================================================================================ 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 June 30, 2001 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 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) None (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 June 30, 2001 was 79,693,634. ================================================================================ EQUINIX, INC. INDEX
Page No. Part I. Financial Information Item 1. Condensed Consolidated Balance Sheets as of June 30, 2001 and December 31, 2000............................................................................. 3 Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2001 and 2000................................................................................. 4 Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2001 and 2000.......................................................................................... 5 Notes to Condensed Consolidated Financial Statements.......................................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................................................................... 13 Item 3. Qualitative and Quantitative Disclosures About Market Risk.................................... 27 Part II. Other Information Item 1. Legal Proceedings............................................................................. 29 Item 2. Changes in Securities and Use of Proceeds..................................................... 29 Item 3. Defaults Upon Senior Securities............................................................... 29 Item 4. Submission of Matters to a Vote of Security Holders........................................... 30 Item 5. Other Information............................................................................. 30 Item 6. Exhibits and Reports on Form 8-K.............................................................. 31 Signature................................................................................................. 33
2 PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements EQUINIX, INC. Condensed Consolidated Balance Sheets (in thousands)
June 30, December 31, 2001 2000 ------------------ ------------------ (unaudited) Assets Current assets: Cash and cash equivalents................................................... $ 124,003 $ 174,773 Short-term investments...................................................... 106,671 32,437 Accounts receivable, net.................................................... 6,305 4,925 Current portion of restricted cash and short-term investments............... 536 15,468 Prepaids and other current assets........................................... 8,913 10,373 ------------------ ------------------ Total current assets.................................................... 246,428 237,976 Property and equipment, net..................................................... 336,885 315,380 Construction in progress........................................................ 88,358 94,894 Restricted cash and short-term investments, less current portion................ 20,921 21,387 Debt issuance costs, net........................................................ 11,394 11,916 Other assets.................................................................... 4,802 1,932 ------------------ ------------------ Total assets............................................................ $ 708,788 $ 683,485 ================== ================== Liabilities and Stockholders' Equity Current liabilities: Accounts payable and accrued expenses....................................... $ 16,236 $ 13,717 Accrued construction costs.................................................. 23,253 89,343 Current portion of debt facilities and capital lease obligations............ 7,000 4,426 Accrued interest payable.................................................... 2,167 2,167 Other current liabilities................................................... 2,309 1,646 ------------------ ------------------ Total current liabilities............................................... 50,965 111,299 Debt facilities and capital lease obligations, less current portion............. 9,776 6,506 Senior secured credit facility.................................................. 150,000 - Senior notes.................................................................... 186,892 185,908 Other liabilities............................................................... 6,773 4,656 ------------------ ------------------ Total liabilities....................................................... 404,406 308,369 ------------------ ------------------ Stockholders' equity: Common stock................................................................ 80 77 Additional paid-in capital.................................................. 546,250 553,070 Deferred stock-based compensation........................................... (20,021) (38,350) Accumulated other comprehensive income (loss)............................... (933) 1,919 Accumulated deficit......................................................... (220,994) (141,600) ------------------ ------------------ Total stockholders' equity.............................................. 304,382 375,116 ------------------ ------------------ Total liabilities and stockholders' equity.............................. $ 708,788 $ 683,485 ================== ==================
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 Six months ended June 30, June 30, ------------------------------- -------------------------------- 2001 2000 2001 2000 -------------- --------------- --------------- --------------- (unaudited) Revenues........................................ $ 16,157 $ 892 $ 28,770 $ 1,028 -------------- --------------- --------------- --------------- Costs and operating expenses: Cost of revenues (includes stock-based compensation of $152, $108, $393 and $214 for the three and six months ended June 30, 2001 and 2000, respectively)... 26,318 5,302 49,996 8,623 Sales and marketing (includes stock-based compensation of $765, $1,612, $1,848 and $2,970 for the three and six months ended June 30, 2001 and 2000, respectively)............ 4,067 4,192 9,292 8,708 General and administrative (includes stock-based compensation of $4,076, $4,828, $10,901 and $6,846 for the three and six months ended June 30, 2001 and 2000, respectively)............ 15,716 15,915 34,392 22,169 -------------- --------------- --------------- --------------- Total costs and operating expenses........................ 46,101 25,409 93,680 39,500 -------------- --------------- --------------- --------------- Loss from operations............................ (29,944) (24,517) (64,910) (38,472) Interest income............................ 3,212 3,870 7,159 7,532 Interest expense........................... (11,125) (6,164) (21,643) (13,880) -------------- --------------- --------------- --------------- Net loss........................................ $ (37,857) $ (26,811) $ (79,394) $ (44,820) ============== =============== =============== =============== Net loss per share: Basic and diluted......................... $ (0.48) $ (2.62) $ (1.03) $ (4.45) ============== =============== =============== =============== Weighted average shares................... 78,070 10,241 77,237 10,063 ============== =============== =============== ===============
See accompanying notes to condensed consolidated financial statements. 4 EQUINIX, INC. Condensed Consolidated Statements of Cash Flows (in thousands)
Six months ended June 30, ---------------------------------- 2001 2000 --------------- --------------- (unaudited) Cash flows from operating activities: Net loss..................................................................... $ (79,394) $ (44,820) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation.............................................................. 24,009 3,610 Amortization of deferred stock-based compensation......................... 13,142 10,030 Amortization of debt-related issuance costs and discounts................. 3,664 2,274 Allowance for doubtful accounts........................................... 394 -- Changes in operating assets and liabilities: Accounts receivable.................................................... (1,774) (2,149) Prepaids and other current assets...................................... 1,460 (43) Other assets........................................................... (2,870) (792) Accounts payable and accrued expenses.................................. 2,519 3,944 Accrued interest payable............................................... -- 456 Other current liabilities.............................................. 663 864 Other liabilities...................................................... 354 1,729 --------------- --------------- Net cash used in operating activities............................... (37,833) (24,897) --------------- --------------- Cash flows from investing activities: Purchase of short-term investments........................................... (133,815) (16,137) Sales and maturities of short-term investments............................... 59,670 25,520 Purchases of property and equipment.......................................... (42,100) (173,915) Accrued construction costs................................................... (66,090) 39,333 Purchase of restricted cash and short-term investments....................... (822) (12,890) Sale of restricted cash and short-term investments........................... 