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Proc-Type: 2001,MIC-CLEAR
Originator-Name: webmaster@www.sec.gov
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<SEC-DOCUMENT>0001012870-01-001327.txt : 20010328
<SEC-HEADER>0001012870-01-001327.hdr.sgml : 20010328
ACCESSION NUMBER: 0001012870-01-001327
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 7
CONFORMED PERIOD OF REPORT: 20001231
FILED AS OF DATE: 20010327
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: EQUINIX INC
CENTRAL INDEX KEY: 0001101239
STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813]
IRS NUMBER: 770487526
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K
SEC ACT:
SEC FILE NUMBER: 000-31293
FILM NUMBER: 1580440
BUSINESS ADDRESS:
STREET 1: 901 MARSHALL ST
CITY: REDWOOD CITY
STATE: CA
ZIP: 94063
BUSINESS PHONE: 6502980400
MAIL ADDRESS:
STREET 1: 901 MARSHALL STREET
CITY: REDWOOD CITY
STATE: CA
ZIP: 94063
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>0001.txt
<DESCRIPTION>FORM 10-K405
<TEXT>
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 000-31293
----------------
EQUINIX, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 77-0487526
(State of incorporation) (IRS Employer Identification No.)
</TABLE>
2450 Bayshore Parkway, Mountain View, California 94043
(Address of principal executive offices, including ZIP code)
(650) 316-6000
(Registrant's telephone number, including area code)
----------------
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001
----------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of voting common stock held by non-affiliates of
the registrant as of February 28, 2001 was approximately $260.1 million.
Shares of common stock held by each officer and director have been excluded in
that such persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.
As of February 28, 2001, a total of 77,099,198 shares of the registrant's
common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III--Portions of the registrant's definitive Proxy Statement to be
issued in conjunction with the registrant's Annual Meeting of Stockholders to
be held on June 1, 2001. Except as expressly incorporated by reference, the
registrant's Proxy Statement shall not be deemed to be a part of this report
on Form 10-K.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
EQUINIX, INC.
FORM 10-K
DECEMBER 31, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item Page No.
---- --------
PART I
<C> <S> <C>
1. Business...................................................... 3
2. Properties.................................................... 20
3. Legal Proceedings............................................. 20
4. Submission of Matters to a Vote of Security Holders........... 20
PART II
Market for Registrant's Common Equity and Related Stockholder
5. Matters....................................................... 21
6. Selected Financial Data....................................... 22
Management's Discussion and Analysis of Financial Condition
7. and Results of Operations..................................... 23
7A. Quantitative and Qualitative Disclosures About Market Risk.... 29
8. Financial Statements and Supplementary Data................... 30
Changes in and Disagreements with Accountants on Accounting
9. and Financial Disclosure...................................... 30
PART III
10. Directors and Executive Officers of the Registrant............ 31
11. Executive Compensation........................................ 31
Security Ownership of Certain Beneficial Owners and
12. Management.................................................... 31
13. Related Party Transactions.................................... 31
PART IV
Exhibits, Financial Statement Schedule, and Reports on Form 8-
14. K............................................................. 32
Signatures.................................................... 35
</TABLE>
2
<PAGE>
PART I
ITEM 1. BUSINESS
All statements in this discussion that are not historical are forward-
looking statements within the meaning of Section 21E of the Securities Exchange
Act, including statements regarding the Equinix's "expectations", "beliefs",
"hopes", "intentions", "strategies" or the like. Such statements are based on
management's current expectations and are subject to a number of factors and
uncertainties that could cause actual results to differ materially from those
described in the forward-looking statements. Equinix cautions investors that
there can be no assurance that actual results or business conditions will not
differ materially from those projected or suggested in such forward-looking
statements as a result of various factors, including, but not limited to, the
risk factors discussed in this Annual Report on Form 10-K. Equinix expressly
disclaims any obligation or undertaking to release publicly any updates or
revisions to any forward-looking statements contained herein to reflect any
change in Equinix's expectations with regard thereto or any change in events,
conditions, or circumstances on which any such statements are based.
Overview
Equinix designs, builds and operates neutral IBX centers where enterprises
and Internet businesses place their equipment and their network facilities in
order to interconnect with each other to grow their businesses and to improve
Internet performance. Our neutral IBX centers place our customers' operations
at a central location and provide them with the highest level of security,
multiple back-up services, flexibility to grow and technical assistance. Our
neutral IBX centers provide enterprises, content providers, ASPs and e-commerce
companies with the ability to directly interconnect with a competitive choice
of bandwidth providers, ISPs, site management companies and content
distribution companies. Each IBX center provides access to multiple bandwidth
providers and ISPs, including UUNET/Worldcom, AT&T, Excite@Home, Qwest,
Williams, InterNAP, Verio, Global Crossing, Cable & Wireless and Level 3, which
currently serve over 85% of the world's Internet networks. Equinix IBX centers
enable enterprises and Internet companies to quickly, easily and privately
interconnect with a choice of business partners and customers as well as
aggregate services in order to provide them with the flexibility, speed and
scalability they need to accelerate business growth in a more cost effective
way.
Equinix currently has IBX centers in the Washington, D.C., New York, Dallas,
Chicago, Los Angeles and Silicon Valley areas. We intend to complete
construction of an additional IBX center in the New York area in 2001,
resulting in a total of seven IBX centers in the U.S.
We were incorporated in Delaware in June 1998.
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, worldwide Internet commerce is forecast to grow
from approximately $50 billion at the end of 1998 to approximately $2.6
trillion by the end of 2004. In addition, Forrester Research shows Worldwide
Net commerce, both business-to-business and business-to-consumer, growing from
$657 billion in 2000 to $6.8 trillion in 2004. Cahners In-Stat Group estimates
that large and mid-sized businesses invested $49 billion in Internet-enabling
technologies in 2000 which figure will nearly double to $110 billion in 2004.
As a result of competitive pressures, enterprises and Internet businesses
are demanding facilities that provide multiple interconnections with a broad
cross-section of product and service providers and customers. The tremendous
growth of Internet usage and e-commerce has aggravated the inefficiencies of
the current Internet architecture, which has constrained businesses' abilities
to effectively grow and manage their Internet operations. As the Internet and
Internet businesses experienced significant growth and demand, content
providers emerged and enterprise companies expanded to leverage this growth.
Vertically integrated hosting providers then evolved to serve these content
providers and enterprise companies. Until now, enterprises and Internet
businesses have had to rely on these vertically integrated hosting providers
for the
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distribution of content and delivery of services between thousands of
individual networks. Internet and Internet businesses that choose to colocate
equipment at these facilities typically have no choice but to purchase
bandwidth, typically known as the rate at which data flows over a network and
measured in bits per second, 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.
As content becomes more critical, the choice of suppliers and direct
interconnection become increasingly important. International Data Corporation
predicts that a combination of rapid Internet growth and increased outsourcing
of Internet-related services will create an acute need for Internet-related
hosting and colocation services, producing U.S. revenue growth from
approximately $4.0 billion in the year 2000 to over $24.8 billion by 2004.
The Equinix Solution
Equinix IBX centers provide the environment and services to meet the
challenges facing enterprises and Internet businesses today. Our centers
provide a free market environment where choice stimulates efficient business
growth. Because enterprises and Internet companies have a broad choice of
product and service providers, they can cost-effectively and reliably manage
their web operations, increase their service offerings, deliver services more
efficiently and have access to a larger potential customer base. As a result,
we are able to provide the following key benefits to our customers:
Choice. We believe that the ability of customers to choose among a variety
of product and service providers is the fundamental driver of dynamic growth in
commerce. By offering this crucial element of choice, our IBX centers are
designed to serve as a catalyst for our customers that creates synergy among
them and makes it possible for them to adapt their business models to
successfully scale, or keep pace, with the growth of each other and of the
Internet. Enterprises and Internet businesses view the IBX center as a forum to
attract additional customers and diversify sources of supply for their
businesses.
Opportunity to Increase Revenues and Reduce Costs. Our customers have access
to a variety of potential business partners. Accordingly, our customers have a
better opportunity to increase the size of their addressable markets,
accelerate revenue growth and improve the quality of their services at our IBX
centers. In addition, participants are able to enhance their ability to control
costs by aggregating their service purchases at a single location and through
improved purchasing power.
Scalability. Our IBX centers both stimulate and support the efficient growth
of our customers. From a facility perspective, we construct our IBX centers to
be large enough to accommodate our customers' short- term needs, and our plan
is to maintain sufficient available expansion space to meet their long-term
growth needs where possible. 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 that meets their expanded requirements.
Reliability. Our IBX design provides our customers with reliable and
disaster-resistant environments that are necessary for optimum Internet
commerce interconnection. We believe that the level of excellence and
consistency achieved in our IBX architecture and design results in premium,
secure, fault-tolerant exchanges. Our IBX centers are designed to offer our
customers redundant, high-bandwidth Internet connectivity through multiple
third-party connections. Additionally, our solutions include multiple layers of
physical security, scalable cabinet space availability, on- site trained staff
24 hours per day, 365 days per year, dedicated areas for customer care and
equipment staging, redundant AC/DC power systems and multiple other redundant,
fault-tolerant infrastructure systems.
Equinix Strategy
Our objective is to provide enterprises, content providers, ASPs and e-
commerce companies with the ability to directly interconnect with a choice of
bandwidth providers, ISPs, site management companies and
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content distribution companies to grow their business. Equinix IBX centers
enable enterprises and Internet companies to quickly, easily and privately
interconnect with a choice of business partners and customers, providing them
with the flexibility, speed and adaptability they need to accelerate business
growth and to allow a faster, more reliable Internet. To accomplish this
objective we are employing the following strategies:
Provide Customer Choice. We provide our customers with the freedom to choose
their preferred product and service providers. We call this a neutral
environment and it is one of the fundamental characteristics of an IBX center.
We believe this is a significantly improved approach compared with the current
Internet model because it offers customers increased value and reliability
based on the availability of multiple providers of needed services. In
traditional colocation or Web hosting environments, customers are often limited
to a single choice of bandwidth provider, ISP, site management company, or
performance management company. This limited choice can lead to single points
of failure for customers or a limited number of options to choose from for
value added services. The Equinix model of choice gives customers a wide range
of providers to choose from for each of the services they require for increased
Internet performance and reliability. For instance, in each IBX center
customers can choose from multiple bandwidth providers, ISPs and Web management
companies. The ability to choose whom they work with directly leads to better
Internet business performance due to the increased diversity and an improved
overall total cost of ownership since these suppliers are competing for the
customers' business within the IBX center. Our customers will benefit from an
open environment that stimulates efficient business growth through accelerated
network economics, or the value derived by a provider at an IBX center from
being able to sell its services to a locally-aggregated set of customers,
created by the efficient and rapidly growing interaction between Internet
businesses.
Manage Choice to Create Network Effect. To attract the widest choice of
Internet partners, it is important to provide a robust mix of leading companies
from a variety of businesses and services. This allows enterprises, content
providers, e- commerce companies and ASPs the opportunity to interconnect with
a wide variety of companies. As a result of the IBX interconnection model, IBX
participants encourage their customers, suppliers and business partners to also
come into the IBX center. These customers, suppliers and business partners may
also, in turn, encourage their business partners to locate in IBX centers
resulting in additional customer growth. For example, a large financial site
that chooses to locate in an Equinix IBX centers may encourage a bandwidth
provider, a site management company or another content partner, like a
financial news service, to also locate in the same IBX. In turn, these
bandwidth providers or content partners will also bring their business partners
to the IBX center. This network effect enhances the value of an IBX center with
each new customer as interconnections provide monthly recurring revenues.
Leverage IBX Centers as Hubs for Internet Exchange. The Equinix IBX model of
network aggregation and choice provides a platform for offering new services
beyond those offered by traditional hosting or colocation companies. Equinix
provides customers with direct access to the bandwidth providers and ISPs that
currently serve over 85% of the world's Internet networks. This critical mass
of leading networks that we have assembled across all of our IBX centers
uniquely positions Equinix to offer Internet exchange services that are
important to the scaling and growing of the Internet, such as content peering
and traffic exchange. Equinix will continue to leverage IBX centers as hubs for
Internet exchange, extending our model of direct interconnections with new
exchange-based services designed to allow faster and more reliable exchange of
traffic.
Leverage Strategically Scalable Centers. The network effect created by the
Equinix IBX model requires strategic scalability to support the dynamic IBX
growth environment. Our expansion plans are designed to meet the growth of our
customers. Our IBX centers will both stimulate and support the efficient growth
of our customers. From a facility perspective, we construct our IBX centers to
be large enough to accommodate our customers' short- term needs, and our plan
is to maintain sufficient available expansion space to meet their long-term
growth needs where possible.
Expand Globally and Capitalize on First-Mover Advantage. We believe that
capitalizing on our first mover advantage is essential to establishing
leadership in the rapidly developing neutral Internet business exchange market.
As a result, we currently plan to open additional IBX centers in the United
States and
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<PAGE>
internationally. We believe the demand for our international IBX centers and
services will be significant due to the early stage of Internet infrastructure
deployment outside of the U.S.
Establish Equinix as the Highest Performance Points on the Internet. We plan
to establish Equinix as the industry standard for the highest quality business
to business Internet exchanges. Through brand awareness and promotion we intend
to create a strong following among all top content providers, ASPs and e-
commerce companies. We believe that this strong brand awareness, combined with
our ability to provide the highest quality business to business marketplace
facilities and professional services will provide us with a competitive
advantage in our market.
Customers
Customers typically sign renewable contracts of two or more years in length,
often with options on additional space. In addition to bandwidth providers such
as UUNET/Worldcom, AT&T, Excite@Home, Qwest, Williams, InterNAP, Verio, Global
Crossing, Cable & Wireless and Level 3, our customers include IBM, Loudcloud
and Storage Networks. Additionally, approximately 42% of our participant base
have signed multi-site contracts.
Historically, Internet businesses have been vertically integrated and
provided all services directly to their customers. These services typically
included marketing, access and Internet backbone connectivity, server hosting,
and other services such as e-mail and Usenet newsgroups. Continued rapid
growth, innovation, competition and scarce human resources have opened the door
for companies to specialize in core Internet services and outsource other
elements of their business or product to suppliers. These specialized players
include:
. Enterprises, content providers and e-commerce companies supplying
information, education or entertainment content and conducting the sale
of goods and services;
. ASPs offering hosted applications over the Internet;
. ISPs and content distribution companies offering end-users Internet
access and content distribution network services and customer support;
. bandwidth providers (telecommunications carriers); and
. site management companies which integrate and manage a customer's end-to-
end web presence and performance.
We consider these companies to be the core of our customer base and we offer
each customer a choice of business partners and solutions that are designed to
meet their unique and changing needs.
We believe our IBX centers provide choice and neutrality that are important
to companies interested in the growth and reliability of the Internet. Equinix
offers choice within each customer segment. We believe most enterprises and
Internet companies benefit from the choice of a wide variety of Internet
business partners because their business interaction is greatly enhanced, which
in turn can translate to new revenue sources, greater efficiency and growth.
We believe the additional benefits to all customer segments include:
. Expedited service delivery
. Scalable, flexible, fault-tolerant environment
. Cost savings through aggregating purchases and sales at a single location
. Minimize packet loss and latency, or time that elapses between a request
for information and its arrival
. Ability to focus on core competencies
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. Centralized market with access to dozens of potential customers and
partners
. Proximity to service providers reduces operations, technology and
marketing costs, quickens service deployment, and improves performance
. Multiple layers of physical security
. Elimination of capital investment for facilities
. On-site Internet and telecommunications-trained staff 24 hours per day,
365 days per year
We believe our IBX centers offer the following additional benefits to our
customers:
<TABLE>
<CAPTION>
Type of Customer: Benefits:
----------------- ---------
<C> <S>
Enterprises, Content Providers, ASPs and . Direct interconnection with a choice of
E-Commerce Companies multiple bandwidth providers, Internet
service providers, site management and
content distribution companies. Choice
gives participants the ability to decide
which suppliers are the most cost-
effective and provide the level of
service they require. The benefits to
enterprises, content providers, ASPs and
e-commerce companies include maximized
Web presence, increased revenue streams,
greater security and increased customer
satisfaction.
. Simplified outsourcing of various
component services including DSL, e-mail,
Usenet and content distribution.
. Content providers benefit from direct
peering, or traffic exchange, with ISPs
over private high-speed dedicated
interconnections or via a gigabit
switching fabric.
Internet Service Providers and Content . Direct peering, or traffic exchange, with
Distribution Companies other ISPs over private high-speed
dedicated interconnections or via a
gigabit switching fabric.
. Simplified outsourcing of various
component services including DSL, e-mail,
Usenet and content distribution.
. Expedited, flexible, scalable and cost-
efficient bandwidth provisioning
Bandwidth Providers (Carriers) . Economies of scale with reduced capital
costs.
. Centralized market with access to dozens
of potential customers.
Site Management Companies . Direct interconnection with a choice of
multiple bandwidth providers, ISPs and
other service providers. Choice gives
site management companies the ability to
decide which suppliers are the most cost-
effective and provide the level of
service they require.
. Centralized market with access to dozens
of potential customers.
</TABLE>
7
<PAGE>
Services
Within our IBX centers, customers can place their equipment and interconnect
with a choice of Internet companies. Equinix also provides customized solutions
for customers looking to resell IBX space component as part of their complete,
one-stop shop solution.
Cabinets. Customers have several choices for colocating their equipment.
They can place the equipment in an Equinix shared or private cage or customize
their space to build their own data center within an IBX center. Cabinets are
84 inches high, suitable for networking and server colocation. Cable trays
support cables between and among cabinets. Stationary or slide shelves and
enclosed cabinets are available upon request. As a customer's colocation
requirements increase, they can expand within their original cage or upgrade
into a cage that meets their expanded requirements.
Shared Cages. A shared cage environment is designed for customers
needing less than five full cabinets to house their equipment. Each cabinet
in a shared cage is individually secured with an advanced trackable
electronic locking system and the cage itself is secured with the biometric
hand-geometry system.
Private Cages. Customers that contract for a minimum of five full
cabinets can use a private cage to house their equipment. Private cages are
also available in larger full cabinet sizes. Each private cage is
individually secured with the biometric hand-geometry system.
Outsourced Data Centers. Customers interested in providing a hosting service
or colocation center have the option of outsourcing the design, construction
and management of the physical facility to Equinix. Each customer can customize
the cabinet configuration within the space they purchase from Equinix in order
to satisfy their specific customers' needs.
IBXflex. This service allows customers to deploy mission-critical operations
personnel and equipment on-site at IBX centers. Because of the close proximity
to their end-users, IBXflex customers can offer a faster response and quicker
troubleshooting than available in traditional colocation facilities.
Interconnection
Physical Cross-Connect/Direct Interconnections. Customers needing to
directly connect to another IBX customer can do so for a set price. These
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.
Equinix Exchange. Customers may choose to connect to our Equinix Exchange
central switching fabric rather than purchase a direct physical cross
connection. With a connection to this switch, a customer can aggregate multiple
interconnects over one physical connection instead of purchasing individual
physical cross connects.
Value-Added Services
Our IBX centers are staffed with Internet and telecommunications specialists
who are on-site and available 24 hours per day, 365 days per year. These
professionals are trained to perform installations of customer equipment and
cross connections.
"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 tasks, when their own staff is not on site. These tasks may include
equipment installation, power cycling, card swapping, and performing emergency
equipment replacement. Services are available on-demand or by customer
contract.
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Equinix MATRIX Services. MATRIX is a service designed to facilitate
transactions between IBX participants for faster service provisioning and time
to market advantages. The service combines a browser-based automated system
with dedicated staff to provide a single mechanism to improve the efficiency,
scalability and economics of buying and selling Internet infrastructure
services.
IBX Design and Staffing
Our IBX centers are designed to provide a state-of-the-art, secure, full-
service, neutral operating environment. The IBX centers are designed to provide
specific and compelling improvements over legacy facilities, including
scalability to meet our customer's ongoing growth, improved security,
redundancy of all key infrastructure systems and improved customer care. An IBX
center is divided into six basic functional areas--access, customer care,
colocation, telecommunications access, mechanical and power systems and
operations.
Access Area. The access area includes a bullet-resistant guard booth, a
welcome area, a hand-geometry enrollment station, and a mantrap to further
control access to the IBX center. All doors and access ways are secured with
biometric hand-geometry readers to ensure absolute identification and
authentication. All customers and Equinix employees entering an Equinix IBX
center must be cleared through this secured zone.
Customer Care Area. The customer care area includes a seating section,
conference rooms, Internet workstations, customer equipment preparation work
areas, equipment lockers, a game room, bathrooms, showers and a kitchen.
Colocation Area. The colocation area is divided into large cages to house
networking and customer computer equipment that is secured by biometric
security access systems. This area includes dual independent AC and DC power
distribution systems, full-automated CCTV digital camera security surveillance,
and a tamper-proof overhead cable-management system with separate trays for
fiber and copper data and AC and DC power cables. Secured access to the
colocation area is through the customer care area.
Telecommunications Access Area. All IBX centers will have a minimum of two
dedicated fiber entry vaults for telecommunications carrier access to the
colocation area. In addition, every IBX center has roof space or a separate
platform for customers who access the IBX center via wireless devices such as
satellite dishes, radio antennae and microwave.
Mechanical and Power Systems Area. The mechanical and power systems area
includes machine rooms and space used to house all mechanical, power safety and
security equipment. Fully redundant heating, ventilation, air conditioning and
power systems, as well as dual electric utility feeds, support the IBX center.
Power systems are designed and periodically tested to transparently handle
rapid transition from public utility power to back-up power. The AC
uninterruptable power supply and DC battery systems are configured to operate a
fully occupied IBX center for a minimum of fifteen minutes. If there is a
utility power failure, the on-site generator system could be brought on-line in
less than eight seconds through an automatic transfer switch to supply
seamless, uninterrupted power to the IBX center. The emergency generators,
located in a specially equipped area, supply power to the AC and DC systems.
On-site fuel tanks store sufficient fuel to power a fully occupied IBX center
for a minimum of 48 hours.
Operations Area. The operations area houses the IBX manager's office, an
operations center for staff technicians and office space for visiting Equinix
employees. It includes consoles for monitoring all IBX environmental systems
and for tracking all activities at the IBX center. In selected IBX centers,
this area will house regional operations centers that will monitor the
operations of several IBX centers.
Additional Specifications
Security System. All access controls and other security functions are
connected to a central security computer system that controls access to the
interior and exterior perimeters of the IBX centers. A security
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guard located behind the bullet-resistant security console controls access to
the colocation area. The caged sections of the colocation area can only be
accessed through hand-geometry readers located on cage doors. Digital cameras
connected to a central system at the security console monitor and record all
activity within the IBX center, as well as the perimeter and the roof.
Staffing. A typical IBX center staff includes by one IBX manager, a chief
engineer, a warehouse coordinator and eight technical service personnel who
provide coverage for customer support needs 24 hours per day, 365 days per
year. In addition, an IBX center has security guards on duty at all times and
24-hour technical support.
Other. For security purposes, an Equinix IBX center is anonymous. No
indications of center ownership or function are visible from the exterior. In
addition, there are no raised floors and all walls are airtight and without
windows. Our IBX centers are designed with advanced fire suppression systems
which are armed with sensory mechanisms to sample the air and raise alarms
before pressurization or release. Finally, Equinix IBX centers are built in
compliance with location-dependent seismic standards.
IBX Rollout Schedule
The objective of our rollout strategy is to rapidly establish a leadership
position in the mission critical Internet infrastructure services and exchange
market.
Equinix currently has IBX centers in the Washington, D.C. New York, Dallas,
Chicago, Los Angeles metropolitan areas and in Silicon Valley. We intend to
complete construction of one additional IBX center in 2001, resulting in a
total of seven IBX centers in the U.S. The scalable nature of our IBX model
enables us to be flexible in response to changing market opportunities. As a
result, the timing and placement of our IBX centers will vary depending on
numerous factors, including customer need and technological 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. In addition, our sales team
will work closely with each customer to foster the natural network effect of
our IBX model, resulting in access to a wider potential customer base via our
existing customers. As a result of the IBX interconnection model, IBX
participants encourage their customers, suppliers and business partners to also
come into the IBX. These customers, suppliers and business partners also, in
turn, encourage their business partners to locate in IBX centers resulting in
additional customer growth. This network effect significantly reduces Equinix's
customer acquisition costs.
Before opening an IBX center, we secure key anchor customers and focus on
generating sales commitments for between at least 10% to 20% of the available
capacity. Our sales strategy is to target the top 25 companies in our customer
segments, which include enterprises, content providers, ASPs, e-commerce
companies, carriers, ISPs and site and performance management companies.
Momentum in the selling process and the presence of anchor customers are
important to attracting additional potential customers who see the IBX center
as an opportunity to generate new customers and revenues, as well as high
performance points for efficient and reliable web operations. We expect a
substantial number of customers to contract for services at multiple IBX
centers and have already received orders from such customers. At each IBX
center, our sales representatives will screen prospective customers and will
manage the population of the IBX center to ensure an appropriate mix of
customer types.
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Marketing
To support our sales effort and to actively promote and solidify the Equinix
brand, we plan to conduct comprehensive marketing programs. Our marketing
strategies will include an active public relations campaign, print
advertisements, online advertisements, trade shows, speaking engagements,
strategic partnerships and on-going customer communications programs. We are
focusing our marketing effort on business and trade publications, online media
outlets, industry events and sponsored activities. We participate in a variety
of Internet, computer and financial industry conferences and encourage our
officers and employees to pursue speaking engagements at these conferences. In
addition to these activities, we intend to build recognition through sponsoring
or leading industry technical forums and participating in Internet industry
standard-setting bodies.
Competition
Our market is new, rapidly evolving, and likely to have an increasing number
of competitors. To be successful in this emerging market, we must be able to
sufficiently differentiate our IBX model from traditional colocation and web
hosting companies. We may also face competition from persons seeking to
replicate our IBX concept. We may not be successful in differentiating
ourselves or achieving widespread market acceptance of our business.
Furthermore, enterprises that have already invested substantial resources in
peering arrangements may be reluctant or slow to adopt our approach that may
replace, limit or compete with their existing systems. If we are unable to
complete our IBX centers in a timely manner, other companies will be able to
attract the same customers that we are targeting. Once the customers are
located in our competitors' facilities, it will be very difficult, if not
impossible, to convince them to relocate to our IBX centers.
We may encounter competition from a number of sources, some of which may
also be our customers, including:
. vertically integrated Web site hosting, colocation and ISP companies such
as AboveNet, Exodus and Globix;
. established communications carriers such as AT&T, Level 3, WorldCom and
Qwest; and
. emerging colocation service providers such as Colo.com, InterNAP, and
Telehouse.
Potential competitors may bundle their products or incorporate colocation
services in a manner that is more attractive to our potential customers than
purchasing cabinet space in our IBX centers and utilizing our services.
Furthermore, new competitors or alliances among competitors may emerge and
rapidly acquire significant market share. Our competitors may be able to
respond more quickly to new or emerging technologies and changes in customer
requirements than we can.
Some of our potential competitors have longer operating histories and
significantly greater financial, technical, marketing and other resources than
we do. In particular, carriers and several hosting and colocation companies
have extensive customer bases and broad customer relationships that they can
leverage, including relationships with many of our potential customers. These
companies also have significantly greater customer support and professional
service capabilities than we do. Because of their greater financial resources,
some of these companies have the ability to adopt aggressive pricing policies.
As a result, in the future we may have to adopt pricing strategies that compete
with such competitors to attract and retain customers. Any such pricing
pressures would adversely affect our ability to generate revenues.
Employees
As of December 31, 2000, we had 316 employees and 56 full-time consultants.
We had 211 employees based at our corporate headquarters in Mountain View,
California and our regional sales offices in New York, NY and Reston, VA. Of
those employees, 103 were in engineering and operations, 64 were in sales and
marketing and 44 were in management and finance. We had 4 employees based in
Europe. The remaining 101 employees were based at our Washington, D.C., New
York, NY, Los Angeles, CA, Dallas, TX, Chicago, IL and Silicon Valley IBX
centers.
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RISK FACTORS
In addition to the other information in this report, the following risk
factors should be considered carefully in evaluating our business and us:
Risks Related to Our Business
Our business model is new and unproven and we may not succeed in generating
sufficient revenue to sustain or grow our business.
We were founded in June 1998. We did not recognize any revenue until
November 1999. Our limited history and lack of meaningful financial or
operating data makes evaluating our operations and the proposed scale of our
business difficult. Moreover, the neutrality aspect of our business model is
unique and largely unproven. We expect that we will encounter challenges and
difficulties frequently experienced by early-stage companies in new and rapidly
evolving markets, such as our ability to generate cash flow, hire, train and
retain sufficient operational and technical talent, and implement our plan with
minimal delays. We may not successfully address any or all of these challenges
and the failure to do so would seriously harm our business plan and operating
results, and affect our ability to raise additional funds.
We have a history of losses, and we expect our operating expenses and losses to
increase significantly.
As an early-stage company, we have experienced operating losses since
inception. As of December 31, 2000, we had cumulative net losses of $141.6
million and cumulative cash used in operating activities of $78.8 million since
inception. We expect to incur significant losses on a quarterly and annual
basis in the foreseeable future. Our losses will increase as we:
. increase the number and size of IBX centers;
. increase our sales and marketing activities, including expanding our
direct sales force; and
. enlarge our customer support and professional services organizations.
In addition, we may also use significant amounts of cash and equity to
acquire complementary businesses, products, services and technologies, which
could further increase our expenses and losses.
We expect our operating results to fluctuate.
We have experienced fluctuations in our results of operations on a quarterly
and annual basis. We expect to experience significant fluctuations in the
foreseeable future due to a variety of factors, many of which are outside of
our control, including:
. the timely completion of our IBX centers;
. demand for space and services at our IBX centers;
. our pricing policies and the pricing policies of our competitors;
. the timing of customer installations and related payments;
. customer retention and satisfaction;
. the provision of customer discounts and credits;
. competition in our markets;
. the timing and magnitude of capital expenditures and expenses related to
the expansion of sales, marketing, operations and acquisitions, if any,
of complementary businesses and assets;
. the cost and availability of adequate public utilities, including power;
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. growth of Internet use;
. governmental regulation;
. conditions related to international operations;
. economic conditions specific to the Internet industry; and
. general economic factors.
In addition, a relatively large portion of our expenses are fixed in the
short-term, particularly with respect to real estate and personnel expenses,
depreciation and amortization, and interest expenses. Therefore, our results of
operations are particularly sensitive to fluctuations in revenues.
Because our ability to generate enough revenues to achieve profitability
depends on numerous factors, we may not become profitable.
Our IBX centers may not generate sufficient revenue to achieve
profitability. Our ability to generate sufficient revenues to achieve
profitability will depend on a number of factors, including:
. the timely completion of our IBX centers;
. demand for space and services at our IBX centers;
. our pricing policies and the pricing policies of our competitors;
. the timing of customer installations and related payments;
. customer retention and satisfaction;
. the provision of customer discounts and credits;
. competition in our markets;
. growth of Internet use;
. governmental regulation;
. conditions related to international operations;
. economic conditions specific to the Internet industry; and
. general economic factors.
Although we have experienced significant growth in revenues in recent
quarters, this growth rate is not necessarily indicative of future operating
results. It is possible that we may never achieve profitability on a quarterly
or annual basis.
We are substantially leveraged and we may not generate sufficient cash flow to
meet our debt service and working capital requirements.
We are highly leveraged. As of December 31, 2000, we had total indebtedness
of $210.9 million consisting primarily of the following:
. our 13% senior notes due 2007; and
. outstanding debt facilities and capital lease obligations.
We expect to incur further debt to fund our IBX construction plans and
operating losses. Our highly leveraged position could have important
consequences, including:
. impairing our ability to obtain additional financing for working capital,
capital expenditures, acquisitions or general corporate purposes;
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. 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 and expenses in
connection with our IBX construction activities. We will need to successfully
implement our business strategy on a timely basis to meet our debt service and
working capital needs. We may not successfully implement our business strategy,
and even if we do, we may not realize the anticipated results of our strategy
or generate sufficient operating cash flow to meet our debt service obligations
and working capital needs.
In the event our cash flow is inadequate to meet our obligations, we could
face substantial liquidity problems. If we are unable to generate sufficient
cash flow or otherwise obtain funds needed to make required payments under
indebtedness, or if we breach any covenants under this indebtedness, we would
be in default under its terms and the holders of such indebtedness may be able
to accelerate the maturity of such indebtedness, which could cause defaults
under our other indebtedness.
Our ability to draw down additional funds from our senior secured credit
facilities is dependent on our maintaining specific financial ratios and
complying with covenants in the credit agreement.
Our senior secured credit facilities contain financial ratios and covenants
that must be complied with in order for us to draw down the full amount of the
facilities. These ratios and covenants include minimum quarterly revenue
requirements, maximum EBITDA losses, maximum capital expenditures and maximum
debt to capital ratios. If we are unable to maintain these ratios or comply
with these covenants, we will not be able to draw down additional funds from
the senior secured credit facilities. If we are not able to draw down the full
amount of the senior secured credit facility, we may not be able to meet some
of our spending needs and this could harm our business.
We are subject to restrictive covenants in our credit agreements that limit our
flexibility in managing our business.
Our credit agreements contain numerous restrictions on our ability to incur
debt, pay dividends or make other restricted payments, sell assets, enter into
affiliate transactions and take other actions. Furthermore, our existing
financing arrangements are, and future financing arrangements are likely to be,
secured by substantially all of our assets. The existing financing arrangements
require, and future financing arrangements are likely to require, that we
maintain specific financial ratios and comply with covenants restricting our
ability to incur additional debt, specifically including additional debt under
the senior secured credit facilities, pay dividends or make other restricted
payments, sell assets, enter into affiliate transactions or take other actions.
In addition, we are restricted in how we use funds raised in our debt
financings. As a result, from time to time we may not be able to meet some of
our spending needs and this could harm our business.
The success of our business depends on the overall demand for data center space
and services and internet infrastructure services.
Our success depends on the growth of overall demand for data center
services. In addition, a large percentage of our revenues are and will in the
future be derived from companies providing internet
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infrastructure services, such as web hosting companies, managed service
providers, storage service providers and performance enhancers. A softening of
demand for data center services or internet infrastructure services caused by a
weakening of the global economy in general and the U.S. economy in particular
may result in decreased revenues or slower growth for us.
We may continue to have customer concentration
To date, we have relied upon a small number of customers for a majority of
our revenue. We expect that we will continue to rely upon a limited number of
customers for a significant percentage of our revenue. As a result of this
concentration, a loss of or decrease in business from one or more of our large
customers could have a material and adverse effect on our results of
operations.
Any failure of our physical infrastructure or services could lead to
significant costs and disruptions that could reduce our revenue and harm our
business reputation and financial results.
Our business depends on providing our customers with highly reliable
service. We must protect our IBX infrastructure and our customers' equipment
located in our IBX centers. The services we provide are subject to failure
resulting from numerous factors, including:
. human error;
. physical or electronic security breaches;
. fire, earthquake, flood and other natural disasters;
. water damage;
. power loss; and
. sabotage and vandalism.
Problems at one or more of our centers, whether or not within our control,
could result in service interruptions or significant equipment damage. To date,
our aggregate customer uptime has been in excess of 99.99% across all our
operational IBX centers; however, in the past, a very limited number of our
customers have experienced temporary losses of power. If we incur significant
financial commitments to our customers in connection with a loss of power, or
our failure to meet other service level commitment obligations, our liability
insurance may not be adequate to cover those expenses. In addition, any loss of
services, equipment damage or inability to meet our service level commitment
obligations, particularly in the early stage of our development, could reduce
the confidence of our customers and could consequently impair our ability to
obtain and retain customers that would adversely affect our ability to generate
revenues and affect our operating results.
Our business could be harmed by prolonged electrical power outages or
shortages, or increased costs of energy.
Our IBX centers are susceptible to regional costs of power, electrical power
shortages and planned or unplanned power outages caused by these shortages,
such as those currently occurring in California. The overall power shortage in
California has increased the cost of energy, which we may not be able to pass
on to our customers. To date, none of our customers have experienced any
interruption of service in our IBX centers as a result of any power shortage.
We attempt to limit exposure to system downtime by using backup generators and
power supplies. Power outages which last beyond our backup and alternative
power arrangements could harm our customers and our business.
Our rollout plan is subject to change and we may need to alter our plan and
reallocate funds.
Our IBX center rollout plan has been developed from our current market data
and research, projections and assumptions. If we are able to secure additional
funds, we expect to pursue additional IBX projects and to
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<PAGE>
reconsider the timing and approach to IBX projects. We expect to continually
reevaluate our business and rollout plan in light of evolving competitive and
market conditions and the availability of suitable sites, financing and
customer demand. As a result, we may alter our IBX center rollout and
reallocate funds, or eliminate segments of our plan entirely if there are:
. changes or inaccuracies in our market data and research, projections or
assumptions;
. unexpected results of operations or strategies in our target markets;
. regulatory, technological, and competitive developments, including
additional market developments and new opportunities; or
. changes in, or discoveries of, specific market conditions or factors
favoring expedited development in other markets.
We rely upon Bechtel to complete our IBX center rollout plans on time.
We have agreed to use Bechtel Corporation exclusively as our contractor to
provide program management, site identification and evaluation and construction
services to build our IBX centers under mutually agreed upon guaranteed
completion dates. Problems in our relationship with Bechtel, including Bechtel
rendering services to our potential competitors, could have a material adverse
affect on our ability to achieve our business objectives on a timely and cost-
effective basis.
We depend on third parties to provide Internet connectivity to our IBX centers;
if connectivity is not established or continued or is delayed, our operating
results and cash flow will be adversely affected.
The presence of diverse Internet fiber from communications carriers' fiber
networks to an Equinix IBX center is critical to our ability to attract new
customers. We believe that the availability of such carrier capacity will
directly affect our ability to achieve our projected results.
We are not a communications carrier, and as such we rely on third parties to
provide our customers with carrier facilities. We intend to rely primarily on
revenue opportunities from our customers to encourage carriers to incur the
expenses required to build facilities from their points of presence to our IBX
centers. Carriers will likely evaluate the revenue opportunity of an IBX center
based on the assumption that the environment will be highly competitive. There
can be no assurance that, after conducting such an evaluation, any carrier will
elect to offer its services within our IBX centers. In addition, there can be
no assurance once a carrier has decided to provide Internet connectivity to our
IBX centers that it will continue to do so for any period of time.
The construction required to connect multiple carrier facilities to our IBX
centers is complex and involves factors outside of our control, including
regulatory processes and the availability of construction resources. For
example, in the past carriers have experienced delays in connecting to our
facilities. If the establishment of highly diverse Internet connectivity to our
IBX centers does not occur or is materially delayed or is discontinued, our
operating results and cash flow will be adversely affected.
We will operate in a new highly competitive market and we may be unable to
compete successfully against new entrants and established companies with
greater resources.
In a market that we believe will likely have an increasing number of
competitors, we must be able to differentiate ourself from existing providers
of space for telecommunications equipment and web hosting companies. In
addition to competing with other neutral colocation providers, we will compete
with traditional colocation providers, including local phone companies, long
distance phone companies, Internet service providers and web hosting
facilities. Most of these companies have longer operating histories and
significantly greater financial, technical, marketing and other resources than
we do. We believe our neutrality provides us with an advantage over these
competitors. However, these competitors could offer colocation on neutral
terms, and may start doing so in the metropolitan areas where we have IBX
centers. In addition, some of these
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competitors provide our target customers with additional benefits, including
bundled communication services, and may do so at reduced prices or in a manner
that is more attractive to our potential customers than obtaining space in our
IBX centers. If these competitors were to provide communication services at
reduced prices together with colocation space, it may lower the total price of
these services in a fashion that we cannot match.
We may also face competition from persons seeking to replicate our IBX
concept. Our competitors may operate more successfully than we do or form
alliances to acquire significant market share. Furthermore, enterprises that
have already invested substantial resources in peering arrangements may be
reluctant or slow to adopt our approach that may replace, limit or compete with
their existing systems. If we are unable to complete our IBX centers in a
timely manner, other companies may be able to attract the same customers that
we are targeting. Once customers are located in our competitors' facilities, it
will be extremely difficult to convince them to relocate to our IBX centers.
Because of their greater financial resources, some of these companies have
the ability to adopt aggressive pricing policies. As a result, in the future,
we may suffer from pricing pressure that would adversely affect our ability to
generate revenues and affect our operating results.
Because we depend on the development and growth of a balanced customer base,
failure to attract this base of customers could harm our business and operating
results.
Our ability to maximize revenues depends on our ability to develop and grow
a balanced customer base, consisting of a variety of companies, including
content providers, application service providers, e-commerce companies,
bandwidth providers and site and performance management companies. Our ability
to attract customers to our IBX centers will depend on a variety of factors,
including the presence of multiple carriers, the overall mix of our customers,
our operating reliability and security and our ability to effectively market
our services. Construction delays, our inability to find suitable locations to
build additional IBX centers, equipment and material shortages or our inability
to obtain necessary permits on a timely basis could delay our IBX center
rollout schedule and prevent us from developing our anticipated customer base.
A customer's decision to lease cabinet space in our IBX centers typically
involves a significant commitment of resources and will be influenced by, among
other things, the customer's confidence that other Internet and e-commerce
related businesses will be located in a particular IBX center. In particular,
some customers will be reluctant to commit to locating in our IBX centers until
they are confident that the IBX center has adequate carrier connections. As a
result, we have a long sales cycle. We generally incur significant expenses in
sales and marketing prior to getting customer commitments for our services.
Delays due to the length of our sales cycle may adversely affect our business,
financial condition and results of operations.
Our success will also depend upon generating significant interconnection
revenues from customers which may depend upon a balanced customer base, as well
as upon the success of our IBX centers at facilitating business among
customers. In addition, some of our customers will be Internet companies that
face many competitive pressures and that may not ultimately be successful. If
these customers do not succeed, they will not continue to use our IBX centers.
This may be disruptive to our business and may adversely affect our business,
financial condition and results of operations.
If not properly managed, our growth and expansion could significantly harm our
business and operating results.
We are experiencing, and expect to continue to experience, rapid growth.
This growth has placed, and we expect it to continue to place, a significant
strain on our financial, management, operational and other resources. Any
failure to manage growth effectively could seriously harm our business and
operating results. To succeed, we will need to:
. hire, train and retain new employees and qualified engineering personnel
at each IBX center;
. implement additional management information systems;
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. 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.
To date, we have experienced difficulties implementing and upgrading our
management information systems. We do not currently have a permanent Chief
Information Officer. We intend to hire a permanent Chief Information Officer
and additional information technology personnel to upgrade and operate our
management information systems. If we are unable to hire and retain such
personnel, and successfully upgrade and operate adequate management information
systems to support our growth effectively, our business will be materially and
adversely affected.
We must attract and retain key personnel to maintain and grow our business.
We require the services of additional personnel in positions related to our
growth. For example, we need to expand our marketing and direct sales
operations to increase market awareness of our IBX centers, market our services
to a greater number of enterprises and generate increased revenues. We also
require highly capable technical personnel to provide the quality services we
are promoting. As a result, we plan to hire additional personnel in related
capacities. Our success depends on our ability to identify, hire, train and
retain additional qualified personnel, including managers, particularly in
areas related to our anticipated growth and geographic expansion.
We may not be successful in attracting, assimilating or retaining qualified
personnel. In addition, due to generally tight labor markets, our industry, in
particular, suffers from a lack of available qualified personnel. If we lose
one or more of our key employees, we may not be able to find a replacement and
our business and operating results could be adversely affected.
We may make acquisitions, which pose integration and other risks that could
harm our business.
We may seek to acquire complementary businesses, products, services and
technologies. As a result of these acquisitions, we may:
. be required to incur additional debt and expenditures; and
. issue additional shares of our stock to pay for the acquired business,
product, service or technology, which will dilute existing shareholders'
ownership interest in the Company.
In addition, if we fail to successfully integrate and manage acquired
businesses, products, services and technologies, our business and financial
results would be harmed. Currently, we have no present commitments or
agreements with respect to any such acquisitions.
We face risks associated with international operations that could harm our
business.
We intend to construct IBX centers outside of the United States and we will
commit significant resources to our international sales and marketing
activities. Our management has limited experience conducting business outside
of the United States and we may not be aware of all the factors that affect our
business in foreign jurisdictions. We will be subject to a number of risks
associated with international business activities that may increase our costs,
lengthen our sales cycles and require significant management attention. These
risks include:
. increased costs and expenses related to the leasing of foreign IBX
centers;
. difficulty or increased costs of constructing IBX centers in foreign
countries;
. difficulty in staffing and managing foreign operations;
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. increased expenses associated with marketing services in foreign
countries;
. business practices that favor local competition and protectionist laws;
. difficulties associated with enforcing agreements through foreign legal
systems;
. general economic and political conditions in international markets;
. potentially adverse tax consequences, including complications and
restrictions on the repatriation of earnings;
. currency exchange rate fluctuations;
. unusual or burdensome regulatory requirements or unexpected changes to
those requirements;
. tariffs, export controls and other trade barriers; and
. longer accounts receivable payment cycles and difficulties in collecting
accounts receivable.
To the extent that our operations are incompatible with, or not economically
viable within, any given foreign market, we may not be able to locate an IBX
center in that particular foreign jurisdiction.
Our stock price has been volatile in the past and is likely to continue to be
volatile.
The market price of our common stock has been volatile in the past and is
likely to continue to be volatile. In addition, the securities markets in
general, and Internet stocks in particular, have experienced significant price
volatility and accordingly the trading price of our common stock is likely to
be affected by this activity.
If there is a change of control of Equinix, we may be required under our
indenture and our senior secured credit facilities to repurchase or repay the
debt outstanding under those agreements.
Change of control provisions in our indenture and senior secured credit
facilities could limit the price that investors might be willing to pay in the
future for shares of our common stock and significantly impede the ability of
the holders of our common stock to change management.
Risks Related to Our Industry
If use of the Internet and electronic business does not continue to grow, a
viable market for our IBX centers may not develop.
