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As filed with the Securities and Exchange Commission on February 1, 2000
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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EXODUS COMMUNICATIONS, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 4813 77-0403076
(State or Other (Primary Standard Industrial (I.R.S. Employer
Jurisdiction of Classification Code Number) Identification No.)
Incorporation or
Organization)
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2831 Mission College Boulevard
Santa Clara, CA 95054
(408) 346-2200
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
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Adam W. Wegner
Vice President and General Counsel
2831 Mission College Boulevard
Santa Clara, CA 95054
(408) 346-2200
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent For Service)
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Copies to:
Horace L. Nash, Esq.
Robert A. Freedman, Esq.
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, California 94306
(650) 494-0600
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Approximate date of commencement of proposed sale of the securities to the
public: As promptly as practicable after this Registration Statement becomes
effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
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CALCULATION OF REGISTRATION FEE
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Proposed
Proposed Maximum
Title of Each Class of Maximum Aggregate Amount of
Securities to be Amount to be Offering Price Offering Price Registration
Registered Registered (1) per Unit (1) (1) Fee
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10 3/4% Senior Notes due
2009.................. $ 375,000,000 100% $375,000,000 $99,000
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10 3/4% Senior Notes due (Euro) 125,000,000 100% $125,137,500 $33,036
2009..................
($125,137,500) (2)
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(1) Estimated solely for the purpose of calculating the amount of the
registration fee, pursuant to Rule 457(f) under the Securities Act of
1933, as amended.
(2) Euro amounts have been translated into U.S. Dollars at Euro 1 = $1.0011,
which was the noon buying rate in New York City for cable transfers in
Euro as certified for custom purposes by the Federal Reserve Bank of New
York on January 26, 2000.
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act or until this Registration Statement shall
become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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PROSPECTUS
The information in this prospectus will be amended or completed;
dated February 1, 2000.
Exodus Communications, Inc.
Exchange Offer For $375,000,000 and (Euro)125,000,000 10 3/4% Senior Notes Due
2009
Terms of Exchange Offer
Exchange Offer
We will exchange new notes that are registered under the Securities Act for
old notes that were sold on December 8, 1999.
All outstanding notes that are validly tendered and not validly withdrawn
will be exchanged.
We will receive no proceeds from the exchange offer.
Exchange Offer Expiration
March , 2000 at 5:00 p.m., New York City time (10:00 p.m., London Time).
Old Notes
On December 8, 1999, we issued and sold $375.0 million and (Euro)125.0
million of 10 3/4% Senior Notes due 2009.
If you tender your old notes in the exchange offer, interest will cease to
accrue before your new notes are issued. If you do not tender in the exchange
offer, your old notes will continue to be subject to the same terms and
restrictions except that we will not be required to register your old notes
under the Securities Act.
Exodus Communications, Inc.
2831 Mission College Boulevard, Santa Clara, California 95054, (408) 346-
2200.
New Notes
Identical to the old notes except that the new notes will be registered
under the Securities Act.
. Maturity: December 15, 2009.
. Change of Control: You can require us to purchase your notes at 101% of
the principal amount.
. Interest: Paid every six months on June 15 and December 15, starting
June 15, 2000.
. Redemption by Exodus: Anytime on or after December 15, 2004, except that
redemptions for a portion of the notes may be made at any time prior to
December 15, 2002 with the cash proceeds of specified capital stock
sales.
. Ranking: The new notes will be general unsecured obligations, ranking:
. equally with all our senior unsecured indebtedness;
. senior to all our subordinated indebtedness; and
. junior to all our secured indebtedness and liabilities of our
subsidiaries.
Investment in the notes to be issued in the exchange offer involves risks.
See the risk factors section beginning on page 10.
This prospectus and the accompanying letter of transmittal are first being
mailed to holders of outstanding notes on or about February , 2000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the notes or passed upon the adequacy
or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
The date of this prospectus is , 2000.
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TABLE OF CONTENTS
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Page
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Documents Incorporated by Reference...................................... ii
Prospectus Summary....................................................... 1
Risk Factors............................................................. 10
Disclosure Regarding Forward-Looking Statements.......................... 22
Use of Proceeds.......................................................... 23
Capitalization........................................................... 24
Selected Summary Supplemental Consolidated Financial Data................ 25
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 27
Business................................................................. 35
Management............................................................... 46
Other Indebtedness....................................................... 49
The Exchange Offer....................................................... 51
Description of Notes..................................................... 61
Material United States Federal Income Tax Considerations................. 92
Plan of Distribution..................................................... 96
Legal Matters............................................................ 97
Experts.................................................................. 97
Available Information.................................................... 98
Index to Consolidated Financial Statements and Schedule.................. F-1
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DOCUMENTS INCORPORATED BY REFERENCE
This prospectus incorporates business and financial information about Exodus
that is not included in or delivered with this prospectus. We are incorporating
by reference in this prospectus the following documents which we filed with the
Commission:
. Our annual report on Form 10-K for the year ended December 31, 1998.
. Our quarterly reports on Form 10-Q for the quarters ended (1) March 31,
1999, as amended June 25, 1999, (2) June 30, 1999 and (3) September 30,
1999, as amended January 18, 2000.
. Our current reports on Form 8-K filed January 29, 1999, February 22,
1999, March 2, 1999, June 18, 1999, August 11, 1999, as amended October
12, 1999 and November 29, 1999, November 29, 1999 and December 3, 1999.
We are also incorporating by reference in this prospectus all reports and
other documents that we file after the date of this prospectus pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934,
prior to the termination of the offering of securities under this prospectus.
These reports and documents will be incorporated by reference in and considered
to be part of this prospectus as of the date of filing of the reports and
documents.
Any statement contained in this prospectus or in a document which is
incorporated by reference in this prospectus will be modified or superseded for
purposes of this prospectus to the extent that a statement in any document that
we file after the date of this prospectus that also is incorporated by
reference in this prospectus modifies or supersedes the prior statement. Any
statement so modified or superseded will not, except as so modified or
superseded, constitute a part of this prospectus.
This prospectus incorporates by reference documents which are not presented
in this prospectus or delivered to you with it. You may request, and we will
send to you, without charge, copies of these documents, other than exhibits to
these documents, which we will send to you for a reasonable fee. Requests
should be directed to:
Exodus Communications, Inc.
2831 Mission College Boulevard
Santa Clara, California 95054
Attn: Secretary
Telephone: (408) 346-2200
In order to assure timely delivery of the requested materials before the
expiration of the exchange offer, any request should be made prior to February
, 2000.
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PROSPECTUS SUMMARY
The following summary highlights some information from this prospectus. It
may not contain all of the information that may be important to you. For a more
complete understanding of the exchange offer, we encourage you to read the
entire prospectus and the documents we have referred you to.
Exodus Communications, Inc.
Exodus Communications is a leading provider of Internet system and network
management solutions for enterprises with mission-critical Internet operations.
Our solutions include Internet Data Centers, network services, managed services
and professional services, which together provide the high performance,
scalability and expertise that enterprises need to optimize their complex
Internet operations. Exodus delivers its services from geographically
distributed, state-of-the-art Internet Data Centers that are connected through
a high performance dedicated and redundant backbone network. Our tailored
solutions are designed to integrate with existing enterprise systems
architectures and to enable customers to outsource the monitoring,
administration and optimization of their equipment, applications and overall
Internet operations. As of September 30, 1999, we had more than 1,700
customers, including installed and uninstalled customers under contract, and
managed over 16,000 customer servers worldwide. Our customers represent a
variety of industries, ranging from Internet companies such as Lycos, Inc.,
eBay Inc., MSN Hotmail (a subsidiary of Microsoft Corporation), Yahoo!GeoCities
and Inktomi Corporation, to media companies such as MSNBC, USA Today
Information Network, SportsLine USA, Inc. and E-Online!, to major enterprise
companies such as Applied Materials and Storage Networks.
Because Internet usage is growing rapidly, businesses are increasing the
breadth and depth of their Internet product and services offerings. These
Internet operations are mission-critical for Internet-centric businesses and
are becoming increasingly mission-critical for many enterprises. In order to
ensure the quality, reliability, availability and redundancy of these mission-
critical Internet operations, corporate IT departments must make substantial
investments in facilities, personnel, equipment and networks which must be
continuously upgraded to reflect changing technologies and must rapidly scale
as the enterprise grows. This recurring and significant investment is an
inefficient use of resources and, as a result, a significant need exists for
outsourcing arrangements that can increase performance, provide continuous
operation of Internet solutions and reduce Internet operating expenses. We
believe a significant opportunity exists for a highly focused company to
provide a combination of server hosting, Internet connectivity and managed and
professional services that will enable reliable, high performance of mission-
critical Internet operations.
Exodus offers an integrated portfolio of solutions that provides customers
with a scalable, secure and high performance platform for the development,
deployment and proactive management of mission-critical Internet operations.
Our server hosting and Internet connectivity services are offered through our
Internet Data Centers' redundant backbone network of multiple high speed OC-3
and OC-12 lines, along with our public and private network interconnections. We
continue to upgrade our network in order to accommodate expected traffic
growth. Our managed services include performance monitoring, site management
reports, data backup and content delivery and management services, security
services and professional services. These services provide the foundation for
high performance, availability, scalability and reliability of customers'
Internet operations. In addition, we integrate best-of-breed technologies from
leading vendors with our industry expertise and proprietary technology.
Our objective is to become the leading provider of Internet system and
network management solutions for enterprises with mission-critical Internet
operations. To achieve this objective, we intend to:
. Position Exodus as the leader in this market;
. Focus on enhancing systems and network management, Internet technology
services and professional services;
. Accelerate our global expansion;
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. Leverage our expertise to address new market opportunities; and
. Continue to establish strategic relationships for distribution and
technology.
We began offering server hosting and Internet connectivity services in late
1995, opened our first dedicated Internet Data Center in August 1996, and
introduced managed services in 1997 and professional services in 1998. We
currently operate 17 domestic Internet Data Centers located in nine
metropolitan areas: Atlanta, Austin, Boston, Chicago, Los Angeles, New York,
Seattle, Silicon Valley and Washington, D.C. In June 1999, we opened our first
Internet Data Center outside of the United States in the London metropolitan
area. In December 1999, we acquired Global OnLine Japan Co., Ltd. of Tokyo,
Japan, which has an Internet Data Center located in Tokyo. Our Internet Data
Centers consist of approximately 1,600,000 gross square feet.
Our principal executive offices are located at 2831 Mission College Blvd.,
Santa Clara, California 95054. Our telephone number is (408) 346-2200.
Recent Events
Acquisition of Service Metrics, Inc. In November 1999, we acquired Service
Metrics, Inc. Service Metrics is a leading provider of Internet monitoring
applications and services that measure the consistency, availability and
performance of Web sites. As a result, we issued approximately 7.0 million
shares of our Common Stock and Common Stock subject to options in exchange for
all of the outstanding shares of common stock of Service Metrics and shares of
Service Metrics common stock subject to outstanding options, representing an
aggregate consideration of approximately $280.0 million as of the signing of
the definitive agreement in October 1999. The transaction was accounted for as
a pooling of interests.
Acquisition of Global OnLine Japan Co., Ltd. In December 1999, we acquired
Global OnLine Japan Co., Ltd., an Internet solutions provider based in Tokyo.
As a result, we issued approximately 415,000 shares of our common stock in
exchange for 85% of the outstanding shares of Global OnLine Japan. The
transaction will be accounted for as a purchase.
Stock Split. On November 19, 1999, we announced a two-for-one stock split in
the form of a stock dividend, payable December 14, 1999 to holders of our
Common Stock of record as of November 30, 1999. Share and per share information
in this prospectus reflects this stock split.
Issuance of Debt. In December 1999, we issued $375.0 million aggregate
principal amount of 10 3/4% Senior Notes due 2009 and (Euro)125.0 million
aggregate principal amount of 10 3/4% Senior Notes due 2009 concurrently with
our issuance of $500.0 million aggregate principal amount of 4 3/4% Convertible
Subordinated Notes due July 15, 2008.
Acquisition of KeyLabs, Inc. In January 2000, we agreed to acquire KeyLabs,
Inc., a provider of e-business testing services based in Utah. The transaction
is expected to close by the end of February 2000 and will be accounted for as a
purchase.
Hiring of New Chief Financial Officer. Effective January 31, 2000, R.
Marshall Case was appointed Executive Vice President, Finance and Chief
Financial Officer of Exodus. Mr. Case's predecessor, Richard S. Stoltz, will
continue with Exodus as its Senior Adviser, Strategy and Finance.
Summary of 1999 Fourth Quarter and Annual Results. For the three months
ended December 31, 1999, our revenues were $101.4 million compared to revenues
of $21.1 million for the same period of the prior year. Our net loss for the
three months ended December 31, 1999 was $52.9 million, or $0.30 per share,
compared to a net loss of $21.9 million, or $0.14 per share, for the same
period of the prior year. EBITDA loss (loss before net interest expense, income
taxes, depreciation, amortization and other non-cash charges) for the three
months ended December 31, 1999 was $16.7 million compared to $12.1 million for
the same period of the prior year.
Revenues for the twelve months ended December 31, 1999 were $242.1 million
compared to $52.7 million for the same period of the prior year. Our net loss
attributable to common stockholders for the twelve months ended December 31,
1999 was $130.3 million, or $0.78 per share, compared to a net loss
attributable to common stockholders of $69.3 million, or $0.55 per share, for
the same period of the prior year. EBITDA loss for the twelve months ended
December 31, 1999 was $44.7 million compared to $41.9 million for the same
period of the prior year.
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The Exchange Offer
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Securities Offered............... $375.0 million aggregate principal amount
of 10 3/4% Senior Notes due 2009 and
(Euro)125.0 million aggregate principal
amount of 10 3/4% Senior Notes due 2009.
The terms of the new notes and the old
notes are identical except for transfer
restrictions and registration rights
relating to the old notes that will not be
applicable to the new notes. The old notes
and the new notes are collectively referred
to as the notes.
Issuance of Old Notes............ $375.0 million aggregate principal amount
of 10 3/4% Senior Notes due 2009 and
(Euro)125.0 million aggregate principal
amount of 10 3/4% Senior Notes due 2009
were issued on December 8, 1999 to Goldman,
Sachs & Co., Donaldson, Lufkin & Jenrette
Securities Corporation, BancBoston
Robertson Stephens Inc., PaineWebber
Incorporated and Morgan Stanley & Co.
Incorporated, which placed the old notes
with qualified institutional buyers and to
buyers in offshore transactions in reliance
on Regulation S under the Securities Act.
The Exchange Offer............... We are offering to exchange $1,000
principal amount of new dollar notes for
each $1,000 principal amount of old dollar
notes. Old dollar notes may only be
exchanged in $1,000 principal amount
increments. There are $375.0 million
aggregate principal amount of old dollar
notes outstanding.
We are also offering to exchange
(Euro)1,000 principal amount of new euro
notes for each (Euro)1,000 principal amount
of old euro notes. Old euro notes may only
be exchanged in (Euro)1,000 principal
amount increments. There are (Euro)125.0
million aggregate principal amount of old
euro notes outstanding.
Conditions to the Exchange The exchange offer is not conditioned upon
Offer........................... any minimum principal amount of old notes
being tendered for exchange. However, the
exchange offer is subject to customary
conditions, which may be waived by us. See
"The Exchange Offer--Conditions to the
Exchange Offer."
