<PAGE>
Prospectus Supplement Filed pursuant to Rule 424(b)(3)
(To Prospectus Dated September 1, 2000) Registration No. 333-37156
[LOGO OF INTERLIANT]
$154,825,000 7% Convertible Subordinated Notes due 2005
and 2,915,726 shares of Common Stock Issuable upon Conversion of the Notes
This prospectus supplement relates to the resale by the holders of 7%
Convertible Subordinated Notes due 2005 of Interliant, Inc. and the shares of
common stock of Interliant issuable upon the conversion of the notes.
This prospectus supplement should be read in conjunction with the prospectus
dated September 1, 2000, which is to be delivered with this prospectus
supplement. All capitalized terms used but not defined in this prospectus
supplement shall have the meanings given them in the prospectus.
The information in the table appearing under the heading "Selling
Securityholders" in the prospectus is superseded in part by including the
holders appearing below in that table.
<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>
Fir Tree Institutional
Value Fund.............. 12,668,380 8.2 238,575 238,575
Fir Tree Value Fund...... 33,083,880 21.4 623,048 623,048
Fir Tree Value Fund LP
#2...................... 1,840,000 1.2 34,651 34,651
Fir Tree Value Partners
LDC-II.................. 3,487,740 2.3 65,682 65,682
Hull Overseas, Ltd. ..... 1,250,000 * 23,540 23,540
J.M. Hull Associates
L.P. ................... 750,000 * 14,124 14,124
</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.
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.
----------------
The date of this prospectus supplement is September 28, 2000.
<PAGE>
As filed pursuant to Rule 424(b)(3)
Reg. No. 333-37156
PROSPECTUS
[LOGO OF INTERLIANT]
$154,825,000 7% Convertible Subordinated Notes due 2005
and 2,915,726 shares of Common Stock Issuable upon Conversion of the Notes
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 August 30, 2000 the last reported sale price of our common
stock, listed under the symbol "INIT", on the Nasdaq National Market was
$12.5625 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.
----------------
The date of this prospectus is September 1, 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
The Company................................................................ 1
Risk Factors............................................................... 3
Use of Proceeds............................................................ 15
Ratio of Earnings to Fixed Charges......................................... 15
Selling Securityholders.................................................... 16
Description of Notes....................................................... 18
Description of Capital Stock............................................... 36
Certain United States Federal Income Tax Considerations.................... 38
Plan of Distribution....................................................... 43
Legal Matters.............................................................. 44
Experts.................................................................... 44
Where You Can Find More Information About Us............................... 45
</TABLE>
----------------
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 or
incorporated by reference into 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.
i
<PAGE>
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.
ii
<PAGE>
THE COMPANY
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:
Our Services
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 and Oracle
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
and Oracle, 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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<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.
Facilities
We have four state-of-the-art primary data centers located in Houston,
Texas; Atlanta, Georgia; Vienna,
Virginia and Columbus, Ohio. In addition, we currently operate a data center in
Paris, France and will operate a data center in London, United Kingdom
commencing during the third quarter of 2000. 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.
Acquisitions and Strategic Relationships
We have grown rapidly since our inception in December 1997, acquiring 27
hosting and related Internet service businesses through July 31, 2000,
including our recent acquisitions of
. Knowledge Systems, Inc., a provider of virtual communities and
traditional Web based services including design, development and
hosting, specializing in value added applications such as virtual trade
shows, custom news and e-commerce;
. Interactive Software, Inc., a provider of consulting services in
software selection, implementation services, quality assurance and
training and support on Oracle platforms to the non-public sector and
. Milestone Services, Inc., which specializes in providing companies in
the private sector with consulting services on Oracle platforms.
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, Oracle, UUNET
Technologies, Network Solutions, Cisco Systems, Verisign and Onyx.
International Initiatives
In May 2000, our majority-owned subsidiary, Interliant Europe, entered into
a transaction with Cegetel Enterprises S.A., a subsidiary of Vivendi, whereby
Interliant Europe purchased data center assets and intellectual property from
Cegetel. We have also licensed some of our technology and intellectual property
to and entered into a service agreement with Interliant Europe. In addition, in
June 2000, we entered into a strategic relationship with Asia Online, Ltd., a
provider of Internet business solutions in the pan-Asia-Pacific region, to
jointly develop WorldHost, a component of Asia Online's Web hosting service, by
providing consulting and development services, hardware, licensing and ongoing
management services.
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.
2
<PAGE>
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 or
incorporated by reference 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 July 31,
2000, we have completed 27 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 $67.5
million in the six months ended June 30, 2000. As of June 30, 2000, we had an
accumulated deficit of approximately $132.3 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
<PAGE>
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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<PAGE>
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 July 31, 2000, we have acquired 27 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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<PAGE>
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 June 30, 2000, $182.4
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 $48.5 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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<PAGE>
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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<PAGE>
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.
