================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------- FORM 10-Q |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________________ to ________________ Commission File Number 000-31293 EQUINIX, INC. (Exact name of registrant as specified in its charter) Delaware 77-0487526 (State of incorporation) (I.R.S. Employer Identification No.) 2450 Bayshore Parkway, Mountain View, California 94043 (Address of principal executive offices, including ZIP code) (650) 316-6000 (Registrant's telephone number, including area code) 901 Marshall Street, Redwood City, California 94063 (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) Yes X No and (2) has been -- -- subject to such filing requirements for the past 90 days. Yes X . No . -- -- The number of shares outstanding of the Registrant's Common Stock as of September 30, 2000 was 76,589,827. ================================================================================ EQUINIX, INC. INDEX
Page No. Part I. Financial Information Item 1. Condensed Consolidated Balance Sheets as of September 30, 2000 and December 31, 1999............................................................................. 3 Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2000 and 1999............................................................................. 4 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2000 and 1999...................................................................................... 5 Notes to Condensed Consolidated Financial Statements.......................................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................................................................... 14 Item 3. Qualitative and Quantitative Disclosure About Market Risk..................................... 26 Part II. Other Information Item 1. Legal Proceedings............................................................................. 27 Item 2. Changes in Securities and Use of Proceeds..................................................... 27 Item 3. Defaults Upon Senior Securities............................................................... 28 Item 4. Submission of Matters to a Vote of Security Holders........................................... 28 Item 5. Other Information............................................................................. 28 Item 6. Exhibits and Reports on Form 8-K.............................................................. 29 Signature................................................................................................. 31
2 PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements EQUINIX, INC. Condensed Consolidated Balance Sheets (in thousands)
September 30, December 31, 2000 1999 ------------------ ------------------ (unaudited) Assets Current assets: Cash and cash equivalents................................................... $ 273,869 $ 203,165 Short-term investments...................................................... 36,709 19,809 Accounts receivable, net.................................................... 5,420 178 Current portion of restricted cash and short-term investments............... 26,312 25,111 Prepaids and other current assets........................................... 3,946 1,597 ------------------ ------------------ Total current assets.................................................... 346,256 249,860 Property and equipment, net..................................................... 195,964 28,444 Construction in progress........................................................ 130,643 18,312 Restricted cash and short-term investments, less current portion................ 17,837 13,498 Debt issuance costs, net........................................................ 6,596 7,125 Other assets.................................................................... 3,412 2,707 ------------------ ------------------ Total assets............................................................ $ 700,708 $ 319,946 ================== ================== Liabilities, Redeemable Convertible Preferred Stock and Stockholders' Equity Current liabilities: Accounts payable and accrued expenses....................................... $ 10,287 $ 4,143 Accrued construction costs.................................................. 61,136 9,772 Current portion of debt facilities and capital lease obligations............ 6,535 4,395 Accrued interest payable.................................................... 9,364 2,167 Other current liabilities................................................... 2,951 205 ------------------ ------------------ Total current liabilities............................................... 90,273 20,682 Debt facilities and capital lease obligations, less current portion............. 9,398 8,808 Senior notes.................................................................... 185,418 183,955 Other liabilities............................................................... 2,916 802 ------------------ ------------------ Total liabilities....................................................... 288,005 214,247 ------------------ ------------------ Redeemable convertible preferred stock.......................................... - 97,227 Stockholders' equity: Common stock................................................................ 77 12 Additional paid-in capital.................................................. 561,629 43,962 Deferred stock-based compensation........................................... (50,209) (13,706) Accumulated other comprehensive income (loss)............................... (79) 14 Accumulated deficit......................................................... (98,715) (21,810) ------------------ ------------------ Total stockholders' equity.............................................. 412,703 8,472 ------------------ ------------------ Total liabilities, redeemable convertible preferred stock and stockholders' equity................................................. $ 700,708 $ 319,946 ================== ==================
See accompanying notes to condensed consolidated financial statements. 3 EQUINIX, INC. Condensed Consolidated Statements of Operations (in thousands, except per share data)
Three months ended Nine months ended September 30, September 30, ---------------------------- ----------------------------- 2000 1999 2000 1999 ------------- ----------- ------------ ------------- (unaudited) Revenues ....................................................... $ 3,933 $ - $ 4,961 $ - Cost of revenues (excludes stock-based compensation of $220 and $65 for the three months ended September 30, 2000 and 1999, respectively, and $434 and $73 for the nine months ended September 30, 2000 and 1999, respectively) ............................................... 12,419 595 20,828 935 --------- --------- --------- --------- Gross loss .................................................. (8,486) (595) (15,867) (935) --------- --------- --------- --------- Operating expenses: Sales and marketing (excludes stock-based compensation of $2,351 and $273 for the three months ended September 30, 2000 and 1999, respectively, and $5,321 and $385 for the nine months ended September 30, 2000 and 1999, respectively) ........................... 2,695 853 8,433 1,459 General and administrative (excludes stock-based compensation of $7,515 and $2,560 for the three months ended September 30, 2000 and 1999, respectively, and $14,360 and $3,564 for the nine months ended September 30, 2000 and 1999, respectively) .......................................... 8,683 1,938 24,007 4,367 Stock-based compensation .................................. 10,086 2,898 20,115 4,022 --------- --------- --------- --------- Total operating expenses ....................................... 21,464 5,689 52,555 9,848 --------- --------- --------- --------- Loss from operations ........................................... (29,950) (6,284) (68,422) (10,783) Interest income ........................................... 4,347 238 11,879 410 Interest expense .......................................... (6,482) (242) (20,362) (380) --------- --------- --------- --------- Net loss ....................................................... $(32,085) $ (6,288) $(76,905) $(10,753) ========= ======== ========= ========= Net loss per share: Basic and diluted ......................................... $ (0.70) $ (2.45) $ (3.45) $ (5.44) ========= ======== ========= ========= Weighted average shares ................................... 45,534 2,562 22,289 1,977 ========= ======== ========= =========