Rapid growth in the use of and interest in the Internet has occurred only
recently. Acceptance and use may not continue to develop at historical rates
and a sufficiently broad base of consumers may not adopt or continue to use the
Internet and other online services as a medium of commerce. Demand and market
acceptance for recently introduced Internet services and products are subject
to a high level of uncertainty and there are few proven services and products.
As a result, we cannot be certain that a viable market for our IBX centers will
emerge or be sustainable.
We must respond to rapid technological change and evolving industry standards
in order to meet the needs of our customers.
The market for IBX centers will be marked by rapid technological change,
frequent enhancements, changes in customer demands and evolving industry
standards. Our success will depend, in part, on our ability to address the
increasingly sophisticated and varied needs of our current and prospective
customers. Our failure to adopt and implement the latest technology in our
business could negatively affect our business and operating results.
In addition, we have made and will continue to make assumptions about the
standards that may be adopted by our customers and competitors. If the
standards adopted differ from those on which we have based
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anticipated market acceptance of our services or products, our existing
services could become obsolete. This would have a material adverse effect on
our business, financial condition and results of operations.
Government regulation may adversely affect the use of the Internet and our
business.
Laws and regulations governing Internet services, related communications
services and information technologies, and electronic commerce are beginning to
emerge but remain largely unsettled, even in areas where there has been some
legislative action. It may take years to determine whether and how existing
laws, such as those governing intellectual property, privacy, libel,
telecommunications, and taxation, apply to the Internet and to related services
such as ours. In addition, the development of the market for online commerce
and the displacement of traditional telephony services by the Internet and
related communications services may prompt increased calls for more stringent
consumer protection laws or other regulation, both in the United States and
abroad, that may impose additional burdens on companies conducting business
online and their service providers. The adoption or modification of laws or
regulations relating to the Internet, or interpretations of existing law, could
have a material adverse effect on our business, financial condition and results
of operations.
ITEM 2. PROPERTIES
Our executive offices are currently located in Mountain View, CA. We have
entered into leases for IBX centers in Ashburn, VA, Newark, NJ, San Jose and
Los Angeles, CA, Chicago, IL, Dallas, TX, Secaucus, NJ, Amsterdam, The
Netherlands, Paris, France, London, England and Frankfurt, Germany. We also
hold a ground leasehold interest in certain unimproved real property in San
Jose, CA, consisting of approximately 79 acres. Relating to future IBX centers,
we do not intend to own real estate or buildings but rather continue to enter
into lease agreements with a minimum term of ten years, renewal options and
rights of first refusal on space for expansion.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of the year ended
December 31, 2000.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is traded on the Nasdaq National Market System under the
symbol of EQIX. The following table sets forth, for the periods indicated, the
low and high bid prices per share for our common stock as reported by the
Nasdaq National Market.
<TABLE>
<CAPTION>
Low High
----- ------
<S> <C> <C>
Fiscal 2000
Fourth Fiscal Quarter.......................................... $3.50 $ 9.75
Third Fiscal Quarter (beginning August 11, 2000)............... 8.88 16.19
</TABLE>
As of December 31, 2000, there were approximately 255 holders of record of
our common stock.
No dividends have been paid on the common stock. We currently intend to
retain all future earnings, if any, for use in our business and do not
anticipate paying any cash dividends on our common stock in the foreseeable
future. Other than restrictions that are a part of our various debt
instruments, there are no legal restrictions on paying dividends.
The effective date of the Registration Statement for our initial public
offering, filed on Form S-1 under the Securities Act of 1933 (File No. 333-
93749), was August 10, 2000. The class of securities registered was Common
Stock. The managing underwriters for the offering were Goldman, Sachs & Co.,
Salomon Smith Barney Inc., Chase Securities Inc. and Epoch Securities, Inc.
The offering commenced on August 11, 2000 and terminated on September 7,
2000 after we had sold 22,704,596 shares out of a total of 23,000,000 shares of
common stock registered under the Registration Statement for aggregate gross
offering proceeds of $272,455,152.
We incurred expenses of approximately $20,973,000, of which $19,071,860
represented underwriting discounts and commissions and approximately $1,901,140
represented other expenses related to the offering. The net offering proceeds
after total expenses were $251,482,000.
We expect to use the proceeds for general corporate purposes, including
working capital, and to fund the construction of new IBX centers and existing
IBX center expansion projects. A portion of the net proceeds may also be used
for the acquisition of businesses, products and technologies that are
complimentary to ours. We have no current agreements or commitments for
acquisitions of complementary businesses, products or technologies. Pending
these uses, the net proceeds have been invested in investment grade and
interest-bearing securities. The use of proceeds from the offering does not
represent a material change in the use of proceeds described in the
Registration Statement.
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ITEM 6. SELECTED FINANCIAL DATA
The following statement of operations data for the years ended December 31,
2000 and 1999, and for the period from our inception on June 22, 1998 to
December 31, 1998, and the balance sheet data as of December 31, 2000, 1999 and
1998 have been derived from our audited consolidated financial statements and
the related notes to the financial statements. Our historical results are not
necessarily indicative of the results to be expected for future periods. The
following selected consolidated 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
report.
<TABLE>
<CAPTION>
Period from
June 22, 1998
Years ended (inception)
December 31, to
------------------- December 31,
2000 1999 1998
--------- -------- -------------
(dollars in thousands, except
per share data)
<S> <C> <C> <C>
Statement of Operations Data:
Revenues.................................... $ 13,016 $ 37 $ --
--------- -------- -------
Costs and operating expenses:
Cost of revenues (excludes stock-based
compensation of $766, $177 and none for
the periods ended December 31, 2000, 1999
and 1998, respectively).................. 42,635 3,091 --
Sales and marketing (excludes stock-based
compensation of $6,318, $1,631 and $13
for the periods ended December 31, 2000,
1999 and 1998, respectively)............. 13,821 2,318 34
General and administrative (excludes
stock-based compensation of $22,809,
$4,819 and $151 for the periods ended
December 31, 2000, 1999 and 1998,
respectively)............................ 33,776 7,784 751
Stock-based compensation.................. 29,893 6,627 164
--------- -------- -------
Total costs and operating expenses...... 120,125 19,820 949
--------- -------- -------
Loss from operations...................... (107,109) (19,783) (949)
Interest income............................. 16,430 2,138 150
Interest expense............................ (29,111) (3,146) (220)
--------- -------- -------
Net loss.................................... $(119,790) $(20,791) $(1,019)
========= ======== =======
Net loss per share:
Basic and diluted......................... $ (3.48) $ (4.98) $ (1.48)
========= ======== =======
Weighted average shares................... 34,461 4,173 688
========= ======== =======
<CAPTION>
As of December 31,
----------------------------------
2000 1999 1998
--------- -------- -------------
(dollars in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and short-term
investments................................ $ 207,210 $222,974 $ 9,165
Accounts receivable, net.................... 4,925 178 --
Restricted cash and short-term investments.. 36,855 38,609 --
Property and equipment, net................. 315,380 28,444 482
Construction in progress.................... 94,894 18,312 31
Total assets................................ 683,485 319,946 10,001
Debt facilities and capital lease
obligations, excluding current portion..... 6,506 8,808 --
Senior notes................................ 185,908 183,955 --
Redeemable convertible preferred stock...... -- 97,227 10,436
Total stockholders' equity (deficit)........ 375,116 8,472 (846)
Other Financial Data:
Adjusted EBITDA (1)......................... (62,400) (12,547) (782)
Net cash used in operating activities....... (68,073) (9,908) (796)
Net cash used in investing activities....... (302,158) (86,270) (5,265)
Net cash provided by financing activities... 339,847 295,178 10,226
</TABLE>
- -------
(1) Adjusted EBITDA consists of net loss excluding interest, income taxes,
depreciation and amortization of capital assets and amortization of
deferred stock-based compensation. Adjusted EBITDA is presented to enhance
an understanding of our operating results, it is not intended to represent
cash flow or results of operations in accordance with generally accepted
accounting principles for the period indicated and my be calculated
differently than Adjusted EBITDA for other companies. Adjusted EBITDA is
not a measure determined under generally accepted accounting principles nor
is it a measure of liquidity.
22
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following commentary should be read in conjunction with the financial
statements and related notes contained elsewhere in this Form 10-K. The
discussion contains forward-looking statements that involve risks and
uncertainties. These statements relate to future events or our future financial
performance. In many cases, you can identify forward-looking statements by
terminology such as "may," "will," "should," "expects," "plans," "anticipates,"
"believes," "estimates," "predicts," "potential," "intend" or "continue," or
the negative of such terms and other comparable terminology. These statements
are only predictions. Our actual results may differ materially from those
anticipated in these forward-looking statements as a result of a variety of
factors, including, but not limited to, those set forth under "Risk Factors"
and elsewhere in this Form 10-K.
Overview
Equinix designs, builds and operates neutral IBX centers where Internet
businesses place their equipment and their network facilities in order to
interconnect with each other to improve internet performance. Our neutral IBX
centers provide content providers, application service providers, or ASPs and
e-commerce companies with the ability to directly interconnect with a choice of
bandwidth providers, Internet service providers, or ISPs, and site and
performance management companies. Equinix currently has IBX centers totaling an
aggregate of 543,000 gross square feet in the Washington, D.C. metropolitan
area, the New York metropolitan area, Silicon Valley, Dallas, Los Angeles and
Chicago. We intend to complete construction of one additional IBX center and
several expansion projects by the end of 2001, resulting in IBX centers
covering seven domestic markets in the United States. Since our inception on
June 22, 1998, our operating activities have consisted primarily of designing,
building and operating our IBX centers, developing our management team and
raising equity and third party debt.
In August 2000, we completed our initial public offering and obtained
aggregate net proceeds of $251.5 million, which included proceeds from the
exercise of the underwriters' over-allotment option. In December 2000, we
completed our $150.0 million senior secured credit facility.
We generate recurring revenues primarily from the leasing of cabinet space
and power. In addition, we offer value-added services and professional services
including direct interconnections between our customers and "Smart Hands"
service for customer equipment installations and maintenance. Customer
contracts for the lease of cabinet space, power, interconnections and switch
ports are renewable and typically are for two or more years with payments for
services made on a monthly basis. In addition, we generate non-recurring
revenues, which are comprised of installation charges that are billed upon
successful installation of our customer cabinets, power, interconnections and
switch ports. Both recurring and non-recurring revenues are recognized ratably
over the term of the contract.
Many of our customers have signed multi-site and multi-year contracts.
Assuming completion of our planned IBX projects, the full installation of the
customer equipment contemplated by these contracts and no incremental
interconnection revenue beyond the minimum provided for by these contracts,
these contracts would provide us with monthly recurring revenue of
approximately $6.3 million. Because we may alter our rollout schedule and we
depend upon third parties to construct and connect our facilities with fiber
and accordingly, the timing of customer installations, Equinix cannot predict
when and whether we will realize the full value of these contracts. Moreover,
many of our customer contracts can be terminated upon requisite written notice.
Our cost of revenues consists primarily of lease payments on our existing
and proposed IBX centers, site employees' salaries and benefits, utility costs,
amortization and depreciation of IBX center build-out costs and equipment and
engineering, power, redundancy and security systems support and services. In
addition, cost of revenues includes certain costs related to real estate
obtained for future IBX facilities in the United States and Europe. We will
continue to fund these costs and these costs will be expensed as incurred. We
expect our cost of revenues to increase for the foreseeable future.
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Our selling, general and administrative expenses consist primarily of costs
associated with recruiting, training and managing of employees, salaries and
related costs of our operations, customer fulfillment and support functions
costs and finance and administrative personnel and related professional fees.
Our selling, general and administrative expenses will increase as we continue
to expand our operations.
We recorded deferred stock-based compensation of approximately $54.5
million, $19.4 million and $1.1 million in connection with stock options
granted during 2000, 1999 and 1998, respectively, where the deemed fair market
value of the underlying common stock was subsequently determined to be greater
than the exercise price on the date of grant. Approximately $29.9 million, $6.6
million and $164,000 was amortized to stock-based compensation expense for the
periods ended December 31, 2000, 1999 and 1998, respectively. The options
granted are typically subject to a four-year vesting period. We are amortizing
the deferred stock-based compensation on an accelerated basis over the vesting
periods of the applicable options in accordance with FASB Interpretation No.
28. The remaining $38.4 million of deferred stock-based compensation will be
amortized over the remaining vesting periods. We expect amortization of
deferred stock-based compensation expense to impact our reported results
through December 31, 2004.
Our adjusted net loss before net interest and other expense, income taxes,
depreciation and amortization of capital assets, amortization of stock-based
compensation and other non-cash charges ("Adjusted EBITDA") is calculated to
enhance an understanding of our operating results. Adjusted EBITDA is a
financial measurement commonly used in capital-intensive telecommunication and
infrastructure industries. Other companies may calculate Adjusted EBITDA
differently than we do. It is not intended to represent cash flow or results of
operations in accordance with generally accepted accounting principles nor a
measure of liquidity. We measure Adjusted EBITDA at both the IBX center and
total company level.
Since inception, we have experienced operating losses and negative cash
flow. As of December 31, 2000 we had an accumulated deficit of $141.6 million
and accumulated cash used in operating and construction activities of $403.1
million. Given the revenue and income potential of our service offerings is
still unproven and we have a limited operating history, we may not generate
sufficient operating results to achieve desired profitability. We therefore
believe that we will continue to experience operating losses for the
foreseeable future. See "Risk Factors".
Results of Operations
Years ended December 31, 2000 and December 31, 1999
Revenues. Revenues increased from $37,000 for the year ended December 31,
1999 to $13.0 million for the year ended December 31, 2000. Revenues consisted
of recurring revenues of $11.6 million, primarily from the leasing of cabinet
space and power, and non-recurring revenues of $1.4 million related to the
recognized portion of deferred installation revenue and custom installation
revenues. Installation and service fees are recognized ratably over the term of
the contract. We anticipate revenues will continue to increase substantially in
the future.
Cost of Revenues. Cost of revenues increased from $3.1 million for the year
ended December 31, 1999 to $42.6 million for the year ended December 31, 2000.
Cost of revenues consists primarily of rental payments for our leased IBX
centers, site employees' salaries and benefits, utility costs, power and
redundancy system engineering support services and related costs, security
services and related costs and depreciation and amortization of our IBX center
build-out and other equipment costs. The increase in cost of revenues was due
to the expansion and deployment of our IBX centers throughout the United
States. In addition, cost of revenues include certain costs related to real
estate obtained for future IBX facilities in the United States and Europe. We
will continue to fund these costs as the Company continues to expand its IBX
centers in the United States and Europe. These costs will be expensed as
incurred. Furthermore, these amounts exclude $177,000 and $766,000, for the
years ended December 31, 1999 and 2000, respectively, of stock-based
compensation expense.
24
<PAGE>
Sales and Marketing. Sales and marketing expenses increased from $2.3
million for the year ended December 31, 1999 to $13.8 million for the year
ended December 31, 2000. Sales and marketing expenses consist primarily of
compensation and related costs for the sales and marketing personnel, sales
commissions, marketing programs, public relations, promotional materials and
travel. The increase in sales and marketing expense resulted from the addition
of personnel in our sales and marketing organizations, reflecting our increased
selling effort to support our IBX center deployment plan and our efforts to
develop market awareness. These amounts exclude $1.6 million and $6.3 million,
for the years ended December 31, 1999 and 2000, respectively, of stock-based
compensation expense. We anticipate that sales and marketing expenses will
increase in absolute dollars due to continued customer acquisition costs and
further expansion of our market awareness initiatives. In addition, these costs
will increase consistent with our future IBX center deployment and expansion
plans.
General and Administrative. General and administrative expenses increased
from $7.8 million for the year ended December 31, 1999 to $33.8 million for the
year ended December 31, 2000. General and administrative expenses consist
primarily of salaries and related expenses, accounting, legal and
administrative expenses, professional service fees and other general corporate
expenses. The increase in general and administrative expenses was primarily the
result of increased expenses associated with additional hiring of personnel in
management, finance and administration, as well as other related costs
associated with supporting the Company's expansion. These amounts exclude $4.8
million and $22.8 million, for the years ended December 31, 1999 and 2000,
respectively, of stock-based compensation expense. We anticipate that general
and administrative expenses will increase in absolute dollars due to increased
staffing levels consistent with the growth in our infrastructure and related
operating costs.
Adjusted EBITDA. Adjusted EBITDA loss increased from $12.5 million for the
year ended December 31, 1999 to $62.4 million for the year ended December 31,
2000. Although many factors affect adjusted EBITDA and costs vary from IBX
market to IBX market, as of December 31, 2000, three of our six IBX centers
achieved positive adjusted EBITDA status. We anticipate our adjusted EBITDA
losses to decline as we leverage our existing cost base and expand our revenue
growth.
Interest Income. Interest income increased from $2.1 million for the year
ended December 31, 1999 to $16.4 million for the year ended December 31, 2000.
Interest income increased substantially due to higher cash, cash equivalent and
short-term investment balances held in interest bearing accounts, resulting
from the proceeds of the initial public offering and preferred stock financing
activities.
Interest Expense. Interest expense increased from $3.1 million for the year
ended December 31, 1999 to $29.1 million for the year ended December 31, 2000.
The increase in interest expense was attributed to interest on the senior
notes, interest related to our debt facilities and capital lease obligations
and amortization of the senior notes, debt facilities and capital lease
obligations discount.
Year Ended December 31, 1999 and Period from Inception (June 22, 1998) through
December 31, 1998
Revenues. We recognized revenues of $37,000 for the year ended December 31,
1999. In addition, we entered into contracts with other customers and allocated
cabinet space to these customers as of December 31, 1999. Although we entered
into these customer contracts, we did not recognize such amounts as revenues as
the sales cycle was not yet complete by December 31, 1999. We did not offer IBX
center colocation or interconnection exchange services from the date of
inception through December 31, 1998, and as such, no revenues were recognized
from the date of inception to December 31, 1998.
Cost of Revenues. We incurred cost of revenues of $3.1 million for the year
ended December 31, 1999. Cost of revenues is primarily comprised of rental
payments on our leased IBX centers, site employees' salaries and benefits,
utilities costs, power and redundancy system engineering support services and
related costs, security services and related costs and depreciation and
amortization of our IBX center build-out and other
25
<PAGE>
equipment costs. This amount excludes $177,000 for the year ended December 31,
1999 of stock-based compensation expense. We did not offer IBX center
colocation or interconnection exchange services from the date of inception
through December 31, 1998, and as such, no cost of revenues was incurred from
the date of inception to December 31, 1998.
Sales and Marketing. Sales and marketing expenses increased from $34,000 for
the period from the date of inception to December 31, 1998 to $2.3 million for
the year ended December 31, 1999. These expenses consist primarily of salary
and benefit costs from the hiring of both sales and marketing personnel and
certain related recruiting and relocation costs and the establishment of sales
and marketing programs. These amounts exclude the recognition of stock-based
compensation expense in the amount of approximately $13,000 and $1.6 million
for the period from the date of inception to December 31, 1998 and the year
ended December 31, 1999, respectively. In addition, we established two regional
sales offices to support the New York and Washington, D.C. metropolitan area
IBX centers. We anticipate that sales and marketing expenses will increase
substantially to coincide with the commercial operation of our IBX centers and
additional stock-based compensation expense.
General and Administrative. General and administrative expenses increased
from $752,000 for the period from the date of inception to December 31, 1998 to
$7.8 million for the year ended December 31, 1999. General and administrative
expenses are primarily comprised of salaries and employee benefits expenses,
professional and consultant fees and corporate headquarter operating costs,
including facility and other rental costs. These amounts exclude the
recognition of stock-based compensation expenses in the amount of approximately
$151,000 and $4.8 million for the period from the date of inception to December
31, 1998 and the year ended December 31, 1999, respectively. We anticipate that
general and administrative expenses will increase significantly due to
increased staffing levels consistent with the growth in our infrastructure and
related operating costs associated with our regional and international
expansion efforts and additional stock-based compensation expense.
Adjusted EBITDA. Adjusted EBITDA loss increased from $782,000 for the period
from the date of inception to December 31, 1998 to $12.5 million for the year
ended December 31, 1999. As of December 31, 1998, no IBX centers had been
constructed. We anticipate our adjusted EBITDA losses to increase as we build
our IBX centers and decline as these centers become profitable as we leverage
our existing cost base and expand our revenue growth.
Interest Income. We recognized interest income of $2.1 million for the year
ended December 31, 1999 compared to $150,000 for the period from the date of
inception to December 31, 1998. Interest income increased substantially due to
higher cash, cash equivalent and short-term investment balances resulting from
the senior notes and preferred stock financing activities.
Interest Expense. Interest expense was $3.1 million for the year ended
December 31, 1999 compared to $220,000 for the period from the date of
inception to December 31, 1998. Interest expense increased due to the issuance
of senior notes, increased debt facilities and capital lease obligations and
amortization of the senior notes and debt facilities and capital lease
obligation discount. Interest expense for the period from the date of inception
to December 31, 1998 consisted of the interest charge from the conversion right
of the convertible loan arrangement, under which the initial lenders to the
Company converted their promissory notes into Series A redeemable convertible
preferred stock at a more beneficial rate than other Series A investors.
Liquidity and Capital Resources
Since inception, we have financed our operations and capital requirements
primarily through the issuance of senior notes, the private sale of preferred
stock, our initial public offering and debt financings, excluding our recently
completed $150.0 million senior secured credit facility which has not been
drawn upon as of December 31, 2000, for aggregate gross proceeds of
approximately $686.2 million. As of December 31, 2000, we had approximately
$207.2 million in cash, cash equivalents and short-term investments.
Furthermore, we
26
<PAGE>
have an additional $36.9 million of restricted cash, cash equivalents and
short-term investments to fund interest expense through June 2001 on our 13%
senior notes due 2007, provide collateral under a number of separate security
agreements for standby letters of credit and escrow accounts entered into and
in accordance with certain lease agreements. Our principal sources of liquidity
consist of our cash, cash equivalent and short-term investment balances and
proceeds from our $150.0 million senior secured credit facility. As of December
31, 2000, our total indebtedness from our senior notes, debt facilities and
capital lease obligations was $210.9 million.
Net cash used in our operating activities was $68.1 million and $9.9 million
for the years ended December 31, 2000 and 1999, respectively. We used cash
primarily to fund our net loss from operations.
Net cash used in investing activities was $302.2 million and $86.3 million
for the years ended December 31, 2000 and 1999, respectively. Net cash used in
investing activities was primarily attributable to the construction of our IBX
centers and the purchase of restricted cash and short-term investments.
Net cash generated by financing activities was $339.8 million and $295.2
million for the years ended December 31, 2000 and 1999, respectively. Net cash
generated by financing activities during the year ended December 31, 2000 was
primarily attributable to the proceeds from the initial public offering and
issuance of Series C redeemable convertible preferred stock. Net cash generated
by financing activities during the year ended December 31, 1999 was primarily
attributable to the proceeds from the issuance of Series B redeemable
convertible preferred stock and the drawdown on the debt facilities and capital
lease obligations.
In March 1999, we entered into a loan and security agreement in the amount
of $7.0 million, bearing interest at 7.5% to 9.0% per annum, repayable in 36 to
42 equal monthly payments with a final interest payment equal to 15% of the
advance amounts due at maturity. The outstanding principal and interest balance
under this loan and security agreement, including the final interest payment,
was repaid in December 2000.
In May 1999, we entered into a master lease agreement in the amount of $1.0
million. This master lease agreement was increased by addendum in August 1999
by $5.0 million. This agreement bears interest at either 7.5% or 8.5% and is
repayable over 42 months in equal monthly payments with a final interest
payment equal to 15% of the advance amounts due on maturity. At December 31,
2000, these capital lease financings have been fully drawn.
In August 1999, we entered into a loan agreement in the amount of $10.0
million. This loan agreement bears interest at 8.5% and is repayable over 42
months in equal monthly payments with a final interest payment equal to 15% of
the advance amounts due on maturity. At December 31, 2000, this debt financing
has been fully drawn.
In December 1999, we issued $200.0 million aggregate principal amount of 13%
senior notes due 2007 for aggregate net proceeds of $193.4 million, net of
offering expenses. Of the $200.0 million gross proceeds, $16.2 million was
allocated to additional paid-in capital for the fair market value of the common
stock warrants and recorded as a discount to the senior notes. Senior notes,
net of the unamortized discount, are $185.9 million as of December 31, 2000.
In December 1999, we completed the private sale of our Series B redeemable
convertible preferred stock, net of issuance costs, in the amount of $81.7
million.
In May 2000, we entered into a purchase agreement regarding approximately 80
acres of real property in San Jose, California. In June 2000, before the
closing on this property, we assigned our interest in the purchase agreement to
iStar San Jose, LLC. On the same date, iStar purchased this property and
entered into a 20-year lease with us for the property. Under the terms of the
lease, we have the option to extend the lease for an additional 60 years, for a
total lease term of 80 years. In addition, we have the option to purchase the
property from iStar after 10 years.
27
<PAGE>
In June 2000, we completed the private sale of our Series C redeemable
convertible preferred stock in the amount of $94.4 million.
In August 2000, we completed an initial public offering of 20,000,000 shares
of common stock. In addition, in September 2000, the underwriters exercised
their option to purchase 2,704,596 shares to cover over-allotments of shares.
Total net proceeds from the offering and over-allotment were $251.5 million.
In December 2000, we entered into a $150.0 million senior secured credit
facility. At December 31, 2000, no proceeds from this facility have been drawn.
We expect that our cash on hand and anticipated cash flow from operations,
and drawdown of our senior secured credit facility, should be sufficient to
build our additional IBX center by the end of 2001. Assuming sufficient
customer demand and the availability of additional financing, we will build
additional IBX centers and expand certain existing IBX centers. We are
continually evaluating the location, number and size of our facilities based
upon the availability of suitable sites, financing and customer demand. If we
cannot raise additional funds on acceptable terms or our losses exceed our
expectations, we may delay or permanently reduce our rollout plans. Additional
financing may take the form of debt or equity. If we are unable to raise
additional funds to further our rollout, we anticipate that the cash flow
generated from the seven IBX centers, for which we will have obtained
financing, will be sufficient to meet the working capital, debt service and
corporate overhead requirements associated with those IBX centers.
Recent Accounting Pronouncements
In September 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards, or SFAS, No. 133, Accounting for Derivative
Instruments and Hedging Activities. In June 1999, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards No.
137 ("SFAS 137"), "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133." In June
2000, the FASB issued SFAS 138, "Accounting for Certain Derivative Instruments
and Certain Hedging Activities--an Amendment of FASB Statement No. 133." SFAS
133 establishes new standards of accounting and reporting for derivative
instruments and hedging activities, and requires that all derivatives,
including foreign currency exchange contracts, be recognized on the balance
sheet at fair value. Equinix will adopt SFAS 133, as amended by SFAS 137 and
SFAS 138, in the first fiscal quarter of 2001, and does not expect the adoption
to have a material effect on its financial condition or results of operations.
In December 1999, the SEC issued Staff Accounting Bulletin 101, or SAB 101,
Revenue Recognition, which outlines the basic criteria that must be met to
recognize revenue and provides guidance for presentation of revenue and for
disclosure related to revenue recognition policies in financial statements
filed with the SEC. The adoption of SAB 101 did not have a material impact on
our financial position and results of operations.
In March 2000, the FASB issued Interpretation No. 44, or FIN 44, Accounting
for Certain Transactions Involving Stock Compensation--an Interpretation of APB
25. This Interpretation clarifies (a) the definition of employee for purposes
of applying Opinion 25, (b) the criteria for determining whether a plan
qualifies as a noncompensatory plan, (c) the accounting consequence of various
modifications to the terms of a previously fixed stock option or award, and (d)
the accounting for an exchange of stock compensation awards in a business
combination. This Interpretation is effective July 1, 2000, but certain
conclusions in this Interpretation cover specific events that occur after
either December 15, 1998, or January 12, 2000. The adoption of certain of the
conclusions of FIN 44 did not have a material effect on the Company's financial
position and results of operations.
Impact of the Year 2000
We have not experienced any disruption related to the year 2000 in the
operation of our systems. Although most year 2000 problems should have become
evident on January 1, 2000, additional problems related to the year 2000 may
become evident only after that date.
28
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk
The following discussion about market risk disclosures involves forward-
looking statements. Actual results could differ materially from those projected
in the forward-looking statements. We may be exposed to market risks related to
changes in interest rates and foreign currency exchange rates and to a lesser
extent we are exposed to fluctuations in the prices of certain commodities,
primarily electricity.
Equinix attempts to net individual exposures on a consolidated basis, when
feasible, to take advantage of natural offsets. In addition, we employ foreign
currency forward exchange contracts for the purpose of hedging certain
specifically identified net currency exposures. The use of these financial
instruments is intended to mitigate some of the risks associated with
fluctuations in currency exchange rates, but does not eliminate such risks. We
do not use financial instruments for trading or speculative purposes.
Interest Rate Risk
Our exposure to market risk resulting from changes in interest rates relates
primarily to our investment portfolio. Our interest income is impacted by
changes in the general level of U.S. interest rates, particularly since the
majority of our investments are in short-term instruments. Due to the short-
term nature of our investments, we do not believe that we are subject to any
material market risk exposure. An immediate 10% increase or decrease in current
interest rates would not have a material effect on the fair market value of our
investment portfolio. We would not expect our operating results or cash flows
to be significantly affected by a sudden change in market interest rates in our
investment portfolio.
An immediate 10% increase or decrease in current interest rates would
furthermore not have a material impact to our debt obligations due to the fixed
nature of our long-term debt obligations. The fair market value of our long
term fixed interest rate debt is subject to interest rate risk. Generally, the
fair market value of fixed interest rate debt will increase as interest rates
fall and decrease as interest rates rise. These interest rate changes may
affect the fair market value and do impact earnings or cash flows of the
Company. An immediate 10% change in interest rates would not have a material
impact on future operating results or cash flows.
The fair market value of our 13% senior notes due 2007 are based on quoted
market prices. The estimated fair value of our 13% senior notes due 2007 as of
December 31, 2000 is approximately $140.0 million.
Foreign Currency Risk
To date, all of our recognized revenue has been denominated in U.S. dollars,
generated mostly from customers in the United States, and our exposure to
foreign currency exchange rate fluctuations has been minimal. We expect that
future revenues may be derived from customers outside of the United States and
may be denominated in foreign currency. As a result, our operating results or
cash flows may be impacted due to currency fluctuations relative to the U.S.
dollar. Furthermore, to the extent we engage in international sales that are
denominated in U.S. dollars, an increase in the value of the U.S. dollar
relative to foreign currencies could make our services less competitive in the
international markets. Although we will continue to monitor our exposure to
currency fluctuations, and when appropriate, may use financial hedging
techniques in the future to minimize the effect of these fluctuations, we
cannot assure you that exchange rate fluctuations will not adversely affect our
financial results in the future.
29
<PAGE>
We have entered into a number of lease agreements in Europe for which our
liabilities are denominated in foreign currency. As of December 31, 2000, we
also had foreign currency commitments relating to the initiation of our
business within Europe. We use forward exchange contracts to hedge a portion of
our liabilities which are denominated in foreign currencies. The Company's
forward exchange contracts as of December 31, 2000, which mature during 2001,
are represented below (in thousands):
<TABLE>
<CAPTION>
Contract to receive Foreign Currency Contract Amount Change in Fair Market Value
currency / Pay US$ Contract amount in US$ as of December 31, 2000
------------------------------------------------------------------------------------
<S> <C> <C> <C>
British
Pounds Pounds 28,313 US$41,003 US$1,337
</TABLE>
Assuming a 10% increase in the value of the U.S. dollar relative to the
British Pound, and a 10% decrease in the value of the U.S. dollar relative to
the British Pound, the aggregate fair value of these foreign currency
commitments as hedged would be approximately $36.9 million and $45.1 million,
respectively.
Commodity Price Risk
Certain operating costs incurred by Equinix are subject to price
fluctuations caused by the volatility of underlying commodity prices. The
commodities most likely to have an impact on our results of operations in the
event of significant price changes are electricity and building materials for
the construction of our IBX centers such as steel. We are closely monitoring
the cost of electricity, particularly in California. To the extent that
electricity costs continue to rise, we are investigating opportunities to pass
these additional power costs onto our customers that utilize this power. For
building materials, we rely on Bechtel's expertise and bulk purchasing power to
best manage the procurement of these required materials for the construction of
our IBX centers. We do not employ forward contracts or other financial
instruments to hedge commodity price risk.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by this Item 8 are
listed in Item 14(a)(1) and begin at page F-1 of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On March 7, 2000, KPMG LLP resigned as our independent accountants upon
determining that they may no longer be independent of Equinix as a result of
Cisco Systems, Inc.'s investment in both KPMG Consulting, Inc., a subsidiary of
KPMG LLP and Equinix. We subsequently appointed PricewaterhouseCoopers LLP as
our principal accountants on March 21, 2000. There were no disagreements with
the former accountants during the fiscal years ended December 31, 1998 and 1999
or during any subsequent interim period preceding their replacement on any
matter of accounting principles or practices, financial statement disclosure,
or auditing scope or procedures, which disagreements, if not resolved to the
former accountants' satisfaction, would have caused them to make reference to
the subject matter of the disagreement in connection with their reports. The
former independent accountants issued an unqualified report on the financial
statements as of December 31, 1999 and 1998 and for the year ended December 31,
1999 and the period from June 22, 1998 (inception) to December 31, 1998. For
purposes of this filing, the financial statements as of December 31, 1999 and
1998 and for the year ended December 31, 1999 and the period from June 22, 1998
(inception) to December 31, 1998 have been audited by PricewaterhouseCoopers
LLP. Prior to March 21, 2000, we did not consult with PricewaterhouseCoopers
LLP on items that involved our accounting principles or the form of audit
opinion to be issued on our financial statements. The change in accountants was
approved by our board of directors.
30
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding our Directors and Executive Officers is
incorporated herein by reference from the section entitled "Election of
Directors" of our definitive Proxy Statement (the "Proxy Statement") to be
filed pursuant to Regulation 14A of the Securities Exchange Act of 1934, as
amended, for our Year 2001 Annual Meeting of Stockholders. The Proxy Statement
is anticipated to be filed within 120 days after the end of our fiscal year
ended December 31, 2000.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation is incorporated herein by
reference from the section entitled "Executive Compensation and Related
Information" of the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners and
management is incorporated herein by reference from the section entitled "Stock
Ownership of Certain Beneficial Owners and Management" of the Proxy Statement.
ITEM 13. RELATED PARTY TRANSACTIONS
Information regarding certain relationships and related transactions is
incorporated herein by reference from the section entitled "Related Party
Transactions" of the Proxy Statement.
31
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements:
<TABLE>
<S> <C>
Report of Independent Accountants...................................... F-1
Consolidated Balance Sheets............................................ F-2
Consolidated Statements of Operations.................................. F-3
Consolidated Statements of Stockholders' Equity (Deficit).............. F-4
Consolidated Statements of Cash Flows.................................. F-5
Notes to Consolidated Financial Statements............................. F-6
</TABLE>
(a)(2) All schedules have been omitted because they are not applicable or
the required information is shown in the financial statements or notes thereto.
(a)(3) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
3.1** Amended and Restated Certificate of Incorporation of the Registrant,
as amended to date.
3.2* Bylaws of the Registrant.
4.1 Reference is made to Exhibits 3.1 and 3.2.
4.2** Form of Registrant's Common Stock certificate.
4.6* Common Stock Registration Rights Agreement (See Exhibit 10.3).
4.9* Amended and Restated Investors' Rights Agreement (See Exhibit 10.6).
10.1* Indenture, dated as of December 1, 1999, by and among the Registrant
and State Street Bank and Trust Company of California, N.A. (as
trustee).
10.2* Warrant Agreement, dated as of December 1, 1999, by and among the
Registrant and State Street Bank and Trust Company of California,
N.A. (as warrant agent).
10.3* Common Stock Registration Rights Agreement, dated as of December 1,
1999, by and among the Registrant, Benchmark Capital Partners II,
L.P., Cisco Systems, Inc., Microsoft Corporation, ePartners, Albert
M. Avery, IV and Jay S. Adelson (as investors), and the Initial
Purchasers.
10.4* Registration Rights Agreement, dated as of December 1, 1999, by and
among the Registrant and the Initial Purchasers.
10.5* Form of Indemnification Agreement between the Registrant and each of
its officers and directors.
10.6* Amended and Restated Investors' Rights Agreement, dated as of May 8,
2000, by and between the Registrant, the Series A Purchasers, the
Series B Purchasers, the Series C Purchasers and members of the
Registrant's management.
10.8* The Registrant's 1998 Stock Option Plan.
10.9*+ Lease Agreement with Carlyle-Core Chicago LLC, dated as of September
1, 1999.
10.10*+ Lease Agreement with Market Halsey Urban Renewal, LLC, dated as of
May 3, 1999.
10.11*+ Lease Agreement with Laing Beaumeade, dated as of November 18, 1998.
10.12*+ Lease Agreement with Rose Ventures II, Inc., dated as of September
10, 1999.
10.13*+ Lease Agreement with 600 Seventh Street Associates, Inc., dated as of
August 6, 1999.
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
10.14*+ First Amendment to Lease Agreement with TrizecHahn Centers, Inc.
(dba TrizecHahn Beaumeade Corporate Management), dated as of
October 28, 1999.
10.15*+ Lease Agreement with Nexcomm Asset Acquisition I, L.P., dated as of
January 21, 2000.
10.16*+ Lease Agreement with TrizecHahn Centers, Inc. (dba TrizecHahn
Beaumeade Corporate Management), dated as of December 15, 1999.
10.17* Lease Agreement with ARE-2425/2400/2450 Garcia Bayshore LLC, dated
as of January 28, 2000.
10.18* Sublease Agreement with Insweb Corporation, dated as of November 1,
1998.
10.19*+ Master Agreement for Program Management, Site Identification and
Evaluation, Engineering and Construction Services between Equinix,
Inc. and Bechtel Corporation, dated November 3, 1999.
10.20*+ Agreement between Equinix, Inc. and WorldCom, Inc., dated November
16, 1999.
10.21* Customer Agreement between Equinix, Inc. and WorldCom, Inc., dated
November 16, 1999.
10.22*+ Lease Agreement with GIP Airport B.V., dated as of April 28, 2000.
10.23* Purchase Agreement between International Business Machines
Corporation and Equinix, Inc. dated May 23, 2000.
10.24** 2000 Equity Incentive Plan.
10.25** 2000 Director Option Plan.
10.26** 2000 Employee Stock Purchase Plan.
10.27** Ground Lease by and between iStar San Jose, LLC and Equinix, Inc.,
dated June 21, 2000.
10.28***+ Lease Agreement with TrizecHahn Beaumeade Technology Center LLC,
dated as of July 1, 2000.
10.29***+ Lease Agreement with TrizecHahn Beaumeade Technology Center LLC,
dated as of May 1, 2000.
10.30***+ Lease Agreement with 600 Seventh Street Associates, Inc., dated as
of August 24, 2000.
10.31***+ Lease Agreement with Burlington Associates III Limited Partnership,
dated as of July 24, 2000.
10.32***+ Lease Agreement with Naxos Schmirdelwerk Mainkur GmbH and A.A.A.
Aktiengesellschaft Allgemeine Anlageverwaltung vorm. Seilwolff AG
von 1890, dated as of August 7, 2000.
10.33***+ Lease Agreement with Quattrocento Limited, dated as of June 1,
2000.
10.34*** Lease Agreement with ARE-2425/2400/2450 Garcia Bayshore, LLC, dated
as of March 20, 2000.
10.35*** First Supplement to the Lease Agreement with Naxos Schmirdelwerk
Mainkur GmbH and A.A.A. Aktiengesellschaft Allgemeine
Anlageverwaltung vorm. Seilwolff AG von 1890, dated as of October
11, 2000.
10.36 Credit and Guaranty Agreement for $150,000,000 Senior Secured
Credit Facilities, dated as of December 20, 2000.
10.37+ Lease Agreement with Quattrocentro Limited, dated as of June 9,
2000.
10.38+ Lease Agreement with Compagnie des Entrepots et Magasins Generaux
de Paris, dated as of July 28, 2000.
10.39+ Second Supplement to the Lease Agreement with Naxos Schmirdelwerk
Mainkur GmbH and A.A.A. Aktiengesellschaft Allgemeine
Anlageverwaltung vorm. Seilwolff AG von 1890, dated as of December
22, 2000.
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
10.40 Third Supplement to the Lease Agreement with Naxos Schmirdelwerk
Mainkur GmbH and A.A.A. Aktiengesellschaft Allgemeine Anlageverwaltung
vorm. Seilwolff AG von 1890, dated as of March 8, 2001.
16.1* Letter regarding change in certifying accountant.
21.1 Subsidiaries of Equinix.
24.1 Power of Attorney (see page 35).
</TABLE>
- --------
* Incorporated herein by reference to the exhibit of the same number in the
Registrant's Registration Statement on Form S-4 (file No. 333-93749).
** Incorporated herein by reference to the exhibit of the same number in the
Registrant's Registration Statement in Form S-1 (file No. 333-39752).
*** Incorporated herein by reference to the exhibit of the same number in the
Registrant's Quarterly Report on Form 10-Q for the quarter ended September
30, 2000.
+ Confidential treatment has been requested for certain portions which are
omitted in the copy of the exhibit electronically filed with the
Securities and Exchange Commission. The omitted information has been filed
separately with the Securities and Exchange Commission pursuant to
Equinix's application for confidential treatment.
(b) Reports on Form 8-K.
None.
(c) Exhibits.
See (a)(3) above.
(d) Financial Statement Schedule.
See (a)(2) above.
34
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
EQUINIX, INC.
(Registrant)
March 27, 2001
/s/ Peter F. Van Camp ___________
Chief Executive Officer and Director
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Peter F. Van Camp or Philip J. Koen, or either
of them, each with the power of substitution, his attorney-in-fact, to sign any
amendments to this Form 10-K (including post-effective amendments), and to file
the same, with exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, hereby ratifying and confirming
all that each of said attorneys-in-fact, or his substitute or substitutes, may
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Peter F. Van Camp Chief Executive Officer and March 27, 2001
_________________________ Director (Principal
Peter F. Van Camp Executive Officer)
/s/ Albert M. Avery, IV President, Chief Operating March 27, 2001
_________________________ Officer and Director
Albert M. Avery, IV
/s/ Philip J. Koen Chief Financial Officer, March 27, 2001
_________________________ Corporate Development
Philip J. Koen Officer and Secretary
(Principal Financial and
Accounting Officer)
/s/ Scott Kriens Director March 27, 2001
_________________________
Scott Kriens
/s/ Dawn G. Lepore Director March 27, 2001
_________________________
Dawn G. Lepore
/s/ Andrew S. Rachleff Director March 27, 2001
_________________________
Andrew S. Rachleff
/s/ Michelangelo Volpi Director March 27, 2001
_________________________
Michelangelo Volpi
</TABLE>
35
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
3.1** Amended and Restated Certificate of Incorporation of the Registrant,
as amended to date.
3.2* Bylaws of the Registrant.
4.1 Reference is made to Exhibits 3.1 and 3.2.
4.2** Form of Registrant's Common Stock certificate.
4.6* Common Stock Registration Rights Agreement (See Exhibit 10.3).
4.9* Amended and Restated Investors' Rights Agreement (See Exhibit 10.6).
10.1* Indenture, dated as of December 1, 1999, by and among the Registrant
and State Street Bank and Trust Company of California, N.A. (as
trustee).
10.2* Warrant Agreement, dated as of December 1, 1999, by and among the
Registrant and State Street Bank and Trust Company of California, N.A.
(as warrant agent).
10.3* Common Stock Registration Rights Agreement, dated as of December 1,
1999, by and among the Registrant, Benchmark Capital Partners II,
L.P., Cisco Systems, Inc., Microsoft Corporation, ePartners, Albert M.
Avery, IV and Jay S. Adelson (as investors), and the Initial
Purchasers.
10.4* Registration Rights Agreement, dated as of December 1, 1999, by and
among the Registrant and the Initial Purchasers.
10.5* Form of Indemnification Agreement between the Registrant and each of
its officers and directors.
10.6* Amended and Restated Investors' Rights Agreement, dated as of May 8,
2000, by and between the Registrant, the Series A Purchasers, the
Series B Purchasers, the Series C Purchasers and members of the
Registrant's management.
10.8* The Registrant's 1998 Stock Option Plan.
10.9*+ Lease Agreement with Carlyle-Core Chicago LLC, dated as of September
1, 1999.
10.10*+ Lease Agreement with Market Halsey Urban Renewal, LLC, dated as of May
3, 1999.
10.11*+ Lease Agreement with Laing Beaumeade, dated as of November 18, 1998.
10.12*+ Lease Agreement with Rose Ventures II, Inc., dated as of September 10,
1999.
10.13*+ Lease Agreement with 600 Seventh Street Associates, Inc., dated as of
August 6, 1999.
10.14*+ First Amendment to Lease Agreement with TrizecHahn Centers, Inc. (dba
TrizecHahn Beaumeade Corporate Management), dated as of October 28,
1999.
10.15*+ Lease Agreement with Nexcomm Asset Acquisition I, L.P., dated as of
January 21, 2000.
10.16*+ Lease Agreement with TrizecHahn Centers, Inc. (dba TrizecHahn
Beaumeade Corporate Management), dated as of December 15, 1999.
10.17* Lease Agreement with ARE-2425/2400/2450 Garcia Bayshore LLC, dated as
of January 28, 2000.
10.18* Sublease Agreement with Insweb Corporation, dated as of November 1,
1998.
10.19*+ Master Agreement for Program Management, Site Identification and
Evaluation, Engineering and Construction Services between Equinix,
Inc. and Bechtel Corporation, dated November 3, 1999.
10.20*+ Agreement between Equinix, Inc. and WorldCom, Inc., dated November 16,
1999.
10.21* Customer Agreement between Equinix, Inc. and WorldCom, Inc., dated
November 16, 1999.