Procedures for Tendering......... If you want to tender your old dollar notes
in the exchange offer, you must complete
and sign the letter of transmittal for
dollar notes according to the instructions
contained in this prospectus and the letter
of transmittal for dollar notes. If you
want to tender your old euro notes in the
exchange offer, you must complete and sign
the letter of transmittal for euro notes
according to the instructions contained in
this prospectus and the letter of
transmittal for euro notes. You must then
mail, fax or hand deliver the applicable
letter of transmittal, together with any
other required documents, to the applicable
exchange agent, either with the old notes
to be tendered or in compliance with the
specified procedures for guaranteed
delivery of old notes. You should allow
sufficient time to ensure timely delivery.
Some brokers, dealers, commercial banks,
trust companies and other nominees may also
effect tenders by book-
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entry transfer. If you own old notes
registered in the name of a broker, dealer,
commercial bank, trust company or other
nominee, you are urged to contact that
person promptly if you wish to tender old
notes in the exchange offer. Letters of
transmittal and certificates representing
the old notes should not be sent to Exodus.
These documents should be sent only to the
applicable exchange agent. Questions
regarding how to tender and requests for
information should also be directed to the
exchange agent.
If you hold old dollar notes through The
Depositary Trust Company or old euro notes
through Euroclear or Cedelbank and wish to
accept the exchange offer, you must do so
pursuant to the book-entry transfer
facility's procedures for book-entry
transfer (or other applicable procedures),
all in accordance with this prospectus and
the applicable letter of transmittal. See
"The Exchange OfferProcedures for Tendering
Old Notes."
Expiration Date; Withdrawal...... The exchange offer will expire on the
earlier of 5:00 p.m., New York City time
(10:00 p.m., London time) on March , 2000
or the date when all old notes have been
tendered, or a later date and time to which
it may be extended. However, it may not be
extended beyond March , 2000. We will
accept for exchange any and all old notes
that are validly tendered in the exchange
offer prior to 5:00 p.m., New York City
time (10:00 p.m., London time), on the
expiration date. The tender of old notes
may be withdrawn at any time prior to the
expiration date. Any old note not accepted
for exchange for any reason will be
returned without expense to the tendering
holder as promptly as practicable after the
expiration or termination of the exchange
offer. The new notes issued in the exchange
offer will be delivered promptly following
the expiration date. See "The Exchange
Offer--Terms of the Exchange Offer; Period
for Tendering Old Notes" and "--Withdrawals
of Tenders."
Guaranteed Delivery Procedures... If you wish to tender your old notes and
(1) your old notes are not immediately
available or (2) you cannot deliver your
old notes together with the applicable
letter of transmittal to the applicable
exchange agent prior to the expiration
date, you may tender your old notes
according to the guaranteed delivery
procedures contained in the applicable
letter of transmittal. See "The Exchange
Offer--Procedures for Tendering Old Notes--
Guaranteed Delivery Procedures."
Tax Considerations............... For U.S. federal income tax purposes, the
exchange of old notes for new notes should
not be considered a sale or exchange or
otherwise a taxable event to the holders of
notes. See "Material United States Federal
Income Tax Considerations."
Use of Proceeds.................. We will receive no proceeds from the
exchange offer.
Appraisal Rights................. Holders of old notes will not have
dissenters' rights or appraisal rights in
connection with the exchange offer.
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Exchange Agent................... Chase Manhattan Bank & Trust Company,
National Association is serving as exchange
agent in connection with the exchange offer
for the dollar notes, and Chase Manhattan
Bank London is serving as exchange agent in
connection with the exchange offer for the
euro notes.
Resales of New Notes............. Based on an interpretation by the
Securities and Exchange Commission set
forth in no-action letters issued to third
parties, we believe that you may resell or
otherwise transfer new notes issued in the
exchange offer in exchange for old notes
without restrictions under the federal
securities laws. However, there are
exceptions to this general statement. You
may not freely transfer the new notes if:
. you are an affiliate of Exodus;
. you did not acquire the new notes in the
ordinary course of your business;
. you have engaged in, intend to engage
in, or have an arrangement or
understanding with any person to
participate in the distribution of the
new notes; or
. you are a broker-dealer who acquired the
old notes directly from us.
Any holder subject to any of the exceptions
above and each participating broker-dealer
that receives new notes for its own account
in the exchange offer in exchange for old
notes that were acquired as a result of
market making, must comply with the
registration and prospectus delivery
requirements of the Securities Act in
connection with the resale of the new
notes.
Consequences of Not Exchanging If you do not tender your old notes or your
the Old Notes................... old notes are not properly tendered, the
existing transfer restrictions will
continue to apply. The old dollar notes are
currently eligible for sale pursuant to
Rule 144A through the Portal Market and the
old euro notes are in the process of being
listed on the Luxembourg Stock Exchange.
Application is expected to be made for
listing the new euro notes on the
Luxembourg Stock Exchange. We cannot assure
you that we will be successful in these
listings or of when the listings will be
complete. Because we anticipate that most
holders will elect to exchange old notes
for new notes due to the absence of
restrictions on the resale of new notes
under the Securities Act in most cases, we
anticipate that the liquidity of the market
for any old notes remaining after the
consummation of the exchange offer will be
substantially limited. See "Risk Factors--
There could be negative consequences to you
if you do not exchange your old notes for
new notes" and "The Exchange Offer--
Consequences of Failure to Exchange Old
Notes."
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Summary Description of the New Notes
The terms of the new notes and the old notes are identical in all respects,
except that the terms of the new notes do not include the transfer restrictions
and registration rights relating to the old notes. The old notes and the new
notes are referred to collectively as the notes.
The new notes will bear interest from the most recent date to which interest
has been paid on the old notes. Accordingly, registered holders of new notes on
the relevant record date for the first interest payment date following the
completion of the exchange offer will receive interest accruing from the most
recent date on which interest has been paid. Old notes accepted for exchange
will cease to accrue interest from and after the date of completion of the
exchange offer. Holders of old notes whose old notes are accepted for exchange
will not receive any payment in respect of interest on the old notes otherwise
payable on any interest payment date that occurs on or after completion of the
exchange offer.
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Notes Offered.................... $375.0 million aggregate principal amount
of 10 3/4% Senior Notes due 2009.
(Euro)125.0 million aggregate principal
amount of 10 3/4% Senior Notes due 2009.
The euro notes and the dollar notes will
generally be treated for purposes of the
indenture governing the notes as a single
series of securities ranking equally with
each other.
Maturity Date.................... December 15, 2009
Interest Payment Dates........... June 15 and December 15 of each year,
commencing June 15, 2000.
Optional Redemption.............. Except as described in this prospectus, the
notes will not be redeemable at our option
prior to December 15, 2004. The notes will
be subject to redemption, at our option, in
whole or in part, at any time on or after
December 15, 2004 and prior to maturity,
but excluding the redemption date, upon not
less than 30 days' nor more than 60 days'
notice at the redemption prices set forth
in this prospectus plus accrued and unpaid
interest and liquidated damages (as
described below), if any.
In addition, at any time prior to December
15, 2002, we may redeem up to 35% of the
aggregate outstanding principal amount of
the dollar notes and up to 35% of the
aggregate outstanding principal amount of
the euro notes with the net cash proceeds
of one or more sales of capital stock (as
described below), other than disqualified
stock, at a redemption price equal to
110.75% of the aggregate principal amount,
plus accrued and unpaid interest and
liquidated damages, if any, to the date of
redemption; provided that at least 65% of
the original principal amount of each of
the dollar notes and the euro notes remains
outstanding immediately following the
redemption. In order to effect the
redemption, we must mail a notice of
redemption no later than 45 days after the
related sale of capital stock and must
consummate the redemption within 60 days
after the closing of the sale of capital
stock.
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Change of Control................ In the event of a change of control (as
described below), each holder shall have
the right to require that we purchase the
notes at a price equal to 101% of the
principal amount, plus accrued and unpaid
interest, and liquidated damages, if any,
to the date of purchase. See "Risk
Factors--We may not be able to effect
repurchase of the notes upon a Change of
Control in accordance with the terms of the
indenture."
Ranking.......................... The notes will be senior unsecured
indebtedness ranking equally with our
existing and future senior unsecured
obligations and senior in right of payment
to all of our subordinated indebtedness.
The notes will be effectively subordinated
to all secured indebtedness and to any
liabilities of any of our subsidiaries,
including trade payables. As of September
30, 1999, we had approximately
$79.1 million of secured indebtedness and
outstanding liabilities of our
subsidiaries. In addition, the notes rank
equally with our $275.0 million of 11 1/4%
Senior Notes due 2008 and are senior in
right of payment to our $250.0 million of
5% Convertible Subordinated Notes due March
15, 2006 and our $500.0 million of 4 3/4%
Convertible Subordinated Notes due July 15,
2008. See "Risk Factors--Our substantial
leverage and debt service obligations
adversely affect our cash flow."
Restrictive Covenants............ The indenture governing the notes contains
covenants that, among other things, limit
our ability to incur specific types of
debt, pay dividends, make distributions,
make specific types of investments or other
restricted payments, sell assets, enter
into specified transactions with
affiliates, incur liens, engage in mergers
and consolidations and allow restricted
subsidiaries (as defined)
to issue capital stock and make guarantees.
See "Description of Notes."
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Summary Supplemental Consolidated Financial Information
The following summary supplemental consolidated financial information should
be read in conjunction with our supplemental consolidated financial statements
and related notes and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this prospectus. The
supplemental consolidated financial statements have been prepared to give
retroactive effect to the merger with Service Metrics, Inc. ("SMI") on November
23, 1999. The summary supplemental consolidated financial information for each
of the years in the three-year period ended December 31, 1998 is derived from
our supplemental consolidated financial statements that have been audited by
KPMG LLP, independent auditors. The summary supplemental consolidated financial
information as of September 30, 1999 and for the nine months ended September
30, 1998 and September 30, 1999 is derived from our unaudited supplemental
condensed consolidated financial statements for these periods. Historical
results are not necessarily indicative of the results to be expected in the
future.
"EBITDA" represents earnings (loss) before net interest expense, income
taxes, depreciation, amortization, including amortization of deferred stock
compensation, and other noncash charges. EBITDA should not be used as an
alternative to operating loss or net cash provided by (used for) operating
activities, investing activities or financing activities, each as measured
under generally accepted accounting principles. In addition, EBITDA may not be
comparable to other similarly titled information from other companies. However,
our management believes that EBITDA is an additional meaningful measure of
performance and liquidity. With respect to the captions entitled "Deficiency of
earnings available to cover fixed charges", earnings consist of income (loss)
before provision for income taxes plus fixed charges. Fixed charges consist of
interest charges and amortization of debt expense and discount or premium
related to indebtedness, whether expensed or capitalized and the portion of
rental expense that we believe to be representative of interest.
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
--------------------------- ------------------
1996 1997 1998 1998 1999
------- -------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Supplemental Consolidated
Statement of Operations Data:
Total revenues................ $ 3,130 $ 12,408 $ 52,745 $ 31,638 $140,754
Operating loss................ (4,094) (24,792) (57,573) (40,282) (57,332)
Net loss...................... (4,133) (25,298) (67,316) (45,392) (77,376)
Cumulative dividends and
accretion on redeemable
convertible preferred stock.. -- (1,413) (2,014) (2,014) --
Net loss attributable to
common stockholders.......... (4,133) (26,711) (69,330) (47,406) (77,376)
Basic and diluted net loss per
share........................ $ (0.27) $ (1.73) $ (0.55) $ (0.42) $ (0.47)
Shares used in computing basic
and diluted net loss per
share........................ 15,312 15,428 125,808 114,088 165,974
Supplemental Consolidated
Statement of Cash Flows Data:
Net cash used for operating
activities................... $(3,116) $(15,518) $(47,312) $(31,568) $(68,542)
Net cash used for investing
activities................... (3,877) (23,864) (92,757) (70,323) (235,134)
Net cash provided by financing
activities................... 10,545 45,937 285,814 283,254 319,632
Other Data:
EBITDA........................ $(3,633) $(20,274) $(41,945) $(29,592) $(27,994)
Depreciation and
amortization................. 461 3,429 13,024 8,575 28,383
Capital expenditures.......... 3,499 22,489 44,564 26,680 160,624
Deficiency of earnings
available to cover fixed
charges...................... (4,133) (25,298) (67,316) (45,392) (77,376)
</TABLE>
8
<PAGE>
The following table provides a summary of our balance sheet.
The as adjusted column reflects the sale of $375.0 million principal amount
of our 10 3/4% Senior Notes due 2009 and (Euro)125.0 million principal amount
of our 10 3/4% Senior Notes due 2009 issued December 8, 1999 after deducting
the underwriting discount and estimated offering expenses payable by us. For
purposes of this table, the translation of euros into dollars has been made at
$1.0023 per euro, which represents the Noon Buying Rate on December 2, 1999.
The as further adjusted column reflects the sale of $500.0 million principal
amount of our 4 3/4% Convertible Subordinated Notes due July 15, 2008 issued
December 8, 1999 after deducting the underwriting discount and estimated
offering expenses payable by us.
<TABLE>
<CAPTION>
At September 30, 1999
-----------------------------
As As Further
Actual Adjusted Adjusted
-------- --------- ----------
(in thousands)
<S> <C> <C> <C>
Supplemental Consolidated Balance Sheet Data:
Cash and cash equivalents....................... $171,971 $ 657,501 $1,142,751
Restricted cash and cash equivalents............ 35,444 35,444 35,444
Working capital................................. 153,753 639,283 1,124,533
Total assets.................................... 684,825 1,185,113 1,685,113
Current portion of equipment loans, line of
credit facilities and capital lease
obligations.................................... 22,539 22,539 22,539
Equipment loans, line of credit facilities and
capital lease obligations, less current
portion........................................ 41,801 41,801 41,801
Convertible subordinated notes.................. 250,000 250,000 750,000
Senior notes.................................... 275,375 775,663 775,663
Total stockholders' equity...................... 32,601 32,601 32,601
</TABLE>
9
<PAGE>
RISK FACTORS
Holders of old notes should carefully consider the information set forth
under the caption "Risk Factors" and all other information set forth in this
prospectus before tendering their old notes in the exchange offer. The risk
factors set forth in this prospectus, other than "Risk Factors--There could be
negative consequences to you if you do not exchange your old notes for new
notes," are generally applicable to the old notes as well as the new notes.
There could be negative consequences to you if you do not exchange your old
notes for new notes
Any old notes tendered and exchanged in the exchange offer will reduce the
aggregate principal amount of old notes outstanding. Because we anticipate that
most holders will elect to exchange their old notes for new notes due to the
absence of most restrictions on the resale of new notes, we anticipate that the
liquidity of the market for any old notes remaining outstanding after the
exchange offer may be substantially limited. Following the consummation of the
exchange offer, holders who did not tender their old notes generally will not
have any further registration rights under the registration rights agreement,
and these old notes will continue to be subject to restrictions on transfer.
The old dollar notes are currently eligible for sale under Rule 144A through
the Portal Market, and the old euro notes are in the process of being listed on
the Luxembourg Stock Exchange. Application is expected to be made for listing
the new euro notes on the Luxembourg Stock Exchange. We cannot assure you that
we will be successful in these listings or of when the listings will be
complete.
