Day prior to the date in question and prior to the "ex" date
for the issuance or distribution requiring such computation (the "Current
Event"), the Closing Price for each Trading Day prior to the "ex" date for such
Other Event shall be adjusted by multiplying such Closing Price by the
reciprocal of the fraction by which the Conversion Rate is so required to be
adjusted as a result of such Other Event, (ii) if the "ex" date for any Other
Event occurs after the "ex" date for the Current Event and on or prior to the
date in question, the Closing Price for each Trading Day on and after the "ex"
date for such Other Event shall be adjusted by multiplying such Closing Price by
the fraction by which the Conversion Rate is so required to be adjusted as a
result of such Other Event, (iii) if the "ex" date for any Other Event occurs on
the "ex" date for the Current Event, one of those events shall be deemed for
purposes of clauses (i) and (ii) of this proviso to have an "ex" date occurring
prior to the "ex" date for the Other Event, and (iv) if the "ex" date for the
Current Event is on or prior to the date in question, after taking into account
any adjustment required pursuant to clause (ii) of this proviso, the Closing
Price for each Trading Day on or after such "ex" date shall be adjusted by
adding thereto the amount of any cash and the fair market value on the date in
question (as determined in good faith by the Board of Directors in a manner
consistent with any determination of such value for purposes of Section 12.04(d)
or (e), whose determination shall be conclusive and described in a Board
Resolution) of the portion of the rights, warrants, options, evidences of
indebtedness, shares of capital stock, securities, cash or property being
distributed applicable to one share of Common Stock. For the purpose of any
computation under Section 12.04(f), the current market price per share of Common
Stock on any date in question shall be deemed to be the average of the daily
Closing Prices for the five consecutive Trading Days selected by the Company
commencing on or after the latest (the "Commencement Date") of (i) the date 20
Trading Days before the date in question, (ii) the date of commencement of the
tender or exchange offer requiring such computation and (iii) the date of the
last amendment, if any, of such tender or exchange offer involving a change in
the maximum number of shares for which tenders are sought or a change in the
consideration offered, and ending not later than the Trading Day next succeeding
the Expiration Time of such tender or exchange offer (or, if such Expiration
Time occurs before the close of trading on a Trading Day, not later than the
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Trading Day during which the Expiration Time occurs); provided, however, that if
the "ex" date for any Other Event (other than the tender or exchange offer
requiring such computation) occurs on or after the Commencement Date and on or
prior to the Trading Day next succeeding the Expiration Time for the tender or
exchange offer requiring such computation, the Closing Price for each Trading
Day prior to the "ex" date for such Other Event shall be adjusted by multiplying
such Closing Price by the reciprocal of the same fraction by which the
Conversion Rate is so required to be adjusted as a result of such other event.
For purposes of this paragraph, the term "ex" date, (i) when used with respect
to any issuance or distribution, means the first date on which the Common Stock
trades regular way on the relevant exchange or in the relevant market from which
the Closing Price was obtained without the right to receive such issuance or
distribution, (ii) when used with respect to any subdivision or combination of
shares of Common Stock, means the first date on which the Common Stock trades
regular way on such exchange or in such market after the time at which such
subdivision or combination becomes effective, and (iii) when used with respect
to any tender or exchange offer means the first date on which the Common Stock
trades regular way on such exchange or in such market after the Expiration Time
of such tender or exchange offer.
(h) The Company may make such increases in the Conversion Rate, in addition
to those required by paragraphs (a), (b), (c), (d), (e) and (f) of this Section
12.04, as it considers to be advisable.
(i) No adjustment in the Conversion Rate shall be required unless such
adjustment would require an increase or decrease of at least 1% in the
Conversion Rate; provided, however, that any adjustments, which by reason of
this Section 12.04(i) are not required to be made, shall be carried forward and
taken into account in any subsequent adjustment.
(j) In the event that the Company distributes assets, debt securities,
rights, warrants or options (other than those referred to in Section 12.04(b)
pro rata to holders of Common Stock, and the fair market value of the portion of
assets, debt securities, rights, warrants or options applicable to one share of
Common Stock distributed to holders of Common Stock exceeds the Average Sale
Price (as defined below) per share of Common Stock, or such Average Sale Price
exceeds such fair market value by less than $1.00, then so long as any such
assets, debt securities, rights, options or warrants have not expired or been
redeemed by the Company, the Company shall make proper provision so that the
Holder of any Security upon conversion, rather than being entitled to an
adjustment in the Conversion Rate, will be entitled to receive upon such
conversion, in addition to the shares of Common Stock otherwise issuable upon
conversion, the kind and amount of assets, debt securities, rights, warrants and
options such Holder would have received had such Holder converted its Security
immediately prior to the date of determination of the holders entitled to such
distribution.
"Average Sale Price" means the average of the Closing Prices of the Common
Stock for the shorter of (i) 30 consecutive Trading Days ending on the last full
Trading Day prior to the Time of Determination (as defined below) with respect
to the rights, options, warrants or distribution in respect of which the Average
Sale Price is being calculated, or (ii) the period (x) commencing on the date
next succeeding the first public announcement of (a) the issuance of rights,
options or warrants or (b) the distribution, in each case, in respect of which
the Average Sale Price is being calculated and (y) proceeding through the last
full Trading Day prior to the Time of Determination with respect
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to the rights, options, warrants or distribution in respect of which the Average
Sale Price is being calculated, or (iii) the period, if any, (x) commencing on
the date next succeeding the Ex-Dividend Time (as defined below) with respect to
the next preceding (a) issuance of rights, warrants or options or (b)
distribution, in each case, for which an adjustment is required by the
provisions of Section 12.04(b) or Section 12.04(j) and (y) proceeding through
the last full Trading Day prior to the Time of Determination with respect to the
rights, options, warrants, or distribution in respect of which the Average Sale
Price is being calculated. If the Ex-Dividend Time (or in the case of a
subdivision, combination or reclassification, the effective date with respect
thereto) with respect to a dividend, subdivision, combination or
reclassification to which Section 12.04(a), (b) or (c) applies occurs during the
period applicable for calculating "Average Sale Price" pursuant to the
definition in the preceding sentence, "Average Sale Price" shall be calculated
for such period in a manner determined in good faith by the Board of Directors
to reflect the impact of such dividend, subdivision, combination or
reclassification on the Closing Price of the Common Stock during such period.
"Time of Determination" means the time and date of the earlier of (i) the
determination of stockholders entitled to receive rights, warrants or options or
a distribution, in each case, to which this Section 12.04 applies and (ii) the
time ("Ex-Dividend Time") immediately prior to the commencement of "ex-dividend"
trading for such rights, options, warrants or distribution on the New York Stock
Exchange or such other national or regional exchange or market on which the
shares of Common Stock are listed or quoted.
SECTION 12.05. Notice of Adjustments of Conversion Rate. Whenever the
Conversion Rate and Conversion Price are adjusted as herein provided, the
Company shall compute the adjusted Conversion Rate and Conversion Price in
accordance with Section 12.04 and shall prepare a certificate signed by the
Chief Financial Officer of the Company setting forth the adjusted Conversion
Rate and Conversion Price and showing in reasonable detail the facts upon which
such adjustment is based, and such certificate shall forthwith be filed (with a
copy to the Trustee) at each office or agency maintained for the purpose of
conversion of Securities pursuant to Section 9.02; and the Company shall
forthwith cause a notice setting forth the adjusted Conversion Rate and
Conversion Price to be mailed, first class postage prepaid, to each Holder of
Securities at its address appearing on the Security Register. Unless and until
the Trustee shall receive such notice, the Trustee may assume without inquiry
that the Conversion Rate and Conversion Price have not been, and are not
required to be, adjusted and that the last Conversion Rate and Conversion Price
of which it has written notice remain in effect.
SECTION 12.06. Notice of Certain Corporate Action. In case:
(a) the Company shall declare a dividend (or any other distribution) on its
Common Stock that would require a Conversion Rate adjustment pursuant to Section
12.04(e); or
(b) the Company shall authorize the granting to all holders of its Common
Stock of rights, warrants or options to subscribe for or purchase any shares of
capital stock of any class or of any other rights (excluding rights distributed
pursuant to any stockholder rights plan); or
(c) of any reclassification of the Common Stock of the Company (other than
a subdivision or combination of its outstanding shares of Common Stock), or of
any consolidation or
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merger to which the Company is a party and for which approval of any
stockholders of the Company is required, or of the sale or transfer of all or
substantially all of the assets of the Company; or
(d) of the voluntary or involuntary dissolution, liquidation or winding up
of the Company; or
(e) the Company or any Subsidiary of the Company shall commence a tender or
exchange offer for all or a portion of the Company's outstanding shares of
Common Stock (or shall amend any such tender or exchange offer);
then the Company shall cause to be filed at each office or agency
maintained for the purpose of conversion of Securities pursuant to Section 9.02,
----
and shall cause to be mailed to all Holders at their last addresses as they
shall appear in the Security Register, at least 20 days (or 10 days in any case
specified in clause 12.06(a) or 12.06(b) above) prior to the applicable record,
-------- --------
effective or expiration date hereinafter specified, a notice stating (x) the
date on which a record is to be taken for the purpose of such dividend,
distribution or granting of rights, warrants or options, or, if a record is not
to be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distribution, rights, warrants or options are to be
determined, or (y) the date on which such reclassification, consolidation,
merger, sale, transfer, dissolution, liquidation or winding up is expected to
become effective, and the date as of which it is expected that holders of Common
Stock of record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding up,
or (z) the date on which such tender offer commenced, the date on which such
tender offer is scheduled to expire unless extended, the consideration offered
and the other material terms thereof (or the material terms of any amendment
thereto).
SECTION 12.07. Company's Obligation Regarding Common Stock. The Company
shall at all times reserve and keep available, free from preemptive rights, out
of its authorized but unissued Common Stock, solely for the purpose of effecting
the conversion of Securities, the whole number of shares of Common Stock then
issuable upon the conversion in full of all Outstanding Securities.
Before taking any action which would cause an adjustment reducing the
Conversion Price below the then par value, if any, of the shares of Common Stock
issuable upon conversion of the Securities, the Company shall take all corporate
action that may, in the opinion of its counsel, be necessary in order that the
Company may validly and legally issue shares of such Common Stock at such
adjusted Conversion Price.
The Company covenants that if any shares of Common Stock to be provided for
the purpose of conversion of Securities hereunder require registration with or
approval of any governmental authority under any federal or state law before
such shares may be validly issued upon conversion, the Company shall in good
faith and as expeditiously as practicable endeavor to secure such registration
or approval, as the case may be.
The Company further covenants that so long as the Common Stock shall be
listed or quoted on the New York Stock Exchange, the Nasdaq Stock Market
(National Market), or any other
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national securities exchange the Company shall, if permitted by the rules of
such exchange, list and keep listed so long as the Common Stock shall be so
listed on such market or exchange, all Common Stock issuable upon conversion of
the Securities.
SECTION 12.08. Taxes on Conversions. The Company shall pay any and all
taxes that may be payable in respect of the issue or delivery of shares of
Common Stock on conversion of Securities pursuant hereto. The Company shall not,
however, be required to pay any tax that may be payable in respect of any
transfer involved in the issue and delivery of shares of Common Stock in a name
other than that of the Holder of the Security or Securities to be converted, and
no such issue or delivery shall be made unless and until the Person requesting
such issue has paid to the Company the amount of any such tax, or has
established to the satisfaction of the Company that such tax has been paid.
SECTION 12.09. Covenant as to Common Stock. The Company covenants that all
shares of Common Stock that may be issued upon conversion of Securities shall
upon issue be newly issued (and not treasury shares) and shall be duly
authorized, validly issued, fully paid and nonassessable and, except as provided
in Section 12.08, the Company shall pay all taxes, liens and charges with
respect to the issue thereof.
SECTION 12.10. Cancellation of Converted Securities. All Securities
delivered for conversion shall be delivered to the Trustee to be cancelled by or
at the direction of the Trustee, which shall dispose of the same as provided in
Section 3.08.
SECTION 12.11. Provisions in Case of Reclassification, Consolidation,
Merger or Sale of Assets. In the event that the Company shall be a party to any
transaction (including any (i) recapitalization or reclassification of the
Common Stock (other than a change in par value, or from par value to no par
value, or from no par value to par value, or as a result of a subdivision or
combination of the Common Stock), (ii) any consolidation of the Company with, or
merger of the Company into, any other person, any merger of another person into
the Company (other than a merger that does not result in a reclassification,
conversion, exchange or cancellation of outstanding shares of Common Stock of
the Company), (iii) any sale, lease, transfer, conveyance or other disposition
of all or substantially all of the assets of the Company or (iv) any compulsory
share exchange) pursuant to which the Common Stock is converted into the right
to receive other securities, cash or other property, then lawful provision shall
be made as part of the terms of such transaction whereby the Holder of each
Security then Outstanding shall have the right thereafter to convert such
Security only into (subject to funds being legally available for such purpose
under applicable law at the time of such conversion) the kind and amount of
securities, cash and other property receivable upon such transaction by a holder
of the number of shares of Common Stock into which such Security might have been
converted immediately prior to such transaction. The Company or the Person
formed by such consolidation or resulting from such merger or that acquired such
assets or that acquired the Company's shares of Common Stock, as the case may
be, shall execute and deliver to the Trustee a supplemental indenture
establishing such rights. Such supplemental indenture shall provide for
adjustments that, for events subsequent to the effective date of such
supplemental indenture, shall be as nearly equivalent as may be practicable to
the adjustments provided for in this Article. The above provisions of this
Section 12.11 shall similarly apply to successive transactions of the foregoing
type.