16,220 13,000 --------------- --------------- Net cash used in investing activities............................... (166,937) (125,089) --------------- --------------- Cash flows from financing activities: Proceeds from exercise of stock options and employee stock purchase plan..... 1,510 2,475 Proceeds from issuance of debt facilities and capital lease obligations...... 158,004 1,929 Debt issuance costs.......................................................... (395) (250) Repayment of debt facilities and capital lease obligations................... (2,160) (2,735) Proceeds from issuance of redeemable convertible preferred stock, net........ -- 94,353 Repurchase of common stock................................................... (18) (11) --------------- --------------- Net cash provided by financing activities........................... 156,941 95,761 --------------- --------------- Effect of foreign currency exchange rates on cash and cash equivalents.......... (2,941) -- Net decrease in cash and cash equivalents....................................... (50,770) (54,225) Cash and cash equivalents at beginning of period................................ 174,773 203,165 --------------- --------------- Cash and cash equivalents at end of period...................................... $ 124,003 $ 148,940 =============== =============== Supplemental cash flow information: Cash paid for interest................................................. $ 16,403 $ 13,674 =============== ===============
See accompanying notes to condensed consolidated financial statements. 5 EQUINIX, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation and Significant Accounting Policies 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, 2000 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 Form 10-K as filed with the SEC on March 27, 2001. 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. Revenues consist of monthly recurring fees for colocation and interconnection services at the IBX centers, service fees associated with the delivery of professional services and non-recurring installation fees. Revenues from colocation and interconnection services are billed monthly and recognized ratably over the term of the contract, generally one to three years. Professional service fees are recognized in the period in which the services were provided and represent the culmination of the earnings process. Non-recurring installation fees are deferred and recognized ratably over the term of the related contract. 2. Cash, Cash Equivalents and Short-Term Investments On June 27, 2001, the Company drew down the $25,000,000 revolving credit facility made available through the Senior Secured Credit Facility entered into by the Company on December 20, 2000 (see Note 6). On June 29, 2001, the Company received the $5,000,000 proceeds from the Heller Loan (see Note 6). 3. Accounts Receivable Accounts receivables, net, consists of the following (in thousands):
June 30, December 31, 2001 2000 ---------------- ------------------- (unaudited) Accounts receivable..................................... $ 11,947 $ 8,670 Unearned revenue........................................ (5,248) (3,137) Allowance for doubtful accounts......................... (394) (608) ---------------- ------------------- $ 6,305 $ 4,925 ================ ===================
6 EQUINIX, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 4. Property and Equipment Property and equipment is comprised of the following (in thousands):
June 30, December 31, 2001 2000 ----------------- ------------------- (unaudited) Leasehold improvements.................................. $ 280,468 $ 243,851 IBX plant and machinery................................. 51,474 51,305 Computer equipment and software......................... 14,702 12,438 IBX equipment........................................... 24,923 21,960 Furniture and fixtures.................................. 3,042 1,241 ----------------- ------------------- 374,609 330,795 Less accumulated depreciation........................... (37,724) (15,415) ----------------- ------------------- $ 336,885 $ 315,380 ================= ===================
Leasehold improvements, certain computer equipment, IBX plant and machinery, software and furniture and fixtures recorded under capital leases aggregated $5,999,000 at both June 30, 2001 and December 31, 2000. Amortization on the assets recorded under capital leases is included in depreciation expense. Included within leasehold improvements is the value attributed to the earned portion of several warrants issued to certain fiber carriers and our contractor totaling $6,356,000 and $5,761,000 as of June 30, 2001 and December 31, 2000, respectively. Amortization on such warrants within leasehold improvements is included in depreciation expense. 5. 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 $2,535,000 as of June 30, 2001 and $6,270,000 as of December 31, 2000. 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 and six months ended June 30, 2001, was $11,214,000 and $89,000 and $22,313,000 and $670,000, respectively. Total interest cost incurred and total interest capitalized during the three and six months ended June 30, 2000, was $7,938,000 and $1,774,000 and $15,847,000 and $1,967,000, respectively. 7 EQUINIX, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 6. Debt Facilities Heller Loan In June 2001, the Company obtained a $5,000,000 loan from Heller Financial Leasing, Inc. (the "Heller Loan"). Repayments on the Heller Loan are made over 36 months and interest accrues at 13.0% per annum. The Heller Loan is secured by certain equipment located in the New York metro area IBX center currently under construction. In connection with the Heller Loan, the Company granted Heller Financial Leasing, Inc. a warrant to purchase 37,500 shares of the Company's common stock at $4.00 per share (the "Heller Warrant"). This warrant is immediately exercisable and expires in five years from the date of grant. The fair value of the warrant using the Black-Scholes option pricing model with the following assumptions: fair market value per share of $1.13, dividend yield of 0%, expected volatility of 80%, risk-free interest rate of 5% and a contractual life of 5 years, was $18,000. Such amount was recorded as a discount to the applicable loan amount, and is being amortized to interest expense using the effective interest method, over the life of the loan. Wells Fargo Loan In March 2001, the Company obtained a $3,004,000 loan from Wells Fargo Equipment Finance, Inc. (the "Wells Fargo Loan"). Repayments on the Wells Fargo Loan are made over 36 months and interest accrues at 13.15% per annum. The Wells Fargo Loan is secured by certain equipment located in the New York metro area IBX center currently under construction. Senior Secured Credit Facility On December 20, 2000 the Company, and a newly created, wholly-owned subsidiary of the Company, entered into a $150 million Senior Secured Credit Facility ("Senior Secured Credit Facility") with a syndicate of lenders. The Senior Secured Credit Facility consists of the following: . Term loan facility in the amount of $50,000,000. The outstanding term loan amount is required to be paid in quarterly installments beginning in March 2003 and ending in December 2005. The Company drew this down in January 2001. . Delayed draw term loan facility in the amount of $75,000,000. The Company is required to borrow the entire facility on or before December 20, 2001. The outstanding delayed draw term loan amount is required to be paid in quarterly installments beginning in March 2003 and ending in December 2005. The Company drew this down in March 2001. . Revolving credit facility in an amount up to $25,000,000. The outstanding revolving credit facility is required to be paid in full on or before December 15, 2005. The Company drew this down in June 2001. The Senior Secured Credit Facility has a number of covenants, which include reaching certain minimum revenue targets and limiting cumulative EBITDA losses and maximum capital spending limits among others. The Company was in compliance with all covenants as of June 30, 2001 and December 31, 2000. The financial covenants contained in the Senior Secured Credit Facility get progressively more restrictive over time. If at any time in the future the Company is not in compliance and the lender does not modify the covenants, the amounts outstanding will become immediately due and payable. 8 EQUINIX, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Borrowings under the Senior Secured Credit Facility are collateralized by a first priority lien against substantially all of the Company's assets. The lenders under the Senior Secured Credit Facility have agreed that the liens which collateralize the Senior Secured Credit Facility may also collateralize an additional $100,000,000 of additional borrowings in the event the Senior Secured Credit Facility is extended, but the lenders have no obligation to provide such additional financing. Loans under the Senior Secured Credit Facility bear interest at floating rates, plus applicable margins, based on either the prime rate or LIBOR. At June 30, 2001, the Company's total indebtedness under the Senior Senior Secured Credit Facility was $150,000,000 and had an effective interest rate of 8.37%. The costs related to the issuance of the Senior Secured Credit Facility were capitalized and are being amortized to interest expense using the effective interest method, over the life of the Senior Secured Credit Facility. Debt issuance costs, net of amortization, are $5,868,000 and $5,966,000 as of June 30, 2001 and December 31, 2000, respectively. 