As filed with the Securities and Exchange Commission on February 24, 2000.
Registration No. 333-93749
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Amendment No. 1
to
FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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EQUINIX, INC.
(Exact Name of Registrant as Specified in its Charter)
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Delaware 4813 77-0487526
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Classification Identification Number)
Incorporation or Code Number)
Organization)
901 Marshall Street
Redwood City, CA 94063
(650) 298-0400
(Address, Including zip code, and telephone number, including area code, of
registrant's principal executive offices)
ALBERT M. AVERY, IV
President and Chief Executive Officer
Equinix, Inc.
901 Marshall Street
Redwood City, CA 94063
(650) 298-0400
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies to:
SCOTT C. DETTMER
RENEE F. LANAM
BRANDI L. GALVIN
MARGARET E. PAIGE
Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP
155 Constitution Drive
Menlo Park, California 94025
(650) 321-2400
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this registration statement.
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If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to rule 462(b) under the Securities Act of 1933, as amended (the
"Securities Act"), check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment that specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the registration statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this preliminary prospectus is not complete and may be +
+changed. We may not exchange these securities until the registration +
+statement filed with the Securities and Exchange Commission is effective. +
+This preliminary prospectus is not an offer to sell or exchange these +
+securities and it is not soliciting an offer to buy or exchange these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED FEBRUARY 24, 2000
PRELIMINARY PROSPECTUS
EQUINIX, INC.
Logo
Exchange Offer for
$200,000,000 of its
13% Senior Notes Due 2007
TERMS OF THE EXCHANGE OFFER:
- --It expires at 5:00 p.m., New York City time, on 2000, unless extended.
- --The terms of the exchange notes we will issue in the exchange offer are
substantially identical to those of the initial notes, except that transfer
restrictions and registration rights relating to the initial notes will not
apply to the exchange notes.
- --We will not receive any proceeds from the exchange offer.
- --The exchange notes are new securities and there is currently no established
market for them.
Before participating in this exchange offer please refer to the section in
this prospectus entitled "Risk Factors" commencing on page 8.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved the notes to be distributed in the
exchange offer or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
The date of this Prospectus is , 2000.
TABLE OF CONTENTS
Page
----
Summary.................................................................. 1
Risk Factors............................................................. 8
Forward-Looking Statements............................................... 16
Available Information.................................................... 16
Use of Proceeds.......................................................... 17
Capitalization........................................................... 18
Selected Consolidated Financial Data..................................... 19
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 20
Business................................................................. 24
Management............................................................... 34
Related-Party Transactions............................................... 40
Principal Stockholders................................................... 42
Description of Other Indebtedness........................................ 44
The Exchange Offer....................................................... 47
Description of the Exchange Notes........................................ 56
Book-Entry; Delivery and Form............................................ 85
United States Federal Income Tax Considerations.......................... 88
Plan of Distribution..................................................... 93
Legal Matters............................................................ 93
Experts.................................................................. 93
Index to Consolidated Financial Statements............................... F-1
This prospectus incorporates by reference important business and financial
information about Equinix which is not presented in this prospectus or
delivered to you with it. You may request, and we will send you, without
charge, copies of these documents, including any exhibits that are specifically
incorporated by reference in that information. Requests should be directed to:
Equinix, Inc.
901 Marshall Street
Redwood City, CA 94063
Attn: Secretary
(650) 298-0400
To ensure timely delivery, please request delivery of the information no
later than five (5) business days before you must make your investment
decision. In order to ensure timely delivery of the materials prior to the
expiration of the exchange offer, any request should be made before ,
2000.
SUMMARY
This summary may not contain all of the information that may be important to
you. You should read the entire prospectus, including the section entitled
"Risk Factors" beginning on page 10 and the financial data and related notes,
before deciding whether to tender your initial notes in the exchange offer.
The Company
Overview
Equinix designs, builds and operates Internet Business Exchange, or IBX,
centers where Internet businesses place their equipment and interconnect with
each other. Our IBX centers place our customers' operations at a central
location and provide them with the highest level of security, multiple back-up
services, flexibility to grow and technical assistance. Our centers provide a
place where content providers, or CPs, e-commerce related businesses and
application service providers, or ASPs, can come together and select from a
number of partners to grow their business. Equinix's IBX centers are deigned to
provide an environment that gives its customers a choice of carriers, Internet
service provides, or ISPs, and other key e-business partners to meet their
growing needs. As a result, our customers are better positioned to capitalize
on market opportunities, expand their business offerings and enter new markets.
We intend to open approximately 30 IBX centers in major Internet markets in
the U.S., Europe, Asia, South America and Australia. In July 1999, we opened
the Washington, D.C. IBX center, our first IBX center, located in Ashburn,
Virginia. In December 1999 we opened our second IBX center in Newark, New
Jersey, and intend to open an IBX center in San Jose, California, during the
first quarter of 2000.
We were founded in June 1998 and have raised more than $300 million to fund
the rollout of our IBX centers. In April 1999, our first customer contract was
signed and we began recognizing revenue in December 1999. We have not yet been
profitable and expect to incur significant additional losses.
Market Opportunity
Since the early 1990s, the Internet has experienced tremendous growth and is
emerging as a global medium for communications and commerce. This growth has
led to chronic problems in the quality and reliability of Internet-related
services delivered to the end user. Infrastructure has not kept pace with
demand. As broadband access, e-commerce and streaming media applications
continue to gain market acceptance, businesses must find new solutions to
ensure that the Internet infrastructure will meet their needs for Internet
commerce.
The Equinix Solution
Our IBX centers are designed to solve many of the infrastructure problems
facing Internet businesses today. The IBX centers will provide environments
that stimulate efficient business growth by encouraging independent Internet
supplier companies to deliver a wide diversity of services. As a result, we are
able to provide the following key benefits to our customers:
. Choice of product and service providers;
. Opportunity to Increase Revenues and Reduce Costs;
. Physical scalability, or the ability to continue to function well along
with changes in size or volume, and scalability from the perspective of
an individual customer's ability to transact business;
. Reliability; and
. Value-Added Services.
1
Recent Developments
In January 2000, our board and stockholders approved a three-for-two stock
split to be effective on January 19, 2000. The financial statements and all
share numbers included in this prospectus have been adjusted to reflect this
stock split.
In January 2000, our board and stockholders approved an amendment to our
1998 Stock Plan increasing the aggregate number of common stock available for
issuance over the term of the Plan by 3,750,000 shares, post split, to a total
of 12,012,810 shares.
Equinix is located at 901 Marshall Street, Redwood City, California 94063.
Our phone number is (650) 298-0400.
2
Summary of the Exchange Offer
Securities Offered.......... Up to $200 million principal amount of 13%
Senior Notes due 2007, which will be
registered under the Securities Act. The
terms of the exchange notes and the initial
notes are identical except for transfer
restrictions and registration rights
relating to the initial notes that will not
be applicable to the exchange notes.
Issuance of Initial Notes... The initial notes were issued on December
1, 1999 to Salomon Smith Barney Inc.,
Morgan Stanley & Co. Incorporated and
Goldman, Sachs & Co., who placed the
initial notes with qualified institutional
buyers and institutional accredited
investors, and to buyers in offshore
transactions in reliance on Regulation S
under the Securities Act.
The Exchange Offer.......... We are offering to exchange $1,000
principal amount of exchange notes for each
$1,000 principal amount of initial notes.
There are $200 million aggregate principal
amount of initial notes outstanding. The
issuance of the exchange notes is intended
to satisfy our obligations contained in the
registration rights agreement we entered
into with Salomon Smith Barney Inc., Morgan
Stanley & Co. Incorporated and Goldman,
Sachs & Co. in connection with the issuance
of the initial notes.
Conditions to the Exchange The exchange offer is not conditioned upon
Offer....................... any minimum principal amount of initial
notes being tendered for exchange. However,
the exchange offer is subject to customary
conditions, which may be waived by us. See
"The Exchange Offer--Conditions." Except
for the requirements of applicable federal
and state securities laws, there are no
federal or state regulatory requirements to
be complied with or obtained by us in
connection with the exchange offer.
Procedures for Tendering.... If you want to tender your initial notes in
the exchange offer, you must complete, sign
and date the letter of transmittal
according to the instructions contained in
this prospectus and the letter of
transmittal. You must then mail or fax the
letter of transmittal, together with any
other required documents, to the exchange
agent, either with the initial notes to be
tendered or in compliance with the
specified procedures for guaranteed
delivery of initial notes. You should allow
sufficient time to ensure timely delivery.
Some brokers, dealers, commercial banks,
trust companies and other nominees may also
effect tenders by book-entry transfer. If
you own initial notes registered in the
name of a broker, dealer, commercial bank,
trust company or other nominee, you are
urged to contact that person promptly if
you wish to tender initial notes in the
exchange offer. Letters of transmittal and
certificates representing the initial notes
should not be sent to Equinix.
3
These documents should only be sent to the
exchange agent. Questions regarding how to
tender initial notes and requests for
information should also be directed to the
exchange agent. See "The Exchange Offer--
Procedures for Tendering Initial Notes."
Expiration Date;
Withdrawal.................. The exchange offer will expire at 5:00
p.m., New York City time on , 2000. We
will accept for exchange any and all
initial notes that are validly tendered in
the exchange offer on or before 5:00 p.m.,
New York City time, on the expiration date.
The tender of initial notes may be
withdrawn at any time before the expiration
date. Any initial note not accepted for
exchange for any reason will be returned
without expense to the tendering holder as
promptly as practicable after the
expiration or termination of the exchange
offer. The exchange notes issued in the
exchange offer will be delivered promptly
following the expiration date. See "The
Exchange Offer--Expiration of the Exchange
Offer" and "--Withdrawal of Tenders."
Guaranteed Delivery If you wish to tender your initial notes
Procedures.................. and (1) your initial notes are not
immediately available or (2) you cannot
deliver your initial notes together with
the letter of transmittal to the exchange
agent before the expiration date, you may
tender your initial notes according to the
guaranteed delivery procedures contained in
the letter of transmittal. See "The
Exchange Offer--Guaranteed Delivery
Procedure."
Acceptance of Initial Notes
and Delivery of Exchange
Notes.......................
Upon effectiveness of the registration
statement of which this prospectus
constitutes a part and consummation of the
exchange offer, we will accept any and all
initial notes that are properly tendered in
the exchange offer on or before 5:00 p.m.,
New York City time, on the expiration date.
The exchange notes issued in the exchange
offer will be delivered promptly after
acceptance of the initial notes. See "The
Exchange Offer--Acceptance of Initial Notes
for Exchange; Delivery of Exchange Notes."
Tax Considerations.......... For U.S. federal income tax purposes, the
exchange of initial notes for exchange
notes should not be considered a sale or
exchange or otherwise a taxable event to
the holders of notes. See "United States
Federal Income Tax Considerations."
Use of Proceeds............. We will receive no proceeds from the
exchange offer.
Exchange Agent.............. State Street Bank and Trust Company of
California, N.A. is serving as exchange
agent in connection with the exchange
offer.
Fees and Expenses........... We will bear all expenses related to the
exchange offer. See "The Exchange Offer--
Fees and Expenses."
4
Consequences of Not
Exchanging the Initial
Notes.......................
If you do not tender your initial notes or
your initial notes are not properly
tendered, the existing transfer
restrictions will continue to apply. The
initial notes are currently eligible for
sale under Rule 144A through the PORTAL
Market. Because we anticipate that most
holders will elect to exchange initial
notes for exchange notes due to the absence
of restrictions on the resale of exchange
notes under the Securities Act in most
cases, we anticipate that the liquidity of
the market for any initial notes remaining
after the consummation of the exchange
offer may be substantially limited. See
"Risk Factors--There could be negative
consequences to you if you do not exchange
your initial notes for exchange notes."
Summary Description of the Exchange Notes
The terms of the exchange notes and the initial notes are identical in all
respects, except that the terms of the exchange notes do not include the
transfer restrictions and registration rights relating to the initial notes.
The initial notes and the exchange notes are referred to collectively as the
notes.
The exchange notes will bear interest from the most recent date to which
interest has been paid on the initial notes. Initial notes accepted for
exchange will cease to accrue interest from and after the date of completion of
the exchange offer.
Maturity Date............... December 1, 2007.
Interest.................... The interest on the notes will be payable semi-
annually in arrears on each June 1 and December
1, commencing on June 1, 2000.
Interest Escrow.............
We have deposited with the escrow agent an amount
of cash or U.S. government securities totaling
approximately $37.0 million that, together with
the proceeds from their investment, will be
sufficient to pay, when due, the first three
interest payments on the notes, with us retaining
any balance. The notes will be collateralized by
a first priority security interest in the escrow
account.
Sinking Fund................ None
Optional Redemption......... Generally, we may not redeem the notes before
December 1, 2003. On or after December 1, 2003,
we may redeem the notes, in whole or in part, at
any time, at the redemption prices set forth
under the section entitled "Description of the
Exchange Notes" together with accrued and unpaid
interest, if any, to the redemption date.
Change of Control........... Upon a "Change of Control" as defined under the
section entitled "Description of the Notes," you
as a holder of notes will have the right to
require us to repurchase all of your notes at a
repurchase
5
price equal to 101% of the aggregate principal
amount of such notes, plus accrued and unpaid
interest, if any, through the date of repurchase.
Ranking.....................
Except for the noteholders' security interest in
the escrow account, the notes will be general
unsecured obligations and will rank without
preference with all of our other existing and
future senior unsecured indebtedness. The notes
will be effectively subordinated to all our
existing and future secured indebtedness to the
extent of the value of the assets that secure
such indebtedness. The notes will also be
subordinated to all of our subsidiaries' existing
or future indebtedness, whether or not secured.
At present, the notes are subordinated to $14.6
million of existing indebtedness.
Restrictive Covenants....... The indenture under which the notes will be
issued will limit:
. the incurrence of additional indebtedness or
preferred stock by us and our subsidiaries;
. the payment of dividends on, and repurchase or
redemption of, our capital stock and our
subsidiaries' capital stock and the repurchase
or redemption of our subordinated obligations;
. our making of investments;
. the selling of our assets or the stock of our
subsidiaries;
. transactions with our affiliates;
. the incurrence of additional liens;
. our ability to permit restrictions to exist on
the ability of our subsidiaries to pay
dividends or make payments to us; and
. our ability to engage in consolidations,
mergers and transfers of all or substantially
all of our assets.
All of these limitations and prohibitions will be
subject to a number of important qualifications
and exceptions. See "Description of the Exchange
Notes."
Exchange Rights.............
Holders of the exchange notes will not be
entitled to any exchange or registration rights
relating to the exchange notes. Holders of the
initial notes are entitled to certain exchange
rights under the registration rights agreement
entered into concurrently with the initial
offering between us and Salomon Smith Barney
Inc., Morgan Stanley & Co. Incorporated and
Goldman, Sachs & Co. This exchange offer is
intended to satisfy our obligations under the
registration rights agreement. Once the exchange
offer is consummated, we will have no further
obligations to register any of the initial notes
not tendered by the holders for exchange. See
"Risk Factors--There could be negative
consequences to you if you do not exchange your
initial notes for exchange notes."
6
SUMMARY CONSOLIDATED FINANCIAL DATA
The following summary consolidated financial data should be read in
conjunction with our consolidated financial statements and their related notes
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this registration statement. The consolidated
statements of operations data for the period from June 22, 1998 (inception) to
December 31, 1998 and for the year ended December 31, 1999, and the balance
sheet data as of December 31, 1998 and 1999 are derived from, and are qualified
by reference to, the audited consolidated financial statements and their
related notes, which are included in this registration statement.
Period from June 22,
1998 (inception) to Year Ended
December 31, 1998 December 31, 1999
-------------------- -----------------
(in thousands)
Statement of Operations Data:
Revenues............................... $ -- 44
Costs and operating expenses:
Cost of revenues..................... -- 2,791
Sales and marketing.................. 34 2,669
General and administrative........... 748 8,287
Depreciation and amortization........ 4 609
------- -------
Total costs and operating
expenses.......................... 786 14,356
------- -------
Loss from operations................. (786) (14,312)
Interest expense....................... -- 2,614
Interest income........................ (150) (2,138)
Interest charge on beneficial
conversion of convertible debt........ 220 --
------- -------
Net loss............................... $ (856) (14,788)
======= =======
As of December 31,
--------------------------------------
1998 1999
-------------------- -----------------
(in thousands)
Balance Sheet Data:
Cash, cash equivalents and short-term
investments........................... $ 9,165 222,974
Accounts receivable.................... -- 178
Restricted cash and short-term
investments........................... -- 38,609
Property and equipment, net............ 482 31,303
Construction in progress............... 31 14,176
Total assets........................... 10,001 316,768
Debt facilities and capital lease
obligations, excluding current
portion............................... -- 10,248
Senior notes........................... -- 191,088
Total stockholders' equity............. 9,590 93,949
Other Financial Data:
EBITDA(1).............................. $ (782) (13,687)
Net cash used in operating activities.. (796) (9,908)
Net cash used in investing activities.. (5,265) (66,461)
Net cash provided by financing
activities............................ 10,226 295,178
Ratio of earnings to fixed charges(2).. -- --
- --------
(1) EBITDA consists of the net loss excluding interest, income taxes,
depreciation and amortization of capital assets. EBITDA is presented to
enhance an understanding of our operating results and is not intended to
represent cash flow or results of operations in accordance with generally
accepted accounting principles for the period indicated and may be
calculated differently than EBITDA for other companies. EBITDA is not a
measure determined under generally accepted accounting principles nor is it
a measure of liquidity.
(2) In calculating the ratio of earnings to fixed charges, earnings consist of
net loss before income tax expense and fixed charges. Fixed charges consist
of interest expense, capitalized interest, amortized discounts and
capitalized expenses related to indebtedness and an estimate of the
interest within rental expense. The ratio of earnings to fixed charges was
less than 1.0 to 1.0 for each of the periods presented. Earnings available
for fixed charges were thus inadequate to cover fixed charges. The coverage
deficiency for the period from June 22, 1998 (inception) to December 31,
1998 and the year ended December 31, 1999 was $856,000 and $14,762,000
respectively.
7
RISK FACTORS
You should carefully consider the information set forth under the caption
"Risk Factors" and all other information in this prospectus before tendering
your initial notes in the exchange offer, including information in the section
of this prospectus entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Special Note Regarding Forward-Looking
Statements."
Risks Related to Our Business
Our business model is new and unproven and we may not succeed in generating
sufficient revenue to sustain or grow our business.
We were founded in June 1998. The construction of our first IBX center was
completed in July 1999, and we began accepting customers the same month. We did
not recognize any revenue until November 1999. Our limited history and lack of
meaningful financial or operating data makes evaluating our business operations
difficult. Moreover, the neutrality aspect of our business model is unique and
largely unproven. We expect that we will encounter challenges and difficulties
frequently experienced by early-stage companies in new and rapidly evolving
markets, such as our ability to generate cash flow, hire and train sufficient
operational and technical talent, and implement our plan with minimal delays.
We may not successfully address any or all of these challenges and the failure
to do so would seriously harm our business plan and operating results, and
affect our ability to raise additional funds.
We have a history of losses, and we expect our operating expenses and losses to
increase significantly.
As an early-stage company without recognized revenues, we have experienced
operating losses since inception. As of December 31, 1999, we had cumulative
net losses of $15.6 million and cumulative cash used by operating activities of
$10.7 million since inception. We expect to incur significant losses in the
future. In addition, as we commence operations, our losses will increase as we:
. increase the number of IBX centers;
. increase our sales and marketing activities, including expanding our
direct sales force; and
. enlarge our customer support and professional services organizations.
As a result, we must significantly increase our revenues to become
profitable.
Because our ability to generate enough revenues to achieve profitability
depends on numerous factors, we may not become profitable.
Our IBX centers may not generate sufficient revenue to achieve
profitability. Our ability to generate sufficient revenues to achieve
profitability will depend on a number of factors, including:
. the timely completion of our IBX centers;
. demand for space and services at our IBX centers;
. our pricing policies and the pricing policies of our competitors;
. the timing of customer installations and related payments;
. competition in our markets;
. the timing and magnitude of our expenditures for sales and marketing;
. direct costs relating to the expansion of our operations;
. growth of Internet use;
. economic conditions specific to the Internet industry; and
. general economic factors.
8
We are substantially leveraged and we may not generate sufficient cash flow to
meet our debt service and working capital requirements.
We are highly leveraged since the issuance of the initial notes. We have
total indebtedness of $215.1 million. Our highly leveraged position could have
important consequences, including:
. impairing our ability to obtain additional financing for working capital,
capital expenditures, acquisitions or general corporate purposes;
. requiring us to dedicate a substantial portion of our operating cash flow
to paying principal and interest on our indebtedness, thereby reducing
the funds available for operations;
. limiting our ability to grow and make capital expenditures due to the
financial covenants contained in our debt arrangements;
. impairing our ability to adjust rapidly to changing market conditions,
invest in new or developing technologies, or take advantage of
significant business opportunities that may arise; and
. making us more vulnerable if a general economic downturn occurs or if our
business experiences difficulties.
In the past, we have experienced unforeseen delays in connection with our
IBX construction activities. We will need to successfully implement our current
rollout schedule and our business strategy to meet our debt service and working
capital needs. We may not successfully implement our business strategy, and
even if we do, we may not realize the anticipated results of our strategy or
generate sufficient operating cash flow to meet our debt service obligations
and working capital needs.
In the event our cash flow is inadequate to meet our obligations, we could
face substantial liquidity problems. If we are unable to generate sufficient
cash flow or otherwise obtain funds needed to make required payments under our
indebtedness, or if we breach any covenants under our indebtedness, we would be
in default under its terms and the holders of such indebtedness may be able to
accelerate the maturity of such indebtedness, which could cause defaults under
our other indebtedness.
If we do not obtain significant additional funds, we may not be able to
complete our rollout plan on a timely basis, or at all.
We currently intend to pursue a rollout strategy of approximately 30 IBX
centers in major Internet markets around the world over the next four years. We
intend to finance these IBX centers through our internal cash flow and
approximately $750.0 million of additional financing. If we cannot raise
sufficient additional funds on acceptable terms we may delay the rollout of
additional IBX centers or permanently reduce our rollout plans. We currently
have $223.0 million in cash, cash equivalents and short-term investments
available to us. We anticipate that these funds will be sufficient to fund the
capital expenditure and working capital requirements, including operating
losses associated with the initial rollout of eight IBX centers and expansion
projects within three of those IBX centers. To complete the implementation of
our approximately 30 site rollout plan within our proposed time frame we
anticipate that we will need to raise funds through additional debt or equity
financing. In the past, we have had difficulties obtaining debt financing due
to the early stage of our company. Financing may not be available to us at the
time we seek to raise additional funds, or if such financing is available, it
may only be available on terms, or in amounts, which are unfavorable to us.
The anticipated timing and amount of our capital requirements is forward-
looking and therefore inherently uncertain. In the past, we have experienced
unforeseen delays and expenses in connection with our IBX construction
activities. Our future capital requirements may vary significantly from what we
currently project and the timing of our rollout plan may be affected by
unforeseen construction delays and expenses and the amount of time it takes us
to lease space within our IBX centers. If we encounter any of these problems or
if we have underestimated our capital expenditure requirements or the operating
losses or working capital requirements, we may require significantly more
financing than we currently anticipate.
9
Our rollout plan is preliminary and we may need to alter our plan and
reallocate funds.
Our IBX center rollout plan is preliminary and has been developed from our
current market data and research, projections and assumptions. We expect to
continually reevaluate our business and rollout plan in light of evolving
competitive and market conditions, and as a result, we may alter our IBX center
rollout and reallocate funds, or eliminate segments of our plan entirely if
there are:
. changes or inaccuracies in our market data and research, projections or
assumptions;
. unexpected results of operations or strategies in our target markets;
. regulatory, technological, and competitive developments, including
additional market developments and new opportunities; or
. changes in, or discoveries of, specific market conditions or factors
favoring expedited development in other markets.
If not properly managed, our growth and expansion could significantly harm our
business and operating results.
Our anticipated growth may significantly strain our resources as a result of
an increase in the number of our employees, the number of operating IBX centers
and our international expansion. Any failure to manage growth effectively could
seriously harm our business and operating results. To succeed, we will need to:
. hire and train new employees and qualified engineering personnel at each
IBX center;
. implement additional management information systems;
. locate additional office space for our corporate headquarters;
. improve our operating, administrative, financial and accounting systems
and controls; and
. maintain close coordination among our executive, engineering, accounting,
finance, marketing, sales and operations organizations.
We face risks associated with international operations that could harm our
business.
We intend to construct IBX centers outside of the United States and we will
commit significant resources to our international sales and marketing
activities. Our management has limited experience conducting business outside
of the United States and we may not be aware of all the factors that affect our
business in foreign jurisdictions. We will be subject to a number of risks
associated with international business activities that may increase our costs,
lengthen our sales cycles and require significant management attention. These
risks include:
. increased costs and expenses related to the leasing of foreign centers;
. difficulty or increased costs of constructing IBX centers in foreign
countries;
. difficulty in staffing and managing foreign operations;
. increased expenses associated with marketing services in foreign
countries;
. business practices that favor local competition and protectionist laws;
. difficulties associated with enforcing agreements through foreign legal
systems;
. general economic and political conditions in international markets;
. potentially adverse tax consequences, including complications and
restrictions on the repatriation of earnings;
. currency exchange rate fluctuations;
. unusual or burdensome regulatory requirements or unexpected changes to
those requirements;
10
. tariffs, export controls and other trade barriers; and
. longer accounts receivable payment cycles and difficulties in collecting
accounts receivable.
To the extent that our operations are incompatible with, or not economically
viable within, any given foreign market, we may not be able to locate an IBX
center in that particular foreign jurisdiction.
We depend on third parties to provide high frequency Internet connectivity to
our IBX facilities; if connectivity is not established or is delayed, our
operating results and cash flow will be adversely affected.
The presence of diverse Internet fiber from communications carriers' fiber
networks to an Equinix IBX center is critical to our ability to attract new
customers. We believe that the availability of such carrier capacity will
directly affect our ability to achieve our projected results.
We are not a communications carrier, and as such rely on third parties to
provide our customers with carrier facilities. We intend to rely primarily on
revenue opportunities from our customers to encourage carriers to incur the
expenses required to build facilities from their points of presence to our IBX
centers. Carriers will likely evaluate the revenue opportunity of an IBX center
based on the assumption that the environment will be highly competitive. There
can be no assurance that, after conducting such an evaluation, any carrier will
elect to offer its services within our IBX centers.
The construction required to connect multiple carrier facilities to our IBX
centers is complex and involves factors outside of our control, including
regulatory processes and the availability of construction resources. If the
establishment of highly diverse Internet connectivity to our IBX centers does
not occur or is materially delayed, our operating results and cash flow will be
adversely affected.
Our new management team must prove that it can work together effectively.
We have recently hired many key personnel, including our chief financial
officer, vice president of operations, vice president of worldwide sales,
director of business development, vice president of marketing and vice
president of IBX development. As a result, our management team has worked
together for only a brief time. Our ability to effectively execute our
strategies will depend in part upon our ability to integrate our current and
future managers into our operations. If our executives are unable to operate
together effectively, our business, results of operations and financial
condition will be materially adversely affected.
We must retain and attract key personnel to maintain and grow our business.
We require the services of additional management personnel in positions
related to our growth. For example, we need to expand our marketing and direct
sales operations to increase market awareness of our IBX facilities, market our
services to a greater number of enterprises and generate increased revenues. As
a result, we plan to hire additional personnel in related capacities. Our
success depends on our ability to identify, hire, integrate and retain
additional qualified management personnel, particularly in areas related to our
anticipated growth and geographic expansion.
We may not be successful in attracting, assimilating or retaining qualified
personnel. In addition, due to generally tight labor markets, our industry, in
particular, suffers from a lack of available qualified personnel. Moreover,
none of our present senior management or other key personnel is bound by an
employment agreement. If we lose one or more of our key employees, we may not
be able to find a replacement and our business and operating results could be
adversely affected.
We will operate in a new highly competitive market and we may be unable to
compete successfully against new entrants and established companies with
greater resources.
In a market that we believe will likely have an increasing number of
competitors, we must be able to differentiate ourself from existing providers
of space for telecommunications equipment and web hosting companies. We may
also face competition from persons seeking to replicate our IBX concept. Our
competitors may operate more successfully than us or form alliances to acquire
significant market share. Furthermore,
11
enterprises that have already invested substantial resources in peering
arrangements may be reluctant or slow to adopt our approach that may replace,
limit or compete with their existing systems. If we are unable to complete our
IBX centers in a timely manner, other companies may be able to attract the same
customers that we are targeting. Once the customers are located in our
competitors' facilities, it will be extremely difficult to convince them to
relocate to our IBX centers.
Some of our potential competitors have longer operating histories and
significantly greater financial, technical, marketing and other resources than
we do. Because of their greater financial resources, some of these companies
have the ability to adopt aggressive pricing policies. As a result, in the
future, we may suffer from pricing pressure which would adversely affect our
ability to generate revenues and affect our operating results. See "Business--
Competition."
Any failure of our physical infrastructure or services could lead to
significant costs and disruptions which could reduce our revenue and harm our
business reputation and financial results.
Our business depends on providing our customers with highly reliable
service. The services we provide are subject to failure resulting from numerous
factors, including:
. human error;
. physical or electronic security breaches;
. fire, earthquake, flood and other natural disasters;
. power loss; and
. sabotage and vandalism.
Problems at one or more of our centers, whether or not within our control,
could result in service interruptions or significant equipment damage. Any loss
of services, particularly in the early stage of our development, could reduce
the confidence of our customers and could consequently impair our ability to
obtain and retain customers which would adversely affect our ability to
generate revenues and affect our operating results.
We may still discover that our computer systems and those of third parties with
whom we do business may not be year 2000 compliant, which may cause system
failure and disruptions of operations.
As of February 17, 2000, we had not experienced any year 2000-related
disruption in the operation of our systems. However, we cannot assure you that
we will not discover any year 2000 compliance problems. Our failure to fix or
replace our software, hardware or services on a timely basis could result in
lost revenues, increased operating costs and the loss of customers and other
business interruptions, any of which could have a material adverse effect on
our business. Moreover, the failure to adequately address year 2000 compliance
issues in our information technology systems could result in claims of
mismanagement, misrepresentation or breach of contract and related litigation,
which could be costly and time-consuming to defend.
In addition, we have not experienced any year 2000-related disruption in the
systems of third parties with whom we do business and we have assurances from
our material hardware and software vendors that their products are year 2000
compliant. Although we have not incurred any material expenditure in connection
with identifying or evaluating year 2000 compliance issues to date, we do not
at this time possess the information necessary to estimate the potential costs
of revisions or replacements to our software and systems or third-party
software, hardware or services that are determined not to be year 2000
compliant. Such expenses could have a material adverse effect on our business.
12
Because we depend on the development and growth of a balanced customer base,
failure to attract this base could harm our business and operating results.
Our ability to maximize revenues depends on our ability to develop and grow
a balanced customer base as we roll out our IBX centers. Our ability to attract
customers to our IBX centers will depend on a variety of factors, including the
presence of multiple carriers, the overall mix of our customers, our operating
reliability and security and our ability to effectively market our services.
Construction delays, our inability to find suitable locations to build
additional IBX centers, equipment and material shortages or our inability to
obtain necessary permits on a timely basis could delay our IBX center rollout
schedule and prevent us from developing our anticipated customer base.
A customer's decision to lease cabinet space in our IBX centers typically
involves a significant commitment of resources and will be influenced by, among
other things, the customer's confidence that other Internet and e-commerce
related businesses will be located in a particular IBX center. In particular,
some customers will be reluctant to commit to locating in our IBX centers until
they are confident that the IBX center has adequate carrier connections.
In addition, some of our customers will be Internet companies that face many
competitive pressures and that may not ultimately be successful. If these
customers do not succeed, they will not continue to use our IBX facilities.
This may be disruptive to our business and may adversely affect our operating
results.
Risks Related to Our Industry
If use of the Internet and electronic business does not continue to grow, a
viable market for our IBX centers may not develop.
Rapid growth in the use of and interest in the Internet has occurred only
recently. Acceptance and use may not continue to develop at historical rates
and a sufficiently broad base of consumers may not adopt or continue to use the
Internet and other online services as a medium of commerce. Demand and market
acceptance for recently introduced Internet services and products are subject
to a high level of uncertainty and there are few proven services and products.
As a result, we cannot be certain that a viable market for our IBX centers will
emerge or be sustainable.
We must respond to rapid technological change and evolving industry standards
in order to meet the needs of our customers.
The market for IBX centers will be marked by rapid technological change,
frequent enhancements, changes in customer demands and evolving industry
standards. Our success will depend, in part, on our ability to address the
increasingly sophisticated and varied needs of our current and prospective
customers. Our failure to adopt and implement the latest technology in our
business could negatively affect our business and operating results.
In addition, we have made and will continue to make assumptions about the
standards that may be adopted by our customers and competitors. If the
standards adopted differ from those on which we have based anticipated market
acceptance of our services or products, our existing services could become
obsolete. This would have a material adverse effect on our businesses.
Government regulation may adversely effect the use of the Internet and our
business.
Laws and regulations governing Internet services, related communications
services and information technologies, and electronic commerce are beginning to
emerge but remain largely unsettled, even in areas where there has been some
legislative action. It may take years to determine whether and how existing
laws,
13
such as those governing intellectual property, privacy, libel,
telecommunications, and taxation, apply to the Internet and related services
such as ours. In addition, the development of the market for online commerce
and the displacement of traditional telephony services by the Internet and
related communications services may prompt increased calls for more stringent
consumer protection laws or other regulation, both in the United States and
abroad, that may impose additional burdens on companies conducting business
online and their service providers. The adoption or modification of laws or
regulations relating to the Internet, or interpretations of existing law, could
have a material adverse effect on our business.
Risks Related to the Exchange Offer
There could be negative consequences to you if you do not exchange your initial
notes for exchange notes.
Following the consummation of the exchange offer, holders who did not tender
their initial notes generally will not have any further rights under the
registration rights agreement and these initial notes will continue to be
subject to restrictions on transfer. As a result of making the exchange offer,
we will have fulfilled our obligations under the registration rights agreement.
Holders who do not tender their initial notes generally will not have any
further registration rights or rights to receive the liquidated damages
specified in the registration rights agreement for our failure to register the
exchange notes. In addition, the initial notes that are not exchanged for
exchange notes will remain restricted securities. Accordingly, the initial
notes may be resold only:
. to Equinix or one of its subsidiaries;
. to a qualified institutional buyer;
. to an institutional accredited investor;
. to a party outside the United States under Regulation S under the
Securities Act;
. under an exemption from registration provided by Rule 144 under the
Securities Act; or
. under an effective registration statement.
The issuance of the exchange notes may adversely affect the market for the
initial notes.
Following commencement of the exchange offer, you may continue to trade the
initial notes on the Private Offerings, Resales and Trading through Automated
Linkages, or PORTAL, market. However, if initial notes are tendered for
exchange and accepted in the exchange offer, the trading market for untendered
and tendered but unaccepted initial notes could be adversely affected. Any
initial notes tendered and exchanged in the exchange offer will reduce the
aggregate principal amount of initial notes outstanding. Because we anticipate
that most holders will elect to exchange their initial notes for exchange notes
due to the absence of most restrictions on the resale of exchange notes, we
anticipate that the liquidity of the market for any initial notes remaining
outstanding after the exchange offer may be substantially limited.
You may find it difficult to sell your exchange notes.
The exchange notes will be registered under the Securities Act but will not
be eligible for trading on the PORTAL market. The exchange notes will
constitute a new issue of securities with no established trading market, and
there can be no assurance as to:
. the development of any market for the exchange notes;
. the liquidity of any market for the exchange notes that may develop;
. your ability to sell your exchange notes; or
. the price at which you would be able to sell your exchange notes.
14
We have been advised by the initial purchasers for the initial notes that
they presently intend to make a market in the exchange notes. However, they are
not obligated to do so and may discontinue any market-making activity relating
to the exchange notes at any time without notice. If a market for the exchange
notes were to exist, the exchange notes could trade at prices that may be
higher or lower than their principal amount or purchase price, depending on
many factors, including prevailing interest rates, the market for similar
debentures and our financial performance. Historically, the market for non-
investment grade debt has been subject to disruptions that have caused
substantial volatility in the prices of securities similar to the exchange
notes. We cannot assure you that the market for the exchange notes, if any,
will not be subject to similar disruptions.
Some people who participate in the exchange offer must deliver a prospectus in
connection with resales of the exchange notes.
Based on certain no-action letters issued by the staff of the Securities and
Exchange Commission, we believe that you may offer for resale, resell or
otherwise transfer the exchange notes without compliance with the registration
and prospectus delivery requirements of the Securities Act. However, in some
instances, you will remain obligated to comply with the registration and
prospectus delivery requirements of the Securities Act to transfer your
exchange notes. In these cases, if you transfer any exchange note without
delivering a prospectus meeting the requirements of the Securities Act or
without an exemption from registration of your exchange notes under this Act,
you may incur liability under the Securities Act. We do not and will not assume
or indemnify you against this liability. See "The Exchange Offer."
Risks Related to the Exchange Notes
The exchange notes are unsecured and effectively rank behind our secured
indebtedness.
The exchange notes will be general unsecured senior obligations and will
rank equally in right of payment with all our existing and future senior
indebtedness. The exchange notes will be effectively subordinated to all of our
secured indebtedness to the extent of the value of the assets securing such
indebtedness. All of the obligations under our current credit facilities are
either secured by all of the assets of Equinix-DC, Inc. or the assets purchased
from the proceeds of specific indebtedness. We anticipate that all of the
obligations under our future credit facilities will be secured. In a
bankruptcy, liquidation or reorganization of our company, our assets securing
other indebtedness will be available to pay obligations on the exchange notes
only after all indebtedness secured by such assets has been paid in full, at
which point there may not be sufficient proceeds remaining to pay amounts due
on the exchange notes then outstanding.
Management discretion relating to certain business matters will be limited by
restrictive covenants contained in our indebtedness.
Our credit facilities contain, and the indenture governing the exchange
notes contains, a number of restrictive covenants that will limit the
discretion of our management relating to certain business matters. We expect
that our future indebtedness will also contain similar restrictive covenants.
These covenants, among other things, will restrict our ability to incur
additional indebtedness, pay dividends and make other distributions, prepay
subordinated indebtedness, make investments and other restricted payments,
engage in mergers and consolidations, create liens, sell assets, and enter into
certain transactions with affiliates. There can be no assurance that such
covenants will not adversely affect our ability to finance our future
operations or capital needs or to engage in other business activities which may
be in the interests of our company.
We may not have sufficient funds to purchase the exchange notes as required
upon a change of control.
The indenture governing the exchange notes contains provisions relating to
certain events constituting a change in control of Equinix. Upon the occurrence
of such a change in control, we will be required to make an offer to purchase
all outstanding exchange notes at a purchase price equal to 101% of their
aggregate principal amount, in addition to the accrued and unpaid interest, if
any, up to the purchase date. We cannot assure you that we would have
sufficient funds to pay the purchase price for exchange notes tendered by
holders seeking to accept such an offer to purchase. Our failure to purchase
all exchange notes validly tendered under such an offer to purchase would
result in an event of default under the indenture.
15
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. These statements relate
to future events or our future financial performance. In some cases, you can
identify forward-looking statements by terminology--for instance, may, will,
should, expect, plan, anticipate, believe, estimate, predict, potential or
continue, the negative of these terms or other comparable terminology. These
statements are only predictions. Actual events or results may differ
materially. In evaluating these statements, you should specifically consider
various factors, including the risks outlined in the Risk Factors section.
These factors may cause our actual results to differ materially from any
forward-looking statement.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of the forward-
looking statements. We are under no duty to amend this prospectus to update any
of the forward-looking statements after the date of this prospectus to conform
these statements to actual results or to changes in our expectations. However,
upon completion of the exchange contemplated in this prospectus, we will be
subject to the reporting requirements of the Securities Exchange Act of 1934,
and as a result will file periodic current reports with the Securities and
Exchange Commission.
AVAILABLE INFORMATION
We have filed a registration statement on Form S-4 with the Securities and
Exchange Commission covering the exchange notes, and this prospectus is part of
our registration statement. For further information on Equinix and the exchange
notes, you should refer to our registration statement and its exhibits. This
prospectus summarizes material provisions of contracts and other documents that
we refer you to. Since the prospectus may not contain all the information that
you may find important, you should review the full text of these documents. We
have included copies of these documents as exhibits to our registration
statement.
In addition, the indenture requires that we file reports under the
Securities Exchange Act of 1934 with the Securities and Exchange Commission and
provide those reports to the trustee and holders of the notes. You can inspect
and copy at prescribed rates the reports and other information that we file
with the Securities and Exchange Commission at the public reference facilities
maintained by the Securities and Exchange Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and also at the regional
offices of the Securities and Exchange Commission located at 7 World Trade
Center, Suite 1300, New York, New York 10048 and the Citicorp Center at 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. You may obtain
information on the operation of the public reference facilities by calling the
Securities and Exchange Commission at 1-800-SEC-0330. The Securities and
Exchange Commission also maintains an internet web site at http://www.sec.gov
that contains reports, proxy and information statements and other information.