See accompanying notes to condensed consolidated financial statements. 4 EQUINIX, INC. Condensed Consolidated Statements of Cash Flows (in thousands)
Nine months ended September 30, ------------------------------- 2000 1999 ------------- ------------- (unaudited) Cash flows from operating activities: Net loss ............................................................................... $ (76,905) $ (10,753) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation ........................................................................ 6,830 248 Amortization of deferred stock-based compensation ................................... 20,115 4,022 Amortization of debt related costs and discount ..................................... 2,454 269 Amortization of sales acquisition costs ............................................. 452 100 Amortization of rent discount ....................................................... 84 - Changes in operating assets and liabilities: Accounts receivable ............................................................. (5,242) - Prepaids and other current assets ............................................... (2,349) (1,787) Other assets .................................................................... (987) (1,166) Accounts payable and accrued expenses ........................................... 6,144 658 Accrued interest payable ........................................................ 7,197 - Other current liabilities ....................................................... 2,746 170 Other liabilities ............................................................... 2,114 132 ------------- ------------- Net cash used in operating activities ....................................... (37,347) (8,107) ------------- ------------- Cash flows from investing activities: Purchase of short-term investments ..................................................... (52,710) (16,137) Sales and maturities of short-term investments ......................................... 35,717 8,042 Purchases of property and equipment .................................................... (169,646) (2,645) Additions to construction in progress .................................................. (102,754) (22,559) Accrued construction costs ............................................................. 51,364 8,687 Purchase of restricted cash and short-term investments ................................. (18,540) - Sale of restricted cash and short-term investments ..................................... 13,000 - ------------- ------------- Net cash used in investing activities ....................................... (243,569) (24,612) ------------- ------------- Cash flows from financing activities: Proceeds from issuance of common stock ................................................. 253 - Proceeds from initial public offering of common stock, net ............................. 251,710 - Proceeds from exercise of stock options ................................................ 3,055 266 Proceeds from issuance of debt facilities and capital lease obligations ................ 6,884 6,115 Repayment of debt facilities and capital lease obligations ............................. (4,687) (272) Repurchase of redeemable convertible preferred stock ................................... - (10) Repurchase of common stock ............................................................. (13) - Proceeds from issuance of redeemable convertible preferred stock, net .................. 94,418 55,850 ------------- ------------- Net cash provided by financing activities ................................... 351,620 61,949 ------------- ------------- Net increase in cash and cash equivalents .................................................. 70,704 29,230 Cash and cash equivalents at beginning of period ........................................... 203,165 4,164 ------------- ------------- Cash and cash equivalents at end of period ................................................. $ 273,869 $ 33,394 ============= ============= Supplemental cash flow information: Cash paid for taxes ................................................................. $ - $ 68 ============= ============= Cash paid for interest .............................................................. $ 14,135 $ 68 ============= ============= Noncash financing and investing activities: Preferred stock warrants issued for financing commitments ........................... $ - $ 3,096 ============= ============= Common stock warrants issued for services ........................................... $ 10,624 $ 1,508 ============= ============= Revaluation of common stock warrants issued for services ............................ $ 6,879 $ - ============= ============= Assets recorded under capital lease ................................................. $ 5,339 $ 661 ============= ============= Deferred compensation on grants of stock options .................................... $ 56,618 $ 13,705 ============= =============
See accompanying notes to condensed consolidated financial statements. 5 EQUINIX, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared by Equinix, Inc. ("Equinix" or the "Company") and reflect all adjustments, consisting only of normal recurring adjustments, which in the opinion of management are necessary to present fairly the financial position and the results of operations for the interim periods presented. The balance sheet at December 31, 1999 has been derived from audited financial statements at that date. The financial statements have been prepared in accordance with the regulations of the Securities and Exchange Commission ("SEC"), but omit certain information and footnote disclosure necessary to present the statements in accordance with generally accepted accounting principles. For further information, refer to the Consolidated Financial Statements and Notes thereto included in Equinix's Registration Statement on Form S-1, declared effective by the Securities and Exchange Commission on August 10, 2000. Results for the interim periods are not necessarily indicative of results for the entire fiscal year. 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 condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. 2. Restricted Cash and Short-Term Investments In May 2000, the Company posted a letter of credit in the amount of $10.0 million related to the iStar lease (see Note 7). In June 2000, the Company made its first interest payment of $13.0 million on the Senior Notes from our restricted cash and short-term investment accounts. In September 2000, the Company posted a letter of credit in the amount of $5.5 million related to the Amsterdam, The Netherlands lease (see Note 7). 3. Property and Equipment Property and equipment is comprised of the following (in thousands):