7. Stockholders' Equity Stock Plans On January 1, 2001, pursuant to the provisions of the Company's stock plans, the number of common shares reserved automatically increased by 4,618,731 shares for the 2000 Equity Incentive Plan, 600,000 shares for the Employee Stock Purchase Plan and 50,000 shares for the 2000 Director Stock Option Plan. On January 31, 2001, a total of 222,378 shares were purchased under the Employee Stock Purchase Plan with total proceeds to the Company of $1,122,000. Warrants In March 2001, holders of the NorthPoint Warrant, the Comdisco Loan and Security Agreement Warrant, the Comdisco Master Lease Agreement Warrant and the Comdisco Master Lease Agreement Addendum Warrant exercised such warrants pursuant to the cashless "net-exercise" provisions thereof. Upon such exercises, such warrant holders received an aggregate of 1,049,599 shares of the Company's common stock. During the quarter ended March 31, 2001, certain holders of Senior Note Warrants exercised their warrants resulting in 1,283,069 shares of the Company's common stock being issued. A total of 1,755,781 shares underlying these Senior Note Warrants remain outstanding as of June 30, 2001. 8. Commitments and Contingencies 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. 9 EQUINIX, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 9. Related Party Transactions On February 27, 2001, the Company advanced an aggregate of $1,512,000 to an officer of the Company, which is evidenced by a promissory note. The proceeds of this loan were used to fund the purchase of a principal residence. The loan is due February 27, 2006, but is subject to certain events of acceleration. The loan is non-interest bearing. On June 18, 2001, the Company advanced an aggregate of $900,000 to an officer of the Company, which is evidenced by a promissory note. The proceeds of this loan were used to fund the purchase of a principal residence. The loan is due June 18, 2006, but is subject to certain events of acceleration. The loan is non-interest bearing. 10. Comprehensive Loss The components of comprehensive loss are as follows (in thousands) (unaudited):
Three months ended Six months ended June 30, June 30, -------------------------- ------------------------- 2001 2000 2001 2000 ---------- ------------ ---------- ------------ Net loss....................................... $ (37,857) $ (26,811) $ (79,394) $ (44,820) Unrealized gain (loss) on available for sale securities................................... 25 (11) 89 (52) Foreign currency translation loss.............. (62) -- (2,941) -- ---------- ---------- ---------- ---------- Comprehensive loss............................. $ (37,894) $ (26,822) $ (82,246) $ (44,872) ========== ========== ========== ==========
There were no significant tax effects on comprehensive loss for the three and six months ended June 30, 2001 and 2000. 11. Net Loss per Share Basic and diluted net loss per share is 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 basic and diluted net loss per share for the periods indicated (in thousands, except per share data) (unaudited):
Three months ended Six months ended June 30, June 30, ------------------------- ------------------------ 2001 2000 2001 2000 ---------- ----------- ---------- ---------- Numerator: Net loss....................................... $ (37,857) $ (26,811) $ (79,394) $ (44,820) ========= ========== ========== ========= Historical: Denominator: Weighted average shares........................ 81,432 16,207 80,895 15,925 Weighted average unvested shares subject to repurchase................................. (3,362) (5,966) (3,657) (5,862) --------- ---------- ---------- --------- Total weighted average shares.............. 78,070 10,241 77,237 10,063 ========= ========== ========== ========= Net loss per share: Basic and diluted.......................... $ (0.48) $ (2.62) $ (1.03) $ (4.45) ========= ========== ========== =========
10 EQUINIX, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 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:
June 30, --------------------------------- 2001 2000 ---------------- --------------- Series A redeemable convertible preferred stock.................. -- 18,682,500 Series B redeemable convertible preferred stock.................. -- 15,759,561 Series C redeemable convertible preferred stock.................. -- 6,261,161 Series A preferred stock warrants................................ -- 1,245,000 Common stock warrants............................................ 4,217,381 2,492,245 Common stock options............................................. 14,981,988 7,452,425 Common stock subject to repurchase............................... 3,657,341 5,861,659
12. 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. As of June 30, 2001, all of the Company's operations and assets were based in the United States with the exception of $32,623,000 of the Company's net identifiable assets based in Europe and $3,774,000 and $4,237,000 of the Company's total net loss was attributable to the development of its European operations for the three and six months ending June 30, 2001, respectively. As of June 30, 2000, all of the Company's operations and assets were based in the United States. Revenues from one customer accounted for 14% of the Company's revenues for the three and six months ended June 30, 2001. No other single customer accounted for more than 10% of the Company's revenues for the three and six months ended June 30, 2001. Accounts receivables from one customer accounted for 15% of the Company's gross accounts receivables as of June 30, 2001. 13. 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. In June 1999, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 137 ("SFAS 137"), "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133." In June 2000, the FASB issued SFAS 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities - an Amendment of FASB Statement No. 133." SFAS 133 establishes new standards of accounting and reporting for derivative instruments and hedging activities, and requires that all derivatives, including foreign currency exchange contracts, be recognized on the balance sheet at fair value. The adoption of SFAS 133, as amended by SFAS 137 and SFAS 138, did not have a material impact on our financial position and results of operations. 11 EQUINIX, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) On July 20, 2001 the FASB issued SFAS No. 141, Business Combinations ("FAS 141") and SFAS No. 142, Goodwill and Other Intangible Assets ("FAS 142"). FAS 141 supercedes Accounting Principles Board Opinion No. 16 (APB 16), Business Combinations, and is effective for all business combinations initiated after June 30, 2001 and for all business combinations accounted for by the purchase method for which the date of acquisition is after June 30, 2001. One of the most significant changes made by FAS 141 is to require the use of the purchase method of accounting for all business combinations initiated after June 30, 2001. FAS 142 supercedes Accounting Principles Board Opinion No. 17 (APB 17), Intangible Assets, but will carry forward provisions in APB 17 related to internally developed intangible assets. FAS 142 primarily addresses the accounting for goodwill and intangible assets subsequent to their acquisition and is effective for fiscal years beginning after December 15, 2001. However, early adoption of FAS 142 will be permitted for companies with a fiscal year beginning after March 15, 2001, provided their first quarter financial statements have not been previously issued. In all cases, FAS 142 must be adopted at the beginning of a fiscal year. The most significant changes made by FAS 142 are: (1) goodwill and indefinite lived intangible assets will no longer be amortized, (2) goodwill will be tested for impairment at least annually at the reporting unit level, (3) intangible assets deemed to have an indefinite life will be tested for impairment at least annually, and (4) the amortization period of intangible assets with finite lives will no longer be limited to forty years. The Company does not expect the adoption of either FAS 141 or FAS 142 will have a material effect on its consolidated financial statements. 