As a result of making the exchange offer, we will have fulfilled our
obligations under the registration rights agreement. Holders who do not tender
their old notes generally will not have any further registration rights or
rights to receive the liquidated damages specified in the registration rights
agreement for our failure to register the new notes.
The old notes that are not exchanged for new notes will remain restricted
securities. Accordingly, the old notes may be resold only:
. to Exodus or one of its subsidiaries;
. to a qualified institutional buyer;
. to an institutional accredited investor;
. to a party outside the United States under Regulation S under the
Securities Act;
. under an exemption from registration provided by Rule 144 under the
Securities Act; or
. under an effective registration statement.
Our short operating history and heavy losses make our business difficult to
evaluate
Our limited operating history makes evaluating our business operations and
our prospects difficult. We began offering server hosting and Internet
connectivity services in 1995, opened our first dedicated Internet Data Center
in August 1996 and introduced managed services in 1997 and professional
services in 1998. Due to our short operating history, our business model is
still evolving. We have incurred operating losses and negative cash flows each
fiscal quarter and year since 1995. Our accumulated deficit was approximately
$175.3 million at September 30, 1999. We anticipate continuing to make
significant investments in new Internet Data Centers and network
infrastructure, product development, sales and marketing programs and
personnel. We believe that we will continue to experience net losses on a
quarterly and annual basis for the foreseeable future. We may also use
significant amounts of cash and/or equity to acquire complementary businesses,
products, services or technologies. Although we have experienced significant
growth in revenues in recent periods, this growth rate is not necessarily
indicative of future operating results. It is possible that we may never
achieve profitability on a quarterly or an annual basis.
10
<PAGE>
Our operating results have fluctuated widely and we expect this to continue
We have experienced significant fluctuations in our results of operations on
a quarterly and an annual basis. We expect to continue to experience
significant fluctuations due to a variety of factors, many of which are outside
of our control, including:
. demand for and market acceptance of our services;
. reliable continuity of service and network availability;
. the ability to increase bandwidth as necessary, both on our network and
at our interconnection points with other networks;
. costs related to the acquisition of network capacity and arrangements
for interconnections with third-party networks;
. customer retention and satisfaction;
. capacity utilization of our Internet Data Centers;
. the timing, magnitude and integration of acquisitions of complementary
businesses and assets;
. the timing of customer installations;
. the provision of customer discounts and credits;
. the mix of services sold by us;
. the timing and success of marketing efforts and service introductions by
us and our competitors;
. the timing and magnitude of capital expenditures, including construction
costs relating to the expansion of operations;
. the timing of expansion of existing Internet Data Centers and completion
of new Internet Data Centers;
. the introduction by third parties of new Internet and networking
technologies;
. changes in our pricing policies and those of our competitors; and
. fluctuations in bandwidth used by customers.
In addition, a relatively large portion of our expenses are fixed in the
short-term, particularly with respect to telecommunications, depreciation,
substantial interest expenses, real estate and personnel. Therefore, our
results of operations are particularly sensitive to fluctuations in revenues.
Furthermore, if we were to become unable to continue leveraging third-party
products in our services offerings, our product development costs could
increase significantly. Finally, many of our customers are emerging growth
companies which may have negative cash flows, and there is the possibility that
we will not be able to collect receivables on a timely basis.
Our rapid expansion produces a significant strain on our business and requires
us to expend substantial resources
The expansion of our network through the opening of additional Internet Data
Centers in geographically diverse locations is one of our key strategies. We
currently have 17 Internet Data Centers located in nine metropolitan areas of
the United States: Atlanta, Austin, Boston, Chicago, Los Angeles, New York,
Seattle, Silicon Valley and Washington, D.C. In June, we opened our first
Internet Data Center outside of the United States in the London metropolitan
area. In December 1999, we acquired Global OnLine Japan Co., Ltd. of Tokyo,
Japan, which has an Internet Data Center located in Tokyo. To expand
successfully, we must be able to assess markets, locate and secure new Internet
Data Center sites, install telecommunications and Internet Data Center
facilities and establish additional peering interconnections with Internet
service providers. To manage this expansion effectively, we must continue to
improve our operational and financial systems and expand, train
11
<PAGE>
and manage our employee base. Our inability to establish additional Internet
Data Centers or effectively manage our expansion would have a material adverse
effect upon our business.
We expect to expend substantial resources for leases and/or the purchase of
real estate, significant improvements of facilities, purchase of complementary
businesses, assets and equipment, implementation of multiple telecommunications
connections and hiring of network, administrative, customer support and sales
and marketing personnel with the establishment of each new Internet Data
Center. Moreover, we expect to make significant investments in sales and
marketing and the development of new services as part of our expansion
strategy. The failure to generate sufficient cash flows or to raise sufficient
funds may require us to delay or abandon some or all of our development and
expansion plans or otherwise forego market opportunities, making it difficult
for us to generate additional revenue and to respond to competitive pressures.
In general, it takes us at least six months to select the appropriate
location for a new Internet Data Center, construct the necessary facilities,
install equipment and telecommunications infrastructure and hire operations and
sales personnel. Expenditures commence well before the Internet Data Center
opens, and it takes an extended period for us to approach break-even capacity
utilization. As a result, we expect that individual Internet Data Centers will
experience losses for in excess of one year from the time they are opened. We
incur further expenses from sales personnel hired to test market our services
in markets where there is no Internet Data Center. Growth in the number of our
Internet Data Centers is likely to increase the amount and duration of losses.
In addition, if we do not attract customers to new Internet Data Centers in a
timely manner, or at all, our business would be materially adversely affected.
We compete with much larger companies and there are few barriers to entry, and
if we cannot compete effectively, we will lose business
Our market is intensely competitive. There are few substantial barriers to
entry, and we expect to face additional competition from existing competitors
and new market entrants in the future. Many companies have announced recently
that they intend to begin providing and/or greatly expand their service
offerings that are competitive with our services. The principal competitive
factors in this market include:
. Internet system engineering and other expertise;
. customer service;
. network capability, reliability, quality of service and scalability;
. the variety of services offered;
. access to network resources, including circuits, equipment and
interconnection capacity to other networks;
. broad geographic presence;
. price;
. the ability to maintain and expand distribution channels;
. brand name;
. the timing of introductions of new services;
. network security; and
. financial resources.
There can be no assurance that we will have the resources or expertise to
compete successfully in the future. Our current and potential competitors in
the market include:
. providers of server hosting services;
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<PAGE>
. national, foreign and regional ISPs;
. global, regional and local telecommunications companies and Regional
Bell Operating Companies;
. IT outsourcing firms; and
. other technology services and products companies.
Many of our competitors have substantially greater resources, more
customers, longer operating histories, greater name recognition and more
established relationships in the industry. As a result, these competitors may
be able to develop and expand their network infrastructures and service
offerings more quickly, devote greater resources to the marketing and sale of
their products and adopt more aggressive pricing policies. In addition, these
competitors have entered and will likely continue to enter into business
relationships to provide additional services competitive with those we provide.
Some of our competitors may be able to provide customers with additional
benefits in connection with their Internet system and network management
solutions, including reduced communications costs, which could reduce the
overall costs of their services relative to ours. We may not be able to offset
the effects of any price reductions. In addition, we believe our market is
likely to encounter consolidation in the near future, which could result in
increased prices and other competition.
Our market is new and our services may not be generally accepted by enterprises
looking to outsource their mission-critical Internet operations, which could
harm our operating results
The market for Internet system and network management solutions has only
recently begun to develop, is evolving rapidly and is characterized by an
increasing number of market entrants. This market may not prove to be viable
or, if it becomes viable, may not continue to grow. Our future growth depends
on the willingness of enterprises to outsource the system and network
management of their mission-critical Internet operations and our ability to
market our services in a cost-effective manner to a sufficiently large number
of customers. If this market fails to develop, or develops more slowly than
expected, or if our services do not achieve market acceptance, our business
would be adversely affected. In addition, in order to be successful we must be
able to differentiate ourselves from our competition through our service
offerings.
Our substantial leverage and debt service obligations adversely affect our cash
flow
We have substantial amounts of outstanding indebtedness, primarily from our
11 1/4% senior notes, 10 3/4% senior notes, 4 3/4% convertible subordinated
notes and 5% convertible subordinated notes. There is the possibility that we
may be unable to generate cash sufficient to pay the principal of, interest on
and other amounts due in respect of, our debt when due. As of September 30,
1999, we had debt of approximately $589.7 million and available borrowings of
up to an additional $1.2 million. In addition, in December 1999, we incurred
additional debt of $375.0 million aggregate principal amount of our 10 3/4%
senior notes and (Euro)125.0 million aggregate principal amount of the 10 3/4%
senior notes as well as $500.0 million aggregate principal amount of our 4 3/4%
convertible subordinated notes. We will also have the right to issue additional
10 3/4% senior notes on or prior to December 8, 2000 in an aggregate principal
amount not to exceed $100.0 million. In addition, we expect to add additional
equipment loans and lease lines to finance capital expenditures for our
Internet Data Centers and to obtain additional long term debt, working capital
lines of credit and lease lines. We cannot be certain that any financing
arrangements will be available.
Our substantial leverage could have significant negative consequences,
including:
. increasing our vulnerability to general adverse economic and industry
conditions;
. limiting our ability to obtain additional financing;
. requiring the dedication of a substantial portion of our expected cash
flow from operations to service our indebtedness, thereby reducing the
amount of our expected cash flow available for other purposes, including
capital expenditures;
13
<PAGE>
. limiting our flexibility in planning for, or reacting to, changes in our
business and the industry in which we compete; and
. placing us at a possible competitive disadvantage compared to less
leveraged competitors and competitors that have better access to capital
resources.
We are subject to restrictive covenants in our note indentures that limit our
flexibility in managing our business
Our senior notes and convertible subordinated notes contain various
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 debt, pay dividends
or make other restricted payments, sell assets, enter into affiliate
transactions or take other actions.
In addition, a number of instruments evidencing our debt restrict the manner
in which this debt and debt incurred in the future may be used.
We must manage growth effectively by expanding operating and financial
procedures, controls and systems or our business will be harmed
We are experiencing, and expect to continue experiencing, rapid growth with
respect to the building of our Internet Data Centers and network
infrastructure, expansion of our service offerings, geographic expansion,
expansion of our customer base and increases in the number of employees. This
growth has placed, and we expect it to continue to place, a significant strain
on our financial, management, operational and other resources, including our
ability to ensure customer satisfaction. This expansion also requires
significant time commitment from our senior management and places a significant
strain on their ability to manage the existing business. In addition, we are
required to manage multiple relationships with a growing number of third
parties as we seek to complement our service offerings. Our ability to manage
our growth effectively will require us to continue to expand operating and
financial procedures and controls, to replace or upgrade our operational,
financial and management information systems and to attract, train, motivate
and retain key employees. We have recently hired many key employees and
officers, and as a result, our entire management team has worked together for
only a brief time. In addition, we intend to hire additional senior management
personnel to support our growth and expansion of our business. If our
executives are unable to manage growth effectively, our business could be
materially adversely affected.
We may experience difficulty in integrating our recent acquisitions which could
harm our operating results
In October 1998 we acquired the assets of Arca Systems, Inc., in February
1999 we acquired American Information Systems, Inc., in July 1999 we acquired
Cohesive Technology Solutions, Inc, in November 1999 we acquired Service
Metrics, Inc. and in December 1999 we acquired Global OnLine Japan Co., Ltd.
Furthermore, in January 2000, we agreed to acquire KeyLabs, Inc. We continue to
expend resources integrating Cohesive and Service Metrics and the personnel
hired in connection with acquisitions. As we acquire additional companies, we
may incur expenses to, among other things, remediate Year 2000 problems
relating to these acquired companies.
We believe that our future growth depends, in part, upon the acquisition of
complementary businesses, products, services or technologies. After purchasing
a company, we could have difficulty in assimilating that company's technology,
personnel and operations. In addition, the key personnel of the acquired
company may decide not to work for us. These difficulties could disrupt our
ongoing business, distract our management and
14
<PAGE>
employees and increase our expenses. In addition, future acquisitions by us may
require us to incur additional debt, result in large one-time write-offs or
create goodwill or other intangible assets that could result in amortization
expenses.
System failures could lead to significant costs
We must protect our network infrastructure and customers' equipment against
damage from human error, physical or electronic security breaches, power loss
and other facility failures, fire, earthquake, flood, telecommunications
failure, sabotage, vandalism and similar events. Despite precautions we have
taken, a natural disaster or other unanticipated problems at one or more of our
Internet Data Centers could result in interruptions in our services or
significant damage to customer equipment. In addition, failure of any of our
telecommunications providers, such as MCI WorldCom, Qwest Communications
Corporation and Global Crossing, to provide consistent data communications
capacity, and local exchange carriers to provide interconnection agreements,
could result in interruptions in our services. Any damage to or failure of our
systems or service providers could result in reductions in, or terminations of,
services supplied to our customers, which could have a material adverse effect
on our business. In the past, we have experienced interruptions in specific
circuits within our network resulting from events outside our control, which
led to short-term degradation in the level of performance of our network.
Customer satisfaction with our services is critical to our success
Our customers demand a very high level of service. Our customer contracts
generally provide a limited service level commitment related to the continuous
availability of service on a 24 hours per day, seven days per week basis. This
commitment is generally limited to a credit consisting of free service for a
short period of time for disruptions in Internet transmission services. To
date, only a limited number of customers have been entitled to this credit. If
we incur significant service level commitment obligations in connection with
system downtime, our liability insurance may not be adequate to cover these
expenses. As customers outsource more mission-critical operations to us, we are
subject to increased liability claims and customer dissatisfaction if our
systems fail or our customers otherwise become unsatisfied.
Our ability to expand our network is unproven and will require substantial
financial, operational and management resources
To satisfy customer requirements, we must continue to expand and adapt our
network infrastructure. We are dependent on MCI WorldCom, Qwest, Global
Crossing and other telecommunications providers for our network capacity,
including our dedicated clear channel network. The expansion and adaptation of
our telecommunications infrastructure will require substantial financial,
operational and management resources as we negotiate telecommunications
capacity with network infrastructure suppliers. Due to the limited deployment
of our services to date, our ability to connect and manage a substantially
larger number of customers at high transmission speeds is unknown. We have yet
to prove our network's ability to be scaled up to higher customer levels while
maintaining superior performance. Furthermore, it may be difficult for us to
increase quickly our network capacity in light of current necessary lead times
within the industry to purchase circuits and other critical items. If we fail
to achieve or maintain high capacity data transmission circuits, customer
demand could diminish because of possible degradation of service. In addition,
as we upgrade our telecommunications infrastructure to increase bandwidth
available to our customers, we expect to encounter equipment or software
incompatibility which may cause delays in implementation.
We depend on network interconnections provided by third parties who may raise
their fees or deny access
We rely on a number of public and private network interconnections to allow
our customers to connect to other networks. If the networks with which we
interconnect were to discontinue their interconnections, our ability to
exchange traffic would be significantly constrained. Furthermore, our business
will be harmed if these
15
<PAGE>
networks do not add more bandwidth to accommodate increased traffic. Many of
the companies with which we maintain interconnections are our competitors.
There is nothing to prevent any networks, many of which are significantly
larger than we are, from charging high usage fees or denying access. In the
future, networks could refuse to continue to interconnect directly with us,
might impose significant costs on us or limit our customers' access to their
networks. In this event, we may not be able on a cost-effective basis to access
alternative networks to exchange our customers' traffic. In addition, we may
not be able to pass through to our customers any additional costs of utilizing
these networks. In these cases, our business could be harmed.