September 30, December 31, 2000 1999 ----------------- ------------------- (unaudited) Leasehold improvements.................................. $ 115,666 $ 16,664 IBX plant and machinery................................. 32,433 8,236 Computer equipment and software......................... 38,833 3,126 IBX equipment........................................... 15,314 659 Furniture and fixtures.................................. 1,084 373 ----------------- ------------------- 203,330 29,058 Less accumulated depreciation........................... (7,366) (614) ----------------- ------------------- $ 195,964 $ 28,444 ================= ===================
Leasehold improvements, certain computer equipment, IBX plant and machinery, software and furniture and fixtures recorded under capital leases aggregated $6,000,000 and $661,000 as of September 30, 2000 and December 31, 1999, respectively. Amortization on the assets recorded under capital leases is included in depreciation expense. Included within leasehold improvements is the value attributed to the earned portion of the WorldCom Warrant and Bechtel Warrant totaling $4,562,000 and $472,000, respectively, as of September 30, 2000 and $330,000 and none, respectively, as of December 31, 1999. Amortization on such warrants within leasehold improvements is included in depreciation expense. 6 EQUINIX, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 4. 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 $13,714,000 as of September 30, 2000 and $4,136,000 as of December 31, 1999. 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 three months ended September 30, 2000, was $7,979,000 and $1,497,000, respectively. Total interest cost incurred and total interest capitalized during the nine months ended September 30, 2000, was $23,826,000 and $3,464,000, respectively. No interest was capitalized for the three and nine months ended September 30, 1999. 5. Redeemable Convertible Preferred Stock In May 2000, the Company amended and restated its Certificate of Incorporation to change the authorized share capital to 43,000,000 shares of redeemable convertible preferred stock, of which 20,000,000 was designated as Series A, 16,000,000 was designated as Series B and 7,000,000 was designated as Series C. 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. All shares of redeemable convertible preferred stock were converted to shares of common stock upon the closing of the Company's initial public offering in August 2000. All outstanding warrants to purchase preferred stock are now exercisable for common stock. 6. Stockholders' Equity Public Offering On August 11, 2000, the Company completed an initial public offering of 20,000,000 shares of its common stock. On September 7, 2000, the underwriters exercised their option to purchase 2,704,596 shares to cover the over-allotment of shares. As a result of the public offering, all outstanding shares of preferred stock automatically converted into 40,704,222 shares of common stock. Common Stock 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. In May 2000, the board of directors agreed to waive the repurchase right with respect to one of its founder's unvested shares. In August, 2000, the Company filed its amended and restated certificate of incorporation, which, among other things, increased its authorized common stock to 300,000,000 shares. 7 EQUINIX, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Stock Plans 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. During the nine months ended September 30, 2000, the Company granted additional stock options to employees to purchase 7,465,675 shares of common stock under the 1998 Stock Plan resulting in an additional deferred stock-based compensation charge of approximately $56.6 million. In July 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 300,000 to a total of 15,312,810 shares. In May 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 issued under the 1998 Stock Plan are 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. In May 2000, the Company approved the Employee Stock Purchase Plan under which 1,000,000 shares of common stock have been reserved. On each January 1, commencing with the year 2001, 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. In May 2000, the board of directors also approved the 2000 Directors' Stock Option Plan under which 200,000 shares of common stock have been reserved. On each January 1, commencing with the year 2001, the number of shares in reserve will automatically 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 is serving on our board on the effective date of the plan who has not already received an initial option for 40,000 shares and each non-employee director who joins the board after the effective date of the plan will receive an initial option of 40,000 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 in control of the Company, the options become fully vested. 8 EQUINIX, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) A summary of stock option plan activity under the stock option plans is as follows: Weighted-average Shares exercise price --------------- -------------------- Outstanding at December 31, 1999......... 2,780,988 $ 0.64 Granted.................................. 952,075 3.97 Forfeited................................ (155,594) 0.07 Exercised................................ (680,904) 1.05 --------------- Outstanding at March 31, 2000............ 2,896,565 1.67 Granted.................................. 5,114,050 5.12 Forfeited................................ (74,500) 0.47 Exercised................................ (478,490) 2.54 --------------- Outstanding at June 30, 2000............. 7,452,425 3.99 Granted.................................. 1,399,550 7.00 Forfeited................................ (172,783) 0.82 Exercised................................ (261,520) 2.28 --------------- Outstanding at September 30, 2000........ 4.58 8,417,672 =============== Shares available for future grant........ 5,227,622 =============== Exercisable at end of period............. 111,040 0.14 =============== Warrants In April 2000, the Company entered into a definitive agreement with AT&T whereby AT&T 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 AT&T a warrant to purchase up to 540,000 shares of the Company's common stock at $4.00 per share. The warrant is immediately exercisable and expires five years from date of grant. A total of 140,000 shares are immediately vested and the remaining 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 warrant was originally valued at $5,372,000 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 warrant: 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 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. As of September 30, 2000 the fair market value of this warrant was $4,257,000. 