12 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, as amended, and Section 21E of the Securities Exchange 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" and "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 Equinix, Inc. ("Equinix", the "Company", "we" or "us") designs, builds and operates neutral Internet Business Exchange ("IBX") centers where Internet businesses place their equipment and their network facilities in order to interconnect with each other to improve internet performance. Our neutral IBX centers provide content providers, application service providers, or ASPs and e-commerce companies with the ability to directly interconnect with a choice of bandwidth providers, Internet service providers, or ISPs, and site and performance management companies. Equinix currently has IBX centers totaling an aggregate of 611,000 gross square feet in the Washington, D.C. metropolitan area, the New York metropolitan area, Silicon Valley, Dallas, Los Angeles and Chicago. We intend to complete construction of one additional IBX center during the fourth quarter of 2001 in the New York metropolitan area, resulting in seven IBX centers covering six domestic markets in the United States. We generate recurring revenues primarily from the leasing of cabinet space and power. In addition, we offer value-added services and professional services including direct interconnections between our customers and "Smart Hands" service for customer equipment installations and maintenance. Customer contracts for the lease of cabinet space, power, interconnections and switch ports are renewable and typically are for one to three years with payments for services made on a monthly basis. In addition, we generate non-recurring revenues, which are comprised of installation charges that are billed upon successful installation of our customer cabinets, power, interconnections and switch ports. Both recurring and non-recurring revenues are recognized ratably over the term of the contract. Our cost of revenues consists 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. We will continue to fund these costs and these costs will be expensed as incurred. We expect our cost of revenues to increase as we open our new IBX center currently under construction in the New York metropolitan area during the fourth quarter of 2001 and as our installed base of customers continues to grow. Our selling, 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, finance and administrative personnel and related professional fees. While the Company has initiated some cost-saving efforts due to current market conditions, and will continue to closely monitor and reduce its discretionary spending, our selling, general and administrative expenses are expected to increase over time as we continue to expand our operations. 13 We recorded deferred stock-based compensation of approximately $54.5 million, $19.4 million and $1.1 million in connection with stock options granted during 2000, 1999 and 1998, respectively, where the deemed fair market value of the underlying common stock was subsequently determined to be greater than the exercise price on the date of grant. Approximately $5.0 million and $13.1 million was amortized to stock-based compensation expense for the three and six months ended June 30, 2001, respectively. Approximately $6.5 million and $10.0 million was amortized to stock-based compensation expense for the three and six months ended June 30, 2000, respectively. 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. The remaining $20.0 million of deferred stock-based compensation will be amortized over the remaining vesting periods. We expect amortization of deferred stock-based compensation expense to impact our reported results through December 31, 2004. 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 we do. It is not intended to represent cash flow or results of operations in accordance with generally accepted accounting principles nor a measure of liquidity. We measure Adjusted EBITDA at both the IBX center and total company level. Since inception, we have experienced operating losses and negative cash flow. As of June 30, 2001 we had an accumulated deficit of $221.0 million and accumulated cash used in operating and construction activities of $549.1 million. Given the revenue and income potential of our service offerings is still unproven and we have a 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". Results of Operations Three Months Ended June 30, 2001 and 2000 Revenues. We recognized revenues of $16.2 million for the three months ended June 30, 2001. Revenues consisted of recurring revenues of $14.9 million primarily from the leasing of cabinet space and non-recurring revenues of $1.3 million related to the recognized portion of deferred installation revenue and custom service revenues. Installation and service fees are recognized ratably over the term of the contract. Custom service revenues are recognized upon completion of the services. We recognized revenues of $892,000 during the three months ended June 30, 2000. Cost of Revenues. Cost of revenues increased from $5.3 million for the three months ended June 30, 2000 to $26.3 million for the three months ended June 30, 2001. These amounts include $1.3 million and $11.3 million, respectively, of depreciation and amortization expense. In addition to depreciation and amortization, 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 and security services. 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 decreased slightly from $4.2 million for the three months ended June 30, 2000 to $4.1 million for the three months ended June 30, 2001; however, these amounts include $1.6 million and $765,000, respectively, of stock-based compensation expense, resulting in a 28% increase in period over period cash spending. 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. While the Company is closely monitoring its discretionary marketing costs as the result of current market conditions, we 14 anticipate that sales and marketing expenses will increase in absolute dollars as we ultimately increase our investment in these areas to coincide with the rollout of additional products, services and IBX centers and to further increase market awareness of the Company. General and Administrative. General and administrative expenses decreased from $15.9 million for the three months ended June 30, 2000 to $15.7 million for the three months ended June 30, 2001. These amounts include $4.8 million and $4.1 million, respectively, of stock-based compensation expense and $655,000 and $2.2 million, respectively, of depreciation and amortization expense, resulting in a 9% decrease in period over period cash spending. 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 decrease in general and administrative expenses was primarily the result of several cost savings initiatives that the Company undertook, including staff reductions and an overall decrease in discretionary spending. While the Company will continue to closely monitor its discretionary spending going forward as a result of current economic conditions, we anticipate that general and administrative expenses will ultimately increase in absolute dollars as the Company continues to grow and expand its operations. Adjusted EBITDA. Adjusted EBITDA loss decreased from $16.0 million for the three months ended June 30, 2000 to $11.5 million for the three months ended June 30, 2001. Although many factors affect EBITDA and costs vary from IBX market to IBX market, as of June 30, 2001, five of our six IBX centers have achieved positive EBITDA status. We believe that EBITDA losses peaked during the fourth quarter of 2000 and EBITDA losses will continue to decline in subsequent quarters as the Company approaches EBITDA breakeven. Interest Income. Interest income decreased from $3.9 million for the three months ended June 30, 2000 to $3.2 million for the three months ended June 30, 2001 as a result of a decline in short-term interest rates. Interest Expense. Interest expense increased from $6.2 million for the three months ended June 30, 2000 to $11.1 million for the three months ended June 30, 2001. 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, including the new senior secured credit facility, and amortization of the senior notes, senior secured credit facility, other debt facilities and capital lease obligations discount. Six Months Ended June 30, 2001 and 2000 Revenues. We recognized revenues of $28.8 million for the six months ended June 30, 2001. Revenues consisted of recurring revenues of $26.6 million primarily from the leasing of cabinet space and non-recurring revenues of $2.2 million related to the recognized portion of deferred installation revenue and custom service revenues. Installation and service fees are recognized ratably over the term of the contract. Custom service revenues are recognized upon completion of the services. We recognized revenues of $1.0 million during the six months ended June 30, 2000. Cost of Revenues. Cost of revenues increased from $8.6 million for the six months ended June 30, 2000 to $50.0 million for the six months ended June 30, 2001. These amounts include $2.3 million and $20.4 million, respectively, of depreciation and amortization expense. In addition to depreciation and amortization, 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 and security services. 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 $8.7 million for the six months ended June 30, 2000 to $9.3 million for the six months ended June 30, 2001; however, these amounts include $3.0 million and $1.8 million, respectively, of stock-based compensation expense, resulting in a 30% increase in period over period cash spending. Sales and marketing expenses consist 15 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. While the Company is closely monitoring its discretionary marketing costs as the result of current market conditions, we anticipate that sales and marketing expenses will increase in absolute dollars as we ultimately increase our investment in these areas to coincide with the rollout of additional products, services and IBX centers and to further increase market awareness of the Company. General and Administrative. General and administrative expenses increased from $22.2 million for the six months ended June 30, 2000 to $34.4 million for the six months ended June 30, 2001. These amounts include $6.8 million and $10.9 million, respectively, of stock-based compensation expense and $1.3 million and $3.7 million, respectively, of depreciation and amortization expense, resulting in a 42% increase in period over period cash spending. 