Difficulties presented by international economic, political, legal, accounting
and business factors could harm our business in international markets
A component of our strategy is to expand into international markets. We
opened our first Internet Data Center outside of the United States in the
London metropolitan area in June 1999 and acquired an Internet Data Center in
Tokyo through our acquisition of Global OnLine Japan Co., Ltd. in December
1999. Furthermore, we plan to open additional international Internet Data
Centers by the end of 2000. In order to expand our international operations, we
may enter into joint ventures or outsourcing agreements with third parties,
acquire rights to high-bandwidth transmission capability, acquire complementary
businesses or operations, or establish and maintain new operations outside of
the United States. Thus, we may depend on third parties to be successful in our
international operations. In addition, the rate of development and adoption of
the Internet has been slower outside of the United States, and the cost of
bandwidth has been higher, which may adversely affect our ability to expand
operations and may increase our cost of operations internationally. The risks
inherent in conducting business internationally include:
. unexpected changes in regulatory requirements, export restrictions,
tariffs and other trade barriers;
. challenges in staffing and managing foreign operations;
. differences in technology standards;
. employment laws and practices in foreign countries;
. longer payment cycles and problems in collecting accounts receivable;
. political instability;
. fluctuations in currency exchange rates and imposition of currency
exchange controls; and
. potentially adverse tax consequences.
We might not be successful in our attempts to keep up with rapid technological
change and evolving industry standards
Our future success will depend on our ability to offer services that
incorporate leading technology and address the increasingly sophisticated and
varied needs of our current and prospective customers. Our market is
characterized by rapidly changing and unproven technology, evolving industry
standards, changes in customer needs, emerging competition and frequent new
service introductions. Future advances in technology may not be beneficial to,
or compatible with, our business. In addition, we may not be able to
incorporate advances on a cost-effective and timely basis. Moreover,
technological advances may have the effect of encouraging our current or future
customers to rely on in-house personnel and equipment to furnish the services
we currently provide. In addition, keeping pace with technological advances may
require substantial expenditures and lead time.
We believe that our ability to compete successfully is also dependent upon
the continued compatibility and interoperability of our services with products,
services and architectures offered by various vendors. Although we work with
various vendors in testing newly developed products, these products may not be
compatible with our infrastructure or adequate to address changing customer
needs. For instance, existing networking hardware may not be immediately
compatible with leading edge telecommunications infrastructure services. This
16
<PAGE>
incompatibility would require us to make significant investments to achieve
compatibility. Although we intend to support emerging standards, industry
standards may not be established or we may not be able to timely conform to new
standards. Our failure to conform to a prevailing standard, or the failure of a
common standard to emerge, could have a material adverse effect on our
business.
System security risks could disrupt our services
The ability to provide secure transmissions of confidential information over
networks accessible to the public is a significant barrier to electronic
commerce and communications. A portion of our services rely on encryption and
authentication technology licensed from third parties. Despite a variety of
network security measures taken by us, we cannot assure that unauthorized
access, computer viruses, accidental or intentional actions and other
disruptions will not occur. Our Internet Data Centers have experienced and may
in the future experience delays or interruptions in service as a result of the
accidental or intentional actions of Internet users, current and former
employees of Exodus or others. Furthermore, inappropriate use of the network by
third parties could also jeopardize the security of confidential information,
such as customer and Exodus passwords as well as credit card and bank account
numbers, stored in our computer systems or those of our customers. As a result,
we could become liable to others and lose existing or potential customers. The
costs required to eliminate computer viruses and alleviate other security
problems could be prohibitively expensive. In addition, the efforts to address
these problems could result in interruptions, delays or cessation of service to
our customers.
We depend on third-party equipment and software suppliers
We depend on vendors to supply key components of our telecommunications
infrastructure and system and network management solutions. Some of the
telecommunications services and networking equipment is available only from
sole or limited sources. For instance, the routers, switches and modems we use
are currently supplied primarily by Cisco Systems, Inc. We typically purchase
or lease all of our components under purchase orders placed from time to time.
We do not carry significant inventories of components and have no guaranteed
supply arrangements with vendors. If we are unable to obtain required products
or services on a timely basis and at an acceptable cost, our business would be
harmed. In addition, if our sole or limited source suppliers do not provide
products or components that comply with evolving Internet and
telecommunications standards or that interoperate with other products or
components we use, our business would be harmed. For example, we have
experienced performance problems, including previously unknown software and
firmware bugs, with routers and switches that have caused temporary disruptions
in and impairment of network performance. In addition, we expect to depend for
a time on third parties to deliver and manage our services from certain
international operations.
Government regulation and legal uncertainties may harm our business
Laws and regulations directly applicable to communications and commerce over
the Internet are becoming more prevalent. The United States Congress has
recently considered enacting Internet laws regarding children's privacy,
copyrights, taxation and the transmission of sexually explicit material. The
European Union also recently enacted its own privacy regulations. The law of
the Internet, however, remains 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 and
taxation apply to the Internet. In addition, the growth and development of the
market for online commerce may prompt calls for more stringent consumer
protection laws, both in the United States and abroad, that may impose
additional burdens on companies conducting business online. The adoption or
modification of laws or regulations relating to the Internet could adversely
affect our business. We provide services over the Internet in all states in the
United States and in many foreign countries, and we facilitate the activities
of our customers in these jurisdictions. As a result we may be required to
qualify to do business, or be subject to taxation, or be subject to other laws
and regulations, in these jurisdictions even if we do not have a physical
presence or employees or property in these jurisdictions. The application of
these multiple sets of laws and regulations is uncertain, but we could find
that Exodus is subject to regulation, taxation, enforcement or other liability
in unexpected ways, which could materially adversely affect our business.
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We could be held liable for the information disseminated through our network
The law relating to the liability of online services companies and Internet
access providers for information carried on or disseminated through their
networks is currently unsettled. The Child Online Protection Act of 1998
imposes criminal penalties and civil liability on anyone engaged in the
business of selling or transferring material that is harmful to minors, by
means of the World Wide Web, without restricting access to this type of
material by underage persons. Numerous states have adopted or are currently
considering similar types of legislation. The imposition upon us and other
Internet network providers of potential liability for information carried on or
disseminated through systems could require us to implement measures to reduce
exposure to liability, which may require the expenditure of substantial
resources, or to discontinue various service or product offerings. Further, the
costs of defending against any claims and potential adverse outcomes of these
claims could have a material adverse effect on our business. While we carry
professional liability insurance, it may not be adequate to compensate or may
not cover us in the event we become liable for information carried on or
disseminated through our networks.
Some businesses, organizations and individuals have in the past sent
unsolicited commercial e-mail messages advertising sites hosted at our
facilities to a massive number of people. This practice, known as "spamming,"
has led to some complaints against us. In addition, some ISPs and other online
services companies could deny network access to us if we allow undesired
content or spamming to be transmitted through our networks. Although we
prohibit customers by contract from spamming, we cannot be sure that customers
will not engage in this practice, which could have a material adverse effect on
our business.
Our future success depends on our key personnel
Our success depends in significant part upon the continued services of our
key technical, sales and senior management personnel. Any officer or employee
can terminate his or her relationship at any time. If we lose the services of
one or more of our key employees or are unable to attract additional qualified
personnel, our business would be adversely affected. We do not carry key-person
life insurance for any of our employees.
If the Internet and Internet infrastructure development do not continue to
grow, our business will be harmed
Our success depends in large part on continued growth in the use of the
Internet. Critical issues concerning the commercial use of the Internet,
including security, reliability, cost, ease of access, quality of service and
necessary increases in bandwidth availability, remain unresolved and are likely
to affect the development of the market for our services. In addition, the rate
of development and adoption of the Internet has been slower outside of the
United States and the cost of bandwidth has been higher. The recent growth in
the use of the Internet has caused frequent periods of performance degradation,
requiring the upgrade of routers and switches, telecommunications links and
other components forming the infrastructure of the Internet by ISPs and other
organizations with links to the Internet. Any perceived degradation in the
performance of the Internet as a whole could undermine the benefits of our
services. Consequently, the emergence and growth of the market for our services
is dependent on improvements being made to the entire Internet infrastructure
to alleviate overloading and congestion.
We face risks associated with protection and enforcement of intellectual
property rights
We rely on a combination of copyright, trademark, service mark and trade
secret laws and contractual restrictions to establish and protect proprietary
rights in our products and services. We have no patented technology that would
preclude or inhibit competitors from entering our market. Although we have
entered into confidentiality agreements with our employees, contractors,
suppliers, distributors and appropriate customers to limit access to and
disclosure of our proprietary information, these may prove insufficient to
prevent misappropriation of our technology or to deter independent third-party
development of similar technologies. In addition, the laws of various foreign
countries may not protect our products, services or intellectual property
rights to the same extent as do the laws of the United States.
18
<PAGE>
In addition to licensing technologies from third parties, we are developing
and acquiring additional proprietary intellectual property. Third parties may
try to claim that our products or services infringe their intellectual
property. We expect that participants in our markets will be increasingly
subject to infringement claims. Any claim, whether meritorious or not, could be
time consuming, result in costly litigation, cause product installation delays
or require us to enter into royalty or licensing agreements. These royalty or
licensing agreements might not be available on terms acceptable to us or at
all.
Potential risks related to the Year 2000 problem might harm our business
The Year 2000 problem stems from the use of a two digit date to represent
the year (for example, 85 = 1985) in computer software and firmware. As a
result, many currently installed computer systems are not capable of
distinguishing dates beginning with the Year 2000 from dates prior to the Year
2000. As a result, computer systems or applications used by many companies in a
wide variety of industries may experience operating difficulties unless the
systems or applications are modified to process adequately information related
to the date change. Significant uncertainty exists in the software and other
industries concerning the scope and magnitude of problems associated with the
century change. To the extent Year 2000 issues cause significant delay in, or
cancellation of decisions to purchase products or product support, due to the
reallocation of resources to address Year 2000 issues or otherwise, our
business could be materially adversely affected.
We recognize the need to ensure our operations will not be adversely
impacted by Year 2000 issues. We have put into place a comprehensive Year 2000
Risk Management initiative that is adequately funded, staffed and managed. This
initiative's scope covers both our IT systems and non-IT systems and addresses
all areas of the Year 2000 issues as defined by the Information Technology
Association of America (ITAA). Our internal inventory audit was completed
January 1999. Due to our acquisition of Cohesive, we expanded the independent
review of our Year 2000 assessment. The review was completed in the third
quarter of 1999. Due to our recent acquisition of Service Metrics, Inc., we
performed an independent review of their Year 2000 program. The review was
completed in December 1999. We believe that their internal management
information systems and other systems are Year 2000 compliant. In December
1999, we acquired Global OnLine Japan. We believe that their internal
management information systems and other systems are Year 2000 compliant. We
continue to monitor their program.
We have determined that our Internet Data Center equipment is currently Year
2000 compliant. We will continue to monitor vendors and suppliers for any
potential Year 2000 issues. Likewise, based on the on-going assessment relative
to our current software service offerings, we believe that the current versions
of these products are Year 2000 compliant. We have reviewed, and continue to
review, internal management information and other systems in order to identify
and modify those products, services or systems to ensure that they remain Year
2000 compliant. We have completed the assessment of the Year 2000 compliance of
Cohesive's internal management information and other systems. Based on our
assessment to date, we believe that our internal management information and
other systems and Cohesive's internal management information and other systems
are Year 2000 compliant. We do not foresee any significant issues with internal
IT and internal non-IT systems remaining Year 2000 compliant.
Our Year 2000 initiative also addresses vendor relationships (both IT and
non-IT) and their readiness/preparedness relating to Year 2000 issues. IT
vendors include software providers, hardware providers, service providers, off
the shelf software publishers and IT consultants. Non-IT providers include
electric power suppliers, vendors of uninterruptable power supplies and
generators, telecommunications service providers, business partners, facilities
maintainers and other non-IT service contractors. In the event that third
parties cannot provide us with products, services or systems that are Year 2000
compliant on a timely basis, our business could be materially adversely
affected. To date, we have not discovered nor do we anticipate any material
issues with vendors and service providers. Evaluation of vendor Year 2000
preparedness is an on-going process. As our Year 2000 evaluation does not
evaluate our vendors' vendors nor our vendors' customer base viability issues,
we have put in place contingency plans. To minimize our risk, effective
November 15, 1999 through January 4, 2000, we instituted a freeze on the
introduction of new technology, new software versions and new configurations.
During that period, we utilized only hardware approved for production.
19
<PAGE>
Many of our customers maintain their Internet operations on servers which
may be impacted by Year 2000 complications. The failure of our customers to
ensure that their servers are Year 2000 compliant could have a material adverse
effect on our customers, which in turn could have a material adverse effect on
our business, if our customers are forced to cease or interrupt Internet
operations or experience malfunctions related to their equipment.
We have established procedures for evaluating and managing the risks and
costs associated with the Year 2000 problem. Funding and execution for this
initiative is within our existing business units and operating budgets and is
not viewed as material. Based on our current assessment, we believe the costs,
excluding employee personnel time and effort and unanticipated liabilities, to
resolve Year 2000 issues should not exceed $900,000, of which we have incurred
approximately $800,000 as of December 31, 1999. We further estimate that the
time and effort required of our personnel to resolve Year 2000 issues will not
be material.
While we believe our Year 2000 initiative to be prudent, properly funded and
staffed and well-managed, there can be no assurance that we will identify and
remedy all Year 2000 problems in a timely fashion, that any remedial efforts in
this regard will not involve significant time and expense, or that these
problems will not have a material adverse effect on our business.
The notes are effectively subordinated to our secured indebtedness and the
liabilities of our subsidiaries
The notes are effectively subordinated to our secured debt to the extent of
the value of the assets securing the debt. The notes are effectively
subordinated to all liabilities, including trade payables and lease
obligations, of our subsidiaries. Any right we may have to receive assets of
any of our subsidiaries upon liquidation or reorganization will be effectively
subordinated to the claims of that subsidiary's creditors, including trade
creditors. As of September 30, 1999, we had approximately $64.3 million of
outstanding secured debt and our subsidiaries had approximately $17.4 million
of liabilities. The indenture governing the Notes contains limitations on our
ability and the ability of our subsidiaries to incur additional debt. However,
these limitations are subject to a number of exceptions, and there can be no
assurances that we will not incur significant additional debt in the future,
including debt to which the holders of the Notes would be effectively
subordinated. See "Description of Notes--Covenants--Limitation on Debt".
Our management has broad discretion in the allocation of the proceeds of the
sale of the notes
We expect to use the net proceeds from the sale of the notes in December
1999 primarily to finance the purchase or other acquisition of assets or
businesses to be used in the System and Network Management Business (as defined
in the indenture governing the notes). Our management retains broad discretion
in allocating the proceeds from the sale of the notes. The failure of
management to apply the funds effectively could harm our business. See "Use of
Proceeds."