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SECTION 12.12. Company's Obligation. All calculations, adjustments,
conversions and other determinations under this Article 12 shall be the sole
responsibility and obligation of the Company. The Trustee (a) shall have no
obligation to review, challenge or contest any such calculation, adjustment,
conversion or other determination and (b) shall not be liable for any default or
error by the Company under this Article 12.
ARTICLE 13
Subordination
SECTION 13.01. Securities Subordinate to Senior Indebtedness. The Company
covenants and agrees, and each Holder of Securities, by such Holder's acceptance
thereof, likewise covenants and agrees, that, to the extent and in the manner
hereinafter set forth in this Article 13, the indebtedness represented by the
Securities and the payment of the principal of (and premium, if any), and
interest on (including Liquidated Damages, if any) and all other amounts payable
under the Securities are hereby expressly made subordinate and subject in right
of payment to the prior payment in full of all Senior Indebtedness and shall
rank pari passu with the Initial Securities and the payment of the principal of
(and premium, if any), and interest on (including Liquidated Damages, if any)
and all other amounts payable under the Initial Securities.
SECTION 13.02. Payment over of Proceeds upon Dissolution, Etc. In the event
of any payment by, or distribution of the assets of, the Company in connection
with (a) any insolvency or bankruptcy case or proceeding, or any receivership,
liquidation, reorganization or other similar case or proceeding in connection
therewith, relative to the Company or its assets, (b) any liquidation,
dissolution or other winding-up of the Company, whether voluntary or involuntary
and whether or not involving insolvency or bankruptcy, or (c) any assignment for
the benefit of creditors or any other marshaling of assets and liabilities of
the Company, then and in any such event the holders of Senior Indebtedness shall
be entitled to receive payment in full of all amounts due in respect of all
Senior Indebtedness, or provision shall be made for such payment in cash or cash
equivalents or otherwise in a manner satisfactory to the holders of Senior
Indebtedness, before the Holders of the Securities are entitled to receive any
payment on account of principal of (or premium, if any), or interest on
(including Liquidated Damages, if any) or any other amount payable under the
Securities, and to that end, the holders of Senior Indebtedness shall be
entitled to receive, for application to the payment of such Senior Indebtedness,
ratably according to the aggregate amounts remaining unpaid on account of such
Senior Indebtedness held by them after giving effect to any concurrent payment
or distribution, or provision therefor, to the holders of such Senior
Indebtedness, any payment or distribution of any kind or character, whether in
cash, property or securities, that may be payable or deliverable in respect of
the Securities in any such case, proceeding, dissolution, liquidation or other
winding-up or event.
In the event that, notwithstanding the foregoing provisions of this Section
13.02, the Trustee or the Holder of Securities shall have received any payment
or distribution of assets of the Company prohibited by the foregoing paragraph
of any kind or character, whether in cash, property or securities, before all
Senior Indebtedness is paid in full or payment thereof provided for, and if, at
or prior to the time of such payment or distribution, written notice that such
payment or distribution is prohibited by the foregoing paragraph shall have been
actually given to a Responsible Officer of the Trustee or, as the case may be,
such Holder, then and in such event such payment or distribution
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shall be paid over or delivered forthwith to holders of such Senior Indebtedness
remaining unpaid or their representatives, ratably according to the aggregate
amounts remaining unpaid on account of the Senior Indebtedness held by them, for
application to the payment thereof to the extent necessary to pay all Senior
Indebtedness in full after giving effect to any concurrent payment or
distribution, or provision therefor, to the holders of such Senior Indebtedness.
For purposes of this Article 13 only, the words "cash, property or
securities" shall not be deemed to include shares of capital stock of the
Company as reorganized or readjusted, or securities of the Company or any other
corporation provided for by a plan of reorganization or readjustment that in
either case are subordinated in right of payment to all Senior Indebtedness that
may at the time be outstanding to substantially the same extent as, or to a
greater extent than, the Securities are so subordinated as provided in this
Article 13. The consolidation of the Company with, or the merger of the Company
into, another Person or the liquidation or dissolution of the Company following
the sale, lease, conveyance, transfer or other disposition of its properties and
assets substantially as an entirety to another Person upon the terms and
conditions set forth in Article 7 shall not be deemed a dissolution, winding-up,
liquidation, reorganization, assignment for the benefit of creditors or
marshaling of assets and liabilities of the Company for the purposes of this
Section 13.02 if the Person formed by such consolidation or into which the
Company is merged or that acquires by sale, lease, conveyance, transfer or other
disposition such properties and assets substantially as an entirety, as the case
may be, shall, as a part of such consolidation, merger, sale, lease, conveyance,
transfer or other disposition, comply with the conditions set forth in Article
7.
SECTION 13.03. No Payment When Senior Indebtedness in Default. (a) In the
event and during the continuation of any default in the payment of principal of
(or premium, if any) or interest on any Senior Indebtedness beyond any
applicable grace period with respect thereto (unless and until such payment
default shall have been cured or waived in writing by the holders of such Senior
Indebtedness), including any payment default arising from the acceleration of
any Senior Indebtedness, or (b) any default (other than a payment default) with
respect to Senior Indebtedness occurs and is continuing that permits the
acceleration of the maturity thereof and judicial proceedings shall be pending
with respect to any such default or the Company receives written notice of such
default (a "Senior Indebtedness Default Notice"), then no payment shall be made
by the Company on account of principal of (or premium, if any) or interest on
(including Liquidated Damages, if any) the Securities or on account of all other
amounts payable under the Securities. Notwithstanding the foregoing, payments
with respect to the Securities may resume, and the Company may acquire
Securities for cash or property, when (x) the default with respect to the Senior
Indebtedness is cured or waived or ceases to exist or (y) in the case of a
default described in clause (b) of this Section 13.03, 179 or more days pass
after the Senior Indebtedness Default Notice is received by the Company,
provided that the terms hereof otherwise permit such payment or acquisition of
Securities at such time. If the Company receives a Senior Indebtedness Default
Notice, then a similar notice received within nine months thereafter relating to
the default that was the basis of such Senior Indebtedness Default Notice, on
the same issue of Senior Indebtedness, shall not be effective to prevent the
payment or acquisition of the Securities as described in the first sentence of
this Section 13.03(a). In addition, no payment may be made on the Securities, in
respect of principal, premium, interest (including Liquidated Damages, if any)
or any other amount, and no acquisition of Securities for cash or property may
be effected, if any Securities are declared due and payable prior to their
Stated Maturity by reason of the occurrence of an Event of Default until the
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earlier of (i) 120 days after the date of such acceleration of the maturity of
the Securities or (ii) the payment in full of all Senior Indebtedness, provided
that such payment or acquisition of Securities may be made then only if the
terms hereof otherwise permit such payment or acquisition of Securities at such
time.
In the event that, notwithstanding the foregoing, the Company shall make
any payment to the Trustee or any Holder of Securities prohibited by the
foregoing provisions of this Section 13.03 before all Senior Indebtedness is
paid in full, or effective provisions made for its payment, and if, at or prior
to the time of such payment, written notice that such payment is prohibited by
the foregoing paragraph shall have been actually given to a Responsible Officer
of the Trustee or, as the case may be, such Holder, then and in such event (but
subject to the provisions of Section 13.09) such payment shall be paid over and
-----
delivered forthwith to the holders of such Senior Indebtedness remaining unpaid
or their representatives, ratably on account of the Senior Indebtedness held by
them, for application to the payment thereof to the extent necessary to pay all
Senior Indebtedness in full after giving effect to any concurrent payment or
distribution, or provision therefor, to the holders of such Senior Indebtedness.
The provisions of this Section 13.03 shall not apply to any payment with
-----
respect to which Section 13.02 would be applicable.
-----
SECTION 13.04. Payment Permitted If No Default. Nothing contained in this
Article 13 or elsewhere herein or in any of the Securities shall prevent (a) the
Company, at any time except during the pendency of any case, proceeding,
dissolution, liquidation or other winding-up, assignment for the benefit of
creditors or other marshaling of assets and liabilities of the Company referred
to in Section 13.02, except under the conditions described in Section 13.03,
from making payments at any time of principal of (and premium, if any), or
interest on, or any other amount payable under the Securities, or (b) the
application by the Trustee of any money deposited with it hereunder to the
payment of or on account of the principal of (and premium, if any), or interest
on, or any other amount payable under the Securities, or the retention of such
payment by the Holders, if, by the close of business on the date that was two
Business Days prior to such application by the Trustee, the Trustee had not
received written notice that such payment would be prohibited by the provisions
of this Article 13.
SECTION 13.05. Subrogation to Rights of Holders of Senior Indebtedness.
Upon payment in full of all Senior Indebtedness, the Holders of the Securities
shall be subrogated (equally and ratably with the holders of all Indebtedness of
the Company that by its express terms is subordinated to Indebtedness of the
Company to substantially the same extent as the Securities are subordinated to
Senior Indebtedness) to the rights of the holders of such Senior Indebtedness to
receive payments and distributions of cash, property and securities applicable
to the Senior Indebtedness to the extent that payments and distributions
otherwise payable to Holders of Securities have been applied to the payment of
Senior Indebtedness as provided by this Article 13. For purposes of such
subrogation, no payments or distributions to the holders of the Senior
Indebtedness of any cash, property or securities to which the Holders of the
Securities or the Trustee would be entitled, except for the provisions of this
Article 13, and no payments over pursuant to the provisions of this Article 13
to the holders of Senior Indebtedness by Holders of the Securities or the
Trustee, shall, as among the Company, its creditors other than holders of Senior
Indebtedness and the Holders
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<PAGE>
of the Securities, be deemed to be a payment or distribution by the Company to
or on account of the Senior Indebtedness.
SECTION 13.06. Provisions Solely to Define Relative Rights. The provisions
of this Article 13 are and are intended solely for the purpose of defining the
relative rights of the Holders of the Securities on the one hand and the holders
of Senior Indebtedness on the other hand. Nothing contained in this Article 13
or elsewhere herein or in the Securities relating to the subordination of the
Securities is intended to or shall:
(a) impair, as among the Company, its creditors other than holders of
Senior Indebtedness and the Holders of the Securities, the obligation of the
Company, which is absolute and unconditional (and which, subject to the rights
under this Article 13 of the holders of Senior Indebtedness, is intended to rank
equally with all other general obligations of the Company), to pay to the
Holders of the Securities the principal of (and premium, if any), and interest
(including Liquidated Damages, if any) on, and any other amount payable under
the Securities, as and when the same shall become due and payable in accordance
with their terms;
(b) affect the relative rights against the Company of the Holders of the
Securities and other creditors of the Company, other than Holders' rights in
relation to the holders of Senior Indebtedness; or
(c) prevent the Trustee or the Holder of any Securities from exercising all
remedies available upon a Default or Event of Default under this Indenture,
subject to the rights, if any, under this Article 13 of the holders of Senior
Indebtedness to receive cash, property and securities otherwise payable or
deliverable to the Trustee or such Holder.
SECTION 13.07. Trustee to Effectuate Subordination. Each Holder of
Securities by its acceptance thereof authorizes and directs the Trustee on its
behalf to take such action as may be necessary or appropriate to effectuate the
subordination provided in this Article 13 and appoints the Trustee its
attorney-in-fact for any and all such purposes, including the immediate filing
of a claim for the unpaid balance of such Holder's Securities in any insolvency
or bankruptcy proceeding, or any receivership, liquidation, reorganization or
similar case or proceeding, in the form required in such proceeding, and the
taking of such actions as may be required to cause such claim to be approved. If
the Trustee does not file a proper claim in the form required in such proceeding
on or prior to thirty days before the expiration of the time to file such claim
or claims, then the holders of Senior Indebtedness or their representatives are
hereby authorized to file such claim for and on behalf of the Holders.
SECTION 13.08. No Waiver of Subordination Provisions. No right of any
present or future holder of any Senior Indebtedness to enforce subordination as
herein provided shall at any time in any way be prejudiced or impaired by any
act or failure to act on the part of the Company or by any act or failure to
act, in good faith, by any such holder, or by any noncompliance by the Company
with the terms, provisions and covenants of this Indenture, regardless of any
knowledge thereof any such holder may have or be otherwise charged with.
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<PAGE>
Without in any way limiting the generality of the foregoing paragraph, the
holders of Senior Indebtedness may, at any time and from time to time, without
the consent of or notice to the Trustee or the Holders of the Securities,
without incurring responsibility to the Holders of the Securities and without
impairing or releasing the subordination provided in this Article 13 or the
obligations hereunder of the Holders of the Securities to the holders of Senior
Indebtedness, do any one or more of the following:
(a) change the manner, place or terms of payment or extend the time of
payment of, or renew or alter, Senior Indebtedness, or otherwise amend or
supplement in any manner Senior Indebtedness or any instrument evidencing the
same or any agreement under which Senior Indebtedness is outstanding;
(b) sell, exchange, release or otherwise deal with any property pledged,
mortgaged or otherwise securing Senior Indebtedness;
(c) release any Person liable in any manner for the collection of Senior
Indebtedness; and
(d) exercise or refrain from exercising any rights against the Company and
any other Person.