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. During the second quarter of 2001, the Company implemented several cost-savings initiatives, including staff reductions and an overall decrease in discretionary spending. While the Company will continue to closely monitor its discretionary spending going forward as a result of current economic conditions, we anticipate that general and administrative expenses will ultimately increase in absolute dollars as the Company continues to grow and expand its operations. Adjusted EBITDA. Adjusted EBITDA loss increased from $24.8 million for the six months ended June 30, 2000 to $27.8 million for the six months ended June 30, 2001. Although many factors affect EBITDA and costs vary from IBX market to IBX market, as of June 30, 2001, five of our six IBX centers achieved positive EBITDA status. We believe that EBITDA losses peaked during the fourth quarter of 2000 and EBITDA losses will continue to decline in subsequent quarters as the Company approaches EBITDA breakeven. Interest Income. Interest income decreased from $7.5 million for the six months ended June 30, 2000 to $7.2 million for the six months ended June 30, 2001 as a result of a decline in short-term interest rates. Interest Expense. Interest expense increased from $13.9 million for the six months ended June 30, 2000 to $21.6 million for the six months ended June 30, 2001. 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, including the new senior secured credit facility, and amortization of the senior notes, senior secured credit facility, other 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 various debt financings, including our $150.0 million senior secured credit facility, for aggregate gross proceeds of approximately $844.2 million. As of June 30, 2001, we had approximately $230.7 million in cash, cash equivalents and short-term investments. Furthermore, we have an additional $21.5 million of restricted cash, cash equivalents and short-term investments to 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 consist of our cash, cash equivalent and short-term investment balances. As of June 30, 2001, our total indebtedness from our senior notes, senior secured credit facility and debt facilities and capital lease obligations was $366.8 million. 16 Net cash used in our operating activities was $37.8 million and $24.9 million for the six months ended June 30, 2001 and 2000, respectively. We used cash primarily to fund our net loss from operations. Net cash used in investing activities was $166.9 million and $125.1 million for the six months ended June 30, 2001 and 2000, 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 $156.9 million and $95.8 million for the six months ended June 30, 2001 and 2000, respectively. Net cash generated by financing activities during the six months ended June 30, 2001 was primarily attributable to the full drawdown of our $150.0 million senior secured credit facility. Net cash generated by financing activities during the six months ended June 30, 2000 was primarily attributable to the issuance of Series C redeemable convertible preferred stock. 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. As of June 30, 2001, these capital lease financings were fully drawn. 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. As of June 30, 2001, this loan agreement was fully drawn. 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 $186.9 million as of June 30, 2001. 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 ("iStar"). 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 $251.5 million. In December 2000, we entered into a $150.0 million senior secured credit facility. As of June 30, 2001, this facility has been fully drawn down. In March 2001, we entered into a loan agreement in the amount of $3.0 million. This loan agreement bears interest at 13.15% and is repayable over 36 months. As of June 30, 2001, this loan agreement was fully drawn. In June 2001, we entered into a loan agreement in the amount of $5.0 million. This loan agreement bears interest at 13.0% and is repayable over 36 months. As of June 30, 2001, this loan agreement was fully drawn. 17 We expect that our cash on hand and anticipated cash flow from operations should be sufficient to complete our additional IBX center 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 our losses exceed our expectations, we may delay 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 our existing cash and the cash flow generated from the seven IBX centers, for which we will have obtained financing, will be sufficient to meet the working capital, debt service and corporate overhead requirements associated with those IBX centers. Our $150.0 million senior secured credit facility contains a number of financial ratios and covenants with which we must meet each quarter. We are in full compliance with all of these covenants and ratios at this time. Given that these ratios and covenants were set last year under a different economic climate, we are currently in discussions with our lenders to properly reflect the current business climate. Specifically, we have requested that the lenders adjust one covenant that we believe we may not meet commencing at the end of the third quarter 2001. This adjustment would be consistent with the financial guidance provided by us in our press release and on our earnings call for the quarter ended June 30, 2001. Although there can be no assurance that the lenders will make the requested adjustment, we believe that the requested adjustment is not material and is reasonable in light of current market conditions. 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. In June 1999, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 137 ("SFAS 137"), "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133." In June 2000, the FASB issued SFAS 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities - an Amendment of FASB Statement No. 133." SFAS 133 establishes new standards of accounting and reporting for derivative instruments and hedging activities, and requires that all derivatives, including foreign currency exchange contracts, be recognized on the balance sheet at fair value. The adoption of SFAS 133, as amended by SFAS 137 and SFAS 138, did not have a material impact on our financial position and results of operations. On July 20, 2001 the FASB issued SFAS No. 141, Business Combinations ("FAS 141") and SFAS No. 142, Goodwill and Other Intangible Assets ("FAS 142"). FAS 141 supercedes Accounting Principles Board Opinion No. 16 (APB 16), Business Combinations, and is effective for all business combinations initiated after June 30, 2001 and for all business combinations accounted for by the purchase method for which the date of acquisition is after June 30, 2001. One of the most significant changes made by FAS 141 is to require the use of the purchase method of accounting for all business combinations initiated after June 30, 2001. FAS 142 supercedes Accounting Principles Board Opinion No. 17 (APB 17), Intangible Assets, but will carry forward provisions in APB 17 related to internally developed intangible assets. FAS 142 primarily addresses the accounting for goodwill and intangible assets subsequent to their acquisition and is effective for fiscal years beginning after December 15, 2001. However, early adoption of FAS 142 will be permitted for companies with a fiscal year beginning after March 15, 2001, provided their first quarter financial statements have not been previously issued. In all cases, FAS 142 must be adopted at the beginning of a fiscal year. The most significant changes made by FAS 142 are: (1) goodwill and indefinite lived intangible assets will no longer be amortized, (2) goodwill will be tested for impairment at least annually at the reporting unit level, (3) intangible assets deemed to have an indefinite life will be tested for impairment at least annually, and (4) the amortization period of intangible assets with finite lives will no longer be limited to forty years. The Company does not expect the adoption of either FAS 141 or FAS 142 will have a material effect on its consolidated financial statements. 18 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 June 30, 2001, we had cumulative net losses of $221.0 million and cumulative cash used in operating activities of $116.6 million since inception. We expect to incur significant losses on a quarterly and annual basis in the foreseeable future. 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. In addition, we may also use significant amounts of cash and equity to acquire complementary businesses, products, services and technologies, which could further increase our expenses and losses. We expect our operating results to fluctuate. We have experienced fluctuations in our results of operations on a quarterly and annual basis. We expect to experience significant fluctuations in the foreseeable future due to a variety of factors, many of which are outside of our control, including: . the timely completion of our IBX centers; . demand for space and services at our IBX centers; . our pricing policies and the pricing policies of our competitors; . the timing of customer installations and related payments; . customer retention and satisfaction; . the provision of customer discounts and credits; . competition in our markets; . the timing and magnitude of capital expenditures and expenses related to the expansion of sales, marketing, operations and acquisitions, if any, of complementary businesses and assets; . the cost and availability of adequate public utilities, including power; . growth of Internet use; . governmental regulation; . conditions related to international operations; . economic conditions specific to the Internet industry; and . general economic factors. 