9 EQUINIX, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) In June 2000, the Company entered into a strategic agreement 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 a warrant to purchase up to 250,000 shares of the Company's common stock at $5.33 per share. The warrant is immediately exercisable and expires 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. The warrant was originally 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 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. As of September 30, 2000 the fair market value of this warrant was $1,698,000. In June 2000, the Company entered into a strategic agreement with WorldCom and UUNET, an affiliate of WorldCom (the "UUNET Strategic Agreement"), which supersedes the definitive agreement entered into with WorldCom in November 1999 and which amends the related warrant for 675,000 shares issued to WorldCom in November 1999 (the "First 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. In addition, upon signing the UUNET Strategic Agreement all but 37,500 of the unearned shares under the First WorldCom Warrant are immediately vested. Both the First WorldCom Warrant and the WorldCom Venture Fund Warrant are immediately exercisable and expire five years from the date of grant. Both warrants are subject to repurchase at the original exercise price if certain performance commitments are not completed by a pre-determined date. The First WorldCom Warrant was originally valued at $2,969,000 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 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. Under the applicable guidelines in EITF 96-18, the remaining 37,500 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. As of September 30, 2000 the fair market value of this warrant was $5,546,000. The WorldCom Venture Fund Warrant was originally valued at $7,255,000 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 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. As of September 30, 2000 the fair market value of this warrant was $4,416,000. 10 EQUINIX, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 7. Commitments and Contingencies In April 2000, the Company entered into an operating lease agreement for its Amsterdam, The Netherlands, IBX center for a minimum term of 15 years. The Company has two options to extend the term of the lease for a period of five years each. In September 2000, the Company posted a letter of credit in the amount of $5.5 million related to the Amsterdam lease. In May 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 annual rent payments during years one through five are approximately $9.6 million. 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 iStar 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. During the third quarter of 2000, the Company entered into operating lease agreements for its London, United Kingdom; Paris, France; Frankfurt, Germany; and New York IBX centers. The London agreement is for a term of 25 years. The Company has the right to terminate the lease upon the 15th or the 20th anniversary of the commencement date of the lease. The term of the Paris agreement is for a minimum of 6 years. The Company has the option to extend the term of the lease for up to an additional 18 years. The Frankfurt lease is for a term of 20 years. The Company has two options to extend the term of the lease for a period of five years each. The New York lease is for a term of 15 years. The Company has three options to extend the term of the lease for a period of five years each. From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of its business activities. The Company accrues contingent liabilities when it is probable that future expenditures will be made and such expenditures can be reasonably estimated. In the opinion of management, there are no pending claims of which the outcome is expected to result in a material adverse effect in the financial position or results of operations of the Company. 8. Comprehensive Loss The components of comprehensive loss are as follows (in thousands): Three months ended Nine months ended September 30, September 30, -------------------------- -------------------------- 2000 1999 2000 1999 ------------- ------------ ------------ ------------- Net loss............................................. $ (32,085) $(6,288) $ (76,905) $ (10,753) Unrealized loss on available for sale securities..... (74) (10) (126) -- Foreign currency translation gain.................... 33 -- 33 -- ------------- ------------ ------------ ------------- Comprehensive loss................................... $ (32,126) $ (6,298) $ (76,998) $(10,753) ============= ============ ============ =============
There were no significant tax effects on comprehensive loss for the three and nine months ended September 30, 2000 and 1999. 11 EQUINIX, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 9. Historical Net Loss per Share 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 anti-dilutive. The following table sets forth the computation of historical basic and diluted net loss per share for the periods indicated (in thousands, except per share data) (unaudited):
Three months ended Nine months ended September 30, September 30, --------------------------- ---------------------------- 2000 1999 2000 1999 -------------- ------------ -------------- ------------- Numerator: Net loss.................................... $ (32,085) $(6,288) $(76,905) $ (10,753) ============== ============ ============== ============= Historical: Denominator: Weighted average shares..................... 50,908 9,870 27,586 7,617 Weighted average unvested shares subject to repurchase.............................. (5,374) (7,308) (5,297) (5,640) -------------- ------------ -------------- ------------- Total weighted average shares........... 45,534 2,562 22,289 1,977 ============== ============ ============== ============= Net loss per share: Basic and diluted....................... $ (0.70) $ (2.45) $ (3.45) $ (5.44) ============== ============ ============== =============
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:
September 30, -------------------------------- 2000 1999 ---------------- -------------- Series A redeemable convertible preferred stock.................. -- 18,682,500 Series B redeemable convertible preferred stock.................. -- 10,471,930 Series C redeemable convertible preferred stock.................. -- -- Series A preferred stock warrants................................ -- 1,245,000 Common stock warrants............................................ 7,113,745 -- Common stock options............................................. 8,417,672 1,777,233
12 EQUINIX, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 10. Segment Information The Company and its subsidiaries 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. 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. For the three and nine months ended September 30, 2000 and 1999, the majority of the Company's operations and assets are based in the United States. Revenues from two customers accounted for a combined 34% and 28%, respectively, of the Company's revenues for the three and nine months ended September 30, 2000. 11. Recent Accounting Pronouncements In September 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 September 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. 12. Subsequent Events The Company is currently having discussions with a group of lenders to obtain a senior secured credit facility. Although the Company believes it will secure commitments for this contemplated credit facility, the Company does not know that it will receive satisfactory commitments from lenders or that the Company will be able to negotiate satisfactory terms for and ultimately enter into a credit facility. Moreover, the Company expects that the credit facility will contain financial covenants and borrowing limitations that may prevent some or all of the funds potentially available to the Company from actually becoming available. If the Company is not successful in entering into this contemplated credit facility, or if funds are not ultimately made available to the Company under this credit facility, the Company may have to obtain funds from an alternative source. The Company is not currently pursuing any financing alternatives and does not know if any alternatives will be available. 