SECTION 13.09. Notice to Trustee. The Company shall give prompt
written notice to the Trustee if, to the Company's knowledge, any payment to or
by the Trustee in respect of the Securities is prohibited by this Article 13.
Notwithstanding the provisions of this Article 13 or any other provision of this
Indenture, the Trustee shall not be charged with knowledge that any payment to
or by the Trustee in respect of the Securities is prohibited by this Article 13,
unless and until a Responsible Officer of the Trustee shall have received
written notice thereof from the Company or a holder of Senior Indebtedness or
from any trustee therefor or other representative thereof; and, prior to the
receipt of any such written notice, the Trustee, subject to the provisions of
Section 1.05, shall be entitled in all respects to assume that no facts exist
that would prohibit any payment in respect of the Securities; provided, however,
that if a Responsible Officer of the Trustee shall not have received at the
Corporate Trust Office of the Trustee the notice provided for in this Section
13.09 by the close of business on the date that is two Business Days prior to
the date upon which by the terms hereof any money may become payable for any
purpose (including the payment of the principal of (and premium, if any) or
interest (including Liquidated Damages, if any) on any Security), then, anything
herein contained to the contrary notwithstanding, the Trustee shall have full
power and authority to receive such money and to apply the same to the purpose
for which such money was received and shall not be affected by any notice to the
contrary which may be received by it after the close of business on the date
that is two Business Days prior to such date.
Subject to the provisions of Article 5, the Trustee shall be entitled to
rely on the delivery to it of a written notice by a Person representing itself
to be a holder of Senior Indebtedness (or a representative thereof) to establish
that such notice has been given by a holder of Senior Indebtedness (or a
representative thereof). In the event that the Trustee determines in good faith
that further evidence is required with respect to the right of any Person as a
holder of Senior Indebtedness to participate in any payment or distribution
pursuant to this Article 13, the Trustee
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<PAGE>
may request such Person to furnish evidence to the reasonable satisfaction of
the Trustee as to the amount of Senior Indebtedness held by such Person, the
extent to which such Person is entitled to participate in such payment or
distribution and any other facts pertinent to the rights of such Person under
this Article 13, and if such evidence is not furnished, the Trustee may defer
any payment to such Person pending judicial determination as to the right of
such Person to receive such payment.
SECTION 13.10. Reliance on Judicial Order or Certificate of
Liquidating Agent. Upon any payment or distribution of assets of the Company
referred to in this Article 13, the Trustee, subject to the provisions of
Article 5, and the Holders of the Securities shall be entitled to rely upon any
order or decree entered by any court of competent jurisdiction in which such
insolvency, bankruptcy, receivership, liquidation, reorganization, dissolution,
winding up or similar case or proceeding is pending, or a certificate of the
trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee for
the benefit of creditors, agent or other Person making such payment or
distribution, delivered to the Trustee or to the Holders of Securities, for the
purpose of ascertaining the Persons entitled to participate in such payment or
distribution, the holders of the Senior Indebtedness and other indebtedness of
the Company, the amount thereof or payable thereon, the amount or amounts paid
or distributed thereon and all other facts pertinent thereto or to this Article
13.
SECTION 13.11. Trustee Not Fiduciary for Holders of Senior
Indebtedness. The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Indebtedness and shall not be liable to any such holders if it
shall in good faith mistakenly pay over or distribute to Holders of Securities
or to the Company or to any other Person cash, property or securities to which
any holders of Senior Indebtedness shall be entitled by virtue of this Article
13 or otherwise.
SECTION 13.12. Rights of Trustee as Holder of Senior Indebtedness;
Preservation of Trustee's Rights. The Trustee in its individual capacity shall
be entitled to all the rights set forth in this Article 13 with respect to any
Senior Indebtedness which may at any time be held by it, to the same extent as
any other holder of Senior Indebtedness, and nothing in this Indenture shall
deprive the Trustee of any of its rights as such holder.
Nothing in this Article 13 shall apply to claims of, or payments to, the
Trustee under or pursuant to Section 5.07.
SECTION 13.13. Article Applicable to Paying Agents. In case at any
time any Paying Agent other than the Trustee shall have been appointed by the
Company and be then acting hereunder, the term "Trustee" as used in this Article
13 shall in such case (unless the context otherwise requires) be construed as
extending to and including such Paying Agent within its meaning as fully for all
intents and purposes as if such Paying Agent were named in this Article 13 in
addition to or in place of the Trustee; provided, however, that Section 13.13
shall not apply to the Company or any Affiliate of the Company if it or such
Affiliate acts as Paying Agent.
SECTION 13.14. Certain Conversions Deemed Payment. For the purposes of
this Article 13 only, (1) the issuance and delivery of junior securities upon
conversion of Securities in accordance with Article 12 or in respect to the
Repurchase Price in accordance with Article 11 shall not be deemed to constitute
a payment or distribution on account of the principal of, premium or interest
(including Liquidated Damages, if any) on, or other amount payable with respect
to, Securities or on account of the redemption, purchase or other acquisition of
Securities, and (2) the payment, issuance or delivery of cash, property or
securities (other than junior securities) upon conversion of a Security shall be
deemed to constitute payment on account of the principal of, premium or
71
<PAGE>
interest on, or other amount payable with respect to, such Security. For the
purposes of this Section 13.14, the term "junior securities" means (a) shares of
any stock of any class of the Company and (b) securities of the Company that are
subordinated in right of payment to the prior payment in full of all Senior
Indebtedness that may be outstanding at the time of issuance or delivery of such
securities to substantially the same extent as, or to a greater extent than, the
Securities are so subordinated as provided in this Article 13. Nothing contained
in this Article 13 or elsewhere in this Indenture or in the Securities is
intended to or shall impair, as among the Company, its creditors other than
holders of Senior Indebtedness and the Holders of the Securities, the right,
which is absolute and unconditional, of the Holder of any Security to convert
such Security in accordance with Article 12.
72
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed all as of the day and year first above written.
INTERLIANT, INC.
By: /s/ Herbert R. Hribar
------------------------------------
Name: Herbert R. Hribar
Title: Chief Executive Officer
THE CHASE MANHATTAN BANK as Trustee
By: /s/ James D. Heaney
-----------------------------------
Name: James D. Heaney
Title: Vice President
73
<PAGE>
EXHIBIT A
INTERLIANT, INC.
7% CONVERTIBLE SUBORDINATED NOTE DUE 2005
No. $
CUSIP NO.
INTERLIANT, INC., a corporation duly organized and existing under the laws
of the State of Delaware (herein called the "Company," which term includes any
successor entity under the Indenture hereinafter referred to), for value
received, hereby promises to pay to ___________, or registered assigns, the
principal sum of ____ ($____) at the office or agency of the Company referred
to below, on February 16, 2005 in such coin or currency of the United States of
America as at the time of payment shall be legal tender for the payment of
public and private debts, and to pay interest on said principal sum semiannually
on February 16 and August 16 of each year, commencing August 16, 2000 (each an
"Interest Payment Date"), at said office or agency, in like coin or currency, at
the rate of 7% per annum, until the principal hereof is paid or made available
for payment. The interest so payable, and punctually paid or duly provided for,
on any Interest Payment Date shall, as provided in such Indenture, be paid to
the Person in whose name this Security (or one or more Predecessor Securities)
is registered at the close of business on the Regular Record Date for such
interest, which shall be the February 1 or August 1 (whether or not a Business
Day), as the case may be, next preceding such Interest Payment Date. Any such
interest not so punctually paid or duly provided for shall forthwith cease to be
payable to the Holder on such Regular Record Date and may either be paid to the
Person in whose name this Security (or one or more Predecessor Securities) is
registered at the close of business on a Special Record Date for the payment of
such Defaulted Interest to be fixed by the Trustee, notice whereof shall be
given to Holders of Securities not less than 10 days prior to such Special
Record Date, or be paid at any time in any other lawful manner not inconsistent
with the requirements of any securities exchange on which the Securities may be
listed, and upon such notice as may be required by such exchange, all as more
fully provided in said Indenture.
Payment of the principal of, premium, if any, and interest on this Security
shall be made at the office or agency of the Company maintained for such
purpose, which initially shall be the Corporate Trust Office of the Trustee
referred to on the reverse side hereof, in such coin or currency of the United
States of America as at the time of payment is legal tender for payment of
public and private debts, provided that the Company may make such payment either
by (i) mailing a check in the amount of such payment, payable to or upon the
written order of the Person entitled thereto pursuant to Section 3.07 of the
Indenture (as defined therein) or (ii) transfer to an account maintained by the
payee located inside the United States.
1
<PAGE>
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
DATED: ____, 2000 INTERLIANT, INC.
By:___________________________________
Name:
Title:
Attest:
By:_________________________________
Name:
Title:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities referred to in the within-mentioned Indenture.
DATED: ____, 2000 THE CHASE MANHATTAN BANK
as Trustee
By:___________________________________
Authorized Signatory
2
<PAGE>
REVERSE OF SECURITY
Interliant, Inc.
7% CONVERTIBLE SUBORDINATED NOTE DUE 2005
This Security is one of a duly authorized issue of securities of the
Company designated as its 7% Convertible Subordinated Notes due 2005 (herein
called the "Securities"), limited in aggregate principal amount to $50,000,000
as adjusted from time to time on the books and records of the Trustee, which may
be issued under an Indenture, dated as of February 16, 2000 (the "Indenture"),
between the Company and THE CHASE MANHATTAN BANK, as Trustee for the Holders of
Securities issued under said Indenture (herein called the "Trustee", which term
includes any successor trustee under the Indenture), to which Indenture and all
indentures supplemental thereto reference is hereby made for a statement of the
respective rights, limitations of rights, duties and immunities thereunder of
the Company, the Trustee, the holders of Senior Indebtedness and the Holders of
the Securities and of the terms upon which the Securities are, and are to be,
authenticated and delivered.
The Holder of this Security (including any Person that has a beneficial
interest in this Security) and the Common Stock of the Company issuable upon
conversion hereof is entitled to the benefits of a Registration Rights
Agreement, dated as of February 16, 2000 executed by the Company (the
"Registration Rights Agreement"). Pursuant to the Registration Rights
Agreement, the Company has agreed for the benefit of the Holders from time to
time of the Registrable Securities to pay additional interest on this Security
("Liquidated Damages") in accordance with the terms of the Registration Rights
Agreement. Whenever in this Security there is a reference, in any context, to
the payment of the principal of, premium, if any, or interest on, or in respect
of, any Security, such mention shall be deemed to include mention of the payment
of Liquidated Damages payable as described in this paragraph to the extent that,
in such context, Liquidated Damages are, were or would be payable in respect of
such Security and express mention of the payment of Liquidated Damages (if
applicable) in any provisions of this Security shall not be construed as
excluding Liquidated Damages in those provisions of this Security where such
express mention is not made.
Subject to and upon compliance with the provisions of the Indenture, the
Holder of this Security is entitled, at its option, at any time on or before
maturity of the Securities, or in case this Security or a portion hereof is
called for redemption, then in respect of this Security or such portion hereof
until and including, but (unless the Company defaults in making the payment due
upon redemption or repurchase) not after, the close of business on the Business
Day immediately preceding the Redemption Date or Repurchase Date, as the case
may be, to convert this Security (or any portion of the principal amount hereof
which is U.S. $1,000 or an integral multiple thereof), at the principal amount
hereof, or of such portion, into fully paid and nonassessable shares of Common
Stock of the Company at a Conversion Rate of 18.8324 shares of common stock per
$1,000 principal amount of the Securities (or at the current adjusted Conversion
Rate if an adjustment has been made as provided in Article 12 of the Indenture)
by surrender of this Security, duly endorsed or assigned to
3
<PAGE>
the Company or in blank, to the Company at its office or agency maintained for
such purpose, accompanied by the conversion notice hereon executed by the Holder
hereof evidencing such Holder's election to convert this Security, or if less
than the entire principal amount hereof is to be converted, the portion hereof
to be converted, and, in case such surrender shall be made during the period
from the close of business on any Regular Record Date to the opening of business
on the corresponding Interest Payment Date (unless this Security or the portion
hereof being converted has been called for redemption on a Redemption Date
within such period between and including such Regular Record Date and such
Interest Payment Date), also accompanied by payment in funds acceptable to the
Company of an amount equal to the interest payable on such Interest Payment Date
on the principal amount of this Security then being converted. Subject to the
aforesaid requirement for payment of interest and, in the case of a conversion
after the close of business on any Regular Record Date and on or before the
corresponding Interest Payment Date, to the right of the Holder of this Security
(or any Predecessor Security) of record at such Regular Record Date to receive
an installment of interest (even if the Security has been called for redemption
on a Redemption Date within such period), no payment or adjustment is to be made
on conversion for interest accrued hereon or for dividends on the Common Stock
issued on conversion. No fractions of shares or scrip representing fractions of
shares will be issued on conversion, but instead of any fractional interest the
Company shall pay a cash adjustment as provided in Article 12 of the Indenture.
The Conversion Rate and Conversion Price are subject to adjustment as provided
in Article 12 of the Indenture. In addition, the Indenture provides that in case
of certain reclassifications, consolidations, mergers, sales or transfers of
assets or other transactions pursuant to which the Common Stock is converted
into the right to receive other securities, cash or other property, the
conversion privilege shall be modified so that this Security, if then
outstanding, will be convertible thereafter, during the period this Security
shall be convertible as specified above, only into the kind and amount of
securities, cash and other property receivable upon the transaction by a holder
of the number of shares of Common Stock into which this Security might have been
converted immediately prior to such transaction.
