As filed with the Securities and Exchange Commission on December 29, 1999.
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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EQUINIX, INC.
(Exact Name of Registrant as Specified in its Charter)
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Delaware 4813 77-0487526
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Classification Identification Number)
Incorporation or Code Number)
Organization)
901 Marshall Street
Redwood City, CA 94063
(650) 298-0400
(Address, Including zip code, and telephone number, including area code, of
registrant's principal executive offices)
ALBERT M. AVERY, IV
President and Chief Executive Officer
Equinix, Inc.
901 Marshall Street
Redwood City, CA 94063
(650) 298-0400
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies to:
SCOTT C. DETTMER
RENEE F. LANAM
BRANDI L. GALVIN
MARGARET E. PAIGE
Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP
155 Constitution Drive
Menlo Park, California 94025
(650) 321-2400
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this registration statement.
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If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to rule 462(b) under the Securities Act of 1933, as amended (the
"Securities Act"), check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
CALCULATION OF REGISTRATION FEE
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Proposed
Maximum Proposed Maximum
Title of each Class of Amount to be Offering Price Aggregate Amount of
Securities to be Registered Registered Per Unit Offering Price(1) Registration Fee
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13% Senior Notes due 2007................. $200,000,000 100% $200,000,000 $52,800.00
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(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(f) under the Securities Act.
The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment that specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the registration statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this preliminary prospectus is not complete and may be +
+changed. We may not exchange these securities until the registration +
+statement filed with the Securities and Exchange Commission is effective. +
+This preliminary prospectus is not an offer to sell or exchange these +
+securities and it is not soliciting an offer to buy or exchange these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED [ ], 2000
PRELIMINARY PROSPECTUS
EQUINIX, INC.
Exchange Offer for
$200,000,000 of its
13% Senior Notes Due 2007
TERMS OF THE EXCHANGE OFFER:
- --It expires at 5:00 p.m., New York City time, on, 2000, unless extended.
- --All initial notes that are validly tendered and not withdrawn will be
exchanged.
- --We believe that the exchange of initial notes will not be a taxable exchange
for United States federal income tax purposes, but you should see the section
entitled "United States Federal Income Tax Consequences" on page 88 for more
information.
- --Tenders of initial notes may be withdrawn at any time before the expiration
of the exchange offer.
- --The terms of the exchange notes we will issue in the exchange offer are
substantially identical to those of the initial notes, except that transfer
restrictions and registration rights relating to the initial notes will not
apply to the exchange notes.
- --We will not receive any proceeds from the exchange offer.
- --The exchange notes are new securities and there is currently no established
market for them.
See the "Description of the Exchange Notes" section on page 58 for more
information about the exchange notes to be issued in this exchange offer.
BEFORE PARTICIPATING IN THIS EXCHANGE OFFER PLEASE REFER TO THE SECTION IN
THIS PROSPECTUS ENTITLED "RISK FACTORS" COMMENCING ON PAGE 10.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved the notes to be distributed in the
exchange offer or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
The date of this Prospectus is , 2000.
TABLE OF CONTENTS
Page
----
Summary.................................................................. 1
Risk Factors............................................................. 10
Forward-Looking Statements............................................... 19
Use of Proceeds.......................................................... 20
Capitalization........................................................... 21
Selected Consolidated Financial Data..................................... 22
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 23
Business................................................................. 27
Management............................................................... 37
Related-Party Transactions............................................... 42
Principal Stockholders................................................... 44
Description of Other Indebtedness........................................ 46
The Exchange Offer....................................................... 49
Description of the Exchange Notes........................................ 58
Book-Entry; Delivery and Form............................................ 85
United States Federal Income Tax Considerations.......................... 88
Plan of Distribution..................................................... 93
Legal Matters............................................................ 93
Experts.................................................................. 93
Available Information.................................................... 94
Index to Consolidated Financial Statements............................... F-1
SUMMARY
This summary may not contain all of the information that may be important to
you. You should read the entire prospectus, including the financial data and
related notes, before deciding whether to tender your initial notes in the
exchange offer.
The Company
Overview
Equinix's business is to design, build and operate the first neutral
Internet Business Exchange, or IBX, facilities. By providing a neutral meeting
ground for Internet businesses to interconnect with each other, our IBX
facilities will serve as a catalyst for Internet business growth and
development. We provide equipment colocation, direct high-speed connections,
switched interconnections and professional services to our e-commerce related
and Internet business customers who include content providers, or CPs, Internet
service providers, or ISPs, carriers and component service providers, or CSPs.
By locating at our IBX facilities, our customers place their Internet
operations at a central exchange point for Internet traffic while gaining the
benefits of the highest level of security, redundancy, scalability and service.
As a result, our customers are better positioned to capitalize on market
opportunities, expand their business offerings and enter new markets. We intend
to open approximately 30 IBX facilities in major Internet markets in the U.S.,
Europe, Asia, South America and Australia. In July 1999, we opened the
Washington, D.C. IBX facility, our first IBX facility, located in Ashburn,
Virginia. In December 1999 we opened our second IBX facility in Newark, New
Jersey, and intend to open IBX facilities in San Jose and Los Angeles,
California, during the first quarter of 2000. Our current customers include
Akamai, Cable & Wireless, Concentric Network, Ernst & Young Technologies, iBeam
Broadcasting, MCI WorldCom, NaviNet, NetRail, NorthPoint Communications and
Teleglobe.
We were founded in June 1998 and are led by Albert M. Avery, IV, our
president and chief executive officer, and Jay S. Adelson, our vice president,
engineering and chief technology officer, who were responsible for designing,
building and operating the Palo Alto Internet Exchange, or PAIX, one of the
most active global Internet traffic exchange points. PAIX launched commercial
service in July 1996 and was functioning at full capacity within one year of
introduction.
Since March 1999, we have raised more than $300 million to fund the rollout
of our IBX facilities. Our stockholders are many of the most influential
companies driving the development, operation and utilization of the Internet
and its transformation to a reliable, trusted medium for commerce. They include
America Online, Artemis S.A., Benchmark Capital, the Carlyle Group, Cisco
Systems, Comdisco Ventures, Dell Corporation, E*Trade Group, Enron Corporation,
epartners Capital (News Corp.), Finlayson Investments (Temasek), Microsoft
Corporation, Millennium System Trading Limited (Pacific Century Group), Morgan
Stanley Dean Witter, NorthPoint Communications, Reuters and Salomon Smith
Barney.
Market Opportunity
Since the early 1990s, the Internet has experienced tremendous growth and is
emerging as a global medium for communications and commerce. This growth has
led to chronic problems in the quality and reliability of Internet-related
services delivered to the end user. Infrastructure has not kept pace with
demand. Businesses have tried to alleviate these problems by relocating
Internet content closer to core communications centers, upgrading network
bandwidth and employing technologies such as web page caching. Unfortunately,
these attempts have not been sufficient to ensure consistently high service
quality. As broadband access, e-commerce and streaming media applications
continue to gain market acceptance, businesses must find new solutions to
ensure that the Internet infrastructure will meet their needs for Internet
commerce.
1
The distribution of content and delivery of services between thousands of
individual networks that make up the Internet has traditionally occurred at
network access points, or NAPs. These original NAPs were typically built in
pre-existing telecommunications carrier facilities and are run by companies
such as MCI WorldCom, Sprint and Pacific Bell. Because operating the NAPs is
not a core business for these carriers, they have not made the necessary
investments in the NAPs to effectively manage the rapid growth in Internet
traffic. As a result, these NAPs have emerged as one of the primary bottlenecks
to improved Internet communications. The problems inherent in the NAPs stem
from a number of sources, including carrier circuit monopoly, limited
scalability and legacy technologies. Moreover, the lack of AC power, poor air
conditioning, lack of financial-grade security, inadequately trained support
staff and limited facility access has made it impractical for content providers
to locate their content at these central communications exchange points. In
addition, the limited number of NAPs outside the U.S. has caused routing
inefficiencies, burdening international ISPs with high operating costs and
resulting in slow and unreliable transmissions. As a result of these problems,
businesses have been restrained in their ability to effectively grow and manage
their Internet operations and employ the Internet as a commerce medium.
A variety of businesses, including emerging carriers, Web site hosting
companies, ISPs and more focused new entrants are beginning to provide improved
colocation services for Internet content. Forrester Research predicts that a
combination of rapid Internet growth and increased outsourcing of Internet-
related services will create an acute need for Internet-related hosting and
colocation services, producing revenue growth from approximately $875 million
in 1998 to approximately $14.6 billion by 2003 in the U.S. While the demand for
these colocation services is significant, most new colocation facilities are
being constructed by telecommunications carriers and ISPs. Internet and e-
commerce companies who choose to colocate equipment at these facilities
typically have no choice but to purchase bandwidth from the owner of the
facility. This can be costly, given the lack of competition, and a significant
risk if the facility owner's network were to fail or have performance problems.
The Equinix Solution
Our neutral IBX facilities are designed to solve many of the infrastructure
problems facing Internet businesses today. These facilities will provide
environments that stimulate efficient business growth by encouraging
independent Internet supplier companies to deliver a wide diversity of
services. We provide the following key benefits to our customers:
Choice. We believe that the ability of customers to choose among a
variety of product and service providers is the fundamental driver of
dynamic growth in commerce. By offering the crucial element of choice, our
IBX facilities are designed to serve as a catalyst for our customers that
creates synergy among them and makes it possible for them to adapt their
business models to successfully scale with the growth of each other and of
the Internet.
Opportunity to Increase Revenues and Reduce Costs. As a result of the
proposed size of our IBX facilities and the anticipated large amount of
Internet and e-commerce related business in these centers, our customers
will have a better opportunity to increase the size of their addressable
markets, accelerate revenue growth and improve the quality of their
services. In addition, participants will be able to enhance their ability
to control costs by aggregating their service purchases at a single
location and through improved purchasing power.
Scalability. We design our IBX facilities for physical scalability and
scalability from the perspective of an individual customer's ability to
transact business. As a result, our IBX facilities will both stimulate and
support the efficient growth of our customers. In addition, through our
global presence we will have a broad capacity to meet customers' multi-
market and multi-geographic requirements.
2
Reliability. Our IBX design provides our customers with highly reliable
and disaster-resistant facilities that are necessary for optimum Internet
commerce interconnection. We believe that the level of excellence and
consistency achieved in our IBX architecture and design will result in
premium, secure, fault-tolerant exchanges.
Value-Added Services. In addition to our core services, we offer
advanced products and value-added services that are intended to assist
customers in improving the quality of their interconnection and traffic
exchange. Such services include high-speed interconnects through our
central switching fabric, route servers, root DNS servers, rubidium-
disciplined clock sources and NTP servers. We also provide a collaborative
research environment where Equinix customers and Equinix engineers work
side-by-side on developing Internet technologies.
Equinix Strategy
Our objective is to be the market leader for business-to-business Internet
communications for Internet commerce by attracting a wide variety of
complementary business partners and providing the highest level of service in
our IBX facilities. To accomplish this objective we are employing the following
strategies:
Capitalize on Our Neutrality. IBX neutrality means we provide our
customers with free choice of their preferred product and service
providers. We believe that this is a significantly improved approach from
the current Internet model where ISPs and telecommunications carriers own
the majority of colocation and exchange facilities.
Target a Balanced IBX Customer Base. As a key aspect to fostering
efficient interaction and promoting choice, reliability and redundancy, we
intend to actively manage our customer base at each IBX facility to include
a balanced number of Internet and e-commerce related businesses.
Expand Globally and Capitalize on First Mover Advantage. We currently
plan to launch an aggressive IBX rollout program over the next twelve to
eighteen months and open a total of 12 IBX facilities in the United States
and internationally. We believe the demand for our international IBX
facilities and services will be significant due to the early stage of
Internet infrastructure deployment outside of the U.S.
Establish Equinix as the Leading Brand for IBX facilities. We plan to
establish Equinix as the industry standard for the highest quality Internet
connections. Through brand awareness and promotion, we intend to create a
strong following among all leading CPs, ISPs, carriers and CSPs.
Leverage Blue-Chip Investor Base. Our stockholders are many of the most
influential companies driving the development, operation and utilization of
the Internet. They provide us with invaluable technical and business
insight, industry contacts and customer relationships to help expedite the
expansion of our business. These stockholders include America Online,
Artemis S.A., Benchmark Capital, the Carlyle Group, Cisco Systems, Comdisco
Ventures, Dell Corporation, E*Trade Group, Enron Corporation, epartners
Capital (News Corp.), Finlayson Investments (Temasek), Microsoft
Corporation, Millennium System Trading Limited (Pacific Century Group),
Morgan Stanley Dean Witter, NorthPoint Communications, Reuters and Salomon
Smith Barney.
Continue Providing Leading-Edge Products and Services. We encourage our
customers to research and test their new technologies within our state-of-
the-art research and development environment. By collaborating with leading
technology companies we believe we are positioned at the forefront of
Internet technology development.
Recent Developments
On November 16, 1999, we entered into a definitive agreement with MCI
WorldCom, or MCI, whereby MCI agreed to install high-bandwidth Internet
connectivity at our first seven U.S. IBX facilities in exchange for
3
warrants to purchase common stock in our company. Among other things, MCI has
agreed to provide timely and sufficient connectivity to fulfill the
requirements of all customers in the designated IBX facility locations.
Pursuant to the terms of this agreement, MCI has installed Internet
connectivity in our Washington D.C. IBX facility.
On December 18, 1999, we entered into a definitive agreement with Bechtel
Corporation, or Bechtel, whereby Bechtel has agreed to act as our exclusive
contractor for our IBX facilities worldwide. In this regard, they have agreed
to assist us with site identification and evaluation, design, build-out, and
testing of our IBX facilities in exchange for a warrant to purchase common
stock in our company.
Equinix is located at 901 Marshall Street, Redwood City, California 94063.
Our phone number is (650) 298-0400.
4
Summary of the Exchange Offer
Securities Offered.......
Up to $200 million principal amount of 13%
Senior Notes due 2007, which will be
registered under the Securities Act. The
terms of the exchange notes and the initial
notes are identical except for transfer
restrictions and registration rights
relating to the initial notes that will not
be applicable to the exchange notes.
Issuance of Initial The initial notes were issued on December
Notes....................... 1, 1999 to Salomon Smith Barney Inc.,
Morgan Stanley & Co. Incorporated and
Goldman, Sachs & Co., who placed the
initial notes with qualified institutional
buyers and institutional accredited
investors, and to buyers in offshore
transactions in reliance on Regulation S
under the Securities Act.
The Exchange Offer.......
We are offering to exchange $1,000
principal amount of exchange notes for each
$1,000 principal amount of initial notes.
There are $200 million aggregate principal
amount of initial notes outstanding. The
issuance of the exchange notes is intended
to satisfy our obligations contained in the
registration rights agreement we entered
into with Salomon Smith Barney Inc., Morgan
Stanley & Co. Incorporated and Goldman,
Sachs & Co. in connection with the issuance
of the initial notes.
Conditions to the The exchange offer is not conditioned upon
Exchange Offer.............. any minimum principal amount of initial
notes being tendered for exchange. However,
the exchange offer is subject to customary
conditions, which may be waived by us. See
"The Exchange Offer--Conditions." Except
for the requirements of applicable federal
and state securities laws, there are no
federal or state regulatory requirements to
be complied with or obtained by us in
connection with the exchange offer.
Procedures for If you want to tender your initial notes in
Tendering................... the exchange offer, you must complete, sign
and date the letter of transmittal
according to the instructions contained in
this prospectus and the letter of
transmittal. You must then mail or fax the
letter of transmittal, together with any
other required documents, to the exchange
agent, either with the initial notes to be
tendered or in compliance with the
specified procedures for guaranteed
delivery of initial notes. You should allow
sufficient time to ensure timely delivery.
Some brokers, dealers, commercial banks,
trust companies and other nominees may also
effect tenders by book-entry transfer. If
you own initial notes registered in the
name of a broker, dealer, commercial bank,
trust company or other nominee, you are
urged to contact that person promptly if
you wish to tender initial notes in the
exchange offer. Letters of transmittal and
certificates representing the initial notes
should not be sent to Equinix.
5
These documents should only be sent to the
exchange agent. Questions regarding how to
tender initial notes and requests for
information should also be directed to the
exchange agent. See "The Exchange Offer--
Procedures for Tendering Initial Notes."
Expiration Date;
Withdrawal.................. The exchange offer will expire at 5:00
p.m., New York City time on , 2000. We will
accept for exchange any and all initial
notes that are validly tendered in the
exchange offer on or before 5:00 p.m., New
York City time, on the expiration date. The
tender of initial notes may be withdrawn at
any time before the expiration date. Any
initial note not accepted for exchange for
any reason will be returned without expense
to the tendering holder as promptly as
practicable after the expiration or
termination of the exchange offer. The
exchange notes issued in the exchange offer
will be delivered promptly following the
expiration date. See "The Exchange Offer--
Expiration of the Exchange Offer" and "--
Withdrawal of Tenders."
Guaranteed Delivery If you wish to tender your initial notes
Procedures.................. and (1) your initial notes are not
immediately available or (2) you cannot
deliver your initial notes together with
the letter of transmittal to the exchange
agent before the expiration date, you may
tender your initial notes according to the
guaranteed delivery procedures contained in
the letter of transmittal. See "The
Exchange Offer--Guaranteed Delivery
Procedure."
Acceptance of Initial Notes
and Delivery of Exchange
Notes.......................
Upon effectiveness of the registration
statement of which this prospectus
constitutes a part and consummation of the
exchange offer, we will accept any and all
initial notes that are properly tendered in
the exchange offer on or before 5:00 p.m.,
New York City time, on the expiration date.
The exchange notes issued pursuant to the
exchange offer will be delivered
promptly after acceptance of the initial
notes. See "The Exchange Offer--Acceptance
of Initial Notes for Exchange; Delivery of
Exchange Notes."
Tax Considerations.......... For U.S. federal income tax purposes, the
exchange of initial notes for exchange
notes should not be considered a sale or
exchange or otherwise a taxable event to
the holders of notes. See "United States
Federal Income Tax Considerations."
Use of Proceeds............. We will receive no proceeds from the
exchange offer.
Exchange Agent..............
State Street Bank and Trust Company of
California, N.A. is serving as exchange
agent in connection with the exchange
offer.
Fees and Expenses........... We will bear all expenses related to the
exchange offer. See "The Exchange Offer--
Fees and Expenses."
6
Consequences of Not
Exchanging the Initial
Notes.......................
If you do not tender your initial notes or
your initial notes are not properly
tendered, the existing transfer
restrictions will continue to apply. The
initial notes are currently eligible for
sale pursuant to Rule 144A through the
PORTAL Market. Because we anticipate that
most holders will elect to exchange initial
notes for exchange notes due to the absence
of restrictions on the resale of exchange
notes under the Securities Act in most
cases, we anticipate that the liquidity of
the market for any initial notes remaining
after the consummation of the exchange
offer may be substantially limited. See
"Risk Factors--There could be negative
consequences to you if you do not exchange
your initial notes for exchange notes."
Summary Description of the Exchange Notes
The terms of the exchange notes and the initial notes are identical in all
respects, except that the terms of the exchange notes do not include the
transfer restrictions and registration rights relating to the initial notes.
The initial notes and the exchange notes are referred to collectively as the
notes.
The exchange notes will bear interest from the most recent date to which
interest has been paid on the initial notes. Accordingly, registered holders of
exchange notes on the relevant record date for the first interest payment date
following the completion of the exchange offer will receive interest accruing
from the most recent date on which interest has been paid. Initial notes
accepted for exchange will cease to accrue interest from and after the date of
completion of the exchange offer. Holders of initial notes whose initial notes
are accepted for exchange will not receive any payment in respect of interest
on the initial notes otherwise payable on any interest payment date that occurs
on or after completion of the exchange offer.
Maturity Date............ December 1, 2007.
Interest.................
The interest on the notes will be payable semi-
annually in arrears on each June 1 and December
1, commencing on June 1, 2000.
Interest Escrow.......... We have deposited with the escrow agent an amount
of cash or U.S. government securities totaling
approximately $37.0 million that, together with
the proceeds from the investment thereof, will be
sufficient to pay, when due, the first three
interest payments on the notes, with us retaining
any balance. The notes will be collateralized by
a first priority security interest in the escrow
account.
Sinking Fund............. None
Optional Redemption......
Generally, we may not redeem the notes before
December 1, 2003. On or after December 1, 2003,
we may redeem the notes, in whole or in part, at
any time, at the redemption prices set forth
under the section entitled "Description of the
Exchange Notes" together with accrued and unpaid
interest, if any, to the redemption date.
Change of Control........ Upon a "Change of Control" as defined under the
section entitled "Description of the Notes," you
as a holder of notes will have the right to
require us to repurchase all of your notes at a
repurchase
7
price equal to 101% of the aggregate principal
amount of such notes, plus accrued and unpaid
interest, if any, through the date of repurchase.
Ranking..................
Except for the noteholders' security interest in
the escrow account, the notes will be general
unsecured obligations, will rank without
preference with all of our other existing and
future senior unsecured indebtedness and will be
effectively subordinated to all our existing and
future secured indebtedness to the extent of the
value of the assets that secure such indebtedness
and to all of our subsidiaries' existing or
future indebtedness, whether or not secured.
Restrictive Covenants.... The indenture under which the notes will be
issued will limit:
. the incurrence of additional indebtedness or
preferred stock by us and our subsidiaries;
. the payment of dividends on, and repurchase or
redemption of, our capital stock and our
subsidiaries' capital stock and the repurchase
or redemption of our subordinated obligations;
. our making of investments;
. the selling of our assets or the stock of our
subsidiaries;
. transactions with our affiliates;
. the incurrence of additional liens;
. our ability to permit restrictions to exist on
the ability of our subsidiaries to pay
dividends or make payments to us; and
. our ability to engage in consolidations,
mergers and transfers of all or substantially
all of our assets.
All of these limitations and prohibitions will be
subject to a number of important qualifications
and exceptions. See "Description of the Exchange
Notes."
Exchange Rights..........
Holders of the exchange notes will not be
entitled to any exchange or registration rights
relating to the exchange notes. Holders of the
initial notes are entitled to certain exchange
rights pursuant to the registration rights
agreement entered into concurrently with the
initial offering between us and Salomon Smith
Barney Inc., Morgan Stanley & Co. Incorporated
and Goldman, Sachs & Co. This exchange offer is
intended to satisfy our obligations under the
registration rights agreement. Once the exchange
offer is consummated, we will have no further
obligations to register any of the initial notes
not tendered by the holders for exchange. See
"Risk Factors--There could be negative
consequences to you if you do not exchange your
initial notes for exchange notes."
Risk Factors
You should carefully consider the information provided in the section in
this prospectus entitled "Risk Factors" beginning on page 10 and all the other
information provided to you in this prospectus in deciding whether to tender
your initial notes in the exchange offer.
8
SUMMARY CONSOLIDATED FINANCIAL DATA
The following summary consolidated financial data should be read in
conjunction with our consolidated financial statements and their related notes
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The consolidated statement
of operations data for the period from June 22, 1998 (inception) to December
31, 1998 and the balance sheet data as of December 31, 1998 are derived from,
and are qualified by reference to, the audited consolidated financial
statements and their related notes, which are included in this prospectus. The
consolidated statement of operations data for the nine months ended September
30, 1999 and the balance sheet data as of September 30, 1999 are derived from,
and qualified by reference to, our unaudited condensed interim consolidated
financial statements and their related notes included in this prospectus. The
Pro Forma column gives effect to the issuance of additional Series B preferred
stock from October through December 1999 and the additional drawing of debt.
The Pro Forma As Adjusted column gives effect to the issuance of the initial
notes.
Period from June 22, Nine Months Ended
1998 (inception) to September 30,
December 31, 1998 1999
-------------------- -----------------
(in thousands)
Statement of Operations Data:
Revenues.............................. $ -- $ --
Operating expenses....................
Selling, general, and administrative
expenses............................. 782 6,860
Depreciation and amortization......... 4 248
Stock-based compensation.............. -- 306
------ -------
Total operating expenses............ 786 7,414
------ -------
Loss from operations.................. (786) (7,414)
Interest expense....................... -- 138
Interest income........................ (150) (267)
Interest charge on beneficial
conversion of convertible debt........ 220 --
------ -------
Net loss............................... $ (856) $(7,285)
====== =======
Other Financial Data:
EBITDA (1)............................. $ (782) $(7,166)
Net cash provided by (used in)
operating activities.................. (544) 349
Net cash used in investing activities.. (5,517) (62,961)
Net cash provided by financing
activities............................ 10,226 62,029
Ratio of earnings to fixed charges(2).. -- --
As of September 30, 1999
-----------------------------
As of Pro Forma
December 31, 1998 Actual Pro Forma As Adjusted
----------------- ------- --------- -----------
(in thousands)
Balance Sheet Data:
Cash, cash equivalents and
short-term investments....... $9,165 $46,489 $84,150 $239,838
Restricted cash(3)............ -- -- -- 37,012
Property and equipment, net... 482 2,879 2,879 2,879
Construction in progress...... 31 22,590 22,590 22,590
Total assets.................. 10,001 75,353 113,014 313,014
Total long-term debt,
excluding current portion.... -- 3,734 10,877 201,873
Total stockholders' equity.... 9,590 59,855 87,516 96,520
- --------
(1) EBITDA consists of the net loss excluding interest, depreciation and
amortization of capital assets. EBITDA is presented to enhance an
understanding of our operating results and is not intended to represent
cash flow or results of operations in accordance with generally accepted
accounting principles for the period indicated and may be calculated
differently than EBITDA for other companies.
(2) In calculating the ratio of earnings to fixed charges, earnings consist of
net loss before income tax expense and fixed charges. Fixed charges consist
of interest expense. The ratio of earnings to fixed charges was less than
1.0 to 1.0 for each of the periods presented. Earnings available for fixed
charges were thus inadequate to cover fixed charges. The coverage
deficiency for the period from June 22, 1998 (inception) to December 31,
1998 and the nine months ended September 30, 1999 was $856,000 and
$7,285,000 respectively.
(3) Reflects the portion of the net proceeds from the issuance of the initial
notes to be used to purchase a portfolio of U.S. government securities to
fund the first three scheduled interest payments on the notes.
9
RISK FACTORS
You should carefully consider the information set forth under the caption
"Risk Factors" and all other information in this prospectus before tendering
your initial notes in the exchange offer, including information in the section
of this prospectus entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Special Note Regarding Forward-Looking
Statements."
Risks Related to Our Business
We are an early-stage company, which makes evaluating our business difficult.
We were founded in June 1998. The construction of our first IBX facility was
completed in July 1999, and we began accepting customers the same month. We did
not recognize any revenue until November 1999. Our limited history and lack of
meaningful financial or operating data makes evaluating our business operations
difficult. Moreover, the neutrality aspect of our business model is unique and
largely unproven. We expect that we will encounter challenges and difficulties
frequently experienced by early-stage companies in new and rapidly evolving
markets, such as our ability to generate cash flow, hire and train sufficient
operational and technical talent, and implement our plan with minimal delays.
We may not successfully address any or all of these challenges and the failure
to do so would seriously harm our business and operating results.
We have incurred losses since inception and we expect future losses.
As an early-stage company without recognized revenues, we have experienced
operating losses since inception. As of September 30, 1999, we had cumulative
net losses of $8.1 million and cumulative cash used by operating activities of
$195,000 since inception. We expect to incur significant losses in the future.
In addition, as we commence operations, our losses will increase as we:
. increase the number of IBX facilities;
. increase our sales and marketing activities, including expanding our
direct sales force; and
. enlarge our customer support and professional services organizations.
Our IBX facilities 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 facilities;
. demand for space and services at our IBX facilities;
. our pricing policies and the pricing policies of our competitors;
. the timing of customer installations and related payments;
. competition in our markets;
. the timing and magnitude of our expenditures for sales and marketing;
. direct costs relating to the expansion of our operations;
. growth of Internet use;
. economic conditions specific to the Internet industry; and
. general economic factors.
Some of these factors are beyond our control.
10
We are substantially leveraged and we may not generate sufficient cash flow to
meet our debt service and working capital requirements.
We are highly leveraged since the issuance of the initial notes. We have
total indebtedness of $215.0 million. Our highly leveraged position could have
important consequences, including:
. impairing our ability to obtain additional financing for working capital,
capital expenditures, acquisitions or general corporate purposes;
. requiring us to dedicate a substantial portion of our operating cash flow
to paying principal and interest on our indebtedness, thereby reducing
the funds available for operations;
. limiting our ability to grow and make capital expenditures due to the
financial covenants contained in our debt arrangements;
. impairing our ability to adjust rapidly to changing market conditions,
invest in new or developing technologies, or take advantage of
significant business opportunities that may arise; and
. making us more vulnerable if a general economic downturn occurs or if our
business experiences difficulties.
In the past, we have experienced unforeseen delays in connection with our
IBX construction activities. We will need to successfully implement our current
rollout schedule and our business strategy to meet our debt service and working
capital needs. We may not successfully implement our business strategy, and
even if we do, we may not realize the anticipated results of our strategy or
generate sufficient operating cash flow to meet our debt service obligations
and working capital needs.
In the event our cash flow is inadequate to meet our obligations, we could
face substantial liquidity problems. If we are unable to generate sufficient
cash flow or otherwise obtain funds needed to make required payments under our
indebtedness, or if we breach any covenants under our indebtedness, we would be
in default under the terms thereof, and the holders of such indebtedness may be
able to accelerate the maturity of such indebtedness, which could cause
defaults under our other indebtedness. Any such default would have a material
adverse effect on our business, results of operations and financial condition.
We will need significant additional funds, which we may not be able to obtain.
We currently intend to pursue a rollout strategy of approximately 30 IBX
facilities in major Internet markets around the world over the next four years.
We intend to finance these IBX facilities through our internal cash flow and
approximately $750.0 million of additional financing. We currently have $221.9
million in cash, cash equivalents and short-term investments available to us.
We anticipate that the funds available to us after the issuance of the initial
notes will be sufficient to fund the capital expenditure and working capital
requirements, including operating losses associated with the initial rollout of
eight IBX facilities and expansion projects within three of those IBX
facilities. To complete the implementation of our approximately 30 site rollout
plan within our proposed time frame we anticipate that we will need to raise
funds through additional debt or equity financing. In the past, we have had
difficulties obtaining debt financing due to the early stage of our company.
Financing may not be available to us at the time we seek to raise additional
funds, or if such financing is available, it may only be available on terms, or
in amounts, which are unfavorable to us. If we cannot raise sufficient
additional funds on acceptable terms we may delay the rollout of additional IBX
facilities or permanently reduce our rollout plans.
The anticipated timing and amount of our capital requirements is forward-
looking and therefore inherently uncertain. In the past, we have experienced
unforeseen delays and expenses in connection with our IBX construction
activities. Our future capital requirements may vary significantly from what we
currently project and the timing of our rollout plan may be affected by
unforeseen construction delays and expenses and the amount of time it takes us
to lease space within our IBX facilities. If we encounter any of these problems
or if we have underestimated our capital expenditure requirements or the
operating losses or working capital requirements, we may require significantly
more financing than we currently anticipate.
11
Our rollout plan is preliminary and we may need to reallocate funds.
Our IBX facility rollout plan is preliminary and has been developed from our
current market data and research, projections and assumptions. We expect to
continually reevaluate our business and rollout plan in light of evolving
competitive and market conditions, and as a result, we may alter our IBX
facility rollout and reallocate funds if there are:
. changes or inaccuracies in our market data and research, projections or
assumptions;
. unexpected results of operations or strategies in our target markets;
. regulatory, technological, and competitive developments (including
additional market developments and new opportunities); or
. changes in, or discoveries of, specific market conditions or factors
favoring expedited development in other markets.
We must manage our growth and expansion.
Our anticipated growth may significantly strain our resources as a result of
an increase in the number of our employees, the number of operating IBX
facilities and our international expansion. Any failure to manage growth
effectively could seriously harm our business and operating results. To
succeed, we will need to:
. hire and train new employees and qualified engineering personnel at each
IBX facility;
. implement additional management information systems;
. locate additional office space for our corporate headquarters;
. improve our operating, administrative, financial and accounting systems
and controls; and
. maintain close coordination among our executive, engineering, accounting,
finance, marketing, sales and operations organizations.
We face risks associated with international operations that could harm our
business.
We intend to construct IBX facilities outside of the United States and we
will commit significant resources to our international sales and marketing
activities. Our management has limited experience conducting business outside
of the United States and we may not be aware of all the factors that affect our
business in foreign jurisdictions. We will be subject to a number of risks
associated with international business activities that may increase our costs,
lengthen our sales cycles and require significant management attention. These
risks include:
. increased costs and expenses related to the leasing of foreign
facilities;
. difficulty or increased costs of constructing IBX facilities 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
thereto;
12
. 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
facility in that particular foreign jurisdiction.
We depend on third parties to provide bandwidth connectivity to our IBX
facilities.
The presence of diverse bandwidth fiber from communications carriers' fiber
networks to an Equinix IBX facility is critical to our ability to attract new
customers. To date, we have been successful in selling our services before
establishing such carrier presence, however, we believe that the availability
of such carrier capacity will directly affect our ability to achieve our
projected results.
We are not a communications carrier, and as such rely on third parties to
provide our customers with carrier facilities. We intend to rely primarily on
revenue opportunities from our customers to encourage carriers to incur the
expenses required to build facilities from their points of presence to our IBX
facilities. Carriers will likely evaluate the revenue opportunity of an IBX
facility 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
facilities.
The construction required to connect multiple carrier facilities to our IBX
facilities is complex and involves factors outside of our control, including
regulatory processes and the availability of construction resources. If the
establishment of highly diverse bandwidth connectivity to our IBX facilities
does not occur or is materially delayed, our operating results and cash flow
will be adversely affected.
We have a new management team; we must retain and attract key personnel.
We have recently hired many key personnel, including our chief financial
officer, vice president of operations, vice president of worldwide sales,
director of business development, vice president of marketing and vice
president of IBX development. As a result, our management team has worked
together for only a brief time. Our ability to effectively execute our
strategies will depend in part upon our ability to integrate our current and
future managers into our operations. If our executives are unable to operate
together effectively, our business, results of operations and financial
condition will be materially adversely affected.
We require the services of additional management personnel in positions
related to our growth. For example, we need to expand our marketing and direct
sales operations to increase market awareness of our IBX facilities, market our
services to a greater number of enterprises and generate increased revenues. As
a result, we plan to hire additional personnel in related capacities. Our
success depends on our ability to identify, hire, integrate and retain
additional qualified management personnel, particularly in areas related to our
anticipated growth and geographic expansion.
We may not be successful in attracting, assimilating or retaining qualified
personnel. In addition, due to generally tight labor markets, our industry, in
particular, suffers from a lack of available qualified personnel. Moreover,
none of our present senior management or other key personnel is bound by an
employment agreement. If we lose one or more of our key employees, we may not
be able to find a replacement and our business and operating results could be
adversely affected.
We will operate in a new highly competitive market and we may be unable to
compete successfully against new entrants and established companies with
greater resources.
We believe that our market will likely have an increasing number of
competitors. To be successful in this emerging market, we must be able to
differentiate ourself from existing colocation and web hosting companies. We
may also face competition from persons seeking to replicate our IBX concept. We
may not be successful in differentiating ourself or achieving widespread market
acceptance of our business. Furthermore, enterprises that
13
have already invested substantial resources in peering arrangements may be
reluctant or slow to adopt our approach that may replace, limit or compete with
their existing systems. If we are unable to complete our IBX facilities in a
timely manner, other companies may be able to attract the same customers that
we are targeting. Once the customers are located in our competitors'
facilities, it will be extremely difficult to convince them to relocate to our
IBX facilities.
We may encounter competition from a number of sources, some of which may
also be our customers, including:
. Web site hosting, colocation and ISP companies such as AboveNet, Digital
Island, Exodus, Frontier GlobalCenter, Globix, PSINet and Verio;
. established communications carriers such as AT&T, Level 3, MCI WorldCom,
Qwest and Sprint; and
. emerging colocation service providers such as Colo.com, IX Europe,
Neutral Nap and Telehouse.
Potential competitors may bundle their products or incorporate colocation
services in a manner that is more attractive to our potential customers than
purchasing cabinet space in our IBX facilities and utilizing our services.
Furthermore, new competitors or alliances among competitors may emerge and
rapidly acquire significant market share. Our competitors may be able to
respond more quickly to new or emerging technologies and changes in customer
requirements than we can.
Some of our potential competitors have longer operating histories and
significantly greater financial, technical, marketing and other resources than
we do. In particular, carriers and several web hosting and colocation companies
have extensive customer bases and broad customer relationships that they can
leverage, including relationships with many of our potential customers. These
companies also have significantly greater customer support and professional
services capabilities than we do. Because of their greater financial resources,
some of these companies have the ability to adopt aggressive pricing policies.
As a result, in the future, we may suffer from pricing pressure which would
adversely affect our ability to generate revenues and affect our operating
results.
We may experience fluctuations in our operating results.
Our operating results may fluctuate significantly depending upon a variety
of factors. These factors include:
. the timing of capital expenditures related to our rollout;
. our customer retention rate;
. changes in pricing policies by our competitors; and
. changes in demand for network and Internet services.
Due to the foregoing factors, we believe that period-to-period comparisons
of our operating results may not necessarily be meaningful and that such
comparisons may not be an indication of our future performance.
Any failure of our physical infrastructure or services could lead to
significant costs and disruptions which could reduce our revenue and harm our
business reputation and financial results.
Our business depends on providing our customers with highly reliable
service. The services we provide are subject to failure resulting from numerous
factors, including:
. human error;
. physical or electronic security breaches;
. fire, earthquake, flood and other natural disasters;
14
. power loss; and
. sabotage and vandalism.
Problems at one or more of our sites, whether or not within our control,
could result in service interruptions or significant equipment damage. Any loss
of services, particularly in the early stage of our development, could reduce
the confidence of our customers and could consequently impair our ability to
obtain and retain customers which would adversely affect our ability to
generate revenues and affect our operating results.
Our computer systems and those of third parties with whom we do business may
not be year 2000 compliant, which may cause system failure and disruptions of
operations.
Currently, many computer and software products are coded to accept two digit
entries in the date code field. These date code fields will need to accept four
digit entries to distinguish a date using "00" as the year 1900 rather than the
year 2000. As a result, many companies' software and computer systems may need
to be upgraded or replaced to comply with year 2000 requirements. We recognize
the need to ensure that our operations will not be adversely impacted by year
2000 software and computer system failures.
We have completed assessments of the year 2000 readiness of our information
technology systems. In addition, we have assurances from our material hardware
and software vendors that their products are year 2000 compliant. Although we
have not incurred any material expenditure in connection with identifying or
evaluating year 2000 compliance issues to date, we do not at this time possess
the information necessary to estimate the potential costs of revisions or
replacements to our software and systems or third-party software, hardware or
services that are determined not to be year 2000 compliant. Such expenses could
have a material adverse effect on our business.
We are not aware of any year 2000 compliance problems relating to our
information technology systems that would have a material adverse effect on our
business, however, we cannot assure you that we will not discover any such
compliance problems. Our failure to fix or replace our software, hardware or
services on a timely basis could result in lost revenues, increased operating
costs and the loss of customers and other business interruptions, any of which
could have a material adverse effect on our business. Moreover, the failure to
adequately address year 2000 compliance issues in our information technology
systems could result in claims of mismanagement, misrepresentation or breach of
contract and related litigation, which could be costly and time-consuming to
defend.
We depend on the development and growth of a balanced customer base.
Our ability to maximize revenues depends on our ability to develop and grow
a balanced customer base as we roll out our IBX facilities. Our ability to
attract customers to our IBX facilities 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 facilities, equipment and material shortages or our
inability to obtain necessary permits on a timely basis could delay our IBX
facility rollout schedule and prevent us from developing our anticipated
customer base. If we fail to develop and grow our customer base, our business
and operating results will be materially adversely affected.
A customer's decision to lease cabinet space in our IBX facilities 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 facility. In particular,
some customers will be reluctant to commit to locating in our IBX facilities
until they are confident that the IBX facility has adequate carrier
connections.
15
In addition, some of our customers will be Internet companies that face many
competitive pressures and that may not ultimately be successful. If these
customers do not succeed, they will not continue to use our IBX facilities.
This may be disruptive to our business and may adversely affect our operating
results.
Risks Related to Our Industry
We depend on continued use of the Internet and growth of electronic business.