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
10.22*+ Lease Agreement with GIP Airport B.V., dated as of April 28, 2000.
10.23* Purchase Agreement between International Business Machines
Corporation and Equinix, Inc. dated May 23, 2000.
10.24** 2000 Equity Incentive Plan.
10.25** 2000 Director Option Plan.
10.26** 2000 Employee Stock Purchase Plan.
10.27** Ground Lease by and between iStar San Jose, LLC and Equinix, Inc.,
dated June 21, 2000.
10.28***+ Lease Agreement with TrizecHahn Beaumeade Technology Center LLC,
dated as of July 1, 2000.
10.29***+ Lease Agreement with TrizecHahn Beaumeade Technology Center LLC,
dated as of May 1, 2000.
10.30***+ Lease Agreement with 600 Seventh Street Associates, Inc., dated as
of August 24, 2000.
10.31***+ Lease Agreement with Burlington Associates III Limited Partnership,
dated as of July 24, 2000.
10.32***+ Lease Agreement with Naxos Schmirdelwerk Mainkur GmbH and A.A.A.
Aktiengesellschaft Allgemeine Anlageverwaltung vorm. Seilwolff AG
von 1890, dated as of August 7, 2000.
10.33***+ Lease Agreement with Quattrocento Limited, dated as of June 1, 2000.
10.34*** Lease Agreement with ARE-2425/2400/2450 Garcia Bayshore, LLC, dated
as of March 20, 2000.
10.35*** First Supplement to the Lease Agreement with Naxos Schmirdelwerk
Mainkur GmbH and A.A.A. Aktiengesellschaft Allgemeine
Anlageverwaltung vorm. Seilwolff AG von 1890, dated as of October
11, 2000.
10.36 Credit and Guaranty Agreement for $150,000,000 Senior Secured Credit
Facilities, dated as of December 20, 2000.
10.37+ Lease Agreement with Quattrocentro Limited, dated as of June 9,
2000.
10.38+ Lease Agreement with Compagnie des Entrepots et Magasins Generaux de
Paris, dated as of July 28, 2000.
10.39+ Second Supplement to the Lease Agreement with Naxos Schmirdelwerk
Mainkur GmbH and A.A.A. Aktiengesellschaft Allgemeine
Anlageverwaltung vorm. Seilwolff AG von 1890, dated as of December
22, 2000.
10.40 Third Supplement to the Lease Agreement with Naxos Schmirdelwerk
Mainkur GmbH and A.A.A. Aktiengesellschaft Allgemeine
Anlageverwaltung vorm. Seilwolff AG von 1890, dated as of March 8,
2001.
16.1* Letter regarding change in certifying accountant.
21.1 Subsidiaries of Equinix.
24.1 Power of Attorney (see page 35).
</TABLE>
- --------
* Incorporated herein by reference to the exhibit of the same number in the
Registrant's Registration Statement on Form S-4 (file No. 333-93749).
** Incorporated herein by reference to the exhibit of the same number in the
Registrant's Registration Statement in Form S-1 (file No. 333-39752).
*** Incorporated herein by reference to the exhibit of the same number in the
Registrant's Quarterly Report on Form 10-Q for the quarter ended September
30, 2000.
+ Confidential treatment has been requested for certain portions which are
omitted in the copy of the exhibit electronically filed with the
Securities and Exchange Commission. The omitted information has been filed
separately with the Securities and Exchange Commission pursuant to
Equinix's application for confidential treatment.
37
<PAGE>
Report of Independent Accountants
To Board of Directors and
Stockholders of Equinix, Inc.
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) on page 32, present fairly, in all material
respects, the financial position of Equinix, Inc. at December 31, 2000 and
1999, and the results of its operations and its cash flows for each of the two
years ended December 31, 2000 and for the period from June 22, 1998 (date of
inception) to December 31, 1998 in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
PricewaterhouseCoopers LLP
San Jose, California
February 1, 2001
F-1
<PAGE>
EQUINIX, INC.
Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
December 31,
--------------------
2000 1999
--------- ---------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents.............................. $ 174,773 $ 203,165
Short-term investments................................. 32,437 19,809
Accounts receivable, net of allowance for doubtful
accounts of $608 and none............................. 4,925 178
Current portion of restricted cash and short-term
investments........................................... 15,468 25,111
Prepaids and other current assets...................... 10,373 1,597
--------- ---------
Total current assets................................. 237,976 249,860
Property and equipment, net.............................. 315,380 28,444
Construction in progress................................. 94,894 18,312
Restricted cash and short-term investments, less current
portion................................................. 21,387 13,498
Debt issuance costs, net................................. 11,916 7,125
Other assets............................................. 1,932 2,707
--------- ---------
Total assets............................................. $ 683,485 $ 319,946
========= =========
Liabilities, Redeemable Convertible Preferred
Stock and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses.................. $ 13,717 $ 4,143
Accrued construction costs............................. 89,343 9,772
Current portion of debt facilities and capital lease
obligations........................................... 4,426 4,395
Accrued interest payable............................... 2,167 2,167
Other current liabilities.............................. 1,646 205
--------- ---------
Total current liabilities............................ 111,299 20,682
Debt facilities and capital lease obligations, less
current portion......................................... 6,506 8,808
Senior notes............................................. 185,908 183,955
Other liabilities........................................ 4,656 802
--------- ---------
Total liabilities.................................... 308,369 214,247
--------- ---------
Commitments and contingencies (Note 8)
Redeemable convertible preferred stock................... -- 97,227
Stockholders' equity:
Common stock, $0.001 par value per share; 300,000,000
and 112,500,000 shares authorized in 2000 and 1999;
76,978,852 and 11,672,196 shares issued and
outstanding in 2000 and 1999.......................... 77 12
Additional paid-in capital............................. 553,070 43,962
Deferred stock-based compensation...................... (38,350) (13,706)
Accumulated other comprehensive income................. 1,919 14
Accumulated deficit.................................... (141,600) (21,810)
--------- ---------
Total stockholders' equity........................... 375,116 8,472
--------- ---------
Total liabilities, redeemable convertible preferred
stock and stockholders' equity...................... $ 683,485 $ 319,946
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
EQUINIX, INC.
Consolidated Statements of Operations
(in thousands, except per share data)
<TABLE>
<CAPTION>
Period from
June 22, 1998
(inception)
Year ended Year ended to
December 31, December 31, December 31,
2000 1999 1998
------------ ------------ -------------
<S> <C> <C> <C>
Revenues............................... $ 13,016 $ 37 $ --
--------- -------- -------
Costs and operating expenses:
Cost of revenues (excludes stock-based
compensation of $766, $177 and none
for the periods ended December 31,
2000, 1999, and 1998 respectively)... 42,635 3,091 --
Sales and marketing (excludes stock-
based compensation of $6,318, $1,631,
and $13 for the periods ended
December 31, 2000, 1999, and 1998
respectively)........................ 13,821 2,318 34
General and administrative (excludes
stock-based compensation of $22,809,
$4,819, and $151 for the periods
ended December 31, 2000, 1999, and
1998, respectively).................. 33,776 7,784 751
Stock-based compensation.............. 29,893 6,627 164
--------- -------- -------
Total costs and operating
expenses.......................... 120,125 19,820 949
--------- -------- -------
Loss from operations.................. (107,109) (19,783) (949)
Interest income........................ 16,430 2,138 150
Interest expense....................... (29,111) (3,146) (220)
--------- -------- -------
Net loss............................... $(119,790) $(20,791) $(1,019)
========= ======== =======
Net loss per share:
Basic and diluted..................... $ (3.48) $ (4.98) $ (1.48)
========= ======== =======
Weighted average shares............... 34,461 4,173 688
========= ======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
EQUINIX, INC.
Consolidated Statements of Stockholders' Equity (Deficit)
Period from June 22, 1998 (inception) to December 31, 2000
(in thousands, except per share data)
<TABLE>
<CAPTION>
Accumulated
Common stock Additional Deferred other Total
------------------ paid-in stock-based comprehensive Accumulated stockholders'
Shares Amount capital compensation income (loss) deficit equity (deficit)
---------- ------ ---------- ------------ ------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock
for cash................ 6,060,000 $ 6 $ (2) $ -- $ -- $ -- $ 4
Issuance of common stock
upon exercise of common
stock options........... 90,000 -- 6 -- -- -- 6
Deferred stock-based
compensation............ -- -- 1,136 (1,136) -- -- --
Amortization of stock-
based compensation...... -- -- -- 164 -- -- 164
Net loss................ -- -- -- -- -- (1,019) (1,019)
---------- --- -------- -------- ------ --------- ---------
Balances as of December
31, 1998................ 6,150,000 6 1,140 (972) -- (1,019) (845)
Issuance of common stock
upon exercise of common
stock options........... 5,522,196 6 1,280 -- -- -- 1,286
Issuance of common stock
warrants................ -- -- 22,181 -- -- -- 22,181
Deferred stock-based
compensation............ -- -- 19,361 (19,361) -- -- --
Amortization of stock-
based compensation...... -- -- -- 6,627 -- -- 6,627
Comprehensive income
(loss):
Net loss................ -- -- -- -- -- (20,791) (20,791)
Unrealized appreciation
on short-term
investments............. -- -- -- -- 14 -- 14
---------- --- -------- -------- ------ --------- ---------
Net comprehensive loss.. -- -- -- -- 14 (20,791) (20,777)
---------- --- -------- -------- ------ --------- ---------
Balances as of December
31, 1999................ 11,672,196 12 43,962 (13,706) 14 (21,810) 8,472
Issuance of common stock
for cash................ 115,213 -- 1,033 -- -- -- 1,033
Issuance of common stock
upon exercise of common
stock options........... 1,420,914 1 2,471 -- -- -- 2,472
Issuance of common stock
upon exercise of common
stock warrants.......... 708,059 -- 353 -- -- -- 353
Issuance of common stock
from initial public
offering, net........... 22,704,596 23 251,459 -- -- -- 251,482
Conversion of redeemable
convertible preferred
stock................... 40,704,222 41 191,539 -- -- -- 191,580
Issuance/revaluation of
common stock warrants... -- -- 7,744 -- -- -- 7,744
Repurchase of common
stock................... (346,348) -- (28) -- -- -- (28)
Deferred stock-based
compensation............ -- -- 54,537 (54,537) -- -- --
Amortization of stock-
based compensation...... -- -- -- 29,893 -- -- 29,893
Comprehensive income
(loss):
Net loss............... -- -- -- -- -- (119,790) (119,790)
Foreign currency
translation gain....... -- -- -- -- 1,992 -- 1,992
Unrealized depreciation
on short-term
investments............ -- -- -- -- (87) -- (87)
---------- --- -------- -------- ------ --------- ---------
Net comprehensive
loss................... -- -- -- -- 1,905 (119,790) (117,885)
---------- --- -------- -------- ------ --------- ---------
Balances as of December
31, 2000................ 76,978,852 $77 $553,070 $(38,350) $1,919 $(141,600) $ 375,116
========== === ======== ======== ====== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
EQUINIX, INC.
Consolidated Statements of Cash Flows
( in thousands)
<TABLE>
<CAPTION>
Period from
June 22, 1998
(inception)
Year ended Year ended to
December 31, December 31, December 31,
2000 1999 1998
------------ ------------ -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.............................. $(119,790) $(20,791) $(1,019)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation......................... 14,816 609 4
Interest charge on beneficial
conversion of convertible debt...... -- -- 220
Amortization of deferred stock-based
compensation........................ 29,893 6,627 164
Amortization of debt-related issuance
costs and discounts................. 8,445 1,010 --
Allowance for doubtful accounts...... 608 -- --
Issuance of common stock to charity.. 780 -- --
Changes in operating assets and
liabilities:
Accounts receivable.................. (5,355) (178) --
Prepaids and other current assets.... (8,776) (1,429) (168)
Other assets......................... (354) (1,244) (156)
Accounts payable and accrued
expenses............................ 9,574 4,481 159
Other current liabilities............ 1,441 205 --
Other liabilities.................... 645 802 --
--------- -------- -------
Net cash used in operating
activities......................... (68,073) (9,908) (796)
--------- -------- -------
Cash flows from investing activities:
Purchase of short-term investments.... (114,968) (22,812) (5,000)
Sales and maturities of short-term
investments.......................... 102,253 8,017 --
Purchases of property and equipment... (296,320) (28,241) (486)
Additions to construction in
progress............................. (74,448) (14,145) (31)
Accrued construction costs............ 79,571 9,520 252
Purchase of restricted cash and short-
term investments..................... (24,246) (38,609) --
Sale of restricted cash and short-term
investments.......................... 26,000 -- --
--------- -------- -------
Net cash used in investing
activities......................... (302,158) (86,270) (5,265)
--------- -------- -------
Cash flows from financing activities:
Proceeds from issuance of common
stock................................ 254,560 1,286 10
Proceeds from issuance of debt
facilities and capital lease
obligations.......................... 6,884 16,114 --
Repayment of debt facilities and
capital lease obligations............ (9,955) (988) --
Proceeds from issuance of promissory
notes................................ -- -- 220
Proceeds from senior notes and common
stock warrants, net.................. -- 193,890 --
Repurchase of common and preferred
stock................................ (28) (10) --
Proceeds from issuance of redeemable
convertible preferred stock, net..... 94,353 84,886 9,996
Debt issuance costs................... (5,967) -- --
--------- -------- -------
Net cash provided by financing
activities......................... 339,847 295,178 10,226
--------- -------- -------
Effect of foreign currency exchange
rates on cash and cash equivalents.... 1,992 -- --
Net increase (decrease) in cash and
cash equivalents...................... (28,392) 199,000 4,165
Cash and cash equivalents at beginning
of period............................. 203,165 4,165 --
--------- -------- -------
Cash and cash equivalents at end of
period................................ $ 174,773 $203,165 $ 4,165
========= ======== =======
Noncash financing and investing
activities:
Cash paid for taxes.................. $ -- $ 68 $ --
========= ======== =======
Cash paid for interest............... $ 28,876 $ 153 $ --
========= ======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Business and Summary of Significant Accounting Policies
Nature of Business
Equinix, Inc. ("Equinix" or the "Company") was incorporated as Quark
Communications, Inc. in Delaware on June 22, 1998. The Company changed its name
to Equinix, Inc. on October 13, 1998. Equinix designs, builds, and operates
neutral Internet Business Exchange ("IBX") centers where enterprises and
Internet businesses place their equipment and their network facilities in order
to interconnect with each other to grow their businesses and to improve
Internet performance. The Company's neutral IBX centers place our customers'
operations at a central location and provide them with the highest level of
security, multiple back-up services, flexibility to grow and technical
assistance. The Company's neutral IBX centers provide enterprises, content
providers, ASPs and e-commerce companies with the ability to directly
interconnect with a competitive choice of bandwidth providers, ISPs, site
management companies and content distribution companies.
For the period June 22, 1998 (inception) through December 31, 1998 and the
period ended September 30, 1999, the Company was a development stage
enterprise. Subsequent to this period, the Company opened its second IBX center
for commercial operation. In addition, the Company began to recognize revenue
from its IBX centers.
Stock Split
In January 2000, the Company's stockholders approved a three-for-two stock
split effective January 19, 2000 whereby three shares of common stock and
redeemable convertible preferred stock, respectively, were exchanged for every
two shares of common stock and redeemable convertible preferred stock then
outstanding. All share and per share amounts in these financial statements have
been adjusted to give effect to the stock split.
Basis of Presentation
The accompanying consolidated financial statements include the accounts of
Equinix and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from these estimates.
Cash, Cash Equivalents and Short-Term Investments
The Company considers all highly liquid instruments with a maturity from the
date of purchase of three months or less to be cash equivalents. Cash
equivalents consist of money market mutual funds and certificates of deposit
with financial institutions with maturities of between 7 and 60 days. Short-
term investments generally consist of certificates of deposits with maturities
of between 90 and 180 days and highly liquid debt and equity securities of
corporations, municipalities and the U.S. government. Short-term investments
are classified as "available-for-sale" and are carried at fair value based on
quoted market prices, with unrealized gains and losses reported in
stockholders' equity as a component of comprehensive income. The cost of
securities sold is based on the specific identification method.
F-6
<PAGE>
EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Restricted Cash and Short-term Investments
Restricted cash and short-term investments as of December 31, 2000 consisted
of $12,801,000 deposited with an escrow agent to pay the third interest payment
on the Senior Notes (see Note 4) and restricted cash of $24,054,000 as
collateral for the issuance of twelve standby letters of credit, two bonds and
three escrow accounts entered into and pursuant to certain lease agreements.
These agreements expire at various dates through 2014.
Restricted cash and short-term investments as of December 31, 1999 consisted
of $37,079,000 deposited with an escrow agent to pay the first three interest
payments on the Senior Notes and restricted cash of $1,530,000 provided as
collateral under three separate security agreements for standby letters of
credit entered into and in accordance with certain lease agreements. These
agreements expire at various dates through 2014.
Financial Instruments and Concentration of Credit Risk
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist of cash, cash equivalents and short-term
investments to the extent these exceed federal insurance limits and accounts
receivable. Risks associated with cash, cash equivalents and short-term
investments are mitigated by the Company's investment policy, which limits the
Company's investing to only those marketable securities rated at least A-1 or
P-1 investment grade, as determined by independent credit rating agencies.
The Company's customer base is primarily composed of businesses throughout
the United States. The Company performs ongoing credit evaluations of its
customers. Write-offs since inception have been immaterial. As of December 31,
2000, two customers accounted for 12% and 11% of revenues and two customers
accounted for 19% and 14% of accounts receivables. No other single customer
accounted for greater than 10% of accounts receivables or revenues.
Property and Equipment
Property and equipment are stated at original cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the
respective assets, generally two to five years for non-IBX center equipment and
seven to ten years for IBX center equipment. Leasehold improvements and assets
acquired under capital lease are amortized over the shorter of the lease term
or the estimated useful life of the asset or improvement.
Construction in Progress
Construction in progress includes direct and indirect expenditures for the
construction of IBX centers and is stated at original cost. The Company has
contracted out substantially all of the construction of the IBX centers to
independent contractors under construction contracts. Construction in progress
includes certain costs incurred under a construction contract including project
management services, site identification and evaluation services, engineering
and schematic design services, design development and construction services and
other construction-related fees and services. In addition, the Company has
capitalized certain interest costs during the construction phase. Once an IBX
center becomes operational, these capitalized costs are depreciated at the
appropriate rate consistent with the estimated useful life of the underlying
asset.
Included within construction in progress is the value attributed to the
unearned portion of warrants issued to certain fiber carriers and our
contractor totaling $6,270,000 as of December 31, 2000 and $4,136,000 as of
December 31, 1999 (see Note 6).
F-7
<PAGE>
EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Interest incurred is capitalized in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 34, Capitalization of Interest Costs. Total
interest cost incurred and total interest capitalized during the year ended
December 31, 2000 was $34,102,000 and $4,991,000, respectively. Total interest
cost incurred and total interest capitalized during the year ended December 31,
1999, was $3,324,000 and $177,000, respectively.
Fair Value of Financial Instruments
The carrying value amounts of the Company's financial instruments, which
include cash equivalents, short-term investments, accounts receivable, accounts
payable, accrued expenses and long-term obligations approximate their fair
value due to either the short-term maturity or the prevailing interest rates of
the related instruments. The fair value of the Company's Senior Notes (see Note
4) are based on quoted market prices. The estimated fair value of the Senior
Notes is approximately $140,000,000 as of December 31, 2000.
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of
In accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of, the Company considers the
impairment of long-lived assets and certain identifiable intangibles whenever
events or changes in circumstances indicate that the carrying amount of such
assets may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If such assets are considered to
be impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceeds the fair value of the assets. Assets
to be disposed of are reported at the lower of the carrying amount or fair
value less costs to sell. No impairment of long-lived assets has been recorded
as of December 31, 1999. In December 2000, based on the uncertainty of the
Company's future business relationship with NorthPoint (see Note 6), as a
result of their filing under Chapter 11 bankruptcy protection, the Company
determined that the future value of the other asset attributed to the
unamortized portion of the fully-vested, nonforfeitable warrant was
questionable and accordingly, the remaining asset totaling approximately
$700,000 was written off.
Revenue Recognition
Revenues consist of monthly recurring fees for colocation and
interconnection services at the IBX centers, service fees associated with the
delivery of professional services and non-recurring installation fees. Revenues
from colocation and interconnection services are billed monthly and recognized
ratably over the term of the contract, generally one to three years.
Professional service fees are recognized in the period in which the services
were provided and represent the culmination of the earnings process. Non-
recurring installation fees are deferred and recognized ratably over the term
of the related contract.
Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between financial statement carrying
amounts of existing assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. Valuation allowances are established when necessary to reduce
tax assets to the amounts expected to be realized.
F-8
<PAGE>
EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Stock-Based Compensation
The Company accounts for its stock-based compensation plans in accordance
with SFAS No. 123, Accounting for Stock-Based Compensation. As permitted under
SFAS No. 123, the Company uses the intrinsic value-based method of Accounting
Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to
Employees, to account for its employee stock-based compensation plans.
The Company accounts for stock-based compensation arrangements with
nonemployees in accordance with the Emerging Issues Task Force Abstract
("EITF") No. 96-18, Accounting for Equity Instruments That Are Issued to Other
Than Employees for Acquiring, or in Conjunction with Selling Goods or Services.
Accordingly, unvested options and warrants held by nonemployees are subject to
revaluation at each balance sheet date based on the then current fair market
value.
Unearned deferred compensation resulting from employee and nonemployee
option grants is amortized on an accelerated basis over the vesting period of
the individual options, in accordance with FASB Interpretation No. 28,
Accounting for Stock Appreciation Rights and Other Variable Stock Option or
Award Plans ("FASB Interpretation No. 28").
Segment Reporting
The Company has adopted the provisions of SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information. SFAS No. 131 establishes
annual and interim reporting standards for operating segments of a company. The
statement requires disclosures of selected segment-related financial
information about products, major customers and geographic areas.
Comprehensive Income
The Company has adopted the provisions of SFAS No. 130, Reporting
Comprehensive Income. SFAS No. 130 establishes standards for the reporting and
display of comprehensive income and its components; however, the adoption of
this statement had no impact on the Company's net loss or stockholders' equity.
SFAS 130 requires unrealized gains or losses on the Company's available-for-
sale securities to be included in other comprehensive income (loss).
Comprehensive income (loss) consists of net loss and other comprehensive
income.
Net Loss Per Share
The Company computes net loss per share in accordance with SFAS No. 128,
Earnings per Share, and SEC Staff Accounting Bulletin ("SAB") No. 98. Under the
provisions of SFAS No. 128 and SAB No. 98 basic and diluted net loss per share
are computed using the weighted average number of common shares outstanding.
Options, warrants and preferred stock were not included in the computation of
diluted net loss per share because the effect would be antidilutive.
F-9
<PAGE>
EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table sets forth the computation of basic and diluted net loss
per share for the periods indicated.
<TABLE>
<CAPTION>
Period from
June 22, 1998
Year ended Year ended to
December 31, December 31, December 31,
2000 1999 1998
------------- ------------ -------------
<S> <C> <C> <C>
Numerator:
Net loss...................... $(119,790,000) $(20,791,000) $(1,019,000)
============= ============ ===========
Denominator:
Weighted average shares....... 40,672,055 8,751,001 3,174,917
Weighted average unvested
shares subject to
repurchase................... (6,211,392) (4,578,122) (2,486,889)
------------- ------------ -----------
Total weighted average
shares..................... 34,460,663 4,172,879 688,028
============= ============ ===========
Net loss per share:
Basic and diluted........... $ (3.48) $ (4.98) $ (1.48)
============= ============ ===========
</TABLE>
The following table sets forth potential shares of common stock that are not
included in the diluted net loss per share calculation above because to do so
would be anti-dilutive for the periods indicated:
<TABLE>
<CAPTION>
Year ended Year ended Year ended
December 31, December 31, December 31,
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Series A redeemable convertible
preferred stock................... -- 18,682,500 15,697,500
Series B redeemable convertible
preferred stock................... -- 15,759,561 --
Series A preferred stock warrants.. -- 1,245,000 --
Common stock warrants.............. 3,707,245 1,365,645 --
Common stock options............... 8,893,292 2,780,988 2,074,050
Common stock subject to
repurchase........................ 6,211,392 4,578,122 2,486,889
</TABLE>
Recent Accounting Pronouncements
In September 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards, or SFAS, No. 133, Accounting for Derivative
Instruments and Hedging Activities. In June 1999, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards No.
137 ("SFAS 137"), "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133." In June
2000, the FASB issued SFAS 138, "Accounting for Certain Derivative Instruments
and Certain Hedging Activities--an Amendment of FASB Statement No. 133." SFAS
133 establishes new standards of accounting and reporting for derivative
instruments and hedging activities, and requires that all derivatives,
including foreign currency exchange contracts, be recognized on the balance
sheet at fair value. Equinix will adopt SFAS 133, as amended by SFAS 137 and
SFAS 138, in the first fiscal quarter of 2001, and does not expect the adoption
to have a material effect on its financial condition or results of operations.
In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") 101,
Revenue Recognition, which outlines the basic criteria that must be met to
recognize revenue and provides guidance for presentation of revenue and for
disclosure related to revenue recognition policies in financial statements
filed with the SEC. The adoption of SAB 101 did not have a material impact on
the Company's financial position and results of operations.
F-10
<PAGE>
EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In March 2000, the FASB issued Interpretation No. 44, ("FIN 44"), Accounting
for Certain Transactions Involving Stock Compensation--an Interpretation of APB
25. This Interpretation clarifies (a) the definition of employee for purposes
of applying Opinion 25, (b) the criteria for determining whether a plan
qualifies as a noncompensatory plan, (c) the accounting consequence of various
modifications to the terms of a previously fixed stock option or award, and (d)
the accounting for an exchange of stock compensation awards in a business
combination. This Interpretation is effective July 1, 2000, but certain
conclusions in this Interpretation cover specific events that occur after
either December 15, 1998, or January 12, 2000. The adoption of certain of the
conclusions of FIN 44 did not have a material effect on the Company's financial
position and results of operations.
2. Balance Sheet Components
Cash, Cash Equivalents and Short-term Investments
Cash, cash equivalents and short-term investments consisted of the following
as of December 31 (in thousands):
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
Money market......................................... $ 72,325 $ 11,144
Municipal bonds...................................... 19,557 --
US government and agency obligations................. 19,049 --
Corporate bonds...................................... 2,024 --
Other debt securities................................ 94,255 211,830
--------- ---------
Total available-for-sale securities................ 207,210 222,974
Less amounts classified as cash and cash
equivalents....................................... (174,773) (203,165)
--------- ---------
Total market value of short-term investments....... $ 32,437 $ 19,809
========= =========
</TABLE>
As of December 31, 2000 and 1999, cost approximated market value of cash,
cash equivalents and short-term investments; unrealized gains and losses were
not significant. As of December 31, 2000, cash equivalents included investments
in corporate debt securities with various contractual maturity dates which do
not exceed 90 days. Gross realized gains and losses from the sale of securities
classified as available-for-sale were not material for the years ended December
31, 2000 and 1999. For the purpose of determining gross realized gains and
losses, the cost of securities is based upon specific identification.
Property & Equipment
Property and equipment is comprised of the following as of December 31 (in
thousands):
<TABLE>
<CAPTION>
2000 1999
-------- -------
<S> <C> <C>
Leasehold improvements.................................... $243,851 $16,664
IBX plant and machinery................................... 51,305 8,235
Computer equipment and software........................... 12,438 3,126
IBX equipment............................................. 21,960 659
Furniture and fixtures.................................... 1,241 374
-------- -------
330,795 29,058
Less accumulated depreciation............................. (15,415) (614)
-------- -------
$315,380 $28,444
======== =======
</TABLE>
F-11
<PAGE>
EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Leasehold improvements, certain computer equipment, software and furniture
and fixtures recorded under capital leases aggregated $5,999,000 as of
December 31, 2000 and $661,000 as of December 31, 1999. Amortization on the
assets recorded under capital leases is included in depreciation expense.
Included within leasehold improvements is the value attributed to the
earned portion of the WorldCom Venture Fund Warrant, the Bechtel Warrant, and
the Fiber Warrant totaling $4,233,000, $758,000, and $770,000, respectively,
as of December 31, 2000 and $330,000, none, and none, respectively, as of
December 31, 1999 (see Note 6). Amortization on such warrants is included in
depreciation expense.
Restricted Cash and Short-term Investments
Restricted cash and short-term investments consisted of the following as of
December 31 (in thousands):
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
United States treasury
notes:
Due within one year..... $ 15,468 $ 25,111
Due after one year
through two years...... -- 11,968
Restricted cash in
accordance with security
agreements............... 21,387 1,530
-------- --------
36,855 38,609
Less current portion...... (15,468) (25,111)
-------- --------
$ 21,387 $ 13,498
======== ========
</TABLE>
As of December 31, 2000 and December 31, 1999, cost approximated market
value of restricted cash and short-term investments; unrealized gains and
losses were not significant.
Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consisted of the following as of
December 31 (in thousands):
<TABLE>
<CAPTION>
2000 1999
------- ------
<S> <C> <C>
Accounts payable............................................. $ 8,270 $1,978
Accrued compensation and benefits............................ 2,613 303
Accrued debt issuance costs.................................. 593 490
Other........................................................ 2,241 1,372
------- ------
$13,717 $4,143
======= ======
</TABLE>
3. Debt Facilities and Capital Lease Obligations
Debt facilities and capital lease obligations consisted of the following as
of December 31 (in thousands):
<TABLE>
<CAPTION>
2000 1999
------- -------
<S> <C> <C>
Comdisco Loan and Security Agreement (net of unamortized
discount of none and $901 as of December 31, 2000 and
1999, respectively)..................................... $ -- $ 4,141
Venture Leasing Loan Agreement (net of unamortized
discount of $727 and $1,034 as of December 31, 2000 and
1999, respectively) 6,138 8,417
Comdisco Master Lease Agreement and Addendum (net of
unamortized discount of $412 and $12 as of December 31,
2000 and 1999, respectively) 4,794 645
------- -------
10,932 13,203
Less current portion..................................... (4,426) (4,395)
------- -------
$ 6,506 $ 8,808
======= =======
</TABLE>
F-12
<PAGE>
EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Comdisco Loan and Security Agreement
In March 1999, one of the Company's subsidiaries entered into a $7,000,000
Loan and Security Agreement with Comdisco, Inc. ("Comdisco" and the "Comdisco
Loan and Security Agreement"). In December 2000, the outstanding principal and
interest balance under this facility, including the final balloon interest
payment, was repaid in full. Under the terms of the Comdisco Loan and Security
Agreement, Comdisco agreed to lend the Company up to $3,000,000 for equipment
(referred to as the "hard" loan) and up to $4,000,000 for software and tenant
improvements ("soft" loan) for the Ashburn, Virginia IBX center buildout. The
loans, which were collateralized by the assets of the Ashburn IBX, were
available in minimum advances of $1,000,000 and each loan was evidenced by a
secured promissory note. The hard and soft loans issued beared interest at
rates of 7.5% and 9% per annum, respectively, and were repayable in 42 and 36
equal monthly installments, respectively, plus a final balloon interest payment
equal to 15% of the original advance amount. The Comdisco Loan and Security
Agreement had an effective interest rate of 18.1% per annum.
In connection with the Comdisco Loan and Security Agreement, the Company
granted Comdisco a warrant to purchase 765,000 shares of the Company's Series A
redeemable convertible preferred stock at $0.67 per share (the "Comdisco Loan
and Security Agreement Warrant"). This warrant is immediately exercisable and
expires in ten years from the date of grant. The fair value of the warrant,
using the Black-Scholes option pricing model with the following assumptions:
deemed fair market value per share of $1.80, dividend yield of 0%, expected
volatility of 80%, risk-free interest rate of 5.0% and a contractual life of 10
years, was $1,255,000. Such amount was recorded as a discount to the applicable
debt, and was being amortized to interest expense, using the effective interest
method, over the life of the agreement. The remaining unamortized discount was
amortized when the loan was paid in full in December 2000.
Comdisco Master Lease Agreement
In May 1999, the Company entered into a Master Lease Agreement with Comdisco
(the "Comdisco Master Lease Agreement"). Under the terms of the Comdisco Master
Lease Agreement, the Company sells equipment to Comdisco, which it will then
lease back. The amount of financing to be provided is up to $1,000,000.
Repayments are made monthly over 42 months with a final balloon interest
payment equal to 15% of the balance amount due at maturity. Interest accrues at
7.5% per annum. The Comdisco Master Lease Agreement has an effective interest
rate of 14.6% per annum. As of December 31, 2000, $740,200 was outstanding
under the Comdisco Master Lease Agreement.
The Company leases certain leasehold improvements, computer equipment and
software and furniture and fixtures under capital leases under the Comdisco
Master Lease Agreement. These leases were entered into as sales-leaseback
transactions. The Company deferred a gain of $78,000 related to the sale-
leaseback in July 1999, and a deferred loss of $19,000 related to the sale-
leasebacks in fiscal 2000, which is being amortized in proportion to the
amortization of the leased assets.
In connection with the Comdisco Master Lease Agreement, the Company granted
Comdisco a warrant to purchase 30,000 shares of the Company's Series A
redeemable convertible preferred stock at $1.67 per share (the "Comdisco Master
Lease Agreement Warrant"). This warrant is immediately exercisable and expires
in ten years from the date of grant. The fair value of the warrant using the
Black-Scholes option pricing model with the following assumptions: deemed fair
market value per share of $3.00, dividend yield 0%, expected volatility of 80%,
risk-free interest rate of 5.0% and a contractual life of 10 years, was
$80,000. Such amount was recorded as a discount to the applicable capital lease
obligation, and is being amortized to interest expense, using the effective
interest method, over the life of the agreement.
F-13
<PAGE>
EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Comdisco Master Lease Agreement Addendum
In August 1999, the Company amended the Comdisco Master Lease Agreement.
Under the terms of the Comdisco Master Lease Agreement Addendum, the Company
sells equipment (hard items) and software and tenant improvements (soft items)
in its San Jose IBX center to Comdisco, which it then leases back. The amount
of financing available under the Comdisco Master Lease Agreement Addendum is up
to $2,150,000 for hard items and up to $2,850,000 for soft items. Amounts drawn
under this addendum will be collateralized by the underlying hard and soft
assets of the San Jose IBX center that were funded under the Comdisco Master
Lease Agreement Addendum. Repayments are made monthly over the course of 42
months. Interest accrues at 8.5% per annum, with a final balloon interest
payment equal to 15% of the original acquisition cost of the property financed.
The Comdisco Master Lease Agreement Addendum has an effective interest rate of
15.3% per annum. As of December 31, 2000, $4,466,000 was outstanding under the
Comdisco Master Lease Agreement Addendum.
In connection with the Comdisco Master Lease Agreement Addendum, the Company
granted Comdisco a warrant to purchase 150,000 shares of the Company's Series A
redeemable convertible preferred stock at $3.00 per share (the "Comdisco Master
Lease Agreement Addendum Warrant"). This warrant is immediately exercisable and
expires in seven years from the date of grant or three years from the effective
date of the Company's initial public offering, whichever is shorter. The fair
value of the warrant using the Black-Scholes option pricing model with the
following assumptions: deemed fair market value per share of $4.80, dividend
yield 0%, expected volatility of 80%, risk-free interest rate of 5.0% and a
contractual life of seven years, was $587,000. Such amount was recorded as a
discount to the applicable capital lease obligation, and is being amortized to
interest expense, using the effective interest method, over the life of the
agreement.
Venture Leasing Loan Agreement
In August 1999, the Company entered into a Loan Agreement with Venture
Lending & Leasing II, Inc. and other lenders ("VLL" and the "Venture Leasing
Loan Agreement"). The Venture Leasing Loan Agreement provides financing for
equipment and tenant improvements at the Newark, New Jersey IBX center and a
secured term loan facility for general working capital purposes. The amount of
financing to be provided is up to $10,000,000, which may be used to finance up
to 85% of the projected cost of tenant improvements and equipment for the
Newark IBX center and is collateralized by the assets of the Newark IBX. Notes
issued bear interest at a rate of 8.5% per annum and are repayable in 42
monthly installments plus a final balloon interest payment equal to 15% of the
original advance amount due at maturity and are collateralized by the assets of
the New Jersey IBX. The Venture Leasing Loan Agreement has an effective
interest rate of 14.7% per annum. As of December 31, 2000, $6,865,000 was
outstanding under the Venture Leasing Loan Agreement.
In connection with the Venture Leasing Loan Agreement, the Company granted
VLL a warrant to purchase 300,000 shares of the Company's Series A redeemable
convertible preferred stock at $3.00 per share (the "Venture Leasing Loan
Agreement"). This warrant is immediately exercisable and expires on June 30,
2006. The fair value of the warrant using the Black-Scholes option pricing
model with the following assumptions: deemed fair market value per share of
$4.80, dividend yield 0%, expected volatility of 80%, risk-free interest rate
of 5.0% and a contractual life of seven years, was $1,174,000. Such amount was
recorded as a discount to the applicable debt, and is being amortized to
interest expense, using the effective interest method, over the life of the
agreement.
F-14
<PAGE>
EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Maturities
Combined aggregate maturities for debt facilities and future minimum capital
lease obligations as of December 31, 2000 are as follows (in thousands):
<TABLE>
<CAPTION>
Capital
Debt lease
facilities obligations Total
---------- ----------- -------
<S> <C> <C> <C>
2001....................................... $ 2,815 $ 1,611 $ 4,426
2002....................................... 3,063 1,744 4,807
2003....................................... 987 1,716 2,703
2004 and thereafter........................ -- 135 135
------- ------- -------
6,865 5,206 12,071
Less amount representing unamortized
discount................................ (727) (412) (1,139)
------- ------- -------
6,138 4,794 10,932
Less current portion..................... (2,815) (1,611) (4,426)
------- ------- -------
$ 3,323 $ 3,183 $ 6,506
======= ======= =======
</TABLE>
4. Senior Notes
On December 1, 1999, the Company issued 200,000 units, each consisting of a
$1,000 principal amount 13% Senior Note due 2007 (the "Senior Notes") and one
warrant to purchase 16.8825 shares (for an aggregate of 3,376,500 shares) of
common stock for $0.0067 per share (the "Senior Note Warrants"), for aggregate
net proceeds of $193,400,000, net of offering expenses. Of the $200,000,000
gross proceeds, $16,207,000 was allocated to additional paid-in capital for the
deemed fair value of the Senior Note Warrants and recorded as a discount to the
Senior Notes. The discount on the Senior Notes is being amortized to interest
expense, using the effective interest method, over the life of the debt. The
Senior Notes have an effective interest rate of 14.1% per annum. The fair value
attributed to the Senior Note Warrants was consistent with the Company's
treatment of its other common stock transactions prior to the issuance of the
Senior Notes. The fair value was based on recent equity transactions by the
Company. The amount of the Senior Notes, net of the unamortized discount, is
$185,908,000 as of December 31, 2000.
As of December 31, 2000, restricted cash and short-term investments,
including accrued interest thereon, includes $12,801,000 deposited with an
escrow agent that will be used to pay the third interest payment. Interest is
payable semi-annually, in arrears, on June 1 and December 1 of each year. The
Senior Notes are partially collateralized by the restricted cash and short-term
investments. Except for this security interest, the notes are unsecured, senior
obligations of the Company and are effectively subordinated to all existing and
future indebtedness of the Company, whether or not secured.
The Senior Notes are governed by the Indenture dated December 1, 1999,
between the Company, as issuer, and State Street Bank and Trust Company of
California, N.A., as trustee (the "Indenture"). Subject to certain exceptions,
the Indenture restricts, among other things, the Company's ability to incur
additional indebtedness and the use of proceeds therefrom, pay dividends, incur
certain liens to secure indebtedness or engage in merger transactions.
The costs related to the issuance of the Senior Notes were capitalized and
are being amortized to interest expense using the effective interest method,
over the life of the Senior Notes. Debt issuance costs, net of amortization,
are $5,950,000 as of December 31, 2000.
F-15
<PAGE>
EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. Senior Secured Credit Facility
On December 20, 2000 Company, and a newly created, wholly-owned subsidiary,
entered into a $150 million Senior Secured Credit Facility ("Credit Facility")
with a syndicate of lenders. The Credit Facility consists of the following:
. Term loan facility in the amount of $50,000,000. The outstanding term
loan amount is required to be paid in quarterly installments beginning
in March 2003 and ending in December 2005. None of the term loan
facility was drawn down as of December 31, 2000 (see Note 11).
. Delayed draw term loan facility in the amount of $75,000,000. The
Company is required to borrow the entire facility on or before December
20, 2001. The outstanding delayed draw term loan amount is required to
be paid in quarterly installments beginning in March 2003 and ending in
December 2005. None of the delayed draw term loan facility was drawn
down as of December 31, 2000 (see Note 11).
. Revolving credit facility in an amount up to $25,000,000. The
outstanding revolving credit facility is required to be paid in full on
or before December 15, 2005. None of the revolving credit facility was
drawn down as of December 31, 2000.
The Credit Facility has a number of covenants, which include reaching
certain minimum revenue targets and limiting cumulative EBITDA losses and
maximum capital spending limits among others. The Company was in compliance
with all covenants as of December 31, 2000.
Borrowings under the Credit Facility are collateralized by a first priority
lien against substantially all of the Company's assets. The lenders under the
Credit Facility have agreed that the liens which collateralize the Credit
Facility may also collateralize an additional $100,000,000 of additional
borrowings in the event the Credit Facility is extended, but the lenders have
no obligation to provide such additional financing.
Loans under the Credit Facility bear interest at floating rates, plus
applicable margins, based on either the prime rate or LIBOR. At December 31,
2000, had the Company drawn down on the Credit Facility, the effective interest
rate would have been approximately 10.82%.
The costs related to the issuance of the Credit Facility were capitalized
and are being amortized to interest expense using the effective interest
method, over the life of the Credit Facility. Debt issuance costs, net of
amortization, are $5,966,000 as of December 31, 2000.
6. Redeemable Convertible Preferred Stock and Stockholders' Equity
In August 1999, the Company amended and restated its Certificate of
Incorporation to increase the authorized share capital to 112,500,000 shares of
common stock and 45,000,000 shares of redeemable convertible preferred stock,
of which 21,000,000 has been designated as Series A and 24,000,000 as Series B.
In January 2000, the Company's stockholders approved a three-for-two stock
split of its common and redeemable convertible preferred stock effective
January 19, 2000. The Company amended and restated its Certificate of
Incorporation to increase the authorized share capital to 132,000,000 shares of
common stock and
F-16
<PAGE>
EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
68,000,000 shares of redeemable convertible preferred stock, of which
32,000,000 has been designated as Series A and 36,000,000 as Series B, to give
effect to the three-for-two stock split. The accompanying consolidated
financial statements have been adjusted to reflect this stock split.
In May 2000, the Company amended and restated its Certificate of
Incorporation to change the authorized share capital to 80,000,000 shares of
common stock and 43,000,000 shares of redeemable convertible preferred stock,
of which 20,000,000 has been designated as Series A, 16,000,000 has been
designated as Series B and 7,000,000 has been designated as Series C.
In August 2000, the Company amended and restated its Certificate of
Incorporation to change the authorized share capital to 300,000,000 shares of
common stock and 10,000,000 shares of preferred stock.
Redeemable Convertible Preferred Stock
On September 10, 1998, 15,037,500 shares of Series A redeemable convertible
preferred stock were issued at a price of $0.67 per share. Concurrent with the
issuance of the Series A redeemable convertible preferred stock, promissory
notes of $220,000 were converted into 660,000 shares of Series A redeemable
convertible preferred stock. During July 1998, the Company had borrowed
$220,000 in the aggregate under a convertible loan arrangement with a number of
individual investors. The loans accrued interest of 5.83% per annum while
outstanding, which was paid in cash. During the period ended December 31, 1998,
the Company recorded a charge of $220,000 to account for the "in the money"
conversion right of the convertible loan arrangement. On January 27, 1999,
3,000,000 shares of Series A redeemable convertible preferred stock were
issued, at a price of $0.67 per share in the second closing of the Series A
financing.
Between August and December 1999, the Company completed its Series B
redeemable convertible preferred stock financing. The Company issued 15,759,561
shares of Series B redeemable convertible preferred stock, at a price of $5.33
per share.
As of December 31, 1999, there were 18,682,500 and 15,759,561 shares of
Series A and B redeemable convertible preferred stock issued and outstanding,
respectively, with a total liquidation value of $12,517,000 for Series A and
$83,998,000 for Series B.
Between May and June 2000, the Company completed its Series C redeemable
convertible preferred stock financing. The Company issued 6,261,161 shares of
Series C redeemable convertible preferred stock, at a price of $15.08 per share
All shares of redeemable convertible preferred stock were converted to
shares of common stock on a one-for-one basis upon the closing of the Company's
initial public offering ("IPO) in August 2000. All outstanding warrants to
purchase preferred stock are now exercisable for common stock.
Common Stock
On August 11, 2000 the Company completed an IPO of 20,000,000 shares of its
common stock. On September 7, 2000 the underwriters exercised their option to
purchase 2,704,596 shares to cover the over-allotment of shares.
The Company's founders purchased 6,060,000 shares of stock. Approximately
5,454,000 shares are subject to restricted stock purchase agreements whereby
the Company has the right to repurchase the stock upon voluntary or involuntary
termination of the founder's employment with the Company at $0.00033 per share.
The Company's repurchase right lapses at a rate of 25% per year. In May 2000,
the board of directors
F-17
<PAGE>
EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
agreed to waive the repurchase right with respect to one of the founder's
unvested shares. As of December 31, 2000 and 1999, 1,022,625 and 3,408,750
shares are subject to repurchase at a price of $0.00033 per share,
respectively.
Upon the exercise of certain unvested stock options, the Company issued to
employees common stock which is subject to repurchase by the Company at the
original exercise price of the stock option. This right lapses over the vesting
period. As of December 31, 2000 and 1999, there were 3,114,743 and 4,499,518
shares, respectively, subject to repurchase.