The Securities may be redeemed at the election of the Company, as a whole
or from time to time in part, at any time on or before February 18, 2003 (a
"Provisional Redemption"), at a Redemption Price equal to $1,000 per $1,000
principal amount of the Securities plus accrued and unpaid interest, if any, to
but excluding the date of redemption (the "Provisional Redemption Date") if (i)
the Closing Price of the Common Stock has exceeded 150% of the Conversion Price
(as defined in Article 12 of the Indenture and as such may be adjusted from time
to time) then in effect for at least 20 Trading Days in any period of 30
consecutive Trading Days ending on the Trading Day prior to the date of mailing
of the provisional notice of redemption pursuant to Section 10.04 (the "Notice
Date"), and (ii) a registration statement covering resales of the Securities and
Common Stock issuable upon the conversion thereof is effective and available for
use and is expected to remain effective for the 30 days following the
Provisional Redemption Date.
Upon any such Provisional Redemption, the Company shall make an additional
payment in cash (the "Make-Whole Payment") to holders of the Securities called
for redemption, including those Securities converted into Common Stock between
the Notice Date and the Provisional Redemption Date, in an amount equal to
$152.54 per $1,000 principal amount of the Securities, less the amount of any
interest actually paid on the Securities before the Notice Date.
4
<PAGE>
The Securities (other than those Securities that have been converted in
accordance with the terms of the Indenture) are subject to redemption at the
option of the Company upon not less than 30 days' or more than 60 days' notice
by mail, as a whole or from time to time in part, at any time after February 18,
2003. The redemption prices (expressed as percentages of the principal amount)
shall be as set forth below for Securities redeemed during the following periods
described below:
<TABLE>
<CAPTION>
Period Redemption Price
------ ----------------
<S> <C>
February 19, 2003 through February 15, 2004 102.8%
Thereafter 101.4%
</TABLE>
together, in the case of any such redemption, with accrued interest to (but not
including) the Redemption Date (subject to the right of holders of record on the
Regular Record Date to receive interest on the related Interest Payment Date).
Any redemption of Securities must be in integral multiples of $1,000.
If fewer than all of the Securities are to be redeemed, the Trustee shall
select the Securities to be redeemed in principal amounts at maturity of $1,000
or integral multiples thereof by lot, pro rata or by any other method that
complies with the requirements of any exchange on which the Securities are
listed or quoted and that the Trustee considers fair and appropriate. If a
portion of a Holder's Securities is selected for partial redemption and that
holder converts a portion of those Securities prior to the redemption, the
converted portion shall be deemed, solely for purposes of determining the
aggregate principal amount of the Securities to be redeemed by the Company, to
be of the portion selected for redemption.
In certain circumstances involving a Change in Control, each Holder shall
have the right to require the Company to repurchase all or part of its
Securities at a repurchase price equal to 100% of the principal amount thereof,
together with accrued and unpaid interest through the Repurchase Date (subject
to the right of holders of record on the Regular Record Date to receive interest
on the related Interest Payment Date). At the option of the Company, the
Repurchase Price may be paid in cash or, subject to the conditions provided in
the Indenture, by delivery of shares of Common Stock.
The Securities do not have the benefit of any sinking fund.
In the event of redemption, conversion or repurchase of this Security in
part only, a new Security or Securities for the unredeemed, unconverted or
unrepurchased portion hereof shall be issued in the name of the Holder hereof
upon the cancellation hereof.
The indebtedness evidenced by this Security is, to the extent provided in
the Indenture, subordinate and subject in right of payment to the prior payment
in full of all Senior Indebtedness, and this Security is issued subject to the
provisions of the Indenture with respect thereto. Each Holder of this Security,
by accepting the same, (a) agrees to and shall be bound by such provisions, (b)
authorizes and directs the Trustee on his behalf to take such action as may be
necessary or appropriate to effectuate the subordination so provided and (c)
appoints the Trustee his attorney-in-fact for any and all such purposes.
5
<PAGE>
If an Event of Default shall occur and be continuing, the principal of all
the Securities may be declared due and payable in the manner and with the effect
provided in Article 4 of the Indenture.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities under the Indenture at
any time by the Company and the Trustee with (or, in the limited circumstances
set forth in the Indenture, without) the consent of the Holders of a majority in
aggregate principal amount of the Securities at the time Outstanding. The
Indenture also contains provisions permitting the Holders of a majority in
aggregate principal amount of the Securities at the time Outstanding, on behalf
of the Holders of all the Securities, to waive compliance by the Company with
certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder of
this Security shall be conclusive and binding upon such Holder and upon all
future Holders of this Security and of any Security issued upon the registration
of transfer hereof or in exchange herefor or in lieu hereof, whether or not
notation of such consent or waiver is made upon this Security.
The Indenture also contains provisions limiting the right of Holders to
deliver effective Notices of Default or to institute proceedings to enforce
remedies relating to the Securities, automatically waiving Defaults or Events of
Default and directing the Trustee to enter into indentures supplemental hereto
without the consent of the Holders, in each case based upon action taken by
holders of the Company's 7% Convertible Subordinated Notes due 2005
authenticated and delivered pursuant to an Indenture between the Company and The
Chase Manhattan Bank, as trustee, dated as of February 16, 2000, relating to up
to $172,500,000 aggregate principal amount of such Notes.
No reference herein to the Indenture and no provision of this Security or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of, premium, if any, and
interest (including Liquidated Damages) on this Security at the times, place and
rate, and in the coin or currency, herein prescribed or to convert this Security
as provided in the Indenture.
As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Security is registrable in the Security Register,
upon surrender of this Security for registration of transfer at the Corporate
Trust Office duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to the Company and the Security Registrar duly
executed by, the Holder hereof or his attorney duly authorized in writing, and
thereupon one or more new Securities, of authorized denominations and for the
same aggregate principal amount, will be issued to the designated transferee or
transferees.
The Securities are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof.
No service charge shall be made to a Holder for any such registration of
transfer or exchange, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
6
<PAGE>
Prior to due presentment of this Security for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name this Security is registered as the owner hereof for all
purposes and neither the Company, the Trustee nor any such agent shall be
affected by notice to the contrary.
Interest (including Liquidated Damages) on this Security shall be computed
on the basis of a 360-day year of twelve 30-day months. In the event that any
date on which interest (including Liquidated Damages) is payable on the
Securities is not a Business Day, then payment of interest payable on such date
will be made on the next succeeding day which is a Business Day (and without any
interest or other payment in respect of any such delay).
All terms used in this Security which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
THE INDENTURE AND THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF
LAWS PRINCIPLES.
7
<PAGE>
CONVERSION NOTICE
To: INTERLIANT, INC.
The undersigned Holder of this Security hereby irrevocably exercises the
option to convert this Security, or the portion hereof (which is $1,000 or an
integral multiple thereof) below designated, at any time following the date of
original issuance thereof, into shares of Common Stock in accordance with the
terms of the Indenture referred to in this Security, and directs that the shares
issuable and deliverable upon conversion, together with any check in payment for
a fractional share and any Security representing any unconverted principal
amount hereof, be issued and delivered to the registered owner hereof unless a
different name has been provided below. If shares or any portion of this
Security not converted are to be issued in the name of a person other than the
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto and is delivering herewith a certificate in proper form certifying that
the applicable restrictions on transfer have been complied with. Any amount
required to be paid by the undersigned on account of interest accompanies this
Security.
Dated: By:________________________________________
Signature of Registered Holder*
If shares or Securities are to be registered in Principal amount to be
the name of a Person other than the Holder, converted (if less than all):
please print such Person's name and address: $______,000
- -------------------------------------------------
Name
- -------------------------------------------------
Social Security or Taxpayer Identification
Number
- -------------------------------------------------
Street Address
- -------------------------------------------------
City, State and Zip Code
* Signature(s) must be guaranteed by an eligible guarantor institution
(banks, stock brokers, savings and loan associations and credit unions with
membership in an approved signature guarantee medallion program) pursuant to
Securities and Exchange Commission Rule 17Ad-15 if shares of Common Stock are to
be delivered, or unconverted Securities are to be issued, other than to and in
the name of the registered owner.
1
<PAGE>
ELECTION OF HOLDER TO REQUIRE REPURCHASE
(1) Pursuant to Article 11.01 of the Indenture, the undersigned hereby
elects to have this Security repurchased by the Company.
(2) The undersigned hereby directs the Trustee or the Company to pay it or
______________ an amount in cash or, at the Company's election, Common Stock
valued as set forth in the Indenture, equal to 100% of the principal amount to
be repurchased (as set forth below), plus interest (including Liquidated
Damages, if any) accrued to the Repurchase Date, as provided in the Indenture.
Dated:
- -------------------------------------------------
- -------------------------------------------------
Signature(s)
Signature(s) must be guaranteed by an Eligible
Guarantor Institution with membership in an
approved signature guarantee program pursuant
to Rule 17Ad-15 under the Securities Exchange
Act of 1934.
- -------------------------------------------------
Signature Guaranteed
Principal amount to be repurchased (at least
U.S. $1,000 or an integral multiple of $1,000
in excess thereof): ___________________
Remaining principal amount following such
repurchase (not less than U.S. $1,000):
______________
NOTICE: The signature to the foregoing Election must correspond to the Name as
written upon the face of this Security in every particular, without alteration
or any change whatsoever.
<PAGE>
Exhibit 4.11
7% CONVERTIBLE SUBORDINATED NOTES
DUE 2005
REGISTRATION RIGHTS AGREEMENT
Dated as of March 10, 2000
by and among
INTERLIANT, INC.,
as the Company,
and
MICROSOFT CORPORATION,
as Purchaser
<PAGE>
TABLE OF CONTENTS
Page
----
SECTION 1. Definitions .................................. 1
SECTION 2. Shelf Registration Statement ................. 4
SECTION 3. Liquidated Damages ........................... 7
SECTION 4. Registration Procedures ...................... 8
SECTION 5. Registration Expenses ........................ 14
SECTION 6. Indemnification .............................. 15
SECTION 7. Underwritten Registration .................... 18
SECTION 8. Miscellaneous ................................ 18
i
<PAGE>
This Registration Rights Agreement is made and entered into as of March 10,
2000 by and between INTERLIANT, INC., a Delaware corporation (the "Company"),
and, Microsoft Corporation, a Washington corporation (the "Purchaser"), which
has purchased $10,000,000 principal amount of 7% Convertible Subordinated Notes
due 2005 (the "Notes") of the Company.
This Agreement is made in connection with the Purchase Agreement, dated
March 10, 2000, between the Company and the Purchaser (the "Purchase
Agreement"). In order to induce the Purchaser to enter into the Purchase
Agreement, the Company has agreed to provide the registration rights provided
for in this Agreement to the Purchaser and its direct and indirect transferees
(i) for the benefit of the Purchaser, (ii) for the benefit of the holders from
time to time of the Notes (including the Purchaser), (iii) for the benefit of
the holders from time to time of the Common Stock issuable or issued upon
conversion of the Notes, and (iv) for the benefit of the holders from time to
time of the securities constituting the Transfer Restricted Securities (as
defined below). Each Holder (as defined below) by participating in a
Registration Statement agrees to be bound by this Agreement.
The parties hereby agree as follows:
SECTION 1. Definitions. As used in this Agreement, the following terms
shall have the following meanings:
Act: As defined in this Section 1.
Affiliate:
An affiliate of any specified person shall mean any other person directly
or indirectly controlling or controlled by or under direct or indirect common
control with such specified person. For the purposes of this definition,
"control," when used with respect to any person, means the power to direct the
management and policies of such person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise and the terms
"affiliated," "controlling" and "controlled" have meanings correlative to the
foregoing.
Agreement: This Registration Rights Agreement, as the same may be amended,
supplemented or modified from time to time in accordance with the terms hereof.
Business Day: Each Monday, Tuesday, Wednesday, Thursday and Friday that is
not a day on which banking institutions in New York, New York are authorized or
obligated by law or executive order to close.
Closing Date: March 10, 2000.
<PAGE>
Common Stock: Common Stock, $.01 par value per share, of the Company and
any other shares of common stock as may constitute "Common Stock" for purposes
of the Indenture as issuable or issued upon conversion of the Notes.
Company: Interliant, Inc., a Delaware corporation, and any successor
corporation thereto.
Controlling Person: As defined in Section 6(a) hereof.
Damages Payment Date: Each of the semi-annual interest payment dates
provided in the Notes.
Effectiveness Period: As defined in Section 2(a) hereof.
Effectiveness Target Date: The 180th day following the Closing Date.
Exchange Act: The Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated by the SEC thereunder.
Filing Date: The 90th day after the Closing Date.
Holder: Each owner of any Transfer Restricted Securities.
Indemnified Person: As defined in Section 6(a) hereof.
Indenture: The Indenture, dated as of the date hereof, between the Company
and the Trustee, pursuant to which the Notes are to be issued, as the same may
be amended, modified or supplemented from time to time in accordance with the
terms thereof.
Liquidated Damages: As defined in Section 3(a) hereof.
Proceeding: An action, claim, suit or proceeding (including, without
limitation, an investigation or partial proceeding, such as a deposition),
whether commenced or threatened.