We may not be able to effect repurchase of the notes upon a Change of Control
in accordance with the terms of the indenture
Upon the occurrence of a Change of Control (as defined elsewhere in this
prospectus), we may be required to purchase all or a portion of the notes at a
purchase price equal to 101% of the principal amount, plus accrued and unpaid
interest, if any, to the date of purchase. Prior to commencing such an offer to
purchase, we may be required to (1) repay in full all of our indebtedness that
would prohibit the repurchase of the notes or (2) obtain any consent required
to make the repurchases. If we are unable to repay all of this indebtedness or
are unable to obtain the necessary consents, we will be unable to offer to
purchase the notes. That failure would constitute an event of default under the
indenture. We may not have sufficient funds available at the time of any Change
of Control to repurchase the notes. The events that require a repurchase upon a
Change of Control under the indenture may also constitute events of default
under any of our indebtedness. See "Description of the Notes--Repurchase at the
Option of Holders."
20
<PAGE>
You may find it difficult to sell your notes
The old dollar notes are eligible for trading in the Portal Market. The old
euro notes are in the process of being listed on the Luxembourg Stock Exchange.
There is no existing trading market for the new notes, although we expect to
apply to list the new euro notes on the Luxembourg Stock Exchange. We cannot
assure you that we will be successful in these listings or of when the listings
will be complete. Accordingly, we cannot be sure that any market for the new
notes will develop, that the holders of the new notes will be able to sell
their notes or the prices at which any sales will be made. If a market for the
notes were to develop, the notes could trade at prices that may be higher or
lower than the exchange tender price of the old notes, as our previously
registered notes do. Prevailing market prices from time to time will depend on
many factors, including then existing interest rates, our operating results and
cash flow and the market for similar securities.
In addition, the liquidity of, and trading markets for, the new notes may be
adversely affected by declines in the market for high-yield securities
generally. A decline may aversely affect liquidity and trading markets
independent of our financial performance or prospects.
21
<PAGE>
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act. When used in this prospectus, the words "anticipate," "believe,"
"estimate," "will," "may," "intend" and "expect" and similar expressions
generally identify forward-looking statements. Although we believe that our
plans, intentions and expectations reflected in the forward-looking statements
are reasonable, we cannot be sure that they will be achieved. Forward-looking
statements in this prospectus include those relating to the expansion of our
network through the opening of additional Internet Data Centers and the timing
of openings, the upgrading of our telecommunications infrastructure, our
planned introduction of various new products and services, the possibility of
acquiring complementary businesses, products, services and technologies and our
ability to make required payments on our current and future debt instruments.
Actual results, performance or achievements could differ materially from those
contemplated by the forward-looking statements contained in this prospectus.
Important factors that could cause actual results to differ materially from our
forward-looking statements are set forth in this prospectus, including under
the heading "Risk Factors." These factors are not intended to represent a
complete list of the general or specific factors that may affect us. It should
be recognized that other factors, including general economic factors and
business strategies, may be significant, presently or in the future, and the
factors set forth in this prospectus may affect us to a greater extent than
indicated. All forward-looking statements attributable to us or persons acting
on our behalf are expressly qualified in their entirety by the cautionary
statements set forth in this prospectus. Except as required by law, we
undertake no obligation to update any forward-looking statement, whether as a
result of new information, future events or otherwise.
22
<PAGE>
USE OF PROCEEDS
We will not receive any proceeds from the issuance of the new notes offered
in the exchange offer. In consideration for issuing the new notes, we will
receive in exchange old notes in like principal amount, the terms of which are
identical in all respects to the new notes except for transfer restrictions and
registration rights. The old notes surrendered in exchange for new notes will
be retired and cancelled and cannot be reissued. Accordingly, issuance of the
new notes will not result in any increase in our indebtedness.
The net proceeds from the sale of the old notes, after deducting the
underwriting discounts and offering expenses, was approximately $485.5 million.
The net proceeds will be used in the System and Network Management Business (as
defined in the indenture governing the notes), such as Internet Data Centers.
In the ordinary course of business, we evaluate potential acquisitions of
businesses, products, services and technologies. However, except as disclosed
in this prospectus, we have no present understandings, commitments or
agreements with respect to any acquisition of any businesses, products,
services or technologies. Pending these uses, we have invested the net proceeds
in investment-grade, short-term, interest-bearing securities. See "Risk
Factors--Our management has broad discretion in the allocation of the proceeds
of the offering of the old notes."
23
<PAGE>
CAPITALIZATION
The following table sets forth our unaudited capitalization as of September
30, 1999 on a supplemental actual basis, on an as adjusted basis to reflect the
receipt of the net proceeds from the sale of the notes, and as further adjusted
to reflect the receipt of the net proceeds from the sale of $500.0 million
principal amount of our 4 3/4% Convertible Subordinated Notes due July 15, 2008
issued December 8, 1999.
<TABLE>
<CAPTION>
September 30, 1999
---------------------------------
As As Further
Actual Adjusted Adjusted
--------- ---------- ----------
(in thousands)
<S> <C> <C> <C>
Cash and cash equivalents................... $ 171,971 $ 657,501 $1,142,751
--------- ---------- ----------
Restricted cash and cash equivalents........ $ 35,444 $ 35,444 $ 35,444
--------- ---------- ----------
Current portion of equipment loans, line of
credit facilities and capital lease
obligations(1)............................. $ 22,539 $ 22,539 $ 22,539
--------- ---------- ----------
Long-term debt (excluding current
maturities)(1):
Bank borrowings(2)........................ -- -- --
Equipment loans and line of credit
facility................................. 9,600 9,600 9,600
Capital lease obligations................. 32,201 32,201 32,201
Convertible Subordinated Notes(3)......... 250,000 250,000 750,000
Senior Notes(4)(5)........................ 275,375 775,663 775,663
--------- ---------- ----------
Total long-term debt.................... 567,176 1,067,464 1,567,464
Stockholders' equity(6):
Preferred stock, $0.001 par value:
5,000,000 shares authorized, no shares
issued or outstanding.................... -- -- --
Convertible preferred stock of an acquired
company, 20,554,832 shares issued and
outstanding(7)........................... 15,437 15,437 15,437
Common stock, $0.001 par value:
300,000,000 shares authorized,
170,087,594 shares issued and
outstanding.............................. 170 170 170
Additional paid-in capital................ 195,166 195,166 195,166
Deferred stock compensation............... (2,903) (2,903) (2,903)
Accumulated deficit....................... (175,269) (175,269) (175,269)
--------- ---------- ----------
Total stockholders' equity.............. 32,601 32,601 32,601
--------- ---------- ----------
Total capitalization.................. $ 599,777 $1,100,065 $1,600,065
========= ========== ==========
</TABLE>
- --------
(1) See Notes 4 and 6 of Notes to Supplemental Consolidated Financial
Statements.
(2) See Note 4 of Notes to Supplemental Consolidated Financial Statements.
(3) Includes $250.0 million aggregate principal amount of our 5% Convertible
Subordinated Notes due March 15, 2006.
(4) Includes $275.0 million aggregate face amount of our 11 1/4% Senior Notes
due 2008 and a related $375,000 premium.
(5) For purposes of this table, the translation of euros into dollars has been
made at $1.0023 per euro, which represents the Noon Buying Rate on December
2, 1999.
(6) Does not include (i) 51,939,748 shares of common stock issuable upon the
exercise of stock options outstanding under our stock option plans as of
September 30, 1999 with a weighted average per share exercise price of
$10.18, (ii) 8,461,612 shares of Common Stock available for future grant as
of September 30, 1999 under our stock and option plans or (iii) 506,664
shares of Common Stock issuable upon the exercise of warrants outstanding
as of September 30, 1999 with a weighted average per share exercise price
of $1.83. See Note 1 of Notes to Supplemental Consolidated Financial
Statements.
(7) These shares are convertible into 5,171,554 shares of Exodus Common Stock
upon the closing of our acquisition of Service Metrics in November 1999.
24
<PAGE>
SELECTED SUPPLEMENTAL CONSOLIDATED FINANCIAL DATA
The following selected supplemental consolidated financial data should be
read in conjunction with our supplemental consolidated financial statements and
notes and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this prospectus. The supplemental
consolidated financial statements have been prepared to give retroactive effect
to the merger with Service Metrics, Inc. on November 23, 1999. The supplemental
consolidated statement of operations data for each of the years in the three-
year period ended December 31, 1998, and the supplemental consolidated balance
sheet data as of December 31, 1997 and 1998, are derived from supplemental
consolidated financial statements that have been audited by KPMG LLP,
independent auditors, and are included elsewhere in this prospectus. The
supplemental consolidated statement of operations data for the nine-month
periods ended September 30, 1998 and September 30, 1999 and the supplemental
consolidated balance sheet data as of September 30, 1999 are derived from
supplemental unaudited condensed consolidated financial statements included
elsewhere in this prospectus. The supplemental consolidated statement of
operations data for the year ended December 31, 1995 and the supplemental
consolidated balance sheet data as of December 31, 1994, 1995 and 1996 are
derived from consolidated financial statements that have been audited by KPMG
LLP that are not included in this prospectus. The supplemental consolidated
statement of operations data for the year ended December 31, 1994 are derived
from unaudited consolidated financial statements that are not included in this
prospectus. The unaudited consolidated financial statements have been prepared
on substantially the same basis as the audited consolidated financial
statements and, in the opinion of management, include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the results of operations for these periods. Historical results
are not necessarily indicative of the results to be expected in the future, and
results of interim periods are not necessarily indicative of results for the
entire year.
We are the successor to a Maryland corporation that was formed in August
1992 to provide computer consulting services. We began to offer Internet
connectivity services to enterprises in October 1994 and server hosting
services in late 1995. In August 1996, we opened our first dedicated Internet
Data Center and refocused our business strategy on providing Internet system
and network management solutions for enterprises with mission-critical Internet
operations.
In the following tables and in this document, "EBITDA" represents earnings
(loss) before net interest expense, income taxes, depreciation, amortization
(including amortization of deferred stock compensation) and other noncash
charges. EBITDA should not be used as an alternative to operating loss or net
cash provided by (used for) operating activities, investing activities or
financing activities, each as measured under generally accepted accounting
principles. In addition, EBITDA may not be comparable to other similarly titled
information from other companies. However, our management believes that EBITDA
is an additional meaningful measure of performance and liquidity. With respect
to the captions entitled "Deficiency of earnings available to cover fixed
charges" and "Ratio of earnings to fixed charges," earnings consist of income
(loss) before provision for income taxes plus fixed charges. Fixed charges
consist of interest charges and amortization of debt expense and discount or
premium related to indebtedness, whether expensed or capitalized, and that
portion of rental expense we believe to be representative of interest.
25
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31, Nine Months Ended
------------------------------------ --------------------
Sept. 30, Sept. 30,
1995 1996 1997 1998 1998 1999
------- ------- -------- -------- --------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Supplemental
Consolidated Statement
of Operations Data:
Total revenues.......... $ 1,408 $ 3,130 $ 12,408 $ 52,745 $ 31,638 $ 140,754
------- ------- -------- -------- -------- ---------
Costs and expenses:
Total cost of
revenues.............. 1,128 2,990 16,868 61,578 39,291 118,827
Marketing and sales.... 1,056 2,734 12,702 29,034 20,576 42,473
General and
administrative........ 427 1,056 5,983 16,058 9,664 25,548
Product development.... 70 444 1,647 3,507 2,389 5,641
Amortization of
intangibles........... -- -- -- 141 -- 4,674
Restructuring costs.... -- -- -- -- -- 923
------- ------- -------- -------- -------- ---------
Total costs and
expenses.............. 2,681 7,224 37,200 110,318 71,920 198,086
------- ------- -------- -------- -------- ---------
Operating loss......... (1,273) (4,094) (24,792) (57,573) (40,282) (57,332)
Net interest expense... 38 39 506 9,743 5,110 20,044
------- ------- -------- -------- -------- ---------
Net loss............... (1,311) (4,133) (25,298) (67,316) (45,392) (77,376)
Cumulative dividends
and accretion on
redeemable convertible
preferred stock....... -- -- (1,413) (2,014) (2,014) --
------- ------- -------- -------- -------- ---------
Net loss attributable to
common stockholders.... $(1,311) $(4,133) $(26,711) $(69,330) $(47,406) $ (77,376)
======= ======= ======== ======== ======== =========
Basic and diluted net
loss per share(1)...... $ (0.12) $ (0.27) $ (1.73) $ (0.55) $ (0.42) $ (0.47)
======= ======= ======== ======== ======== =========
Shares used in computing
basic and diluted net
loss per share(1)...... 10,524 15,312 15,428 125,810 114,088 165,974
======= ======= ======== ======== ======== =========
Supplemental
Consolidated Statement
of Cash Flows Data:
Net cash used for
operating activities... $ (461) $(3,116) $(15,518) $(47,312) $(31,568) $ (68,542)
Net cash used for
investing activities... (69) (3,877) (23,864) (92,757) (70,323) (235,134)
Net cash provided by
financing activities... 692 10,545 45,937 285,814 283,254 319,632
Other Data:
EBITDA.................. (1,208) (3,633) (20,274) (41,945) (29,592) (27,994)
Depreciation and
amortization........... 65 461 3,429 13,024 8,575 28,383
Capital expenditures.... 69 3,499 22,489 44,564 26,680 160,624
Deficiency of earnings
available to cover
fixed charges.......... (1,311) (4,133) (25,298) (67,316) (45,392) (77,376)
</TABLE>
<TABLE>
<CAPTION>
Year Ended
December 31, 1994
-----------------
(in thousands,
except ratio and
per share data)
<S> <C>
Supplemental Consolidated Statement of Operations Data:
Total revenues.............................................. $ 977
Operating income............................................ 143
Net income.................................................. 144
Basic and diluted net income per share...................... $0.02
Shares used in computing basic and diluted net income per
share...................................................... 8,000
Ratio of earnings to fixed charges.......................... 26x
</TABLE>
<TABLE>
<CAPTION>
December 31,
----------------------------------------- September 30,
1994 1995 1996 1997 1998 1999
---- ------- ------- -------- -------- -------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Supplemental
Consolidated Balance
Sheet Data:
Cash and cash
equivalents............ $ 1 $ 163 $ 3,715 $ 10,270 $156,015 $171,971
Restricted cash
equivalents and
investments............ -- -- 378 1,753 45,614 35,444
Working capital
(deficiency)........... 93 (1,170) 1,892 (3,707) 124,636 153,753
Total assets............ 320 840 8,289 40,973 298,798 684,825
Equipment loans, line of
credit facility,
capital lease
obligations,
convertible
subordinated notes and
senior notes, less
current portion........ -- 141 1,449 15,135 227,284 567,176
Total stockholders'
equity (deficit)....... 169 (1,140) (5,234) (30,600) 24,277 32,601
</TABLE>
- --------
(1) See Note 1 of Notes to supplemental consolidated financial statements for
our explanation of the determination of the number of shares used in
computing per share data.
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of
operations should be read in conjunction with the supplemental consolidated
financial statements and the related notes included elsewhere in this
prospectus. This discussion contains forward-looking statements that involve
risks and uncertainties. Our actual results may differ materially from those
anticipated in these forward-looking statements. Factors that may cause such a
difference include those set forth under "Risk Factors".
Overview
We are a leading provider of Internet system and network management
solutions and technology professional services for enterprises with mission-
critical Internet operations. Our solutions include Internet Data Centers,
network services, managed services and professional services that together
provide the high performance, scalability and expertise that enterprises need
to optimize Internet operations. We deliver our services from our
geographically distributed, state-of-the-art Internet Data Centers that are
connected through a high-performance Internet backbone network.