19 In addition, a relatively large portion of our expenses is fixed in the short-term, particularly with respect to real estate and personnel expenses, depreciation and amortization, and interest expenses. Therefore, our results of operations are particularly sensitive to fluctuations in revenues. Because our ability to generate enough revenues to achieve profitability depends on numerous factors, we may not become profitable. Our IBX centers may not generate sufficient revenue to achieve profitability. Our ability to generate sufficient revenues to achieve profitability will depend on a number of factors, including: . the timely completion of our IBX centers; . demand for space and services at our IBX centers; . our pricing policies and the pricing policies of our competitors; . the timing of customer installations and related payments; . customer retention and satisfaction; . the provision of customer discounts and credits; . competition in our markets; . growth of Internet use; . governmental regulation; . conditions related to international operations; . economic conditions specific to the Internet industry; and . general economic factors. Although we have experienced significant growth in revenues in recent quarters, this growth rate is not necessarily indicative of future operating results. It is possible that we may never achieve profitability on a quarterly or annual basis. We are substantially leveraged and we may not generate sufficient cash flow to meet our debt service and working capital requirements. We are highly leveraged. As of June 30, 2001, we had total indebtedness of $366.8 million consisting primarily of the following: . our 13% senior notes due 2007; . our $150.0 million senior secured credit facility; and . other outstanding debt facilities and capital lease obligations. We expect to incur further debt to fund our IBX construction plans and operating losses. 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 continues or if our business experiences difficulties. 20 In the past, we have experienced unforeseen delays and expenses 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 indebtedness, or if we breach any covenants under this 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. We may be required to repay all or a portion of our $150.0 million senior secured credit facility if we do not maintain specific financial ratios and do not comply with covenants in the credit agreement or if we are unable to amend these covenants. Our $150.0 million senior secured credit facility contains a number of financial ratios and covenants with which we must meet each quarter. We are in full compliance with all of these covenants and ratios at this time. Given that these ratios and covenants were set last year under a different economic climate, we are currently in discussions with our lenders to properly reflect the current business climate. Specifically, we have requested that the lenders adjust one covenant that we believe we may not meet commencing at the end of the third quarter 2001. This adjustment would be consistent with the financial guidance provided by us in our press release and on our earnings call for the quarter ended June 30, 2001. Although there can be no assurance that the lenders will make the requested adjustment, we believe that the requested adjustment is not material and is reasonable in light of current market conditions. If we fail to reach agreement with the lenders, under certain circumstances, the lenders may require prepayment of the $150.0 million senior secured credit facility, which would adversely affect our business operations. We are subject to restrictive covenants in our credit agreements that limit our flexibility in managing our business. Our credit agreements require that we maintain specific financial ratios and comply with covenants containing numerous restrictions on our ability to incur debt, pay dividends or make other restricted payments, sell assets, enter into affiliate transactions and take other actions. Furthermore, our existing financing arrangements are, and future financing arrangements are likely to be, secured by substantially all of our assets. In addition, we are restricted in how we use funds raised in our debt financings. As a result, from time to time we may not be able to meet some of our spending needs and this could harm our business. The success of our business depends on the overall demand for data center space and services and Internet infrastructure services. Our success depends on the growth of overall demand for data center services. In addition, a large percentage of our revenues are and will in the future be derived from companies providing internet infrastructure services, such as web hosting companies, managed service providers, storage service providers and performance enhancers. A softening of demand for data center services or Internet infrastructure services caused by a weakening of the global economy in general and the U.S. economy in particular may result in decreased revenues or slower growth for us. We may continue to have customer concentration. To date, we have relied upon a small number of customers for a majority of our revenue. We expect that we will continue to rely upon a limited number of customers for a significant percentage of our revenue. As a result of this concentration, a loss of or decrease in business from one or more of our large customers could have a material and adverse effect on our results of operations. 21 Any failure of our physical infrastructure or services could lead to significant costs and disruptions that could reduce our revenue and harm our business reputation and financial results. Our business depends on providing our customers with highly reliable service. We must protect our IBX infrastructure and our customers' equipment located in our IBX centers. 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; . water damage; . power loss; and . sabotage and vandalism. Problems at one or more of our IBX centers, whether or not within our control, could result in service interruptions or significant equipment damage. To date, our aggregate customer uptime has been in excess of 99.99% across all our operational IBX centers; however, in the past, a very limited number of our customers have experienced temporary losses of power. If we incur significant financial commitments to our customers in connection with a loss of power, or our failure to meet other service level commitment obligations, our liability insurance may not be adequate to cover those expenses. In addition, any loss of services, equipment damage or inability to meet our service level commitment obligations, 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 both our ability to generate revenues and our operating results. Our business could be harmed by prolonged electrical power outages or shortages, or increased costs of energy. Our IBX centers are susceptible to regional costs of power, electrical power shortages and planned or unplanned power outages caused by these shortages, such as those currently occurring in California. The overall power shortage in California has increased the cost of energy, which we may not be able to pass on to our customers. To date, none of our customers have experienced any interruption in service as a result of any power shortage or power outage. We attempt to limit exposure to system downtime by using backup generators and power supplies. Power outages, which last beyond our backup and alternative power arrangements, could harm our customers and our business. Our rollout plan is subject to change and we may need to alter our plan and reallocate funds. Our IBX center rollout plan 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 plan, 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, or 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. 22 We rely upon Bechtel to complete our IBX center rollout plan 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 affect on our ability to achieve our business objectives on a timely and cost-effective basis. We depend on third parties to provide Internet connectivity to our IBX centers; if connectivity is not established, is delayed or interrupted, our operating results and cash flow will be adversely affected. The presence of diverse Internet fiber from communications carriers' fiber networks to our IBX centers is critical to our ability to attract new customers. We believe that the availability of such carrier capacity will directly affect our ability to achieve our projected results. We are not a communications carrier, and as such we rely on third parties to provide our customers with carrier facilities. We rely primarily on revenue opportunities from our customers to encourage carriers to incur the expenses required to build facilities from their locations 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. In addition, there can be no assurance once a carrier has decided to provide Internet connectivity to our IBX centers that it will continue to do so for any period of time. 