Prospectus: The prospectus included in any Registration Statement
(including, without limitation, a prospectus that discloses information
previously omitted from a prospectus filed in reliance upon Rule 430A), as
amended or supplemented by any prospectus supplement, with respect to the resale
of any of the Transfer Restricted Securities covered by such Registration
Statement, and all other amendments and supplements to any such prospectus,
including post-effective amendments, and all materials incorporated by reference
or deemed to be incorporated by reference, if any, in such prospectus.
Purchase Agreement: As defined in the second paragraph hereof.
2
<PAGE>
Purchaser: As defined in the first paragraph hereof.
Record Holder: (i) with respect to any Damages Payment Date relating to any
shares of Common Stock as to which any such Liquidated Damages have accrued, the
registered Holder of such shares 15 days prior to the next succeeding Damages
Payment Date; and (ii) with respect to any Damages Payment Date relating to any
Notes as to which any such Liquidated Damages has accrued, the registered Holder
of such Notes 15 days prior to the next succeeding Damages Payment Date.
Registration Default: As defined in Section 3(a) hereof.
Registration Statement: Any registration statement of the Company filed
with the SEC pursuant to the Securities Act that covers the resale of any of the
Transfer Restricted Securities pursuant to the provisions of this Agreement,
including the Prospectus, amendments and supplements to such registration
statement or Prospectus, including pre- and post-effective amendments, all
exhibits thereto, and all material incorporated by reference or deemed to be
incorporated by reference, if any, in such registration statement.
Requisite Information: As defined in Section 2(c) hereof.
Rule 144: Rule 144 promulgated by the SEC pursuant to the Securities Act,
as such Rule may be amended from time to time, or any successor rule or
regulation.
Rule 144A: Rule 144A promulgated by the SEC pursuant to the Securities Act,
as such Rule may be amended from time to time, or any successor rule or
regulation.
Rule 158: Rule 158 promulgated by the SEC pursuant to the Securities Act,
as such Rule may be amended from time to time, or any successor rule or
regulation.
Rule 415: Rule 415 promulgated by the SEC pursuant to the Securities Act,
as such Rule may be amended from time to time, or any successor rule or
regulation.
Rule 424: Rule 424 promulgated by the SEC pursuant to the Securities Act,
as such Rule may be amended from time to time, or any successor rule or
regulation.
Rule 430A: Rule 430A promulgated by the SEC pursuant to the Securities Act,
as such Rule may be amended from time to time, or any successor rule or
regulation.
SEC: The Securities and Exchange Commission.
3
<PAGE>
Securities Act: The Securities Act of 1933, as amended, and the rules and
regulations promulgated by the SEC thereunder.
Shelf Registration Statement: As defined in Section 2(a) hereof.
TIA: The Trust Indenture Act of 1939, as amended, and the rules and
regulations promulgated by the SEC thereunder.
Transfer Restricted Securities: The Notes, the shares of Common Stock into
which such Notes are converted or convertible (including any shares of Common
Stock issued or issuable thereon upon any stock split, stock combination, stock
dividend or the like), upon original issuance thereof and at all times
subsequent thereto, and associated related rights, if any, until the earliest of
(i) the date on which the resale thereof has been effectively registered under
the Securities Act and disposed of in accordance with the Registration Statement
relating thereto, (ii) the date on which such security has been distributed to
the public pursuant to Rule 144 or is saleable pursuant to paragraph (k) of Rule
144 or (iii) the date on which it ceases to be outstanding.
Transfer Agent: The registrar and transfer agent for the Company's Common
Stock.
Trustee: The trustee under the Indenture.
References herein to the term "Holders of a majority in interest of
Transfer Restricted Securities" or words to a similar effect shall mean, with
respect to any request, notice, demand, objection or other action by the Holders
hereunder or pursuant hereto (each, an "Act"), registered Holders of a number of
shares of then outstanding Common Stock constituting Transfer Restricted
Securities and an aggregate amount of then outstanding Notes constituting
Transfer Restricted Securities, such that the sum of such shares of Common Stock
and the shares of Common Stock issuable upon conversion of such Notes
constitutes in excess of 50% of the sum of all of the then outstanding shares of
Common Stock constituting Transfer Restricted Securities and the number of
shares of Common Stock issuable upon conversion of then outstanding Notes
constituting Transfer Restricted Securities. For purposes of the preceding
sentence, Transfer Restricted Securities owned, directly or indirectly, by the
Company or its Affiliates shall be deemed not to be outstanding.
SECTION 2. Shelf Registration Statement.
(a) Subject to the other terms and conditions of this Agreement, the
Company agrees to file with the SEC as soon as reasonably practicable after the
Closing Date, but in no event later than the Filing Date, a Registration
Statement for an offering to be made on a continuous basis pursuant to Rule 415
covering all of the Transfer Restricted Securities or separate Registration
Statements for an offering to be made on a continuous basis pursuant to Rule 415
covering all of the Common Stock and Notes constituting Transfer Restricted
Securities, respectively
4
<PAGE>
(such Registration Statement or Statements, collectively, the "Shelf
Registration Statement") Each Shelf Registration Statement shall be on Form S-3
under the Securities Act or another appropriate form selected by the Company
permitting registration of such Transfer Restricted Securities for resale by the
Holders in the manner or manners reasonably designated by Holders of a majority
in interest of Transfer Restricted Securities being sold. The Company shall not
permit any securities other than the Transfer Restricted Securities to be
included in any Shelf Registration Statement. The Company shall use all
reasonable efforts to cause each Shelf Registration Statement to be declared
effective pursuant to the Securities Act as soon as reasonably practicable
following the filing thereof and to use all reasonable efforts to keep such
Shelf Registration Statement continuously effective under the Securities Act,
subject to Section 2(d) hereof, for two years after the date on which all of the
Transfer Restricted Securities are sold (including those sold pursuant to the
option granted to the Purchaser in the Purchase Agreement) to the Purchaser (the
"Effectiveness Period"), or such shorter period ending when there cease to be
any Transfer Restricted Securities outstanding.
(b) Supplements and Amendments . The Company shall use all reasonable
efforts to keep each Shelf Registration Statement continuously effective by
supplementing and amending the Shelf Registration Statement if required by the
rules, regulations or instructions applicable to the registration form used for
such Shelf Registration Statement, if required by the Securities Act or if
reasonably requested by the Holders of a majority in interest of the Transfer
Restricted Securities or by any underwriter of such Transfer Restricted
Securities.
(c) Selling Securityholder Information. Each Holder wishing to sell
Transfer Restricted Securities pursuant to a Shelf Registration Statement and
related Prospectus agrees to confirm such Holder's agreement to be bound by the
terms of this Agreement and to provide such information regarding such Holder
and the distribution of its Transfer Restricted Securities as is required by law
to be disclosed by the Holder in the applicable Registration Statement (such
agreement and information, the "Requisite Information") to the Company prior to
the effectiveness of the Shelf Registration Statement. The Company shall not be
required to include in any Shelf Registration Statement and related Prospectus
the Transfer Restricted Securities of any Holder that does not comply with the
preceding sentence in accordance with this Section 2(c). The Company shall file,
within five Business Days after the receipt of the Requisite Information with
respect to such Holder, a Prospectus supplement pursuant to Rule 424 or
otherwise amend or supplement such Registration Statement to include in the
Prospectus the Requisite Information as to such Holder (and the Transfer
Restricted Securities held by such Holder), and the Company shall provide such
Holder within five Business Days after receipt of such Requisite Information
with a copy of such Prospectus as so amended or supplemented containing the
Requisite Information in order to permit such Holder to comply with the
Prospectus delivery requirements of the Securities Act in a timely manner with
respect to any proposed disposition of such Holder's Transfer Restricted
Securities and to file the same with the SEC. Each Holder shall promptly notify
5
<PAGE>
the Company of any material changes to the Requisite Information provided to the
Company by such Holder. Subject to the other terms and conditions of this
Agreement (i) if the Company shall fail to file the appropriate supplement or
amendment within five Business Days of receipt of such notice (except where such
failure to file is due to the objection to filing any such amendment or
supplement by the holders of a majority in interest of the Transfer Restricted
Securities, or the managing underwriters, if any, pursuant to Section 4(a)), the
Company shall pay the Holder Liquidated Damages in the manner set forth in
Section 3, and (ii) if the filing requires a post-effective amendment to the
Registration Statement and such amendment is not declared effective within 45
Business Days of the filing of the post-effective amendment, the Company shall
pay the Holder Liquidated Damages in the manner set forth in Section 3.
If any such Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of the Company, then such Holder shall
have the right to require, in the event that such reference to such Holder by
name or otherwise is not required by the Securities Act or any similar Federal
statute then in force, the deletion of the reference to such Holder in such
Registration Statement at the time subsequent to the time that such reference
ceases to be required and the Company otherwise intends to amend our supplement
the Shelf Registration Statement.
(d) Material Events; Suspension of Sales. Notwithstanding the provisions
contained in this Section 2, in the event that, in the judgment of the Company's
Board of Directors, it is advisable to suspend use of the Prospectus due to
pending corporate developments, public filings with the SEC or similar events,
the Company shall promptly deliver a written certificate to each registered
Holder, the Trustee, the Transfer Agent and the managing underwriters, if any,
to the effect that the use of the Prospectus is to be suspended until the
Company shall deliver a written notice that the use of the Prospectus may be
resumed. Thereafter, the use of the Prospectus shall be suspended, and the
Company shall not be required to maintain the effectiveness of, or amend or
update the Shelf Registration Statement, or amend or supplement the Prospectus;
provided, however, that the Company shall only be permitted to suspend the use
of the Prospectus for a period not to exceed 30 days in any six-month period or
two periods not to exceed an aggregate of 60 days in any 12-month period. The
Company will use its best efforts to ensure that the use of the Prospectus may
be resumed as soon as, in the judgment of the Company's Board of Directors,
disclosure of the material relating to such pending development, filing or event
would not have a material adverse effect on the Company.
(e) Additional Agreements of Holders. Each Holder agrees not to dispose of
Transfer Securities pursuant to the Shelf Registration Statement
without complying with the prospectus delivery requirements under the Act and
the provisions of paragraph (d) above regarding use of the Prospectus. Each
Holder further agrees that it will comply fully with applicable federal and
state securities laws in connection with the distribution of any Transfer
Restricted
6
<PAGE>
Securities pursuant to the Shelf Registration Statement. Each Holder further
acknowledges having been advised by the Company that applicable federal
securities laws prohibit Holders from trading in securities of the Company at
any time while in possession of material non-public information about the
Company.
SECTION 3. Liquidated Damages.
(a) The Company and the Purchaser agree that the Holders will suffer
damages if the Company fails to fulfill its obligations pursuant to Section 2
hereof and that it would not be possible to ascertain the extent of such
damages. Accordingly, the Company hereby agrees to pay liquidated damages
("Liquidated Damages") to each Holder under the circumstances and to the extent
set forth below:
(i) if the Shelf Registration Statement has not been filed with the
SEC on or prior to the Filing Date; or
(ii) if each Shelf Registration Statement is not declared effective by
the SEC on or prior to the applicable Effectiveness Target Date; or
(iii) any Shelf Registration Statement ceases to be effective or
usable at any time during the Effectiveness Period (without being succeeded
on the same day immediately by a post-effective amendment or supplement to
such Registration Statement that cures such failure and that is itself, in
the case of post- effective amendment, immediately declared effective) for
a period of time which shall exceed 90 days in the aggregate in any period
of 365 consecutive days,
unless, and except to the extent that, with respect to any failure set forth in
clause (i), (ii) or (iii) above, such failure is due to the Company's compliance
with the provisions of Section 8(b) or 8(c) hereof (any of the foregoing,
subject to the immediately preceding qualifications, a "Registration Default").
In the event of a Registration Default, the Company will pay Liquidated
Damages to each holder of Transfer Restricted Securities, during the first 90-
day period immediately following the occurrence of such Registration Default in
an amount equal to $0.05 per week per $1,000 principal amount of Notes adjusted
to an equivalent per share basis in accordance with the conversion price. The
rate of accrual of the Liquidated Damages will increase by $0.05 per week per
$1,000 principal amount of Notes or Common Stock constituting Transfer
Restricted Securities (adjusted to an equivalent per share basis in accordance
with the conversion price for Common Stock constituting Transfer Restricted
Securities) for each subsequent 90-day period until the applicable Registration
Statement is filed, the applicable Registration Statement is declared effective
and becomes available for effecting sales of securities, or the Shelf
Registration Statement again becomes effective and becomes available for
effecting sales of securities, as
7
<PAGE>
the case may be, up to a maximum amount of Liquidated Damages of $0.25 per week
per $1,000 principal amount of Notes adjusted to an equivalent per share basis
in accordance with the conversion price. Following the cure of a Registration
Default, Liquidated Damages will cease to accrue with respect to such
Registration Default (without in any way limiting the effect of any subsequent
Registration Default). All accrued Liquidated Damages shall be paid to the
holders of (i) Notes constituting Transfer Restricted Securities, pursuant to
the terms of the Indenture with respect to the payment of interest and (ii)
shares of Common Stock, in the manner as interest payments on the Notes on
semiannual payment dates that correspond to interest payment dates for the
Notes. The parties hereto agree and acknowledge that the payment of Liquidated
Damages to holders of Common Stock upon a Registration Default pursuant to this
Agreement shall not be a dividend on such shares of Common Stock.