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 $20.0 million for the
six months ended June 30, 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 were
to customers located outside the United States, primarily in Europe, Asia and
South America. For the six months ended June 30, 2000, revenues from sources
outside the United States were less than 5% of total revenues due to a greater
amount of ASP and professional services revenue being generated by United
States sources during this period and such services not being offered during
the six months ended June 30, 2000 outside the United States. 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 formed a corporation, Interliant Europe,
through which we launched Web hosting, application hosting and related services
in continental Europe. In May 2000, Interliant Europe entered into a
transaction with Cegetel Enterprises S.A., a subsidiary of Vivendi, whereby
Interliant Europe purchased data center assets and intellectual property from
Cegetel. We have also licensed some of our technology and intellectual property
to and entered into a service agreement with Interliant Europe. In addition, in
June 2000, we entered into a strategic relationship with Asia Online, Ltd., a
provider of Internet business solutions in the pan-Asia-Pacific region, to
jointly develop WorldHost, a component of Asia Online's Web hosting service, by
providing consulting and development services, hardware, licensing and ongoing
management services.
We expect that these arrangements 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.
11
<PAGE>
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.
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
116.7% as of June 30, 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 six months ended June
30, 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.
12
<PAGE>
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;
. 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 June 30, 2000, the notes were junior to $16.9
million of outstanding senior indebtedness and effectively junior to $13.5
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
13
<PAGE>
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.
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 June 30, 2000, our directors, executive officers and their affiliates
beneficially owned, in the aggregate, shares representing approximately 61.0%
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 June 30, 2000 there
were approximately 47.8 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 filed a registration statement on May 31, 2000 covering
approximately 4.5 million shares of common stock, 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 6.1% of our
common stock currently outstanding. In addition, shares issuable upon exercise
of our outstanding options may be sold freely under our registration statements
on Form S-8.
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."
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 six month periods ended June 30,
1999 and 2000.
<TABLE>
<CAPTION>
Period from
December 8,
1997 Six Months Ended
(Inception) to Year Ended December 31, June 30,
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) $(22,703) $(73,367)
</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).
15
<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>
AIG SoundShore Strategic
Holding Fund Ltd. ...... $ 2,000,000 1.3% 37,665 37,665
AIG SoundShore
Opportunity Holding Fund
Ltd. ................... 2,300,000 1.5 43,314 43,314
Argent Global Convertible
Securities Ltd.......... 3,800,000 2.5 71,563 71,563
BankAmerica Pension
Plan.................... 1,350,000 * 25,423 25,423
Black Diamond Offshore,
Ltd..................... 560,000 * 10,546 10,546
BNP Arbitrage SNC........ 5,000,000 3.2 94,162 94,162
BNP Cooper Neff
Convertible Strategies
Fund L.P. .............. 343,000 * 6,459 6,459
CIBC World Markets
International Arbitrage
Group................... 3,500,000 2.3 65,913 65,913
Convexity Partners LP.... 250,000 * 4,708 4,708
Deutsche Bank Securities
Inc. ................... 500,000 * 9,416 9,416
Donaldson, Lufkin &
Jenrette Securities
Corp. .................. 11,500,000 7.4 216,572 216,572
Double Black Diamond
Offshore, LDC........... 1,797,000 1.2 33,841 33,841
Fidelity Financial Trust:
Fidelity Convertible
Securities Fund(4).... 6,000,000 3.9 112,994 112,994
IBM Retirement Plan-High
Income.................. 450,000 * 8,474 8,474
ICI American Holdings
Trust................... 900,000 * 16,949 16,949
JMG Triton Offshore Fund,
Ltd..................... 14,050,000 9.1 264,595 264,595
LLT Limited.............. 160,000 * 3,013 3,013
Lydian Overseas Partners
Master Fund............. 2,000,000 1.3 37,665 37,665
Merced Partners Limited
Partnership............. 1,000,000 * 18,832 18,832
Merrill Lynch, Pierce,
Fenner & Smith Inc...... 855,000 * 16,101 16,101
Museum of Fine Arts,
Boston.................. 10,000 * 188 188
New York Life Separate
Account #7.............. 1,000,000 * 18,832 18,832
Parker-Hannifin
Corporation............. 10,000 * 188 188
Peoples Benefit Life
Insurance Company....... 5,700,000 3.7 107,344 107,344
Peoples Benefit Life
Insurance Company
Teamsters Separate
Account................. 1,350,000 * 25,423 25,423
President & Fellows of
Harvard College......... 6,000,000 3.8 112,994 112,994
ProMutual................ 30,000 * 564 564
Putnam Convertible
Income-Growth Trust..... 150,000 * 2,824 2,824
Putnam Balanced
Retirement Fund......... 20,000 * 376 376
Putnam Convertible
Opportunities and Income
Trust................... 20,000 * 376 376
Q Opportunity Fund, Ltd.. 14,500,000 9.4 273,069 273,069
Retail Clerks Pension
Trust #2................ 1,350,000 * 25,423 25,423
University of Rochester.. 10,000 * 188 188
Sagamore Hill Hub Fund
Ltd. ................... 1,750,000 1.2 32,956 32,956
San Diego County
Employees Retirement
Association............. 300,000 * 5,649 5,649
Southport Management
Partners, L.P. ......... 450,000 * 8,474 8,474
Southport Partners
International Ltd. ..... 1,290,000 * 24,293 24,293
TCW Group, Inc. ......... 13,750,000 8.8 258,946 258,946
Tribeca Investments
L.L.C. ................. 9,740,000 6.3 183,427 183,427
Worldwide Transactions,
Ltd..................... 143,000 * 2,693 2,693
Zeneca Holdings Trust.... 870,000 * 16,384 16,384
Zurich HFR Master Hedge
Fund Index.............. 100,000 * 1,883 1,883
</TABLE>
16
<PAGE>
--------
* 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.