You can also obtain copies of such materials from us upon request.
We have agreed that, whether or not we are required to do so by the rules
and regulations of the Securities and Exchange Commission, for so long as any
of the exchange notes remain outstanding, we will furnish you as a holder of
the exchange notes and will, if permitted, file with the Securities and
Exchange Commission (1) all quarterly and annual financial information that
would be required to be contained in a filing with the Securities and Exchange
Commission on Forms 10-Q and 10-K if we were required to file such forms,
including a "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and, relating to the annual information only, a report
thereon by our certified independent accountants, and (2) all reports that
would be required to be filed with the Securities and Exchange Commission on
Form 8-K if we were required to file such reports. In addition, for so long as
any of the exchange notes remain outstanding, we have agreed to make available
to any prospective purchaser of the exchange notes or beneficial owner of the
notes in connection with any sale of these notes the information required by
Rule 144A under the Securities Act.
16
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the exchange
notes in exchange for the outstanding initial notes. The exchange offer is
intended solely to satisfy certain of our obligations under the registration
rights agreement. In consideration for issuing the exchange notes, we will
receive initial notes in like aggregate principal amount.
The net proceeds to us from the original issuance of the initial notes,
after deducting discounts, commissions, expenses and restricted cash were
approximately $156.4 million. We invested approximately $37.0 million of the
net proceeds in a portfolio of U.S. government securities, which were then
pledged as security for the payment in full of interest on the initial notes
through June 1, 2001. We intend to use the balance of such net proceeds for the
buildout of our IBX centers in the United States and abroad and for other
capital expenditures, working capital and general corporate purposes. In
addition, although we do not currently have any acquisitions contemplated or
pending, in the future we may use a portion of the proceeds for the acquisition
of businesses or assets. We currently intend to allocate substantial proceeds
to each of these uses. However, the precise allocation of funds among these
uses will depend on future technological, regulatory and other developments in
or affecting our business, the competitive climate in which we operate and the
emergence of future opportunities.
We have invested such proceeds in U.S. government securities or other short-
term, interest bearing, investment grade securities. We are not currently and
do not expect as a result to become subject to the registration requirements of
the Investment Company Act of 1940, as amended. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
17
CAPITALIZATION
The following table is derived from and is qualified by reference to the
audited consolidated financial statements and related notes, which are included
in the registration statement and sets forth our capitalization as of December
31, 1999 on an actual basis.
Please read this table in conjunction with our consolidated financial
statements, the related notes to the financial statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this registration statement.
December 31, 1999
-----------------
(in thousands
except share
data)
Cash and cash equivalents ................................... $222,974
========
Restricted cash and short-term investments(1)................ $ 38,609
========
Current portion of debt facilities and capital lease
obligations................................................. $ 4,395
========
Long-term debt, net of current portion:
Debt facilities and capital lease obligations.............. 10,248
13% Senior Notes due 2007.................................. 191,088
--------
Total long-term debt..................................... 201,336
--------
Stockholders' equity:
Series A convertible preferred stock, $0.001 par value;
32,000,000 shares authorized;18,682,500 shares issued and
outstanding(2)............................................ 19
Series B convertible preferred stock, $0.001 par value;
36,000,000 shares authorized; 15,762,373 shares issued and
outstanding............................................... 16
Common stock, $0.001 par value; 132,000,000 shares
authorized 11,672,196 shares issued and outstanding(3).... 12
Additional paid-in capital................................. 113,189
Deferred stock-based compensation.......................... (3,657)
Accumulated other comprehensive income..................... 14
Accumulated deficit........................................ (15,644)
--------
Total stockholders' equity............................... 93,949
--------
Total capitalization................................... $295,285
========
- --------
(1) Reflects the portion of the net proceeds from this offering used to
purchase a portfolio of U.S. government securities to fund the first
three scheduled interest payments on the notes, plus accrued interest
and restricted cash of $1,530,000 provided as collateral under three
separate security agreements for standby letters of credit entered into
and in accordance with certain lease agreements.
(2) Excludes 1,245,000 shares of Series A preferred stock issuable upon the
exercise of outstanding warrants.
(3) Excludes 4,742,145 shares of common stock issuable upon the exercise of
outstanding warrants, and 2,615,394 shares of common stock issuable
upon the exercise of outstanding options, as of December 31, 1999.
18
SELECTED CONSOLIDATED FINANCIAL DATA
The following statement of operations data for the periods from our
inception on June 22, 1998 to December 31, 1998, and for the year ended
December 31, 1999, and the balance sheet data as of December 31, 1998 and 1999
have been derived from our audited consolidated financial statements and the
related notes to the financial statements. Our historical results are not
necessarily indicative of the results to be expected for future periods. The
following selected financial data should be read in conjunction with our
consolidated financial statements and the related notes to the consolidated
financial statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this registration
statement.
Period from June 22,
1998 (inception) to Year Ended
December 31, 1998 December 31, 1999
-------------------- -----------------
(in thousands)
Statement of Operations Data:
Revenues............................... $ -- 44
Costs and operating expenses:
Cost of revenues..................... -- 2,791
Sales and marketing.................. 34 2,669
General and administrative........... 748 8,287
Depreciation and amortization........ 4 609
------- -------
Total costs and operating
expenses.......................... 786 14,356
------- -------
Loss from operations................. (786) (14,312)
Interest expense....................... -- 2,614
Interest income........................ (150) (2,138)
Interest charge on beneficial
conversion of convertible debt........ 220 --
------- -------
Net loss............................... $ (856) (14,788)
======= =======
As of December 31,
--------------------------------------
1998 1999
-------------------- -----------------
(in thousands)
Balance Sheet Data:
Cash, cash equivalents and short-term
investments........................... $ 9,165 222,974
Accounts receivable.................... -- 178
Restricted cash and short-term
investments........................... -- 38,609
Property and equipment, net............ 482 31,303
Construction in progress............... 31 14,176
Total assets........................... 10,001 316,768
Debt facilities and capital lease
obligations, excluding current
portion............................... -- 10,248
Senior notes........................... -- 191,088
Total stockholders' equity............. 9,590 93,949
Other Financial Data:
EBITDA(1).............................. $ (782) (13,687)
Net cash used in operating activities.. (796) (9,908)
Net cash used in investing activities.. (5,265) (66,461)
Net cash provided by financing
activities............................ 10,226 295,178
Ratio of earnings to fixed charges(2).. -- --
- --------
(1) EBITDA consists of the net loss excluding interest, income taxes,
depreciation and amortization of capital assets. EBITDA is presented to
enhance an understanding of our operating results and is not intended to
represent cash flow or results of operations in accordance with generally
accepted accounting principles for the period indicated and may be
calculated differently than EBITDA for other companies. EBITDA is not a
measure determined under generally accepted accounting principles nor is it
a measure of liquidity.
(2) In calculating the ratio of earnings to fixed charges, earnings consist of
net loss before income tax expense and fixed charges. Fixed charges consist
of interest expense, and capitalized interest, amortized discounts and
capitalized expenses related to indebtedness and an estimate of the
interest within rental expense. The ratio of earnings to fixed charges was
less than 1.0 to 1.0 for each of the periods presented. Earnings available
for fixed charges were thus inadequate to cover fixed charges. The coverage
deficiency for the period from June 22, 1998 (inception) to December 31,
1998 and the year ended December 31, 1999 was $856,000 and $14,762,000,
respectively.
19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Equinix designs, builds and operates Internet Business Exchange, or IBX,
centers where Internet businesses place their equipment and interconnect with
each other. Our IBX centers place our customers' operations at a central
location and provide them with the highest level of security, multiple back-up
services, flexibility to grow and technical assistance. We intend to open
approximately 30 IBX centers in major Internet markets in the U.S., Europe,
Asia, South America and Australia. In July 1999, we opened our first IBX center
in the Washington, D.C. area and our second IBX center was opened in December
1999 in Newark, New Jersey. We intend to open IBX centers in San Jose and Los
Angeles, California by the end of the second quarter of 2000. From our
inception on June 22, 1998 through December 31, 1999, our operating activities
consisted primarily of designing and building our first three IBX centers in
the Washington, D.C., Newark, New Jersey and San Jose, California areas,
searching for additional space for IBX center expansion, developing our
management team and raising private equity and third party debt to fund the
design and building of our IBX centers.
We generate recurring revenues primarily from the leasing of cabinet space
and the provisioning of direct interconnections between our customers. In
addition, we intend to offer value-added services which include interconnection
services to our customers through our centrally located switches and access to
our research and development testing environment and professional services
including "Smart Hands" service for customer equipment installations and
maintenance, and network consulting and system integration activities. Customer
contracts for the lease of cabinets, interconnections and switch ports are
renewable and typically range from one to three years with payments for
services made on a monthly basis. We entered into our first customer contract
in April 1999. In addition, we generate non-recurring revenues which are
comprised of installation charges that are billed upon successful installation
of our customer cabinets, interconnections and switch ports. Both recurring and
non-recurring revenues are recognized ratably over the term of the contract.
Cost of revenues consist primarily of rental payments on our IBX centers,
site employees' salaries and benefits, utility costs, amortization and
depreciation of IBX center build-out costs and equipment and engineering power,
redundancy and security systems support and services. We expect that our cost
of revenues will increase significantly as we continue our rollout of
additional IBX centers.
Our selling, general and administrative expenses consist primarily of costs
associated with recruiting, training and managing new employees, salaries and
related costs of our operations, marketing and sales, customer fulfillment and
support functions costs and finance and administrative personnel and related
professional fees. Our current sales and marketing expenses, including sales
personnel, will increase significantly as we continue our rollout of additional
IBX centers into new domestic and international markets. We expect to
significantly increase our sales and marketing activities.
In 1999, we recorded total deferred stock-based compensation of
approximately $4.7 million in connection with stock options granted during 1999
where the fair value of the underlying common stock exceeded the exercise price
on the date of grant. Approximately $991,000 was amortized to stock-based
compensation expense for the year ended December 31, 1999. Options granted are
typically subject to a four year vesting period. We are amortizing the deferred
stock-based compensation on an accelerated basis over the vesting periods of
the applicable options in accordance with FASB Interpretation No. 28. The
remaining $3.7 million of deferred stock-based compensation will be amortized
over the remaining vesting period.
We expect increased competition in our market and, as a result, a key aspect
of our strategy is to capitalize on our first mover advantage and to execute
our rapid IBX center rollout program. The rollout of these additional IBX
centers will significantly increase both fixed and operating expenses,
including expenses associated with hiring, training and managing new employees,
leasing and maintaining additional IBX centers, power and redundancy system
engineering support and related costs, implementing security systems and
related costs and depreciation.
20
Results of Operations
Period from Inception (June 22, 1998) through December 31, 1998 and Year Ended
December 31, 1999
Since our inception in June 1998, we have experienced operating losses and
negative cash flows from operations in each quarter. As of December 31, 1999,
we had an accumulated deficit of $15.6 million. The revenue and income
potential of our business and market is unproven, and our short operating
history makes an evaluation of our business and prospects difficult. There can
be no assurance that we will ever achieve profitability on a quarterly or
annual basis or, if achieved, sustain such profitability.
Revenues. We recognized revenues of $44,000 for the year ended December 31,
1999. In addition, we entered into contracts with other customers and allocated
cabinet space to these customers as of December 31, 1999. Although we entered
into these customer contracts, we have not recognized such amounts as revenues
as the sales cycle was not yet complete by December 31, 1999. We did not offer
IBX center colocation or interconnection exchange services from inception
through December 31, 1998, and as such, no revenues were recognized from the
date of inception to December 31, 1998.
Cost of Revenues. We incurred cost of revenues of $2.9 million for the year
ended December 31, 1999. Cost of revenues is primarily comprised of rental
payments for our leased IBX centers, site employees' salaries and benefits,
utilities costs, power and redundancy system engineering support services and
related costs, security services and related costs and depreciation and
amortization of our IBX center build-out and other equipment costs. We did not
offer IBX center colocation or interconnection exchange services from inception
through December 31, 1998, and as such, no cost of revenues were recorded from
the date of inception to December 31, 1998.
Sales and Marketing. Sales and marketing expenses increased from $34,000 for
the period from the date of inception to December 31, 1998 to $2.7 million for
the year ended December 31, 1999. These expenses consist primarily of salary
and benefit costs from the hiring of both sales and marketing personnel and
certain related recruiting and relocation costs, the establishment of sales and
marketing programs and the recognition of stock-based compensation expense in
the amount of approximately $303,000. In addition, we established two regional
sales offices to support the New York City and Washington, D.C. area IBX
centers. We anticipate that sales and marketing expenses will increase
substantially to coincide with the commercial operation of our IBX centers and
additional stock-based compensation expense in the amount of approximately $1.9
million which will be amortized over the applicable vesting periods.
General and Administrative. General and administrative expenses increased
from $752,000 for the period from the date of inception to December 31, 1998 to
$8.7 million for the year ended December 31, 1999. General and administrative
expenses are primarily comprised of salaries and employee benefits expenses,
including stock-based compensation expense in the amount of approximately
$485,000, professional and consultant fees and corporate headquarter operating
costs, including facility and other rental costs. We anticipate that general
and administrative expenses will increase significantly due to increased
staffing levels consistent with the growth in our infrastructure and related
operating costs associated with our regional and international expansion
efforts and additional stock-based compensation expense in the amount of
approximately $1.6 million which will be amortized over the applicable vesting
periods.
Interest Expense, net. Net interest expense increased from $70,000 for the
period from the date of inception to December 31, 1998 to $476,000 for the year
ended December 31, 1999. We recognized interest income of $2.1 million for the
year ended December 31, 1999 compared to $150,000 for the period from inception
to December 31, 1998. Interest income increased substantially due to higher
cash, cash equivalent and short-term investment balances resulting from the
senior notes and preferred financing activities. Interest expense was $2.6
million for the year ended December 31, 1999 compared to $220,000 for the
period from inception to December 31, 1998. Interest expense increased due to
the issuance of senior notes, increased debt facilities and capital lease
obligations and amortization of the debt facilities and capital lease
obligation discount. Interest
21
expense for the period from inception to December 31, 1998 consisted of the
interest charge from the conversion right of the convertible loan arrangement,
under which the initial lenders to the Company converted their promissory notes
into Series A preferred stock at a more beneficial rate than other Series A
investors.
Liquidity and Capital Resources
From inception through December 31, 1999, we have financed our operations
and capital requirements primarily through the issuance of senior notes, the
private sale of Series A and Series B preferred stock and debt financing for
aggregate gross proceeds of approximately $311.5 million. Our principal source
of liquidity as of December 31, 1999 consists of $223.0 million in cash and
cash equivalents and $23.0 million in debt and capital lease facilities. As of
December 31, 1999, our total indebtedness from our senior notes, debt
facilities and capital lease obligations was $215.1 million. Our principal
source of liquidity as of December 31, 1998 consisted of $9.2 million in cash,
cash equivalents and short-term investments.
Net cash used in operating activities totaled $9.9 million for the year
ended December 31, 1999 compared to net cash used in operating activities of
$796,000 for the period from inception to December 31, 1998. Net cash used in
operating activities for the year ended December 31, 1999 was primarily due to
a net loss offset by an increase in accounts payable and accrued interest. Net
cash used in operating activities for the period from inception to December 31,
1999 was primarily due to a net loss.
Net cash used in investing activities totaled $66.5 million for the year
ended December 31, 1999 compared to net cash used from investing activities of
$5.3 million for the period from inception to December 31, 1998. The cash used
in investing activities for the year ended December 31, 1999 was primarily due
to the construction of our IBX centers and the purchase of restricted cash and
short-term investments. The cash used in investing activities for the period
from inception to December 31, 1998 was primarily due to the purchase of $5.0
million of short-term investments.
Net cash generated from financing activities totaled $295.2 million for the
year ended December 31, 1999 compared to net cash generated from financing
activities of $10.2 million for the period from inception to December 31, 1998.
The cash generated from financing activities for the year ended December 31,
1999 was primarily due to the issuance of senior notes, proceeds from debt and
capital lease facilities and proceeds from the issuance of Series B preferred
stock. The cash generated from financing activities for the period from
inception to December 31, 1998 was due to the sale of Series A preferred stock.
In March 1999, we entered into a loan and security agreement in the amount
of $7.0 million bearing interest at 7.5% to 9.0% per annum repayable in 36 to
42 equal monthly payments with a final interest payment equal to 15% of the
advance amounts due at maturity. In May 1999, we entered into a master lease
agreement in the amount of $1.0 million. This master lease agreement was
increased by addendum in August 1999 by $5.0 million. This agreement bears
interest at either 7.5% or 8.5% and is repayable over 42 months in equal
monthly payments with a final interest payment equal to 15% of the advance
amounts due on maturity. In August 1999, we entered into a loan agreement in
the amount of $10.0 million. This loan agreement bears interest at 8.5% and is
repayable over 42 months in equal monthly payments with a final interest
payment equal to 15% of the advance amounts due on maturity. At December 31,
1999, we had total debt and capital lease financings available of $23.0
million, of which we had drawn down $16.1 million.
In December 1999, we issued $200,000,000 aggregate principal amount of 13%
Senior Notes due 2007 for aggregate net proceeds of $193,400,000, net of
offering expenses. Of the $200,000,000 gross proceeds, $9,004,000 was allocated
to additional paid-in capital for the fair value of the common stock warrants
and recorded as a discount to the senior notes. Senior notes, net of the
unamortized discount, is $191,087,700 as of December 31, 1999.
In December 1999, we completed the private sale of our Series B preferred
stock, net of issuance costs, in the amount of $82.8 million. As of December
31, 1999, we had $223.0 million of cash and cash equivalents, excluding
restricted cash and short-term investments.
22
We currently intend to open approximately 30 IBX centers over the next four
years, 13 of which we expect to complete by the end of 2000. We intend to fund
these IBX centers from our current cash and cash equivalent balances and
additional draws under our current debt and capital lease facilities. We
anticipate that the funds available to Equinix will be sufficient to fund the
capital expenditure and working capital requirements, including operating
losses, associated with the initial rollout of eight IBX centers and three IBX
center expansion projects, which we expect to complete by the end of 2000. We
expect that additional financing will be required in the future to complete the
implementation of our approximately 30 IBX center rollout plan within our
proposed time frame. Our future long-term capital needs will be highly
dependent on the actual number and actual cost of additional IBX centers to be
built, the timing of their opening and their success in terms of attracting and
retaining customers and generating revenues once opened and launched. Thus, any
projections of future long-term cash needs and cash flows are subject to
substantial uncertainty. We may seek to sell additional equity or debt
securities, enter into other debt facilities or capital lease obligations,
obtain a line of credit or curtail our expansion plans. However, the terms of
our senior notes covenants contain restrictions on our ability to incur
additional debt. We cannot be certain that additional financing will be
available to us on favorable terms when required, or at all.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards, or SFAS, No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including derivative
instruments embedded in other contracts, and for hedging activities. SFAS No.
133, as amended by SFAS No. 137, Deferral of the Effective Date of FASB
Statement No. 133, is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. This statement does not currently apply to us
and we do not have any derivative instruments or hedging activities.
Impact of the Year 2000
As of February 17, 2000, we had not experienced any year 2000-related
disruption in the operation of our systems. Although most year 2000 problems
should have become evident on January 1, 2000, additional year 2000-related
problems may become evident only after that date. For example, some software
programs may have difficulty resolving the so-called "century leap year"
algorithm which will also occur during the year 2000.
Quantitative and Qualitative Disclosures About Market Risk
Equinix has limited exposure to financial market risks, including changes in
interest rates. An increase or decrease in interest rates would not
significantly increase or decrease interest expense on debt obligations due to
the fixed nature of our debt obligations. Our interest income is sensitive to
changes in the general level of U.S. interest rates, particularly since the
majority of our investments are in short-term instruments. Due to the short-
term nature of our investments, we believe that we are not subject to any
material market risk exposure. Equinix does not currently have any foreign
operations and thus is not currently exposed to foreign currency fluctuations.
23
BUSINESS
Overview
Equinix designs, builds and operates Internet Business Exchange, or IBX,
centers where Internet businesses place their equipment and interconnect with
each other. Our IBX centers place our customers' operations at a central
location and provide them with the highest level of security, multiple back-up
services, flexibility to grow and technical assistance. Our centers provide a
place where content providers, or CPs, e-commerce related businesses and
application service providers, or ASPs, can come together and select from a
number of partners to grow their business. Equinix's IBX centers are designed
to provide an environment that gives its customers a choice of carriers,
Internet service providers, or ISPs, and other key e-business partners to meet
their growing needs. As a result, our customers are better positioned to
capitalize on market opportunities, expand their business offerings and enter
new markets.
We intend to open approximately 30 IBX centers in major Internet markets in
the U.S., Europe, Asia, South America and Australia. In July 1999, we opened
our first IBX center in the Washington, D.C. area and in December 1999 we
opened our second IBX center in Newark, New Jersey. We intend to open an IBX
center in San Jose, California, during the first quarter of 2000. Our current
customers include Akamai, Concentric Network, Ernst & Young Technologies, iBeam
Broadcasting, MCI WorldCom, NaviNet and NorthPoint Communications.
We were incorporated in Delaware in June 1998 and are led by Albert M.
Avery, IV, our president and chief executive officer, and Jay S. Adelson, our
vice president, engineering and chief technology officer, who were responsible
for designing, building and operating the Palo Alto Internet Exchange, or PAIX,
one of the most active global Internet traffic exchange points. PAIX launched
commercial service in July 1996 and was functioning at full capacity within one
year of introduction.
Since March 1999, we have raised more than $300 million to fund the rollout
of our IBX centers. In April 1999, our first customer contract was signed and
we began recognizing revenue in December 1999. We have not yet been profitable
and expect to incur significant additional losses. Our stockholders are many of
the most influential companies driving the development, operation and
utilization of the Internet and its transformation to a reliable, trusted
medium for commerce. They include America Online, Artemis S.A., Benchmark
Capital, the Carlyle Group, Cisco Systems, Comdisco Ventures, Dell Corporation,
E*Trade Group, Enron Corporation, epartners Capital, or News Corp., Finlayson
Investments, or Temasek, Microsoft Corporation, Millennium System Trading
Limited, or Pacific Century Group, Morgan Stanley Dean Witter, NorthPoint
Communications, Reuters and Salomon Smith Barney.
Market Opportunity
Since the early 1990s, the Internet has experienced tremendous growth and is
emerging as a global medium for communications and commerce. According to
International Data Corporation, or IDC, the number of Internet business-to-
business users worldwide will increase from approximately 142 million at the
end of 1998 to approximately 502 million by 2003. In addition, according to
Forrester Research, the number of Internet sites worldwide is expected to grow
from fewer than 500,000 in 1997 to approximately 4.0 million in 2002. IDC also
states that worldwide Internet business commerce sales are forecast to grow
from approximately $50 billion at the end of 1998 to approximately $1.3
trillion by the end of 2003.
The Internet's explosive growth has led to chronic problems in the quality
and reliability of Internet-related services delivered to the end user.
Infrastructure has not kept pace with demand. Businesses have tried to
alleviate these problems by relocating Internet content closer to core
communications centers, upgrading network bandwidth and employing technologies
such as web page caching. Unfortunately, these attempts have not been
sufficient to ensure consistently high quality service. As broadband access, e-
commerce and streaming media applications continue to gain market acceptance,
businesses must find new solutions to ensure that the Internet infrastructure
will meet their needs for Internet commerce.
24
Traditionally, the Internet was thought of as just a network of networks.
The distribution of content and delivery of services between thousands of
individual networks occurred at network access points, or NAPs. These original
NAPs were typically built in pre-existing telecommunications carrier facilities
and run by companies such as MCI WorldCom, Sprint and Pacific Bell. Because
operating the NAPs is not a core business for these carriers, they have not
made the necessary investments in the NAPs to effectively manage the rapid
growth in Internet traffic. As a result, these NAPs have emerged as one of the
primary bottlenecks to improved Internet communications. The problems inherent
in the NAPs stem from a number of sources:
Carrier monopoly. Ownership by the major carriers results in a lack of
neutrality, essentially providing the carriers with a monopoly on all
communications services provided. This can cause the services to be costly
and provides no redundancy to the ISPs and other carriers within the
facilities.
Limited scalability. There are a limited number of NAPs in the U.S. that
handle the majority of Internet traffic exchange. These NAPs are physically
constrained and unable to handle the tremendous growth in Internet traffic.
As a result, only the largest carriers and ISPs receive preferential space
allocation at the NAPs, leaving small and mid-sized companies without the
ability to colocate, or establish their telecommunications equipment, at
these facilities.
Legacy technologies. The NAPs were designed around outdated technologies
that have limited their capacity. For example, the core switches in these
facilities cannot scale to meet the traffic growth, which in some cases has
resulted in significant packet loss and latency. The lack of direct
connections between ISPs within the NAPs has compounded this problem.
On the Internet today, business content has become more valuable than many
of the networks that support it. In the legacy NAPs, however, the lack of AC
power, poor air conditioning, lack of financial-grade security, inadequately
trained support staff and limited facility access have made it impractical for
content providers to locate their content at central communications exchange
points.
A variety of businesses, including emerging carriers, Web site hosting
companies, ISPs and more focused new entrants are beginning to provide improved
colocation, the provision of space for a customer's telecommunications
equipment, services for Internet content. Forrester Research predicts that a
combination of rapid Internet growth and increased outsourcing of Internet-
related services will create an acute need for Internet-related hosting and
colocation services, producing revenue growth in the U.S. from approximately
$875 million in 1998 to approximately $14.7 billion by 2003. While the demand
for these colocation services is significant, most new colocation facilities
are being constructed by telecommunications carriers and ISPs. Internet and e-
commerce companies who choose to colocate equipment at these facilities
typically have no choice but to purchase bandwidth from the owner of the
facility. Bandwidth is typically known as the rate at which data flows over a
network and is measured in bits per second. This can be costly, given the lack
of competition, and a significant risk if the facility owner's network were to
fail or have performance problems.
IDC estimates that the number of non-U.S. Internet users will grow from
approximately 79 million at the end of 1998 to approximately 325 million by the
end of 2003. Rapid growth of international Internet usage has created an
unprecedented need for additional internationally-based central Internet
traffic exchange points. Unfortunately, there are a limited number of NAPs
outside of the U.S. As a result, non-U.S. traffic is often routed through one
of the U.S. NAPs, whether or not that serves as the most efficient route,
resulting in inefficiency and wasted resources. These routing inefficiencies
burden international ISPs with high operating costs and often result in slow,
unreliable transmissions.
As a result of tremendous competitive, time-to-market and technological
pressures, Internet and e-commerce companies are demanding facilities that
provide multiple interconnections with a broad cross-section of service
providers and customers in a neutral environment conducive to rapid growth and
optimal flexibility. Unfortunately, the tremendous growth of Internet usage and
e-commerce has aggravated the inefficiencies of the current Internet
architecture, which has constrained businesses' abilities to effectively grow
and manage their Internet operations.
25
The Equinix Solution
Our IBX centers are designed to solve many of the infrastructure problems
facing Internet businesses today. The IBX centers will provide environments
that stimulate efficient business growth by encouraging independent Internet
supplier companies to deliver a wide variety of services. As a result, we are
able to provide the following key benefits to our customers:
Choice. We believe that the ability of customers to choose among a variety
of product and service providers is the fundamental driver of dynamic growth in
commerce. By offering this crucial element of choice, our IBX centers are
designed to serve as a catalyst for our customers that creates synergy among
them and makes it possible for them to adapt their business models to
successfully scale, or keep pace, with the growth of each other and of the
Internet. Internet and e-commerce related businesses view the IBX facility as a
forum to attract additional customers and diversify sources of supply for their
businesses.
Opportunity to Increase Revenues and Reduce Costs. Our customers will have
access to a variety of potential business partners. Accordingly, our customers
will have a better opportunity to increase the size of their addressable
markets, accelerate revenue growth and improve the quality of their services at
our IBX centers. In addition, participants will be able to enhance their
ability to control costs by aggregating their service purchases at a single
location and through improved purchasing power.
Scalability. We design our IBX centers for physical scalability, or the
ability to continue to function well along with changes in size or volume, and
scalability from the perspective of an individual customer's ability to
transact business. As a result, our IBX centers will both stimulate and support
the efficient growth of our customers. From a facility perspective, we
construct our IBX centers to be large enough to accommodate our customers'
short-term needs, and our plan is to maintain sufficient available expansion
space to meet their long-term growth needs where possible. In addition, through
our global presence we will have a broad capacity to meet customers' multi-
market and multi-geographic requirements. On an individual basis, customers are
able to design their own unique cabinet configurations within a shared or
private cage environment. As the need arises, customers can expand within their
original cage or upgrade into a cage which meets their expanded requirements.
We predict that customers will require this added capacity as they interconnect
with each other and expand their customer reach.
Reliability. Our IBX design provides our customers with reliable and
disaster-resistant environments that are necessary for optimum Internet
commerce interconnection. We believe that the level of excellence and
consistency achieved in our IBX architecture and design results in premium,
secure, fault-tolerant exchanges. Our IBX centers are designed to offer our
customers redundant, high-bandwidth Internet connectivity through multiple
third-party connections. Additionally, our solutions include multi-level
financial grade security, scalable cabinet space availability, on-site trained
staff 24 hours per day, 365 days per year, dedicated areas for customer care
and equipment staging, redundant AC/DC power systems and multiple other
redundant, fault-tolerant infrastructure systems.
Value Added Services. In addition to our core services, we offer advanced
products and value-added services that are intended to assist customers in
improving the quality of their interconnection and traffic exchange. Such
services include high-speed interconnects as well as a collaborative research
environment. In addition, we enable collaborative research activities amongst
our customers, which provide our customers with the opportunity to test their
advanced products and services in a high-bandwidth production setting as well
as gain exposure to leading-edge Internet products and technologies.
Equinix Strategy
Our objective is to attract a wide variety of complementary business
partners and provide the highest level of service in our IBX centers. To
accomplish this objective we are employing the following strategies:
Capitalize on Our Neutrality. IBX neutrality means we provide our customers
with the freedom to choose their preferred product and service providers. We
call this a neutral environment and it is one of the
26
fundamental characteristics of an IBX center. We believe this is a
significantly improved approach compared with the current Internet model where
ISPs and telecommunications carriers own and operate the majority of colocation
and exchange facilities. Our customers will benefit from a neutral environment
that stimulates efficient business growth through accelerated network
economics, or the value derived by a provider at an IBX center from being able
to sell its services to a locally-aggregated set of customers, created by the
efficient and rapidly growing interaction between business Internet service
providers.
Target a Balanced IBX Customer Base. As a key aspect to fostering efficient
interaction and promoting choice, reliability and redundancy, we intend to
actively manage our customer base at each IBX center to include a balanced
number of Internet and e-commerce related businesses. For example, we will seek
to ensure that an e-mail service provider located in an Equinix IBX center will
be able to market its services to many CPs, ISPs, or, a CP located in an
Equinix IBX center will have a choice of multiple bandwidth providers to
establish redundancy while commanding the purchasing leverage to demand higher
service quality at a lower bandwidth cost.
Expand Globally and Capitalize on First Mover Advantage. We believe that
capitalizing on our first mover advantage is essential to establishing
leadership in the rapidly developing neutral Internet business exchange market.
As a result, we currently plan to launch an aggressive IBX center rollout
program over the next twelve to eighteen months and open a total of 13 IBX
centers in the United States and internationally. One additional IBX center is
scheduled to open in the United States by the end of the first quarter of 2000.
Another 10 IBX centers are scheduled to open in 2000 in the U.S., Europe and
Asia. We believe the demand for our international IBX facilities and services
will be significant due to the early stage of Internet infrastructure
deployment outside of the U.S.
Establish Equinix as the Leading Brand for IBX Centers. We plan to establish
Equinix as the industry standard for the highest quality Internet connections.
Through brand awareness and promotion we intend to create a strong following
among all top CPs, ISPs, carriers and CSPs. We believe that this strong brand
awareness, combined with our ability to provide the highest quality Internet
interconnection services and physical facilities and professional services will
provide us with a competitive advantage in our market.
Leverage Blue-Chip Investor Base. Our stockholders are some of the most
influential companies driving the development, operation and utilization of the
Internet. They provide us with invaluable technical and business insight,
industry contacts and customer relationships to help expedite the expansion of
our business. These stockholders include America Online, Artemis S.A.,
Benchmark Capital, the Carlyle Group, Cisco Systems, Comdisco Ventures, Dell
Corporation, E*Trade Group, Enron Corporation, epartners Capital, or News
Corp., Finlayson Investments, or Temasek, Microsoft Corporation, Millennium
System Trading Limited, or Pacific Century Group, Morgan Stanley Dean Witter,
NorthPoint Communications, Reuters and Salomon Smith Barney.
Continue Providing Leading-Edge Products and Services. Part of our
competitive advantage is our ability to provide leading edge products and
services to our customers. To this end, we encourage our customers to research
and test their new technologies within our state-of-the-art research and
development environment. We make available our on-site support and research
areas and enable our customers to house their own equipment within the IBX
center. By collaborating with leading technology companies we believe we are
positioned at the forefront of Internet technology development. As we increase
our scale and customer base, we will have numerous opportunities to cross-sell
additional infrastructure services such as measurement and testing, network-
monitoring, network consulting and design and system integration.
Customers
Customers typically sign renewable contracts of one to three years in
length, often with options on additional space. Our current customers,
including Akamai, Concentric Network, Ernst & Young Technologies, iBeam
Broadcasting, MCI WorldCom, NaviNet, NorthPoint Communications, and others,
have subscribed for approximately 26% of the capacity of our Washington, D.C.
IBX center. Additionally, Akamai, MCI WorldCom and NorthPoint Communications
have signed multi-site agreements.
27
Historically, Internet businesses have been vertically integrated and
provided all services directly to their customers. These services typically
include marketing, access and Internet backbone connectivity, server hosting,
and other services such as e-mail and usenet newsgroups. Continued rapid
growth, innovation, competition and scarce human resources have opened the door
for companies to specialize in core Internet services and turn to best-of-breed
suppliers to provide other elements of their product. These specialized players
include:
. content providers supplying information, education or entertainment
content and conducting the sale of goods and services;
. Internet service providers offering end-users Internet access and
customer support;
. telecommunications carriers; and
. component service providers offering ASP and web hosting, e-mail, usenet
newsgroups and content distribution.
We consider these specialized players to be the core of our customer base
and we offer each customer solutions that are designed to meet their unique and
changing needs.
We believe our IBX centers provide the following benefits to our customers:
Type of Customer: Benefits
Content Providers . Choice among multiple bandwidth providers and
CSPs
. Avoidance of carrier charges
. Scalable, flexible, fault-tolerant environment
. Cost savings through aggregating purchases at a
single location
. Expedited provisioning of services
. Minimize packet loss and latency, or time that
elapses between a request for information and
its arrival, issues
. Colocation at a central exchange point for
Internet traffic
. Financial grade security and 24 hours per day,
seven days per week Internet trained staff
Internet Service Providers
. Direct peering, or traffic exchange, with other
ISPs over private high-speed dedicated
interconnections
. Simplified outsourcing of various component
services, including DSL, e-mail, usenet and
content distribution
. Expedited, flexible, scalable and cost-efficient
bandwidth provisioning
. Elimination of capital investments for
facilities
. Centralized audience for products and services
Carriers . Economies of scale with reduced capital costs
. Ability to focus on core competencies
. Centralized market with access to dozens of
potential customers
Component Service
Providers . Proximity to customers reduces operations,
technology and marketing costs and speeds
service deployment
. Avoidance of carrier charges
. Improved quality of service through direct
connections
Services
Within our IBX centers we provide our customers with equipment colocation
and interconnection, value-added services, and professional services.
28
Equipment Colocation Services
Within our IBX centers, customers can colocate and interconnect their
equipment and perform high bandwidth communications while bypassing the public
Internet and avoiding carrier charges often associated with such arrangements.
Customers can use these interconnections for a variety of purposes, including
private peering, delivery of services or connecting to private networks.
Cabinets. Customers have the choice of colocating their equipment in shared
cages or in their own locked, secure cabinets and, in either case, are able to
design their own unique cabinet configurations. Cabinet spaces are available in
half height, 42 inches, sufficient for a basic networking presence or full
height, 84 inches, suitable for networking and server colocation. Cable trays
support cables between and among cabinets. Stationary or slide shelves and
enclosed cabinets are available upon request. As a customer's colocation
requirements increase, they can expand within their original cage or upgrade
into a cage that meets their expanded requirements.
Shared Cages. A shared cage environment is designed for customers needing
less than ten full cabinets to house their equipment. Each cabinet in a shared
cage is individually secured with an advanced trackable electronic locking
system and the cage itself is secured with a biometric hand-geometry system.
Private Cages. Customers that contract for a minimum of ten full cabinets
can use a private cage to house their equipment. Private cages are also
available in larger full cabinet sizes. Each private cage is individually
secured with a biometric hand-geometry system.
Direct Connections. Customers requiring a dedicated communications link may
directly connect to each other. Direct connections are Any Mode Any Speed,
which means they can include single-mode fiber, multi-mode fiber, and other
media upon request, as well as handle any speed required by the customer. These
cross connections are customized and terminated per customer instructions and
may be implemented within 24 hours of request.
Value-Added Services
Central Switching Fabric. Customers may choose to connect to our backed-up
central switching fabric, also known as the combination of hardware and
software that moves data coming in to a network, rather than purchase direct
connections. Our central switching fabric can accommodate select port
connections at various speeds.
Core Infrastructure Services. Those customers with a port connection on the
central switching fabric have access to multiple core infrastructure services.
These services address critical intelligent networking requirements and assist
customers in improving the quality of their interconnection and traffic
exchange.
Emerging Technologies Environment. Our IBX customers enjoy access to a
research and development environment for testing new products and technology in
a production setting. For example, this environment features alternative
central switching fabric platforms on various participating vendor's equipment,
each operating with simulated production-level traffic, dedicated cabinet space
and on-site and remote technical support. Customers can connect to these
systems to perform various tests. Other technologies, such as new protocols,
server-based information services, multicast and caching may be staged and
tested in our IBX centers. Our philosophy is to collaborate with our customers
and work independently to test, prove and select the best technologies and
solutions for next-generation networking to enhance the scalability of
Internet-related businesses. Current projects address monitoring and caching
technologies, multicast networks and systems and various switching products.
29
Professional Services
Our IBX centers are staffed with highly trained Internet and
telecommunications specialists who are available 24 hours per day, 365 days per
year. These professionals are trained to perform installations of customer
equipment and cross connections, and integration and support services.
"Smart Hands" Services. Our customers can take advantage of our professional
"Smart Hands" service, which gives customers access to our IBX staff for a
variety of troubleshooting tasks, when their own staff is not on site. These
tasks include power cycling, card swapping, and performing emergency equipment
replacement. Services are available on-demand or by customer contract.
Other Professional Services. We also provide network consulting and system
integration services to our customers.
IBX Design and Staffing
Our IBX centers are designed to provide a state-of-the-art, secure, full-
service, neutral operating environment of typically 900 cabinets, or 50,000
square feet, in the first-phase buildout for colocation of customer equipment.
The IBX centers are designed to provide specific and compelling improvements
over legacy facilities, including improved security, redundancy of all key
infrastructure systems and improved customer care. An IBX center is divided
into six basic functional areas--access, customer care, colocation,
telecommunications access, mechanical and power systems and operations.
Access Area. The access area includes a bullet-resistant guard booth; a
welcome area, a hand-geometry enrollment station, and a mantrap to further
control access to the IBX center. All doors and access ways are secured with
biometric hand-geometry readers to ensure absolute identification and
authentication. All customers and Equinix employees entering an Equinix IBX
center must be cleared through this secured zone.
Customer Care Area. The customer care area includes a seating section,
conference rooms, Internet workstations, customer equipment preparation work
areas, equipment lockers, a game room, bathrooms, showers and a kitchen.
Colocation Area. The colocation area is divided into large cages to house
networking and customer computer equipment that is secured by biometric
security access systems. This area includes dual independent AC and DC power
distribution systems, full-automated CCTV digital camera security surveillance,
and a tamper-proof overhead cable-management system with separate trays for
fiber and copper data, AC power and DC power cables. Access to the colocation
area is through the customer care area.
Telecommunications Access Area. All IBX centers will have a minimum of two
dedicated fiber entry vaults for telecommunications carrier access to the
colocation area. In addition, every IBX center has roof space or a separate
platform for customers who access the IBX center via wireless devices such as
satellite dishes, radio antennae and microwave.
Mechanical and Power Systems Area. The mechanical and power systems area
includes machine rooms and space used to house all mechanical, power safety and
security equipment. Fully redundant heating, ventilation, air conditioning and
power systems, as well as dual electric utility feeds support all areas of the
IBX center. Power systems are designed and periodically tested to transparently
handle rapid transition from public utility power to back-up power. The AC
uninterruptable power supply and DC battery systems are configured to operate a
fully occupied IBX center for a minimum of fifteen minutes. If there is a
utility power failure, the on-site generator system could be brought on-line in
less than eight seconds through an automatic transfer switch to supply
seamless, uninterrupted power to the IBX center. The emergency generators,
located in a specially equipped area, supply power to the AC and DC systems.