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 due to some of these factors. If the establishment of highly diverse Internet connectivity to our IBX centers does not occur or is materially delayed or is discontinued, our operating results and cash flow will be adversely affected. We 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 ourselves from existing providers of space for telecommunications equipment and web hosting companies. In addition to competing with other neutral colocation providers, we will compete with traditional colocation providers, including local phone companies, long distance phone companies, Internet service providers and web hosting facilities. Most of these companies have longer operating histories and significantly greater financial, technical, marketing and other resources than we do. We believe our neutrality provides us with an advantage over these competitors. However, these competitors could offer colocation on neutral terms, and may start doing so in the same metropolitan areas where we have IBX centers. In addition, some of these competitors may provide our target customers with additional benefits, including bundled communication services, and may do so at reduced prices or in a manner that is more attractive to our potential customers than obtaining space in our IBX centers. If these competitors were to provide communication services at reduced prices together with colocation space, it may lower the total price of these services in a fashion that we cannot match. 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 the buildout of our IBX centers in a timely manner, other companies may be able to attract the same potential 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. 23 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 that would adversely affect our ability to generate revenues and adversely 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 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. We have experienced, and expect to continue to experience, rapid growth. This growth has placed, and we expect it to continue to place, a significant strain on our financial, management, operational and other resources. 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; . 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. To date, we have experienced difficulties implementing and upgrading our management information systems. We have hired a permanent Chief Information Officer and may need additional information technology personnel to upgrade and operate our management information systems. If we are unable to hire and retain such personnel, and successfully upgrade and operate adequate management information systems to support our growth effectively, our business will be materially and adversely affected. 24 We may make acquisitions, which pose integration and other risks that could harm our business. We may seek to acquire complementary businesses, products, services and technologies. As a result of these acquisitions, we may: . be required to incur additional debt and expenditures; and . issue additional shares of our stock to pay for the acquired business, product, service or technology, which will dilute existing stockholders' ownership interest in the Company. In addition, if we fail to successfully integrate and manage acquired businesses, products, services and technologies, our business and financial results would be harmed. Currently, we have no present commitments or agreements with respect to any such acquisitions. We face risks associated with international operations that could harm our business. In the event we construct IBX centers outside of the United States, 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 IBX centers; . difficulty or increased costs of constructing IBX centers in foreign countries; . difficulty in staffing and managing foreign operations; . increased expenses associated with marketing services in foreign countries; . business practices that favor local competition and protectionist laws; . difficulties associated with enforcing agreements through foreign legal systems; . general economic and political conditions in international markets; . potentially adverse tax consequences, including complications and restrictions on the repatriation of earnings; . currency exchange rate fluctuations; . unusual or burdensome regulatory requirements or unexpected changes to those requirements; . tariffs, export controls and other trade barriers; and . longer accounts receivable payment cycles and difficulties in collecting accounts receivable. To the extent that our operations are incompatible with, or not economically viable within, any given foreign market, we may not be able to locate an IBX center in that particular foreign jurisdiction. Our stock price has been volatile in the past and is likely to continue to be volatile. The market price of our common stock has been volatile in the past and is likely to continue to be volatile. In addition, the securities markets in general, and Internet stocks in particular, have experienced significant price volatility and accordingly the trading price of our common stock is likely to be affected by this activity. 25 If there is a change of control of Equinix, we may be required under our indenture and our senior secured credit facility to repurchase or repay the debt outstanding under those agreements. Change of control provisions in our indenture and senior secured credit facility could limit the price that investors might be willing to pay in the future for shares of our common stock and significantly impede the ability of the holders of our common stock to change management because the change in control provisions of these agreements can trigger the repayment of the debt outstanding under those agreements. We are subject to securities class action litigation, which may harm our business and results of operations. In the past, securities class action litigation has often been brought against a company following periods of volatility in the market price of its securities. We are a party to the securities class action litigation described in Part II, Item 1 - "Legal Proceedings" of this report. The defense of the litigation described in Part II, Item 1 may increase our expenses and divert our management's attention and resources, and an adverse outcome in this litigation could seriously harm our business and results of operations. In addition, we may in the future be the target of other securities class action or similar litigation. Risks Related to Our Industry If use of the Internet and electronic business does not continue to grow, a viable market for our IBX centers may not develop. Rapid growth in the use of and interest in the Internet has occurred only recently. Acceptance and use may not continue to develop at historical rates and a sufficiently broad base of consumers may not adopt or continue to use the Internet and other online services as a medium of commerce. Demand and market acceptance for recently introduced Internet services and products are subject to a high level of uncertainty and there are few proven services and products. As a result, we cannot be certain that a viable market for our IBX centers will emerge or be sustainable. We must respond to rapid technological change and evolving industry standards in order to meet the needs of our customers. The market for IBX centers will be marked by rapid technological change, frequent enhancements, changes in customer demands and evolving industry standards. Our success will depend, in part, on our ability to address the increasingly sophisticated and varied needs of our current and prospective customers. Our failure to adopt and implement the latest technology in our business could negatively affect our business and operating results. In addition, we have made and will continue to make assumptions about the standards that may be adopted by our customers and competitors. If the standards adopted differ from those on which we have based anticipated market acceptance of our services or products, our existing services could become obsolete. This would have a material adverse effect on our 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 26 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 Market Risk The following discussion about market risk disclosures involves forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements. We may be exposed to market risks related to changes in interest rates and foreign currency exchange rates and to a lesser extent we are exposed to fluctuations in the prices of certain commodities, primarily electricity. Equinix attempts to net individual exposures on a consolidated basis, when feasible, to take advantage of natural offsets. In addition, we employ foreign currency forward exchange contracts for the purpose of hedging certain specifically identified net currency exposures. The use of these financial instruments is intended to mitigate some of the risks associated with fluctuations in currency exchange rates, but does not eliminate such risks. We do not use financial instruments for trading or speculative purposes. Interest Rate Risk Our exposure to market risk resulting from changes in interest rates relates primarily to our investment portfolio. Our interest income is impacted by 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 do not believe that we are subject to any material market risk exposure. An immediate 10% increase or decrease in current interest rates would not have a material effect on the fair market value of our investment portfolio. We would not expect our operating results or cash flows to be significantly affected by a sudden change in market interest rates in our investment portfolio. An immediate 10% increase or decrease in current interest rates would furthermore not have a material impact to our debt obligations due to the fixed nature of our long-term debt obligations. The fair market value of our 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. These interest rate changes may affect the fair market value of the fixed interest rate debt but does not impact earnings or cash flows of the Company. The fair market value of our 13% senior notes due 2007 is based on quoted market prices. The estimated fair value of our 13% senior notes due 2007 as of June 30, 2001 is approximately $100 million. Foreign Currency Risk To date, all of our recognized revenue has been denominated in U.S. dollars, generated mostly from customers in the United States, and our exposure to foreign currency exchange rate fluctuations has been minimal. We expect that future revenues may be derived from customers outside of the United States and may be denominated in foreign currency. As a result, our operating results or cash flows may be impacted due to currency fluctuations relative to the U.S. dollar. Furthermore, to the extent we engage in international sales that are denominated in U.S. dollars, an increase in the value of the U.S. dollar relative to foreign currencies could make our services less competitive in the international markets. Although we will continue to monitor our exposure to currency fluctuations, and when appropriate, may use financial hedging techniques in the future to minimize the effect of these fluctuations, we cannot assure you that exchange rate fluctuations will not adversely affect our financial results in the future. 