We are the successor to a Maryland corporation that was formed in August
1992 to provide computer-consulting services. We began offering server hosting
and Internet connectivity services in late 1995, opened our first dedicated
Internet Data Center in August 1996 and introduced managed services in 1997 and
professional services in 1998. We have derived most of our revenues from
customers for whom we provide these services. Most of our Internet Data Center
customers initially purchase a subset of our service offerings to address
specific departmental or enterprise Internet computing needs, and many of these
customers purchase additional services as the scale and complexity of their
Internet operations increase. We sell our services under contracts that
typically have minimum terms of one year. Customers pay monthly fees for the
services utilized, as well as one-time fees for installation, certain
professional services and for equipment they purchase from us.
We opened our first Internet Data Center in the Silicon Valley metropolitan
area in August 1996. Since that time, we have opened 16 additional domestic
Internet Data Centers in the metropolitan areas of New York (March 1997 and
September 1999), Silicon Valley (second site--August 1997; third site--June
1998; and fourth site June 1999), Seattle (September 1997 and June 1999), Los
Angeles (October 1997 and September 1999), Washington, D.C. (December 1997 and
May 1999), Boston (July 1998 and December 1999), Chicago (April 1999), Atlanta
(December 1999) and Austin, Texas (November 1999). In addition, we opened our
first Internet Data Center outside of the United States in London in June 1999.
In December 1999, we acquired Global OnLine Japan Co., Ltd. of Tokyo, Japan,
which has an Internet Data Center located in Tokyo. The building of Internet
Data Centers has required us to obtain substantial equity and debt financing.
See "Risk Factors--Our substantial leverage and debt service obligations
adversely affect our cash flow" and "--Liquidity and Capital Resources" below.
In October 1998, we purchased the assets of Arca Systems, Inc. ("Arca"), a
provider of advanced network and system security consulting services. In
February 1999, we acquired American Information Systems, Inc. ("AIS"), a
regional provider of co-location, web hosting and professional services. In
July 1999, we acquired Cohesive Technology Solutions, Inc. ("Cohesive"), a
technology professional services organization with expertise in networking,
Internet-based applications and technology solutions. In November 1999, we
acquired Service Metrics, Inc., a provider of Internet monitoring applications
and services. In connection with the merger, we issued a total of approximately
7.0 million shares of our common stock and options for Exodus Common Stock in
exchange for all outstanding shares of Service Metrics common stock and
outstanding options we assumed. We will account for the Service Metrics merger
as a pooling of interests. In December 1999, we acquired Global OnLine Japan
Co., Ltd., an Internet solutions provider based in Tokyo. As a result, we
issued 415,000 shares of our common stock in exchange for 85% of the
outstanding shares of Global OnLine Japan. The transaction will be accounted
for as a purchase. In January 2000, we agreed to
27
<PAGE>
acquire KeyLabs, Inc., a provider of e-business testing services based in Utah.
We expect the transaction, which will be accounted for as a purchase, to close
by the end of February 2000.
We intend to expand domestically and internationally. Prior to building an
Internet Data Center in a new geographic region, we employ various means to
evaluate the market opportunity in a given location, including market research
on Internet usage statistics, the pre-selling of services into the proposed
market and analysis of specific financial criteria. We typically require at
least six months to select the appropriate location for an Internet Data
Center, construct the necessary facilities, install equipment and
telecommunications infrastructure, and hire the operations and sales personnel
needed to conduct business at that site. Expenditures related to an Internet
Data Center commence well before the Internet Data Center opens, and it takes
an extended period to approach break-even capacity utilization at each site. As
a result, we expect that individual Internet Data Centers will experience
losses for in excess of one year from the time they are opened. We experience
further losses from sales personnel hired to test market our services in
markets where there is no, and may never be an, Internet Data Center. As a
result, we expect to make investments in expanding our business rapidly into
new geographic regions which, while potentially increasing our revenues in the
long term, will lead to significant losses for the foreseeable future. See
"Risk Factors--Our rapid expansion produces a significant strain on our
business".
Since we began to offer server hosting and Internet connectivity services in
1995, we have experienced operating losses and negative cash flows from
operations in each fiscal quarter and year. As of September 30, 1999, we had an
accumulated deficit of approximately $175.3 million. The revenue and income
potential of our business and market is unproven, and our limited operating
history makes an evaluation of our prospects and us difficult. We intend to
invest in new Internet Data Centers and other sites, product development, and
sales and marketing programs. We therefore believe that we will continue to
experience net losses on a quarterly and annual basis for the foreseeable
future. As a company in the new and rapidly evolving market for Internet system
and network management solutions, we encounter risks, expenses and difficulties
that affect our business and prospects. There can be no assurance that we will
achieve profitability on a quarterly or an annual basis or that we will sustain
profitability. See "Risk Factors--Our short operating history and heavy losses
make our business difficult to evaluate".
28
<PAGE>
Results of Operations for the Years Ended December 31, 1996, 1997 and 1998 and
the Nine Months Ended September 30, 1998 and 1999
The following table sets forth certain statement of operations data as a
percentage of total revenues for the years ended December 31, 1996, 1997 and
1998 and the nine-month periods ended September 30, 1998 and 1999. The
information for the years ended December 31, 1996, 1997 and 1998 has been
derived from our supplemental audited consolidated financial statements
included in this prospectus. The information for the nine-month periods ended
September 30, 1998 and 1999 has been derived from our supplemental unaudited
condensed consolidated financial statements included in this prospectus which,
in management's opinion, have been prepared on substantially the same basis as
the supplemental audited consolidated financial statements and include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the financial information for the periods presented. This
information should be read in conjunction with the supplemental consolidated
financial statements and related notes included in this prospectus. The
operating results in any periods are not necessarily indicative of the results
to be expected for any future period.
<TABLE>
<CAPTION>
Nine Months
Ended
Year Ended December 31, September 30,
--------------------------- ----------------
1996 1997 1998 1998 1999
------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Revenues:
Service revenues........ 78.4 % 93.4 % 94.4 %
Equipment revenues...... 21.6 6.6 5.6
------- ------- ------- ------- ------
Total revenues........ 100.0 100.0 100.0 100.0 % 100.0 %
------- ------- ------- ------- ------
Costs and expenses:
Cost of service
revenues............... 81.1 130.8 112.4
Cost of equipment
revenues............... 14.4 5.2 4.4
------- ------- ------- ------- ------
Total cost of
revenues............. 95.5 135.9 116.7 124.2 84.4
Marketing and sales..... 87.3 102.4 55.0 65.0 30.2
General and
administrative......... 33.7 48.2 30.4 30.5 18.2
Product development..... 14.2 13.3 6.6 7.6 4.0
Amortization of
intangibles............ -- -- 0.3 -- 3.3
Restructuring costs..... -- -- -- -- 0.7
------- ------- ------- ------- ------
Total cost and
expenses............. 230.8 299.8 209.2 227.3 140.7
------- ------- ------- ------- ------
Operating loss........ (130.8) (199.8) (109.2) (127.3) (40.7)
Net interest expense...... 1.2 4.1 18.5 16.2 14.2
------- ------- ------- ------- ------
Net loss.............. (132.0)% (203.9)% (127.6)% (143.5)% (55.0)%
======= ======= ======= ======= ======
</TABLE>
Revenues
Our revenues consist of (1) monthly fees from customer use of Internet Data
Center sites, network services and managed services, including professional
services and use of equipment and software provided by us, (2) revenues from
sales of third-party equipment to customers and (3) fees for installation and
certain professional services. Currently, substantially all of our revenue is
derived from services. Revenues, other than installation fees, equipment sales
to customers and certain professional services, are generally billed and
recognized ratably over the term of the contract, which is generally one year.
Installation fees are typically recognized at the time the installation occurs,
and equipment revenues are typically recognized when the equipment is delivered
to the customer or placed into service at an Internet Data Center. We sell
third-party equipment to our customers as an accommodation to facilitate their
purchase of services. One-time professional service fees are typically
recognized when the services are rendered.
29
<PAGE>
Our service revenues increased 372% from $2.5 million in 1996 to $11.6
million in 1997 and increased an additional 330% to $49.8 million in 1998. This
growth in service revenues was primarily the result of opening our Internet
Data Centers, increases in the number of new customers, substantially all of
which were Internet Data Center customers, and increases in revenues from
existing customers. Equipment revenues increased 21% from $676,000 in 1996 to
$820,000 in 1997 and 257% to $2.9 million in 1998.
Our revenues increased 345% to $140.8 million for the nine month period
ended September 30, 1999 from $31.6 million in the same period of the prior
year. This growth in revenues was the result of increases in the number of new
customers, substantially all of which were Internet Data Center customers,
increases in revenues from existing customers and revenue contributions from
Cohesive.
Cost of Revenues
Our cost of revenues is comprised of the costs for our backbone network and
local telecommunications loops, interconnections to other networks,
depreciation and amortization, salaries and benefits for our customer service
and operations personnel (customer service personnel, network engineers and
professional services personnel), rent, repairs and utilities related to our
Internet Data Centers and other sites and costs of third-party equipment sold
to customers.
Cost of service revenues increased from $2.5 million in 1996 to $16.2
million in 1997 and to $59.3 million in 1998. Our cost of service revenues as a
percentage of revenues increased from 81% in 1996 to 131% in 1997 and declined
to 112% in 1998. The increases in cost of service revenues in absolute dollars
were due to increased costs associated with the build-out and operation of our
increasing number of Internet Data Centers, including increased costs for our
redundant backbone network and local telecommunications loops, depreciation,
salaries and benefits for our customer service and operations personnel, and
rent. The increase in cost of service revenues as a percentage of revenues from
1996 to 1997 reflects the timing of investments in Internet Data Centers and
network infrastructure relative to the growth in associated revenue. The
decrease in cost of service revenues as a percentage of revenues from 1997 to
1998 resulted from revenues from new and existing Internet Data Centers
increasing faster than related costs of revenues. Costs for our redundant
backbone network and local telecommunications loops increased by approximately
$3.8 million from 1996 to 1997 and by approximately $15.2 million from 1997 to
1998. Depreciation increased by approximately $3.0 million from 1996 to 1997
and by approximately $8.4 million from 1997 to 1998. Salaries and benefits for
our customer service and operations personnel increased by approximately $3.5
million from 1996 to 1997 and by approximately $6.7 million from 1997 to 1998.
Rent expense increased by approximately $945,000 from 1996 to 1997 and by
approximately $3.1 million from 1997 to 1998. Cost of equipment revenues
increased from $452,000 in 1996 to $640,000 in 1997 and to $2.3 million in
1998. Cost of equipment revenue in absolute dollars varies primarily as a
result of equipment revenues and cost of equipment revenues as a percentage of
revenues varies due to the mix of equipment purchased by customers.
Cost of revenues increased 202% to $118.8 million for the nine month period
ended September 30, 1999 from $39.3 million in the same period of the prior
year. This increase in cost of revenues in absolute dollars was primarily the
result of costs associated with hiring additional employees, including
professional services employees hired in connection with our acquisition of
Cohesive, and consultants, increased traffic on our network and to other
networks, increased depreciation due to capital expenditures related to the
buildout and expansion of Internet Data Centers, increased rent, and increased
utilities and other costs related to the opening and expanding of Internet Data
Centers. Our cost of revenues as a percentage of revenues decreased to 84% for
the nine months ended September 30, 1999 from 124% for the same period of the
prior year. This decline was due primarily to an increase in revenue between
comparison periods. We expect that cost of revenues will continue to increase
in absolute dollars.
30
<PAGE>
Marketing and Sales
Our marketing and sales expenses are comprised of salaries, commissions and
benefits for our marketing and sales personnel, printing and advertising costs,
public relations costs, consultants' fees and travel and entertainment
expenses.
Our marketing and sales expenses increased from $2.7 million in 1996 to
$12.7 million in 1997 and to $29.0 million in 1998. These increases were
primarily the result of hiring additional marketing and sales personnel,
expanding marketing programs in connection with our expansion of our
operations, including the number and scope of our Internet system and network
management solutions, and in 1998, the charge of $525,000 associated with the
warrant for common stock issued to At Home Corporation. Salaries and benefits
for our sales and marketing personnel increased by approximately $6.1 million
from 1996 to 1997 and by approximately $10.5 million from 1997 to 1998, and
costs associated with tradeshows and advertising increased by approximately
$977,000 from 1996 to 1997 and approximately $114,000 from 1997 to 1998. The
increase in marketing and sales expenses as a percentage of revenues from 1996
to 1997 reflects the continued expansion of marketing and sales efforts prior
to the receipt of associated revenues. The decrease in marketing and sales as a
percentage of revenues from 1997 to 1998 was due to revenues growing faster
than marketing and sales expenses.
Our marketing and sales expenses increased 106% to $42.5 million for the
nine month period ended September 30, 1999 from $20.6 million in the same
period of the prior year. The increase in absolute dollars was primarily the
result of increased compensation and related expenses associated with hiring
additional marketing and sales personnel, including employees hired in
connection with our acquisition of Cohesive, and increased advertising
expenses. Our marketing and sales expense as a percentage of revenues decreased
to 30% for the nine months ended September 30, 1999 from 65% for the same
period of the prior year. This decline was primarily due to our significant
increase in revenue between comparison periods. We expect that marketing and
sales expense will continue to increase in absolute dollars.
General and Administrative
Our general and administrative expenses are primarily comprised of salaries
and benefits for our administrative and management information systems
personnel, consulting fees and recruiting fees.
Our general and administrative expenses increased from $1.1 million in 1996
to $6.0 million in 1997 and to $16.1 million in 1998. These increases were
primarily the result of increased compensation expenses associated with
additional hiring of general and administrative personnel, costs for
consultants and professional services providers, fees paid for recruiting and
amortization of deferred compensation. Salaries and benefits for general and
administrative personnel increased by approximately $2.0 million from 1996 to
1997 and by approximately $2.8 million from 1997 to 1998. Costs for consultants
and professional services providers increased by approximately $1.1 million
from 1996 to 1997 and by approximately $900,000 from 1997 to 1998. Recruiting
fees increased by approximately $968,000 from 1996 to 1997 and by approximately
$440,000 from 1997 to 1998. These increased expenses reflected our need for
additional general and administrative personnel to handle the expansion of our
operations. The amortization of deferred compensation included in general and
administrative expenses was $741,000 in 1997 and $597,000 in 1998, and there
was no such expense recorded in 1996. The increase in general and
administrative expenses as a percentage of revenues from 1996 to 1997 resulted
primarily from deferred compensation expenses in 1997. The decrease in general
and administrative expenses as a percentage of revenues from 1997 to 1998 was
due to revenues growing faster than general and administrative expenses.
Our general and administrative expenses increased 164% to $25.5 million for
the nine month period ended September 30, 1999 from $9.7 million in the same
period of the prior year. The increase in absolute dollars was primarily the
result of increased compensation expenses associated with additional hiring of
general and administrative personnel, including employees hired in connection
with our acquisition of Cohesive, increased
31
<PAGE>
rent and related expenses due to entering into additional operating leases
during the period, higher depreciation and increased recruiting expenses. Our
general and administrative expense as a percentage of revenues decreased to 18%
for the nine month period ended September 30, 1999 from 31% for the same period
of the prior year. This decline was primarily due to our significant increase
in revenue between comparison periods. We expect that general and
administrative expense will continue to increase in absolute dollars.
Product Development
Our product development expenses consist primarily of salaries and benefits
for our product development personnel and fees paid to consultants.