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 facilities
will emerge or be sustainable. If our market fails to develop, or develops more
slowly than expected, our business and operating results would be materially
adversely affected.
We must respond to rapid technological change and evolving industry standards.
The market for IBX facilities will be marked by rapid technological change,
frequent enhancements, changes in customer demands and evolving industry
standards. Our success will depend, in part, on our ability to address the
increasingly sophisticated and varied needs of our current and prospective
customers. Our failure to adopt and implement the latest technology in our
business could negatively affect our business and operating results.
In addition, we have made and will continue to make assumptions about the
standards that may be adopted by our customers and competitors. If the
standards adopted differ from those on which we have based anticipated market
acceptance of our services or products, our existing services could become
obsolete. This would have a material adverse effect on our businesses.
Government regulation may adversely effect the use of the Internet and our
business.
Laws and regulations governing Internet services, related communications
services and information technologies, and electronic commerce are beginning to
emerge but remain largely unsettled, even in areas where there has been some
legislative action. It may take years to determine whether and how existing
laws, such as those governing intellectual property, privacy, libel,
telecommunications, and taxation, apply to the Internet and related services
such as ours. In addition, the development of the market for online commerce
and the displacement of traditional telephony services by the Internet and
related communications services may prompt increased calls for more stringent
consumer protection laws or other regulation, both in the United States and
abroad, that may impose additional burdens on companies conducting business
online and their service providers. The adoption or modification of laws or
regulations relating to the Internet, or interpretations of existing law, could
have a material adverse effect on our business.
Risks Related to the Exchange Offer
There could be negative consequences to you if you do not exchange your initial
notes for exchange notes.
Following the consummation of the exchange offer, holders who did not tender
their initial notes generally will not have any further rights under the
registration rights agreement and these initial notes will continue to be
subject to restrictions on transfer. As a result of making the exchange offer,
we will have fulfilled our obligations under the registration rights agreement.
Holders who do not tender their initial notes generally will not have any
further registration rights or rights to receive the liquidated damages
specified in the registration rights agreement for our failure to register the
exchange notes. In addition, the initial notes that are not
16
exchanged for exchange notes will remain restricted securities. Accordingly,
the initial notes may be resold only:
. to Equinix or one of its subsidiaries;
. to a qualified institutional buyer;
. to an institutional accredited investor;
. to a party outside the United States under Regulation S under the
Securities Act;
. under an exemption from registration provided by Rule 144 under the
Securities Act; or
. under an effective registration statement.
The issuance of the exchange notes may adversely affect the market for the
initial notes.
Following commencement of the exchange offer, you may continue to trade the
initial notes on the Private Offerings, Resales and Trading through Automated
Linkages, or PORTAL, market. However, if initial notes are tendered for
exchange and accepted in the exchange offer, the trading market for untendered
and tendered but unaccepted initial notes could be adversely affected. Any
initial notes tendered and exchanged in the exchange offer will reduce the
aggregate principal amount of initial notes outstanding. Because we anticipate
that most holders will elect to exchange their initial notes for exchange notes
due to the absence of most restrictions on the resale of exchange notes, we
anticipate that the liquidity of the market for any initial notes remaining
outstanding after the exchange offer may be substantially limited.
You may find it difficult to sell your exchange notes.
The exchange notes will be registered under the Securities Act but will not
be eligible for trading on the PORTAL market. The exchange notes will
constitute a new issue of securities with no established trading market, and
there can be no assurance as to:
. the development of any market for the exchange notes;
. the liquidity of any market for the exchange notes that may develop;
. your ability to sell your exchange notes; or
. the price at which you would be able to sell your exchange notes.
We have been advised by the initial purchasers for the initial notes that
they presently intend to make a market in the exchange notes. However, they are
not obligated to do so and may discontinue any market-making activity relating
to the exchange notes at any time without notice. If a market for the exchange
notes were to exist, the exchange notes could trade at prices that may be
higher or lower than their principal amount or purchase price, depending on
many factors, including prevailing interest rates, the market for similar
debentures and our financial performance. Historically, the market for non-
investment grade debt has been subject to disruptions that have caused
substantial volatility in the prices of securities similar to the exchange
notes. We cannot assure you that the market for the exchange notes, if any,
will not be subject to similar disruptions. Any disruption may adversely affect
you as a holder of the exchange notes.
Some people who participate in the exchange offer must deliver a prospectus in
connection with resales of the exchange notes.
Based on certain no-action letters issued by the staff of the Securities and
Exchange Commission, we believe that you may offer for resale, resell or
otherwise transfer the exchange notes without compliance with the registration
and prospectus delivery requirements of the Securities Act. However, in some
instances described in this prospectus under "The Exchange Offer," you will
remain obligated to comply with the registration and prospectus delivery
requirements of the Securities Act to transfer your exchange notes. In these
17
cases, if you transfer any exchange note without delivering a prospectus
meeting the requirements of the Securities Act or without an exemption from
registration of your exchange notes under this Act, you may incur liability
under the Securities Act. We do not and will not assume or indemnify you
against this liability.
Risks Related to the Exchange Notes
The exchange notes are unsecured and effectively rank behind our secured
indebtedness.
The exchange notes will be general unsecured senior obligations and will
rank equally in right of payment with all our existing and future senior
indebtedness. The exchange notes will be effectively subordinated to all of our
secured indebtedness to the extent of the value of the assets securing such
indebtedness. All of the obligations under our current credit facilities are
either secured by all of the assets of Equinix-DC, Inc. or the assets purchased
from the proceeds of specific indebtedness. We anticipate that all of the
obligations under our future credit facilities will be secured. In a
bankruptcy, liquidation or reorganization of our company, our assets securing
other indebtedness will be available to pay obligations on the exchange notes
only after all indebtedness secured by such assets has been paid in full, at
which point there may not be sufficient proceeds remaining to pay amounts due
on the exchange notes then outstanding.
Management discretion relating to certain business matters will be limited by
restrictive covenants contained in our indebtedness.
Our credit facilities contain, and the indenture governing the exchange
notes contains, a number of restrictive covenants that will limit the
discretion of our management relating to certain business matters. We expect
that our future indebtedness will also contain similar restrictive covenants.
These covenants, among other things, will restrict our ability to incur
additional indebtedness, pay dividends and make other distributions, prepay
subordinated indebtedness, make investments and other restricted payments,
engage in mergers and consolidations, create liens, sell assets, and enter into
certain transactions with affiliates. There can be no assurance that such
covenants will not adversely affect our ability to finance our future
operations or capital needs or to engage in other business activities which may
be in the interests of our company.
We may not have sufficient funds to purchase the exchange notes as required
upon a change of control.
The indenture governing the exchange notes contains provisions relating to
certain events constituting a "change in control" of Equinix. Upon the
occurrence of such a change in control, we will be required to make an offer to
purchase all outstanding exchange notes at a purchase price equal to 101% of
the aggregate principal amount thereof, in addition to the accrued and unpaid
interest (if any) up to the purchase date. We cannot assure you that we would
have sufficient funds to pay the purchase price for exchange notes tendered by
holders seeking to accept such an offer to purchase. Our failure to purchase
all exchange notes validly tendered pursuant to such an offer to purchase would
result in an event of default under the indenture.
18
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. These statements relate
to future events or our future financial performance. In some cases, you can
identify forward-looking statements by terminology--for instance, may, will,
should, expect, plan, anticipate, believe, estimate, predict, potential or
continue, the negative of these terms or other comparable terminology. These
statements are only predictions. Actual events or results may differ
materially. In evaluating these statements, you should specifically consider
various factors, including the risks outlined in the Risk Factors section.
These factors may cause our actual results to differ materially from any
forward-looking statement.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of the forward-
looking statements. We are under no duty to update any of the forward-looking
statements after the date of this prospectus to conform these statements to
actual results or to changes in our expectations.
19
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the exchange
notes in exchange for the outstanding initial notes. The exchange offer is
intended solely to satisfy certain of our obligations under the registration
rights agreement. In consideration for issuing the exchange notes, we will
receive initial notes in like aggregate principal amount.
The net proceeds to us from the original issuance of the initial notes,
after deducting discounts, commissions, expenses and restricted cash were
approximately $155.7 million. We invested approximately $37.0 million of the
net proceeds in a portfolio of U.S. government securities, which were then
pledged as security for the payment in full of interest on the initial notes
through June 1, 2001. We intend to use the balance of such net proceeds for the
buildout of our IBX facilities in the United States and abroad and for other
capital expenditures, working capital and general corporate purposes, including
possible acquisitions of other companies or assets. We currently intend to
allocate substantial proceeds to each of these uses. However, the precise
allocation of funds among these uses will depend on future technological,
regulatory and other developments in or affecting our business, the competitive
climate in which we operate and the emergence of future opportunities.
We have invested such proceeds in U.S. government securities or other short-
term, interest bearing, investment grade securities. We are not currently and
do not expect as a result to become subject to the registration requirements of
the Investment Company Act of 1940, as amended. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
20
CAPITALIZATION
The following unaudited table sets forth our capitalization as of September
30, 1999:
. on an actual basis;
. pro forma to give effect to the issuance of additional Series B preferred
stock from October through December 1999 and the additional drawing of
debt; and
. pro forma as adjusted to give effect to the issuance of the initial
notes.
Please read this table in conjunction with our consolidated financial
statements, the related notes to the financial statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this offering memorandum.
September 30, 1999
------------------------------
Pro Forma
Actual Pro Forma As Adjusted
------- --------- -----------
(in thousands)
Cash, cash equivalents and short-term
investments.................................... $46,489 $84,150 $239,838
======= ======= ========
Restricted cash (1)............................. $ -- $ -- $ 37,012
======= ======= ========
Current portion of debt and capital lease
obligations.................................... $ 1,706 $ 4,563 $ 4,563
======= ======= ========
Long-term debt, net of current portion:
Debt and capital lease obligations............ 3,734 10,877 10,877
13% Senior notes due 2007..................... -- -- 190,996
------- ------- --------
Total long-term debt......................... 3,734 10,877 201,873
------- ------- --------
Stockholders' equity
Series A convertible preferred stock, $0.001
par value; 14,000,000 shares authorized;
12,455,000 shares issued and outstanding
(2).......................................... 12 12 12
Series B convertible preferred stock, $0.001
par value; 16,000,000 shares authorized
actual, pro forma and pro forma as adjusted;
6,731,290 shares issued and outstanding
actual and 10,511,125 issued and outstanding
pro forma and pro forma as adjusted.......... 7 11 11
Common stock, $0.001 par value; 75,000,000
shares authorized; 6,987,464 shares issued
and outstanding (3).......................... 7 7 7
Additional paid-in capital...................... 69,056 96,713 105,717
Deferred stock-based compensation............... (1,233) (1,233) (1,233)
Accumulated other comprehensive income.......... 147 147 147
Deficit accumulated during the development
stage.......................................... (8,141) (8,141) (8,141)
------- ------- --------
Total stockholders' equity................... 59,855 87,516 96,520
------- ------- --------
Total capitalization....................... $63,589 $98,393 $298,393
======= ======= ========
- --------
(1) Reflects the portion of the net proceeds from this offering to be used
to purchase a portfolio of U.S. government securities to fund the first
three scheduled interest payments on the notes.
(2) Excludes 830,000 shares of Series A preferred stock issuable upon the
exercise of outstanding warrants.
(3) Excludes 910,430 shares of common stock issuable upon the exercise of
outstanding warrants, 530,000 shares of common stock issued between
September 30, 1999 and November 30, 1999 upon the exercise of options
and 1,748,596 shares of common stock issuable upon the exercise of
outstanding options as of November 30, 1999.
21
SELECTED CONSOLIDATED FINANCIAL DATA
The following statement of operations data for the periods from our
inception on June 22, 1998 to December 31, 1998, and for the nine months ended
September 30, 1999, and the balance sheet data as of December 31, 1998 and
September 30, 1999 (actual) have been derived from our consolidated financial
statements and the related notes to the financial statements. The statement of
operations data for the nine months ended September 30, 1999 and balance sheet
data as of September 30, 1999, were derived from our unaudited condensed
interim consolidated financial statements included elsewhere in this
prospectus, which, in the opinion of management, include all adjustments,
consisting only of normal recurring adjustments, which we consider necessary
for a fair presentation of our financial position and results of operations for
this period. Our historical results are not necessarily indicative of the
results to be expected for the full year or future periods. The Pro Forma
column gives effect to the issuance of additional Series B preferred stock from
October through December 1999 and the additional drawing of debt. The Pro Forma
As Adjusted column gives effect to the issuance of the initial notes. The
following selected financial data should be read in conjunction with our
consolidated financial statements and the related notes to the consolidated
financial statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this prospectus.
Period from June 22, Nine Months Ended
1998 (inception) to September 30,
December 31, 1998 1999
-------------------- -----------------
(in thousands)
Statement of Operations Data:
Revenues.............................. $ -- $ --
Operating expenses
Selling, general, and administrative
expenses........................... 782 6,860
Depreciation and amortization....... 4 248
Stock-based compensation............ -- 306
------ -------
Total operating expenses.......... 786 7,414
------ -------
Loss from operations.................. (786) (7,414)
Interest expense....................... -- 138
Interest income........................ (150) (267)
Interest charge on beneficial
conversion of convertible debt........ 220 --
------ -------
Net loss............................... $ (856) $(7,285)
====== =======
Other Financial Data:
EBITDA (1)............................. $ (782) $(7,166)
Net cash provided by (used in)
operating activities.................. (544) 349
Net cash used in investing activities.. (5,517) (62,961)
Net cash provided by financing
activities............................ 10,226 62,029
Ratio of earnings to fixed charges
(2)................................... -- --
As of September 30, 1999
----------------- -----------------------------
As of Pro Forma
December 31, 1998 Actual Pro Forma As Adjusted
----------------- ------- --------- -----------
(in thousands)
Balance Sheet Data:
Cash, cash equivalents and
short-term investments....... $9,165 $46,489 $84,150 $239,838
Restricted cash (3)........... -- -- -- 37,012
Property and equipment, net... 482 2,879 2,879 2,879
Construction in progress...... 31 22,590 22,590 22,590
Total assets.................. 10,001 75,353 113,014 313,014
Total long-term debt,
excluding current portion.... -- 3,734 10,877 201,873
Total stockholders' equity.... 9,590 59,855 87,516 96,520
- --------
(1) EBITDA consists of the net loss excluding interest, depreciation and
amortization of capital assets. EBITDA is presented to enhance an
understanding of our operating results and is not intended to represent
cash flow or results of operations in accordance with generally accepted
accounting principles for the period indicated and may be calculated
differently than EBITDA for other companies.
(2) In calculating the ratio of earnings to fixed charges, earnings consist of
net loss before income tax expense and fixed charges. Fixed charges consist
of interest expense. The ratio of earnings to fixed charges was less than
1.0 to 1.0 for each of the periods presented. Earnings available for fixed
charges were thus inadequate to cover fixed charges. The coverage
deficiency for the period from June 22, 1998 (inception) to December 31,
1998 and the nine months ended September 30, 1999 was $856,000 and
$7,285,000, respectively.
(3) Reflects the portion of the net proceeds from the issuance of the initial
notes to be used to purchase a portfolio of U.S. government securities to
fund the first three scheduled interest payments on the notes.
22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Equinix's business is to design, build and operate the first neutral
Internet Business Exchange, or IBX, facilities. By providing a neutral meeting
ground for Internet businesses to connect with each other, our IBX facilities
will serve as a catalyst for Internet business growth and development. We
provide equipment colocation, direct high-speed connections, switched
interconnections and professional services to our e-commerce related and
Internet business customers. Over the next four years, we intend to open
approximately 30 IBX facilities in major Internet markets in the U.S., Europe,
Asia and Australia. In July 1999, we opened our first IBX facility in the
Washington, D.C. area. We opened our second IBX facility in Newark, New Jersey,
in December 1999 and intend to open our facilities in San Jose and Los Angeles,
California during the first quarter of 2000. From our inception on June 22,
1998 through September 30, 1999, our operating activities consisted primarily
of designing and building our initial IBX facilities in Washington, D.C. and
Newark, N.J., searching for space for additional IBX facilities, developing our
management team and raising private equity and third party debt to fund the
design and building of our IBX facilities.
We intend to generate revenues primarily from the leasing of cabinet space
and the provisioning of direct interconnections between our customers. In
addition, we intend to offer value-added services which include interconnection
services to our customers through our centrally located switches and access to
our research and development testing environment and professional services
including "Smart Hands" service for customer equipment installations and
maintenance, and network consulting and system integration activities. Customer
contracts for the lease of cabinets, interconnections and switch ports are
renewable and typically range from one to three years with payments for
services on a monthly basis. We entered into our first customer contract in
April 1999. Our non-recurring revenues are comprised of installation charges
that are billed upon successful installation of our customer cabinets,
interconnections and switch ports.
Cost of revenues will consist primarily of rental payments on our IBX
facilities, amortization and depreciation of IBX facility build-out costs and
equipment, utility costs, engineering power, redundancy and security systems
support and services and site employee's salaries and benefits. We expect that
our cost of revenues will increase significantly as we continue our rollout of
additional IBX facilities.
Our selling, general and administrative expenses consist primarily of costs
associated with recruiting, training and managing new employees, salaries and
related costs of our operations, marketing and sales, customer fulfillment and
support functions costs, administrative and finance personnel and professional
fees. To date, we have had no significant sales and marketing activities. We
also intend to expand our sales force. As a result, we expect to significantly
increase our sales and marketing activities.
We expect increased competition in our market and, as a result, a key aspect
of our strategy is to capitalize on our first mover advantage and to execute
our rapid IBX facility rollout program. The rollout of these additional IBX
facilities will significantly increase our fixed and operating expenses,
including expenses associated with hiring, training and managing new employees,
purchasing new equipment, implementing power and redundancy systems, including
engineering support, implementing security services, leasing additional real
estate and related costs and depreciation.
Results of Operations
Period from Inception (June 22, 1998) through December 31, 1998 and the Nine
Month Period ended September 30, 1999
Since our inception in June 1998, we have experienced operating losses and
negative cash flows from operations in each quarter. As of September 30, 1999,
we had an accumulated deficit of $8.1 million. The revenue and income potential
of our business and market is unproven, and our short operating history makes
an
23
evaluation of our business and prospects difficult. There can be no assurance
that we will ever achieve profitability on a quarterly or annual basis or, if
achieved, will sustain such profitability. See "Risk Factors--We are an early-
stage company, which makes evaluating our business difficult."
Net Revenues. We did not offer IBX facility colocation or interconnection
exchange services from inception through September 30, 1999 as our first IBX
facility in Washington, D.C. had not yet obtained its fiber connectivity from
its telecommunication carriers. We have, however, entered into contracts with
customers and allocated cabinet space to these customers as of September 30,
1999. Although we entered into these customer contracts, including the
collection and receipt of installation fees and other customer deposits, we
have not recognized such amounts as revenues as the sales cycle was not yet
complete. Accordingly, no net revenues were recorded from the date of inception
to December 31, 1998 or during the nine month period ended September 30, 1999.
Cost of Revenues. We did not offer IBX facility colocation or
interconnection exchange services from inception through September 30, 1999 as
our first IBX facility in Washington, D.C. had not yet obtained its fiber
connectivity from its telecommunication carriers. Accordingly, no cost of
revenues was recorded from the date of inception to December 31, 1998 or during
the nine month period ended September 30, 1999.
Selling, General and Administrative. Selling, general and administrative
expenses were $786,000 from the date of inception to December 31, 1998 and $7.1
million in the nine month period ended September 30, 1999. We anticipate that
selling, general and administrative expenses will increase due to increased
sales and marketing activity coinciding with the launch of the our services,
increased staffing levels consistent with the growth in the our infrastructure,
and related operating costs associated with our regional and corporate
expansion efforts.
Stock Based Compensation. As of September 30, 1999, we recorded deferred
stock-based compensation expense aggregating $1.5 million for the difference at
the date of grant between the exercise price and the fair value of the common
stock underlying stock options granted to employees and for the unvested
options held by nonemployees which are subject to revaluation at each balance
sheet date based on the then current fair market value. Of this amount $306,000
was recognized in the nine month period ended September 30, 1999.
Interest Income, net. Interest expense, net of interest income earned on our
cash and cash equivalent balances of $150,000, was $70,000 from the date of
inception to December 31, 1998. Interest income, net of interest expense of
$139,000, was $128,000 in the nine month period ended September 30, 1999.
Interest income consists of short-term interest earned on our cash and cash
equivalent balances for the period ended September 30, 1999.
Liquidity and Capital Resources
From inception through September 30, 1999, we have financed our operations
and capital requirements primarily through the private sale of Series A
preferred stock, Series B preferred stock and partial debt financings for
aggregate gross proceeds of approximately $72.1 million. During 1998, cash
utilized by operating activities was $544,000. The cash utilized in 1998
reflected working capital necessary for employee-related expenses and
facilities expenses.
Our principal source of liquidity as of December 31, 1998 consisted of $9.2
million in cash, cash equivalents and short-term investments. In March 1999, we
entered into a loan and security agreement in the amount of $7.0 million
bearing interest at 7.5% to 9.0% per annum repayable in 36 to 42 equal monthly
payments with a final payment equal to 15% of the advance amounts due at
maturity. In May 1999, we entered into a master lease agreement in the amount
of $1.0 million. This master lease agreement was increased by addendum in
August 1999 by $5.0 million. This agreement bears interest at either 7.5% or
8.5% and is repayable over 42 months in equal monthly payments with a final
payment equal to 15% of the advance amounts due on maturity. In August 1999, we
entered into a loan agreement in the amount of $10.0 million. This loan
agreement bears interest at 8.5% and is repayable over 42 months in equal
monthly payments with a
24
final payment equal to 15% of the advance amounts due on maturity. At November
30, 1999, we had total debt and capital lease financing available of $23.0
million. Of this amount, $15.2 million was outstanding at November 30, 1999.
On December 10, 1999, we completed the private sale of Series B preferred
stock in the aggregate amount of $82.8 million. As of such date, we had $221.9
million of cash, cash equivalents and short-term investments.
We currently intend to open approximately 30 IBX facilities over the next
four years, 12 of which we expect to complete by the end of 2000. We intend to
finance these IBX facilities through cash flow from our existing IBX facilities
and approximately $750.0 million of additional financing. Currently we have
$221.9 million in cash, cash equivalents and short-term investments available
to us. We anticipate that the funds currently available to us are sufficient to
fund the capital expenditure and working capital requirements, including
operating losses, associated with the initial rollout of eight IBX facilities
and three IBX facility expansion projects, which we expect to complete by the
end of 2000. To complete the implementation of our approximately 30 site
rollout plan within our proposed time frame we anticipate that we will need to
raise funds through a combination of additional debt or equity financing. If we
cannot raise sufficient additional funds on acceptable terms, or in amounts
required by us, we may delay the rollout of additional IBX facilities or
permanently reduce our rollout plans. We anticipate each IBX facility will be
able to generate cash flows sufficient to cover its costs and expenses. If we
are unable to raise additional funds to further our rollout, we anticipate that
the cash flow generated from the IBX facilities, 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
facilities.
The anticipated operating results of our IBX facilities are projections and
are inherently uncertain. When you evaluate this information, you should
consider the information contained in the risk factors section of this
prospectus.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards, or SFAS, No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including derivative
instruments embedded in other contracts, and for hedging activities. SFAS No.
133, as amended by SFAS No. 137, Deferral of the Effective Date of FASB
Statement No. 133, is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. This statement does not currently apply to us
and we do not have any derivative instruments or hedging activities.
Year 2000 Compliance
The year 2000 issue is the result of computer programs written using two
digits rather than four to define the applicable year, the "year 2000 issue."
Computer programs that have such date-sensitive software may recognize a date
using "00" as the year 1900 rather than the year 2000. This could result in a
system failure or miscalculations causing disruptions of operations, including,
among other things, a temporary inability to process transactions, send
invoices or engage in similar normal business activities.
We are heavily dependent upon the proper functioning of our own computer or
data-dependent systems. This includes, but is not limited to, our information
systems in business, finance, operations and service. Any failure or
malfunctioning on the part of these or other systems could adversely affect us
in ways that are not currently known, discernible, quantifiable or otherwise
anticipated by us.
We have conducted and completed an initial review of our critical internal
financial, informational and operational systems to identify and evaluate those
areas that may be affected by the year 2000 issue. We are currently devising a
plan to implement and test any necessary modifications to these key areas to
ensure that they are year 2000 compliant. We anticipate that this plan will
include:
25
. independent validation of our year 2000 assessment procedures;
. initiation of formal communications with all of our significant
suppliers, large customers and tools vendors to determine the extent to
which we are vulnerable to those third parties' failure to remedy their
own year 2000 issues;
. testing of critical systems to the extent possible; and
. the development of contingency plans to address situations that may
result if we are unable to achieve year 2000 readiness of our critical
operations.
We anticipate that any required remediation programs will be completed by the
end of calendar 1999.
To date, we have not incurred incremental material costs associated with
efforts to become year 2000 compliant, as the majority of the costs have
recently been incurred in the normal course of business. Furthermore, we
believe that future costs associated with our year 2000 compliance efforts will
not be material.
In addition to the risks associated with our own systems, we have
relationships with, and are to varying degrees dependent upon, a large number
of third parties that provide information, goods and services to us. Our
business and results of operations could experience material adverse effects if
our key suppliers were to experience year 2000 related problems that caused
them to delay manufacturing or shipment of finished product to us. In addition,
our results of operations could be materially adversely affected if any of our
key customers encounter year 2000 related problems that cause them to delay or
cancel substantial purchase orders or delivery of our product. We have begun to
initiate formal communications to ascertain the year 2000 compliance of our key
suppliers and determine the extent to which we may be vulnerable to those third
parties' failure to remedy their own year 2000 issues.
While we plan to complete modifications or upgrades of our business-critical
systems prior to the year 2000, we cannot be certain that we will be able to
upgrade any or all of our major systems in accordance with such plan. If such
modifications or upgrades or modifications by key suppliers or customers are
not completed in a timely manner or are not successful, we may be unable to
conduct our business, which would substantially harm our operations and
financial position. In addition, we cannot be certain that any such upgrades
will effectively address the year 2000 issue. Furthermore, there can be no
guarantee that the systems of other companies on which we rely for the
manufacture of our products will be timely converted, or that a failure to
convert by another company, or a conversion that is incompatible with our
systems, would not have a material adverse effect on our business. We cannot
predict the extent of any such impact.
We cannot be certain that we or any third party will be able to avoid any
unforeseen problems with respect to any of our systems, which unforeseen
problems could have a material adverse effect on our operations and financial
position. We are currently evaluating possible actions, including accumulating
excess inventory of our finished products, to be taken in the event that the
assessment of the year 2000 issue is not successfully completed on a timely
basis. However, we have not yet established a formal contingency plan.
Quantitative and Qualitative Disclosures About Market Risk
Equinix has limited exposure to financial market risks, including changes in
interest rates. An increase or decrease in interest rates would not
significantly increase or decrease interest expense on debt obligations due to
the fixed nature of our debt obligations. Our interest income is sensitive to
changes in the general level of U.S. interest rates, particularly since the
majority of our investments are in short-term instruments. Due to the short-
term nature of our investments, we believe that we are not subject to any
material market risk exposure. Equinix does not currently have any foreign
operations and thus is not currently exposed to foreign currency fluctuations.
26
BUSINESS
Overview
Equinix's business is to design, build and operate the first neutral
Internet Business Exchange, or IBX, facilities. By proving a neutral meeting
ground for Internet businesses to interconnect with each other, our IBX
facilities are designed to serve as a catalyst for Internet business growth and
development. We provide equipment colocation, direct high-speed connections,
switched interconnections and professional services to our e-commerce related
and Internet business customers that include content providers, or CPs,
Internet service providers, or ISPs, carriers and component service providers,
or CSPs. By locating at our IBX facilities, our customers place their Internet
operations at a central exchange point for Internet traffic while gaining the
benefits of the highest level of security, redundancy, scalability and service.
As a result, our customers are better positioned to capitalize on market
opportunities, expand their business offerings and enter new markets. We intend
to open approximately 30 IBX facilities in major Internet markets in the U.S.,
Europe, Asia, South America and Australia. In July 1999, we opened our first
IBX facility in the Washington, D.C. area and in December 1999 we opened our
second IBX facility in Newark, New Jersey. We intend to open IBX facilities in
San Jose and Los Angeles, California, during the first quarter of 2000. Our
current customers include Akamai, Cable & Wireless, Concentric Network, Ernst &
Young Technologies, iBeam Broadcasting, MCI WorldCom, NaviNet, NetRail,
NorthPoint Communications and Teleglobe.
We were founded in June 1998 and are led by Albert M. Avery, IV, our
president and chief executive officer, and Jay S. Adelson, our vice president,
engineering and site development and chief technology officer, who were
responsible for designing, building and operating the Palo Alto Internet
Exchange, or PAIX, one of the most active global Internet traffic exchange
points. PAIX launched commercial service in July 1996 and was functioning at
full capacity within one year of introduction.
Since March 1999, we have raised more than $300 million to fund the rollout
of our IBX facilities. Our stockholders are many of the most influential
companies driving the development, operation and utilization of the Internet
and its transformation to a reliable, trusted medium for commerce. They include
America Online, Artemis S.A., Benchmark Capital, the Carlyle Group, Cisco
Systems, Comdisco Ventures, Dell Corporation, E*Trade Group, Enron Corporation,
epartners Capital (News Corp.), Finlayson Investments (Temasek), Microsoft
Corporation, Millennium System Trading Limited (Pacific Century Group), Morgan
Stanley Dean Witter, NorthPoint Communications, Reuters and Salomon Smith
Barney.
Market Opportunity
Since the early 1990s, the Internet has experienced tremendous growth and is
emerging as a global medium for communications and commerce. According to
International Data Corporation, or IDC, the number of Internet business-to-
business users worldwide will increase from approximately 142 million at the
end of 1998 to approximately 502 million by 2003. In addition, according to
Forrester Research, the number of Internet sites worldwide is expected to grow
from fewer than 500,000 in 1997 to approximately 4.0 million in 2002. IDC also
states that worldwide Internet business commerce sales are forecast to grow
from approximately $50 billion at the end of 1998 to approximately $1.3
trillion by the end of 2003.
The Internet's explosive growth has led to chronic problems in the quality
and reliability of Internet-related services delivered to the end user.
Infrastructure has not kept pace with demand. Businesses have tried to
alleviate these problems by relocating Internet content closer to core
communications centers, upgrading network bandwidth and employing technologies
such as web page caching. Unfortunately, these attempts have not been
sufficient to ensure consistently high quality service. As broadband access, e-
commerce and streaming media applications continue to gain market acceptance,
businesses must find new solutions to ensure that the Internet infrastructure
will meet their needs for Internet commerce.
Traditionally, the Internet was thought of as just a network of networks.
The distribution of content and delivery of services between thousands of
individual networks occurred at network access points, or NAPs. These original
NAPs were typically built in pre-existing telecommunications carrier facilities
and run by
27
companies such as MCI WorldCom, Sprint and Pacific Bell. Because operating the
NAPs is not a core business for these carriers, they have not made the
necessary investments in the NAPs to effectively manage the rapid growth in
Internet traffic. As a result, these NAPs have emerged as one of the primary
bottlenecks to improved Internet communications. The problems inherent in the
NAPs stem from a number of sources:
Carrier monopoly. Ownership by the major carriers results in a lack of
neutrality, essentially providing the carriers with a monopoly on all
communications services provided. This can cause the services to be costly
and provides no redundancy to the ISPs and other carriers within the
facilities.
Limited scalability. There are a limited number of NAPs in the U.S. that
handle the majority of Internet traffic exchange. These NAPs are physically
constrained and unable to handle the tremendous growth in Internet traffic.
As a result, only the largest carriers and ISPs receive preferential space
allocation at the NAPs, leaving small and mid-sized companies without the
ability to colocate at these facilities.
Legacy technologies. The NAPs were designed around outdated technologies
that have limited their capacity. For example, the core switches in these
facilities cannot scale to meet the traffic growth, which in some cases has
resulted in significant packet loss and latency. The lack of direct
connections between ISPs within the NAPs has compounded this problem.
On the Internet today, business content has become more valuable than many
of the networks that support it. In the legacy NAPs, however, the lack of AC
power, poor air conditioning, lack of financial-grade security, inadequately
trained support staff and limited facility access have made it impractical for
content providers to locate their content at central communications exchange
points.
A variety of businesses, including emerging carriers, Web site hosting
companies, ISPs and more focused new entrants are beginning to provide improved
colocation services for Internet content. Forrester Research predicts that a
combination of rapid Internet growth and increased outsourcing of Internet-
related services will create an acute need for Internet-related hosting and
colocation services, producing revenue growth in the U.S. from approximately
$875 million in 1998 to approximately $14.7 billion by 2003. While the demand
for these colocation services is significant, most new colocation facilities
are being constructed by telecommunications carriers and ISPs. Internet and e-
commerce companies who choose to colocate equipment at these facilities
typically have no choice but to purchase bandwidth from the owner of the
facility. This can be costly, given the lack of competition, and a significant
risk if the facility owner's network were to fail or have performance problems.
IDC estimates that the number of non-U.S. Internet users will grow from
approximately 79 million at the end of 1998 to approximately 325 million by the
end of 2003. Rapid growth of international Internet usage has created an
unprecedented need for additional internationally-based central Internet
traffic exchange points. Unfortunately, there are a limited number of NAPs
outside of the U.S. As a result, non-U.S. traffic is often routed through one
of the U.S. NAPs, whether or not that serves as the most efficient route,
resulting in inefficiency and wasted resources. These routing inefficiencies
burden international ISPs with high operating costs and often result in slow,
unreliable transmissions.
As a result of tremendous competitive, time-to-market and technological
pressures, Internet and e-commerce companies are demanding facilities that
provide multiple interconnections with a broad cross-section of service
providers and customers in a neutral environment conducive to rapid growth and
optimal flexibility. Unfortunately, the tremendous growth of Internet usage and
e-commerce has aggravated the inefficiencies of the current Internet
architecture, which has constrained businesses' abilities to effectively grow
and manage their Internet operations.
The Equinix Solution
Our neutral IBX facilities are designed to solve many of the infrastructure
problems facing Internet businesses today. They will provide environments that
stimulate efficient business growth by encouraging
28
independent Internet supplier companies to deliver a wide variety of services.
We are able to provide the following key benefits to our customers:
Choice. We believe that the ability of customers to choose among a variety
of product and service providers is the fundamental driver of dynamic growth in
commerce. By offering this crucial element of choice, our IBX facilities are
designed to serve as a catalyst for our customers that creates synergy among
them and makes it possible for them to adapt their business models to
successfully scale with the growth of each other and of the Internet. Internet
and e-commerce related businesses view the IBX facility as a forum to attract
additional customers and diversify sources of supply for their businesses.
Opportunity to Increase Revenues and Reduce Costs. As a result of the
proposed size of our IBX facilities and the anticipated large amount of
Internet and e-commerce related business we expect to attract, our customers
will have access to a multitude of potential business partners. Accordingly,
our customers will have a better opportunity to increase the size of their
addressable markets, accelerate revenue growth and improve the quality of their
services at our IBX facilities. In addition, participants will be able to
enhance their ability to control costs by aggregating their service purchases
at a single location and through improved purchasing power.
Scalability. We design our IBX facilities for physical scalability and
scalability from the perspective of an individual customer's ability to
transact business. As a result, our IBX facilities will both stimulate and
support the efficient growth of our customers. From a facility perspective, we
construct our IBX facilities to be large enough to accommodate our customers'
short-term needs, and our plan is to maintain sufficient available expansion
space to meet their long-term growth needs where possible. In addition, through
our global presence we will have a broad capacity to meet customers' multi-
market and multi-geographic requirements. On an individual basis, customers are
able to design their own unique cabinet configurations within a shared or
private cage environment. As the need arises, customers can expand within their
original cage or upgrade into a cage which meets their expanded requirements.
We predict that customers will require this added capacity as they interconnect
with each other and expand their customer reach.
Reliability. Our IBX design provides our customers with reliable and
disaster-resistant environments that are necessary for optimum Internet
commerce interconnection. We believe that the level of excellence and
consistency achieved in our IBX architecture and design results in premium,
secure, fault-tolerant exchanges. Our IBX facilities are designed to offer our
customers redundant, high-bandwidth Internet connectivity through multiple
third-party connections. Additionally, our solutions include multi-level
financial grade security, scalable cabinet space availability, on-site trained
staff 24x365, dedicated areas for customer care and equipment staging,
redundant AC/DC power systems and multiple other redundant, fault-tolerant
infrastructure systems.
Value Added Services. In addition to our core services, we offer advanced
products and value-added services that are intended to assist customers in
improving the quality of their interconnection and traffic exchange. Such
services include high-speed interconnects through our central switching fabric,
route servers, root DNS servers, rubidium-disciplined clock sources and NTP
servers, as well as a collaborative research environment. In addition, we
enable collaborative research activities amongst our customers, which provide
our customers with the opportunity to test their advanced products and services
in a high-bandwidth production setting as well as gain exposure to leading-edge
Internet products and technologies.
Equinix Strategy
Our objective is to be the business-to-business Internet communications
market leader for Internet commerce by attracting a wide variety of
complementary business partners and providing the highest level of service in
our IBX facilities. To accomplish this objective we are employing the following
strategies:
Capitalize on Our Neutrality. IBX neutrality means we provide our customers
with the freedom to choose their preferred product and service providers. We
call this a neutral environment and it is one of the fundamental
characteristics of an IBX facility. This is a significantly improved approach
compared with the
29
current Internet model where ISPs and telecommunications carriers own and
operate the majority of colocation and exchange facilities. Our customers
benefit from a neutral environment that stimulates efficient business growth
through accelerated network economics created by the efficient and rapidly
growing interaction between business Internet service providers, sometimes
called "network effects."
Target a Balanced IBX Customer Base. As a key aspect to fostering efficient
interaction and promoting choice, reliability and redundancy, we intend to
actively manage our customer base at each IBX facility to include a balanced
number of Internet and e-commerce related businesses. For example, we will seek
to ensure that an e-mail service provider located in an Equinix IBX facility
will be able to market its services to many CPs, ISPs, or, a CP located in an
Equinix IBX facility will have a choice of multiple bandwidth providers to
establish redundancy while commanding the purchasing leverage to demand higher
service quality at a lower bandwidth cost.
Expand Globally and Capitalize on First Mover Advantage. We believe that
capitalizing on our first mover advantage is essential to establishing
leadership in the rapidly developing neutral Internet business exchange market.
As a result, we currently plan to launch an aggressive IBX facility rollout
program over the next twelve to eighteen months and open a total of 12 IBX
facilities in the United States and internationally. Three additional IBX
facilities are scheduled to open in the United States by the end of the first
quarter of 2000. Another eight IBX facilities are scheduled to open in 2000 in
the U.S., Europe, Asia and Australia. We believe the demand for our
international IBX facilities and services will be significant due to the early
stage of Internet infrastructure deployment outside of the U.S.
Establish Equinix as the Leading Brand for IBX facilities. We plan to
establish Equinix as the industry standard for the highest quality Internet
connections. Through brand awareness and promotion we intend to create a strong
following among all top CPs, ISPs, carriers and CSPs. We believe that this
strong brand awareness, combined with our ability to provide the highest
quality Internet interconnection services and physical facilities and
professional services will provide us with a competitive advantage in our
market.
Leverage Blue-Chip Investor Base. Our stockholders are some of the most
influential companies driving the development, operation and utilization of the
Internet. They provide us with invaluable technical and business insight,
industry contacts and customer relationships to help expedite the expansion of
our business. These stockholders include America Online, Artemis S.A.,
Benchmark Capital, the Carlyle Group, Cisco Systems, Comdisco Ventures, Dell
Corporation, E*Trade Group, Enron Corporation, epartners Capital (News Corp.),
Finlayson Investments (Temasek), Microsoft Corporation, Millennium System
Trading Limited (Pacific Century Group), Morgan Stanley Dean Witter, NorthPoint
Communications, Reuters and Salomon Smith Barney.
Continue Providing Leading-Edge Products and Services. Part of our
competitive advantage is our ability to provide leading edge products and
services to our customers. To this end, we encourage our customers to research
and test their new technologies within our state-of-the-art research and
development environment. We make available our on-site support and research
areas and enable our customers to house their own equipment within the IBX
facility. By collaborating with leading technology companies we believe we are
positioned at the forefront of Internet technology development. As we increase
our scale and customer base, we will have numerous opportunities to cross-sell
additional infrastructure services such as measurement and testing, network-
monitoring, network consulting and design and system integration.