27 We have entered into a number of lease agreements in Europe for which our liabilities are denominated in foreign currency. As of June 30, 2001, we also had foreign currency commitments relating to the initiation of our business within Europe. We use forward exchange contracts to hedge a portion of our liabilities which are denominated in foreign currencies. The Company's forward exchange contracts as of June 30, 2001, which mature during 2001, are represented below (in thousands):
---------------------------------------------------------------------------------------------------------- Contract to receive Foreign Currency Contract Amount in US$ Change in Fair Market Value as currency / Pay US$ Contract amount of June 30, 2001 ---------------------------------------------------------------------------------------------------------- British Pounds (pounds)560 $830 $42 ----------------------------------------------------------------------------------------------------------
Assuming a 10% increase in the value of the U.S. dollar relative to the British Pound, and a 10% decrease in the value of the U.S. dollar relative to the British Pound, the aggregate fair value of these foreign currency commitments as hedged would be approximately $747,000 and $913,000, respectively. Commodity Price Risk Certain operating costs incurred by Equinix are subject to price fluctuations caused by the volatility of underlying commodity prices. The commodities most likely to have an impact on our results of operations in the event of significant price changes are electricity and building materials for the construction of our IBX centers such as steel. We are closely monitoring the cost of electricity, particularly in California. To the extent that electricity costs continue to rise, we are investigating opportunities to pass these additional power costs onto our customers that utilize this power. For building materials, we rely on Bechtel's expertise and bulk purchasing power to best manage the procurement of these required materials for the construction of our IBX centers. We do not employ forward contracts or other financial instruments to hedge commodity price risk. 28 PART II. OTHER INFORMATION Item 1. Legal Proceedings. On July 30, 2001 and August 8, 2001, putative shareholder class action lawsuits were filed against Equinix, certain of its officers and directors, and several investment banks that were underwriters of our initial public offering. The cases were filed in the United States District Court for the Southern District of New York, purportedly on behalf of investors who purchased our stock between August 10, 2000 and December 6, 2000. The suits allege that the underwriter defendants agreed to allocate stock in Equinix's initial public offering to certain investors in exchange for excessive and undisclosed commissions and agreements by those investors to make additional purchases in the aftermarket at pre-determined prices. Plaintiffs allege that the Prospectus for our initial public offering was false and misleading and in violation of the securities laws because it did not disclose these arrangements. It is possible that additional similar complaints may also be filed. Equinix and its officers and directors intend to defend the action vigorously. We believe that more than one hundred other companies have been named in nearly identical lawsuits that have been filed by some of the same plaintiffs' law firms. Item 2. Changes in Securities and Use of Proceeds. (a) Modification of Constituent Instruments. None. (b) Change in Rights. None. (c) Issuance of Securities. On June 26, 2001, we issued a warrant to purchase 37,500 shares of our common stock with an exercise price of $4.00 per share to Heller Financial Leasing, Inc. ("Heller") in connection with a Loan Agreement dated June 26, 2001 between Heller and the Company. The sale of the above securities was determined to be exempt from registration under Section 4(2) of the Securities Act as transactions by an issuer not involving any public offering. 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. All recipients had adequate access, through their relationships with us, to information about us. (d) Use of Proceeds. The effective date of the Company's registration statement for our initial public offering, filed on Form S-1 under the Securities Act of 1933, as amended (Commission File No. 333-93749), was August 10, 2000. There has been no change to the disclosure contained in the Company's report on Form 10-Q for the quarter ended September 30, 2000 regarding the use of proceeds generated by the Company's initial public offering of its common stock. Item 3. Defaults Upon Senior Securities. None. 29 Item 4. Submission of Matters to a Vote of Security Holders. The Annual Meeting of Stockholders of the Company was held on June 1, 2001 in Mountain View, California. The table below presents the voting results of election of our Board of Directors:
Affirmative Negative Votes Broker's Votes Votes Withheld Non-Votes Albert M. Avery IV............. 32,304,766 1,217,327 -- -- Peter F. Van Camp.............. 32,309,796 1,212,297 -- -- Scott Kriens................... 31,888,888 1,633,205 -- -- Andrew S. Rachleff............. 33,438,108 83,985 -- -- John G. Taysom................. 33,442,758 79,335 -- -- Michelangelo Volpi............. 33,438,088 84,005 -- --
The stockholders also approved the appointment of PricewaterhouseCoopers LLP as our independent auditors for the fiscal year ending December 31, 2001. The table below presents the voting results:
Affirmative Negative Votes Broker's Votes Votes Withheld Non-Votes Ratification of independent accountants................. 33,475,008 41,115 5,970 --
Item 5. Other Information. Effective June 1, 2001, Dawn G. Lepore resigned from our Board of Directors and all subcommittees thereof. 30 Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. Exhibit Number Description of Document - ----------- ---------------------------------------------------------------- 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. 31 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. 10.36**** Credit and Guaranty Agreement for $150,000,000 Senior Secured Credit Facilities, dated as of December 20, 2000. 10.37****+ Lease Agreement with Quattrocentro Limited, dated as of June 9, 2000. 10.38****+ Lease Agreement with Compagnie des Entrepots et Magasins Generaux de Paris, dated as of July 28, 2000. 10.39****+ Second 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 December 22, 2000. 10.40**** Third 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 March 8, 2001. 10.41+ Fourth Supplement to the Lease Agreement with Naxos Schmirdelwerk Mainkur GmbH and A.A.A. Aktiengesellschaft Allgemeine Anlageverwaltung vorm. Seilwolff AG von 1890, acting in partnership under the name Naxos-Union Grundstucksverwaltungsgesellschaft GbR, dated as of July 3, 2001. 10.42+ First Amendment to Deed of Lease with TrizecHahn Beaumeade Technology Center LLC, dated as of March 22, 2001. 10.43+ First Lease Amendment Agreement with Market Halsey Urban Renewal, LLC, dated as of May 23, 2001. 10.44+ First Amendment to Lease with Nexcomm Asset Acquisition I, L.P., dated as of April 18, 2000. 10.45+ Amendment to Lease Agreement with Burlington Realty Associates III Limited Partnership, dated as of December 18, 2000. 16.1* Letter regarding change in certifying accountant. 21.1**** Subsidiaries of Equinix. 24.1**** Power of Attorney. - ----------- * Incorporated herein by reference to the exhibit of the same number in the Registrant's Registration Statement on Form S-4 (Commission 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 (Commission File No. 333-39752). *** Incorporated herein by reference to the exhibit of the same number in the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000. **** Incorporated herein by reference to the exhibit of the same number in the Registrant's Annual Report on Form 10-K for the year ended December 31, 2000. + 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. 32 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: August 14, 2001 By: /s/ PHILIP J. KOEN ------------------------------------------- Interim Chief Financial Officer and Chief Operating Officer /s/ KEITH D. TAYLOR ------------------------------------------- Vice President, Finance (Principal Financial and Accounting Officer) 33