(b) The Company shall notify the Transfer Agent or the Trustee, as the case
may be, within five Business Days after each and every date on which a
Registration Default occurs. Liquidated Damages , as calculated by the Company,
shall be paid by the Company to the Record Holders of Common Stock on each
Damages Payment Date by wire transfer of immediately available funds to the
accounts specified by them or by mailing checks to their registered addresses as
they appear in the register of the Company for the Common Stock, if no such
accounts have been specified in the Notice and Questionnaire on or before the
Damages Payment Date; and Liquidated Damages shall be paid by the Company to the
Record Holders of the Notes on each semi-annual interest payment date together
with interest to be paid on the Notes pursuant to the terms of the Indenture, by
wire transfer of immediately available funds to the accounts specified by them
or by mailing checks to their registered addresses as they appear in the Notes
Register (as defined in the Indenture) if no such accounts have been specified
in the Notice and Questionnaire on or before the Damages Payment Date; provided,
however, that any Liquidated Damages accrued with respect to any Notes or
portion thereof called for redemption on a redemption date, repurchased on a
repurchase date, or converted into shares of Common Stock on a conversion date
prior to the Damages Payment Date shall, in any such event, be paid instead to
the Holder who submitted such Notes or portion thereof for redemption,
repurchase or conversion on the applicable redemption date, repurchase date or
conversion date, as the case may be, on such date.
SECTION 4. Registration Procedures. In connection with the Company's
registration obligations hereunder, the Company shall effect such registrations
on the appropriate form selected by the Company to permit the resale of Transfer
Restricted Securities in accordance with the intended method or methods of
disposition thereof, and pursuant thereto the Company shall as expeditiously as
reasonably possible:
(a) No fewer than five Business Days prior to the initial filing of a
Registration Statement or Prospectus and no fewer than two Business Days prior
to the filing of any amendment or supplement thereto (excluding, unless
8
<PAGE>
requested, any document that would be incorporated or deemed to be incorporated
therein by reference and then only to the Holder who so requested), furnish to
the Holders whose Transfer Restricted Securities are required to be included in
such Registration Statement or Prospectus pursuant to Section 2(c) hereof and
the managing underwriters, if any, copies of all such documents proposed to be
filed (excluding, unless requested, those incorporated or deemed to be
incorporated by reference and then only to the Holder who so requested) and
cause the officers and directors of the Company, counsel to the Company and
independent certified public accountants to the Company to respond to such
inquiries as shall be necessary in connection with such Registration Statement,
in the opinion of counsel to the underwriters, if any, to conduct a reasonable
investigation within the meaning of the Securities Act. The Company shall not
file any such Registration Statement or related Prospectus or any amendments or
supplements thereto (excluding any document that would be incorporated or deemed
incorporated by reference) to which the Holders of a majority in interest of the
Transfer Restricted Securities or the managing underwriters, if any, shall
reasonably object on a timely basis.
(b) Prepare and file with the SEC such amendments, including post-effective
amendments, to each Registration Statement as may be necessary to keep such
Registration Statement continuously effective for the applicable time period set
forth in Section 2(a) hereof; subject to Section 2(d) hereof, cause the related
Prospectus to be supplemented by any required Prospectus supplement, and as so
supplemented to be filed pursuant to Rule 424 under the Securities Act and the
Exchange Act with respect to the disposition of all securities covered by such
Registration Statement during such period in accordance with the intended method
or methods of disposition by the Holder set forth in such Registration Statement
as so amended or in such Prospectus as so supplemented (including, without
limitation, the filing of any Prospectus supplement pursuant to Rule 424 in
order to add or change any selling security holder information (including any
such supplements or amendments pursuant to Section 2(c) hereof, provided such
Holder to which such change applies complies with the Requisite Information
requirements of Section 2(c) hereof).
(c) Notify the Holders and the managing underwriters, if any, promptly (and
in the case of an event specified by clause (i) of this paragraph in no event
fewer than two Business Days prior to such filing), and (if requested by any
such person), confirm such notice in writing, (i) when a Prospectus or any
Prospectus supplement or post-effective amendment is proposed to be filed, and,
with respect to a Registration Statement or any post-effective amendment, when
the same has become effective, (ii) of any request of the SEC or any other
Federal or state governmental authority for amendments or supplements to such
Registration Statement or related Prospectus or for additional information
related thereto, (iii) of the issuance by the SEC, any state securities
commission, any other governmental agency or any court of any stop order, order
or injunction suspending or enjoining the use or the effectiveness of the
Registration Statement
9
<PAGE>
or the initiation of any proceedings for that purpose, (iv) if at any time any
of the representations and warranties of the Company contained in any agreement
(including any underwriting agreement) contemplated by Section 4(m) hereof are
not true and correct in all material respects, (v) of the receipt by the Company
of any notification with respect to the suspension of the qualification or
exemption from qualification of any of the Transfer Restricted Securities for
sale in any jurisdiction, or the initiation or threatening of any proceeding for
such purpose, and (vi) of the existence of any fact and the happening of any
event that makes any statement made in such Registration Statement or related
Prospectus untrue in any material respect, or that requires the making of any
changes in such Registration Statement or Prospectus so that in the case of the
Registration Statement, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading and that, in the case of
the Prospectus, such Prospectus will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
(d) Use all reasonable efforts to avoid the issuance of, or, if issued, to
obtain the withdrawal of any stop order or order enjoining or suspending the use
or effectiveness of a Registration Statement or the lifting of any suspension of
the qualification (or exemption from qualification) of any of the Transfer
Restricted Securities for sale in any jurisdiction, at the earliest practicable
moment.
(e) If requested by the managing underwriters, if any, or the Holders of a
majority in interest of the Transfer Restricted Securities being sold in
connection with such offering, promptly include in a Prospectus supplement or
post-effective amendment such information as the managing underwriters, if any,
and such Holders agree should, in their reasonable judgment, be included
therein, and make all required filings of such Prospectus supplement or such
post-effective amendment as soon as reasonably practicable after the Company has
received notification of the matters to be included in such Prospectus
supplement or post-effective amendment; provided, however, that the Company
shall not be required to take any action pursuant to this Section 4(e) that, in
the opinion of counsel for the Company, would violate applicable law;
(f) Furnish to each Holder who so requests and each managing underwriter,
if any, without charge, at least one conformed copy of each Registration
Statement and each amendment thereto, including financial statements (but
excluding schedules, all documents incorporated or deemed to be incorporated
therein by reference and all exhibits, unless requested in writing by such
Holder or any managing underwriter);
(g) Deliver to each Holder and the underwriters, if any, without charge, as
many copies of the Prospectus or Prospectuses (including each form of
Prospectus) and each amendment or supplement thereto to as such persons may
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reasonably request; and, unless the Company shall have given notice to such
Holder pursuant to Section 2(d), the Company hereby consents to the use of such
Prospectus and each amendment or supplement thereto by each of the selling
Holders of Transfer Restricted Securities and the underwriters, if any, in
connection with the offering and sale of the Transfer Restricted Securities
covered by such Prospectus and any amendment or supplement thereto, provided,
however, that no Holder shall be entitled to use the Prospectus unless and until
such Holder shall have furnished to the Company any and all Requisite
Information pursuant to Section 2(c) hereof;
(h) Use all reasonable efforts to register or qualify, or cooperate with
the Holders of Transfer Restricted Securities to be sold or tendered for, the
underwriters, if any, and their respective counsel in connection with the
registration or qualification (or exemption from such registration or
qualification) of, such Transfer Restricted Securities for offer and sale under
the securities or Blue Sky laws of such jurisdictions within the United States
as any Holder or underwriter reasonably requests in writing, keep each such
registration or qualification (or exemption therefrom) effective during the
period such Registration Statement is required to be kept effective and do any
and all other acts or things necessary legally to enable the disposition in such
jurisdictions of the Transfer Restricted Securities covered by the applicable
Registration Statement; provided, however, that the Company shall not be
required to qualify generally to do business in any jurisdiction where it is not
then so qualified, take any action that would subject it to general service of
process in any such jurisdiction where it is not then so subject or subject the
Company to any tax in any such jurisdiction where it is not then so subject;
(i) In connection with any sale or transfer of Transfer Restricted
Securities that will result in such securities no longer being Transfer
Restricted Securities, cooperate with the Holders and the managing underwriters,
if any, to facilitate the timely preparation and delivery of certificates
representing Transfer Restricted Securities to be sold, which certificates shall
not bear any restrictive legends, shall bear a CUSIP number different from the
CUSIP number for the Transfer Restricted Securities and shall be in a form
eligible for deposit with The Depository Trust Company and enable such Transfer
Restricted Securities to be in such denominations and registered in such names
as the managing underwriters, if any, or Holders may reasonably request at least
two Business Days prior to any sale of Transfer Restricted Securities;
(j) Use all reasonable efforts to cause the offering of the Transfer
Securities covered by the Registration Statement to be registered with or
approved by such other governmental agencies or authorities within the United
States, except as may be required as a consequence of the nature of a Holder's
business, in which case the Company will cooperate in all reasonable respects
with the filing of such Registration Statement and the granting of such
approvals as may be reasonably necessary to enable the seller or sellers thereof
or the underwriters, if any, to consummate the disposition of such Transfer
Restricted
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Securities; provided, however, that the Company shall not be required to
register the Transfer Restricted Securities in any jurisdiction that would
require the Company to qualify to do business in any jurisdiction where it is
not then so qualified, subject it to general service of process in any such
jurisdiction where it is not then so subject or subject the Company to any tax
in any such jurisdiction where it is not then so subject or to;
(k) Upon the occurrence of any event contemplated by Section 4(c) (vi)
hereof, as promptly as reasonably practicable (subject to any suspension of
sales pursuant to Section 2(d) hereof), prepare a supplement or amendment,
including, if appropriate, a post-effective amendment, to each Registration
Statement or a supplement to the related Prospectus or any document incorporated
or deemed to be incorporated therein by reference, and file any other required
document so that, as thereafter delivered, such Prospectus will not contain an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading;
(l) Prior to the effective date of the first Registration Statement
relating to the Transfer Restricted Securities, to provide a CUSIP number for
the Transfer Restricted Securities to be sold pursuant to the Registration
Statement;
(m) Enter into such agreements (including any underwriting agreements in
form, scope and substance as are customary in underwritten offerings) reasonably
satisfactory to the Company and take all such other reasonable actions in
connection therewith (including those reasonably requested by the managing
underwriters, if any, or the Holders of a majority in interest of the Transfer
Restricted Securities being sold) in order to expedite or facilitate the sale of
such Transfer Restricted Securities; provided, however, that the Company is not
required to facilitate an underwritten offering without its consent. In such
connection, whether or not an underwriting agreement is entered into and whether
or not the registration is an underwritten registration, the Company will: (i)
make such representations and warranties to the Holders of such Transfer
Restricted Securities and the underwriters, if any, with respect to the business
of the Company and its subsidiaries (including with respect to businesses or
assets acquired or to be acquired by any of them), and the Registration
Statement, Prospectus and documents, if any, incorporated or deemed to be
incorporated by reference therein, in each case, in form, substance and scope as
are customarily made by issuers to underwriters in underwritten offerings and
reasonably acceptable to the Company, and confirm the same if and when
requested; (ii)seek to obtain opinions of counsel to the Company and updates
thereof (which counsel and opinions (in form, scope and substance) shall be
reasonably satisfactory to the managing underwriters, if any, addressed to each
selling Holder of Transfer Restricted Securities and each of the underwriters,
if any, covering the matters customarily covered in opinions requested in
underwritten offerings (including any such matters as may be reasonably
requested by such underwriters); (iii) use all reasonable efforts to obtain
customary "cold comfort" letters and updates
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thereof from the independent certified public accountants of the Company (and,
if necessary, any other independent certified public accountants of any
subsidiary of the Company or of any business acquired by the Company for which
financial statements and financial data is, or is required to be, included in
the Registration Statement), addressed (where reasonably possible) to each
selling Holder of Transfer Restricted Securities and each of the underwriters,
if any, such letters to be in customary form and covering matters of the type
customarily covered in "cold comfort" letters in connection with underwritten
offerings; (iv) if an underwriting agreement is entered into, the same shall
contain indemnification provisions and procedures no less favorable to the
selling Holders of Transfer Restricted Securities and the underwriters, if any,
than those set forth in Section 6 hereof (or such other provisions and
procedures acceptable to Holders of a majority in interest of the Transfer
Restricted Securities covered by such Registration Statement and the managing
underwriters); and (v) deliver such documents and certificates as may be
reasonably requested by the Holders of majority interest of the Transfer
Restricted Securities being sold or the managing underwriters, if any, to
evidence the continued validity of the representations and warranties made
pursuant to clause (i) of this Section 4(m) and to evidence compliance with any
customary conditions contained in the underwriting agreement or other agreement
entered into by the Company;
(n) Make available for inspection by a representative of the Holders of
Transfer Restricted Securities being sold, any underwriter participating in any
such disposition of Transfer Restricted Securities, if any, and any attorney,
consultant or accountant retained by such selling Holders or underwriter, at the
offices where normally kept, during reasonable business hours, all financial and
other records, pertinent corporate documents and properties of the Company and
its subsidiaries as they may reasonably request, and cause the officers,
directors, agents and employees of the Company and its subsidiaries to supply
all information in each case reasonably requested by any such representative,
underwriter, attorney, consultant or accountant in connection with such
Registration Statement, provided, however, that such persons shall first agree
in writing with the Company that any information that is reasonably and in good
faith designated by the Company in writing as confidential at the time of
delivery or inspection (as the case may be) of such information shall be kept
confidential by such persons, unless (i) in the reasonable opinion of the
Company or its counsel, disclosure of such information is required by court or
administrative order or is necessary to respond to inquiries of regulatory
authorities, (ii) in the reasonable opinion of the Company or its counsel,
disclosure of such information is required by law (including any disclosure
requirements pursuant to Federal securities laws in connection with the filing
of any Registration Statement or the use of any Prospectus), (iii) such
information becomes generally available to the public other than as a result of
a disclosure or failure to safeguard by any such person or (iv) such information
becomes available to any such person from a source other than the Company and
such source is not bound by a confidentiality agreement.