13 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information in this discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Act of 1934, as amended. Such statements are based upon current expectations that involve risks and uncertainties. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. For example, the words "believes," "anticipates," "plans," "expects," "intends" and similar expressions are intended to identify forward-looking statements. Our actual results and the timing of certain events may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such a discrepancy include, but are not limited to, those discussed in "Other Factors Affecting Operating Results, Liquidity and Capital Resources" below. All forward-looking statements in this document are based on information available to us as of the date hereof and we assume no obligation to update any such forward-looking statements. Overview We design, build and operate neutral IBX centers where Internet businesses place their equipment and their network facilities in order to partner and interconnect with each other. Our neutral IBX centers provide content providers, application service providers, or ASPs, e-commerce and enterprise companies with the ability to directly interconnect with a choice of bandwidth providers, Internet service providers, or ISPs, infrastructure service providers and content distribution companies. We currently have IBX centers totaling an aggregate of 323,000 gross square feet in the Washington, D.C. metropolitan area, the New York metropolitan area, Silicon Valley, Los Angeles and Dallas. We intend to complete construction of three additional IBX centers and several expansion projects by the end of 2001, resulting in IBX centers covering eight markets in the United States and Europe. As of September 30, 2000, 61% of the available cabinets in our opened IBX centers were booked. Our annual contract value as of September 30, 2000 was $62.4 million. Our annual contract value reflects signed sales orders and includes both installed and uninstalled cabinets in both open and unopened IBX centers. A number of our larger contracts include ramps that allow customers a number of months to install their equipment and commence payment. Because we may alter our rollout schedule and because customers may not install or may delay installations, we cannot predict when and whether we will realize the full value of these contracts. Since inception, we have experienced operating losses and negative cash flow. As of September 30, 2000 we had an accumulated deficit of $98.7 million and accumulated cash used in operating and construction activities of $319.7 million. Given the revenue and income potential of our service offerings is still unproven and we have limited operating history, we may not generate sufficient operating results to achieve desired profitability. We therefore believe that we will continue to experience operating losses for the foreseeable future. See "Other Factors Affecting Operating Results". In August 2000, we successfully completed our initial public offering and obtained aggregate net proceeds of $251.7 million, which included proceeds from the exercise of the underwriters' over-allotment of 2,704,596 shares. For the three months and nine months ended September 30, 2000, revenues from enterprise and infrastructure companies accounted for more than 85% of our revenues, versus less than 15% from dot.com companies. For the three and nine months ended September 30, 2000, two customers accounted for a combined 34% and 28%, respectively, of our revenues. While the level of sales to any 14 specific customer is anticipated to vary from period to period, we expect that we will continue to have significant customer concentration for the foreseeable future. Net revenues consist of recurring and non-recurring revenues derived primarily from the leasing of the cabinet space, installation charges and the provisioning of direct interconnections between our customers. Also, we offer value-added and professional services including "Smart Hands" service for customer equipment installations and maintenance. In addition, we recently announced the introduction of "IBXflex" space that allows customers to deploy mission critical operations, equipment and personnel in or near Equinix IBX centers. Our customer contracts are renewable and typically range from one to three years with payments for services made on a monthly basis. Non-recurring revenues, which are comprised of installation charges, are billed upon the successful installation of our customer cabinets, interconnections, switch ports, other service offerings and custom installation charges. Both recurring and non-recurring revenues are recognized ratably over the term of the contract. Custom installation charges are recognized upon completion of the services provided. Cost of revenues consist primarily of lease 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. In addition, cost of revenues includes certain costs related to real estate obtained for future IBX facilities in the United States and Europe. These costs have been expensed as incurred. We will continue to fund these costs and certain future costs as the Company continues to expand its IBX centers in the United States and Europe. As a result, we expect our cost of revenues to increase significantly for the foreseeable future as we continue our rollout of additional IBX centers and expansion projects. Sales and marketing expenses consist primarily of compensation and related costs for the sales and marketing personnel, sales commissions, marketing programs, public relations, promotional materials and travel. Our sales and marketing expenses will increase significantly as we continue our rollout of additional IBX centers and expansion projects. General and administrative expenses consist primarily of costs associated with recruiting, training and managing of employees, salaries and related costs of our operations, customer fulfillment and support functions costs and finance and administrative personnel and related professional fees. Our general and administrative expenses, will increase significantly as we continue our rollout of additional IBX centers and expansion projects. Amortization of deferred stock-based compensation is a result of stock options granted to employees with an exercise price subsequently determined to be below the fair market per share for financial reporting purposes of our common stock. The 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. We expect amortization of deferred stock-based compensation expense to impact our reported results through December 31, 2004. Interest income has been generated primarily from the proceeds derived from our public and private stock offerings and funds received from various other financing events. We anticipate interest income will decrease as funds generated from financing activities are deployed into the construction and operations of our IBX centers. Interest expense includes interest attributed to our senior notes, debt facilities and capital lease obligations as well as interest expense derived from the amortization of our debt issuance costs and interest accretion attributed to the senior note warrants. We are currently having discussions with a group of lenders to obtain a senior secured credit facility. Assuming the successful completion of the senior credit facility, we expect interest expense to increase over the term of the facility. Income taxes have no significant impact on the Company and have been limited to nominal amounts since inception of the Company. We have recorded a full valuation allowance for any deferred tax assets, 15 consisting primarily of net operating loss carry-forwards, because of uncertainty regarding