On-site fuel tanks store sufficient fuel to power a fully occupied IBX center
for a minimum of 48 hours.
30
Operations Area. The operations area houses the IBX manager's office, an
operations center for staff technicians and office space for visiting Equinix
employees. It includes consoles for monitoring all IBX environmental systems
and for tracking all activities at the IBX center. In selected IBX centers,
this area will house regional operations centers that will monitor the
operations of several IBX centers.
Other Specifications
Security System. All access controls and other security functions are
connected to a central security computer system that controls access to the
interior and exterior perimeters of the IBX centers. An armed security guard
located behind the bullet-resistant security console controls access to the
colocation area. The caged sections of the colocation area can only be accessed
through hand-geometry readers located on cage doors. CCTV digital cameras
connected to a central system at the security console monitor and record all
activity within the IBX center, as well as the perimeter and the roof.
Staffing. A typical IBX center is staffed with nine Equinix employees,
including one IBX manager and eight technical service personnel who provide 24
hours per day, 365 days per year coverage for customer support needs. In
addition, an IBX facility has two armed security guards on duty at all times, a
chief engineer and 24-hour technical support.
Other. For security purposes, an Equinix IBX center is anonymous. No
indications of center ownership or function are visible from the exterior. In
addition, there are no raised floors and all walls are airtight and without
windows. Our IBX centers are designed with advanced fire suppression systems,
either a FM-200 gas type or a multi-zoned dry-pipe system, both of which are
armed with sensory mechanisms to sample the air and raise alarms before
pressurization or release. Finally, an Equinix IBX center is designed to
withstand a seismic event of 7.5 as measured on the Richter scale.
IBX Rollout Schedule
The objective of our global rollout strategy is to rapidly establish a
leadership position in the mission critical Internet and e-commerce market. We
intend to open approximately 30 IBX centers in major Internet markets in the
U.S., Europe, Asia, South America and Australia over the next four years. We
opened our first IBX center in July 1999 in Ashburn, Virginia, our Washington,
D.C. IBX center, and, in December 1999, we opened our second IBX center in
Newark, New Jersey. During the first quarter of 2000, we intend to open an
additional IBX center in San Jose, California. Through the remainder of 2000,
our rollout consists of opening IBX centers in Boston, Massachusetts; Chicago,
Illinois; Los Angeles, California; New York City, New York; Seattle,
Washington; London, England; Dallas, Texas; Amsterdam, Netherlands; Paris,
France; and Frankfurt, Germany. In addition, we are planning major expansions
to our Washington, D.C. and San Jose IBX centers. The scalable nature of our
IBX model enables us to be flexible in response to changing market
opportunities. As a result, the timing and placement of our IBX centers will
vary depending on numerous factors, including competitive, technological,
regulatory and other developments.
To facilitate our rollout schedule we entered into an agreement with MCI
WorldCom, or MCI, under which MCI agreed to install fiber at our first seven
U.S. IBX centers. Among other things, MCI has agreed to provide timely and
sufficient fiber to fulfill the requirements of all customers in the designated
IBX centers. In addition, we entered into an agreement with Bechtel
Corporation, or Bechtel, where Bechtel will act as exclusive contractor for a
number of our IBX centers worldwide. Bechtel has agreed to assist us with site
identification and evaluation, design, build-out, and testing of these IBX
centers.
Sales and Marketing
Sales
We use a direct sales force to market our services to Internet and e-
commerce related businesses. We are organizing our sales force by customer
segments as well as establishing a sales presence in diverse geographic
31
regions, which will enable efficient servicing of the customer base from a
network of regional offices. A regional office is comprised of a manager, sales
representatives and technical support personnel. While we may contemplate other
distribution channels and reseller arrangements in the future, through the year
2000 substantially all revenues will be generated by direct sales.
Before opening an IBX center, we will focus on securing key anchor customers
and generating sales commitments for at least 20% of the available capacity.
Our sales strategy is to focus our efforts on the top 25 companies in our
customer segments, which include content providers, ISPs, carriers and CSPs.
Momentum in the selling process and the presence of anchor customers are
important to attracting additional potential customers who see the IBX center
as an opportunity to generate new customers and revenues in a business exchange
environment and to improve the quality of their colocation services. We expect
a substantial number of customers to contract for services at multiple IBX
centers and have already received orders from three such customers. At each IBX
center, our sales representatives will screen prospective customers and will
manage the population of the IBX center to ensure an appropriate mix of
customer types.
Marketing
To support our sales effort and to actively promote and solidify the Equinix
brand, we plan to conduct comprehensive marketing programs. Our marketing
strategies will include an active public relations campaign, print
advertisements, online advertisements, trade shows, speaking engagements,
strategic partnerships and on-going customer communications programs. We are
focusing our marketing effort on business and trade publications, online media
outlets, industry events and sponsored activities. We participate in a variety
of Internet, computer and financial industry conferences and encourage our
officers and employees to pursue speaking engagements at these conferences. In
addition to these activities, we intend to build recognition through sponsoring
industry technical forums, participating in Internet industry standard-setting
bodies, such as the Internet Engineering Task Force, and delivering white
papers that address Internet infrastructure issues at conferences.
Competition
Our market is new, rapidly evolving, and likely to have an increasing number
of competitors. To be successful in this emerging market, we must be able to
differentiate ourselves from existing colocation and web hosting companies. We
may also face competition from persons seeking to replicate our IBX concept. We
may not be successful in differentiating ourselves or achieving widespread
market acceptance of our business. Furthermore, enterprises that have already
invested substantial resources in peering arrangements may be reluctant or slow
to adopt our approach that may replace, limit or compete with their existing
systems. If we are unable to complete our IBX centers in a timely manner, other
companies will be able to attract the same customers that we are targeting.
Once the customers are located in our competitors' facilities, it will be very
difficult, if not impossible, to convince them to relocate to our IBX centers.
We may encounter competition from a number of sources, some of which may
also be our customers, including:
. Web site hosting, colocation and ISP companies such as AboveNet, Digital
Island, Exodus, Frontier GlobalCenter, Globix, PSINet and Verio;
. established communications carriers such as AT&T, Level 3, MCI WorldCom,
Qwest and Sprint; and
. emerging colocation service providers such as Colo.com, IX Europe,
Neutral Nap and Telehouse.
Potential competitors may bundle their products or incorporate colocation
services in a manner that is more attractive to our potential customers than
purchasing cabinet space in our IBX centers and utilizing our services.
Furthermore, new competitors or alliances among competitors may emerge and
rapidly acquire significant market share. Our competitors may be able to
respond more quickly to new or emerging technologies and changes in customer
requirements than we can.
32
Some of our potential competitors have longer operating histories and
significantly greater financial, technical, marketing and other resources than
we do. In particular, carriers and several hosting and colocation companies
have extensive customer bases and broad customer relationships that they can
leverage, including relationships with many of our potential customers. These
companies also have significantly greater customer support and professional
service capabilities than we do. Because of their greater financial resources,
some of these companies have the ability to adopt aggressive pricing policies.
As a result, in the future we may have to adopt pricing strategies that compete
with such competitors to attract and retain customers. Any such pricing
pressures would adversely affect our ability to generate revenues.
Employees
As of December 31, 1999, we had 91 full-time employees and two full-time
consultants. We had 73 employees based at our corporate headquarters in Redwood
City, California and our regional sales offices in New York, NY and Reston, VA,
and 18 employees based at our Washington, D.C. and Newark, N.J. IBX centers. Of
those employees, 51 were in engineering and operations, 23 were in sales and
marketing and 17 were in management and finance.
Properties
Our executive offices are currently located in Redwood City, CA and after
June 2000 will be located in Mountain View, CA. We have entered into lease
commitments for IBX centers in Ashburn, VA, Newark, NJ, San Jose and Los
Angeles, CA, Chicago, IL and Dallas, TX. Relating to future IBX centers, we do
not intend to own real estate or buildings but rather continue to enter into
lease agreements with a minimum term of ten years, renewal options and rights
of first refusal on space for expansion.
Legal Proceedings
We are currently not involved in any litigation.
33
MANAGEMENT
Officers, Key Employees and Directors
Our officers, key employees and directors, and their ages as of January 31,
2000, are as follows:
Name Age Position
- ---- --- --------
Albert M. Avery, IV......... 56 President, Chief Executive Officer and Director
Jay S. Adelson.............. 29 Vice President, Engineering, Chief Technology
Officer and Director
Philip J. Koen.............. 47 Chief Financial Officer and Secretary
Marjorie S. Backaus......... 38 Vice President, Marketing
Roy A. Earle................ 43 Vice President, IBX Development
Peter T. Ferris............. 42 Vice President, Worldwide Sales
Gregory F. McHugh........... 51 Vice President, Operations
William B. Norton........... 36 Director of Business Development
Andrew S. Rachleff.......... 41 Director
Michelangelo Volpi.......... 33 Director
Albert M. Avery, IV, one of our founders, has served as Equinix's president,
chief executive officer and a director since our inception in June 1998. During
the period from February 1996 to June 1998, Mr. Avery was general manager of
the Palo Alto Internet Exchange, or PAIX, of Digital Equipment Corporation, or
DEC, a division of Compaq. During the period from March 1994 to February 1996,
Mr. Avery served as chief of staff to the vice president of research and
advanced development at DEC. Before holding this position, Mr. Avery held a
variety of sales, business and engineering management roles at DEC, which he
joined in 1968. Mr. Avery holds a B.S. in electrical engineering from Lafayette
College and an M.S. in computing from the University of California at Los
Angeles.
Jay S. Adelson, one of our founders, has served as Equinix's vice president,
engineering, chief technology officer and a director since our inception in
June 1998. During the period from February 1997 to June 1998, Mr. Adelson was
operations manager at PAIX. Before joining PAIX, Mr. Adelson was a founding
member of Netcom On-Line Communications, Inc., an Internet services
corporation, where, during the period from January 1994 to February 1997, he
managed both access and network operations. Mr. Adelson holds a B.S. in
communications from Boston University.
Philip J. Koen has served as Equinix's chief financial officer and secretary
since July 1999. Before joining Equinix, Mr. Koen was employed at PointCast,
Inc., an Internet company, where he served as chief executive officer during
the period from March 1999 to June 1999; chief operating officer during the
period from November 1998 to March 1999; and chief financial officer and
executive vice president responsible for software development, network
operations, finance, information technology, legal and human resources during
the period from July 1997 to November 1998. From December 1993 to May 1997, Mr.
Koen was vice president of finance and chief financial officer of Etec Systems,
Inc., a semi-conductor equipment company. Mr. Koen currently serves as a
director of Zitel Corporation and of Centura Software Corp., both public
companies. Mr. Koen holds a B.A. in economics from Claremont McKenna University
and an M.B.A. from the University of Virginia.
Marjorie S. Backaus has served as Equinix's vice president, marketing since
November 1999. During the period from August 1996 to November 1999, Ms. Backaus
was vice president of marketing at Global One, a telecommunications company.
From November 1987 to August 1996, Ms. Backaus served in various positions at
AT&T, including that of division manager, DirecTV. Ms. Backaus holds a B.B.A.A.
in accounting from Kennesaw State University and an M.B.A. from Emory
University.
Roy A. Earle has served as Equinix's vice president, IBX development since
November 1999. Before joining Equinix, Mr. Earle was employed at Etec Systems,
a semiconductor equipment company where he served as vice president and general
manager of display products from September 1997 to November 1999 and
34
as vice president for operations from October 1995 to September 1997. From July
1994 to October 1995, Mr. Earle served as chief operating officer and plant
manager at Temic Siliconix, a semiconductor company. Mr. Earle holds a B.S. in
chemistry from the University College in Dublin, Ireland and an M.S. in
materials science from the University of Sheffield, United Kingdom.
Peter T. Ferris has served as Equinix's vice president, worldwide sales
since July 1999. During the period from June 1997 to July 1999, Mr. Ferris was
vice president of sales for Frontier Global Center, a provider of complex web
site hosting services. From June 1996 to June 1997, Mr. Ferris served as vice
president, eastern sales at Genvity Inc., an Internet services provider. From
December 1993 to June 1996, Mr. Ferris was vice president, mid-Atlantic sales
at MFS DataNet Inc., a telecommunications services provider. Mr. Ferris holds a
B.A. in economics from Ohio Wesleyan University.
Gregory F. McHugh has served as Equinix's vice president, operations since
March 1999. During the period from February 1996 to March 1999, Mr. McHugh was
a principal at Pittiglio, Rabin, Todd & McGrath, a high-technology consulting
firm. During the period from September 1993 to November 1995, Mr. McHugh was
vice president of operations for Cadence Design Systems, an electronic design
firm. Mr. McHugh has held a number of executive roles in information systems
for such companies as Quantum, Analog Devices, National Semiconductor and
Motorola. He also has experience managing service operations and Internet
services at Pacific Bell. Mr. McHugh holds a B.S. in engineering from San
Francisco State University and an M.S.E.E. in electrical engineering from
Stanford University.
William B. Norton, one of our founders, has served as Equinix's director of
business development since October 1998. During the period from October 1987 to
September 1998, Mr. Norton, an industry-recognized speaker and panelist, was
manager of Internet engineering at Merit Network, Inc., a not-for-profit
corporation in support of higher education networks, and led the North American
Network Operators Group, the Internet network operations forum for the United
States and Canada. Mr. Norton holds a B.A. in computer science from the State
University of New York, Potsdam and an M.B.A. from the University of Michigan
School of Business Administration.
Andrew S. Rachleff has served as a director of Equinix since September 1998.
Mr. Rachleff has served as a general partner of Benchmark Capital, a Menlo
Park-based venture capital firm, since its founding in May 1995. Since May
1986, Mr. Rachleff has served as a general partner of Merrill, Pickard,
Anderson & Eyre. Mr. Rachleff currently serves as a director of several
privately held companies and of NorthPoint Communications, Inc., a public
company and one of our stockholders. Mr. Rachleff holds a B.S. from the
University of Pennsylvania and an M.B.A. from the Stanford Graduate School of
Business.
Michelangelo Volpi has served as a director of Equinix since November 1999.
Mr. Volpi has served in various capacities at Cisco Systems, a data
communications equipment manufacturer, since 1994, most recently as senior vice
president, business development. Mr. Volpi holds a B.S. and an M.S. in
mechanical engineering from Stanford University and an M.B.A. from the Stanford
Graduate School of Business.
Director Compensation
Directors do not receive compensation for services provided as a director or
for participation on any committee of the board of directors. Directors are not
reimbursed for their out-of-pocket expenses in serving on the board of
directors or any committee of the board of directors. Directors are eligible
for option grants under our 1998 Stock Plan.
Compensation Committee Interlocks and Insider Participation
No interlocking relationship exists between any member of our board of
directors and any member of the board of directors or compensation committee of
any other company, and no such interlocking relationship has existed in the
past. Currently, we do not have a compensation committee. Instead, compensation
related decisions are made by the entire board of directors.
35
Indemnification
To the fullest extent permitted by applicable law, our amended and restated
certificate of incorporation authorizes us to provide indemnification of, and
advancement of expenses to, our agents and any other persons to whom the
Delaware General Corporation Law permits us to provide indemnification, in
excess of the indemnification and advancement otherwise permitted by the
Delaware General Corporation Law. Our authorization is subject only to limits
created by the Delaware General Corporation Law relating to actions for breach
of duty to Equinix, our stockholders and others.
Our bylaws provide for mandatory indemnification of our directors to the
fullest extent permitted by Delaware law and for permissive indemnification of
any person, other than a director, made party to any action, suit or proceeding
by reason of the fact that he or she is or was our officer or employee.
We have also entered into indemnification agreements with our officers and
directors containing provisions that may require us to indemnify such officers
and directors against liabilities that may arise by reason of their status or
service as directors or officers, other than liabilities arising from willful
misconduct of a culpable nature, and to advance their expenses incurred as a
result of any proceeding against them as to which they could be indemnified.
Executive Compensation
The following table sets forth compensation information for the period from
June 1998 through December 31, 1999 paid by us for services by our chief
executive officer and our other highest-paid executive officers whose total
annualized salary and bonus for such fiscal year exceeded $100,000:
Summary Compensation Table
Long-Term Compensation
Annual Compensation Awards
------------------- ----------------------
Securities
Name and Principal Position Salary($) Bonus($) Underlying Options(#)
- --------------------------- --------- --------- ----------------------
Albert M. Avery, IV............... $ 178,020 0(1)
President, Chief Executive Officer
and Director
Jay S. Adelson.................... $ 173,754 0(1)
Vice President, Engineering, Chief
Technology Officer and Director
Peter T. Ferris................... $ 187,583 510,000
Vice President, Worldwide Sales
- --------
(1)Each of Messrs. Avery and Adelson purchased 3,030,000 shares of restricted
stock on June 22, 1998 in accordance with a Stock Purchase Agreement. Each
agreed to amend their stock purchase agreement on July 30, 1998 to subject
2,727,000 of the shares to vesting restrictions. Pursuant to the amendment, the
2,727,000 shares will vest in 48 monthly installments from June 22, 1998. The
purchaser will also vest in 25% of the shares if his employment is
involuntarily terminated and will vest in all of the shares if his employment
is involuntarily terminated within 12 months following a change in control of
Equinix. As of December 31, 1999, Messrs. Avery and Adelson had each vested in
1,022,625 of the restricted shares and the restricted shares had a value of
$4,549,829, which represents 1,704,375 shares valued at $2.67 per share less
$0.0003, the price paid per share.
Option Grants in Last Fiscal Year
The following table sets forth the only grant of stock options made during
the fiscal year ended December 31, 1999 to the named executive officers. We
have not granted stock appreciation rights. The option listed in the table is
immediately exercisable. The shares purchasable thereunder are subject to
repurchase by Equinix at the original exercise price paid per share upon the
optionee's cessation of service prior to vesting in
36
such shares. The repurchase right on his option lapses and he vests as to 25%
of the option shares upon completion of one year of service from the date of
grant and the balance in a series of equal monthly installments over the next
36 months of service thereafter. Mr. Ferris' option will vest in 12 months
worth of stock upon a change in control of Equinix. The exercise price for each
option was equal to the fair market value of our common stock as determined by
our board of directors on the date of grant. The exercise price may be paid in
cash, in shares of our common stock valued at fair market value on the exercise
date or through a cashless exercise procedure involving a same-day sale of the
purchased shares. We may also finance the option exercise by loaning the
optionee sufficient funds to pay the exercise price for the purchased shares,
together with any federal and state income tax liability incurred by the
optionee in connection with such exercise. We have calculated the potential
realizable value based on the term of the option at the time of grant (ten
years) and we assumed stock price appreciation of 5% and 10% in accordance with
the rules promulgated by the Securities and Exchange Commission; this does not
represent our prediction of our stock price performance. The potential
realizable values at 5% and 10% appreciation are calculated by assuming that
the exercise price on the date of grant appreciates at the indicated rate for
the entire term of the option and that the option is exercised at the exercise
price and sold on the last day of its term at the appreciated price.
Individual Grants
----------------------------------------------
Potential
Realizable
Value at
Assumed
Annual Rates
of Stock
Price
Number of Appreciation
Securities % of Total for Option
Underlying Options Granted Exercise Term
Options to Employees in Price Expiration -------------
Name Granted(#) Fiscal Year ($/Sh) Date 5%($) 10%($)
---- ---------- --------------- -------- ---------- ------ ------
Albert M. Avery, IV..... 0 -- -- -- -- --
Jay S. Adelson.......... 0 -- -- -- -- --
Peter T. Ferris......... 510,000 8.4% 0.067 6/30/09 21,382 54,187
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
None of the named executive officers exercised options during the fiscal
year ended December 31, 1999. The following table sets forth for each of the
named executive officers the number and value of securities underlying
unexercised options that are held by the named executive officers as of
December 31, 1999. Since our options are immediately exercisable at grant, any
shares purchased under those options will be subject to repurchase by us, at
the original exercise price paid per share, upon the optionee's cessation of
service with Equinix, prior to vesting in such shares. Accordingly, we have
chosen to report the number of the underlying shares that are vested and the
number unvested as of December 31, 1999. The heading "Vested" refers to shares
no longer subject to repurchase; the heading "Unvested" refers to shares
subject to repurchase as of December 31, 1999. Our board has determined that
the fair market value of our common stock on December 31, 1999 was $2.67 per
share.
Number of Value of Unexercised
Securities Underlying in-the-Money
Unexercised Options at Options at
December 31, 1999 (#) December 31, 1999 ($)
---------------------- -----------------------
Name Vested Unvested Vested Unvested
- ---- ---------- ------------- --------- -------------
Albert M. Avery, IV.......... 0 0 0 0
Jay S. Adelson............... 0 0 0 0
Peter T. Ferris.............. 0 510,000 0 1,327,530
Employee Benefit Plan
1998 Stock Plan
Share Reserve. Our board of directors adopted our 1998 Stock Plan on
September 10, 1998. Our stockholders have also approved this plan. We have
reserved 12,012,810 shares of our common stock for
37
issuance under the 1998 Stock Plan. In general, if options or shares awarded
under the 1998 Stock Plan are forfeited, then those options or shares will
again become available for awards under the 1998 Stock Plan.
Administration. Our board of directors administers the 1998 Stock Plan. The
board has the complete discretion to make all decisions relating to the
interpretation and operation of our 1998 Stock Plan. The board has the
discretion to determine who will receive an option, what type of option it will
be, how many shares will be covered by the option, what the vesting
requirements will be, if any, and what the other features and conditions of
each option will be. The board may also reprice outstanding options and modify
outstanding options in other ways.
Eligibility. The following groups of individuals are eligible to participate
in the 1998 Stock Plan:
. Employees;
. Non-employee members of our board of directors; and
. Consultants.
Types of Awards. The 1998 Stock Plan provides for the following types of
awards:
. Incentive stock options to purchase shares of our common stock;
. Nonstatutory stock options to purchase shares of our common stock; and
. Restricted stock.
Options. An optionee who exercises an incentive stock option may qualify for
favorable tax treatment under Section 422 of the Internal Revenue Code of 1986.
However, nonstatutory stock options do not qualify for such favorable tax
treatment. The exercise price for incentive stock options granted under the
1998 Stock Plan may not be less than 100% of the fair market value of our
common stock on the option grant date. In the case of nonstatutory stock
options, the minimum exercise price is 85% of the fair market value of our
common stock on the option grant date. Optionees may pay the exercise price by
using:
. Cash;
. Shares of common stock that the optionee already owns;
. An immediate sale of the option shares through a broker designated by us;
or
. A loan from a broker designated by us, secured by the option shares.
Options vest at the time or times determined by our board of directors. In
most cases, our options will vest over a four-year period following the date of
grant. Options generally expire 10 years after they are granted, however they
generally expire earlier if the optionee's service terminates earlier.
Restricted Shares. Restricted shares may be awarded under the 1998 Stock
Plan in return for:
. Cash;
. Services previously provided to us; and
. Services to be provided to us in the future, except that the par value of
such shares, if newly issued, shall be paid in cash.
Restricted shares vest at the time or times determined by the board.
Change in Control. If a change in control of Equinix occurs, an option or
restricted stock award under the 1998 Stock Plan will generally become fully
vested. However, if the surviving corporation assumes the option stock award or
option or replaces it with a comparable option, then vesting will not
accelerate. An
38
option or stock award will become fully exercisable and fully vested if the
holder's employment or service is involuntarily terminated within 12 months
following the change in control. A change in control includes:
. A merger or consolidation of Equinix with or into another entity or any
other corporate reorganization, if persons who were not our shareholders
immediately before the transaction own immediately after the transaction
50% or more of the voting power of the outstanding securities of each of
(a) the continuing or surviving entity and (b) any direct or indirect
parent corporation of such continuing or surviving entity; after which
our own stockholders own 50% or less of the surviving corporation, or its
parent company; or
. A sale of all or substantially all of our assets.
Amendments or Termination. Our board of directors may amend or terminate the
1998 Stock Plan at any time. If our board amends the plan, stockholder approval
is not required unless such approval is otherwise required under applicable
law. The 1998 Stock Plan will continue in effect until September 9, 2008,
unless the board decides to terminate the plan earlier.
Employment Agreements and Change of Control Arrangements
The board of directors, as plan administrator of the 1998 Stock Plan, has
the authority to provide for accelerated vesting of the shares of common stock
subject to outstanding options held by our officers and any other person in
connection with certain changes in control of Equinix. In connection with our
adoption of the 1998 Stock Plan, we have provided that upon a change in control
of Equinix, each outstanding option and all shares of restricted stock will
generally become fully vested unless the surviving corporation assumes the
option or award or replaces it with a comparable award.
Except for Mr. Ferris, none of the executive officers have employment
agreements with Equinix, and their employment may be terminated at any time.
Equinix has entered into an agreement with Mr. Ferris, our Vice President of
Sales, dated June 28, 1999 which provides that his salary shall be $190,000 per
year and he is eligible for a target bonus of $60,000. The agreement provides
for the grant of an option to purchase 340,000 shares of common stock at the
fair market value on the grant date vesting over 4 years. The agreement also
provides that we will extend a loan to Mr. Ferris of up to $750,000. Should
Equinix be acquired before an initial public offering of its equity securities,
we have agreed to pay Mr. Ferris a cash bonus equal to the difference between
$1,000,000 and the amount Mr. Ferris receives for his shares of Equinix stock.
The agreement also provides for acceleration of vesting of option shares as if
Mr. Ferris remained employed for one additional year if there are certain
changes in control of Equinix. We also agreed to indemnify Mr. Ferris for any
claims brought by his former employer under an employment and non-compete
agreement he had with this employer.
39
RELATED-PARTY TRANSACTIONS
Since inception, there has not been, nor is there currently proposed, any
transaction or series of similar transactions to which we were or are to be a
party in which the amount involved exceeds $60,000 and in which any director,
executive officer or holder of more than 5% of our common stock, on an as
converted basis, or an immediate family member of any of these individuals or
entities, had or will have a direct or indirect interest other than:
. compensation arrangements, which are described where required under
"Management;" and
. the transactions described below.
Sale of Common Stock. In June 1998, we issued and sold 3,030,000 shares of
our common stock to Albert M. Avery, IV, our president, chief executive officer
and director, at a per share purchase price of $0.0003, which accounts for a
2.02 for one stock split on August 31, 1998 and a three for two stock split on
January 19, 2000.
In June 1998, we issued and sold 3,030,000 shares of our common stock to Jay
S. Adelson, our vice president, engineering and site development, chief
technology officer and director, at a per share purchase price of $0.0003,
which accounts for a 2.02 for one stock split on August 31, 1998 and a three
for two stock split on January 19, 2000.
Series A Preferred Stock Financing. In September 1998, we issued and sold
7,522,500 shares of our Series A preferred stock to Benchmark Capital Partners
II, L.P., a 5% stockholder of us, at a per share purchase price of $0.67 which
accounts for a three for two stock split on January 19, 2000. One of our
directors, Andrew S. Rachleff, is a general partner of Benchmark Capital, the
general partner of Benchmark Capital Partners II, L.P.
In September 1998, we issued and sold 5,775,000 shares of our Series A
preferred stock to Cisco Systems, Inc., a 5% stockholder of us, at a per share
purchase price of $0.67. One of our directors, Michelangelo Volpi, is a senior
vice president of Cisco Systems, Inc. which accounts for a three for two stock
split on January 19, 2000.
In January 1999, we issued and sold 3,000,000 shares of our Series A
preferred stock to Microsoft Corporation, a 5% stockholder of us, at a per
share purchase price of $0.67 which accounts for a three for two stock split on
January 19, 2000.
Series B Preferred Stock Financing. In August through November 1999, we
issued and sold 1,012,500 shares of our Series B preferred stock to Benchmark
Capital Partners II, L.P., at a per share purchase price of $5.33 which
accounts for a three for two stock split on January 19, 2000.
In September 1999, we issued and sold 684,375 shares of our Series B
preferred stock to Cisco Systems, Inc., at a per share purchase price of $5.33
which accounts for a three for two stock split on January 19, 2000.
In September 1999, we issued and sold 356,250 shares of our Series B
preferred stock to Microsoft Corporation, at a per share purchase price of
$5.33 which accounts for a three for two stock split on January 19, 2000.
In September 1999, we issued and sold 937,500 shares of our Series B
preferred stock to NorthPoint Communications, Inc. at a per share purchase
price of $5.33 which accounts for a three for two stock split on January 19,
2000. One of our directors, Andrew S. Rachleff, is also a director of
NorthPoint Communications, Inc.
Lease Agreement with Entity Affiliated with 5% Stockholder. In March 1999,
we entered into an equipment lease facility with Cisco Systems Credit
Corporation, an entity affiliated with Cisco Systems, Inc., under which we
leased $137,293 of equipment for a 24-month term. See "Description of Other
Indebtedness--Cisco Systems Credit Corporation Lease Facility" for a
description of this lease facility.
40
Warrants to Purchase Common Stock. In August 1999, we issued warrants to
purchase 338,145 shares of our common stock, at a purchase price of $0.53 per
share, to NorthPoint Communications, Inc. in connection with a strategic
agreement which accounts for a three for two stock split on January 19, 2000.
Loans to Executive Officers In September 1999, we loaned an aggregate of
$750,000 to Peter Ferris, one of our executive officers, to purchase a
principal residence. The non-interest bearing note is secured by a second deed
of trust on the residence, a promissory note and a stock pledge agreement, and
has a term of five years. In January 2000, we loaned an aggregate of $250,000
to Marjorie Backaus, one of our executive officers, to purchase a principal
residence. The non-interest bearing note is secured by a second deed of trust
on the residence, a promissory note and a stock pledge agreement, and has a
term of five years. In addition, in December 1999 we loaned Ms. Backaus
$112,500. This amount was repaid in full in January 2000.
Relocation Allowance to Executive Officers. In July 1999, we granted a
relocation allowance in the amount of $60,000 to Peter Ferris. The full amount
of the allowance has been paid to Peter Ferris. In November 1999, we granted a
relocation allowance in the amount of $60,000 to Marjorie Backaus. To date,
Marjorie Backaus has not received any amount under the allowance.
Founders' Registration Rights. We have entered into an investors' rights
agreement that provides for registration rights in favor of Albert M. Avery, IV
and Jay S. Adelson if there are public issuances of our common stock.
Option Grants. In the past, we have granted options to our executive
officers. We may grant options to our directors and executive officers in the
future. See "Management--Option Grants in Last Fiscal Year."
Indemnification. We have entered into an indemnification agreement with each
of our officers and directors. See "Management--Indemnification" for a
description of the indemnification available to our officers and directors
under these indemnification agreements.
41
PRINCIPAL STOCKHOLDERS
The table below presents selected information regarding beneficial ownership
of our outstanding common stock, on an as converted basis, as of January 31,
2000 for:
. each person known by us to own beneficially more than five percent, in
the aggregate, of the outstanding shares of our common stock on an as
converted basis;
. each of our directors, our chief executive officer and our four other
highest-paid executive officers; and
. all of our directors and executive officers as a group.
Under the rules of the Securities and Exchange Commission, beneficial
ownership includes sole or shared voting or investment power over securities
and includes the shares issuable under stock options that are exercisable
within 60 days of January 31, 2000. Shares issuable under stock options
exercisable within 60 days are considered outstanding for computing the
percentage of the person holding the options but are not considered outstanding
for computing the percentage of any other person.
Percentage ownership calculations are based on 52,537,616 shares of common
stock outstanding as of January 31, 2000, as adjusted to reflect the conversion
of all outstanding shares of preferred stock into common stock. Unless
otherwise indicated, the address for each listed stockholder is c/o Equinix,
Inc., 901 Marshall Street, Redwood City, California 94063. To our knowledge,
except as indicated in the footnotes to this table and under applicable
community property laws, the persons or entities identified in this table have
sole voting and investment power relating to all shares of stock shown as
beneficially owned by them.
Number of Percentage
Beneficially Beneficially
Name of Beneficial Owner Owned Shares Owned
- ------------------------ ------------ ------------
Albert M. Avery, IV(1).............................. 2,580,000 4.9%
Jay S. Adelson (2).................................. 2,993,208 5.7
Philip J. Koen (3).................................. 660,000 1.3
Peter T. Ferris (4)................................. 510,000 1.0
Michelangelo Volpi (5).............................. -- --
170 West Tasman Drive
San Jose, CA 95134
Andrew S. Rachleff (6).............................. 8,535,000 16.2
2480 Sand Hill Road, Suite 200
Menlo Park, CA 94025
Entities affiliated with Benchmark Capital (7)...... 8,535,000 16.2
2480 Sand Hill Road, Suite 200
Menlo Park, CA 94025
Cisco Systems, Inc.................................. 6,459,375 12.3
170 West Tasman Drive
San Jose, CA 95134
Microsoft Corporation............................... 3,356,250 6.4
One Microsoft Way
Redmond, WA 98052
All directors and executive officers as a group (9
persons) (8)....................................... 16,515,708 31.0
- --------
(1) Includes 1,647,562 shares subject to a right of repurchase by us as of
January 31, 2000.
(2) Includes 1,647,562 shares subject to a right of repurchase by us as of
January 31, 2000. Also includes 6,474 shares held as custodian for Rowan
Sharon Adelson. Mr. Adelson disclaims beneficial ownership of these
shares.
(3) Includes 505,312 shares subject to a right of repurchase by us as of
January 31, 2000.
(4) Includes 510,000 shares subject to a right of repurchase by us as of
January 31, 2000.
42
(5) Mr. Volpi is a senior vice president of Cisco Systems, Inc., which holds
6,459,375 shares of Equinix.
(6) Includes shares held by Benchmark Capital Partners II, L.P., Benchmark
Founders' Fund II, L.P., Benchmark Founders' Fund II-A, L.P., and
Benchmark Members' Fund II, L.P. Mr. Rachleff is a managing member of
Benchmark Capital Management Co. II, L.L.C., which is the general partner
of Benchmark Capital Partners II, L.P., Benchmark Founders' Fund II, L.P.,
Benchmark Founders' Fund II-A, L.P., and Benchmark Members' Fund II, L.P.
Mr. Rachleff shares voting and dispositive power relating to the shares
held by each such entity and disclaims beneficial ownership of these
shares, except to the extent of his pecuniary interest in Benchmark
Capital Management Co. II, L.L.C., arising from his general partnership
interest.
(7) Includes shares held by Benchmark Capital Partners II, L.P., Benchmark
Founders' Fund II, L.P., Benchmark Founders' Fund II-A, L.P., and
Benchmark Members' Fund II, L.P.
(8) Includes the shares described in Notes 1 through 6. Also includes 675,000
shares subject to options that are exercisable within 60 days of January
31, 2000 and 562,500 shares subject to a right of repurchase by us as of
January 31, 2000.
43
DESCRIPTION OF OTHER INDEBTEDNESS
Venture Lending & Leasing Equipment Acquisition Loan Facility
In August 1999, we entered into a $10.0 million equipment acquisition loan
facility with Venture Lending & Leasing, Inc. II, as the agent and principal
lender. The facility lenders will make advances up to:
. 85% of the acquisition cost of the equipment and tenant improvements for
our Newark, New Jersey IBX center; and
. 100% of the acquisition cost, to the extent that such cost does not
exceed $1.0 million, of certain customer acquisition and serving software
that we acquire for our headquarters.
Our obligations under the facility are secured by a first priority security
interest against the assets financed with the facility advances and the
customer acquisition and serving software that the facility lenders have agreed
to finance. We can request facility advances until June 2000. As of December
31, 1999 we have drawn the entire $10.0 million against this loan facility.
Interest will accrue on the facility advances at the annual rate of 8.5%,
and the advances will be repaid in 42 equal monthly installments. In connection
with the last installment we will pay a final amount equal to 15% of the
original advance amount. We will have the right to prepay the advances, in
whole or in part, provided that we pay a prepayment premium equal to the
following percentage of the principal prepaid:
Month of Term of Advance Prepaid Percentage
-------------------------------- ----------
1-6 ....................................................... 8%
7-12....................................................... 7%
13-18....................................................... 6%
19-24....................................................... 5%
25-30....................................................... 4%
31-36....................................................... 3%
37-42....................................................... 2%
In connection with this facility, we issued to the lenders warrants to
purchase Series A preferred stock at an exercise price of $3.00 per share. In
total, 300,000 shares can be acquired under the warrants, for an aggregate
exercise price equal to 9% of the facility commitment. The fair value of these
warrants, as determined using an option pricing model, has been recorded as a
deferred debt facility cost and will be amortized to interest expense on a
straight-line basis over the term of the facility.
The facility contains customary covenants that restrict our operations
relating to, among other things, incurring debt, granting security interests,
merging or consolidating with other entities, making loans and investments,
entering into affiliate transactions and changing our business. It does not
have any financial covenants. The facility contains customary events of
default, including non-payment of amounts due under the facility, default under
certain of our other obligations, breach of covenants set forth in the
facility, the existence of certain unstayed or undischarged judgments, the
making of materially false or misleading representations or warranties, the
commencement of reorganization, bankruptcy, insolvency or similar proceedings,
the occurrence of certain ERISA events or certain change of control events.
Comdisco Equipment Lease Facility
In May 1999, we entered into a $1.0 million equipment lease finance facility
with Comdisco, Inc. In August 1999, Comdisco amended this facility and
increased its total lease financing commitment by $5 million.
Under the original $1.0 million commitment, which we can draw down through
May 2000, Comdisco will lease to us equipment, software and tenant improvements
for our corporate headquarters, on the condition that the dollar amount of the
software and tenant improvements financed does not exceed 20% of this
commitment. Each lease schedule under this commitment is for 42 months, with
monthly lease payments in the amount of
44
2.698% of the acquisition cost of the leased property, for an implied annual
interest rate of 16.2%. When the term for a schedule covering equipment
expires, we will have the option of returning the leased property to Comdisco,
negotiating with Comdisco for an extension of the lease term or purchasing the
property at its then fair market value, to the extent that such value does not
exceed 15% of the equipment's original acquisition cost. When the term for a
schedule covering software and tenant improvements expires, we must make a
final payment equal to 15% of the original acquisition cost of the software and
tenant improvements. As of December 31, 1999, we have leased a total of
$661,000 in equipment under this facility.
Under the $5.0 million increased commitment, which we can draw down until
August 2000, Comdisco will lease to us equipment, software and tenant
improvements for our San Jose, California IBX center, provided that the dollar
amount of the software and tenant improvements financed does not exceed 57% of
this commitment. Each lease schedule under this commitment is for 42 months,
with monthly lease payments in the amount of 2.742% of the acquisition cost of
the leased property, for an implied annual interest rate of 8.5%. Upon
executing a lease schedule, we must pay the first and last months rent in
advance. When the term for a schedule covering the San Jose IBX center expires,
we must make a final payment equal to 15% of the original acquisition cost of
the property financed under the schedule. To date, we have not leased any
amount under this commitment.
In connection with the original $1.0 million lease commitment, we issued to
Comdisco a warrant to acquire 30,000 shares of Series A preferred stock at a
purchase price of $1.67 per share, as adjusted to reflect a three-for-two
forward split of our capital stock effected on January 19, 2000. In connection
with the $5.0 million increase in the facility commitment, we issued to
Comdisco a warrant to acquire 150,000 shares of Series A preferred stock at a
purchase price of $3.00 per share, as adjusted to reflect a three-for-two
forward split of our capital stock effected on January 19, 2000. The fair value
of these warrants, as determined using an option pricing model, has been
recorded as a deferred debt facility cost and will be amortized on a straight-
line basis to interest expense over the term of the facility.
The facility restricts our ability to merge or consolidate with another
entity. It does not contain any financial covenants. The facility contains
customary equipment lease events of default, including non-payment of amounts
due under the facility, breach of covenants set forth in the facility, the
making of materially false or misleading representations or warranties under
the facility, and the commencement of reorganization, bankruptcy, insolvency or
similar proceedings involving us.
Comdisco Equipment Loan Facility
In March 1999, Equinix-DC, Inc., our wholly owned subsidiary and the
operator of our Washington, D.C. IBX center, entered into a $7.0 million
equipment acquisition loan facility with Comdisco, Inc. Until March 2000,
Comdisco will make advances up to 100% of the acquisition cost of equipment,
tenant improvements and software for our Washington, D.C. IBX center, provided
that no more than 57% of the loan commitment may be used to finance tenant
improvements and software. Comdisco holds a first priority security interest in
all of Equinix-DC's assets as collateral for the facility obligations.
Advances that finance equipment acquisitions will accrue interest at the
annual rate of 7.5% and will be repaid in 42 monthly installments, and in
connection with the last installment we will pay a final amount equal to 15% of
the original advance amount. Advances that finance tenant improvements and
software acquisitions will accrue interest at the annual rate of 9% and will be
repaid in 36 monthly installments. In connection with the last installment, we
will pay a final amount equal to 15% of the original advance amount. We will
have the right to prepay the advances, in whole or in part, without paying any
penalty or premium. As at December 31, 1999, we have borrowed a total of $5.5
million under this facility.
In connection with this facility, we issued to Comdisco a warrant to acquire
765,000 shares of our Series A preferred stock at a purchase price of $0.67 per
share, as adjusted to reflect a three-for-two forward split of our capital
stock effected on January 19, 2000. The fair value of these warrants, as
determined using an option pricing model, has been recorded as a deferred debt
facility cost and will be amortized on a straight-line basis to interest
expense over the term of the facility.