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(o) Use all reasonable efforts to cause the Indenture to be qualified under
the TIA, to the extent such qualification is required by applicable law, not
later than the effective date of the first Registration Statement relating to
the Transfer Restricted Securities; and in connection therewith, cooperate with
the Trustee and the Holders of Notes or Common Stock constituting Transfer
Restricted Securities to effect such changes to the Indenture, if any, as may be
required for such Indenture to be so qualified in accordance with the terms of
the TIA; and execute, and use its best efforts to cause the Trustee to execute,
all customary documents as may be required to effect such changes, and all other
forms and documents (including Form T-1) required to be filed with the SEC to
enable the Indenture to be so qualified under the TIA in a timely manner.
(p) Comply with applicable rules and regulations of the SEC and make
generally available to its security holders earning statements satisfying the
provisions of Section 11(a) of the Securities Act or Rule 158 (or any similar
rule promulgated under the Securities Act), no later than 45 days after the end
of any 12-month period (or 90 days after the end of any 12- month period if such
period is a fiscal year) commencing at the end of any fiscal quarter in which
Transfer Restricted Securities are sold to underwriters in a firm commitment or
best efforts underwritten offering and if not sold to underwriters in such an
offering, commencing on the first day of the first fiscal quarter after the
effective date of a Registration Statement, which statement shall cover said
period, consistent with the requirements of Rule 158; and
(q) (i) list all shares of Common Stock covered by any Registration
Statements on any securities exchange on which the Common Stock is then listed
or (ii) authorize for quotation on the SmallCap Market or the National Market of
the National Association of Securities Dealers Automated Quotation System
("Nasdaq") all Common Stock covered by all such Registration Statements if the
Common Stock is then so authorized for quotation.
SECTION 5. Registration Expenses. All fees and expenses incident to the
performance of or compliance with this Agreement by the Company shall be borne
by it whether or not any Registration Statement is filed or becomes effective
and whether or not any securities are offered or sold pursuant to any
Registration Statement. The fees and expenses referred to in the foregoing
sentence shall include, without limitation, (i) all registration and filings
fees (including, without limitation, fees and expenses with respect to filings
required to be made with the National Association of Securities Dealers, Inc.
and in compliance with securities or Blue Sky laws (including, without
limitation and in addition to that provided for in this Section 5, fees and
disbursements of counsel for the underwriters in connection with Blue Sky
qualifications of the Transfer Restricted Securities and determination of the
eligibility of the Transfer Restricted Securities for investment under the laws
of such jurisdictions as the managing underwriters, if any, or Holders of a
majority in interest of Transfer Restricted Securities, may designate)), (ii)
printing expenses (including, without limitation, of printing Prospectuses if
the printing of Prospectuses is required by the
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managing underwriters, if any, or by the Holders of a majority in interest of
the Transfer Restricted Securities included), (iii) messenger, telephone and
delivery expenses, (iv) reasonable fees and disbursements of counsel for the
Company (plus any local counsel deemed appropriate by the Holders of a majority
in interest of the Transfer Restricted Securities) in accordance with the
provisions of this Section 5 hereof, (v) fees and disbursements of all
independent certified public accountants referred to in Section 4(m)(iii)
(including, without limitation, the expenses of any special audit and "comfort"
letters required by or incident to such performance), (vi) fees and expenses of
all other persons retained by the Company. In addition, the Company shall pay
its internal expenses (including, without limitation, all salaries and expenses
of its officers and employees performing legal or accounting duties), the
expense of an annual audit and the fees and expenses incurred in connection with
the listing of the securities to be registered on any securities exchange or the
Nasdaq SmallCap Market or the Nasdaq National Market. Notwithstanding anything
in this Agreement to the contrary, each Holder shall pay all underwriting
discounts and brokerage commissions with respect to any Transfer Restricted
Securities sold by it.
SECTION 6. Indemnification.
(a) The Company agrees to indemnify and hold harmless each of (i) the
Purchaser, (ii) each Holder, (iii) each person, if any, who controls (within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act)
any of the foregoing (any of the persons referred to in this clause (iii) being
hereinafter referred to as a "controlling person"), and (iv) the respective
officers, directors, partners, employees, representatives and agents of the
Purchaser, the Holders (including predecessor Holders), or any controlling
person (any person referred to in clause (i), (ii), (iii) or (iv) may
hereinafter be referred to as an "Indemnified Person"), from and against any and
all losses, claims, damages, liabilities, expenses and judgments caused by any
untrue statement or alleged untrue statement of a material fact contained in any
Registration Statement or Prospectus or in any amendment or supplement thereto
or in any preliminary Prospectus, or caused by any omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein (in the case of any Prospectus or supplement
thereto, in the light of the circumstances under which they were made) not
misleading, except insofar as such losses, claims, damages, liabilities,
expenses or judgments are caused by any such untrue statement or omission or
alleged untrue statement or omission based upon information relating to any
Indemnified Person furnished to the Company by or on behalf of such Indemnified
Person expressly for use therein (which shall include, without limitation, the
Requisite Information provided to the Company by such Indemnified Person);
provided, however, that the foregoing indemnity with respect to any preliminary
Prospectus shall not inure to the benefit of any Indemnified Person from whom
the person asserting such losses, claims, damages, liabilities, expenses and
judgments purchased securities if such untrue statement or omission or alleged
untrue statement or omission made in such preliminary Prospectus is eliminated
or remedied in the Prospectus and a copy of
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the Prospectus shall not have been furnished to such person in a timely manner
due to the wrongful action or wrongful inaction of such Indemnified Person,
whether as a result of negligence or otherwise.
(b) In case any action shall be brought against any Indemnified Person,
based upon any Registration Statement or any such Prospectus or any amendment or
supplement thereto and with respect to which indemnity may be sought against the
Company, such Indemnified Person shall promptly notify the Company in writing
and the Company shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to such Indemnified Person and payment of all
fees and expenses Any Indemnified Person shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Person,
unless the employment of such counsel shall have been specifically authorized in
writing by the Company, the Company shall have failed to assume the defense and
employ counsel or such Indemnified Person or Persons shall have been advised by
counsel that there may be a conflict between the positions of the indemnifying
party or parties and of the indemnified party or parties in conducting the
defense of such action or proceeding or that there may be legal defenses
available to such Indemnified Person or Persons different from or in addition to
those available to the indemnifying party or parties (in which case the Company
shall not have the right to assume the defense of such action on behalf of such
Indemnified Person, it being understood, however, that the Company shall not, in
connection with any one such action or separate but substantially similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the fees and expenses of more than
one separate firm of attorneys (in addition to any local counsel) for all such
Indemnified Persons, which firm shall be designated in writing by such
Indemnified Persons, and that all such fees and expenses shall be reimbursed as
they are incurred). The Company shall not be liable for any settlement of any
such action effected without its written consent but if settled with the written
consent of the Company, the Company agrees to indemnify and hold harmless any
Indemnified Person from and against any loss or liability by reason of such
settlement. No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement of any pending or threatened
proceeding in respect of which any indemnified party is or could have been a
party and indemnity could have been sought hereunder by such indemnified party,
unless such settlement includes an unconditional release of such indemnified
party from all liability on claims that are the subject matter of such
proceeding.
(c) In connection with any Registration Statement pursuant to which any
Holder (or predecessor Holder) sold or offered for resale Transfer Restricted
Securities, such Holder agrees, severally and not jointly, to indemnify and hold
harmless the Company, its directors, officers, employees, representatives and
agents and any person controlling the Company within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act, to the same extent as
the foregoing indemnity from the Company to each Indemnified Person but only
with
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reference to information relating to such Indemnified Person furnished by or on
behalf of such Indemnified Person expressly for use in such Registration
Statement (which shall include, without limitation, the Requisite Information
provided to the Company by such Indemnified Person). In case any action shall be
brought against the Company, any of its directors, officers, employees,
representatives and agents, or any person controlling the Company based on such
Registration Statement and in respect of which indemnity may be sought against
any Indemnified Person, the Indemnified Person shall have the rights and duties
given to the Company (except that if the Company shall have assumed the defense
thereof, such Indemnified Person shall not be required to do so, but may employ
separate counsel therein and participate in defense thereof but the fees and
expenses of such counsel shall be at the expense of such Indemnified Person),
and the Company, its directors, officers, employees, representatives and agents,
and any person controlling the Company shall have the rights and duties given to
the Indemnified Person by Section 6(b) hereof.
(d) If the indemnification provided for in this Section 6 is applicable by
its terms but unavailable to an indemnified party in respect of any losses,
claims, damages, liabilities, expenses or judgments referred to therein, then
each indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities, expenses and judgments (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and each Indemnified Person on the other hand pursuant
to the Purchase Agreement or from the offering for resale of the Transfer
Restricted Securities or (ii) if the allocation provided by clause (i) above is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above but also the
relative fault of the Company and each such Indemnified Person in connection
with the statements or omissions which resulted in such losses, claims, damages,
liabilities, expenses or judgments, as well as any other relevant equitable
considerations. The relative fault of the Company and each such Indemnified
Person shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission to state a
material fact relates to information supplied by the Company or such Indemnified
Person and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The Company, the Holders and the Purchaser agree that it would not be just
and equitable if contribution pursuant to this Section 6(d) were determined by
pro rata allocation (even if the Indemnified Person were treated as one entity
for such purpose) or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an indemnified party as a result of
the losses, claims, damages, liabilities, expenses or judgments referred to in
the immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
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such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 6, no
Indemnified Person shall be required to contribute any amount in excess of the
amount by which the total net profit received by it in connection with the sale
of the Transfer Restricted Securities pursuant to this Agreement exceeds the
amount of any damages which such Indemnified Person has otherwise been required
to pay by reason of such untrue or alleged untrue statement or omission or
alleged omission. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Indemnified Persons' obligations to contribute pursuant
to this Section 6(d) are several in proportion to the respective amount of
Transfer Restricted Securities included in and sold pursuant to any such
Registration Statement by each Indemnified Person and not joint.
SECTION 7. Underwritten Registration. If any of the Transfer Restricted
Securities covered by any Shelf Registration Statement are to be sold in an
underwritten offering, the investment banker or investment bankers and manager
or managers that will administer the offering will be investment bankers of
recognized national standing selected by the Holders of a majority in interest
of such Transfer Restricted Securities included in such offering, subject to the
consent of the Company (which will not be unreasonably withheld or delayed).
No person may participate in any underwritten registration hereunder unless
such person agrees to sell such person's Transfer Restricted Securities on the
basis reasonably provided in any underwriting arrangements approved by the
persons entitled hereunder to approve such arrangements and completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements, lock-up agreements and other documents reasonably required under the
terms of such underwriting arrangements.
SECTION 8. Miscellaneous.
(a) Remedies. In the event of a breach by the Company or by a Holder of any
of their respective obligations under this Agreement, each Holder or the
Company, in addition to being entitled to exercise all rights granted by law,
including, without limitation, recovery of damages, will be entitled to specific
performance of its rights under this Agreement. The Company and each Holder
agree that monetary damages would not be adequate compensation for any loss
incurred by reason of a breach by it of any of the provisions of this Agreement
and hereby further agree that, in the event of any action for specific
performance in respect of such breach, they shall waive the defense that a
remedy at law would be adequate. This Section 8(a) shall not apply to any breach
for which Liquidated Damages have been specifically provided hereunder.
(b) No Inconsistent Agreements. The Company shall not enter into any
agreement with respect to its securities that is inconsistent with the rights
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granted to the Holders in this Agreement or otherwise conflicts with the
provisions hereof. The Company is not currently a party to any agreement
granting any registration rights with respect to any of its securities to any
person which at the date hereof conflicts with the Company's obligations
hereunder. Without limiting the generality of the foregoing, without the written
consent of the Holders of a majority in interest of the Transfer Restricted
Securities, the Company shall not grant to any person the right to request it to
register any of its securities under the Securities Act unless the rights so
granted are subject in all respects to the prior rights of the Holders set forth
herein, and are not otherwise in conflict or inconsistent with the provisions of
this Agreement. The Company, the Purchaser and each Holder acknowledge that the
rights granted hereunder to the Purchaser and the Holders are subject in all
respects to the prior rights of the "Holders," as defined in the Registration
Rights Agreement, dated as of February 16, 2000, by and among the Company and
certain other parties thereto, under such Registration Rights Agreement.
(c) No Adverse Action Affecting the Transfer Restricted Securities. The
Company will not take any action with respect to the Transfer Restricted
Securities which would adversely affect the ability of any of the Holders to
include such Transfer Restricted Securities in a registration undertaken
pursuant to this Agreement.