Our product development expenses increased from $444,000 in 1996 to $1.6
million in 1997 and to $3.5 million in 1998. Our product development expenses
grew between the comparison periods primarily because of the addition of
product development personnel to support our expanded service offerings. The
decrease in product development expenses as a percentage of revenues from 1996
to 1998 resulted from revenues growing faster than product development
expenses.
Our product development expenses increased 136% to $5.6 million for the nine
month period ended September 30, 1999 from $2.4 million in the same period of
the prior year. Our product development expenses grew primarily due to the
addition of product development personnel to support our expanded service
offerings. Our product development expense as a percentage of revenues
decreased to 4% for the nine months ended September 30, 1999 from 8% for the
same period of the prior year. This decline was due to our significant increase
in revenue between comparison periods. We expect that product development
expenses will continue to increase in absolute dollars.
Amortization of Intangibles
As part of our strategy to grow through acquisitions of complementary
businesses, we acquired the assets of Arca in October 1998, AIS in February
1999 and Cohesive in July 1999. In connection with those acquisitions, we have
recorded intangible assets related to goodwill, customer lists and workforce in
place. Amortization related to those intangibles was $4.7 million for the nine
month period ended September 30, 1999. These intangibles are being amortized on
a straight-line basis generally over 5 to 10 years.
Restructuring Costs
In August 1999, we announced plans to consolidate seven professional
services practice offices of Cohesive, which we acquired on July 27, 1999. We
determined that consolidation of these offices would maximize efficiencies of
the combined companies. This action is expected to be completed by December 31,
1999. In connection with the consolidation of these facilities, we recorded a
restructuring charge of $923,000 for the nine month period ended September 30,
1999. This charge includes approximately $689,000 for lease termination and
other related office closure costs and $234,000 in severance and other employee
benefits.
Net Interest Expense
Our net interest expense increased from $39,000 in 1996 to $506,000 in 1997
and to $9.7 million in 1998. The increase in net interest expense from 1996 to
1997 was primarily the result of substantially increased borrowings as we
entered into equipment loans and lease agreements to finance the construction
of our Internet Data Centers. The increase in net interest expense from 1997 to
1998 was primarily the result of interest expenses associated with our $200.0
million of senior notes which were issued July 1, 1998, substantially increased
borrowings as we entered into equipment loans and lease agreements to finance
the construction of our Internet Data Centers, and working capital lines of
credit to finance working capital for our operations.
Our net interest expense increased to $20.0 million for the nine month
period ended September 30, 1999 from $5.1 million for the same period of the
prior year. The increase in net interest expense was primarily the result of
interest expense associated with our senior notes issued July 1, 1998 and June
22, 1999, and our convertible subordinated notes issued March 3, 1999.
32
<PAGE>
We expect that net interest expense will continue to increase as we enter
into additional equipment leases and loans, obtain additional borrowings and
long term debt and experience reduced interest income as a result of the
decline in our cash reserves to fund working capital and other uses.
EBITDA
Our loss before net interest expense, income taxes, depreciation,
amortization, including amortization of deferred stock compensation, and other
non-cash charges ("EBITDA") was $3.6 million in 1996, $20.3 million in 1997 and
$41.9 million in 1998. The increases in the level of EBITDA losses between the
comparison periods were primarily due to increased expenditures needed to
support our growth in operations, including salaries and benefits for
additional employees, network costs, rent, utilities and other costs related to
the increase in the number of our Internet Data Centers as well as increased
marketing and sales expenses, consulting fees and professional services.
EBITDA loss was $28.0 million for the nine month period ended September 30,
1999 compared to $29.6 million for the same period of the prior year. The
decrease in the magnitude of EBITDA losses between the comparison periods was
primarily due to the significant increases in revenue over these periods offset
in part by increased compensation costs associated with the hiring of
additional employees during those time periods.
Although EBITDA should not be used as an alternative to operating loss or
net cash provided by (used for) operating activities, investing activities or
financing activities, each as measured under generally accepted accounting
principles, our management believes that EBITDA is an additional meaningful
measure of performance and liquidity.
Liquidity and Capital Resources
From inception through September 30, 1999, we have financed our operations
primarily through private sales of preferred stock, our initial public offering
of common stock in March 1998, our senior notes offerings in July 1998 and June
1999, our convertible subordinated notes offering in March 1999 and through
various types of equipment loans and lease lines and working capital lines of
credit. At September 30, 1999, our principal source of liquidity was
approximately $172.0 million in cash and cash equivalents. As of that date, we
also had equipment loans and lease lines of credit under which we could borrow
up to an additional aggregate of $1.2 million for purchases of equipment. As of
September 30, 1999, our total bank borrowings, equipment loans and lines of
credit facilities, capital lease obligations and senior and convertible notes
were $589.7 million. See Notes 4 and 6 of Notes to Supplemental Consolidated
Financial Statements.
Since we began to offer server-hosting services in 1995, we have had
significant negative cash flows from operating activities. Net cash used for
operating activities for the nine months ended September 30, 1999 was $68.5
million, primarily due to net losses and increases in accounts receivable and
prepaid expenses and other assets, offset in part by increases in accounts
payable and depreciation and amortization. This compares to net cash used for
operating activities for the nine months ended September 30, 1998 of $31.6
million which was primarily due to net losses and an increase in accounts
receivable, offset in part by increases in accounts payable and accrued
interest payable and depreciation and amortization.
Net cash used for investing activities for the nine months ended September
30, 1999 was $235.1 million primarily due to capital expenditures for the
continued construction of Internet Data Centers and the acquisitions of AIS and
Cohesive. This compares to net cash used for investing activities for the nine
months ended September 30, 1998 of $70.3 million which was due to capital
expenditures for the construction of Internet Data Centers and an increase in
restricted cash equivalents and investments.
Net cash provided by financing activities for the nine month period ended
September 30, 1999 was $319.6 million, primarily due to the proceeds from our
issuance of $250.0 million of 5% Convertible Subordinated Notes and our
additional $75.0 million offering of 11 1/4% Senior Notes in June 1999. This
33
<PAGE>
compares to net cash provided by financing activities for the nine months ended
September 30, 1998 of $283.3 million which was primarily due to our initial
public offering of common stock in March 1998 and our original $200.0 million
11 1/4% Senior Notes offering in July 1998.
As of September 30, 1999, we had commitments under capital leases and under
noncancellable operating leases of $47.0 million and $260.3 million,
respectively, through 2012. In addition, in August 1999 we entered into
capacity purchase agreements with Global Crossing. The agreements provide for a
total potential outlay of approximately $105.0 million for fiber capacity and
related maintenance covering approximately 25 years. As of September 30, 1999
we had expended $7.0 million.
We intend to make significant expenditures during the next 12 months
primarily for property and equipment, in particular equipment and construction
needed for existing and future Internet Data Centers, as well as office
equipment, computers and telephones. We expect to finance such capital
expenditures primarily through the remaining net proceeds from the 11 1/4%
Senior Notes and 5% Convertible Subordinated Notes and our 10 3/4% Senior Notes
and 4 3/4% Convertible Subordinated Notes issued in December 1999, existing and
future equipment loans and lease lines of credit, and issuances of additional
debt and other financing activities. We believe our working capital and capital
expenditure requirements over the next 12 months can be met with existing cash
and cash equivalents and short-term investments, cash from sales of services
and proceeds from debt financings and existing and future equipment financing
lines of credit. We may enter into additional equipment loans and capital
leases. We may also seek to raise additional funds through public or private
financing, strategic relationships or other arrangements. There can be no
assurance that we will be successful in generating sufficient cash flows from
operations or raising capital in sufficient amounts on terms acceptable to us.
See "Risk Factors--Our rapid expansion produces a significant strain on our
business".
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133
establishes methods for accounting for derivative financial instruments and
hedging activities related to those instruments, as well as other hedging
activities. Because we do not currently hold any derivative instruments and do
not engage in hedging activities, we expect that the adoption of SFAS No. 133
will not have a material impact on our financial position, results of
operations or cash flows. We will be required to implement SFAS No. 133 for the
year ending December 31, 2001.
Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
Our exposure to market rate risk for changes in interest rates relates
primarily to our investment portfolio. We do not use derivative financial
instruments in our investment portfolio. We place our investments with high
quality issuers and, by policy, limit the amount of risk by investing primarily
in money market funds, United States Treasury Notes and certificates of
deposit. An increase or decrease in interest rates would not significantly
increase or decrease interest expense on debt obligations due to the fixed
nature of our debt obligations. We do not currently have any significant
foreign operations and thus are not currently materially exposed to foreign
currency fluctuations.
34
<PAGE>
BUSINESS
The Company
Exodus Communications is a leading provider of Internet system and network
management solutions for enterprises with mission-critical Internet operations.
Our solutions include Internet Data Centers, network services, managed services
and professional services, which together provide the high performance,
scalability and expertise that enterprises need to optimize their complex
Internet operations. Exodus delivers its services from geographically
distributed, state-of-the-art Internet Data Centers that are connected through
a high-performance dedicated and redundant backbone network. Our tailored
solutions are designed to integrate with existing enterprise systems
architectures and to enable customers to outsource the monitoring,
administration and optimization of their equipment, applications and overall
Internet operations. As of September 30, 1999, we had more than 1,700
customers, including installed and uninstalled customers under contract, and
managed over 16,000 customer servers worldwide. Our customers represent a
variety of industries, ranging from Internet companies such as Lycos, Inc.,
eBay Inc., MSN Hotmail (a subsidiary of Microsoft Corporation), Yahoo!GeoCities
and Inktomi Corporation, to media companies such as MSNBC, USA Today
Information Network, SportsLine USA, Inc. and E-Online!, to major enterprise
companies such as Applied Materials and Storage Networks.
Because Internet usage is growing rapidly, businesses are increasing the
breadth and depth of their Internet product and services offerings. These
Internet operations are mission-critical for Internet-centric businesses and
are becoming increasingly mission-critical for many enterprises. In order to
ensure the quality, reliability, availability and redundancy of these mission-
critical Internet operations, corporate IT departments must make substantial
investments in facilities, personnel, equipment and networks which must be
continuously upgraded to reflect changing technologies and must rapidly scale
as the enterprise grows. This recurring and significant investment is an
inefficient use of resources and, as a result, a significant need exists for
outsourcing arrangements that can increase performance, provide continuous
operation of Internet solutions and reduce Internet operating expenses. We
believe a significant opportunity exists for a highly focused company to
provide a combination of server hosting, Internet connectivity and managed and
professional services that will enable reliable, high performance of mission-
critical Internet operations.
Exodus offers an integrated portfolio of solutions that provide customers
with a scalable, secure and high performance platform for the development,
deployment and proactive management of mission-critical Internet operations.
Our server hosting and Internet connectivity services are offered through our
Internet Data Centers' redundant backbone network of multiple high speed OC-3
and OC-12 lines, along with our public and private network interconnections. We
continue to upgrade our network in order to accommodate expected traffic
growth. Our managed services include performance monitoring, site management
reports, data backup, content delivery and management services, security
services and professional services. These services provide the foundation for
high performance, availability, scalability and reliability of customers'
Internet operations. In addition, we integrate best-of-breed technologies from
leading vendors with our industry expertise and proprietary technology.
Our objective is to become the leading provider of Internet system and
network management solutions for enterprises with mission-critical Internet
operations. To achieve this objective, we intend to:
. Position Exodus as the leader in this market;
. Focus on enhancing systems and network management, Internet technology
services and professional services;
. Accelerate our global expansion;
. Leverage our expertise to address new market opportunities; and
. Continue to establish strategic relationships for distribution and
technology.
35
<PAGE>
We began offering server hosting and Internet connectivity services in late
1995, opened our first dedicated Internet Data Center in August 1996, and
introduced managed services in 1997 and professional services in 1998. We
currently operate 17 domestic Internet Data Centers located in nine
metropolitan areas: Atlanta, Austin, Boston, Chicago, Los Angeles, New York,
Seattle, Silicon Valley and Washington, D.C. In addition, we opened our first
Internet Data Center outside of the United States in the London metropolitan
area in June 1999. In December 1999, we acquired Global OnLine Japan which has
an Internet Data Center in Tokyo, Japan. Our Internet Data Centers consist of
approximately 1,600,000 gross square feet.
We recently expanded our solutions and services by acquiring providers of
Internet technologies--Arca, AIS, Cohesive Service Metrics and Global OnLine
Japan. In October 1998, we purchased Arca, a provider of advanced network and
system security consulting services. In February 1999, to accelerate our launch
into the Chicago metropolitan area, we acquired AIS, a regional provider of co-
location, Web hosting and professional services. In July 1999, we acquired
Cohesive for approximately $112.0 million in cash, Exodus common stock and the
assumption of Cohesive options. Cohesive is a technology professional services
organization with expertise in networking, Web applications and technology
solutions. In November 1999, we acquired Service Metrics, an Internet
monitoring applications and services company. In December 1999, we acquired
Global OnLine Japan, an Internet solutions provider. In addition, in January
2000, we agreed to acquire KeyLabs, Inc., a provider of e-business testing
services. See "Prospectus Summary--Recent Events".
Services
Exodus' Internet solutions and services are designed to provide enterprises
with the high performance, scalability and expertise they need to optimize
their mission-critical Internet operations. We create tailored solutions for
our customers based on their unique business and technical requirements, and
modify the services as the customers' needs evolve. Our service offerings
include server hosting from within Internet Data Centers, network services,
managed services and professional services.
Internet Data Centers--Server Hosting Facilities
We deliver our services from geographically distributed, state-of-the-art
Internet Data Centers with uninterruptible power supply and back-up generators,
fire suppression, raised floors, HVAC, separate cooling zones, seismically
braced racks, 24x7 operations and high levels of physical security. In these
facilities, we support leading Internet hardware and software systems vendor
platforms, including those from Compaq Computer Corporation, Dell Computer
Corporation, Hewlett-Packard Company, IBM, Microsoft Corporation, Silicon
Graphics, Inc., Sun Microsystems, Inc. and The Santa Cruz Operation, Inc. This
multi-vendor flexibility enables the customer to retain complete control over
the technical solution and to integrate its Internet operations with its
existing IT technical architecture. Because mission-critical Internet
operations are typically very dynamic and often require immediate hardware and
software upgrades to maintain targeted service levels, customers have unlimited
24x7 access to the Internet Data Centers. Additional space and electrical power
can be added as needed, ensuring that the customer has access to additional
server hosting services.
Based upon their technical requirements, customers can select from shared
rack facilities within common cage areas, highly secure cabinets, enclosed cage
facilities or vaults. Our server hosting facilities generally include dedicated
electrical power circuits to ensure that each customer's electrical power
requirements are met.
36
<PAGE>
The following chart summarizes the key features of our current server
hosting services:
<TABLE>
<CAPTION>
Service Description Benefits
- ------- ----------- --------
<S> <C> <C>
CyberRack . 199 or 239 quarter, half or full rack . Entry-level service, providing
economical solution for
customers that do not need
dedicated environments
. Secured environment that is
shared by multiple customers
CyberCabinet . 199 or 239 full cabinet . Dedicated, locked cabinet
. A single rack with the
security of a dedicated
environment
. Dedicated power circuits
Virtual Data . 78 x 88 cage or customized to order . Dedicated, locked cage
Center
. Flexibility in designing and
configuring Internet servers,
including space for multiple
racks and other customer
computing products
. Dedicated power circuits
ExodusVault . 88 x 88 or 88 x 128 vault or . Dedicated, enclosed security
area
customized to order . Additional security for
sensitive Internet
transactions as required by
financial institutions and on-
line merchants
. Biometric identification for
entry
and exit, motion and
temperature detectors,
cameras, high impact glass,
and secured data and
electrical lines
. Dedicated power circuits
</TABLE>
Network Services--Internet Connectivity
Exodus connects its Internet Data Centers through a high performance,
dedicated and redundant backbone network with multiple high speed OC-3 and OC-
12 lines, along with our extensive public and private network interconnections.