Customers
Customers typically sign renewable contracts of one to three years in
length, often with options on additional space. Our current customers,
including Akamai, Cable & Wireless, Concentric Network, Ernst & Young
Technologies, iBeam Broadcasting, MCI WorldCom, NaviNet, NetRail, NorthPoint
Communications, Teleglobe and others, have subscribed for approximately 27% of
the capacity of our Washington, D.C. IBX facility. Additionally, Akamai,
NetRail and NorthPoint Communications have signed multi-site agreements.
30
Historically, Internet businesses have been vertically integrated and
provided all services directly to their customers. These services typically
include marketing, access and backbone connectivity, server hosting, and other
services such as e-mail and usenet newsgroups. Continued rapid growth,
innovation, competition and scarce human resources have opened the door for
companies to specialize in core Internet services and turn to best-of-breed
suppliers to provide other elements of their product. These specialized players
include:
. content providers supplying information, education or entertainment
content and conducting the sale of goods and services;
. Internet service providers offering end-users Internet access and
customer support;
. carriers, such as long haul and local loop fiber, DSL and fixed wireless
access; and
. component service providers offering ASP and web hosting, e-mail, usenet
newsgroups and content distribution.
We consider these specialized players to be the core of our customer base
and we offer each customer solutions that are designed to meet their unique and
changing needs.
We believe our IBX facilities provide the following benefits to our
customers:
Type of Customer: Benefits
Content Providers . Choice among multiple bandwidth providers and
CSPs
. Avoidance of local loop and transport charges
. Scalable, flexible, fault-tolerant environment
. Cost savings through aggregating purchases at a
single location
. Expedited provisioning of services
. Minimize packet loss and latency issues
. Colocation at a central exchange point for
Internet traffic
. Financial grade security and 24x7 Internet
trained staff
Internet Service Providers . Direct peering with other ISPs over private
high-speed dedicated interconnections
. Simplified outsourcing of various component
services, including DSL, e-mail, usenet and
content distribution
. Expedited, flexible, scalable and cost-efficient
bandwidth provisioning
. Elimination of capital investments for
facilities
. Centralized audience for products and services
Carriers . Economies of scale with reduced capital costs
. Ability to focus on core competencies
. Centralized market with access to dozens of
potential customers
Component Service Providers
. Proximity to customers reduces operations,
technology and marketing costs and speeds
service deployment
. Avoidance of local loop and transport charges
. Improved quality of service through direct
connections
Services
Within our IBX facilities we provide our customers with equipment colocation
and interconnection, value-added services, and professional services.
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Equipment Colocation Services
Within our IBX facilities, customers can colocate and interconnect their
equipment and perform high bandwidth communications while bypassing the public
Internet and avoiding local loop and transport charges often associated with
such arrangements. Customers can use these interconnections for a variety of
purposes, including private peering, delivery of services or connecting to
private WANs.
Cabinets. Customers have the choice of colocating their equipment in shared
cages or in their own locked, secure cabinets and, in either case, are able to
design their own unique cabinet configurations. Cabinet spaces are available in
half height (42), sufficient for a basic networking presence or full height
(84), suitable for networking and server colocation. Cable trays support cables
between and among cabinets. Stationary or slide shelves and enclosed cabinets
are available upon request. As a customer's colocation requirements increase,
they can expand within their original cage or upgrade into a cage that meets
their expanded requirements.
Shared Cages. A shared cage environment is designed for customers needing
less than ten full cabinets to house their equipment. Each cabinet in a shared
cage is individually secured with an advanced trackable electronic locking
system and the cage itself is secured with a biometric hand-geometry system.
Private Cages. Customers that contract for a minimum of ten full cabinets
can use a private cage to house their equipment. Private cages are also
available in larger full cabinet sizes. Each private cage is individually
secured with a biometric hand-geometry system.
Direct Connections. Customers requiring a dedicated communications link may
directly connect to each other. Direct connections are Any Mode Any Speed,
which means they can include single-mode fiber, multi-mode fiber, and other
media upon request, as well as handle any speed required by the customer. These
cross connections are customized and terminated per customer instructions and
may be implemented within 24 hours of request.
Value-Added Services
Central Switching Fabric. Customers may choose to connect to our redundant
central switching fabric rather than purchase direct connections. Our central
switching fabric can accommodate select port connections at speeds of OC-3, OC-
12 and OC-48c with transmission speeds of 155 Mbps, 622 Mbps and 2,488 Mbps,
respectively.
Core Infrastructure Services. Those customers with a port connection on the
central switching fabric have access to multiple core infrastructure services.
These services address critical intelligent networking requirements and assist
customers in improving the quality of their interconnection and traffic
exchange. Current core infrastructure services include route servers, root DNS
servers, rubidium-disciplined clock sources and NTP servers.
Emerging Technologies Environment. Our IBX customers enjoy access to a
research and development environment for testing new products and technology in
a production setting. For example, this environment features alternative
central switching fabric platforms on various participating vendor's equipment,
each operating with simulated production-level traffic, dedicated cabinet space
and on-site and remote technical support. Customers can connect to these
systems to perform various tests. Other technologies, such as new protocols,
server-based information services, multicast and caching may be staged and
tested in our IBX facilities. Our philosophy is to collaborate with our
customers and work independently to test, prove and select the best
technologies and solutions for next-generation networking to enhance the
scalability of Internet-related businesses. Current projects address monitoring
and caching technologies, multicast networks and systems and various switching
products.
32
Professional Services
Our IBX facilities are staffed with highly trained Internet and
telecommunications specialists who are available on a 24x365 basis. These
professionals are trained to perform installations of customer equipment and
cross connections, and integration and support services.
"Smart Hands" Services. Our customers can take advantage of our professional
"Smart Hands" service, which gives customers access to our IBX staff for a
variety of troubleshooting tasks, when their own staff is not on site. These
tasks include power cycling, card swapping, and performing emergency equipment
replacement. Services are available on-demand or by customer contract.
Other Professional Services. We also provide network consulting and system
integration services to our customers.
IBX Design and Staffing
Our IBX facilities are designed to provide a state-of-the-art, secure, full-
service, neutral operating environment of typically 900 cabinets (50,000 square
feet) in the first-phase buildout for colocation of customer equipment. The IBX
facilities are designed to provide specific and compelling improvements over
legacy facilities, including improved security, redundancy of all key
infrastructure systems and improved customer care. An IBX facility is divided
into six basic functional areas--access, customer care, colocation,
telecommunications access, mechanical and power systems and operations.
Access Area. The access area includes a bullet-resistant guard booth; a
welcome area, a hand-geometry enrollment station, and a mantrap to further
control access to the IBX facility. All doors and access ways are secured with
biometric hand-geometry readers to ensure absolute identification and
authentication. All customers and Equinix employees entering an Equinix IBX
facility must be cleared through this secured zone.
Customer Care Area. The customer care area includes a seating section,
conference rooms, Internet workstations, customer equipment preparation work
areas, equipment lockers, a game room, bathrooms, showers and a kitchen.
Colocation Area. The colocation area is divided into large cages to house
networking and customer computer equipment that is secured by biometric
security access systems. This area includes dual independent AC and DC power
distribution systems, full-automated CCTV digital camera security surveillance,
and a tamper-proof overhead cable-management system with separate trays for
fiber and copper data, AC power and DC power cables. Access to the colocation
area is through the customer care area.
Telecommunications Access Area. All IBX facilities will have a minimum of
two dedicated fiber entry vaults for telecommunications carrier access to the
colocation area. In addition, every IBX facility has roof space or a separate
platform for customers who access the IBX facility via wireless devices such as
satellite dishes, radio antennae and microwave.
Mechanical and Power Systems Area. The mechanical and power systems area
includes machine rooms and space used to house all mechanical, power safety and
security equipment. Fully redundant heating, ventilation, air conditioning and
power systems, as well as dual electric utility feeds support all areas of the
IBX facility. Power systems are designed and periodically tested to
transparently handle rapid transition from public utility power to back-up
power. The AC uninterruptable power supply and DC battery systems are
configured to operate a fully occupied IBX facility for a minimum of fifteen
minutes. If there is a utility power failure, the on-site generator system
could be brought on-line in less than eight seconds through an automatic
transfer switch to supply seamless, uninterrupted power to the IBX facility.
The emergency generators, located in a specially equipped area, supply power to
the AC and DC systems. On-site fuel tanks store sufficient fuel to power a
fully occupied IBX facility for a minimum of 48 hours.
33
Operations Area. The operations area houses the IBX manager's office, an
operations center for staff technicians and office space for visiting Equinix
employees. It includes consoles for monitoring all IBX environmental systems
and for tracking all activities at the IBX facility. In selected IBX
facilities, this area will house regional operations centers that will monitor
the operations of several IBX facilities.
Other Specifications
Security System. All access controls and other security functions are
connected to a central security computer system that controls access to the
interior and exterior perimeters of the IBX facilities. An armed security guard
located behind the bullet-resistant security console controls access to the
colocation area. The caged sections of the colocation area can only be accessed
through hand-geometry readers located on cage doors. CCTV digital cameras
connected to a central system at the security console monitor and record all
activity within the IBX facility, as well as the perimeter and the roof.
Staffing. A typical IBX facility is staffed with nine Equinix employees,
including one IBX manager and eight technical service personnel who provide
24x365 coverage for customer support needs. In addition, an IBX facility has
two armed security guards on duty at all times, a chief engineer and 24-hour
technical support.
Other. For security purposes, an Equinix IBX facility is anonymous. No
indications of facility ownership or function are visible from the exterior. In
addition, there are no raised floors and all walls are airtight and without
windows. Our IBX facilities are designed with advanced fire suppression
systems, either a FM-200 gas type or a multi-zoned dry-pipe system, both of
which are armed with sensory mechanisms to sample the air and raise alarms
before pressurization or release. Finally, an Equinix IBX facility is designed
to withstand a seismic event of 7.5 as measured on the Richter scale.
IBX Rollout Schedule
The objective of our global rollout strategy is to rapidly establish a
leadership position in the mission critical Internet and e-commerce market. We
intend to open approximately 30 IBX facilities in major Internet markets in the
U.S., Europe, Asia, South America and Australia over the next four years. We
opened our first IBX facility in July 1999 in Ashburn, Virginia, our
Washington, D.C. IBX facility, and, in December 1999, we opened our second IBX
facility in Newark, New Jersey. During the first quarter of 2000, we intend to
open additional IBX facilities in San Jose and Los Angeles, California. Through
the remainder of 2000, our rollout consists of opening IBX facilities in
Chicago, Illinois; Atlanta, Georgia; London, England; Hong Kong; Dallas, Texas;
Amsterdam, Netherlands; Paris, France; and Frankfurt, Germany. In addition, we
are planning major expansions to our Washington, D.C. and San Jose IBX
facilities. The scalable nature of our IBX model enables us to be flexible in
response to changing market opportunities. As a result, the timing and
placement of our IBX facilities will vary depending on numerous factors,
including competitive, technological, regulatory and other developments.
Sales and Marketing
Sales
We use a direct sales force to market our services to Internet and e-
commerce related businesses. We are organizing our sales force by customer
segments as well as establishing a sales presence in diverse geographic
regions, which will enable efficient servicing of the customer base from a
network of regional offices. A regional office is comprised of a manager, sales
representatives and technical support personnel. While we may contemplate other
distribution channels and reseller arrangements in the future, through the year
2000 substantially all revenues will be generated by direct sales.
Before opening an IBX facility, we will focus on securing key anchor
customers and generating sales commitments for at least 20% of the available
capacity. Our sales strategy is to focus our efforts on the top 25 companies in
our customer segments, which include content providers, ISPs, carriers and
CSPs. Momentum in
34
the selling process and the presence of anchor customers are important to
attracting additional potential customers who see the IBX facility as an
opportunity to generate new customers and revenues in a business exchange
environment and to improve the quality of their colocation services. We expect
a substantial number of customers to contract for services at multiple IBX
facilities and have already received orders from three such customers. At each
IBX facility, our sales representatives will screen prospective customers and
will manage the population of the IBX facility to ensure an appropriate mix of
customer types.
Marketing
To support our sales effort and to actively promote and solidify the
Equinix brand, we plan to conduct comprehensive marketing programs. Our
marketing strategies will include an active public relations campaign, print
advertisements, online advertisements, trade shows, speaking engagements,
strategic partnerships and on-going customer communications programs. We are
focusing our marketing effort on business and trade publications, online media
outlets, industry events and sponsored activities. We participate in a variety
of Internet, computer and financial industry conferences and encourage our
officers and employees to pursue speaking engagements at these conferences. In
addition to these activities, we intend to build recognition through
sponsoring industry technical forums, participating in Internet industry
standard-setting bodies, such as the Internet Engineering Task Force, and
delivering white papers that address Internet infrastructure issues at
conferences.
Competition
Our market is new, rapidly evolving, and likely to have an increasing
number of competitors. To be successful in this emerging market, we must be
able to differentiate ourselves from existing colocation and web hosting
companies. We may also face competition from persons seeking to replicate our
IBX concept. We may not be successful in differentiating ourselves or
achieving widespread market acceptance of our business. Furthermore,
enterprises that have already invested substantial resources in peering
arrangements may be reluctant or slow to adopt our approach that may replace,
limit or compete with their existing systems. If we are unable to complete our
IBX facilities in a timely manner, other companies will be able to attract the
same customers that we are targeting. Once the customers are located in our
competitors' facilities, it will be very difficult, if not impossible, to
convince them to relocate to our IBX facilities.
We may encounter competition from a number of sources, some of which may
also be our customers, including:
Web site hosting, colocation and ISP companies such as AboveNet, Digital
Island, Exodus, Frontier GlobalCenter, Globix, PSINet and Verio;
established communications carriers such as AT&T, Level 3, MCI WorldCom,
Qwest and Sprint; and
emerging colocation service providers such as Colo.com, IX Europe,
Neutral Nap and Telehouse.
Potential competitors may bundle their products or incorporate colocation
services in a manner that is more attractive to our potential customers than
purchasing cabinet space in our IBX facilities and utilizing our services.
Furthermore, new competitors or alliances among competitors may emerge and
rapidly acquire significant market share. Our competitors may be able to
respond more quickly to new or emerging technologies and changes in customer
requirements than we can.
Some of our potential competitors have longer operating histories and
significantly greater financial, technical, marketing and other resources than
we do. In particular, carriers and several hosting and colocation companies
have extensive customer bases and broad customer relationships that they can
leverage, including relationships with many of our potential customers. These
companies also have significantly greater customer support and professional
service capabilities than we do. Because of their greater financial resources,
some of these companies have the ability to adopt aggressive pricing policies.
As a result, in the future we may have to
35
adopt pricing strategies that compete with such competitors to attract and
retain customers. Any such pricing pressures would adversely affect our ability
to generate revenues.
Employees
As of November 30, 1999, we had 85 full-time employees and two full-time
consultants. We had 67 employees based at our corporate headquarters in Redwood
City, California and our regional sales offices in New York, NY and Reston, VA,
and 18 employees based at our Washington, D.C. and Newark, N.J. IBX facilities.
Of those employees, 49 were in engineering and operations, 20 were in sales and
marketing and 16 were in management and finance.
Properties
Our executive offices are located in Redwood City, CA. We have entered into
lease commitments for IBX facilities in Ashburn, VA, Newark, NJ, San Jose and
Los Angeles, CA and Chicago, IL. Relating to future IBX facilities, we do not
intend to own real estate or buildings but rather continue to enter into lease
agreements with a minimum term of ten years, renewal options and rights of
first refusal on space for expansion.
Legal Proceedings
We are currently not involved in any litigation.
36
MANAGEMENT
Officers, Key Employees and Directors
Our officers, key employees and directors, and their ages as of December 29,
1999, are as follows:
Name Age Position
- ---- --- --------
Albert M. Avery, IV......... 56 President, Chief Executive Officer and Director
Jay S. Adelson.............. 29 Vice President, Engineering, Chief Technology
Officer and Director
Philip J. Koen.............. 47 Chief Financial Officer and Secretary
Marjorie S. Backaus......... 37 Vice President, Marketing
Roy A. Earle................ 43 Vice President, IBX Development
Peter T. Ferris............. 42 Vice President, Worldwide Sales
Gregory F. McHugh........... 50 Vice President, Operations
William B. Norton........... 35 Director of Business Development
Andrew S. Rachleff.......... 40 Director
Michelangelo Volpi.......... 33 Director
Albert M. Avery, IV, one of our founders, has served as Equinix's president,
chief executive officer and a director since our inception in June 1998. During
the period from February 1996 to June 1998, Mr. Avery was general manager of
the Palo Alto Internet Exchange (PAIX) of Digital Equipment Corporation (DEC),
a division of Compaq. During the period from March 1994 to February 1996, Mr.
Avery served as chief of staff to the vice president of research and advanced
development at DEC. Before holding this position, Mr. Avery held a variety of
sales, business and engineering management roles at DEC, which he joined in
1968. Mr. Avery holds a B.S. in electrical engineering from Lafayette College
and an M.S. in computing from the University of California at Los Angeles.
Jay S. Adelson, one of our founders, has served as Equinix's vice president,
engineering, chief technology officer and a director since our inception in
June 1998. During the period from February 1997 to June 1998, Mr. Adelson was
operations manager at PAIX. Before joining PAIX, Mr. Adelson was a founding
member of Netcom On-Line Communications, Inc., an Internet services
corporation, where, during the period from January 1994 to February 1997, he
managed both access and network operations. Mr. Adelson holds a B.S. in
communications from Boston University.
Philip J. Koen has served as Equinix's chief financial officer and secretary
since July 1999. Before joining Equinix, Mr. Koen was employed at PointCast,
Inc., an Internet company, where he served as chief executive officer during
the period from March 1999 to June 1999; chief operating officer during the
period from November 1998 to March 1999; and chief financial officer and
executive vice president responsible for software development, network
operations, finance, information technology, legal and human resources during
the period from July 1997 to November 1998. From December 1993 to May 1997, Mr.
Koen was vice president of finance and chief financial officer of Etec Systems,
Inc., a semi-conductor equipment company. Mr. Koen currently serves as a
director of Zitel Corporation and of Centura Software Corp., both public
companies. Mr. Koen holds a B.A. in economics from Claremont McKenna University
and an M.B.A. from the University of Virginia.
Marjorie S. Backaus has served as Equinix's vice president, marketing since
November 1999. During the period from August 1996 to November 1999, Ms. Backaus
was vice president of marketing at Global One, a telecommunications company.
From November 1987 to August 1996, Ms. Backaus served in various positions at
AT&T, including that of division manager, DirecTV. Ms. Backaus holds a B.B.A.A.
in accounting from Kennesaw State University and an M.B.A. from Emory
University.
Roy A. Earle has served as Equinix's vice president, IBX development since
November 1999. Before joining Equinix, Mr. Earle was employed at Etec Systems,
a semiconductor equipment company where he served as vice president and general
manager of display products from September 1997 to November 1999 and
37
as vice president for operations from October 1995 to September 1997. From July
1994 to October 1995, Mr. Earle served as chief operating officer and plant
manager at Temic Siliconix, a semiconductor company. Mr. Earle holds a B.S. in
chemistry from the University College in Dublin, Ireland and an M.S. in
materials science from the University of Sheffield, United Kingdom.
Peter T. Ferris has served as Equinix's vice president, worldwide sales
since July 1999. During the period from June 1997 to July 1999, Mr. Ferris was
vice president of sales for Frontier Global Center, a provider of complex web
site hosting services. From June 1996 to June 1997, Mr. Ferris served as vice
president, eastern sales at Genvity Inc., an Internet services provider. From
December 1993 to June 1996, Mr. Ferris was vice president, mid-Atlantic sales
at MFS DataNet Inc., a telecommunications services provider. Mr. Ferris holds a
B.A. in economics from Ohio Wesleyan University.
Gregory F. McHugh has served as Equinix's vice president, operations since
March 1999. During the period from February 1996 to March 1999, Mr. McHugh was
a principal at Pittiglio, Rabin, Todd & McGrath, a high-technology consulting
firm. During the period from September 1993 to November 1995, Mr. McHugh was
vice president of operations for Cadence Design Systems, an electronic design
firm. Mr. McHugh has held a number of executive roles in information systems
for such companies as Quantum, Analog Devices, National Semiconductor and
Motorola. He also has experience managing service operations and Internet
services at Pacific Bell. Mr. McHugh holds a B.S. in engineering from San
Francisco State University and an M.S.E.E. in electrical engineering from
Stanford University.
William B. Norton, one of our founders, has served as Equinix's director of
business development since October 1998. During the period from October 1987 to
September 1998, Mr. Norton, an industry-recognized speaker and panelist, was
manager of Internet engineering at Merit Network, Inc., a not-for-profit
corporation in support of higher education networks, and led the North American
Network Operators Group, the Internet network operations forum for the United
States and Canada. Mr. Norton holds a B.A. in computer science from the State
University of New York, Potsdam and an M.B.A. from the University of Michigan
School of Business Administration.
Andrew S. Rachleff has served as a director of Equinix since September 1998.
Mr. Rachleff has served as a general partner of Benchmark Capital, a Menlo
Park-based venture capital firm, since its founding in May 1995. Since May
1986, Mr. Rachleff has served as a general partner of Merrill, Pickard,
Anderson & Eyre. Mr. Rachleff currently serves as a director of several
privately held companies and of NorthPoint Communications, Inc., a public
company and one of our stockholders. Mr. Rachleff holds a B.S. from the
University of Pennsylvania and an M.B.A. from the Stanford Graduate School of
Business.
Michelangelo Volpi has served as a director of Equinix since November 1999.
Mr. Volpi has served in various capacities at Cisco Systems, a data
communications equipment manufacturer, since 1994, most recently as senior vice
president, business development. Mr. Volpi holds a B.S. and an M.S. in
mechanical engineering from Stanford University and an M.B.A. from the Stanford
Graduate School of Business.
Director Compensation
Directors do not receive compensation for services provided as a director or
for participation on any committee of the board of directors. Directors are not
reimbursed for their out-of-pocket expenses in serving on the board of
directors or any committee thereof. Directors are eligible for option grants
under our 1998 Stock Plan.
Compensation Committee Interlocks and Insider Participation
No interlocking relationship exists between any member of our board of
directors and any member of the board of directors or compensation committee of
any other company, and no such interlocking relationship has existed in the
past. Currently, we do not have a compensation committee. Instead, compensation
related decisions are made by the entire board of directors.
38
Indemnification
To the fullest extent permitted by applicable law, our amended and restated
certificate of incorporation authorizes us to provide indemnification of, and
advancement of expenses to, our agents and any other persons to whom the
Delaware General Corporation Law permits us to provide indemnification, in
excess of the indemnification and advancement otherwise permitted by the
Delaware General Corporation Law. Our authorization is subject only to limits
created by the Delaware General Corporation Law relating to actions for breach
of duty to Equinix, our stockholders and others.
Our bylaws provide for mandatory indemnification of our directors to the
fullest extent permitted by Delaware law and for permissive indemnification of
any person, other than a director, made party to any action, suit or proceeding
by reason of the fact that he or she is or was our officer or employee.
We have also entered into indemnification agreements with our officers and
directors containing provisions that may require us to indemnify such officers
and directors against liabilities that may arise by reason of their status or
service as directors or officers, other than liabilities arising from willful
misconduct of a culpable nature, and to advance their expenses incurred as a
result of any proceeding against them as to which they could be indemnified.
Executive Compensation
The following table sets forth compensation information for the period from
June 1998 through December 31, 1998 paid by us for services by our chief
executive officer and our other highest-paid executive officer whose total
annualized salary and bonus for such fiscal year exceeded $100,000:
Long-Term Compensation
Annual Compensation Awards
------------------- ------------------------------
Restricted Securities
Name and Principal Stock Underlying All Other
Position Salary($) Bonus($ ) Awards Options(#) Compensation($)
- ------------------ -------- --------- -------------- ----------- --------------
Albert M. Avery, IV..... $ 81,193(1) $ -- 1,818,000(3) 0 --
President, Chief
Executive Officer and
Director
Jay S. Adelson.......... $ 76,776(2) -- 1,818,000(3) 0 --
Vice President,
Engineering and Site
Development, Chief
Technology Officer
and Director
- --------
(1) Mr. Avery has been employed by Equinix since June 1998.
(2) Mr. Adelson has been employed by Equinix since June 1998.
(3) Each of Messrs. Avery and Adelson purchased 2,020,000 shares of common
stock on June 22, 1998 pursuant to a stock purchase agreement. Each agreed
to amend their stock purchase agreement on July 30, 1998 to subject
1,818,000 of the shares to vesting restrictions. Pursuant to the amendment,
the 1,818,000 shares will vest in 48 monthly installments from June 22,
1998. The purchaser will also vest in 25% of the shares if his employment
is involuntarily terminated and will vest in all of the shares if his
employment is involuntarily terminated within 12 months following a change
in control of Equinix. As of December 31, 1998, Messrs. Avery and Adelson
had vested in none of the restricted shares and the restricted shares had a
value of $180,891, which represents 1,818,000 shares valued at $0.10 per
share less $0.0005, the price paid per share.
Option Grants in Last Fiscal Year
No stock options or stock appreciation rights were granted to our chief
executive officer and our other highest-paid executive officer during the last
fiscal year.
39
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
No stock options or stock appreciation rights were exercised by our chief
executive officer and our other highest-paid executive officer in 1998, and no
stock options or stock appreciation rights were held by such officers at the
end of that year.
Employee Benefit Plan
1998 Stock Plan
Share Reserve. Our board of directors adopted our 1998 Stock Plan on
September 10, 1998. Our stockholders have also approved this plan. We have
reserved 8,008,540 shares of our common stock for issuance under the 1998 Stock
Plan. In general, if options or shares awarded under the 1998 Stock Plan are
forfeited, then those options or shares will again become available for awards
under the 1998 Stock Plan.
Administration. Our board of directors administers the 1998 Stock Plan. The
board has the complete discretion to make all decisions relating to the
interpretation and operation of our 1998 Stock Plan. The board has the
discretion to determine who will receive an option, what type of option it will
be, how many shares will be covered by the option, what the vesting
requirements will be, if any, and what the other features and conditions of
each option will be. The board may also reprice outstanding options and modify
outstanding options in other ways.
Eligibility. The following groups of individuals are eligible to participate
in the 1998 Stock Plan:
. Employees;
. Non-employee members of our board of directors; and
. Consultants.
Types of Awards. The 1998 Stock Plan provides for the following types of
awards:
. Incentive stock options to purchase shares of our common stock;
. Nonstatutory stock options to purchase shares of our common stock; and
. Restricted stock.
Options. An optionee who exercises an incentive stock option may qualify for
favorable tax treatment under Section 422 of the Internal Revenue Code of 1986.
However, nonstatutory stock options do not qualify for such favorable tax
treatment. The exercise price for incentive stock options granted under the
1998 Stock Plan may not be less than 100% of the fair market value of our
common stock on the option grant date. In the case of nonstatutory stock
options, the minimum exercise price is 85% of the fair market value of our
common stock on the option grant date. Optionees may pay the exercise price by
using:
. Cash;
. Shares of common stock that the optionee already owns;
. An immediate sale of the option shares through a broker designated by us;
or
. A loan from a broker designated by us, secured by the option shares.
Options vest at the time or times determined by our board of directors. In
most cases, our options will vest over a four-year period following the date of
grant. Options generally expire 10 years after they are granted, however they
generally expire earlier if the optionee's service terminates earlier.
Restricted Shares. Restricted shares may be awarded under the 1998 Stock
Plan in return for:
. Cash;
. Services previously provided to us; and
40
. Services to be provided to us in the future, except that the par value of
such shares, if newly issued, shall be paid in cash.
Restricted shares vest at the time or times determined by the board.
Change in Control. If a change in control of Equinix occurs, an option or
restricted stock award under the 1998 Stock Plan will generally become fully
vested. However, if the surviving corporation assumes the option stock award or
option or replaces it with a comparable option, then vesting will not
accelerate. An option or stock award will become fully exercisable and fully
vested if the holder's employment or service is involuntarily terminated within
12 months following the change in control. A change in control includes:
. A merger or consolidation of Equinix with or into another entity or any
other corporate reorganization, if persons who were not our shareholders
immediately before the transaction own immediately after the transaction
50% or more of the voting power of the outstanding securities of each of
(A) the continuing or surviving entity and (B) any direct or indirect
parent corporation of such continuing or surviving entity; after which
our own stockholders own 50% or less of the surviving corporation (or its
parent company); or
. A sale of all or substantially all of our assets.
Amendments or Termination. Our board of directors may amend or terminate the
1998 Stock Plan at any time. If our board amends the plan, stockholder approval
is not required unless such approval is otherwise required under applicable
law. The 1998 Stock Plan will continue in effect until September 9, 2008,
unless the board decides to terminate the plan earlier.
Employment Agreements and Change of Control Arrangements
The board of directors, as plan administrator of the 1998 Stock Plan, has
the authority to provide for accelerated vesting of the shares of common stock
subject to outstanding options held by our officers and any other person in
connection with certain changes in control of Equinix. In connection with our
adoption of the 1998 Stock Plan, we have provided that upon a change in control
of Equinix, each outstanding option and all shares of restricted stock will
generally become fully vested unless the surviving corporation assumes the
option or award or replaces it with a comparable award.
Except for Mr. Ferris, none of the executive officers have employment
agreements with Equinix, and their employment may be terminated at any time.
Equinix has entered into an agreement with Mr. Ferris, our Vice President of
Sales, dated June 28, 1999 which provides that his salary shall be $190,000 per
year and he is eligible for a target bonus of $60,000. The agreement provides
for the grant of an option to purchase 340,000 shares of common stock at the
fair market value on the grant date vesting over 4 years. The agreement also
provides that we will extend a loan to Mr. Ferris of up to $750,000. Should
Equinix be acquired before an initial public offering of its equity securities,
we have agreed to pay Mr. Ferris a cash bonus equal to the difference between
$1,000,000 and the amount Mr. Ferris receives for his shares of Equinix stock.
The agreement also provides for acceleration of vesting of option shares as if
Mr. Ferris remained employed for one additional year if there are certain
changes in control of Equinix. We also agreed to indemnify Mr. Ferris for any
claims brought by his former employer under an employment and non-compete
agreement he had with this employer.
41
RELATED-PARTY TRANSACTIONS
Since inception, there has not been, nor is there currently proposed, any
transaction or series of similar transactions to which we were or are to be a
party in which the amount involved exceeds $60,000 and in which any director,
executive officer or holder of more than 5% of our common stock, on an as
converted basis, or an immediate family member of any of these individuals or
entities, had or will have a direct or indirect interest other than:
. compensation arrangements, which are described where required under
"Management;" and
. the transactions described below.
Sale of Common Stock. In June 1998, we issued and sold 2,020,000 shares of
our common stock to Albert M. Avery, IV, our president, chief executive officer
and director, at a per share purchase price of $0.0005 (which accounts for a
2.02 for one stock split on August 31, 1998).
In June 1998, we issued and sold 2,020,000 shares of our common stock to Jay
S. Adelson, our vice president, engineering and site development, chief
technology officer and director, at a per share purchase price of $0.0005
(which accounts for a 2.02 for one stock split on August 31, 1998).
Series A Preferred Stock Financing. In September 1998, we issued and sold
5,015,000 shares of our Series A preferred stock to Benchmark Capital Partners
II, L.P., a 5% stockholder of us, at a per share purchase price of $1.00. One
of our directors, Andrew S. Rachleff, is a general partner of Benchmark
Capital, the general partner of Benchmark Capital Partners II, L.P.
In September 1998, we issued and sold 3,850,000 shares of our Series A
preferred stock to Cisco Systems, Inc., a 5% stockholder of us, at a per share
purchase price of $1.00. One of our directors, Michelangelo Volpi, is a senior
vice president of Cisco Systems, Inc.
In January 1999, we issued and sold 2,000,000 shares of our Series A
preferred stock to Microsoft Corporation, a 5% stockholder of us, at a per
share purchase price of $1.00.
Series B Preferred Stock Financing. In August through November 1999, we
issued and sold 675,000 shares of our Series B preferred stock to Benchmark
Capital Partners II, L.P., at a per share purchase price of $8.00.
In September 1999, we issued and sold 456,250 shares of our Series B
preferred stock to Cisco Systems, Inc., at a per share purchase price of $8.00.
In September 1999, we issued and sold 237,500 shares of our Series B
preferred stock to Microsoft Corporation, at a per share purchase price of
$8.00.
In September 1999, we issued and sold 625,000 shares of our Series B
preferred stock to NorthPoint Communications, Inc. at a per share purchase
price of $8.00. One of our directors, Andrew S. Rachleff, is also a director of
NorthPoint Communications, Inc.
Lease Agreement with Entity Affiliated with 5% Stockholder. In March 1999,
we entered into an equipment lease facility with Cisco Systems Credit
Corporation, an entity affiliated with Cisco Systems, Inc., under which we
leased $137,293 of equipment for a 24-month term. See "Description of Other
Indebtedness--Cisco Systems Credit Corporation Lease Facility" for a
description of this lease facility.
Warrants to Purchase Common Stock. In August 1999, we issued warrants to
purchase 225,430 shares of our common stock, at a purchase price of $0.80 per
share, to NorthPoint Communications, Inc. in connection with a strategic
agreement.
42
Loan to Executive Officer. In September 1999, we loaned an aggregate of
$750,000 to Peter Ferris, one of our executive officers, to purchase a
principal residence. The non-interest bearing note is secured by a second deed
of trust on the residence, a promissory note and a stock pledge agreement, and
has a term of five years.
Relocation Allowance to Executive Officers. In July 1999, we granted a
relocation allowance in the amount of $60,000 to Peter Ferris. The full amount
of the allowance has been paid to Peter Ferris. In November 1999, we granted a
relocation allowance in the amount of $60,000 to Marjorie Backaus. To date,
Marjorie Backaus has not received any amount under the allowance.
Founders' Registration Rights. We have entered into an investors' rights
agreement that provides for registration rights in favor of Albert M. Avery, IV
and Jay S. Adelson if there are public issuances of our common stock. See
"Description of Capital Stock--Registration Rights" for a description of these
registration rights.
Option Grants. In the past, we have granted options to our executive
officers. We may grant options to our directors and executive officers in the
future. See "Management--Option Grants in Last Fiscal Year."
Indemnification. We have entered into an indemnification agreement with each
of our officers and directors. See "Management--Indemnification" for a
description of the indemnification available to our officers and directors
under these indemnification agreements.
43
PRINCIPAL STOCKHOLDERS
The table on the next page presents selected information regarding
beneficial ownership of our outstanding common stock, on an as converted basis,
as of November 30, 1999 for:
. each person known by us to own beneficially more than five percent, in
the aggregate, of the outstanding shares of our common stock on an as
converted basis;
. each of our directors, our chief executive officer and our four other
highest-paid executive officers; and
. all of our directors and executive officers as a group.
Under the rules of the Securities and Exchange Commission, beneficial
ownership includes sole or shared voting or investment power over securities
and includes the shares issuable under stock options that are exercisable
within 60 days of November 30, 1999. Shares issuable under stock options
exercisable within 60 days are considered outstanding for computing the
percentage of the person holding the options but are not considered outstanding
for computing the percentage of any other person.
Percentage ownership calculations are based on 29,981,339 shares of common
stock outstanding as of November 30, 1999, as adjusted to reflect the
conversion of all outstanding shares of preferred stock into common stock.
Unless otherwise indicated, the address for each listed stockholder is c/o
Equinix, Inc., 901 Marshall Street, Redwood City, California 94063. To our
knowledge, except as indicated in the footnotes to this table and under
applicable community property laws, the persons or entities identified in this
table have sole voting and investment power relating to all shares of stock
shown as beneficially owned by them.
Number of Percentage
Beneficially Beneficially
Name of Beneficial Owner Owned Shares Owned
- ------------------------ ------------ ------------
Albert M. Avery, IV(1).............................. 1,720,000 5.7%
Jay S. Adelson (2).................................. 2,020,000 6.7
Philip J. Koen (3).................................. 440,000 1.5
Peter T. Ferris (4)................................. 340,000 1.1
Michelangelo Volpi (5).............................. -- --
170 West Tasman Drive
San Jose, CA 95134
Andrew S. Rachleff (6).............................. 5,690,000 19.0
2480 Sand Hill Road, Suite 200
Menlo Park, CA 94025
Entities affiliated with Benchmark Capital (7)...... 5,690,000 19.0
2480 Sand Hill Road, Suite 200
Menlo Park, CA 94025
Cisco Systems, Inc.................................. 4,306,250 14.4
170 West Tasman Drive
San Jose, CA 95134
Microsoft Corporation............................... 2,237,500 7.5
One Microsoft Way
Redmond, WA 98052
All directors and executive officers as a group (9
persons) (8)....................................... 11,035,000 36.0
- --------
(1) Includes 1,174,125 shares subject to a right of repurchase by us as of
November 30, 1999.
(2) Includes 1,174,125 shares subject to a right of repurchase by us as of
November 30, 1999.
(3) Includes 385,000 shares subject to a right of repurchase by us as of
November 30, 1999.
(4) Includes 170,000 shares subject to options that are exercisable within 60
days of November 30, 1999 and 170,000 shares subject to a right of
repurchase by us as of November 30, 1999.
44
(5) Mr. Volpi is a senior vice president of Cisco Systems, Inc., which holds
4,306,250 shares of Equinix.
(6) Includes shares held by Benchmark Capital Partners II, L.P., Benchmark
Founders' Fund II, L.P., Benchmark Founders' Fund II-A, L.P., and
Benchmark Members' Fund II, L.P. Mr. Rachleff is a managing member of
Benchmark Capital Management Co. II, L.L.C., which is the general partner
of Benchmark Capital Partners II, L.P., Benchmark Founders' Fund II, L.P.,
Benchmark Founders' Fund II-A, L.P., and Benchmark Members' Fund II, L.P.
Mr. Rachleff shares voting and dispositive power relating to the shares
held by each such entity and disclaims beneficial ownership of these
shares, except to the extent of his pecuniary interest in Benchmark
Capital Management Co. II, L.L.C., arising from his general partnership
interest.
(7) Includes shares held by Benchmark Capital Partners II, L.P., Benchmark
Founders' Fund II, L.P., Benchmark Founders' Fund II-A, L.P., and
Benchmark Members' Fund II, L.P.
(8) Includes the shares described in Notes 1 through 6. Also includes 825,000
shares subject to options that are exercisable within 60 days of November
30, all of which are subject to a right of repurchase by us as of November
30, 1999.
45
DESCRIPTION OF OTHER INDEBTEDNESS
Venture Lending & Leasing Equipment Acquisition Loan Facility
In August 1999, we entered into a $10.0 million equipment acquisition loan
facility with Venture Lending & Leasing, Inc. II, as the agent and principal
lender. The facility lenders will make advances up to:
. 85% of the acquisition cost of the equipment and tenant improvements for
our Newark, New Jersey IBX facility; and
. 100% of the acquisition cost, to the extent that such cost does not
exceed $1.0 million, of certain customer acquisition and serving software
that we acquire for our headquarters.
Our obligations under the facility are secured by a first priority security
interest against the assets financed with the facility advances and the
customer acquisition and serving software that the facility lenders have agreed
to finance. We can request facility advances until June 2000. As of November
30, 1999 we have drawn the entire $10.0 million against this loan facility.
Interest will accrue on the facility advances at the annual rate of 8.5%,
and the advances will be repaid in 42 equal monthly installments. In connection
with the last installment we will pay a final amount equal to 15% of the
original advance amount. We will have the right to prepay the advances, in
whole or in part, provided that we pay a prepayment premium equal to the
following percentage of the principal prepaid:
Month of Term of Advance Prepaid Percentage
-------------------------------- ----------
1-6 ....................................................... 8%
7-12....................................................... 7%
13-18....................................................... 6%
19-24....................................................... 5%
25-30....................................................... 4%
31-36....................................................... 3%
37-42....................................................... 2%
In connection with this facility, we issued to the lenders warrants to
purchase Series A preferred stock at an exercise price of $4.50 per share. In
total, 200,000 shares can be acquired under the warrants, for an aggregate
exercise price equal to 9% of the facility commitment. The fair value of these
warrants, as determined using an option pricing model, has been recorded as a
deferred debt facility cost and will be amortized to interest expense on a
straight-line basis over the term of the facility.
The facility contains customary covenants that restrict our operations
relating to, among other things, incurring debt, granting security interests,
merging or consolidating with other entities, making loans and investments,
entering into affiliate transactions and changing our business. It does not
have any financial covenants. The facility contains customary events of
default, including non-payment of amounts due under the facility, default under
certain of our other obligations, breach of covenants set forth in the
facility, the existence of certain unstayed or undischarged judgments, the
making of materially false or misleading representations or warranties, the
commencement of reorganization, bankruptcy, insolvency or similar proceedings,
the occurrence of certain ERISA events or certain change of control events.
Comdisco Equipment Lease Facility
In May 1999, we entered into a $1.0 million equipment lease finance facility
with Comdisco, Inc. In August 1999, Comdisco amended this facility and
increased its total lease financing commitment by $5 million.
Under the original $1.0 million commitment, which we can draw down through
May 2000, Comdisco will lease to us equipment, software and tenant improvements
for our corporate headquarters, on the condition that the dollar amount of the
software and tenant improvements financed does not exceed 20% of this
commitment. Each lease schedule under this commitment is for 42 months, with
monthly lease payments in the amount of
46
2.698% of the acquisition cost of the leased property, for an implied annual
interest rate of 16.2%. When the term for a schedule covering equipment
expires, we will have the option of returning the leased property to Comdisco,
negotiating with Comdisco for an extension of the lease term or purchasing the
property at its then fair market value, to the extent that such value does not
exceed 15% of the equipment's original acquisition cost. When the term for a
schedule covering software and tenant improvements expires, we must make a
final payment equal to 15% of the original acquisition cost of the software and
tenant improvements. As of November 30, 1999, we have leased a total of
$661,000 in equipment under this facility.
Under the $5.0 million increased commitment, which we can draw down until
August 2000, Comdisco will lease to us equipment, software and tenant
improvements for our San Jose, California IBX facility, provided that the
dollar amount of the software and tenant improvements financed does not exceed
57% of this commitment. Each lease schedule under this commitment is for 42
months, with monthly lease payments in the amount of 2.742% of the acquisition
cost of the leased property, for an implied annual interest rate of 8.5%. Upon
executing a lease schedule, we must pay the first and last months rent in
advance. When the term for a schedule covering the San Jose IBX facility
expires, we must make a final payment equal to 15% of the original acquisition
cost of the property financed under the schedule. To date, we have not leased
any amount under this commitment.
In connection with the original $1.0 million lease commitment, we issued to
Comdisco a warrant to acquire 20,000 shares of Series A preferred stock at a
purchase price of $2.50 per share. In connection with the $5.0 million increase
in the facility commitment, we issued to Comdisco a warrant to acquire 100,000
shares of Series A preferred stock at a purchase price of $4.50 per share. The
fair value of these warrants, as determined using an option pricing model, has
been recorded as a deferred debt facility cost and will be amortized on a
straight-line basis to interest expense over the term of the facility.
The facility restricts our ability to merge or consolidate with another
entity. It does not contain any financial covenants. The facility contains
customary equipment lease events of default, including non-payment of amounts
due under the facility, breach of covenants set forth in the facility, the
making of materially false or misleading representations or warranties under
the facility, and the commencement of reorganization, bankruptcy, insolvency or
similar proceedings involving us.
Comdisco Equipment Loan Facility
In March 1999, Equinix-DC, Inc., our wholly owned subsidiary and the
operator of our Washington, D.C. IBX facility, entered into a $7.0 million
equipment acquisition loan facility with Comdisco, Inc. Until March 2000,
Comdisco will make advances up to 100% of the acquisition cost of equipment,
tenant improvements and software for our Washington, D.C. IBX facility,
provided that no more than 57% of the loan commitment may be used to finance
tenant improvements and software. Comdisco holds a first priority security
interest in all of Equinix-DC's assets as collateral for the facility
obligations.
Advances that finance equipment acquisitions will accrue interest at the
annual rate of 7.5% and will be repaid in 42 monthly installments, and in
connection with the last installment we will pay a final amount equal to 15% of
the original advance amount. Advances that finance tenant improvements and
software acquisitions will accrue interest at the annual rate of 9% and will be
repaid in 36 monthly installments. In connection with the last installment, we
will pay a final amount equal to 15% of the original advance amount. We will
have the right to prepay the advances, in whole or in part, without paying any
penalty or premium. As at November 30, 1999, we have borrowed a total of $5.5
million under this facility.
In connection with this facility, we issued to Comdisco a warrant to acquire
510,000 shares of our Series A preferred stock at a purchase price of $1.00 per
share. The fair value of these warrants, as determined using an option pricing
model, has been recorded as a deferred debt facility cost and will be amortized
on a straight-line basis to interest expense over the term of the facility.
47
The facility contains covenants that restrict Equinix-DC's right to, among
other things, grant security interests, declare dividends, dispose of a
material portion of its assets, and enter into settlements with customers
relating to outstanding accounts. It does not have any financial covenants. The
facility contains customary events of default, including non-payment of amounts
due under the facility, default by Equinix-DC relating to certain of its other
obligations, breach of covenants set forth in the facility, the existence of
certain unstayed or undischarged judgments against Equinix-DC, the making of
materially false or misleading representations or warranties under the
facility, and the commencement of reorganization, bankruptcy, insolvency or
similar proceedings involving Equinix-DC.
Fore Financial Services Equipment Lease Facility
In June 1999, we entered into an equipment lease facility with Fore
Financial Services. Under the first lease schedule, we leased $197,440 in
equipment and software for our corporate headquarters. We are required to make
36 monthly lease payments of $5,943. Upon expiration of the initial lease term,
the term can be extended for another 6 months, or we can purchase the leased
property at its then fair market value. Under the second lease schedule, we
leased $208,298 in equipment and software for the Washington, D.C. IBX
facility. We are required to make 36 monthly lease payments of $6,270. Upon
expiration of the initial lease term, the term can be extended for another 6
months, or we can purchase the leased property at its then fair market value.
Under the third lease schedule, we leased $210,300 in equipment and software
for our Newark, New Jersey IBX facility, effective November 1999. We are
required to make 36 monthly lease payments of $6,379. Upon the expiration of
the initial lease term, the term can be extended for another 6 months, or we
can purchase the lease property at its then fair market value.
The facility restricts our ability to merge or consolidate with another
entity or to sell all or substantially all of our assets, by treating such
events as defaults. It does not contain any financial covenants. The facility
contains customary equipment lease events of default, including non-payment of
amounts due under the facility, breach of covenants set forth in the facility,
the making of materially false or misleading representations or warranties
under the facility, and the commencement of reorganization, bankruptcy,
insolvency or similar proceedings involving us.
Cisco Systems Credit Corporation Lease Facility
In March 1999, we entered into an equipment lease facility with Cisco
Systems Credit Corporation. Under this facility, we have leased, for a 24-month
term, $137,293 in Cisco and Cisco-related equipment for our corporate
headquarters. We paid the first and last months' rent payments upon signing the
lease schedule. Each rent payment is $5,463. When the term expires, we will
have the option to purchase the leased property at its then fair market value.
The option will terminate, however, if default occurs during the term. If we do
not purchase the leased property, we will have the right to extend the lease
term in one-year increments with the same monthly payments.
The facility contains customary equipment lease events of default, including
non-payment of amounts due under the facility, breach of covenants set forth in
the facility and the commencement of reorganization, bankruptcy, insolvency or
similar proceedings involving us.
48
THE EXCHANGE OFFER
Purpose of the Exchange Offer
Under the registration rights agreement, we are required to use our
reasonable best efforts to file not later than February 29, 2000 (90 days
following the date of original issuance of the initial notes (the closing
date)) the registration statement of which this prospectus is a part for a
registered exchange offer relating to an issue of new notes substantially
identical in all material respects to the initial notes except that the new
notes will be registered under the Securities Act, will not bear legends
restricting their transfer and will not be entitled to registration rights
under the registration rights agreement. The summary herein of certain
provisions of the registration rights agreement does not purport to be complete
and we refer you to the provisions of the registration rights agreement, which
has been filed as an exhibit to the registration statement of which this
prospectus is a part and a copy of which is available as set forth under the
heading "Available Information."
Under the registration rights agreement, we are required to:
. use our reasonable best efforts to cause the registration statement to be
declared effective no later than June 28, 2000 (210 days after the
closing date);
. use our reasonable best efforts to consummate the exchange offer within
30 days of the registration statement being declared effective; and
. keep the exchange offer effective for not less than 30 days (or longer if
required by applicable law) after the date that notice of the exchange
offer is mailed to holders of the initial notes.
The exchange offer being made here, if commenced and consummated within the
time periods described in this paragraph, will satisfy those requirements under
the registration rights agreement.
This prospectus, together with the letter of transmittal, is being sent to
all record holders of initial notes as of , 2000.
Based on interpretations by the staff of the Securities and Exchange
Commission, as set forth in no-action letters issued to third parties, we
believe that the exchange notes issued pursuant to the exchange offer may be
offered for resale, resold or otherwise transferred by each holder of exchange
notes (other than a broker-dealer who acquires the initial notes directly from
Equinix for resale pursuant to Rule 144A under the Securities Act or any other
available exemption under the Securities Act, and other than any holder that is
an "affiliate" (as defined in Rule 405 under the Securities Act) of Equinix)
without compliance with the registration and prospectus delivery provisions of
the Securities Act, provided that such holder:
. is acquiring the exchange notes in the ordinary course of its business;
. is not participating in, and does not intend to participate in, a
distribution of such exchange notes within the meaning of the Securities
Act and has no arrangement or understanding with any person to
participate in a distribution of the exchange notes within the meaning of
the Securities Act; and
. is not an affiliate (as defined in Rule 405 under the Securities Act) of
Equinix.
By tendering the initial notes in exchange for exchange notes, each holder,
other than a broker-dealer, will be required to make representations to that
effect. If a holder of initial notes is participating in or intends to
participate in, a distribution of the exchange notes, or has any arrangement or
understanding with any person to participate in a distribution of the exchange
notes to be acquired pursuant to the exchange offer, such holder may be deemed
to have received restricted securities and may not rely on the applicable
interpretations of the staff of the Securities and Exchange Commission. Any
such holder will have to comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any secondary resale
transaction.
Each broker-dealer that receives exchange notes for its own account in
exchange for initial notes may be deemed to be an "underwriter" within the
meaning of the Securities Act and must acknowledge that it will
49
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such exchange notes. The letter of transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. This prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with offers to
resell, resales and other transfers of exchange notes received in exchange for
initial notes which were acquired by such broker-dealer as a result of market
making or other trading activities. We have agreed that we will make this
prospectus available to any broker-dealer for a period of time not to exceed
180 days after the consummation of the exchange offer for use in connection
with any such offer to resell, resale or other transfer. Please refer to the
section in this prospectus entitled "Plan of Distribution."
Shelf Registration Statement
In the event that:
(i) because of any change in law or applicable interpretations thereof
by the staff of the Securities and Exchange Commission, we are not
permitted to effect the exchange offer; or
(ii) for any other reason, the exchange offer is not consummated within
210 days from the closing date; or
(iii) any holder of initial notes notifies us within 20 business days
following the consummation of the exchange offer that (x) such holder was
prohibited by law of policy of the Securities and Exchange Commission from
participating in the exchange offer, or (y) such holder may not resell the
exchange notes acquired by it in the exchange offer to the public without
delivering a prospectus and this prospectus is not appropriate or available
for such resale, or (z) such holder is a broker-dealer and holds notes
acquired directly from us or any of our affiliates (within the meaning of
the Securities Act), then in the case of clauses (i) through (iii) of this
sentence, we will be obligated, at our sole expense, to:
. use our reasonable best efforts, as promptly as practicable and in no
event more than 30 days following such request, to file with the
Securities and Exchange Commission a shelf registration statement
covering resales of the initial notes;
. use our reasonable best efforts to cause the shelf registration statement
to be declared effective under the Securities Act within 90 days after
the date we are required to file a shelf registration statement; and
. use our reasonable best efforts to keep the shelf registration statement
continuously effective, supplemented and amended as required by the
Securities Act, to permit the prospectus which is a part of such shelf
registration statement to be usable by holders for a period of two years
after the shelf registration statement is declared effective or such
shorter period of time that will terminate when all of the applicable
initial notes have been sold thereunder.
We will, in the event that a shelf registration statement is filed, provide
to each holder of the initial notes being registered copies of the prospectus
that is a part of the shelf registration statement, notify each such holder
when the shelf registration statement has become effective and take certain
other actions as are required to permit unrestricted resales of the initial
notes being registered. A holder that sells initial notes pursuant to the shelf
registration statement will be required to be named as a selling security
holder in the related prospectus and to deliver a prospectus to purchasers,
will be subject to certain of the civil liability provisions under the
Securities Act in connection with such sales and will be bound by the
provisions of the registration rights agreement that are applicable to such a
holder (including certain indemnification rights and obligations).
Liquidated Damages
In the event that:
(i) we do not file the registration statement or the shelf registration
statement, as the case may be, with the Securities and Exchange Commission
on or before the dates specified above for such filings;
(ii) the registration statement or the shelf registration statement, as
the case may be, is not declared effective on or before the dates specified
above for such effectiveness;
50
(iii) the exchange offer is not consummated within 30 days of the
registration statement being declared effective; or
(iv) the shelf registration statement is filed and declared effective
but thereafter ceases to be effective or usable in connection with its
intended purpose (each such event referred to in clauses (i) through (iv),
a "Registration Default");
then we will be obligated to pay to each holder of transfer restricted
securities (as defined in the registration rights agreement) liquidated
damages. Liquidated damages will accrue and be payable semi-annually on the
initial notes and the exchange notes (in addition to the stated interest on the
initial notes and the exchange notes) in an amount equal to 0.50% per year
during the first 90-day period, which will increase by 0.50% per year for each
subsequent 90-day period, but in no event will such rate exceed 1.50% per year
in the aggregate, regardless of the number of registration defaults. Liquidated
damages will accrue from the date a registration default occurs until the date
on which:
. the registration statement is filed;
. the registration statement or shelf registration statement is declared
effective and the exchange offer is consummated;
. the shelf registration statement is declared effective; or
. the shelf registration statement again becomes effective or made usable,
as the case may be.
Following the cure of all registration defaults, the accrual of liquidated
damages will cease.
Upon consummation of the exchange offer, subject to certain exceptions,
holders of initial notes who do not exchange their initial notes for exchange
notes in the exchange offer will no longer be entitled to registration rights
and will not be able to offer or sell their initial notes, unless such initial
notes are subsequently registered under the Securities Act (which, subject to
certain limited exceptions, we will have no obligation to do), or pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. Please refer to the section in this
prospectus entitled "Risk Factors--There could be negative consequences to you
if you do not exchange your initial notes for exchange notes."
Expiration of the Exchange Offer
The exchange offer will expire at 5:00 p.m., New York City time, on ,
2000. The expiration date will be at least 30 days after the commencement of
the exchange offer in accordance with Rule 14e-1(a) under the Securities
Exchange Act of 1934 and the registration rights agreement.
Procedures for Tendering Initial Notes
To tender your initial notes in the exchange offer, you must complete, sign
and date the letter of transmittal, or a facsimile thereof, have the signatures
thereon guaranteed if required by the letter of transmittal, and mail or
otherwise deliver the letter of transmittal or the facsimile, or an agent's
message (as defined below), together with the certificates representing the
initial notes being tendered and any other required documents, to the exchange
agent on or before 5:00 p.m., New York City time, on the expiration date.
Alternatively, you may either:
. send a timely confirmation of a book-entry transfer of such initial
notes, if such procedure is available, into the exchange agent's account
at The Depository Trust Company, or DTC, pursuant to the procedure for
book-entry transfer described below, on or before 5:00 p.m. on the
expiration date, or
. comply with the guaranteed delivery procedures described below.
The term "agent's message" means a message, transmitted by DTC to, and
received by, the exchange agent and forming a part of a book-entry
confirmation, which states that DTC has received an express
51
acknowledgment from the participant in DTC tendering initial notes which are
the subject of such book-entry confirmation that such participant has received
and agrees to be bound by the terms of the letter of transmittal, and that we
may enforce such agreement against such participant.
THE METHOD OF DELIVERY OF THE INITIAL NOTES, THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS IS AT YOUR ELECTION AND RISK. INSTEAD OF DELIVERY
BY MAIL, WE RECOMMEND THAT YOU USE AN OVERNIGHT OR HAND-DELIVERY SERVICE. IF
SUCH DELIVERY IS BY MAIL, WE RECOMMEND THAT YOU USE REGISTERED MAIL, PROPERLY
INSURED, WITH RETURN RECEIPT REQUESTED. IN ALL CASES, YOU SHOULD ALLOW
SUFFICIENT TIME TO ASSURE TIMELY DELIVERY. YOU SHOULD NOT SEND ANY LETTERS OF
TRANSMITTAL OR INITIAL NOTES TO US. You must deliver all documents to the
exchange agent at its address set forth below. You may also request your
respective brokers, dealers, commercial banks, trust companies or nominees to
effect such tender on your behalf.
Your tender of initial notes will constitute an agreement between you and us
in accordance with the terms and subject to the conditions set forth in this
prospectus and in the letter of transmittal.
Only a holder of initial notes may tender such initial notes in the exchange
offer. The term "holder" relating to the exchange offer means any person in
whose name initial notes are registered on our books or any other person who
has obtained a properly completed bond power from the registered holder.
If you are the beneficial owner of initial notes that are registered in the
name of a broker, dealer, commercial bank, trust company or other nominee and
you wish to tender your initial notes, you should contact such registered
holder promptly and instruct such registered holder to tender on your behalf.
If you wish to tender on your own behalf, you must, before completing and
executing the letter of transmittal and delivering your initial notes, either
make appropriate arrangements to register ownership of the initial notes in
your name or obtain a properly completed bond power from the registered holder.
The transfer of registered ownership may take considerable time.
Signatures on a letter of transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor" institution within the meaning of Rule
17Ad-15 under the Securities Exchange Act of 1934, each, an "eligible
institution", unless the initial notes are tendered:
. by a registered holder (or by a participant in DTC whose name appears on
a security position listing as the owner) who has not completed the box
entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the letter of transmittal if the exchange notes are
being issued directly to such registered holder (or deposited into the
participant's account at DTC), or
. for the account of an eligible institution.
If the letter of transmittal is signed by the recordholder(s) of the initial
notes tendered, the signature must correspond with the name(s) written on the
face of the initial notes without alteration, enlargement or any change
whatsoever. If the letter of transmittal is signed by a participant in DTC, the
signature must correspond with the name as it appears on the security position
listing as the holder of the initial notes.
If the letter of transmittal is signed by a person other than the registered
holder of any initial notes listed, such initial notes must be endorsed or
accompanied by bond powers and a proxy that authorize such person to tender the
initial notes on behalf of the registered holder in satisfactory form to us as
determined in our sole discretion, in each case as the name of the registered
holder or holders appears on the initial notes.
If the letter of transmittal or any initial notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or
52
representative capacity, such persons should so indicate when signing. Unless
waived by us, evidence satisfactory to us of their authority to so act must
also be submitted with the letter of transmittal.
A tender will be deemed to have been received as of the date when the
tendering holder's duly signed letter of transmittal accompanied by the initial
notes tendered (or a timely confirmation received of a book-entry transfer of
initial notes into the exchange agent's account at DTC with an agent's message)
or a notice of guaranteed delivery from an eligible institution is received by
the expiration date. Issuances of exchange notes in exchange for initial notes
tendered pursuant to a notice of guaranteed delivery by an eligible institution
will be made only against delivery of the letter of transmittal (and any other
required documents) and the tendered initial notes (or a timely confirmation
received of a book-entry transfer of initial notes into the exchange agent's
account at DTC with an agent's message) with the exchange agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the tendered initial notes will be
determined by us in our sole discretion, which determination will be final and
binding. We reserve the absolute right to reject any and all initial notes not
properly tendered or any initial notes which, if accepted, would, in our
opinion or our counsel's opinion, be unlawful. We also reserve the absolute
right to waive any conditions of the exchange offer or irregularities or
defects in tender as to particular initial notes. Our interpretation of the
terms and conditions of the exchange offer (including the instructions in the
letter of transmittal) will be final and binding on all parties. Unless waived,
any defects or irregularities in connection with tenders of initial notes must
be cured within such time as we shall determine. We, the exchange agent or any
other person will be under no duty to give notification of defects or
irregularities relating to tenders of initial notes. None of us or the exchange
agent will incur any liability for failure to give such notification. Tenders
of initial notes will not be deemed to have been made until such irregularities
have been cured or waived. Any initial notes received by the expiration date
that are not properly tendered and as to which the defects or irregularities
have not been cured or waived will be returned without cost by the exchange
agent to the tendering holders of such initial notes, unless otherwise provided
in the letter of transmittal, as promptly as practicable following the
expiration date.
In addition, we reserve the right in our sole discretion, subject to the
provisions of the indenture, to:
. purchase or make offers for any initial notes that remain outstanding
after the expiration date, or, as set forth under "--Expiration Date", to
terminate the exchange offer in accordance with the terms of the
registration rights agreement; and
. to the extent permitted by applicable law, purchase initial notes in the
open market, in privately negotiated transactions or otherwise. The terms
of any such purchases or offers could differ from the terms of the
exchange offer.
Acceptance of Initial Notes for Exchange; Delivery of Exchange Notes
Upon satisfaction or waiver of all of the conditions to the exchange offer,
we will accept all initial notes properly tendered, promptly after the
expiration date, and will issue the exchange notes promptly after the
expiration date and acceptance of the initial notes. Please refer to the
section of this prospectus entitled "--Conditions" below. For purposes of the
exchange offer, initial notes will be deemed to have been accepted as validly
tendered for exchange when, as and if we had given oral or written notice to
the exchange agent.
In all cases, issuance of exchange notes for initial notes that are accepted
for exchange pursuant to the exchange offer will be made only after timely
receipt by the exchange agent of certificates for such initial notes or a
timely book-entry confirmation of such initial notes into the exchange agent's
account at the book-entry transfer facility, a properly completed and duly
executed letter of transmittal or an agent's message and all other required
documents, in each case, in form satisfactory to us and the exchange agent. If
any tendered initial notes are not accepted for any reason set forth in the
terms and conditions of the exchange offer or if initial notes are submitted
for a greater principal amount than the holder desires to exchange, such
unaccepted or non-exchanged initial notes will be returned without expense to
the tendering holder thereof (or, in the case
53
of initial notes tendered by book-entry transfer procedures described below,
such non-exchanged initial notes will be credited to an account maintained with
such book-entry transfer facility) as promptly as practicable after withdrawal,
rejection of tender, the expiration date or earlier termination of the exchange
offer.
Book-Entry Transfer
The exchange agent will make a request to establish an account relating to
the initial notes at DTC for purposes of the exchange offer. Any financial
institution that is a participant in DTC's systems may make book-entry delivery
of initial notes by causing DTC to transfer such initial notes into the
exchange agent's account at DTC in accordance with DTC's procedures for
transfer.
However, although delivery of initial notes may be effected through book-
entry transfer into the exchange agent's account at DTC, an agent's message or
the letter of transmittal or facsimile thereof with any required signature
guarantees and any other required documents must, in any case, be transmitted
to and received by the exchange agent at the address set forth below under "--
Exchange Agent" on or before the expiration date or the guaranteed delivery
procedures described below must be complied with. DELIVERY OF DOCUMENTS TO DTC
DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. All references in the
prospectus to deposit of initial notes will be deemed to include DTC's book-
entry delivery method.
Guaranteed Delivery Procedure
If you are a registered holder of initial notes and desire to tender such
initial notes, and the initial notes are not immediately available, or time
will not permit your initial notes or other required documents to reach the
exchange agent before the expiration date, or the procedures for book-entry
transfer cannot be completed on a timely basis and an agent's message
delivered, you may still tender in the exchange offer if:
. you tender through an eligible institution;
. before the expiration date, the exchange agent receives from such
eligible institution a properly completed and duly executed letter of
transmittal (or facsimile thereof) and notice of guaranteed delivery,
substantially in the form provided by us (by facsimile transmission, mail
or hand delivery), setting forth your name and address as holder of the
initial notes and the amount of initial notes tendered, stating that the
tender is being made thereby and guaranteeing that within five business
days after the expiration date the certificates for all tendered initial
notes, in proper form for transfer, or a book-entry confirmation with an
agent's message, as the case may be, and any other documents required by
the letter of transmittal will be deposited by the eligible institution
with the exchange agent; and
. the certificates for all tendered initial notes, in proper form for
transfer, or a book-entry confirmation as the case may be, and all other
documents required by the letter of transmittal are received by the
exchange agent within five business days after the expiration date.
Withdrawal of Tenders
Except as otherwise provided in this prospectus, you may withdraw tenders of
initial notes at any time before 5:00 p.m., New York City time, on the
expiration date.
For a withdrawal to be effective, you must send a written or facsimile
transmission notice of withdrawal to the exchange agent before 5:00 p.m., New
York City time, on the expiration date at the address set forth below under "--
Exchange Agent" and before acceptance for exchange thereof by us. Any such
notice of withdrawal must:
. specify the name of the person having tendered the initial notes to be
withdrawn (the "depositor");
. identify the initial notes to be withdrawn (including, if applicable, the
registration number or numbers and total principal amount of such initial
notes);
54
. be signed by the depositor in the same manner as the original signature
on the letter of transmittal by which such initial notes were tendered
(including any required signature guarantees) or be accompanied by
documents of transfer sufficient to permit the trustee relating to the
initial notes to register the transfer of such initial notes into the
name of the depositor withdrawing the tender;
. specify the name in which any such initial notes are to be registered, if
different from that of the depositor; and
. if applicable because the initial notes have been tendered pursuant to
the book-entry procedures, specify the name and number of the
participant's account at DTC to be credited, if different than that of
the depositor.
All questions as to the validity, form and eligibility (including time of
receipt) of such notices will be determined by us and our determination will be
final and binding on all parties. Any initial notes so withdrawn will be deemed
not to have been validly tendered for exchange for purposes of the exchange
offer. Any initial notes which have been tendered for exchange which are not
exchanged for any reason will be returned to the holder thereof without cost to
such holder (or, in the case of initial notes tendered by book-entry transfer
into the exchange agent's account at DTC pursuant to the book-entry transfer
procedures described above, such initial notes will be credited to an account
maintained with DTC for the initial notes) as promptly as practicable after
withdrawal, rejection of tender, expiration date or earlier termination of the
exchange offer. Properly withdrawn initial notes may be retendered by following
one of the procedures described under "--Procedures for Tendering" and "--Book-
Entry Transfer" above at any time on or before the expiration date.
Conditions
Notwithstanding any other term of the exchange offer, we will not be
required to accept initial notes for exchange, or issue exchange notes in
exchange for any initial notes, if:
. a change in the current interpretation of the staff of the Securities and
Exchange Commission has occurred which current interpretation permits the
exchange notes issued pursuant to the exchange offer in exchange for the
initial notes to be offered for resale, resold or otherwise transferred
by holders thereof (other than in certain circumstances); or
. a law has been adopted or enacted which, in our judgment, would
reasonably be expected to impair our ability to proceed with the exchange
offer.
These conditions are for our sole benefit and may be asserted by us
regardless of the circumstances giving rise to any such condition or may be
waived by us, in whole or in part, at any time and from time to time, if we
determine in our reasonable discretion that any of the foregoing events or
conditions has occurred or exists or has not been satisfied, subject to
applicable law. Our failure at any time to exercise any of the foregoing rights
will not be deemed a waiver of any such right and each such right will be
deemed an ongoing right which we may assert at any time and from time to time.
If we determine that we may terminate the exchange offer, as provided above,
we may:
. refuse to accept any initial notes and return any initial notes that have
been tendered to the holders thereof;
. extend the exchange offer and retain all initial notes tendered before
the expiration date, subject to the rights of such holders of tendered
initial notes to withdraw their tendered initial notes; or
. waive such termination event relating to the exchange offer and accept
all properly tendered initial notes that have not been withdrawn or
otherwise amend the terms of the exchange offer in any respect as
provided under the section in this prospectus entitled "--Expiration
Date; Extensions; Amendments; Termination."
55
The exchange offer is not conditioned upon any minimum principal amount of
initial notes being tendered for exchange.
We have no obligation to, and will not knowingly, permit acceptance of
tenders of initial notes from our affiliates (within the meaning of Rule 405
under the Securities Act) or from any other holder or holders who are not
eligible to participate in the exchange offer under applicable law or
interpretations thereof by the Securities and Exchange Commission, or if the
exchange notes to be received by such holder or holders of initial notes in the
exchange offer, upon receipt, will not be tradable by such holder without
restriction under the Securities Act and the Securities Exchange Act of 1934
and without material restrictions under the "blue sky" or securities laws of
substantially all of the states of the United States.
Accounting Treatment
We will record the exchange notes at the same carrying value as the initial
notes, as reflected in our accounting records on the date of the exchange.
Accordingly, we will not recognize any gain or loss for accounting purposes. We
will amortize the costs of the exchange offer and the unamortized expenses
related to the issuance of the exchange notes over the term of the exchange
notes.
Exchange Agent
We have appointed State Street Bank and Trust Company of California, N.A. as
exchange agent for the exchange offer. All questions and requests for
assistance and requests for additional copies of this prospectus or the letter
of transmittal should be directed to the exchange agent as follows:
By Mail:
State Street Bank and Trust Company of California, N.A.
c/o State Street Bank and Trust Company
P.O. Box 778
Boston, MA 02101-0778
ATTN: Ralph Jones
By Hand/Overnight Delivery:
State Street Bank and Trust Company of California, N.A.
c/o State Street Bank and Trust Company
2 Avenue de Layfayette
Corporate Trust Window, 5th Floor
Boston, MA 02111-1724
ATTN: Ralph Jones
Facsimile Transmission: (617) 662-1452
Confirm by Telephone: (617) 662-1548
Fees and Expenses
We will bear the expenses of soliciting tenders pursuant to the exchange
offer. The principal solicitation for tenders pursuant to the exchange offer is
being made by mail; however, our offices and regular employees may make
additional solicitations by telegraph, telephone, telecopy or in person.
We will not make any payments to brokers, dealers or other persons
soliciting acceptances of the exchange offer. However, we will pay the exchange
agent reasonable and customary fees for its services and will reimburse the
exchange agent for its reasonable out-of-pocket expenses in connection with the
exchange offer. We may also pay brokerage houses and other custodians, nominees
and fiduciaries the reasonable out-of-pocket expenses incurred by them in
forwarding copies of the prospectus, letters of transmittal and related
documents to the beneficial owners of the initial notes, and in handling or
forwarding tenders for exchange.
56
We will pay the expenses incurred in connection with the exchange offer,
including fees and expenses of the exchange agent and trustee and accounting,
legal, printing and related fees and expenses.
We will pay all transfer taxes, if any, applicable to the exchange of
initial notes pursuant to the exchange offer. However, the amount of any such
transfer taxes (whether imposed on the registered holder or any other persons)
will be payable by the tendering holder if:
. certificates representing exchange notes or initial notes for principal
amounts not tendered or accepted for exchange are to be delivered to, or
are to be registered or issued in the name of, any person other than the
registered holder of the initial notes tendered; or
. tendered initial notes are registered in the name of any person other
than the person signing the letter of transmittal; or
. a transfer tax is imposed for any reason other than the exchange of
initial notes pursuant to the exchange offer.
If satisfactory evidence of payment of such taxes or exemption therefrom is
not submitted with the letter of transmittal, the amount of such transfer taxes
will be billed directly to such tendering holder.
The Failures to Participate in the Exchange Offer will have Adverse
Consequences
If you do not exchange your initial notes for exchange notes pursuant to the
exchange offer, you will not be able to resell, offer to resell or otherwise
transfer the initial notes unless they are registered under the Securities Act
or unless you resell them, offer to resell or otherwise transfer them under an
exemption from the registration requirements of, or in a transaction not
subject to, the Securities Act. In addition, you will no longer be able to
obligate us to register the initial notes under the Securities Act except in
the limited circumstances provided under the registration rights agreement. The
restrictions on transfer of your initial notes arise because we issued the
initial notes pursuant to exemptions from, or in transactions not subject to,
the registration requirements of the Securities Act and applicable state
securities laws. In addition, if you want to exchange your initial notes in the
exchange offer for the purpose of participating in a distribution of the
exchange notes, you may be deemed to have received restricted securities, and,
if so, will be required to comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
To the extent the initial notes are tendered and accepted in the exchange
offer, the trading market, if any, for the initial notes would be adversely
affected. Please refer to the section in this prospectus entitled "Risk
Factors."
57
DESCRIPTION OF THE EXCHANGE NOTES
General
The form and terms of the exchange notes are the same as the form and terms
of the initial notes, except that the exchange notes have been registered under
the Securities Act and therefore will not bear legends restricting the transfer
thereof. We issued the initial notes and will issue the exchange notes pursuant
to an indenture, dated as of December 1, 1999, between Equinix and State Street
Bank and Trust Company of California, N.A., as trustee. The terms of the
exchange notes will include those stated in the indenture and those made part
of the indenture by reference to the Trust Indenture Act of 1939, as amended.
The exchange notes will be subject to all such terms, and holders are referred
to the indenture and the Trust Indenture Act for a statement thereof. Except as
otherwise indicated, the following description relates both to the initial
notes and the exchange notes. The following summary of the material provisions
of the indenture does not purport to be complete and is qualified in its
entirety by reference to the indenture, including the definitions therein of
certain terms used below. We urge you to read the indenture because it, and not
this description, defines your rights as holder of the exchange notes. We have
filed copies of the indenture, escrow agreement and registration agreement as
exhibits to the registration statement which includes this prospectus. The
definitions of certain terms used in the following summary are set forth below
under "--Certain Definitions." For purposes of this summary, the term "Equinix"
refers only to Equinix, Inc. and not to any of its subsidiaries. Also, in this
description "initial notes" and "exchange notes" are collectively referred to
as the "notes."
As of the Issue Date, all of our Subsidiaries will be Restricted
Subsidiaries. Under certain circumstances, we will be able to designate
existing or future Subsidiaries as Unrestricted Subsidiaries. Unrestricted
Subsidiaries will not be subject to many of the restrictive covenants contained
in the indenture.
Terms of Notes
Except as set forth under "--Escrow Account; Disbursement of Funds," the
notes will be our senior unsecured obligations, ranking pari passu in right of
payment with all our other existing and future senior debt and senior to all
our existing and future subordinated debt. Holders of our secured Indebtedness,
however, will have claims that are before the claims of the holders relating to
the assets securing such other debt except to the extent the notes are equally
and ratably secured by such assets. The indenture will permit us to incur
certain secured debt.
The notes will be effectively subordinated to all Indebtedness and other
liabilities and commitments (including trade payables and lease obligations) of
our subsidiaries, including any Guarantees of such subsidiaries. Any right of
ours to receive assets of any of our subsidiaries upon the latter's liquidation
or reorganization (and the consequent right of the holders to participate in
those assets) will be effectively subordinated to the claims of that
subsidiary's creditors, except to the extent that we are recognized as a
creditor of such subsidiary, in which case our claims would still be
subordinate to any secured claim to the assets of such subsidiary and any
Indebtedness of such subsidiary that is senior to that held by us.
Principal, Maturity and Interest
The notes will be limited in aggregate principal amount to $200,000,000 and
will mature on December 1, 2007. Interest on the notes will accrue at the rate
of 13% per annum and will be payable semi-annually in arrears on June 1 and
December 1, commencing on June 1, 2000, to holders as of the immediately
preceding May 15 and November 15. Interest on the notes will accrue from the
most recent date to which interest has been paid or, if no interest has been
paid, from the date of original issuance. Interest will be computed on the
basis of a 360-day year comprised of twelve 30-day months. Principal, premium,
if any, and interest on the notes will be payable at the office or agency of
Equinix maintained for such purpose within the City and State of New York or,
at the option of Equinix, payment of interest on the notes may be made by check
mailed to the holders at their respective addresses set forth in the register
of holders. Until otherwise designated by
58
Equinix, Equinix's office or agency in New York will be the office of the
trustee maintained for such purpose. The notes will be issued in denominations
of $1,000 and integral multiples thereof. The trustee initially will be paying
agent and registrar under the indenture, and we may act as paying agent or
registrar under the indenture.
Escrow Account; Disbursement of Funds
The notes will be collateralized, pending disbursement pursuant to the
escrow agreement dated as of December 1, 1999, among Equinix, the trustee and
State Street Bank and Trust Company of California, N.A., as escrow agent, by a
pledge of the escrow account referred to in the escrow agreement, which will
initially contain approximately $37.0 million of the net proceeds from the sale
of the notes to be issued pursuant to the offering, representing funds that,
together with the proceeds from the investment thereof, will be sufficient to
pay interest on the notes for three scheduled interest payments (but not any
liquidated damages described under "Exchange Offer; Registration Rights").
We will enter into the escrow agreement providing for the grant by Equinix
to the trustee, for the benefit of the holders, of a first priority security
interest in the escrow collateral. All such security interests will
collateralize the payment and performance when due of all our obligations under
the indenture and the notes, as provided in the escrow agreement. The Liens
created by the escrow agreement will be first priority security interests in
the Escrow Collateral. The ability of holders to realize upon any such funds or
securities may be subject to certain bankruptcy law limitations if there is a
bankruptcy of Equinix.
Pursuant to the escrow agreement, funds may be disbursed from the escrow
account only to pay interest on the notes. If a portion of the notes has been
retired by Equinix, funds representing the lesser of
(i) the excess of the amount sufficient to pay interest through and
including June 1, 2001 on the notes not so retired; and
(ii) the interest payments which have not previously been made on such
retired notes for each interest payment date through and including the
interest payment date to occur on June 1, 2001
shall be paid to Equinix if no Default then exists under the indenture.
Pending such disbursements, all funds contained in the escrow account will
be invested in U.S. Government Securities. Interest earned on the U.S.
Government Securities will be placed in the escrow account. Upon the
acceleration of the maturity of the notes, the escrow agreement will provide
for the foreclosure by the trustee upon the net proceeds of the escrow account.
Under the terms of the indenture, the proceeds of the escrow account shall be
applied, first, to amounts owing to the trustee in respect of fees and expenses
of the trustee and, second, to all obligations under the notes and the
indenture. Under the escrow agreement, assuming that we make the first three
scheduled interest payments on the notes in a timely manner with funds or U.S.
Government Securities held in the escrow account, any remaining U.S. Government
Securities will be released from the escrow account.
Optional Redemption
Except as set forth below, the notes will not be redeemable at our option
before December 1, 2003. Thereafter, the notes will be subject to redemption at
any time at our option, in whole or in part, upon not less than 30 nor more
than 60 days' notice, at the redemption prices (expressed as percentages of
principal amount) set forth below, plus accrued and unpaid interest thereon to
the applicable redemption date (subject to the right of holders as of the
relevant record date to receive interest due on the relevant interest payment
date), if redeemed during the twelve-month period beginning on December 1 of
the years indicated below:
Year Percentage
---- ----------
2003.......................................................... 106.500%
2004.......................................................... 103.250%
2005 and thereafter........................................... 100.000%
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Selection and Notice
If less than all of the notes are to be redeemed at any time, selection of
notes for redemption will be made by the trustee in compliance with the
requirements of the principal national securities exchange, if any, on which
the notes are then listed, or, if the notes are not so then listed, on a pro
rata basis, by lot or by such method as we shall deem fair and appropriate. No
notes of $1,000 or less shall be redeemed in part. Notices of redemption shall
be mailed by first class mail at least 30 but not more than 60 days before the
redemption date to each holder of notes to be redeemed at its registered
address. Notices of redemption may not be conditional. If any Note is to be
redeemed in part only, the notice of redemption that relates to such Note shall
state the portion of the principal amount thereof to be redeemed. A new Note in
principal amount equal to the unredeemed portion thereof will be issued in the
name of the holder thereof upon cancellation of the original Note. Notes called
for redemption will become due on the date fixed for redemption. On and after
the redemption date, interest will cease to accrue on notes or portions thereof
called for redemption unless we default in the payment thereof.
Mandatory Redemption
Except as provided under "--Repurchase at the Option of Holders," we will
not be required to make mandatory redemption or sinking fund payments relating
to the notes.
Repurchase at the Option of Holders
Change of Control
Upon the occurrence of a Change of Control, each holder will have the right
to require us to purchase all or any part (equal to $1,000 or an integral
multiple thereof) of such holder's notes pursuant to the offer described below
at a purchase price in cash equal to 101% of the aggregate principal amount
thereof, plus accrued and unpaid interest (and liquidated damages, if any)
thereon to the date of purchase (subject to the right of holders as of a record
date to receive interest due on the relevant interest payment date); provided,
that, we shall not be obligated to repurchase notes pursuant to a change of
control offer in the event that we have exercised our rights to redeem all of
the notes pursuant to the indenture. Within 30 days following any change of
control, we will mail a notice to each holder describing the transaction or
transactions that constitute the change of control and offering to purchase
notes on the date specified in such notice, which date shall be no earlier than
30 and no later than 60 days from the date such notice is mailed, in accordance
with the procedures required by the indenture and described in such notice.
We will comply with the requirements of Rule 14e-1 under the Exchange Act
and any other securities laws and regulations to the extent such laws and
regulations are applicable in connection with the purchase of notes as a result
of a change of control. To the extent that the provisions of any securities
laws or regulations conflict with any of the provisions of this covenant, we
will comply with the applicable securities laws and regulations and will be
deemed not to have breached its obligations under this covenant by virtue
thereof.
On the change of control payment date, we will, to the extent lawful:
. accept for payment all notes or portions thereof properly tendered
pursuant to the change of control offer;
. deposit with the paying agent an amount equal to the change of control
payment plus accrued and unpaid interest thereon and liquidated damages,
if any, in respect of all notes or portions thereof so tendered; and
. deliver or cause to be delivered to the trustee notes so accepted
together with an Officers' Certificate stating the aggregate principal
amount of notes or portions thereof being purchased by us.
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The paying agent will promptly mail or deliver to each holder of notes so
tendered the change of control payment plus accrued and unpaid interest thereon
and liquidated damages, if any, for such notes, and the trustee will promptly
authenticate and mail or deliver (or cause to be transferred by book entry) to
each holder a new note equal in principal amount to any unpurchased portion of
notes surrendered, if any; provided that each such new note will be in a
principal amount of $1,000 or an integral multiple thereof. We will publicly
announce the results of the change of control offer on or as soon as
practicable after the change of control payment date.
The change of control provisions described above will be applicable whether
or not any other provisions of the indenture are applicable. Except as
described above relating to a change of control, the indenture will not contain
provisions that permit the holders to require that we purchase or redeem the
notes if there is a takeover, recapitalization or similar transaction. Our
ability to purchase notes upon a change of control may be limited by our then
existing financial resources. There can be no assurance that sufficient funds
will be available when necessary to make any such required purchases. See "Risk
Factors--We might not have sufficient funds to purchase the exchange notes as
required upon a change in control." We shall not be required to make a change
of control offer if a third party makes the change of control offer in the
manner, at the times and otherwise in compliance with the requirements set
forth in the indenture and purchases all notes validly tendered and not
withdrawn.
Asset Sales
We will not, and will not permit any of the Restricted Subsidiaries to,
directly or indirectly, consummate any Asset Sale, unless:
(i) we (or such Restricted Subsidiary, as the case may be) receive
consideration at the time of such Asset Sale at least equal to the fair
market value (as determined in good faith by the Board of Directors
(including as to the value of all noncash consideration) and set forth
in an Officer's Certificate delivered to the trustee) of the assets or
Equity Interests issued or sold or otherwise disposed of;
(ii) at least 75% of the consideration therefor is in the form of cash
and/or Cash Equivalents or Qualified Consideration; and
(iii) the Net Cash Proceeds received by Equinix (or such Restricted
Subsidiary, as the case may be) from such Asset Sale are applied
within 360 days following the receipt of such Net Cash Proceeds, to
the extent Equinix (or such Restricted Subsidiary, as the case may
be) elects:
(a) to the redemption or repurchase of outstanding Indebtedness, (I)
that is either (A) secured Indebtedness or (B) Indebtedness of
Equinix that ranks equally with the notes but has a maturity date
that is before the maturity date of the notes, in either case other
than Subordinated Indebtedness, or (II) that is Indebtedness of a
Restricted Subsidiary; and/or
(b) to reinvest such Net Cash Proceeds (or any portion thereof) in
properties or assets (including Equity Interests of a Person that
will become a Restricted Subsidiary as a result of such investment)
that will be used in a Permitted Business.
The balance of such Net Cash Proceeds, after the application of such Net Cash
Proceeds as described in the immediately preceding clauses (a) and (b), shall
constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds equals or exceeds $10 million
(taking into account income earned on such Excess Proceeds), we will be
required to make a pro rata offer to all holders and pari passu Indebtedness
with comparable provisions requiring such Indebtedness to be purchased with the
proceeds of such Asset Sale, called an Asset Sale Offer, to purchase the
maximum principal amount or accreted value in the case of Indebtedness issued
with an original issue discount of notes and pari passu Indebtedness that may
be purchased out of the Excess Proceeds, at a purchase price in cash in an
amount equal to 100% of the principal amount thereof or the accreted value
thereof, as applicable, plus accrued and unpaid interest thereon
61
to the date of purchase (subject to the right of holders as of the relevant
record date to receive interest due on the relevant interest payment date), in
accordance with the procedures set forth in the indenture and the agreements
governing such pari passu Indebtedness. To the extent that any Excess Proceeds
remain after consummation of an Asset Sale Offer, Equinix may use such Excess
Proceeds for any purpose not otherwise prohibited by the indenture. If the
aggregate principal amount of notes and pari passu Indebtedness tendered into
such Asset Sale Offer surrendered by holders thereof exceeds the amount of
Excess Proceeds, the trustee shall select the notes and pari passu Indebtedness
to be purchased on a pro rata basis in proportion to the respective principal
amounts (or accreted values in the case of Indebtedness issued with an original
issue discount) of the notes and such other Indebtedness. Upon completion of
such Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero for
purposes of the first sentence of this paragraph.
The amount of:
(i) any liabilities (as shown on Equinix's (or such Restricted
Subsidiary's, as the case may be) most recent balance sheet), other
than Subordinated Indebtedness, of Equinix or any Restricted
Subsidiary, that are assumed by the transferee of any such assets
pursuant to an agreement that immediately releases Equinix and all of
the Restricted Subsidiaries from all liability in respect thereof;
(ii) Indebtedness of any Restricted Subsidiary that is no longer a
Restricted Subsidiary as a result of such Asset Sale, if Equinix and
all of the Restricted Subsidiaries immediately are released from all
Guarantees of payment of such Indebtedness and such Indebtedness is no
longer the liability of Equinix or any of the Restricted Subsidiaries;
and
(iii) any securities, notes or other obligations received by Equinix (or
such Restricted Subsidiary, as the case may be) from such transferee
that are converted by Equinix (or such Restricted Subsidiary, as the
case may be) into cash and/or Cash Equivalents within 90 days of the
date of such Asset Sale (to the extent of the cash and/or Cash
Equivalents received)
will be deemed to be cash and/or Cash Equivalents for purposes of this
provision.
Notwithstanding any provision of this "Asset Sales" covenant, the provisions
of this "Asset Sales" covenant shall not apply to any transaction constituting
a Restricted Payment that is permitted by the "Restricted Payments" covenant or
that otherwise constitutes a Permitted Investment.
Certain Covenants
Restricted Payments
We will not, and will not permit any of the Restricted Subsidiaries to,
directly or indirectly:
(i) declare or pay any dividend or make any other payment or distribution
on account of Equinix's Equity Interests or to the direct or indirect
holders of Equinix's Equity Interests in their capacity as stockholders
(other than dividends or distributions payable (a) in Equity Interests
(other than Disqualified Stock) of Equinix or (b) to Equinix or a
Restricted Subsidiary of Equinix);
(ii) purchase, redeem or otherwise acquire or retire for value any Equity
Interests of Equinix or any direct or indirect parent of Equinix
(other than any such Equity Interests owned by Equinix or any
Restricted Subsidiary of Equinix);
(iii) make any payment on or relating to, or purchase, redeem, defease or
otherwise acquire or retire for value any Subordinated Indebtedness,
except a payment of interest or principal at any Stated Maturity; or
(iv) make any Restricted Investment
62
(all such payments and other actions set forth in clauses (i) through (iv)
above being collectively referred to as "Restricted Payments"), unless:
(a) at the time of and after giving effect to such Restricted Payment, no
Default or Event of Default shall have occurred and be continuing;
(b) Equinix would, at the time of such Restricted Payment and after giving
pro forma effect thereto as if such Restricted Payment had been made at
the beginning of the applicable period, have been permitted to incur at
least $1.00 of additional Indebtedness pursuant to clause (i) of the
first paragraph of the covenant described below under "Incurrence of
Indebtedness and Issuance of Preferred Stock"; and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by Equinix and the Restricted
Subsidiaries on or after the Issue Date, is less than the sum, without
duplication; of
(i) the amount of Equinix's (x) Cumulative Consolidated Cash Flow
determined at the time of such Restricted Payment less (y) 150% of
the cumulative consolidated interest expense, determined for the
period commencing on the first day of the fiscal quarter which
includes the Issue Date and ending on the last day of the last
fiscal quarter preceding the date on which such Restricted Payment
is to be made for which reports have been filed with the Commission
or provided to the trustee pursuant to the "Reports" covenant; plus
(ii) 100% of the aggregate Net Cash Proceeds received by Equinix after
the Issue Date as a Capital Contribution or from the issue or sale
(other than to a Subsidiary of Equinix) of Equity Interests of
Equinix (other than Disqualified Stock) or from the issue or sale
(other than to a Subsidiary of Equinix) of Disqualified Stock or
debt securities of Equinix that have been converted or exchanged
into such Equity Interests, plus the amount of Net Cash Proceeds
received by Equinix upon such conversion or exchange (other than a
conversion or exchange by a Subsidiary of Equinix); plus
(iii) the aggregate amount equal to the net reduction in Restricted
Investments in Unrestricted Subsidiaries on or after the Issue
Date resulting from (x) dividends, distributions, interest
payments, return of capital, repayments of Restricted Investments
or other transfers of assets to Equinix or any Restricted
Subsidiary from any Unrestricted Subsidiary and not otherwise
included in the calculation of Cumulative Consolidated Cash Flow
required by clause (c)(i) above, (y) proceeds realized by Equinix
or any Restricted Subsidiary upon the sale of such Restricted
Investment to a Person other than Equinix or any Subsidiary of
Equinix, or (z) the redesignation of any Unrestricted Subsidiary
as a Restricted Subsidiary, not to exceed in the case of any of
the immediately preceding clauses (x), (y) or (z) the aggregate
amount of Restricted Investments made by Equinix or any
Restricted Subsidiary in such Unrestricted Subsidiary on or after
the Issue Date; plus
(iv) to the extent that any Restricted Investment that was made on or
after the Issue Date is sold for cash or otherwise liquidated or
repaid for cash, the lesser of, to the extent paid to Equinix or a
Restricted Subsidiary, (A) the cash return of capital relating to
such Restricted Investment (less the cost of disposition, if any)
and (B) the initial amount of such Restricted Investment; minus
(v) 50% of the cumulative aggregate principal amount of any outstanding
Indebtedness incurred pursuant to clause (ii) of the first
paragraph of the covenant described below under "Incurrence of
Indebtedness and Issuance of Preferred Stock."
So long as no Default or Event of Default shall have occurred and be
continuing, the foregoing provisions will not prohibit:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would
have complied with the foregoing provisions;
63
(ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any Subordinated Indebtedness or Equity Interests of
Equinix in exchange for, or out of the Net Cash Proceeds of the
substantially concurrent sale (other than to a Subsidiary of Equinix)
of, Equity Interests of Equinix (other than any Disqualified Stock);
provided that the amount of any such Net Cash Proceeds that are
utilized for, and the Equity Interests issued or exchanged for, any
such redemption, repurchase, retirement, defeasance or other
acquisition shall be excluded from clause (c) of the preceding
paragraph and each other clause of this paragraph;
(iii) the defeasance, redemption, retirement, repurchase or other
acquisition of Subordinated Indebtedness with the Net Cash Proceeds
from, or issued in exchange for, a substantially concurrent
incurrence of Permitted Refinancing Indebtedness; provided that the
amount of any such Net Cash Proceeds that are utilized for any such
redemption, repurchase, retirement, defeasance or other acquisition
shall be excluded from clause (c) of the preceding paragraph and each
other clause of this paragraph;
(iv) the repurchase, redemption or other acquisition or retirement for
value of any Equity Interests of Equinix held by any member of
Equinix's or a Restricted Subsidiary's management; provided that the
aggregate price paid for all such repurchased, redeemed, acquired or
retired Equity Interests shall not exceed $3 million in any fiscal
year;
(v) Restricted Investments not to exceed the aggregate fair market value
(measured on the date each such Restricted Investment was made or
returned, as applicable), when taken together with all other Restricted
Investments made pursuant to this clause (v) that are at the time
outstanding, the sum of (x) $30 million, plus (y) the amount then
available for the making of Restricted Payments pursuant to clause (c)
of the preceding paragraph without giving effect to subclause (i)
thereof;
(vi) Restricted Investments the payment for which consists exclusively of
Equity Interests (other than Disqualified Stock) of Equinix; and
(vii) the repurchase of Equity Interests of Equinix in accordance with, and
only to the extent required by, dissenters rights of appraisal under
applicable law.
Each Restricted Payment permitted pursuant to clauses (i), (iv), (v), (vi) and
(vii) above shall be included, and each Restricted Payment permitted pursuant
to clauses (ii), (iii) and (vi) above shall be excluded (except as specifically
set forth in each such clause), for all purposes when performing the
calculation set forth in clause (c) of the first paragraph of this covenant.
The Board of Directors may not designate any Subsidiary of Equinix (other
than a newly created Subsidiary in which no Investment has previously been made
(other than any de minimus amount required to capitalize such Subsidiary in
connection with its organization)) as an Unrestricted Subsidiary, a
"designation," unless: (i) no Default or Event of Default shall have occurred
and be continuing at the time of or after giving effect to such designation and
(ii) Equinix would not be prohibited under the indenture from making a
Restricted Investment at the time of such designation (assuming the
effectiveness of such designation for purposes of this covenant) in an amount
equal to the fair market value of the net Investment of Equinix and all
Restricted Subsidiaries in such Subsidiary on such date.
If there is any such designation, all outstanding Investments owned by
Equinix and the Restricted Subsidiaries in the Subsidiary so designated will be
deemed to be a Restricted Investment made as of the time of such Designation
and will reduce the amount available for Restricted Payments under the first or
second paragraph of this covenant. All such outstanding Investments will be
deemed to constitute Restricted Payments in an amount equal to the fair market
value of such Investments at the time of such designation.
The indenture will further provide that a designation may be revoked and an
Unrestricted Subsidiary may thus be redesignated as a Restricted Subsidiary, a
"revocation," by a resolution of the Board of Directors delivered to the
trustee; provided that Equinix will not make any revocation unless: (i) no
Default or Event of Default shall have occurred and be continuing at the time
of or after giving effect to such revocation; and
64
(ii) all Liens and Indebtedness of such Unrestricted Subsidiary outstanding
immediately following such revocation would, if incurred at such time, have
been permitted to be incurred at such time for all purposes under the
indenture.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by Equinix (or such Restricted
Subsidiary, as the case may be) pursuant to the Restricted Payment. The fair
market value of any asset(s) or securities that are required to be valued by
this covenant shall be determined in good faith by the Board of Directors;
provided that such determination shall be supported by the opinion or appraisal
of an accounting, appraisal or investment banking firm of national standing if
such fair market value would exceed $10 million.
Incurrence of Indebtedness and Issuance of Preferred Stock
We will not, and will not permit any of the Restricted Subsidiaries to,
directly or indirectly, create, incur, issue, assume, guarantee or otherwise
become directly or indirectly liable for, contingently or otherwise (including
by way of merger, consolidation or acquisition) (collectively, "incur"), any
Indebtedness and we will not issue or incur any Disqualified Stock and will not
permit any of the Restricted Subsidiaries to issue or incur any shares of
Preferred Stock; provided, however, that we may incur Indebtedness or issue or
incur shares of Disqualified Stock and the Restricted Subsidiaries may incur
Acquired Debt or Acquired Preferred Stock if either:
(i) the Consolidated Leverage Ratio at the end of Equinix's most recently
ended fiscal quarter (for which a consolidated balance sheet of Equinix
which has been filed with the Commission or provided to the trustee
pursuant to "Reports") immediately preceding the date on which such
additional Indebtedness is incurred or such Preferred Stock is issued
or incurred would have been less than 6.0 to 1.0, determined on a pro
forma basis (including a pro forma application of the net proceeds
therefrom); or
(ii) the Consolidated Capital Ratio at the end of the most recently ended
fiscal quarter (for which a consolidated balance sheet of Equinix has
been filed with the Commission or provided to the trustee pursuant to
"Reports") would have been less than 2.0 to 1.0 determined on a pro
forma basis (including a pro forma application of the net proceeds
therefrom).
Notwithstanding the foregoing, the provisions of the paragraph set forth
immediately above will not prohibit the incurrence of any of the following
items of Indebtedness (collectively, "Permitted Indebtedness"):
(i) Permitted Refinancing Indebtedness;
(ii) the incurrence by Equinix of Indebtedness represented by the notes and
the exchange notes;
(iii) the incurrence of Indebtedness by Equinix owing to any Restricted
Subsidiary or Indebtedness of any Restricted Subsidiary owing to
Equinix or any Restricted Subsidiary (but such Indebtedness shall be
deemed to be incurred upon such Indebtedness being held by any person
other than Equinix or such Restricted Subsidiary including upon
Designation and upon such Restricted Subsidiary otherwise no longer
being a Restricted Subsidiary); provided that in the case of
Indebtedness of Equinix, such obligations shall be unsecured and
subordinated in all respects to Equinix's obligations pursuant to the
notes;
(iv) the incurrence by Equinix of Indebtedness in an aggregate amount
incurred and outstanding at any time pursuant to this clause (iv) of
up to $30 million;
(v) the incurrence (A) by Equinix or any Restricted Subsidiary (other than
any Foreign Subsidiary) of Senior Debt (including under one or more
Permitted Credit Facilities) and (B) by any Foreign Subsidiary of
Indebtedness pursuant to one or more Permitted Foreign Credit
Facilities, in an aggregate amount incurred and outstanding at any time
pursuant to this clause (v) of up to the sum of (x) $125 million and
(y) 85% of the aggregate accounts receivable of Equinix and the
Restricted Subsidiaries as of the date of the most recently available
balance sheet of Equinix which has been included in a report filed with
the Commission or provided to the trustee pursuant to "Reports";
65
(vi) the incurrence by Equinix or any Foreign Subsidiary of Purchase Money
Indebtedness (A) pursuant to the terms of any Purchase Money
Indebtedness facility existing and as in effect on the Issue Date or
(B) constituting not more than 75% of the cost, including shipping,
installation and importation costs and sales, use and similar taxes
(collectively "Costs") payable upon acquisition of the subject
property (determined in accordance with GAAP in good faith by the
Board of Directors of Equinix), to Equinix or any such Foreign
Subsidiary, as applicable, of the property so purchased, developed,
acquired, constructed, improved or leased; provided, that relating to
any Purchase Money Indebtedness incurred under clause (B) above, at
least 25% of the Costs payable upon acquisition of the subject
property shall be funded from Newly Raised Capital; provided, further,
that any assets acquired by a Foreign Subsidiary pursuant to this
clause (vi) are acquired for use in the ordinary course of business of
such Foreign Subsidiary;
(vii) the incurrence by Equinix or any of the Restricted Subsidiaries of
Hedging Obligations that are incurred for the purpose of fixing or
hedging interest or foreign currency exchange rate risk relating to
any floating rate Indebtedness or foreign currency based
Indebtedness, respectively, that is permitted by the terms of the
indenture to be outstanding; provided that the notional amount of any
such Hedging Obligation does not exceed the amount of Indebtedness or
other liability to which such Hedging Obligation relates; and
(viii) the incurrence by Equinix and the Restricted Subsidiaries of
Indebtedness solely in respect of bankers acceptances, letters of
credit and performance bonds, all in the ordinary course of
business.
Indebtedness or Preferred Stock of any Person which is outstanding at the
time such Person becomes a Restricted Subsidiary of Equinix (including upon
designation of any Subsidiary or other Person as a Restricted Subsidiary or
upon a Revocation such that such Subsidiary becomes a Restricted Subsidiary) or
is merged with or into or consolidated with Equinix or a Restricted Subsidiary
of Equinix shall be deemed to have been incurred at the time such Person
becomes such a Restricted Subsidiary of Equinix or is merged with or into or
consolidated with Equinix or a Restricted Subsidiary of Equinix, as applicable.
Upon each incurrence, Equinix may designate pursuant to which provision of
this covenant such Indebtedness is being incurred and such Indebtedness shall
not be deemed to have been incurred by Equinix under any other provision of
this covenant, except as stated otherwise in the foregoing provisions or in the
next sentence. For purposes of determining compliance with this covenant, in
the event that an item of Indebtedness meets the criteria of more than one of
the types of Indebtedness described in clauses (i) through (viii) above, or is
permitted under the first paragraph of this covenant and under one or more of
such clauses, Equinix, in its sole discretion, may from time to time reclassify
such item of Indebtedness.
Equinix will not, and will not permit any of the Restricted Subsidiaries
(other than Foreign Subsidiaries) to, incur any Indebtedness (including
Permitted Indebtedness) that is contractually subordinated in right of payment
to any other Indebtedness unless such Indebtedness is also contractually
subordinated in right of payment to the notes on substantially identical terms;
provided, however, that no Indebtedness shall be deemed to be contractually
subordinated in right of payment to any other Indebtedness solely by virtue of
being unsecured.
Liens
We will not, and will not permit any of the Restricted Subsidiaries to,
directly or indirectly, create, incur, assume or otherwise cause or suffer to
exist or become effective any Lien of any kind (other than Permitted Liens) to
secure Indebtedness upon any of their property or assets, now owned or
hereafter acquired, or upon any income or profits therefrom unless all payments
due under the indenture and the notes are secured (except as provided in the
next clause) on an equal and ratable basis with the obligations so secured and
no Lien shall
be granted or be allowed to exist which secures Subordinated Indebtedness
except relating to Acquired Debt, in which case, however, such Liens must be
made junior and subordinate to the Liens granted to the holders.
66
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
We will not, and will not permit any of the Restricted Subsidiaries to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any encumbrance or restriction on the ability of any Restricted
Subsidiary to:
(i) (a) pay dividends or make any other distributions to Equinix or any of
the Restricted Subsidiaries (1) on its Capital Stock or (2) relating to
any other interest or participation in, or measured by, its profits, or
(b) pay any Indebtedness owed to Equinix or any of the Restricted
Subsidiaries;
(ii) make loans or advances to Equinix or any of the Restricted
Subsidiaries; or
(iii) transfer any of its properties or assets to Equinix or any of the
Restricted Subsidiaries.
The foregoing restrictions will not apply to encumbrances or restrictions
existing under or by reason of:
(a) Existing Indebtedness as in effect on the Issue Date;
(b) any Permitted Credit Facility or Permitted Foreign Credit Facility,
provided that (i) the aggregate outstanding amount of any such
Indebtedness does not exceed the amount permitted under clause (v) of
the definition of Permitted Indebtedness, (ii) relating to any
Permitted Credit Facility, such restrictions apply only if there is a
payment default under such Permitted Credit Facility, and (iii) the
chief financial officer of Equinix determines in good faith that (A)
any such restrictions contained in any such Permitted Credit Facility
or Permitted Foreign Credit Facilities are no more restrictive, taken
as a whole, than those contained in a similar credit facility with
terms that are commercially reasonable for a borrower engaged in a
business comparable to Equinix that has substantially comparable
Indebtedness, and (B) any such restrictions will not materially affect
Equinix's ability to make principal, premium or interest payments on
the notes;
(c) applicable law;
(d) any instrument governing Indebtedness or Capital Stock of a Person or
assets acquired by Equinix or any of the Restricted Subsidiaries as in
effect at the time of such acquisition (except to the extent such
Indebtedness was incurred in connection with or in contemplation of
such acquisition), which encumbrance or restriction is not applicable
to any Person, or the properties or assets of any Person, other than
the Person, or the property or assets of the Person, so acquired;
provided, that in the case of Indebtedness, such Indebtedness was
permitted by the terms of the indenture to be incurred;
(e) customary non-assignment provisions in leases entered into in the
ordinary course of business;
(f) purchase money obligations for property acquired in the ordinary course
of business that impose restrictions of the nature described in clause
(iii) above on the property so acquired, constructed, leased or
improved;
(g) any agreement for the sale or other disposition of a Restricted
Subsidiary that restricts distributions by that Restricted Subsidiary
pending its sale or other disposition, provided that the consummation
of such transaction would not result in an Event of Default or an event
that, with the passing of time or giving of notice or both, would
constitute an Event of Default, that such restriction terminates if
such transaction is not consummated and that the consummation or
abandonment of such transaction occurs within one year of the date such
agreement was entered into;
(h) Permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive, taken as a whole, than those
contained in the agreements governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded;
(i) Liens securing Indebtedness otherwise permitted to be incurred pursuant
to the provisions of the covenant described above under "Liens" that
limit the right of Equinix or any of the Restricted Subsidiaries to
dispose of the assets subject to such Lien; and
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(j) provisions relating to the disposition or distribution of assets or
property in joint venture agreements and other similar agreements
entered into in the ordinary course of business.
Merger, Consolidation, or Sale of Assets
We may not, directly or indirectly, (1) consolidate or merge with or into
(whether or not we are the surviving corporation), or sell, assign, transfer,
convey or otherwise dispose of all or substantially all of our properties or
assets, in one or more related transactions, to another Person or (2) permit
any of the Restricted Subsidiaries to enter into any such transaction or series
of transactions if it would result in such disposition of all or substantially
all of the assets of Equinix and the Restricted Subsidiaries on a consolidated
basis, unless:
(i) Equinix is the surviving corporation or the Person formed by or
surviving any such consolidation or merger (if other than Equinix) or
to which such sale, assignment, transfer, conveyance or other
disposition shall have been made is a corporation organized or existing
under the laws of the United States, any state thereof or the District
of Columbia;
(ii) the Person formed by or surviving any such consolidation or merger (if
other than Equinix) or the Person to which such sale, assignment,
transfer, conveyance or other disposition shall have been made assumes
all the obligations of Equinix under the registration agreement, the
notes, the exchange notes and the indenture pursuant to a supplemental
indenture in a form reasonably satisfactory to the trustee;
(iii) no Default or Event of Default (or an event that, with the passing of
time or giving of notice or both, would constitute an Event of
Default) shall exist or shall occur immediately after giving effect
on a pro forma basis to such transaction;
(iv) except in the case of a merger of Equinix with or into a Wholly Owned
Restricted Subsidiary of Equinix, Equinix or the Person formed by or
surviving any such consolidation or merger (if other than Equinix), or
to which such sale, assignment, transfer, conveyance or other
disposition shall have been made will immediately after such
transaction and after giving pro forma effect thereto and any related
financing transactions as if the same had occurred at the beginning of
the applicable period, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the first paragraph of the
"Incurrence of Indebtedness and Issuance of Preferred Stock" covenant;
(v) if, as a result of any such transaction, property or assets of Equinix
would become subject to a Lien subject to the provisions of the
indenture described under the "Liens" covenant, Equinix or the
successor entity to Equinix shall have secured the notes as required by
said covenant; and
(vi) Equinix shall have delivered to the trustee an Officers' Certificate
and an opinion of counsel, each stating that such consolidation,
merger or transfer and such supplemental indenture (if any) comply
with the indenture.
The indenture also provides that Equinix may not, directly or indirectly,
lease all or substantially all of its properties or assets, in one or more
related transactions, to any other Person.
Upon any consolidation or merger or any transfer of all or substantially all
of the assets of Equinix in accordance with the foregoing, the successor
corporation formed by such consolidation or into which Equinix is merged or to
which such transfer is made shall succeed to and (except in the case of a
lease) be substituted for, and may exercise every right and power of, Equinix
under the indenture with the same effect as if such successor corporation had
been named therein as Equinix, and (except in the case of a lease) Equinix
shall be released from the obligations under the notes and the indenture except
relating to any obligations that arise from, or are related to, such
transaction.
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Transactions with Affiliates
We will not, and will not permit any of the Restricted Subsidiaries to, make
any payment to, or sell, lease, transfer or otherwise dispose of any of our
properties or assets to, or purchase any property or assets from, or enter into
or make or amend any transaction, contract, agreement, understanding, loan,
advance or guarantee with, or for the benefit of, any Affiliate (each of the
foregoing, an "Affiliate Transaction"), unless:
(i) such Affiliate Transaction is on terms that are not materially less
favorable to Equinix or the relevant Restricted Subsidiary than those
that would have been obtained in a comparable transaction by Equinix or
such Restricted Subsidiary with an unrelated Person; and
(ii) relating to any Affiliate Transaction or series of related Affiliate
Transactions
(A) involving aggregate consideration in excess of $5 million, Equinix
delivers to the trustee a resolution of the Board of Directors set
forth in an Officers' Certificate that such Affiliate Transaction
is approved by a majority of the disinterested members of the Board
of Directors and that such Affiliate Transaction complies with
clause (i) above and is in the best interests of Equinix or such
Restricted Subsidiary; and
(B) if involving aggregate consideration in excess of $10 million, a
favorable written opinion as to the fairness to Equinix of such
Affiliate Transaction from a financial point of view is also
obtained by Equinix from an accounting, appraisal or investment
banking firm of national standing.
Notwithstanding the foregoing, the following items shall not be deemed to be
Affiliate Transactions:
(i) (a) the entering into, maintaining or performance of any employment
contract, collective bargaining agreement, benefit plan, program or
arrangement, related trust agreement or any other similar arrangement
for or with any employee, officer or director heretofore or hereafter
entered into in the ordinary course of business, including vacation,
health, insurance, deferred compensation, retirement, savings or other
similar plans or (b) the payment of compensation, performance of
indemnification or contribution obligations, or an issuance, grant or
award of stock, options, or other equity-related interests or other
securities, to employees, officers or directors in the ordinary course
of business;
(ii) transactions between or among Equinix and/or the Restricted
Subsidiaries;
(iii) payment of reasonable directors fees;
(iv) any sale or other issuance of Equity Interests (other than
Disqualified Stock) of Equinix;
(v) Affiliate Transactions in effect or approved by the Board of Directors
on the Issue Date, including any amendments thereto (provided that the
terms of such amendments are not materially less favorable to Equinix
than the terms of such agreement before such amendment); and
(vi) Restricted Payments that are permitted under "Restricted Payments" and
Permitted Investments described under clause (d) of the definition
thereof.
Business Activities
We will not, and will not permit any of the Restricted Subsidiaries to,
engage, to more than a de minimus extent, in any business other than a
Permitted Business.
Status as Investment Company
The indenture provides that Equinix will not, and will not permit any of its
Subsidiaries or controlled affiliates to, conduct its business in a fashion
that would cause Equinix to be required to register as an "investment company"
(as that term is defined in the Investment Company Act of 1940, as amended), or
69
otherwise to become subject to regulation under the Investment Company Act. For
purposes of establishing Equinix's compliance with this provision, any
exemption which is or would become available under Section 3(c)(1) or Section
3(c)(7) of the Investment Company Act will be disregarded.
Reports
The indenture provides that at all times from and after the date of the
commencement of an exchange offer or the effectiveness of a shelf registration
statement relating to the notes (the "Registration"), whether or not Equinix is
then required to file reports with the Commission, Equinix shall file with the
Commission all such reports and other information as it would be required to
file with the Commission by Sections 13(a) or 15(d) under the Exchange Act if
it were subject thereto. Equinix shall supply the applicable trustee and each
applicable holder or shall supply to the applicable trustee for forwarding to
each such applicable holder, without cost to such holder, copies of such
reports and other information. At all times before the date of the
Registration, Equinix shall, at its cost, deliver to the trustee and each
holder of the notes quarterly and annual reports substantially equivalent to
those which would be required by the Exchange Act if Equinix were subject
thereto. In addition, at all times before the Registration, upon the request of
any holder or any prospective purchaser of the notes designated by a holder,
Equinix shall supply to such holder or such prospective purchaser the
information required under Rule 144A under the Securities Act.
Events of Default and Remedies
The indenture provides that each of the following will constitute an Event
of Default:
(i) default for 30 days in the payment when due of interest on the notes;
or
(ii) default in the payment when due of the principal of, or premium, if
any, on, the notes; or
(iii) failure by Equinix or any of the Restricted Subsidiaries to comply
with the provisions described above under the captions "--Change of
Control," or "--Asset Sales"; or
(iv) failure by Equinix or any of the Restricted Subsidiaries for 60 days
after notice to comply with any of its other agreements in the
indenture, the notes or the escrow agreement; or
(v) the default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness of Equinix or any of the Restricted Subsidiaries (or the
payment of which is Guaranteed by Equinix or any of the Restricted
Subsidiaries) whether such Indebtedness or Guarantee now exists or is
created after the Issue Date, and either such Indebtedness is already
due and payable or such default results in the acceleration of such
Indebtedness before its express maturity and, in each case, the amount
of any such Indebtedness, together with the amount of any other such
Indebtedness the maturity of which has been so accelerated or which is
already due and payable, aggregates $10 million or more; or
(vi) one or more judgments, orders or decrees for the payment of money in
excess of $10 million, individually or in the aggregate (net of
applicable insurance coverage which is acknowledged in writing by the
insurer), shall be entered against Equinix or any Restricted
Subsidiary or any of their respective properties and shall not be
discharged and there shall have been a period of 60 days or more
during which a stay of enforcement of such judgment or order, by
reason of pending appeal or otherwise, shall not be in effect; or
(vii) Equinix shall assert or acknowledge in writing that the escrow
agreement is invalid or unenforceable; or
(viii)certain events of bankruptcy or insolvency relating to Equinix or any
of its Significant Subsidiaries.
If any Event of Default occurs and is continuing, the trustee or the holders
of at least 25% in principal amount of the then outstanding notes may declare
all principal of, premium (if any) on and interest on the notes
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to be due and payable immediately. Notwithstanding the foregoing, in the case
of an Event of Default arising from certain events of bankruptcy or insolvency
relating to Equinix or a Significant Subsidiary, all outstanding notes will
become due and payable without further action or notice.
Holders may not directly enforce the indenture or the notes except as
provided in the indenture. Subject to certain limitations, holders of a
majority in principal amount of the then outstanding notes may direct the
trustee in its exercise of any trust or power.
Holders of a majority in aggregate principal amount of the then outstanding
notes by notice to the trustee may on behalf of all holders waive any existing
Default or Event of Default and its consequences under the indenture, except a
continuing Default or Event of Default in the payment of principal of, premium,
if any, or interest on the notes.
We will be required to deliver to the trustee annually a statement regarding
compliance with the indenture, and we will be required upon becoming aware of
any Default or Event of Default to deliver to the trustee a statement
specifying such Default or Event of Default. The trustee may withhold from
holders notice of any continuing Default or Event of Default (except a Default
or Event of Default relating to the payment of principal of, premium, if any,
or interest on, the notes) if it determines that withholding notice is in their
interest.
No Personal Liability of Directors, Officers, Employees, Incorporators or
Shareholders
No director, officer, employee, incorporator or shareholder of Equinix, as
such, will have any liability for any obligations of Equinix relating to the
notes or the indenture, or for any claim based on, or in respect or by reason
of, such obligations or their creation. Each holder of notes by accepting a
note will waive and release any and all such liability. Such waiver and release
are part of the consideration for issuance of the notes. Such waiver may not be
effective to waive liabilities under federal securities laws and it is the view
of the Commission that such a waiver is against public policy.
Legal Defeasance and Covenant Defeasance
The indenture provides that Equinix may, at its option and at any time,
elect to have all of its obligations discharged relating to the outstanding
notes, called legal defeasance, except for:
(i) the rights of holders to receive payments in respect of the principal
of, premium, if any, and interest on such notes when such payments are
due from the trust referred to below;
(ii) Equinix's obligations relating to the notes concerning issuing
temporary notes, registration of notes, mutilated, destroyed, lost or
stolen notes and the maintenance of an office or agency for payment
and money for security payments held in trust;
(iii) the rights, powers, trusts, duties and immunities of the trustee, and
Equinix's obligations in connection therewith; and
(iv) the legal defeasance provisions of the indenture.
In addition, Equinix may, at its option and at any time, elect to have its
obligations released relating to certain covenants that are contained in the
indenture, called covenant defeasance, and, thereafter, any omission to comply
with such obligations will not constitute a Default or Event of Default. In the
event covenant defeasance occurs, certain events, but not including non-
payment, bankruptcy, receivership, rehabilitation or insolvency events,
described under "--Events of Default and Remedies" will no longer constitute an
Event of Default.
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To exercise either legal defeasance or covenant defeasance:
(i) Equinix must irrevocably deposit, or cause to be deposited, with the
trustee, in trust, for the benefit of the holders, cash in U.S.
dollars, non-callable Government Securities, or a combination thereof,
in such amounts as will be sufficient, in the opinion of a nationally
recognized firm of independent public accountants, to pay the principal
of, premium, if any, and interest on the outstanding notes on the
stated maturity thereof or on the applicable redemption date, as the
case may be, and Equinix must specify whether the notes are being
defeased to maturity or to a particular redemption date;
(ii) in the case of legal defeasance, Equinix must deliver to the trustee
an opinion of counsel in the United States reasonably acceptable to
the trustee confirming that, since the Issue Date, Equinix has
received from, or there has been published by, the Internal Revenue
Service a ruling, or there has been a change in the applicable United
States federal income tax law, in either case to the effect that, and
based thereon such opinion of counsel shall confirm that, the holders
will not recognize income, gain or loss for United States federal
income tax purposes as a result of such legal defeasance, and will be
subject to United States federal income tax on the same amounts, in
the same manner and at the same times as would have been the case if
such legal defeasance had not occurred;
(iii) in the case of covenant defeasance, Equinix must deliver to the
trustee an opinion of counsel in the United States reasonably
acceptable to the trustee confirming that the holders will not
recognize income, gain or loss for United States federal income tax
purposes as a result of such covenant defeasance, and such holders
will be subject to United States federal income tax on the same
amounts, in the same manner and at the same times as would have been
the case if such covenant defeasance had not occurred;
(iv) no Default or Event of Default shall have occurred and be continuing
on the date of such deposit, other than a Default or Event of Default
resulting from the borrowing of funds to be applied to such deposit;
(v) such legal defeasance or covenant defeasance will not result in a
breach or violation of, or constitute a default under, any material
agreement or instrument, other than the indenture, to which Equinix or
any of the Restricted Subsidiaries is a party or by which Equinix or
any of the Restricted Subsidiaries is bound;
(vi) Equinix must deliver to the trustee an Officers' Certificate stating
that the deposit was not made by Equinix with the intent of preferring
the holders over other creditors of Equinix, or with the intent of
defeating, hindering, delaying or defrauding creditors of Equinix or
others; and
(vii) Equinix must deliver to the trustee an Officers' Certificate and an
opinion of counsel in the United States reasonably acceptable to the
trustee, each stating that the conditions precedent provided for or
relating to legal defeasance or covenant defeasance, as applicable,
in the case of the Officers' Certificate, in clauses (i) through (vi)
and, in the case of the opinion of counsel, in clauses (i), relating
to the validity and perfection of the security interest, and clauses
(ii) and (iii) of this paragraph, have been complied with.
Satisfaction and Discharge
The indenture will be discharged and will cease to be of further effect,
except as to surviving rights or registration of transfer or exchange of notes,
as to all outstanding notes when either:
(i) all such notes theretofore authenticated and delivered, except lost,
stolen or destroyed notes that have been replaced or paid and notes for
whose payment money has theretofore been deposited in trust or
segregated and held in trust by Equinix and thereafter repaid to
Equinix or discharged from such trust, have been delivered to the
trustee for cancellation; or
(ii) (a) all such notes not theretofore delivered to the trustee for
cancellation have become due and payable and Equinix has irrevocably
deposited or caused to be deposited with the trustee as trust
72
funds in trust for the purpose an amount of money sufficient to pay and
discharge the entire indebtedness on the notes not theretofore delivered
to the trustee for cancellation, for principal amount, premium, if any,
and accrued interest to the date of such deposit; (b) Equinix has paid
all sums payable by it under the indenture; and (c) Equinix has
delivered irrevocable instructions to the trustee to apply the deposited
money toward the payment of the notes at Stated Maturity or on the
redemption date, as the case may be.
In addition, Equinix must deliver an Officers' Certificate and an opinion of
counsel stating that all conditions precedent to satisfaction and discharge
have been complied with.
Transfer and Exchange
A holder may transfer or exchange notes in accordance with the procedures
set forth in the indenture. The registrar and the trustee may require a holder,
among other things, to furnish appropriate endorsements and transfer documents,
and Equinix may require a holder to pay any taxes and fees required by law or
permitted by the indenture. Equinix will not be required to transfer or
exchange any note selected for redemption. Also, Equinix will not be required
to transfer or exchange any note for a period of 15 days before (i) a selection
of notes to be redeemed (ii) an interest payment date or (iii) the mailing of
notice of a Change of Control Offer or Asset Sale Offer. The registered holder
of a note will be treated as the owner of it for all purposes under the
indenture.
Amendment, Supplement and Waiver
With the consent of the holders of not less than a majority in aggregate
principal amount of the notes at the time outstanding, Equinix and the trustee
are permitted to amend or supplement the indenture or any supplemental
indenture or modify the rights of the holders; provided that no such
modification may, without the consent of each holder affected thereby:
(i) reduce the principal amount of, change the fixed maturity of, or alter
the redemption provisions of, the notes;
(ii) change the currency in which any notes or amounts owing thereon is
payable;
(iii) reduce the percentage of the aggregate principal amount outstanding
of notes which must consent to an amendment, supplement or waiver or
consent to take any action under the indenture or the notes;
(iv) impair the right to institute suit for the enforcement of any payment
on or relating to the notes;
(v) waive a default in payment relating to the notes;
(vi) reduce the rate or change the time for payment of interest on the
notes;
(vii) following the occurrence of a Change of Control or an Asset Sale,
alter Equinix's obligation to purchase the notes as a result of such
Change of Control or Asset Sale in accordance with the indenture or
waive any default in the performance thereof;
(viii) affect the ranking of the notes in a manner adverse to the holder of
the notes; or
(ix) release any Liens created by the escrow agreement except in accordance
with the terms of the escrow agreement.
Notwithstanding the foregoing, without the consent of any holder of notes,
Equinix and the trustee may amend or supplement the indenture or the notes to
cure any ambiguity, defect or inconsistency, to provide for uncertificated
notes in addition to or in place of certificated notes, to provide for the
assumption of Equinix's obligations to holders in the case of a merger or
consolidation or sale of all or substantially all of Equinix's assets in
accordance with the terms of the indenture, to make any change that would
provide any additional rights or benefits to the holders or that does not
adversely affect the legal rights under the indenture of any such
73
holder, or to comply with the requirements of the Commission to effect or
maintain the qualification of the indenture under the Trust Indenture Act.
Concerning the Trustee
The indenture contains certain limitations on the rights of the trustee,
should it become a creditor of Equinix, to obtain payment of claims in certain
cases, or to realize on certain property received in respect of any such claim
as security or otherwise. The trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest, it must
eliminate such conflict within 90 days, apply to the Commission for permission
to continue, or resign.
Holders of a majority in principal amount of the then outstanding notes will
have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the trustee, subject to
certain exceptions. In case an Event of Default shall occur (which shall not be
cured), the trustee will be required, in the exercise of its power, to use the
degree of care of a prudent person in the conduct of their own affairs. Subject
to such provisions, the trustee will be under no obligation to exercise any of
its rights or powers under the indenture at the request of any holder, unless
such holder shall have offered to the trustee security and indemnity
satisfactory to it against any loss, liability or expense.
Governing Law
The indenture and the notes will be governed by and construed in accordance
with the laws of the State of New York.
Equinix will submit to the jurisdiction of the U.S. federal and New York
state courts located in the Borough of Manhattan, City and State of New York
for purposes of all legal actions and proceedings instituted in connection with
the notes and the indenture.
Certain Definitions
Set forth below are certain defined terms used in the indenture. Reference
is made to the indenture for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"Acquired Debt" or "Acquired Preferred Stock" means, relating to any
specified Person, Indebtedness or Preferred Stock of any other Person existing
at the time such other Person is merged with or into or became a Subsidiary of
such specified Person (including by Designation or Revocation), provided such
Indebtedness or Preferred Stock is not incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling, controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used relating to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the Voting Stock of a Person shall be
deemed to be control.
"Asset Acquisition" means (i) any capital contribution (by means of
transfers of cash or other property to others or payments for property or
services for the account or use of others, or otherwise) by Equinix or any
Restricted Subsidiary in any other person, or any acquisition or purchase of
Capital Stock of any other person by Equinix or any Restricted Subsidiary, in
either case pursuant to which such person shall (a) become a Restricted
Subsidiary or (b) shall be merged with or into Equinix or any Restricted
Subsidiary or (ii) any
74
acquisition by Equinix or any Restricted Subsidiary of the assets of any person
which constitute substantially all of an operating unit or line of business of
such person or which is otherwise outside of the ordinary course of business.
"Asset Sale" means (i) the sale, lease, transfer, conveyance or other
disposition of any property, asset or right (including, without limitation, by
way of a sale and leaseback), other than leases of space in an Exchange
Facility entered into in the ordinary course of business, of Equinix or any
Restricted Subsidiary, and (ii) the issue or sale by Equinix or any of the
Restricted Subsidiaries of Equity Interests of any Subsidiary. Notwithstanding
the foregoing, the following items shall not be deemed to be Asset Sales: (i)
any disposition of properties and assets of Equinix subject to the "Merger,
Consolidation or Sale of Assets" covenant, provided that any properties, assets
or rights that are not included in any such dispositions shall be deemed to
have been sold in a transaction constituting an Asset Sale, (ii) a transfer of
properties, assets or rights by Equinix to a Restricted Subsidiary or by a
Subsidiary to Equinix or to a Restricted Subsidiary, (iii) a disposition of
obsolete or worn out equipment or equipment that is no longer useful in the
conduct of a Permitted Business of Equinix and the Restricted Subsidiaries,
(iv) the surrender or waiver by Equinix or any of the Restricted Subsidiaries
of contract rights or the settlement, release or surrender of contract, tort or
other claims of any kind by Equinix or any of the Restricted Subsidiaries or
the grant by Equinix or any of the Restricted Subsidiaries of a Lien not
prohibited by the indenture, and (v) sales, transfers, assignments and other
dispositions of assets (or related assets in related transactions) (x) in the
ordinary course of business (y) with an aggregate fair market value of less
than $500,000 in any fiscal year or (z) constituting the incurrence of a
Capital Lease Obligation.
"Board of Directors" means the board of directors or other governing body of
Equinix or, if Equinix is owned or managed by a single entity, the board of
directors or other governing body of such entity, or, in either case, any
committee thereof duly authorized to act on behalf of such board or governing
body.
"Board Resolution" means a duly authorized resolution of the Board of
Directors.
"Capital Contribution" means any contribution to the common equity of
Equinix from a direct or indirect parent of Equinix for which no consideration
other than the issuance of common stock with no redemption rights and no
special preferences, privileges or voting rights is given.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of,
the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof (provided that the full faith and credit
of the United States is pledged in support thereof) having maturities of not
more than six months from the date of acquisition, (iii) certificates of
deposit and eurodollar time deposits with maturities of six months or less from
the date of acquisition, bankers' acceptances with maturities not exceeding six
months and overnight bank deposits, in each case with any domestic commercial
bank having capital and surplus in excess of $500 million and a Thompson Bank
Watch Rating of "B" or better, (iv) repurchase obligations with a term of not
more than seven days for underlying securities of the types described in clause
(ii) above entered into with any financial institution meeting the
qualifications specified in clause (iii) above, (v) commercial paper having the
highest rating obtainable from Moody's Investors Service, Inc. or Standard &
Poor's Ratings Group and in each case maturing within six months after the date
of acquisition and (vi) money market funds at least 95% of the assets of which
constitute Cash Equivalents of the kinds described in clauses (i)-(v) of this
75
definition, provided that relating to any Foreign Subsidiary, Cash Equivalents
shall also mean those investments that are comparable to clauses (i) through
(vi) above in such Foreign Subsidiary's country of organization or country
where it conducts business operations.
"Change of Control" means the occurrence of any of the following: (i) any
"person" or "group," other than a Permitted Holder, is or becomes the
"beneficial owner" (as such terms are used in Section 13(d)(3) of the Exchange
Act, except that a person shall be deemed to have "beneficial ownership" of all
securities that such person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of 35% or more of the Voting Stock (measured by voting power rather
than number of shares) of Equinix and the Permitted Holders own, in the
aggregate, a lesser percentage of the total Voting Stock (measured by voting
power rather than by number of shares) of Equinix than such person and do not
have the right or ability by voting power, contract or otherwise to elect or
designate for election a majority of the Board of Directors of Equinix, (ii)
during any period of two consecutive years, Continuing Directors cease for any
reason to constitute a majority of the Board of Directors of Equinix,
(iii) Equinix consolidates or merges with or into any other Person or Equinix
and/or any Restricted Subsidiaries sell, assign, convey, transfer, lease or
otherwise dispose of all or substantially all of the assets and properties of
Equinix and the Restricted Subsidiaries on a consolidated basis to any other
Person, other than a Permitted Holder, other than a consolidation or merger or
disposition of assets (a) of or by Equinix into or to a Wholly Owned Restricted
Subsidiary of Equinix or (b) subject to clause (i) above, pursuant to a
transaction in which the outstanding Voting Stock of Equinix is changed into or
exchanged for securities or other property with the effect that the beneficial
owners of the outstanding Voting Stock of Equinix immediately before such
transaction, beneficially own, directly or indirectly, at least a majority of
the Voting Stock (measured by voting power rather than number of shares) of the
surviving corporation or the Person to whom Equinix's assets are transferred
immediately following such transaction, or (iv) the adoption of a plan relating
to the liquidation or dissolution of Equinix.
"Commission", means the Securities and Exchange Commission.
"Consolidated Capital Ratio" means, relating to Equinix as of any date, the
ratio of (i) the aggregate amount of Indebtedness of Equinix and the Restricted
Subsidiaries then outstanding to (ii) the Consolidated Equity Capital of
Equinix and the Restricted Subsidiaries as of such date. For the purposes of
calculating the "Consolidated Capital Ratio" (i) any Subsidiary of Equinix that
is a Restricted Subsidiary on the Transaction Date shall be deemed to have been
a Restricted Subsidiary at the end of the most recently ended fiscal quarter
(the "Reference Date") and (ii) any Subsidiary of Equinix that is not a
Restricted Subsidiary on the Transaction Date shall be deemed not to have been
a Restricted Subsidiary on the Reference Date. In addition to, and without
limiting the foregoing, for the purposes of the foregoing, "Consolidated Equity
Capital" shall be calculated after giving effect on a pro forma basis as of the
Reference Date for, without duplication, (i) any Asset Sales or Asset
Acquisitions (including, without limitation, any Asset Acquisition giving rise
to the need to make such calculation as a result of Equinix or one of the
Restricted Subsidiaries (including any Person who becomes a Restricted
Subsidiary as the result of the Asset Acquisition) incurring, assuming or
otherwise being liable for Acquired Debt) occurring during the period
commencing on the Reference Date to and including the Transaction Date, as if
such Asset Sale or Asset Acquisition occurred on the Reference Date, (ii) any
issue or sale of Equity Interests (other than Disqualified Stock but including
Equity Interests (other than Disqualified Stock) issued upon the exercise of
options, warrants or rights to purchase such Equity Interests) of Equinix or
any conversion of Disqualified Stock or debt securities of Equinix into Equity
Interests (other than Disqualified Stock) occurring during the period
commencing on the Reference Date to and including the Transaction Date, as if
such issue, sale or conversion occurred on the Reference Date, and (iii) any
Restricted Payments made by Equinix, and any sale, disposition or repayment of
any Restricted Investment constituting a Restricted Payment, since the
Reference Date to and including the Transaction Date, as if such Restricted
Payment occurred on the Reference Date.
"Consolidated Cash Flow" means, relating to Equinix for any period, the
Consolidated Net Income of Equinix and the Restricted Subsidiaries for such
period plus (A) to the extent that any of the following items
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were deducted in computing such Consolidated Net Income, but without
duplication, (i) provision for taxes based on income or profits of Equinix and
the Restricted Subsidiaries for such period, plus (ii) consolidated interest
expense of Equinix and the Restricted Subsidiaries for such period, whether
paid or accrued and whether or not capitalized (including, without limitation,
amortization of debt issuance costs and original issue discount, non-cash
interest payments, the interest component of any deferred payment obligations,
the interest component of all payments associated with Capital Lease
Obligations, commissions, discounts and other fees and charges incurred in
respect of letter of credit or bankers' acceptance financings, and net payments
(if any) pursuant to Hedging Obligations), plus (iii) depreciation,
amortization (including amortization of goodwill and other intangibles, but
excluding amortization of prepaid cash expenses that were paid in a prior
period), and other non-cash expenses (excluding any such non-cash expense to
the extent that it represents an accrual of or reserve for cash expenses in any
future period or amortization of a prepaid cash expense that was paid in a
prior period) of Equinix and the Restricted Subsidiaries for such period, minus
(B) non-cash items increasing such Consolidated Net Income for such period
(other than items that were accrued in the ordinary course of business), in
each case, on a consolidated basis and determined in accordance with GAAP.
Notwithstanding the foregoing, the provision for taxes on the income or profits
of, and the depreciation and amortization and other non-cash expenses of, a
Restricted Subsidiary of Equinix shall be added to Consolidated Net Income to
compute Consolidated Cash Flow of Equinix only to the extent that a
corresponding amount would be permitted at the date of determination to be
dividended or otherwise distributed to Equinix by such Restricted Subsidiary
without prior governmental approval (that has not been obtained), and without
direct or indirect restriction pursuant to the terms of its charter and all
agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to that Restricted Subsidiary or its
shareholders.
"Consolidated Equity Capital" means, relating to Equinix as of any date, the
sum (without duplication) of (i) the additional paid-in capital of the common
shareholders reflected on the consolidated balance sheet of Equinix and the
Restricted Subsidiaries as of such date plus (ii) the respective amounts
reported on Equinix's balance sheet as of such date relating to any series of
Capital Stock (other than Disqualified Stock) not included in clause (i) above,
less (iii) (x) all write-ups (other than write-ups resulting from foreign
currency translations and write-ups of tangible assets of a going concern
business made within 12 months after the acquisition of such business) after
the Issue Date in the book value of any asset owned by Equinix or a Restricted
Subsidiary, (y) all outstanding net Investments as of such date in persons that
are not Restricted Subsidiaries (without giving effect to any write-down or
write-off thereof), and (z) the aggregate amount of all Restricted Payments
declared or made on or after the Issue Date other than (I) Investments in
persons that are not Restricted Subsidiaries and (II) Restricted Payments made
pursuant to clause (iii) of the second paragraph of the "Restricted Payments"
covenant.
"Consolidated Leverage Ratio" means, relating to Equinix, as of any date,
the ratio of (i) the aggregate consolidated amount of Indebtedness of Equinix
and the Restricted Subsidiaries then outstanding to (ii) the annualized
Consolidated Cash Flow of Equinix and the Restricted Subsidiaries for the most
recently ended fiscal quarter. For purposes of calculating "Consolidated Cash
Flow" for any fiscal quarter for purposes of this definition, (i) any
Subsidiary of Equinix that is a Restricted Subsidiary on the Transaction Date
shall be deemed to have been a Restricted Subsidiary at all times during such
fiscal quarter and (ii) any Subsidiary of Equinix that is not a Restricted
Subsidiary on the Transaction Date shall be deemed not to have been a
Restricted Subsidiary at any time during such fiscal quarter. In addition to
and without limitation of the foregoing, for purposes of this definition,
"Consolidated Cash Flow" shall be calculated after giving effect on a pro forma
basis for the applicable fiscal quarter to, without duplication, any Asset
Sales or Asset Acquisitions (including, without limitation, any Asset
Acquisition giving rise to the need to make such calculation as a result of
Equinix or one of the Restricted Subsidiaries (including any Person who becomes
a Restricted Subsidiary as a result of the Asset Acquisition) incurring,
assuming or otherwise being liable for Acquired Debt) occurring during the
period commencing on the first day of such fiscal quarter to and including the
Transaction Date, as if such Asset Sale or Asset Acquisition occurred on the
first day of such fiscal quarter.
"Consolidated Net Income" means, relating to Equinix for any period, the
aggregate of the Net Income of Equinix and the Restricted Subsidiaries for such
period, on a consolidated basis, determined in accordance with
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GAAP; provided that (i) the Net Income (but not loss) of any Person that is
accounted for by the equity method of accounting shall be included only to the
extent of the amount of dividends or distributions paid in cash to Equinix or a
Restricted Subsidiary thereof by such Person but not in excess of Equinix's
Equity Interests in such Person, (ii) the Net Income of any Restricted
Subsidiary shall be excluded to the extent that the declaration or payment of
dividends or similar distributions by that Restricted Subsidiary of that Net
Income is not at the date of determination permitted without any prior
governmental approval (that has not been obtained) or, directly or indirectly,
by operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation applicable to
that Restricted Subsidiary or its shareholders, except that Equinix's equity in
the net income of any such Restricted Subsidiary for such period may be
included in such Consolidated Net Income (A) up to the aggregate amount of cash
that could have been distributed by such Restricted Subsidiary during such
period to Equinix as a dividend and (B) if the only restriction on the
declaration or payment of dividends or similar distributions by such Restricted
Subsidiary is a restriction of the type described in clause (b) of the second
paragraph of the "Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries" covenant, (iii) the Net Income of any Person acquired in a
pooling of interests transaction for any period before the date of such
acquisition shall be excluded, (iv) the equity of Equinix or any Restricted
Subsidiary in the net income (if positive) of any Unrestricted Subsidiary shall
be included in such Consolidated Net Income up to the aggregate amount of cash
actually distributed by such Unrestricted Subsidiary during such period to
Equinix or a Restricted Subsidiary as a dividend or other distribution (but not
in excess of the amount of the Net Income of such Unrestricted Subsidiary for
such period), (v) the cumulative effect of a change in accounting principles
shall be excluded, (vi) all extraordinary, unusual or nonrecurring gains or
losses (net of fees and expenses relating to the transaction giving rise
thereto) shall be excluded, (vii) any gain or loss, net of taxes, realized upon
the termination of any employee pension benefit plan shall be excluded, and
(viii) gains or losses in respect of any Asset Sales (net of fees and expenses
relating to the transaction giving rise thereto) shall be excluded.
"Consolidated Tangible Assets" of Equinix as of any date means the total
amount of assets of Equinix and the Restricted Subsidiaries (less applicable
reserves) on a consolidated basis at the end of the fiscal quarter immediately
preceding such date, as determined in accordance with GAAP, less: (i)
unamortized debt and debt issuance expenses, deferred charges, goodwill,
patents, trademarks, copyrights, and all other items which would be treated as
intangibles on the consolidated balance sheet of Equinix and the Restricted
Subsidiaries prepared in accordance with GAAP and (ii) appropriate adjustments
on account of minority interests of other Persons holding equity investments in
Restricted Subsidiaries, in the case of each of clauses (i) and (ii) above, as
reflected on the consolidated balance sheet of Equinix and the Restricted
Subsidiaries.
"Continuing Directors" means individuals who at the beginning of the period
of determination constituted the Board of Directors of Equinix, together with
any new directors whose election by the Board of Directors or whose nomination
for election by the shareholders of Equinix was approved by a vote of a
majority of the directors of Equinix then still in office who were either
directors at the beginning of the period or whose election or nomination for
election was previously so approved or is the designee of any one of the
Permitted Holders or any combination thereof or was nominated or elected by any
such Permitted Holder(s) or any of their designees.
"Cumulative Consolidated Cash Flow" means, as of any date of determination,
the cumulative Consolidated Cash Flow realized during the period commencing on
the first day of the fiscal quarter which includes the Issue Date and ending on
the last day of the last fiscal quarter for which reports have been filed with
the Commission or provided to the trustee pursuant to the "Reports" covenant
preceding the date of the event requiring such calculation to be made.
"Currency Agreement" means, relating to any Person, any foreign exchange
contract, currency swap agreement or other similar agreement as to which such
Person is a party or beneficiary.
"Default" means any event that is, or with the passage of time or the giving
of notice or both would be, an Event of Default.
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"Disqualified Stock" means any Equity Interest that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, in each case at the option of the holder thereof), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the holder
thereof, in whole or in part, on or before the date that is 91 days after the
date on which the notes mature; provided, however, that any Equity Interest
that would constitute Disqualified Stock solely because the holders thereof
have the right to require Equinix to repurchase such Equity Interest upon the
occurrence of a Change of Control or an Asset Sale shall not constitute
Disqualified Stock if the terms of such Equity Interest provide that Equinix
may not repurchase or redeem any such Equity Interest pursuant to such
provisions unless such repurchase or redemption complies with the covenant
described above under the "Restricted Payments" covenant.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
together with the rules and regulations promulgated thereunder.
"Exchange Facility" means a facility providing equipment colocation, direct
high-speed connections, switched interconnections and related services to third
party internet related businesses and operations.
"Existing Indebtedness" means Indebtedness of Equinix and the Restricted
Subsidiaries in existence on the Issue Date, until such amounts are repaid.
"Foreign Subsidiary" means any Restricted Subsidiary of Equinix which (i) is
not organized under the laws of the United States, any state thereof or the
District of Columbia, and (ii) conducts substantially all of its business
operations outside the United States of America.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the Issue Date.
"Government Securities" means securities that are (a) direct obligations (or
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentally thereof) the
payment of which the full faith and credit of the United States of America is
pledged, (b) obligations of a Person controlled or supervised by and acting as
an agency or instrumentality of the United States of America the payment of
which is unconditionally guaranteed as a full faith and credit obligation by
the United States of America or (c) obligations of a Person the payment of
which is unconditionally guaranteed as a full faith and credit obligation by
the United States of America.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of)
such Indebtedness of such other Person (whether arising by virtue of
partnership arrangements, or by agreement to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of
assuring in any other manner the obligee of such Indebtedness of the payment
thereof or to protect such obligee against loss in respect thereof (in whole or
in part); provided, however, that the term "Guarantee" shall not include
endorsements for collection or deposit in the ordinary course of business. The
term "Guarantee" used as a verb has a corresponding meaning.
"Hedging Obligations" means, relating to any Person, the obligations of such
Person under any Interest Rate Agreement or Currency Agreement.
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"Indebtedness" means, relating to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance of the deferred and
unpaid purchase price of any property or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade payable,
if and to the extent any of the foregoing (other than letters of credit (or
reimbursement agreements in respect thereof), banker's acceptances and Hedging
Obligations) would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, as well as all Indebtedness of others secured
by a Lien on any asset of such Person (whether or not such Indebtedness is
assumed by such Person), Disqualified Stock of such Person and Preferred Stock
of such Person's Restricted Subsidiaries and, to the extent not otherwise
included, the Guarantee by such Person of any Indebtedness of any other Person.
The amount of any Indebtedness outstanding as of any date shall be (i) the
accreted value thereof, in the case of any Indebtedness issued with original
issue discount, but the accretion of original issue discount in accordance with
the original terms of Indebtedness issued with an original issue discount will
not be deemed to be an incurrence, or (ii) the principal amount thereof,
together with any interest thereon that is more than 30 days past due, in the
case of any other Indebtedness. Notwithstanding the foregoing, money borrowed
and set aside at the time of the incurrence of any Indebtedness to prefund the
payment of interest on such Indebtedness shall not be deemed to be
"Indebtedness" so long as such money is held to secure the payment of such
interest.
"Interest Rate Agreement" means, relating to any Person, any interest rate
protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement to which such Person is a party or beneficiary.
"Investments" means, relating to any Person, all investments by such Person
in other Persons (including affiliates) in the forms of direct or indirect
loans (including Guarantees of Indebtedness or other obligations), advances or
capital contributions (excluding commission, travel and similar advances to
directors, officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If Equinix or any of the Restricted Subsidiaries sells or otherwise disposes of
any Equity Interests of any direct or indirect Restricted Subsidiary such that,
after giving effect to any such sale or disposition, such Person is no longer a
Restricted Subsidiary, Equinix shall be deemed to have made an Investment on
the date of any such sale or disposition equal to the fair market value of the
Equity Interests of such Restricted Subsidiary not sold or disposed of in an
amount determined as provided in the final paragraph of the "Restricted
Payments" covenant.
"Issue Date" means the date of first issuance of the notes under the
indenture.
"Lien" means, relating to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the
nature thereof, any option or other agreement to sell or give a security
interest in, and any filing of or agreement to give any financing statement
under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Net Cash Proceeds" means the aggregate amount of cash or Cash Equivalents
received by Equinix in the case of a sale, or Capital Contribution in respect,
of Capital Stock and by Equinix and the Restricted Subsidiaries in respect of
an Asset Sale plus, in the case of an issuance of Capital Stock upon any
exercise, exchange or conversion of securities (including options, warrants,
rights and convertible or exchangeable debt) of Equinix that were issued for
cash on or after the Issue Date, the amount of cash originally received by
Equinix upon the issuance of such securities (including options, warrants,
rights and convertible or exchangeable debt) less, in each case, the sum of all
payments, fees, commissions and reasonable and customary expenses (including,
without limitation, the fees and expenses of legal counsel and investment
banking fees and expenses) incurred in connection with such Asset Sale or sale
of Capital Stock, and, in the
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case of an Asset Sale only, less the amount (estimated reasonably and in good
faith by Equinix) of income, franchise, sales and other applicable federal,
state, provincial, foreign and local taxes required to be paid or accrued as a
liability by Equinix or any of its respective Restricted Subsidiaries in
connection with such Asset Sale in the taxable year that such sale is
consummated or in the immediately succeeding taxable year, the computation of
which shall take into account the reduction in tax liability resulting from any
available operating losses and net operating loss carryovers, tax credits and
tax credit carryforwards, and similar tax attributes.
"Net Income" means, relating to any Person, the net income (loss) of such
Person, determined in accordance with GAAP and before any reduction in respect
of preferred stock dividends, excluding, however, (i) any gain (but not loss),
together with any related provision for taxes on such gain (but not loss),
realized in connection with (a) any Asset Sale or (b) the disposition of any
securities by such Person or any of the Restricted Subsidiaries and (ii) any
extraordinary gain or loss, together with any related provision for taxes on
such extraordinary gain or loss.
"Newly Raised Capital" means funds raised by Equinix and the Restricted
Subsidiaries after the Issue Date.
"Non-Recourse Debt" means Indebtedness (i) as to which neither Equinix nor
an Restricted Subsidiary (a) provides any Guarantee or credit support of any
kind (including any undertaking, guarantee, indemnity, agreement or instrument
that would constitute Indebtedness) or (b) is directly or indirectly liable (as
a guarantor or otherwise) and (ii) no default relating to which (including any
rights that the holders thereof may have to take enforcement action against an
Unrestricted Subsidiary) would permit (upon notice, lapse of time or both) any
holder of any other Indebtedness of Equinix or any Restricted Subsidiary to
declare a default under such other Indebtedness or cause the payment thereof to
be accelerated or payable before its Stated Maturity.
"Officer" means the President, the Chief Executive Officer, the Chief
Financial Officer and any vice president of Equinix.
"Officers' Certificate" means a certificate signed by two Officers.
"pari passu Indebtedness" means Indebtedness of Equinix ranking pari passu
in right of payment with the notes.
"Permitted Business" means the business of designing, constructing, owning,
operating and leasing space within Exchange Facilities together with any other
activity reasonably related thereto.
"Permitted Credit Facility" means any senior commercial term loan and/or
revolving credit facility (including any letter of credit subfacility) entered
into principally with commercial banks and/or other persons typically party to
commercial loan agreements.
"Permitted Foreign Credit Facility" means any senior commercial term loan
and/or revolving credit facility (including any letter of credit subfacility)
entered into principally with commercial banks and/or other persons typically
party to commercial loan agreements having only Foreign Subsidiaries as
obligors thereunder; provided that Equinix may be a guarantor of any such
Permitted Foreign Credit Facility.
"Permitted Holder" means Benchmark Capital Partners II, L.P., Cisco Systems,
Inc., Microsoft Corporation, News Corp., Albert M. Avery, IV, Jay S. Adelson
and their respective Related Persons.
"Permitted Investments" means (a) any Investment in Equinix or in a
Restricted Subsidiary of Equinix that is engaged entirely or substantially
entirely in a Permitted Business; (b) any Investment in Cash Equivalents; (c)
any Investment by Equinix or any of the Restricted Subsidiaries in a Person, if
as a result of such Investment (i) such Person becomes a Restricted Subsidiary
of Equinix that is engaged entirely or substantially entirely in a Permitted
Business or (ii) such Person is merged, consolidated or amalgamated with
81
or into, or transfers or conveys substantially all of its assets to, or is
liquidated into, Equinix or a Restricted Subsidiary of Equinix that is engaged
entirely or substantially entirely in a Permitted Business; (d) loans or
advances to employees of Equinix or any Restricted Subsidiary in an amount not
to exceed $5 million at any time outstanding; (e) any Investment made as a
result of the receipt of non-cash consideration from an Asset Sale made in
compliance with the "Asset Sales" covenant; and (f) Investments in securities
of trade creditors or customers received pursuant to any plan of reorganization
or similar arrangement arising out of the bankruptcy or insolvency of such
trade creditors or customers.
"Permitted Liens" means (i) Liens to secure Indebtedness (x) permitted by
clauses (vi) and (vii) of the second paragraph of the "Incurrence of
Indebtedness and Issuance of Preferred Stock" covenant, provided that relating
to Liens to secure Indebtedness permitted by clause (vi) thereof or any
Permitted Refinancing Indebtedness of such Indebtedness, such Lien must cover
only the assets acquired with such Indebtedness, and (y) incurred under a
Permitted Credit Facility or a Permitted Foreign Credit Facility and permitted
by clause (v) of the second paragraph of the "Incurrence of Indebtedness and
Issuance of Preferred Stock" covenant; (ii) Liens in favor of Equinix or any
Restricted Subsidiary; (iii) Liens on property of a Person existing at the time
such Person is merged with or into or consolidated with Equinix or any of the
Restricted Subsidiaries, provided that such Liens were in existence before the
contemplation of such merger or consolidation and do not extend to any assets
other than those of the Person merged into or consolidated with Equinix or such
Restricted Subsidiary; (iv) Liens on property existing at the time of
acquisition thereof by Equinix or any of the Restricted Subsidiaries, provided
that such Liens were in existence before the contemplation of such acquisition;
(v) Liens to secure the performance of statutory obligations, surety or appeal
bonds, performance bonds or other obligations of a like nature incurred in the
ordinary course of business; (vi) Liens existing on the Issue Date; (vii) Liens
for taxes, assessments or governmental charges or claims that are not yet
delinquent or that are being contested in good faith by appropriate proceedings
promptly instituted and diligently concluded, provided that any reserve or
other appropriate provision as shall be required in conformity with GAAP shall
have been made therefor; (viii) zoning restrictions, rights-of-way, easements
and similar charges or encumbrances incurred in the ordinary course which in
the aggregate do not detract from the value of the property thereof; (ix) Liens
securing the notes; (x) Liens incurred in the ordinary course of business of
Equinix or any of the Restricted Subsidiaries relating to obligations that do
not exceed 5% of Equinix's Consolidated Tangible Assets at any one time
outstanding and that (a) are not incurred in connection with the borrowing of
money or the obtaining of advances or credit (other than trade credit in the
ordinary course of business) and (b) do not in the aggregate materially detract
from the value of the property or materially impair the use thereof in the
operation of business by Equinix or such Restricted Subsidiary; and (xi) Liens
securing money borrowed (or any securities purchased therewith) which is (or
are, in the case of securities) set aside at the time of the incurrence of any
Indebtedness permitted to be incurred under the "Incurrence of Indebtedness and
Issuance of Preferred Stock" covenant to prefund the payment of interest on
such Indebtedness.
"Permitted Recourse Debt" means Indebtedness as to which Equinix is
contingently liable as a guarantor or indemnitor or as to which Equinix has
agreed to otherwise provide credit support, in any such case to the extent that
the maximum possible liability of Equinix in respect of any such Indebtedness,
at the time of its incurrence by Equinix is permitted to be incurred as
Permitted Indebtedness pursuant to clause (iv) of the definition thereof.
"Permitted Refinancing Indebtedness" means any Indebtedness of Equinix or
any of the Restricted Subsidiaries issued in exchange for, or the net proceeds
of which are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of Equinix or any of the Restricted Subsidiaries (other than
Indebtedness incurred pursuant to clauses (iii), (iv), (v), (vii) or (viii) of
the definition of Permitted Indebtedness); provided that: (i) the principal
amount (or accreted value, if applicable) of such Permitted Refinancing
Indebtedness does not exceed the principal amount of (or accreted value, if
applicable), plus accrued interest on, the Indebtedness so extended,
refinanced, renewed, replaced, defeased or refunded (plus the amount of any
premium required to be paid in connection with such refinancing pursuant to the
terms of such Indebtedness or otherwise reasonably determined by Equinix to be
necessary and reasonable expenses incurred in connection therewith); (ii) such
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Permitted Refinancing Indebtedness has a final maturity date later than the
final maturity date of, and has a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of, the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded is subordinated in right of payment to the notes, such Permitted
Refinancing Indebtedness is expressly subordinated in right of payment to, the
notes on terms at least as favorable to the holders as those contained in the
documentation governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; (iv) if such Permitted Refinancing Indebtedness
refinances Indebtedness of a Restricted Subsidiary, such Permitted Refinancing
Indebtedness is incurred either by Equinix or by the Restricted Subsidiary who
is the obligor on the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and (v) such Permitted Refinancing Indebtedness
is secured only by the assets, if any, that secured the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.
"Person" means any individual, corporation, partnership, joint venture,
limited liability company, incorporated or unincorporated association, joint-
stock company, trust, unincorporated organization or government or other agency
or political subdivision thereof or other entity of any kind.
"Preferred Stock" means any Equity Interest of any class or classes of a
Person (however designated) which is preferred as to payments of dividends, or
as to distributions upon any liquidation or dissolution, over Equity Interests
of any other class of such Person.
"Purchase Money Indebtedness" means Indebtedness (including Acquired Debt,
in the case of Capital Lease Obligations, mortgage financings and purchase
money obligations) incurred for the purpose of financing all or any part of the
cost of the engineering, construction, installation, importation, acquisition,
lease, development or improvement of any assets used by Equinix or any
Restricted Subsidiary in a Permitted Business, including any related notes,
Guarantees, collateral documents, instruments and agreements executed in
connection therewith, as the same may be amended, supplemented, modified or
restated from time to time. Equinix in its sole discretion shall determine
whether any item of Indebtedness or portion thereof meeting the foregoing
criteria shall be classified as Purchase Money Indebtedness for the purposes of
the covenant "Incurrence of Indebtedness and Issuance of Preferred Stock."
"Qualified Consideration" means all assets, rights (contractual or
otherwise) and properties, whether tangible or intangible, used or intended for
use in a Permitted Business and the Equity Interests of a Person engaged
entirely or substantially entirely in a Permitted Business.
"Related Person" means any Person who controls, is controlled by or is under
common control with a Permitted Holder; provided, that for purposes of this
definition "control" means the beneficial ownership of more than 50% of the
total voting power of a Person normally entitled to vote in the election of
directors managers or trustees, as applicable, of a Person; provided, further,
that relating to any natural Person, each member of such person's immediate
family shall be deemed to be a Related Person of such Person.
"Restricted Investment" means any Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary. Unless the context specifically
requires otherwise, Restricted Subsidiary includes a direct or indirect
Restricted Subsidiary of Equinix.
"Senior Debt" means all Indebtedness of Equinix which is not expressly by
its terms, subordinate or junior in right of payment to the notes.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Act, as such Regulation is in effect on the Issue
Date.
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"Stated Maturity" means, relating to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations
to repay, redeem or repurchase any such interest or principal before the date
originally scheduled for the payment thereof.
"Subordinated Indebtedness" means Indebtedness of Equinix that is
subordinated in right of payment by its terms or the terms of any document or
instrument or instrument relating thereto to the notes, in any respect.
"Subsidiary" means, relating to any Person, (i) any corporation, association
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by such Person or
one or more of the other Subsidiaries of that Person (or a combination thereof)
and (ii) any partnership (a) the sole general partner or the managing general
partner of which is such Person or a Subsidiary of such Person or (b) the only
general partners of which are such Person or one or more Subsidiaries of such
Person (or any combination thereof).
"Transaction Date" means the date of the transaction giving rise to the need
to calculate the Consolidated Leverage Ratio or the Consolidated Capital Ratio,
as the case may be.
"Unrestricted Subsidiary" means (i) any Subsidiary of Equinix that is
designated by the Board of Directors as an Unrestricted Subsidiary pursuant to
a Board Resolution; but only to the extent that such Subsidiary at the time of
such designation: (a) has no Indebtedness other than Non Recourse Debt and
Permitted Recourse Debt; (b) is a Person relating to which neither Equinix nor
any of the Restricted Subsidiaries has any direct or indirect obligation to
maintain or preserve such Person's financial condition or to cause such Person
to achieve any specified levels of operating results; and (c) has not
Guaranteed or otherwise directly or indirectly provided credit support for any
Indebtedness of Equinix or any of the Restricted Subsidiaries. Any such
designation by the Board of Directors shall be evidenced by filing with the
trustee a certified copy of the Board Resolution giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing conditions and was permitted by the "Restricted
Payments" covenant. The Board of Directors of Equinix may at any time designate
any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such
designation shall be deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of Equinix of any outstanding Indebtedness of such Unrestricted
Subsidiary and such designation shall only be permitted if (i) such
Indebtedness is permitted under the "Incurrence of Indebtedness and Issuance of
Preferred Stock" covenant, calculated on a pro forma basis as if such
designation had occurred at the beginning of the applicable reference period,
and (ii) no Default or Event of Default would be in existence following such
designation.
"U.S. Government Securities" means securities that are direct obligations of
the United States of America for the payment of which its full faith and credit
is pledged.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (ii) the then outstanding
principal amount of such Indebtedness.
"Wholly-Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by such Person and one or more Wholly Owned
Restricted Subsidiaries of such Person or by one or more Wholly Owned
Restricted Subsidiaries of such Person.
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BOOK-ENTRY; DELIVERY AND FORM
Except as described below, we will initially issue the exchange notes in the
form of one or more registered exchange notes in global form without coupons.
We will deposit each global note on the date of the closing of the exchange
offer with, or one behalf of, DTC in New York, New York, and register the
exchange notes in the name of DTC or its nominee, or will leave such notes in
the custody of the trustee.
Depository Procedures
The descriptions of the operations and procedures of DTC, Euroclear and
Cedel set forth below are provided solely as a matter of convenience. These
operations and procedures are solely within the control of the respective
settlement systems and are subject to change by them from time to time. Equinix
takes no responsibility for these operations or procedures, and you are urged
to contact the relevant system or its participants directly to discuss these
matters.
DTC has advised us that it is (1) a limited purpose trust company organized
under the laws of the State of New York; (2) a "banking organization" within
the meaning of the New York Banking Law; (3) a member of the Federal Reserve
System; (4) a "clearing corporation" within the meaning of the Uniform
Commercial Code, as amended; and (5) a "clearing agency" registered pursuant to
Section 17A of the Exchange Act. DTC was created to hold securities for its
participants and facilitates the clearance and settlement of securities
transactions between participants through electronic book-entry changes to the
accounts of its participants, thereby eliminating the need for physical
transfer and delivery of certificates. DTC's participants include securities
brokers and dealers, including the initial purchasers, banks and trust
companies, clearing corporations and various other organizations. Indirect
access to DTC's system is also available to other entities such as banks,
brokers, dealers and trust companies, as indirect participants, that clear
through or maintain a custodial relationship with a participant, either
directly or indirectly. Investors who are not participants may beneficially own
securities held by or on behalf of DTC only through participants or indirect
participants.
Equinix expects that pursuant to procedures established by DTC (1) upon
deposit of each global note, DTC will credit the accounts of participants
designated by the initial purchasers with an interest in such global note and
(2) ownership of the notes will be shown on, and the transfer of ownership
thereof will be effected only through, records maintained by DTC, relating to
the interests of participants, and the records of participants and the indirect
participants, relating to the interests of persons other than participants.
The laws of some jurisdictions may require that purchasers of securities
take physical delivery of such securities in definitive form. Accordingly, the
ability to transfer interests in the notes represented by a global note to such
persons may be limited. In addition, because DTC can act only on behalf of its
participants, who in turn act on behalf of persons who hold interests through
participants, the ability of a person having an interest in notes represented
by a global note to pledge or transfer such interest to persons or entities
that do not participate in DTC's system, or to otherwise take actions in
respect of such interest, may be affected by the lack of a physical definitive
security in respect of such interest.
So long as DTC or its nominee is the registered owner of a global note, DTC
or such nominee, as the case may be, will be considered the sole owner or
holder of the notes represented by such global note for all purposes under the
indenture. Except as provided below, owners of beneficial interests in a global
note will not be entitled to have notes represented by such global note
registered in their names, will not receive or be entitled to receive physical
delivery of certificated notes, and will not be considered the owners or
holders thereof under the indenture for any purpose, including relating to the
giving of any direction, instruction or approval to the trustee thereunder.
Accordingly, each holder owning a beneficial interest in a global note must
rely on the procedures of DTC and, if such holder is not a participant or an
indirect participant, on the procedures of the participant through which such
holder owns its interest, to exercise any rights of a holder of notes under the
indenture or such global note. Equinix understands that under existing industry
practice, in the event that Equinix requests any action of holders of notes, or
a holder that is an owner of a beneficial interest in a global note desires to
take any action that DTC, as the holder of such global note, is entitled to
take, DTC
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would authorize the participants to take such action and the participants would
authorize holders owning through such participants to take such action or would
otherwise act upon the instruction of such holders. Neither Equinix nor the
trustee will have any responsibility or liability for any aspect of the records
relating to or payments made on account of notes by DTC, or for maintaining,
supervising or reviewing any records of DTC relating to such notes.
Payments relating to any notes (including relating to the principal of, and
premium, if any, liquidated damages, if any, and interest on, any notes)
represented by a global note registered in the name of DTC or its nominee on
the applicable record date will be payable by the trustee, as applicable, to or
at the direction of DTC or its nominee in its capacity as the registered holder
of the global note representing such notes under the indenture. Under the terms
of the indenture, Equinix and the trustee may treat the persons in whose names
the notes, including the global notes representing such notes, are registered
as the owners thereof for the purpose of receiving payment thereon and for any
and all other purposes whatsoever. Accordingly, neither Equinix nor the trustee
has or will have any responsibility or liability for the payment of such
amounts to owners of beneficial interests in a global note (including
principal, premium, if any, liquidated damages, if any, and interest on any
notes). Payments by the participants and the indirect participants to the
owners of beneficial interests in a global note will be governed by standing
instructions and customary industry practice and will be the responsibility of
the participants or the indirect participants and DTC.
Transfers between participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same-day funds. Transfers between
participants in Euroclear or Cedel will be effected in the ordinary way in
accordance with their respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the
notes, cross-market transfers between the participants in DTC, on the one hand,
and Euroclear or Cedel participants, on the other hand, will be effected
through DTC in accordance with DTC's rules on behalf of Euroclear or Cedel, as
the case may be, by its respective depositary; however, such crossmarket
transactions will require delivery of instructions to Euroclear or Cedel, as
the case may be, by the counterparty in such system in accordance with the
rules and procedures and within the established deadlines (Brussels time) of
such system. Euroclear or Cedel, as the case may be, will, if the transaction
meets its settlement requirements, deliver instructions to its respective
depositary to take action to effect final settlement on its behalf by
delivering or receiving interests in the relevant global notes in DTC, and
making or receiving payment in accordance with normal procedures for same-day
funds settlement applicable to DTC. Euroclear participants and Cedel
participants may not deliver instructions directly to the depositories for
Euroclear or Cedel.
Because of time zone differences, the securities account of a Euroclear or
Cedel participant purchasing an interest in a global note from a participant in
DTC will be credited, and any such crediting will be reported to the relevant
Euroclear or Cedel participant, during the securities settlement processing day
(which must be a business day for Euroclear and Cedel) immediately following
the settlement date of DTC. Cash received in Euroclear or Cedel as a result of
sales of interest in a global note by or through a Euroclear or Cedel
participant to a participant in DTC will be received with value on the
settlement date of DTC but will be available in the relevant Euroclear or Cedel
cash account only as of the business day for Euroclear or Cedel following DTC's
settlement date.
Although DTC, Euroclear and Cedel have agreed to the foregoing procedures to
facilitate transfers of interests in the global notes among participants in
DTC, Euroclear and Cedel, they are under no obligation to perform or to
continue to perform such procedures, and such procedures may be discontinued at
any time. Neither Equinix nor the trustee will have any responsibility for the
performance by DTC, Euroclear or Cedel or their respective participants or
indirect participants of their respective obligations under the rules and
procedures governing their operations.
DTC and Year 2000 Problems. DTC's management is aware that some computer
applications, systems, and the like for processing data that are dependent upon
calendar dates, including dates before, on or after
86
January 1, 2000, may encounter "Year 2000 problems." DTC has informed
participants and other members of the financial community that it has developed
and is implementing a program so that its systems, as the same relate to the
timely payment of distributions (including principal and income payments) to
securityholders, book-entry deliveries, and settlement of trades within DTC,
continue to function appropriately. This program includes a technical
assessment and a remediation plan, each of which is complete. Additionally,
DTC's plan includes a testing phase, which is expected to be completed within
appropriate time frames. However, DTC's ability to perform its services
properly is also dependent upon other parties, including but not limited to
Equinix and its agents, as well as third party vendors from whom DTC licenses
software and hardware, and third party vendors on whom DTC relies for
information or the provision of services, including telecommunication and
electrical utility service providers, among others. DTC has informed the
financial community that it is contacting, and will continue to contact, third
party vendors from whom DTC acquires services to impress upon them the
importance of such services being Year 2000 compliant, and to determine the
extent of their efforts for Year 2000 remediation and, as appropriate, testing
of their services. In addition, DTC is in the process of developing such
contingency plans as it deems appropriate.
According to DTC, the foregoing information relating to DTC has been
provided to the financial community for informational purposes only and is not
intended to serve as a representation, warranty or contract modification of any
kind.
Certificated Notes
If (1) Equinix notifies the trustee in writing that DTC is no longer willing
or able to act as a depositary or DTC ceases to be registered as a clearing
agency under the Exchange Act and a successor depositary is not appointed
within 90 days of such notice or cessation; (2) Equinix, at its option,
notifies the trustee in writing that they elect to cause the issuance of the
notes in certificated form under the indenture; or (3) upon the occurrence of
other events as provided in the indenture, then, upon surrender by DTC of such
global notes, Certificated Securities will be issued to each person that DTC
identifies as the beneficial owner of the notes represented by such global
notes. Upon any such issuance, the trustee is required to register such
certificated securities in the name of such person or persons, or the nominee
of any person or persons, and cause the same to be delivered to such person or
persons.
Neither the Equinix nor the trustee shall be liable for any delay by DTC or
any participant or indirect participant in identifying the beneficial owners of
the related notes and each such person may conclusively rely on, and shall be
protected in relying on, instructions from DTC for all purposes, including
relating to the registration and delivery, and the respective principal
amounts, of the notes to be issued.
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UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of the material United States federal
income tax considerations relevant to the exchange of the initial notes for
exchange notes pursuant to the exchange offer and to the ownership and
disposition of the exchange notes, but does not purport to be a complete
analysis of all potential tax effects. The discussion is based upon the
Internal Revenue Code of 1986, as amended (the "Code"), U.S. Treasury
Regulations, Internal Revenue Service ("IRS") rulings and pronouncements and
judicial decisions all in effect as of the date hereof, all of which are
subject to change at any time, and any such change may be applied retroactively
in a manner that could adversely affect a holder of the initial notes or the
exchange notes. The discussion does not address all of the U.S. federal income
tax consequences that may be relevant to a holder in light of such holder's
particular circumstances or to holders subject to special tax rules, such as
certain financial institutions, insurance companies, dealers in securities or
currencies, tax-exempt organizations and persons holding the initial notes or
exchange notes as part of a "straddle," "hedge" or "conversion transaction."
Moreover, the effect of any applicable state, local or foreign tax laws is not
discussed. The discussion below assumes that the initial notes and exchange
notes are held as "capital assets" within the meaning of Section 1221 of the
Code. For purposes of this summary, the term "Equinix" refers only to Equinix,
Inc. and not to any of its subsidiaries. Also, in this description the term
"notes" refers to the "initial notes" and "exchange notes" collectively.
As used herein, "U.S. holder" means a beneficial owner of an exchange note
who or that (i) is a citizen or resident of the United States, (ii) is a
corporation, partnership or other entity created or organized in or under the
laws of the United States or political subdivision thereof, (iii) is an estate
the income of which is subject to U.S. federal income taxation regardless of
its source, (iv) is a trust if (A) a U.S. court is able to exercise primary
supervision over the administration of the trust and (B) one or more U.S.
fiduciaries have authority to control all substantial decisions of the trust,
or (v) is otherwise subject to U.S. federal income tax on a net income basis in
respect of the exchange notes. As used herein, a "non-U.S. holder" means a
holder who or that is not a U.S. holder.
PERSONS CONSIDERING EXCHANGING THEIR INITIAL NOTES FOR EXCHANGE NOTES SHOULD
CONSULT THEIR OWN TAX ADVISORS WITH REGARD TO THE APPLICATION OF THE UNITED
STATES FEDERAL INCOME TAX CONSIDERATIONS DISCUSSED BELOW TO THEIR PARTICULAR
SITUATIONS AS WELL AS THE APPLICATION OF ANY STATE, LOCAL, FOREIGN OR OTHER TAX
LAWS, INCLUDING GIFT AND ESTATE TAX LAWS ANY APPLICABLE TAX TREATY.
Federal Income Tax Consequences of the Exchange Offer
The exchange of the initial notes for the exchange notes pursuant to the
exchange offer should not be treated as an exchange for federal income tax
purposes because the exchange notes should not be considered to differ
materially in kind or in extent from the initial notes. Rather, the exchange
notes received by a holder should be treated as a continuation of the initial
notes in the hands of such holder. As a result, there should be no federal
income tax consequences to holders exchanging the initial notes for exchange
notes pursuant to the exchange offer, and the federal income tax consequences
of holding and disposing of the exchange notes should be the same as the
federal income tax consequences of holding and disposing of the initial notes.
Accordingly, the holder must, among other things, continue to include original
issue discount ("OID") in income as if the exchange had not occurred. See
below, "--The Exchange Notes--Original Issue Discount", for a description of
the OID rules applicable to the exchange notes.
U.S. Holders
The Exchange Notes
Interest. The stated interest on the exchange notes generally will be
taxable to a U.S. holder as ordinary income at the time that it is paid or
accrued, in accordance with the U.S. holder's method of accounting for
88
federal income tax purposes. Failure of Equinix to continue to cause the
registration statement of which this prospectus is a part to continue to be
effective or useable in connection with its intended purpose under the
registration rights agreement as described under "The Exchange Offer; Purpose
of the Exchange Offer" may result in the payment of predetermined liquidated
damages in the manner described therein, which payments will be treated as
additional interest on the notes. According to Treasury Regulations, the
possibility of a change in the interest rate will not affect the amount of
interest income recognized by a U.S. holder (or the timing of such recognition)
if the likelihood of the change, as of the date the initial notes were issued,
was remote. Equinix believes that as of the date the initial notes were issued,
the likelihood of a change in the interest rate on such notes was remote and
has not and does not intend to treat the possibility of a change in the
interest rate as affecting the yield to maturity of any initial notes or
exchange notes. There can be no assurance that the IRS will agree with such
position.
Original Issue Discount. The initial notes were issued as part of an
investment unit comprised of $1,000 principal amount of initial notes and one
warrant to purchase shares of the common stock of Equinix. Equinix and the
initial purchasers of the initial notes (the "Initial Purchasers") allocated in
the purchase agreement for the initial notes a purchase price of $949.35 to
each $1,000 principal amount at maturity of initial notes. This allocation
reflected Equinix's and the Initial Purchasers' judgement as to the relative
values of the initial notes and warrants at the time of issuance but is not
binding on the IRS.
Equinix's and the Initial Purchaser's allocation of the issue price of the
units will be binding on U.S. holders of exchange notes who acquire such notes
in the exchange offer in exchange for initial notes that were in turn acquired
by such holder directly from Equinix, unless the U.S. holder discloses the use
of a different allocation in a statement attached to its timely federal income
tax return for the year in which the unit was acquired. If a U.S. holder
acquired a unit at a price different from that on which Equinix's and the
Initial Purchaser's allocation is based, such holder may be treated as having
acquired the initial notes for an amount greater or less than the amount
allocated to such notes as set forth above thereby resulting in market discount
or bond premium, as discussed below. U.S. holders considering the use of an
issue price allocation different from that described above should consult their
tax advisors as to the consequences thereof.
The initial notes will have OID in an amount equal to the excess of the
stated redemption price at maturity over the issue price of such initial notes
(as discussed above) and the exchange notes that are acquired in the exchange
offer will have the same amount of OID. U.S. holders will be required to
include OID in ordinary income over the period that they hold the exchange
notes in advance of the receipt of cash attributable thereto. The amount of OID
to be included in income will be an amount equal to the sum of the daily
portions of OID for each day during the taxable year in which the exchange
notes are held.
The daily portions of OID are determined by allocating to each day in an
accrual period (which may be of any length and may vary over the term of the
exchange notes, at the option of the holder, provided that each accrual period
is no longer than one year and each scheduled payment of principal or interest
on the exchange notes occurs on the first or last day of an accrual period) the
pro rata portion of the OID allocable to the accrual period. The amount of OID
that is allocable to an accrual period generally will be the excess of the
product of the adjusted issue price of the exchange note at the beginning of
the accrual period (the issue price of the exchange note determined as
described above, generally increased by all prior accruals of OID) and the
yield to maturity of the exchange note (calculated on a constant yield basis
appropriately adjusted for the length of the accrual period) over the stated
interest paid during the accrual period or on the first day of the succeeding
accrual period. In general, the constant yield method will result in a greater
portion of such discount being included in income in the later part of the term
of the exchange note. Any amount of OID included in income will increase a U.S.
holder's tax basis in the exchange notes.
Equinix is required to furnish certain information to the IRS, and will
furnish annually to record holders of exchange notes, information relating to
OID accruing during the calendar year. That information will be based upon the
adjusted issue price of the initial notes that were exchanged for the exchange
notes as if the holder were the original holder of the initial notes.
89
A U.S. holder who purchases an exchange note for an amount other than the
adjusted issue price of the initial notes and/or on a date other than the end
of an accrual period will be required to determine for itself the amount of
OID, if any, it is required to include in gross income for U.S. federal income
tax purposes.
Optional Redemption. Under the Treasury Regulations, for purposes of
computing OID, Equinix will be presumed to exercise its option to redeem the
exchange notes if, by utilizing the date of exercise of the call option as the
maturity date and the redemption price as the stated redemption price at
maturity, the yield on the exchange notes would be lower than such yield would
be if the option were not exercised. See "Description of the Exchange Notes--
Optional Redemption."
If Equinix's option to redeem the exchange notes were presumed exercised on
a given date (the "Presumed Exercise Date"), the exchange notes would bear
additional OID in an amount equal to the amount for which the exchange notes
could be redeemed (the "Redemption Amount") over their issue price. For
purposes of calculating the current inclusion of such discount, the yield on
the exchange notes would be computed on their issue date by treating the
Presumed Exercise Date as the maturity date of the exchange notes and the
Redemption Amount as their stated principal amount due at maturity. If
Equinix's option to redeem the exchange notes were presumed exercised but were
not exercised in fact on the Presumed Exercise Date, the exchange notes would
be treated, for certain purposes, as if the option were exercised and new debt
instruments were issued on the Presumed Exercise Date for an amount of cash
equal to the Redemption Amount. In such case, it appears that any payment of
stated interest due under the exchange notes after the Presumed Exercise Date
would constitute qualified stated interest (rather than OID) and would be
taxable as ordinary interest income at the time such interest was accrued or
was received, in accordance with such U.S. holder's regular method of
accounting for tax purposes.
Market Discount and Bond Premium. If a U.S. holder purchases exchange notes
or has purchased initial notes for an amount that is less than the adjusted
issue price of such exchange notes or initial notes, as the case may be, the
amount of difference will generally be treated as market discount for U.S.
Federal income tax purposes. In such case, any principal payment on and gain
realized on the sale, exchange or retirement of the exchange notes and
unrealized appreciation on certain nontaxable dispositions of the exchange
notes will be treated as ordinary income to the extent of any market discount
that has not previously been included in gross income and that is treated as
having accrued on such exchange notes or initial notes that were exchanged for
such exchange notes, by the time of such payment or disposition. If a U.S.
holder makes a gift of exchange notes, accrued market discount, if any, will be
recognized as if such holder has sold such exchange notes for a price equal to
their fair market value. In addition, the U.S. holder may be required to defer,
until the maturity of the exchange notes or their earlier disposition in a
taxable transaction, the deduction of a portion of the interest expense on any
indebtedness incurred or continued to purchase or carry such exchange notes or
initial notes that were exchanged for such exchange notes.
Unless the U.S. holder elects to treat market discount as accruing on a
constant yield method, market discount will be treated as accruing on a
straight-line basis over the remaining term of the exchange notes. An election
made to include market discount in income as it accrues will apply to all debt
instruments acquired by the U.S. holder on or after the first day of the first
taxable year to which such election applies and may be revoked only with the
consent of the IRS.
If a U.S. holder purchases an exchange note for an amount in excess of all
amounts payable on the exchange note after the purchase date, other than
payments of stated interest, such excess will be treated as bond premium. In
general, a U.S. holder may elect to amortize bond premium over the remaining
term of the exchange note on a constant yield method. The amount of bond
premium allocable to any accrual period is offset against the stated interest
allocable to such accrual period (any excess may be deducted, subject to
certain limitations). An election to amortize bond premium applies to all
taxable debt instruments held at the beginning of the first taxable year to
which such election applies and thereafter acquired by the U.S. holder and may
be revoked only with the consent of the IRS.
90
Sale or Retirement of Exchange Notes. Upon the sale, retirement, redemption
or other taxable disposition of exchange notes, a U.S. holder will generally
recognize gain or loss in an amount equal to the difference between (a) the
amount of cash and the fair market value of other property received in exchange
therefor (other than amounts attributable to accrued but unpaid stated
interest) and (b) the U.S. holder's adjusted tax basis in such exchange notes.
Any gain or loss recognized will generally be capital gain or loss, and such
capital gain or loss will generally be long-term capital gain or loss if the
exchange notes have been held by the U.S. holder for more than one year
(including, in the case of a U.S. holder who acquired the exchange notes in
exchange for initial notes, the period of time the initial notes were held by
such U.S. holder) and otherwise will be a short-term capital gain or loss.
A U.S. holder's tax basis in an exchange note that was acquired in exchange
for an initial note that was in turn acquired in the initial issuance from
Equinix will generally be equal to the issue price allocated to such initial
note as described above under "--The Exchange Notes--Original Issue Discount",
increased by the amount of OID, if any, included in gross income before the
date of the disposition, and decreased by the amount of any payment, other than
stated interest, on such note before disposition.
U.S. holders should be aware that the resale of the exchange notes may be
affected by the market discount rules of the Code as described above under "--
The Exchange Notes--Market Discount and Bond Premium" under which a purchaser
of an initial note or an exchange note acquiring such note at a market discount
generally would be required to include as ordinary income a portion of the gain
realized upon the disposition or retirement of such note, to the extent of the
market discount that has accrued but not been included in income while such
note was held by such purchaser.
Non-U.S. Holders
Interest or redemption proceeds paid to non-U.S. holders of the exchange
notes generally will not be subject to U.S. Federal withholding tax provided
that (a) the non-U.S. holder does not actually or constructively own 10 percent
or more of a total combined voting power of all classes of stock of Equinix
entitled to vote, (b) the non-U.S. holder is not a "controlled foreign
corporation" (within the meaning of the Code) that is related to Equinix
through stock ownership, (c) either (1) the beneficial owner of the exchange
notes provides Equinix or its agent with a statement signed under penalties of
perjury that includes its name and address and certifies that it is not a
United States person or (2) a securities clearing organization, bank, or other
financial institution that holds customers' securities in the ordinary course
of its business (a "financial institution") certifies to Equinix or its agent,
under penalties of perjury, that such a statement has been received from the
beneficial owner by it or another financial institution and furnished to
Equinix or its agent a copy thereof and (d) the exchange notes are in
registered form. If these requirements cannot be met, a non-U.S. holder will be
subject to U.S. withholding tax at a rate of 30 percent (or lower treaty rate,
if applicable) on interest payments. Although U.S. tax will also be imposed
against OID on the exchange notes before payment, such tax will only be
withheld from stated interest payments on the exchange notes. However, such
additional withholding may result in U.S. withholding tax on stated interest
payments exceeding 30 percent.
In general, any gain realized by any non-U.S. Holder upon the sale, exchange
or redemption of an exchange note will not be subject to Federal income or
withholding tax unless (i) a non-U.S. holder is an individual and is present in
the U.S. for a total of 183 days or more during the taxable year in which the
gain is realized, (ii) the gain is effectively connected with the conduct of a
trade or business of the holder in the U.S., or in the case of certain
residents of countries which have an income tax treaty in force with the U.S.,
attributable to a permanent establishment (or in the case of an individual a
fixed base) in the U.S. as such terms are defined in the applicable tax treaty,
(iii) the holder is subject to tax pursuant to the provisions of U.S. tax law
applicable to certain U.S. expatriates (including certain former citizens or
residents of the U.S.) or (iv) Equinix is or has been a "United States real
property holding corporation" at any time within the shorter of the five-year
period preceding such disposition or such holder's holding period. Equinix does
not believe that is its currently a "United States real property holding
corporation", or that it will become one in the future.
91
Deductibility of Interest and Original Issue Discount
The Code contains various limitations and restrictions on the deductibility
of interest and/or OID. Some of these limitations and restrictions may be
applicable to the interest and/or the OID associated with the notes. In such
event, some or all of the interest or OID associated with the notes may not be
deductible by Equinix.
Information Reporting and Backup Withholding
In general information reporting requirements will apply to OID, payments of
principal, premium, if any, and interest on the exchange notes and payments of
the proceeds of the sale of the exchange notes, and a 31% backup withholding
tax may apply to such payments if the holder either (i) fails to demonstrate
that the holder comes within certain exempt categories of holders or (ii) fails
to furnish or certify his correct taxpayer identification number to the payer
in the manner required, is notified by the IRS that he has failed to report
payments of interest and dividends properly, or under certain circumstances,
fails to certify that he has not been notified by the IRS that he is subject to
backup withholding for failure to report interest and dividend payments. Any
amounts withheld under the backup withholding rules from a payment to a holder
will be allowed as a credit against such holder's United States federal income
tax and may entitle the holder to a refund, provided that the required
information is furnished to the IRS.
92
PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account in the
exchange offer must acknowledge that it will deliver a prospectus in connection
with any resale of those exchange notes. This prospectus, as it may be amended
or supplemented from time to time, may be used by a broker-dealer in connection
with resales of exchange notes received in the exchange offer where the
outstanding exchange notes were acquired as a result of market-making
activities or other trading activities. We have agreed that, for a period of
180 days after the consummation of the exchange offer, we will make this
prospectus, as amended and supplemented, available to any broker-dealer for use
in connection with any such resale. In addition, until , 2000, all dealers
effecting transactions in the exchange notes issued in the exchange offer may
be required to deliver a prospectus.
We will not receive any proceeds from any sale of exchange notes by broker-
dealers. exchange notes received by broker-dealers for their own account in the
exchange offer may be sold from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on the exchange notes or a combination of such methods of resale, at
market prices prevailing at the time of resale, at prices related to such
prevailing market prices or at negotiated prices. Any such resale may be made
directly to purchasers or to or though brokers or dealers who may receive
compensation in the form of commissions or concessions from any such broker-
dealer or the purchasers of any such exchange notes. Any broker-dealer that
resells exchange notes that were received by it for its own account in the
exchange offer and any broker or dealer that participates in a distribution of
such exchange notes may be deemed to be an "underwriter" within the meaning of
the Securities Act, and profit on any such resale of exchange notes issued in
the exchange and any commission or concessions received by any such persons may
be deemed to be underwriting compensation under the Securities Act. The letter
of transmittal states that, by acknowledging that it will deliver and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the consummation of the exchange offer, we
will promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests such documents
in the letter of transmittal. We have agreed to pay all expenses incident to
the exchange offer, including the expenses of one counsel for the holders of
the exchange notes, other than the commissions or concessions of any broker-
dealers and will indemnify the holders of the exchange notes, including any
broker-dealers, against certain liabilities, including liabilities under the
Securities Act. We note, however, that, in the opinion of the SEC,
indemnification against liabilities arising under federal securities laws is
against public policy and may be unenforceable.
LEGAL MATTERS
Legal matters as to the validity of the exchange notes offered by this
prospectus will be passed on for us by Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP, Menlo Park, California. As of the date of this
prospectus, some members and employees of Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP beneficially owned an aggregate of 50,000 shares of
our Series A preferred stock and 6,250 shares of our Series B preferred stock.
EXPERTS
The consolidated financial statements of Equinix, Inc. and subsidiary as of
December 31, 1998 and for the period from June 22, 1998 (inception) to December
31, 1998, have been included herein and in the registration statement in
reliance on the report of KPMG LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of that firm as experts in
accounting and auditing.
93
AVAILABLE INFORMATION
We have filed a registration statement on Form S-4 with the Securities and
Exchange Commission covering the exchange notes, and this prospectus is part of
our registration statement. For further information on Equinix and the exchange
notes, you should refer to our registration statement and its exhibits. This
prospectus summarizes material provisions of contracts and other documents that
we refer to you. Since the prospectus may not contain all the information that
you may find important, you should review the full text of these documents. We
have included copies of these documents as exhibits to our registration
statement.
In addition, the indenture requires that we file reports under the
Securities Exchange Act of 1934 with the Securities and Exchange Commission and
provide those reports to the trustee and holders of the notes. You can inspect
and copy at prescribed rates the reports and other information that we file
with the Securities and Exchange Commission at the public reference facilities
maintained by the Securities and Exchange Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and also at the regional
offices of the Securities and Exchange Commission located at 7 World Trade
Center, Suite 1300, New York, New York 10048 and the Citicorp Center at 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. You may obtain
information on the operation of the public reference facilities by calling the
Securities and Exchange Commission at 1-800-SEC-0330. The Securities and
Exchange Commission also maintains an internet web site at http://www.sec.gov
that contains reports, proxy and information statements and other information.
You can also obtain copies of such materials from us upon request.
We have agreed that, whether or not we are required to do so by the rules
and regulations of the Securities and Exchange Commission, for so long as any
of the exchange notes remain outstanding, we will furnish you as a holder of
the exchange notes and will, if permitted, file with the Securities and
Exchange Commission (1) all quarterly and annual financial information that
would be required to be contained in a filing with the Securities and Exchange
Commission on Forms 10-Q and 10-K if we were required to file such forms,
including a "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and, relating to the annual information only, a report
thereon by our certified independent accountants, and (2) all reports that
would be required to be filed with the Securities and Exchange Commission on
Form 8-K if we were required to file such reports. In addition, for so long as
any of the exchange notes remain outstanding, we have agreed to make available
to any prospective purchaser of the exchange notes or beneficial owner of the
notes in connection with any sale of these notes the information required by
Rule 144A under the Securities Act.
94
EQUINIX, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report................................................ F-2
Consolidated Balance Sheets................................................. F-3
Consolidated Statements of Operations....................................... F-4
Consolidated Statements of Stockholders' Equity............................. F-5
Consolidated Statements of Cash Flows....................................... F-6
Notes to Consolidated Financial Statements.................................. F-7
F-1
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Equinix, Inc.:
We have audited the accompanying consolidated balance sheet of Equinix, Inc.
and subsidiary (Equinix), a development stage enterprise, as of December 31,
1998, and the related consolidated statements of operations, stockholders'
equity, and cash flows for the period from June 22, 1998 (inception) to
December 31, 1998. These consolidated financial statements are the
responsibility of Equinix's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Equinix,
Inc. and subsidiary, a development stage enterprise, as of December 31, 1998,
and the results of their operations and their cash flows for the period from
June 22, 1998 (inception) to December 31, 1998, in conformity with generally
accepted accounting principles.
KPMG LLP
Mountain View, California
July 31, 1999, except as to Note 9,
which is as of December 18, 1999.
F-2
EQUINIX, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
CONSOLIDATED BALANCE SHEETS
December 31, September 30,
1998 1999
------------ -------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents.......................... $ 4,164,500 $ 3,582,100
Short-term investments............................. 5,000,000 42,907,100
Prepaids and other current assets.................. 167,600 1,204,900
----------- -----------
Total current assets.............................. 9,332,100 47,694,100
Property and equipment, net......................... 482,000 2,879,100
Construction in progress............................ 30,700 22,589,600
Other assets........................................ 156,400 2,190,200
----------- -----------
Total assets...................................... $10,001,200 $75,353,000
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses.............. $ 159,200 $ 864,400
Accrued construction costs......................... 252,300 8,938,800
Current portion of long-term debt and capital lease
obligations....................................... -- 1,705,800
----------- -----------
Total current liabilities......................... 411,500 11,509,000
Long-term debt and capital lease obligations, less
current portion................................... -- 3,734,100
Other liabilities.................................. -- 255,100
----------- -----------
Total liabilities................................. 411,500 15,498,200
----------- -----------
Commitments
Stockholders' equity:
Series A convertible preferred stock, $0.001 per
value per share; 11,000,000 and 14,000,000 shares
authorized in 1998 and 1999, respectively;
10,465,000 and 12,455,000 shares issued and
outstanding in 1998 and 1999, respectively........ 10,400 12,400
Series B convertible preferred stock, $0.001 par
value per share; none and 16,000,000 shares
authorized in 1998 and 1999, respectively; none
and 6,731,290 shares issued and outstanding in
1998 and 1999, respectively; liquidation value of
none and $53,850,320 in 1998 and 1999,
respectively...................................... -- 6,700
Common stock, $0.001 par value per share;
29,000,000 and 75,000,000 shares authorized in
1998 and 1999, respectively; 4,100,000 and
6,987,464 shares issued and outstanding in 1998
and 1999, respectively............................ 4,100 7,000
Additional paid-in capital......................... 10,431,000 69,056,100
Deferred stock-based compensation.................. -- (1,233,500)
Accumulated other comprehensive income............. -- 147,300
Deficit accumulated during the development stage... (855,800) (8,141,200)
----------- -----------
Total stockholders' equity........................ 9,589,700 59,854,800
----------- -----------
Total liabilities and stockholders' equity........ $10,001,200 $75,353,000
=========== ===========
See accompanying notes to consolidated financial statements.
F-3
EQUINIX, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS
Period from
Period from June 22, 1998
June 22, 1998 Nine months (inception)
(inception) to ended to
December 31, September 30, September 30,
1998 1999 1999
-------------- ------------- -------------
(Unaudited) (Unaudited)
Selling, general, and
administrative expenses........... $ 785,700 $7,108,000 $7,893,700
Stock-based compensation expense... -- 305,700 305,700
--------- ---------- ----------
Loss from operations............... 785,700 7,413,700 8,199,400
Interest income.................... (149,900) (266,900) (416,800)
Interest expense................... -- 138,600 138,600
Interest charge on beneficial
conversion of convertible debt.... 220,000 -- 220,000
--------- ---------- ----------
Net loss.......................... $ 855,800 $7,285,400 $8,141,200
========= ========== ==========
See accompanying notes to consolidated financial statements.
F-4
EQUINIX, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Period from June 22, 1998 (inception) to September 30, 1999
(Information as of September 30, 1999 and for the nine-month period then ended
is unaudited)
Series A Series B Deficit
convertible convertible Accumulated accumulated
preferred stock preferred stock Common stock Additional Deferred other during the
------------------- ---------------- ---------------- paid-in stock-based comprehensive development
Shares Amount Shares Amount Shares Amount capital compensation income stage
---------- ------- --------- ------ --------- ------ ----------- ------------ ------------- -----------
Issuance of
common stock for
cash in June
1998............. -- $ -- -- $ -- 4,040,000 $4,000 $ -- $ -- $ -- $ --
Issuance of
common stock upon
exercise of
common stock
options.......... -- -- -- -- 60,000 100 5,900 -- -- --
Issuance of
Series A
preferred stock
in September
1998............. 10,025,000 10,000 -- -- -- -- 9,985,500 -- -- --
Conversion of
debt to Series A
preferred stock
in September
1998............. 440,000 400 -- -- -- -- 439,600 -- -- --
Net loss......... -- -- -- -- -- -- -- -- -- (855,800)
---------- ------- --------- ------ --------- ------ ----------- ----------- -------- -----------
Balance as of
December 30,
1998............. 10,465,000 10,400 -- -- 4,100,000 4,100 10,431,000 -- -- (855,800)
Issuance of
Series A
preferred stock
in January 1999
(unaudited)...... 2,000,000 2,000 -- -- -- -- 1,998,000 -- -- --
Repurchase of
Series A
preferred stock
in August 1999
(unaudited)...... (10,000) -- -- -- -- -- (10,000) -- -- --
Issuance of
Series B
preferred stock
in August and
September 1999
(unaudited)...... -- -- 6,731,290 6,700 -- -- 53,843,600 -- -- --
Issuance of
common stock upon
exercise of
common stock
options
(unaudited)...... -- -- -- -- 2,887,464 2,900 287,200 -- -- --
Issuance of
Series A
preferred stock
warrants
(unaudited)...... -- -- -- -- -- -- 600,600 -- -- --
Issuance of
common stock
warrants
(unaudited)...... -- -- -- -- -- -- 366,500 -- -- --
Deferred stock-
based
compensation
(unaudited)...... -- -- -- -- -- -- 1,539,200 (1,539,200) -- --
Amortization of
stock-based
compensation
(unaudited)...... -- -- -- -- -- -- -- 305,700 -- --
Comprehensive
income (loss)
(unaudited):
Net loss
(unaudited)..... -- -- -- -- -- -- -- -- -- (7,285,400)
Unrealized
appreciation on
short-term
investments
(unaudited)..... -- -- -- -- -- -- -- -- 147,300 --
---------- ------- --------- ------ --------- ------ ----------- ----------- -------- -----------
Net
comprehensive
loss
(unaudited)..... -- -- -- -- -- -- -- -- 147,300 (7,285,400)
---------- ------- --------- ------ --------- ------ ----------- ----------- -------- -----------
Balances as of
September 30,
1999
(unaudited)...... 12,455,000 $12,400 6,731,290 $6,700 6,987,464 $7,000 $69,056,100 $(1,233,500) $147,300 $(8,141,200)
========== ======= ========= ====== ========= ====== =========== =========== ======== ===========
Total
stockholders'
equity
-------------
Issuance of
common stock for
cash in June
1998............. $ 4,000
Issuance of
common stock upon
exercise of
common stock
options.......... 6,000
Issuance of
Series A
preferred stock
in September
1998............. 9,995,500
Conversion of
debt to Series A
preferred stock
in September
1998............. 440,000
Net loss......... (855,800)
-------------
Balance as of
December 30,
1998............. 9,589,700
Issuance of
Series A
preferred stock
in January 1999
(unaudited)...... 2,000,000
Repurchase of
Series A
preferred stock
in August 1999
(unaudited)...... (10,000)
Issuance of
Series B
preferred stock
in August and
September 1999
(unaudited)...... 53,850,300
Issuance of
common stock upon
exercise of
common stock
options
(unaudited)...... 290,100
Issuance of
Series A
preferred stock
warrants
(unaudited)...... 600,600
Issuance of
common stock
warrants
(unaudited)...... 366,500
Deferred stock-
based
compensation
(unaudited)...... --
Amortization of
stock-based
compensation
(unaudited)...... 305,700
Comprehensive
income (loss)
(unaudited):
Net loss
(unaudited)..... (7,285,400)
Unrealized
appreciation on
short-term
investments
(unaudited)..... 147,300
-------------
Net
comprehensive
loss
(unaudited)..... (7,138,100)
-------------
Balances as of
September 30,
1999
(unaudited)...... $59,854,800
=============
See accompanying notes to consolidated financial statements.
F-5
EQUINIX, INC. AND SUBSIDIARIES
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Period from Period from
June 22, 1998 Nine months June 22, 1998
(Inception) to ended (Inception) to
December 31, September 30, September 30,
1998 1999 1999
-------------- ------------- --------------
(Unaudited) (Unaudited)
Cash flows from operating
activities:
Net loss.......................... $ (855,800) $(7,285,400) $(8,141,200)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation...................... 4,200 248,100 252,300
Interest charge on beneficial
conversion of convertible debt... 220,000 -- 220,000
Amortization of deferred stock-
based compensation............... -- 305,700 305,700
Amortization of deferred debt fa-
cility costs..................... -- 138,600 138,600
Expense for warrants issued for
strategic agreement.............. -- 366,500 366,500
Changes in operating assets and
liabilities:
Prepaids and other current as-
sets............................ (167,600) (1,037,300) (1,204,900)
Accrued construction costs....... 252,300 8,686,500 8,938,800
Accounts payable, accrued ex-
penses and other liabilities.... 159,200 960,300 1,119,500
Other assets..................... (156,400) (2,033,800) (2,190,200)
----------- ----------- -----------
Net cash provided by (used in)
operating activities.......... (544,100) 349,200 (194,900)
----------- ----------- -----------
Cash flows from investing
activities:
Purchases of property and equip-
ment............................. (486,200) (2,645,200) (3,131,400)
Additions to construction in pro-
gress............................ (30,700) (22,558,900) (22,589,600)
Purchase, sales and maturities of
short-term investments........... (5,000,000) (37,756,500) (42,756,500)
----------- ----------- -----------
Net cash used in investing ac-
tivities...................... (5,516,900) (62,960,600) (68,477,500)
----------- ----------- -----------
Cash flows from financing
activities:
Proceeds from issuance of common
stock............................ 4,000 -- 4,000
Proceeds from exercise of stock
options.......................... 6,000 290,100 296,100
Proceeds from issuance of long-
term debt........................ -- 5,453,800 5,453,800
Repayment of long-term debt....... -- (157,600) (157,600)
Proceeds from sale-leaseback
transaction...................... -- 660,700 660,700
Debt issuance costs............... -- (68,300) (68,300)
Proceeds from issuance of promis-
sory notes....................... 220,000 -- 220,000
Proceeds from issuance of convert-
ible preferred stock............. 9,995,500 55,850,300 65,845,800
----------- ----------- -----------
Net cash provided by financing
activities.................... 10,225,500 62,029,000 72,254,500
----------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents.................. 4,164,500 (582,400) 3,582,100
Cash and cash equivalents at begin-
ning of period.................... -- 4,164,500 --
----------- ----------- -----------
Cash and cash equivalents at end of
period............................ $ 4,164,500 $ 3,582,100 $ 3,582,100
=========== =========== ===========
Supplemental disclosure of cash
flow information:
Cash paid for taxes............... $ -- $ 67,500 $ 67,500
=========== =========== ===========
Cash paid for interest............ $ -- $ 53,500 $ 53,500
=========== =========== ===========
Noncash financing and investing
activities:
Preferred stock warrants issued
for financing commitments........ $ -- $ 600,600 $ 600,600
=========== =========== ===========
Common stock warrants issued for
strategic agreement.............. $ -- $ 366,500 $ 366,500
=========== =========== ===========
Conversion of notes payable to
convertible preferred stock...... $ 440,000 $ -- $ 440,000
=========== =========== ===========
Unrealized appreciation on in-
vestments........................ $ -- $ 147,300 $ 147,300
=========== =========== ===========
Assets recorded under capital
lease............................ $ -- $ 660,700 $ 660,700
=========== =========== ===========
Deferred compensation on grants
of stock options................. $ -- $ 1,539,200 $ 1,539,200
=========== =========== ===========
See accompanying notes to consolidated financial statements.