At December 31, 2000, the Company has reserved the following shares of
authorized but unissued shares of common stock for future issuance:
<TABLE>
<S> <C>
Common stock warrants............................................. 6,746,095
Common stock options.............................................. 13,826,048
Common stock purchase plan........................................ 1,000,000
----------
21,572,143
==========
</TABLE>
Stock Purchase Plan
In May 2000, the Company adopted the Employee Stock Purchase Plan (the
"Purchase Plan") under which 1,000,000 shares have been reserved for issuance
thereafter. On each January 1, the number of shares in reserve will
automatically increase by 2% of the total number of shares of common stock
outstanding at that time, or, if less, by 600,000 shares. The Puchase Plan
permits purchases of common stock via payroll deductions. The maximum payroll
deduction is 15% of the employee's cash compensation. Purchases of the common
stock will occur on February 1 and August 1 of each year. The price of each
share purchased will be 85% of the lower of:
. The fair market value per share of common stock on the date immediately
before the first day of the applicable offering period (which lasts 24
months); or
. The fair market value per share of common stock on the purchase date.
The value of the shares purchased in any calendar year may not exceed
$25,000.
As of December 31, 2000 no shares have been issued under the Purchase Plan.
Stock Option Plans
In September 1998, the Company adopted the 1998 Stock Plan. In May 2000, the
Company adopted the 2000 Equity Incentive Plan and 2000 Director Stock Option
Plan (collectively, the "Plans") under which nonstatutory stock options and
restricted stock may be granted to employees, outside directors, consultants,
and incentive stock options may be granted to employees. Accordingly, the
Company has reserved a total of 20,512,810 shares of the Company's common stock
for issuance upon the grant of restricted stock or exercise of options granted
in accordance with the Plans. On each January 1, commencing with the year 2001,
the number of shares in reserve will automatically increase by 6% of the total
number of shares of common stock that are outstanding at that time or, if less,
by 6,000,000 shares for the 2000 Equity Incentive Plan and by 50,000 shares for
the 2000 Director Stock Option Plan. Options granted under the Plans generally
expire 10 years following the date of grant and are subject to limitations on
transfer. The Plans are administered by the Board of Directors.
The Plans provide 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.
F-18
<PAGE>
EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Option grants under the Plans are subject to various vesting provisions,
all of which are contingent upon the continuous service of the optionee and
may not impose vesting criterion more restrictive than 20% per year. Stock
options may be exercised at anytime subsequent to grant. Stock obtained
through exercise of unvested options is subject to repurchase at the original
purchase price. The Company's repurchase right decreases as the shares vest
under the original option terms.
Options granted to stockholders who own greater than 10% of the outstanding
stock must have vesting periods not to exceed five years and must be issued at
prices not less than 110% of the fair market value of the stock on the date of
grant as determined by the Board of Directors. Upon a change of control, all
shares granted under the Plans shall immediately vest.
A summary of the Plans is as follows:
<TABLE>
<CAPTION>
Weighted-
average
Shares exercise
available Number of price per
for grant shares share
---------- ---------- ---------
<S> <C> <C> <C>
Initial shares authorized.................. 8,262,810 -- $ --
Options granted............................ (2,164,050) 2,164,050 0.07
Options exercised.......................... -- (90,000) 0.07
---------- ----------
Balances, December 31, 1998................ 6,098,760 2,074,050 0.07
Options granted............................ (6,404,040) 6,404,040 0.46
Options exercised.......................... -- (5,522,196) 0.23
Options forfeited.......................... 340,500 (340,500) 0.06
---------- ----------
Balances, December 31, 1999................ 35,220 2,615,394 0.68
Additional shares authorized............... 12,250,000 -- --
Options granted............................ (8,160,625) 8,160,625 5.48
Options exercised.......................... -- (1,420,914) 1.74
Options forfeited.......................... 461,813 (461,813) 6.43
Shares repurchased......................... 346,348 -- 0.08
---------- ----------
Balances, December 31, 2000................ 4,932,756 8,893,292 4.62
========== ==========
</TABLE>
The following table summarizes information about stock options outstanding
as of December 31, 2000:
<TABLE>
<CAPTION>
Outstanding Exercisable
------------------------------------ -----------------
Weighted- Weighted- Weighted-
average average Number average
Number of remaining exercise of exercise
Range of exercise prices shares contractual life price shares price
------------------------ --------- ---------------- --------- ------- ---------
<S> <C> <C> <C> <C> <C>
$0.01 to $0.67.......... 671,469 8.07 $0.15 164,945 $0.13
$0.67 to $1.00.......... 707,250 8.86 1.00 26,172 1.00
$1.01 to $2.67.......... 155,625 8.93 2.67 18,313 2.67
$2.68 to $4.94.......... 4,549,304 9.36 4.39 507,453 4.45
$4.95 to $7.00.......... 2,517,444 9.66 6.94 -- --
$7.01 to $9.75.......... 292,200 9.79 8.33 -- --
--------- -------
8,893,292 9.31 4.62 716,883 3.28
========= =======
</TABLE>
F-19
<PAGE>
EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The weighted-average remaining contractual life of options outstanding at
December 31, 2000 and December 31, 1999 was 9.31 years and 9.53 years,
respectively.
Stock-Based Compensation
Employees
The Company uses the intrinsic-value method prescribed in APB No. 25 in
accounting for its stock-based compensation arrangements with employees. Stock-
based compensation expense is recognized for employee stock option grants in
those instances in which the deemed fair value of the underlying common stock
was subsequently determined to be greater than the exercise price of the stock
options at the date of grant. The Company recorded deferred stock-based
compensation related to employees of $53,206,000 and $18,719,000 and for the
years ended December 31, 2000 and 1999, respectively, and $28,796,000,
$6,067,000 and $135,000 has been amortized to stock-based compensation expense
for the period and years ended December 31, 2000, 1999 and 1998, respectively,
on an accelerated basis over the vesting period of the individual options, in
accordance with FASB Interpretation No. 28. The weighted average estimated fair
value of employee stock options granted at exercise prices below market price
at grant during 2000, 1999 and 1998 was $8.64, $3.19 and $0.54 per share,
respectively.
Had compensation costs been determined using the fair value method for the
Company's stock-based compensation plans including the employee stock purchase
plan, net loss would have been changed to the amounts indicated below:
<TABLE>
<CAPTION>
Period from
June 22,
1998
Year ended Year ended (inception)
December 31, December 31, to December
2000 1999 31, 1998
------------- ------------ -----------
<S> <C> <C> <C>
Net loss:
As reported...................... $(119,790,000) $(20,791,000) $(1,019,000)
Pro forma........................ (122,845,000) (21,128,000) (1,022,000)
Net loss per share:
As reported...................... $ (3.48) $ (4.98) $ (1.48)
Pro forma........................ (3.57) (5.06) (1.48)
</TABLE>
The Company's calculations for employee grants were made using the minimum
value method prior to the IPO and the Black-Scholes option pricing model after
the IPO with the following weighted average assumptions:
<TABLE>
<CAPTION>
Period from
June 22, 1998
(inception)
Year ended Year ended to
December 31, December 31, December 31,
2000 1999 1998
------------ ------------ -------------
<S> <C> <C> <C>
Dividend yield....................... 0% 0% 0%
Expected volatility.................. 80% 0% 0%
Risk-free interest rate.............. 6.14% 5.66% 5.77%
Expected life (in years)............. 2.50 2.52 2.67
</TABLE>
Non-Employees
The Company uses the fair value method to value options granted to non-
employees. In connection with its grant of options to non-employees, the
Company has recognized deferred stock-based compensation of
F-20
<PAGE>
EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
$1,332,000 and $642,000 for the years ended December 31, 2000 and 1999,
respectively, and $1,097,000, $560,000 and $29,000 has been amortized to stock-
based compensation expense for the period and years ended December 31, 2000,
1999, and 1998, respectively, on an accelerated basis over the vesting period
of the individual options, in accordance with FASB Interpretation No. 28. The
weighted average estimated fair value of non-employee stock options granted at
exercise prices below market price at grant during 2000, 1999 and 1998 was
$0.34, $2.63 and $0.58 per share, respectively.
The Company's calculations for non-employee grants were made using the
Black-Scholes option pricing model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
Period from
June 22, 1998
(inception)
Year ended Year ended to
December 31, December 31, December 31,
2000 1999 1998
------------ ------------ -------------
<S> <C> <C> <C>
Dividend yield.......................... 0% 0% 0%
Expected volatility..................... 80% 80% 80%
Risk-free interest rate................. 5.99% 5.48% 4.99%
Expected life (in years)................ 10.00 10.00 10.00
</TABLE>
Warrants
In August 1999, the Company entered into a strategic agreement with
NorthPoint Communications, Inc. ("NorthPoint"). Under the terms of the
strategic agreement, NorthPoint has agreed to use certain of the Company's
domestic IBX centers and install their operational nodes in such centers. In
exchange, the Company granted NorthPoint a warrant to purchase 338,145 shares
of the Company's common stock at $0.53 per share (the "NorthPoint Warrant").
The NorthPoint Warrant was earned upon execution of the strategic agreement as
Northpoint's performance commitment was complete. The NorthPoint Warrant is
immediately exercisable and expires five years from the date of grant. The
NorthPoint Warrant was valued at $1,508,000 using the Black-Scholes option-
pricing model, which was capitalized on the accompanying consolidated balance
sheet in other assets as a customer acquisition cost and is being amortized
over the term of the agreement as a reduction of revenues recognized. The
following assumptions were used in determining the fair value of the warrant:
deemed fair market value per share of $4.80, dividend yield of 0%, expected
volatility of 80%, risk-free interest rate of 5.0% and a contractual life of 5
years. In December 2000, based on the uncertainty of the Company's future
business relationship with NorthPoint, as a result of their filing under
Chapter 11 bankruptcy protection, the Company determined that the future value
of the other asset attributed to the unamortized portion of the fully-vested,
nonforfeitable warrant was questionable and accordingly, the remaining asset
totaling approximately $700,000 was written off.
In November 1999, the Company entered into a definitive agreement with
WorldCom, whereby WorldCom agreed to install high-bandwidth local connectivity
services to the Company's first seven IBX centers by a pre-determined date in
exchange for a warrant to purchase 675,000 shares of common stock of the
Company at $0.67 per share (the "WorldCom Warrant"). The WorldCom Warrant is
immediately exercisable and expires five years from the date of grant. As of
December 31, 1999, warrants for 600,000 shares are subject to repurchase at the
original exercise price if WorldCom's performance commitments are not
completed. The WorldCom Warrant was valued at $2,969,000 using the Black-
Scholes option-pricing model and was recorded to construction in progress on
the accompanying consolidated balance sheet as of December 31, 1999. Under the
applicable guidelines in EITF 96-18, the underlying shares of common stock
associated with the WorldCom Warrant subject to repurchase are revalued at each
balance sheet date to reflect their current fair value until
F-21
<PAGE>
EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
WorldCom's performance commitment is complete. Any resulting increase in fair
value of the warrants is recorded as a leasehold improvement. In addition, the
following assumptions were used in determining the fair value of the warrant:
deemed fair market value per share of $4.80, dividend yield of 0%, expected
volatility of 80%, risk-free interest rate of 5.5% and a contractual life of 5
years.
In November 1999, the Company entered into a master agreement with Bechtel
Corporation, or Bechtel, whereby Bechtel agreed to act as the exclusive
contractor under a Master Agreement to provide program management, site
identification and evaluation, engineering and construction services to build
approximately 29 IBX centers over a four year period under mutually agreed upon
guaranteed completion dates. As part of the agreement, the Company granted
Bechtel a warrant to purchase 352,500 shares of the Company's common stock at
$1.00 per share (the "Bechtel Warrant"). The Bechtel Warrant is immediately
exercisable and expires five years from date of grant. The Bechtel Warrant was
valued at $1,497,000 using the Black-Scholes option-pricing model and was
recorded to construction in progress on the accompanying consolidated balance
sheet as of December 31, 1999. Under EITF 96-18, the underlying shares of
common stock associated with the Bechtel Warrant subject to repurchase are
revalued at each balance sheet date to reflect their current fair value until
Bechtel's performance commitment is complete. Any resulting increase in fair
value of the warrants is recorded as a leasehold improvement. In addition, the
following assumptions were used in determining the fair value of the warrant:
deemed fair market value per share of $4.80, dividend yield of 0%, expected
volatility of 80%, risk-free interest rate of 5.5% and a contractual life of 5
years. In January 2000, the Bechtel Warrant was exercised. As of December 31,
2000, a total of 219,324 shares are subject to repurchase at the original
exercise price, if Bechtel's performance commitments are not complete.
In January 2000, the Company entered into an operating lease agreement for
its new corporate headquarters facility in Mountain View, California. In
connection with the lease agreement, the Company granted the lessor a warrant
to purchase up to 33,100 shares of the Company's common stock at $6.00 per
share (the "Headquarter Warrant"). The warrant expires 10 years from the date
of grant. The warrant was valued at $186,000 using the Black-Scholes option
pricing model and will be recorded as additional rent expense over the life of
the lease. The following assumptions were used in determining the fair value of
the warrants: deemed fair value per share of $6.55, dividend yield of 0%,
expected volatility of 80%, risk-free interest rate of 6.0% and a contractual
life of 10 years.
In April 2000, the Company entered into a definitive agreement with a fiber
carrier whereby the fiber carrier agreed to install high-bandwidth local
connectivity services to a number of the Company's IBX centers in exchange for
colocation space and related benefits in such IBX centers. In connection with
this agreement, the Company granted the fiber carrier a warrant to purchase up
to 540,000 shares of the Company's common stock at $4.00 per share (the "Fiber
Warrant"). The warrant is immediately exercisable and expire five years from
date of grant. A total of 140,000 shares are immediately vested and the
remaining 400,000 shares are subject to repurchase at the original exercise
price if certain performance commitments are not completed by a pre-determined
date. The fiber carrier is not obligated to install high-bandwidth local
connectivity services and, apart from forfeiting the relevant number of
warrants and colocation space, will not be penalized for not installing. The
warrant was valued at $5,372,000 using the Black-Scholes option-pricing model
and has been recorded initially to construction in progress until installation
is complete. The following assumptions were used in determining the fair value
of the warrant: deemed fair market value per share of $11.82, dividend yield of
0%, expected volatility of 80%, risk-free interest rate of 6.56% and a
contractual life of 5 years. Under the applicable guidelines in EITF 96-18, the
underlying shares of common stock associated with these warrants subject to
repurchase are revalued at each balance sheet date to reflect their current
fair value until the performance commitment is complete. Any resulting increase
in fair value of the warrant will ultimately be recorded as a leasehold
improvement.
F-22
<PAGE>
EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In June 2000, the Company entered into a memorandum of understanding with
COLT Telecommunications ("Colt") whereby Colt agreed to install high-bandwidth
local connectivity services to a number of the Company's European IBX centers
in exchange for colocation space and related benefits in such IBX centers. In
connection with this agreement, the Company granted Colt a warrant to purchase
up to 250,000 shares of the Company's common stock at $5.33 per share (the
"Colt Warrant"). The warrant is immediately exercisable and expire five years
from the date of grant. The shares are subject to repurchase at the original
exercise price if certain performance commitments are not completed by a pre-
determined date. Colt is not obligated to install high-bandwidth local
connectivity services and, apart from forfeiting the relevant number of
warrants and colocation space, will not be penalized for not installing. The
warrant was valued at $2,795,000 using the Black-Scholes option-pricing model
and has been recorded initially to construction in progress until installation
is complete. The following assumptions were used in determining the fair value
of the warrants: deemed fair market value per share of $13.58, dividend yield
of 0%, expected volatility of 80%, risk-free interest rate of 6.23% and a
contractual life of 5 years. Under the applicable guidelines in EITF 96-18, the
underlying shares of common stock associated with this warrant subject to
repurchase are revalued at each balance sheet date to reflect their current
fair value until the performance commitment is complete. Any resulting increase
in fair value of the warrant will ultimately be recorded as a leasehold
improvement.
In June 2000, the Company entered into a strategic agreement with WorldCom
and UUNET, an affiliate of WorldCom (the "UUNET Strategic Agreement"), which
amends, supersedes and restates the definitive agreement entered into with
WorldCom in November 1999 and the related WorldCom Warrant. Under the UUNET
Strategic Agreement, WorldCom agreed to install high-bandwidth local
connectivity services and UUNET agreed to provide high-speed data entrance
facilities to a number of the Company's IBX centers in exchange for colocation
services and related benefits in such IBX centers. In connection with this
strategic agreement, the Company granted WorldCom Venture Fund a warrant (the
"WorldCom Venture Fund Warrant") to purchase up to 650,000 shares of Company's
common stock at $5.33 per share. All but 37,500 of the shares under the earlier
WorldCom Warrant are immediately vested under the UUNET Strategic Agreement.
The WorldCom Venture Fund Warrant is immediately exercisable and expires five
years from the date of grant. The warrant is subject to repurchase at the
original exercise price if certain performance commitments are not completed by
a pre-determined date. WorldCom and UUNET are not obligated to install high-
bandwidth local connectivity services and provide high-speed data entrance
facilities, respectively, and, apart from forfeiting the relevant number of
warrants and colocation space, will not be penalized for not performing. The
warrant was valued at $7,255,000 using the Black-Scholes option-pricing model
and has been recorded initially to construction in progress until installation
is complete. The following assumptions were used in determining the fair value
of the warrant: deemed fair market value per share of $13.58, dividend yield of
0%, expected volatility of 80%, risk-free interest rate of 6.23% and a
contractual life of 5 years. Under the applicable guidelines in EITF 96-18, the
underlying shares of common stock associated with this warrant subject to
repurchase are revalued at each balance sheet date to reflect their current
fair value until the performance commitment is complete. Any resulting increase
in fair value of the warrant will ultimately be recorded as a leasehold
improvement.
F-23
<PAGE>
EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In addition, the Company has issued several warrants in connection with its
debt facilities and capital lease obligations (see Note 3) and the Senior Notes
(see Note 4). The Company has the following warrants outstanding as of December
31, 2000:
<TABLE>
<CAPTION>
Warrants Exercise
Common stock warrants outstanding price
--------------------- ----------- --------
<S> <C> <C>
Comdisco Loan and Security Agreement Warrant............ 765,000 $ 0.67
Comdisco Master Lease Agreement Warrant................. 30,000 1.67
Comdisco Master Lease Agreement Addendum Warrant........ 150,000 3.00
Venture Leasing Loan Agreement Warrant.................. 270,000 3.00
Senior Note Warrants.................................... 3,038,850 0.0067
NorthPoint Warrant...................................... 338,145 0.53
WorldCom Warrant........................................ 675,000 0.67
Headquarter Warrant..................................... 33,100 6.00
Fiber Warrant........................................... 540,000 4.00
Colt Warrant............................................ 250,000 5.33
Worldcom Venture Fund Warrant........................... 650,000 5.33
Other warrant........................................... 6,000 5.00
---------
6,746,095
=========
</TABLE>
7. Income Taxes
No provision for federal income taxes was recorded from inception through
December 31, 2000 as the Company incurred net operating losses during the
period.
State tax expense is included in general and administrative expenses.
Actual income tax expense differs from the expected tax benefit computed by
applying the statutory federal income tax rate of approximately 34% for the
periods ended December 31, 2000 and 1999, primarily as a result of the change
in valuation allowance and stock based compensation.
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets as of December 31 is presented as follows
(in thousands):
<TABLE>
<CAPTION>
2000 1999
-------- -------
<S> <C> <C>
Deferred tax assets:
Start-up expenses....................................... $ 4,855 $ 2,551
Net operating loss...................................... 31,614 3,134
Reserves and accruals................................... 3,660 8
-------- -------
Deferred tax assets................................... 40,129 5,693
Deferred tax liability:
Depreciation and amortization........................... (3,857) (38)
-------- -------
Net deferred tax assets............................... 36,272 5,655
Valuation allowance................................... (36,272) (5,655)
-------- -------
$ -- $ --
======== =======
</TABLE>
The net change in the total valuation allowance for the year ended December
31, 2000 and the year ended December 31, 1999, was an increase of $30,617,000
and $5,655,000, respectively.
F-24
<PAGE>
EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company has established a valuation allowance against that portion of
deferred tax assets where management has determined that it is more likely than
not that the asset will not be realized.
At December 31, 2000, the Company had net operating loss carryforwards of
approximately $86,269,000 and $39,125,000 for federal and for state tax
purposes, respectively. If not earlier utilized, the federal net operating loss
carryforward will expire in 2014 and the state loss carryforward will expire in
2004.
Under the Tax Reform Act of 1986, the amounts of and the benefit from net
operating losses that can be carried forward may be limited in certain
circumstances. Events that may cause limitations in the utilization of net
operating losses include a cumulative stock ownership change of more than 50%
over a three year period and other events. Equinix has not yet determined the
extent that its net operating loss benefit will be limited.
8. Commitments and Contingencies
Operating Lease Commitments
The Company leases its IBX centers and certain equipment under noncancelable
operating lease agreements expiring through 2014. The centers' lease agreements
typically provide for base rental rates which increase at defined intervals
during the term of the lease. In addition, the Company has negotiated rent
expense abatement periods to better match the phased build-out of its centers.
The Company accounts for such abatements and increasing base rentals using the
straight-line method over the life of the lease. The difference between the
straight-line expense and the cash payment is recorded as deferred rent.
Minimum future operating lease payments as of December 31, 2000 are
summarized as follows (in thousands):
<TABLE>
<S> <C>
Year ending:
2001.............................................................. $ 28,597
2002.............................................................. 31,818
2003.............................................................. 32,104
2004.............................................................. 32,442
2005.............................................................. 32,874
Thereafter........................................................ 346,954
--------
Total........................................................... $504,789
========
</TABLE>
Total rent expense was approximately $16,157,000 and $1,739,000 and for the
years ended December 31, 2000 and 1999, respectively.
Deferred rent included in accrued expenses was none and $18,000 as of
December 31, 2000 and 1999, respectively. Deferred rent included in other
liabilities was $3,793,000 and $567,000 as of December 31, 2000 and 1999,
respectively.
Letter of Credit
In connection with the execution of one of the Company's long-term operating
leases, the Company posted a letter of credit in the amount of $10.0 million.
This letter of credit shall increase to $35.0 million if the Company does not
meet certain financing targets. This security deposit shall be reduced on a pro
rata basis based on the status of construction activity.
F-25
<PAGE>
EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Employment Agreement
The Company has agreed to indemnify an officer of the Company for any claims
brought by his former employer under an employment and non-compete agreement
the officer had with this employer.
Employee Benefit Plan
The Company has a 401(k) Plan that allows eligible employees to contribute
up to 15% of their compensation, limited to $10,500 in 2000. Employee
contributions and earnings thereon vest immediately. Although the Company may
make discretionary contributions to the 401(k) Plan, none have been made as of
December 31, 2000.
9. Related Party Transactions
Through December 31, 2000 the Company advanced an aggregate of $1,150,000 to
three officers of the Company, which are evidenced by promissory notes. The
proceeds of these loans were used to fund the purchase of personal residences.
The loans are due at various dates through 2005, but are subject to certain
events of acceleration and are secured by a second deed of trust on the
officers' residences. The loans are non-interest bearing. These loans are
presented in other assets on the accompanying consolidated balance sheets as of
December 31, 2000 and 1999.
In March 1999, the Company entered into an equipment lease facility with a
preferred stockholder under which the Company leased $137,000 of equipment for
a 24-month term.
In August 1999, the Company entered into a strategic agreement with
NorthPoint. Under the terms of the strategic agreement, NorthPoint has agreed
to use certain of the Company's domestic IBX centers and install their
operational nodes in such centers. In exchange, the Company granted NorthPoint
a warrant to purchase 338,145 shares of the Company's common stock at $0.53 per
share. The NorthPoint Warrant was earned upon execution of the strategic
agreement as NorthPoint's performance commitment was complete. The NorthPoint
Warrant is immediately exercisable and expires five years from date of grant.
The NorthPoint Warrant was valued at $1,508,000 using the Black-Scholes option-
pricing model (see Note 6).
10. Segment Information
During the year ended December 31, 1999, the Company adopted the provisions
of SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information. SFAS No. 131 requires disclosures of selected segment-related
financial information about products, major customers and geographic areas.
The Company and its subsidiaries are principally engaged in the design,
build-out and operation of neutral IBX centers. All revenues result from the
operation of these IBX centers. Accordingly, the Company considers itself to
operate in a single segment for purposes of disclosure under SFAS No. 131. The
Company's chief operating decision-maker evaluates performance, makes operating
decisions and allocates resources based on financial data consistent with the
presentation in the accompanying consolidated financial statements.
As of December 31, 2000, all of the Company's operations and assets were
based in the United States with the exception of $24,459,000 of the Company's
identifiable assets based in Europe and $429,000 of the Company's total net
loss was attibutable to the development of its European operations. As of
December 31, 1999, all of the Company's operations and assets were based in the
United States.
F-26
<PAGE>
EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
11. Subsequent Events (unaudited)
On January 1, 2001, pursuant to the provisions of the Company's stock plans
(see Note 6), the number of common shares in reserve automatically increased by
4,618,731 shares for the 2000 Equity Incentive Plan, 600,000 shares for the
Employee Stock Purchase Plan and 50,000 shares for the 2000 Director Stock
Option Plan.
On January 2, 2001, the Company drew down $50,000,000 in term loans made
available through the Credit Facility entered into by the Company on December
20, 2000 (see Note 5).
On February 27, 2001, the Company advanced an aggregate of $1,514,000 to an
officer of the Company, which is evidenced by a promissory note. The proceeds
of this loan were used to fund the purchase of a principal residence. The loan
is due February 27, 2006, but is subject to certain events of acceleration. The
loan is non-interest bearing.
On March 5, 2001, the Company drew down $75,000,000 in delayed draw term
loans made available through the Credit Facility entered into by the Company on
December 20, 2000 (see Note 5).
12. Selected Quarterly Financial Data (unaudited)
The following table presents selected quarterly information for fiscal 2000
and 1999:
<TABLE>
<CAPTION>
First Second Third Fourth
quarter quarter quarter quarter
-------- -------- -------- --------
(in thousands, except per share
data)
<S> <C> <C> <C> <C>
2000:
Revenues........................... $ 136 $ 892 $ 3,933 $ 8,055
Net loss........................... (18,009) (26,811) (32,085) (42,885)
Basic and diluted net loss per
share............................. (2.40) (2.62) (0.70) (0.57)
1999:
Revenues........................... $ -- $ -- $ -- $ 37
Net loss........................... (1,345) (3,120) (6,288) (10,038)
Basic and diluted net loss per
share............................. (0.74) (1.90) (1.45) (2.11)
</TABLE>
F-27
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.36
<SEQUENCE>2
<FILENAME>0002.txt
<DESCRIPTION>CREDIT AND GUARANTY AGREEMENT
<TEXT>
<PAGE>
EXHIBIT 10.36
EXECUTION
CREDIT AND GUARANTY AGREEMENT
dated as of December 20, 2000
among
EQUINIX OPERATING CO., INC.
and
EQUINIX, INC.,
as Borrowers,
EQUINIX, INC. AND CERTAIN OF ITS SUBSIDIARIES,
as Guarantors,
VARIOUS LENDERS,
GOLDMAN SACHS CREDIT PARTNERS L.P.,
as Joint Lead Arranger, Joint Book Runner and Syndication Agent,
SALOMON SMITH BARNEY INC.,
as Joint Lead Arranger and Joint Book Runner,
CITICORP USA, INC.,
as Administrative Agent,
and
CIT LENDING SERVICES CORPORATION
as Collateral Agent,
________________________________________________________
$150,000,000 Senior Secured Credit Facilities
________________________________________________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 1. DEFINITIONS AND INTERPRETATION..................................................................................... 2
1.1 Definitions......................................................................................................... 2
1.2 Accounting Terms.................................................................................................... 36
1.3 Interpretation, etc................................................................................................. 36
SECTION 2 LOANS AND LETTERS OF CREDIT.......................................................................................... 36
2.1 Loans............................................................................................................... 36
2.2 Issuance of Letters of Credit and Purchase of Participations Therein................................................ 41
2.3 Pro Rata Shares; Availability of Funds.............................................................................. 45
2.4 Use of Proceeds..................................................................................................... 45
2.5 Evidence of Debt; Register; Lenders' Books and Records; Notes....................................................... 46
2.6 Interest on Loans................................................................................................... 46
2.7 Conversion/Continuation............................................................................................. 48
2.8 Default Interest.................................................................................................... 49
2.9 Fees................................................................................................................ 49
2.10 Scheduled Payments.................................................................................................. 50
2.11 Voluntary Prepayments/Commitment Reductions......................................................................... 51
2.12 Mandatory Prepayments/Commitment Reductions......................................................................... 53
2.13 Application of Prepayments/Reductions............................................................................... 55
2.14 Allocation of Certain Payments and Proceeds......................................................................... 56
2.15 General Provisions Regarding Payments............................................................................... 56
2.16 Ratable Sharing..................................................................................................... 57
2.17 Making or Maintaining Eurodollar Rate Loans......................................................................... 58
2.18 Increased Costs; Capital Adequacy................................................................................... 60
2.19 Taxes; Withholding, etc............................................................................................. 61
2.20 Obligation to Mitigate.............................................................................................. 63
2.21 Defaulting Lenders.................................................................................................. 63
2.22 Removal or Replacement of a Lender.................................................................................. 64
SECTION 3 CONDITIONS PRECEDENT................................................................................................ 65
3.1 Closing Date........................................................................................................ 65
3.2 Conditions to Each Credit Extension................................................................................. 70
SECTION 4 REPRESENTATIONS AND WARRANTIES...................................................................................... 72
4.1 Organization; Requisite Power and Authority; Qualification.......................................................... 72
4.2 Capital Stock and Ownership......................................................................................... 72
4.3 Due Authorization................................................................................................... 72
4.4 No Conflict......................................................................................................... 73
4.5 Governmental Consents............................................................................................... 73
4.6 Binding Obligation.................................................................................................. 73
4.7 Historical Financial Statements..................................................................................... 73
4.8 Projections......................................................................................................... 73
4.9 No Material Adverse Change.......................................................................................... 74
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
4.10 No Restricted Junior Payments....................................................................................... 74
4.11 Adverse Proceedings, etc............................................................................................ 74
4.12 Payment of Taxes.................................................................................................... 74
4.13 Properties.......................................................................................................... 74
4.14 Collateral.......................................................................................................... 75
4.15 Environmental Matters............................................................................................... 75
4.16 No Defaults......................................................................................................... 76
4.17 Material Contracts.................................................................................................. 76
4.18 Governmental Regulation............................................................................................. 76
4.19 Margin Stock........................................................................................................ 77
4.20 Employee Matters.................................................................................................... 77
4.21 Employee Benefit Plans.............................................................................................. 77
4.22 Solvency............................................................................................................ 78
4.23 Compliance with Statutes, etc....................................................................................... 78
4.24 Disclosure.......................................................................................................... 78
SECTION 5 AFFIRMATIVE COVENANTS............................................................................................... 78
5.1 Financial Statements and Other Reports.............................................................................. 78
5.2 Existence........................................................................................................... 82
5.3 Payment of Taxes and Claims......................................................................................... 82
5.4 Maintenance of Properties........................................................................................... 83
5.5 Insurance........................................................................................................... 83
5.6 Books and Records; Inspections; Lenders Meetings.................................................................... 84
5.7 Compliance with Laws................................................................................................ 84
5.8 Environmental....................................................................................................... 84
5.9 Subsidiaries........................................................................................................ 86
5.10 Post Closing Covenants With Respect to Real Estate Assets........................................................... 86
5.11 Interest Rate Protection............................................................................................ 87
5.12 Post Closing Covenants With Respect to Permitted Equipment Financing Collateral..................................... 87
5.13 Further Assurances.................................................................................................. 87
5.14 Maintenance of Certain Cash......................................................................................... 88
5.15 Notice of Default Under Lease....................................................................................... 88
SECTION 6 NEGATIVE COVENANTS.................................................................................................. 88
6.1 Indebtedness........................................................................................................ 88
6.2 Liens............................................................................................................... 90
6.3 No Further Negative Pledges......................................................................................... 91
6.4 Restricted Junior Payments; Restrictions on Investments in Unrestricted Subsidiaries; Restricted Rental and Upkeep
Payments.......................................................................................................... 91
6.5 Investments......................................................................................................... 92
6.6 Stage 1 Financial Covenants......................................................................................... 93
6.7 Stage 2 Financial Covenants......................................................................................... 93
6.8 Maximum Cumulative Consolidated Capital Expenditures................................................................ 94
6.9 Fundamental Changes; Disposition of Assets; Acquisitions............................................................ 94
6.10 Disposal of Subsidiary Interests.................................................................................... 95
6.11 Sales and LeaseBacks................................................................................................ 95
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
6.12 Sale and Discount of Receivables.................................................................................... 96
6.13 Transactions with Shareholders and Affiliates....................................................................... 96
6.14 Conduct of Business................................................................................................. 96
6.15 Permitted IBX Facilities............................................................................................ 96
6.16 Amendments or Waivers of Certain Documents.......................................................................... 97
6.17 Fiscal Year......................................................................................................... 97
6.18 Unrestricted Subsidiaries........................................................................................... 97
6.19 Acquisition and Ownership of Assets by Company...................................................................... 98
6.20 Company Subsidiaries................................................................................................ 98
6.21 San Jose Subsidiary................................................................................................. 98
SECTION 7 GUARANTY............................................................................................................ 99
7.1 Guaranty of the Obligations......................................................................................... 99
7.2 Contribution by Guarantors.......................................................................................... 99
7.3 Payment by Guarantors............................................................................................... 100
7.4 Liability of Guarantors Absolute.................................................................................... 100
7.5 Waivers by Guarantors............................................................................................... 102
7.6 Guarantors' Rights of Subrogation, Contribution, etc................................................................ 103
7.7 Subordination of Other Obligations.................................................................................. 103
7.8 Continuing Guaranty................................................................................................. 103
7.9 Authority of Guarantors or Borrower................................................................................. 104
7.10 Financial Condition of Borrower..................................................................................... 104
7.11 Bankruptcy, etc..................................................................................................... 104
7.12 Notice of Events.................................................................................................... 105
7.13 Discharge of Guaranty Upon Sale of Guarantor........................................................................ 105
SECTION 8 EVENTS OF DEFAULT................................................................................................... 105
8.1 Events of Default................................................................................................... 105
SECTION 9 AGENTS.............................................................................................................. 108
9.1 Appointment of Agents............................................................................................... 108
9.2 Powers and Duties................................................................................................... 109
9.3 General Immunity.................................................................................................... 109
9.4 Agents Entitled to Act as Lender.................................................................................... 110
9.5 Lenders' Representations, Warranties and Acknowledgment............................................................. 110
9.6 Right to Indemnity.................................................................................................. 110
9.7 Successor Administrative Agent and Collateral Agent................................................................. 111
9.8 Collateral Documents and Guaranty................................................................................... 112
SECTION 10 MISCELLANEOUS...................................................................................................... 112
10.1 Notices............................................................................................................ 112
10.2 Expenses........................................................................................................... 113
10.3 Indemnity.......................................................................................................... 113
10.4 SetOff............................................................................................................. 114
10.5 Amendments and Waivers............................................................................................. 114
10.6 Successors and Assigns; Participations............................................................................. 116
10.7 Independence of Covenants.......................................................................................... 119
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
10.8 Survival of Representations, Warranties and Agreements............................................................. 119
10.9 No Waiver; Remedies Cumulative..................................................................................... 120
10.10 Marshalling; Payments Set Aside.................................................................................... 120
10.11 Severability....................................................................................................... 120
10.12 Entire Agreement................................................................................................... 120
10.13 Obligations Several; Independent Nature of Lenders' Rights......................................................... 120
10.14 Headings........................................................................................................... 121
10.15 APPLICABLE LAW..................................................................................................... 121
10.16 CONSENT TO JURISDICTION............................................................................................ 121
10.17 WAIVER OF JURY TRIAL............................................................................................... 121
10.18 Confidentiality.................................................................................................... 122
10.19 Usury Savings Clause............................................................................................... 123
10.20 Counterparts....................................................................................................... 123
10.21 Effectiveness...................................................................................................... 123
</TABLE>
APPENDICES: A1 Term Loan Commitments
A2 Delayed Draw Term Loan Commitments
A3 Revolving Loan Commitments
B Notice Addresses
SCHEDULES: 1.1(a) Permitted IBX Facilities
1.1(b) Closing Date Unrestricted Subsidiaries
3.1(f) Closing Date Mortgaged Properties
3.1(g)(ii) Outstanding UCC Searches
3.2(a)(x) Transferred Assets
3.2(b) Conditions to Funding
4.1 Jurisdictions of Organization and Qualification
4.2 Capital Stock and Ownership
4.5 Governmental Approvals
4.13 Real Estate Assets
4.17(a) Material Contracts
4.17(b) Intellectual Property
4.24 Disclosure
5.5 Insurance
6.1 Certain Indebtedness
6.2 Certain Liens
6.4(b)(i) Restricted Foreign Lease Payments
6.5(i) Employee Loans
6.6(a) Stage 1 Minimum Annualized Consolidated Revenues
6.6(b) Stage 1 Maximum Cumulative Consolidated EBITDA
Losses
6.7(a) Stage 2 Senior Secured Debt to Annualized
Consolidated EBITDA
iv
<PAGE>
6.7(b) Stage 2 Total Debt to Annualized Consolidated
EBITDA
6.7(c) Stage 2 Minimum Annualized Consolidated
EBITDA/Interest Expense Ratio
6.7(d) Stage 2 Pro Forma Debt Service Coverage Ratio
6.8 Stage 1 and 2 Maximum Cumulative Consolidated
Capital Expenditures
6.13 Certain Affiliate Transactions
6.15 Restricted Domestic Lease Payments
EXHIBITS: A1 Funding Notice
A2 Conversion/Continuation Notice
A3 Issuance Notice
B1 Term Loan Note
B2 Delayed Draw Term Loan Note
B3 Revolving Loan Note
B4 New Term Loan Note
C Compliance Certificate
D Opinions of Counsel
E Assignment Agreement
F Certificate Re Nonbank Status
G1 Closing Date Certificate
G2 Solvency Certificate
H Counterpart Agreement
I-A Master Pledge and Security Agreement
I-B Company Pledge and Security Agreement
J Mortgage
K Landlord Agreement
L Joinder Agreement
M Borrowing Base Certificate
N Form of Confirmation of Grant
O Form of Release
v
<PAGE>
CREDIT AND GUARANTY AGREEMENT
This CREDIT AND GUARANTY AGREEMENT, dated as of December 20, 2000, is
entered into by and among EQUINIX OPERATING CO., INC., a Delaware corporation,
as a Borrower ("OpCo"), EQUINIX, INC., a Delaware corporation, as a Borrower and
as a Guarantor ("Company"), and CERTAIN SUBSIDIARIES OF THE COMPANY, as
Guarantors, the Lenders party hereto from time to time, GOLDMAN SACHS CREDIT
PARTNERS L.P. ("GSCP"), as Joint Lead Arranger, Joint Book Runner and
Syndication Agent (in such capacity,"Syndication Agent"), SALOMON SMITH BARNEY
INC., as Joint Lead Arranger (in such capacity, together with GSCP, the "Joint
Lead Arrangers"), and Joint Book Runner (in such capacity, together with GSCP,
the "Joint Book Runners"), CITICORP USA, INC., as Administrative Agent (together
with its permitted successors in such capacity,"Administrative Agent") and CIT
LENDING SERVICES CORPORATION, as Collateral Agent (together with its permitted
successors in such capacity, "Collateral Agent").
RECITALS:
WHEREAS, capitalized terms used in these Recitals shall have the respective
meanings set forth for such terms in Section 1.1 hereof;
WHEREAS, Lenders have agreed to extend certain credit facilities to
Borrowers, in an aggregate amount not to exceed $150,000,000, consisting of
$50,000,000 aggregate principal amount of Term Loans to be drawn on January 2,
2001 (the "Funding Date"), up to $75,000,000 aggregate principal amount of
Delayed Draw Term Loans, and up to $25,000,000 aggregate principal amount of
Revolving Loans, the proceeds of which will be used to (i) to pay Transaction
Costs, (ii) to provide financing for the cost of design, development,
acquisition, construction, installation, improvement, transportation, and/or
integration of equipment, inventory or facility assets and of leasing and
acquiring of real property and (iii) for the working capital and other general
corporate purposes of the Company and its Restricted Subsidiaries, including
Permitted Acquisitions, as well as for certain limited purposes of its
Unrestricted Subsidiaries;
WHEREAS, the Company has agreed to secure all of its obligations hereunder
by granting to Collateral Agent, for the benefit of Secured Parties, a First
Priority Lien on substantially all of its assets, including a pledge of all of
the Capital Stock of each of its Restricted Subsidiaries; provided, that, any
-------- ----
Purchase Money Loans made to the Company shall be secured solely by the assets
purchased with the proceeds of such Loans;
WHEREAS, OpCo has agreed to secure all of its obligations hereunder by
granting to Collateral Agent, for the benefit of Secured Parties, a First
Priority Lien on substantially all of its assets, including a pledge of all of
the Capital Stock of each of its Restricted Subsidiaries and 65% of all the
Capital Stock of each of its firsttier Foreign Subsidiaries; and
WHEREAS, Guarantors have agreed to guarantee the obligations of OpCo (and,
to the extent not prohibited under the Senior Notes, the Company) hereunder and
to secure their respective obligations hereunder by granting to Collateral
Agent, for the benefit of Secured
<PAGE>
Parties, a First Priority Lien on substantially all of their respective assets,
including a pledge of all of the Capital Stock of each of their respective
Domestic Subsidiaries and 65% of all the Capital Stock of each of their
respective Foreign Subsidiaries.
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the parties hereto agree as follows:
SECTION 1 DEFINITIONS AND INTERPRETATION
1.1 Definitions. The following terms used herein, including in the
preamble, recitals, exhibits and schedules hereto, shall have the following
meanings:
"Adjusted Eurodollar Rate" means, for any Interest Rate Determination
Date with respect to an Interest Period for a Eurodollar Rate Loan, the rate per
annum obtained by dividing (and rounding upward to the next whole multiple of
1/16 of 1%) (i) (a) the rate per annum (rounded to the nearest 1/100 of 1%)
equal to the rate determined by Administrative Agent to be the offered rate
which appears on the page of the Telerate Screen which displays an average
British Bankers Association Interest Settlement Rate (such page currently being
page number 3740 or 3750, as applicable) for deposits (for delivery on the first
day of such period) with a term equivalent to such period in Dollars, determined
as of approximately 11:00 a.m. (London, England time) on such Interest Rate
Determination Date, or (b) in the event the rate referenced in the preceding
clause (a) does not appear on such page or service or if such page or service
shall cease to be available, the rate per annum (rounded to the nearest 1/100 of
1%) equal to the rate determined by Administrative Agent to be the offered rate
on such other page or other service which displays an average British Bankers
Association Interest Settlement Rate for deposits (for delivery on the first day
of such period) with a term equivalent to such period in Dollars, determined as
of approximately 11:00 a.m. (London, England time) on such Interest Rate
Determination Date, or (c) in the event the rates referenced in the preceding
clauses (a) and (b) are not available, the rate per annum (rounded to the
nearest 1/100 of 1%) equal to the offered quotation rate to first class banks in
the London interbank market by Administrative Agent for deposits (for delivery
on the first day of the relevant period) in Dollars of amounts in same day funds
comparable to the principal amount of the applicable Loan of Administrative
Agent, in its capacity as a Lender, for which the Adjusted Eurodollar Rate is
then being determined with maturities comparable to such period as of
approximately 11:00 a.m. (London, England time) on such Interest Rate
Determination Date, by (ii) an amount equal to (a) one minus (b) the Applicable
-----
Reserve Requirement.
"Administrative Agent" as defined in the preamble hereto.
"Adverse Proceeding" means any action, suit, proceeding (whether
administrative, judicial or otherwise), governmental investigation or
arbitration (whether or not purportedly on behalf of Company or any of its
Restricted Subsidiaries) at law or in equity, or before or by any Governmental
Authority, domestic or foreign (including any Environmental Claims), whether
pending or, to the knowledge of Company or any of its Restricted Subsidiaries,
threatened against or affecting Company or any of its Restricted Subsidiaries or
any property of Company or any of its Restricted Subsidiaries.
2
<PAGE>
"Affected Lender" as defined in Section 2.17(b).
"Affected Loans" as defined in Section 2.17(b).
"Affiliate" means, as applied to any Person, any other Person directly
or indirectly controlling, controlled by, or under common control with, that
Person. For the purposes of this definition, "control" (including, with
correlative meanings, the terms "controlling", "controlled by" and "under common
control with"), as applied to any Person, means the possession, directly or
indirectly, of the power (i) to vote 10% or more of the Securities having
ordinary voting power for the election of directors of such Person or (ii) to
direct or cause the direction of the management and policies of that Person,
whether through the ownership of voting securities or by contract or otherwise.
Neither any Agent nor any Lender shall be deemed Affiliates of any Credit Party,
by virtue of the security interests granted under the Pledge and Security
Agreement.
"Agent" means each of the Joint Lead Arrangers, Joint Book Runners,
Syndication Agent, Administrative Agent, Collateral Agent and Documentation
Agent.
"Aggregate Amounts Due" as defined in Section 2.16.
"Aggregate Payments" as defined in Section 7.2.
"Agreement" means this Credit and Guaranty Agreement, dated as of
December 20, 2000, as it may be amended, restated, supplemented or otherwise
modified from time to time.
"Annualized Consolidated EBITDA" means, as of any date of
determination, Consolidated EBITDA for the most recently completed Fiscal
Quarter multiplied by four.
"Annualized Consolidated Revenues" means, as of any date of
determination, Net Revenues for the most recently completed Fiscal Quarter
multiplied by four.
"Applicable Commitment Fee Percentage" means a percentage per annum,
determined by reference to the Facilities Usage from time to time as set forth
below:
Facilities Usage Commitment Fee
**1/3 1.50%
--------------------------------------------------------
*1/3 **2/3 1.25%
--------------------------------------------------------
* 2/3 0.75%
========================================================
"Applicable Margin" means (i) from the Closing Date until the end of
Stage 1, (a) with respect to Loans (other than Purchase Money Loans) that are
Eurodollar Rate Loans, 4.25% per annum and (y) with respect to Purchase Money
Loans that are Eurodollar Rate Loans, 4.75% per annum, and (b) with respect to
Loans that are Base Rate Loans, an amount equal to the Applicable Margin for
Eurodollar Rate Loans as set forth in clause (i)(a)(x) or (i)(a)(y) above, as
applicable, minus 1.00% per annum; provided, however, on and after the date that
----- -------- -------
75% of Permitted IBX Facilities shall have achieved positive IBX Facility Net
Cashflow, each such
* greater than
** less than or equal to
3
<PAGE>
Applicable Margin set forth above shall be reduced by 0.25% per annum; and (ii)
during Stage 2, (a) with respect to the Loans that are Eurodollar Rate Loans,
(x) in the case of Loans (other than Purchase Money Loans), a percentage, per
annum, determined by reference to the Total Leverage Ratio in effect from time
to time as set forth below:
==========================================================
Total Applicable Margin
Leverage For Eurodollar Rate
Ratio
----------------------------------------------------------
* 6.0:1.00 3.75%
----------------------------------------------------------
** 6.0:1.00 3.50%
* 4.5:1.00
----------------------------------------------------------
** 4.5:1.00 3.25%
* 3.0:1.00
----------------------------------------------------------
** 3.0:1.00 3.00%
==========================================================
and (y) in the case of Purchase Money Loans, 4.75% per annum and (b) with
respect to Loans that are Base Rate Loans, an amount equal to the Applicable
Margin for Eurodollar Rate Loans as set forth in clause (ii)(a) (x) and
(ii)(a)(y) minus 1.00% per annum. No change in the Applicable Margin
-----
contemplated by clause (ii) above shall be effective until three (3) Business
Days after the date on which Administrative Agent shall have received the
applicable financial statements and a Compliance Certificate pursuant to Section
5.1(d) calculating the Total Leverage Ratio. At any time Company has not
submitted to Administrative Agent the applicable information as and when
required under Section 5.1(d), the Applicable Margin shall be determined as if
the Total Leverage Ratio were in excess of 6.00:1.00 until such time as the
Company has provided the information required under Section 5.1(d). Within one
(1) Business Day of receipt of the applicable information as and when required
under Section 5.1(d), Administrative Agent shall give each Lender telefacsimile
or telephonic notice (confirmed in writing) of the Applicable Margin in effect
from such date. The Applicable Margin with respect to any New Term Loans shall
be set forth in the applicable Joinder Agreement.
If during Stage 1 or Stage 2 (i) Purchase Money Loans are permitted under the
terms of the Senior Notes to share pari passu in the Collateral securing the
other Loans and (ii) Purchase Money Loans are permitted to be guaranteed by the
Restricted Subsidiaries to the same extent as the other Loans, then from and
after such date, such Purchase Money Loans shall bear interest under the
foregoing provisions on the same basis as the other Loans.
"Applicable Reserve Requirement" means, at any time, for any
Eurodollar Rate Loan, the maximum rate, expressed as a decimal, at which
reserves (including, without limitation, any basic marginal, special,
supplemental, emergency or other reserves) are required to be maintained with
respect thereto against "Eurocurrency liabilities" (as such term is defined in
Regulation D) under regulations issued from time to time by the Board of
Governors of the Federal Reserve System or other applicable banking regulator.
Without limiting the effect of the foregoing, the Applicable Reserve Requirement
shall reflect any other reserves required to be maintained by such member banks
with respect to (i) any category of liabilities which includes deposits by
reference to which the applicable Adjusted Eurodollar Rate or any other interest
rate of a Loan is to be determined, or (ii) any category of extensions of credit
or other assets which
* greater than or equal to
** less than
4
<PAGE>
include Eurodollar Rate Loans. A Eurodollar Rate Loan shall be deemed to
constitute Eurocurrency liabilities and as such shall be deemed subject to
reserve requirements without benefits of credit for proration, exceptions or
offsets that may be available from time to time to the applicable Lender. The
rate of interest on Eurodollar Rate Loans shall be adjusted automatically on and
as of the effective date of any change in the Applicable Reserve Requirement.
"A/R Sublimit" as defined in Section 2.1(a)(iii) hereof.
"A/R Sublimit Measurement Date" means the date of the most recently
available balance sheet of Company filed with the Securities Exchange Commission
or provided pursuant to Section 4.03 of the Senior Notes Indenture to the
trustee thereunder.
"Asset Sale" means a sale, lease or sublease (as lessor or sublessor),
sale and leaseback, assignment, conveyance, transfer or other disposition (any
such transaction, a "Disposition") to, or any exchange of property with, any
Person (other than the Company or any Guarantor Subsidiary), in one transaction
or a series of transactions, of all or any part of Company's or any of its
Restricted Subsidiaries' businesses, assets or properties of any kind, whether
real, personal, or mixed and whether tangible or intangible, whether now owned
or hereafter acquired, including, without limitation, the Capital Stock of any
of Company's Restricted Subsidiaries, other than (i) inventory (or other assets)
----------
sold or leased in the ordinary course of business, (ii) disposals of obsolete,
worn out or surplus property, (iii) a Qualifying San Jose Disposition, (iv)
Dispositions of other assets for aggregate consideration of less than $50,000
with respect to any transaction or series of related transactions and less than
$250,000 in the aggregate during any Fiscal Year, (v) sales of Cash Equivalents
in the ordinary course of business, (vi) Permitted Liens, and (vii) sale and
leaseback transactions in connection with Permitted Equipment Financing.
"Assignment Agreement" means an Assignment Agreement substantially in
the form of Exhibit E, with such amendments or modifications as may be approved
by Administrative Agent.
"Authorized Officer" means, as applied to any Person, any individual
holding the position of chairman of the board (if an officer), chief executive
officer, president and one of its vice presidents (or the equivalent thereof),
or such Person's chief financial officer and treasurer.
"Bankruptcy Code" means Title 11 of the United States Code entitled
"Bankruptcy," as now and hereafter in effect, or any successor statute.
"Base Rate" means, for any day, a rate per annum equal to the greater
of (i) the Prime Rate in effect on such day and (ii) the Federal Funds Effective
Rate in effect on such day plus 1/2 of 1%. Any change in the Base Rate due to
a change in the Prime Rate or the Federal Funds Effective Rate shall be
effective on the effective day of such change in the Prime Rate or the Federal
Funds Effective Rate, respectively.
"Base Rate Loan" means a Loan bearing interest at a rate determined by
reference to the Base Rate.
5
<PAGE>
"Basic Upkeep" has the meaning assigned in Section 6.4(b).
"Beneficiary" means each Agent, Issuing Bank, Lender and Lender
Counterparty.
"Borrower" means (y) with respect to Loans (other than Purchase Money
Loans) and related Obligations, OpCo and (z) with respect to Purchase Money
Loans and related Obligations, the Company.
"Borrowing Base" means, at any time, 60% of Eligible Net PP&E. The
Borrowing Base at any date shall be determined by reference to the Borrowing
Base Certificate most recently delivered hereunder on or prior to such date as
specified in Section 5.1(e).
"Borrowing Base Certificate" has the meaning specified in Section
5.1(e).
"Business Day" means (i) any day excluding Saturday, Sunday and any
day which is a legal holiday under the laws of the State of New York or is a day
on which banking institutions located in such state are authorized or required
by law or other governmental action to close and (ii) with respect to all
notices, determinations, fundings and payments in connection with the Adjusted
Eurodollar Rate or any Eurodollar Rate Loans, the term "Business Day" shall mean
any day which is a Business Day described in clause (i) and which is also a day
for trading by and between banks in Dollar deposits in the London interbank
market.
"Capital Expenditure" means, for any period, the aggregate of all
expenditures of any Person during such period that, in accordance with GAAP, are
or should be included in "purchase of property and equipment" or similar items,
including without limitation construction in progress, reflected in the
statement of cash flows of such Person. Notwithstanding the foregoing, the term
"Capital Expenditure" shall not include capital expenditures constituting (i)
the reinvestment of Net Asset Sale Proceeds or Net Insurance/Condemnation
Proceeds made in accordance with Sections 2.12(a) and (b), (ii) Permitted
Acquisitions and (iii) that portion of any capital expenditure solely
attributable to or deemed paid for through the issuance by Company of a warrant
to purchase capital stock of Company.
"Capital Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) by that Person as lessee that, in
conformity with GAAP, is or should be accounted for as a capital lease on the
balance sheet of that Person.
"Capital Stock" means any and all shares, interests, participations or
other equivalents (however designated) of capital stock of a corporation, any
and all equivalent ownership interests in a Person (other than a corporation),
including, without limitation, partnership interests and membership interests,
and any and all warrants, rights or options to purchase or other arrangements or
rights to acquire any of the foregoing.
"Cash" means money, currency or a credit balance in any demand or
Deposit Account.
"Cash Equivalents" means, as at any date of determination, (i)
marketable securities (a) issued or directly and unconditionally guaranteed as
to interest and principal by the
6
<PAGE>
United States Government or (b) issued by any agency of the United States the
obligations of which are backed by the full faith and credit of the United
States, in each case maturing within one year after such date; (ii) marketable
direct obligations issued by any state of the United States of America or any
political subdivision of any such state or any public instrumentality thereof,
in each case maturing within one year after such date and having, at the time of
the acquisition thereof, a rating of at least A1 from S&P or at least P1 from
Moody's; (iii) commercial paper maturing no more than one year from the date of
creation thereof and having, at the time of the acquisition thereof, a rating of
at least A1 from S&P or at least P1 from Moody's; (iv) certificates of deposit
or bankers' acceptances maturing within one year after such date and issued or
accepted by any Lender or by any commercial bank organized under the laws of the
United States of America or any state thereof or the District of Columbia that
(a) is at least "adequately capitalized" (as defined in the regulations of its
primary Federal banking regulator) and (b) has Tier 1 capital (as defined in
such regulations) of not less than $100,000,000; (v) repurchase obligations of
any Lender or of any commercial bank that is a member of the Federal Reserve
System, is organized under the laws of the United States or any State thereof
and has combined capital and surplus of at least $1 billion having a term of not
more than 90 days with respect to securities issued or fully guaranteed or
insured by the Government of the United States and (vi) shares of any money
market mutual fund that (a) has substantially all of its assets invested
continuously in the types of investments referred to in clauses (i) and (ii)
above, (b) has net assets of not less than $500,000,000, and (c) has the highest
rating obtainable from either S&P or Moody's or is operated by Goldman, Sachs &
Co. or an Affiliate thereof.
"Certificate re NonBank Status" means a certificate substantially in
the form of Exhibit F.
"Change of Control" means, at any time, (i) any Person or "group"
(within the meaning of Rules 13d3 and 13d5 under the Exchange Act) other than
the Founders (a) (x) shall have acquired beneficial ownership of 35% or more on
a fully diluted basis of the voting and/or economic interest in the Capital
Stock of Company and (y) the Founders own, in the aggregate, a lesser percentage
of the total voting and/or economic interest in the Capital Stock of the Company
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 (or similar governing body) of Company or (b) shall have obtained the
power (whether or not exercised) to elect a majority of the members of the board
of directors (or similar governing body) of Company; (ii) the majority of the
seats (other than vacant seats) on the board of directors (or similar governing
body) of Company cease to be occupied by Persons who either (a) were members of
the board of directors of Company on the Closing Date or (b) were nominated for
election by the board of directors of Company, a majority of whom were directors
on the Closing Date or whose election or nomination for election was previously
approved by a majority of such directors; or (iii) any "change of control" or
similar event under the Senior Note Indenture or any document evidencing any
Permitted Equipment Financing or Permitted Unsecured Company Debt shall occur.
"Class" means (i) with respect to Lenders, each of the following
classes of Lenders: (a) Lenders having Term Loan Exposure, (b) Lenders having
Delayed Draw Term Loan Exposure, (c) Lenders having Revolving Loan Exposure and
(d) Lenders having New Term Loan
7
<PAGE>
Exposure, and (ii) with respect to Loans, each of the following classes of
Loans: (a) Term Loans, (b) Delayed Draw Term Loans, (c) Revolving Loans and (d)
New Term Loans, if any.
"Closing Date" means the date on or before December 20, 2000 on which
the conditions set forth in Section 3.1 have been satisfied.
"Closing Date Certificate" means a Closing Date Certificate
substantially in the form of Exhibit G1.
"Closing Date Mortgaged Property" as defined in Section 3.1(f).
"Closing Financial Plan" means the financial plan for Company and its
Subsidiaries set forth in the Confidential Information Memorandum dated November
2000.
"Collateral" means, collectively, all of the real, personal and mixed
property (including Capital Stock) in which Liens are purported to be granted
pursuant to the Collateral Documents as security for the Obligations.
"Collateral Agent" as defined in the preamble hereto.
"Collateral Documents" means the Pledge and Security Agreement, the
Mortgages, the Landlord Agreements and all other instruments, documents and
agreements delivered by any Credit Party pursuant to this Agreement or any of
the other Credit Documents in order to grant to Collateral Agent, for the
benefit of Secured Parties, a Lien on any real, personal or mixed property of
that Credit Party as security for the Obligations.
"Commitments" means the commitments of Lenders to make Loans as set
forth in Section 2.1(a) of this Agreement. The amount of each Lender's
Commitment is set forth on Appendix A or in the applicable Assignment Agreement
or Joinder Agreement and is subject to any adjustment or reduction pursuant to
the terms and conditions hereof.
"Company" as defined in the preamble hereto.
"Complementary Business" means storage services, content distribution,
network management, security services, monitoring, site management and similar
related activities, in each case relating to the operation of Permitted IBX
Facilities.
"Compliance Certificate" means a Compliance Certificate substantially
in the form of Exhibit C.
"Consolidated Capital Expenditures" means, for any period, the
aggregate of all Capital Expenditures of Company and its Restricted Subsidiaries
during such period determined on a consolidated basis, in accordance with GAAP.
"Consolidated Cash Interest Expense" means, for any period,
Consolidated Interest Expense for such period, excluding any amount not payable
in Cash.
8
<PAGE>
"Consolidated Current Assets" means, as at any date of determination,
the total assets of Company and its Restricted Subsidiaries on a consolidated
basis that may properly be classified as current assets in conformity with GAAP,
excluding Cash and Cash Equivalents.
"Consolidated Current Liabilities" means, as at any date of
determination, the total liabilities of Company and its Restricted Subsidiaries
on a consolidated basis that may properly be classified as current liabilities
in conformity with GAAP, excluding the current portion of long term debt.
"Consolidated EBITDA" means, for any period, an amount determined for
Company and its Restricted Subsidiaries on a consolidated basis equal to (i)
the sum, without duplication, of the amounts for such period of (a)
Consolidated Net Income, (b) Consolidated Interest Expense, (c) provisions for
taxes based on income, (d) total depreciation expense, (e) total amortization
expense, and (f) other nonCash items reducing Consolidated Net Income (excluding
any such nonCash item to the extent that it represents an accrual or reserve for
potential Cash items in any future period or amortization of a prepaid Cash item
that was paid in a prior period), minus (ii) other nonCash items increasing
-----
Consolidated Net Income for such period (excluding any such nonCash item to the
extent it represents the reversal of an accrual or reserve for potential Cash
item in any prior period), (iii) interest income, and (iv) to the extent not
otherwise deducted in determining Consolidated EBITDA, any payments made with
respect to the San Jose Ground Lease after transfer thereof to the San Jose
Subsidiary, all of the foregoing as determined in conformity with GAAP.
"Consolidated Excess Cash Flow" means, for any period, an amount (if
positive) equal to: (i) the sum, without duplication, of the amounts for such
period of (a) Consolidated EBITDA, minus (b) the Consolidated Working Capital
-----
Adjustment, minus (ii) the sum, without duplication, of the amounts for such
-----
period of (a) repayments of Consolidated Total Debt (excluding repayments of
Revolving Loans except to the extent the Commitments are permanently reduced in
connection with such repayment), (b) Consolidated Capital Expenditures
(excluding any Capital Expenditures prohibited by Section 6.8) (net of (i) any
proceeds of any related financings with respect to such expenditures, and (ii)
any insurance and condemnation proceeds used to finance the replacement of
destroyed or appropriated property), (c) Consolidated Cash Interest Expense, and
(d) provisions for current taxes based on income of Company and its Restricted
Subsidiaries and payable in cash with respect to such period, and (e) to the
extent not otherwise deducted in determining Consolidated Excess Cash Flow, Cash
consideration paid for Permitted Acquisitions and Investments permitted
hereunder (in each case, net of any proceeds of related financings and issuances
of Capital Stock incurred to finance such Permitted Acquisitions and
Investments).
"Consolidated Interest Expense" means, for any period, total interest
expense (including commitment fees and that portion attributable to Capital
Leases in accordance with GAAP and capitalized interest) of Company and its
Restricted Subsidiaries on a consolidated basis with respect to all outstanding
Indebtedness of Company and its Restricted Subsidiaries, including all
commissions, discounts and other fees and charges owed with respect to letters
of credit and bankers' acceptance financing and net costs under Interest Rate
Agreements, but excluding, however, any amounts referred to in Section 2.9
payable on or before the Closing Date.
9
<PAGE>
"Consolidated Net Income" means, for any period, (i) the net income
(or loss) of Company and its Restricted Subsidiaries on a consolidated basis for
such period taken as a single accounting period determined in conformity with
GAAP, minus (ii) (a) the income (or loss) of any Person (other than a Restricted
-----
Subsidiary) in which any other Person (other than Company or any of its
Restricted Subsidiaries) has a joint interest, except to the extent of the
amount of dividends or other distributions actually paid to Company or any of
its Restricted Subsidiaries by such Person during such period, (b) the income
(or loss) of any Person accrued prior to the date it becomes a Restricted
Subsidiary or is merged into or consolidated with Company or any of its
Restricted Subsidiaries or that Person's assets are acquired by Company or any
of its Restricted Subsidiaries, (c) the income of any Restricted Subsidiary to
the extent that the declaration or payment of dividends or similar distributions
by that Restricted Subsidiary of that income is not at the time permitted 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, (d) any aftertax gains or losses attributable to Asset
Sales or returned surplus assets of any Pension Plan, and (e) (to the extent not
included in clauses (a) through (d) above) any net extraordinary gains or net
extraordinary losses.
"Consolidated Senior Secured Debt" means, as at any time of
determination, the aggregate stated balance sheet amount of all outstanding
Indebtedness of Company and its Restricted Subsidiaries under (i) this
Agreement, (ii) the Permitted Equipment Financings, (iii) any secured trade
payables and (iv) Capital Leases.
"Consolidated Total Capitalization" means the sum of (a) Consolidated
Total Debt and (b) paidinequity capital of the Company or any of its Restricted
Subsidiaries (including preferred stock but excluding (i) any additional equity
issued as payinkind dividends on issued and outstanding equity securities, (ii)
any capital contributed by the Company or any Restricted Subsidiary to any of
the Unrestricted Subsidiaries and (iii) any accumulated deficits resulting from
operations).
"Consolidated Total Debt" means, as at any date of determination, the
aggregate stated balance sheet amount of all Indebtedness (without giving effect
to any original issue discount) of Company and its Restricted Subsidiaries
determined on a consolidated basis in accordance with GAAP.
"Consolidated Working Capital" means, as at any date of determination,
the excess of Consolidated Current Assets over Consolidated Current Liabilities.
"Consolidated Working Capital Adjustment" means, for any period on a
consolidated basis, the amount (which may be a negative number) by which
Consolidated Working Capital as of the end of such period exceeds (or is less
than) Consolidated Working Capital as of the beginning of such period.
"Contractual Obligation" means, as applied to any Person, any
provision of any Security issued by that Person or of any indenture, mortgage,
deed of trust, contract, undertaking, agreement or other instrument to which
that Person is a party or by which it or any of its properties is bound or to
which it or any of its properties is subject.
10
<PAGE>
"Contributing Guarantors" as defined in Section 7.2.
"Conversion/Continuation Date" means the effective date of a
continuation or conversion, as the case may be, as set forth in the applicable
Conversion/Continuation Notice.
"Conversion/Continuation Notice" means a Conversion/Continuation
Notice substantially in the form of Exhibit A2.
"Counterpart Agreement" means a Counterpart Agreement substantially in
the form of Exhibit H.
"Credit Date" means the date of a Credit Extension.
"Credit Document" means any of this Agreement, the Notes, if any,
Joinder Agreements, if any, the Collateral Documents, any documents or
certificates executed by OpCo in favor of Issuing Bank relating to Letters of
Credit, and all other documents, instruments or agreements executed and
delivered by a Credit Party for the benefit of the Agents, Issuing Bank or any
Lender in connection herewith, including Hedge Agreements with any Lender
Counterparty, in each case, as may be amended, supplemented or otherwise
modified from time to time.
"Credit Extension" means the making of a Loan or the issuing of a
Letter of Credit or the amendment or other modification of a Letter of Credit to
increase its stated amount, extend its period of effectiveness, or amend the
conditions under which it may be drawn.
"Credit Party" means the Company and any of its Restricted
Subsidiaries from time to time party to a Credit Document.
"Currency Agreement" means any foreign exchange contract, currency
swap agreement, futures contract, option contract, synthetic cap or other
similar agreement or arrangement, each of which is for the purpose of hedging
the foreign currency risk associated with Company's and its Restricted
Subsidiaries' operations.
"Default" means a condition or event that, after notice or lapse of
time or both, would constitute an Event of Default.
"Default Excess" means, with respect to any Defaulting Lender, the
excess, if any, of such Defaulting Lender's Pro Rata Share of the aggregate
outstanding principal amount of Loans of all Lenders (calculated as if all
Defaulting Lenders (other than such Defaulting Lender) had funded all of their
respective Defaulted Loans) over the aggregate outstanding principal amount of
all Loans of such Defaulting Lender.
"Default Period" as defined in Section 2.21.
"Defaulting Lender" as defined in Section 2.21.
"Defaulted Loan" as defined in Section 2.21.
11
<PAGE>
"Delayed Draw Term Loan Commitment" means the Commitment of a Lender
to make or otherwise fund a Delayed Draw Term Loan to OpCo and "Delayed Draw
Term Loan Commitments" means such Commitments of all Lenders in the aggregate.
The amount of each Lender's Delayed Draw Term Loan Commitment, if any, is set
forth in Appendix A or in the applicable Assignment Agreement, subject to any
adjustment or reduction pursuant to the terms and conditions hereof. The
aggregate amount of the Delayed Draw Term Loan Commitments as of the Closing
Date is $75,000,000.
"Delayed Draw Term Loan Commitment Period" means the time period
commencing on the Closing Date through to and including the Delayed Draw Term
Loan Commitment Termination Date.
"Delayed Draw Term Loan Commitment Termination Date" means the earlier
to occur of (i) the date the Delayed Draw Term Loan Commitments are permanently
reduced to zero pursuant to Sections 2.11(b) or 2.12, (ii) the date of the
termination of the Commitments pursuant to Section 8.1, and (iii) the date
occurring twelve (12) months after the Closing Date.
"Delayed Draw Term Loan Exposure" means, with respect to any Lender,
as of any date of determination, the outstanding principal amount of the Delayed
Draw Term Loans of such Lender; provided, at any time prior to the making of the
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initial Delayed Draw Term Loans, the Delayed Draw Term Loan Exposure of any
Lender shall be equal to such Lender's Delayed Draw Term Loan Commitment.
"Delayed Draw Term Loan Installment" as defined in Section 2.10(a).
"Delayed Draw Term Loan Installment Date" as defined in Section
2.10(a).
"Delayed Draw Term Loan Lenders" means Lenders having Delayed Draw
Term Loan Exposure.
"Delayed Draw Term Loan Maturity Date" means the earlier of (i)
December 15, 2005 and (ii) the date that all Delayed Draw Term Loans shall
become due and payable in full hereunder, whether by acceleration or otherwise.
"Delayed Draw Term Loan Note" means a promissory note in the form of
Exhibit B2, as it may be amended, supplemented or otherwise modified from time
to time.
"Delayed Draw Term Loans" means any Delayed Draw Term Loans made by
any Lender to OpCo pursuant to Section 2.1(a)(ii) of this Agreement and any New
Delayed Draw Term Loans made by any Lender to OpCo pursuant to Section
2.1(a)(iv) of this Agreement.
"Deposit Account" means a demand, time, savings, passbook or like
account with a bank, savings and loan association, credit union or like
organization, other than an account evidenced by a negotiable certificate of
deposit.
"Designation"as defined in Section 6.18(a).
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"Disposition" as defined within the definition Asset Sale.
"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, (a) 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 prior to April 15, 2006; provided, however,
-------- -------
that any Equity Interest that would constitute Disqualified Stock solely because
the holders thereof have the right to require the Company 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 the Company may not repurchase or redeem such Equity Interest
pursuant to such provisions unless such repurchase or redemption complies with
Section 6.4 or (b) requires the payment of cash dividends or other payments to
the holder thereon, unless through December 15, 2005 such cash dividends or
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other payments are only required to be paid and are only paid from the proceeds
of the issuance of such Equity Interest and sums of such proceeds are at the
time of such issuance placed in escrow for the purpose of making such payments
sufficient to make such payments through such date and are at all times prior to
such date sufficient therefor.
"Dollars" and the sign "$" mean the lawful money of the United States
of America.
"Domestic Subsidiary" means any Subsidiary organized under the laws of
the United States of America, any State thereof or the District of Columbia.
"Eligible Assignee" means (i) any Lender, any Affiliate of any Lender
and any Related Fund (any two or more Related Funds being treated as a single
Eligible Assignee for all purposes hereof), and (ii) any commercial bank,
insurance company, investment or mutual fund or other entity that is an
"accredited investor" (as defined in Regulation D under the Securities Act) and
which extends credit or buys loans as one of its businesses; provided, no
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Affiliate of Company shall be an Eligible Assignee.
"Eligible Net PP&E" means, at any date of determination, an amount
equal to (i) the aggregate cost of Company's and its Restricted Subsidiaries'
assets located on a Permitted IBX Facility that may properly be classified, in
conformity with GAAP, as property, plant and equipment reflected on the
consolidated balance sheet of Company and its Restricted Subsidiaries, which in
the case of any such property, plant and equipment located at Permitted IBX
Facilities that are leased by Company or its Restricted Subsidiaries, is located
at Permitted IBX Facilities with respect to which (x) a Credit Party has taken
all such actions and executed and delivered, or caused to be executed and
delivered, all such mortgages, documents, instruments, agreements, opinions and
certificates described in Sections 3.1(f), 3.1(g), 3.1(h), and 3.1(k) to create
in favor of Collateral Agent, for the benefit of the Secured Parties, the valid
and perfected First Priority Liens referred to in such sections or (y) the
underlying leasehold interest is held by OpCo or other Restricted Subsidiary
and the Collateral Agent for the benefit of the Secured Parties has a First
Priority security interest in all of the Capital Stock of OpCo or such other
Restricted Subsidiary, as applicable, less (ii) the sum of (x) to the extent not
----
otherwise deducted in determining Eligible Net PP&E the accumulated depreciation
and any write-down or
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write-off with respect to such property, plant and equipment, as determined in
conformity with GAAP, (y) to the extent not otherwise deducted in determining
Eligible Net PP&E, the aggregate cost of any assets otherwise included in
Eligible Net PP&E subject to security interests securing Permitted Equipment
Financing, less the accumulated depreciation and any write-down or write-off
with respect to the assets referenced in this clause (y), as determined in
conformity with GAAP, and (z) that portion of the aggregate cost of any assets
otherwise included in Eligible Net PP&E to the extent attributable to issuance
by Company of warrants to purchase Capital Stock of Company.
"Employee Benefit Plan" means any "employee benefit plan" as defined
in Section 3(3) of ERISA which is or was sponsored, maintained or contributed to
by, or required to be contributed by, Company, any of its Subsidiaries or any of
their respective ERISA Affiliates.
"Environmental Claim" means any investigation, notice, notice of
violation, claim, action, suit, proceeding, demand, abatement order or other
order or directive (conditional or otherwise), by any Governmental Authority or
any other Person, arising (i) pursuant to or in connection with any actual or
alleged violation of any Environmental Law; (ii) in connection with any
Hazardous Material or any actual or alleged Hazardous Materials Activity; or
(iii) in connection with any actual or alleged damage, injury, threat or harm to
health, safety, natural resources or the environment.
"Environmental Laws" means any and all current or future foreign or
domestic, federal or state (or any subdivision of either of them), statutes,
ordinances, orders, rules, regulations, guidance documents, judgments,
Governmental Authorizations, or any other requirements of Governmental
Authorities relating to (i) environmental matters, including those relating to
any Hazardous Materials Activity; (ii) the generation, use, storage,
transportation or disposal of Hazardous Materials; or (iii) occupational safety
and health, industrial hygiene, land use or the protection of human, plant or
animal health or welfare, in any manner applicable to Company or any of its
Subsidiaries or any Facility.
"Equity Interests" means Capital Stock of Company and all warrants,
options or other rights to acquire Capital Stock of Company (but excluding any
debt security that is convertible into, or exchangeable for, Capital Stock of
Company).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any successor thereto.
"ERISA Affiliate" means, as applied to any Person, (i) any corporation
which is a member of a controlled group of corporations within the meaning of
Section 414(b) of the Internal Revenue Code of which that Person is a member;
(ii) any trade or business (whether or not incorporated) which is a member of a
group of trades or businesses under common control within the meaning of Section
414(c) of the Internal Revenue Code of which that Person is a member; and (iii)
any member of an affiliated service group within the meaning of Section 414(m)
or (o) of the Internal Revenue Code of which that Person, any corporation
described in clause (i) above or any trade or business described in clause (ii)
above is a member. Any former ERISA Affiliate of Company or any of its
Subsidiaries shall continue to be considered an ERISA Affiliate of Company or
any such Subsidiary within the meaning of this definition with respect
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to the period such entity was an ERISA Affiliate of Company or such Subsidiary
and with respect to liabilities arising after such period for which Company or
such Subsidiary could be liable under the Internal Revenue Code or ERISA.
"ERISA Event" means (i) a "reportable event" within the meaning of
Section 4043 of ERISA and the regulations issued thereunder with respect to any
Pension Plan (excluding those for which the provision for 30day notice to the
PBGC has been waived by regulation); (ii) the failure to meet the minimum
funding standard of Section 412 of the Internal Revenue Code with respect to any
Pension Plan (whether or not waived in accordance with Section 412(d) of the
Internal Revenue Code) or the failure to make by its due date a required
installment under Section 412(m) of the Internal Revenue Code with respect to
any Pension Plan or the failure to make any required contribution to a
Multiemployer Plan; (iii) the provision by the administrator of any Pension Plan
pursuant to Section 4041(a)(2) of ERISA of a notice of intent to terminate such
plan in a distress termination described in Section 4041(c) of ERISA; (iv) the
withdrawal by Company, any of its Subsidiaries or any of their respective ERISA
Affiliates from any Pension Plan with two or more contributing sponsors or the
termination of any such Pension Plan resulting in liability pursuant to Section
4063 or 4064 of ERISA; (v) the institution by the PBGC of proceedings to
terminate any Pension Plan, or the occurrence of any event or condition which
might constitute grounds under ERISA for the termination of, or the appointment
of a trustee to administer, any Pension Plan; (vi) the imposition of liability
on Company, any of its Subsidiaries or any of their respective ERISA Affiliates
pursuant to Section 4062(e) or 4069 of ERISA or by reason of the application of
Section 4212(c) of ERISA; (vii) the withdrawal of Company, any of its
Subsidiaries or any of their respective ERISA Affiliates in a complete or
partial withdrawal (within the meaning of Sections 4203 and 4205 of ERISA) from
any Multiemployer Plan if there is any potential liability therefor, or the
receipt by Company, any of its Subsidiaries or any of their respective ERISA
Affiliates of notice from any Multiemployer Plan that it is in reorganization or
insolvency pursuant to Section 4241 or 4245 of ERISA, or that it intends to
terminate or has terminated under Section 4041A or 4042 of ERISA; (viii) the
occurrence of an act or omission which could give rise to the imposition on
Company, any of its Subsidiaries or any of their respective ERISA Affiliates of
fines, penalties, taxes or related charges under Chapter 43 of the Internal
Revenue Code or under Section 409, Section 502(c), (i) or (l), or Section 4071
of ERISA in respect of any Employee Benefit Plan; (ix) the assertion of a
material claim (other than routine claims for benefits) against any Employee
Benefit Plan other than a Multiemployer Plan or the assets thereof, or against
Company, any of its Subsidiaries or any of their respective ERISA Affiliates in
connection with any Employee Benefit Plan; (x) receipt from the Internal Revenue
Service of notice of the failure of any Pension Plan (or any other Employee
Benefit Plan intended to be qualified under Section 401(a) of the Internal
Revenue Code) to qualify under Section 401(a) of the Internal Revenue Code, or
the failure of any trust forming part of any Pension Plan to qualify for
exemption from taxation under Section 501(a) of the Internal Revenue Code; or
(xi) the imposition of a Lien pursuant to Section 401(a)(29) or 412(n) of the
Internal Revenue Code or pursuant to ERISA with respect to any Pension Plan.
"Escrowed Funds" as defined in Section 2.1(a)(ii).
"Eurodollar Rate Loan" means a Loan bearing interest at a rate
determined by reference to the Adjusted Eurodollar Rate.
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"Event of Default" means each of the conditions or events set forth in
Section 8.1.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and any successor statute.
"Existing Indebtedness" means the Indebtedness listed on Schedule 6.1.
"Facilities Usage" means a fraction, calculated as of the last day of
each Fiscal Quarter (i) prior to the Delayed Draw Term Loan Commitment
Termination Date, the numerator of which is equal to the average daily Total
Utilization of Commitments during such Fiscal Quarter and the denominator of
which is equal to the average daily aggregate Commitments for all Lenders during
such Fiscal Quarter and (ii) on and after the Delayed Draw Term Loan Commitment
Termination Date, the numerator of which is equal to the average daily Total
Utilization of Revolving Loan Commitments and the denominator of which is equal
to the average daily aggregate Revolving Loan Commitments for all Lenders during
such Fiscal Quarter.
"Facility" means any real property (including all buildings, fixtures
or other improvements located thereon) now, hereafter or heretofore owned,
leased, operated or used by Company or any of its Subsidiaries or any of their
respective predecessors or Affiliates.
"Fair Share" as defined in Section 7.2.
"Fair Share Contribution Amount" as defined in Section 7.2.
"Fair Share Shortfall" as defined in Section 7.2.
"Federal Funds Effective Rate" means for any day, the rate per annum
(expressed, as a decimal, rounded upwards, if necessary, to the next higher
1/100 of 1%) equal to the weighted average of the rates on overnight Federal
funds transactions with members of the Federal Reserve System arranged by
Federal funds brokers on such day, as published by the Federal Reserve Bank of
New York on the Business Day next succeeding such day; provided, (i) if such day
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is not a Business Day, the Federal Funds Rate for such day shall be such rate on
such transactions on the next preceding Business Day as so published on the next
succeeding Business Day, and (ii) if no such rate is so published on such next
succeeding Business Day, the Federal Funds Rate for such day shall be the
average rate charged to Administrative Agent, in its capacity as a Lender, on
such day on such transactions as determined by Administrative Agent.
"Financial Officer Certification" means, with respect to the financial
statements for which such certification is required, the certification of the
chief financial officer of Company that such financial statements fairly
present, in all material respects, the financial condition of Company and its
Subsidiaries as at the dates indicated and the results of their operations and
their cash flows for the periods indicated, subject to changes resulting from
audit and normal yearend adjustments.
"Financial Plan" as defined in Section 5.1(k).
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<PAGE>
"First Priority" means, with respect to any Lien purported to be
created in any Collateral pursuant to any Collateral Document, that such Lien is
the only Lien to which such Collateral is subject, other than Permitted Liens.
"Fiscal Quarter" means a fiscal quarter of any Fiscal Year.
"Fiscal Year" means the fiscal year of Company and its Subsidiaries
ending on December 31/st/ of each calendar year.
"Flood Hazard Property" means any Real Estate Asset subject to a
mortgage in favor of the Collateral Agent, for the benefit of the Secured
Parties, and located in an area designated by the Federal Emergency Management
Agency as having special flood or mud slide hazards.
"Foreign Subsidiary"means, with respect to any Person, any Subsidiary
that is not a Domestic Subsidiary.
"Founders" 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.
"Funding Date" as defined in the preamble.
"Funding Default" as defined in Section 2.21.
"Funding Guarantors" as defined in Section 7.2.
"Funding Notice" means a notice substantially in the form of Exhibit
A1.
"GAAP" means, subject to the limitations on the application thereof
set forth in Section 1.2, United States generally accepted accounting principles
in effect as of the date of determination thereof.
"Governmental Acts" means any act or omission, whether rightful or
wrongful, of any present or future de jure or de facto government or
Governmental Authority.
"Governmental Authority" means any federal, state, municipal, national
or other government, governmental department, commission, board, bureau, court,
agency or instrumentality or political subdivision thereof or any entity or
officer exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to any government or any court, in
each case whether associated with a state of the United States, the United
States, or a foreign entity or government.
"Governmental Authorization" means any permit, license, authorization,
plan, directive, consent order or consent decree of or from any Governmental
Authority.
"Grantor" as defined in the Pledge and Security Agreement.
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"GSCP" as defined in the preamble hereto.
"Guaranteed Obligations" as defined in Section 7.1.
"Guarantor" means (y) with respect to the Loans (other than Purchase
Money Loans) and related obligations, the Company and each Domestic Subsidiary
of Company that is a Restricted Subsidiary other than OpCo and (z) to the extent
not prohibited under the Senior Notes, with respect to Purchase Money Loans and
related obligations, each Domestic Subsidiary of Company that is a Restricted
Subsidiary.
"Guarantor Subsidiary" means each Guarantor other than Company.
"Guaranty" means the guaranty of each Guarantor set forth in Section
7.
"Hazardous Materials" means any chemical, material or substance,
exposure to which is prohibited, limited or regulated by any Governmental
Authority or which may or could pose a hazard to the health and safety of the
owners, occupants or any Persons in the vicinity of any Facility or to the
indoor or outdoor environment.
"Hazardous Materials Activity" means any past, current, proposed or
threatened activity, event or occurrence involving any Hazardous Materials,
including the use, manufacture, possession, storage, holding, presence,
existence, location, Release, threatened Release, discharge, placement,
generation, transportation, processing, construction, treatment, abatement,
removal, remediation, disposal, disposition or handling of any Hazardous
Materials, and any corrective action or response action with respect to any of
the foregoing.
"Hedge Agreement" means an Interest Rate Agreement or a Currency
Agreement entered into with a Lender Counterparty in order to satisfy the
requirements of this Agreement or otherwise in the ordinary course of Company's
or any of its Subsidiaries' businesses and not for speculative purposes.
"Highest Lawful Rate" means the maximum lawful interest rate, if any,
that at any time or from time to time may be contracted for, charged, or
received under the laws applicable to any Lender which are presently in effect
or, to the extent allowed by law, under such applicable laws which may hereafter
be in effect and which allow a higher maximum nonusurious interest rate than
applicable laws now allow.
"Historical Financial Statements" means as of the Closing Date, (i)
the audited financial statements of Company and its Subsidiaries for Fiscal Year
1999, 7consisting of balance sheets and the related consolidated statements of
income, stockholders' equity and cash flows for such Fiscal Year and (ii) the
unaudited financial statements of Company and its Subsidiaries as of the Fiscal
Quarter ending September 30, 2000, consisting of a balance sheet and the related
consolidated statements of income and cash flows for the ninemonth period ending
on such date, and, in the case of clauses (i) and (ii), certified by the chief
financial officer of Company that they fairly present, in all material respects,
the financial condition of Company and its Subsidiaries as at the dates
indicated and the results of their operations and their cash flows for the
periods indicated, subject to changes resulting from audit and normal yearend
adjustments.
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"IBX Facilities" means Internet Business Exchange facilities,
including, without limitation, the Permitted IBX Facilities, which are designed,
developed (or acquired by) and operated by the Company or one of its Restricted
Subsidiaries for the purpose of providing Internet access, colocation services,
telecommunications access, mechanical and power systems and operations and
customer service and support and is either owned in fee by the Company or one of
its Restricted Subsidiaries or operated under a distinct long term lease
agreement between the Company or one of its Restricted Subsidiaries and a
landlord.
"IBX Facility Net Cashflow" means, with respect to any Permitted IBX
Facility, for any Fiscal Quarter, an amount equal to total revenue of such
Permitted IBX Facility less operating expenses associated with such Permitted
IBX Facility plus depreciation, amortization, stock-based compensation of the
employees associated with such Permitted IBX Facility and other noncash charges,
all as determined on a basis consistent with the Historical Financial
Statements.
"Increased Amount Date" as defined in Section 2.1(a)(iv).
"IncreasedCost Lender" as defined in Section 2.22.
"Indebtedness", as applied to any Person, means, without duplication,
(i) all indebtedness for borrowed money; (ii) that portion of obligations with
respect to Capital Leases that is properly classified as a liability on a
balance sheet in conformity with GAAP; (iii) notes payable and drafts accepted
representing extensions of credit whether or not representing obligations for
borrowed money; (iv) any obligation owed for all or any part of the deferred
purchase price of property or services (excluding any such obligations incurred
under ERISA and ordinary course trade payables), which purchase price is (a) due
more than six months from the date of incurrence of the obligation in respect
thereof or (b) evidenced by a note or similar written instrument; (v) all
indebtedness secured by any Lien on any property or asset owned or held by that
Person regardless of whether the indebtedness secured thereby shall have been
assumed by that Person or is nonrecourse to the credit of that Person; (vi) the
face amount of any letter of credit issued for the account of that Person or as
to which that Person is otherwise liable for reimbursement of drawings; (vii)
the direct or indirect guaranty, endorsement (other than for collection or
deposit in the ordinary course of business), comaking, discounting with recourse
or sale with recourse by such Person of the obligation of another; (viii) any
obligation of such Person the primary purpose or intent of which is to provide
assurance to an obligee that the obligation of the obligor thereof will be paid
or discharged, or any agreement relating thereto will be complied with, or the
holders thereof will be protected (in whole or in part) against loss in respect
thereof; (ix) any liability of such Person for the obligation of another through
any agreement (contingent or otherwise) (a) to purchase, repurchase or otherwise
acquire such obligation or any security therefor, or to provide funds for the
payment or discharge of such obligation (whether in the form of loans, advances,
stock purchases, capital contributions or otherwise) or (b) to maintain the
solvency or any balance sheet item, level of income or financial condition of
another if, in the case of any agreement described under subclauses (a) or (b)
of this clause (ix), the primary purpose or intent thereof is as described in
clause (viii) above; and (x) obligations of such Person in respect of any
exchange traded or over the counter derivative transaction, including, without
limitation, any Interest Rate Agreement or Currency Agreement, whether entered
into for hedging or speculative purposes; provided, in no event shall
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obligations
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under any Interest Rate Agreement or any Currency Agreement be deemed
"Indebtedness" for any purpose under Sections 6.6 or 6.7, as applicable.
"Indemnified Liabilities" means, collectively, any and all
liabilities, obligations, losses, damages (including natural resource damages),
penalties, actions, judgments, suits, claims (including Environmental Claims),
costs (including the costs of any investigation, study, sampling, testing,
abatement, cleanup, removal, remediation or other response action necessary to
remove, remediate, clean up or abate any Hazardous Materials Activity), expenses
and disbursements of any kind or nature whatsoever (including the reasonable
fees and disbursements of counsel for Indemnitees in connection with any
investigative, administrative or judicial proceeding commenced or threatened by
any Person, whether or not any such Indemnities shall be designated as a party
or a potential party thereto, and any fees or expenses incurred by Indemnities
in enforcing this indemnity), whether direct, indirect or consequential and
whether based on any federal, state or foreign laws, statutes, rules or
regulations (including securities and commercial laws, statutes, rules or
regulations and Environmental Laws), on common law or equitable cause or on
contract or otherwise, that may be imposed on, incurred by, or asserted against
any such Indemnities, in any manner relating to or arising out of (i) this
Agreement or the other Credit Documents or the transactions contemplated hereby
or thereby (including Lenders' agreement to make Credit Extensions or the use or
intended use of the proceeds thereof, or any enforcement of any of the Credit
Documents (including any sale of, collection from, or other realization upon any
of the Collateral or the enforcement of the Guaranty)); (ii) the statements
contained in the commitment letter delivered by any Lender to Company with
respect to the transactions contemplated by this Agreement; or (iii) any
Environmental Claim or any Hazardous Materials Activity relating to or arising
from, directly or indirectly, any past or present activity, operation, land
ownership, or practice of Company or any of its Subsidiaries.
"Indemnities" as defined in Section 10.3.
"Intellectual Property" as defined in the Pledge and Security
Agreement.
"Intellectual Property Collateral" means all of the Intellectual
Property subject to the Lien of the Pledge and Security Agreement.
"Interest Coverage Ratio" means the ratio, as of the last day of any
Fiscal Quarter, of (i) Annualized Consolidated EBITDA for the Fiscal Quarter
then ended, to (ii) Consolidated Cash Interest Expense for the fourFiscal
Quarter period then ended.
"Interest Payment Date" means with respect to (i) any Base Rate Loan,
each March 31, June 30, September 30 and December 31 of each year, commencing on
the first such date to occur after the Closing Date and the final maturity date
of such Loan; and (ii) any Eurodollar Rate Loan, the last day of each Interest
Period applicable to such Loan; provided, in the case of each Interest Period of
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longer than three months, "Interest Payment Date" shall also include each date
that is three months, or an integral multiple thereof, after the commencement of
such Interest Period.
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"Interest Period" means, in connection with a Eurodollar Rate Loan, an
interest period of one, two, three or sixmonths, as selected by the applicable
Borrower in the applicable Funding Notice or Conversion/Continuation Notice, (i)
initially, commencing on the Credit Date or Conversion/Continuation Date
thereof, as the case may be; and (ii) thereafter, commencing on the day on which
the immediately preceding Interest Period expires; provided, (a) if an Interest
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Period would otherwise expire on a day that is not a Business Day, such Interest
Period shall expire on the next succeeding Business Day unless no further
Business Day occurs in such month, in which case such Interest Period shall
expire on the immediately preceding Business Day; (b) any Interest Period that
begins on the last Business Day of a calendar month (or on a day for which there
is no numerically corresponding day in the calendar month at the end of such
Interest Period) shall, subject to clauses (c) through (g), of this definition,
end on the last Business Day of a calendar month; (c) no Interest Period with
respect to any portion of any Term Loans, Delayed Draw Term Loans or New Term
Loans, as the case may be, shall extend beyond such Class's Term Loan Maturity
Date; and (d) no Interest Period with respect to any portion of the Revolving
Loans shall extend beyond the Revolving Loan Commitment Termination Date.
"Interest Rate Agreement" means any interest rate swap agreement,
interest rate cap agreement, interest rate collar agreement, interest rate
hedging agreement or other similar agreement or arrangement, each of which is
for the purpose of hedging the interest rate exposure associated with Company's
and its Restricted Subsidiaries' operations.
"Interest Rate Determination Date" means, with respect to any Interest
Period, the date that is two (2) Business Days prior to the first day of such
Interest Period.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended to the date hereof and from time to time hereafter, and any successor
statute.
"International Holdings" means Equinix Europe, Inc., a Delaware
corporation (and/or one or more additional Delaware corporations wholly-owned
by Company) that owns, directly or indirectly, all (other than director's
qualifying shares) of the Capital Stock of all Foreign Subsidiaries that are
Unrestricted Subsidiaries.
"Investment" means (i) any direct or indirect purchase or other
acquisition by Company or any of its Restricted Subsidiaries of, or of a
beneficial interest in, any of the Securities of any other Person (other than by
Company or any whollyowned Guarantor Subsidiary with respect to any whollyowned
Guarantor Subsidiary); (ii) any direct or indirect redemption, retirement,
purchase or other acquisition for value, by any Restricted Subsidiary of Company
from any Person (other than Company or any whollyowned Guarantor Subsidiary), of
any Capital Stock of such Restricted Subsidiary; and (iii) any direct or
indirect loan, advance (other than advances to employees for moving,
entertainment and travel expenses, drawing accounts and similar expenditures in
the ordinary course of business) or capital contribution by Company or any of
its Restricted Subsidiaries to any other Person (other than by Company or any
whollyowned Guarantor Subsidiary to any whollyowned Guarantor Subsidiary),
including all indebtedness and accounts receivable from that other Person that
are not current assets or did not arise from sales to that other Person in the
ordinary course of business. The amount of any Investment shall be the original
cost of such Investment plus the cost of all additions thereto,
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without any adjustments for increases or decreases in value, or writeups,
writedowns or writeoffs with respect to such Investment.
"Investment Related Property" as defined in the Pledge and Security
Agreement.
"Issuance Notice" means an Issuance Notice substantially in the form
of Exhibit A3.
"Issuing Bank" means one of Citicorp USA, Inc. and one or more other
Lenders acceptable to the Joint Lead Arrangers, as applicable, as Issuing Bank
hereunder, together with its permitted successors and assigns in such capacity.
"Joinder Agreement" means a joinder agreement substantially in the
form of Exhibit L, or as may be amended, restated supplemented or otherwise
modified from time to time.
"Joint Lead Arrangers" as defined in the preamble hereto.
"Joint Book Runners" as defined in the preamble hereto.
"Joint Venture" means a joint venture, partnership or other similar
arrangement, whether in corporate, partnership, limited liability company, or
other legal form; provided, in no event shall any corporate Subsidiary of any
--------
Person be considered to be a Joint Venture to which such Person is a party.
"Landlord Agreement" means an agreement duly executed by the landlord
of any Leasehold Property substantially in the form of Exhibit K with such
amendments or modifications as may be approved by Collateral Agent.
"Leasehold Property" means any leasehold interest (other than San Jose
Ground Lease) of Company or any of its Restricted Subsidiaries as lessee under
any lease of real property, other than any such leasehold interest designated
from time to time by Collateral Agent in its sole discretion as not being
required to be included in the Collateral.
"Lender" means each financial institution that becomes a Lender under
this Agreement as of the Closing Date or pursuant to Section 2.1(a)(iv),
together with each such institution's successors and permitted assigns.
"Lender Counterparty" means each Lender or any Affiliate of a Lender
Counterparty to a Hedge Agreement, including, without limitation, each such
Affiliate that enters into a Joinder Agreement with the Collateral Agent.
"Letter of Credit" means a commercial or standby letter of credit
issued or to be issued by Issuing Bank pursuant to this Agreement.
"Letter of Credit Sublimit" means the lesser of (i) $15,000,000 and
(ii) the aggregate unused amount of the Revolving Loan Commitments then in
effect.
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<PAGE>
"Letter of Credit Usage" means, as at any date of determination, the
sum of (i) the maximum aggregate amount which is, or at any time thereafter may
become, available for drawing under all Letters of Credit then outstanding, and
(ii) the aggregate amount of all drawings under Letters of Credit honored by
Issuing Bank and not theretofore reimbursed by or on behalf of OpCo.
"Lien" means (i) any lien, claim, mortgage, pledge, assignment,
security interest, charge or encumbrance of any kind (including any agreement to
give any of the foregoing, any conditional sale or other title retention
agreement, and any lease in the nature thereof) and any option, trust or other
preferential arrangement having the practical effect of any of the foregoing and
(ii) in the case of Securities, any purchase option, call or similar right of a
third party with respect to such Securities.
"Loan" means any Loan made by a Lender to a Borrower pursuant to
Section 2.1(a)(i), 2(a)(ii), 2.1(a)(iii) or 2.1(a)(iv) of this Agreement.
"Margin Stock" as defined in Regulation T, U or X of the Board of
Governors of the Federal Reserve System as in effect from time to time.
"Material Adverse Effect" means a material adverse effect on (i) the
business, operations, properties, assets, condition (financial or otherwise) or
prospects (with respect to prospects only, based upon the Closing Financial Plan
and other written business information provided by Company to Lender on or prior
to the Closing Date) of Company and its Restricted Subsidiaries taken as a
whole; (ii) the ability of any Credit Party to fully and timely perform the
Obligations; (iii) the legality, validity, binding effect or enforceability
against a Credit Party of a Credit Document to which it is a party; (iv) the
rights, remedies and benefits available to, or conferred upon, any Agent and any
Lender under any Credit Document; or (v) the Collateral Agent's Liens, on behalf
of Secured Parties, on the Collateral or the priority of such Liens.
"Material Contract" means any contract or other arrangement to which
Company or any of its Restricted Subsidiaries is a party (other than the Credit
Documents) for which breach, nonperformance, cancellation or failure to renew
could reasonably be expected to have a Material Adverse Effect.
"Material Real Estate Asset'' means (i) (a) any feeowned Real Estate
Asset located in the United States or Canada having a fair market value in
excess of $250,000 as of the date of the acquisition thereof, (b) any Leasehold
Property which is a IBX Facility to the extent the failure to comply with
Section 5.10 with respect thereto would cause the Collateral Agent to have at
any time a perfected First Priority Lien on less than 50% of all Leasehold
Properties which are IBX Facilities and (c) all Leasehold Properties which are
not IBX Facilities (other than the San Jose Ground Lease and existing
headquarter buildings) other than those with respect to which the aggregate
payments under the term of the lease are less than $100,000 per annum or (ii)
any Real Estate Asset (other than the San Jose Ground Lease and existing
headquarters) located in the United States or Canada that the Requisite Lenders
have determined is material to the business, operations, properties, assets,
condition (financial or otherwise) or prospects of Company or any Restricted
Subsidiary thereof taken as a whole.
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<PAGE>
"Moody's" means Moody's Investor Services, Inc.
"Mortgage" means a Mortgage substantially in the form of Exhibit J, as
it may be amended, restated, supplemented or otherwise modified from time to
time.
"Multiemployer Plan" means any Employee Benefit Plan which is a
"multiemployer plan" as defined in Section 3(37) of ERISA.
"NAIC" means The National Association of Insurance Commissioners, and
any successor thereto.
"Narrative Report" means, with respect to the financial statements for
which such narrative report is required, a narrative report describing the
operations of Company and its Restricted Subsidiaries in the form prepared for
presentation to senior management thereof for the Fiscal Quarter or Fiscal Year
and for the period from the beginning of the then current Fiscal Year to the end
of such period to which such financial statements relate.
"Net Accounts Receivable" means as of any A/R Sublimit Measurement
Date, the consolidated net accounts receivable of the Company and its Restricted
Subsidiaries as shown on the consolidated financial statements of the Company
and its Restricted Subsidiaries as of the most recently completed Fiscal
Quarter; less, to the extent not otherwise deducted in determining net accounts
----
receivable of the Company and its Restricted Subsidiaries, accounts receivable
120 days past due and not fully reserved for at the end of such Fiscal Quarter.
"Net Asset Sale Proceeds" means, with respect to any Asset Sale, an
amount equal to: (i) Cash payments (including any Cash received by way of
deferred payment pursuant to, or by monetization of, a note receivable or as a
result of the release of any amounts subject to any reserve described in clause
(c) below or otherwise, but only as and when so received) received by Company or
any of its Restricted Subsidiaries from such Asset Sale, minus (ii) any bona
-----
fide direct costs incurred in connection with such Asset Sale, including (a)
income or gains taxes payable by the seller as a result of any gain recognized
in connection with such Asset Sale, (b) payment of the outstanding principal
amount of, premium or penalty, if any, and interest on any Indebtedness (other
than the Loans) that is secured by a Lien on the stock or assets in question and
that is required to be repaid under the terms thereof as a result of such Asset
Sale, (c) attorneys' fees, accountants' fees, investment banking fees and other
customary costs, fees and expenses and commissions actually incurred in
connection therewith, and (d) a reasonable reserve for any indemnification
payments (fixed or contingent) attributable to seller's indemnities and
representations and warranties to purchaser in respect of such Asset Sale
undertaken by Company or any of its Restricted Subsidiaries in connection with
such Asset Sale.
"Net Insurance/Condemnation Proceeds" means an amount equal to: (i)
any Cash payments or proceeds received by Company or any of its Restricted
Subsidiaries (a) under any casualty insurance policy in respect of a covered
loss thereunder or (b) as a result of the taking of any assets of Company or any
of its Restricted Subsidiaries by any Person pursuant to the power of eminent
domain, condemnation or otherwise, or pursuant to a sale of any such assets to a
purchaser with such power under threat of such a taking, minus (ii) (a) any
-----
actual and reasonable costs incurred by Company or any of its Restricted
Subsidiaries in connection with
24
<PAGE>
the adjustment or settlement of any claims of Company or such Subsidiary in
respect thereof, and (b) any bona fide direct costs incurred in connection with
any sale of such assets as referred to in clause (i)(b) of this definition,
including (1) income or gains taxes payable by the seller as a result of any
gain recognized in connection with the foregoing, (2) payment of the outstanding
principal amount of, premium or penalty, if any, and interest on any
Indebtedness (other than the Loans) that is secured by a Lien on the stock or
assets in question and that is required to be repaid under the terms thereof as
a result of any sale of such assets, (3) attorneys' fees, accountants' fees,
investment banking fees and other customary costs, fees and expenses and
commissions actually incurred in connection therewith, and (4) a reasonable
reserve for any indemnification payments (fixed or contingent) attributable to
seller's indemnities and representations and warranties to purchaser in respect
of such asset sale undertaken by Company or any of its Restricted Subsidiaries
in connection with such asset sale.
"Net Revenues" means, for any period, the net revenues of Company and
its Restricted Subsidiaries on a consolidated basis for such period taken as a
single accounting period determined in conformity with GAAP (it being understood
that, in any event such net revenue shall be net of sales charges and
discounts).
"New Revolving Loan Commitments" as defined in Section 2.1(a)(iv).
"New Revolving Loan Lender" as defined in Section 2.1(a)(iv).
"New Term Loan" as defined in Section 2.1(a)(iv).
"New Term Loan Commitments" as defined in Section 2.1(a)(iv).
"New Term Loan Exposure" means, with respect to any Lender as of any
date of determination (i) prior to the funding of the New Term Loans that
Lender's New Term Loan Commitment, if any, and (ii) after the funding of the New
Term Loans, the outstanding principal amount of the New Term Loan of that
Lender.
"New Term Loan Lender" as defined in Section 2.1(a)(iv).
"New Term Loan Maturity Date" means the date that New Term Loans of a
Series shall become due and payable in full hereunder, as specified in the
applicable Joinder Agreement.
"New Term Loan Note" means a promissory note in the form of Exhibit
B4, as it may be amended, restated, supplemented or otherwise modified from time
to time.
"NonConsenting Lender" as defined in Section 2.22.
"NonUS Lender" as defined in Section 2.19(c).
"Note" means a Term Loan Note, a Delayed Draw Term Loan Note, a
Revolving Loan Note or a New Term Loan Note.
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<PAGE>
"Notice" means a Funding Notice, an Issuance Notice, or a
Conversion/Continuation Notice.
"Obligations" means all obligations of every nature of each Credit
Party from time to time owed to the Agents, the Lenders or any of them or their
respective Affiliates (including, without limitation, all former Agents, Lenders
or Lender Counterparties), under any Credit Document (including, without
limitation, with respect to a Hedge Agreement, net obligations owed thereunder
to any person who was a Lender or an Affiliate of a Lender at the time such
Hedge Agreement was entered into), whether for principal, interest (including
interest which, but for the filing of a petition in bankruptcy with respect to
such Credit Party, would have accrued on any Obligation, whether or not a claim
is allowed against such Credit Party for such interest in the related bankruptcy
proceeding), reimbursement of amounts drawn under Letters of Credit, payments
for early termination of Hedge Agreements, fees, expenses, indemnification or
otherwise.
"Obligee Guarantor" as defined in Section 7.7.
"Organizational Documents" means (i) with respect to any corporation,
its certificate or articles of incorporation, as amended, and its bylaws, as
amended, (ii) with respect to any limited partnership, its certificate of
limited partnership, as amended, and its partnership agreement, as amended,
(iii) with respect to any general partnership, its partnership agreement, as
amended, and (iv) with respect to any limited liability company, its certificate
of formation or articles of organization, as amended, and its operating
agreement, as amended. In the event any term or condition of this Agreement or
any other Credit Document requires any Organizational Document to be certified
by a secretary of state or similar governmental official, the reference to any
such "Organizational Document" shall only be to a document of a type customarily
certified by such governmental official.
"PBGC" means the Pension Benefit Guaranty Corporation or any successor
thereto.
"Pension Plan" means any Employee Benefit Plan, other than a
Multiemployer Plan, which is subject to Section 412 of the Internal Revenue Code
or Section 302 of ERISA.
"Permitted Acquisition" means any acquisition whether by purchase,
merger or otherwise, of all or substantially all of the assets of, all of the
Capital Stock of, or a business line or unit or a division of, any Person;
provided,
- --------
(i) immediately prior to, and after giving effect thereto, no
Default or Event of Default shall have occurred and be continuing or would
result therefrom;
(ii) all transactions in connection therewith shall be
consummated in accordance with all applicable laws and in conformity with
all applicable Governmental Authorizations;
(iii) in the case of the acquisition of Capital Stock, all of
the Capital Stock (except for any such Securities in the nature of
directors' qualifying
26
<PAGE>
shares required pursuant to applicable law) issued by such Person or any
newly formed Restricted Subsidiary of Company in connection with such
acquisition shall be owned by Company or a Guarantor Subsidiary thereof,
and Company shall have taken, or caused to be taken, as of the date such
Person becomes a Subsidiary of Company, each of the actions set forth in
Sections 5.9 and/or 5.10, as applicable;
(iv) whether the consideration paid in such acquisition is cash
or stock, Company shall deliver to Joint Lead Arrangers a Financial
Officer's Certificate demonstrating (to the reasonable satisfaction of
Joint Lead Arrangers) that Company and its Restricted Subsidiaries shall be
in compliance, as of the first day of the most recently ended Fiscal
Quarter and after giving pro forma effect on a goingforward basis through
December 15, 2005 to such acquisition with the covenants contained in this
Agreement;
(v) Company shall have delivered to the Joint Lead Arrangers (A)
at least ten (10) Business Days prior to such proposed acquisition, a
Compliance Certificate evidencing compliance with Sections 6.6, 6.7 or 6.8,
as applicable, as required under clause (iv) above, together with all
relevant financial information with respect to such acquired assets,
including, without limitation, the aggregate consideration for such
acquisition and any other information required to demonstrate compliance
with Sections 6.6, 6.7 or 6.8, as applicable; and
(vi) any Person or assets or division as acquired in accordance
herewith shall be in the same business or lines of business in which
Company and/or its Subsidiaries are engaged as of the Closing Date, a
Complementary Business or such other lines of business as may be consented
to by Requisite Lenders.
"Permitted Equipment Financing" means (A) the secured equipment
financing facilities listed, and designated as such, on Schedule 6.1 and (B) one
or more purchase money, vendor or other equipment financing facilities or leases
(i) in an aggregate principal amount not in excess of $50,000,000 outstanding at
any time, (ii) pursuant to which Company may be advanced funds principally to
purchase or lease IBX Facility equipment or headquarters equipment or services
and to pay the costs of the engineering, construction, installation,
importation, development and improvement of such equipment, and (iii) which may
be secured only by the assets being financed thereby and with respect to which
no Restricted Subsidiary of Company is obligated.
"Permitted IBX Facilities" means those IBX Facilities listed on
Schedule 1.1(a) with respect to which development has commenced on or before the
Closing Date (i) owned or leased by the Company on the Closing Date or (ii)
owned or leased by OpCo or a whollyowned Domestic Subsidiary of OpCo on or after
the Closing Date, in each case having substantially those characteristics
contemplated in the Closing Financial Plan.
"Permitted Liens" means each of the Liens permitted pursuant to
Section 6.2.
27
<PAGE>
"Permitted Unsecured Company Debt" means indebtedness of the Company
that is unsecured (other than funds escrowed from the proceeds of such
indebtedness for the purpose of making interest payments thereon) that is not
guaranteed by any Person and that is no less favorable (other than with respect
to interest rate or debt service funded from the proceeds of such indebtedness)
for the Company or the Lenders than the Senior Notes in any material respect (as
determined by the Joint Lead Arrangers).
"Person" means and includes natural persons, corporations, limited
partnerships, general partnerships, limited liability companies, limited
liability partnerships, joint stock companies, Joint Ventures, associations,
companies, trusts, banks, trust companies, land trusts, business trusts or other
organizations, whether or not legal entities, and Governmental Authorities.
"Pledge and Security Agreement" means each of the Pledge and Security
Agreements substantially in the form of Exhibit I-A and Exhibit I-B, as each may
be amended, supplemented or otherwise modified from time to time to be executed
by the Company, the applicable Borrower and each Guarantor.
"Prime Rate" means the rate of interest per annum that the
Administrative Agent announces from time to time as its prime lending rate, as
in effect from time to time. The Prime Rate is a reference rate and does not
necessarily represent the lowest or best rate actually charged to any customer.
The Administrative Agent or any other Lender may make commercial loans or other
loans at rates of interest at, above or below the Prime Rate.
"Principal Office" means, for each of Administrative Agent and Issuing
Bank, such Person's "Principal Office" as set forth on Appendix B, or such other
office as such Person may from time to time designate in writing to the
applicable Borrower, Administrative Agent and each Lender.
"Pro Forma Consolidated Debt Service" means, as of any date of
determination, the sum, without duplication, of (i) Consolidated Cash Interest
Expense and (ii) all scheduled amortization (including any payment or prepayment
of principal of, premium, if any, or interest on, or redemption, purchase,
retirement, defeasance (including insubstance or legal defeasance), sinking fund
or similar payment) in respect of Indebtedness, in each case payable by Company
and its Restricted Subsidiaries during the immediately succeeding four Fiscal
Quarters assuming, for purposes of calculating Consolidated Cash Interest
Expense for any such succeeding four Fiscal Quarter period, Indebtedness
outstanding as of the date of such calculation shall remain outstanding during
such four Fiscal Quarter period (except to the extent of any scheduled
amortization, redemption, retirement or similar payment scheduled during such
four Fiscal Quarter period) and that the average interest rate applicable to
outstanding Indebtedness of the Credit Parties as of the date of such
calculation applies with respect to Indebtedness outstanding during such four
Fiscal Quarter period.
"Pro Forma Debt Service Coverage Ratio" means the ratio as of the last
day of any Fiscal Quarter of (i) Annualized Consolidated EBITDA for the Fiscal
Quarter then ended to (ii) Pro Forma Consolidated Debt Service, in each case as
set forth in the most recent
28
<PAGE>
Compliance Certificate delivered by Company to Administrative Agent pursuant to
Section 5.1(d).
"Projections" as defined in Section 4.8.
"Pro Rata Share" means (i) with respect to all payments, computations
and other matters relating to the Term Loan of any Lender, the percentage
obtained by dividing (x) the Term Loan Exposure of that Lender by (y) the
aggregate Term Loan Exposure of all Lenders; (ii) with respect to all payments,
computations and other matters relating to the Delayed Draw Term Loan Commitment
or the Delayed Draw Term Loans of any Lender, the percentage obtained by
dividing (x) the Delayed Draw Term Loan Exposure of that Lender by (y) the
aggregate Delayed Draw Term Loan Exposure of all Lenders; (iii) with respect to
all payments, computations and other matters relating to the Revolving Loan
Commitment or the Revolving Loans of any Lender, the percentage obtained by
dividing (x) the Revolving Loan Exposure of that Lender by (y) the aggregate
Revolving Loan Exposure of all Lenders; (iv) with respect to all payments,
computations and other matters relating to the New Term Loan Commitments, if
any, or the New Term Loan, if any, of any Lender, the percentage obtained by
dividing (x) the New Term Loan Exposure of that Lender with respect to the
relevant Series by (y) the sum of the aggregate New Term Loan Exposure of all
Lenders for such Series; and (v) for all other purposes with respect to each
Lender, the percentage obtained by dividing (x) the sum of the Revolving Loan
Exposure of that Lender plus the Delayed Draw Loan Exposure of that Lender plus
---- ----
the Term Loan Exposure of that Lender plus the New Term Loan Exposure of that
----
Lender by (y) the sum of the aggregate Revolving Loan Exposure of all Lenders
plus the sum of the aggregate Delayed Draw Term Loan Exposure of all Lenders
- ----
plus the aggregate Term Loan Exposure of all Lenders plus the aggregate New Term
- ---- ----
Loan Exposure of all Lenders, in any such case as the applicable percentage may
be adjusted by assignments permitted pursuant to Section 10.6. The Pro Rata
Share of each Lender as of the Closing Date for purposes of each of clauses (i),
(ii) and (iii) of the preceding sentence is set forth opposite the name of that
Lender in Appendices A1, A2 and A3, respectively.
"Purchase Money Loans" as defined in Section 2.1(a)(iii).
"Qualifying Equity" means any Equity Interest other than Disqualified
Stock issued by Company after the Closing Date.
"Qualifying San Jose Disposition" means a Disposition of any portion
of the San Jose Property or rights under the San Jose Ground Lease if the
proceeds of such Disposition are used exclusively in connection with the
development of the San Jose Property and/or one or more Permitted IBX
Facilities.
"Real Estate Asset" means, at any time of determination, any interest
(fee, leasehold or otherwise) then owned by any Credit Party in any real
property.
"Record Document" means, with respect to any Leasehold Property, (i)
the lease evidencing such Leasehold Property or a memorandum thereof, executed
and acknowledged by the owner of the affected real property, as lessor, or (ii)
if such Leasehold Property was acquired or subleased from the holder of a
Recorded Leasehold Interest, the applicable assignment or
29
<PAGE>
sublease document, executed and acknowledged by such holder, in each case in
form sufficient to give such constructive notice upon recordation and otherwise
in form reasonably satisfactory to Collateral Agent.
"Recorded Leasehold Interest" means a Leasehold Property with respect
to which a Record Document has been recorded in all places necessary or
desirable, in Administrative Agent's reasonable judgment, to give constructive
notice of such Leasehold Property to thirdparty purchasers and encumbrancers of
the affected real property.
"Register" as defined in Section 2.5(b).
"Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System, as in effect from time to time.
"Reimbursement Date" as defined in Section 2.2(d).
"Related Fund" means, with respect to any Lender that is an investment
fund, any other investment fund that invests in commercial loans and that is
managed or advised by the same investment advisor as such Lender or by an
Affiliate of such investment advisor.
"Related Person" means any Person who controls, is controlled by or is
under common control with a Founder; 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 with respect to any natural Person, each member of such Person's immediate
family shall be deemed to be a Related Person of such Person.
"Release" means any release, spill, emission, leaking, pumping,
pouring, injection, escaping, deposit, disposal, discharge, dispersal, dumping,
leaching or migration of any Hazardous Material into the indoor or outdoor
environment (including the abandonment or disposal of any barrels, containers or
other closed receptacles containing any Hazardous Material), including the
movement of any Hazardous Material through the air, soil, surface water or
groundwater.
"Replacement Lender" as defined in Section 2.22.
"Requisite Class Lenders" means, at any time of determination (i) for
the Class of Lenders having Term Loan Exposure, Lenders having or holding at
least a majority of the sum of the aggregate Term Loan Exposure of all Lenders,
(ii) for the Class of Lenders having Delayed Draw Term Loan Exposure, Lenders
having or holding at least a majority of the sum of the aggregate Delayed Draw
Term Loan Exposure of all Lenders, (iii) for the Class of Lenders having
Revolving Loan Exposure, Lenders having or holding at least a majority of the
sum of the aggregate Revolving Loan Exposure of all Lenders and (iv) for each
Class of Lenders having New Term Loan Exposure, if any, Lenders having or
holding at least a majority of the sum of the aggregate New Term Loan Exposure
of such Lenders.
"Requisite Lenders" means one or more Lenders having or holding Term
Loan Exposure, Delayed Draw Term Loan Exposure, Revolving Loan Exposure and/or
New Term
30
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Loan Exposure for a Series representing more than 50% of the sum of (i) the
aggregate Term Loan Exposure of all Lenders, (ii) the aggregate Delayed Draw
Term Loan Exposure of all Lenders, (iii) the aggregate Revolving Loan Exposure
of all Lenders and (iv) the aggregate New Term Loan Exposure of all Lenders for
all Series.
"Restricted Junior Payment" means (i) any dividend or other
distribution, direct or indirect, on account of any shares of any class of stock
of Company or OpCo now or hereafter outstanding, except a dividend payable
solely in shares of that class of stock to the holders of that class; (ii) any
redemption, retirement, sinking fund or similar payment, purchase or other
acquisition for value, direct or indirect, of any shares of any class of stock
of Company now or hereafter outstanding; except to the extent payable in
exchange for shares of Capital Stock of Company, (iii) any payment made to
retire, or to obtain the surrender of, any outstanding warrants, options or
other rights to acquire shares of any class of stock of Company or OpCo now or
hereafter outstanding; except to the extent paid with shares of Capital Stock of
Company or OpCo or warrants, options or other rights to acquire any such shares,
and (iv) any payment or prepayment of principal of, premium, if any, or interest
on, or redemption purchase, retirement, defeasance (including in-substance or
legal defeasance), sinking fund or similar payment with respect to, the Senior
Notes any Permitted Unsecured Company Debt or any Permitted Equipment Financing;
provided that Restricted Junior Payments shall not include cash dividends made
- --------
on preferred stock of Company issued after the Closing Date to the extent that
such dividends are only required to be paid and are only paid from the proceeds
of the issuance of such preferred stock escrowed for such purpose.
"Restricted Subsidiaries" means all direct or indirect subsidiaries of
the Company or OpCo which are not Unrestricted Subsidiaries.
"Revolving Loan Commitment" means the commitment of a Lender to make
Revolving Loans pursuant to Section 2.1(a)(iii) and to acquire participations in
Letters of Credit hereunder, and "Revolving Loan Commitments" means such
commitments of all Lenders in the aggregate. The amount of each Lender's
Revolving Loan Commitment, if any, is set forth in Appendix A3 or in the
applicable Assignment Agreement, subject to any adjustment or reduction pursuant
to the terms and conditions hereof. The aggregate amount of the Revolving Loan
Commitments as of the Closing Date is the lesser of (i) $25,000,000 and (ii) the
A/R Sublimit.
"Revolving Loan Commitment Period" means the period from the Closing
Date to but excluding the Revolving Loan Commitment Termination Date.
"Revolving Loan Commitment Termination Date" means the earliest to
occur of (i) December 15, 2005; (ii) the date the Revolving Loan Commitments are
permanently reduced to zero pursuant to Section 2.11(b) or 2.12, and (iii) the
date of the termination of the Revolving Loan Commitments pursuant to Section
8.1.
"Revolving Loan Exposure" means, with respect to any Lender as of any
date of determination, (i) prior to the termination of the Revolving Loan
Commitments, that Lender's Revolving Loan Commitment; and (ii) after the
termination of the Revolving Loan Commitments, the sum of (a) the aggregate
outstanding principal amount of the Revolving Loans of that Lender, (b) in the
case of Issuing Bank, the aggregate Letter of Credit Usage in respect of
31
<PAGE>
all Letters of Credit issued by that Lender (net of any participations by
Lenders in such Letters of Credit) and (c) the aggregate amount of all
participations by that Lender in any outstanding Letters of Credit or any
unreimbursed drawing under any Letter of Credit.
"Revolving Loan Maturity Date'' means the earlier of (i) December 15,
2005 and (ii) the date that all Revolving Loans shall become due and payable in
full hereunder, whether by acceleration or otherwise.
"Revolving Loans" means any revolving Loans (including, without
limitation, Purchase Money Loans) made by Lenders to the applicable Borrower
pursuant to Section 2.1(a)(iii) of this Agreement.
"Revolving Loan Note" means a promissory note in the form of Exhibit
B3, as it may be amended, supplemented or otherwise modified from time to time.
"S&P" means Standard & Poor's Ratings Group, a division of The McGraw
Hill Corporation.
"San Jose Ground Lease" means the Ground Lease by and between iStar
San Jose, LLC, as Lessor, and Company, as Lessee, dated June 21, 2000 as amended
or restated from time to time but not, in any event, such that the amounts
payable with respect thereto exceed amounts payable with respect thereto as
contemplated by the Closing Financial Plan or otherwise materially increase the
obligations of the Company thereunder.
"San Jose Property" the property leased pursuant to the San Jose
Ground Lease.
"San Jose Incremental L/C Amount" means, as of any date of
determination, an amount (not to exceed $25,000,000) by which the obligations,
contingent or otherwise, of Company to provide a letter of credit under the San
Jose Ground Lease (as in existence on the Closing Date) under any circumstances
exceed $10,000,000.
"San Jose Subsidiary" means Equinix-DC, Inc., a wholly-owned
Unrestricted Subsidiary of Company, into which the San Jose Ground Lease and/or
the San Jose Property may be contributed and in connection with such transfer
Company may retain the obligations in connection with the San Jose Ground Lease;
provided that such obligations of Company shall be extinguished upon the earlier
- --------
of (a) written notice by the Company or (b) receipt by the San Jose Subsidiary
(or any Affiliate in a financing for the benefit of San Jose Subsidiary) of
aggregate proceeds from debt, capital leases or equity issuances of (i) $25
million in the aggregate for tenant improvements with respect to the San Jose
Property or (ii) $45 million in the aggregate for any expenditure in connection
with maintenance, use or development of the San Jose Property (exclusive of
proceeds of any Qualifying San Jose Disposition and exclusive of any proceeds
applied to make rental payments under the San Jose Ground Lease) (either such
receipt, a "San Jose Triggering Event"); provided further, such transfer may
-------- -------
not be consummated until such time as the monthly payment obligations with
respect to the San Jose Ground Lease in effect or of the Closing Date have been
reduced by at least $50,000.
"San Jose Triggering Event" as defined within the definition of San
Jose Subsidiary.
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"Secured Parties" as defined in the Pledge and Security Agreement.
"Securities" means any stock, shares, partnership interests, voting
trust certificates, certificates of interest or participation in any
profitsharing agreement or arrangement, options, warrants, bonds, debentures,
notes, or other evidences of indebtedness, secured or unsecured, convertible,
subordinated or otherwise, or in general any instruments commonly known as
"securities" or any certificates of interest, shares or participations in
temporary or interim certificates for the purchase or acquisition of, or any
right to subscribe to, purchase or acquire, any of the foregoing.
"Securities Act" means the Securities Act of 1933, as amended from
time to time, and any successor statute.
"Senior Leverage Ratio" means the ratio, as of the last day of any
Fiscal Quarter, of (i) Consolidated Senior Secured Debt as of such date to (ii)
Annualized Consolidated EBITDA.
"Senior Notes" means the 13% Senior Notes due 2007 issued by Company
in the aggregate principal amount of $200,000,000 pursuant to the Senior Notes
Indenture, as in effect on the Closing Date and as such notes may thereafter be
amended, restated, supplemented or otherwise modified from time to time to the
extent permitted under Section 6.16.
"Senior Notes Indenture" means the Senior Notes Indenture dated as of
December 1, 1999 between Company and State Street Bank and Trust Company of
California, N.A., as trustee, pursuant to which the Senior Notes have been
issued, as in effect on the Closing Date and as such indenture may thereafter be
amended, restated, supplemented or otherwise modified from time to time to the
extent permitted under Section 6.16.
"Series" as defined in Section 2.1(a)(iv).
"Solvency Certificate" means a Solvency Certificate of the chief
financial officer of Company substantially in the form of Exhibit G2.
"Solvent" means, with respect to any Person, that as of the date of
determination both (i) (a) the sum of such Person's debt (including contingent
liabilities) does not exceed all of its property, at a fair valuation; (b) the
present fair saleable value of the property of such Person is not less than the
amount that will be required to pay the probable liabilities on such Person's
then existing debts as they become absolute and matured; (c) such Person's
capital is not unreasonably small in relation to its business or any
contemplated or undertaken transaction; and (d) such Person does not intend to
incur, or believe (nor should it reasonably believe) that it will incur, debts
beyond its ability to pay such debts as they become due; and (ii) such Person is
"solvent" within the meaning given that term and similar terms under applicable
laws relating to fraudulent transfers and conveyances. For purposes of this
definition, the amount of any contingent liability at any time shall be computed
as the amount that, in light of all of the facts and circumstances existing at
such time, represents the amount that can reasonably be expected to become an
actual or matured liability (irrespective of whether such contingent liabilities
meet the criteria for accrual under Statement of Financial Accounting Standard
No. 5).
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<PAGE>
"Stage 1" means the period from the Closing Date to and including June
30, 2002.
"Stage 2" means the period from July 1, 2002 through the later of (i)
December 15, 2005 and (ii) any New Term Loan Maturity Date.
"Subsidiary" means, with respect to any Person, any corporation,
partnership, limited liability company, association, joint venture or other
business entity of which more than 50% of the total voting power of shares of
stock or other ownership interests entitled (without regard to the occurrence of
any contingency) to vote in the election of the Person or Persons (whether
directors, managers, trustees or other Persons performing similar functions)
having the power to direct or cause the direction of the management and policies
thereof is at the time owned or controlled, directly or indirectly, by that
Person or one or more of the other Subsidiaries of that Person or a combination
thereof; provided, in determining the percentage of ownership interests of any
--------
Person controlled by another Person, no ownership interest in the nature of a
"qualifying share" of the former Person shall be deemed to be outstanding.
"Syndication Agent" as defined in the preamble hereto.
"Tax" means any present or future tax, levy, impost, duty, assessment,
charge, fee, deduction or withholding of any nature and whatever called, by
whomsoever, on whomsoever and wherever imposed, levied, collected, withheld or
assessed; provided, "Tax on the overall net income" of a Person shall be
--------
construed as a reference to a tax imposed by the jurisdiction in which that
Person is organized or in which that Person's applicable principal office
(and/or, in the case of a Lender, its lending office) is located or in which
that Person (and/or, in the case of a Lender, its lending office) is deemed to
be doing business on all or part of the net income, profits or gains (whether
worldwide, or only insofar as such income, profits or gains are considered to
arise in or to relate to a particular jurisdiction, or otherwise) of that Person
(and/or, in the case of a Lender, its applicable lending office).
"Term Loan" means a Term Loan made by a Lender to OpCo pursuant to
Section 2.1(a)(i) of this Agreement and any New Term Loans made by a Lender to
OpCo pursuant to Section 2.1(a)(iv) of this Agreement.
"Term Loan Commitment" means the commitment of a Lender to make or
otherwise fund a Term Loan to OpCo and "Term Loan Commitments" means such
commitments of all Lenders in the aggregate. The amount of each Lender's Term
Loan Commitment, if any, is set forth on Appendix A1 or in the applicable
Assignment Agreement, subject to any adjustment or reduction pursuant to the
terms and conditions hereof. The aggregate amount of the Term Loan Commitments
as of the Closing Date is $50,000,000.
"Term Loan Commitment Termination Date" means the Funding Date.
"Term Loan Exposure" means, with respect to any Lender, as of any date
of determination, the outstanding principal amount of the Term Loans of such
Lender; provided, at any time prior to the making of the Term Loans, the Term
--------
Loan Exposure of any Lender shall be equal to such Lender's Term Loan
Commitment.
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<PAGE>
"Term Loan Installments" as defined in Section 2.10(a).
"Term Loan Installment Date" as defined in Section 2.10(a).
"Term Loan Maturity Date" means the earlier of (i) December 15, 2005,
and (ii) the date that all Term Loans shall become due and payable in full
hereunder, whether by acceleration or otherwise.
"Term Loan Note" means a promissory note in the form of Exhibit B1, as
it may be amended, restated, supplemented or otherwise modified from time to
time.
"Term Loan Maturity Date" means the Term Loan Maturity Date, the
Delayed Draw Term Loan Maturity Date or any New Term Loan Maturity Date.
"Terminated Lender" as defined in Section 2.22.
"Total Leverage Ratio" means the ratio as of the last day of any
Fiscal Quarter of (a) Consolidated Total Debt to (b) Annualized Consolidated
EBITDA.
"Total Utilization Exposure" means, as at any date of determination,
the sum of (i) the aggregate principal amount of all outstanding Term Loans,
(ii) the aggregate principal amount of all outstanding Delayed Draw Term Loans,
(iii) the aggregate principal amount of all outstanding Revolving Loans (other
than Revolving Loans made for the purpose of reimbursing Issuing Bank for any
amount drawn under any Letter of Credit, but not yet so applied), (iv) the
Letter of Credit Usage and (v) the aggregate principal amount of all outstanding
New Term Loans, if any.
"Total Utilization of Commitments" means, as at any date of
determination, the sum of (i) the aggregate principal amount of all outstanding
Delayed Draw Term Loans, (ii) the aggregate principal amount of all outstanding
Revolving Loans (other than Revolving Loans made for the purpose of reimbursing
Issuing Bank for any amount drawn under any Letter of Credit, but not yet so
applied), and (iii) the Letter of Credit Usage.
"Total Utilization of Revolving Loan Commitments" means, as at any
date of determination, the sum of (i) the aggregate principal amount of all
outstanding Revolving Loans (other than Revolving Loans made for the purpose of
reimbursing Issuing Bank for any amount drawn under any Letter of Credit, but
not yet so applied), and (ii) the Letter of Credit Usage.
"Transaction Costs" means the fees, costs and expenses payable by
Company or any of Company's Subsidiaries on or before the Closing Date in
connection with the transactions contemplated by the Credit Documents.
"Type of Loan" means with respect to any of the Term Loans, Delayed
Draw Term Loans, New Term Loans or Revolving Loans, a Base Rate Loan or a
Eurodollar Rate Loan.
"UCC" means the Uniform Commercial Code (or any similar or equivalent
legislation) as in effect in any applicable jurisdiction.
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<PAGE>
"UCC Questionnaire" means any certificate in form satisfactory to the
Collateral Agent that provides information with respect to any personal or mixed
property of each Credit Party.
"Unadjusted Eurodollar Rate Component" means that component of the
interest costs to Company in respect of a Eurodollar Rate Loan that is based
upon the rate obtained pursuant to clause (i) of the definition of Adjusted
Eurodollar Rate.
"Unrestricted Subsidiaries" means (i) each Subsidiary of Company
identified on Schedule 1.1(b), (ii) each Subsidiary of Company that shall be
designated an "Unrestricted Subsidiary" pursuant to and in compliance with
Section 6.18, and (ii) each Subsidiary of an Unrestricted Subsidiary.
1.2 Accounting Terms. Except as otherwise expressly provided herein, all
accounting terms not otherwise defined herein shall have the meanings assigned
to them in conformity with GAAP. Financial statements and other information
required to be delivered by Company to Lenders pursuant to Section 5.1(a),
5.1(b) and 5.1(c) shall be prepared in accordance with GAAP as in effect at the
time of such preparation (and delivered together with the reconciliation
statements provided for in Section 5.1(f)), if applicable). Subject to the
foregoing, calculations in connection with the definitions, covenants and other
provisions hereof shall utilize accounting principles and policies in conformity
with those used to prepare the Historical Financial Statements.
1.3 Interpretation, etc. Any of the terms defined herein may, unless the
context otherwise requires, be used in the singular or the plural, depending on
the reference. References herein to any Section, Appendix, Schedule or Exhibit
shall be to a Section, an Appendix, a Schedule or an Exhibit, as the case may
be, hereof unless otherwise specifically provided. The use herein of the word
"include" or "including", when following any general statement, term or matter,
shall not be construed to limit such statement, term or matter to the specific
items or matters set forth immediately following such word or to similar items
or matters, whether or not nonlimiting language (such as "without limitation" or
"but not limited to" or words of similar import) is used with reference thereto,
but rather shall be deemed to refer to all other items or matters that fall
within the broadest possible scope of such general statement, term or matter.
SECTION 2 LOANS AND LETTERS OF CREDIT
2.1 Loans.
(a) Loans.
(i) Term Loans. Subject to the terms and conditions hereof, each
----------
Lender holding a Term Loan Commitment severally agrees to make, on the
Funding Date, a Term Loan to OpCo in an amount equal to such Lender's Term
Loan Commitment; provided that after giving effect to the making of any
--------
Delayed Draw Term Loans in no event shall the Total Utilization Exposure
exceed the Borrowing Base as set forth in a Borrowing Base Certificate
delivered pursuant to Section 5.1(e) in connection with the making of such
Loans. OpCo may make only one borrowing under the Term Loan Commitment
which shall be on the
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<PAGE>
Funding Date. Any amount borrowed under this Section 2.1(a)(i) and
subsequently repaid or prepaid may not be reborrowed. Subject to Sections
2.10(a), 2.11(a) and 2.12, all amounts owed hereunder with respect to the
Term Loans shall be paid in full no later than the Term Loan Maturity Date.
Each Lender's Term Loan Commitment shall terminate immediately and without
further action on the Funding Date after giving effect to the funding of
such Lender's Term Loan Commitment.
(ii) Delayed Draw Term Loans. During the Delayed Draw Term Loan
-----------------------
Commitment Period, subject to the terms and conditions hereof, each Lender
holding a Delayed Draw Term Loan Commitment severally agrees to make
Delayed Draw Term Loans to OpCo in the aggregate amount up to but not
exceeding such Lender's Delayed Draw Term Loan Commitment; provided that
--------
after giving effect to the making of any Delayed Draw Term Loans in no
event shall (x) the Total Utilization of the Delayed Draw Term Loan
Commitments exceed the Delayed Draw Term Loan Commitments then in effect
and (y) the Total Utilization Exposure exceed the Borrowing Base as set
forth in a Borrowing Base Certificate delivered pursuant to Section 5.1(e)
in connection with the making of such Loans; provided, however, that if, on
-------- -------
the date which is twelve (12) months following the Closing Date, any
portion of the Delayed Draw Term Loan Commitment is not permitted to be
drawn as a result of the application of clause (y) of the immediately
preceding proviso, OpCo shall be entitled (but not obligated) to borrow the
portion of the Delayed Draw Term Loans which is required to be drawn on
such date in accordance with the last sentence of this paragraph, so long
as such amount (the "Escrowed Funds") is held in a pledged account included
in the Collateral in which the Collateral Agent for the benefit of the
Secured Parties has a First Priority Lien on such terms and conditions
satisfactory to Administrative Agent until such time as OpCo demonstrates
compliance with such proviso in a Borrowing Certificate delivered pursuant
to Section 5.1(e). OpCo may make one or more drawings on the Delayed Draw
Term Loan Commitments during the Delayed Draw Term Loan Commitment Period.
Any amounts borrowed under this Section 2.1(a)(ii) and subsequently repaid
or prepaid may not be reborrowed. Subject to Sections 2.10(a), 2.11(a) and
2.12, all amounts owed hereunder with respect to the Delayed Draw Term
Loans shall be paid in full no later than the Delayed Draw Term Loan
Maturity Date. Each Lender's Delayed Draw Term Loan Commitment shall
terminate immediately and without further action upon the funding in full
of such Lender's Delayed Draw Term Loan Commitment. The Delayed Draw Term
Loan Commitment shall expire immediately and without further action on a
date occurring twelve (12) months after the Closing Date, if Delayed Draw
Term Loans in an amount equal to the aggregate Delayed Draw Term Loan
Commitments are not made on or before such date.
(iii) Revolving Loans. During the Revolving Loan Commitment
---------------
Period, subject to the terms and conditions hereof, each Lender holding a
Revolving Loan Commitment severally agrees to make Revolving Loans to OpCo
in the aggregate amount up to but not exceeding such Lender's Revolving
Loan
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<PAGE>
Commitment as of the Closing Date; provided that after giving effect to the
--------
making of any Revolving Loans in no event shall (x) the Total Utilization
of Revolving Loan Commitments exceed the lesser of (i) the Revolving Loan
Commitments then in effect and (ii) to the extent required in order to
comply with the terms of the Senior Notes, 85% of Net Accounts Receivable
(the "A/R Sublimit") determined as of the most recent A/R Sublimit
Measurement Date or (y) the Total Utilization Exposure exceed the Borrowing
Base as set forth in a Borrowing Base Certificate delivered pursuant to
Section 5.1(e) in connection with the making of such Loans provided,
--------
further that, notwithstanding the foregoing, the Company may make
-------
borrowings otherwise permitted under the Revolving Facility in excess of
the A/R Sublimit to finance not greater than 20% of the costs of equipment
and software located in Permitted IBX Facilities either owned by the
Company or leased by the Company under a lease subject to a leasehold
mortgage in favor of the Collateral Agent for the benefit of the Lenders
providing such Purchase Money Loans ("Purchase Money Loans"); provided,
--------
that, any Purchase Money Loans made to the Company shall be secured solely
by the assets purchased with the proceeds of such Loans. Amounts borrowed
pursuant to this Section 2.1(a)(iii) may be repaid and reborrowed during
the Revolving Loan Commitment Period. Subject to Sections 2.11 and 2.12,
each Lender's Revolving Loan Commitment shall expire on the Revolving Loan
Commitment Termination Date and all Revolving Loans and all other amounts
owed hereunder with respect to the Revolving Loans and the Revolving Loan
Commitments shall be paid in full no later than such date. If as of any
A/R Sublimit Measurement Date the A/R Sublimit exceeds the amount
outstanding under the Revolving Loans (net of any amounts outstanding under
the Purchase Money Loans), a portion of the Purchase Money Loans equal to
the amount of such excess shall be automatically deemed converted to
Revolving Loans outstanding to OpCo and shall, on and after such date be
treated for all purposes as such Revolving Loans and not as Purchase Money
Loans.
(iv) Incremental Facilities. To the extent not prohibited under
----------------------
the Senior Notes, OpCo or Company may by written notice to Syndication
Agent elect to request (A) prior to the Revolving Loan Commitment
Termination Date, an increase in the existing Revolving Loan Commitments
(any such increase, the "New Revolving Loan Commitments") and/or (B) the
establishment of one or more new term loan commitments (the "New Term Loan
Commitments"), by an amount not in excess of $100,000,000 in the aggregate
and not less than $5,000,000 individually (or such lesser amount which
shall be approved by Syndication Agent or such lesser amount that shall
constitute the difference between $100,000,000 and all such New Revolving
Loan Commitments and New Term Loan Commitments), and integral multiples of
$5,000,000 in excess of that amount. Each such notice shall specify (A) the
date (each, an "Increased Amount Date") on which Company proposes that the
New Revolving Loan Commitment or the New Term Loan Commitment, as
applicable, shall be effective and that Loans be made pursuant to the New
Term Loan Commitments ("New Term Loans"), which shall be a date not less
than 10 Business Days after the date on which such notice is delivered to
Syndication Agent and (B) the identity of each
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Lender or other Person (each, a "New Revolving Loan Lender" or a "New Term
Loan Lender", as applicable) to whom OpCo or Company, as applicable,
proposes any portion of such New Revolving Loan Commitment or New Term Loan
Commitment, as applicable, be allocated and the amounts of such
allocations; provided that any Lender approached to provide all or a
--------
portion of the New Revolving Loan Commitment or New Term Loan Commitment
may elect or decline, in its sole discretion, to provide a New Revolving
Loan Commitment or a New Term Loan Commitment. Such New Revolving Loan
Commitment or New Term Loan Commitment shall become effective, as of such
Increased Amount Date; provided that (1) no Default or Event of Default
--------
shall exist on such Increased Amount Date before or after giving effect to
such New Revolving Loan Commitment or New Term Loan Commitment, as
applicable; (2) both before and after giving effect to the making of any
Series of New Term Loans each of the conditions set forth in Section 3.2
shall be satisfied; (3) the New Revolving Loan Commitment or New Term Loan
Commitment, as applicable, shall be effected pursuant to one or more
Joinder Agreements executed and delivered to Administrative Agent, and each
shall be recorded in the Register, each of which shall be subject to the
requirements set forth in Section 2.19(c); (4) the applicable Borrower
shall make any payments required pursuant to Section 2.17(c) in connection
with the New Revolving Loan Commitment, and (5) the applicable Borrower
shall deliver or cause to be delivered any legal opinions, Notes and/or
other documents reasonably requested by Administrative Agent in connection
with any such transaction. Any New Term Loans made shall be designated a
separate series (each, a "Series") of New Term Loans for all purposes of
this Agreement.
On any Increased Amount Date on which New Revolving Loan Commitments are
effected, subject to the satisfaction of the foregoing terms and conditions, (a)
each of the Lenders holding Revolving Loans shall assign to each of the New
Revolving Loan Lenders, and each of the New Revolving Loan Lenders shall
purchase from each of the Lenders holding Revolving Loans, at the principal
amount thereof, such interests in the Revolving Loans outstanding on such
Increased Amount Date as shall be necessary in order that, after giving effect
to all such assignments and purchases, such Revolving Loans will be held by
existing Lenders and New Revolving Loan Lenders ratably in accordance with their
Revolving Loan Commitments after giving effect to the addition of such New
Revolving Loan Commitment to the Revolving Commitments, (b) each New Revolving
Commitment shall be deemed for all purposes a Revolving Commitment and each Loan
made thereunder (a "New Revolving Loan") shall be deemed, for all purposes, a
Revolving Loan and (c) each New Revolving Loan Lender shall become a Lender with
respect to the Revolving Commitments and all matters relating thereto.
On any Increased Amount Date on which any New Term Loan Commitments of any
Series are effective, subject to the satisfaction of the foregoing terms and
conditions, (i) each New Term Loan Lender of any Series shall make a New Term
Loan to Company to the extent required to be made under such New Term Loan
Commitment on such date, and (ii) each New Term Loan Lender of any Series shall
become a Lender hereunder with respect to the New Term Loan Commitment of such
Series and the New Term Loans of such Series made pursuant thereto.
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<PAGE>
The Syndication Agent shall notify the Lenders promptly in writing upon
receipt of the applicable Borrower's notice of each Increased Amount Date and in
respect thereof the New Revolving Loan Commitment and the New Revolving Loan
Lenders or the Series of New Term Loan Commitments and the New Term Loan Lenders
of such Series, as applicable, and, in the case of each notice to any Lender
with a Revolving Loans Commitment, the respective interests in such Lender's
Revolving Loans subject to the assignments contemplated by this section.
The terms and provisions of the New Term Loans of any Series and New Term
Loan Commitments of any Series shall be, except as otherwise set forth herein or
in the Joinder Agreement, identical to the Term Loans and in any event (i) the
amortization of all New Term Loans of any Series, shall occur no sooner than the
proportional amortization of the Term Loans, (ii) the final maturity of all New
Term Loans of any Series shall be no earlier than the Term Loan Maturity Date,
(iii) the rate of interest applicable to New Term Loans of any Series shall be
determined by the applicable Borrower and applicable new Lenders and shall be
set forth in each applicable Joinder Agreement and any New Term Loans made to
the Company shall, to the extent necessary to comply with the Senior Notes,
otherwise be made on the same basis as the Purchase Money Loans. Each Joinder
Agreement may, without the consent of any other Lenders, effect such amendments
to this Agreement and the other Credit Documents as may be necessary or
appropriate, in the opinion of the Syndication Agent and the Administrative
Agent, to effect the provision of this Section 2.1(a)(iv).
(b) Borrowing Mechanics for Loans.
-----------------------------
(i) Delayed Draw Term Loans shall be made in minimum amounts
of $10,000,000 pursuant to a maximum of seven drawings.
(ii) Revolving Loans shall be made in a minimum amount of
$1,000,000 and integral multiples of $500,000 in excess thereof.
(iii) With respect to Term Loans, OpCo shall deliver to
Administrative Agent a fully executed and delivered Closing Date
Certificate and a Funding Notice on the Closing Date. Promptly upon receipt
by Administrative Agent of such certificate, Administrative Agent shall
notify each Lender in writing of the proposed borrowing.
(iv) Whenever a Borrower desires that Lenders make Loans, the
applicable Borrower shall deliver to Administrative Agent telephonic
notice, followed by a fully executed and delivered Funding Notice no later
than 10:00 a.m. (New York City time) at least three (3) Business Days in
advance of the proposed Credit Date in the case of a Eurodollar Rate Loan,
and at least one (1) Business Day in advance of the proposed Credit Date in
the case of a Base Rate Loan. Except as otherwise provided herein, a
Funding Notice for a Loan that is a Eurodollar Rate Loan shall be
irrevocable on and after the related Interest Rate Determination Date, and
the applicable Borrower shall be bound to make a borrowing in accordance
therewith.
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(v) Notice of receipt of each Funding Notice in respect of
Loans, together with the amount of each Lender's Pro Rata Share thereof, if
any, together with the applicable interest rate, shall be provided by
Administrative Agent to each applicable Lender by telefacsimile with
reasonable promptness, but (provided Administrative Agent shall have
received such notice by 12:00 p.m. (New York City time)) not later than
2:00 p.m. (New York City time) on the same day as Administrative Agent's
receipt of such notice from the applicable Borrower.
(vi) Each Lender shall make the amount of its Loan available to
Administrative Agent not later than 12:00 p.m. (New York City time) on the
applicable Credit Date by wire transfer of same day funds in Dollars, at
the Administrative Agent's Principal Office. Except as provided herein,
upon satisfaction or waiver of the conditions precedent specified herein,
Administrative Agent shall make the proceeds of such Loans available to the
applicable Borrower by 3:00 p.m. New York City time on the applicable
Credit Date by causing an amount of same day funds in Dollars equal to the
proceeds of all such Loans received by Administrative Agent from Lenders to
be credited to the account of the applicable Borrower at the Administrative
Agent's Principal Office or such other account as may be designated in
writing to Administrative Agent by the applicable Borrower.
2.2 Issuance of Letters of Credit and Purchase of Participations Therein.
(a) Letters of Credit. During the Revolving Loan Commitment Period,
-----------------
subject to the terms and conditions hereof, Issuing Bank agrees to issue
Letters of Credit for the account of OpCo in the aggregate amount up to but not
exceeding the Letter of Credit Sublimit; provided, (i) each Letter of Credit
--------
shall be denominated in Dollars; (ii) the stated amount of each Letter of Credit
shall not be less than $500,000 or such lesser amount as is acceptable to
Issuing Bank; (iii) after giving effect to such issuance, in no event shall the
Total Utilization of Revolving Loan Commitments exceed the Revolving Loan
Commitments then in effect; (iv) after giving effect to such issuance, to the
extent required in order to comply with the terms of the Senior Notes, the Total
Utilization of Revolving Loan Commitments, less the aggregate amount outstanding
under any Purchase Money Loans, shall not exceed the A/R Sublimit; (v) after
giving effect to such issuance, in no event shall the Letter of Credit Usage
exceed the Letter of Credit Sublimit then in effect; (vi) in no event shall any
standby Letter of Credit have an expiration date later than the earlier of the
Revolving Loan Commitment Termination Date and the date which is one year from
the date of issuance of such standby Letter of Credit; and (vii) in no event
shall any commercial Letter of Credit (x) have an expiration date later than the
earlier of (1) the Revolving Loan Commitment Termination Date and (2) the date
which is 180 days from the date of issuance of such commercial Letter of Credit
or (y) be issued if such commercial Letter of Credit is otherwise unacceptable
to the Issuing Bank in its reasonable discretion. Subject to the foregoing,
Issuing Bank may agree that a standby Letter of Credit will automatically be
extended for one or more successive periods not to exceed one year each, unless
Issuing Bank elects not to extend for any such additional period; provided,
--------
Issuing Bank shall not extend any such Letter of Credit if it has received
written notice that an Event of Default has occurred and is continuing at the
time Issuing Bank must elect to allow such extension; provided
--------
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further, in the event a Funding Default exists, Issuing Bank shall not be
- -------
required to issue any Letter of Credit unless Issuing Bank has entered into
arrangements satisfactory to it and OpCo to eliminate Issuing Bank's risk with
respect to the participation in Letters of Credit of the Defaulting Lender,
including by cash collateralizing such Defaulting Lender's Pro Rata Share of the
Letter of Credit Usage.
(b) Notice of Issuance. Whenever OpCo desires the issuance of a
------------------
Letter of Credit, it shall deliver to Administrative Agent and Issuing Bank an
Issuance Notice no later than 12:00 p.m. (New York City time) at least three (3)
Business Days such shorter period as may be agreed to by Issuing Bank in any
particular instance, in advance of the proposed date of issuance. Upon
satisfaction or waiver of the conditions set forth in Section 3.2, Issuing Bank
shall issue the requested Letter of Credit only in accordance with Issuing
Bank's standard operating procedures. Upon the issuance of any Letter of Credit
or amendment or modification to a Letter of Credit, Issuing Bank shall promptly
notify each Lender in writing of such issuance, which notice shall be
accompanied by a copy of such Letter of Credit or amendment or modification to a
Letter of Credit and the amount of such Lender's respective participation in
such Letter of Credit pursuant to Section 2.2(e). Within fifteen (15) days
after the end of each month ending after the Closing Date, so long as any Letter
of Credit shall have been outstanding during such month, Issuing Bank shall
deliver to each Lender a report setting forth for such month the daily aggregate
amount available to be drawn under the Letters of Credit that were outstanding
during such month.
(c) Responsibility of Issuing Bank With Respect to Requests for
-----------------------------------------------------------
Drawings and Payments. In determining whether to honor any drawing under any
- ---------------------
Letter of Credit by the beneficiary thereof, Issuing Bank shall be responsible
only to examine the documents delivered under such Letter of Credit with
reasonable care so as to ascertain whether they appear on their face to be in
accordance with the terms and conditions of such Letter of Credit. As between
OpCo and Issuing Bank, OpCo assumes all risks of the acts and omissions of, or
misuse of the Letters of Credit issued by Issuing Bank, by the respective
beneficiaries of such Letters of Credit. In furtherance and not in limitation
of the foregoing, Issuing Bank shall not be responsible for: the form,
validity, sufficiency, accuracy, genuineness or legal effect of any document
submitted by any party in connection with the application for and issuance of
any such Letter of Credit, even if it should in fact prove to be in any or all
respects invalid, insufficient, inaccurate, fraudulent or forged; the validity
or sufficiency of any instrument transferring or assigning or purporting to
transfer or assign any such Letter of Credit or the rights or benefits
thereunder or proceeds thereof, in whole or in part, which may prove to be
invalid or ineffective for any reason; failure of the beneficiary of any such
Letter of Credit to comply fully with any conditions required in order to draw
upon such Letter of Credit; errors, omissions, interruptions or delays in
transmission or delivery of any messages, by mail, cable, telegraph, telex or
otherwise, whether or not they be in cipher; errors in interpretation of
technical terms; any loss or delay in the transmission or otherwise of any
document required in order to make a drawing under any such Letter of Credit or
of the proceeds thereof; the misapplication by the beneficiary of any such
Letter of Credit of the proceeds of any drawing under such Letter of Credit; or
any consequences arising from causes beyond the control of Issuing Bank,
including any Governmental Acts; none of the above shall affect or impair, or
prevent the vesting of, any of Issuing Bank's rights or powers hereunder.
Without limiting the foregoing and in furtherance thereof, any action taken or
omitted by Issuing Bank under or in connection with the Letters of
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<PAGE>
Credit or any documents and certificates delivered thereunder, if taken or
omitted in good faith, shall not put Issuing Bank under any resulting liability
to OpCo. Notwithstanding anything to the contrary contained in this Section
2.2(c), OpCo shall retain any and all rights it may have against Issuing Bank
for any liability arising solely out of the gross negligence or willful
misconduct of Issuing Bank.
(d) Reimbursement by the applicable Borrower of Amounts Drawn or Paid
-----------------------------------------------------------------
Under Letters of Credit. In the event Issuing Bank has determined to honor a
- -----------------------
drawing under a Letter of Credit, it shall immediately notify OpCo and
Administrative Agent, and OpCo shall reimburse Issuing Bank on or before the
Business Day immediately following the date on which such drawing is honored
(the "Reimbursement Date") in an amount in Dollars and in same day funds equal
to the amount of such honored drawing; provided, anything contained herein to
--------
the contrary notwithstanding, (i) unless OpCo shall have notified
Administrative Agent and Issuing Bank prior to 10:00 a.m. (New York City time)
on the date such drawing is honored that OpCo intends to reimburse Issuing Bank
for the amount of such honored drawing with funds other than the proceeds of
Revolving Loans, OpCo shall be deemed to have given a timely Funding Notice to
Administrative Agent requesting Lenders to make Revolving Loans that are Base
Rate Loans on the Reimbursement Date in an amount in Dollars equal to the amount
of such honored drawing, (and the Administrative Agent shall give prompt
written notice thereof and of the amount of its respective Pro Rata Share of the
amount of such honored drawing to each of the Lenders) and (ii) subject to
satisfaction or waiver of the conditions specified in Section 3.2, Lenders
shall, on the Reimbursement Date, make Revolving Loans that are Base Rate Loans
in the amount of such honored drawing, the proceeds of which shall be applied
directly by Administrative Agent to reimburse Issuing Bank for the amount of
such honored drawing; and provided further, if for any reason proceeds of
-------- -------
Revolving Loans are not received by Issuing Bank on the Reimbursement Date in an
amount equal to the amount of such honored drawing, OpCo shall reimburse Issuing
Bank, on demand, in an amount in same day funds equal to the excess of the
amount of such honored drawing over the aggregate amount of such Revolving
Loans, if any, which are so received. Nothing in this Section 2.2(d) shall be
deemed to relieve any Lender from its obligation to make Revolving Loans on the
terms and conditions set forth herein, and OpCo shall retain any and all rights
it may have against any Lender resulting from the failure of such Lender to make
such Revolving Loans under this Section 2.2(d).
(e) Lenders' Purchase of Participations in Letters of Credit.
--------------------------------------------------------
Immediately upon the issuance of each Letter of Credit, each Lender having a
Revolving Loan Commitment shall be deemed to have purchased, and hereby agrees
to irrevocably purchase, from Issuing Bank a participation in such Letter of
Credit and any drawings honored thereunder in an amount equal to such Lender's
Pro Rata Share (with respect to the Revolving Loan Commitments) of the maximum
amount which is or at any time may become available to be drawn thereunder. In
the event that OpCo shall fail for any reason to reimburse Issuing Bank as
provided in Section 2.2(d), Issuing Bank shall promptly notify each Lender in
writing of the unreimbursed amount of such honored drawing and of such Lender's
respective participation therein based on such Lender's Pro Rata Share of the
Revolving Loan Commitments. Each Lender shall make available to Issuing Bank an
amount equal to its respective participation, in Dollars and in same day funds,
at the office of Issuing Bank specified in such notice, not later than 12:00
p.m. (New York City time) on the first business day (under the laws of the
jurisdiction in which such office of Issuing Bank is located) after the date
notified by Issuing Bank. In the event that any Lender
43
<PAGE>
fails to make available to Issuing Bank on such business day the amount of such
Lender's participation in such Letter of Credit as provided in this Section
2.2(e), Issuing Bank shall be entitled to recover such amount on demand from
such Lender together with interest thereon for three (3) Business Days at the
rate customarily used by Issuing Bank for the correction of errors among banks
and thereafter at the Base Rate. Nothing in this Section 2.2(e) shall be deemed
to prejudice the right of any Lender to recover from Issuing Bank any amounts
made available by such Lender to Issuing Bank pursuant to this Section 2.2(e) in
the event that it is determined that the payment with respect to a Letter of
Credit in respect of which payment was made by such Lender constituted gross
negligence or willful misconduct on the part of Issuing Bank. In the event
Issuing Bank shall have been reimbursed by other Lenders pursuant to this
Section 2.2(e) for all or any portion of any drawing honored by Issuing Bank
under a Letter of Credit, such Issuing Bank shall distribute to each Lender
which has paid all amounts payable by it under this Section 2.2(e) with respect
to such honored drawing such Lender's Pro Rata Share of all payments
subsequently received by Issuing Bank from OpCo in reimbursement of such honored
drawing promptly when such payments are received. Any such distribution shall be
made to a Lender at its primary address set forth below its name on Appendix B
or at such other address as such Lender may request.
(f) Obligations Absolute. The obligation of OpCo to reimburse Issuing
--------------------
Bank for drawings honored under the Letters of Credit issued by it and to repay
any Revolving Loans made by Lenders pursuant to Section 2.2(d) and the
obligations of Lenders under Section 2.2(e) shall be unconditional and
irrevocable and shall be paid strictly in accordance with the terms hereof under
all circumstances including any of the following circumstances: any lack of
validity or enforceability of any Letter of Credit; the existence of any claim,
setoff, defense or other right which OpCo or any Lender may have at any time
against a beneficiary or any transferee of any Letter of Credit (or any Persons
for whom any such transferee may be acting), Issuing Bank, Lender or any other
Person or, in the case of a Lender, against OpCo, whether in connection
herewith, the transactions contemplated herein or with any unrelated transaction
(including any underlying transaction between OpCo or one of its Subsidiaries
and the beneficiary for which any Letter of Credit was procured); any draft or
other document presented under any Letter of Credit proving to be forged,
fraudulent, invalid or insufficient in any respect or any statement therein
being untrue or inaccurate in any respect; payment by Issuing Bank under any
Letter of Credit against presentation of a draft or other document which does
not substantially comply with the terms of such Letter of Credit; any adverse
change in the business, operations, properties, assets, condition (financial or
otherwise) or prospects of OpCo or any of its Subsidiaries; any breach hereof or
of any other Credit Document by any party thereto; any other circumstance or
happening whatsoever, whether or not similar to any of the foregoing; or the
fact that an Event of Default or a Default shall have occurred and be
continuing; provided, in each case, that payment by Issuing Bank under the
--------
applicable Letter of Credit shall not have constituted gross negligence or
willful misconduct of Issuing Bank under the circumstances in question.
(g) Indemnification. Without duplication of any obligation of OpCo
---------------
under Section 10.2 or 10.3, in addition to amounts payable as provided herein,
OpCo agrees to protect, indemnify, pay and save harmless Issuing Bank and the
other Agents and Lenders from and against any and all claims, demands,
liabilities, damages, losses, costs, charges and expenses (including reasonable
fees, expenses and disbursements of counsel and allocated costs of internal
44
<PAGE>
counsel) which Issuing Bank may incur or be subject to as a consequence, direct
or indirect, of the issuance of any Letter of Credit by Issuing Bank, the
wrongful dishonor by Issuing Bank of a proper demand for payment made under any
Letter of Credit issued by it, or the failure of Issuing Bank to honor a drawing
under any such Letter of Credit as a result of any Governmental Act, in each
case, other than as a result of the gross negligence or willful misconduct of
Issuing Bank.
2.3 Pro Rata Shares; Availability of Funds.
(a) Pro Rata Shares. All Loans shall be made, and all participations
---------------
purchased, by Lenders concurrently and proportionately to their respective Pro
Rata Shares, it being understood that no Lender shall be responsible for any
default by any other Lender in such other Lender's obligation to make a Loan
requested hereunder or purchase a participation required hereby nor shall any
Commitment of any Lender be increased or decreased as a result of a default by
any other Lender in such other Lender's obligation to make a Loan requested
hereunder or purchase a participation required hereby.
(b) Availability of Funds. Unless Administrative Agent shall have
---------------------
been notified by any Lender prior to the applicable Credit Date that such Lender
does not intend to make available to Administrative Agent the amount of such
Lender's Loan requested on such Credit Date, Administrative Agent may assume
that such Lender has made such amount available to Administrative Agent on such
Credit Date and Administrative Agent may, in its sole discretion, but shall not
be obligated to, make available to the applicable Borrower a corresponding
amount on such Credit Date. If such corresponding amount is not in fact made
available to Administrative Agent by such Lender, Administrative Agent shall be
entitled to recover such corresponding amount on demand from such Lender
together with interest thereon, for each day from such Credit Date until the
date such amount is paid to Administrative Agent, at the customary rate set by
Administrative Agent for the correction of errors among banks for three (3)
Business Days and thereafter at the Base Rate. If such Lender does not pay such
corresponding amount forthwith upon Administrative Agent's demand therefor,
Administrative Agent shall promptly notify the applicable Borrower and the
applicable Borrower shall immediately pay such corresponding amount to
Administrative Agent together with interest thereon, for each day from such
Credit Date until the date such amount is paid to Administrative Agent, at the
rate payable hereunder for Base Rate Loans for such Class of Loans. Nothing in
this Section 2.3(b) shall be deemed to relieve any Lender from its obligation to
fulfill its Commitments hereunder or to prejudice any rights that the applicable
Borrower may have against any Lender as a result of any default by such Lender
hereunder.
2.4 Use of Proceeds. The proceeds of the Loans shall be used (i) to
provide financing for the cost of design, development, acquisition,
construction, installation, improvement, transportation and/or integration of
equipment, inventory or facility assets, inventory or network assets and of
leasing and acquiring of real property, and (ii) for working capital and other
general corporate purposes of the Company and its Domestic Subsidiaries,
including Permitted Acquisitions; provided that, Purchase Money Loans may only
--------
be used to finance not more than 20% of the costs of equipment and software
located in Permitted IBX Facilities either owned by the Company or leased by the
Company under a lease subject to a leasehold mortgage in favor of the Collateral
Agent. No portion of the proceeds of any Credit Extension shall be used by
Company or any of its Subsidiaries in any manner that might cause
45
<PAGE>
such Credit Extension or the application of such proceeds to violate Regulation
T, Regulation U or Regulation X of the Board of Governors of the Federal Reserve
System or any other regulation thereof or to violate the Exchange Act.
2.5 Evidence of Debt; Register; Lenders' Books and Records; Notes.
(a) Lenders' Evidence of Debt. Each Lender shall maintain on its
-------------------------
internal records an account or accounts evidencing the Indebtedness of each
Borrower to such Lender, including the amounts of the Loans made by it and each
repayment and prepayment in respect thereof. Any such recordation shall be
conclusive and binding on the Borrowers, absent manifest error; provided,
--------
failure to make any such recordation, or any error in such recordation, shall
not affect any Lender's Commitments or either Borrower's Obligations in respect
of any applicable Loans; and provided further, in the event of any inconsistency
-------- -------
between the Register and any Lender's records, the recordations in the Register
shall govern.
(b) Register. Administrative Agent shall maintain at its Principal
--------
Office a register for the recordation of the names and addresses of Lenders and
the Commitments and Loans of each Lender from time to time (the "Register").
The Register shall be available for inspection by either Borrower or any Lender
at any reasonable time and from time to time upon reasonable prior notice.
Administrative Agent shall record in the Register the Commitments and the Loans,
and each repayment or prepayment in respect of the principal amount of the
Loans, and any such recordation shall be conclusive and binding on the
applicable Borrower and each Lender, absent manifest error; provided, failure to
--------
make any such recordation, or any error in such recordation, shall not affect
any Lender's Commitments or either Borrower's Obligations in respect of any
Loan. Each Borrower hereby designates the Administrative Agent to serve as such
Borrower's agent solely for purposes of maintaining the Register as provided in
this Section 2.5, and each Borrower hereby agrees that, to the extent the
Administrative Agent serves in such capacity, the Administrative Agent and its
officers, directors, employees, agents and affiliates shall constitute
"Indemnitees."
(c) Notes. If so requested by any Lender by written notice to a
-----
Borrower (with a copy to Administrative Agent) at least two (2) Business Days
prior to the Closing Date, or at any time thereafter, such Borrower shall
execute and deliver to such Lender (and/or, if applicable and if so specified in
such notice, to any Person who is an assignee of such Lender pursuant to Section
10.6) on the Closing Date (or, if such notice is delivered after the Closing
Date, promptly after such Borrower's receipt of such notice) a Note or Notes to
evidence such Lender's Loans.
2.6 Interest on Loans.
(a) Except as otherwise set forth herein, each Loan shall bear
interest on the unpaid principal amount thereof from the date made through
repayment (whether by acceleration or otherwise) thereof as follows:
(i) if a Base Rate Loan, at the Base Rate plus the Applicable
----
Margin; or
46
<PAGE>
(ii) if a Eurodollar Rate Loan, at the Adjusted Eurodollar Rate
plus the Applicable Margin.
----
(b) The basis for determining the rate of interest with respect to any
Loan, and the Interest Period with respect to any Eurodollar Rate Loan, shall be
selected by the applicable Borrower and notified to Administrative Agent and
Lenders pursuant to the applicable Funding Notice or Conversion/Continuation
Notice, as the case may be; provided, the Loans initially shall be made and
--------
maintained as either Base Rate Loans or Eurodollar Rate Loans having an Interest
Period of no longer than one month until the date which is the earlier of (i)
the date which is 60 days following the Closing Date and (ii) the date that
Syndication Agent notifies the applicable Borrower that the primary syndication
of the Loans and Commitments has been completed, as determined by Syndication
Agent. If on any day a Loan is outstanding with respect to which a Funding
Notice or Conversion/Continuation Notice has not been delivered to
Administrative Agent in accordance with the terms hereof specifying the
applicable basis for determining the rate of interest, then for that day such
Loan shall be a Base Rate Loan.
(c) In connection with Eurodollar Rate Loans there shall be no more
than ten (10) Interest Periods outstanding at any time. In the event a Borrower
fails to specify between a Base Rate Loan or a Eurodollar Rate Loan in the
applicable Funding Notice or Conversion/Continuation Notice, such Loan (if
outstanding as a Eurodollar Rate Loan) will be automatically converted into a
Base Rate Loan on the last day of the thencurrent Interest Period for such Loan
(or if outstanding as a Base Rate Loan will remain as, or (if not then
outstanding) will be made as, a Base Rate Loan). In the event the applicable
Borrower fails to specify an Interest Period for any Eurodollar Rate Loan in the
applicable Funding Notice or Conversion/Continuation Notice, the applicable
Borrower shall be deemed to have selected an Interest Period of one month. As
soon as practicable after 10:00 a.m. (New York City time) on each Interest Rate
Determination Date, Administrative Agent shall determine (which determination
shall, absent manifest error, be final, conclusive and binding upon all parties)
the interest rate that shall apply to the Eurodollar Rate Loans for which an
interest rate is then being determined for the applicable Interest Period and
shall promptly give notice thereof (in writing or by telephone confirmed in
writing) to the applicable Borrower and each Lender.
(d) Interest payable pursuant to Section 2.6(a) shall be computed in
the case of Base Rate Loans on the basis of a 365day or 366day year, as the case
may be, and in the case of Eurodollar Rate Loans, on the basis of a 360day year,
in each case for the actual number of days elapsed in the period during which it
accrues. In computing interest on any Loan, the date of the making of such Loan
or the first day of an Interest Period applicable to such Loan or, with respect
to a Base Rate Loan being converted from a Eurodollar Rate Loan, the date of
conversion of such Eurodollar Rate Loan to such Base Rate Loan, as the case may
be, shall be included, and the date of payment of such Loan or the expiration
date of an Interest Period applicable to such Loan or, with respect to a Base
Rate Loan being converted to a Eurodollar Rate Loan, the date of conversion of
such Base Rate Loan to such Eurodollar Rate Loan, as the case may be, shall be
excluded; provided, if a Loan is repaid on the same day on which it is made, one
--------
day's interest shall be paid on that Loan.
(e) Except as otherwise set forth herein, interest on each Loan shall
be payable in arrears (i) on each Interest Payment Date applicable to that Loan;
(ii) in the case of
47
<PAGE>
any prepayment of that Loan, whether voluntary or mandatory, on the date of
prepayment (to the extent accrued on the amount being prepaid); and (iii) at
maturity, including final maturity; provided, however, with respect to any
--------
voluntary prepayment of a Base Rate Loan, accrued interest shall instead be
payable on the applicable Interest Payment Date.
(f) OpCo agrees to pay to Issuing Bank, with respect to drawings
honored under any Letter of Credit, interest on the amount paid by Issuing Bank
in respect of each such honored drawing from the date such drawing is honored to
but excluding the date such amount is reimbursed by or on behalf of OpCo at a
rate equal to, for the period from the date such drawing is honored to but
excluding the applicable Reimbursement Date, the rate of interest otherwise
payable hereunder with respect to Revolving Loans that are Base Rate Loans, and
thereafter, a rate which is 2% per annum in excess of the rate of interest
otherwise payable hereunder with respect to Revolving Loans that are Base Rate
Loans.
(g) Interest payable pursuant to Section 2.6(f) shall be computed on
the basis of a 365/366day year for the actual number of days elapsed in the
period during which it accrues, and shall be payable on demand or, if no demand
is made, on the date on which the related drawing under a Letter of Credit is
reimbursed in full. Promptly upon receipt by Issuing Bank of any payment of
interest pursuant to Section 2.6(f), Issuing Bank shall distribute to each
Lender, out of the interest received by Issuing Bank in respect of the period
from the date such drawing is honored to but excluding the date on which Issuing
Bank is reimbursed for the amount of such drawing (including any such
reimbursement out of the proceeds of any Revolving Loans), the amount that such
Lender would have been entitled to receive in respect of the letter of credit
fee that would have been payable in respect of such Letter of Credit for such
period if no drawing had been honored under such Letter of Credit. In the event
Issuing Bank shall have been reimbursed by Lenders for all or any portion of
such honored drawing, Issuing Bank shall distribute to each Lender which has
paid all amounts payable by it under Section 2.2(e) with respect to such honored
drawing such Lender's Pro Rata Share of any interest received by Issuing Bank in
respect of that portion of such honored drawing so reimbursed by Lenders for the
period from the date on which Issuing Bank was so reimbursed by Lenders to but
excluding the date on which such portion of such honored drawing is reimbursed
by OpCo.
2.7 Conversion/Continuation.
(a) Subject to Section 2.17 and so long as no Default or Event of
Default shall have occurred and then be continuing, the applicable Borrower
shall have the option:
(i) to convert at any time all or any part of any Term Loan or
Revolving Loan equal to $1,000,000 and integral multiples of $500,000 in
excess of that amount from one Type of Loan to another Type of Loan;
provided, a Eurodollar Rate Loan may only be converted on the expiration of
--------
the Interest Period applicable to such Eurodollar Rate Loan unless the
applicable Borrower shall pay all amounts due under Section 2.17 in
connection with any such conversion; or
(ii) upon the expiration of any Interest Period applicable to any
Eurodollar Rate Loan, to continue all or any portion of such Loan equal to
48
<PAGE>
$1,000,000 and integral multiples of $500,000 in excess of that amount as a
Eurodollar Rate Loan.
(b) The applicable Borrower shall deliver a Conversion/Continuation
Notice to Administrative Agent no later than 10:00 a.m. (New York City time) at
least one (1) Business Day in advance of the proposed conversion date (in the
case of a conversion to a Base Rate Loan) and at least three (3) Business Days
in advance of the proposed conversion/continuation date (in the case of a
conversion to, or a continuation of, a Eurodollar Rate Loan). Except as
otherwise provided herein, a Conversion/Continuation Notice for conversion to,
or continuation of, any Eurodollar Rate Loans (or telephonic notice in lieu
thereof) shall be irrevocable on and after the related Interest Rate
Determination Date, and the applicable Borrower shall be bound to effect a
conversion or continuation in accordance therewith.
2.8 Default Interest. Upon the occurrence and during the continuance of
an Event of Default described in Section 8.1(a), the principal amount of all
Loans and, to the extent permitted by applicable law, any interest payments on
the Loans or any fees or other amounts owed hereunder not paid when due, in each
case whether at stated maturity, by notice of prepayment, by acceleration or
otherwise, shall thereafter bear interest (including postpetition interest in
any proceeding under the Bankruptcy Code or other applicable bankruptcy laws)
payable on demand at a rate that is 2% per annum in excess of the interest rate
otherwise payable hereunder with respect to the applicable Loans (or, in the
case of any such fees and other amounts, at a rate which is 2% per annum in
excess of the interest rate otherwise payable hereunder for Base Rate Loans);
provided, in the case of Eurodollar Rate Loans, upon the expiration of the
- --------
Interest Period in effect at the time any such increase in interest rate is
effective, such Eurodollar Rate Loans shall thereupon become Base Rate Loans and
shall thereafter bear interest payable upon demand at a rate which is 2% per
annum in excess of the interest rate otherwise payable hereunder for Base Rate
Loans. Payment or acceptance of the increased rates of interest provided for in
this Section 2.8 is not a permitted alternative to timely payment and shall not
constitute a waiver of any Event of Default or otherwise prejudice or limit any
rights or remedies of Administrative Agent, any other Agent or any Lender.
2.9 Fees.
(a) Company agrees to pay from the time of the Closing Date to Lenders
having Term Loan Exposure, Delayed Draw Term Loan Exposure and/or Revolving
Exposure through Administrative Agent:
(i) a commitment fee equal to (1) the average of the daily unused
Commitments of such Lender during the preceding Fiscal Quarter multiplied
by, (2) the Applicable Commitment Fee Percentage; and
(ii) Letter of Credit fees equal to (1) the Applicable Margin for
Revolving Loans that are Eurodollar Rate Loans (other than Purchase Money
Loans), times (2) the average daily maximum amount available to be drawn
under all such Letters of Credit (regardless of whether any conditions for
drawing could then be met and determined as of the close of business on any
date of determination).
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<PAGE>
(iii) All fees referred to in this Section 2.9(a) shall be paid
to Administrative Agent at its Principal Office and upon receipt,
Administrative Agent shall promptly distribute to each Lender its Pro Rata
Share thereof.
(b) OpCo agrees to pay directly to Issuing Bank, for its own account,
the following fees:
(i) a fronting fee equal to 0.25%, per annum, times the aggregate
daily amount available to be drawn under all Letters of Credit (determined
as of the close of business on any date of determination); and
(ii) such documentary and processing charges for any issuance,
amendment, transfer or payment of a Letter of Credit as are in accordance
with Issuing Bank's standard schedules for such charges and as in effect at
the time of such issuance, amendment, transfer or payment, as the case may
be.
(c) All fees referred to in Section 2.9(a) and 2.9(b)(i) shall be
calculated on the basis of a 360day year and the actual number of days elapsed
and shall be payable (i) quarterly in arrears on March 31, June 30, September 30
and December 31 of each year, commencing on the first such date to occur after
the Closing Date, (ii) on the Term Loan Commitment Termination Date (iii) on the
Delayed Draw Term Loan Commitment Termination Date and (iv) on the Revolving
Loan Commitment Termination Date.
(d) In addition to any of the foregoing fees, Company agrees to pay to
Agents such other fees in the amounts and at the times separately agreed upon by
Company and such Agents thereby.
(e) In addition, Company agrees to pay such commitment and other fees
as may be payable in connection with New Revolving Loan Commitments and New Term
Loan Commitments, if any, as set forth in the applicable Joinder Agreement or
otherwise agreed to in writing by Company.
2.10 Scheduled Payments.
(a) Scheduled Term Loan and Delayed Draw Term Loan Installments. The
-----------------------------------------------------------
principal amounts of the Term Loans outstanding and the Delayed Draw Term Loans
outstanding on the Delayed Draw Term Loan Commitment Termination Date,
respectively, shall be repaid in the aggregate annual percentages set forth
below in equal consecutive quarterly installments (each, a "Term Loan
Installment" or a "Delayed Draw Term Loan Installment" as the case may be) on
the last day of each Fiscal Quarter (each, a "Term Loan Installment Date" or a
"Delayed Draw Term Loan Installment Date" as the case may be) occurring in each
of the Fiscal Years set forth below, commencing March 31, 2003:
50
<PAGE>
================================================================
Term Loan and Delayed Term Loan and Delayed
Draw Term Loan Draw Term Loan
Installment Dates Installments
----------------------------------------------------------------
March 31, 2003 5%
----------------------------------------------------------------
June 30, 2003 5%
----------------------------------------------------------------
September 30, 2003 5%
----------------------------------------------------------------
December 31, 2003 5%
----------------------------------------------------------------
March 31, 2004 10%
----------------------------------------------------------------
June 30, 2004 10%
----------------------------------------------------------------
September 30, 2004 10%
----------------------------------------------------------------
December 31, 2004 10%
----------------------------------------------------------------
March 31, 2005 10%
----------------------------------------------------------------
June 30, 2005 10%
----------------------------------------------------------------
September 30, 2005 10%
----------------------------------------------------------------
December 15, 2005 10%
================================================================
Notwithstanding the foregoing, (i) such Term Loan Installments or Delayed Draw
Term Loan Installments, as the case may be, shall be reduced in connection with
any voluntary or mandatory prepayments of the Term Loans or the Delayed Draw
Term Loans, as the case may be, in accordance with Sections 2.11, 2.12 and 2.13,
as applicable; and (ii) the Term Loans or the Delayed Draw Term Loans, together
with all other amounts owed hereunder with respect thereto, shall, in any event,
be paid in full no later than the Term Loan Maturity Date or the Delayed Draw
Term Loan Maturity Date, as the case may be.
(b) No Amortization of Revolving Loans. No interim amortization shall
----------------------------------
be required with respect to the Revolving Loans.
(c) Scheduled New Term Loan Installments. Provisions with respect to
------------------------------------
scheduled repayments of New Term Loans shall be as set forth in each applicable
Joinder Agreement.
2.11 Voluntary Prepayments/Commitment Reductions.
(a) Voluntary Prepayments.
---------------------
(i) Any time and from time to time:
(1) with respect to Base Rate Loans, the applicable Borrower
may prepay, subject to Section 2.11(c), any such Loans on any Business Day in
whole or in part, in an aggregate minimum amount of $2,000,000 and integral
multiples of $1,000,000 in excess of that amount; and
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<PAGE>
(2) with respect to Eurodollar Rate Loans, the applicable
Borrower may prepay, subject to Sections 2.11(c) and 2.17, any such Loans on any
Business Day in whole or in part in an aggregate minimum amount of $2,000,000
and integral multiples of $1,000,000 in excess of that amount.
(ii) All such prepayments shall be made:
(1) upon not less than one (1) Business Days' prior written
or telephonic notice in the case of Base Rate Loans; and
(2) upon not less than three (3) Business Days' prior
written or telephonic notice in the case of Eurodollar Rate Loans,
in each case given to Administrative Agent, as the case may be, by 12:00 p.m.
(New York City time) on the date required and, if given by telephone, promptly
confirmed in writing to Administrative Agent (and Administrative Agent will
promptly transmit such telephonic or original notice by telefacsimile or
telephone to each Lender). Upon the giving of any such notice, the principal
amount of the Loans specified in such notice shall become due and payable on the
prepayment date specified therein.
(b) Voluntary Commitment Reductions.
-------------------------------
(i) Borrowers may, subject to Section 2.11(c), upon not less than
three (3) Business Days' prior written or telephonic notice confirmed in
writing to Administrative Agent (which original written or telephonic
notice Administrative Agent will promptly transmit by telefacsimile or
telephonic notice to each applicable Lender), at any time and from time to
time terminate in whole or permanently reduce in part, without premium or
penalty, the Revolving Loan Commitments in an amount up to the amount by
which the Revolving Loan Commitments exceed the Total Utilization of
Revolving Loan Commitments at the time of such proposed termination or
reduction; provided, any such partial reduction of the Revolving Loan
--------
Commitments shall be in an aggregate minimum amount of $2,000,000 and
integral multiples of $1,000,000 in excess of that amount.
(ii) OpCo may, subject to Section 2.11(c), upon not less than
three (3) Business Days' prior written or telephonic notice confirmed in
writing to Administrative Agent (which original written or telephonic
notice Administrative Agent will promptly transmit by telefacsimile or
telephonic notice to each applicable Lender), at any time and from time to
time terminate in whole or permanently reduce in part, without premium or
penalty, the Delayed Draw Term Loan Commitments in an amount up to the
amount by which the Delayed Draw Term Loan Commitments exceed the Total
Utilization of Delayed Draw Term Loan Commitments at the time of such
proposed termination or reduction; provided, any such partial reduction of
--------
the Delayed Draw Term Loan Commitments shall be in an aggregate minimum
amount of $2,000,000 and integral multiples of $1,000,000 in excess of that
amount.
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(iii) the applicable Borrower's notice to Administrative Agent
shall designate the date (which shall be a Business Day) of such
termination or reduction and the amount of any partial reduction, and such
termination or reduction of the Delayed Draw Term Loan Commitments and/or
Revolving Loan Commitments, as applicable, shall be effective on the date
specified in the applicable Borrower's notice and shall reduce the Delayed
Draw Term Loan Commitments and/or Revolving Loan Commitment of each Lender
proportionately to its Pro Rata Share thereof.
(c) Prepayment/Reduction Premium. Any voluntary prepayment (other
----------------------------
than prepayments of Revolving Loans) and/or Commitment reduction pursuant to
Sections 2.11(a) and/or 2.11(b), respectively, shall be subject (i) at any time
prior to the first anniversary of the Closing Date, to the payment by the
applicable Borrower of an amount equal to the aggregate amount of the Loans
being so repaid, prepaid or Commitment reduced multiplied by 1.25%; and (ii)
-------------
after the first anniversary of the Closing Date but prior to the second
anniversary thereof, to the payment by the applicable Borrower of an amount
equal to the aggregate amount of the Loans being so repaid, prepaid or
Commitment reduced multiplied by 1%.
-------------
2.12 Mandatory Prepayments/Commitment Reductions.
(a) Asset Sales. If, within the period of one hundred eighty (180)
-----------
days after the receipt by Company or any of its Restricted Subsidiaries of Net
Asset Sale Proceeds, OpCo (or to the extent such Net Asset Sale Proceeds are
proceeds of the sale of assets of Company, Company) has not invested (or
committed to invest within 180 days and actually invested within a period of 270
days) such Net Asset Sale Proceeds in long term productive assets of the general
type used in the business of the Company and its Restricted Subsidiaries, as
certified to Administrative Agent by Company, then, to the extent Borrowers have
not previously done so, Borrowers shall prepay Loans and the Commitments shall
be permanently reduced as set forth in Section 2.13, in either case in an amount
equal to the excess of such Net Asset Sale Proceeds over amounts invested as
aforesaid; provided that, notwithstanding the foregoing, any prepayment under
--------
this Section 2.12(a) on account of Net Asset Sale Proceeds from the sale or
other disposition of assets purchased with the proceeds of Purchase Money Loans
shall be used by Company immediately to prepay Purchase Money Loans. Pending a
determination whether any Net Asset Sale Proceeds will be applied to prepay
Loans and/or reduce Commitments pursuant to the preceding sentence, such Net
Asset Sale Proceeds shall be applied to prepay outstanding Revolving Loans
(without a reduction in the Revolving Loan Commitments).
(b) Insurance/Condemnation Proceeds. If, within the period of one
-------------------------------
hundred eighty (180) days after the receipt by Company or any of its Restricted
Subsidiaries of Net Insurance/Condemnation Proceeds, OpCo (or to the extent such
Net Asset Sale Proceeds are proceeds of the sale of assets of Company, Company)
has not invested (or committed to invest within 180 days and actually invested
within a period of 270 days) such Net Insurance/Condemnation Proceeds in long
term productive assets of general type used in the business of Company and its
Restricted Subsidiaries, as certified to Administrative Agent by Company then,
to the extent the applicable Borrower has not previously done so, the applicable
Borrower shall prepay Loans and the Commitments shall be permanently reduced as
set forth in Section 2.13, in either case in an amount equal to the excess of
such Net Insurance/Condemnation
53
<PAGE>
Proceeds over amounts invested as aforesaid; provided, that, notwithstanding the
--------
foregoing, any prepayment under this Section 2.12(b) arising due to Net
Insurance/Condemnation Proceeds in respect of assets purchased with the proceeds
of Purchase Money Loans shall be applied by Company to the prepayment of
Purchase Money Loans. Pending a determination on whether any Net
Insurance/Condemnation Proceeds shall be applied to prepay outstanding Loans
and/or reduce Commitments pursuant to the preceding sentence, such Net
Insurance/Condemnation Proceeds shall be applied to prepay outstanding Revolving
Loans (without a reduction in the Revolving Loan Commitments).
(c) Consolidated Excess Cash Flow. In the event that there shall be
-----------------------------
Consolidated Excess Cash Flow for any Fiscal Year, commencing with Fiscal Year
2003, Borrowers shall, no later than ninety (90) days after the end of such
Fiscal Year, prepay the Loans and/or the Commitments shall be permanently
reduced as set forth in Section 2.13 in an aggregate amount equal to 50% of such
Consolidated Excess Cash Flow.
(d) Commitment Limits. Borrowers shall from time to time prepay the
-----------------
Revolving Loans to the extent necessary so that (i) the Total Utilization of
Revolving Loan Commitments shall not at any time exceed the Revolving Loan
Commitments then in effect and (ii) amounts outstanding under the A/R Sublimit
shall not at any time exceed 85% of Net Accounts Receivable. Company shall also
from time to time prepay the Delayed Draw Term Loans to the extent necessary so
that the Total Utilization of Delayed Draw Term Loan Commitments shall not at
any time exceed the Delayed Draw Term Loan Commitments then in effect.
(e) Borrowing Base. Borrowers shall from time to time prepay the
--------------
Loans to the extent necessary so that the sum of (i) the aggregate principal
amount of all outstanding Term Loans plus (ii) the Total Utilization of
----
Revolving Loan Commitments plus (iii) the aggregate amount of all outstanding
----
Delayed Draw Term Loans plus (iv) the aggregate amount of all New Term Loans, if
----
any, shall not at any time exceed the Borrowing Base then in effect.
(f) Prepayment Certificate. Concurrently with any prepayment of the
----------------------
Loans and/or reduction of the Commitments pursuant to Sections 2.12(a) through
2.12(e), Borrowers shall deliver to Administrative Agent a certificate of an
Authorized Officer (a copy of which Administrative Agent shall promptly provide
to each Lender) demonstrating the calculation of the amount of the applicable
net proceeds or Consolidated Excess Cash Flow, as the case may be. In the event
that Borrowers shall subsequently determine that the actual amount received
exceeded the amount set forth in such certificate, Borrowers shall promptly make
an additional prepayment of the Loans and/or the Commitments shall be
permanently reduced in an amount equal to such excess, and Borrowers shall
concurrently therewith deliver to Administrative Agent (a copy of which
Administrative Agent shall promptly provide to each Lender) a certificate of an
Authorized Officer demonstrating the derivation of such excess.
(g) Prepayment/Reduction Premium. Any prepayment (other than
----------------------------
prepayments of Revolving Loans) and/or Commitment reduction pursuant to Sections
2.12(a) through 2.12(e) shall be subject (i) at any time prior to the first
anniversary of the Closing Date, to the payment by the applicable Borrower of an
amount equal to the aggregate amount of the Loans being so repaid, prepaid or
Commitment reduced multiplied by 1.25%; and (ii) after the
-------------
54
<PAGE>
first anniversary of the Closing Date but prior to the second anniversary
thereof, to the payment by the applicable Borrower of an amount equal to the
aggregate amount of the Loans being so repaid, prepaid or Commitment reduced
multiplied by 1.0%.
- -------------
2.13 Application of Prepayments/Reductions.
(a) Application of Voluntary Prepayments by Type of Loans. Any
-----------------------------------------------------
prepayment of any Loan pursuant to Section 2.11(a) shall be applied as specified
by the applicable Borrower, in the applicable notice of prepayment; provided,
--------
that such Borrower shall prepay all outstanding Purchase Money Loans prior to
prepaying any other Revolving Loans. In the event a Borrower fails to specify
the Loans to which any such prepayment shall be applied, such prepayment shall
be applied as follows:
first, to repay outstanding Purchase Money Loans to the full extent
thereof;
second, to repay other outstanding Revolving Loans to the full extent
thereof; and
third, to prepay the Term Loans, the Delayed Draw Term Loans and New
Term Loans, if any, on a pro rata basis (in accordance with the respective
outstanding principal amounts thereof).
Any prepayment of Term Loans and Delayed Draw Term Loans pursuant to Section
2.13(a) shall be further applied, on a pro rata basis, to the remaining
scheduled Term Loan Installments and Delayed Draw Term Loan Installments, as
applicable.
(b) Application of Mandatory Prepayments by Type of Loans. (i) Any
-----------------------------------------------------
amount required to be prepaid pursuant to Section 2.12(a)(c) and (e) shall be
applied (unless otherwise specified in Section 2.12 with respect to Purchase
Money Loans) as follows:
first, to prepay the Term Loans and Delayed Draw Term Loans (and to
further reduce any unused Delayed Draw Term Loan Commitments), and New Term
Loans, if any, on a pro rata basis (in accordance with the respective
outstanding principal amounts thereof) and (x) in the case of the Term Loans and
Delayed Draw Term Loans, shall be further applied to the remaining scheduled
Term Loan Installments or Delayed Draw Term Loan Installments, as applicable, in
inverse order of maturity and (y) in the case of New Term Loans, if any, shall
be applied pro rata among each outstanding Series and further applied to the
scheduled installments of principal of the New Term Loans of such Series in
inverse order of maturity;
second, to prepay the Revolving Loans (with any Purchase Money Loans
being prepaid first) and to reduce the Revolving Loan Commitment);
third, to prepay outstanding reimbursement obligations with respect to
Letters of Credit; and
fourth, to cash collateralize Letters of Credit;
(ii) Notwithstanding the foregoing, with respect to New Term
Loans, a lesser amount may be required to be prepaid or waived if set forth
in the
55
<PAGE>
applicable Joinder Agreement; provided that, any such amounts waived or not
--------
used to prepay New Term Loans shall be used to further prepay first, on a
pro rata basis, Delayed Draw Term Loans and Term Loans and, second,
Revolving Loans as provided above.
(c) Application of Prepayments of Loans to Base Rate Loans and
----------------------------------------------------------
Eurodollar Rate Loans. Considering each Class of Loans being prepaid
- ---------------------
separately, any prepayment thereof shall be applied first to Base Rate Loans to
the full extent thereof before application to Eurodollar Rate Loans, in each
case in a manner which minimizes the amount of any payments required to be made
by the applicable Borrower pursuant to Section 2.17(c).
2.14 Allocation of Certain Payments and Proceeds. If an Event of Default
shall have occurred and not otherwise be waived, and the maturity of the
Obligations shall have been accelerated pursuant to Section 8.1, all payments or
proceeds received by Agents hereunder in respect of any of the Obligations,
shall be applied by Agents in accordance with the application arrangements
described in Section 6.5 of the Pledge and Security Agreement.
2.15 General Provisions Regarding Payments.
(a) All payments by a Borrower of principal, interest, fees and other
Obligations shall be made in Dollars in same day funds, without defense, setoff
or counterclaim, free of any restriction or condition, and delivered to
Administrative Agent not later than 12:00 p.m. (New York City time) on the date
due at the Administrative Agent's Principal Office for the account of Lenders;
funds received by Administrative Agent after that time on such due date shall be
deemed to have been paid by the applicable Borrower on the next succeeding
Business Day.
(b) All payments in respect of the principal amount of any Loan (other
than voluntary prepayments of Revolving Loans) shall include payment of accrued
interest on the principal amount being repaid or prepaid, and all such payments
(and, in any event, any payments in respect of any Loan on a date when interest
is due and payable with respect to such Loan) shall be applied to the payment of
interest before application to principal.
(c) Administrative Agent shall promptly distribute to each Lender at
such address as such Lender shall indicate in writing, such Lender's applicable
Pro Rata Share, giving effect to any adjustment from Pro Rata Shares on and
after the Closing Date, of all payments and prepayments of principal and
interest due hereunder, together with all other amounts due thereto, including,
without limitation, all fees payable with respect thereto, to the extent
received by Administrative Agent.
(d) Notwithstanding the foregoing provisions hereof, if any
Conversion/Continuation Notice is withdrawn as to any Affected Lender or if any
Affected Lender makes Base Rate Loans in lieu of its Pro Rata Share of any
Eurodollar Rate Loans, Administrative Agent shall give effect thereto in
apportioning payments received thereafter.
(e) Subject to the provisos set forth in the definition of "Interest
Period", whenever any payment to be made hereunder shall be stated to be due on
a day that is not a Business Day, such payment shall be made on the next
succeeding Business Day and such
56
<PAGE>
extension of time shall be included in the computation of the payment of
interest hereunder or of the Revolving Loan Commitment fees hereunder.
(f) Each Borrower hereby authorizes Administrative Agent to charge its
accounts with Administrative Agent in order to cause timely payment to be made
to Administrative Agent of all principal, interest, fees and expenses due
hereunder (subject to sufficient funds being available in its accounts for that
purpose).
(g) Administrative Agent shall deem any payment by or on behalf of a
Borrower hereunder that is not made in same day funds prior to 12:00 p.m. (New
York City time) on or before the due date to be a nonconforming payment. Any
such payment shall not be deemed to have been received by Administrative Agent
until the later of (i) the time such funds become available funds, and (ii) the
applicable next Business Day. Administrative Agent shall give prompt telephonic
notice to the applicable Borrower and each applicable Lender (confirmed in
writing) if any payment is nonconforming. Any nonconforming payment may
constitute or become a Default or Event of Default in accordance with the terms
of Section 8.1(a). Interest shall continue to accrue on any principal as to
which a nonconforming payment is made until such funds become available funds
(but in no event less than the period from the date of such payment to the next
succeeding applicable Business Day) at the rate determined pursuant to Section
2.8 from the date such amount was due and payable until the date such amount is
paid in full.
2.16 Ratable Sharing. Lenders hereby agree among themselves that, except
as otherwise provided in the Collateral Documents with respect to amounts
realized from the exercise of rights with respect to Liens on the Collateral, if
any of them shall, whether by voluntary payment (other than a voluntary
prepayment of Loans made and applied in accordance with the terms hereof),
through the exercise of any right of setoff or banker's lien, by counterclaim or
cross action or by the enforcement of any right under the Credit Documents or
otherwise, or as adequate protection of a deposit treated as cash collateral
under the Bankruptcy Code, receive payment or reduction of a proportion of the
aggregate amount of principal, interest, amounts payable in respect of Letters
of Credit, fees and other amounts then due and owing to such Lender hereunder or
under the other Credit Documents (collectively, the "Aggregate Amounts Due" to
such Lender) which is greater than the proportion received by any other Lender
in respect of the Aggregate Amounts Due to such other Lender, then the Lender
receiving such proportionately greater payment shall notify Administrative Agent
and each other Lender of the receipt of such payment and apply a portion of such
payment to purchase participations (which it shall be deemed to have purchased
from each seller of a participation simultaneously upon the receipt by such
seller of its portion of such payment) in the Aggregate Amounts Due to the other
Lenders so that all such recoveries of Aggregate Amounts Due shall be shared by
all Lenders in proportion to the Aggregate Amounts Due to them; provided, if all
--------
or part of such proportionately greater payment received by such purchasing
Lender is thereafter recovered from such Lender upon the bankruptcy or
reorganization of a Credit Party or otherwise, those purchases shall be
rescinded and the purchase prices paid for such participations shall be promptly
returned to such purchasing Lender ratably to the extent of such recovery, but
without interest. Each Borrower expressly consents to the foregoing arrangement
and agrees that any holder of a participation so purchased may exercise any and
all rights of banker's lien, setoff or counterclaim with respect to any and all
monies owing by the
57
<PAGE>
applicable Borrower to that holder with respect thereto as fully as if that
holder were owed the amount of the participation held by that holder.
2.17 Making or Maintaining Eurodollar Rate Loans.
(a) Inability to Determine Applicable Interest Rate. In the event
-----------------------------------------------
that Administrative Agent shall have determined (which determination shall be
final and conclusive and binding upon all parties hereto), on any Interest Rate
Determination Date with respect to any Eurodollar Rate Loans, that by reason of
circumstances affecting the London interbank market adequate and fair means do
not exist for ascertaining the interest rate applicable to such Loans on the
basis provided for in the definition of Adjusted Eurodollar Rate, Administrative
Agent shall on such date give notice (by telefacsimile or by telephone confirmed
in writing) to the applicable Borrower and each Lender of such determination,
whereupon no Loans may be made as, or converted to, Eurodollar Rate Loans until
such time as Administrative Agent notifies the applicable Borrower and Lenders
(by telefacsimile or by telephonic notice confirmed in writing) that the
circumstances giving rise to such notice no longer exist, and any Funding Notice
or Conversion/Continuation Notice given by the applicable Borrower with respect
to the Loans in respect of which such determination was made shall be deemed to
be, in the case of a Conversion Notice, rescinded by the applicable Borrower
and, in the case of a Funding Notice, deemed to be a Funding Notice in respect
of Base Rate Loans.
(b) Illegality or Impracticability of Eurodollar Rate Loans. In the
-------------------------------------------------------
event that on any date any Lender shall have determined (which determination
shall be final and conclusive and binding upon all parties hereto but shall be
made only after consultation with the applicable Borrower and Administrative
Agent) that the making, maintaining or continuation of its Eurodollar Rate Loans
has become unlawful as a result of compliance by such Lender in good faith with
any law, treaty, governmental rule, regulation, guideline or order (or would
conflict with any such treaty, governmental rule, regulation, guideline or order
not having the force of law even though the failure to comply therewith would
not be unlawful), or has become impracticable, as a result of contingencies
occurring after the date hereof which materially and adversely affect the London
interbank market or the position of such Lender in that market, then, and in any
such event, such Lender shall be an "Affected Lender" and it shall on that day
give notice (by telefacsimile or by telephone confirmed in writing) to the
applicable Borrower and Administrative Agent of such determination (which notice
Administrative Agent shall promptly transmit to each other Lender and by
telefacsimile or telephonic notice confirmed in writing). Thereafter the
obligation of the Affected Lender to make Loans as, or to convert Loans to,
Eurodollar Rate Loans shall be suspended until such notice shall be withdrawn by
the Affected Lender, to the extent such determination by the Affected Lender
relates to a Eurodollar Rate Loan then being requested by the applicable
Borrower pursuant to a Funding Notice or a Conversion/Continuation Notice, the
Affected Lender shall make such Loan as (or continue such Loan as or convert
such Loan to, as the case may be) a Base Rate Loan, the Affected Lender's
obligation to maintain its outstanding Eurodollar Rate Loans (the "Affected
Loans") shall be terminated at the earlier to occur of the expiration of the
Interest Period then in effect with respect to the Affected Loans or when
required by law, and the Affected Loans shall automatically convert into Base
Rate Loans on the date of such termination. Notwithstanding the foregoing, to
the extent a determination by an Affected Lender as described above relates to a
Eurodollar Rate Loan then being requested by the applicable Borrower pursuant to
a Funding
58
<PAGE>
Notice or a Conversion/Continuation Notice, the applicable Borrower shall have
the option, subject to the provisions of Section 2.17(c), to rescind such
Funding Notice or Conversion/Continuation Notice as to all Lenders by giving
notice (by telefacsimile or by telephone confirmed in writing) to Administrative
Agent of such rescission on the date on which the Affected Lender gives notice
of its determination as described above (which notice of rescission
Administrative Agent shall promptly transmit to each other Lender by
telefacsimile or by telephonic notice confirmed in writing). Except as provided
in the immediately preceding sentence, nothing in this Section 2.17(b) shall
affect the obligation of any Lender other than an Affected Lender to make or
maintain Loans as, or to convert Loans to, Eurodollar Rate Loans in accordance
with the terms hereof.
(c) Compensation for Breakage or NonCommencement of Interest Periods.
----------------------------------------------------------------
The applicable Borrower shall compensate each Lender, upon written request by
such Lender (which request shall set forth the basis for requesting such
amounts), for all reasonable losses, expenses and liabilities (including any
interest paid by such Lender to lenders of funds borrowed by it to make or carry
its Eurodollar Rate Loans and any loss, expense or liability sustained by such
Lender in connection with the liquidation or reemployment of such funds but
excluding loss of anticipated profits) which such Lender may sustain if for any
reason as a result of Borrower's action or omission a borrowing of any
Eurodollar Rate Loan does not occur on a date specified therefor in a Funding
Notice or a telephonic request for borrowing, or a conversion to or continuation
of any Eurodollar Rate Loan does not occur on a date specified therefor in a
Conversion/Continuation Notice or a telephonic request for conversion or
continuation; if any prepayment or other principal payment or any conversion of
any of its Eurodollar Rate Loans occurs on a date prior to the last day of an
Interest Period applicable to that Loan; or if any prepayment of any of its
Eurodollar Rate Loans is not made on any date specified in a notice of
prepayment given by such Borrower or as a consequence of any default by such
Borrower in the repayment of its Eurodollar Rate Loans when required by the
terms thereof.
(d) Booking of Eurodollar Rate Loans. Any Lender may make, carry or
--------------------------------
transfer Eurodollar Rate Loans at, to, or for the account of any of its branch
offices or the office of an Affiliate of such Lender.
(e) Assumptions Concerning Funding of Eurodollar Rate Loans.
-------------------------------------------------------
Calculation of all amounts payable to a Lender under this Section 2.17 and under
Section 2.18 shall be made as though such Lender had actually funded each of its
relevant Eurodollar Rate Loans through the purchase of a Eurodollar deposit
bearing interest at the rate obtained pursuant to clause (i) of the definition
of Adjusted Eurodollar Rate in an amount equal to the amount of such Eurodollar
Rate Loan and having a maturity comparable to the relevant Interest Period and
through the transfer of such Eurodollar deposit from an offshore office of such
Lender to a domestic office of such Lender in the United States of America;
provided, however, each Lender may fund each of its Eurodollar Rate Loans in any
- -------- -------
manner it sees fit and the foregoing assumptions shall be utilized only for the
purposes of calculating amounts payable under this Section 2.17 and under
Section 2.18.
59
<PAGE>
2.18 Increased Costs; Capital Adequacy.
(a) Compensation For Increased Costs and Taxes. Subject to the
------------------------------------------
provisions of Section 2.19 (which shall be controlling with respect to the
matters covered thereby), in the event that any Lender (which term shall include
Issuing Bank for purposes of this Section 2.18(a)) shall determine (which
determination shall, absent manifest error, be final and conclusive and binding
upon all parties hereto) that any law, treaty or governmental rule, regulation
or order, or any change therein or in the interpretation, administration or
application thereof (including the introduction of any new law, treaty or
governmental rule, regulation or order), or any determination of a court or
Governmental Authority, in each case that becomes effective after the date
hereof, or compliance by such Lender with any guideline, request or directive
issued or made after the date hereof by any central bank or other governmental
or quasigovernmental authority (whether or not having the force of law):
subjects such Lender (or its applicable lending office) to any additional Tax
(other than any Tax on the overall net income of such Lender) with respect to
this Agreement or any of its obligations hereunder or any payments to such
Lender (or its applicable lending office) of principal, interest, fees or any
other amount payable hereunder or thereunder; imposes, modifies or holds
applicable any reserve (including any marginal, emergency, supplemental, special
or other reserve), special deposit, compulsory loan, FDIC insurance or similar
requirement against assets held by, or deposits or other liabilities in or for
the account of, or advances or loans by, or other credit extended by, or any
other acquisition of funds by, any office of such Lender (other than any such
reserve or other requirements with respect to Eurodollar Rate Loans that are
reflected in the definition of Adjusted Eurodollar Rate); or imposes any other
condition (other than with respect to a Tax matter) on or affecting such Lender
(or its applicable lending office) or its obligations hereunder or under any
other Credit Document or the London interbank market; and the result of any of
the foregoing is to increase the cost to such Lender of agreeing to make, making
or maintaining Eurodollar Rate Loans hereunder or to reduce any amount received
or receivable by such Lender (or its applicable lending office) with respect
thereto; then, in any such case, the applicable Borrower shall promptly pay to
such Lender, upon receipt of the statement referred to in the next sentence,
such additional amount or amounts (in the form of an increased rate of, or a
different method of calculating, interest or otherwise as such Lender in its
sole discretion shall determine) as may be necessary to compensate such Lender
for any such increased cost or reduction in amounts received or receivable
hereunder or under any other Credit Document. Such Lender shall deliver to the
applicable Borrower (with a copy to Administrative Agent) a written statement,
setting forth in reasonable detail the basis for calculating the additional
amounts owed to such Lender under this Section 2.18(a), which statement shall be
conclusive and binding upon all parties hereto absent manifest error.
(b) Capital Adequacy Adjustment. In the event that any Lender (which
---------------------------
term shall include Issuing Bank for purposes of this Section 2.18(b)) shall
have determined that the adoption, effectiveness, phasein or applicability after
the date hereof of any law, rule or regulation (or any provision thereof)
regarding capital adequacy, or any change therein or in the interpretation or
administration thereof by any Governmental Authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by any Lender (or its applicable lending office) with any guideline, request or
directive regarding capital adequacy (whether or not having the force of law) of
any such Governmental Authority, central bank or comparable agency, has or would
have the effect of reducing the rate of return on
60
<PAGE>
the capital of such Lender or any corporation controlling such Lender as a
consequence of, or with reference to, such Lender's Loans or Commitments or
Letters of Credit, or participations therein or other obligations hereunder with
respect to the Loans or the Letters of Credit to a level below that which such
Lender or such controlling corporation could have achieved but for such
adoption, effectiveness, phasein, applicability, change or compliance (taking
into consideration the policies of such Lender or such controlling corporation
with regard to capital adequacy), then from time to time, within five (5)
Business Days after receipt by the applicable Borrower from such Lender of the
statement referred to in the next sentence, the applicable Borrower shall pay to
such Lender such additional amount or amounts as will compensate such Lender or
such controlling corporation on an aftertax basis for such reduction. Such
Lender shall deliver to the applicable Borrower (with a copy to Administrative
Agent) a written statement, setting forth in reasonable detail the basis for
calculating the additional amounts owed to Lender under this Section 2.18(b),
which statement shall be conclusive and binding upon all parties hereto absent
manifest error.
(c) Limitation on Retroactive Effect. Failure or delay on the part of
--------------------------------
any Lender to demand compensation pursuant to this Section 2.18 shall not
constitute a waiver of such Lender's right to demand such compensation;
provided, however, that the Borrowers shall not be required to compensate a
- -------- -------
Lender pursuant to this Section 2.18 for any increased costs or reductions
incurred more than 180 days prior to the date that such Lender notifies
Borrowers of the change giving rise to such increased costs or reductions and of
such Lender's intention to claim compensation therefor; provided further that if
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the change giving rise to such increased costs or reductions is retroactive,
then the 180-day period referred to above shall be extended to include the
period of retroactive effective thereof.
2.19 Taxes; Withholding, etc.
(a) Payments to Be Free and Clear. All sums payable by any Credit
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Party hereunder and under the other Credit Documents shall (except to the extent
required by law) be paid free and clear of, and without any deduction or
withholding on account of, any Tax (other than a Tax on the overall net income
of any Lender) imposed, levied, collected, withheld or assessed by or within the
United States of America or any political subdivision in or of the United States
of America or any other jurisdiction from or to which a payment is made by or on
behalf of any Credit Party or by any federation or organization of which the
United States of America or any such jurisdiction is a member at the time of
payment.
(b) Withholding of Taxes. If any Credit Party or any other Person is
--------------------
required by law to make any deduction or withholding on account of any such Tax
from any sum paid or payable by any Credit Party to Administrative Agent or any
Lender (which term shall include Issuing Bank for purposes of this Section
2.19(b)) under any of the Credit Documents: the applicable Borrower shall
notify Administrative Agent of any such requirement or any change in any such
requirement as soon as the applicable Borrower becomes aware of it; the
applicable Borrower shall pay any such Tax before the date on which penalties
attach thereto, such payment to be made (if the liability to pay is imposed on
any Credit Party) for its own account or (if that liability is imposed on
Administrative Agent or such Lender, as the case may be) on behalf of and in the
name of Administrative Agent or such Lender; the sum payable by such Credit
Party in respect of which the relevant deduction, withholding or payment is
required shall be increased
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to the extent necessary to ensure that, after the making of that deduction,
withholding or payment, Administrative Agent or such Lender, as the case may be,
receives on the due date a net sum equal to what it would have received had no
such deduction, withholding or payment been required or made; and within thirty
(30) days after paying any sum from which it is required by law to make any
deduction or withholding, and within thirty (30) days after the due date of
payment of any Tax which it is required by clause (ii) above to pay, the
applicable Borrower shall deliver to Administrative Agent and the other affected
parties evidence satisfactory to the other affected parties of such deduction,
withholding or payment and of the remittance thereof to the relevant taxing or
other authority; provided, no such additional amount shall be required to be
paid to any Lender under clause (iii) above except to the extent that any change
after the date hereof (in the case of each Lender listed on the signature pages
hereof on the Closing Date) or after the effective date of the Assignment
Agreement or Joinder Agreement pursuant to which such Lender became a Lender (in
the case of each other Lender) in any such requirement for a deduction,
withholding or payment as is mentioned therein shall result in an increase in
the rate of such deduction, withholding or payment from that in effect at the
date hereof or at the date of such Assignment Agreement or Joinder Agreement, as
the case may be, in respect of payments to such Lender.
(c) Evidence of Exemption From U.S. Withholding Tax. Each Lender that
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is not a United States Person (as such term is defined in Section 7701(a)(30) of
the Internal Revenue Code) for U.S. federal income tax purposes (a "NonUS
Lender") shall deliver to Administrative Agent for transmission to the
applicable Borrower, on or prior to the Closing Date (in the case of each Lender
listed on the signature pages hereof on the Closing Date) or on or prior to the
date of the Assignment Agreement or Joinder Agreement pursuant to which it
becomes a Lender (in the case of each other Lender), and at such other times as
may be necessary in the determination of the applicable Borrower or
Administrative Agent (each in the reasonable exercise of its discretion), two
original copies of Internal Revenue Service Form W8BEN or W8ECI (or any
successor forms), properly completed and duly executed by such Lender, and such
other documentation required under the Internal Revenue Code and reasonably
requested by the applicable Borrower to establish that such Lender is not
subject to deduction or withholding of United States federal income tax with
respect to any payments to such Lender of principal, interest, fees or other
amounts payable under any of the Credit Documents, or if such Lender is not a
"bank" or other Person described in Section 881(c)(3) of the Internal Revenue
Code and cannot deliver either Internal Revenue Service Form W8BEN or W8ECI
pursuant to clause (i) above, a Certificate re NonBank Status together with two
original copies of Internal Revenue Service Form W8 (or any successor form),
properly completed and duly executed by such Lender, and such other
documentation required under the Internal Revenue Code and reasonably requested
by the applicable Borrower to establish that such Lender is not subject to
deduction or withholding of United States federal income tax with respect to any
payments to such Lender of interest payable under any of the Credit Documents.
Each Lender required to deliver any forms, certificates or other evidence with
respect to United States federal income tax withholding matters pursuant to this
Section 2.19(c) hereby agrees, from time to time after the initial delivery by
such Lender of such forms, certificates or other evidence, whenever a lapse in
time or change in circumstances renders such forms, certificates or other
evidence obsolete or inaccurate in any material respect, that such Lender shall
promptly deliver to Administrative Agent for transmission to the applicable
Borrower two new original copies of Internal Revenue Service Form W8BEN or
W8ECI, or a Certificate re NonBank Status and two original copies of
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Internal Revenue Service Form W8, as the case may be, properly completed and
duly executed by such Lender, and such other documentation required under the
Internal Revenue Code and reasonably requested by the applicable Borrower to
confirm or establish that such Lender is not subject to deduction or withholding
of United States federal income tax with respect to payments to such Lender
under the Credit Documents, or notify Administrative Agent and the applicable
Borrower of its inability to deliver any such forms, certificates or other
evidence. The applicable Borrower shall not be required to pay any additional
amount to any NonUS Lender under Section 2.19(b)(iii) if such Lender shall have
failed to deliver the forms, certificates or other evidence referred to in the
second sentence of this Section 2.19(c), or (2) to notify Administrative Agent
and the applicable Borrower of its inability to deliver any such forms,
certificates or other evidence, as the case may be; provided, if such Lender
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shall have satisfied the requirements of the first sentence of this Section
2.19(c) on the Closing Date or on the date of the Assignment Agreement or
Joinder Agreement pursuant to which it became a Lender, as applicable, nothing
in this last sentence of Section 2.19(c) shall relieve the applicable Borrower
of its obligation to pay any additional amounts pursuant to Section 2.18(a) in
the event that, as a result of any change in any applicable law, treaty or
governmental rule, regulation or order, or any change in the interpretation,
administration or application thereof, such Lender is no longer properly
entitled to deliver forms, certificates or other evidence at a subsequent date
establishing the fact that such Lender is not subject to withholding as
described herein.
2.20 Obligation to Mitigate. Each Lender (which term shall include Issuing
Bank for purposes of this Section 2.21) agrees that, as promptly as practicable
after the officer of such Lender responsible for administering its Loans or
Letters of Credit, as the case may be, becomes aware of the occurrence of an
event or the existence of a condition that would cause such Lender to become an
Affected Lender or that would entitle such Lender to receive payments under
Section 2.17, 2.18 or 2.20, it will, to the extent not inconsistent with the
internal policies of such Lender and any applicable legal or regulatory
restrictions, (i) use reasonable efforts to make, issue, fund or maintain its
applicable Commitments or Loans, including any Affected Loans, through another
office of such Lender, or (ii) take such other measures as such Lender may deem
reasonable, if as a result thereof the circumstances which would cause such
Lender to be an Affected Lender would cease to exist or the additional amounts
which would otherwise be required to be paid to such Lender pursuant to Section
2.17, 2.18 or 2.19 would be materially reduced and if, as determined by such
Lender in its sole discretion, the making, issuing, funding or maintaining of
such Commitments, Loans or Letters of Credit through such other office or in
accordance with such other measures, as the case may be, would not otherwise
adversely affect such Commitments, Loans or Letters of Credit or the interests
of such Lender; provided, such Lender will not be obligated to utilize such
--------
other office pursuant to this Section 2.21 unless the applicable Borrower agrees
to pay all incremental expenses incurred by such Lender as a result of utilizing
such other office as described in clause (i) above. A certificate as to the
amount of any such expenses payable by the applicable Borrower pursuant to this
Section 2.21 (setting forth in reasonable detail the basis for requesting such
amount) submitted by such Lender to the applicable Borrower (with a copy to
Administrative Agent) shall be conclusive absent manifest error.
2.21 Defaulting Lenders. Anything contained herein to the contrary
notwithstanding, in the event that any Lender defaults (a "Defaulting Lender")
in its obligation to fund (a "Funding Default") any Loan or its portion of any
unreimbursed payment under Section 2.2(e)
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(in each case, a "Defaulted Loan"), then (a) during any such period when such
default is continuing with respect to such Defaulting Lender (the "Default
Period"), such Defaulting Lender shall not be deemed to be a "Lender" for
purposes of voting on any matters (including the granting of any consents or
waivers) with respect to any of the Credit Documents; (b) to the extent
permitted by applicable law, until such time as the Default Excess with respect
to such Defaulting Lender shall have been reduced to zero, any voluntary
prepayment of the Loans shall, if the applicable Borrower so directs at the time
of making such voluntary prepayment, be applied to the Loans of other Lenders as
if such Defaulting Lender had no Loans outstanding and the Delayed Draw Term
Loan Exposure and the Revolving Loan Exposure of such Defaulting Lender were
zero, and any mandatory prepayment of the Loans shall, if the applicable
Borrower so directs at the time of making such mandatory prepayment, be applied
to the Loans of other Lenders (but not to the Loans of such Defaulting Lender),
it being understood and agreed that the applicable Borrower shall be entitled to
retain any portion of any mandatory prepayment of the Loans that is not paid to
such Defaulting Lender solely as a result of the operation of the provisions of
this clause (b); (c) such Defaulting Lender's Delayed Draw Term Loan Commitment
and Revolving Loan Commitment and outstanding Loans and such Defaulting Lender's
Pro Rata Share of the Letter of Credit Usage shall be excluded for purposes of
calculating the commitment fee payable to Lenders in respect of any day during
any Default Period with respect to such Defaulting Lender, and such Defaulting
Lender shall not be entitled to receive any commitment fee pursuant to Section
2.9 with respect to such Defaulting Lender's Revolving Loan Commitment and
Delayed Draw Term Loan Commitment in respect of any Default Period with respect
to such Defaulting Lender; and (d) the Total Utilization of Commitments as at
any date of determination shall be calculated as if such Defaulting Lender had
funded all Defaulted Loans of such Defaulting Lender. No Revolving Loan
Commitment or Delayed Draw Term Loan Commitment of any Lender shall be increased
or otherwise affected, and, except as otherwise expressly provided in this
Section 2.21, performance by the applicable Borrower of its obligations
hereunder and the other Credit Documents shall not be excused or otherwise
modified as a result of any Funding Default or the operation of this Section
2.21. The rights and remedies against a Defaulting Lender under this Section
2.21 are in addition to other rights and remedies which the applicable Borrower
may have against such Defaulting Lender with respect to any Funding Default and
which Administrative Agent or any Lender may have against such Defaulting Lender
with respect to any Funding Default.
2.22 Removal or Replacement of a Lender. Anything contained herein to the
contrary notwithstanding, in the event that: (i) any Lender (an "IncreasedCost
Lender") shall give notice to the applicable Borrower that such Lender is an
Affected Lender or that such Lender is entitled to receive payments under
Section 2.17, 2.18 or 2.19, the circumstances which have caused such Lender to
be an Affected Lender or which entitle such Lender to receive such payments
shall remain in effect, and such Lender shall fail to withdraw such notice
within five (5) Business Days after the applicable Borrower's request for such
withdrawal; or (ii) any Lender shall become a Defaulting Lender, the Default
Period for such Defaulting Lender shall remain in effect, and such Defaulting
Lender shall fail to cure the default as a result of which it has become a
Defaulting Lender within five (5) Business Days after the applicable Borrower's
request that it cure such default; or (iii) in connection with any proposed
amendment, modification, termination, waiver or consent with respect to any of
the provisions hereof as contemplated by Section 10.5(b), the consent of
Requisite Lenders shall have been obtained but the consent of one or more of
such other Lenders (each a "NonConsenting Lender") whose consent is required
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shall not have been obtained; then, with respect to each such IncreasedCost
Lender, Defaulting Lender or NonConsenting Lender (the "Terminated Lender"), the
applicable Borrower may, by giving written notice to Administrative Agent and
any Terminated Lender of its election to do so, elect to cause such Terminated
Lender (and such Terminated Lender hereby irrevocably agrees) to assign its
outstanding Loans and its Revolving Loan Commitments, if any, and/or Delayed
Draw Term Loan Commitment, if any, in full to one or more Eligible Assignees
(each a "Replacement Lender") in accordance with the provisions of Section 10.6
and Terminated Lender shall pay any fees payable thereunder in connection with
such assignment; provided, (1) on the date of such assignment, the Replacement
--------
Lender shall pay to Terminated Lender an amount equal to the sum of (A) an
amount equal to the principal of, and all accrued interest on, all outstanding
Loans of the Terminated Lender, (B) an amount equal to all unreimbursed drawings
that have been funded by such Terminated Lender, together with all then unpaid
interest with respect thereto at such time and (C) an amount equal to all
accrued, but theretofore unpaid fees owing to such Terminated Lender pursuant to
Section 2.9; (2) on the date of such assignment, the applicable Borrower shall
pay any amounts payable to such Terminated Lender pursuant to Section 2.17(c),
2.18 or 2.19 or otherwise as if it were a prepayment; and (3) in the event such
Terminated Lender is a NonConsenting Lender, each Replacement Lender shall
consent, at the time of such assignment, to each matter in respect of which such
Terminated Lender was a NonConsenting Lender; provided, such Borrower may not
--------
make such election with respect to any Terminated Lender that is also an Issuing
Bank unless, prior to the effectiveness of such election, Company shall have
caused each outstanding Letter of Credit issued thereby to be cancelled. Upon
the prepayment of all amounts owing to any Terminated Lender and the termination
of such Terminated Lender's Revolving Loan Commitments, if any, and/or Delayed
Draw Term Loan Commitment, if any, such Terminated Lender shall no longer
constitute a "Lender" for purposes hereof; provided, any rights of such
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Terminated Lender to indemnification hereunder shall survive as to such
Terminated Lender.
SECTION 3 CONDITIONS PRECEDENT
3.1 Closing Date. The obligation of any Lender to make a Credit Extension
on or after the Closing Date is subject to the satisfaction, or waiver in
accordance with Section 10.5, of the following conditions on or before the
Closing Date:
(a) Credit Documents. Administrative Agent and Syndication Agent
----------------
shall have received sufficient copies of each Credit Document originally
executed and delivered by each applicable Credit Party for each Lender.
(b) Organizational Documents; Incumbency. Administrative Agent and
------------------------------------
Syndication Agent shall have received (i) sufficient copies of each
Organizational Document executed (original in the case of Bylaws) and delivered
by each Credit Party, as applicable, and, to the extent applicable, certified as
of a recent date by the appropriate governmental official, for each Lender and
its counsel, each dated the Closing Date or a recent date prior thereto; (ii)
signature and incumbency certificates of the officers of such Person executing
the Credit Documents to which it is a party; (iii) resolutions of the Board of
Directors or similar governing body of each Credit Party approving and
authorizing the execution, delivery and performance of this Agreement and the
other Credit Documents to which it is a party or by which it or its assets may
be bound as of the Closing Date, certified as of the Closing Date by its
secretary or an
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assistant secretary as being in full force and effect without modification or
amendment; (iv) a good standing certificate from the applicable Governmental
Authority of each Credit Party's jurisdiction of incorporation, organization or
formation and in each jurisdiction in which it is qualified as a foreign
corporation or other entity to do business, each dated a recent date prior to
the Closing Date; and (v) such other documents as Administrative Agent or
Syndication Agent may reasonably request.
(c) Organizational and Capital Structure. The organizational
------------------------------------
structure and capital structure of Company and its Subsidiaries shall be as set
forth on Schedule 4.2.
(d) Existing Indebtedness. On the Closing Date, Company and its
---------------------
Subsidiaries shall have (other than as identified in Schedule 6.1(i)) repaid in
full all Existing Indebtedness, (ii) terminated any commitments to lend or make
other extensions of credit thereunder, (iii) delivered to Syndication Agent and
Administrative Agent all documents or instruments necessary to release all Liens
securing such Existing Indebtedness or other obligations of Company and its
Subsidiaries thereunder being repaid on the Closing Date, and (iv) made
arrangements satisfactory to Syndication Agent and Administrative Agent with
respect to the cancellation of any letters of credit outstanding under Existing
Indebtedness being repaid on the Closing Date or the issuance of Letters of
Credit under Existing Indebtedness being repaid on the Closing Date to support
the obligations of Company and its Subsidiaries with respect thereto.
(e) Governmental Authorizations and Consents. Each Credit Party shall
----------------------------------------
have obtained all Governmental Authorizations and all consents of other Persons,
in each case that are necessary or advisable in connection with the transactions
contemplated by the Credit Documents and each of the foregoing shall be in full
force and effect and in form and substance reasonably satisfactory to
Syndication Agent and Administrative Agent. All applicable waiting periods
shall have expired without any action being taken or threatened by any competent
authority which would restrain, prevent or otherwise impose adverse conditions
on the transactions contemplated by the Credit Documents and no action, request
for stay, petition for review or rehearing, reconsideration, or appeal with
respect to any of the foregoing shall be pending, and the time for any
applicable agency to take action to set aside its consent on its own motion
shall have expired.
(f) Real Estate Assets. In order to create in favor of Collateral
------------------
Agent, for the benefit of Secured Parties, a valid and, subject to any filing
and/or recording referred to herein, perfected First Priority security interest
in certain Real Estate Assets, Collateral Agent shall have received from Company
and each applicable Guarantor:
(i) fully executed and notarized Mortgages, in proper form for
recording in all appropriate places in all applicable jurisdictions,
encumbering each Real Estate Asset listed in Schedule 3.1(f) (each, a
"Closing Date Mortgaged Property''), which in the case of the Leasehold
Properties at which the Permitted IBX Facilities are located, shall
include at least 50% of the total number of such Leasehold Properties;
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(ii) an opinion of counsel (which counsel shall be reasonably
satisfactory to Collateral Agent) in each state in which a Closing Date
Mortgaged Property is located with respect to the enforceability of the
form(s) of Mortgages to be recorded in such state and such other matters as
Collateral Agent may reasonably request, in each case in form and substance
reasonably satisfactory to Collateral Agent;
(iii) in the case of each Leasehold Property that is a Closing
Date Mortgaged Property, a Landlord Agreement, and evidence that such
Leasehold Property is a Recorded Leasehold Interest;
(iv) (a) ALTA mortgagee title insurance policies or
unconditional commitments therefor issued by (a) a title company with
respect to each Closing Date Mortgaged Property, in amounts not less than
the fair market value of each Closing Date Mortgaged Property, together
with a title report issued by a title company with respect thereto, dated
not more than thirty (30) days prior to the Closing Date and copies of all
recorded documents listed as exceptions to title or otherwise referred to
therein, each in form and substance reasonably satisfactory to Collateral
Agent and Syndication Agent and (B) evidence satisfactory to Collateral
Agent and Syndication Agent that such Credit Party has paid to the title
company or to the appropriate governmental authorities all expenses and
premiums of the title company and all other sums required in connection
with the issuance of such title policy and all recording and stamp taxes
(including mortgage recording and intangible taxes) payable in connection
with recording the Mortgages for each Closing Date Mortgaged Property in
the appropriate real estate records;
(v) evidence of flood insurance with respect to each Flood
Hazard Property that is located in a community that participates in the
National Flood Insurance Program, in each case in compliance with any
applicable regulations of the Board of Governors of the Federal Reserve
System, in form and substance reasonably satisfactory to Collateral Agent
and Syndication Agent; and
(vi) ALTA surveys of all Closing Date Mortgaged Properties
(other than Leasehold Properties consisting of space in a building occupied
by more than two additional tenants), certified to Collateral Agent and
dated not more than thirty (30) days prior to the Closing Date.
(g) Personal and Mixed Property Collateral. In order to create in
--------------------------------------
favor of Collateral Agent, for the benefit of Secured Parties, a valid and
perfected First Priority security interest in the personal property Collateral,
Collateral Agent shall have received:
(i) (1) certificates (which certificates shall be accompanied by
irrevocable undated stock powers, duly endorsed in blank and otherwise
satisfactory in form and substance to Collateral Agent) representing all
certificated shares or other interests (however designated) with respect to
Capital Stock pledged pursuant to the Pledge and Security Agreement and (2)
all instruments and
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promissory notes (which instruments shall be accompanied by instruments of
transfer or assignment duly endorsed in blank and otherwise in form and
substance satisfactory to Collateral Agent) evidencing all Indebtedness
pledged pursuant to the Pledge and Security Agreement;
(ii) a completed UCC Questionnaire dated the Closing Date and
executed by an executive officer of each Credit Party, together with all
attachments contemplated thereby, including (1) other than as set forth in
Schedule 3.1(g)(ii) the results of a recent search, by a Person
satisfactory to Syndication Agent and Collateral Agent, of UCC financing
statements and fixture filings and all judgment and tax lien filings which
may have been made with respect to any personal or mixed property of any
Credit Party, together with copies of all such filings disclosed by such
search, and (2) UCC termination statements duly executed by all applicable
Persons for filing in all applicable jurisdictions as may be necessary to
terminate any effective UCC financing statements or fixture filings
disclosed in such search (other than any such financing statements or
fixture filings in respect of Permitted Liens);
(iii) UCC financing statements, duly executed by each applicable
Credit Party with respect to all personal and mixed property Collateral of
such Credit Party, for filing in all jurisdictions as may be necessary or,
in the opinion of Collateral Agent, desirable to perfect the security
interests created in such Collateral pursuant to the Collateral Documents
under the UCC;
(iv) all releases, cover sheets or other documents or
instruments required to be filed in order to create or perfect Liens in
respect of any Intellectual Property Collateral pursuant to the laws of the
United States;
(v) opinions of counsel (which counsel shall be