Our network services are designed to deliver the scalability, high availability
and performance required for high-volume, mission-critical Internet operations.
Since our customers' mission-critical Internet operations often experience
network traffic spikes due to promotions or events, we have a policy of
providing sufficient excess network capacity for our customers.
To meet customers' requirements of near 100% availability, our network is
designed to minimize the likelihood of any single point of failure. Each
Internet Data Center has multiple physical fiber paths into the facility. We
maintain multiple network links from multiple vendors into each Internet Data
Center and regularly check that our fiber backbone is traversing physically
separated paths. Customers may also enhance their Internet site's availability
by physically duplicating their site at multiple Internet Data Centers, and
synchronizing applications and content through our private fiber backbone
network. This network architecture optimizes the availability of a customer's
site, even in the event of a link failure.
Our network services are also designed to consistently deliver low-latency
and peak network performance. During the third quarter of 1999, our network
exchanged a sustained peak 5.6 gigabits per second volume of
37
<PAGE>
traffic with the Internet. Our backbone engineering personnel continuously
monitor traffic patterns and congestion points throughout our network and at
our interconnection points, and dynamically reroute traffic flows to optimize
end-user response times. We also provide peak network performance by
maintaining a large number of direct public and private network peering
interconnections. Our network includes private peering interconnections with
approximately 200 ISPs worldwide.
Managed Services
We provide managed services to our customers, including detailed monitoring,
reporting and management tools to control their hardware, network, software and
application environments. Through our system and network management framework,
a customer can manage mission-critical Internet operations housed at our
Internet Data Centers as well as at the customer's site. We believe this
framework provides an important advantage to enterprises seeking to outsource a
portion of their Internet operations and to link the management of the
outsourced operations with in-house operations. Our proactive service
methodology focuses on identifying and resolving potential problems before they
affect an Internet site's availability or performance. Our sophisticated
Internet system and network management solutions enable us to identify and to
begin to resolve hardware, software, network and application problems,
frequently before the customer is even aware that a problem exists. We offer
the services summarized in the following chart:
<TABLE>
<CAPTION>
Service Description Benefits
- ------- ----------- --------
<S> <C> <C>
Managed . A package of 24x7 monitoring . Real time monitoring,
Monitoring and management solutions for notification and reporting for
Services system and database server and database alarms and
(MMS) applications problems
. 24x7 proactive monitoring of . Maximizes availability of
Internet server process customers' mission-critical
Internet operations by
identifying potential problems
proactively
. 24x7 rebooting of servers . Allows customers to leverage
Exodus' systems expertise
. Monthly and daily reports . Offload problem resolution to
available via the Web Exodus (optional)
. An Exodus system
administrator that performs
problem resolution and
automated process restarts
(optional)
Site . Bandwidth usage reports, . Assists in capacity planning
Management graphic and tabular and management of network
Reports statistics delivered to resources
customers via the Internet on
an hourly, daily and semi-
monthly basis
Internet . Tape management services to . Maximizes the availability of
Disaster restore sites after a system customers' applications;
Recovery failure provides additional redundancy
in the event of Internet site
failure
. Distributed load balancing
services to seamlessly re-
route user traffic to an
alternate site in the event
of a failure
Internet . Assigned project manager . Assures a smooth transition to
Systems accountable for developing a an Exodus Internet Data Center
Integration migration plan, managing the along with ongoing support
site's installation and
providing ongoing account
support
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
Service Description Benefits
- ------- ----------- --------
<S> <C> <C>
. Exodus acts as value-added
reseller of Cisco and F5
Labs, Inc. products,
primarily routers, hubs and
switching equipment, in
connection with server
hosting services
Exodus Data . Fully-managed on site back-up . Maintains regular data back-up
Vault and restore services provided and fast network restore
in partnership with Sun capability for mission-
Microsystems, utilizing critical Internet sites
Veritas NetBackup solution
and DLT tape storage
technology
Exodus . Intelligent routing services . Maximizes availability and
MultiPath that geographically performance for Internet sites
Net distribute end-user requests located across multiple
Internet Data Centers
. Traffic routed based upon . Optimizes end-user response
server time
performance and availability, . Provides sophisticated
Internet traffic patterns and Internet site redundancy
the geographic locations of Exodus MultiPath Site
the requesters
Exodus . Site requests intelligently . Increases availability and
MultiPath balanced across multiple performance for multi-server,
Site servers located within a mission-critical Internet
single Internet Data Center sites
Managed . Fully managed firewall . Enhances site security
Firewall perimeter security solution
Service
. 24x7 proactive monitoring
Vulnerability . Automated testing for web . Provides notification of
Scanning site weaknesses potential security
vulnerabilities
Intrusion . Detection and notification of . Allows customers to react
Detection hacker attacks quickly when their site is
being attacked
Exodus . Deployment of Inktomi's . Provides customers with the
ReadyCache network caching technology cost-effective option to
Content through our network of geographically distribute
Distribution Internet Data Centers that their content, thereby
Service will facilitate the enabling them to reach a wider
distribution of customer range of their Internet end-
content worldwide users
</TABLE>
We also offer professional services and, through the acquisition of Cohesive
Technology Solutions, Inc., have expanded these services to assist our
customers in planning their strategies for managing mission-critical Internet
operations, transitioning operations to our Internet Data Centers and managing
various aspects of their Internet operations. These services can be layered to
allow customers to outsource an increasing portion of the management of their
Internet operations.
39
<PAGE>
Customers
We have established a diversified base of customers in a wide range of
industries, including finance, entertainment, high technology, education,
healthcare and publishing. As of September 30, 1999, we had over 1,700
customers (including installed and uninstalled customers under contract). The
following is a representative list of our Internet Data Center customers. None
of these customers individually represented in excess of 10% of 1998 revenues
or revenues for the first nine months of 1999.
<TABLE>
<S> <C> <C>
Applied Materials Kelley Blue Book Quote.com
DoubleClick Lycos Reebok
eBay Macromedia Sony Online Ventures
Egghead.com (formerly
Onsale) MSNBC Interactive News SportsLine USA
E-Loan MSN Hotmail Storage Networks
eShare Technologies National Semiconductor United Media
France Telecom North USA Today Information
America NextCard Network
FreeRealTime.com Nordstrom Yahoo!GeoCities
Inktomi priceline.com
</TABLE>
Sales and Marketing
Our sales and marketing objective is to achieve broad market penetration
within our target market of enterprises that depend upon the Internet for
mission-critical operations. As of September 30, 1999, we had 316 employees
engaged in sales and marketing.
We sell our services to enterprises directly through our sales force and
indirectly through our channel partners. We are actively seeking to increase
our sales and distribution capabilities and coverage in the United States and
to expand internationally as new Internet Data Centers are installed outside of
the United States, commencing with our Internet Data Center in London, England.
Currently, most of our sales are derived through the efforts of our direct
sales force.
Sales Force
Our sales force is organized into four distinct groups, consisting of field
sales, strategic accounts, channel sales and telesales, each of which is
further divided into geographical regions within the United States. There is
also a new sales organization in London that we began to staff in October 1998.
Systems engineers and project managers support our sales force, providing pre-
and post-sales support to ensure that customers' services are implemented
properly and efficiently.
Channel Program
Our channel program includes relationships with At Home Corporation, Compaq
Computer Corporation, Hewlett-Packard Company, Microsoft Corporation, Silicon
Graphics, Inc. and Sun Microsystems, Inc. The various levels of channel program
partner participation are summarized below:
. Solutions Integrators play a sales representative role for us, and
receive a one-time payment, based on the monthly recurring charges from
opportunities brought into us. They are typically consultants,
independent Web developers, content developers, developers of small-to
medium-sized applications and regional VARs.
. Alliance Partners market our services, and receive a monthly residual
income for opportunities introduced to us. Alliance Partners are
typically larger regional or national systems integrators, Web
developers, hardware and software resellers, consulting organizations
and ISPs.
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<PAGE>
. Technology Partners market software or hardware solutions, working
together with us to offer superior services and innovative products.
Through product promotions and bundled solutions, technology partners
can offer their customers new value-added services and greater pricing
incentives.
. Resellers market co-branded Exodus services. They commit to a certain
volume level to resell as part of their application or niche-focused
service offering to their customer base.
Marketing
Our marketing organization is responsible for product marketing management,
public relations and marketing communications. Product marketing management
includes defining the product roadmap and bringing to market the portfolio of
services and programs that will address customer needs. These activities
include product strategy and definition, pricing, competitive analysis, product
launches, channel program management and product lifecycle management. We
stimulate service demand and brand awareness for Exodus through a broad range
of marketing communications, public relations, advertising, as well as through
our Web site. Public relations focuses on cultivating industry analyst and
media relationships with the goal of securing broad media coverage and public
recognition of our leadership position in the market for Internet system and
network management solutions.
Customer Service
We offer superior customer service by understanding the technical
requirements and business objectives of our customers and by fulfilling their
needs proactively on an individual basis. Working closely with our customers,
we optimize the performance of our customers' Internet operations, avoid
downtime, resolve problems that may arise, and make appropriate adjustments in
services as customer needs change over time. In December 1998, in order to
enhance our customer service delivery and increase operating efficiencies 24x7,
we launched a centralized response center which handles inbound calls,
monitoring, and problem resolution for our Internet Data Centers in the Silicon
Valley metropolitan area. Given the success of this program, in May 1999, we
centralized all response handling support for our domestic Internet Data
Centers in this Response Center. Partnering with our customers, we also solicit
feedback to ensure that we continue to offer the highest quality of service. We
use advanced software tools to aid in customer monitoring and service efforts.
Many of our customer service personnel have been specifically trained and
certified by the vendors of our software tools, including Sun Microsystems,
Inc., Microsoft Corporation, Oracle Corporation and Computer Associates.
We also provide customer service and technical support during the
installation phase, including a transition team and project management support.
Our customer service continues after installation, through customer advocacy
representatives who are responsible for resolving customer problems.
In addition, we provide system integration services between the customer's
Internet site and legacy systems. After installation, primary customer support
is coordinated through each Internet Data Center's Network Control Center.
These centers are operated 24x7 by engineers who monitor site and network
operations, and activate teams to solve problems that arise. To solve complex
problems, we draw on the collective expertise at all of our Internet Data
Centers, creating a nationwide engineering pool. Our customer service personnel
are also available to assist customers whose operations require specialized
procedures.
We employ network engineers and systems administrators who work with
customers to design and maintain their Internet operations. Our network
engineers and system administrators are trained specialists who support Windows
NT, Solaris, Linux and other UNIX platforms. They are also trained to support
Cisco routers and switches. They also serve as the second level of support for
customer issues that cannot be resolved by the Network Control Center. We also
employ a group of backbone engineers who are accountable for designing and
operating the dynamic network that connects our Internet Data Centers. This
group constantly monitors the network design and effectiveness to optimize
performance for customers, rerouting and redesigning traffic as conditions
require.
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<PAGE>
Our contracts with customers generally cover the provision of services by us
for a one-year period and may contain, among other things, various service
level warranties. These service agreements entered into prior to August 1997
typically included service level warranties which provided that, if we failed
to provide Internet Data Center services to a customer for more than 24
consecutive hours, a customer's account would be credited for the charges the
customer paid for services it did not receive during period affected. Between
August 1997 and July 1998, our service agreements typically included service
level warranties which provided that, if we fail to provide Internet Data
Center services to a customer for more than two consecutive hours, the
customer's account would be credited for one day of service and, if for more
than eight consecutive hours, one week of service, with each customer limited
to one credit per month. Since July 1998, our service agreements have typically
included service level warranties which provide that, if we fail to provide
Internet Data Center services to a customer for more than 15 minutes, the
customer's account would be credited for one day of service, up to a maximum of
seven days in any month. In addition, we provide additional credits for packet
loss and transmission latency. Certain customers have received more favorable
terms than those described above. To date, only a limited number of customers
have been entitled to these warranties to receive a credit for a period of free
service. As we did not open our first dedicated Internet Data Center until
August 1996, we have had Internet Data Center customers for only a short period
of time. Accordingly, we have had limited experience with customers continuing
to receive services after the initial term of their contract.
As of September 30, 1999, we had 766 employees dedicated to customer
service, professional services and network engineering.
Network Design
Our high performance server network is designed to provide the highest
possible availability and reliability for our customers' Internet operations.
The network comprises our Internet Data Centers that are interconnected by a
high-performance backbone network that is connected to the Internet through
public and private peering interconnections. Within each Internet Data Center,
a virtual LAN environment provides redundant, high-speed internal connectivity.
Our Internet Data Centers are located near most of the major Internet
exchange points ("IXPs") and are connected to their local IXPs by multiple OC-3
and OC-12 lines, provisioned by local exchange carriers, such as Teleport
Communications Group Inc., MFS Communications Company, Inc., Brooks Fiber
Properties, Inc. and the Regional Bell Operating Companies. These links to the
local exchange points, combined with private exchanges with ISPs, connect the
customers' traffic to the Internet.
In order to provide a high level of redundancy, performance and capacity,
along with real-time content replication or caching across our Internet Data
Centers, we have multiple OC-3 and OC-12 lines. We engineer our backbone with a
geographically diverse fiber path to provide high availability, even in the
event of a link failure. We regularly upgrade our network in order to
accommodate expected traffic growth. For customers with servers located at
multiple Internet Data Centers, we provide dynamic response time and load
balancing technologies for optimal routing of traffic.
Within each Internet Data Center, we deploy a virtual LAN environment to
increase reliability and performance and to provide customers with redundant
connectivity to our backbone and the Internet, OC-3 and OC-12 lines are
strategically placed on different routers to avoid any single points of
failure. We also use a combination of public and private peering
interconnections to achieve fast and reliable delivery of content. We have
private and public interconnections with approximately 200 ISPs. We also have a
presence at each of the major U.S. IXPs.
We will continue to work with ISPs to establish direct private
interconnections at each of our Internet Data Centers, thus enhancing content
delivery. Our broad combination of private and public interconnections provides
customers with the reliability and redundancy that they need to ensure their
content reaches its intended destination. We seek to provide significant
unutilized network capacity for our LAN, WAN and public and private peering
links to allow for spikes in demand or line outages.
42
<PAGE>
Product Development
Our product development group is accountable for evaluating and integrating
best-of-breed technologies to enhance our service offerings that support the
customers' mission-critical Internet operations. We are also developing
proprietary technologies that will be integrated with these best-of-breed
technologies. We believe that establishing relationships with technology
leaders enables us to leverage these enterprises' research and development
expertise. These relationships enable us to gain quicker access to innovative
technologies and thus provide more creative value-added solutions for our
customers. For example, we have worked very closely with Computer Associates to
develop certain of our management services using Computer Associates' Unicenter
TNG technology. See "Risk Factors--We depend on third-party equipment and
software suppliers".
Our product development personnel have continued to develop strategic vendor
and technology relationships, such as the one with Computer Associates. