As filed with the Securities and Exchange Commission on July 19, 2000.
Registration No. 333-39752
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-1
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)
PHILIP J. KOEN
Chief Financial Officer, Corporate Development Officer and Secretary
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)
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Copies to:
SCOTT C. DETTMER JONATHAN A. SCHAFFZIN
BRANDI L. GALVIN Cahill Gordon & Reindel
MARGARET E. PAIGE 80 Pine Street
KATHERINE E. BLUM New York, New York 10005
Gunderson Dettmer Stough Villeneuve (212) 701-3000
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 on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), 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, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of this prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
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Proposed
Proposed Maximum
Title of Each Class of Amount Maximum Aggregate Amount of
Securities to be to be Offering Price Offering Registration
Registered Registered(1) Per Share(2) Price(2) Fee(3)
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Common Stock, $0.001 par
value per share....... 23,000,000 $11.00 $253,000,000 $66,792
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(1) Includes shares that the underwriters have the option to purchase to cover
over-allotments, if any.
(2) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(a).
(3) A fee of $ 64,515 was previously paid by the Registrant pursuant to Rule
457(o) promulgated under the Securities Act in connection with the filing
of the Registration Statement on June 20, 2000. Pursuant to Rule 457(b)
under the Securities Act, such fee is being credited against the
registration fee, and accordingly, an additional $2,277 is being paid in
connection with the Registration Statement.
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 Exchange Act of 1933, as amended, or until the Registration
Statement shall become effective on such date as the Securities and Exchange
Commission, acting pursuant to said Section 8(a), may determine.
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ +
+ +
+The information in this prospectus is not complete and may be changed. These +
+securities may not be sold until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell nor does it seek an offer to buy these securities in any +
+jurisdiction where the offer or sale is not permitted. +
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion. Dated July 19, 2000.
20,000,000 Shares
[EQUINIX LOGO]
Common Stock
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This is an initial public offering of shares of common stock of Equinix, Inc.
All of the 20,000,000 shares of common stock are being sold by Equinix.
Prior to this offering, there has been no public market for the common stock.
It is currently estimated that the initial public offering price per share will
be between $10.00 and $12.00. Equinix has applied to have its common stock
included for quotation on the Nasdaq National Market under the symbol "EQIX".
See "Risk Factors" beginning on page 5 to read about factors you should
consider before buying shares of the common stock.
-----------
Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
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Per Share Total
--------- -----
Initial public offering price.................................. $ $
Underwriting discount.......................................... $ $
Proceeds, before expenses, to Equinix.......................... $ $
To the extent that the underwriters sell more than 20,000,000 shares of
common stock, the underwriters have the option to purchase up to an additional
3,000,000 shares from Equinix at the initial public offering price less the
underwriting discount.
-----------
The underwriters expect to deliver the shares against payment in New York,
New York on , 2000.
Goldman, Sachs & Co.___________________________________Salomon Smith Barney
Chase H & Q__________________________________________________Epoch Partners
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Prospectus dated , 2000.
DESCRIPTION OF INSIDE COVER
At the top of the page is our logo. Underneath our logo it reads, "Internet
Business Exchange Centers." Below "Internet Business Exchange Centers" it reads
"Home of the Internet."
Below our logo and in the center of the page is a large circle. In the center of
the circle it reads "Direct Cross Connects." In a larger concentric circle
around the center are five cages with the following words in each cage - Site
Service Providers, ISPs, Carriers, Network Services and Performance Enhancement.
In a larger concentric circle around the set of five cages are four larger cages
with the following words in each cage - e-Commerce, Content Providers, Partner
Branded/Resale and Application Service Providers. At the top of the circle and
in the space above the four larger cages it reads "Equinix IBX Center."
Surrounding the circle are five short paragraphs of narrative entitled
"Choice," "Equinix designs, builds and operates neutral Internet Business
Exchange, or IBX centers," "Opportunity to increase revenues and reduce costs,"
"Reliability" and "Scalability". Each title is written in bold. The remainder of
the paragraphs are not bold. Beneath the paragraph entitled "Choice" it reads,
"Our customers can choose among a variety of product and service providers to
diversify their sources of supply for their businesses." Beneath the paragraph
entitled "Equinix designs, builds and operates neutral Internet Business
Exchange, or IBX centers" it reads, "where content providers, application
service providers and e-commerce companies can directly interconnect with a
competitive choice of bandwidth providers, Internet service providers, or ISPs,
and site and performance management companies, giving them the flexibility,
speed and scalability they need to accelerate business growth, and to improve
Internet performance." Beneath the paragraph entitled "Opportunity to increase
revenues and reduce costs" it reads, "Our customers can increase the size of
their addressable markets and improve their purchasing power through access to a
variety of potential business partners." Beneath the paragraph entitled
"Reliability" it reads, "Our IBX centers have redundant power systems, multiple
layers of physical security and high-bandwidth Internet connectivity through
multiple third party connections." Beneath the paragraph entitled "Scalability"
it reads, "Our IBX centers will both stimulate and support the efficient growth
of our customers."
Below the circle and the narrative surrounding the circle and across the bottom
of the page, there are four photographs. From the left to right, the first
photograph is of a bimetric hand reader. The second photograph is of the
customer care area of an IBX center. The third photograph is of the colocation
space in an IBX center. The fourth photograph is of the security station and
entrance to an IBX center.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this prospectus.
The Company
Overview
Equinix designs, builds and operates neutral Internet Business Exchange
centers, or IBX centers, where Internet businesses place their equipment and
their network facilities in order to interconnect with each other. Our neutral
IBX centers provide content providers, application service providers and e-
commerce companies with the ability to directly interconnect with a competitive
choice of bandwidth providers, Internet service providers and site and
performance management companies. Equinix IBX centers enable Internet companies
to quickly, easily and privately interconnect with a choice of business
partners and customers, providing them with the flexibility, speed and
adaptability they need to accelerate business growth.
Equinix currently has IBX centers in the Washington, D.C. metropolitan area,
the New York metropolitan area and in Silicon Valley. We intend to complete
construction of five additional IBX centers and several expansion projects by
May 2001, resulting in a total of eight IBX centers in the U.S. and Europe.
We were founded in June 1998. In April 1999, our first customer contract was
signed and we began recognizing revenues in November 1999. We have not yet been
profitable and expect to incur significant additional losses.
The Equinix Solution
Our IBX centers will provide environments that stimulate efficient business
growth. 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;
. scalability; and
. reliability.
Recent Developments
On May 16, 2000, Peter F. Van Camp joined Equinix as our chief executive
officer. Prior to joining Equinix, Mr. Van Camp was the president of the
Americas region for UUNET, a division of WorldCom. Albert M. Avery, IV, one of
our founders, will continue to act as our president and will assume
responsibilities as our chief operating officer. Mr. Van Camp has also joined
our board of directors.
On May 23, 2000, we entered into a purchase agreement regarding
approximately 80 acres of real property in San Jose, California. On June 21,
2000, before the closing on this property, we assigned our interest in the
purchase agreement to iStar San Jose, LLC. On the same date, iStar purchased
this property and entered into a 20-year lease with us for the property. Under
the terms of the lease, we have the option to extend the lease for an
additional 60 years, for a total lease term of 80 years. In addition, we have
the option to purchase the property from iStar after 10 years.
On June 21, 2000, we entered into a strategic agreement with Colt
Telecommunications whereby Colt agreed to install local connectivity and IP
network services in our European IBX centers in exchange for a warrant to
purchase 250,000 shares of our common stock. The warrant is subject to cutback
in the event Colt does not provide these services on a timely basis.
On June 29, 2000, we entered into a strategic agreement with UUNET and
WorldCom in exchange for a warrant to purchase 650,000 shares of our common
stock. Pursuant to the terms of this agreement, we amended and restated our
previous agreement with WorldCom, and WorldCom agreed to install local
connectivity in additional IBX centers. In addition, UUNET agreed to provide
high-speed bandwidth access to UUNET's hub facilities in our existing IBX
centers and several of our proposed IBX centers. The warrant is subject to
cutback in the event UUNET or WorldCom does not provide these services on a
timely basis.
We are currently having discussions with a group of lenders to obtain a
$100.0 million senior secured credit facility. Although we believe we will
secure commitments for our contemplated credit facility, we do not know that we
will receive satisfactory commitments from lenders or that we will be able to
negotiate satisfactory terms for and ultimately enter into a credit facility.
Moreover, we expect that our credit facility will contain financial covenants
and borrowing limitations that may prevent some or all of the funds potentially
available to us from actually becoming available to us. If we are not
successful in entering into our contemplated credit facility, or if funds are
not ultimately made available to us under our credit facility, we may have to
obtain funds from an alternative source to pursue our plans for five additional
IBX centers and expansion projects.
On July 17, 2000, Scott Kriens and Dawn G. Lepore joined our board of
directors. Mr. Kriens is president, chief executive officer and chairman of the
board of directors of Juniper Networks Inc. Ms. Lepore is vice chairman of the
board of directors, chief information officer and a member of the management
committee of Charles Schwab Corporation.
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Equinix's headquarters are located at 901 Marshall Street, Redwood City,
California 94063. Our phone number is (650) 298-0400.
Except as otherwise indicated, information in this prospectus is based on
the following assumptions:
. conversion of all outstanding shares of preferred stock into common stock
upon the closing of this offering;
. the filing of our amended and restated certificate of incorporation in
the state of Delaware upon the closing of this offering; and
. no exercise of the underwriters' over-allotment option.
Any Media Any Speed, Equinix, Home of the Internet, IBX and Internet
Business Exchange are our trademarks. This prospectus also contains trademarks
of other companies.
2
THE OFFERING
Common stock offered by us......................... 20,000,000 shares
Common stock to be outstanding after the offering.. 73,772,931 shares. This
number is based on the
number of shares
outstanding as of June 30,
2000. It excludes
7,452,425 shares of common
stock issuable upon the
exercise of options
outstanding as of June 30,
2000 at a weighted average
exercise price of
$3.99 per share. It also
excludes 7,113,745 shares
of common stock issuable
upon the exercise of
warrants with a weighted
average exercise price of
$1.37 per share.
Over-allotment option.............................. 3,000,000 shares
Use of proceeds.................................... To fund the design,
construction and operation
of additional IBX centers
and expansion projects and
for other general
corporate purposes,
including working capital
and potential
acquisitions. For more
information about our use
of proceeds, please see
"Use of Proceeds".
Dividend policy.................................... Currently, we do not
anticipate paying cash
dividends.
Proposed Nasdaq National Market symbol............. EQIX
3
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 prospectus. The consolidated statement
of operations data for the period from June 22, 1998 (inception) to
December 31, 1998 and for the year ended December 31, 1999 are derived from,
and are qualified by reference to, the audited consolidated financial
statements and their related notes, which are included in this prospectus. The
consolidated statement of operations data for the six months ended June 30,
1999 and June 30, 2000 and the balance sheet data as of June 30, 2000 are
derived from our unaudited condensed interim consolidated financial statements
and their related notes included in this prospectus. The pro forma as adjusted
column gives effect to this offering as though it had occurred on June 30,
2000. See "Capitalization".
Six Months
Period from June 22, Ended June 30,
1998 (inception) to Year Ended -----------------
December 31, 1998 December 31, 1999 1999 2000
-------------------- ----------------- ------- --------
(dollars in thousands, except per share data)
Statement of
Operations Data: (unaudited)
Revenues............ $ -- $ 37 $ -- $ 1,028
Costs and operating
expenses:
Cost of revenues
(excludes stock-
based compensation
of none and
$177 for the
periods ended
December 31, 1998
and 1999,
respectively, and
$8 and $214 for
the six months
ended June 30,
1999 and 2000,
respectively)..... -- 2,959 340 6,106
Sales and marketing
(excludes stock-
based compensation
of $13 and $1,631
for the periods
ended December 31,
1998 and 1999,
respectively, and
$68 and $2,970 for
the six months
ended June 30,
1999 and 2000,
respectively)..... 34 2,318 651 5,738
General and
administrative
(excludes stock-
based compensation
of $151 and $4,819
for the periods
ended December 31,
1998 and 1999,
respectively, and
$1,048 and $6,846
for the six months
ended June 30,
1999 and 2000,
respectively)..... 748 7,307 2,248 14,016
Depreciation and
amortization...... 4 609 136 3,610
Stock-based
compensation...... 164 6,627 1,124 10,030
------- -------- ------- --------
Total costs and
operating
expenses......... 950 19,820 4,499 39,500
------- -------- ------- --------
Loss from
operations........ (950) (19,783) (4,499) (38,472)
Interest income..... 150 2,138 172 7,532
Interest expense.... (220) (3,146) (138) (13,880)
------- -------- ------- --------
Net loss............ $(1,020) $(20,791) $(4,465) $(44,820)
======= ======== ======= ========
Basic and diluted
net loss per
share.............. $ (1.48) $ (4.98) $ (2.78) $ (4.45)
======= ======== ======= ========
Shares used in per
share calculation.. 688 4,173 1,607 10,063
======= ======== ======= ========
Pro forma basic and
diluted net loss
per share
(unaudited)........ $ (0.74) $ (0.98)
======== ========
Shares used in pro
forma per share
calculation
(unaudited)........ 28,157 45,907
======== ========
As of June 30, 2000
---------------------
Pro Forma
Actual As Adjusted
-------- -----------
(dollars in
Balance Sheet Data: thousands)
(unaudited)
Cash, cash equivalents and short-term investments....... $159,313 $362,113
Accounts receivable..................................... 2,327 2,327
Restricted cash and short-term investments.............. 38,500 38,500
Property and equipment, net............................. 63,192 63,192
Construction in progress................................ 174,549 174,549
Total assets............................................ 450,472 653,272
Debt facilities and capital lease obligations, excluding
current portion........................................ 8,082 8,082
Senior notes............................................ 184,929 184,929
Redeemable convertible preferred stock.................. 191,580 --
Total stockholders' equity (deficit).................... (2,972) 391,408
Other Financial Data:
Adjusted EBITDA(1)...................................... (24,832) (24,832)
Net cash used in operating activities................... (24,897) (24,897)
Net cash used in investing activities................... (125,090) (125,090)
Net cash provided by financing activities............... 95,761 298,561
- -------
(1) Adjusted EBITDA consists of net loss excluding interest, income taxes,
depreciation and amortization of capital assets and amortization of
deferred stock-based compensation. Adjusted 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 Adjusted EBITDA for other companies. Adjusted EBITDA is
not a measure determined under generally accepted accounting principles nor
is it a measure of liquidity.
4
RISK FACTORS
This offering and an investment in our common stock involve a high degree of
risk. You should carefully consider the following risk factors and all other
information in this prospectus before investing in our common stock. Our
business and results of operations could be seriously harmed by any of the
following risks. The trading price of our common stock could decline due to any
of these risks, and you might lose all or part of your investment.
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. Except for fiber connectivity from our
telecommunication carriers, the construction of our first IBX center was
completed in July 1999. We began accepting customers the same month but did not
recognize any revenue until November 1999 as the sales cycle was not complete.
Our limited history and lack of meaningful financial or operating data makes
evaluating our operations and the proposed scale of our business 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, train and retain
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, we have experienced operating losses since
inception. As of June 30, 2000, we had cumulative net losses of $66.6 million
and cumulative cash used by operating activities of $35.6 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 and size 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, including private interconnection
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;
5
. the timing and magnitude of our expenditures for sales and marketing;
. direct costs relating to the expansion of our operations;
. growth of Internet use;
. governmental regulation;
. conditions related to international operations;
. economic conditions specific to the Internet industry; and
. general economic factors.
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. As of June 30, 2000, we had total indebtedness of
$214.5 million and we expect to incur further debt to fund our IBX construction
plans. 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
business strategy on a timely basis 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 expect that our current cash, cash equivalents and short-term
investments, together with the proceeds from this offering, and subject to the
execution of definitive documentation and availability, up to $100.0 million
under a new credit facility, will allow us to pursue five additional IBX
centers and several expansion projects, resulting in a total of eight IBX
centers in the U.S. and Europe by May 2001. If we cannot raise sufficient
additional funds on acceptable terms or funds under our proposed
6
credit facility are unavailable to us or our losses exceed our expectations, we
may be required to delay the rollout of our currently planned IBX centers or
permanently reduce our rollout plans. There can be no assurance that we will
enter into the proposed credit facility. Additional financing could take the
form of debt or equity. In the past, we have had difficulties obtaining debt
financing due to the early stage of our company's development. 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.
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. If we are able
to secure additional financing, we expect to pursue additional IBX projects and
to reconsider the timing and approach to IBX projects. We expect to continually
reevaluate our business and rollout plan in light of evolving competitive and
market conditions and the availability of suitable sites, financing and
customer demand. 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.
Our results of operations may be harmed by charges associated with our issuance
of performance-based warrants.
The underlying shares of common stock associated with the performance-based
warrants issued by us are required under applicable accounting guidelines to be
revalued at each balance sheet date to reflect their current fair value until
the holder's performance commitment to us is complete. Any resulting increase
in the fair value of the underlying shares of common stock would be recorded as
a leasehold improvement, reducing our earnings through the depreciation of the
related asset or potential impairment write-down. See Notes 2, 6 and 11 of
"Notes to Consolidated Financial Statements".
We rely upon Bechtel and suitable site availability to complete our IBX center
rollout plans on time.
We have agreed to use Bechtel Corporation exclusively as our contractor to
provide program management, site identification and evaluation and construction
services to build our IBX centers under mutually agreed upon guaranteed
completion dates. Problems in our relationship with Bechtel
7
could materially adversely affect our ability to achieve our business
objectives on a timely and cost-effective basis. There can be no assurance that
Bechtel will not work with our competitors following the expiration of
Bechtel's exclusivity period in October 2000.
In addition, our success will depend upon our ability to timely identify and
acquire on acceptable terms suitable locations with proximity to adequate power
and fiber networks. We have encountered competition for suitable sites from
potential competitors and we expect this to increase further in the future.
We depend on third parties to provide Internet connectivity to our IBX centers;
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 we 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. For
example, in the past carriers have experienced delays in connecting to our
facilities. 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.
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 we do or form alliances to
acquire significant market share. 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 may be able to attract the same customers that we are targeting. Once
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".
8
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, consisting of a variety of companies, including
content providers, application service providers, e-commerce companies,
bandwidth providers and site and performance management companies. 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. As a
result, we have a long sales cycle. We generally incur significant expenses in
sales and marketing prior to getting customer commitments for our services.
Delays due to the length of our sales cycle may adversely affect our business,
financial condition and results of operations.
Our success will also depend upon generating significant interconnection
revenues from customers which may depend upon a balanced customer base, as well
as upon the success of our IBX centers at facilitating business among
customers. 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 centers.
This may be disruptive to our business and may adversely affect our business,
financial condition and results of operations.
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, train and retain 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
9
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;
. 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.
Our new management team must prove that it can work together effectively.
We have recently hired many key personnel, including our chief executive
officer. 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, financial condition and results of operations will be materially
adversely affected.
We must attract and retain key personnel to maintain and grow our business.
We require the services of additional 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 centers, market our services
to a greater number of enterprises and generate increased revenues. We also
require highly capable technical personnel to provide the quality services we
are promoting. As a result, we plan to hire additional personnel in related
capacities. Our success depends on our ability to identify, hire, train and
retain additional qualified personnel, including managers, 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. 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.
10
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. To date,
our power uptime has been in excess of 99.999% across all our operational IBX
centers; however, on one occasion, we experienced a temporary loss of power
that led to a short-term unavailability of our services in our Washington, D.C.
IBX center. 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.
We have 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. Any 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,
financial condition and results of operations.
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
11
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 business, financial
condition and results of operations.
Government regulation may adversely affect 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, such as those governing intellectual property, privacy, libel,
telecommunications, and taxation, apply to the Internet and to 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, financial condition and results
of operations.
Risks Related to this Offering
Our stock price may be particularly volatile and could decline substantially
because of the industry in which we compete.
The stock market in general has recently experienced extreme price and
volume fluctuations. In addition, the market prices of securities of technology
companies have been extremely volatile, and have experienced fluctuations that
have often been unrelated to or disproportionate to the operating performance
of these companies. These broad market fluctuations could adversely affect the
market price of our common stock. In addition, as an early stage company, small
delays in implementation of our IBX rollout plan, customer bookings,
installations or revenues could result in material variations in our quarterly
results and quarter-to-quarter growth in the foreseeable future. This could
result in greater volatility in our stock price. These fluctuations could lead
also to costly class action litigation which could significantly harm our
business and operating results.
Existing stockholders significantly influence us and could delay or prevent an
acquisition by a third party.
On completion of this offering, our executive officers, directors, their
affiliates, and other 5% stockholders will beneficially own, in the aggregate,
approximately 36.9% of our outstanding common
12
stock, assuming no exercise of the underwriters' over-allotment option. We have
requested that the underwriters reserve up to 1,600,000 shares for sale at the
initial public offering price to current and potential customers, others with
whom we do business, existing stockholders, employees, and friends of Equinix.
If our executive officers, directors, their affiliates, and other 5%
stockholders purchase any of these shares in this offering from the
underwriters, their aggregate percentage ownership will increase. As a result,
these stockholders will be able to exercise significant influence over all
matters requiring stockholder approval, including the election of directors and
approval of significant corporate transactions, which could have the effect of
delaying or preventing a third party from acquiring control over us. For
information regarding the ownership of our outstanding stock by our executive
officers, directors, their affiliates, and other 5% stockholders, please see
"Principal Stockholders".
We have implemented anti-takeover provisions that could make it more difficult
to acquire us.
Our amended and restated certificate of incorporation, our amended and
restated bylaws and Delaware law contain provisions that could make it more
difficult for a third party to acquire us, even if doing so would be beneficial
to our stockholders. These provisions include:
. authorizing the issuance of shares of undesignated preferred stock
without a vote of stockholders;
. prohibiting stockholder action by written consent; and
. limitations on stockholders' ability to call special stockholder
meetings.
Substantial sales of our common stock could depress our stock price.
If our stockholders sell substantial amounts of our common stock in the
public market following this offering, the market price of our common stock
could fall. Based on shares outstanding as of June 30, 2000, upon completion of
this offering, we will have outstanding 73,772,931 shares of common stock. Upon
completion of this offering, shares of common stock, including the
20,000,000 shares being sold in this offering will be eligible for sale in the
public market immediately, unless purchased by our affiliates. Our stockholders
will be subject to agreements with the underwriters or us that restrict their
ability to transfer their stock for 180 days from the date of this prospectus.
After these agreements expire, an additional shares will be eligible for
sale in the public market.
As a new investor, you will incur substantial dilution as a result of this
offering and future equity issuances.