(d) No Piggyback on Registrations. After the date hereof, the Company shall
not grant to any of its security holders (other than the Holders in such
capacity) the right to include any of its securities in any Shelf Registration
Statement. The Company, the Purchaser and each Holder acknowledge that the
Transfer Restricted Securities may not be included in a "Shelf Registration
Statement," as defined in the Registration Rights Agreement referred to in
paragraph (b) above.
(e) Amendments and Waivers. The provisions of this Agreement, including the
provisions of this sentence, may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof, may not be given,
without the written consent of the Holders of a majority in interest of the
Transfer Restricted Securities; provided, however, that, for the purposes of
this Agreement, Transfer Restricted Securities that are owned, directly or
indirectly, by either the Company or an Affiliate of the Company are not deemed
outstanding. Notwithstanding the foregoing, a waiver or consent to depart from
the provisions hereof with respect to a matter that relates exclusively to the
rights of Holders whose Transfer Restricted Securities are being sold pursuant
to an underwritten offering and that does not directly or indirectly affect the
rights of other Holders may be given by Holders of a majority in interest of the
Transfer Restricted Securities being sold by such Holders pursuant to such an
underwritten offering; provided, however, that the provisions of this sentence
may not be amended, modified, or supplemented except in accordance with the
provisions of the immediately preceding sentence.
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(f) Notices. All notices and other communications provided for herein shall
be made in writing by hand-delivery, next day air courier, certified first-class
mail, return receipt requested or telecopy:
(i) if to the Purchaser to:
Microsoft Corporation
One Microsoft Way
Redmond, WA 98052
Attn: Chief Financial Officer
Attn: General Counsel, Finance and Operations
Telecopy No.: 425-936-7329
(ii) if to a Holder other than the Purchaser, to the address of such
Holder as it appears in the Requisite Information, or, if not so specified,
in the Common Stock or Notes register of the Company, as applicable;
(iii) if to the Company, to:
Interliant, Inc.
2 Manhattanville Road
Purchase, NY 10577
Attn: General Counsel
Telecopy No.: 914-640-9000
Except as otherwise provided in this Agreement, all such communications
shall be deemed to have been duly given, when delivered by hand, if personally
delivered; one Business Day after being timely delivered to a next-day air
courier, five Business Days after being deposited in the mail, postage prepaid,
if mailed; and when receipt is acknowledged by the recipient's telecopier
machine, if telecopied.
(g) Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors and permitted assigns of each of the parties
and shall inure to the benefit of each existing and future Holder. The Company
may not assign its rights or obligations hereunder without the prior written
consent of the Holders of a majority in interest of the Transfer Restricted
Securities, other than by operation of law pursuant to a merger or consolidation
to which the Company is a party.
(h) Counterparts. This Agreement may be executed in any number of
counterparts by the parties hereto, each of which when so executed shall be
deemed to be an original and all of which taken together shall constitute one
and the same instrument.
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(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE
AND PERFORMED WITHIN THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW.
(j) Severability. The remedies provided herein are cumulative and not
exclusive of any remedies provided by law. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their best efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.
(k) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof. All
references made in this Agreement to "Section" and "paragraph" refer to such
Section or paragraph of this Agreement, unless expressly stated otherwise.
(l) Attorneys' Fees. In any action or proceeding brought to enforce any
provision of this Agreement, or where any provision hereof is validly asserted
as a defense, the prevailing party, as determined by the court, shall be
entitled to recover its reasonable attorneys' fees in addition to any other
available remedy.
21
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of the date first written above.
INTERLIANT, INC.
By: /s/ Herbert R. Hribar
---------------------
Name: Herbert R. Hribar
Title: Chief Executive Officer
The foregoing Registration Rights
Agreement is hereby confirmed
and agreed to as of the date
first written above.
MICROSOFT CORPORATION
By: /s/ Amar Nehru
---------------
Name: Amar Nehru
Title:
22
<PAGE>
Exhibit 10.38
ASSIGNMENT AND CONSENT OF SUBLEASE
----------------------------------
This Assignment and Consent of Sublease (this "Assignment"), dated as of
----------
February 29, 2000, by and among reSOURCE PARTNER, INC. a Delaware corporation,
as assignor ("Assigner), reSOURCE PARTNER ACQUISITION CORP, a Delaware
-------
corporation, as assignee ("Assignee"), and BORDEN, INC. a New Jersey corporation
--------
("Borden"), as assignee ("Assignee"), and BORDEN, INC, a New Jersey corporation
------ --------
("Borden").
------
WHEREAS, Assignor is a party to a Sublease Agreement (the "Sublease"),
--------
dated January 20, 1999, between Assignor, as subtenant, and Borden, as
sublandlord, pursuant to which Borden subleased to Assignor certain portions of
the 13th, 22nd,27th, 31st and 33rd floors of the building located at 180 East
Broad Street, Columbus, Ohio (the "Building"); and
--------
WHEREAS, Assignor has heretofore vacated the portion of the premises
located on the 27th floor of the Building, (the premises located on the 13th,
22nd, 31st and 33rd floors of the Building being hereinafter referred to as the
"Subleased Premises"); and
------------------
WHEREAS, Assignor and Assignee are parties to an Asset Purchase Agreement
dated as of the date hereof, pursuant to which Assignor has agreed to sell,
transfer and convey, and Assignee has agreed to purchase, certain assets of
Assignor as more fully described therein; and
WHEREAS, Assignor now desires to assign the Sublease to Assignee and
Assignee desires to assume such Sublease from Assignor on the terms and
conditions contained herein.
NOW THEREFORE, in consideration of the foregoing Sublease Premises,
Assignor and Assignee hereby agree as follows:
Section 1. Assignment Assignor hereby assigns to Assignee, and Assignee
----------
herby assumes from and after the date of this Assignment, the Sublease and the
rights and obligations thereunder, subject to the terms and conditions provided
therein. Assignor and Assignee acknowledge and agree that the portion of the
premises located on the 27th floor of the Building is not included in this
Assignment.
Section 2. Governing Law. This Assignment shall be governed in
-------------
accordance with the laws of the State of Ohio.
Section 3. Consent and Representations. Borden hereby consents to the
--------------------------
foregoing Assignment and represents and warrants the following:
(a) the Sublease attached hereto as Exhibit A and made a part
---------
hereof is a true and correct copy of the Sublease,
<PAGE>
(b) the Sublease is valid and in full force and effect, enforceable in
accordance with the terms thereof, and is binding on Borden and Assignor as
parties thereto;
(c) the current rental paid by Assignor for to Borden under the Sublease
is an amount equal to One Million Three Hundred Sixty-One Thousand Five Hundred
Ninety-Seven Dollars ($1,361,597) per annum (such amount, which shall increase
pursuant to the terms of the Sublease; being referred to herein as the "Sublease
Rent")
(d) to Borden's knowledge, Assignor is current in the payment of
Sublease Rent in monthly installments pursuant to the terms of the Sublease and
no default by Assigner has occurred and is continuing thereunder;
(e) as long as Assignee continues to pay to Borden an amount equal to
the Sublease Rent in monthly installments pursuant to the terms of the Sublease,
Assignee shall be permitted to remain in occupancy of the Subleased Premises for
the conduct of Assignee's business; and
(f) the consent of the landlord under the lease pursuant to which Border
leases the Subleased Premises is not inquired for this Assignment.
Section 4. Modification of Sublease. Borden, Assignor and Assignee hereby
acknowledge and agree that the Sublease shall be modified as follows:
(a) Borden hereby waives its right pursuant to the Sublease to require
to vacate the Subleased Premises on nine (9) months written notice; and
(b) the Sublease shall be terminable on the last day of my calendar
month following the month in which Assignee gives notice to Assignor of election
to terminate the Sublease; provided, however, that in the event Assignee decides
to relocate its business outside of the Building, the Sublease, shall be
terminable upon three (3) months' prior notice to Assignor.
Section 5. Counterparts. This Assignment way be executed in several
counterparts, each of each shall be deemed an original but all of which shall
constitute one and the same agreement.
[END OF TEXT]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Assignment
as of the date and year first above written.
reSOURCE PARTNER, INC. Assignor
By: /s/ James A.Kiyoe
--------------------------------
Name: James A.Kiyoe
Title: V.P. GC and Secretary
reSOURCE PARTNER ACQUISITION CORP., Assignee
By: /s/ Francis J. Alfano
--------------------------------
Name: Francis J. Alfano
Title: President
BORDEN,INC.
By: /s/ Ellen German Berndt
--------------------------------
Name: Ellen German Berndt
Title: Secretary
<PAGE>
Exhibit A
---------
The Sublease
------------
See Attached
<PAGE>
TERMS OF SUBLEASE OF SPACE IN BORDEN BUILDING
reSOURCE PARTNER, INC.
<TABLE>
<CAPTION>
Term: January 1, 1999 - August 31, 2003
<S> <C> <C>
Lease Payment: 1/1/99-12/31/99 $18.00/sq.ft. max. annually payable monthly in advance
1/1/00-12/31/00 $19.00/sq.ft. max. annually payable monthly in advance
1/1/01-12/31/01 $20.00/sq.ft. max. annually payable monthly in advance
1/1/02-12/31/02 $21.00/sq.ft. max. annually payable monthly in advance
1/1/03-8/31/03 $22.00/sq.ft. max. annually payable monthly in advance
Leased Premises: 17,555 sq.ft on floor 13
18,036 sq.ft on floor 22
659 sq.ft on floor 27
18,036 sq.ft on floor 31
18,036 sq.ft on floor 33 Total sq. ft 72,322
Subleasing/Notice: Subtenant may not sublet or assign any of its leased
space without Borden's prior written consent. Subtenant
will give Borden a 9-month written notice of its desire to
vacate any or all of its leased premises. In the event
Borden requires Subtenant to vacate any or all of its
leased premises, Borden will also give a 9-month written
notice
Building services The following services are included in the monthly lease
amount
o electric
o food-service area
o health unit
o emergency floor coordinator program
o lobby receptionist services
o janitor and cleaning services
o standard maintenance & repair services of building
related items (not to exceed $50.00)
Additional services requested by Subtenant will be
sourced and managed by Borden. Invoiced from these
service providers will be reviewed as to correctness by
Borden then forwarded to Subtenant for payment. Such
invoices must be paid within 30 days.
Insurance: Subtenant must maintain general liability insurance
coverage.
</TABLE>
<PAGE>
LIST OF SUBSIDIARIES
EXHIBIT 21.1
Subsidiaries Jurisdiction
- ------------ ------------
1. B.N. Technology, Inc. dba ICOM California
2. Digiweb, Inc. Maryland
3. Interliant Consulting and Professional Services, Inc. Massachusetts
(formerly Net Daemons Associates, Inc.)
RESOURCE PARTNER, INC. Delaware
RSP Insurance Agency, Inc. Ohio
Soft Link, Inc. Minnesota
4. Interliant International, Inc. Delaware
(formerly Interliant of Texas, Inc.)
Interliant Europe B.V. The Netherlands
5. Sage Networks Acquisition Corp. Delaware
6. Sales Technology Limited England
Sales Success Limited England
7. Telephonetics, Inc. Delaware
8. The Jacobson Consulting Group, Inc. Delaware
9. Triumph Development, Inc. Delaware
10. Triumph Technology, Inc. Delaware
11. Web Provider, Inc. Maryland
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the captions "Experts" and
"Selected Consolidated Financial Data" and to the use of our report dated
January 31, 2000, except for Note 15, as to which the date is March 2, 2000, in
the Registration Statement Form S-1 (No. 333-_____) and related Prospectus of
Interliant, Inc. dated May 16, 2000.
/s/ Ernst & Young LLP
Boston, Massachusetts
May 9, 2000
<PAGE>
Exhibit 23.2
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated November 22, 1999, in the Registration Statement Form
S-1 (No. 333-_____) and related Prospectus of Interliant, Inc. dated May 16,
2000.
/s/ Ernst & Young
London, England
May 9, 2000
<PAGE>
Exhibit 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Interliant, Inc. on Form
S-1 of our report regarding reSOURCE PARTNER, Inc. dated February 11, 2000,
appearing in the Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ Deloitte & Touche LLP
Columbus, Ohio
May 10, 2000
<PAGE>
Exhibit 23.4
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement dated May 16, 2000 on Form S-1 of Interliant, Inc. of our
report dated February 7, 2000, relating to the financial statements of Soft
Link, Inc., which appears in such Prospectus.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ Smith . Schafer & Associates Ltd.
Maplewood, Minnesota
May 15, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 77,872
<SECURITIES> 100,407
<RECEIVABLES> 22,897
<ALLOWANCES> (1,407)
<INVENTORY> 0
<CURRENT-ASSETS> 216,005
<PP&E> 37,184
<DEPRECIATION> (8,813)
<TOTAL-ASSETS> 395,637
<CURRENT-LIABILITIES> 40,078
<BONDS> 0
0
0
<COMMON> 472
<OTHER-SE> 187,400
<TOTAL-LIABILITY-AND-EQUITY> 395,637
<SALES> 5,417
<TOTAL-REVENUES> 26,858
<CGS> 18,534
<TOTAL-COSTS> 54,108
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 112
<INCOME-PRETAX> (27,361)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (1,220)
<NET-INCOME> (28,581)
<EPS-BASIC> (0.62)
<EPS-DILUTED> (0.62)
</TABLE>