45
The facility contains covenants that restrict Equinix-DC's right to, among
other things, grant security interests, declare dividends, dispose of a
material portion of its assets, and enter into settlements with customers
relating to outstanding accounts. It does not have any financial covenants. The
facility contains customary events of default, including non-payment of amounts
due under the facility, default by Equinix-DC relating to certain of its other
obligations, breach of covenants set forth in the facility, the existence of
certain unstayed or undischarged judgments against Equinix-DC, the making of
materially false or misleading representations or warranties under the
facility, and the commencement of reorganization, bankruptcy, insolvency or
similar proceedings involving Equinix-DC.
Fore Financial Services Equipment Lease Facility
In June 1999, we entered into an equipment lease facility with Fore
Financial Services. Under the first lease schedule, we leased $197,440 in
equipment and software for our corporate headquarters. We are required to make
36 monthly lease payments of $5,943. Upon expiration of the initial lease term,
the term can be extended for another 6 months, or we can purchase the leased
property at its then fair market value. Under the second lease schedule, we
leased $208,298 in equipment and software for the Washington, D.C. IBX center.
We are required to make 36 monthly lease payments of $6,270. Upon expiration of
the initial lease term, the term can be extended for another 6 months, or we
can purchase the leased property at its then fair market value. Under the third
lease schedule, we leased $210,300 in equipment and software for our Newark,
New Jersey IBX center, effective November 1999. We are required to make 36
monthly lease payments of $6,379. Upon the expiration of the initial lease
term, the term can be extended for another 6 months, or we can purchase the
lease property at its then fair market value.
The facility restricts our ability to merge or consolidate with another
entity or to sell all or substantially all of our assets, by treating such
events as defaults. It does not contain any financial covenants. The facility
contains customary equipment lease events of default, including non-payment of
amounts due under the facility, breach of covenants set forth in the facility,
the making of materially false or misleading representations or warranties
under the facility, and the commencement of reorganization, bankruptcy,
insolvency or similar proceedings involving us.
Cisco Systems Credit Corporation Lease Facility
In March 1999, we entered into an equipment lease facility with Cisco
Systems Credit Corporation. Under this facility, we have leased, for a 24-month
term, $137,293 in Cisco and Cisco-related equipment for our corporate
headquarters. We paid the first and last months' rent payments upon signing the
lease schedule. Each rent payment is $5,463. When the term expires, we will
have the option to purchase the leased property at its then fair market value.
The option will terminate, however, if default occurs during the term. If we do
not purchase the leased property, we will have the right to extend the lease
term in one-year increments with the same monthly payments.
The facility contains customary equipment lease events of default, including
non-payment of amounts due under the facility, breach of covenants set forth in
the facility and the commencement of reorganization, bankruptcy, insolvency or
similar proceedings involving us.
46
THE EXCHANGE OFFER
Purpose of the Exchange Offer
Under the registration rights agreement, we are required to use our
reasonable best efforts to file not later than February 29, 2000, 90 days
following the date of original issuance of the initial notes, the registration
statement of which this prospectus is a part for a registered exchange offer
relating to an issue of new notes. The date of the original issuance of the
initial notes is also referred to as the "closing date". The new notes will be
substantially identical in all material respects to the initial notes except
that the new notes will be registered under the Securities Act, will not bear
legends restricting their transfer and will not be entitled to registration
rights under the registration rights agreement. This summary of provisions of
the registration rights agreement does not purport to be complete and we refer
you to the provisions of the registration rights agreement, which has been
filed as an exhibit to the registration statement of which this prospectus is a
part and a copy of which is available as described under the heading "Available
Information."
Under the registration rights agreement, we are required to:
. use our reasonable best efforts to cause the registration statement to be
declared effective no later than June 28, 2000, 210 days after the
closing date;
. use our reasonable best efforts to consummate the exchange offer within
30 days of the registration statement being declared effective; and
. keep the exchange offer effective for not less than 30 days, or longer if
required by applicable law, after the date that notice of the exchange
offer is mailed to holders of the initial notes.
The exchange offer being made here, if commenced and consummated within the
time periods described in this paragraph, will satisfy those requirements under
the registration rights agreement.
This prospectus, together with the letter of transmittal, is being sent to
all record holders of initial notes as of , 2000.
Based on interpretations by the staff of the Securities and Exchange
Commission, as set forth in no-action letters issued to third parties, we
believe that the exchange notes issued in the exchange offer may be offered for
resale, resold or otherwise transferred by each holder of exchange notes, other
than a broker-dealer who acquires the initial notes directly from Equinix for
resale under Rule 144A under the Securities Act or any other available
exemption under the Securities Act, and other than any holder that is an
"affiliate," as defined in Rule 405 under the Securities Act, of Equinix,
without compliance with the registration and prospectus delivery provisions of
the Securities Act, provided that such holder:
. is acquiring the exchange notes in the ordinary course of its business;
. is not participating in, and does not intend to participate in, a
distribution of such exchange notes within the meaning of the Securities
Act and has no arrangement or understanding with any person to
participate in a distribution of the exchange notes within the meaning of
the Securities Act; and
. is not an affiliate, as defined in Rule 405 under the Securities Act, of
Equinix.
By tendering the initial notes in exchange for exchange notes, each holder,
other than a broker-dealer, will be required to make representations to that
effect. If a holder of initial notes is participating in or intends to
participate in, a distribution of the exchange notes, or has any arrangement or
understanding with any person to participate in a distribution of the exchange
notes to be acquired in the exchange offer, such holder may be deemed to have
received restricted securities and may not rely on the applicable
interpretations of the staff of the Securities and Exchange Commission. Any
such holder will have to comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any secondary resale
transaction.
Each broker-dealer that receives exchange notes for its own account in
exchange for initial notes may be deemed to be an "underwriter" within the
meaning of the Securities Act and must acknowledge that it will
47
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such exchange notes. The letter of transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. This prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with offers to
resell, resales and other transfers of exchange notes received in exchange for
initial notes which were acquired by such broker-dealer as a result of market
making or other trading activities. We have agreed that we will make this
prospectus available to any broker-dealer for a period of time not to exceed
180 days after the consummation of the exchange offer for use in connection
with any such offer to resell, resale or other transfer. Please refer to the
section in this prospectus entitled "Plan of Distribution."
Shelf Registration Statement
In the event that:
. because of any change in law or its applicable interpretations by the
staff of the Securities and Exchange Commission, we are not permitted to
effect the exchange offer;
. for any other reason, the exchange offer is not consummated within 210
days from the closing date; or
. any holder of initial notes notifies us within 20 business days following
the consummation of the exchange offer that (a) such holder was
prohibited by law of policy of the Securities and Exchange Commission
from participating in the exchange offer, or (b) such holder may not
resell the exchange notes acquired by it in the exchange offer to the
public without delivering a prospectus and this prospectus is not
appropriate or available for such resale, or (c) such holder is a broker-
dealer and holds notes acquired directly from us or any of our
affiliates, within the meaning of the Securities Act;
we will be obligated, at our sole expense, to:
. use our reasonable best efforts, as promptly as practicable and in no
event more than 30 days following such request, to file with the
Securities and Exchange Commission a shelf registration statement
covering resales of the initial notes;
. use our reasonable best efforts to cause the shelf registration statement
to be declared effective under the Securities Act within 90 days after
the date we are required to file a shelf registration statement; and
. use our reasonable best efforts to keep the shelf registration statement
continuously effective, supplemented and amended as required by the
Securities Act to permit the prospectus which is a part of such shelf
registration statement to be usable by holders for a period of two years
after the shelf registration statement is declared effective or such
shorter period of time that will terminate when all of the applicable
initial notes have been sold thereunder.
We will, in the event that a shelf registration statement is filed, provide
to each holder of the initial notes being registered copies of the prospectus
that is a part of the shelf registration statement, notify each such holder
when the shelf registration statement has become effective and take certain
other actions as are required to permit unrestricted resales of the initial
notes being registered. A holder that sells initial notes under the shelf
registration statement will be required to be named as a selling security
holder in the related prospectus and to deliver a prospectus to purchasers,
will be subject to certain of the civil liability provisions under the
Securities Act in connection with such sales and will be bound by the
provisions of the registration rights agreement that are applicable to such a
holder, including certain indemnification rights and obligations.
Liquidated Damages
In the event that:
. we do not file the registration statement or the shelf registration
statement, as the case may be, with the Securities and Exchange
Commission on or before the dates specified above for such filings;
48
. the registration statement or the shelf registration statement, as the
case may be, is not declared effective on or before the dates specified
above for such effectiveness;
. the exchange offer is not consummated within 30 days of the registration
statement being declared effective; or
. the shelf registration statement is filed and declared effective but
thereafter ceases to be effective or usable in connection with its
intended purpose;
each such event a "Registration Default," then we will be obligated to pay to
each holder of transfer restricted securities, as defined in the registration
rights agreement, liquidated damages. Liquidated damages will accrue and be
payable semi-annually on the initial notes and the exchange notes, in addition
to the stated interest on the initial notes and the exchange notes, in an
amount equal to 0.50% per year during the first 90-day period, which will
increase by 0.50% per year for each subsequent 90-day period, but in no event
will such rate exceed 1.50% per year in the aggregate, regardless of the number
of registration defaults. Liquidated damages will accrue from the date a
registration default occurs until the date on which:
. the registration statement is filed;
. the registration statement or shelf registration statement is declared
effective and the exchange offer is consummated;
. the shelf registration statement is declared effective; or
. the shelf registration statement again becomes effective or made usable,
as the case may be.
Following the cure of all registration defaults, the accrual of liquidated
damages will cease.
Upon consummation of the exchange offer, subject to certain exceptions,
holders of initial notes who do not exchange their initial notes for exchange
notes in the exchange offer will no longer be entitled to registration rights
and will not be able to offer or sell their initial notes, unless such initial
notes are subsequently registered under the Securities Act, which, subject to
certain limited exceptions, we will have no obligation to do, or under an
exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. Please refer to the section in this
prospectus entitled "Risk Factors--There could be negative consequences to you
if you do not exchange your initial notes for exchange notes."
Expiration of the Exchange Offer
The exchange offer will expire at 5:00 p.m., New York City time, on ,
2000. The expiration date will be at least 30 days after the commencement of
the exchange offer in accordance with Rule 14e-1(a) under the Securities
Exchange Act of 1934 and the registration rights agreement.
Procedures for Tendering Initial Notes
To tender your initial notes in the exchange offer, you must complete, sign
and date the letter of transmittal, or a facsimile of the letter of
transmittal, have the signatures thereon guaranteed if required by the letter
of transmittal, and mail or otherwise deliver the letter of transmittal or the
facsimile, or an agent's message, as defined below, together with the
certificates representing the initial notes being tendered and any other
required documents, to the exchange agent on or before 5:00 p.m., New York City
time, on the expiration date. Alternatively, you may either:
. send a timely confirmation of a book-entry transfer of such initial
notes, if such procedure is available, into the exchange agent's account
at The Depository Trust Company, or DTC, following the procedure for
book-entry transfer described below, on or before 5:00 p.m. on the
expiration date; or
. comply with the guaranteed delivery procedures described below.
49
The term "agent's message" means a message, transmitted by DTC to, and
received by, the exchange agent and forming a part of a book-entry
confirmation, which states that DTC has received an express acknowledgment from
the participant in DTC tendering initial notes which are the subject of such
book-entry confirmation that such participant has received and agrees to be
bound by the terms of the letter of transmittal, and that we may enforce such
agreement against such participant.
The method of delivery of the initial notes, the letter of transmittal and
all other required documents is at your election and risk. Instead of delivery
by mail, we recommend that you use an overnight or hand-delivery service. If
such delivery is by mail, we recommend that you use registered mail, properly
insured, with return receipt requested. In all cases, you should allow
sufficient time to assure timely delivery. You should not send any letters of
transmittal or initial notes to us. You must deliver all documents to the
exchange agent at its address set forth below. You may also request your
respective brokers, dealers, commercial banks, trust companies or nominees to
effect such tender on your behalf.
Your tender of initial notes will constitute an agreement between you and us
in accordance with the terms and subject to the conditions set forth in this
prospectus and in the letter of transmittal.
Only a holder of initial notes may tender such initial notes in the exchange
offer. The term "holder" relating to the exchange offer means any person in
whose name initial notes are registered on our books or any other person who
has obtained a properly completed bond power from the registered holder.
If you are the beneficial owner of initial notes that are registered in the
name of a broker, dealer, commercial bank, trust company or other nominee and
you wish to tender your initial notes, you should contact such registered
holder promptly and instruct such registered holder to tender on your behalf.
If you wish to tender on your own behalf, you must, before completing and
executing the letter of transmittal and delivering your initial notes, either
make appropriate arrangements to register ownership of the initial notes in
your name or obtain a properly completed bond power from the registered holder.
The transfer of registered ownership may take considerable time.
Signatures on a letter of transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor" institution within the meaning of Rule
17Ad-15 under the Securities Exchange Act of 1934, each, an "eligible
institution", unless the initial notes are tendered:
. by a registered holder, or by a participant in DTC whose name appears on
a security position listing as the owner, who has not completed the box
entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the letter of transmittal if the exchange notes are
being issued directly to such registered holder, or deposited into the
participant's account at DTC; or
. for the account of an eligible institution.
If the letter of transmittal is signed by the recordholder(s) of the initial
notes tendered, the signature must correspond with the name(s) written on the
face of the initial notes without alteration, enlargement or any change
whatsoever. If the letter of transmittal is signed by a participant in DTC, the
signature must correspond with the name as it appears on the security position
listing as the holder of the initial notes.
If the letter of transmittal is signed by a person other than the registered
holder of any initial notes listed, such initial notes must be endorsed or
accompanied by bond powers and a proxy that authorize such person to tender the
initial notes on behalf of the registered holder in satisfactory form to us as
determined in our sole discretion, in each case as the name of the registered
holder or holders appears on the initial notes.
If the letter of transmittal or any initial notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or
50
representative capacity, such persons should so indicate when signing. Unless
waived by us, evidence satisfactory to us of their authority to so act must
also be submitted with the letter of transmittal.
A tender will be deemed to have been received as of the date when the
tendering holder's duly signed letter of transmittal accompanied by the initial
notes tendered, or a timely confirmation received of a book-entry transfer of
initial notes into the exchange agent's account at DTC with an agent's message,
or a notice of guaranteed delivery from an eligible institution is received by
the expiration date. Issuances of exchange notes in exchange for initial notes
tendered under a notice of guaranteed delivery by an eligible institution will
be made only against delivery of the letter of transmittal, and any other
required documents, and the tendered initial notes, or a timely confirmation
received of a book-entry transfer of initial notes into the exchange agent's
account at DTC with an agent's message, with the exchange agent.
All questions as to the validity, form, eligibility, including time of
receipt, acceptance and withdrawal of the tendered initial notes will be
determined by us in our sole discretion, which determination will be final and
binding. We reserve the absolute right to reject any and all initial notes not
properly tendered or any initial notes which, if accepted, would, in our
opinion or our counsel's opinion, be unlawful. We also reserve the absolute
right to waive any conditions of the exchange offer or irregularities or
defects in tender as to particular initial notes. Our interpretation of the
terms and conditions of the exchange offer, including the instructions in the
letter of transmittal, will be final and binding on all parties. Unless waived,
any defects or irregularities in connection with tenders of initial notes must
be cured within such time as we shall determine. We, the exchange agent or any
other person will be under no duty to give notification of defects or
irregularities relating to tenders of initial notes. None of us or the exchange
agent will incur any liability for failure to give such notification. Tenders
of initial notes will not be deemed to have been made until such irregularities
have been cured or waived. Any initial notes received by the expiration date
that are not properly tendered and as to which the defects or irregularities
have not been cured or waived will be returned without cost by the exchange
agent to the tendering holders of such initial notes, unless otherwise provided
in the letter of transmittal, as promptly as practicable following the
expiration date.
In addition, we reserve the right in our sole discretion, subject to the
provisions of the indenture, to:
. purchase or make offers for any initial notes that remain outstanding
after the expiration date, or, as set forth under "--Expiration Date", to
terminate the exchange offer in accordance with the terms of the
registration rights agreement; and
. to the extent permitted by applicable law, purchase initial notes in the
open market, in privately negotiated transactions or otherwise. The terms
of any such purchases or offers could differ from the terms of the
exchange offer.
Acceptance of Initial Notes for Exchange; Delivery of Exchange Notes
Upon satisfaction or waiver of all of the conditions to the exchange offer,
we will accept all initial notes properly tendered, promptly after the
expiration date, and will issue the exchange notes promptly after the
expiration date and acceptance of the initial notes. Please refer to the
section of this prospectus entitled "--Conditions" below. For purposes of the
exchange offer, initial notes will be deemed to have been accepted as validly
tendered for exchange when, as and if we had given oral or written notice to
the exchange agent.
In all cases, issuance of exchange notes for initial notes that are accepted
for exchange in the exchange offer will be made only after timely receipt by
the exchange agent of certificates for such initial notes or a timely book-
entry confirmation of such initial notes into the exchange agent's account at
the book-entry transfer facility, a properly completed and duly executed letter
of transmittal or an agent's message and all other required documents, in each
case, in form satisfactory to us and the exchange agent. If any tendered
initial notes are not accepted for any reason set forth in the terms and
conditions of the exchange offer or if initial notes are submitted for a
greater principal amount than the holder desires to exchange, such unaccepted
or non-exchanged initial notes will be returned without expense to the
tendering holder, or, in the case
51
of initial notes tendered by book-entry transfer procedures described below,
such non-exchanged initial notes will be credited to an account maintained with
such book-entry transfer facility, as promptly as practicable after withdrawal,
rejection of tender, the expiration date or earlier termination of the exchange
offer.
Book-Entry Transfer
The exchange agent will make a request to establish an account relating to
the initial notes at DTC for purposes of the exchange offer. Any financial
institution that is a participant in DTC's systems may make book-entry delivery
of initial notes by causing DTC to transfer such initial notes into the
exchange agent's account at DTC in accordance with DTC's procedures for
transfer.
However, although delivery of initial notes may be effected through book-
entry transfer into the exchange agent's account at DTC, an agent's message or
the letter of transmittal or facsimile of the letter of transmittal with any
required signature guarantees and any other required documents must, in any
case, be transmitted to and received by the exchange agent at the address set
forth below under "--Exchange Agent" on or before the expiration date or the
guaranteed delivery procedures described below must be complied with. Delivery
of documents to DTC does not constitute delivery to the exchange agent. All
references in the prospectus to deposit of initial notes will be deemed to
include DTC's book-entry delivery method.
Guaranteed Delivery Procedure
If you are a registered holder of initial notes and desire to tender such
initial notes, and the initial notes are not immediately available, or time
will not permit your initial notes or other required documents to reach the
exchange agent before the expiration date, or the procedures for book-entry
transfer cannot be completed on a timely basis and an agent's message
delivered, you may still tender in the exchange offer if:
. you tender through an eligible institution;
. before the expiration date, the exchange agent receives from such
eligible institution a properly completed and duly executed letter of
transmittal, or facsimile of the letter of transmittal, and notice of
guaranteed delivery, substantially in the form provided by us, by
facsimile transmission, mail or hand delivery, setting forth your name
and address as holder of the initial notes and the amount of initial
notes tendered, stating that the tender is being made thereby and
guaranteeing that within five business days after the expiration date
the certificates for all tendered initial notes, in proper form for
transfer, or a book-entry confirmation with an agent's message, as the
case may be, and any other documents required by the letter of
transmittal will be deposited by the eligible institution with the
exchange agent; and
. the certificates for all tendered initial notes, in proper form for
transfer, or a book-entry confirmation as the case may be, and all other
documents required by the letter of transmittal are received by the
exchange agent within five business days after the expiration date.
Withdrawal of Tenders
Except as otherwise provided in this prospectus, you may withdraw tenders of
initial notes at any time before 5:00 p.m., New York City time, on the
expiration date.
For a withdrawal to be effective, you must send a written or facsimile
transmission notice of withdrawal to the exchange agent before 5:00 p.m., New
York City time, on the expiration date at the address set forth below under "--
Exchange Agent" and before acceptance for exchange by us. Any such notice of
withdrawal must:
. specify the name of the person, or "depositor", having tendered the
initial notes to be withdrawn ;
. identify the initial notes to be withdrawn, including, if applicable,
the registration number or numbers and total principal amount of such
initial notes;
52
. be signed by the depositor in the same manner as the original signature
on the letter of transmittal by which such initial notes were tendered,
including any required signature guarantees, or be accompanied by
documents of transfer sufficient to permit the trustee relating to the
initial notes to register the transfer of such initial notes into the
name of the depositor withdrawing the tender;
. specify the name in which any such initial notes are to be registered, if
different from that of the depositor; and
. if applicable because the initial notes have been tendered following the
book-entry procedures, specify the name and number of the participant's
account at DTC to be credited, if different than that of the depositor.
All questions as to the validity, form and eligibility, including time of
receipt, of such notices will be determined by us and our determination will be
final and binding on all parties. Any initial notes so withdrawn will be deemed
not to have been validly tendered for exchange for purposes of the exchange
offer. Any initial notes which have been tendered for exchange which are not
exchanged for any reason will be returned to their holder without cost to such
holder, or, in the case of initial notes tendered by book-entry transfer into
the exchange agent's account at DTC following the book-entry transfer
procedures described above, such initial notes will be credited to an account
maintained with DTC for the initial notes, as promptly as practicable after
withdrawal, rejection of tender, expiration date or earlier termination of the
exchange offer. Properly withdrawn initial notes may be retendered by following
one of the procedures described under "--Procedures for Tendering" and "--Book-
Entry Transfer" above at any time on or before the expiration date.
Conditions
Notwithstanding any other term of the exchange offer, we will not be
required to accept initial notes for exchange, or issue exchange notes in
exchange for any initial notes, if:
. a change in the current interpretation of the staff of the Securities and
Exchange Commission has occurred which current interpretation permits the
exchange notes issued in the exchange offer in exchange for the initial
notes to be offered for resale, resold or otherwise transferred by their
holders, other than in certain circumstances; or
. a law has been adopted or enacted which, in our judgment, would
reasonably be expected to impair our ability to proceed with the exchange
offer.
These conditions are for our sole benefit and may be asserted by us
regardless of the circumstances giving rise to any such condition or may be
waived by us, in whole or in part, at any time and from time to time, before
the expiration date, if we determine in our reasonable discretion that any of
the foregoing events or conditions has occurred or exists or has not been
satisfied, subject to applicable law. Our failure at any time to exercise any
of the foregoing rights will not be deemed a waiver of any such right and each
such right will be deemed an ongoing right which we may assert at any time and
from time to time before the expiration date.
If we determine that we may terminate the exchange offer, as provided above,
we may:
. refuse to accept any initial notes and return any initial notes that have
been tendered to their holders;
. extend the exchange offer and retain all initial notes tendered before
the expiration date, subject to the rights of such holders of tendered
initial notes to withdraw their tendered initial notes; or
. waive such termination event relating to the exchange offer and accept
all properly tendered initial notes that have not been withdrawn or
otherwise amend the terms of the exchange offer in any respect as
provided under the section in this prospectus entitled "--Expiration
Date; Extensions; Amendments; Termination."
53
The exchange offer is not conditioned upon any minimum principal amount of
initial notes being tendered for exchange.
We have no obligation to, and will not knowingly, permit acceptance of
tenders of initial notes from our affiliates, within the meaning of Rule 405
under the Securities Act, or from any other holder or holders who are not
eligible to participate in the exchange offer under applicable law or its
interpretations by the Securities and Exchange Commission, or if the exchange
notes to be received by such holder or holders of initial notes in the exchange
offer, upon receipt, will not be tradable by such holder without restriction
under the Securities Act and the Securities Exchange Act of 1934 and without
material restrictions under the "blue sky" or securities laws of substantially
all of the states of the United States.
Accounting Treatment
We will record the exchange notes at the same carrying value as the initial
notes, as reflected in our accounting records on the date of the exchange.
Accordingly, we will not recognize any gain or loss for accounting purposes. We
will amortize the costs of the exchange offer and the unamortized expenses
related to the issuance of the exchange notes over the term of the exchange
notes.
Exchange Agent
We have appointed State Street Bank and Trust Company of California, N.A. as
exchange agent for the exchange offer. All questions and requests for
assistance and requests for additional copies of this prospectus or the letter
of transmittal should be directed to the exchange agent as follows:
By Mail:
State Street Bank and Trust Company of California, N.A.
c/o State Street Bank and Trust Company
P.O. Box 778
Boston, MA 02101-0778
ATTN: Ralph Jones
By Hand/Overnight Delivery:
State Street Bank and Trust Company of California, N.A.
c/o State Street Bank and Trust Company
2 Avenue de Layfayette
Corporate Trust Window, 5th Floor
Boston, MA 02111-1724
ATTN: Ralph Jones
Facsimile Transmission: (617) 662-1452
Confirm by Telephone: (617) 662-1548
Fees and Expenses
We will bear the expenses of soliciting tenders in the exchange offer. The
principal solicitation for tenders in the exchange offer is being made by mail;
however, our offices and regular employees may make additional solicitations by
telegraph, telephone, telecopy or in person.
We will not make any payments to brokers, dealers or other persons
soliciting acceptances of the exchange offer. However, we will pay the exchange
agent reasonable and customary fees for its services and will reimburse the
exchange agent for its reasonable out-of-pocket expenses in connection with the
exchange offer. We may also pay brokerage houses and other custodians, nominees
and fiduciaries the reasonable out-of-pocket expenses incurred by them in
forwarding copies of the prospectus, letters of transmittal and related
documents to the beneficial owners of the initial notes, and in handling or
forwarding tenders for exchange.
54
We will pay the expenses incurred in connection with the exchange offer,
including fees and expenses of the exchange agent and trustee and accounting,
legal, printing and related fees and expenses.
We will pay all transfer taxes, if any, applicable to the exchange of
initial notes in the exchange offer. However, the amount of any such transfer
taxes, whether imposed on the registered holder or any other persons, will be
payable by the tendering holder if:
. certificates representing exchange notes or initial notes for principal
amounts not tendered or accepted for exchange are to be delivered to, or
are to be registered or issued in the name of, any person other than the
registered holder of the initial notes tendered;
. tendered initial notes are registered in the name of any person other
than the person signing the letter of transmittal; or
. a transfer tax is imposed for any reason other than the exchange of
initial notes in the exchange offer.
If satisfactory evidence of payment of such taxes or exemption therefrom is
not submitted with the letter of transmittal, the amount of such transfer taxes
will be billed directly to such tendering holder.
The Failures to Participate in the Exchange Offer will have Adverse
Consequences
If you do not exchange your initial notes for exchange notes in the exchange
offer, you will not be able to resell, offer to resell or otherwise transfer
the initial notes unless they are registered under the Securities Act or unless
you resell them, offer to resell or otherwise transfer them under an exemption
from the registration requirements of, or in a transaction not subject to, the
Securities Act. In addition, you will no longer be able to obligate us to
register the initial notes under the Securities Act except in the limited
circumstances provided under the registration rights agreement. The
restrictions on transfer of your initial notes arise because we issued the
initial notes under exemptions from, or in transactions not subject to, the
registration requirements of the Securities Act and applicable state securities
laws. In addition, if you want to exchange your initial notes in the exchange
offer for the purpose of participating in a distribution of the exchange notes,
you may be deemed to have received restricted securities, and, if so, will be
required to comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any resale transaction. To the extent
the initial notes are tendered and accepted in the exchange offer, the trading
market, if any, for the initial notes would be adversely affected. Please refer
to the section in this prospectus entitled "Risk Factors."
55
DESCRIPTION OF THE EXCHANGE NOTES
General
The form and terms of the exchange notes are the same as the form and terms
of the initial notes, except that the exchange notes have been registered under
the Securities Act and therefore will not bear legends restricting their
transfer. We issued the initial notes and will issue the exchange notes under
an indenture, dated as of December 1, 1999, between Equinix and State Street
Bank and Trust Company of California, N.A., as trustee. The terms of the
exchange notes will include those stated in the indenture and those made part
of the indenture by reference to the Trust Indenture Act of 1939, as amended.
The exchange notes will be subject to all such terms, and holders are referred
to the indenture and the Trust Indenture Act for a statement of those terms.
Except as otherwise indicated, the following summary description of the
material provisions of the indenture relates both to the initial notes and the
exchange notes. We urge you to read the indenture because it, and not this
description, defines your rights as holder of the exchange notes. We have filed
copies of the indenture, escrow agreement and registration agreement as
exhibits to the registration statement which includes this prospectus. The
definitions of certain terms used in the following summary are set forth below
under "--Certain Definitions." For purposes of this summary, the term "Equinix"
refers only to Equinix, Inc. and not to any of its subsidiaries. Also, in this
description "initial notes" and "exchange notes" are collectively referred to
as the "notes."
As of the Issue Date, all of our Subsidiaries will be Restricted
Subsidiaries. Under certain circumstances, we will be able to designate
existing or future Subsidiaries as Unrestricted Subsidiaries. Unrestricted
Subsidiaries will not be subject to many of the restrictive covenants contained
in the indenture.
Terms of Notes
Except as set forth under "--Escrow Account; Disbursement of Funds," the
notes will be our senior unsecured obligations, ranking equally in right of
payment with all our other existing and future senior debt and senior to all
our existing and future subordinated debt. Holders of our secured Indebtedness,
however, will have claims that are before the claims of the holders relating to
the assets securing such other debt, except to the extent the notes are equally
and ratably secured by such assets. The indenture will permit us to incur
certain secured debt.
The notes will be effectively subordinated to all Indebtedness and other
liabilities and commitments, including trade payables and lease obligations, of
our subsidiaries, including any Guarantees of such subsidiaries. Any right of
ours to receive assets of any of our subsidiaries in the event of its
liquidation or reorganization, and the consequent right of the holders to
participate in those assets, will be effectively subordinated to the claims of
that subsidiary's creditors. To the extent that we are recognized as a creditor
of such subsidiary, our claims would still be subordinate to any secured claim
to the assets of such subsidiary and any Indebtedness of such subsidiary that
is senior to that held by us.
Principal, Maturity and Interest
The notes will be limited in aggregate principal amount to $200,000,000 and
will mature on December 1, 2007. Interest on the notes will accrue at the rate
of 13% per annum and will be payable semi-annually in arrears on June 1 and
December 1, commencing on June 1, 2000, to holders as of the immediately
preceding May 15 and November 15. Interest on the notes will accrue from the
most recent date to which interest has been paid or, if no interest has been
paid, from the date of original issuance. Interest will be computed on the
basis of a 360-day year comprised of twelve 30-day months. Principal, premium,
if any, and interest on the notes will be payable at the office or agency of
Equinix maintained for such purpose in New York city or, at the option of
Equinix, payment of interest on the notes may be made by check mailed to the
holders at their respective addresses set forth in the register of holders.
Until otherwise designated by Equinix, Equinix's office or agency in New York
will be the office of the trustee maintained for such purpose. The notes will
be issued
56
in denominations of $1,000 and integral multiples of $1,000. The trustee
initially will be paying agent and registrar under the indenture. We may also
act as paying agent or registrar under the indenture.
Escrow Account; Disbursement of Funds
The notes will be collateralized, pending disbursement, under an escrow
agreement dated as of December 1, 1999, among Equinix, the trustee and State
Street Bank and Trust Company of California, N.A., as escrow agent, by a pledge
of the escrow account referred to in the escrow agreement. The escrow account
will initially contain approximately $37.0 million of the net proceeds from the
sale of the notes. These funds, together with the proceeds from their
investment, will be sufficient to pay interest on the notes for three scheduled
interest payments. The funds will not be sufficient to pay any liquidated
damages described under "The Exchange Offer; Liquidated Damages."
The escrow agreement provides for the grant by Equinix to the trustee, for
the benefit of the holders, of a first priority security interest in the escrow
collateral. All such security interests will collateralize the payment and
performance when due of all our obligations under the indenture and the notes,
as provided in the escrow agreement. The Liens created by the escrow agreement
will be first priority security interests in the Escrow Collateral. The ability
of holders to realize upon any such funds or securities may be subject to
certain bankruptcy law limitations if there is a bankruptcy of Equinix.
Under the escrow agreement, funds may be disbursed from the escrow account
only to pay interest on the notes. If a portion of the notes has been retired
by Equinix, funds representing the lesser of:
. the excess of the amount sufficient to pay interest through and
including June 1, 2001 on the notes not so retired; and
. the interest payments which have not previously been made on such
retired notes for each interest payment date through and including the
interest payment date to occur on June 1, 2001;
shall be paid to Equinix if no default then exists under the indenture.
Pending such disbursements, all funds contained in the escrow account will
be invested in U.S. Government Securities. Interest earned on the U.S.
Government Securities will be placed in the escrow account. Upon the
acceleration of the maturity of the notes, the escrow agreement will provide
for the foreclosure by the trustee upon the net proceeds of the escrow account.
Under the terms of the indenture, the proceeds of the escrow account shall be
applied, first, to amounts owing to the trustee in respect of fees and expenses
of the trustee and, second, to all obligations under the notes and the
indenture. Under the escrow agreement, assuming that we make the first three
scheduled interest payments on the notes in a timely manner with funds or U.S.
Government Securities held in the escrow account, any remaining U.S. Government
Securities will be released from the escrow account.
Optional Redemption
Except as set forth below, the notes will not be redeemable at our option
before December 1, 2003. After December 1, 2003, the notes will be subject to
redemption at any time at our option, in whole or in part, upon not less than
30 nor more than 60 days' notice. The notes may be redeemed at the redemption
prices, expressed as percentages of principal amount, below, plus accrued and
unpaid interest to the applicable redemption date. This right is subject to the
right of holders as of the relevant record date to receive interest due on the
relevant interest payment date, if redeemed during the twelve-month period
beginning on December 1 of the years indicated below.
Year Percentage
---- ----------
2003.......................................................... 106.500%
2004.......................................................... 103.250%
2005 and thereafter........................................... 100.000%
57
Selection and Notice
If less than all of the notes are to be redeemed at any time, selection of
notes for redemption will be made by the trustee in compliance with the
requirements of the principal national securities exchange, if any, on which
the notes are then listed, or, if the notes are not so then listed, on a pro
rata basis, by lot or by such method as we shall deem fair and appropriate. No
notes of $1,000 or less shall be redeemed in part. Notices of redemption shall
be mailed by first class mail at least 30 but not more than 60 days before the
redemption date to each holder of notes to be redeemed at its registered
address. Notices of redemption may not be conditional. If any note is to be
redeemed in part only, the notice of redemption that relates to such note shall
state the portion of the principal amount of the note to be redeemed. A new
note in principal amount equal to its unredeemed portion will be issued in the
name of its holder upon cancellation of the original note. Notes called for
redemption will become due on the date fixed for redemption. On and after the
redemption date, interest will cease to accrue on notes or portions of notes
called for redemption unless we default in their payment.
Mandatory Redemption
Except as provided under "--Repurchase at the Option of Holders," we will
not be required to make mandatory redemption or sinking fund payments relating
to the notes.
Repurchase at the Option of Holders
Change of Control
Upon the occurrence of a Change of Control, each holder will have the right
to require us to purchase all or any part, equal to $1,000 or an integral
multiple of $1,000, of such holder's notes in the offer described below at a
purchase price in cash equal to 101% of the aggregate principal amount of the
note, plus accrued and unpaid interest and liquidated damages, if any, to the
date of purchase. This right is subject to the right of holders as of a record
date to receive interest due on the relevant interest payment date. However, we
shall not be obligated to repurchase notes in a Change of Control offer in the
event that we have exercised our rights to redeem all of the notes under the
indenture. Within 30 days following any Change of Control, we will mail a
notice to each holder describing the transaction or transactions that
constitute the Change of Control and offering to purchase notes on the date
specified in such notice, which date shall be no earlier than 30 and no later
than 60 days from the date such notice is mailed, in accordance with the
procedures required by the indenture and described in such notice.
We will comply with the requirements of Rule 14e-1 under the Exchange Act
and any other securities laws and regulations to the extent such laws and
regulations are applicable in connection with the purchase of notes as a result
of a Change of Control. To the extent that the provisions of any securities
laws or regulations conflict with any of the provisions of this covenant, we
will comply with the applicable securities laws and regulations and will be
deemed not to have breached our obligations under this covenant by virtue of
such compliance.
On the Change of Control payment date, we will, to the extent lawful:
. accept for payment all notes or portions of notes properly tendered in
the Change of Control offer;
. deposit with the paying agent an amount equal to the Change of Control
payment plus accrued and unpaid interest and liquidated damages, if any,
in respect of all notes or portions of notes so tendered; and
. deliver or cause to be delivered to the trustee notes so accepted
together with an Officers' Certificate stating the aggregate principal
amount of notes or portions of notes being purchased by us.
The paying agent will promptly mail or deliver to each holder of notes so
tendered the Change of Control payment plus accrued and unpaid interest and
liquidated damages, if any, for such notes, and the trustee will
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promptly authenticate and mail or deliver, or cause to be transferred by book
entry, to each holder a new note equal in principal amount to any unpurchased
portion of notes surrendered, if any. Each such new note will be in a principal
amount of $1,000 or an integral multiple of $1,000. We will publicly announce
the results of the Change of Control offer on or as soon as practicable after
the Change of Control payment date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the indenture are applicable. Except as
described above relating to a Change of Control, the indenture will not contain
provisions that permit the holders to require that we purchase or redeem the
notes if there is a takeover, recapitalization or similar transaction. Our
ability to purchase notes upon a Change of Control may be limited by our then
existing financial resources. There can be no assurance that sufficient funds
will be available when necessary to make any such required purchases. We shall
not be required to make a Change of Control offer if a third party makes the
Change of Control offer in the manner, at the times and otherwise in compliance
with the requirements of the indenture and purchases all notes validly tendered
and not withdrawn. See "Risk Factors--We may not have sufficient funds to
purchase the exchange notes as required upon a change of control."
Asset Sales
We will not, and will not permit any of the Restricted Subsidiaries to,
directly or indirectly, consummate any Asset Sale, unless:
. we, or such Restricted Subsidiary, as the case may be, receive
consideration at the time of such Asset Sale at least equal to the fair
market value, as determined in good faith by our board of directors and
set forth in an Officer's Certificate delivered to the trustee, of the
assets or Equity Interests issued or sold or otherwise disposed of;
. at least 75% of the consideration is in the form of cash and/or Cash
Equivalents or Qualified Consideration; and
. the Net Cash Proceeds received by Equinix, or such Restricted
Subsidiary, as the case may be, from such Asset Sale are applied within
360 days following the receipt of such Net Cash Proceeds, to the extent
Equinix, or such Restricted Subsidiary, as the case may be, elects:
(a) to the redemption or repurchase of outstanding Indebtedness, (1)
that is either (A) secured Indebtedness or (B) Indebtedness of
Equinix that ranks equally with the notes but has an earlier
maturity date, in either case other than Subordinated Indebtedness,
or (2) that is Indebtedness of a Restricted Subsidiary; and/or
(b) to reinvest such Net Cash Proceeds, or any portion, in properties
or assets, including Equity Interests of a person that will become
a Restricted Subsidiary as a result of such investment, that will
be used in a Permitted Business.
The balance of such Net Cash Proceeds, after the application of such Net Cash
Proceeds as described in the immediately preceding clauses (a) and (b), shall
constitute Excess Proceeds.
When the aggregate amount of Excess Proceeds equals or exceeds $10 million,
taking into account income earned on such Excess Proceeds, we will be required
to make a pro rata offer to all holders of notes and equally-ranking
Indebtedness with comparable provisions requiring such Indebtedness to be
purchased with the proceeds of such Asset Sale, called an Asset Sale Offer. We
must offer to purchase the maximum principal amount, or accreted value in the
case of Indebtedness issued with an original issue discount, of notes and
equally-ranking Indebtedness that may be purchased out of the Excess Proceeds,
at a purchase price in cash in an amount equal to 100% of the principal amount
or the accreted value of the note, as applicable, plus accrued and unpaid
interest thereon to the date of purchase, subject to the right of holders as of
the relevant record date to receive interest due on the relevant interest
payment date, in accordance with the procedures set forth in the indenture and
the agreements governing such equally-ranking Indebtedness. To the extent that
any Excess
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Proceeds remain after consummation of an Asset Sale Offer, Equinix may use such
Excess Proceeds for any purpose not otherwise prohibited by the indenture. If
the aggregate principal amount of notes and equally-ranking Indebtedness
tendered in such Asset Sale Offer surrendered by their holders exceeds the
amount of Excess Proceeds, the trustee shall select the notes and equally-
ranking Indebtedness to be purchased on a pro rata basis in proportion to the
respective principal amounts, or accreted values in the case of Indebtedness
issued with an original issue discount, of the notes and such other
Indebtedness. On completion of such Asset Sale Offer, the amount of Excess
Proceeds shall be reset at zero for purposes of the first sentence of this
paragraph.
The amount of:
. any liabilities, as shown on Equinix's or such Restricted Subsidiary's,
as the case may be, most recent balance sheet, other than Subordinated
Indebtedness, of Equinix or any Restricted Subsidiary, that are assumed
by the transferee of any such assets under an agreement that immediately
releases Equinix and all of the Restricted Subsidiaries from all
liability in respect of such liabilities;
. Indebtedness of any Restricted Subsidiary that is no longer a Restricted
Subsidiary as a result of such Asset Sale, if Equinix and all of the
Restricted Subsidiaries are immediately released from all Guarantees of
payment of such Indebtedness and such Indebtedness is no longer the
liability of Equinix or any of the Restricted Subsidiaries; and
. any securities, notes or other obligations received by Equinix, or such
Restricted Subsidiary, as the case may be, from such transferee that are
converted by Equinix, or such Restricted Subsidiary, as the case may be,
into cash and/or Cash Equivalents within 90 days of the date of such
Asset Sale, to the extent of the cash and/or Cash Equivalents received;
will be deemed to be cash and/or Cash Equivalents for purposes of this
provision.
Notwithstanding any provision of this covenant, its provisions will not
apply to any transaction constituting a Restricted Payment that is permitted by
the Restricted Payments covenant or that otherwise constitutes a Permitted
Investment.
Certain Covenants
Restricted Payments
We will not, and will not permit any of the Restricted Subsidiaries to,
directly or indirectly make any of the following Restricted Payments:
. declare or pay any dividend or make any other payment or distribution on
account of Equinix's Equity Interests or to the direct or indirect
holders of Equinix's Equity Interests in their capacity as stockholders,
other than dividends or distributions payable in Equity Interests, other
than Disqualified Stock of Equinix or to Equinix or a Restricted
Subsidiary of Equinix;
. purchase, redeem or otherwise acquire or retire for value any Equity
Interests of Equinix or any direct or indirect parent of Equinix, other
than any such Equity Interests owned by Equinix or any Restricted
Subsidiary of Equinix;
. make any payment on or relating to, or purchase, redeem, defease or
otherwise acquire or retire for value any Subordinated Indebtedness,
except a payment of interest or principal at any Stated Maturity; or
. make any Restricted Investment;
unless:
. at the time of and after giving effect to such Restricted Payment, no
default or Event of Default shall have occurred and be continuing;
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. Equinix would, at the time of such Restricted Payment and after giving
pro forma effect thereto as if such Restricted Payment had been made at
the beginning of the applicable period, have been permitted to incur at
least $1.00 of additional Indebtedness as described below under
"Incurrence of Indebtedness and Issuance of Preferred Stock"; and
. such Restricted Payment, together with the aggregate amount of all other
Restricted Payments made by Equinix and the Restricted Subsidiaries on
or after the Issue Date, is less than the sum, without duplication, of
(a) the amount of Equinix's (1) Cumulative Consolidated Cash Flow
determined at the time of such Restricted Payment less (2) 150% of
the cumulative consolidated interest expense, determined for the
period commencing on the first day of the fiscal quarter which
includes the Issue Date and ending on the last day of the last
fiscal quarter preceding the date on which such Restricted Payment
is to be made for which reports have been filed with the Commission
or provided to the trustee according to the "Reports" covenant;
plus
(b) 100% of the aggregate Net Cash Proceeds received by Equinix after
the Issue Date as a Capital Contribution or from the issue or sale,
other than to a Subsidiary of Equinix, of Equity Interests of
Equinix, other than Disqualified Stock, or from the issue or sale,
other than to a Subsidiary of Equinix, of Disqualified Stock or
debt securities of Equinix that have been converted or exchanged
into such Equity Interests, plus the amount of Net Cash Proceeds
received by Equinix upon such conversion or exchange, other than a
conversion or exchange by a Subsidiary of Equinix; plus
(c) the aggregate amount equal to the net reduction in Restricted
Investments in Unrestricted Subsidiaries on or after the Issue Date
resulting from (1) dividends, distributions, interest payments,
return of capital, repayments of Restricted Investments or other
transfers of assets to Equinix or any Restricted Subsidiary from
any Unrestricted Subsidiary and not otherwise included in the
calculation of Cumulative Consolidated Cash Flow required by
(a) above, (2) proceeds realized by Equinix or any Restricted
Subsidiary upon the sale of such Restricted Investment to a person
other than Equinix or any Subsidiary of Equinix, or (3) the
redesignation of any Unrestricted Subsidiary as a Restricted
Subsidiary, not to exceed in the case of any of the immediately
preceding clauses (1), (2) or (3) the aggregate amount of
Restricted Investments made by Equinix or any Restricted Subsidiary
in such Unrestricted Subsidiary on or after the Issue Date; plus
(d) to the extent that any Restricted Investment that was made on or
after the Issue Date is sold for cash or otherwise liquidated or
repaid for cash, the lesser of, to the extent paid to Equinix or a
Restricted Subsidiary, (1) the cash return of capital relating to
such Restricted Investment, less any cost of disposition and (2)
the initial amount of such Restricted Investment; minus
(e) 50% of the cumulative aggregate principal amount of any outstanding
Indebtedness incurred according to the second clause of the first
paragraph of the covenant described below under "Incurrence of
Indebtedness and Issuance of Preferred Stock."
So long as no default or Event of Default shall have occurred and be
continuing, the foregoing provisions will not prohibit:
. the payment of any dividend within 60 days after the date it is
declared, if at the time it is declared such payment would have complied
with the foregoing provisions;
. the redemption, repurchase, retirement, defeasance or other acquisition
of any Subordinated Indebtedness or Equity Interests of Equinix in
exchange for, or out of the Net Cash Proceeds of the substantially
concurrent sale, other than to a Subsidiary of Equinix, of, Equity
Interests of Equinix, other than any Disqualified Stock; provided that
the amount of any such Net Cash Proceeds that are utilized for, and the
Equity Interests issued or exchanged for, any such redemption,
repurchase,
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retirement, defeasance or other acquisition shall be excluded from the
third clause of the preceding paragraph and each other clause of this
paragraph;
. the defeasance, redemption, retirement, repurchase or other acquisition
of Subordinated Indebtedness with the Net Cash Proceeds from, or issued
in exchange for, a substantially concurrent incurrence of Permitted
Refinancing Indebtedness; provided that the amount of any such Net Cash
Proceeds that are utilized for any such redemption, repurchase,
retirement, defeasance or other acquisition shall be excluded from the
third clause of the preceding paragraph and each other clause of this
paragraph;
. the repurchase, redemption or other acquisition or retirement for value
of any Equity Interests of Equinix held by any member of Equinix's or a
Restricted Subsidiary's management; provided that the aggregate price
paid for all such repurchased, redeemed, acquired or retired Equity
Interests shall not exceed $3 million in any fiscal year;
. Restricted Investments not to exceed the aggregate fair market value,
measured on the date each such Restricted Investment was made or
returned, as applicable, when taken together with all other Restricted
Investments made according to this clause that are at the time
outstanding, the sum of (a) $30 million, plus (b) the amount then
available for the making of Restricted Payments according to the third
clause of the preceding paragraph without giving effect to its subclause
(a);
. Restricted Investments the payment for which consists exclusively of
Equity Interests, other than Disqualified Stock, of Equinix; and
. the repurchase of Equity Interests of Equinix in accordance with, and
only to the extent required by, dissenters' rights of appraisal under
applicable law.
Each Restricted Payment permitted by the first, fourth, fifth, sixth and
seventh clauses above shall be included, and each Restricted Payment permitted
by the second, third and sixth clauses above shall be excluded, except as
specifically set forth in each such clause, for all purposes when performing
the calculation set forth in the last bullet point of the preceding paragraph
of this covenant.
Our board of directors may not designate any Subsidiary of Equinix as an
Unrestricted Subsidiary, unless:
. no default or Event of Default shall have occurred and be continuing at
the time of or after giving effect to such designation; and
. Equinix would not be prohibited under the indenture from making a
Restricted Investment at the time of such designation, assuming the
effectiveness of such designation for purposes of this covenant, in an
amount equal to the fair market value of the net Investment of Equinix
and all Restricted Subsidiaries in such Subsidiary on such date.
This prohibition shall not apply to a newly created Subsidiary in which no
investment, apart from any de minimis amount required to capitalize the
Subsidiary in connection with its organization, has previously been made.
If there is any such designation, all outstanding Investments owned by
Equinix and the Restricted Subsidiaries in the Subsidiary so designated will
be deemed to be a Restricted Investment made as of the time of such
designation and will reduce the amount available for Restricted Payments under
the first or second paragraph of this covenant. All such outstanding
Investments will be deemed to constitute Restricted Payments in an amount
equal to the fair market value of such Investments at the time of such
designation.
The indenture also provides that a designation may be revoked and an
Unrestricted Subsidiary may thus be redesignated as a Restricted Subsidiary by
a resolution of our board of directors delivered to the trustee. However,
Equinix will not make any revocation unless:
. no default or Event of Default shall have occurred and be continuing at
the time of, or after giving effect to, such revocation; and
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. all Liens and Indebtedness of such Unrestricted Subsidiary outstanding
immediately following such revocation would, if incurred at such time,
have been permitted to be incurred at such time for all purposes under
the indenture.
The amount of all Restricted Payments, other than cash, shall be the fair
market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by Equinix, or such Restricted
Subsidiary, as the case may be, under the Restricted Payment. The fair market
value of any asset(s) or securities that are required to be valued by this
covenant shall be determined in good faith by our board of directors. Their
determination shall be supported by the opinion or appraisal of an accounting,
appraisal or investment banking firm of national standing if such fair market
value would exceed $10 million.
Incurrence of Indebtedness and Issuance of Preferred Stock
We will not, and will not permit any of the Restricted Subsidiaries to,
directly or indirectly, create, incur, issue, assume, guarantee or otherwise
become directly or indirectly liable for, contingently or otherwise, including
by way of merger, consolidation or acquisition, any Indebtedness and we will
not issue or incur any Disqualified Stock and will not permit any of the
Restricted Subsidiaries to issue or incur any shares of Preferred Stock.
However, we may incur Indebtedness or issue or incur shares of Disqualified
Stock and the Restricted Subsidiaries may incur Acquired Debt or Acquired
Preferred Stock if either:
. the Consolidated Leverage Ratio at the end of Equinix's most recently
ended fiscal quarter, for which a consolidated balance sheet of Equinix
which has been filed with the Commission or provided to the trustee,
immediately preceding the date on which such additional Indebtedness is
incurred or such Preferred Stock is issued or incurred would have been
less than 6.0 to 1.0, determined on a pro forma basis, including a pro
forma application of the net proceeds therefrom; or
. the Consolidated Capital Ratio at the end of the most recently ended
fiscal quarter, for which a consolidated balance sheet of Equinix has
been filed with the Commission or provided to the trustee, would have
been less than 2.0 to 1.0 determined on a pro forma basis, including a
pro forma application of the net proceeds therefrom.
Notwithstanding the foregoing, the provisions of the paragraph set forth
immediately above will not prohibit the incurrence of any of the following
items of Indebtedness (collectively, "Permitted Indebtedness"):
.Permitted Refinancing Indebtedness;
.the incurrence by Equinix of Indebtedness represented by the notes;
. the incurrence of Indebtedness by Equinix owing to any Restricted
Subsidiary or Indebtedness of any Restricted Subsidiary owing to Equinix
or any other Restricted Subsidiary, such Indebtedness deemed to be
incurred upon such Indebtedness being held by any person other than
Equinix or such Restricted Subsidiary including upon designation and
upon such Restricted Subsidiary otherwise no longer being a Restricted
Subsidiary; provided that in the case of Indebtedness of Equinix, such
obligations shall be unsecured and subordinated in all respects to
Equinix's obligations in accordance with the notes;
. the incurrence by Equinix of Indebtedness in an aggregate amount
incurred and outstanding at any time under this clause of up to $30
million;
. the incurrence (a) by Equinix or any Restricted Subsidiary, other than
any Foreign Subsidiary, of Senior Debt, including under one or more
Permitted Credit Facilities, and (b) by any Foreign Subsidiary of
Indebtedness under one or more Permitted Foreign Credit Facilities, in
an aggregate amount incurred and outstanding at any time under this
clause of up to the sum of (a) $125 million and (b) 85% of the aggregate
accounts receivable of Equinix and the Restricted Subsidiaries as of the
date of the most recently available balance sheet of Equinix which has
been included in a report filed with the Commission or provided to the
trustee;
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. the incurrence by Equinix or any Foreign Subsidiary of Purchase Money
Indebtedness (a) under the terms of any Purchase Money Indebtedness
facility existing and as in effect on the Issue Date or (b) constituting
not more than 75% of the cost, including shipping, installation and
importation costs and sales, use and similar taxes, collectively
"Costs", payable upon acquisition of the subject property, determined in
accordance with GAAP in good faith by our board of directors, to Equinix
or any such Foreign Subsidiary, as applicable, of the property so
purchased, developed, acquired, constructed, improved or leased;
provided, that relating to any Purchase Money Indebtedness incurred
under clause (b) above, at least 25% of the Costs payable upon
acquisition of the subject property shall be funded from Newly Raised
Capital; provided, further, that any assets acquired by a Foreign
Subsidiary under this clause are acquired for use in the ordinary course
of business of such Foreign Subsidiary;
. the incurrence by Equinix or any of the Restricted Subsidiaries of
Hedging Obligations that are incurred for the purpose of fixing or
hedging interest or foreign currency exchange rate risk relating to any
floating rate Indebtedness or foreign currency based Indebtedness,
respectively, that is permitted by the terms of the indenture to be
outstanding; provided that the notional amount of any such Hedging
Obligation does not exceed the amount of Indebtedness or other liability
to which such Hedging Obligation relates; and
. the incurrence by Equinix and the Restricted Subsidiaries of
Indebtedness solely in respect of bankers acceptances, letters of credit
and performance bonds, all in the ordinary course of business.
Indebtedness or Preferred Stock of any person which is outstanding at the
time such person becomes a Restricted Subsidiary of Equinix, including upon
designation of any Subsidiary or other person as a Restricted Subsidiary or
upon a Revocation such that such Subsidiary becomes a Restricted Subsidiary, or
is merged with or into or consolidated with Equinix or a Restricted Subsidiary
of Equinix, shall be deemed to have been incurred at the time such person
becomes such a Restricted Subsidiary of Equinix or is merged with or into or
consolidated with Equinix or a Restricted Subsidiary of Equinix, as applicable.
Upon each incurrence, Equinix may designate under which provision of this
covenant such Indebtedness is being incurred. Such Indebtedness shall not be
deemed to have been incurred by Equinix under any other provision of this
covenant, except as stated otherwise in the foregoing provisions or in the next
sentence. For purposes of determining compliance with this covenant, in the
event that an item of Indebtedness meets the criteria of more than one of the
types of Indebtedness described in the clauses above, or is permitted under the
first paragraph of this covenant and under one or more of such clauses,
Equinix, in our sole discretion, may from time to time reclassify such item of
Indebtedness.
Equinix will not, and will not permit any of the Restricted Subsidiaries,
other than Foreign Subsidiaries, to, incur any Indebtedness, including
Permitted Indebtedness, that is contractually subordinated in right of payment
to any other Indebtedness unless such Indebtedness is also contractually
subordinated in right of payment to the notes on substantially identical terms.
However, no Indebtedness shall be deemed to be contractually subordinated in
right of payment to any other Indebtedness solely by virtue of being unsecured.
Liens
We will not, and will not permit any of the Restricted Subsidiaries to,
directly or indirectly, create, incur, assume or otherwise cause or suffer to
exist or become effective any Lien of any kind, other than Permitted Liens, to
secure Indebtedness upon any of our property or assets or upon any income or
profits therefrom unless all payments due under the indenture and the notes are
secured, except as provided in the next clause, on an equal and ratable basis
with the obligations so secured. No Lien shall be granted or be allowed to
exist which secures Subordinated Indebtedness except relating to Acquired Debt,
in which case, however, such Liens must be made junior and subordinate to the
Liens granted to the holders.
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Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
We will not, and will not permit any of the Restricted Subsidiaries to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any encumbrance or restriction on the ability of any Restricted
Subsidiary to:
. (a) pay dividends or make any other distributions to Equinix or any of
the Restricted Subsidiaries on its Capital Stock or relating to any
other interest or participation in, or measured by, its profits, or
(b) pay any Indebtedness owed to Equinix or any of the Restricted
Subsidiaries;
. make loans or advances to Equinix or any of the Restricted Subsidiaries;
or
. transfer any of its properties or assets to Equinix or any of the
Restricted Subsidiaries.
The foregoing restrictions will not apply to encumbrances or restrictions
existing under or by reason of:
. Existing Indebtedness as in effect on the Issue Date;
. any Permitted Credit Facility or Permitted Foreign Credit Facility,
provided that (a) the aggregate outstanding amount of any such
Indebtedness does not exceed the amount permitted under the fifth clause
of the definition of Permitted Indebtedness, (b) relating to any
Permitted Credit Facility, such restrictions apply only if there is a
payment default under such Permitted Credit Facility, and (c) the chief
financial officer of Equinix determines in good faith that any such
restrictions contained in any such Permitted Credit Facility or
Permitted Foreign Credit Facilities are no more restrictive, taken as a
whole, than those contained in a similar credit facility with terms that
are commercially reasonable for a borrower engaged in a business
comparable to Equinix that has substantially comparable Indebtedness and
that any such restrictions will not materially affect Equinix's ability
to make principal, premium or interest payments on the notes;
. applicable law;
. any instrument governing Indebtedness or Capital Stock of a Person or
assets acquired by Equinix or any of the Restricted Subsidiaries as in
effect at the time of such acquisition, except to the extent such
Indebtedness was incurred in connection with or in contemplation of such
acquisition, which encumbrance or restriction is not applicable to any
person, or the properties or assets of any person, other than the
person, or the property or assets of the person, so acquired; provided,
that in the case of Indebtedness, such Indebtedness was permitted by the
terms of the indenture to be incurred;
. customary non-assignment provisions in leases entered into in the
ordinary course of business;
. purchase money obligations for property acquired in the ordinary course
of business that impose restrictions on transfer on the property so
acquired, constructed, leased or improved;
. any agreement for the sale or other disposition of a Restricted
Subsidiary that restricts distributions by that Restricted Subsidiary
pending its sale or other disposition, provided that the consummation of
such transaction would not result in an Event of Default or an event
that, with the passing of time or giving of notice or both, would
constitute an Event of Default, that such restriction terminates if such
transaction is not consummated and that the consummation or abandonment
of such transaction occurs within one year of the date such agreement
was entered into;
. Permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive, taken as a whole, than those
contained in the agreements governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded;
. Liens securing Indebtedness otherwise permitted to be incurred under the
provisions of the covenant governing Liens that limit the right of
Equinix or any of the Restricted Subsidiaries to dispose of the assets
subject to such Lien; and
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. provisions relating to the disposition or distribution of assets or
property in joint venture agreements and other similar agreements
entered into in the ordinary course of business.
Merger, Consolidation, or Sale of Assets
We may not, directly or indirectly, consolidate or merge with or into,
whether or not we are the surviving corporation, or sell, assign, transfer,
convey or otherwise dispose of all or substantially all of our properties or
assets, in one or more related transactions, to another person, or permit any
of the Restricted Subsidiaries to enter into any such transaction or series of
transactions, if it would result in such disposition of all or substantially
all of the assets of Equinix and the Restricted Subsidiaries on a consolidated
basis, unless:
. Equinix is the surviving corporation or the person formed by or
surviving any such consolidation or merger, if other than Equinix, or to
which such sale, assignment, transfer, conveyance or other disposition
shall have been made is a corporation organized or existing under the
laws of the United States, any state or the District of Columbia;
. the person formed by or surviving any such consolidation or merger, if
other than Equinix, or the person to which such sale, assignment,
transfer, conveyance or other disposition shall have been made assumes
all the obligations of Equinix under the registration agreement, the
notes, the exchange notes and the indenture under a supplemental
indenture in a form reasonably satisfactory to the trustee;
. no default or Event of Default, or an event that, with the passing of
time or giving of notice or both, would constitute an Event of Default,
shall exist or shall occur immediately after giving effect on a pro
forma basis to such transaction;
. except in the case of a merger of Equinix with or into a Wholly Owned
Restricted Subsidiary of Equinix, Equinix or the person formed by or
surviving any such consolidation or merger, if other than Equinix, or to
which such sale, assignment, transfer, conveyance or other disposition
shall have been made will immediately after such transaction and after
giving pro forma effect thereto and any related financing transactions
as if the same had occurred at the beginning of the applicable period,
be permitted to incur at least $1.00 of additional Indebtedness
according to the first paragraph of the "Incurrence of Indebtedness and
Issuance of Preferred Stock" covenant;
. if, as a result of any such transaction, property or assets of Equinix
would become subject to a Lien subject to the provisions of the
indenture described under the "Liens" covenant, Equinix or the successor
entity to Equinix shall have secured the notes as required by the
covenant; and
. Equinix shall have delivered to the trustee an Officers' Certificate and
an opinion of counsel, each stating that such consolidation, merger or
transfer and any supplemental indenture comply with the indenture.
The indenture also provides that Equinix may not, directly or indirectly,
lease all or substantially all of its properties or assets, in one or more
related transactions, to any other person.
Upon any consolidation or merger or any transfer of all or substantially all
of the assets of Equinix in accordance with the foregoing, the successor
corporation formed by such consolidation or into which Equinix is merged or to
which such transfer is made shall succeed to and be substituted for, and may
exercise every right and power of, Equinix under the indenture. The effect will
be as if the successor corporation had been named therein as Equinix, and
Equinix shall be released from the obligations under the notes and the
indenture except relating to any obligations that arise from, or are related
to, such transaction. The foregoing shall not apply in the case of a lease.
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Transactions with Affiliates
We will not, and will not permit any of the Restricted Subsidiaries to, make
any payment to, or sell, lease, transfer or otherwise dispose of any of our
properties or assets to, or purchase any property or assets from, or enter into
or make or amend any transaction, contract, agreement, understanding, loan,
advance or guarantee with, or for the benefit of, any Affiliate, each an
Affiliate transaction, unless:
. such Affiliate Transaction is on terms that are not materially less
favorable to Equinix or the relevant Restricted Subsidiary than those
that would have been obtained in a comparable transaction by Equinix or
such Restricted Subsidiary with an unrelated person; and
. relating to any Affiliate Transaction or series of related Affiliate
Transactions:
(a) involving aggregate consideration in excess of $5 million, Equinix
delivers to the trustee a resolution of the board of directors set
forth in an Officers' Certificate that such Affiliate Transaction
is approved by a majority of the disinterested members of the board
of directors and that such Affiliate Transaction complies with the
first clause above and is in the best interests of Equinix or such
Restricted Subsidiary; and
(b) if involving aggregate consideration in excess of $10 million, a
favorable written opinion as to the fairness to Equinix of such
Affiliate Transaction from a financial point of view is also
obtained by Equinix from an accounting, appraisal or investment
banking firm of national standing.
Notwithstanding the foregoing, the following items shall not be deemed to be
Affiliate Transactions:
. (a) the entering into, maintaining or performance of any employment
contract, collective bargaining agreement, benefit plan, program or
arrangement, related trust agreement or any other similar arrangement
for or with any employee, officer or director heretofore or hereafter
entered into in the ordinary course of business, including vacation,
health, insurance, deferred compensation, retirement, savings or other
similar plans or (b) the payment of compensation, performance of
indemnification or contribution obligations, or an issuance, grant or
award of stock, options, or other equity-related interests or other
securities, to employees, officers or directors in the ordinary course
of business;
. transactions between or among Equinix and/or the Restricted
Subsidiaries;
. payment of reasonable directors fees;
. any sale or other issuance of Equity Interests, other than Disqualified
Stock, of Equinix;
. Affiliate Transactions in effect or approved by the board of directors
on the Issue Date, including any amendments thereto, provided that the
terms of such amendments are not materially less favorable to Equinix
than the terms of such agreement before such amendment; and
. Restricted Payments that are permitted under the Restricted Payments
covenant and Permitted Investments described under clause (d) of its
definition.
Business Activities
We will not, and will not permit any of the Restricted Subsidiaries to,
engage to more than a de minimus extent in any business other than a Permitted
Business.
Status as Investment Company
The indenture provides that Equinix will not, and will not permit any of its
Subsidiaries or controlled affiliates to, conduct its business in a fashion
that would cause Equinix to be required to register as an investment company,
as that term is defined in the Investment Company Act of 1940, as amended, or
otherwise to become subject to regulation under the Investment Company Act. For
purposes of establishing Equinix's
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compliance with this provision, any exemption which is or would become
available under Section 3(c)(1) or Section 3(c)(7) of the Investment Company
Act will be disregarded.
Reports
The indenture provides that at all times from and after the date of the
commencement of an exchange offer or the effectiveness of a shelf registration
statement relating to the notes, a "Registration", whether or not Equinix is
then required to file reports with the Commission, Equinix shall file with the
Commission all such reports and other information as it would be required to
file with the Commission by Sections 13(a) or 15(d) under the Exchange Act if
it were subject thereto. Without cost, Equinix shall supply the applicable
trustee and each applicable holder, or shall supply to the applicable trustee
for forwarding to each such applicable holder, copies of such reports and other
information. At all times before the date of the Registration, Equinix shall,
at its cost, deliver to the trustee and each holder of the notes quarterly and
annual reports substantially equivalent to those which would be required by the
Exchange Act if Equinix were subject thereto. In addition, at all times before
the Registration, upon the request of any holder or any prospective purchaser
of the notes designated by a holder, Equinix shall supply to such holder or
such prospective purchaser the information required under Rule 144A under the
Securities Act.
Events of Default and Remedies
The indenture provides that each of the following will constitute an Event
of Default:
. default for 30 days in the payment when due of interest on the notes;
. default in the payment when due of the principal of, or premium, if
any, on, the notes;
. failure by Equinix or any of the Restricted Subsidiaries to comply with
the provisions described above under the captions "--Change of
Control," or "--Asset Sales";
. failure by Equinix or any of the Restricted Subsidiaries for 60 days
after notice to comply with any of its other agreements in the
indenture, the notes or the escrow agreement;
. the default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness of Equinix or any of the Restricted Subsidiaries, or the
payment of which is Guaranteed by Equinix or any of the Restricted
Subsidiaries, whether such Indebtedness or Guarantee now exists or is
created after the Issue Date, and either such Indebtedness is already
due and payable or such default results in the acceleration of such
Indebtedness before its express maturity and, in each case, the amount
of any such Indebtedness, together with the amount of any other such
Indebtedness the maturity of which has been so accelerated or which is
already due and payable, aggregates $10 million or more;
. one or more judgments, orders or decrees for the payment of money in
excess of $10 million, individually or in the aggregate, net of
applicable insurance coverage which is acknowledged in writing by the
insurer, shall be entered against Equinix or any Restricted Subsidiary
or any of their respective properties and shall not be discharged and
there shall have been a period of 60 days or more during which a stay
of enforcement of such judgment or order, by reason of pending appeal
or otherwise, shall not be in effect;
. Equinix shall assert or acknowledge in writing that the escrow
agreement is invalid or unenforceable; or
.certain events of bankruptcy or insolvency relating to Equinix or any of
its Significant Subsidiaries.
If any Event of Default occurs and is continuing, the trustee or the holders
of at least 25% in principal amount of the then outstanding notes may declare
all principal of, premium, if any, on and interest on the notes to be due and
payable immediately. Notwithstanding the foregoing, in the case of an Event of
Default arising from certain events of bankruptcy or insolvency relating to
Equinix or a Significant Subsidiary, all outstanding notes will become due and
payable without further action or notice.
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Holders may not directly enforce the indenture or the notes except as
provided in the indenture. Subject to certain limitations, holders of a
majority in principal amount of the then outstanding notes may direct the
trustee in its exercise of any trust or power.
Holders of a majority in aggregate principal amount of the then outstanding
notes, by notice to the trustee, may, on behalf of all holders, waive any
existing default or Event of Default and its consequences under the indenture,
except a continuing default or Event of Default in the payment of principal of,
premium, if any, or interest on the notes.
We will be required to deliver to the trustee annually a statement regarding
compliance with the indenture, and we will be required upon becoming aware of
any default or Event of Default to deliver to the trustee a statement
specifying such default or Event of Default. The trustee may withhold from
holders notice of any continuing default or Event of Default, except a default
or Event of Default relating to the payment of principal of, premium, if any,
or interest on, the notes, if it determines that withholding notice is in their
interest.
No Personal Liability of Directors, Officers, Employees, Incorporators or
Shareholders
No director, officer, employee, incorporator or shareholder of Equinix, as
such, will have any liability for any obligations of Equinix relating to the
notes or the indenture, or for any claim based on, or in respect or by reason
of, such obligations or their creation. Each holder of notes by accepting a
note will waive and release any and all such liability. Such waiver and release
are part of the consideration for issuance of the notes. Such waiver may not be
effective to waive liabilities under federal securities laws and it is the view
of the Commission that such a waiver is against public policy.
Legal Defeasance and Covenant Defeasance
The indenture provides that Equinix may, at its option and at any time,
elect to have all of its obligations discharged relating to the outstanding
notes, called legal defeasance, except for:
. the rights of holders to receive payments in respect of the principal
of, premium, if any, and interest on such notes when such payments are
due from the trust referred to below;
. Equinix's obligations relating to the notes concerning issuing temporary
notes, registration of notes, mutilated, destroyed, lost or stolen notes
and the maintenance of an office or agency for payment and money for
security payments held in trust;
. the rights, powers, trusts, duties and immunities of the trustee, and
Equinix's obligations in connection therewith; and
. the legal defeasance provisions of the indenture.
In addition, Equinix may, at its option and at any time, elect to have its
obligations released relating to certain covenants that are contained in the
indenture, called covenant defeasance, and, thereafter, any omission to comply
with such obligations will not constitute a default or Event of Default. In the
event covenant defeasance occurs, certain events, but not including non-
payment, bankruptcy, receivership, rehabilitation or insolvency events,
described under "--Events of Default and Remedies" will no longer constitute an
Event of Default.
To exercise either legal defeasance or covenant defeasance:
. Equinix must irrevocably deposit, or cause to be deposited, with the
trustee, in trust, for the benefit of the holders, cash in U.S. dollars,
non-callable Government Securities, or any combination, in such amounts
as will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium, if
any, and interest on the outstanding notes on its stated maturity or on
the applicable redemption date, as the case may be, and Equinix must
specify whether the notes are being defeased to maturity or to a
particular redemption date;
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. in the case of legal defeasance, Equinix must deliver to the trustee an
opinion of United States counsel reasonably acceptable to the trustee
confirming that, since the Issue Date, Equinix has received from, or
there has been published by, the Internal Revenue Service a ruling, or
there has been a change in the applicable United States federal income
tax law, in either case to the effect that, and based thereon such
opinion of counsel shall confirm that, the holders will not recognize
income, gain or loss for United States federal income tax purposes as a
result of such legal defeasance, and will be subject to United States
federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such legal defeasance had not
occurred;
. in the case of covenant defeasance, Equinix must deliver to the trustee
an opinion of counsel in the United States reasonably acceptable to the
trustee confirming that the holders will not recognize income, gain or
loss for United States federal income tax purposes as a result of such
covenant defeasance, and such holders will be subject to United States
federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such covenant defeasance had
not occurred;
. no default or Event of Default shall have occurred and be continuing on
the date of such deposit, other than a default or Event of Default
resulting from the borrowing of funds to be applied to such deposit;
. such legal defeasance or covenant defeasance will not result in a breach
or violation of, or constitute a default under, any material agreement
or instrument, other than the indenture, to which Equinix or any of the
Restricted Subsidiaries is a party or by which Equinix or any of the
Restricted Subsidiaries is bound;
. Equinix must deliver to the trustee an Officers' Certificate stating
that the deposit was not made by Equinix with the intent of preferring
the holders over other creditors of Equinix, or with the intent of
defeating, hindering, delaying or defrauding creditors of Equinix or
others; and
. Equinix must deliver to the trustee an Officers' Certificate and an
opinion of United States counsel reasonably acceptable to the trustee,
each stating that the conditions precedent provided for or relating to
legal defeasance or covenant defeasance, as applicable, in the case of
the Officers' Certificate, in the first through sixth clauses and, in
the case of the opinion of counsel, in the first clause, relating to the
validity and perfection of the security interest, and the second and
third clauses of this paragraph, have been complied with.
Satisfaction and Discharge
The indenture will be discharged and will cease to be of further effect,
except as to surviving rights or registration of transfer or exchange of notes,
as to all outstanding notes when either:
. all such notes theretofore authenticated and delivered, except lost,
stolen or destroyed notes that have been replaced or paid and notes for
whose payment money has theretofore been deposited in trust or
segregated and held in trust by Equinix and thereafter repaid to Equinix
or discharged from such trust, have been delivered to the trustee for
cancellation; or
. (a) all such notes not theretofore delivered to the trustee for
cancellation have become due and payable and Equinix has irrevocably
deposited or caused to be deposited with the trustee as trust funds in
trust for the purpose an amount of money sufficient to pay and discharge
the entire indebtedness on the notes not theretofore delivered to the
trustee for cancellation, for principal amount, premium, if any, and
accrued interest to the date of such deposit; (b) Equinix has paid all
sums payable by it under the indenture; and (c) Equinix has delivered
irrevocable instructions to the trustee to apply the deposited money
toward the payment of the notes at Stated Maturity or on the redemption
date, as the case may be.
In addition, Equinix must deliver an Officers' Certificate and an opinion of
counsel stating that all conditions precedent to satisfaction and discharge
have been complied with.
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Transfer and Exchange
A holder may transfer or exchange notes in accordance with the procedures
set forth in the indenture. The registrar and the trustee may require a holder,
among other things, to furnish appropriate endorsements and transfer documents,
and Equinix may require a holder to pay any taxes and fees required by law or
permitted by the indenture. Equinix will not be required to transfer or
exchange any note selected for redemption. Also, Equinix will not be required
to transfer or exchange any note for a period of 15 days before:
. a selection of notes to be redeemed;
. an interest payment date; or
. the mailing of notice of a Change of Control Offer or Asset Sale Offer.
The registered holder of a note will be treated as the owner of it for all
purposes under the indenture.
Amendment, Supplement and Waiver
With the consent of the holders of not less than a majority in aggregate
principal amount of the notes at the time outstanding, Equinix and the trustee
are permitted to amend or supplement the indenture or any supplemental
indenture or modify the rights of the holders. However, that no such
modification may, without the consent of each holder affected thereby:
. reduce the principal amount of, change the fixed maturity of, or alter
the redemption provisions of, the notes;
. change the currency in which any notes or amounts owing thereon is
payable;
. reduce the percentage of the aggregate principal amount outstanding of
notes which must consent to an amendment, supplement or waiver or
consent to take any action under the indenture or the notes;
. impair the right to institute suit for the enforcement of any payment on
or relating to the notes;
. waive a default in payment relating to the notes;
. reduce the rate or change the time for payment of interest on the notes;
. following the occurrence of a Change of Control or an Asset Sale, alter
Equinix's obligation to purchase the notes as a result of such Change of
Control or Asset Sale in accordance with the indenture or waive any
default in its performance;
. affect the ranking of the notes in a manner adverse to the holder of the
notes; or
. release any Liens created by the escrow agreement except in accordance
with the terms of the escrow agreement.
Notwithstanding the foregoing, without the consent of any holder of notes,
Equinix and the trustee may amend or supplement the indenture or the notes;
. to cure any ambiguity, defect or inconsistency;
. to provide for uncertificated notes in addition to or in place of
certificated notes;
. to provide for the assumption of Equinix's obligations to holders in the
case of a merger or consolidation or sale of all or substantially all of
Equinix's assets in accordance with the terms of the indenture;
. to make any change that would provide any additional rights or benefits
to the holders or that does not adversely affect the legal rights under
the indenture of any such holder; or
. to comply with the requirements of the Commission to effect or maintain
the qualification of the indenture under the Trust Indenture Act.
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Concerning the Trustee
The indenture contains certain limitations on the rights of the trustee,
should it become a creditor of Equinix, to obtain payment of claims in certain
cases, or to realize on certain property received in respect of any such claim
as security or otherwise. The trustee will be permitted to engage in other
transactions. However, if it acquires any conflicting interest, it must
eliminate such conflict within 90 days, apply to the Commission for permission
to continue, or resign.
Holders of a majority in principal amount of the then outstanding notes will
have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the trustee, subject to
certain exceptions. In case an Event of Default shall occur which is not cured,
the trustee will be required, in the exercise of its power, to use the degree
of care of a prudent person in the conduct of their own affairs. Subject to
such provisions, the trustee will be under no obligation to exercise any of its
rights or powers under the indenture at the request of any holder, unless such
holder shall have offered to the trustee security and indemnity satisfactory to
it against any loss, liability or expense.
Governing Law
The indenture and the notes will be governed by and construed in accordance
with the laws of the State of New York.
Equinix will submit to the jurisdiction of the U.S. federal and New York
state courts located in the Borough of Manhattan, City and State of New York
for purposes of all legal actions and proceedings instituted in connection with
the notes and the indenture.
Certain Definitions
Set forth below are certain defined terms used in the indenture. Reference
is made to the indenture for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"Acquired Debt" or "Acquired Preferred Stock" means, relating to any
specified person, Indebtedness or Preferred Stock of any other person existing
at the time such other person is merged with or into or became a Subsidiary of
such specified person, including by designation or revocation, provided such
Indebtedness or Preferred Stock is not incurred in connection with, or in
contemplation of, such other person merging with or into or becoming a
Subsidiary of such specified person.
"Affiliate" of any specified person means any other person directly or
indirectly controlling, controlled by or under direct or indirect common
control with such specified person. For purposes of this definition, "control",
including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with", as used relating to any person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the Voting Stock of a person shall be
deemed to be control.
"Asset Acquisition" means:
. any capital contribution, by means of transfers of cash or other property
to others or payments for property or services for the account or use of
others, or otherwise, by Equinix or any Restricted Subsidiary in any
other person, or any acquisition or purchase of Capital Stock of any
other person by Equinix or any Restricted Subsidiary, in either case by
which such person shall (a) become a Restricted Subsidiary or (b) shall
be merged with or into Equinix or any Restricted Subsidiary; or
72
. any acquisition by Equinix or any Restricted Subsidiary of the assets of
any person which constitute substantially all of an operating unit or
line of business of such person or which is otherwise outside of the
ordinary course of business.
"Asset Sale" means:
. the sale, lease, transfer, conveyance or other disposition of any
property, asset or right, including, without limitation, by way of a sale
and leaseback, other than leases of space in an Exchange Facility entered
into in the ordinary course of business, of Equinix or any Restricted
Subsidiary; and
. the issue or sale by Equinix or any of the Restricted Subsidiaries of
Equity Interests of any Subsidiary.
Notwithstanding the foregoing, the following items shall not be deemed to be
Asset Sales:
. any disposition of properties and assets of Equinix subject to the
"Merger, Consolidation or Sale of Assets" covenant, provided that any
properties, assets or rights that are not included in any such
dispositions shall be deemed to have been sold in a transaction
constituting an Asset Sale;
. a transfer of properties, assets or rights by Equinix to a Restricted
Subsidiary or by a Subsidiary to Equinix or to a Restricted Subsidiary;
. a disposition of obsolete or worn out equipment or equipment that is no
longer useful in the conduct of a Permitted Business of Equinix and the
Restricted Subsidiaries;
. the surrender or waiver by Equinix or any of the Restricted Subsidiaries
of contract rights or the settlement, release or surrender of contract,
tort or other claims of any kind by Equinix or any of the Restricted
Subsidiaries or the grant by Equinix or any of the Restricted
Subsidiaries of a Lien not prohibited by the indenture; and
. sales, transfers, assignments and other dispositions of assets, or
related assets in related transactions (a) in the ordinary course of
business (b) with an aggregate fair market value of less than $500,000
in any fiscal year or (c) constituting the incurrence of a Capital Lease
Obligation.
"Board Resolution" means a duly authorized resolution of the board of
directors.
"Capital Contribution" means any contribution to the common equity of
Equinix from a direct or indirect parent of Equinix for which no consideration
other than the issuance of common stock with no redemption rights and no
special preferences, privileges or voting rights is given.
"Capital Lease Obligation" means, at the time any determination is to be
made, the amount of the liability in respect of a capital lease that would at
such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means:
. in the case of a corporation, corporate stock;
. in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents, however
designated, of corporate stock;
. in the case of a partnership or limited liability company, partnership
or membership interests, whether general or limited; and
. any other interest or participation that confers on a person the right
to receive a share of the profits and losses of, or distributions of
assets of, the issuing person.
"Cash Equivalents" means:
. United States dollars;
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. securities issued or directly and fully guaranteed or insured by the
United States government or any agency or instrumentality of the United
States government, provided that the full faith and credit of the United
States is pledged in support of those securities, having maturities of
not more than six months from the date of acquisition;
. certificates of deposit and eurodollar time deposits with maturities of
six months or less from the date of acquisition, bankers' acceptances
with maturities not exceeding six months and overnight bank deposits, in
each case with any domestic commercial bank having capital and surplus
in excess of $500 million and a Thompson Bank Watch Rating of "B" or
better;
. repurchase obligations with a term of not more than seven days for
underlying securities of the types described in the second clause above
entered into with any financial institution meeting the qualifications
specified in the third clause above;
. commercial paper having the highest rating obtainable from Moody's
Investors Service, Inc. or Standard & Poor's Ratings Group and in each
case maturing within six months after the date of acquisition; and
. money market funds at least 95% of the assets of which constitute Cash
Equivalents of the kinds described above, provided that relating to any
Foreign Subsidiary, Cash Equivalents shall also mean those investments
that are comparable to the above clauses in such Foreign Subsidiary's
country of organization or country where it conducts business
operations.
"Change of Control" means the occurrence of any of the following:
. any "person" or "group," other than a Permitted Holder, is or becomes
the "beneficial owner", as such terms are used in Section 13(d)(3) of
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, of 35% or more of the
Voting Stock, measured by voting power rather than number of shares, of
Equinix and the Permitted Holders own, in the aggregate, a lesser
percentage of the total Voting Stock, measured by voting power rather
than by number of shares, of Equinix than such person and do not have
the right or ability by voting power, contract or otherwise to elect or
designate for election a majority of the board of directors of Equinix;
. during any period of two consecutive years, Continuing Directors cease
for any reason to constitute a majority of the board of directors of
Equinix;
. Equinix consolidates or merges with or into any other person or Equinix
and/or any Restricted Subsidiaries sell, assign, convey, transfer, lease
or otherwise dispose of all or substantially all of the assets and
properties of Equinix and the Restricted Subsidiaries on a consolidated
basis to any other person, other than a Permitted Holder, other than a
consolidation or merger or disposition of assets (a) of or by Equinix
into or to a Wholly Owned Restricted Subsidiary of Equinix or (b)
subject to the first clause above, in a transaction in which the
outstanding Voting Stock of Equinix is changed into or exchanged for
securities or other property with the effect that the beneficial owners
of the outstanding Voting Stock of Equinix immediately before such
transaction, beneficially own, directly or indirectly, at least a
majority of the Voting Stock, measured by voting power rather than
number of shares, of the surviving corporation or the person to whom
Equinix's assets are transferred immediately following such transaction;
or
. the adoption of a plan relating to the liquidation or dissolution of
Equinix.
"Commission" means the Securities and Exchange Commission.
"Consolidated Capital Ratio" means, relating to Equinix as of any date, the
ratio of the aggregate amount of Indebtedness of Equinix and the Restricted
Subsidiaries then outstanding to the Consolidated Equity Capital of Equinix and
the Restricted Subsidiaries as of such date. For the purposes of calculating
the "Consolidated Capital Ratio";
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. any Subsidiary of Equinix that is a Restricted Subsidiary on the
Transaction Date shall be deemed to have been a Restricted Subsidiary at
the end of the most recently ended fiscal quarter, called the Reference
Date; and
. any Subsidiary of Equinix that is not a Restricted Subsidiary on the
Transaction Date shall be deemed not to have been a Restricted
Subsidiary on the Reference Date.
In addition to, and without limiting the foregoing, for the purposes of the
foregoing, "Consolidated Equity Capital" shall be calculated after giving
effect on a pro forma basis as of the Reference Date for, without duplication:
. any Asset Sales or Asset Acquisitions, including, without limitation,
any Asset Acquisition giving rise to the need to make such calculation
as a result of Equinix or one of the Restricted Subsidiaries, including
any person who becomes a Restricted Subsidiary as the result of the
Asset Acquisition, incurring, assuming or otherwise being liable for
Acquired Debt, occurring during the period commencing on the Reference
Date to and including the Transaction Date, as if such Asset Sale or
Asset Acquisition occurred on the Reference Date;
. any issue or sale of Equity Interests, other than Disqualified Stock but
including Equity Interests, other than Disqualified Stock, issued upon
the exercise of options, warrants or rights to purchase such Equity
Interests, of Equinix or any conversion of Disqualified Stock or debt
securities of Equinix into Equity Interests, other than Disqualified
Stock, occurring during the period commencing on the Reference Date to
and including the Transaction Date, as if such issue, sale or conversion
occurred on the Reference Date; and
. any Restricted Payments made by Equinix, and any sale, disposition or
repayment of any Restricted Investment constituting a Restricted
Payment, since the Reference Date to and including the Transaction Date,
as if such Restricted Payment occurred on the Reference Date.
"Consolidated Cash Flow" means, relating to Equinix for any period, the
Consolidated Net Income of Equinix and the Restricted Subsidiaries for such
period plus:
. to the extent that any of the following items were deducted in computing
such Consolidated Net Income, but without duplication, (a) provision for
taxes based on income or profits of Equinix and the Restricted
Subsidiaries for such period, plus (b) consolidated interest expense of
Equinix and the Restricted Subsidiaries for such period, whether paid or
accrued and whether or not capitalized, including, without limitation,
amortization of debt issuance costs and original issue discount, non-
cash interest payments, the interest component of any deferred payment
obligations, the interest component of all payments associated with
Capital Lease Obligations, commissions, discounts and other fees and
charges incurred in respect of letter of credit or bankers' acceptance
financings, and net payments, if any, in Hedging Obligations, plus (c)
depreciation, amortization, including amortization of goodwill and other
intangibles, but excluding amortization of prepaid cash expenses that
were paid in a prior period, and other non-cash expenses, excluding any
such non-cash expense to the extent that it represents an accrual of or
reserve for cash expenses in any future period or amortization of a
prepaid cash expense that was paid in a prior period; of Equinix and the
Restricted Subsidiaries for such period; minus
. non-cash items increasing such Consolidated Net Income for such period,
other than items that were accrued in the ordinary course of business,
in each case, on a consolidated basis and determined in accordance with
GAAP.
Notwithstanding the foregoing, the provision for taxes on the income or profits
of, and the depreciation and amortization and other non-cash expenses of, a
Restricted Subsidiary of Equinix shall be added to Consolidated Net Income to
compute Consolidated Cash Flow of Equinix only to the extent that a
corresponding amount would be permitted at the date of determination to be
dividended or otherwise distributed to Equinix by such
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Restricted Subsidiary without prior governmental approval, that has not been
obtained, and without direct or indirect restriction under the terms of its
charter and all agreements, instruments, judgments, decrees, orders, statutes,
rules and governmental regulations applicable to that Restricted Subsidiary or
its shareholders.
"Consolidated Equity Capital" means, relating to Equinix as of any date,
the sum, without duplication, of
. the additional paid-in capital of the common shareholders reflected on
the consolidated balance sheet of Equinix and the Restricted
Subsidiaries as of such date; plus
. the respective amounts reported on Equinix's balance sheet as of such
date relating to any series of Capital Stock, other than Disqualified
Stock, not included in the first clause above; less
. (a) all write-ups, other than write-ups resulting from foreign currency
translations and write-ups of tangible assets of a going concern
business made within 12 months after the acquisition of such business,
after the Issue Date in the book value of any asset owned by Equinix or
a Restricted Subsidiary, (b) all outstanding net Investments as of such
date in persons that are not Restricted Subsidiaries, without giving
effect to any write-down or write-off, and (c) the aggregate amount of
all Restricted Payments declared or made on or after the Issue Date
other than (1) Investments in persons that are not Restricted
Subsidiaries and (2) Restricted Payments made according to the third
clause of the second paragraph of the "Restricted Payments" covenant.
"Consolidated Leverage Ratio" means, relating to Equinix, as of any date,
the ratio of:
. the aggregate consolidated amount of Indebtedness of Equinix and the
Restricted Subsidiaries then outstanding; to
. the annualized Consolidated Cash Flow of Equinix and the Restricted
Subsidiaries for the most recently ended fiscal quarter.
For purposes of calculating "Consolidated Cash Flow" for any fiscal quarter
for purposes of this definition:
. any Subsidiary of Equinix that is a Restricted Subsidiary on the
Transaction Date shall be deemed to have been a Restricted Subsidiary at
all times during such fiscal quarter; and
. any Subsidiary of Equinix that is not a Restricted Subsidiary on the
Transaction Date shall be deemed not to have been a Restricted
Subsidiary at any time during such fiscal quarter.
In addition to and without limitation of the foregoing, for purposes of this
definition, "Consolidated Cash Flow" shall be calculated after giving effect
on a pro forma basis for the applicable fiscal quarter to, without
duplication, any Asset Sales or Asset Acquisitions, including, without
limitation, any Asset Acquisition giving rise to the need to make such
calculation as a result of Equinix or one of the Restricted Subsidiaries,
including any person who becomes a Restricted Subsidiary as a result of the
Asset Acquisition, incurring, assuming or otherwise being liable for Acquired
Debt, occurring during the period commencing on the first day of such fiscal
quarter to and including the Transaction Date, as if such Asset Sale or Asset
Acquisition occurred on the first day of such fiscal quarter.
"Consolidated Net Income" means, relating to Equinix for any period, the
aggregate of the Net Income of Equinix and the Restricted Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP;
provided that:
. the Net Income, but not loss, of any person that is accounted for by the
equity method of accounting shall be included only to the extent of the
amount of dividends or distributions paid in cash to Equinix or a
Restricted Subsidiary of Equinix by such person but not in excess of
Equinix's Equity Interests in such person;
. the Net Income of any Restricted Subsidiary shall be excluded to the
extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not
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at the date of determination permitted without any prior governmental
approval, that has not been obtained, or, directly or indirectly, by
operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation
applicable to that Restricted Subsidiary or its shareholders, except
that Equinix's equity in the net income of any such Restricted
Subsidiary for such period may be included in such Consolidated Net
Income (a) up to the aggregate amount of cash that could have been
distributed by such Restricted Subsidiary during such period to Equinix
as a dividend and (b) if the only restriction on the declaration or
payment of dividends or similar distributions by such Restricted
Subsidiary is a restriction of the type described in the second clause
of the second paragraph of the "Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries" covenant;
. the Net Income of any person acquired in a pooling of interests
transaction for any period before the date of such acquisition shall be
excluded;
. the equity of Equinix or any Restricted Subsidiary in the net income, if
positive, of any Unrestricted Subsidiary shall be included in such
Consolidated Net Income up to the aggregate amount of cash actually
distributed by such Unrestricted Subsidiary during such period to
Equinix or a Restricted Subsidiary as a dividend or other distribution,
but not in excess of the amount of the Net Income of such Unrestricted
Subsidiary for such period;
. the cumulative effect of a change in accounting principles shall be
excluded;
. all extraordinary, unusual or nonrecurring gains or losses, net of fees
and expenses relating to the transaction giving rise thereto, shall be
excluded;
. any gain or loss, net of taxes, realized upon the termination of any
employee pension benefit plan shall be excluded; and
. gains or losses in respect of any Asset Sales, net of fees and expenses
relating to the transaction giving rise thereto, shall be excluded.
"Consolidated Tangible Assets" of Equinix as of any date means the total
amount of assets of Equinix and the Restricted Subsidiaries, less applicable
reserves, on a consolidated basis at the end of the fiscal quarter immediately
preceding such date, as determined in accordance with GAAP, less:
. unamortized debt and debt issuance expenses, deferred charges, goodwill,
patents, trademarks, copyrights, and all other items which would be
treated as intangibles on the consolidated balance sheet of Equinix and
the Restricted Subsidiaries prepared in accordance with GAAP; and
. appropriate adjustments on account of minority interests of other
Persons holding equity investments in Restricted Subsidiaries;
in the case of each of the clauses above, as reflected on the consolidated
balance sheet of Equinix and the Restricted Subsidiaries.
"Continuing Directors" means individuals who at the beginning of the period
of determination constituted the board of directors of Equinix, together with
any new directors whose election by the board of directors or whose nomination
for election by the shareholders of Equinix was approved by a vote of a
majority of the directors of Equinix then still in office who were either
directors at the beginning of the period or whose election or nomination for
election was previously so approved or is the designee of any one of the
Permitted Holders, or any combination of Permitted Holders, or was nominated
or elected by any such Permitted Holder(s) or any of their designees.
"Cumulative Consolidated Cash Flow" means, as of any date of determination,
the cumulative Consolidated Cash Flow realized during the period commencing on
the first day of the fiscal quarter which includes the Issue Date and ending
on the last day of the last fiscal quarter for which reports have been filed
77
with the Commission or provided to the trustee preceding the date of the event
requiring such calculation to be made.
"Currency Agreement" means, relating to any person, any foreign exchange
contract, currency swap agreement or other similar agreement as to which such
person is a party or beneficiary.
"Disqualified Stock" means any Equity Interest that, by its terms, or by the
terms of any security into which it is convertible, or for which it is
exchangeable, in each case at the option of its holder, or upon the happening
of any event, matures or is mandatorily redeemable, under a sinking fund
obligation or otherwise, or redeemable at the option of its holder, in whole or
in part, on or before the date that is 91 days after the date on which the
notes mature; provided, however, that any Equity Interest that would constitute
Disqualified Stock solely because its holders have the right to require Equinix
to repurchase such Equity Interest upon the occurrence of a Change of Control
or an Asset Sale shall not constitute Disqualified Stock if the terms of such
Equity Interest provide that Equinix may not repurchase or redeem any such
Equity Interest under such provisions unless such repurchase or redemption
complies with the covenant described above under the "Restricted Payments"
covenant.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock, but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
together with the rules and regulations promulgated thereunder.
"Exchange Facility" means a facility providing equipment colocation, direct
high-speed connections, switched interconnections and related services to third
party internet related businesses and operations.
"Existing Indebtedness" means Indebtedness of Equinix and the Restricted
Subsidiaries in existence on the Issue Date, until such amounts are repaid.
"Foreign Subsidiary" means any Restricted Subsidiary of Equinix which:
. is not organized under the laws of the United States, any state or the
District of Columbia; and
. conducts substantially all of its business operations outside the United
States of America.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the Issue Date.
"Government Securities" means securities that are:
. direct obligations, or certificates representing an ownership interest
in such obligations, of the United States of America, including any
government agency or instrumentally, the payment of which the full faith
and credit of the United States of America is pledged;
. obligations of a person controlled or supervised by and acting as an
agency or instrumentality of the United States of America the payment of
which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America; or
. obligations of a person the payment of which is unconditionally
guaranteed as a full faith and credit obligation by the United States of
America.
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"Guarantee" means any obligation, contingent or otherwise, of any person
directly or indirectly guaranteeing any Indebtedness of any other person:
. to purchase or pay, or advance or supply funds for the purchase or
payment of, such Indebtedness of such other person, whether arising by
virtue of partnership arrangements, or by agreement to keep-well, to
purchase assets, goods, securities or services, to take-or-pay, or to
maintain financial statement conditions or otherwise; or
. entered into for purposes of assuring in any other manner the obligee of
such Indebtedness of its payment of indebtedness or to protect such
obligee against any loss, in whole or in part;
provided, however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Hedging Obligations" means, relating to any person, the obligations of such
person under any Interest Rate Agreement or Currency Agreement.
"Indebtedness" means, relating to any person, any indebtedness of such
person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit, or
related reimbursement agreements, or banker's acceptances or representing
Capital Lease Obligations or the balance of the deferred and unpaid purchase
price of any property or representing any Hedging Obligations, except any such
balance that constitutes an accrued expense or trade payable, if and to the
extent any of the foregoing, other than letters of credit, or related
reimbursement agreements, banker's acceptances and Hedging Obligations, would
appear as a liability upon a balance sheet of such person prepared in
accordance with GAAP, as well as all Indebtedness of others secured by a Lien
on any asset of such person, whether or not such Indebtedness is assumed by
such person, Disqualified Stock of such person and Preferred Stock of such
person's Restricted Subsidiaries and, to the extent not otherwise included, the
Guarantee by such person of any Indebtedness of any other person. The amount of
any Indebtedness outstanding as of any date shall be:
. its accreted value, in the case of any Indebtedness issued with original
issue discount, but the accretion of original issue discount in
accordance with the original terms of Indebtedness issued with an
original issue discount will not be deemed to be an incurrence; or
. its principal amount, together with any interest thereon that is more
than 30 days past due, in the case of any other Indebtedness.
Notwithstanding the foregoing, money borrowed and set aside at the time of the
incurrence of any Indebtedness to prefund the payment of interest on such
Indebtedness shall not be deemed to be "Indebtedness" so long as such money is
held to secure the payment of such interest.
"Interest Rate Agreement" means, relating to any person, any interest rate
protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement to which such person is a party or beneficiary.
"Investments" means, relating to any person, all investments by such person
in other persons, including affiliates, in the forms of direct or indirect
loans, including Guarantees of Indebtedness or other obligations, advances or
capital contributions, excluding commission, travel and similar advances to
directors, officers and employees made in the ordinary course of business,
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If Equinix or any of the Restricted Subsidiaries sells or otherwise disposes of
any Equity Interests of any direct or indirect Restricted Subsidiary such that,
after giving effect to any such sale or disposition, such person is no longer a
Restricted Subsidiary, Equinix shall be deemed to have made an Investment on
the date of any such sale or disposition equal to the
79
fair market value of the Equity Interests of such Restricted Subsidiary not
sold or disposed of in an amount determined as provided in the final paragraph
of the "Restricted Payments" covenant.
"Issue Date" means the date of first issuance of the notes under the
indenture.
"Lien" means, relating to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law, including
any conditional sale or other title retention agreement, any related lease, any
option or other agreement to sell or give a security interest in, and any
filing of or agreement to give any financing statement under the Uniform
Commercial Code, or equivalent statutes, of any jurisdiction.
"Net Cash Proceeds" means the aggregate amount of cash or Cash Equivalents
received by Equinix in the case of a sale, or Capital Contribution in respect,
of Capital Stock and by Equinix and the Restricted Subsidiaries in respect of
an Asset Sale plus, in the case of an issuance of Capital Stock upon any
exercise, exchange or conversion of securities, including options, warrants,
rights and convertible or exchangeable debt, of Equinix that were issued for
cash on or after the Issue Date, the amount of cash originally received by
Equinix upon the issuance of such securities, including options, warrants,
rights and convertible or exchangeable debt, less, in each case, the sum of all
payments, fees, commissions and reasonable and customary expenses, including,
without limitation, the fees and expenses of legal counsel and investment
banking fees and expenses, incurred in connection with such Asset Sale or sale
of Capital Stock, and, in the case of an Asset Sale only, less the amount,
estimated reasonably and in good faith by Equinix, of income, franchise, sales
and other applicable federal, state, provincial, foreign and local taxes
required to be paid or accrued as a liability by Equinix or any of its
respective Restricted Subsidiaries in connection with such Asset Sale in the
taxable year that such sale is consummated or in the immediately succeeding
taxable year, the computation of which shall take into account the reduction in
tax liability resulting from any available operating losses and net operating
loss carryovers, tax credits and tax credit carryforwards, and similar tax
attributes.
"Net Income" means, relating to any person, the net income (loss) of such
person, determined in accordance with GAAP and before any reduction in respect
of preferred stock dividends, excluding, however:
. any gain, but not loss, together with any related provision for taxes on
such gain, but not loss, realized in connection with (a) any Asset Sale
or (b) the disposition of any securities by such person or any of the
Restricted Subsidiaries; and
. any extraordinary gain or loss, together with any related provision for
taxes on such extraordinary gain or loss.
"Newly Raised Capital" means funds raised by Equinix and the Restricted
Subsidiaries after the Issue Date.
"Non-Recourse Debt" means Indebtedness:
. as to which neither Equinix nor an Restricted Subsidiary (a) provides
any Guarantee or credit support of any kind, including any undertaking,
guarantee, indemnity, agreement or instrument that would constitute
Indebtedness or (b) is directly or indirectly liable, as a guarantor or
otherwise; and
. no default relating to which, including any rights that its holders may
have to take enforcement action against an Unrestricted Subsidiary,
would permit, upon notice, lapse of time or both, any holder of any
other Indebtedness of Equinix or any Restricted Subsidiary to declare a
default under such other Indebtedness or cause its payment to be
accelerated or payable before its Stated Maturity.
"Officer" means the President, the Chief Executive Officer, the Chief
Financial Officer and any vice president of Equinix.
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"Officers' Certificate" means a certificate signed by two Officers.
"Permitted Business" means the business of designing, constructing, owning,
operating and leasing space within Exchange Facilities together with any other
activity reasonably related thereto.
"Permitted Credit Facility" means any senior commercial term loan and/or
revolving credit facility, including any letter of credit subfacility, entered
into principally with commercial banks and/or other persons typically party to
commercial loan agreements.
"Permitted Foreign Credit Facility" means any senior commercial term loan
and/or revolving credit facility, including any letter of credit subfacility,
entered into principally with commercial banks and/or other persons typically
party to commercial loan agreements having only Foreign Subsidiaries as
obligors thereunder; provided that Equinix may be a guarantor of any such
Permitted Foreign Credit Facility.
"Permitted Holder" means Benchmark Capital Partners II, L.P., Cisco Systems,
Inc., Microsoft Corporation, News Corp., Albert M. Avery, IV, Jay S. Adelson
and their respective Related Persons.
"Permitted Investments" means:
. any Investment in Equinix or in a Restricted Subsidiary of Equinix that
is engaged entirely or substantially entirely in a Permitted Business;
. any Investment in Cash Equivalents;
. any Investment by Equinix or any of the Restricted Subsidiaries in a
person, if as a result of such Investment (a) such person becomes a
Restricted Subsidiary of Equinix that is engaged entirely or
substantially entirely in a Permitted Business or (b) such person is
merged, consolidated or amalgamated with or into, or transfers or
conveys substantially all of its assets to, or is liquidated into,
Equinix or a Restricted Subsidiary of Equinix that is engaged entirely
or substantially entirely in a Permitted Business;
. loans or advances to employees of Equinix or any Restricted Subsidiary
in an amount not to exceed $5 million at any time outstanding;
. any Investment made as a result of the receipt of non-cash consideration
from an Asset Sale made in compliance with the "Asset Sales" covenant;
and
. Investments in securities of trade creditors or customers received under
any plan of reorganization or similar arrangement arising out of the
bankruptcy or insolvency of such trade creditors or customers.
"Permitted Liens" means:
. Liens to secure Indebtedness (a) permitted by the sixth and seventh
clauses of the second paragraph of the "Incurrence of Indebtedness and
Issuance of Preferred Stock" covenant, provided that relating to Liens
to secure Indebtedness permitted by the seventh clause of the covenant
or any Permitted Refinancing Indebtedness of such Indebtedness, such
Lien must cover only the assets acquired with such Indebtedness, and (b)
incurred under a Permitted Credit Facility or a Permitted Foreign Credit
Facility and permitted by the fifth clause of the second paragraph of
the "Incurrence of Indebtedness and Issuance of Preferred Stock"
covenant;
. Liens in favor of Equinix or any Restricted Subsidiary;
. Liens on property of a person existing at the time such person is merged
with or into or consolidated with Equinix or any of the Restricted
Subsidiaries, provided that such Liens were in existence before the
contemplation of such merger or consolidation and do not extend to any
assets other than those of the person merged into or consolidated with
Equinix or such Restricted Subsidiary;
. Liens on property existing at the time of its acquisition by Equinix or
any of the Restricted Subsidiaries, provided that such Liens were in
existence before the contemplation of such acquisition;
81
. Liens to secure the performance of statutory obligations, surety or
appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business;
. Liens existing on the Issue Date;
. Liens for taxes, assessments or governmental charges or claims that are
not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded,
provided that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor;
. zoning restrictions, rights-of-way, easements and similar charges or
encumbrances incurred in the ordinary course which in the aggregate do
not detract from the value of the property;
. Liens securing the notes;
. Liens incurred in the ordinary course of business of Equinix or any of
the Restricted Subsidiaries relating to obligations that do not exceed
5% of Equinix's Consolidated Tangible Assets at any one time outstanding
and that (a) are not incurred in connection with the borrowing of money
or the obtaining of advances or credit, other than trade credit in the
ordinary course of business and (b) do not in the aggregate materially
detract from the value of the property or materially impair its use in
the operation of business by Equinix or such Restricted Subsidiary; and
. Liens securing money borrowed, or any securities purchased therewith,
which is, or are, in the case of securities, set aside at the time of
the incurrence of any Indebtedness permitted to be incurred under the
"Incurrence of Indebtedness and Issuance of Preferred Stock" covenant to
prefund the payment of interest on such Indebtedness.
"Permitted Recourse Debt" means Indebtedness as to which Equinix is
contingently liable as a guarantor or indemnitor or as to which Equinix has
agreed to otherwise provide credit support, in any such case to the extent that
the maximum possible liability of Equinix in respect of any such Indebtedness,
at the time of its incurrence by Equinix is permitted to be incurred as
Permitted Indebtedness under the fourth clause of its definition.
"Permitted Refinancing Indebtedness" means any Indebtedness of Equinix or
any of the Restricted Subsidiaries issued in exchange for, or the net proceeds
of which are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of Equinix or any of the Restricted Subsidiaries, other than
Indebtedness incurred under the third, fourth, fifth, seventh or eighth clauses
of the definition of Permitted Indebtedness; provided that:
. the principal amount, or accreted value, if applicable, of such
Permitted Refinancing Indebtedness does not exceed the principal amount
of, or accreted value, if applicable, plus accrued interest on, the
Indebtedness so extended, refinanced, renewed, replaced, defeased or
refunded, plus the amount of any premium required to be paid in
connection with such refinancing under the terms of such Indebtedness or
otherwise reasonably determined by Equinix to be necessary and
reasonable expenses incurred in connection therewith;
. such Permitted Refinancing Indebtedness has a final maturity date later
than the final maturity date of, and has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity
of, the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded;
. if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the notes,
such Permitted Refinancing Indebtedness is expressly subordinated in
right of payment to, the notes on terms at least as favorable to the
holders as those contained in the documentation governing the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded;
. if such Permitted Refinancing Indebtedness refinances Indebtedness of a
Restricted Subsidiary, such Permitted Refinancing Indebtedness is
incurred either by Equinix or by the Restricted Subsidiary who is the
obligor on the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and
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. such Permitted Refinancing Indebtedness is secured only by the assets,
if any, that secured the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded.
"Preferred Stock" means any Equity Interest of any class or classes of a
person, however designated, which is preferred as to payments of dividends, or
as to distributions upon any liquidation or dissolution, over Equity Interests
of any other class of such person.
"Purchase Money Indebtedness" means Indebtedness, including Acquired Debt,
in the case of Capital Lease Obligations, mortgage financings and purchase
money obligations, incurred for the purpose of financing all or any part of the
cost of the engineering, construction, installation, importation, acquisition,
lease, development or improvement of any assets used by Equinix or any
Restricted Subsidiary in a Permitted Business, including any related notes,
Guarantees, collateral documents, instruments and agreements executed in
connection therewith, as the same may be amended, supplemented, modified or
restated from time to time. Equinix in its sole discretion shall determine
whether any item of Indebtedness or portion of Indebtedness meeting the
foregoing criteria shall be classified as Purchase Money Indebtedness for the
purposes of the covenant "Incurrence of Indebtedness and Issuance of Preferred
Stock."
"Qualified Consideration" means all assets, rights, contractual or
otherwise, and properties, whether tangible or intangible, used or intended for
use in a Permitted Business and the Equity Interests of a person engaged
entirely or substantially entirely in a Permitted Business.
"Related Person" means any person who controls, is controlled by or is under
common control with a Permitted Holder; provided, that for purposes of this
definition "control" means the beneficial ownership of more than 50% of the
total voting power of a person normally entitled to vote in the election of
directors managers or trustees, as applicable, of a person; provided, further,
that relating to any natural person, each member of such person's immediate
family shall be deemed to be a Related Person of such person.
"Restricted Investment" means any Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a person means any Subsidiary of the referent
person that is not an Unrestricted Subsidiary. Unless the context specifically
requires otherwise, Restricted Subsidiary includes a direct or indirect
Restricted Subsidiary of Equinix.
"Senior Debt" means all Indebtedness of Equinix which is not expressly by
its terms, subordinate or junior in right of payment to the notes.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated under the Act, as such Regulation is in effect on the Issue Date.
"Stated Maturity" means, relating to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations
to repay, redeem or repurchase any such interest or principal before the date
originally scheduled for its payment.
"Subordinated Indebtedness" means Indebtedness of Equinix that is
subordinated in right of payment by its terms or the terms of any document or
instrument or instrument relating thereto to the notes, in any respect.
"Subsidiary" means, relating to any person:
. any corporation, association or other business entity of which more than
50% of the total voting power of shares of Capital Stock entitled,
without regard to the occurrence of any contingency, to vote in the
election of directors, managers or trustees of the entity, is at the
time owned or controlled, directly or indirectly, by such person or one
or more of the other Subsidiaries of that person, or a combination; and
83
. any partnership (a) the sole general partner or the managing general
partner of which is such person or a Subsidiary of such person or (b)
the only general partners of which are such person or one or more
Subsidiaries of such person, or any combination.
"Transaction Date" means the date of the transaction giving rise to the need
to calculate the Consolidated Leverage Ratio or the Consolidated Capital Ratio,
as the case may be.
"Unrestricted Subsidiary" means any Subsidiary of Equinix that is designated
by the board of directors as an Unrestricted Subsidiary by a Board Resolution;
but only to the extent that such Subsidiary at the time of such designation:
. has no Indebtedness other than Non Recourse Debt and Permitted Recourse
Debt;
. is a person relating to which neither Equinix nor any of the Restricted
Subsidiaries has any direct or indirect obligation to maintain or
preserve such person's financial condition or to cause such person to
achieve any specified levels of operating results; and
. has not Guaranteed or otherwise directly or indirectly provided credit
support for any Indebtedness of Equinix or any of the Restricted
Subsidiaries.
Any such designation by the board of directors shall be evidenced by filing
with the trustee a certified copy of the Board Resolution giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing conditions and was permitted by the "Restricted
Payments" covenant. The board of directors of Equinix may at any time designate
any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such
designation shall be deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of Equinix of any outstanding Indebtedness of such Unrestricted
Subsidiary and such designation shall only be permitted if:
. such Indebtedness is permitted under the "Incurrence of Indebtedness and
Issuance of Preferred Stock" covenant, calculated on a pro forma basis
as if such designation had occurred at the beginning of the applicable
reference period; and
. no default or Event of Default would be in existence following such
designation.
"U.S. Government Securities" means securities that are direct obligations of
the United States of America for the payment of which its full faith and credit
is pledged.
"Voting Stock" of any person as of any date means the Capital Stock of such
person that is at the time entitled to vote in the election of the board of
directors of such person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:
. the sum of the products obtained by multiplying (a) the amount of each
then remaining installment, sinking fund, serial maturity or other
required payments of principal, including payment at final maturity, in
respect of the Indebtedness, by (b) the number of years, calculated to
the nearest one-twelfth, that will elapse between such date and the
making of such payment; by
. the then outstanding principal amount of such Indebtedness.
"Wholly-Owned Restricted Subsidiary" of any person means a Restricted
Subsidiary of such person all of the outstanding Capital Stock or other
ownership interests of which, other than directors' qualifying shares, shall at
the time be owned by such person or by such person and one or more Wholly Owned
Restricted Subsidiaries of such person or by one or more Wholly Owned
Restricted Subsidiaries of such person.
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BOOK-ENTRY; DELIVERY AND FORM
Except as described below, we will initially issue the exchange notes in the
form of one or more registered exchange notes in global form without coupons.
We will deposit each global note on the date of the closing of the exchange
offer with, or one behalf of, DTC in New York, New York, and register the
exchange notes in the name of DTC or its nominee, or will leave such notes in
the custody of the trustee.
Depository Procedures
The descriptions of the operations and procedures of DTC, Euroclear and
Cedel set forth below are provided solely as a matter of convenience. These
operations and procedures are solely within the control of the respective
settlement systems and are subject to change by them from time to time. Equinix
takes no responsibility for these operations or procedures, and you are urged
to contact the relevant system or its participants directly to discuss these
matters.
DTC has advised us that it is:
. a limited purpose trust company organized under the laws of the State of
New York;
. a "banking organization" within the meaning of the New York Banking Law;
. a member of the Federal Reserve System;
. a "clearing corporation" within the meaning of the Uniform Commercial
Code, as amended; and
. a "clearing agency" registered under Section 17A of the Exchange Act.
DTC was created to hold securities for its participants and facilitates the
clearance and settlement of securities transactions between participants
through electronic book-entry changes to the accounts of its participants,
thereby eliminating the need for physical transfer and delivery of
certificates. DTC's participants include securities brokers and dealers,
including the initial purchasers, banks and trust companies, clearing
corporations and various other organizations. Indirect access to DTC's system
is also available to other entities such as banks, brokers, dealers and trust
companies, as indirect participants, that clear through or maintain a custodial
relationship with a participant, either directly or indirectly. Investors who
are not participants may beneficially own securities held by or on behalf of
DTC only through participants or indirect participants.
Equinix expects that under procedures established by DTC:
. upon deposit of each global note, DTC will credit the accounts of
participants designated by the initial purchasers with an interest in
such global note; and
. ownership of the notes will be shown on, and the transfer of their
ownership will be effected only through, records maintained by DTC,
relating to the interests of participants, and the records of
participants and the indirect participants, relating to the interests of
persons other than participants.
The laws of some jurisdictions may require that purchasers of securities
take physical delivery of such securities in definitive form. Accordingly, the
ability to transfer interests in the notes represented by a global note to such
persons may be limited. In addition, because DTC can act only on behalf of its
participants, who in turn act on behalf of persons who hold interests through
participants, the ability of a person having an interest in notes represented
by a global note to pledge or transfer such interest to persons or entities
that do not participate in DTC's system, or to otherwise take actions in
respect of such interest, may be affected by the lack of a physical definitive
security in respect of such interest.
So long as DTC or its nominee is the registered owner of a global note, DTC
or such nominee, as the case may be, will be considered the sole owner or
holder of the notes represented by such global note for all purposes under the
indenture. Except as provided below, owners of beneficial interests in a global
note will not
85
be entitled to have notes represented by such global note registered in their
names, will not receive or be entitled to receive physical delivery of
certificated notes, and will not be considered as owners or holders under the
indenture for any purpose, including relating to the giving of any direction,
instruction or approval to the trustee thereunder. Accordingly, each holder
owning a beneficial interest in a global note must rely on the procedures of
DTC and, if such holder is not a participant or an indirect participant, on the
procedures of the participant through which such holder owns its interest, to
exercise any rights of a holder of notes under the indenture or such global
note. Equinix understands that under existing industry practice, in the event
that Equinix requests any action of holders of notes, or a holder that is an
owner of a beneficial interest in a global note desires to take any action that
DTC, as the holder of such global note, is entitled to take, DTC would
authorize the participants to take such action and the participants would
authorize holders owning through such participants to take such action or would
otherwise act upon the instruction of such holders. Neither Equinix nor the
trustee will have any responsibility or liability for any aspect of the records
relating to or payments made on account of notes by DTC, or for maintaining,
supervising or reviewing any records of DTC relating to such notes.
Payments relating to any notes, including relating to the principal of, and
premium, if any, liquidated damages, if any, and interest on, any notes,
represented by a global note registered in the name of DTC or its nominee on
the applicable record date will be payable by the trustee, as applicable, to or
at the direction of DTC or its nominee in its capacity as the registered holder
of the global note representing such notes under the indenture. Under the terms
of the indenture, Equinix and the trustee may treat the persons in whose names
the notes, including the global notes representing such notes, are registered
as their owners for the purpose of receiving payment on the notes and for any
and all other purposes whatsoever. Accordingly, neither Equinix nor the trustee
has or will have any responsibility or liability for the payment of such
amounts to owners of beneficial interests in a global note (including
principal, premium, if any, liquidated damages, if any, and interest on any
notes). Payments by the participants and the indirect participants to the
owners of beneficial interests in a global note will be governed by standing
instructions and customary industry practice and will be the responsibility of
the participants or the indirect participants and DTC.
Transfers between participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same-day funds. Transfers between
participants in Euroclear or Cedel will be effected in the ordinary way in
accordance with their respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the
notes, cross-market transfers between the participants in DTC, on the one hand,
and Euroclear or Cedel participants, on the other hand, will be effected
through DTC in accordance with DTC's rules on behalf of Euroclear or Cedel, as
the case may be, by its respective depositary; however, such crossmarket
transactions will require delivery of instructions to Euroclear or Cedel, as
the case may be, by the counterparty in such system in accordance with the
rules and procedures and within the established deadlines, Brussels time, of
such system. Euroclear or Cedel, as the case may be, will, if the transaction
meets its settlement requirements, deliver instructions to its respective
depositary to take action to effect final settlement on its behalf by
delivering or receiving interests in the relevant global notes in DTC, and
making or receiving payment in accordance with normal procedures for same-day
funds settlement applicable to DTC. Euroclear participants and Cedel
participants may not deliver instructions directly to the depositories for
Euroclear or Cedel.
Because of time zone differences, the securities account of a Euroclear or
Cedel participant purchasing an interest in a global note from a participant in
DTC will be credited, and any such crediting will be reported to the relevant
Euroclear or Cedel participant, during the securities settlement processing
day, which must be a business day for Euroclear and Cedel, immediately
following the settlement date of DTC. Cash received in Euroclear or Cedel as a
result of sales of interest in a global note by or through a Euroclear or Cedel
participant to a participant in DTC will be received with value on the
settlement date of DTC but will be available in the relevant Euroclear or Cedel
cash account only as of the business day for Euroclear or Cedel following DTC's
settlement date.
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Although DTC, Euroclear and Cedel have agreed to the foregoing procedures to
facilitate transfers of interests in the global notes among participants in
DTC, Euroclear and Cedel, they are under no obligation to perform or to
continue to perform such procedures, and such procedures may be discontinued at
any time. Neither Equinix nor the trustee will have any responsibility for the
performance by DTC, Euroclear or Cedel or their respective participants or
indirect participants of their respective obligations under the rules and
procedures governing their operations.
DTC and Year 2000 Problems. DTC's management is aware that some computer
applications, systems, and the like for processing data that are dependent upon
calendar dates, including dates before, on or after January 1, 2000, may
encounter "Year 2000 problems." DTC has informed participants and other members
of the financial community that it has developed and is implementing a program
so that its systems, as the same relate to the timely payment of distributions,
including principal and income payments, to securityholders, book-entry
deliveries, and settlement of trades within DTC, continue to function
appropriately. This program includes a technical assessment and a remediation
plan, each of which is complete. Additionally, DTC's plan includes a testing
phase, which is expected to be completed within appropriate time frames.
However, DTC's ability to perform its services properly is also dependent upon
other parties, including but not limited to Equinix and its agents, as well as
third party vendors from whom DTC licenses software and hardware, and third
party vendors on whom DTC relies for information or the provision of services,
including telecommunication and electrical utility service providers, among
others. DTC has informed the financial community that it is contacting, and
will continue to contact, third party vendors from whom DTC acquires services
to impress upon them the importance of such services being Year 2000 compliant,
and to determine the extent of their efforts for Year 2000 remediation and, as
appropriate, testing of their services. In addition, DTC is in the process of
developing such contingency plans as it deems appropriate.
According to DTC, the foregoing information relating to DTC has been
provided to the financial community for informational purposes only and is not
intended to serve as a representation, warranty or contract modification of any
kind.
Certificated Notes
If:
. Equinix notifies the trustee in writing that DTC is no longer willing or
able to act as a depositary or DTC ceases to be registered as a clearing
agency under the Exchange Act and a successor depositary is not
appointed within 90 days of such notice or cessation;
. Equinix, at its option, notifies the trustee in writing that they elect
to cause the issuance of the notes in certificated form under the
indenture; or
. upon the occurrence of other events as provided in the indenture;
then, upon surrender by DTC of such global notes, Certificated Securities will
be issued to each person that DTC identifies as the beneficial owner of the
notes represented by such global notes. Upon any such issuance, the trustee is
required to register such certificated securities in the name of such person or
persons, or the nominee of any person or persons, and cause the same to be
delivered to such person or persons.
Neither the Equinix nor the trustee shall be liable for any delay by DTC or
any participant or indirect participant in identifying the beneficial owners of
the related notes and each such person may conclusively rely on, and shall be
protected in relying on, instructions from DTC for all purposes, including
relating to the registration and delivery, and the respective principal
amounts, of the notes to be issued.
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UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of the material United States federal
income tax considerations relevant to the exchange of the initial notes for
exchange notes pursuant to the exchange offer and to the ownership and
disposition of the exchange notes. The discussion is based upon the Internal
Revenue Code of 1986, as amended (the "Code"), U.S. Treasury Regulations,
Internal Revenue Service ("IRS") rulings and pronouncements and judicial
decisions all in effect as of the date hereof, all of which are subject to
change at any time, and any such change may be applied retroactively in a
manner that could adversely affect a holder of the initial notes or the
exchange notes. The discussion does not address all of the U.S. federal income
tax consequences that may be relevant to a holder in light of such holder's
particular circumstances or to holders subject to special tax rules, such as
certain financial institutions, insurance companies, dealers in securities or
currencies, tax-exempt organizations and persons holding the initial notes or
exchange notes as part of a "straddle," "hedge" or "conversion transaction."