its recoverability. Our adjusted net loss before net interest and other expense, income taxes, depreciation and amortization of capital assets, amortization of stock-based compensation and other non-cash charges ("Adjusted EBITDA") is calculated to enhance an understanding of our operating results. Adjusted EBITDA is a financial measurement commonly used in capital-intensive telecommunication and infrastructure industries. Other companies may calculate Adjusted EBITDA differently than ours. It is not intended to represent cash flow or results of operations in accordance with generally accepted accounting principles nor a measure of liquidity. The Company measures Adjusted EBITDA at both the IBX center and total company level. Results of Operations Three Months Ended September 30, 1999 and 2000 Revenues. We recognized revenues of $3.9 million for the three months ended September 30, 2000. Revenues consisted of recurring revenues of $3.1 million primarily from the leasing of cabinet space, and non-recurring revenues of $857,000 related to the recognized portion of deferred installation revenue and custom installation revenues. Installation and service fees are recognized ratably over the term of the contract. Custom installation revenues are recognized upon completion of the services. We did not recognize any revenues during the three months ended September 30, 1999. Cost of Revenues. Cost of revenues increased from $595,000 for the three months ended September 30, 1999 to $12.4 million for the three months ended September 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 build-out and other equipment costs. The increase in cost of revenues was due to additional leases and increased expenses related to our opening of additional IBX centers. Sales and Marketing. Sales and marketing expenses increased from $853,000 for the three months ended September 30, 1999 to $2.7 million for the three months ended September 30, 2000. These amounts exclude $273,000 and $2.4 million, respectively, of stock-based compensation expense. Sales and marketing expenses consist primarily of compensation and related costs for the sales and marketing 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. 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 $1.9 million for the three months ended September 30, 1999 to $8.7 million for the three months ended September 30, 2000. These amounts exclude $2.6 million and $7.5 million, respectively, of stock-based compensation expense. 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. 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. EBITDA loss increased for the three months ended September 30, 1999 from $3.2 million to $16.7 million for the three months ended September 30, 2000. Although many factors affect EBITDA and costs vary from IBX market to IBX market, as of September 30, 2000, three of our five IBX centers achieved positive EBITDA status. We anticipate EBITDA loss to increase for the three months ended December 31, 2000 as we incur increased expenses for existing and future IBX centers. 16 Interest Income. Interest income increased for the three months ended September 30, 1999 from $238,000 to $4.4 million for the three months ended September 30, 2000. 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 initial public offering and preferred stock financing activities. Interest Expense. Interest expense increased from $242,000 for the three months ended September 30, 1999 to $6.5 million for the three months ended September 30, 2000. The increase in interest expense was attributed to interest on the senior notes, interest related to an increase in our debt facilities and capital lease obligations and amortization of the senior notes, debt facilities and capital lease obligations discount. Nine Months Ended September 30, 1999 and 2000 Revenues. We recognized revenues of $5.0 million for the nine months ended September 30, 2000. Revenues consisted of recurring revenues of $4.1 million, primarily from the leasing of cabinet space, and non-recurring revenue of $0.9 million related to the recognized portion of deferred installation revenue and custom installation revenues. Installation and service fees are recognized ratably over the term of the contract. Custom installation revenues are recognized upon completion of the services. We did not recognize any revenues during the nine months ended September 30, 1999. Cost of Revenues. Cost of revenues increased from $935,000 for the nine months ended September 30, 1999 to $20.8 million for the nine months ended September 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 build-out and other equipment costs. The increase in cost of revenues was due to additional leases and increased expenses related to our opening of additional IBX centers. Sales and Marketing. Sales and marketing expenses increased from $1.5 million for the nine months ended September 30, 1999 to $8.4 million for the nine months ended September 30, 2000. These amounts exclude $385,000 and $5.3 million, respectively, of stock-based compensation expense. Sales and marketing expenses consist primarily of compensation and related costs for the sales and marketing, 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. 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 $4.4 million for the nine months ended September 30, 1999 to $24.0 million for the nine months ended September 30, 2000. These amounts exclude $3.6 million and $14.4 million, respectively, of stock-based compensation expense. 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. 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. Adjusted EBITDA. Adjusted EBITDA loss increased for the nine months ended September 30, 1999 from $6.5 million to $41.3 million for the three months ended September 30, 2000. Although many factors affect adjusted EBITDA and costs vary from IBX market to IBX market, as of September 30, 2000, three of our five IBX centers achieved positive adjusted EBITDA status. Interest Income. Interest income increased for the nine months ended September 30, 1999 from $410,000 to $11.8 million for the nine month period ended September 30, 2000. Interest income 17 increased substantially due to higher cash, cash equivalent and short-term investment balances held in interest bearing accounts, resulting from the proceeds of the initial public offering and preferred stock financing activities. Interest Expense. Interest expense increased from $380,000 for the three months ended September 30, 1999 to $20.4 million for the three months ended September 30, 2000. The increase in interest expense was attributed to interest on the senior notes, interest related to an increase in our debt facilities and capital lease obligations and amortization of the senior notes, debt facilities and capital lease obligations discount. 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, our initial public offering and debt financing for aggregate gross proceeds of approximately $686.2 million. As of September 30, 2000, we had approximately $310.6 million in cash, cash equivalents and short-term investments. Furthermore, we have an additional $44.1 million of restricted cash, cash equivalents and short-term investments to fund interest expense through June 2001on our 13% senior notes due 2007, provide collateral under a number of separate security agreements for standby letters of credit and escrow accounts entered into and in accordance with certain lease agreements. Our principal sources of liquidity consists of our cash, cash equivalent and short-term investment balance and, subject to the negotiation and execution of definitive loan documentation, a proposed senior secured credit facility. As of September 30, 2000, our total indebtedness from our senior notes, debt facilities and capital lease obligations was $217.8 million. Net cash used in operating activities was $37.3 million and $8.1 million for the nine months ended September 30, 2000 and 1999, respectively. We used cash primarily to fund our net loss from operations. Net cash used in investing activities was $243.6 million and $24.6 million for the nine months ended September 30, 2000 and 1999, respectively. 