F-6
EQUINIX, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(information as of September 30, 1999 and for the nine-month period then ended
is unaudited)
(1)Nature of Business and Summary of Significant Accounting Policies
(a) Nature of Business
Equinix, Inc. (Equinix or the Company) was incorporated as Quark
Communications, Inc. in Delaware on June 22, 1998. The Company changed its
name to Equinix, Inc. on October 13, 1998. Equinix designs, builds, and
operates neutral Internet Business Exchange (IBX) facilities.
Equinix is in the development stage, and its primary activities to date
have included raising capital necessary for infrastructure buildout and
acquiring property and equipment.
(b) Basis of Presentation
The accompanying consolidated financial statements include the accounts
of Equinix and its wholly owned subsidiary, Equinix-DC, Inc. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
(c) Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from these estimates.
(d) Unaudited Interim Consolidated Financial Statements
The accompanying unaudited interim consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information. In the opinion of management,
the accompanying unaudited interim consolidated financial statements have
been prepared on the same basis as the audited consolidated financial
statements, and include all adjustments, consisting only of normal
recurring adjustments, necessary for the fair presentation of the Company's
financial position as of September 30, 1999 and the results of their
operations and cash flows for the nine months ended September 30, 1999. The
results for the nine months ended September 30, 1999 are not necessarily
indicative of results that may be expected for the fiscal year ended
December 31, 1999.
(e) Cash, Cash Equivalents and Short-Term Investments
The Company considers all highly liquid instruments with a maturity from
the date of purchase of three months or less to be cash equivalents. Cash
equivalents consist of money market mutual funds and certificates of
deposit with financial institutions with original maturities of between 7
and 60 days.
Short-term investments generally consist of certificates of deposits
with maturities of between 90 and 180 days and highly liquid debt and
equity securities of corporations, municipalities and the U.S. government.
Short-term investments are classified as "available-for-sale" and are
carried at fair value based on quoted market prices, with unrealized gains
and losses reported in stockholders' equity. The cost of securities sold is
based on the specific identification method. Realized gains and losses were
not material during all periods presented. As of September 30, 1999, an
unrealized gain of approximately
F-7
EQUINIX, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(information as of September 30, 1999 and for the nine-month period then ended
is unaudited)
$147,300 has been recorded as a separate component of other comprehensive
income in stockholders' equity. The following is a summary of cash and cash
equivalents and short-term investments:
December 31, September 30,
1998 1999
------------ -------------
(Unaudited)
Cash and cash equivalents:
Cash............................................. $ 42,800 $ 3,062,800
Certificates of deposit.......................... 3,792,900 --
Money market mutual funds........................ 328,800 519,300
---------- -----------
4,164,500 3,582,100
---------- -----------
Short-term investments:
Certificates of deposit.......................... 5,000,000 --
Corporate debt................................... -- 42,907,100
---------- -----------
5,000,000 42,907,100
---------- -----------
$9,164,500 $46,489,200
========== ===========
(f) Financial Instruments and Concentration of Credit Risk
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist of cash, cash equivalents and short-
term investments. Management believes that the financial risks associated
with such financial instruments are minimal.
(g) Property and Equipment
Property and equipment are stated at original cost. Depreciation is
computed using the straight-line method over the estimated useful lives of
the respective assets, generally 2 to 5 years for non-IBX facility
equipment and seven to ten years for IBX facility equipment. Leasehold
improvements and assets acquired under capital lease are amortized over the
shorter of the lease term or the estimated useful life of the asset or
improvement.
(h) Construction in Progress
Construction in progress includes direct expenditures for the
construction of IBX facilities and is stated at original cost. Capitalized
costs include costs incurred under the construction contract, interest and
amortized finance costs during the construction phase. Once an IBX facility
has become operational, capitalized costs are depreciated at the
appropriate rate based on company policy.
Interest incurred is capitalized in accordance with Statement of
Financial Accounting Standards (SFAS) No. 34, Capitalization of Interest
Costs. Total interest capitalized to construction in progress during all
periods presented is not material.
(i) Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of
In accordance with SFAS No. 121, Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of, the Company
considers the impairment of long-lived assets and certain identifiable
intangibles whenever events or changes in circumstances indicate that the
carrying amount of such assets may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying
amount of an asset to future net cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the impairment to be
recognized is measured by the
F-8
EQUINIX, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(information as of September 30, 1999 and for the nine-month period then ended
is unaudited)
amount by which the carrying amount of the assets exceeds the fair value of
the assets. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell. No impairment of long-
lived assets has been recorded as of December 31, 1998 and September 30,
1999.
(j) Revenue Recognition
Revenues are expected to consist of monthly fees from customer use of
the IBX facilities and related services and installation. Revenues from
customer use of the IBX facilities are expected to be billed monthly and
recognized ratably over the term of the contract, generally one year.
Installation and service fees are expected to be recognized as the services
are performed.
(k) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. Valuation allowances are
established when necessary to reduce tax assets to the amounts expected to
be realized.
(l) Stock-Based Compensation
The Company accounts for its stock-based compensation plans in
accordance with SFAS No. 123, Accounting for Stock-Based Compensation. As
permitted under SFAS No. 123, the Company uses the intrinsic value-based
method of Accounting Principles Board (APB) Opinion No. 25, Accounting for
Stock Issued to Employees, to account for its employee stock-based
compensation plans.
The Company accounts for stock-based compensation arrangements with
nonemployees in accordance with the Emerging Issues Task Force Abstract
(EITF) No. 96-18, Accounting for Equity Instruments That Are Issued to
Other Than Employees for Acquiring, or in Conjunction with Selling Goods or
Services. Accordingly, unvested options held by nonemployees are subject to
revaluation at each balance sheet date based on the then current fair
market value.
Unearned deferred compensation resulting from employee and nonemployee
option grants is amortized on an accelerated basis over the vesting period
of the individual options, generally in accordance with FASB Interpretation
No. 28, Accounting for Stock Appreciation Rights and Other Variable Stock
Option or Award Plans.
(m) Segment Reporting
The Company has adopted the provisions of SFAS No. 131, Disclosures
about Segments of an Enterprise and Related Information. SFAS No. 131
establishes annual and interim reporting standards for operating segments
of a company. The statement requires disclosures of selected segment-
related financial information about products, major customers and
geographic areas.
(n) Comprehensive Income
The Company has adopted the provisions of SFAS No. 130, Reporting
Comprehensive Income. SFAS No. 130 establishes standards for the reporting
and display of comprehensive income and its components; however, the
adoption of this statement had no impact on the Company's net loss or
stockholders' equity.
F-9
EQUINIX, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(information as of September 30, 1999 and for the nine-month period then ended
is unaudited)
SFAS No. 130 requires unrealized gains or losses on the Company's
available-for-sale securities to be included in other comprehensive income
(loss). Comprehensive income (loss) consists of net loss and other
comprehensive income.
(o) Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities. SFAS No.
133 establishes accounting and reporting standards for derivative
instruments, including derivative instruments embedded in other contracts,
and for hedging activities. SFAS No. 133, as amended by SFAS No. 137,
Deferral of the Effective Date of FASB Statement No. 133, is effective for
all fiscal quarters of fiscal years beginning after September 15, 2000.
This statement does not currently apply to the Company as the Company does
not have any derivative instruments or hedging activities.
(2)Balance Sheet Components
(a) Property and Equipment
Property and equipment is comprised of the following:
December 31, September 30,
1998 1999
------------ -------------
(Unaudited)
Leasehold improvements............................ $240,600 $ 414,800
Computer equipment and software................... 77,000 2,084,500
IBX equipment..................................... -- 308,000
Furniture and fixtures............................ 168,600 324,100
-------- ----------
Total........................................... 486,200 3,131,400
Less accumulated depreciation..................... 4,200 252,300
-------- ----------
$482,000 $2,879,100
======== ==========
(b) Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consisted of the following:
December 31, September 30,
1998 1999
------------ -------------
(Unaudited)
Accounts payable.................................. $ 33,800 $523,800
Accrued compensation.............................. 23,200 118,500
Deferred rent..................................... 42,400 24,100
Income taxes payable.............................. 39,800 --
Other............................................. 20,000 198,000
-------- --------
$159,200 $864,400
======== ========
Leasehold improvements and certain computer equipment and software and
furniture and fixtures, recorded under capital leases, aggregated none and
$660,700 as of December 31, 1998 and September 30, 1999, respectively.
Amortization on the assets recorded under capital leases is included in
depreciation expense.
(3)Long-Term Debt and Capital Lease Obligations
In March 1999, Equinix-DC entered into a $7,000,000 Loan and Security
Agreement with Comdisco, Inc. (the Comdisco Loan and Security Agreement). Under
the terms of the Comdisco Loan and Security Agreement,
F-10
EQUINIX, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(information as of September 30, 1999 and for the nine-month period then ended
is unaudited)
Comdisco may lend the Company up to $3,000,000 for equipment (referred to as
the "hard loan") and up to $4,000,000 for software and tenant improvements
("soft loan") for the Ashburn, Virginia IBX facility buildout. The loans are
available in minimum advances of $1,000,000 and each loan is evidenced by a
secured promissory note. The hard and soft loans outstanding bear interest at
rates of 7.5% and 9% per annum, respectively, and are repayable in 36 and 42
equal monthly installments, respectively, plus a final payment equal to 15% of
the advance amount due at maturity. As of September 30, 1999, $5,296,200 was
outstanding under the Comdisco Loan and Security Agreement.
In May 1999, the Company entered into a Master Lease Agreement with
Comdisco, Inc. (the Comdisco Master Lease Agreement). Under the terms of the
Comdisco Master Lease Agreement, the Company sells equipment to Comdisco, which
it will then lease back. The amount of financing to be provided is up to
$1,000,000. Repayments are made monthly over 42 months with a final payment
equal to 15% of the balance amount due at maturity and interest accrues at
7.5%. As of September 30, 1999, $660,700 was outstanding under the Comdisco
Master Lease Agreement.
In August 1999, the Company amended the Comdisco Master Lease Agreement.
Under the terms of the Comdisco Master Lease Agreement Addendum, the Company
sells equipment (hard items) and software and tenant improvements (soft items)
in its San Jose IBX facility to Comdisco, which it then leases back. The amount
of additional financing to be provided is up to $2,150,000 for hard items and
up to $2,850,000 for soft items. Repayments are made monthly over the course of
42 months with a final payment equal to 15% of the advance and interest accrues
at 8.5%. As of September 30, 1999, no amount was outstanding under the Comdisco
Master Lease Agreement Addendum.
In August 1999, the Company entered into a Loan Agreement with Venture
Lending & Leasing II, Inc. and other lenders ("VLL" and the "Venture Leasing
Loan Agreement"). The Venture Leasing Loan Agreement provides financing for
equipment and tenant improvements at the Newark, New Jersey IBX facility and a
secured term loan facility for general working capital purposes. The amount of
financing to be provided is up to $10,000,000, which may be used to finance up
to 85% of the projected cost of tenant improvements and equipment for the
Newark IBX facility. Notes issued bear interest at a rate of 8.5% per annum and
are repayable in 42 equal monthly installments plus a final payment equal to
15% of the advance amount due at maturity. As of September 30, 1999, no amount
was outstanding under the Venture Leasing Loan Agreement.
(4)Stockholders' Equity
(a) Preferred Stock
On September 10, 1998, 10,025,000 shares of Series A preferred stock
were issued at a price of $1.00 per share. Concurrent with the issuance of
the Series A preferred stock, promissory notes of $220,000 were converted
into 440,000 shares of Series A preferred stock. During July 1998, the
Company had borrowed $220,000 in the aggregate under a convertible loan
arrangement with a number of individual investors. The loans accrued
interest of 5.83% per annum while outstanding, which amount was paid in
cash. During the period ended December 31, 1998, the Company recorded a
charge of $220,000 to account for the "in the money" conversion right of
the convertible loan arrangement. On January 27, 1999, 2,000,000 shares of
Series A preferred stock were issued, at a price of $1.00 per share in the
second closing of the Series A financing.
In August 1999, the Company amended and restated its Certificate of
Incorporation to increase the authorized share capital to 75,000,000 shares
of common stock and 30,000,000 shares of preferred stock, of which
14,000,000 has been designated as Series A and 16,000,000 as Series B.
F-11
EQUINIX, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(information as of September 30, 1999 and for the nine-month period then ended
is unaudited)
During August and September 1999, the Company issued 6,731,290 shares of
Series B preferred stock, at a price of $8.00 per share.
The rights, preferences, and privileges of the Series A and Series B
preferred stock are as follows:
. Dividends are noncumulative and are payable only upon declaration by
the Board of Directors at a rate of $0.08 and $0.64 per share for
Series A and B, respectively.
. Holders of Series A and B preferred stock have a liquidation
preference of $1.00 and $8.00 per share, respectively, plus all
declared but unpaid dividends.
. Each share of Series A and B preferred stock is convertible, at the
option of the holder, into common stock at a conversion price equal
to the respective original preferred stock issue price. The
conversion price is subject to adjustment for stock splits and
combinations and will automatically convert into common stock in the
event of either (i) an underwritten public offering with an aggregate
gross offering price of at least $25,000,000 or (ii) upon a vote of
the holders of a majority of the then outstanding shares of preferred
stock.
. Each share of Series A and Series B preferred stock has voting rights
equal to that of common stock on an "as if converted" basis.
. The holders of Series A and B preferred stock are entitled to elect
two and one directors, respectively, to the Company's Board of
Directors so long as 25% of the shares of Series A and B preferred
stock originally issued remain outstanding.
. Series A and B preferred stock is not redeemable at any time.
(b)Warrants
In March 1999, in connection with the Comdisco Loan and Security
Agreement, the Company granted Comdisco warrants to purchase 510,000 shares
of the Company's Series A preferred stock at $1.00 per share. The warrants
are immediately exercisable and expire in ten years from date of grant.
In May 1999, in connection with the Comdisco Master Lease Agreement, the
Company granted Comdisco warrants to purchase 20,000 shares of the
Company's Series A preferred stock at $2.50 per share. The warrants are
immediately exercisable and expire in ten years from date of grant.
In August 1999, in connection with the Comdisco Master Lease Agreement
Addendum, the Company granted Comdisco warrants to purchase 100,000 shares
of the Company's Series A preferred stock at an exercise price of $4.50 per
share. The warrants are exercisable for seven years from the grant date or
three years from the effective date of the Company's initial public
offering, whichever is shorter.
In August 1999, in connection with the Venture Leasing Loan Agreement,
the Company granted VLL warrants to purchase 200,000 shares of the
Company's Series A preferred stock at an exercise price of $4.50 per share.
The warrants are exercisable from date of grant until June 30, 2006.
In August 1999, the Company entered into a strategic alliance with
NorthPoint Communications, Inc. (NorthPoint). As part of the agreement, the
Company granted NorthPoint warrants to purchase 225,430 shares of the
Company's common stock at $0.80 per share. The NorthPoint warrants are
immediately exercisable and expire in five years from date of grant.
F-12
EQUINIX, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(information as of September 30, 1999 and for the nine-month period then ended
is unaudited)
The fair value of all warrants was calculated using an option pricing
model with the following assumptions: dividends yield of 0%; contractual
life of five, seven or ten years, as applicable; risk-free interest rate of
5%; and expected volatility of 80%. The fair value of the warrants issued
in connection with the Comdisco Loan and Security Agreement, the Comdisco
Master Lease Agreement and the Comdisco Master Lease Agreement Addendum was
determined to be $428,800, $15,000 and $52,300, respectively. The fair
value of the warrants issued in connection with the Venture Leasing Loan
Agreement was determined to be $104,500. These deferred debt facility costs
which are recorded as an offset to the long-term debt are being amortized
as interest expense on a straight-line basis over the term of the
respective agreements. The fair market value of the warrants issued to
NorthPoint was determined to be $366,500 and was immediately expensed to
selling, general, and administrative expenses.
(c)Common Stock
The Company's founders purchased 4,040,000 shares of stock.
Approximately 3,636,000 shares are subject to restricted stock purchase
agreements whereby the Company has the right to repurchase the stock upon
voluntary or involuntary termination of the founder's employment with the
Company at $0.0005 per share. The Company's repurchase right lapses at a
rate of 25% per year. As of December 31, 1998 and September 30, 1999,
3,257,250 and 2,348,250 shares are subject to repurchase at a price of
$0.0005 per share.
Certain option holders have exercised unvested options to purchase
2,947,464 shares of common stock. Such shares are unvested and the Company
has the right to repurchase all unvested shares at the original exercise
price in the event of employee termination. As of December 31, 1998 and
September 30, 1999, there were 30,000 and 2,686,631 shares, respectively,
subject to repurchase at $0.10 per share.
(d)Stock Plan
In September 1998, the Company adopted the 1998 Stock Plan (the Plan)
under which nonstatutory stock options and restricted stock may be granted
to employees, outside directors, and consultants, and incentive stock
options may be granted to employees. Accordingly, the Company has reserved
a total of 5,508,540 shares of the Company's common stock for issuance upon
the grant of restricted stock or exercise of options granted pursuant to
the Plan. Options granted under the Plan generally expire 10 years
following the date of grant and are subject to limitations on transfer. The
Plan is administered by the Board of Directors.
The Plan provides for the granting of incentive stock options at not
less than 100% of the fair market value of the underlying stock at the
grant date. Nonstatutory options may be granted at not less than 85% of the
fair market value of the underlying stock at the date of grant.
Option grants under the Plan are subject to various vesting provisions,
all of which are contingent upon the continuous service of the optionee and
may not impose vesting criterion more restrictive than 20% per year.
Options and restricted stock generally become fully vested upon a change in
control of the Company unless the surviving company assumes the options or
restricted stock or replaces it with a comparable award. Stock options may
be exercised at anytime subsequent to grant. Stock obtained through
exercise of unvested options is subject to repurchase at the original
purchase price. The Company's repurchase right decreases as the shares vest
under the original option terms.
Options granted to stockholders who own greater than 10% of the
outstanding stock are for periods not to exceed five years and must be
issued at prices not less than 110% of the fair market value of the stock
on the date of grant as determined by the Board of Directors. Upon a change
of control, all shares granted under the Plan shall immediately vest.
Unless otherwise terminated by the Board of Directors, the Plan
automatically terminates in September 2008.
F-13
EQUINIX, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(information as of September 30, 1999 and for the nine-month period then ended
is unaudited)
(e)Stock Based Compensation
The Company uses the intrinsic-value method prescribed in APB No. 25 in
accounting for its stock-based compensation arrangements with employees.
Stock-based compensation expense is recognized for employee stock option
grants in those instances in which the fair value of the underlying common
stock exceeds the exercise price of the stock options at the date of grant.
The Company recorded deferred stock-
based compensation expense of $1,539,200 during the nine months ended
September 30, 1999.
This amount is being amortized consistent with the method described in
FASB Interpretation No. 28 over the vesting period of the individual
options.
In connection with its grant of options, the Company has recognized
stock-based compensation expense of $305,700 for the nine months ended
September 30, 1999. Of this amount, $167,700 related to options granted to
employees. The remaining $138,000 relates to the fair value of option
grants to nonemployees determined using an option pricing model.
A summary of the Company's stock option plan is as follows:
December 31, 1998 September 30, 1999
--------------------------- ----------------------------
Weighted-average Weighted-average
Shares exercise price Shares exercise price
--------- ---------------- ---------- ----------------
Outstanding at beginning
of period.............. -- $-- 1,382,700 $0.10
Granted................. 1,442,700 0.10 2,894,360 0.10
Forfeited............... -- (212,000) 0.10
Exercised............... (60,000) 0.10 (2,887,464) 0.10
========= ==========
Outstanding at end of
period................. 1,382,700 0.10 1,177,596 0.10
========= ==========
Shares available for
future grant........... 4,065,840 0.10 1,383,480 0.10
========= ==========
Exercisable at end of
period................. 13,334 0
========= ==========
Weighted-average grant
date fair value of
options granted during
the period at fair
value.................. 0.02 0.02
Weighted-average grant
date fair value of
options granted during
the period at below
fair value............. -- 1.18
The following table summarizes information about stock options
outstanding as of September 30, 1999:
Outstanding
------------------------------------------------------------
Weighted-
Weighted-average average
Number of Remaining Exercise
Exercise Price Shares Contractual Life Price
-------------- --------- ---------------- ---------
$0.10 1,137,596 9.47 $0.10
$0.20 40,000 9.40 0.20
---------
1,177,596 9.47 0.10
=========
The weighted-average remaining contractual life of options outstanding at
December 31, 1998 was 9.81 years.
F-14
EQUINIX, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(information as of September 30, 1999 and for the nine-month period then ended
is unaudited)
Had compensation costs been determined using the fair value method for
the Company's stock-based compensation plans, net loss attributable to
common stockholders would have been changed to the amounts indicated below:
Period from
June 22, 1998 Nine Months
(inception) to ended
December 31, September 30,
1998 1999
-------------- -------------
Net loss:
As reported.................................... $855,800 $7,285,400
Pro forma...................................... $857,500 $7,297,900
The Company's calculations for employee grants were made using the
minimum value method with the following weighted average assumptions for
the period from June 22, 1998 (inception) to December 31, 1998 and the nine
months ended September 30, 1999: dividend yield of 0%; expected volatility
of 0%; risk-free interest rates of 5.77% in the period from June 22, 1998
(inception) to December 31, 1998 and 5.44% in the nine months ended
September 30, 1999; and expected lives of 2.67 years in the period from
June 22, 1998 (inception) to December 31, 1998 and 2.53 years in the nine
months ended September 30, 1999. The Company's calculations for non-
employee grants were made using the Black-Scholes option pricing model with
the following weighted average assumptions for the nine months ended
September 30, 1999: dividend yield of 0%; expected volatility of 80%; risk-
free interest rate of 5.44%; and contractual life of 10 years.
(5)Income Taxes
The components of the provision for income taxes (benefit) are as follows:
December 31, September 30,
1998 1999
------------ -------------
(Unaudited)
Current:
Federal......................................... $ 29,300 $ 18,800
State........................................... 10,500 2,800
-------- --------
Total current................................. 39,800 21,600
-------- --------
Deferred:
Federal......................................... (29,300) (12,400)
State........................................... (10,500) 10,500
-------- --------
Total deferred................................ (39,800) (1,900)
-------- --------
Total......................................... $ -- $ 19,700
======== ========
Income tax expense is included in selling, general and administrative
expenses for the nine months ended September 30, 1999.
F-15
EQUINIX, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(information as of September 30, 1999 and for the nine-month period then ended
is unaudited)
Actual income tax expense differs from the expected tax benefit computed by
applying the statutory federal income tax rate of approximately 24.8% and 35.0%
for the periods ended December 31, 1998 and September 30, 1999, respectively,
as a result of the following:
December 31, September 30,
1998 1999
------------ -------------
(Unaudited)
Computed tax benefit at statutory rate.......... $(212,300) $(2,599,700)
State taxes, net of federal benefit............. -- 13,300
Start up expenses and temporary differences for
which no tax benefit is recognized............. 211,900 2,561,700
Other........................................... 400 4,400
--------- -----------
Total......................................... $ -- $ 19,700
========= ===========
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets as of December 31, 1998 and September 30,
1999 is presented as follows:
December 31, September 30,
1998 1999
------------ -------------
(Unaudited)
Deferred tax assets:
Other assets.................................... $ 1,100 $ --
Start-up expenses............................... 326,000 2,899,200
--------- ----------
Total deferred tax assets..................... 327,100 2,899,200
Less valuation allowance........................ (287,300) (2,857,500)
--------- ----------
Net deferred tax assets....................... $ 39,800 $ 41,700
========= ==========
Net deferred tax assets are included in prepaids and other current assets at
December 31, 1998 and September 30, 1999.
The net change in the total valuation allowance for the period from June 22,
1998 (inception) to December 31, 1998 and the nine month period ended September
30, 1999, was an increase of $287,300 and $2,570,200, respectively.
Deferred tax assets arise primarily as a result of start-up expenses that
are expensed for financial reporting purposes but not deductible for income tax
purposes while the Company is in the development stage. Once the Company
commences its principal operations, the start-up expenses will be deductible
for income tax purposes and the resulting net operating loss will be carried
back to recapture the taxes paid while the Company was in the development
stage. The Company expects to commence its principal operations during the year
ending December 31, 1999.
(6) Lease Commitments
The Company leases its facilities and certain equipment under noncancelable
operating lease agreements expiring through 2014. The facilities lease
agreements typically provide for base rental rates which increase at defined
intervals during the term of the lease. In addition, the Company has negotiated
rent expense abatement periods to better match the phased build-out of its
facilities. The Company also leases certain leasehold improvements, computer
equipment and software and furniture and fixtures under capital leases under
the
F-16
EQUINIX, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(information as of September 30, 1999 and for the nine-month period then ended
is unaudited)
Comdisco Master Lease Agreement. These leases were entered into as sale-
leaseback transactions. The Company has deferred a gain of $77,700 related to
the sale-leaseback in July 1999, which is being amortized in proportion to the
amortization of the leased assets.
Minimum future lease payments as of September 30, 1999 are summarized as
follows:
Capital Operating
Year Ending Leases Leases
----------- -------- ------------
2000.................................................. $199,200 $ 5,268,000
2001.................................................. 185,300 7,940,000
2002.................................................. 172,400 7,710,400
2003.................................................. 120,700 7,495,100
2004.................................................. -- 7,728,000
Thereafter............................................ -- 83,350,400
-------- ------------
Total minimum lease payments........................ $677,600 $119,491,900
============
Less amount representing imputed interest........... 144,900
--------
Present value of minimum lease payments............. 532,600
Less current portion................................ 173,600
--------
Capital lease obligations, less current portion..... $359,000
========
Total rent expense was approximately $165,000 and $746,000 for the period
from June 22, 1998 (inception) to December 31, 1998 and for the nine months
ended September 30, 1999, respectively.
Deferred rent included in accounts payable and accrued expenses was $42,400
and $180,300 as of December 31, 1998 and September 30, 1999, respectively.
(7) Pretax Savings Plan
During the nine months ended September 30, 1999, the Company adopted the
Equinix 401(k) Plan (the 401(k) Plan). All employees are eligible to
participate on the first day of the month following their first day of
employment. Under the 401(k) Plan, eligible employees are entitled to make tax-
deferred contributions and the Company may, at its discretion, make matching or
discretionary contributions to the 401(k) Plan. During the nine months ended
September 30, 1999, the Company made no matching or discretionary
contributions.
(8) Segment Information
During the nine months ended September 30, 1999, the Company adopted the
provisions of SFAS No. 131, Disclosures about Segments of an Enterprise and
Related Information. SFAS No. 131 requires disclosures of selected segment-
related financial information about products, major customers and geographic
areas.
The Company's chief operating decision-maker (CODM) is considered to be the
Company's CEO. The CODM evaluates performance, makes operating decisions and
allocates resources based on financial data consistent with the presentation in
the accompanying consolidated financial statements. Therefore, the Company
operates in a single segment for purposes of disclosure under SFAS No. 131.
F-17
EQUINIX, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(information as of September 30, 1999 and for the nine-month period then ended
is unaudited)
As of December 31, 1998 and September 30, 1999, all of the Company's
operations and assets are based in the United States.
(9) Subsequent Events
In October 1999, the Company completed subsequent closings of the Series B
preferred stock financing. The Company raised $26,149,700 and issued 3,268,710
shares of Series B preferred stock.
In November 1999, the Company entered into a definitive agreement with MCI
Worldcom ("MCI") whereby MCI agreed to install high-bandwidth Internet
connectivity to the Company's first seven IBX facilities in exchange for
warrants to purchase 450,000 shares of common stock of the Company at $1.00 per
share. The warrants are immediately exercisable and expire five years from the
date of issuance. Warrants for 350,000 shares are subject to repurchase at the
original exercise price, if certain performance criteria are not met by MCI.
In November 1999, the Company borrowed $10,000,000 under the Venture Leasing
Loan Agreement.
In November 1999, the Company increased the number of shares reserved for
issuance under the Plan by 2,500,000 shares. Accordingly, the Company has
reserved a total of 8,008,540 shares of the Company's common stock for issuance
under the plan.
In December 1999, the Company issued 200,000 units, each consisting of a
$1,000 principal amount 13% Senior Note due 2007 and one warrant to purchase
11.255 shares (for an aggregate of 2,251,000 shares) of common stock, $0.001
par value, for aggregate net proceeds of $192,700,000 (net of offering
expenses). Of this amount $37,011,500 has been deposited with an escrow agent
to be used to pay the first three interest payments. Interest is payable semi-
annually in arrears on June 1and December 1 of each year, commencing on June 1,
2000. Subject to certain exceptions, the indenture restricts, among other
things, the Company's ability to incur additional indebtedness and the use of
proceeds therefrom, pay dividends, incur certain liens to secure indebtedness
or engage in merger transactions.
In December 1999, the Company received $2,800,000 from its lead underwriter
in the offering of its Senior Notes and issued 350,000 shares of Series B
preferred stock.
In December 1999, the Company entered into a definitive agreement with
Bechtel Corporation ("Bechtel") whereby Bechtel has agreed to act as the
exclusive contractor for the Company's IBX facilities. In conjunction with the
agreement, the Company issued a warrant to purchase 235,000 shares of the
Company's common stock at $1.50 per share.
F-18
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Equinix, Inc.
Exchange Offer for
$200,000,000 13% Senior Notes due 2007
LOGO
, 2000
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PART II
Information Not Required in Prospectus
Item 20. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law authorizes a court to
award or a corporation's board of directors to grant indemnification to
directors and officers in terms sufficiently broad to permit indemnification
under limited circumstances for liabilities, including reimbursement for
expenses incurred, arising under the Securities Act of 1933, as amended (the
"Securities Act"). Article VII, Section 7.6 of our bylaws provides for
mandatory indemnification of our directors and permissive indemnification of
our officers and employees to the maximum extent permitted by the Delaware
General Corporation Law. Our Certificate of Incorporation provides that our
directors shall not be liable for monetary damages for breach of the directors'
fiduciary duty as directors to our stockholders and us to the fullest extent
permitted by the Delaware General Corporation Law. This provision in the
Certificate of Incorporation does not eliminate the directors' fiduciary duty,
and in appropriate circumstances, equitable remedies like injunctive or other
forms of non-monetary relief will remain available under Delaware law. In
addition, each director will continue to be subject to liability for breach of
the director's duty of loyalty to us for acts or omissions not in good faith or
involving intentional misconduct, for knowing violations of law, for actions
leading to improper personal benefit to the director, and for payment of
dividends or approval of stock repurchases or redemptions that are unlawful
under Delaware law. The provision also does not affect a director's
responsibilities under any other law, like the federal securities laws or state
or federal environmental laws. We have entered into indemnification agreements
with our officers and directors, a form of which is attached as Exhibit 10.5
and incorporated herein by reference. The indemnification agreements provide
our officers and directors with further indemnification to the maximum extent
permitted by the Delaware General Corporation Law.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
Exhibit
No. Description
------- -----------
3.1 Amended and Restated Certificate of Incorporation of the Registrant.
3.2 Bylaws of the Registrant.
4.1 Reference is made to Exhibits 3.1 and 3.2.
4.2* Form of Old Note.
4.3* Form of New Note.
4.4 Escrow agreement, dated as of December 1, 1999, by and among the
Registrant and State Street Bank
and Trust Company of California, N.A. (as escrow agent and trustee).
4.5 Indenture (See Exhibit 10.1).
4.6 Common Stock Registration Rights Agreement (See Exhibit 10.3).
4.7 Registration Rights Agreement (See Exhibit 10.4).
4.8 Purchase Agreement, dated as of November 24, 1999, by and among the
Registrant and Salomon Smith Barney Inc., Morgan Stanley & Co.
Incorporated and Goldman, Sachs & Co. (collectively, the "Initial
Purchasers").
4.9 Amended and Restated Investors' Rights Agreement (See Exhibits 10.6
and 10.7).
5.1* Opinion of Counsel.
10.1 Indenture, dated as of December 1, 1999, by and among the Registrant
and State Street Bank and Trust Company of California, N.A. (as
trustee).
10.2 Warrant Agreement, dated as of December 1, 1999, by and among the
Registrant and State Street Bank and Trust Company of California,
N.A. (as warrant agent).
10.3 Common Stock Registration Rights Agreement, dated as of December 1,
1999, by and among the Registrant, Benchmark Capital Partners II,
L.P., Cisco Systems, Inc., Microsoft Corporation, ePartners, Albert
M. Avery, IV and Jay S. Adelson (as investors), and the Initial
Purchasers.
II-1
Exhibit
No. Description
------- -----------
10.4 Registration Rights Agreement, dated as of December 1, 1999, by and
among the Registrant and the Initial Purchasers.
10.5 Form of Indemnification Agreement between the Registrant and each of
its officers and directors.
10.6 Amended and Restated Investors' Rights Agreement, dated as of August
26, 1999, by and between the Registrant, the Series A Purchasers, the
Series B Purchasers and members of the Registrant's management.
10.7 Amendment No.1 to the Amended and Restated Investors' Rights Agreement
and Amended and Restated Voting Agreement, dated as of August 26,
1999, by and between the Registrant, the Series A Purchasers, the
Series B Purchasers and members of the Registrant's management,
effective as of November 30, 1999.
10.8 The Registrant's 1998 Stock Option Plan.
10.9* Lease Agreement with Carlyle-Core Chicago LLC, dated as of September
1, 1999.
10.10* Lease Agreement with Market Halsey Urban Renewal, LLC, dated as of May
3, 1999.
10.11* Lease Agreement with Laing Beaumeade, dated as of November 18, 1998.
10.12* Lease Agreement with Rose Ventures II, Inc., dated as of June 10,
1999.
10.13* Lease Agreement with 600 Seventh Street Associates, Inc., dated as of
August 6, 1999.
10.14* Lease Agreement with Trizechahn Centers, Inc. (dba Trizechahn
Beaumeade Corporate Management), dated as of October 28, 1999.
21.1 List of Subsidiaries of the Registrant.
23.1 Consent of KPMG LLP, independent auditors.
23.2* Consent of Counsel. Reference is made to Exhibit 5.1.
24.1 Power of Attorney (See page II-5).
25.1* Form of T-1 Statement of Eligibility and Qualification under the Trust
Indenture Act of 1939 of State Street Bank and Trust Company of
California, N.A.
27.1 Financial Data Schedule.
99.1* Form of Letter of Transmittal relating to the Exchange Offer.
99.2* Form of Notice of Guaranteed Delivery.
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* To be filed by amendment.
(b) Financial Statement Schedules
All schedules have been omitted because the information required to be
presented in them is not applicable or is shown in the consolidated financial
statements or related notes.
II-2
Item 22. Undertakings
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions described in Item 20
above, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission this indemnification is against public
policy as expressed in the Securities Act, and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities, other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding, is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of this issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by us under Rule 424(b)(1) or (4) or 497(h) under
the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of these securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) It will respond to requests for information that is incorporated
by reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of
this form, within one business day of receipt of such request, and to send
the incorporated documents by first class mail or other equally prompt
means. This includes information contained in documents filed after the
effective date of the registration statement through the date of responding
to the request.
(4) It will supply by means of a post-effective amendment all
information concerning a transaction, and the company being acquired
involved therein, that was not the subject of and included in the
registration statement when it became effective.
(5) It will file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(a) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(b) To reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration Statement;
(c) To include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or
any material change to such information in this Registration Statement.
II-3
(6) For the purpose of determining any liability under the Act, each
such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(7) It will remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(8) Prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c) the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items
of the applicable form.
(9) Every prospectus (i) that is filed pursuant to the paragraph
immediately preceding, or (ii) that purports to meet the requirements of
section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to
the registration statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Redwood
City, State of California, on this 29th day of December, 1999.
Equinix, Inc.
/s/ Albert M. Avery, IV
By:__________________________________
Albert M. Avery, IV
President, Chief Executive Officer
and Director
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Albert M. Avery, IV and Philip J. Koen,
and each of them, his or her true and lawful attorneys-in-fact and agents with
full power of substitution, for him or her and in his or her name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this registration statement, and to sign any
registration statement for the same offering covered by this registration
statement that is to be effective on filing pursuant to Rule 462(b) promulgated
under the Securities Act of 1933, and all post-effective amendments thereto,
and to file the same, with all exhibits thereto and all documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said attorneys-
in-fact and agents or any of them, or his or her or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ Albert M. Avery, IV President, Chief Executive December 29, 1999
______________________________________ Officer (Principal
Albert M. Avery, IV Executive Officer) and
Director
/s/ Jay S. Adelson Vice President, December 29, 1999
______________________________________ Engineering and Site
Jay S. Adelson Development, Chief
Technology Officer and
Director
/s/ Philip J. Koen Chief Financial Officer December 29, 1999
______________________________________ (Principal Financial and
Philip J. Koen Accounting Officer)
/s/ Andrew S. Rachleff Director December 29, 1999
______________________________________
Andrew S. Rachleff
/s/ Michelangelo Volpi Director December 29, 1999
______________________________________
Michelangelo Volpi
II-5
INDEX TO EXHIBITS
Exhibit
No. Description
------- -----------
3.1 Amended and Restated Certificate of Incorporation of the Registrant.
3.2 Bylaws of the Registrant.
4.1 Reference is made to Exhibits 3.1 and 3.2.
4.2* Form of Old Note.
4.3* Form of New Note.
4.4 Escrow agreement, dated as of December 1, 1999, by and among the
Registrant and State Street Bank
and Trust Company of California, N.A. (as escrow agent and trustee).
4.5 Indenture (See Exhibit 10.1).
4.6 Common Stock Registration Rights Agreement (See Exhibit 10.3).
4.7 Registration Rights Agreement (See Exhibit 10.4).
4.8 Purchase Agreement, dated as of November 24, 1999, by and among the
Registrant and Salomon Smith Barney Inc., Morgan Stanley & Co.
Incorporated and Goldman, Sachs & Co. (collectively, the "Initial
Purchasers").
4.9 Amended and Restated Investors' Rights Agreement (See Exhibits 10.6
and 10.7).
5.1* Opinion of Counsel.
10.1 Indenture, dated as of December 1, 1999, by and among the Registrant
and State Street Bank and Trust Company of California, N.A. (as
trustee).
10.2 Warrant Agreement, dated as of December 1, 1999, by and among the
Registrant and State Street Bank and Trust Company of California,
N.A. (as warrant agent).
10.3 Common Stock Registration Rights Agreement, dated as of December 1,
1999, by and among the Registrant, Benchmark Capital Partners II,
L.P., Cisco Systems, Inc., Microsoft Corporation, ePartners, Albert
M. Avery, IV and Jay S. Adelson (as investors), and the Initial
Purchasers.
10.4 Registration Rights Agreement, dated as of December 1, 1999, by and
among the Registrant and the Initial Purchasers.
10.5 Form of Indemnification Agreement between the Registrant and each of
its officers and directors.
10.6 Amended and Restated Investors' Rights Agreement, dated as of August
26, 1999, by and between the Registrant, the Series A Purchasers, the
Series B Purchasers and members of the Registrant's management.
10.7 Amendment No.1 to the Amended and Restated Investors' Rights Agreement
and Amended and Restated Voting Agreement, dated as of August 26,
1999, by and between the Registrant, the Series A Purchasers, the
Series B Purchasers and members of the Registrant's management,
effective as of November 30, 1999.
10.8 The Registrant's 1998 Stock Option Plan.
10.9* Lease Agreement with Carlyle-Core Chicago LLC, dated as of September
1, 1999.
10.10* Lease Agreement with Market Halsey Urban Renewal, LLC, dated as of May
3, 1999.
10.11* Lease Agreement with Laing Beaumeade, dated as of November 18, 1998.
10.12* Lease Agreement with Rose Ventures II, Inc., dated as of June 10,
1999.
10.13* Lease Agreement with 600 Seventh Street Associates, Inc., dated as of
August 6, 1999.
10.14* Lease Agreement with Trizechahn Centers, Inc. (dba Trizechahn
Beaumeade Corporate Management), dated as of October 28, 1999.
21.1 List of Subsidiaries of the Registrant.
23.1 Consent of KPMG LLP, independent auditors.
23.2* Consent of Counsel. Reference is made to Exhibit 5.1.
Exhibit
No. Description
------- -----------
24.1 Power of Attorney (See page II-5).
25.1* Form of T-1 Statement of Eligibility and Qualification under the Trust
Indenture Act of 1939 of State Street Bank and Trust Company of
California, N.A.
27.1 Financial Data Schedule.
99.1* Form of Letter of Transmittal relating to the Exchange Offer.
99.2* Form of Notice of Guaranteed Delivery.
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* To be filed by amendment.