Moreover, the effect of any applicable state, local or foreign tax laws is not
discussed. The discussion below assumes that the initial notes and exchange
notes are held as "capital assets" within the meaning of Section 1221 of the
Code. For purposes of this summary, the term "Equinix" refers only to Equinix,
Inc. and not to any of its subsidiaries. Also, in this description the term
"notes" refers to the "initial notes" and "exchange notes" collectively.
As used herein, "U.S. holder" means a beneficial owner of an exchange note
who or that (i) is a citizen or resident of the United States, (ii) is a
corporation, partnership or other entity created or organized in or under the
laws of the United States, or political subdivision of the United States, (iii)
is an estate the income of which is subject to U.S. federal income taxation
regardless of its source, (iv) is a trust if (A) a U.S. court is able to
exercise primary supervision over the administration of the trust and (B) one
or more U.S. fiduciaries have authority to control all substantial decisions of
the trust, or (v) is otherwise subject to U.S. federal income tax on a net
income basis in respect of the exchange notes. As used herein, a "non-U.S.
holder" means a holder who or that is not a U.S. holder.
Persons considering exchanging their initial notes for exchange notes should
consult their own tax advisors with regard to the application of the united
states federal income tax considerations discussed below to their particular
situations as well as the application of any state, local, foreign or other tax
laws, including gift and estate tax laws and any applicable tax treaty.
Federal Income Tax Consequences of the Exchange Offer
The exchange of the initial notes for the exchange notes in accordance with
the exchange offer should not be treated as an exchange for federal income tax
purposes because the exchange notes should not be considered to differ
materially in kind or in extent from the initial notes. Rather, the exchange
notes received by a holder should be treated as a continuation of the initial
notes in the hands of such holder. As a result, there should be no federal
income tax consequences to holders exchanging the initial notes for exchange
notes in accordance with the exchange offer, and the federal income tax
consequences of holding and disposing of the exchange notes should be the same
as the federal income tax consequences of holding and disposing of the initial
notes. Accordingly, the holder must, among other things, continue to include
original issue discount ("OID") in income as if the exchange had not occurred.
See below, "--The Exchange Notes--Original Issue Discount", for a description
of the OID rules applicable to the exchange notes.
U.S. Holders
The Exchange Notes
Interest. The stated interest on the exchange notes generally will be
taxable to a U.S. holder as ordinary income at the time that it is paid or
accrued, in accordance with the U.S. holder's method of accounting for
88
federal income tax purposes. Failure of Equinix to continue to cause the
registration statement of which this prospectus is a part to continue to be
effective or useable in connection with its intended purpose under the
registration rights agreement as described under "The Exchange Offer; Purpose
of the Exchange Offer" may result in the payment of predetermined liquidated
damages in the manner described therein, which payments will be treated as
additional interest on the notes. According to Treasury Regulations, the
possibility of a change in the interest rate will not affect the amount of
interest income recognized by a U.S. holder (or the timing of such recognition)
if the likelihood of the change, as of the date the initial notes were issued,
was remote. Equinix believes that as of the date the initial notes were issued,
the likelihood of a change in the interest rate on such notes was remote and
has not and does not intend to treat the possibility of a change in the
interest rate as affecting the yield to maturity of any initial notes or
exchange notes. There can be no assurance that the IRS will agree with such
position.
Original Issue Discount. The initial notes were issued as part of an
investment unit comprised of $1,000 principal amount of initial notes and one
warrant to purchase shares of the common stock of Equinix. Equinix and the
initial purchasers of the initial notes (the "Initial Purchasers") allocated in
the purchase agreement for the initial notes a purchase price of $949.35 to
each $1,000 principal amount at maturity of initial notes. This allocation
reflected Equinix's and the Initial Purchasers' judgement as to the relative
values of the initial notes and warrants at the time of issuance but is not
binding on the IRS.
Equinix's and the Initial Purchaser's allocation of the issue price of the
units will be binding on U.S. holders of exchange notes who acquire such notes
in the exchange offer in exchange for initial notes that were in turn acquired
by such holder directly from Equinix, unless the U.S. holder discloses the use
of a different allocation in a statement attached to its timely federal income
tax return for the year in which the unit was acquired. If a U.S. holder
acquired a unit at a price different from that on which Equinix's and the
Initial Purchaser's allocation is based, such holder may be treated as having
acquired the initial notes for an amount greater or less than the amount
allocated to such notes as set forth above thereby resulting in market discount
or bond premium, as discussed below. U.S. holders considering the use of an
issue price allocation different from that described above should consult their
tax advisors as to the consequences thereof.
The initial notes will have OID in an amount equal to the excess of the
stated redemption price at maturity over the issue price of such initial notes
(as discussed above) and the exchange notes that are acquired in the exchange
offer will have the same amount of OID. U.S. holders will be required to
include OID in ordinary income over the period that they hold the exchange
notes in advance of the receipt of cash attributable thereto. The amount of OID
to be included in income will be an amount equal to the sum of the daily
portions of OID for each day during the taxable year in which the exchange
notes are held.
The daily portions of OID are determined by allocating to each day in an
accrual period (which may be of any length and may vary over the term of the
exchange notes, at the option of the holder, provided that each accrual period
is no longer than one year and each scheduled payment of principal or interest
on the exchange notes occurs on the first or last day of an accrual period) the
pro rata portion of the OID allocable to the accrual period. The amount of OID
that is allocable to an accrual period generally will be the excess of the
product of the adjusted issue price of the exchange note at the beginning of
the accrual period (the issue price of the exchange note determined as
described above, generally increased by all prior accruals of OID) and the
yield to maturity of the exchange note (calculated on a constant yield basis
appropriately adjusted for the length of the accrual period) over the stated
interest paid during the accrual period or on the first day of the succeeding
accrual period. In general, the constant yield method will result in a greater
portion of such discount being included in income in the later part of the term
of the exchange note. Any amount of OID included in income will increase a U.S.
holder's tax basis in the exchange notes.
Equinix is required to furnish certain information to the IRS, and will
furnish annually to record holders of exchange notes, information relating to
OID accruing during the calendar year. That information will be based upon the
adjusted issue price of the initial notes that were exchanged for the exchange
notes as if the holder were the original holder of the initial notes.
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A U.S. holder who purchases an exchange note for an amount other than the
adjusted issue price of the initial notes and/or on a date other than the end
of an accrual period will be required to determine for itself the amount of
OID, if any, it is required to include in gross income for U.S. federal income
tax purposes.
Optional Redemption. Under the Treasury Regulations, for purposes of
computing OID, Equinix will be presumed to exercise its option to redeem the
exchange notes if, by utilizing the date of exercise of the call option as the
maturity date and the redemption price as the stated redemption price at
maturity, the yield on the exchange notes would be lower than such yield would
be if the option were not exercised. See "Description of the Exchange Notes--
Optional Redemption."
If Equinix's option to redeem the exchange notes were presumed exercised on
a given date (the "Presumed Exercise Date"), the exchange notes would bear
additional OID in an amount equal to the amount for which the exchange notes
could be redeemed (the "Redemption Amount") over their issue price. For
purposes of calculating the current inclusion of such discount, the yield on
the exchange notes would be computed on their issue date by treating the
Presumed Exercise Date as the maturity date of the exchange notes and the
Redemption Amount as their stated principal amount due at maturity. If
Equinix's option to redeem the exchange notes were presumed exercised but were
not exercised in fact on the Presumed Exercise Date, the exchange notes would
be treated, for certain purposes, as if the option were exercised and new debt
instruments were issued on the Presumed Exercise Date for an amount of cash
equal to the Redemption Amount. In such case, it appears that any payment of
stated interest due under the exchange notes after the Presumed Exercise Date
would constitute qualified stated interest (rather than OID) and would be
taxable as ordinary interest income at the time such interest was accrued or
was received, in accordance with such U.S. holder's regular method of
accounting for tax purposes.
Market Discount and Bond Premium. If a U.S. holder purchases exchange notes
or has purchased initial notes for an amount that is less than the adjusted
issue price of such exchange notes or initial notes, as the case may be, the
amount of difference will generally be treated as market discount for U.S.
Federal income tax purposes. In such case, any principal payment on and gain
realized on the sale, exchange or retirement of the exchange notes and
unrealized appreciation on certain nontaxable dispositions of the exchange
notes will be treated as ordinary income to the extent of any market discount
that has not previously been included in gross income and that is treated as
having accrued on such exchange notes or initial notes that were exchanged for
such exchange notes, by the time of such payment or disposition. If a U.S.
holder makes a gift of exchange notes, accrued market discount, if any, will be
recognized as if such holder has sold such exchange notes for a price equal to
their fair market value. In addition, the U.S. holder may be required to defer,
until the maturity of the exchange notes or their earlier disposition in a
taxable transaction, the deduction of a portion of the interest expense on any
indebtedness incurred or continued to purchase or carry such exchange notes or
initial notes that were exchanged for such exchange notes.
Unless the U.S. holder elects to treat market discount as accruing on a
constant yield method, market discount will be treated as accruing on a
straight-line basis over the remaining term of the exchange notes. An election
made to include market discount in income as it accrues will apply to all debt
instruments acquired by the U.S. holder on or after the first day of the first
taxable year to which such election applies and may be revoked only with the
consent of the IRS.
If a U.S. holder purchases an exchange note for an amount in excess of all
amounts payable on the exchange note after the purchase date, other than
payments of stated interest, such excess will be treated as bond premium. In
general, a U.S. holder may elect to amortize bond premium over the remaining
term of the exchange note on a constant yield method. The amount of bond
premium allocable to any accrual period is offset against the stated interest
allocable to such accrual period (any excess may be deducted, subject to
certain limitations). An election to amortize bond premium applies to all
taxable debt instruments held at the beginning of the first taxable year to
which such election applies and thereafter acquired by the U.S. holder and may
be revoked only with the consent of the IRS.
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Sale or Retirement of Exchange Notes. Upon the sale, retirement, redemption
or other taxable disposition of exchange notes, a U.S. holder will generally
recognize gain or loss in an amount equal to the difference between (a) the
amount of cash and the fair market value of other property received in exchange
therefor (other than amounts attributable to accrued but unpaid stated
interest) and (b) the U.S. holder's adjusted tax basis in such exchange notes.
Any gain or loss recognized will generally be capital gain or loss, and such
capital gain or loss will generally be long-term capital gain or loss if the
exchange notes have been held by the U.S. holder for more than one year
(including, in the case of a U.S. holder who acquired the exchange notes in
exchange for initial notes, the period of time the initial notes were held by
such U.S. holder) and otherwise will be a short-term capital gain or loss.
A U.S. holder's tax basis in an exchange note that was acquired in exchange
for an initial note that was in turn acquired in the initial issuance from
Equinix will generally be equal to the issue price allocated to such initial
note as described above under "--The Exchange Notes--Original Issue Discount",
increased by the amount of OID, if any, included in gross income before the
date of the disposition, and decreased by the amount of any payment, other than
stated interest, on such note before disposition.
U.S. holders should be aware that the resale of the exchange notes may be
affected by the market discount rules of the Code as described above under "--
The Exchange Notes--Market Discount and Bond Premium" under which a purchaser
of an initial note or an exchange note acquiring such note at a market discount
generally would be required to include as ordinary income a portion of the gain
realized upon the disposition or retirement of such note, to the extent of the
market discount that has accrued but not been included in income while such
note was held by such purchaser.
Non-U.S. Holders
Interest or redemption proceeds paid to non-U.S. holders of the exchange
notes generally will not be subject to U.S. Federal withholding tax provided
that (a) the non-U.S. holder does not actually or constructively own 10 percent
or more of a total combined voting power of all classes of stock of Equinix
entitled to vote, (b) the non-U.S. holder is not a "controlled foreign
corporation" (within the meaning of the Code) that is related to Equinix
through stock ownership, (c) either (1) the beneficial owner of the exchange
notes provides Equinix or its agent with a statement signed under penalties of
perjury that includes its name and address and certifies that it is not a
United States person or (2) a securities clearing organization, bank, or other
financial institution that holds customers' securities in the ordinary course
of its business (a "financial institution") certifies to Equinix or its agent,
under penalties of perjury, that such a statement has been received from the
beneficial owner by it or another financial institution and furnished to
Equinix or its agent a copy of the statement and (d) the exchange notes are in
registered form. If these requirements cannot be met, a non-U.S. holder will be
subject to U.S. withholding tax at a rate of 30 percent (or lower treaty rate,
if applicable) on interest payments. Although U.S. tax will also be imposed
against OID on the exchange notes before payment, such tax will only be
withheld from stated interest payments on the exchange notes. However, such
additional withholding may result in U.S. withholding tax on stated interest
payments exceeding 30 percent.
In general, any gain realized by any non-U.S. Holder upon the sale, exchange
or redemption of an exchange note will not be subject to Federal income or
withholding tax unless (i) a non-U.S. holder is an individual and is present in
the U.S. for a total of 183 days or more during the taxable year in which the
gain is realized, (ii) the gain is effectively connected with the conduct of a
trade or business of the holder in the U.S., or in the case of certain
residents of countries which have an income tax treaty in force with the U.S.,
attributable to a permanent establishment (or in the case of an individual a
fixed base) in the U.S. as such terms are defined in the applicable tax treaty,
(iii) the holder is subject to tax in accordance with the provisions of U.S.
tax law applicable to certain U.S. expatriates (including certain former
citizens or residents of the U.S.) or (iv) Equinix is or has 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.
Equinix does not believe that is its currently a "United States real property
holding corporation", or that it will become one in the future.
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Deductibility of Interest and Original Issue Discount
The Code contains various limitations and restrictions on the deductibility
of interest and/or OID. Some of these limitations and restrictions may be
applicable to the interest and/or the OID associated with the notes. In such
event, some or all of the interest or OID associated with the notes may not be
deductible by Equinix.
Information Reporting and Backup Withholding
In general information reporting requirements will apply to OID, payments of
principal, premium, if any, and interest on the exchange notes and payments of
the proceeds of the sale of the exchange notes, and a 31% backup withholding
tax may apply to such payments if the holder either (i) fails to demonstrate
that the holder comes within certain exempt categories of holders or (ii) fails
to furnish or certify his correct taxpayer identification number to the payer
in the manner required, is notified by the IRS that he has failed to report
payments of interest and dividends properly, or under certain circumstances,
fails to certify that he has not been notified by the IRS that he is subject to
backup withholding for failure to report interest and dividend payments. Any
amounts withheld under the backup withholding rules from a payment to a holder
will be allowed as a credit against such holder's United States federal income
tax and may entitle the holder to a refund, provided that the required
information is furnished to the IRS.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account in the
exchange offer must acknowledge that it will deliver a prospectus in connection
with any resale of those exchange notes. This prospectus, as it may be amended
or supplemented from time to time, may be used by a broker-dealer in connection
with resales of exchange notes received in the exchange offer where the
outstanding exchange notes were acquired as a result of market-making
activities or other trading activities. We have agreed that, for a period of
180 days after the consummation of the exchange offer, we will make this
prospectus, as amended and supplemented, available to any broker-dealer for use
in connection with any such resale. In addition, until , 2000, all dealers
effecting transactions in the exchange notes issued in the exchange offer may
be required to deliver a prospectus.
We will not receive any proceeds from any sale of exchange notes by broker-
dealers. exchange notes received by broker-dealers for their own account in the
exchange offer may be sold from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on the exchange notes or a combination of such methods of resale, at
market prices prevailing at the time of resale, at prices related to such
prevailing market prices or at negotiated prices. Any such resale may be made
directly to purchasers or to or though brokers or dealers who may receive
compensation in the form of commissions or concessions from any such broker-
dealer or the purchasers of any such exchange notes. Any broker-dealer that
resells exchange notes that were received by it for its own account in the
exchange offer and any broker or dealer that participates in a distribution of
such exchange notes may be deemed to be an "underwriter" within the meaning of
the Securities Act, and profit on any such resale of exchange notes issued in
the exchange and any commission or concessions received by any such persons may
be deemed to be underwriting compensation under the Securities Act. The letter
of transmittal states that, by acknowledging that it will deliver and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the consummation of the exchange offer, we
will promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests such documents
in the letter of transmittal. We have agreed to pay all expenses incident to
the exchange offer, including the expenses of one counsel for the holders of
the exchange notes, other than the commissions or concessions of any broker-
dealers and will indemnify the holders of the exchange notes, including any
broker-dealers, against certain liabilities, including liabilities under the
Securities Act. We note, however, that, in the opinion of the SEC,
indemnification against liabilities arising under federal securities laws is
against public policy and may be unenforceable.
LEGAL MATTERS
Legal matters as to the validity of the exchange notes offered by this
prospectus will be passed on for us by Dewey Ballantine LLP, New York, New
York. As of the date of this prospectus, some partners of Gunderson Dettmer
Stough Villeneuve Franklin & Hachigian, LLP, our outside corporate counsel,
beneficially owned an aggregate of 75,000 shares of our Series A preferred
stock and 9,375 shares of our Series B preferred stock.
EXPERTS
The consolidated financial statements of Equinix, Inc. and subsidiary as of
December 31, 1998 and 1999 and for the period from June 22, 1998 (inception) to
December 31, 1998 and for the year ended December 31, 1999, have been included
herein and in the registration statement in reliance on the report of KPMG LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of that firm as experts in accounting and auditing.
93
EQUINIX, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report................................................ F-2
Consolidated Balance Sheets................................................. F-3
Consolidated Statements of Operations....................................... F-4
Consolidated Statements of Stockholders' Equity............................. F-5
Consolidated Statements of Cash Flows....................................... F-6
Notes to Consolidated Financial Statements.................................. F-7
F-1
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Equinix, Inc. and Subsidiary:
We have audited the accompanying consolidated balance sheets of Equinix,
Inc. and subsidiary (the "Company"), as of December 31, 1998 and 1999, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the period from June 22, 1998 (inception) to December 31, 1998 and
for the year ended December 31, 1999. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Equinix,
Inc. and subsidiary as of December 31, 1998 and 1999, and the results of their
operations and their cash flows for the period from June 22, 1998 (inception)
to December 31, 1998 and for the year ended December 31, 1999, in conformity
with generally accepted accounting principles.
Mountain View, California
January 21, 2000, except as to Note 10, which is as of January 28, 2000.
F-2
EQUINIX, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31,
------------------------
1998 1999
----------- -----------
Assets
Current assets:
Cash and cash equivalents.......................... $ 4,164,500 222,973,600
Short-term investments............................. 5,000,000 --
Accounts receivable................................ -- 177,700
Current portion of restricted cash and short-term
investments....................................... -- 25,110,400
Prepaids and other current assets.................. 167,600 1,596,900
----------- -----------
Total current assets............................. 9,332,100 249,858,600
Property and equipment, net.......................... 482,000 31,303,000
Construction in progress............................. 30,700 14,175,800
Restricted cash and short-term investments, less
current portion..................................... -- 13,498,300
Debt issuance costs, net............................. -- 6,532,400
Other assets......................................... 156,400 1,400,300
----------- -----------
Total assets..................................... $10,001,200 316,768,400
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses.............. $ 159,200 4,143,200
Accrued construction costs......................... 252,300 9,772,200
Current portion of debt facilities and capital
lease obligations................................. -- 4,394,600
Accrued interest payable........................... -- 2,166,700
Other current liabilities.......................... -- 204,600
----------- -----------
Total current liabilities........................ 411,500 20,681,300
Debt facilities and capital lease obligations, less
current portion................................... -- 10,248,200
Senior notes....................................... -- 191,087,700
Other liabilities.................................. -- 802,400
----------- -----------
Total liabilities................................ 411,500 222,819,600
----------- -----------
Commitments and Contingencies
Stockholders' equity:
Series A convertible preferred stock, $0.001 par
value per share; 16,500,000 and 32,000,000 shares
authorized in 1998 and 1999, respectively;
15,697,500 and 18,682,500 shares issued and
outstanding in 1998 and 1999, respectively;
liquidation value of $10,465,000 and $12,455,000
in 1998 and 1999, respectively.................... 15,700 18,700
Series B convertible preferred stock, $0.001 par
value per share; none and 36,000,000 shares
authorized in 1998 and 1999, respectively; none
and 15,762,373 shares issued and outstanding in
1998 and 1999, respectively; liquidation value of
none and $84,066,000 in 1998 and 1999,
respectively...................................... -- 15,800
Common stock, $0.001 par value per share;
43,500,000 and 132,000,000 shares authorized in
1998 and 1999, respectively; 6,150,000 and
11,672,196 shares issued and outstanding in 1998
and 1999, respectively............................ 6,200 11,700
Additional paid-in capital......................... 10,423,600 113,188,500
Deferred stock-based compensation.................. -- (3,656,700)
Accumulated other comprehensive income............. 14,100
Accumulated deficit................................ (855,800) (15,643,300)
----------- -----------
Total stockholders' equity....................... 9,589,700 93,948,800
----------- -----------
Total liabilities and stockholders' equity....... $10,001,200 316,768,400
=========== ===========
See accompanying notes to consolidated financial statements.
F-3
EQUINIX, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Period from
June 22,
1998
(inception)
to Year ended
December 31, December
1998 31, 1999
------------ -----------
Revenues............................................ $ -- 44,400
Costs and operating expenses:
Cost of revenues................................... -- 2,923,000
Sales and marketing................................ 34,200 2,668,600
General and administrative......................... 751,500 8,764,400
--------- -----------
Total costs and operating expenses.............. 785,700 14,356,000
--------- -----------
Loss from operations.............................. (785,700) (14,311,600)
Interest income..................................... 149,900 2,138,100
Interest expense.................................... -- (2,614,000)
Interest charge on beneficial conversion of
convertible debt................................... (220,000) --
--------- -----------
Net loss............................................ $(855,800) (14,787,500)
========= ===========
See accompanying notes to consolidated financial statements.
F-4
EQUINIX, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Period from June 22, 1998 (inception) to December 31, 1999
Series A Series B
convertible convertible Accumulated
preferred stock preferred stock Common stock Additional Deferred other
------------------- ------------------ ------------------ paid-in stock-based comprehensive Accumulated
Shares Amount Shares Amount Shares Amount capital compensation income deficit
---------- ------- ---------- ------- ---------- ------- ----------- ------------ ------------- -----------
Issuance of
common stock for
cash............. -- $ -- -- $ -- 6,060,000 $ 6,100 (2,100) -- -- --
Issuance of
common stock upon
exercise of
common stock
options.......... -- -- -- -- 90,000 100 5,900 -- -- --
Issuance of
Series A
preferred stock,
net of $29,500
offering costs... 15,037,500 15,000 -- -- -- -- 9,980,500 -- -- --
Conversion of
debt to Series A
preferred stock.. 660,000 700 -- -- -- -- 439,300 -- -- --
Net loss......... -- -- -- -- -- -- -- -- -- (855,800)
---------- ------- ---------- ------- ---------- ------- ----------- ---------- ------ -----------
Balances as of
December 31,
1998............. 15,697,500 15,700 -- -- 6,150,000 6,200 10,423,600 -- -- (855,800)
Issuance of
Series A
preferred stock.. 3,000,000 3,000 -- -- -- -- 1,997,000 -- -- --
Repurchase of
Series A
preferred stock.. (15,000) -- -- -- -- -- (10,000) -- -- --
Issuance of
Series B
preferred stock,
net of $2,360,000
offering costs... -- -- 15,762,373 15,800 -- -- 81,690,200 -- -- --
Issuance of
common stock upon
exercise of
common stock
options.......... -- -- -- -- 5,522,196 5,500 1,280,100 -- -- --
Issuance of
Series A
preferred stock
warrants......... -- -- -- -- -- -- 600,600 -- -- --
Issuance of
common stock
warrants......... -- -- -- -- -- -- 12,559,400 -- -- --
Deferred stock-
based
compensation..... -- -- -- -- -- -- 4,647,600 (4,647,600) -- --
Amortization of
stock-based
compensation..... -- -- -- -- -- -- -- 990,900 -- --
Comprehensive
income (loss):
Net loss........ -- -- -- -- -- -- -- -- -- (14,787,500)
Unrealized
appreciation on
short-term
investments..... -- -- -- -- -- -- -- -- 14,100 --
---------- ------- ---------- ------- ---------- ------- ----------- ---------- ------ -----------
Net
comprehensive
loss............ -- -- -- -- -- -- -- -- 14,100 (14,787,500)
---------- ------- ---------- ------- ---------- ------- ----------- ---------- ------ -----------
Balances as of
December 31,
1999............. 18,682,500 $18,700 15,762,373 $15,800 11,672,196 $11,700 113,188,500 (3,656,700) 14,100 (15,643,300)
========== ======= ========== ======= ========== ======= =========== ========== ====== ===========
Total
stockholders'
equity
-------------
Issuance of
common stock for
cash............. 4,000
Issuance of
common stock upon
exercise of
common stock
options.......... 6,000
Issuance of
Series A
preferred stock,
net of $29,500
offering costs... 9,995,500
Conversion of
debt to Series A
preferred stock.. 440,000
Net loss......... (855,800)
-------------
Balances as of
December 31,
1998............. 9,589,700
Issuance of
Series A
preferred stock.. 2,000,000
Repurchase of
Series A
preferred stock.. (10,000)
Issuance of
Series B
preferred stock,
net of $2,360,000
offering costs... 81,706,000
Issuance of
common stock upon
exercise of
common stock
options.......... 1,285,600
Issuance of
Series A
preferred stock
warrants......... 600,600
Issuance of
common stock
warrants......... 12,559,400
Deferred stock-
based
compensation..... --
Amortization of
stock-based
compensation..... 990,900
Comprehensive
income (loss):
Net loss........ (14,787,500)
Unrealized
appreciation on
short-term
investments..... 14,100
-------------
Net
comprehensive
loss............ (14,773,400)
-------------
Balances as of
December 31,
1999............. 93,948,800
=============
See accompanying notes to consolidated financial statements.
F-5
EQUINIX, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Period from
June 22, 1998
(inception)
to Year ended
December 31, December 31,
1998 1999
------------- ------------
Cash flows from operating activities:
Net loss........................................... $ (855,800) (14,787,500)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation....................................... 4,200 609,300
Interest charge on beneficial conversion of
convertible debt.................................. 220,000 --
Amortization of deferred stock-based
compensation...................................... -- 990,900
Amortization of senior note discount............... -- 91,700
Amortization of debt facilities and capital lease
obligation discount............................... -- 116,900
Amortization of debt issuance costs................ -- 67,600
Issuance of common stock warrants for strategic
agreement......................................... -- 366,500
Changes in operating assets and liabilities:
Accounts receivable............................... -- (177,700)
Prepaids and other current assets................. (167,600) (1,429,300)
Other assets...................................... (156,400) (1,243,900)
Accounts payable and accrued expenses............. 159,200 2,313,800
Accrued interest payable.......................... -- 2,166,700
Other current liabilities......................... -- 204,600
Other liabilities................................. -- 802,400
----------- -----------
Net cash used in operating activities........... (796,400) (9,908,000)
----------- -----------
Cash flows from investing activities:
Purchase of short-term investments................. (5,000,000) (28,800,000)
Sales and maturities of short-term investments..... -- 33,814,100
Purchases of property and equipment................ (486,200) (28,241,400)
Additions to construction in progress.............. (30,700) (14,145,100)
Accrued construction costs......................... 252,300 9,519,900
Purchase of restricted cash and short-term
investments....................................... -- (38,608,700)
----------- -----------
Net cash used in investing activities........... (5,264,600) (66,461,200)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock............. 4,000 --
Proceeds from exercise of stock options............ 6,000 1,285,600
Proceeds from debt facilities and capital lease
obligations....................................... -- 16,114,500
Repayment of debt facilities and capital lease
obligations....................................... -- (988,000)
Proceeds from issuance of promissory notes......... 220,000 --
Proceeds from senior notes and common stock
warrants, net..................................... -- 193,890,200
Repurchase of preferred stock...................... -- (10,000)
Proceeds from issuance of convertible preferred
stock, net........................................ 9,995,500 84,886,000
----------- -----------
Net cash provided by financing activities....... 10,225,500 295,178,300
----------- -----------
Net increase in cash and cash equivalents........... 4,164,500 218,809,100
Cash and cash equivalents at beginning of period.... -- 4,164,500
----------- -----------
Cash and cash equivalents at end of period.......... $ 4,164,500 222,973,600
=========== ===========
Noncash financing and investing activities:
Cash paid for taxes................................ $ -- 67,500
=========== ===========
Cash paid for interest............................. $ -- 153,400
=========== ===========
Noncash financing and investing activities:
Preferred stock warrants issued for financing
commitments....................................... $ -- 600,600
=========== ===========
Common stock warrants issued for strategic
agreement......................................... $ -- 366,500
=========== ===========
Common stock warrants issued for services.......... $ -- 3,188,900
=========== ===========
Conversion of notes payable to convertible
preferred stock................................... $ 440,000 --
=========== ===========
Unrealized appreciation on investments............. $ -- 14,100
=========== ===========
Assets recorded under capital lease................ $ -- 660,700
=========== ===========
Deferred compensation on grants of stock options... $ -- 4,647,600
=========== ===========
See accompanying notes to consolidated financial statements.
F-6
EQUINIX, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1)Nature of Business and Summary of Significant Accounting Policies
Nature of Business
Equinix, Inc. ("Equinix" or the "Company") was incorporated as Quark
Communications, Inc. in Delaware on June 22, 1998. The Company changed its
name to Equinix, Inc. on October 13, 1998. Equinix designs, builds, and
operates neutral Internet Business Exchange ("IBX") centers.
For the period June 22, 1998 (inception) through December 31, 1998 and
the period ended September 30, 1999, the Company was a development stage
enterprise. Subsequent to this period, the Company opened its second IBX
center for commercial operation. In addition, the Company began to
recognize revenue from its IBX centers. As a result, the Company is no
longer a development stage enterprise as of and for the year ended December
31, 1999.
Basis of Presentation
The accompanying consolidated financial statements include the accounts
of Equinix and its wholly-owned subsidiary, Equinix-DC, Inc. ("Equinix-
DC"). All significant intercompany accounts and transactions have been
eliminated in consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from these estimates.
Cash, Cash Equivalents and Short-Term Investments
The Company considers all highly liquid instruments with a maturity from
the date of purchase of three months or less to be cash equivalents. Cash
equivalents consist of money market mutual funds and certificates of
deposit with financial institutions with maturities of between 7 and 60
days. Short-term investments generally consist of certificates of deposits
with maturities of between 90 and 180 days and highly liquid debt and
equity securities of corporations, municipalities and the U.S. government.
Short-term investments are classified as "available-for-sale" and are
carried at fair value based on quoted market prices, with unrealized gains
and losses reported in stockholders' equity as a component of comprehensive
income. The cost of securities sold is based on the specific identification
method.
Restricted Cash and Short-term Investments
Restricted cash and short-term investments consists of $37,011,500, plus
accrued interest of $67,100, deposited with an escrow agent to pay the
first three interest payments on the Senior Notes (see Note 4) and
restricted cash of $1,530,100 provided as collateral under three separate
security agreements for standby letters of credit entered into and in
accordance with certain lease agreements. These agreements expire at
various dates through 2014.
Financial Instruments and Concentration of Credit Risk
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist of cash, cash equivalents and short-
term investments to the extent these exceed federal insurance limits
F-7
EQUINIX, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
and accounts receivable. Risks associated with cash, cash equivalents and
short-term investments are mitigated by the Company's investment policy,
which limits the Company's investing to only those marketable securities
rated at least A-1 or P-1 investment grade, as determined by independent
credit rating agencies.
The Company's customer base is primarily composed of businesses
throughout the United States. The Company performs ongoing credit
evaluations of its customers.
Property and Equipment
Property and equipment are stated at original cost. Depreciation is
computed using the straight-line method over the estimated useful lives of
the respective assets, generally two to five years for non-IBX center
equipment and seven to ten years for IBX center equipment. Leasehold
improvements and assets acquired under capital lease are amortized over the
shorter of the lease term or the estimated useful life of the asset or
improvement.
Construction in Progress
Construction in progress includes direct and indirect expenditures for
the construction of IBX centers and is stated at original cost. The Company
has contracted out substantially all of the construction of the IBX centers
to independent contractors under construction contracts. Construction in
progress includes certain costs incurred under a construction contract
including project management services, site identification and evaluation
services, engineering and schematic design services, design development and
construction services and other construction-related fees and services. In
addition, the Company has capitalized certain interest costs during the
construction phase. Once an IBX center becomes operational, these
capitalized costs are depreciated at the appropriate rate consistent with
the estimated useful life of the underlying asset.
Interest incurred is capitalized in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 34, Capitalization of Interest
Costs. Total interest cost incurred and total interest capitalized during
the year ended December 31, 1999, was $2,791,400 and $177,400,
respectively.
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of
In accordance with SFAS No. 121, Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of, the Company
considers the impairment of long-lived assets and certain identifiable
intangibles whenever events or changes in circumstances indicate that the
carrying amount of such assets may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying
amount of an asset to future net cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the
assets exceeds the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs to
sell. No impairment of long-lived assets has been recorded as of December
31, 1998 and 1999.
Revenue Recognition
Revenues consist of monthly fees from customer use of the IBX centers
and related services and installation. Revenues from customer use of the
IBX centers are billed monthly and recognized ratably over the term of the
contract, generally one year. In addition, installation and service fees
are recognized ratably over the term of the contract.
F-8
EQUINIX, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. Valuation allowances are
established when necessary to reduce tax assets to the amounts expected to
be realized.
Stock-Based Compensation
The Company accounts for its stock-based compensation plans in
accordance with SFAS No. 123, Accounting for Stock-Based Compensation. As
permitted under SFAS No. 123, the Company uses the intrinsic value-based
method of Accounting Principles Board ("APB") Opinion No. 25, Accounting
for Stock Issued to Employees, to account for its employee stock-based
compensation plans.
The Company accounts for stock-based compensation arrangements with
nonemployees in accordance with the Emerging Issues Task Force Abstract
("EITF") No. 96-18, Accounting for Equity Instruments That Are Issued to
Other Than Employees for Acquiring, or in Conjunction with Selling Goods or
Services. Accordingly, unvested options and warrants held by nonemployees
are subject to revaluation at each balance sheet date based on the then
current fair market value.
Unearned deferred compensation resulting from employee and nonemployee
option grants is amortized on an accelerated basis over the vesting period
of the individual options, in accordance with FASB Interpretation No. 28,
Accounting for Stock Appreciation Rights and Other Variable Stock Option or
Award Plans ("FASB Interpretation No. 28").
Segment Reporting
The Company has adopted the provisions of SFAS No. 131, Disclosures
about Segments of an Enterprise and Related Information. SFAS No. 131
establishes annual and interim reporting standards for operating segments
of a company. The statement requires disclosures of selected segment-
related financial information about products, major customers and
geographic areas.
Comprehensive Income
The Company has adopted the provisions of SFAS No. 130, Reporting
Comprehensive Income. SFAS No. 130 establishes standards for the reporting
and display of comprehensive income and its components; however, the
adoption of this statement had no impact on the Company's net loss or
stockholders' equity. SFAS 130 requires unrealized gains or losses on the
Company's available-for-sale securities to be included in other
comprehensive income (loss). Comprehensive income (loss) consists of net
loss and other comprehensive income.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities. SFAS No.
133 establishes accounting and reporting standards for derivative
instruments, including derivative instruments embedded in other contracts,
and for
F-9
EQUINIX, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
hedging activities. SFAS No. 133, as amended by SFAS No. 137, Deferral of
the Effective Date of FASB Statement No. 133, is effective for all fiscal
quarters of fiscal years beginning after September 15, 2000. This statement
does not currently apply to the Company as the Company does not have any
derivative instruments or hedging activities.
(2)Balance Sheet Components
Cash, Cash Equivalents and Short-term Investments
As of December 31, 1998 and 1999, cost approximated market value of
cash, cash equivalents and short-term investments; unrealized gains and
losses were not significant. As of December 31, 1999, cash equivalents
included investments in corporate debt securities with various contractual
maturity dates which do not exceed 90 days.
Property & Equipment
Property and equipment is comprised of the following as of December 31:
1998 1999
-------- ----------
Leasehold improvements................................... $240,600 19,523,200
IBX plant and machinery.................................. -- 8,235,400
Computer equipment and software.......................... 77,000 3,126,000
IBX equipment............................................ -- 658,700
Furniture and fixtures................................... 168,600 373,200
-------- ----------
486,200 31,916,500
Less accumulated depreciation............................ 4,200 613,500
-------- ----------
$482,000 31,303,000
======== ==========
Leasehold improvements and certain computer equipment and software and
furniture and fixtures, recorded under capital leases, aggregated none and
$660,700 as of December 31, 1998 and 1999, respectively. Amortization on
the assets recorded under capital leases is included in depreciation
expense.
Included within leasehold improvements is the value attributed to the
MCI Warrant and the Bechtel Warrant totaling $2,145,600 and $1,043,300,
respectively (see Note 5). Amortization on such warrants is included in
depreciation expense.
Restricted Cash and Short-term Investments
Restricted cash and short-term investments consisted of the following as
of December 31 1999:
United States treasury notes:
Due within one year.......................................... $ 25,110,400
Due after one year through two years......................... 11,968,200
Restricted cash in accordance with security agreements......... 1,530,100
------------
38,608,700
Less current portion........................................... (25,110,400)
------------
$ 13,498,300
============
As of December 31, 1999, cost approximated market value of restricted
cash and short-term investments; unrealized gains and losses were not
significant.
F-10
EQUINIX, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consisted of the following as of
December 31:
1998 1999
-------- ---------
Accounts payable.......................................... $ 33,800 1,978,200
Accrued preferred stock issuance costs.................... -- 1,180,000
Accrued compensation...................................... 23,200 303,000
Deferred rent............................................. 42,400 18,000
Income taxes payable...................................... 39,800 --
Accrued debt issuance costs............................... -- 490,200
Other..................................................... 20,000 173,800
-------- ---------
$159,200 4,143,200
======== =========
(3)Debt Facilities and Capital Lease Obligations
Debt facilities and capital lease obligations consisted of the following
as of December 31, 1999:
Comdisco Loan and Security Agreement (net of unamortized
discount of $331,500)........................................ $ 4,710,600
Comdisco Master Lease Agreement and Addendum (net of
unamortized discount of $59,000)............................. 573,800
Venture Leasing Loan Agreement (net of unamortized discount of
$93,200)..................................................... 9,358,400
-----------
14,642,800
Less current portion.......................................... (4,394,600)
-----------
$10,248,200
===========
Comdisco Loan and Security Agreement
In March 1999, Equinix-DC entered into a $7,000,000 Loan and Security
Agreement with Comdisco, Inc. ("Comdisco" and the "Comdisco Loan and
Security Agreement"). Under the terms of the Comdisco Loan and Security
Agreement, Comdisco may lend the Company up to $3,000,000 for equipment
(referred to as the "hard" loan) and up to $4,000,000 for software and
tenant improvements ("soft" loan) for the Ashburn, Virginia IBX center
buildout. The loans, which are collateralized by the assets of the Ashburn
IBX, are available in minimum advances of $1,000,000 and each loan is
evidenced by a secured promissory note. The hard and soft loans issued bear
interest at rates of 7.5% and 9% per annum, respectively, and are repayable
in 42 and 36 equal monthly installments, respectively, plus a final balloon
interest payment equal to 15% of the original advance amount due at
maturity. The Comdisco Loan and Security Agreement has an effective
interest rate of 18.1% per annum. As of December 31, 1999, $5,042,100 was
outstanding under the Comdisco Loan and Security Agreement.
In connection with the Comdisco Loan and Security Agreement, the Company
granted Comdisco a warrant to purchase 765,000 shares of the Company's
Series A preferred stock at $0.67 per share (the "Comdisco Loan and
Security Agreement Warrant"). This warrant is immediately exercisable and
expires in ten years from the date of grant. This warrant, valued at
$428,700 using the Black-Scholes option pricing model, was recorded as a
discount to the applicable debt, and is being amortized to interest
expense, using the effective interest method, over the life of the
agreement.
F-11
EQUINIX, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Comdisco Master Lease Agreement
In May 1999, the Company entered into a Master Lease Agreement with
Comdisco (the "Comdisco Master Lease Agreement"). Under the terms of the
Comdisco Master Lease Agreement, the Company sells equipment to Comdisco,
which it will then lease back. The amount of financing to be provided is up
to $1,000,000. Repayments are made monthly over 42 months with a final
balloon interest payment equal to 15% of the balance amount due at
maturity. Interest accrues at 7.5% per annum. The Comdisco Master Lease
Agreement has an effective interest rate of 14.6% per annum. As of December
31, 1999, $590,600 was outstanding under the Comdisco Master Lease
Agreement.
In connection with the Comdisco Master Lease Agreement, the Company
granted Comdisco a warrant to purchase 30,000 shares of the Company's
Series A preferred stock at $1.67 per share (the "Comdisco Master Lease
Agreement Warrant"). This warrant is immediately exercisable and expires in
ten years from the date of grant. This warrant, valued at $15,000 using the
Black-Scholes option pricing model, was recorded as a discount to the
applicable debt, and is being amortized to interest expense, using the
effective interest method, over the life of the agreement.
Comdisco Master Lease Agreement Addendum
In August 1999, the Company amended the Comdisco Master Lease Agreement.