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 $351.6 million and $61.9 million for the nine months ended September 30, 2000 and 1999, respectively. Net cash generated by financing activities during the nine months ended September 30, 2000 was primarily attributable to the proceeds from the initial public offering and issuance of Series C redeemable convertible preferred stock. Net cash generated by financing activities during the nine months ended September 30, 1999 was primarily attributable to the proceeds from the issuance of Series B redeemable convertible preferred stock and the drawdown on the 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 September 30, 2000, we had total debt and capital lease financings available of $23.0 million, which had been fully drawn down. 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 market value of the common stock warrants and recorded as a discount to the senior notes. Senior notes, net of the unamortized discount, are $185.4 million as of September 30, 2000. 18 In December 1999, we completed the private sale of our Series B redeemable convertible preferred stock, net of issuance costs, in the amount of $81.7 million. In May 2000, we entered into a purchase agreement regarding approximately 80 acres of real property in San Jose, California. In June 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. In June 2000, we completed the private sale of our Series C redeemable convertible preferred stock in the amount of $94.4 million. In August 2000, we completed an initial public offering of 20,000,000 shares of common stock. In addition, in September 2000, the underwriters exercised their option to purchase 2,704,596 shares to cover over-allotments of shares. Total net proceeds from the offering and over-allotment were $251.7 million. We expect that our cash on hand and anticipated cash flow from operations, and assuming the negotiation, execution and drawdown of our proposed senior secured credit facility, should be sufficient to build an additional three IBX centers and expansion projects on built IBX centers by the end of 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 September 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 September 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 19 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. 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. Other Factors Affecting Operating Results 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. We did not recognize any revenue until November 1999. 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 September 30, 2000, we had cumulative net losses of $98.7 million and cumulative cash used by operating activities of $48.1 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; 20 . competition in our markets; . the timing and magnitude of our expenditures for sales and marketing; . direct costs relating to the expansion of our operations; . growth of Internet use; . 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 September 30, 2000, we had total indebtedness of $217.8 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 proposed senior secured credit facility, will allow us to pursue three additional IBX centers and several expansion projects, resulting in a total of eight IBX centers in the United States and Europe by the end of 2001. If we cannot raise sufficient additional funds on acceptable terms or funds under our proposed 21 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 funds, 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. 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, including Bechtel rendering services to our potential competitors, could have a material adverse effect on our ability to achieve our business objectives on a timely and cost-effective basis. In addition, our success will depend upon our ability to timely identify and acquire suitable locations, on acceptable terms, with proximity to adequate power and fiber networks. We have encountered competition for suitable sites from potential competitors and we expect this to increase 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 22 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. Because we depend on the development and growth of a balanced customer base, failure to attract this base of customers 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 23 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 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 24 foreign market, we may not be able to locate an IBX center in that particular foreign jurisdiction. 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. 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 99.99% across all our operational IBX centers; however, in the past, we experienced temporary losses of power that led to a short-term unavailability of our services. 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. Risks Related to Our Industry If use of the Internet and electronic business does not continue to grow, a viable market for our IBX centers may not develop. Rapid growth in the use of and interest in the Internet has occurred only recently. Acceptance and use may not continue to develop at historical rates and a sufficiently broad base of consumers may not adopt or continue to use the Internet and other online services as a medium of commerce. Demand and market acceptance for recently introduced Internet services and products are subject to a high level of uncertainty and there are few proven services and products. As a result, we cannot be certain that a viable market for our IBX centers will emerge or be sustainable. 25 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. Item 3. Qualitative and Quantitative Disclosures about Market Risk Interest Rate Risk Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio. 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. 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. 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. Foreign Currency Risk To date, all of our recognized revenue has been denominated in U.S. dollars and from customers in the United States, and our exposure to foreign currency exchange rate changes has been minimal. We have signed a number of lease agreements in Europe and expect that future revenues may also be derived from international markets and may be denominated in the currency of the applicable market. As a result, our operating results may become subject to significant fluctuations based upon changes in exchange rates of certain currencies in relation to the U.S. dollar. Furthermore, to the extent that we engage in international sales denominated in U.S. dollars, an increase in the value of the U.S. dollar relative to foreign currencies could make our products less competitive in international markets. Although we will continue to monitor our exposure to currency fluctuations, and, when appropriate, may use financial hedging techniques in the future to minimize the effect of these fluctuations, we cannot assure that exchange rate fluctuations will not adversely affect our financial results in the future. 