The initial public offering price is substantially higher than the book
value per share of our outstanding common stock. As a result, investors
purchasing common stock in this offering will incur immediate substantial
dilution of $5.69 a share, assuming an initial public offering price of $11.00
per share, the mid-point of the initial public offering price range shown on
the cover of this prospectus. In addition, we have issued options and warrants
to acquire common stock at prices significantly below the initial public
offering price. To the extent outstanding options or warrants are ultimately
exercised, there will be further dilution to investors in this offering. We
have in the past and may in the future issue equity securities to our partners.
Any issuances to these partners may cause further dilution to investors in this
offering. If we issue additional equity securities, stockholders may experience
dilution, and the new equity securities could have rights senior to those of
existing holders of our common stock.
13
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,
we are 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 that will report all material changes to our business
as well as include material information to revise or correct any misleading
statements.
USE OF PROCEEDS
Our net proceeds from the sale of the 20,000,000 shares of common stock we
are offering are estimated to be $202.8 million, assuming an initial public
offering price of $11.00 per share and after deducting underwriting discount
and commissions and estimated offering expenses payable by us. If the
underwriters' over-allotment option is exercised in full, we estimate that our
net proceeds will be approximately $233.5 million. We expect to use the net
proceeds to fund the design, construction and operation of additional IBX
centers and expansion projects and for other general corporate purposes,
including working capital. A portion of the net proceeds may also be used for
the acquisition of businesses that are complementary to ours. We have no
current agreements or commitments for acquisitions of complementary businesses.
Pending these uses, we will invest the net proceeds of this offering in
investment grade and interest-bearing securities.
DIVIDEND POLICY
We have not paid any cash dividends since inception and do not currently
intend to pay any cash dividends.
14
CAPITALIZATION
The following unaudited table sets forth our capitalization as of June 30,
2000:
.on an actual basis;
. pro forma as adjusted reflects the conversion of all outstanding shares
of preferred stock into common stock upon the closing of this offering
and the sale of 20,000,000 shares offered herein at an assumed initial
public offering price of $11.00 per share (the mid-point of the initial
public offering price range shown on the cover of this prospectus), after
deducting the underwriting discount and estimated offering expenses.
Please read the capitalization table together with the sections of this
registration statement entitled "Selected Consolidated Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements included in this registration
statement.
As of June 30, 2000
---------------------
Pro Forma
Actual As Adjusted
-------- -----------
(dollars in
thousands)
Cash, cash equivalents and short-term investments ....... $159,313 $362,113
======== ========
Restricted cash and short-term investments(1)............ $ 38,500 $ 38,500
======== ========
Current portion of debt facilities and capital lease
obligations............................................. $ 4,687 $ 4,687
======== ========
Long-term debt, net of current portion:
Debt facilities and capital lease obligations.......... $ 8,082 $ 8,082
13% Senior Notes due 2007.............................. 184,929 184,929
-------- --------
Total long-term debt.................................. 193,011 193,011
-------- --------
Redeemable convertible preferred stock, $0.001 par value;
43,000,000 and 10,000,000 shares authorized actual and
pro forma as adjusted, respectively; 40,704,222 shares
issued and outstanding actual; no shares issued and
outstanding pro forma as adjusted ...................... 191,580 --
Stockholders' equity (deficit):
Common stock, $0.001 par value; 80,000,000 and
300,000,000 shares authorized actual and pro forma as
adjusted, respectively; 13,068,709 shares issued and
outstanding actual; and 73,772,931 shares issued and
outstanding pro forma as adjusted(2).................. 13 74
Additional paid-in capital............................. 113,964 508,283
Deferred stock-based compensation...................... (50,281) (50,281)
Accumulated other comprehensive loss................... (38) (38)
Accumulated deficit.................................... (66,630) (66,630)
-------- --------
Total stockholders' equity (deficit).................. (2,972) 391,408
-------- --------
Total capitalization................................ $381,619 $584,419
======== ========
- --------
(1) Reflects the portion of the net proceeds from the 13% Senior Notes used to
purchase a portfolio of U.S. government securities to fund the second and
third scheduled interest payments on the notes plus accrued interest, and
restricted cash of $13,315,600 plus accrued interest provided as collateral
under six separate security agreements for standby letters of credit and an
escrow account entered into and in accordance with certain lease
agreements.
(2) Excludes 7,113,745 shares of common stock issuable upon the exercise of
outstanding warrants and 7,452,425 shares of common stock issuable upon the
exercise of outstanding options as of June 30, 2000.
15
DILUTION
The pro forma net tangible book value of our common stock as of June 30,
2000, giving effect to the conversion of all shares of preferred stock
outstanding as of June 30, 2000 into common stock on the closing of this
offering was $188,608,000, or approximately $3.51 per share. Pro forma net
tangible book value per share represents the amount of our stockholders'
equity, divided by 53,772,931 shares of common stock outstanding, after giving
effect to the conversion of the preferred stock outstanding as of June 30, 2000
into shares of common stock.
Dilution per share to new investors represents the difference between the
amount per share paid by purchasers of shares of common stock in this offering
and the pro forma net tangible book value per share of common stock immediately
after completion of this offering. After giving effect to the sale by us of the
shares of common stock in this offering and after deducting the estimated
underwriting discount and commissions and estimated offering expenses and the
application of the estimated net proceeds from this offering, our pro forma net
tangible book value as of June 30, 2000, would have been $391,408,000, or $5.31
per share. This represents an immediate increase in net tangible book value of
$1.80 per share to existing stockholders and an immediate dilution in net
tangible book value of $5.69 per share to purchasers of common stock in this
offering. The following table illustrates the per share dilution:
Assumed initial public offering price per share............... $11.00
------
Pro forma net tangible book value per share as of June 30,
2000....................................................... $3.51
Increase per share attributable to new investors............ 1.80
-----
Pro forma net tangible book value per share after this
offering..................................................... 5.31
------
Dilution per share to new investors........................... $ 5.69
======
The following table sets forth on a pro forma basis as of June 30, 2000,
after giving effect to the conversion of all outstanding shares of preferred
stock into common stock upon completion of this offering, the difference
between the number of shares of common stock purchased from Equinix, the total
consideration paid to Equinix and the average price paid by existing
stockholders and by new investors, before deduction of estimated discounts and
commissions and estimated offering expenses payable by us:
Average
Price
Shares Purchased Total Consideration Per Share
------------------ -------------------- ---------
Number Percent Amount Percent
---------- ------- ------------ -------
Existing stockholders......... 53,772,931 72.9% $193,204,000 46.8% $ 3.59
New stockholders.............. 20,000,000 27.1% $220,000,000 53.2% $11.00
---------- ----- ------------ ----- ------
Total....................... 73,772,931 100.0% $413,204,000 100.0% $ 5.60
========== ===== ============ ===== ======
As of June 30, 2000, there were options outstanding to purchase a total of
7,452,425 shares of common stock at a weighted average exercise price of $3.99
per share under our 1998 Stock Option Plan. In addition, as of June 30, 2000,
there were warrants outstanding to purchase a total of 7,113,745 shares of
common stock and convertible preferred stock at a weighted average exercise
price of $1.37 per share. To the extent outstanding options or warrants are
exercised, there will be further dilution to new investors.
If the underwriters' over-allotment option is exercised in full, the number
of shares held by new investors will increase to 23,000,000 shares, or 30.0% of
the total number of shares of common stock outstanding after this offering.
16
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. The statement of operations data for
six months months ended June 30, 1999 and 2000 and balance sheet data as of
June 30, 2000 were derived from our unaudited condensed interim consolidated
financial statements included elsewhere in this prospectus, which in the
opinion of management, include all adjustments, consisting only of normal
recurring adjustments, which we consider necessary for a fair presentation of
our financial position and results of operations for this period. Our
historical results are not necessarily indicative of the results to be expected
for the full year or future periods. The pro forma as adjusted column gives
effect to this offering and related matters as though they had occurred on June
30, 2000. See "Capitalization". 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 prospectus.
Period from Six months ended
June 22, 1998
(inception) to Year ended ------------------
December 31, December 31, June 30, June 30,
1998 1999 1999 2000
-------------- ------------ -------- --------
(dollars in thousands, except per share data)
(unaudited)
Statement of Operations Data:
Revenues........................ $ -- $ 37 $ -- $ 1,028
------- -------- ------- --------
Costs and operating expenses:
Cost of revenues (excludes
stock-based compensation of
none and $177 for the periods
ended December 31, 1998 and
1999, respectively, and $8
and $214 for the six months
ended June 30, 1999 and 2000,
respectively)................ -- 3,091 340 8,409
Sales and marketing (excludes
stock-based compensation of
$13 and $1,631 for the
periods ended December 31,
1998 and 1999, respectively,
and $68 and $2,970 for six
months ended June 30, 1999
and 2000, respectively)...... 34 2,318 651 5,738
General and administrative
(excludes stock-based
compensation of $151 and
$4,819 for the periods ended
December 31, 1998 and 1999,
respectively, and $1,048 and
$6,846 for the six months
ended June 30, 1999 and 2000,
respectively)................ 752 7,784 2,384 15,323
Stock-based compensation...... 164 6,627 1,124 10,030
------- -------- ------- --------
Total costs and operating
expenses.................... 950 19,820 4,499 39,500
------- -------- ------- --------
Loss from operations.......... (950) (19,783) (4,499) (38,472)
Interest income................. 150 2,138 172 7,532
Interest expense................ (220) (3,146) (138) (13,880)
------- -------- ------- --------
Net loss........................ $(1,020) $(20,791) $(4,465) $(44,820)
======= ======== ======= ========
Historical net loss per share:
Basic and diluted ............ $ (1.48) $ (4.98) $ (2.78) $ (4.45)
======= ======== ======= ========
Weighted average shares....... 688 4,173 1,607 10,063
======= ======== ======= ========
Pro forma net loss per share
(unaudited):
Basic and diluted............. $ (0.74) $ (0.98)
======== ========
Weighted average shares....... 28,157 45,907
======== ========
17
As of December 31, As of June 30, 2000
------------------- ----------------------
Pro Forma
1998 1999 Actual As Adjusted
--------- --------- --------- -----------
(unaudited)
(dollars in thousands)
Balance Sheet Data:
Cash, cash equivalents and short-
term investments................. $ 9,165 $ 222,974 $ 159,313 $ 362,113
Accounts receivable............... -- 178 2,327 2,327
Restricted cash and short-term
investments...................... -- 38,609 38,500 38,500
Property and equipment, net....... 482 28,444 63,192 63,192
Construction in progress.......... 31 18,312 174,549 174,549
Total assets...................... 10,001 319,946 450,472 653,272
Debt facilities and capital lease
obligations, excluding current
portion.......................... -- 8,808 8,082 8,082
Senior notes...................... -- 183,955 184,929 184,929
Redeemable convertible preferred
stock............................ 10,436 97,227 191,580 --
Total stockholders' equity
(deficit)........................ (846) 8,472 (2,972) 391,408
Other Financial Data:
Adjusted EBITDA(1)................ (782) (12,547) (24,832) (24,832)
Net cash used in operating
activities....................... (796) (9,908) (24,897) (24,897)
Net cash used in investing
activities....................... (5,265) (86,270) (125,090) (125,090)
Net cash provided by financing
activities....................... 10,226 295,178 95,761 298,561
- --------
(1) Adjusted EBITDA consists of net loss excluding interest, income taxes,
depreciation and amortization of capital assets and amortization of
deferred stock-based compensation. Adjusted EBITDA is presented to enhance
an understanding of our operating results, 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 Adjusted EBITDA for other companies. Adjusted EBITDA is
not a measure determined under generally accepted accounting principles nor
is it a measure of liquidity.
18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Equinix designs, builds and operates neutral IBX centers where Internet
businesses place their equipment and their network facilities in order to
interconnect with each other to improve Internet performance. Our neutral IBX
centers provide content providers, application service providers, or ASPs, and
e-commerce companies with the ability to directly interconnect with a choice of
bandwidth providers, Internet service providers, or ISPs, and site and
performance management companies. Equinix currently has IBX centers in the
Washington, D.C. metropolitan area, the New York metropolitan area and in
Silicon Valley. We intend to complete construction of five additional IBX
centers and several expansion projects by May 2001, resulting in a total of
eight IBX centers in the U.S. and Europe. Since our inception on June 22, 1998,
our operating activities have consisted primarily of designing and building our
IBX centers, 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 offer value-added services and professional services including
"Smart Hands" service for customer equipment installations and maintenance.
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.
We have contracts with approximately 65 customers, many of which have signed
multi-site and multi-year contracts. Assuming completion of our planned IBX
projects, the full installation of the customer equipment contemplated by these
contracts and no incremental interconnection revenue beyond the minimum
provided for by these contracts, these contracts would provide us with monthly
revenue of approximately $2.7 million. Of that amount, approximately $1.8
million does not depend upon our further construction efforts. Because we may
alter our rollout schedule and we depend upon third parties to construct and
connect our facilities with fiber and, accordingly, the timing of
installations, we cannot predict when and whether we will realize the full
value of these contracts. Moreover, many of our customer contracts can be
terminated upon requisite written notice.
Cost of revenues consist primarily of rental payments on our existing and
proposed 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 selling, general and administrative expenses, will
increase significantly as we continue our rollout of additional IBX centers and
expansion projects.
We recorded deferred stock-based compensation of approximately $1.1 million,
$19.4 million and $46.6 million in connection with stock options granted during
1998, 1999 and the six months ended
19
June 30, 2000, respectively, where the deemed fair value of the underlying
common stock was subsequently determined to be greater than the exercise price
on the date of grant. Approximately $164,000, $6.6 million and $10.0 million
was amortized to stock-based compensation expense for the period and year ended
December 31, 1998 and 1999, respectively, and the six months ended June 30,
2000, respectively. 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 $50.3 million of
deferred stock-based compensation at June 30, 2000 will be amortized over the
remaining vesting period. As a result of the cumulative effect of stock-based
compensation, we expect stock-based compensation expense, which is primarily
attributable to amortization of deferred stock-based compensation charges, to
impact our reported results through December 31, 2004. Based on option grants
through June 30, 2000, we expect stock-based compensation expense to be
approximately $27.9 million for the year ending December 31, 2000.
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.
Results of Operations
Since our inception in June 1998, we have experienced operating losses and
negative cash flows from operations in each quarter. As of June 30, 2000, we
had an accumulated deficit of $66.6 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.
Six Months Ended June 30, 1999 and 2000
Revenues. We recognized revenues of $1.0 million for the six months ended
June 30, 2000. Revenues consisted of recurring revenues of $978,000, primarily
from the leasing of cabinet space, and non-recurring revenue of $50,000 related
to the recognized portion of installation revenue. Installation and service
fees are recognized ratably over the term of the contract. We did not offer IBX
center colocation or interconnection exchange services during the six months
ended June 30, 1999, and as such, no revenues were recognized during that time
period.
Cost of Revenues. Cost of revenues increased from $347,000 for the six
months ended June 30, 1999 to $8.6 million for the six months ended June 30,
2000. Cost of revenues consists primarily of rental payments for our leased IBX
centers, site employees' salaries and benefits, utility costs, power and
redundancy system engineering support services and related costs, security
services and related costs and depreciation and amortization of our IBX center
buildout and other equipment costs. As of June 30, 1999, we had not opened any
IBX centers, but we had incurred rent expense on the first IBX center. During
the six months ended June 30, 2000, we incurred expenses on our first three
operational IBX centers.
Sales and Marketing. Sales and marketing expenses increased from $719,000
for the six months ended June 30, 1999 to $8.7 million for the six months ended
June 30, 2000. Sales and marketing expenses consist primarily of compensation
and related costs for the sales and marketing
20
personnel, sales commissions, marketing programs, public relations, promotional
materials and travel. The increase in sales and marketing expense resulted from
the addition of personnel in our sales and marketing organizations, reflecting
our increased selling effort and our efforts to develop market awareness. Also
included in sales and marketing for the six months ended June 30, 1999 and 2000
are $67,800 and $3.0 million, respectively, of stock-based compensation
expense. We anticipate that sales and marketing expenses will increase in
absolute dollars as we increase our investment in these areas to coincide with
the rollout of additional IBX centers.
General and Administrative. General and administrative expenses increased
from $3.4 million for the six months ended June 30, 1999 to $22.2 million for
the six months ended June 30, 2000. General and administrative expenses consist
primarily of salaries and related expenses, accounting, legal and
administrative expenses, professional service fees and other general corporate
expenses. The increase in general and administrative expenses was primarily the
result of increased expenses associated with additional hiring of personnel in
management, finance and administration, as well as other related costs
associated with supporting the Company's expansion. Also included in general
and administrative for the six months ended June 30, 1999 and 2000 are $1.0
million and $6.8 million, respectively, of stock-based compensation expense. We
anticipate that general and administrative expenses will increase in absolute
dollars due to increased staffing levels consistent with the growth in our
infrastructure and related operating costs associated with our regional and
international expansion efforts.
Interest Expense, net. For the six months ended June 30, 1999, we reported
interest income of $172,000 and interest expense of $138,000. For the six
months ended June 30, 2000, we reported net interest expense of $6.3 million.
Net interest for the six months ended June 30, 2000 consisted of interest
income of $7.5 million offset by interest expense of $13.9 million. Interest
income increased substantially due to higher cash, cash equivalent and short-
term investment balances held in interest bearing accounts, resulting from the
proceeds of the senior notes and preferred stock financing activities. Interest
expense for the six months ended June 30, 2000 is a result of the issuance of
senior notes and increased debt facilities and capital lease obligations and
amortization of the senior notes debt facilities and capital lease obligations
discount.
Period from Inception (June 22, 1998) through December 31, 1998 and Year
Ended December 31, 1999
Revenues. We recognized revenues of $37,000 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 $3.3 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 $47,000 for
the period from the date of inception to December 31, 1998 to $3.9 million for
the year ended December 31, 1999. These expenses consist primarily of salary
and benefit costs from the hiring of both sales and
21
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 $13,000 and $1.6
million for the period from the date of inception to December 31, 1998 and the
year ended December 31, 1999, respectively. In addition, we established two
regional sales offices to support the New York and Washington, D.C.
metropolitan 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.
General and Administrative. General and administrative expenses increased
from $902,200 for the period from the date of inception to December 31, 1998 to
$12.6 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
$151,000 and $4.8 million for the period from the date of inception to December
31, 1998 and the year ended December 31, 1999, respectively, 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.
Interest Expense, net. Net interest expense increased from $70,100 for the
period from the date of inception to December 31, 1998 to $1.0 million 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 stock financing activities. Interest expense was
$3.1 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 senior notes and debt facilities and
capital lease obligation discount. Interest 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.
22
Quarterly Results of Operations Data
The following table sets forth unaudited quarterly statement of operations
data for each of the eight quarters ended June 30, 2000. In the opinion of
management, this data has been prepared substantially on the same basis as the
audited financial statements appearing elsewhere in this prospectus, including
all necessary adjustments, consisting only of normal recurring adjustments
necessary for a fair presentation of this data. The quarterly data should be
read in conjunction with our financial statements and the notes to our
financial statements appearing elsewhere in this prospectus. We expect our net
loss to increase over the next several quarters because we plan to continue to
incur significant expenses as we rollout additional IBX centers and expansion
projects. In view of the rapidly evolving nature of our business and our
limited operating history, we believe that period-to-period comparisons of
revenues and operating results are not necessarily meaningful and should not be
relied upon as indications of future performance.
Period from
June 22, 1998
(inception) Three Months Ended
to -------------------------------------------------------------------------------
September 30, December 31, March 31, June 30, September 30, December 31, March 31, June 30,
1998 1998 1999 1999 1999 1999 2000 2000
------------- ------------ --------- -------- ------------- ------------ --------- --------
(dollars in thousands)
Statement of Operations
Data:
Revenues................ $ -- $ -- $ -- $ -- $ -- $ 37 $ 136 $ 892
Costs and operating
expenses
Cost of revenues....... -- -- 43 305 660 2,262 3,320 5,303
Sales and marketing.... -- 47 144 575 1,126 2,103 4,516 4,192
General and
administrative........ 130 773 1,232 2,200 4,498 4,672 6,255 15,914
----- ----- ------- ------- ------- -------- -------- --------
Total costs and
operating expenses.... 130 820 1,419 3,080 6,284 9,037 14,091 25,409
----- ----- ------- ------- ------- -------- -------- --------
Loss from operations... (130) (820) (1,419) (3,080) (6,284) (9,000) (13,955) (24,517)
Interest income......... 4 146 106 66 238 1,728 3,662 3,870
Interest expense........ -- -- (32) (106) (242) (2,766) (7,716) (6,164)
Interest charge on
beneficial conversion
of convertible debt.... 220 -- -- -- -- -- -- --
----- ----- ------- ------- ------- -------- -------- --------
Net loss................ $(346) $(674) $(1,345) $(3,120) $(6,288) $(10,038) $(18,009) $(26,811)
===== ===== ======= ======= ======= ======== ======== ========
As a result of our limited operating history, we do not have historical
financial data for a significant number of periods on which to base planned
operating expenses. Quarterly revenues and operating results depend
substantially on the rate of new customer acquisitions, whether the related
revenues are recognized immediately or deferred over future time periods, the
rollout of our IBX centers and expansion projects and changes in our operating
expenses. Accordingly, these factors could have a material adverse effect on
our business, results of operations and financial condition. We may be unable
to adjust spending in a timely manner to compensate for any unexpected revenue
shortfall, and any significant shortfall in revenue in relation to our
expectations would have an immediate adverse effect on our business, results of
operation and financial condition. Due to the foregoing factors, it is possible
that in some future periods our operating results may be below the expectations
of public market analysts and investors. In this event, the price of our common
stock may underperform or fall.
Liquidity and Capital Resources
Since inception, we have financed our operations and capital requirements
primarily through the issuance of senior notes, the private sale of preferred
stock and debt financing for aggregate gross proceeds of approximately $408.7
million. As of June 30, 2000, as adjusted to give effect to the receipt of the
net proceeds from this offering (assuming an initial public offering price of
$11.00 per share) we had approximately $362.1 million in cash, cash equivalents
and short-term investments. Furthermore, we have an additional $38.5 million of
restricted cash and cash equivalents to fund interest expense on
23
our 13% Senior Notes due 2007 and collateral under six separate security
agreements for standby letters of credit and an escrow account entered into and
in accordance with certain lease agreements. Our principal sources of liquidity
following this offering will consist of this cash and $5.0 million in debt and
capital lease facilities and, subject to the negotiation and execution of
definitive loan documentation, a proposed $100.0 million credit facility. As of
June 30, 2000, our total indebtedness from our senior notes, debt facilities
and capital lease obligations was $214.5 million.
Net cash used in operating activities was $796,000 for the period from
inception to December 31, 1998, $9.9 million for the year ended December 31,
1999 and $24.9 million for the six months ended June 30, 2000. We used cash
primarily to fund our net loss from operations.
Net cash used in investing activities was $5.3 million for the period from
inception to December 31, 1998, $86.3 million for the year ended December 31,
1999 and $125.1 million for the six months ended June 30, 2000. Net cash used
in investing activities was primarily attributable to the construction of our
IBX centers and the purchase of restricted cash and short-term investments.
Net cash generated by financing activities was $10.2 million for the period
from inception to December 31, 1998 and $295.2 million for the year ended
December 31, 1999. Net cash generated by financing activities was $95.8 for the
six months ended June 30, 2000. The cash generated from financing activities
for the period from inception through December 31, 1998 was due to the sale of
Series A preferred stock. The cash generated by 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. Net cash generated in financing activities during
the six months ended June 30, 2000 was primarily proceeds from the issuance of
Series C preferred stock and exercises of stock options offset in part by
repayments of debt facilities and capital lease obligations.
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 June 30, 2000,
we had total debt and capital lease financings available of $23.0 million, of
which we had drawn down $18.0 million.
In December 1999, we issued $200.0 million aggregate principal amount of 13%
Senior Notes due 2007 for aggregate net proceeds of $193.4 million, net of
offering expenses. Of the $200.0 million gross proceeds, $16.2 million 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 $184.9 million as of June 30, 2000.
In December 1999, we completed the private sale of our Series B preferred
stock, net of issuance costs, in the amount of $81.7 million.
In June 2000, we completed the private sale of our Series C preferred stock
in the amount of $94.4 million.
24
On May 23, 2000, we entered into a purchase agreement regarding
approximately 80 acres of real property in San Jose, California. On June 21,
2000, before the closing on this property, we assigned our interest in the
purchase agreement to iStar San Jose, LLC. On the same date, iStar purchased
this property and entered into a 20-year lease with us for the property. Under
the terms of the lease, we have the option to extend the lease for an
additional 60 years, for a total lease term of 80 years. In addition, we have
the option to purchase the property from iStar after 10 years.
We expect that our cash on hand and anticipated cash flow from operations,
and assuming the negotiation, execution and drawdown of our proposed $100.0
million credit facility, should be adequate to build an additional five IBX
centers and expansion projects on built IBX centers by May 2001. Assuming
sufficient customer demand and the availability of additional financing, we
will build additional IBX centers and expand certain existing IBX centers. We
are continually evaluating the location, number and size of our facilities
based upon the availability of suitable sites, financing and customer demand.
If we cannot raise additional funds on acceptable terms or funds under our
proposed credit facility are unavailable to us or our losses exceed our
expectations, we may delay the currently planned projects, the rollout of
additional IBX centers or permanently reduce our rollout plans. Additional
financing may take the form of debt or equity. If we are unable to raise
additional funds to further our rollout, we anticipate that the cash flow
generated from the eight IBX centers, for which we will have obtained financing
if the credit facility is available, will be sufficient to meet the working
capital, debt service and corporate overhead requirements associated with those
IBX centers.
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 as
we do not have any derivative instruments or engage in hedging activities.
In December 1999, the SEC issued Staff Accounting Bulletin 101, or SAB 101,
Revenue Recognition, which outlines the basic criteria that must be met to
recognize revenue and provides guidance for presentation of revenue and for
disclosure related to revenue recognition policies in financial statements
filed with the SEC. The adoption of SAB 101 did not have a material impact on
our financial position and results of operations.
In March 2000, the FASB issued Interpretation No. 44, or FIN 44, Accounting
for Certain Transactions Involving Stock Compensation - an Interpretation of
APB 25. This Interpretation clarifies (a) the definition of employee for
purposes of applying Opinion 25, (b) the criteria for determining whether a
plan qualifies as a noncompensatory plan, (c) the accounting consequence of
various modifications to the terms of a previously fixed stock option or award,
and (d) the accounting for an exchange of stock compensation awards in a
business combination. This Interpretation is effective July 1, 2000, but
certain conclusions in this Interpretation cover specific events that occur
after either December 15, 1998, or January 12, 2000. The adoption of certain of
the conclusions of FIN 44 covering events occurring during the period after
December 15, 1998 or January 12, 2000 did not have a material effect on the
Company's financial position and results of operations. The Company does not
expect that the adoption of the remaining conclusions will have a material
effect on the financial position and results of operations.
25
Impact of the Year 2000
We have 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.
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 our exposure to foreign currency fluctuations is minimal.
The fair market value of long-term fixed interest rate debt is subject to
interest rate risk. Generally, the fair market value of fixed interest rate
debt will increase as interest rates fall and decrease as interest rates rise.
The interest rate changes affect the fair market value but do not impact
earnings or cash flows. The effect of an immediate 10% change in interest rates
would not have a material impact on our future operating results or cash flows.
Fair market values were determined from quoted market prices.
26
BUSINESS
Overview
Equinix designs, builds and operates neutral IBX centers where Internet
businesses place their equipment and their network facilities in order to
interconnect with each other to improve Internet performance. Our neutral 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 neutral IBX centers provide content
providers, ASPs and e-commerce companies with the ability to directly
interconnect with a competitive choice of bandwidth providers, ISPs and site
and performance management companies. Content providers include those companies
that supply information, education or entertainment content such as
Excite@Home. ASPs include those companies that supply hosted applications to
enterprises over the Internet, such as Storage Networks. E-commerce companies
include those companies which conduct the sale of goods and services over the
Internet. ISPs provide Internet connectivity services and include companies
such as InterNAP and NorthPoint Communications Group. Bandwidth providers
include companies such as WorldCom and AT&T. Site and performance management
companies include one-stop Web presence integrators and content distribution
companies such as iBeam. Equinix IBX centers enable Internet companies to
quickly, easily and privately interconnect with a choice of business partners
and customers as well as aggregate services in order to provide them with the
flexibility, speed and scalability they need to accelerate business growth in a
more cost effective way.
Equinix currently has IBX centers in the Washington, D.C. metropolitan area,
the New York metropolitan area and in Silicon Valley. We intend to complete
construction of five additional IBX centers and several expansion projects by
May 2001, resulting in a total of eight IBX centers in the U.S. and Europe. In
addition to bandwidth providers such as AT&T, Colt, WorldCom and Level 3, our
customers include Cable & Wireless, Concentric Network, Enron, Excite@Home,
iBeam, InterNAP, NorthPoint Communications Group, Teleglobe and Storage
Networks.
We were incorporated in Delaware in June 1998. Our founders, Albert M.
Avery, IV, our president and chief operating officer, and Jay S. Adelson, our
chief technology officer, were responsible for designing, building and
operating the Palo Alto Internet Exchange, or PAIX, one of the first and most
active global Internet 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 $412.7 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. 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. According
to International Data Corporation, 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.
As a result of competitive pressures, Internet and e-commerce companies are
demanding facilities that provide multiple interconnections with a broad cross-
section of product and service providers and customers. 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.
27
As the Internet and Internet businesses experienced significant growth and
demand, and content providers emerged, vertically integrated hosting providers
evolved to provide these businesses with places to locate their equipment and
access the Internet. Until now, Internet businesses have had to rely on these
vertically integrated hosting providers for the distribution of content and
delivery of services between thousands of individual networks. Internet and e-
commerce companies that 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.
As content becomes more critical, the choice of suppliers and direct
interconnection become increasingly important. 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 U.S. revenue growth from approximately $3.5
billion in the year 2000 to over $14 billion by 2003.
The Equinix Solution
Equinix IBX centers provide the environment and services to meet the
challenges facing Internet businesses today. Our centers will provide a free
market environment where choice stimulates efficient business growth. Because
Internet companies have a broad choice of product and service providers, they
can increase their service offerings, deliver services more efficiently and
have access to a larger potential customer base. 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 center 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. 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
28
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
multiple layers of physical 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.
Equinix Strategy
Our objective is to provide content providers, ASPs and e-commerce companies
with the ability to directly interconnect with a choice of bandwidth providers,
ISPs, and site and performance management companies to grow their business.
Equinix IBX centers enable Internet companies to quickly, easily and privately
interconnect with a choice of business partners and customers, providing them
with the flexibility, speed and adaptability they need to accelerate business
growth and to allow a faster, more reliable Internet. To accomplish this
objective we are employing the following strategies:
Provide Customer Choice. 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 fundamental characteristics of an IBX center.
We believe this is a significantly improved approach compared with the current
Internet model because it offers customers increased value and reliability
based on the availability of multiple providers of needed services. In
traditional colocation or Web hosting environments, customers are often limited
to a single choice of bandwidth provider, ISP, site management company, or
performance management company. This limited choice can lead to single points
of failure for customers or a limited number of options to choose from for
value added services. The Equinix model of neutrality gives customers a wide
range of providers to choose from for each of the services they require for
increased Internet performance and reliability. For instance, in each IBX
customers can choose from multiple bandwidth providers, ISPs and Web management
companies. The ability to choose whom they work with directly leads to better
Internet business performance due to the increased diversity and an improved
overall total cost of ownership since these suppliers are competing for the
customers' business within the IBX center. 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
Internet businesses.
Manage Choice to Create Network Effect. To attract the widest choice of
Internet partners, it is important to provide a robust mix of leading companies
from a variety of businesses and services. This allows content providers, e-
commerce companies and ASPs the opportunity to interconnect with a wide variety
of companies. As a result of the IBX interconnection model, IBX participants
encourage their customers, suppliers and business partners to also come into
the IBX center. These customers, suppliers and business partners may also, in
turn, encourage their business partners to locate in IBX centers resulting in
additional customer growth. For example, a large financial site that chooses to
locate in an Equinix IBX may encourage a bandwidth provider, a site management
company or another content partner, like a financial news service, to also
locate in the same IBX. In turn, these bandwidth providers or content partners
will also bring their business partners to the IBX. This network effect
enhances the value of an IBX center with each new customer as interconnections
provide monthly recurring revenues.
Leverage Strategically Scalable Centers. The network effect created by the
Equinix IBX model requires strategic scalability to support the dynamic IBX
growth environment. Our expansion plans are designed to meet the growth of our
customers. Our IBX centers will both stimulate and
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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.
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 open additional IBX centers in the United
States and internationally. We believe the demand for our international IBX
centers 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 business to business
Internet exchanges. Through brand awareness and promotion we intend to create a
strong following among all top content providers, ASPs and e-commerce
companies. We believe that this strong brand awareness, combined with our
ability to provide the highest quality business to business marketplace
facilities and professional services will provide us with a competitive
advantage in our market.
Leverage Blue-Chip Equity Owners. 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 Artemis S.A., Bechtel Corp., Benchmark
Capital, The Carlyle Group, Cisco Systems and Reuters.
Customers
Customers typically sign renewable contracts of one to three years in
length, often with options on additional space. In addition to bandwidth
providers such as AT&T, Colt, WorldCom and Level 3, our current customers
include Cable & Wireless, Concentric Network, Enron, Excite@Home, iBeam,
InterNAP, NorthPoint Communications Group, Teleglobe and StorageNetworks.
Additionally, AT&T, Enron, Excite@Home, InterNAP, Level 3, NorthPoint
Communications Group,Teleglobe, StorageNetworks and WorldCom have signed multi-
site agreements.
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 outsourced other
elements of their business or product to suppliers. These specialized players
include:
. content providers and e-commerce companies supplying information,
education or entertainment content and conducting the sale of goods and
services;
. ASPs offering hosted applications over the Internet;
. ISPs offering end-users Internet access and customer support;
. bandwidth providers (telecommunications carriers); and
. site and performance management companies which integrate and manage a
customer's end-to-end web presence and performance.
We consider these companies to be the core of our customer base and we offer
each customer a choice of business partners and solutions that are designed to
meet their unique and changing needs.
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We believe our IBX centers provide choice and neutrality that are important
to companies interested in the growth and reliability of the Internet. Equinix
does not compete with its customers and partners and offers choice within each
customer segment. We believe most Internet companies benefit from the choice of
a wide variety of Internet business partners because their business interaction
is greatly enhanced, which in turn can translate to new revenue sources,
greater efficiency and growth.
We believe the additional benefits to all customer segments include:
. Expedited service delivery
. Scalable, flexible, fault-tolerant environment
. Cost savings through aggregating purchases and sales at a single location
. Minimize packet loss and latency, or time that elapses between a request
for information and its arrival
. Ability to focus on core competencies
. Centralized market with access to dozens of potential customers and
partners
. Proximity to service providers reduces operations, technology and
marketing costs, quickens service deployment, and improves performance
. Multiple layers of physical security
. Elimination of capital investment for facilities
. 24X7 on-site Internet and telecommunications-trained staff
We believe our IBX centers offer the following additional benefits to our
customers:
Type of Customer: Benefits:
Content Providers, ASPs and E-Commerce Companies
. Direct interconnection with a choice of
multiple bandwidth providers, Internet
service providers, and site and performance
management companies. Choice gives
participants the ability to decide which
suppliers are the most cost-effective and
provide the level of service they require.
The benefits to content providers, ASPs and
e-commerce companies include maximized Web
presence, increased revenue streams, greater
security and increased customer satisfaction
. Simplified outsourcing of various component
services including DSL, e-mail, Usenet and
content distribution
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
Bandwidth Providers (Carriers) . Economies of scale with reduced capital costs
. Centralized market with access to dozens of
potential customers
Site and Performance Management Companies
. Direct interconnection with a choice of
multiple bandwidth providers and ISPs. Choice
gives site and performance management
companies the ability to decide which
suppliers are the most cost-effective and
provide the level of service they require
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Services
Within our IBX centers, customers can place their equipment and interconnect
with a choice of Internet companies. Equinix also provides customized solutions
for customers looking to resell IBX space component as part of their complete,
one-stop shop solution.
Cabinets. Customers have several choices for colocating their equipment.
They can place the equipment in an Equinix shared or private cage or customize
their space to build their own data center within an IBX center. Cabinets are
84 inches high, 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 the biometric hand-geometry system.
Private Cages. Customers that contract for a minimum of five 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 the biometric hand-geometry system.
Data Centers. Customers interested in providing a hosting service or
colocation center have the option of outsourcing the design, construction and
management of the physical facility to Equinix. Each customer can customize the
cabinet configuration within the space they purchase from Equinix in order to
satisfy their specific customers' needs.
Interconnection
Physical Cross-Connect. Customers needing to directly connect to another IBX
customer can do so for a set price. Equinix leaves the choice of speed and
media type to the customers, based on their needs. Cross connections are
installed, delivered and tested by us within twenty-four hours of a customer's
request.
Central Switching Fabric. Customers may choose to connect to our central
switching fabric rather than purchase a direct physical cross connection. With
a connection to this switch, a customer can aggregate multiple interconnects
over one physical connection instead of purchasing individual physical cross
connects.
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
Our IBX centers are staffed with Internet and telecommunications specialists
who are on-site and available 24 hours per day, 365 days per year. These
professionals are trained to perform installations of customer equipment and
cross connections.
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
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intelligent networking requirements and assist customers in improving the
quality of their interconnection and traffic exchange.
"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 equipment installation power cycling, card swapping, and
performing emergency equipment replacement. Services are available on-demand or
by customer contract.
IBX Design and Staffing
Our IBX centers are designed to provide a state-of-the-art, secure, full-
service, neutral operating environment of a typical minimum of 875 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 scalability to meet our
customer's ongoing growth, 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. Secured 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.
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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.
Additional 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. A 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. 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 13 Equinix employees,
including one IBX manager, a chief engineer, a warehouse coordinator and eight
technical service personnel who provide 24 hours per day, 365 days per year
coverage for customer support needs. In addition, an IBX center has two
security guards on duty at all times 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
which are armed with sensory mechanisms to sample the air and raise alarms
before pressurization or release. Finally, Equinix IBX centers are built in
compliance with location-dependent seismic standards.
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 markets.
Equinix currently has IBX centers in the Washington, D.C. metropolitan area,
the New York metropolitan area and in Silicon Valley. We intend to complete
construction of five additional IBX centers and several expansion projects by
May 2001, resulting in a total of eight IBX centers in the U.S. and Europe. 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 customer need,
technological and other developments.
In November 1999, the Company entered into a master agreement with Bechtel
Corporation, or Bechtel, whereby Bechtel agreed to act as the exclusive
contractor under a Master Agreement to provide program management, site
identification and evaluation, engineering and construction services to build
our IBX centers under mutually agreed upon guaranteed completion dates. 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 five
years from date of grant. As of June 30, 2000, 281,988 shares of the Bechtel
Warrant are subject to repurchase at the original exercise price, if Bechtel's
performance commitments are not complete.
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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
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. We also have reseller
agreements with several large customers. These distribution channels will
account for a smaller portion of our business by design. In addition, our sales
team will work closely with each customer to foster the natural network effect
of our IBX model, resulting in access to a wider potential customer base via
our existing customers. As a result of the IBX interconnection model, IBX
participants encourage their customers, suppliers and business partners to also
come into the IBX. These customers, suppliers and business partners also, in
turn, encourage their business partners to locate in IBX centers resulting in
additional customer growth. This network effect significantly reduces Equinix's
customer acquisition costs.
Before opening an IBX center, we secure key anchor customers and focus on
generating sales commitments for between at least 10 and 20% of the available
capacity. Our sales strategy is to target the top 25 companies in our customer
segments, which include content providers, ASPs, e-commerce companies,
carriers, ISPs and site and performance management companies. 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. We expect a substantial
number of customers to contract for services at multiple IBX centers and have
already received orders from 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
or leading industry technical forums and participating in Internet industry
standard-setting bodies.
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
sufficiently differentiate our IBX model 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.
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We may encounter competition from a number of sources, some of which may
also be our customers, including:
. vertically integrated Web site hosting, colocation and ISP companies such
as AboveNet, Exodus, GlobalCenter and Globix;
. established communications carriers such as AT&T, Level 3, WorldCom and
Qwest; and
. emerging colocation service providers such as Colo.com, CO Space, which
recently agreed to be acquired by InterNAP 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.
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 June 30, 2000, we had 187 employees and 21 full-time consultants. We
had 151 employees based at our corporate headquarters in Redwood City,
California and our regional sales offices in New York, NY and Reston, VA. Of
those employees, 75 were in engineering and operations, 45 were in sales and
marketing and 31 were in management and finance. The remaining 36 employees
were based at our Washington, D.C., New York, NY, Los Angeles, CA, Chicago, IL
and Silicon Valley IBX centers.
Properties
Our executive offices are currently located in Redwood City, CA and after
August 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, Dallas, TX, and Amsterdam, The Netherlands. 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.
36
MANAGEMENT
Officers, Key Employees and Directors
Our officers, key employees and directors, and their ages as of July 17,
2000, are as follows:
Name Age Position
- ---- --- --------
Peter F. Van Camp....... 44 Chief Executive Officer and Director
Albert M. Avery, IV..... 56 President, Chief Operating Officer and Director
Jay S. Adelson.......... 29 Chief Technology Officer
Philip J. Koen.......... 48 Chief Financial Officer, Corporate Development Officer and Secretary
Marjorie S. Backaus..... 38 Chief Marketing Officer
Dante R. DeWitt......... 36 Chief Information Officer
Roy A. Earle............ 43 Vice President, IBX Development
Peter T. Ferris......... 43 Vice President, Worldwide Sales
Renee F. Lanam.......... 38 General Counsel and Assistant Secretary
Scott Kriens............ 42 Director
Dawn G. Lepore.......... 46 Director
Andrew S. Rachleff...... 41 Director
John G. Taysom.......... 46 Director
Michelangelo Volpi...... 33 Director
Peter F. Van Camp has served as Equinix's chief executive officer and as a
director since May 2000. From March 1999 to May 2000, Mr. Van Camp was
employed at UUNET, the Internet division of WorldCom, a telecommunications
corporation, where he served as president of Internet markets and, most
recently, as president of the Americas region. Before joining UUNET, Mr. Van
Camp served as president of WorldCom Advanced Networks from February 1998 to
March 1999. During the period from May 1995 to February 1998, Mr. Van Camp was
president of Compuserve Network Services, an Internet access provider. Before
holding this position, Mr. Van Camp held various positions at Compuserve, Inc.
during the period between October 1982 to May 1995. Mr. Van Camp currently
serves as a director of Paradyne Networks, Inc., a public company.
Albert M. Avery, IV, one of our founders, has served as Equinix's
president, chief operating officer and as a director since May 2000. From our
inception in June 1998 to May 2000, Mr. Avery served as our president, chief
executive officer and as a director. 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, now a division of Compaq, a
computing systems supplier. 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.
Jay S. Adelson, one of our founders, has served as Equinix's chief
technology officer since our inception in June 1998. From June 1998 to June
2000, Mr. Adelson was also one of our directors. 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.
Philip J. Koen has served as Equinix's chief financial officer and
secretary since July 1999. In addition, Mr. Koen became our corporate
development officer in May 2000. Before joining Equinix,
37
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 Fortel Corporation and of Centura
Software Corp., both public companies.
Marjorie S. Backaus has served as Equinix's chief marketing officer since
May 2000. From November 1999 to May 2000, Ms. Backaus served as vice president,
marketing of Equinix. 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, a telecommunications company, including that of division
manager, DirecTV.
Dante R. DeWitt has served as Equinix's chief information officer since June
2000. Before joining Equinix, Mr. DeWitt was employed at Hambrecht & Quist, an
investment banking firm, from June 1998 to June 2000, where he served as chief
information officer. From September 1997 to June 1998, Mr. DeWitt served as an
executive vice president at Bank America, a financial services corporation,
where he was in charge of technology and operations for the Global Asset
Management Division. From March 1995 to September 1997, Mr. DeWitt was employed
at Bank America Robertson Stephens, an investment banking firm, as chief
information officer.
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 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.
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 Genuity 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.
Renee F. Lanam has served as Equinix's general counsel and assistant
secretary since April 2000. Before joining Equinix, Ms. Lanam was employed at
the law firm of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP
("Gunderson Dettmer"), where she was an associate from January 1996 to January
2000 and a partner from January 2000 to April 2000. Prior to joining Gunderson
Dettmer, Ms. Lanam was an associate at the law firms of Jackson, Tufts, Cole &
Black and Brobeck, Phleger & Harrison, LLP.
Scott Kriens has served as a director of Equinix since July 2000. Mr. Kriens
has been president, chief executive officer and chairman of the board of
directors of Juniper Networks Inc., an Internet infrastructure solutions
company, since October 1996. From April 1986 to January 1996, Mr. Kriens served
as vice president of sales and vice president of operations at StrataCom, Inc.,
a telecommunications equipment company, which he co-founded in 1986.
38
Dawn G. Lepore has served as a director of Equinix since July 2000.
Ms. Lepore is vice chairman and chief information officer and a member of the
management committee of the Charles Schwab Corporation, a financial services
corporation, where she has served for over sixteen years in various capacities.
Prior to her appointment as chief information officer at Schwab in October
1993, Ms. Lepore served as senior vice president of information technology at
Schwab from May 1993 to October 1993. Ms. Lepore currently serves on the board
of directors of eBay, Inc., the Times Mirror Company and Viador, Inc.
Andrew S. Rachleff has served as a director of Equinix since September 1998.
In May 1995, Mr. Rachleff co-founded Benchmark Capital, a venture capital firm,
and has served as a general partner since that time. Prior to co-founding
Benchmark Capital, Mr. Rachleff spent ten years as a general partner with
Merrill, Pickard, Anderson & Eyre, a venture capital firm. Mr. Rachleff also
serves on the boards of directors of NorthPoint Communications, Inc., a
competitive local exchange carrier and one of our stockholders, CacheFlow Inc.,
an Internet caching appliance company and several privately held companies.
John G. Taysom has served as a director of Equinix since March 2000. Mr.
Taysom has been employed by Reuters Plc., a global television and news agency,
since 1982, most recently as managing director of the Reuters Greenhouse Fund.
Mr. Taysom currently serves as a director of Tibco Software Inc., Digimarc
Corp., and several privately held companies.
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 chief
strategy officer.
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 and our 2000 Director Option 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.
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.
39
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 information with respect to compensation for
the fiscal year ended December 31, 1999 paid by us for services by each of the
individuals who served as our chief executive officer during the fiscal year
1999 and each other executive officer whose total salary for the fiscal year
exceeded $100,000, collectively referred to as the Named Executive Officers.
Summary Compensation Table
Long-Term
Compensation
Awards
Annual Compensation Securities
------------------- Underlying
Name and Principal Position Salary($) Bonus($) Options(#)
- --------------------------- -------------------- -------------
Albert M. Avery, IV........................ $ 178,020 $ 0 0(1)
President, Chief Executive Officer and
Director
Jay S. Adelson............................. $ 173,754 $ 0 0(1)
Chief Technology Officer and Director
- --------
(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 his 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 $8,180,489, which represents 1,704,375 unvested
shares valued at $4.80 per share less $0.0003, the price paid per share. On
May 15, 2000, our board of directors agreed to waive our repurchase right
with respect to all of Mr. Avery's unvested shares. As a result, Mr. Avery
currently holds 2,580,000 fully vested shares of our common stock. On July
17, 2000 our board of directors agreed to amend Mr. Adelson's stock
purchase agreement to provide for the full lapse of our repurchase right if
we terminate or constructively terminate Mr. Adelson's employment without
cause.
Option Grants in Last Fiscal Year
We have not granted stock options or stock appreciation rights to any of the
Named Executive Officers during the fiscal year ended December 31, 1999.
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 and none of the Named Executive Officers held any
options at the end of the fiscal year.
40
Stock Plans
2000 Equity Incentive Plan
Share Reserve. Our board of directors adopted our 2000 Equity Incentive
Plan on May 26, 2000. We have reserved 5,000,000 shares of our common stock
for issuance under the 2000 Equity Incentive Plan, plus any shares not yet
issued under our 1998 Stock Plan on the date of this offering which will also
be available under the 2000 Equity Incentive Plan. On January 1 of each year,
starting with the year 2001, the number of shares in the reserve will
automatically increase by 6% of the total number of shares of common stock
that are outstanding at that time or, if less, by 6,000,000 shares. In
general, if options or shares awarded under the 2000 Equity Incentive Plan or
the 1998 Stock Plan are forfeited, then those options or shares will again
become available for awards under the 2000 Equity Incentive Plan. We have not
yet granted any options under the 2000 Equity Incentive Plan.
Outstanding options under the 1998 Stock Plan will be incorporated into the
2000 Equity Incentive Plan at the time of this offering and no further option
grants will be made under the 1998 Stock Plan. The incorporated options will
continue to be governed by their existing terms, unless the Board elects to
extend one or more features of the 2000 Equity Incentive Plan to those options
or to other outstanding shares. The Board has elected to extend the change in
control acceleration feature of the 2000 Equity Incentive Plan described below
to all outstanding options and unvested shares. Previously, options granted
under the 1998 Stock Plan generally provided that vesting of the shares would
accelerate upon an acquisition only if not assumed by the acquiring entity.
Administration. The compensation committee of our board of directors
administers the 2000 Equity Incentive Plan. The committee has the complete
discretion to make all decisions relating to the interpretation and operation
of our 2000 Equity Incentive Plan. The committee has the discretion to
determine who will receive an award, what type of award it will be, how many
shares will be covered by the award, what the vesting requirements will be, if
any, and what the other features and conditions of each award will be. The
compensation committee may also reprice outstanding options and modify
outstanding awards in other ways.
Eligibility. The following groups of individuals are eligible to
participate in the 2000 Equity Incentive Plan:
.employees;
.members of our board of directors who are not employees; and
.consultants.
Types of Award. The 2000 Equity Incentive 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;
.restricted shares of our common stock; and
.stock appreciation rights and stock units.
Options and Stock Appreciation Rights. An optionee who exercises an
incentive stock option may qualify for favorable tax treatment under Section
422 of the Internal Revenue Code of 1986. On the other hand, nonstatutory
stock options do not qualify for such favorable tax treatment. The exercise
price for incentive stock options granted under the 2000 Equity Incentive Plan
may not be less than 100% of the fair market value of our common stock on the
option grant date. In the
41
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;
. a full-recourse promissory note, except that the par value of newly
issued shares must be paid in cash;
.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.
A participant who exercises a stock appreciation right shall receive the
increase in value of our common stock over the base price. The base price for
stock appreciation rights granted under the 2000 Equity Incentive Plan shall be
determined by the compensation committee. The settlement value of the stock
appreciation right may be paid in:
cash; or
shares of common stock.
Options and stock appreciation rights vest at the time or times determined
by the compensation committee. In most cases, our options and stock
appreciation rights will vest over a four-year period following the date of
grant. Options and stock appreciation rights generally expire ten years after
they are granted, except that they generally expire earlier if the
participant's service terminates earlier. The 2000 Equity Incentive Plan
provides that no participant may receive options or stock appreciation rights
covering more than 1,000,000 shares in the same year, except that a newly hired
employee may receive options or stock appreciation rights covering up to
1,500,000 shares in the first year of employment.
Restricted Shares and Stock Units. Restricted shares and stock units may be
awarded under the 2000 Equity Incentive Plan in return for:
.cash;
. a full-recourse promissory note, except that the par value of newly
issued shares must be paid in cash;
.services already provided to us; and
.in the case of treasury shares only, services to be provided to us in the
future.
Restricted shares and stock units vest at the time or times determined by the
compensation committee.
Change in Control. If a change in control of Equinix occurs, an option or
restricted stock award under the 2000 Equity Incentive Plan will not generally
become fully vested. However, if the surviving corporation does not assume the
option or award or replace it with a comparable award, then vesting will
accelerate as to all of the shares of common stock subject to such Award. An
option or award will become fully exercisable and fully vested if the holder's
employment or service is involuntarily terminated within 18 months following
the change in control. A change in control includes:
. a merger of Equinix after which our own stockholders own 50% or less of
the surviving corporation (or its parent company);
. a sale of all or substantially all of our assets;
42
. a proxy contest that results in the replacement of more than one-half of
our directors over a 24-month period; or
. an acquisition of 50% or more of our outstanding stock by any person or
group, other than a person related to Equinix (such as a holding company
owned by our stockholders).
Amendments or Termination. Our board may amend or terminate the 2000 Equity
Incentive Plan at any time. If our board amends the plan, it does not need to
ask for stockholder approval of the amendment unless applicable law requires
it. The 2000 Equity Incentive Plan will continue in effect indefinitely, unless
the board decides to terminate the plan earlier.
Employee Stock Purchase Plan
Share Reserve and Administration. Our board of directors adopted our
Employee Stock Purchase Plan on May 26, 2000. Our Employee Stock Purchase Plan
is intended to qualify under Section 423 of the Internal Revenue Code. We have
reserved 1,000,000 shares of our common stock for issuance under the plan. On
January 1 of each year, starting with the year 2001, the number of shares in
the reserve will automatically increase by 2% of the total number of shares of
common stock that are outstanding at that time or, if less, by 600,000 shares.
The plan will be administered by the compensation committee of our board of
directors.
Eligibility. All of our employees are eligible to participate if they are
employed by us for more than 20 hours per week and for more than five months
per year. Eligible employees may begin participating in the Employee Stock
Purchase Plan at the start of any offering period. Each offering period lasts
24 months. Overlapping offering periods start on February 20th and August 20 of
each year. However, the first offering period will start on the effective date
of this offering and end on August 19, 2002.
Amount of Contributions. Our Employee Stock Purchase Plan permits each
eligible employee to purchase common stock through payroll deductions. Each
employee's payroll deductions may not exceed 15% of the employee's cash
compensation. Purchases of our common stock will occur on February 19 and
August 19 of each year. Each participant may purchase up to 2,500 shares on any
purchase date. But the value of the shares purchased in any calendar year
(measured as of the beginning of the applicable offering period) may not exceed
$25,000.
Purchase Price. The price of each share of common stock purchased under our
Employee Stock Purchase Plan will be 85% of the lower of:
. the fair market value per share of common stock on the date immediately
before the first day of the applicable offering period; or
. the fair market value per share of common stock on the purchase date.
In the case of the first offering period, the price per share under the plan
will be 85% of the lower of:
. the price per share to the public in this offering; or
. the fair market value per share of common stock on the purchase date.
Other Provisions. Employees may end their participation in the Employee
Stock Purchase Plan at any time. Participation ends automatically upon
termination of employment with Equinix. If a change in control of Equinix
occurs, our Employee Stock Purchase Plan will end and shares will be purchased
with the payroll deductions accumulated to date by participating employees,
unless the plan is assumed by the surviving corporation or its parent. Our
board of directors may amend or
43
terminate the Employee Stock Purchase Plan at any time. Our Chief Executive
Officer may also amend the plan in certain respects. If our board increases the
number of shares of common stock reserved for issuance under the plan (except
for the automatic increases described above), it must seek the approval of our
stockholders.
2000 Director Option Plan
Share Reserve. Our board of directors adopted our 2000 Director Option Plan
on May 26, 2000. We have reserved 200,000 shares of our common stock for
issuance under the plan. On January 1 of each year, starting with the year
2001, the number of shares in the reserve will automatically increase by 50,000
shares. In general, if options granted under the 2000 Director Option Plan are
forfeited, then those options will again become available for grants under the
plan. The Director Option Plan will be administered by the compensation
committee of our board of directors, although all grants under the plan are
automatic and non-discretionary.
Initial Grants. Only the non-employee members of our board of directors will
be eligible for option grants under the 2000 Director Option Plan. Each non-
employee director who is serving on our board on the effective date of this
offering who has not already received an initial option for 40,000 shares and
each non-employee director who first joins our board after the effective date
of this offering will receive an initial option for 40,000 shares. That grant
will occur on the effective date of the offering for current directors or when
the director takes office for new directors. The initial options vest in four
equal annual installments over the four-year period following the date of
grant.
Annual Grants. At the time of each of our annual stockholders' meetings,
beginning in 2000, each non-employee director who will continue to be a
director after that meeting will automatically be granted an annual option for
10,000 shares of our common stock. However, a new non-employee director who is
receiving the initial option will not receive the annual option in the same
calendar year. The annual options are fully vested on the first anniversary of
the date of grant.
Other Option Terms. The exercise price of each non-employee director's
option will be equal to the fair market value of our common stock on the option
grant date. A director may pay the exercise price by using cash, shares of
common stock that the director already owns, or an immediate sale of the option
shares through a broker designated by us. The non-employee directors' options
have a 10-year term, except that they expire one year after a director leaves
the board (if earlier). If a change in control of Equinix occurs, a non-
employee director's option granted under the 2000 Director Option Plan will
become fully vested.
Amendments or Termination. Our board may amend or terminate the 2000
Director Option Plan at any time. If our board amends the plan, it does not
need to ask for stockholder approval of the amendment unless applicable law
requires it. The 2000 Director Option Plan will continue in effect
indefinitely, unless the board decides to terminate the plan.
Employment Agreements and Change in Control Arrangements
The compensation committee of our board of directors, as plan administrator
of the 2000 Stock Plan, has the authority to provide for accelerated vesting of
the shares of common stock subject to outstanding options held by the Named
Executive Officers and any other person in connection with certain changes in
control of Equinix. In connection with our adoption of the 2000 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.
44
None of our executive officers have employment agreements with us, and their
employment may be terminated at any time. Our form offer letter for officers
provides for an additional 12 months of vesting if we are acquired or upon a
change in control, provided such officer is still employed on the date of
acquisition.
We have delivered an offer letter to Peter F. Van Camp, our chief executive
officer, dated April 25, 2000, which provides that his salary shall be $310,000
per year. The letter provides for the grant of an option to purchase 3,105,000
shares of common stock at the fair market value on the grant date vesting over
four years. The letter provides that we will extend a no-interest loan to
Mr. Van Camp for up to $3,000,000 to purchase a primary residence. The loan
will be secured by Mr. Van Camp's primary residence and any shares of stock
that Mr. Van Camp obtains by exercising the options described above. The
agreement also provides for reimbursement of up to $80,000 of relocation
expenses. The agreement further provides for 12 months of severance pay if Mr.
Van Camp is terminated by us for reasons other than cause or disability. We
have also entered into a stock option agreement with Mr. Van Camp, which
provides that our right to repurchase unvested shares shall lapse upon certain
changes in control of Equinix.
Equinix has also delivered an offer letter to Philip J. Koen, our chief
financial and corporate development officer, dated July 9, 1999, which provides
that his salary shall be $195,000 per year. The letter provides that we will
grant him an option to purchase 660,000 shares of common stock at the fair
market value on the grant date vesting over four years. The letter further
provides for six months of severance pay if Mr. Koen is terminated by us for
reasons other than cause.
We have also delivered an offer letter to Peter T. 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
letter provides for the grant of an option to purchase 510,000 shares of common
stock at the fair market value on the grant date vesting over four years. The
letter also provides that we will extend a no-interest loan to Mr. Ferris of up
to $750,000 to purchase his primary residence. The loan will be secured by Mr.
Ferris' primary residence and any shares of stock that Mr. Ferris obtains by
exercising the options described above. The letter 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 his former employer.
On May 15, 2000, our board of directors agreed to waive our repurchase right
with respect to all of Albert M. Avery, IV's unvested shares. As a result, Mr.
Avery currently holds 2,580,000 fully vested shares of our common stock. On
July 17, 2000 our board of directors agreed to amend Mr. Adelson's stock
purchase agreement to provide for the full lapse of our repurchase right if we
terminate or constructively terminate Mr. Adelson's employment without cause.
45
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 operating 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 May 2000, our board of directors agreed to waive our
repurchase right with respect to all of Mr. Avery's unvested shares. As a
result, Mr. Avery currently holds 2,580,000 fully vested shares of our common
stock.
In June 1998, we issued and sold 3,030,000 shares of our common stock to Jay
S. Adelson, our chief technology officer, 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. On July 17, 2000 our board of
directors agreed to amend Mr. Adelson's stock purchase agreement to provide for
the full lapse of our repurchase right if we terminate or constructively
terminate Mr. Adelson's employment without cause.
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 which accounts for a three for two stock split on
January 19, 2000. One of our directors, Michelangelo Volpi, is chief strategy
officer of Cisco Systems, Inc.
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, a 5% stockholder of us, 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.
46
In October 1999, we issued and sold 937,500 shares of our Series B preferred
stock to Reuters Investment (Bermuda) Limited, 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, John G. Taysom, is employed by Reuters plc., an entity
affiliated with Reuters Investment (Bermuda) Limited.
Series C Preferred Stock Financing. In May 2000, we issued and sold 132,625
shares of our Series C preferred stock to Benchmark Capital Partners IV, L.P.,
at a per share purchase price of $15.08. Benchmark Capital is the general
partner of Benchmark Capital Partners IV, L.P.
In May 2000, we issued and sold 331,564 shares of our Series C preferred
stock to Cisco Systems, Inc., at a per share purchase price of $15.08.
In May 2000, we issued and sold 331,564 shares of our Series C preferred
stock to Reuters Holdings Switzerland SA, at a per share purchase price of
$15.08. Reuters plc. is affiliated with Reuters Holdings Switzerland SA.
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.
Warrants to Purchase Common Stock. In August 1999, we issued warrants to
purchase 338,145 shares of our common stock, which accounts for a three for two
stock split on January 19, 2000, at a purchase price of $0.53 per share, to
NorthPoint Communications, Inc. in connection with a strategic agreement.
Loans to Executive Officers. In September 1999, we loaned an aggregate of
$750,000 to Peter T. 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 December 1999 we loaned Marjorie S. Backaus, one of our executive
officers, $112,500. This amount was repaid in full in January 2000. In
addition, in January 2000, we loaned an aggregate of $250,000 to Ms. Backaus 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 May 2000, we agreed to loan up to $3,000,000 to Peter F. Van Camp, one of
our executive officers, to purchase a principal residence. The non-interest
bearing note will be secured by the residence and a stock pledge agreement.
Relocation Allowances to Executive Officers. In July 1999, we granted a
relocation allowance in the amount of $60,000 to Peter T. Ferris. The full
amount of the allowance has been paid to Mr. Ferris.
In November 1999, we granted a relocation allowance in the amount of $60,000
to Marjorie S. Backaus. The full amount of the allowance has been paid to Ms.
Backaus.
In May 2000, we granted a relocation allowance in the amount of $80,000 to
Peter F. Van Camp. To date, Mr. Van Camp has not received any amount under the
allowance. In addition, we reimbursed Mr. Van Camp's prior employer for
relocation costs.
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.
47
Option Grants. In June 2000, we granted options with a per share exercise
price of $7.00 to the following executive officers in the following amounts:
Albert M. Avery--56,000; Philip J. Koen--80,000; Jay S. Adelson--56,000; Roy A.
Earle--56,000; Peter T. Ferris--56,000; Marjorie S. Backaus--56,000; and Renee
F. Lanam--40,000. In July 2000, we granted options with a per share exercise
price of $7.00 to the following directors in the following amounts: Scott
Kriens--40,000 and Dawn G. Lepore--40,000. We may grant additional 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.
48
PRINCIPAL STOCKHOLDERS
The table below presents selected information regarding beneficial ownership
of our outstanding common stock, on an as converted basis, as of June 30, 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 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 June 30, 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 53,772,931 shares of common
stock outstanding as of June 30, 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.
Percent of Shares
Outstanding
Number of --------------------
Beneficially Before the After the
Name of Beneficial Owner Owned Shares Offering Offering
- ------------------------ ------------ ---------- ---------
Peter F. Van Camp (1)....................... 3,105,000 5.8% 4.2%
Albert M. Avery, IV (2)..................... 2,596,920 4.8 3.5
Jay S. Adelson (3).......................... 2,959,208 5.5 4.0
Philip J. Koen (4).......................... 740,000 1.4 1.0
Andrew S. Rachleff (5)...................... 8,667,625 16.1 11.7
2480 Sand Hill Road, Suite 200
Menlo Park, CA 94025
John G. Taysom (6).......................... -- -- --
85 Fleet Street
London EC4P 4AJ England
Michelangelo Volpi (7)...................... -- -- --
170 West Tasman Drive
San Jose, CA 95134
Entities affiliated with Benchmark Capital
(8)........................................ 8,667,625 16.1 11.7
2480 Sand Hill Road, Suite 200
Menlo Park, CA 94025
Cisco Systems, Inc.......................... 6,790,939 12.6 9.2
170 West Tasman Drive
San Jose, CA 95134
Microsoft Corporation....................... 3,356,250 6.2 4.5
One Microsoft Way
Redmond, WA 98052
Capital Research and Management Company
(9)........................................ 3,315,649 6.2 4.5
333 South Hope Street
Los Angeles, CA 90071
All directors and executive officers as a
group (12 persons) (10).................... 20,433,833 38.0 27.7
- --------
(1) Includes 3,105,000 shares subject to options that are exercisable within
60 days of June 30, 2000.
49
(2) Includes 56,000 shares subject to options that are exercisable within 60
days of June 30, 2000.
(3) Includes 56,000 shares subject to options that are exercisable within 60
days of June 30, 2000 and 1,363,500 shares subject to a right of
repurchase by us as of June 30, 2000. Also includes 8,974 shares held as
custodian for Rowan Sharon Adelson. Mr. Adelson disclaims beneficial
ownership of these shares.
(4) Includes 80,000 shares subject to options that are exercisable within 60
days of June 30, 2000 and 445,156 shares subject to a right of repurchase
by us as of June 30, 2000. Also includes 15,000 shares held as custodian
for Claire Koen, Ted Koen and William Koen. Mr. Koen disclaims beneficial
ownership of these shares.
(5) Represents 8,535,000 shares of common stock held by Benchmark Capital
Partners II, L.P., as nominee for 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., and 132,625 shares of common stock held
by Benchmark Capital Partners IV, L.P., as nominee for Benchmark Capital
Partners, IV, L.P., Benchmark Founders' Fund IV, L.P., Benchmark Founders'
Fund IV-A, L.P. and related individuals. Mr. Rachleff is a managing member
of Benchmark Capital Management Co. II, LLC, 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 is also a managing member of Benchmark Capital Management
Co., IV, LLC, the general partner of Benchmark Capital Partners, IV, L.P.,
Benchmark Founders' Fund IV, L.P. and Benchmark Founders' Fund IV-A, L.P.
Mr. Rachleff disclaims beneficial ownership of these shares, except with
respect to 3,984 shares of common stock and to the extent of his pecuniary
interest in the Benchmark funds.
(6) Mr. Taysom is employed by Reuters plc., an entity affiliated with Reuters
Investments (Bermuda) Limited and Reuters Holdings Switzerland SA which
collectively hold 1,269,064 shares of Equinix.
(7) Mr. Volpi is chief strategy officer of Cisco Systems, Inc., which
beneficially holds 6,790,939 shares of Equinix.
(8) Includes 8,535,000 shares of common stock 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. and 132,625 shares of
common stock held by Benchmark Capital Partners, IV, L.P., Benchmark
Founders' Fund IV, L.P., Benchmark Founders' Fund IV-A, L.P. and related
individuals.
(9) Includes 2,000,000 shares held by the New Economy Fund and 1,315,649
shares held by American Variable Insurance Series, Growth Fund.
(10) Includes the shares described in Notes 1 through 7. Also includes
1,458,000 shares subject to options that are exercisable within 60 days of
June 30, 2000 and 735,000 shares subject to a right of repurchase by us as
of June 30, 2000.
50
DESCRIPTION OF CAPITAL STOCK
On the closing of this offering, our authorized capital stock will consist
of 300,000,000 shares of common stock, $0.001 par value and 10,000,000 shares
of preferred stock, $0.001 par value. The following is a summary description of
our capital stock. Our amended and restated bylaws and our amended and restated
certificate of incorporation, to be effective after the closing of this
offering, provide further information about our capital stock.
Common Stock
As of June 30, 2000, there were 53,772,931 shares of common stock
outstanding, as adjusted to reflect the conversion of all outstanding shares of
preferred stock into common stock on the closing of this offering, that were
held of record by approximately 250 stockholders. There will be 73,772,931
shares of common stock outstanding, assuming no exercise of the underwriters'
over-allotment option and assuming no exercise after June 30, 2000 of
outstanding options or warrants, after giving effect to the sale of the shares
of common stock to the public in this offering.
The holders of common stock are entitled to one vote per share on all
matters to be voted on by the stockholders. Subject to preferences that may be
applicable to any outstanding preferred stock, the holders of common stock are
entitled to receive ratably such dividends, if any, as may be declared from
time to time by the board of directors out of funds legally available for the
payment of dividends. All dividends are non-cumulative. In the event of the
liquidation, dissolution, or winding up of Equinix, the holders of common stock
are entitled to share ratably in all assets remaining after payment of
liabilities, subject to prior distribution rights of preferred stock, if any,
then outstanding. The common stock has no preemptive or conversion rights or
other subscription rights. There are no redemption or sinking fund provisions
applicable to the common stock. All outstanding shares of common stock are
fully paid and nonassessable, and the shares of common stock to be issued on
completion of this offering will be fully paid and nonassessable.
Warrants
Immediately following the closing of this offering, the following warrants
will be outstanding:
. a warrant to purchase a total of 33,100 shares of common stock at an
exercise price of $6.00 per share that expires in 2010;
. a warrant to purchase a total of 540,000 shares of common stock at an
exercise price of $4.00 per share that expires in 2005;
. a warrant to purchase a total of 6,000 shares of common stock at an
exercise price of $5.00 per share that expires in 2005;
. a warrant to purchase a total of 30,000 shares of common stock at an
exercise price of $1.67 per share that expires the earlier of 2009 or
five years from the effective date of our initial public offering of
common stock;
. warrants to purchase a total of 675,000 shares of common stock at an
exercise price of $0.67 per share that expire in 2004;
. a warrant to purchase a total of 338,145 shares of common stock at an
exercise price of $0.53 per share that expires in 2004;
. a warrant to purchase a total of 765,000 shares of common stock at an
exercise price of $0.67 per share that expires the earlier of 2009 or
three years from the effective date of our initial public offering of
common stock;
. a warrant to purchase a total of 150,000 shares of common stock at an
exercise price of $3.00 per share that expires the earlier of 2006 or
three years from the effective date of our initial public offering of
common stock;
51
. warrants to purchase a total of 300,000 shares of common stock at an
exercise price of $3.00 per share that expire the earlier of 2006 or
three years from the effective date of our initial public offering of
common stock;
. a warrant to purchase a total of 250,000 shares of common stock at an
exercise price of $5.33 per share that expires in 2005;
. a warrant to purchase a total of 650,000 shares of common stock at an
exercise price of $5.33 per share that expires in 2005; and
. additional warrants to purchase a total of 3,376,500 shares of common
stock at an exercise price of $0.0067 per share issued in connection with
our offering of senior notes that expire in 2007.
Preferred Stock
On the closing of this offering, 10,000,000 shares of preferred stock will
be authorized and no shares will be outstanding. The board of directors has the
authority to issue the preferred stock in one or more series and to fix the
rights, preferences, privileges and restrictions thereof, including dividend
rights, dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares
constituting any series or the designation of such series, without further vote
or action by the stockholders. The issuance of preferred stock may have the
effect of delaying, deferring or preventing a change in control of Equinix
without further action by the stockholders and may adversely affect the voting
and other rights of the holders of common stock. The issuance of preferred
stock with voting and conversion rights may adversely affect the voting power
of the holders of common stock, including the loss of voting control to others.
At present, we have no plans to issue any of the preferred stock.
Anti-takeover Effects of Provisions of the Amended and Restated Certificate of
Incorporation, Amended and Restated Bylaws and Delaware Law
Certificate of Incorporation and Bylaws. Our amended and restated
certificate of incorporation and bylaws provide that, effective on the closing
of this offering, all stockholder actions must be effected at a duly called
meeting and not by a consent in writing. The bylaws also provide that, except
as otherwise required by law or by our amended and restated certificate of
incorporation, special meetings of the stockholders can only be called pursuant
to a resolution adopted by a majority of the board of directors, or by the
president or at the request of stockholders holding at least 30% of our capital
stock. Further, provisions of the bylaws and the amended and restated
certificate of incorporation provide that the stockholders may amend the bylaws
or most provisions of the amended and restated certificate of incorporation
only with the affirmative vote of 66 2/3% of our capital stock. These
provisions of the amended and restated certificate of incorporation and bylaws
could discourage potential acquisition proposals and could delay or prevent a
change in control of Equinix. These provisions are intended to enhance the
likelihood of continuity and stability in the composition of the board of
directors and in the policies formulated by the board of directors and to
discourage certain types of transactions that may involve an actual or
threatened change of control of Equinix. These provisions are designed to
reduce our vulnerability to an unsolicited acquisition proposal. The provisions
also are intended to discourage certain tactics that may be used in proxy
fights. However, such provisions could have the effect of discouraging others
from making tender offers for our shares and, as a consequence, they also may
inhibit fluctuations in the market price of our shares that could result from
actual or rumored takeover attempts. Such provisions also may have the effect
of preventing changes in our management.
Delaware Takeover Statute. We are subject to Section 203 of the Delaware
General Corporation Law, or DGCL Section 203, which regulates corporate
acquisitions. DGCL Section 203
52
prevents certain Delaware corporations, including those whose securities are
listed on The Nasdaq National Market, from engaging, under certain
circumstances in a business combination with any interested stockholder for
three years following the date that such stockholder became an interested
stockholder. For purposes of DGCL Section 203, a business combination includes,
among other things, a merger or consolidation involving Equinix and the
interested stockholder and the sale of 10% or more of our assets. In general,
DGCL Section 203 defines an interested stockholder as any entity or person
beneficially owning 15% or more of our outstanding voting stock and any entity
or person affiliated with or controlling or controlled by such entity or
person. A Delaware corporation may opt out of DGCL Section 203 with an express
provision in its original certificate of incorporation or an express provision
in its certificate of incorporation or bylaws resulting from amendments
approved by the holders of at least a majority of the corporation's outstanding
voting shares. We have not opted out of the provisions of DGCL Section 203.
Registration Rights
After this offering, the holders of approximately 47,116,722 shares of
common stock will be entitled to rights with respect to the registration of
those shares under the Securities Act. Under the terms of the agreement between
us and the holders of such registrable securities, if we propose to register
any of our securities under the Securities Act, either for our own account or
for the account of other security holders exercising registration rights, such
holders are entitled to notice of such registration and are entitled to include
shares of such common stock in the registration. Additionally, the holders of
approximately 41,056,722 shares of common stock are entitled to demand
registration rights, pursuant to which they may require us on up to two
occasions to file a registration statement under the Securities Act at our
expense with respect to their shares of common stock, and we are required to
use all reasonable efforts to effect such registration. Further, the holders of
approximately 47,116,722 shares of common stock may require us to file an
unlimited number of additional registration statements on Form S-3 at our
expense. All of these registration rights terminate after three (3) years
following the consummation of our initial public offering and are subject to
certain conditions and limitations, among them the right of the underwriters of
an offering to limit the number of shares included in such registration and our
right not to effect a requested registration within 90 days following an
offering of our securities, including the offering made hereby.
Transfer Agent and Registrar
The Transfer Agent and Registrar for the common stock is Boston EquiServe
L.P.
The Nasdaq National Market Listing
We have submitted an application to have our common stock approved for
quotation on the Nasdaq National Market under the symbol "EQIX."
53
SHARES ELIGIBLE FOR FUTURE SALE
On completion of this offering, we will have 73,772,931 shares of common
stock outstanding, assuming no exercise of the underwriters' over-allotment
option and no exercise of options after June 30, 2000. Of the 20,000,000 shares
which will be sold to the public in this offering, shares will be
available for immediate sale in the public market as of the date of this
prospectus, and shares will be subject to a 180-day lockup period.
Approximately additional shares will be available for sale in the public
market 90 days after the offering, subject to compliance with the volume and
other limitations of Rule 144. Approximately additional shares will be
available for sale in the public market following the expiration of 180-day
lockup agreements with representatives of the underwriters, subject in some
cases to compliance with the volume and other limitations of Rule 144. The
table below sets forth the approximate number of shares eligible for future
sale after giving effect to the lock-up and the holding requirements under Rule
144.
Approximate Shares
Days after Date Eligible for
of this Prospectus Future Sale Comment
------------------ ------------------ -------
On Effectiveness.. Freely tradable shares sold in offering;
shares salable under Rule 144
90 Days........... Shares salable under Rule 144; vested
options for shares salable under Rule
701
180 Days.......... Lock-up released; shares and vested
options for shares salable under Rule
144, 144(k) or 701
Thereafter........ Restricted securities held for one year
or less
In general, under Rule 144 as currently in effect, a person, or persons
whose shares are aggregated, who has beneficially owned shares for at least one
year is entitled to sell within any three-month period commencing 90 days after
the date of this prospectus a number of shares that does not exceed the greater
of:
. 1% of the then outstanding shares of common stock which will be
approximately 737,730 shares immediately after the offering; or
. the average weekly trading volume during the four calendar weeks
preceding such sale, subject to manner of sale requirements, and
depending on the amount sold, the filing of a Form 144 with respect to
such sale.
A person or persons whose shares are aggregated who is not deemed to have been
an affiliate of Equinix at any time during the 90 days immediately preceding
the sale who has beneficially owned his or her shares for at least two years is
entitled to sell such shares pursuant to Rule 144(k) without regard to the
limitations described above. Persons deemed to be affiliates must always sell
pursuant to Rule 144, even after the applicable holding periods have been
satisfied.
We are unable to estimate the number of shares that will be sold under Rule
144, since this will depend on the market price for our common stock, the
personal circumstances of the sellers and other factors. Prior to this
offering, there has been no public market for the common stock, and there can
be no assurance that a significant public market for the common stock will
develop or be sustained after the offering. Any future sale of substantial
amounts of the common stock in the open market may adversely affect the market
price of the common stock in this offering.
We, our directors, executive officers and other stockholders, holding an
aggregate of approximately common shares or rights to acquire the
shares, have agreed pursuant to the underwriting agreement and other agreements
that we and they will not sell any common stock without the prior consent of
Goldman, Sachs & Co. for a period of 180 days from the date of this
54
prospectus, except that we may, without such consent, grant options and sell
shares pursuant to our stock plans.
Any of our employees or consultants who purchased shares pursuant to a
written compensatory plan or contract is entitled to rely on the resale
provisions of Rule 701, which permits nonaffiliates to sell their Rule 701
shares without having to comply with the public information, holding period,
volume limitation or notice provisions of Rule 144 and permits affiliates to
sell their Rule 701 shares without having to comply with the Rule 144 holding
period restrictions, in each case commencing 90 days after the date of this
prospectus. As of the date of this prospectus, the holders of options
exercisable into approximately shares of common stock will be eligible to
sell their shares on the expiration of the 180-day lockup period, or subject in
certain cases to vesting of such options.
We intend to file a registration statement on Form S-8 under the Securities
Act to register shares of common stock issued or reserved for issuance under
our stock plans within 30 days after the date of this prospectus, thus
permitting the resale of such shares by nonaffiliates in the public market
without restriction under the Securities Act. We intend to register these
shares on Form S-8, along with options that have not been issued under our
stock plans as of the date of this prospectus.
In addition, after this offering, the holders of approximately 47,116,722
shares of common stock will be entitled to certain rights with respect to
registration of those shares under the Securities Act. Registration of such
shares under the Securities Act would result in such shares, except for shares
purchased by affiliates of Equinix, becoming freely tradable without
restriction under the Securities Act immediately on the effectiveness of such
registration. See "Description of Capital Stock--Registration Rights".
55
UNDERWRITERS
Equinix and the underwriters named below have entered into an underwriting
agreement with respect to shares being offered. Subject to certain conditions,
each underwriter has severally agreed to purchase the number of shares
indicated in the following table. Goldman, Sachs & Co., Salomon Smith Barney
Inc., Chase Securities Inc. and Epoch Securities, Inc. are the representatives
of the underwriters.
Number of
Name Shares
---- ----------
Goldman, Sachs & Co...............................................
Salomon Smith Barney Inc..........................................
Chase Securities Inc. ............................................
Epoch Securities, Inc.............................................
----------
Total......................................................... 20,000,000
==========
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have an option to buy up to an additional 3.0
million shares from Equinix to cover such sales. They may exercise that option
for 30 days. If any shares are purchased under this option, the underwriters
will severally purchase shares in approximately the same proportion as set
forth in the table above.
The following table shows the per share and total underwriting discounts and
commissions to be paid to the underwriters by Equinix. These amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase 3.0 million additional shares.
Paid by Equinix
-------------------------
No Exercise Full Exercise
----------- -------------
Per share.......................................... $ $
Total.............................................. $ $
Shares sold by the underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus.
Any shares sold by the underwriters to securities dealers may be sold at a
discount of up to $ per share from the initial public offering price. Any
of these securities dealers may resell any shares purchased from the
underwriters to certain other brokers or dealers at a discount of up to $
per share from the initial public offering price. If all the shares are not
sold at the initial public offering price, the representatives may change the
offering price and the other selling terms.
Equinix and its directors, officers, employees and substantially all other
stockholders have agreed with the underwriters not to dispose of or hedge any
of their common stock or securities convertible into or exchangeable for shares
of common stock during the period from the date of this prospectus continuing
through the date 180 days after the date of this prospectus, except with the
prior written consent of Goldman, Sachs & Co. This restriction does not apply
to any issuances by Equinix under its existing employee benefit plans or, for
individuals, transfers by gift, or for corporations, transfers to wholly-owned
subsidiary of such corporation, provided that in each case the transferee
agrees to be bound by the restriction for any remaining period. See "Shares
Eligible for Future Sale" for a discussion of transfer restrictions.
At Equinix's request, the underwriters have reserved, at the initial public
offering price, up to 1.6 million shares of common stock for sale to select
directors, officers, employees, and friends of Equinix, Inc. The number of
shares available for sale to the general public will be reduced to the
56
extent these persons purchase the reserved shares. Any reserved shares not so
purchased will be offered to the general public on the same basis as the other
shares offered hereby.
Prior to this offering, there has been no public market for the shares. The
initial public offering price will be negotiated among Equinix and the
representatives of the underwriters. Among the factors to be considered in
determining the initial public offering price of the shares, in addition to
prevailing market conditions, will be Equinix's historical performance,
estimates of the business potential and earnings prospects of Equinix, an
assessment of Equinix's management and the consideration of the above factors
in relation to market valuation of companies in related businesses.
Equinix has applied for quotation of its common stock on the Nasdaq National
Market under the symbol "EQIX".
In connection with the offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering. "Covered"
short sales are sales made in an amount not greater than the underwriters'
option to purchase additional shares from Equinix in the offering. The
underwriters may close out any covered short position by either exercising
their option to purchase additional shares or purchasing shares in the open
market. "Naked" short sales are any sales in excess of such option. The
underwriters must close out any naked short position by purchasing shares in
the open market. A naked short position is more likely to be created if the
underwriters are concerned that there may be downward pressure on the price of
the common stock in the open market after pricing that could adversely affect
investors who purchase in the offering. Stabilizing transactions consist of
various bids for or purchases of common stock made by the underwriters in the
open market prior to the completion of the offering.
The underwriters may also impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares
sold by or for the account of this underwriter in stabilizing or short-sale
covering transactions.
Purchases to cover a short position and stabilizing transactions may have
the effect of preventing or retarding a decline in the market price of
Equinix's stock, and together with the imposition of the penalty bid, may
stabilize, maintain or otherwise affect the market price of the common stock.
As a result, the price of the common stock may be higher than the price that
otherwise might exist in the open market. If these activities are commenced,
they may be discontinued at any time. These transactions may be effected on the
Nasdaq National Market, in the over-the-counter marker or otherwise.
A prospectus in electronic format will be made available on Internet web
sites maintained by one or more of the lead or co-managers of this offering and
may also be made available on web sites maintained by other underwriters. The
underwriters may agree to allocate a number of shares to underwriters for sale
to their online brokerage account holders. Internet distributions will be
allocated by the lead managers to underwriters that may make Internet
distributions on the same basis as other allocations.
The underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered.
Equinix estimates that the total expenses of the offering, excluding
underwriting discounts and commissions, will be approximately $1.8 million.
57
Equinix has agreed to indemnify the underwriters against liabilities under
the Securities Act of 1933.
From time to time, some of the underwriters have provided, and may in the
future continue to provide, investment banking services to us.
An affiliate of Salomon Smith Barney Inc. purchased 525,0000 shares of our
Series B preferred stock in an offering that was completed in December 1999.
Salomon Smith Barney Inc. and its affiliates will enter into an agreement not
to dispose of or hedge any of their common stock or securities convertible into
or exchangeable for shares of common stock during the period from the date of
this prospectus continuing through the date 180 days after the date of this
prospectus.
Epoch Securities, Inc. is an investment banking firm formed in November
1999. In addition to this offering, Epoch Securities, Inc. has engaged in the
business of public and private equity investing and financing and financial
advisory services since its inception. The senior investment banking team of
Epoch Securities, Inc. has in excess of 40 years of experience in the
securities industry. Epoch Securities, Inc. does not have any material
relationship with Equinix or any of our officers, directors or other
controlling persons, except for its contractual relationship with Equinix under
the terms of the underwriting agreement entered into in connection with this
offering.
The corporate parents of Charles Schwab & Co., Inc., Ameritrade (Inc.) and
TD Waterhouse Investor Services, Inc. are equity investors in Epoch's corporate
parent. Under the terms of Epoch's distribution agreement, Charles Schwab,
Ameritrade and TD Waterhouse are entitled to receive an allocation of any
shares allocated in the offering to Epoch on a free retention basis. Until they
accept this allocation, however, they are not obligated to take any shares. If
they do take shares, they are obligated to try to sell those shares to
brokerage customers who buy shares through the Internet, a computerized system
or other automated system, but they otherwise are entitled to allocate shares
following their customary practices. Charles Schwab, Ameritrade and TD
Waterhouse are not underwriters under the underwriting agreement. Because of
their current relationship to Epoch and their role in the distribution of
securities, however, they may be deemed to be underwriters as that term is
defined in the Securities Act in connection with this offering. They believe
their activities fall within the selling dealer exception to the definition
and, therefore, believe that they are not "underwriters" under the Securities
Act.
58
LEGAL MATTERS
The validity of the common stock being offered will be passed on for us by
Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, Menlo Park,
California. As of the date of this prospectus, some partners and employees of
Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, our outside
corporate counsel, beneficially owned an aggregate of 84,375 shares of our
capital stock. Legal matters in connection with this offering will be passed on
for the underwriters by Cahill Gordon & Reindel, New York, New York.
CHANGE IN INDEPENDENT ACCOUNTANTS
On March 7, 2000, KPMG LLP resigned as our independent accountants upon
determining that they may no longer be independent of Equinix as a result of
Cisco Systems, Inc.'s investment in both KPMG Consulting, Inc., a subsidiary of
KPMG LLP and Equinix. We subsequently appointed PricewaterhouseCoopers LLP as
our principal accountants on March 21, 2000. There were no disagreements with
the former accountants during the fiscal years ended December 31, 1998 and 1999
or during any subsequent interim period preceding their replacement on any
matter of accounting principles or practices, financial statement disclosure,
or auditing scope or procedures, which disagreements, if not resolved to the
former accountants' satisfaction, would have caused them to make reference to
the subject matter of the disagreement in connection with their reports. The
former independent accountants issued an unqualified report on the financial
statements as of December 31, 1999 and 1998 and for the year ended December 31,
1999 and the period from June 22, 1998 (inception) to December 31,1998. For
purposes of this filing, the financial statements as of December 31, 1999 and
1998 and for the year ended December 31, 1999 and the period from June 22, 1998
(inception) to December 31, 1998 have been audited by PricewaterhouseCoopers
LLP. Prior to March 21, 2000, we did not consult with PricewaterhouseCoopers
LLP on items that involved our accounting principles or the form of audit
opinion to be issued on our financial statements. The change in accountants was
approved by our board of directors.
EXPERTS
The consolidated financial statements 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 included in this Prospectus have been so included
in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act relating to the common Stock
being offered. This prospectus does not contain all of the information
presented in the registration statement and the exhibits to the registration
statement. For further information about Equinix and the common stock we are
offering, reference is made to the registration statement and the exhibits
filed as a part of the registration statement. Statements contained in this
prospectus concerning the contents of any contract or any other document
referred to summarize only the provisions of these documents that are materials
to investors. You should refer to the exhibits to this registration statement
for the complete contents of these contracts and documents. In addition, we
file reports, proxy statements and other information with the Securities and
Exchange Commission. These documents and the registration statement, including
the exhibits, may be inspected without charge at the public reference
facilities maintained
59
by the Securities and Exchange Commission in Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and copies of all or any part may be obtained from this
office after payment of fees prescribed by the Securities and Exchange
Commission. The Securities and Exchange Commission maintains a world wide web
site that contains report, proxy and information statements and other
information regarding registrants, including us, that file electronically with
the Securities and Exchange Commission. The address of the site is
http://www.sec.gov.
60
EQUINIX, INC.
Index to Consolidated FInancial Statements
Report of Independent Accountants........................................... F-2
Consolidated Balance Sheets................................................. F-3
Consolidated Statements of Operations....................................... F-4
Consolidated Statements of Stockholders' Equity (Deficit)................... F-5
Consolidated Statements of Cash Flows....................................... F-6
Notes to Consolidated Financial Statements.................................. F-7
F-1
Report of Independent Accountants
The Board of Directors and Stockholders of Equinix, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of
Equinix, Inc. as of December 31, 1998 and 1999, and the results of its
operations and its cash flows for the period from June 22, 1998 (date of
inception) to December 31, 1998 and for the year ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
San Jose, California
May 31, 2000
F-2
EQUINIX, INC.
Consolidated Balance Sheets
Pro Forma
December 31, Stockholders'
------------------------- June 30, Equity
1998 1999 2000 June 30, 2000
----------- ------------ ------------ -------------
(unaudited) (unaudited)
Assets
Current assets:
Cash and cash
equivalents............. $ 4,164,500 $203,165,000 $148,940,000
Short-term
investments.......... 5,000,000 19,808,600 10,373,400
Accounts receivable... -- 177,700 2,326,700
Current portion of
restricted cash and
short-term
investments.......... -- 25,110,400 26,816,800
Prepaids and other
current assets....... 167,600 1,596,900 1,640,100
----------- ------------ ------------
Total current
assets.............. 9,332,100 249,858,600 190,097,000
Property and equipment,
net.................... 482,000 28,444,000 63,191,800
Construction in
progress............... 30,700 18,312,100 174,549,300
Restricted cash and
short-term investments,
less current portion... -- 13,498,300 11,683,200
Debt issuance costs,
net.................... -- 7,125,800 7,575,500
Other assets............ 156,400 2,707,100 3,374,700
----------- ------------ ------------
Total assets......... $10,001,200 $319,945,900 $450,471,500
=========== ============ ============
Liabilities, Redeemable
Convertible Preferred
Stock and Stockholders'
Equity (Deficit)
Current liabilities:
Accounts payable and
accrued expenses..... $ 159,200 $ 4,143,200 $ 8,838,200
Accrued construction
costs................ 252,300 9,772,200 49,104,800
Current portion of
debt facilities and
capital lease
obligations.......... -- 4,394,600 4,686,900
Accrued interest
payable.............. -- 2,166,700 2,622,400
Other current
liabilities.......... -- 204,600 1,069,000
----------- ------------ ------------
Total current
liabilities......... 411,500 20,681,300 66,321,300
Debt facilities and
capital lease
obligations, less
current portion...... -- 8,808,400 8,081,800
Senior notes.......... -- 183,954,700 184,928,800
Other liabilities..... -- 802,400 2,531,400
----------- ------------ ------------
Total liabilities.... 411,500 214,246,800 261,863,300
----------- ------------ ------------
Commitments and
contingencies (Note 8)
Redeemable convertible
preferred stock........ 10,435,500 97,227,300 191,580,000 $ --
Stockholders' equity
(deficit):
Common stock, $0.001
par value per share;
43,500,000,
112,500,000 and
132,000,000 shares
authorized in 1998,
1999 and 2000;
6,150,000, 11,672,196
and 13,068,709 shares
issued and
outstanding in 1998,
1999 and 2000;
53,772,931 shares
issued and
outstanding pro forma
(unaudited).......... 6,200 11,700 13,100 53,800
Additional paid-in
capital.............. 1,139,500 43,961,800 113,964,500 305,503,800
Deferred stock-based
compensation......... (971,800) (13,705,500) (50,280,900) (50,280,900)
Accumulated other
comprehensive income
(loss)............... -- 14,100 (38,200) (38,200)
Accumulated deficit... (1,019,700) (21,810,300) (66,630,300) (66,630,300)
----------- ------------ ------------ ------------
Total stockholders'
equity (deficit).... (845,800) 8,471,800 (2,971,800) $188,608,200
----------- ------------ ------------ ============
Total liabilities,
redeemable
convertible
preferred stock and
stockholders' equity
(deficit)........... $10,001,200 $319,945,900 $450,471,500
=========== ============ ============
See accompanying notes to consolidated financial statements.
F-3
EQUINIX, INC.
Consolidated Statements of Operations
Period from Six months ended
June 22, 1998 -------------------------
(inception) to Year ended June 30, June 30,
December 31, December 31, 1999 2000
1998 1999 ----------- ------------
-------------- ------------ (unaudited)
Revenues............... $ -- $ 37,100 $ -- $ 1,027,500
----------- ------------ ----------- ------------
Costs and operating
expenses:
Cost of revenues
(excludes stock-based
compensation of none
and $177,300 for the
periods ended
December 31, 1998 and
1999 respectively,
and $7,800 and
$213,900 for the six
months ended June 30,
1999 and 2000,
respectively)........ -- 3,091,200 339,900 8,408,900
Sales and marketing
(excludes stock-based
compensation of
$13,200 and
$1,631,000 for the
periods ended
December 31, 1998 and
1999 respectively,
and $67,800 and
$2,970,200 for the
six months ended June
30, 1999 and 2000,
respectively)........ 34,200 2,317,600 651,300 5,737,900
General and
administrative
(excludes stock-based
compensation of
$150,700 and
$4,819,000 for the
periods ended
December 31, 1998 and
1999 respectively,
and $1,048,800 and
$6,845,600 for the
six months ended June
30, 1999 and 2000,
respectively)........ 751,500 7,783,500 2,383,500 15,323,000
Stock-based
compensation......... 163,900 6,627,300 1,124,400 10,029,700
----------- ------------ ----------- ------------
Total costs and
operating
expenses.......... 949,600 19,819,600 4,499,100 39,499,500
----------- ------------ ----------- ------------
Loss from
operations.......... (949,600) (19,782,500) (4,499,100) (38,472,000)
Interest income........ 149,900 2,138,100 171,900 7,531,700
Interest expense....... (220,000) (3,146,200) (137,900) (13,879,700)
----------- ------------ ----------- ------------
Net loss............... $(1,019,700) $(20,790,600) $(4,465,100) $(44,820,000)
=========== ============ =========== ============
Historical net loss per
share:
Basic and diluted.... $ (1.48) $ (4.98) $ (2.78) $ (4.45)
=========== ============ =========== ============
Weighted average
shares.............. 688,028 4,172,879 1,607,159 10,063,266
=========== ============ =========== ============
Pro forma net loss per
share (unaudited):
Basic and diluted.... $ (0.74) $ (0.98)
============ ============
Weighted average
shares.............. 28,156,608 45,907,049
============ ============
See accompanying notes to consolidated financial statements.
F-4
EQUINIX, INC.
Consolidated Statements of Stockholders' Equity (deficit)
Period from June 22, 1998 (inception) to June 30, 2000
Accumulated
Common stock Additional Deferred other Total
------------------ paid-in stock-based comprehensive Accumulated stockholders'
Shares Amount capital compensation income (loss) deficit equity
---------- ------ ----------- ------------ ------------- ----------- -------------
Issuance of common stock
for cash................ 6,060,000 $6,100 $ (2,100) $ -- $ -- $ -- $ 4,000
Issuance of common stock
upon exercise of common
stock options........... 90,000 100 5,900 -- -- -- 6,000
Deferred stock-based
compensation............ -- -- 1,135,700 (1,135,700) -- -- --
Amortization of stock-
based compensation...... -- -- -- 163,900 -- -- 163,900
Net loss................ -- -- -- -- -- (1,019,700) (1,019,700)
---------- ------ ----------- ----------- ------- ----------- -----------
Balances as of December
31, 1998................ 6,150,000 6,200 1,139,500 (971,800) -- (1,019,700) (845,800)
Issuance of common stock
upon exercise of common
stock options........... 5,522,196 5,500 1,280,100 -- -- -- 1,285,600
Issuance of common stock
warrants................ -- -- 22,181,200 -- -- -- 22,181,200
Deferred stock-based
compensation............ -- -- 19,361,000 (19,361,000) -- -- --
Amortization of stock-
based compensation...... -- -- -- 6,627,300 -- -- 6,627,300
Comprehensive income
(loss):
Net loss................ -- -- -- -- -- (20,790,600) (20,790,600)
Unrealized appreciation
on short-term
investments............. -- -- -- -- 14,100 -- 14,100
---------- ------ ----------- ----------- ------- ----------- -----------
Net comprehensive loss.. -- -- -- -- 14,100 (20,790,600) (20,776,500)
---------- ------ ----------- ----------- ------- ----------- -----------
Balances as of December
31, 1999................ 11,672,196 11,700 43,961,800 (13,705,500) 14,100 (21,810,300) 8,471,800
Issuance of common stock
for cash (unaudited).... 50,213 100 252,700 -- -- -- 252,800
Issuance of common stock
upon exercise of common
stock options
(unaudited)............. 1,159,394 1,200 1,868,700 -- -- -- 1,869,900
Issuance of common stock
upon exercise of common
stock warrants
(unaudited)............. 352,500 300 352,200 -- -- -- 352,500
Issuance of common stock
warrants (unaudited) -- -- 20,934,800 -- -- -- 20,934,800
Repurchase of common
stock (unaudited)....... (165,594) (200) (10,800) -- -- -- (11,000)
Deferred stock-based
compensation
(unaudited)............. -- -- 46,605,100 (46,605,100) -- -- --
Amortization of stock-
based compensation
(unaudited)............. -- -- -- 10,029,700 -- -- 10,029,700
Comprehensive income
(loss):
Net loss (unaudited)... -- -- -- -- -- (44,820,000) (44,820,000)
Unrealized depreciation
on short-term
investments
(unaudited)............ -- -- -- -- (52,300) -- (52,300)
---------- ------ ----------- ----------- ------- ----------- -----------
Net comprehensive loss
(unaudited)............ -- -- -- -- (52,300) (44,820,000) (44,872,300)
---------- ------ ----------- ----------- ------- ----------- -----------
Balances as of June 30,
2000 (unaudited)........ 13,068,709 13,100 113,964,500 (50,280,900) (38,200) (66,630,300) (2,971,800)
========== ====== =========== =========== ======= =========== ===========
See accompanying notes to consolidated financial statements.
F-5
EQUINIX, INC.
Consolidated Statements of Cash Flows
Period from
June 22, 1998
(inception)
to Year ended Six months ended June 30,
December 31, December 31, --------------------------
1998 1999 1999 2000
------------- ------------ ----------- -------------
(unaudited)
Cash flows from operating
activities:
Net loss.................... $(1,019,700) $(20,790,600) $(4,465,100) $ (44,820,000)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation................ 4,200 609,300 135,500 3,610,200
Interest charge on
beneficial conversion of
convertible debt........... 220,000 -- -- --
Amortization of deferred
stock-based compensation... 163,900 6,627,300 1,124,400 10,029,700
Amortization of senior note
discount................... -- 161,900 -- 974,100
Amortization of debt
facilities and capital
lease obligation discount.. -- 578,900 87,400 371,300
Amortization of debt
issuance costs............. -- 67,600 -- 550,200
Amortization of sales
acquisition costs.......... -- 201,000 -- 301,600
Amortization of rent
discount................... -- -- -- 76,500
Changes in operating assets
and liabilities:
Accounts receivable........ -- (177,700) -- (2,149,000)
Prepaids and other current
assets.................... (167,600) (1,429,300) 800 (43,200)
Other assets............... (156,400) (1,243,900) (296,800) (792,300)
Accounts payable and
accrued expenses.......... 159,200 2,313,800 888,700 3,945,000
Accrued interest payable... -- 2,166,700 -- 455,700
Other current liabilities.. -- 204,600 82,300 864,400
Other liabilities.......... -- 802,400 -- 1,729,000
----------- ------------ ----------- -------------
Net cash used in
operating activities.... (796,400) (9,908,000) (2,442,800) (24,896,800)
----------- ------------ ----------- -------------
Cash flows from investing
activities:
Purchase of short-term
investments................ (5,000,000) (22,812,300) (2,233,000) (16,136,700)
Sales and maturities of
short-term investments..... -- 8,017,800 5,122,200 25,519,700
Purchases of property and
equipment.................. (486,200) (28,241,400) (1,394,800) (34,811,000)
Additions to construction in
progress................... (30,700) (14,145,100) (7,596,700) (139,102,800)
Accrued construction costs.. 252,300 9,519,900 6,064,500 39,332,600
Purchase of restricted cash
and short-term
investments................ -- (38,608,700) -- (12,891,300)
Sale of restricted cash and
short-term investments..... -- -- -- 13,000,000
----------- ------------ ----------- -------------
Net cash provided by
(used in) investing
activities.............. (5,264,600) (86,269,800) (37,800) (125,089,500)
----------- ------------ ----------- -------------
Cash flows from financing
activities:
Proceeds from issuance of
common stock............... 4,000 -- -- 252,800
Proceeds from exercise of
stock options.............. 6,000 1,285,600 172,300 2,222,400
Proceeds from issuance of
debt facilities and capital
lease obligations.......... -- 16,114,500 -- 1,929,200
Repayment of debt facilities
and capital lease
obligations................ -- (988,000) -- (2,734,800)
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) -- --
Repurchase of common stock.. -- -- -- (11,000)
Proceeds from issuance of
redeemable convertible
preferred stock, net....... 9,995,500 84,886,000 2,000,000 94,352,700
Debt Issuance Costs......... -- -- -- (250,000)
----------- ------------ ----------- -------------
Net cash provided by
(used in) financing
activities.............. 10,225,500 295,178,300 2,172,300 95,761,300
----------- ------------ ----------- -------------
Net increase (decrease) in
cash and cash equivalents... 4,164,500 199,000,500 (308,300) (54,225,000)
Cash and cash equivalents at
beginning of period......... -- 4,164,500 4,164,500 203,165,000
----------- ------------ ----------- -------------
Cash and cash equivalents at
end of period............... $ 4,164,500 $203,165,000 $ 3,856,200 $ 148,940,000
=========== ============ =========== =============
Noncash financing and
investing activities:
Cash paid for taxes......... $ -- $ 67,500 $ -- $ --
=========== ============ =========== =============
Cash paid for interest...... $ -- $ 153,400 $ -- $ 13,674,000
=========== ============ =========== =============
Noncash financing and
investing activities:
Preferred stock warrants
issued for financing
commitments................ $ -- $ 3,095,800 $ 1,334,800 $ --
=========== ============ =========== =============
Common stock warrants issued
for strategic agreement.... $ -- $ 1,507,800 $ -- $ --
=========== ============ =========== =============
Common stock warrants issued
for services............... $ -- $ 4,466,200 $ -- $ 16,338,500
=========== ============ =========== =============
Revaluation of common stock
warrants issued for
services................... $ -- $ -- $ -- $ 4,596,300
=========== ============ =========== =============
Conversion of notes payable
to convertible preferred
stock...................... $ 440,000 $ -- $ -- $ --
=========== ============ =========== =============
Unrealized
appreciation/(depreciation)
on investments............. $ -- $ 14,100 $ -- $ (52,300)
=========== ============ =========== =============
Assets recorded under
capital lease.............. $ -- $ 660,700 $ -- $ 383,000
=========== ============ =========== =============
Deferred compensation on
grants of stock options.... $ 1,135,700 $ 19,361,000 $ 5,547,100 $ 48,411,900
=========== ============ =========== =============
See accompanying notes to consolidated financial statements.
F-6
EQUINIX, INC.
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.
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 redeemable convertible preferred stock, respectively, were exchanged
for every two shares of common stock and redeemable convertible 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
11).
Unaudited Interim Results
The accompanying consolidated balance sheet as of June 30, 2000, the
consolidated statements of income and of cash flows for the six months
ended June 30, 1999 and 2000 and the consolidated statement of
stockholders' equity for the six months ended June 30, 2000 are unaudited.
In the opinion of management, these statements have been prepared on the
same basis as the audited financial statements and include all adjustments,
consisting only of normal recurring adjustments, necessary for the fair
presentation of the Company's financial position as of June 30, 2000 and
the results of its operations and cash flows for the six month periods
ended June 30, 1999 and 2000. The data disclosed in notes to the
consolidated financial statements for these periods is unaudited.
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.
F-7
EQUINIX, INC.
Notes to Consolidated Financial Statements--(Continued)
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 as of December 31, 1999
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. On June 1,
2000, the Company made its first interest payment of $13,000,000 on the
Senior Notes out of restricted cash and short-term investments. Restricted
cash and short-term investments as of June 30, 2000 consists of
$23,702,800, plus accrued interest of $1,409,800, deposited with an escrow
agent to pay the second and third interest payments on the Senior Notes and
restricted cash of $13,315,600, plus accrued interest of $71,800 for six
standby letters of credit and an escrow account entered into and pursuant
to 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 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.
F-8
EQUINIX, INC.
Notes to Consolidated Financial Statements--(Continued)
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.
Included within construction in progress is the value attributed to the
unearned portion of warrants issued to certain fiber carriers and our
contractor totaling $4,136,300 as of December 31, 1999 and $21,271,000 as
of June 30, 2000 (see Note 6).
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 $3,323,600 and $177,400,
respectively. Total interest cost incurred and total interest capitalized
during the six months ended June 30, 2000, was $15,847,100 and $1,967,400,
respectively.
Fair Value of Financial Instruments
The carrying value amounts of the Company's financial instruments, which
include cash equivalents, short-term investments, accounts receivable,
accounts payable, accrued expenses and long-term obligations approximate
their fair value due to either the short-term maturity or the prevailing
interest rates of the related instruments.
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 recurring fees for colocation and
interconnection services at the IBX centers, service fees associated with
the delivery of professional services and non-recurring installation fees.
Revenues from colocation and interconnection services are billed
F-9
EQUINIX, INC.
Notes to Consolidated Financial Statements--(Continued)
monthly and recognized ratably over the term of the contract, generally one
to three years. Professional service fees are recognized in the period in
which the services were provided and represent the culmination of the
earnings process. Non-recurring installation fees are deferred and
recognized ratably over the term of the related contract.
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
F-10
EQUINIX, INC.
Notes to Consolidated Financial Statements--(Continued)
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.
Pro Forma Stockholders' Equity (unaudited)
Immediately prior to the effective date of the offering, all outstanding
shares of Series A, Series B and Series C redeemable convertible preferred
stock will convert into shares of common stock at a one-for-one conversion
rate. The pro forma effects of these transactions are unaudited and have
been reflected in the accompanying pro forma stockholders' equity as of
June 30, 2000.
Historical and Pro Forma Net Loss Per Share
The Company computes net loss per share in accordance with SFAS No. 128,
Earnings per Share, and SEC Staff Accounting Bulletin ("SAB") No. 98. Under
the provisions of SFAS No. 128 and SAB No. 98 basic and diluted net loss
per share are computed using the weighted average number of common shares
outstanding. Options, warrants and preferred stock were not included in the
computation of diluted net loss per share because the effect would be
antidilutive.
Pro forma net loss per share has been computed using the weighted
average number of common shares outstanding, including the pro forma
effects of the automatic conversion of all outstanding shares of redeemable
convertible preferred stock into shares of common stock as if such
conversion occurred on January 1, 1999 or at the date of original issuance,
if later.
F-11
EQUINIX, INC.
Notes to Consolidated Financial Statements--(Continued)
The following table sets forth the computation of historical and pro
forma basic and diluted net loss per share for the periods indicated.
Period from
June 22, Six months ended June
1998 to Year ended 30,
December 31, December 31, -------------------------
1998 1999 1999 2000
------------ ------------ ----------- ------------
(Unaudited)
Numerator:
Net loss............... $(1,019,700) $(20,790,600) $(4,465,100) $(44,820,000)
=========== ============ =========== ============
Historical:
Denominator:
Weighted average
shares................ 3,174,917 8,751,001 6,490,742 15,924,925
Weighted average
unvested shares
subject to
repurchase............ (2,486,889) (4,578,122) (4,883,583) (5,861,659)
----------- ------------ ----------- ------------
Total weighted average
shares............... 688,028 4,172,879 1,607,159 10,063,266
=========== ============ =========== ============
Net loss per share:
Basic and diluted..... $ (1.48) $ (4.98) $ (2.78) $ (4.45)
=========== ============ =========== ============
Pro Forma:
Denominator:
Shares used in
computing net loss per
share, basic and
diluted............... 4,172,879 10,063,266
Adjustment to reflect
assumed conversion of
redeemable convertible
preferred stock....... 23,983,729 35,843,783
------------ ------------
Shares used in
computing pro forma
net loss per share,
basic and diluted..... 28,156,608 45,907,049
============ ============
Pro forma net loss per
share, basic and
diluted (unaudited)... $ (0.74) $ (0.98)
============ ============
The following table sets forth potential shares of common stock that are not
included in the diluted net loss per share calculation above because to do so
would be anti-dilutive for the periods indicated:
December 31, June 30,
--------------------- ---------------------
1998 1999 1999 2000
---------- ---------- ---------- ----------
(unaudited)
Series A redeemable convertible
preferred stock.................. 15,697,500 18,682,500 18,697,500 18,682,500
Series B redeemable convertible
preferred stock.................. -- 15,759,561 -- 15,759,561
Series C redeemable convertible
preferred stock.................. -- -- -- 6,261,161
Series A preferred stock
warrants......................... -- 1,245,000 795,000 1,245,000
Common stock warrants............. -- 1,365,645 -- 3,737,245
Common stock options.............. 2,074,050 2,780,988 1,862,115 7,452,425
F-12
EQUINIX, INC.
Notes to Consolidated Financial Statements--(Continued)
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 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 engage in hedging activities.
In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") 101,
Revenue Recognition, which outlines the basic criteria that must be met to
recognize revenue and provides guidance for presentation of revenue and for
disclosure related to revenue recognition policies in financial statements
filed with the SEC. The adoption of SAB 101 did not have a material impact
on the Company's financial position and results of operations.
In March 2000, the FASB issued Interpretation No. 44, ("FIN 44"),
Accounting for Certain Transactions Involving Stock Compensation - an
Interpretation of APB 25. This Interpretation clarifies (a) the definition
of employee for purposes of applying Opinion 25, (b) the criteria for
determining whether a plan qualifies as a noncompensatory plan, (c) the
accounting consequence of various modifications to the terms of a
previously fixed stock option or award, and (d) the accounting for an
exchange of stock compensation awards in a business combination. This
Interpretation is effective July 1, 2000, but certain conclusions in this
Interpretation cover specific events that occur after either December 15,
1998, or January 12, 2000. The adoption of certain of the conclusions of
FIN 44 covering events occurring during the period after December 15, 1998
or January 12, 2000 did not have a material effect on the Company's
financial position and results of operations. The Company does not expect
that the adoption of the remaining conclusion will have a material effect
on the financial position or results of operations.
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.
F-13
EQUINIX, INC.
Notes to Consolidated Financial Statements--(Continued)
Property & Equipment
Property and equipment is comprised of the following:
December 31,
---------------------
June 30,
1998 1999 2000
-------- ----------- -----------
(unaudited)
Leasehold improvements................... $240,600 $16,664,200 $44,291,700
IBX plant and machinery.................. -- 8,235,400 8,895,000
Computer equipment and software.......... 77,000 3,126,000 11,011,600
IBX equipment............................ -- 658,700 2,237,800
Furniture and fixtures................... 168,600 373,200 979,400
-------- ----------- -----------
486,200 29,057,500 67,415,500
Less accumulated depreciation............ (4,200) (613,500) (4,223,700)
-------- ----------- -----------
$482,000 $28,444,000 $63,191,800
======== =========== ===========
Leasehold improvements, certain computer equipment, software and
furniture and fixtures recorded under capital leases aggregated none as of
December 31, 1998; $660,700 as of December 31, 1999 and $1,044,100 as of
June 30, 2000. Amortization on the assets recorded under capital leases is
included in depreciation expense.
Included within leasehold improvements is the value attributed to the
earned portion of the WorldCom Warrant and Bechtel warrant totaling
$329,900 and none, respectively, as of December 31, 1999 and $3,577,100 and
$299,500, respectively, as of June 30, 2000 (see Note 6). 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:
December 31, June 30,
1999 2000
------------ -----------
(unaudited)
United States treasury notes:
Due within one year........................... $ 25,110,400 $25,112,600
Due after one year through two years.......... 11,968,200 --
Restricted cash in accordance with security
agreements..................................... 1,530,100 13,387,400
------------ -----------
38,608,700 38,500,000
Less current portion............................ (25,110,400) (26,816,800)
------------ -----------
$ 13,498,300 $11,683,200
============ ===========
As of December 31, 1999 and June 30, 2000, cost approximated market
value of restricted cash and short-term investments; unrealized gains and
losses were not significant.
F-14
EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consisted of the following:
December 31,
------------------- June 30,
1998 1999 2000
-------- ---------- -----------
(unaudited)
Accounts payable............................ $ 33,800 $1,978,200 $5,944,900
Accrued preferred stock issuance costs...... -- 1,180,000 --
Accrued compensation........................ 23,200 303,000 872,200
Deferred rent............................... 42,400 18,000 1,800
Income taxes payable........................ 39,800 -- --
Accrued debt issuance costs................. -- 490,200 877,900
Other....................................... 20,000 173,800 1,141,400
-------- ---------- ----------
$159,200 $4,143,200 $8,838,200
======== ========== ==========
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 $901,000).......................................... $ 4,141,000
Venture Leasing Loan Agreement (net of unamortized discount of
$1,034,200).................................................... 8,417,400
Comdisco Master Lease Agreement and Addendum (net of unamortized
discount of $11,800)........................................... 644,600
-----------
13,203,000
Less current portion............................................ (4,394,600)
-----------
$ 8,808,400
===========
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, $5,042,000 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 redeemable convertible preferred stock at $0.67 per share (the
"Comdisco Loan and Security Agreement
F-15
EQUINIX, INC.
Notes to Consolidated Financial Statements--(Continued)
Warrant"). This warrant is immediately exercisable and expires in ten years
from the date of grant. The fair value of the warrant, using the Black-
Scholes option pricing model with the following assumptions: deemed fair
market value per share of $1.80, dividend yield of 0%, expected volatility
of 80%, risk-free interest rate of 5.0% and a contractual life of 10 years,
was $1,255,000. Such amount 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
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, $612,300 was outstanding under the Comdisco Master Lease
Agreement.
The Company 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 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.
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 redeemable convertible 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. The fair value
of the warrant using the Black-Scholes option pricing model with the
following assumptions: deemed fair market value per share of $3.00,
dividend yield 0%, expected volatility of 80%, risk-free interest rate of
5.0% and a contractual life of 10 years, was $79,800. Such amount was
recorded as a discount to the applicable capital lease obligation, 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, $44,100 was outstanding under the Comdisco Master Lease
Agreement Addendum.
F-16
EQUINIX, INC.
Notes to Consolidated Financial Statements--(Continued)
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 redeemable convertible 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. The fair value of the warrant using
the Black-Scholes option pricing model with the following assumptions:
deemed fair market value per share of $4.80, dividend yield 0%, expected
volatility of 80%, risk-free interest rate of 5.0% and a contractual life
of seven years, was $587,000. Such amount was recorded as a discount to the
applicable capital lease obligation, 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.
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
redeemable convertible preferred stock at $3.00 per share (the "Venture
Leasing Loan Agreement"). This warrant is immediately exercisable and
expires on June 30, 2006. The fair value of the warrant using the Black-
Scholes option pricing model with the following assumptions: deemed fair
market value per share of $4.80, dividend yield 0%, expected volatility of
80%, risk-free interest rate of 5.0% and a contractual life of seven years,
was $1,174,000. Such amount 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-17
EQUINIX, INC.
Notes to Consolidated Financial Statements--(Continued)
Maturities
Combined aggregate maturities for debt facilities and future minimum
capital lease obligations as of December 31, 1999 are as follows:
Capital
Debt lease
facilities obligations Total
----------- ----------- -----------
2000................................. $ 4,220,300 $ 214,100 $ 4,434,400
2001................................. 4,596,000 214,100 4,810,100
2002................................. 4,534,600 214,100 4,748,700
2003 and thereafter.................. 1,142,700 152,800 1,295,500
----------- --------- -----------
14,493,600 795,100 15,288,700
Less amount representing interest.. -- (138,700) (138,700)
----------- --------- -----------
14,493,600 656,400 15,150,000
Less amount representing
unamortized discount.............. (1,935,200) (11,800) (1,947,000)
----------- --------- -----------
12,558,400 644,600 13,203,000
Less current portion............... (4,220,300) (174,300) (4,394,600)
----------- --------- -----------
$ 8,338,100 $ 470,300 $ 8,808,400
=========== ========= ===========
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, $16,207,200 was allocated to additional
paid-in capital for the deemed 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 14.1% 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. The
amount of the Senior Notes, net of the unamortized discount, is
$183,954,700 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
F-18
EQUINIX, INC.
Notes to Consolidated Financial Statements--(Continued)
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 $7,125,800 as of December 31, 1999.
5. Redeemable Convertible Preferred Stock
Redeemable convertible preferred stock consists of the following:
Shares Issued
and Outstanding Amount Outstanding at
December 31, December 31,
--------------------- -----------------------
Shares Liquidation
Authorized 1998 1999 1998 1999 Value
---------- ---------- ---------- ----------- ----------- -----------
Series A................ 21,000,000 15,697,500 18,682,500 $10,435,500 $12,425,500 $12,517,000
Series B................ 24,000,000 -- 15,759,561 -- 81,706,000 83,998,000
---------- ---------- ---------- ----------- ----------- -----------
45,000,000 15,697,500 34,442,061 $10,435,500 $94,131,500 $96,515,000
========== ========== ========== =========== =========== ===========
Between May and June 2000, the Company completed its Series C redeemable
convertible preferred stock financing. The Company issued 6,261,161 shares
of Series C redeemable convertible preferred stock, at a price of $15.08
per share (see Note 11). Also included in redeemable convertible preferred
stock as of December 31, 1999 is the fair value of 1,245,000 Series A
warrants issued in connection with various debt and capital lease
facilities totaling $3,095,800 (see Note 3).
On September 10, 1998, 15,037,500 shares of Series A redeemable
convertible preferred stock were issued at a price of $0.67 per share.
Concurrent with the issuance of the Series A redeemable convertible
preferred stock, promissory notes of $220,000 were converted into 660,000
shares of Series A redeemable convertible 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 redeemable convertible preferred stock were issued, at a price of
$0.67 per share in the second closing of the Series A financing.
Between August and December 1999, the Company completed its Series B
redeemable convertible preferred stock financing. The Company issued
15,759,561 shares of Series B redeemable convertible preferred stock, at a
price of $5.33 per share.
The rights, preferences, and privileges of the Series A and Series B
redeemable convertible 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. No dividends have been declared to
date.
. Holders of Series A and B redeemable convertible preferred stock
have a liquidation preference of $0.67 and $5.33 per share,
respectively, plus all declared but unpaid dividends. A
consolidation, merger or sale of the Company will be declared to be
a liquidation, dissolution or winding up of the Company for purposes
of liquidation rights.
F-19
EQUINIX, INC.
Notes to Consolidated Financial Statements--(Continued)
. Each share of Series A and B redeemable convertible 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 redeemable convertible preferred
stock has voting rights equal to that of common stock on an "as if
converted" basis.
. The holders of Series A and B redeemable convertible 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 redeemable convertible preferred stock originally issued
remain outstanding.
. Series A and B redeemable convertible preferred stock is not
redeemable at any time, except in the case of our acquisition by
another entity that results in the transfer of fifty percent or more
of the outstanding voting power of the corporation or a sale of all
or substantially all of the assets of the corporation. Effectively,
this change in control would provide for the preferred stockholder
to present their security for cash redemption.
. Holders of greater than 1,500,000 shares of Series A and/or Series B
redeemable convertible 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 redeemable convertible preferred
stock have the right to veto:
. any increase in the number of Series B redeemable convertible
preferred stock or the issuance of any securities with rights
senior to those of the Series B redeemable convertible
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 redeemable convertible 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 redeemable convertible preferred
stock have the right to receive financial and other information from
the Company.
6. Stockholders' Equity
Common Stock
In August 1999, the Company amended and restated its Certificate of
Incorporation to increase the authorized share capital to 112,500,000
shares of 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
F-20
EQUINIX, INC.
Notes to Consolidated Financial Statements--(Continued)
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. In
May 2000, the board of directors agreed to waive the repurchase right with
respect to one of the founder's unvested shares (see Note 11). As of
December 31, 1998 and 1999, and June 30, 2000, 4,772,250, 3,408,750 and
1,363,500 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 and June 30, 2000, there
were 45,000, 4,465,509 and 4,689,665 shares, respectively, subject to
repurchase.
At December 31, 1999, the Company has reserved the following shares of
authorized but unissued shares of common stock for future issuance:
Conversion of Series A redeemable convertible preferred
stock....................................................... 18,682,500
Conversion of Series B redeemable convertible preferred
stock....................................................... 15,759,561
Series A redeemable convertible preferred stock warrants..... 1,245,000
Common stock warrants........................................ 4,742,145
Common stock options......................................... 2,816,208
----------
43,245,414
==========
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 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.
F-21
EQUINIX, INC.
Notes to Consolidated Financial Statements--(Continued)
A summary of the Plan is as follows:
December 31,
------------------------------------------
1998 1999 June 30, 2000
-------------------- --------------------- ---------------------
(unaudited)
Weighted- Weighted- Weighted-
average average average
exercise exercise exercise
Shares price Shares price Shares price
--------- --------- ---------- --------- ---------- ---------
Outstanding at beginning
of period.............. -- $ -- 2,074,050 $0.07 2,780,988 $0.64
Granted................. 2,164,050 0.07 6,404,040 0.46 6,060,925 4.91
Forfeited............... -- -- (340,500) 0.06 (230,094) 0.11
Exercised............... (90,000) 0.07 (5,356,602) 0.24 (1,159,394) 1.55
--------- ---------- ----------
Outstanding at end of
period................. 2,074,050 0.07 2,780,988 0.64 7,452,425 3.99
========= ========== ==========
Shares available for
future grant........... 6,098,760 35,220 954,389
========= ========== ==========
Exercisable at end of
period................. 20,001 76,431 115,132
========= ========== ==========
Weighted-average grant
date fair value of
options granted to
employees during the
period at below deemed
fair value............. 0.54 3.19 5.10
Weighted-average grant
date fair value of
options granted to non-
employees during the
period at below deemed
fair value............. 0.58 2.63 1.27
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.......... 1,548,738 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 -- --
--------- ------
2,780,988 9.53 0.67 76,431 0.07
========= ======
The weighted-average remaining contractual life of options outstanding
at December 31, 1999 and June 30, 2000 was 9.53 years and 9.68 years,
respectively.
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 deemed fair value of the underlying
common stock was subsequently determined to be greater than the exercise
price of the stock options at the date of grant. The Company recorded
deferred stock-based
F-22
EQUINIX, INC.
Notes to Consolidated Financial Statements--(Continued)
compensation related to employees of $19,785,800 in respect to stock
options granted through December 31, 1999, of which $135,300 and $6,067,300
has been amortized to stock-based compensation expense for the period and
year ended December 31, 1998 and 1999, respectively, on an accelerated
basis over the vesting period of the individual options, in accordance with
FASB Interpretation No. 28. For the six months ended June 30, 2000, the
Company recorded additional deferred stock-based compensation related to
employees of $46,084,300, in respect of stock option grants during the six
months ended June 30, 2000. During the six months ended June 30, 2000, the
Company amortized $9,520,200 of compensation related to employees to stock-
based compensation expense, on an accelerated basis 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) Six months
to Year ended ended
December 31, December 31, June 30,
1998 1999 2000
------------- ------------- ------------
(unaudited)
Net loss:
As reported................... $(1,019,700) $ (20,790,600) $(44,820,000)
Pro forma..................... (1,021,600) (20,844,500) (44,893,100)
Net loss per share:
As reported................... $ (1.48) $ (4.98) $ (4.45)
Pro forma..................... (1.48) (5.00) (4.46)
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 $710,900 and
$520,800 through December 31, 1999 and for the six months ended June 30,
2000, respectively, of which $28,600, $560,000 and $509,500 has been
amortized to stock-based compensation expense for the period and year ended
December 31, 1998 and 1999, respectively, and for the six months ended June
30, 2000, respectively, 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, the year ended December 31, 1999 and the six month period ended June
30, 2000: 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,
F-23
EQUINIX, INC.
Notes to Consolidated Financial Statements--(Continued)
5.48% in the year ended December 31, 1999 and 5.77% in the six month period
ended June 30, 2000; and contractual life of 10 years.
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 as Northpoint's performance commitment was complete.
The NorthPoint Warrant is immediately exercisable and expires five years
from the date of grant. The NorthPoint Warrant was valued at $1,507,800
using the Black-Scholes option-pricing model, which was capitalized on the
accompanying consolidated balance sheet in other assets as a customer
acquisition cost and is being amortized over the term of the agreement as a
reduction of revenues recognized. The following assumptions were used in
determining the fair value of the warrant: deemed fair market value per
share of $4.80, dividend yield of 0%, expected volatility of 80%, risk-free
interest rate of 5.0% and a contractual life of 5 years.
In November 1999, the Company entered into a definitive agreement with
WorldCom, whereby WorldCom agreed to install high-bandwidth local
connectivity services to the Company's first seven IBX centers by a pre-
determined date in exchange for a warrant to purchase 675,000 shares of
common stock of the Company at $0.67 per share (the "WorldCom Warrant").
The WorldCom Warrant is immediately exercisable and expires five years from
the date of grant. As of December 31, 1999, warrants for 600,000 shares are
subject to repurchase at the original exercise price if WorldCom's
performance commitments are not completed. The WorldCom Warrant was valued
at $2,969,000 using the Black-Scholes option-pricing model and was recorded
to construction in progress 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 WorldCom Warrant
subject to repurchase are revalued at each balance sheet date to reflect
their current fair value until WorldCom's performance commitment is
complete. Any resulting increase in fair value of the warrants is recorded
as a leasehold improvement. In addition, the following assumptions were
used in determining the fair value of the warrant: deemed fair market value
per share of $4.80, dividend yield of 0%, expected volatility of 80%, risk-
free interest rate of 5.5% and a contractual life of 5 years.
In November 1999, the Company entered into a master agreement with
Bechtel Corporation, or Bechtel, whereby Bechtel agreed to act as the
exclusive contractor under a Master Agreement to provide program
management, site identification and evaluation, engineering and
construction services to build approximately 29 IBX centers over a four
year period under mutually agreed upon guaranteed completion dates. 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 five
years from date of grant. As of December 31, 1999, warrants for 282,000
shares are subject to repurchase at the original exercise price, if
Bechtel's performance commitments are not complete. The Bechtel Warrant was
valued at $1,497,200 using the Black-Scholes option-pricing model and was
recorded to construction in progress 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
F-24
EQUINIX, INC.
Notes to Consolidated Financial Statements--(Continued)
are revalued at each balance sheet date to reflect their current fair value
until Bechtel's performance commitment is complete. Any resulting increase
in fair value of the warrants is recorded as a leasehold improvement. In
addition, the following assumptions were used in determining the fair value
of the warrant: deemed fair market value per share of $4.80, dividend yield
of 0%, expected volatility of 80%, risk-free interest rate of 5.5% and a
contractual life of 5 years.
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
WorldCom Warrant..................................... 675,000 0.67
Bechtel Warrant...................................... 352,500 1.00
---------
4,742,145
=========
7. Income Taxes
No provision for federal income taxes was recorded from inception
through December 31, 1999 as the Company incurred no operating losses
during the period.
State tax expense is included in general and administrative expenses.
Actual income tax expense differs from the expected tax benefit computed
by applying the statutory federal income tax rate of approximately 34% for
the periods ended December 31, 1998 and 1999, primarily as a result of the
change in valuation allowance and stock based compensation.
F-25
EQUINIX, INC.
Notes to Consolidated Financial Statements--(Continued)
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:
Start-up expenses................................ $ 316,000 $ 2,551,000
Net operating loss............................... -- 3,134,000
Other............................................ 5,000 8,000
--------- -----------
Deferred tax assets............................ 321,000 5,693,000
Deferred tax liability:
Depreciation and amortization.................... (1,000) (38,000)
--------- -----------
Net deferred tax assets........................ 320,000 5,655,000
Valuation allowance............................ (320,000) (5,655,000)
--------- -----------
$ -- $ --
========= ===========
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 $8,000,000 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.
Under the Tax Reform Act of 1986, the amounts of and the benefit from
net operating losses that can be carried forward may be limited in certain
circumstances. Events that may cause limitations in the utilization of net
operating losses include a cumulative stock ownership change of more than
50% over a three year period and other events. Equinix has not yet
determined the extent that its net operating loss benefit will be limited.
8. Commitments and Contingencies
Operating 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 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.
F-26
EQUINIX, INC.
Notes to Consolidated Financial Statements--(Continued)
Minimum future operating lease payments as of December 31, 1999 are
summarized as follows:
Year ending:
2000.......................................................... $ 4,949,700
2001.......................................................... 8,321,500
2002.......................................................... 8,578,700
2003.......................................................... 8,775,500
2004.......................................................... 9,045,300
Thereafter.................................................... 90,244,300
------------
Total....................................................... $129,915,000
============
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.
9. 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 entered into a strategic agreement with
NorthPoint. Under the terms of the strategic agreement, NorthPoint has
agreed to use certain of the Company's
F-27
EQUINIX, INC.
Notes to Consolidated Financial Statements--(Continued)
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 was earned upon execution of the strategic agreement as
NorthPoint's performance commitment was complete. The NorthPoint Warrant is
immediately exercisable and expires five years from date of grant. The
NorthPoint Warrant was valued at $1,507,800 using the Black-Scholes option-
pricing model (see Note 6).
10. 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.
11. Subsequent Events (unaudited)
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 redeemable convertible 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 redeemable
convertible 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 seven years, with 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 expire 10 years from the date of grant. The warrants
were valued at $185,700 using the Black-Scholes option pricing model and
will be recorded as additional rent expense over the life of the lease. The
following assumptions were used in determining the fair value of the
F-28
EQUINIX, INC.
Notes to Consolidated Financial Statements--(Continued)
warrants: deemed fair value per share of $6.55, dividend yield of 0%,
expected volatility of 80%, risk-free interest rate of 6.0% and a
contractual life of 10 years.
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.
In April 2000, the Company entered into a definitive agreement with a
fiber carrier whereby the fiber carrier agreed to install high-bandwidth
local connectivity services to a number of the Company's IBX centers in
exchange for colocation space and related benefits in such IBX centers. In
connection with this agreement, the Company granted the fiber carrier
warrants to purchase up to 540,000 shares of the Company's common stock at
$4.00 per share. The warrants are immediately exercisable and expire five
years from date of grant. Warrants for 140,000 shares are immediately
vested and warrants for 400,000 shares are subject to repurchase at the
original exercise price if certain performance commitments are not
completed by a pre-determined date. The fiber carrier is not obligated to
install high-bandwidth local connectivity services and, apart from
forfeiting the relevant number of warrants and colocation space, will not
be penalized for not installing. The warrants were valued at $5,371,800
using the Black-Scholes option-pricing model and has been recorded
initially to construction in progress until installation is complete. The
following assumptions were used in determining the fair value of the
warrants: deemed fair market value per share of $11.82, dividend yield of
0%, expected volatility of 80%, risk-free interest rate of 6.56% and a
contractual life of 5 years. Under the applicable guidelines in EITF 96-18,
the underlying shares of common stock associated with these warrants
subject to repurchase are revalued at each balance sheet date to reflect
their current fair value until the performance commitment is complete. Any
resulting increase in fair value of the warrant will ultimately be recorded
as a leasehold improvement.
In April 2000, the Company entered into an operating lease agreement for
its Amsterdam, The Netherlands, IBX center. The agreement is for a minimum
of 15 years, with annual rent payments of 3,244,300 Dutch Guilders
(approximately $1,336,300), adjusted annually according to the consumer
price index (the "CPI").
During the six months ended June 30, 2000, the Company granted
additional stock options to employees to purchase 6,060,925 shares of
common stock under the 1998 Stock Plan resulting in an additional deferred
stock-based compensation charge of approximately $46.6 million.
In May 2000, the Company amended and restated its Certificate of
Incorporation to change the authorized share capital to 80,000,000 shares
of common stock and 43,000,000 shares of redeemable convertible preferred
stock, of which 20,000,000 has been designated as Series A, 16,000,000 has
been designated as Series B and 7,000,000 has been designated as Series C.
In May 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 3,000,000 to a total of
15,012,810 shares.
In May and June 2000, the Company completed the closing of the Series C
redeemable convertible preferred stock financing. The Company raised
approximately $94.4 million and issued 6,262,161 shares of Series C
redeemable convertible preferred stock. The rights,
F-29
EQUINIX, INC.
Notes to Consolidated Financial Statements--(Continued)
preferences and privileges of the Series C redeemable convertible preferred
stock are consistent with those outlined for Series A and B in Note 5
except as follows:
. Dividends are payable at a rate of $1.21 per share
. Holders have a liquidation preference of $15.08 per share plus all
declared but unpaid dividends.
On May 15, 2000, the board of directors agreed to waive the repurchase
right with respect to all of Albert M. Avery, IV's unvested shares.
On May 16, 2000, Peter F. Van Camp joined Equinix as chief executive
officer. His offer letter provides for the grant of an option to purchase
3,105,000 shares of common stock at the fair market value on the grant date
vesting monthly over four years. The agreement also provides for a no-
interest loan to Mr. Van Camp for up to $3,000,000 to purchase a primary
residence. The loan will be secured by Mr. Van Camp's primary residence and
any shares of stock that Mr. Van Camp obtains by exercising the options
described above. The agreement also details salary and caps the amount of
relocation expenses. The agreement further provides for 12 months of
severance pay if Mr. Van Camp is terminated by us for reasons other than
cause or disability. The stock option agreement with Mr. Van Camp provides
that the Company's right to repurchase unvested shares shall lapse upon
certain changes in control of Equinix.
On May 26, 2000, the board of directors approved the 2000 Equity
Incentive Plan under which 5,000,000 shares of common stock have been
reserved. Any shares not yet issued under the 1998 Stock Plan will also be
available for grant under this plan. On each January 1, commencing with the
year 2001, the number of shares in reserve will automatically increase by
6% of the total number of shares of common stock that are outstanding at
that time or, if less, by 6,000,000 shares. The board has elected to extend
the change in control acceleration feature of the 2000 Equity Incentive
Plan to all outstanding options and unvested shares. Previously, options
granted under the 1998 Stock Plan provided that vesting of the shares would
accelerate only if not assumed by the acquiring entity. This plan is
subject to stockholder approval.
In May 2000, the Company adopted the employee stock purchase plan under
which 1,000,000 shares have been reserved for issuance thereafter. On each
January 1, the number of shares in reserve will automatically increase by
2% of the total number of shares of common stock outstanding at that time,
or, if less, by 600,000 shares. The plan permits purchases of common stock
via payroll deductions. The maximum payroll deduction is 15% of the
employee's cash compensation. Purchases of the common stock will occur on
February 1 and August 1 of each year. The price of each share purchased
will be 85% of the lower of:
. The fair market value per share of common stock on the date
immediately before the first day of the applicable offering period
(which lasts 24 months); or
. The fair market value per share of common stock on the purchase
date.
The value of the shares purchased in any calendar year may not exceed
$25,000. This plan is subject to stockholder approval.
In May 2000, the board of directors also adopted the 2000 directors'
stock option plan and 200,000 shares of common stock were reserved for
issuance under this plan. On each January 1, starting with the year 2001,
the number of shares in reserve will automatically
F-30
EQUINIX, INC.
Notes to Consolidated Financial Statements--(Continued)
increase by 50,000 shares. Non-employee members of the board of directors
will be eligible for option grants under the 2000 directors' stock option
plan. Each non-employee director who joins the board after the effective
date of the plan will receive an initial option of 25,000 shares. The
initial options vest in four equal annual installments following the date
of grant. At each annual stockholder's meeting, beginning in 2000, each
non-employee director will automatically be granted an annual option for
10,000 shares of the common stock. A new non-employee director who receives
the initial option will not receive the 10,000 share annual option in the
same calendar year. These options vest fully on the first anniversary of
the date of the grant. The exercise price of the option will be equal to
the fair market value of the common stock on the option grant date. The
non-employee directors' options have a 10-year term, and expire one year
after a director leaves the board. Upon a change of control of the Company,
the options become fully vested. This plan is subject to stockholder
approval.
On May 23, 2000, Equinix entered into an agreement to purchase
approximately 80 acres of land in San Jose, California for approximately
$82.1 million. On June 21, 2000, before the closing on this property, the
Company assigned its interest in the purchase agreement to iStar San Jose,
LLC ("iStar"), and, concurrently, entered into a 20-year lease with iStar
for the property. Under the terms of the lease, the Company has an option
to extend the lease period for an additional 60 years, in six renewal terms
of ten years each, for a total lease term of 80 years. In addition, the
Company has an option to purchase the property from iStar after 10 years.
The total rent payments during years one through five are approximately
$9,584,000. Beginning the sixth lease year and every five years thereafter,
the rent payments will increase by the percentage increase in the CPI, but
in no event will the annual cumulative increase exceed 3.5% per annum.
Concurrent with the execution of the lease, the Company posted a letter
of credit in the amount of $10.0 million. This letter of credit shall
increase to $35.0 million if the Company does not meet certain financing
targets. This security deposit shall be reduced on a pro rata basis based
on the status of construction activity. On the tenth anniversary and every
tenth year thereafter, Equinix shall have the right to purchase the
property at the then fair market value, but at no less than the original
purchase price.
In June 2000, the Company entered into a memorandum of understanding
with COLT Telecommunications ("Colt") whereby Colt agreed to install high-
bandwidth local connectivity services to a number of the Company's European
IBX centers in exchange for colocation space and related benefits in such
IBX centers. In connection with this agreement, the Company granted Colt
warrants to purchase up to 250,000 shares of the Company's common stock at
$5.33 per share. The warrants are immediately exercisable and expire five
years from the date of grant. The shares are subject to repurchase at the
original exercise price if certain performance commitments are not
completed by a pre-determined date. Colt is not obligated to install high-
bandwidth local connectivity services and, apart from forfeiting the
relevant number of warrants and colocation space, will not be penalized for
not installing. The warrants were valued at $2,795,000 using the Black-
Scholes option-pricing model and has been recorded initially to
construction in progress until installation is complete. The following
assumptions were used in determining the fair value of the warrants: deemed
fair market value per share of $13.58, dividend yield of 0%, expected
volatility of 80%, risk-free interest rate of 6.23% and a contractual life
of 5 years. Under the applicable guidelines in EITF 96-18, the underlying
shares of common stock associated with these warrants subject to repurchase
are revalued at each balance sheet date to reflect their current fair value
until the performance commitment is complete. Any
F-31
EQUINIX, INC.
Notes to Consolidated Financial Statements--(Continued)
resulting increase in fair value of the warrant will ultimately be recorded
as a leasehold improvement.
We are currently having discussions with a group of lenders to obtain a
$100.0 million senior secured credit facility. Although we believe we will
secure commitments for our contemplated credit facility, we do not know
that we will receive satisfactory commitments from lenders or that we will
be able to negotiate satisfactory terms for and ultimately enter into a
credit facility. Moreover, we expect that our credit facility will contain
financial covenants and borrowing limitations that may prevent some or all
of the funds potentially available to us from actually becoming available
to us. If we are not successful in entering into our contemplated credit
facility, or if funds are not ultimately made available to us under our
credit facility, we may have to obtain funds from an alternative source to
pursue our plans for five additional IBX centers and expansion projects.
In June 2000, the Company entered into a strategic agreement with
WorldCom and UUNET, an affiliate of WorldCom (the "UUNET Strategic
Agreement"), which amends, supersedes and restates the definitive agreement
entered into with WorldCom in November 1999 and the related WorldCom
Warrant. Under the UUNET Strategic Agreement, WorldCom agreed to install
high-bandwidth local connectivity services and UUNET agreed to provide
high-speed data entrance facilities to a number of the Company's IBX
centers in exchange for colocation services and related benefits in such
IBX centers. In connection with this strategic agreement, the Company
granted WorldCom Venture Fund a warrant (the "WorldCom Venture Fund
Warrant") to purchase up to 650,000 shares of Company's common stock at
$5.33 per share. All but 37,500 of the shares under the earlier WorldCom
Warrant are immediately vested under the UUNET Strategic Agreement. The
WorldCom Venture Fund Warrant is immediately exercisable and expires five
years from the date of grant. The warrant is subject to repurchase at the
original exercise price if certain performance commitments are not
completed by a pre-determined date. WorldCom and UUNET are not obligated to
install high-bandwidth local connectivity services and provide high-speed
data entrance facilities, respectively, and, apart from forfeiting the
relevant number of warrants and colocation space, will not be penalized for
not performing. The warrant was valued at $7,254,800 using the Black-
Scholes option-pricing model and has been recorded initially to
construction in progress until installation is complete. The following
assumptions were used in determining the fair value of the warrant: deemed
fair market value per share of $13.58, dividend yield of 0%, expected
volatility of 80%, risk-free interest rate of 6.23% and a contractual life
of 5 years. Under the applicable guidelines in EITF 96-18, the underlying
shares of common stock associated with this warrant subject to repurchase
are revalued at each balance sheet date to reflect their current fair value
until the performance commitment is complete. Any resulting increase in
fair value of the warrant will ultimately be recorded as a leasehold
improvement.
The Company's board of directors authorized management to file a
registration statement with the Securities and Exchange Commission to
permit the Company to sell shares of its common stock to the public.
F-32
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this Prospectus. You
must not rely on any unauthorized information or representations. This
prospectus is an offer to sell only the shares offered hereby, but only under
circumstances and in jurisdictions where it is lawful to do so. The
information contained in this prospectus is current only as of its date.
-----------------
TABLE OF CONTENTS
Page
----
Prospectus Summary....................................................... 1
Risk Factors............................................................. 5
Forward-Looking Statements............................................... 14
Use of Proceeds.......................................................... 14
Dividend Policy.......................................................... 14
Capitalization........................................................... 15
Dilution................................................................. 16
Selected Consolidated Financial Data..................................... 17
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 19
Business................................................................. 27
Management............................................................... 37
Related Party Transactions............................................... 46
Principal Stockholders................................................... 49
Description of Capital Stock............................................. 51
Shares Eligible for Future Sale.......................................... 54
Underwriters............................................................. 56
Legal Matters............................................................ 59
Change in Independent Accountants........................................ 59
Experts.................................................................. 59
Where You Can Find More Information...................................... 59
Index to Consolidated Financial Statements............................... F-1
-----------------
Through and including , 2000 (the 25th day after the date of
this prospectus), all dealers effecting transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to a dealer's obligation to deliver a
prospectus when acting as an underwriter and with respect to an unsold
allotment or subscription.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
20,000,000 Shares
Equinix, Inc.
Common Stock
-----------------
[Logo of Equinix]
-----------------
Goldman, Sachs & Co.
Salomon Smith Barney
Chase H&Q
Epoch Partners
Representatives of the Underwriters
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PART II
Information Not Required in Prospectus
Item 13. Other Expenses of Issuance and Distribution
The following table presents the costs and expenses, other than underwriting
discounts and commissions, payable by us in connection with the sale of common
stock being registered. All amounts are estimates except the SEC registration
fee, the NASD filing fees, and the Nasdaq National Market listing fee.
SEC registration fee.............................................. $ 65,000
NASD filing fee................................................... 25,000
Nasdaq National Market listing fee................................ 83,500
Printing and engraving expenses................................... 450,000
Legal fees and expenses........................................... 650,000
Accounting fees and expenses...................................... 400,000
Road show expenses................................................ 50,000
Blue sky fees and expenses........................................ 5,000
Transfer agent fees............................................... 25,000
Miscellaneous fees and expenses................................... 46,500
----------
Total .......................................................... 1,800,000
==========
Item 14. 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 such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933
(the "Act"). Article VII, Section 7.6 of our bylaws provides for mandatory
indemnification of our directors and officers and permissible indemnification
of employees and other agents to the maximum extent permitted by the Delaware
General Corporation Law. Our amended and restated certificate of incorporation
provides that, pursuant to Delaware law, our directors shall not be liable for
monetary damages for breach of the directors' fiduciary duty as directors to us
and to our stockholders. This provision in the amended and restated certificate
of incorporation does not eliminate the directors' fiduciary duty, and in
appropriate circumstances equitable remedies such as 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 or our stockholders 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, such as 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 10.1 and incorporated by reference. The indemnification agreements
provide our officers and directors with further indemnification to the maximum
extent permitted by the Delaware General Corporation Law. We also maintain
liability insurance for our directors and officers. Reference is also made to
Section 7 of the underwriting agreement contained in Exhibit 1.1 to this
registration statement, indemnifying our officers and directors against certain
liabilities, and Section 1.9 of the amended and restated investors' rights
agreement contained in Exhibit 10.6 to this registration statement,
indemnifying some of our stockholders, including controlling stockholders,
against certain liabilities.
II-1
Item 15. Recent Sales of Unregistered Securities
Since inception, we have issued and sold the following securities:
1. We granted stock options to purchase 14,629,015 shares of common
stock at exercise prices ranging from $0.067 to $7.00 per share to
employees, consultants and directors pursuant to our 1998 Stock Option
Plan.
2. From January 1999 through June 2000, we issued and sold an aggregate
of 6,605,996 shares of common stock to employees, consultants and directors
for aggregate consideration of approximately $3,359,800 pursuant to
exercises of options granted under our 1998 Stock Option Plan.
3. In September 1998 and January 1999, we issued and sold 18,682,500
shares of our Series A preferred stock for an aggregate purchase price of
approximately $12,455,000 to a group of investors under a stock purchase
agreement.
4. On March 10, 1999 we issued a warrant to purchase 765,000 shares of
our Series A preferred stock with an exercise price of $0.67 per share to
Comdisco, Inc. in connection with a Loan and Security Agreement dated March
10, 1999 between Comdisco, Inc. and ourselves.
5. On May 27, 1999 we issued a warrant to purchase 30,000 shares of our
Series A preferred stock with an exercise price of $1.67 per share to
Comdisco, Inc. in connection with a Master Lease Agreement dated May 27,
1999 between Comdisco, Inc. and ourselves.
6. In August, September, October, November and December 1999, we issued
and sold 15,759,561 shares of our Series B preferred stock for an aggregate
purchase price of approximately $84,052,320 to a group of investors under a
stock purchase agreement.
7. On August 16, 1999 we issued a warrant to purchase 150,000 shares of
our Series A preferred stock with an exercise price of $3.00 per share to
Comdisco, Inc. in connection with a Master Lease Agreement dated May 27,
1999 between Comdisco, Inc. and ourselves.
8. On August 16, 1999 we issued warrants to purchase a total of 300,000
shares of our Series A preferred stock with an exercise price of $3.00 per
share to Venture Lending & Leasing, Inc. II and its designees in connection
with a Loan Agreement dated August 16, 1999 between Venture Lending &
Leasing, Inc. II and ourselves.
9. On August 31, 1999 we issued a warrant to purchase 338,145 shares of
our common stock with an exercise price of $0.53 per share to NorthPoint
Communications, Inc. in connection with a Strategic Agreement dated August
31, 1999 between NorthPoint Communications, Inc. and ourselves.
10. On November 3, 1999 we issued a warrant to purchase 352,500 shares
of our common stock with an exercise price of $1.00 per share to Bechtel
Corporation in connection with a Master Agreement dated November 3, 1999
between Bechtel Corporation and ourselves. The warrant was subsequently
exercised and we issued 352,500 shares thereunder.
11. On November 16, 1999 we issued warrants to purchase 675,000 shares
of our common stock with an exercise price of $0.67 per share to WorldCom,
Inc. in connection with that certain agreement dated November 16, 1999
between WorldCom, Inc. and ourselves.
12. In December 1999 we issued 200,000 units consisting of 13% senior
discount notes due 2007 and warrants to purchase an aggregate of 3,376,500
shares of common stock with an exercise price of $0.0067 per share to
Salomon Smith Barney Inc., Morgan Stanley & Co. Incorporated and Goldman,
Sachs & Co., as initial purchasers, for resale to qualified institutional
buyers, for an aggregate purchase price of $200,000,000. Salomon Smith
Barney Inc., Morgan Stanley & Co. Incorporated and Goldman, Sachs & Co.
received an aggregate discount of $6,000,000 for acting as initial
purchasers in connection with this transaction.
II-2
13. On January 28, 2000 we issued a warrant to purchase 33,100 shares
of our common stock with an exercise price of $6.00 per share to Alexandria
Real Estate Equities, L.P., in connection with the execution and delivery
of the lease relating to property located in Mountain View, California.
14. On March 21, 2000 we issued and sold 31,211 shares of our common
stock for an aggregate purchase price of approximately $166,666.74 to a
group of individuals under common stock purchase agreements.
15. On March 31, 2000 we issued a warrant to purchase 540,000 shares of
our common stock with an exercise price of $4.00 per share to AT&T in
connection with a commercial agreement between AT&T and ourselves dated
March 31, 2000 relating to our IBX centers.
16. On May 1, 2000 we issued a warrant to purchase 6,000 shares of our
common stock with an exercise price of $5.00 per share to Malcolm Brown in
connection with that certain agreement dated May 1, 2000 between Malcolm
Brown and ourselves.
17. In May and June 2000 we issued and sold 6,262,161 shares of our
Series C preferred stock for an aggregate purchase price of approximately
$94,433,388 to a group of investors under a stock purchase agreement.
18. On June 21, 2000 we issued a warrant to purchase 250,000 shares
of our common stock with an exercise price of $5.33 per share to COLT
Telecom Group plc, in connection with a strategic agreement.
19. On June 29, 2000 we issued a warrant to purchase 650,000 shares
of our common stock with an exercise price of $5.33 per share to WorldCom
Venture Fund, in connection with a strategic agreement.
20. On July 5, 2000 we issued and sold 16,190 shares of our common
stock for a purchase price of $84,997.50 to Howard Fischer Associates
International under a common stock purchase agreement.
The sale of the above securities was determined to be exempt from
registration under the Securities Act in reliance on Rule 701 promulgated under
the Securities Act, Section 4(2) of the Securities Act or Regulation D
promulgated thereunder as transactions by an issuer not involving any public
offering or transactions under compensation benefit plans and contracts
relating to compensation as provided under 701. In addition, the recipients of
securities in each such transaction represented their intentions to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were affixed to the share
certificates issued in these transactions. All recipients had adequate access,
through their relationships with us, to information about us.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
Exhibit
No. Description
------- -----------
1.1** Form of Underwriting Agreement.
3.1* Amended and Restated Certificate of Incorporation of the Registrant,
as amended to date.
3.2* Bylaws of the Registrant.
3.3*** Form of Amended and Restated Certificate of Incorporation to be filed
upon the closing of the offering made under this Registration
Statement.
3.4*** Amended and Restated Bylaws of the Registrant to be effective upon the
closing of the offering made under this Registration Statement.
4.1 Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4.
4.2** Form of Registrant's Common Stock certificate.
4.6* Common Stock Registration Rights Agreement (See Exhibit 10.3).
4.9* Amended and Restated Investors' Rights Agreement (See Exhibit 10.6).
II-3
Exhibit
No. Description
------- -----------
5.1 Opinion of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian,
LLP.
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 May 8,
2000, by and between the Registrant, the Series A Purchasers, the
Series B Purchasers, the Series C Purchasers and members of the
Registrant's management.
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 WorldCom, Inc., dated November
16, 1999.
10.21* Customer Agreement between Equinix, Inc. and WorldCom, Inc., dated
November 16, 1999.
10.22*+ Lease Agreement with GIP Airport B.V., dated as of April 28, 2000.
10.23* Purchase Agreement between International Business Machines
Corporation and Equinix, Inc. dated May 23, 2000.
10.24*** 2000 Equity Incentive Plan.
10.25 2000 Director Option Plan.
10.26*** 2000 Employee Stock Purchase Plan.
10.27+ Ground Lease by and between iStar San Jose, LLC and Equinix, Inc.,
dated June 21, 2000.
16.1* Letter regarding change in certifying accountant.
21.1* List of Subsidiaries of the Registrant.
23.1 Consent of PricewaterhouseCoopers LLP, independent accountants.
23.2 Consent of Counsel. Reference is made to Exhibit 5.1.
24.1*** Power of Attorney.
27.1* Financial Data Schedule.
- -------
* Incorporated herein by reference to the exhibit of the same number in the
Registrant's Registration Statement on Form S-4 (file No. 333-93749).
** 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.
II-4
(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.
Item 17. Undertakings
We undertake to provide to the underwriters at the closing specified in the
underwriting agreement certificates in the denominations and registered in the
names as required by the underwriters to permit prompt delivery to each
purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the
Registrant under the Delaware General Corporation Law, our amended and restated
certificate of incorporation or our amended and restated bylaws, the
underwriting agreement, or otherwise, we have 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 these
liabilities, other than the payment by us of expenses incurred or paid by a
director, officer, or controlling person of ours in the successful defense of
any action, suit, or proceeding, is asserted by a director, officer, or
controlling person in connection with the securities being registered in this
offering, we will, unless in the opinion of our counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether this indemnification by us is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of this issue.
We undertake that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by us under Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this registration statement as
of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered, and the offering of these securities at that time shall be deemed
to be the initial bona fide offering.
II-5
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 19th day of July, 2000.
Equinix, Inc.
/s/ Peter F. Van Camp
By:__________________________________
Peter F. Van Camp
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/ Peter F. Van Camp Chief Executive Officer July 19, 2000
______________________________________ and Director (Principal
Peter F. Van Camp Executive Officer)
Albert M. Avery, IV* President, Chief Operating July 19, 2000
______________________________________ Officer and Director
Albert M. Avery, IV
/s/ Philip J. Koen Chief Financial Officer July 19, 2000
______________________________________ Corporate Development
Philip J. Koen Officer and Secretary
(Principal Financial and
Accounting Officer),
Director July 19, 2000
______________________________________
Scott Kriens
Director July 19, 2000
______________________________________
Dawn G. Lepore
Andrew S. Rachleff* Director July 19, 2000
______________________________________
Andrew S. Rachleff
Michelangelo Volpi* Director July 19, 2000
______________________________________
Michelangelo Volpi
John G. Taysom* Director July 19, 2000
______________________________________
John G. Taysom
/s/ Peter F. Van Camp
*By: _____________________
Peter F. Van Camp
Attorney-in-Fact
/s/ Philip J. Koen
*By: _____________________
Philip J. Koen
Attorney-in-Fact
II-6
Exhibit Index
Exhibit
Number Exhibit Title
-------- -------------
1.1** Form of Underwriting Agreement.
3.1* Amended and Restated Certificate of Incorporation of the Registrant,
as amended to date.
3.2* Bylaws of the Registrant.
3.3*** Form of Amended and Restated Certificate of Incorporation to be filed
upon the closing of the offering made under this Registration
Statement.
3.4*** Amended and Restated Bylaws of the Registrant to be effective upon
the closing of the offering made under this Registration Statement.
4.1 Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4.
4.2** Form of Registrant's Common Stock certificate.
4.6* Common Stock Registration Rights Agreement (See Exhibit 10.3).
4.9* Amended and Restated Investors' Rights Agreement (See Exhibit 10.6).
5.1 Opinion of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian,
LLP.
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 May 8,
2000, by and between the Registrant, the Series A Purchasers, the
Series B Purchasers, the Series C Purchasers and members of the
Registrant's management.
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 WorldCom, Inc., dated November
16, 1999.
10.21* Customer Agreement between Equinix, Inc. and WorldCom, Inc., dated
November 16, 1999.
10.22*+ Lease Agreement with GIP Airport B.V., dated as of April 28, 2000.
10.23* Purchase Agreement between International Business Machines
Corporation and Equinix, Inc. dated May 23, 2000.
10.24*** 2000 Equity Incentive Plan.
Exhibit
Number Exhibit Title
-------- -------------
10.25 2000 Director Option Plan.
10.26*** 2000 Employee Stock Purchase Plan.
10.27+ Ground Lease by and between iStar San Jose, LLC and Equinix, Inc.,
dated June 21, 2000.
16.1* Letter regarding change in certifying accountant.
21.1* List of Subsidiaries of the Registrant.
23.1 Consent of PricewaterhouseCoopers LLP, independent accountants.
23.2 Consent of Counsel. Reference is made to Exhibit 5.1.
24.1*** Power of Attorney.
27.1* Financial Data Schedule.
- --------
* Incorporated herein by reference to the exhibit of the same number in the
Registrant's Registration Statement on Form S-4 (file No. 333-93749).
**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.