(4) The entity is either an investment company or a portfolio of an investment
company registered under Section 8 of the Investment Company Act of 1940,
as amended, or a private investment account advised by Fidelity Management
& Research Company, referred to herein as "FMR Co." FMR Co. is a
Massachusetts corporation and an investment advisor registered under
Section 203 of the Investment Advisers Act of 1940, as amended, and
provides investment advisory services to each of those Fidelity entities
identified above, and to other registered investment companies and to
certain other funds which are generally offered to a limited group of
investors. FMR Co. is a wholly-owned subsidiary of FMR Corp., a
Massachusetts corporation. The holdings for this entity reported in the
above table are as of May 31, 2000.
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 except that Merrill
Lynch, Pierce, Fenner & Smith Inc. has, from time to time during such period,
acted in a financial investment advisory capacity to Interliant. 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.
17
<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 June 30, 2000, we had $16.9 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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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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. 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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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 June 30, 2000, our subsidiaries had approximately $2.4
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
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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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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 Manhattan, The City of New York, at any time, whether prior to,
on or after the Change in Control Purchase
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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 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;
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. 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.
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
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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.
Interest will continue to accrue and be payable on demand upon a default in:
. the payment of:
-- principal and interest when due,
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-- 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 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;
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. 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.
When a holder of a beneficial interest in a global book-entry note would
like to sell their notes pursuant to the plan of distribution in this
registration statement, they must contact the DTC participant who holds their
beneficial interest on their behalf. The DTC participant will then notify the
transfer agent of the proposed transaction. The transfer agent will notify
Interliant who will then be required to confirm in an officer's certificate to
the transfer agent that this position held by a selling securityholder is one
of those registered pursuant to this registration statement or an amendment
thereafter and that such transfer is authorized. The transfer agent will then
notify DTC that it should decrease the aggregate principal amount of the 144A
global note and increase the aggregate principal amount of the publicly
registered global note to reflect this transfer.
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.
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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;
. 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
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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 June 30, 2000, 47,803,914 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
effectively connected with the conduct of a trade or business within the United
States by the Non-U.S. Holder.
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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.
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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.
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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
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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.
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 and schedule of Interliant, Inc.
appearing in Interliant, Inc.'s Annual Report (Form 10-K) for the year ended
December 31, 1999, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon included therein and
incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such report given on 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 the Form 8-K/A dated May 2, 2000, have been
incorporated herein by reference in reliance upon the report, also incorporated
herein by reference, of Smith Schafer & Associates, Ltd., independent
accountants given upon 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, incorporated in this prospectus by reference from
Form 8-K/A dated May 2, 2000 have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report, which is incorporated herein
by reference, and have been so incorporated in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
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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.
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and information we later file with
the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings we
will make with the SEC under Sections 13(a), 13(c), 14 and 15(d) of the
Exchange Act:
. our annual report on Form 10-K for the year ended December 31, 1999,
filed with the SEC on March 29, 2000;
. our quarterly reports on Form 10-Q for (i) the quarter ended March 31,
2000, filed with the SEC on May 15, 2000 and (ii) the quarter ended June
30, 2000, filed with the SEC on August 11, 2000;
. our current reports on Form 8-K dated January 31, 2000 and February 16,
2000, filed with the SEC on February 7, 2000 and March 13, 2000;
. our current report on Form 8-K/A dated February 16, 2000, filed with the
SEC on May 2, 2000 and
. the description of our common stock contained in our registration
statement on Form 8-A filed with the SEC on May 18, 1999 under Section
12(g) of the Exchange Act, including any amendment or report filed for
the purpose of updating such description;
You may request a copy of these filings, at no cost by writing or
telephoning us at the following address:
Interliant, Inc.
General Counsel
Two Manhattanville Road
Purchase, New York 10577
(914) 640-9000
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.
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No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in or incorporated by reference 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 or any prospectus
supplement is current only as of its date.
[LOGO OF INTERLIANT]
7% Convertible Subordinated Notes due 2005
and 2,915,726 shares of Common Stock
Issuable Upon Conversion of the Notes
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P R O S P E C T U S
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September 1, 2000
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