26 PART II. OTHER INFORMATION EQUINIX, INC. Item 1. Legal Proceedings. None. Item 2. Changes in Securities and Use of Proceeds. (b)Through the Company's (i) Loan Agreement, dated August 16, 1999, among Venture Lending & Leasing and other lenders and Equinix, Inc. and (ii) the Indenture, dated December 1, 1999 governing the Senior Notes, certain restrictions are imposed on the ability of the Company to make dividend payments as defined in those agreements. (c) During the quarter ended September 30, 2000, we have issued and sold the following securities: 1. We granted stock options to purchase 1,399,550 shares of common stock at an exercise prices of $7.00 per share to employees, consultants and directors pursuant to our 1998 stock option plan and 2000 directors' stock option plan. 2. We issued and sold an aggregate of 261,520 shares of common stock to employees, consultants and directors for aggregate consideration of approximately $626,226 pursuant to exercises of options granted under our 1998 Stock Option Plan. 3. In August 2000, and prior to the closing of our initial public offering, we gifted 65,000 shares of our common stock to Community Foundation Silicon Valley pursuant to a Restricted Stock Grant 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. (d) The effective date of the Registration Statement for our initial public offering, filed on Form S-1 under the Securities Act of 1933 (File No. 333-93749), was August 10, 2000. The class of securities registered was Common Stock. The managing underwriters for the offering were Goldman, Sachs & Co., Salomon Smith Barney Inc., Chase Securities Inc. and Epoch Securities, Inc. The offering commenced on August 11, 2000 and terminated on September 7, 2000 after we had sold all of the 22,704,596 shares of common stock registered under the Registration Statement for an aggregate gross offering price of $272,455,152. We incurred expenses of approximately $20,745,000, of which $19,071,860 represented underwriting discounts and commissions and approximately $1,673,140 represented other expenses related to the offering. The net offering proceeds after total expenses was $251,710,000. We expect to use the proceeds for general corporate proceeds, including working capital and to fund the construction of new IBX centers and expansion projects on built IBX centers. A portion of the net proceeds may also be used for the acquisition of businesses, products and technologies that are complimentary to ours. We have no current agreements or commitments for acquisitions of complimentary businesses, products or technologies. Pending these uses, the net proceeds have been invested in investment grade and interest-bearing securities. The use of proceeds from the offering does 27 not represent a material change in the use of proceeds described in the prospectus. Item 3. Defaults Upon Senior Securities. None. Item 4. Submission of Matters to a Vote of Security Holders. In the quarter ended September 30, 2000, the following matters were submitted to the security holders of the Company: In August 2000, we solicited the approval of our stockholders through a Written Consent of Stockholders to amend and restate our certificate of incorporation, amend and restate our bylaws, approve our form indemnification agreement, and approve the 2000 Equity Incentive Plan, 2000 Employee Stock Purchase Plan and the 2000 Director Option Plan. Stockholders holding approximately 83% of the 53,772,931 shares outstanding at that time gave their consent. Item 5. Other Information. None. 28 Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. Exhibit ------- No. Description --- ----------- 3.1* Amended and Restated Certificate of Incorporation of the Registrant, as amended to date. 3.2* Bylaws of the Registrant. 4.1 Reference is made to Exhibits 3.1 and 3.2. 4.2** Form of 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). 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 September 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 10.28+ Lease Agreement with TrizecHahn Beaumeade Technology Center LLC, dated as of July 1, 2000. 10.29+ Lease Agreement with TrizecHahn Beaumeade Technology Center LLC, dated as of May 1, 2000. 29 10.30+ Lease Agreement with 600 Seventh Street Associates, Inc., dated as of August 24, 2000. 10.31+ Lease Agreement with Burlington Associates III Limited Partnership, dated as of July 24, 2000. 10.32+ Lease Agreement with Naxos Schmirdelwerk Mainkur GmbH and A.A.A. Aktiengesellschaft Allgemeine Anlageverwaltung vorm. Seilwolff AG von 1890, dated as of August 7, 2000. 10.33+ Lease Agreement with Quattrocento Limited, dated as of June 1, 2000. 10.34 Lease Agreement with ARE-2425/2400/2450 Garcia Bayshore, LLC, dated as of March 20, 2000. 10.35 First Supplement to the Lease Agreement with Naxos Schmirdelwerk Mainkur GmbH and A.A.A. Aktiengesellschaft Allgemeine Anlageverwaltung vorm. Seilwolff AG von 1890, dated as of October 11, 2000. 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). ** Incorporated herein by reference to the exhibit of the same number in the Registrant's Registration Statement in Form S-1 (file No. 333-39752). + Confidential treatment has been requested for certain portions which are omitted in the copy of the exhibit electronically filed with the Securities and Exchange Commission. The omitted information has been filed separately with the Securities and Exchange Commission pursuant to Equinix's application for confidential treatment. (b)Reports on Form 8-K. None. 30 EQUINIX, INC. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. EQUINIX, INC. Date: November 9, 2000 By: /s/ Philip J. Koen -------------------------------------------------- Chief Financial Officer, Corporate Development Officer and Secretary (Principal Financial and Accounting Officer) 31 Index to Exhibits ----------------- No. Description --- ----------- 3.1* Amended and Restated Certificate of Incorporation of the Registrant, as amended to date. 3.2* Bylaws of the Registrant. 4.1 Reference is made to Exhibits 3.1 and 3.2. 4.2** Form of 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). 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 September 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 10.28+ Lease Agreement with TrizecHahn Beaumeade Technology Center LLC, dated as of July 1, 2000. 10.29+ Lease Agreement with TrizecHahn Beaumeade Technology Center LLC, dated as of May 1, 2000. 10.30+ Lease Agreement with 600 Seventh Street Associates, Inc., dated as of August 24, 2000. 10.31+ Lease Agreement with Burlington Associates III Limited Partnership, dated as of July 24, 2000. 10.32+ Lease Agreement with Naxos Schmirdelwerk Mainkur GmbH and A.A.A. Aktiengesellschaft Allgemeine Anlageverwaltung vorm. Seilwolff AG von 1890, dated as of August 7, 2000. 10.33+ Lease Agreement with Quattrocento Limited, dated as of June 1, 2000. 10.34 Lease Agreement with ARE-2425/2400/2450 Garcia Bayshore, LLC, dated as of March 20, 2000. 10.35 First Supplement to the Lease Agreement with Naxos Schmirdelwerk Mainkur GmbH and A.A.A. Aktiengesellschaft Allgemeine Anlageverwaltung vorm. Seilwolff AG von 1890, dated as of October 11, 2000. 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). ** Incorporated herein by reference to the exhibit of the same number in the Registrant's Registration Statement in Form S-1 (file No. 333-39752). + Confidential treatment has been requested for certain portions which are omitted in the copy of the exhibit electronically filed with the Securities and Exchange Commission. The omitted information has been filed separately with the Securities and Exchange Commission pursuant to Equinix's application for confidential treatment. (b)Reports on Form 8-K. None.