Under the terms of the Comdisco Master Lease Agreement Addendum, the
Company sells equipment (hard items) and software and tenant improvements
(soft items) in its San Jose IBX center to Comdisco, which it then leases
back. The amount of financing available under the Comdisco Master Lease
Agreement Addendum is up to $2,150,000 for hard items and up to $2,850,000
for soft items. Amounts drawn under this addendum will be collateralized by
the underlying hard and soft assets of the San Jose IBX center that were
funded under the Comdisco Master Lease Agreement Addendum. Repayments are
made monthly over the course of 42 months. Interest accrues at 8.5% per
annum, with a final balloon interest payment equal to 15% of the original
acquisition cost of the property financed. The Comdisco Master Lease
Agreement Addendum has an effective interest rate of 15.3% per annum. As of
December 31, 1999, $42,200 was outstanding under the Comdisco Master Lease
Agreement Addendum.
In connection with the Comdisco Master Lease Agreement Addendum, the
Company granted Comdisco a warrant to purchase 150,000 shares of the
Company's Series A preferred stock at $3.00 per share (the "Comdisco Master
Lease Agreement Addendum Warrant"). This warrant is immediately exercisable
and expires in seven years from the date of grant or three years from the
effective date of the Company's initial public offering, whichever is
shorter. This warrant, valued at $52,300 using the Black-Scholes option
pricing model, was recorded as a discount to the applicable debt, and is
being amortized to interest expense, using the effective interest method,
over the life of the agreement.
Venture Leasing Loan Agreement
In August 1999, the Company entered into a Loan Agreement with Venture
Lending & Leasing II, Inc. and other lenders ("VLL" and the "Venture
Leasing Loan Agreement"). The Venture Leasing Loan Agreement provides
financing for equipment and tenant improvements at the Newark, New Jersey
IBX center and a secured term loan facility for general working capital
purposes. The amount of financing to be provided is up to $10,000,000,
which may be used to finance up to 85% of the projected cost of tenant
improvements and equipment for the Newark IBX center and is collateralized
by the assets of the Newark IBX. Notes issued bear interest at a rate of
8.5% per annum and are repayable in 42 monthly installments plus a final
balloon interest payment equal to 15% of the original advance amount due at
maturity and are collateralized by the assets of the New Jersey IBX. The
Venture Leasing Loan Agreement has an effective interest rate of 14.7% per
annum. As of December 31, 1999, $9,451,600 was outstanding under the
Venture Leasing Loan Agreement.
F-12
EQUINIX, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In connection with the Venture Leasing Loan Agreement, the Company
granted VLL a warrant to purchase 300,000 shares of the Company's Series A
preferred stock at $3.00 per share (the "Venture Leasing Loan Agreement").
This warrant is immediately exercisable and expires on June 30, 2006. This
warrant, valued at $104,600 using the Black-Scholes option pricing model,
was recorded as a discount to the applicable debt, and is being amortized
to interest expense, using the effective interest method, over the life of
the agreement.
Maturities
Aggregate maturities of debt facilities and capital lease obligations
for each of the five years following December 31, 1999 are as follows:
Year ending December 31:
2000......................................................... $ 4,394,600
2001......................................................... 4,783,200
2002......................................................... 4,736,800
2003......................................................... 1,211,900
2004......................................................... --
-----------
Total...................................................... $15,126,500
===========
(4)Senior Notes and Debt Issuance Costs
On December 1, 1999, the Company issued 200,000 units, each consisting
of a $1,000 principal amount 13% Senior Note due 2007 (the "Senior Notes")
and one warrant to purchase 16.8825 shares (for an aggregate of 3,376,500
shares) of common stock for $0.0067 per share (the "Senior Note Warrants"),
for aggregate net proceeds of $193,400,000, net of offering expenses. Of
the $200,000,000 gross proceeds, $9,004,000 was allocated to additional
paid-in capital for the fair value of the Senior Note Warrants and recorded
as a discount to the Senior Notes. The discount on the Senior Notes is
being amortized to interest expense, using the effective interest method,
over the life of the debt. The Senior Notes have an effective interest rate
of 13.6% per annum. The fair value attributed to the Senior Note Warrants
was consistent with the Company's treatment of its other common stock
transactions prior to the issuance of the Senior Notes. The fair value was
based on recent equity transactions by the Company and supported by an
independent, third-party valuation of the Company's common stock. The
amount of the Senior Notes, net of the unamortized discount, is
$191,087,700 as of December 31, 1999.
As of December 31, 1999, restricted cash and short-term investments,
including accrued interest thereon, includes $37,078,600 deposited with an
escrow agent that will be used to pay the first three interest payments.
Interest is payable semi-annually, in arrears, on June 1 and December 1 of
each year, commencing on June 1, 2000. The Senior Notes are partially
collateralized by the restricted cash and short-term investments. Except
for this security interest, the notes are unsecured, senior obligations of
the Company and are effectively subordinated to all existing and future
indebtedness of the Company, whether or not secured.
The Senior Notes are governed by the Indenture dated December 1, 1999,
between the Company, as issuer, and State Street Bank and Trust Company of
California, N.A., as trustee (the "Indenture"). Subject to certain
exceptions, the Indenture restricts, among other things, the Company's
ability to incur additional indebtedness and the use of proceeds therefrom,
pay dividends, incur certain liens to secure indebtedness or engage in
merger transactions.
The costs related to the issuance of the Senior Notes were capitalized
and are being amortized to interest expense using the effective interest
method, over the life of the Senior Notes. Debt issuance costs, net of
amortization, are $6,532,400 as of December 31, 1999.
F-13
EQUINIX, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(5) Stockholders' Equity
Stock Split
In January 2000, the Company's stockholders approved a three-for-two
stock split effective January 19, 2000 whereby three shares of common stock
and preferred stock were exchanged for every two shares of common stock and
preferred stock then outstanding. All share and per share amounts in these
financial statements have been adjusted to give effect to the stock split
(see Note 10).
Preferred Stock
On September 10, 1998, 15,037,500 shares of Series A preferred stock
were issued at a price of $0.67 per share. Concurrent with the issuance of
the Series A preferred stock, promissory notes of $220,000 were converted
into 660,000 shares of Series A preferred stock. During July 1998, the
Company had borrowed $220,000 in the aggregate under a convertible loan
arrangement with a number of individual investors. The loans accrued
interest of 5.83% per annum while outstanding, which was paid in cash.
During the period ended December 31, 1998, the Company recorded a charge of
$220,000 to account for the "in the money" conversion right of the
convertible loan arrangement. On January 27, 1999, 3,000,000 shares of
Series A preferred stock were issued, at a price of $0.67 per share in the
second closing of the Series A financing.
In August 1999, the Company amended and restated its Certificate of
Incorporation to increase the authorized share capital to 75,000,000 shares
of common stock and 30,000,000 shares of preferred stock, of which
14,000,000 has been designated as Series A and 16,000,000 as Series B.
In January 2000, the Company amended and restated its Certificate of
Incorporation to increase the authorized share capital to 132,000,000
shares of common stock and 68,000,000 shares of preferred stock, of which
32,000,000 has been designated as Series A and 36,000,000 as Series B.
Between August and December 1999, the Company completed its Series B
preferred stock financing. The Company issued 15,762,373 shares of Series B
preferred stock, at a price of $5.33 per share.
The rights, preferences, and privileges of the Series A and Series B
preferred stock are as follows:
. Dividends are noncumulative and are payable only upon declaration by
the Board of Directors at a rate of $0.05 and $0.43 per share for
Series A and B, respectively.
. Holders of Series A and B preferred stock have a liquidation
preference of $0.67 and $5.33 per share, respectively, plus all
declared but unpaid dividends.
. Each share of Series A and B preferred stock is convertible, at the
option of the holder, into common stock at a conversion price equal
to the respective original preferred stock issue price. The
conversion price is subject to adjustment for stock splits and
combinations and will automatically convert into common stock in the
event of either (i) an underwritten public offering with an aggregate
gross offering price of at least $25,000,000 or (ii) upon a vote of
the holders of a majority of the then outstanding shares of each
class of preferred stock.
. Each share of Series A and Series B preferred stock has voting rights
equal to that of common stock on an "as if converted" basis.
. The holders of Series A and B preferred stock are entitled to elect
two and one directors, respectively, to the Company's Board of
Directors so long as 25% of the shares of Series A and B preferred
stock originally issued remain outstanding.
F-14
EQUINIX, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
. Series A and B preferred stock is not redeemable at any time.
. Holders of greater than 666,666 shares of Series A and/or Series B
preferred stock have the right to purchase their pro rata share of
securities subsequently sold or otherwise issued by the Company,
subject to standard exceptions.
. Holders of Series A and Series B preferred stock have the right to
veto:
. any increase in the number of Series B preferred stock or the
issuance of any securities with rights senior to those of the
Series B preferred stock;
. the redemption of any securities by the Company, other than in
connection with an employee's termination of employment; and
. any increase to the size of the Company's board of directors.
. Holders of Series A and Series B preferred stock may require the
Company to file a registration statement with the SEC to register
the holders' stock, and have the right to force the Company to
include their shares in any registered public offering following the
Company's initial public offering.
. Holders of Series A and Series B preferred stock have the right to
receive financial and other information from the Company.
Common Stock
The Company's founders purchased 6,060,000 shares of stock.
Approximately 5,454,000 shares are subject to restricted stock purchase
agreements whereby the Company has the right to repurchase the stock upon
voluntary or involuntary termination of the founder's employment with the
Company at $0.00033 per share. The Company's repurchase right lapses at a
rate of 25% per year. As of December 31, 1998 and 1999, 4,888,875 and
3,522,375 shares are subject to repurchase at a price of $0.00033 per
share, respectively.
Upon the exercise of certain unvested stock options, the Company issued
to employees common stock which is subject to repurchase by the Company at
the original exercise price of the stock option. This right lapses over the
vesting period. As of December 31, 1998 and 1999, there were 45,000 and
4,590,735 shares, respectively, subject to repurchase.
Stock Option Plan
In September 1998, the Company adopted the 1998 Stock Plan (the "Plan")
under which nonstatutory stock options and restricted stock may be granted
to employees, outside directors, and consultants, and incentive stock
options may be granted to employees. Accordingly, the Company has reserved
a total of 8,262,810 shares of the Company's common stock for issuance upon
the grant of restricted stock or exercise of options granted in accordance
with the Plan. Options granted under the Plan generally expire 10 years
following the date of grant and are subject to limitations on transfer. The
Plan is administered by the Board of Directors.
The Plan provides for the granting of incentive stock options at not
less than 100% of the fair market value of the underlying stock at the
grant date. Nonstatutory options may be granted at not less than 85% of the
fair market value of the underlying stock at the date of grant.
Option grants under the Plan are subject to various vesting provisions,
all of which are contingent upon the continuous service of the optionee and
may not impose vesting criterion more restrictive than
F-15
EQUINIX, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
20% per year. Stock options may be exercised at anytime subsequent to
grant. Stock obtained through exercise of unvested options is subject to
repurchase at the original purchase price. The Company's repurchase right
decreases as the shares vest under the original option terms.
Options granted to stockholders who own greater than 10% of the
outstanding stock must have vesting periods not to exceed five years and
must be issued at prices not less than 110% of the fair market value of the
stock on the date of grant as determined by the Board of Directors. Upon a
change of control, all shares granted under the Plan shall immediately
vest. Unless otherwise terminated by the Board of Directors, the Plan
automatically terminates in September 2008.
A summary of the Plan is as follows:
1998 1999
-------------------- ---------------------
Weighted- Weighted-
average average
exercise exercise
Shares price Shares price
--------- --------- ---------- ---------
Outstanding at beginning of
period........................ -- $ -- 2,074,050 $0.10
Granted........................ 2,164,050 0.10 6,404,040 0.46
Forfeited...................... -- -- (340,500) 0.09
Exercised...................... (90,000) 0.10 (5,522,196) 0.23
--------- ----------
Outstanding at end of period... 2,074,050 0.10 2,615,394 0.67
========= ==========
Shares available for future
grant......................... 6,098,760 35,220
========= ==========
Exercisable at end of period... 20,001 76,431
========= ==========
Weighted-average grant date
fair value of options granted
to employees during the period
at fair value................. 0.01 0.01
Weighted-average grant date
fair value of options granted
to non-employees during the
period at fair value.......... 0.56 0.56
Weighted-average grant date
fair value of options granted
to employees during the period
at below fair value........... -- 1.28
Weighted-average grant date
fair value of options granted
to non-employees during the
period at below fair value.... -- 1.77
The following table summarizes information about stock options
outstanding as of December 31, 1999:
Outstanding Exercisable
------------------------------- ----------------
Weighted-
average Weighted- Weighted-
remaining average Number average
Number of contractual exercise of exercise
Range of exercise prices shares life price shares price
------------------------ --------- ----------- --------- ------ ---------
$0.01 to $0.13.......... 1,383,144 9.23 $0.07 76,431 $0.07
$0.67................... 180,750 9.78 0.67 -- --
$1.00................... 753,000 9.86 1.00 -- --
$2.67................... 298,500 9.93 2.67 -- --
--------- ------
2,615,394 9.53 0.67 76,431 0.07
========= ======
F-16
EQUINIX, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The weighted-average remaining contractual life of options outstanding
at December 31, 1999 was 9.53 years.
Stock-Based Compensation
Employees
The Company uses the intrinsic-value method prescribed in APB No. 25 in
accounting for its stock-based compensation arrangements with employees.
Stock-based compensation expense is recognized for employee stock option
grants in those instances in which the fair value of the underlying common
stock exceeds the exercise price of the stock options at the date of grant.
The Company recorded deferred stock-based compensation related to employees
of $4,313,500 in respect to stock options granted through December 31,
1999, of which $788,300 has been amortized to stock-based compensation
expense for the year ended December 31, 1999 on an accelerated basis over
the vesting period of the individual options, in accordance with FASB
Interpretation No. 28.
Had compensation costs been determined using the fair value method for
the Company's stock-based compensation plans, net loss would have been
changed to the amounts indicated below:
Period from
June 22, 1998
(inception)
to Year ended
December 31, December 31,
1998 1999
------------- ------------
Net loss:
As reported.................................. $(855,800) $(14,787,500)
Pro forma.................................... (857,500) (14,831,800)
The Company's calculations for employee grants were made using the
minimum value method with the following weighted average assumptions for
the period from June 22, 1998 (inception) to December 31, 1998 and the year
ended December 31, 1999: dividend yield of 0%; expected volatility of 0%;
risk-free interest rates of 5.77% in the period from June 22, 1998
(inception) to December 31, 1998 and 5.66% in the year ended December 31,
1999; and expected lives of 2.67 years in the period from June 22, 1998
(inception) to December 31, 1998 and 2.52 years in the year ended December
31, 1999.
Non-Employees
The Company uses the fair value method to value options granted to non-
employees. In connection with its grant of options to non-employees, the
Company has recognized deferred stock-based compensation of $334,100
through December 31, 1999, of which $202,600 has been amortized to stock-
based compensation expense for the year ended December 31, 1999 on an
accelerated basis over the vesting period of the individual options, in
accordance with FASB Interpretation No. 28.
The Company's calculations for non-employee grants were made using the
Black-Scholes option pricing model with the following weighted average
assumptions for the period from June 22, 1998 (inception) to December 31,
1998 and the year ended December 31, 1999: dividend yield of 0%; expected
volatility of 80%; risk-free interest rates of 4.99% in the period from
June 22, 1998 (inception) to December 31, 1998 and 5.48% in the year ended
December 31, 1999; and contractual life of 10 years.
F-17
EQUINIX, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Warrants
In August 1999, the Company entered into a strategic agreement with
NorthPoint Communications, Inc. ("NorthPoint"). Under the terms of the
strategic agreement, NorthPoint has agreed to use certain of the Company's
domestic IBX centers and install their operational nodes in such centers.
In exchange, the Company granted NorthPoint a warrant to purchase 338,145
shares of the Company's common stock at $0.53 per share (the "NorthPoint
Warrant"). The NorthPoint Warrant was earned upon execution of the
strategic agreement and is immediately exercisable. The NorthPoint Warrant
expires five years from date of grant. The NorthPoint Warrant was valued at
$366,500 using the Black-Scholes option-pricing model and was immediately
expensed to general and administrative expenses.
In November 1999, the Company entered into a definitive agreement with
MCI Worldcom ("MCI") whereby MCI agreed to install high-bandwidth Internet
connectivity to the Company's first seven IBX centers in exchange for a
warrant to purchase 675,000 shares of common stock of the Company at
$0.67 per share (the "MCI Warrant"). The MCI Warrant is immediately
exercisable and expires five years from the date of grant. As of December
31, 1999, warrants for 525,000 shares are subject to repurchase at the
original exercise price, if certain performance criteria are not met by
MCI. The MCI Warrant was valued at $2,145,600 using the Black-Scholes
option-pricing model and was recorded to property and equipment as a cost
component of leasehold improvements on the accompanying consolidated
balance sheet as of December 31, 1999. Under the applicable guidelines in
EITF 96-18, the underlying shares of common stock associated with the MCI
Warrant subject to repurchase are revalued at each balance sheet date to
reflect their current fair value until counterparty performance has
occurred. Any resulting increase in fair value of the warrants is recorded
as an additional cost component of leasehold improvements.
In November 1999, the Company entered into a master agreement with
Bechtel Corporation ("Bechtel") whereby Bechtel agreed to act as the
exclusive contractor for the Company's IBX centers. As part of the
agreement, the Company granted Bechtel a warrant to purchase 352,500 shares
of the Company's common stock at $1.00 per share (the "Bechtel Warrant").
The Bechtel Warrant is immediately exercisable and expires in five years
from date of grant. As of December 31, 1999, warrants for 253,800 shares
are subject to repurchase at the original exercise price, if certain
performance criteria are not met by Bechtel. The Bechtel Warrant was valued
at $1,043,300 using the Black-Scholes option-pricing model and was recorded
to property and equipment as a cost component of leasehold improvements on
the accompanying consolidated balance sheet as of December 31, 1999. Under
EITF 96-18, the underlying shares of common stock associated with the
Bechtel Warrant subject to repurchase are revalued at each balance sheet
date to reflect their current fair value until counterparty performance has
occurred. Any resulting increase in fair value of the warrants is recorded
as an additional cost component of leasehold improvements.
F-18
EQUINIX, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In addition, the Company has issued several warrants in connection with
its debt facilities and capital lease obligations (see Note 3) and the
Senior Notes (see Note 4). The Company has the following warrants
outstanding as of December 31, 1999:
Warrants Exercise
Series A preferred stock warrants outstanding price
--------------------------------- ----------- --------
Comdisco Loan and Security Agreement Warrant......... 765,000 $ 0.67
Comdisco Master Lease Agreement Warrant.............. 30,000 1.67
Comdisco Master Lease Agreement Addendum Warrant..... 150,000 3.00
Venture Leasing Loan Agreement Warrant............... 300,000 3.00
---------
1,245,000
=========
Warrants Exercise
Common stock warrants outstanding price
--------------------- ----------- --------
Senior Note Warrants................................. 3,376,500 $0.0067
NorthPoint Warrant................................... 338,145 0.53
MCI Warrant.......................................... 675,000 0.67
Bechtel Warrant...................................... 352,500 1.00
---------
4,742,145
=========
The fair value of warrants, using the Black-Scholes option-pricing
model, was calculated using the following assumptions for the year ended
December 31, 1999: dividend yield of 0%, expected volatility of 80%, risk-
free interest rate of 5.48% and the contractual life of each specific
warrant.
(6) Income Taxes
The components of the provision for income taxes (benefit) are as follows:
1998 1999
-------- -------
Current:
Federal................................................. $ 29,300 (18,600)
State................................................... 10,500 (1,500)
-------- -------
39,800 (20,100)
-------- -------
Deferred:
Federal................................................. (29,300) 29,300
State................................................... (10,500) 10,500
-------- -------
(39,800) 39,800
-------- -------
$ -- 19,700
======== =======
Income tax expense is included in selling, general and administrative
expenses for the year ended December 31, 1999.
F-19
EQUINIX, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Actual income tax expense differs from the expected tax benefit computed by
applying the statutory federal income tax rate of approximately 24.8% and 35%
for the periods ended December 31, 1998 and December 31, 1999, respectively, as
a result of the following:
1998 1999
--------- ----------
Computed tax (benefit) at statutory rate............ $(212,300) (5,166,600)
State taxes......................................... -- 6,000
Net operating losses and temporary differences for
which no tax benefit is recognized................. 211,900 2,594,000
Net operating losses not benefitted................. -- 2,572,000
Other............................................... 400 14,300
--------- ----------
$ -- 19,700
========= ==========
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets as of December 31, 1998 and December 31,
1999 is presented as follows:
1998 1999
--------- ----------
Deferred tax assets:
Other assets........................................ $ 1,100 --
Start-up expenses................................... 326,000 3,301,000
Net operating loss.................................. -- 3,169,000
--------- ----------
Total deferred tax assets......................... 327,100 6,470,000
Less valuation allowance............................ (287,300) (6,470,000)
--------- ----------
Net deferred tax assets........................... $ 39,800 --
========= ==========
Net deferred tax assets are included in prepaids and other current assets at
December 31, 1998.
The net change in the total valuation allowance for the period from June 22,
1998 (inception) to December 31, 1998 and the year ended December 31, 1999, was
an increase of $287,300 and $6,182,700, respectively.
The Company has established a valuation allowance against that portion
of deferred tax assets where management has determined that it is more
likely than not that the asset will not be realized.
At December 31, 1999, the Company had net operating loss carryforwards
of approximately $7,300,000 for federal and state tax purposes. If not
earlier utilized, the federal net operating loss carryforward will expire
in 2019 and the state loss carryforward will expire in 2006.
The Company's future ability to utilize net operating loss carryforwards
may be subject to ownership changes as defined in the Internal Revenue Code
of 1986.
(7) Commitments and Contingencies
Lease Commitments
The Company leases its IBX centers and certain equipment under
noncancelable operating lease agreements expiring through 2014. The
centers' lease agreements typically provide for base rental rates which
increase at defined intervals during the term of the lease. In addition,
the Company has negotiated rent expense abatement periods to better match
the phased build-out of its centers. The Company accounts
F-20
EQUINIX, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
for such abatements and increasing base rentals using the straight-line
method over the life of the lease. The difference between the straight-line
expense and the cash payment is recorded as deferred rent.
The Company has entered into a number of equipment lease facilities
whereby it leases equipment and software for corporate headquarters and its
IBX centers. These transactions have been accounted for as operating leases
as they do not meet the criteria for classification as a capital lease
outlined in SFAS No. 13, Accounting for Leases. The Company also leases
certain leasehold improvements, computer equipment and software and
furniture and fixtures under capital leases under the Comdisco Master Lease
Agreement. These leases were entered into as sales-leaseback transactions.
The Company has deferred a gain of $77,700 related to the sale-leaseback in
July 1999, which is being amortized in proportion to the amortization of
the leased assets.
Minimum future lease payments as of December 31, 1999 are summarized as
follows:
Capital Operating
leases leases
-------- -----------
Year ending:
2000................................................. $174,200 4,949,700
2001................................................. 187,200 8,321,500
2002................................................. 202,200 8,578,700
2003................................................. 69,200 8,775,500
2004................................................. -- 9,045,300
Thereafter........................................... -- 90,244,300
-------- -----------
Total minimum lease payments....................... 632,800 129,915,000
===========
Less amount representing imputed interest.......... 142,500
--------
Present value of minimum lease payments............ 490,300
Less current portion............................... 174,200
--------
Capital lease obligations, less current portion.... $316,100
========
Total rent expense was approximately $165,000 and $1,739,100 for the
period from June 22, 1998 (inception) to December 31, 1998 and for the year
ended December 31, 1999, respectively.
Deferred rent included in accrued expenses was $42,400 and $18,000 as of
December 31, 1998 and 1999, respectively. Deferred rent included in other
liabilities was none and $566,600 as of December 31, 1998 and 1999,
respectively.
Employment Agreement
The Company has agreed to indemnify an officer of the Company for any
claims brought by his former employer under an employment and non-compete
agreement the officer had with this employer.
Employee Benefit Plan
During the year ended December 31, 1999, the Company adopted the Equinix
401(k) Plan (the "401(k) Plan"). The 401(k) Plan allows eligible employees
to contribute up to 15% of their compensation, limited to $10,000 in 1999.
Employee contributions and earnings thereon vest immediately. Although the
Company may make discretionary contributions to the 401(k) Plan, none have
been made as of December 31, 1999.
F-21
EQUINIX, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(8) Related Party Transactions
The Company advanced an aggregate of $750,000 to an officer of the
Company, which is evidenced by a promissory note. The proceeds of this loan
were used to fund the purchase of a personal residence. The loan is due
September 13, 2004, but is subject to certain events of acceleration,
including an initial public offering of the Company's common stock and is
secured by a second deed of trust on the officer's residence. The loan is
non-interest bearing. This loan is presented in other assets on the
accompanying consolidated balance sheet as of December 31, 1999.
In March 1999, the Company entered into an equipment lease facility with
a preferred stockholder under which the Company leased $137,300 of
equipment for a 24-month term.
In August 1999, the Company issued warrants to purchase 338,145 shares
of the Company's common stock, at a purchase price of $0.53 per share, to a
stockholder in connection with a strategic agreement.
(9) Segment Information
During the year ended December 31, 1999, the Company adopted the
provisions of SFAS No. 131, Disclosures about Segments of an Enterprise and
Related Information. SFAS No. 131 requires disclosures of selected segment-
related financial information about products, major customers and
geographic areas.
The Company and its subsidiary are principally engaged in the design,
build-out and operation of neutral IBX centers. All revenues result from
the operation of these IBX centers. Accordingly, the Company considers
itself to operate in a single segment for purposes of disclosure under SFAS
No. 131. The Company's chief operating decision-maker evaluates
performance, makes operating decisions and allocates resources based on
financial data consistent with the presentation in the accompanying
consolidated financial statements.
As of December 31, 1998 and 1999, all of the Company's operations and
assets are based in the United States.
(10) Subsequent Events
In January 2000, the Company's stockholders approved an amendment to the
1998 Stock Plan increasing the aggregate number of common shares available
for issuance over the term of the Plan by 3,750,000 to a total of
12,012,810 shares.
In January 2000, the Company's stockholders approved a three-for-two
stock split of its common and preferred stock effective January 19, 2000.
The Company amended and restated its Certificate of Incorporation to
increase the authorized share capital to 132,000,000 shares of common stock
and 68,000,000 shares of preferred stock, of which 32,000,000 has been
designated as Series A and 36,000,000 as Series B, to give effect to the
three-for-two stock split. The accompanying consolidated financial
statements have been adjusted to reflect this stock split.
In January 2000, the Company entered into an operating lease for its
Dallas, Texas IBX center. The agreement is for a minimum of 10 years, with
annual rent payments increasing from $1,131,000 to $1,357,200 over the
lease term.
In January 2000, the Company entered into an operating lease agreement
for its new corporate headquarters facility in Mountain View, California.
The agreement is for a minimum of 7 years, with
F-22
EQUINIX, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
annual rent payments increasing from $1,662,600 to $2,103,800 over the
lease term. In connection with the lease agreement, the Company granted the
lessor warrants to purchase up to 33,100 shares of the Company's common
stock at $6.00 per share. The warrants are exercisable upon certain defined
events occurring through May 28, 2000 and expire in ten years from the date
of grant.
In January 2000, the Company advanced an aggregate of $250,000 to an
officer of the Company, which is evidenced by a promissory note. The
proceeds of this loan were used to fund the purchase of a principal
residence. The loan is due January 13, 2005, but is subject to certain
events of acceleration, including an initial public offering of the
Company's common stock. The loan is secured by a second deed of trust on
the officer's residence and is non-interest bearing.
F-23
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Equinix, Inc.
Exchange Offer for
$200,000,000 13% Senior Notes due 2007
LOGO
, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PART II
Information Not Required in Prospectus
Item 20. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law authorizes a court to
award or a corporation's board of directors to grant indemnification to
directors and officers in terms sufficiently broad to permit indemnification
under limited circumstances for liabilities, including reimbursement for
expenses incurred, arising under the Securities Act of 1933, as amended (the
"Securities Act"). Article VII, Section 7.6 of our bylaws provides for
mandatory indemnification of our directors and permissive indemnification of
our officers and employees to the maximum extent permitted by the Delaware
General Corporation Law. Our Certificate of Incorporation provides that our
directors shall not be liable for monetary damages for breach of the directors'
fiduciary duty as directors to our stockholders and us to the fullest extent
permitted by the Delaware General Corporation Law. This provision in the
Certificate of Incorporation does not eliminate the directors' fiduciary duty,
and in appropriate circumstances, equitable remedies like injunctive or other
forms of non-monetary relief will remain available under Delaware law. In
addition, each director will continue to be subject to liability for breach of
the director's duty of loyalty to us for acts or omissions not in good faith or
involving intentional misconduct, for knowing violations of law, for actions
leading to improper personal benefit to the director, and for payment of
dividends or approval of stock repurchases or redemptions that are unlawful
under Delaware law. The provision also does not affect a director's
responsibilities under any other law, like the federal securities laws or state
or federal environmental laws. We have entered into indemnification agreements
with our officers and directors, a form of which is attached as Exhibit 10.5
and incorporated herein by reference. The indemnification agreements provide
our officers and directors with further indemnification to the maximum extent
permitted by the Delaware General Corporation Law.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
Exhibit
No. Description
------- -----------
3.1 Amended and Restated Certificate of Incorporation of the Registrant,
as amended to date.
3.2** Bylaws of the Registrant.
4.1** Reference is made to Exhibits 3.1 and 3.2.
4.2 Form of Old Note.
4.3 Form of New Note.
4.4** Escrow agreement, dated as of December 1, 1999, by and among the
Registrant and State Street Bank
and Trust Company of California, N.A. (as escrow agent and trustee).
4.5** Indenture (See Exhibit 10.1).
4.6** Common Stock Registration Rights Agreement (See Exhibit 10.3).
4.7** Registration Rights Agreement (See Exhibit 10.4).
4.8** Purchase Agreement, dated as of November 24, 1999, by and among the
Registrant and Salomon Smith Barney Inc., Morgan Stanley & Co.
Incorporated and Goldman, Sachs & Co. (collectively, the "Initial
Purchasers").
4.9** Amended and Restated Investors' Rights Agreement (See Exhibits 10.6
and 10.7).
5.1 Opinion of Counsel.
10.1** Indenture, dated as of December 1, 1999, by and among the Registrant
and State Street Bank and Trust Company of California, N.A. (as
trustee).
10.2** Warrant Agreement, dated as of December 1, 1999, by and among the
Registrant and State Street Bank and Trust Company of California, N.A.
(as warrant agent).
10.3** Common Stock Registration Rights Agreement, dated as of December 1,
1999, by and among the Registrant, Benchmark Capital Partners II,
L.P., Cisco Systems, Inc., Microsoft Corporation, ePartners, Albert M.
Avery, IV and Jay S. Adelson (as investors), and the Initial
Purchasers.
II-1
Exhibit
No. Description
------- -----------
10.4** Registration Rights Agreement, dated as of December 1, 1999, by and
among the Registrant and the Initial Purchasers.
10.5** Form of Indemnification Agreement between the Registrant and each of
its officers and directors.
10.6** Amended and Restated Investors' Rights Agreement, dated as of August
26, 1999, by and between the Registrant, the Series A Purchasers, the
Series B Purchasers and members of the Registrant's management.
10.7** Amendment No.1 to the Amended and Restated Investors' Rights Agreement
and Amended and Restated Voting Agreement, dated as of August 26,
1999, by and between the Registrant, the Series A Purchasers, the
Series B Purchasers and members of the Registrant's management,
effective as of November 30, 1999.
10.8** The Registrant's 1998 Stock Option Plan.
10.9+ Lease Agreement with Carlyle-Core Chicago LLC, dated as of September
1, 1999.
10.10+ Lease Agreement with Market Halsey Urban Renewal, LLC, dated as of May
3, 1999.
10.11+ Lease Agreement with Laing Beaumeade, dated as of November 18, 1998.
10.12+ Lease Agreement with Rose Ventures II, Inc., dated as of June 10,
1999.
10.13+ Lease Agreement with 600 Seventh Street Associates, Inc., dated as of
August 6, 1999.
10.14+ First Amendment to Lease Agreement with Trizechahn Centers, Inc. (dba
Trizechahn Beaumeade Corporate Management), dated as of October 28,
1999.
10.15+ Lease Agreement with Nexcomm Asset Acquisition I, L.P., dated as of
January 21, 2000.
10.16+ Lease Agreement with Trizechahn Centers, Inc. (dba Trizechahn
Beaumeade Corporate Management), dated as of December 15, 1999.
10.17 Lease Agreement with ARE-2425/2400/2450 Garcia Bayshore LLC, dated as
of January 28, 2000.
10.18* Sublease Agreement with Insweb Corporation, dated as of November 1,
1998.
10.19+ Master Agreement for Program Management, Site Identification and
Evaluation, Engineering and Construction Services between Equinix,
Inc. and Bechtel Corporation, dated November 3, 1999.
10.20+ Agreement between Equinix, Inc. and MCI Worldcom, Inc., dated November
16, 1999.
10.21 Customer Agreement between Equinix, Inc. and MCI Worldcom, Inc., dated
November 16, 1999.
21.1** List of Subsidiaries of the Registrant.
23.1 Consent of KPMG LLP, independent auditors.
23.2 Consent of Counsel. Reference is made to Exhibit 5.1.
24.1** Power of Attorney.
25.1 Form of T-1 Statement of Eligibility and Qualification under the Trust
Indenture Act of 1939 of State Street Bank and Trust Company of
California, N.A.
27.1 Financial Data Schedule.
99.1 Form of Letter of Transmittal relating to the Exchange Offer.
99.2 Form of Notice of Guaranteed Delivery.
- --------
* To be filed by amendment.
** Previously filed.
+ Confidential treatment has been requested for certain portions which are
omitted in the copy of the exhibit electronically filed with the Securities
and Exchange Commission. The omitted information has been filed separately
with the Securities and Exchange Commission pursuant to Equinix's application
for confidential treatment.
(b) Financial Statement Schedules
All schedules have been omitted because the information required to be
presented in them is not applicable or is shown in the consolidated financial
statements or related notes.
II-2
Item 22. Undertakings
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to directors, officers and controlling
persons of the Registrant in accordance with the provisions described in Item
20 above, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission this indemnification is against public
policy as expressed in the Securities Act, and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities, other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding, is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of this issue.
The undersigned Registrant hereby undertakes that:
(1) It will respond to requests for information that is incorporated
by reference into the prospectus in accordance with Item 4, 10(b), 11, or
13 of this form, within one business day of receipt of such request, and to
send the incorporated documents by first class mail or other equally prompt
means. This includes information contained in documents filed after the
effective date of the registration statement through the date of responding
to the request.
(2) It will supply by means of a post-effective amendment all
information concerning a transaction, and the company being acquired
involved therein, that was not the subject of and included in the
registration statement when it became effective.
(3) It will file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(a) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(b) To reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission in accordance with Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than a 20 percent
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective Registration
Statement;
(c) To include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or
any material change to such information in this Registration Statement.
(4) For the purpose of determining any liability under the Act, each
such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(5) It will remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 1 to the registration statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Redwood City, State of California, on this 23rd day of February,
2000.
Equinix, Inc.
/s/ Albert M. Avery, IV
By:__________________________________
Albert M. Avery, IV
President, Chief Executive Officer
and Director
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 to the registration statement has been signed by the following
persons on behalf of the Registrant and in the capacities and on the dates
indicated:
Signature Title Date
--------- ----- ----
/s/ Albert M. Avery, IV President, Chief Executive February 23, 2000
______________________________________ Officer (Principal
Albert M. Avery, IV Executive Officer) and
Director
Jay S. Adelson* Vice President, February 23, 2000
______________________________________ Engineering and Site
Jay S. Adelson Development, Chief
Technology Officer and
Director
/s/ Philip J. Koen Chief Financial Officer February 23, 2000
______________________________________ (Principal Financial and
Philip J. Koen Accounting Officer)
Andrew S. Rachleff* Director February 23, 2000
______________________________________
Andrew S. Rachleff
Michelangelo Volpi* Director February 23, 2000
______________________________________
Michelangelo Volpi
/s/ Albert M. Avery, IV
*By: _________________________________
Albert M. Avery
Attorney-in-fact
/s/ Philip J. Koen
*By: _________________________________
Philip J. Koen
Attorney-in-fact
II-4
INDEX TO EXHIBITS
Exhibit
No. Description
------- -----------
3.1 Amended and Restated Certificate of Incorporation of the Registrant,
as amended to date.
3.2** Bylaws of the Registrant.
4.1** Reference is made to Exhibits 3.1 and 3.2.
4.2 Form of Old Note.
4.3 Form of New Note.
4.4** Escrow agreement, dated as of December 1, 1999, by and among the
Registrant and State Street Bank
and Trust Company of California, N.A. (as escrow agent and trustee).
4.5** Indenture (See Exhibit 10.1).
4.6** Common Stock Registration Rights Agreement (See Exhibit 10.3).
4.7** Registration Rights Agreement (See Exhibit 10.4).
4.8** Purchase Agreement, dated as of November 24, 1999, by and among the
Registrant and Salomon Smith Barney Inc., Morgan Stanley & Co.
Incorporated and Goldman, Sachs & Co. (collectively, the "Initial
Purchasers").
4.9** Amended and Restated Investors' Rights Agreement (See Exhibits 10.6
and 10.7).
5.1 Opinion of Counsel.
10.1** Indenture, dated as of December 1, 1999, by and among the Registrant
and State Street Bank and Trust Company of California, N.A. (as
trustee).
10.2** Warrant Agreement, dated as of December 1, 1999, by and among the
Registrant and State Street Bank and Trust Company of California, N.A.
(as warrant agent).
10.3** Common Stock Registration Rights Agreement, dated as of December 1,
1999, by and among the Registrant, Benchmark Capital Partners II,
L.P., Cisco Systems, Inc., Microsoft Corporation, ePartners, Albert M.
Avery, IV and Jay S. Adelson (as investors), and the Initial
Purchasers.
10.4** Registration Rights Agreement, dated as of December 1, 1999, by and
among the Registrant and the Initial Purchasers.
10.5** Form of Indemnification Agreement between the Registrant and each of
its officers and directors.
10.6** Amended and Restated Investors' Rights Agreement, dated as of August
26, 1999, by and between the Registrant, the Series A Purchasers, the
Series B Purchasers and members of the Registrant's management.
10.7** Amendment No.1 to the Amended and Restated Investors' Rights Agreement
and Amended and Restated Voting Agreement, dated as of August 26,
1999, by and between the Registrant, the Series A Purchasers, the
Series B Purchasers and members of the Registrant's management,
effective as of November 30, 1999.
10.8** The Registrant's 1998 Stock Option Plan.
10.9+ Lease Agreement with Carlyle-Core Chicago LLC, dated as of September
1, 1999.
10.10+ Lease Agreement with Market Halsey Urban Renewal, LLC, dated as of May
3, 1999.
10.11+ Lease Agreement with Laing Beaumeade, dated as of November 18, 1998.
10.12+ Lease Agreement with Rose Ventures II, Inc., dated as of June 10,
1999.
10.13+ Lease Agreement with 600 Seventh Street Associates, Inc., dated as of
August 6, 1999.
10.14+ First Amendment to Lease Agreement with Trizechahn Centers, Inc. (dba
Trizechahn Beaumeade Corporate Management), dated as of October 28,
1999.
10.15+ Lease Agreement with Nexcomm Asset Acquisition I, L.P., dated as of
January 21, 2000.
10.16+ Lease Agreement with Trizechahn Centers, Inc. (dba Trizechahn
Beaumeade Corporate Management), dated as of Decmber 15, 1999.
10.17 Lease Agreement with ARE-2425/2400/2450 Garcia Bayshore LLC, dated as
of January 28, 2000.
10.18* Sublease Agreement with Insweb Corporation, dated as of November 1,
1998.
10.19+ Master Agreement for Program Management, Site Identification and
Evaluation, Engineering and Construction Services between Equinix,
Inc. and Bechtel Corporation, dated November 3, 1999.
10.20+ Agreement between Equinix, Inc. and MCI Worldcom, Inc., dated November
16, 1999.
Exhibit
No. Description
------- -----------
10.21 Customer Agreement between Equinix, Inc. and MCI Worldcom, Inc., dated
November 16, 1999.
21.1** List of Subsidiaries of the Registrant.
23.1 Consent of KPMG LLP, independent auditors.
23.2 Consent of Counsel. Reference is made to Exhibit 5.1.
24.1** Power of Attorney.
25.1 Form of T-1 Statement of Eligibility and Qualification under the Trust
Indenture Act of 1939 of State Street Bank and Trust Company of
California, N.A.
27.1 Financial Data Schedule.
99.1 Form of Letter of Transmittal relating to the Exchange Offer.
99.2 Form of Notice of Guaranteed Delivery.
- --------
* To be filed by amendment.
** Previously filed.
+ Confidential treatment has been requested for certain portions which are
omitted in the copy of the exhibit electronically filed with the Securities
and Exchange Commission. The omitted information has been filed separately
with the Securities and Exchange Commission pursuant to Equinix's application
for confidential treatment.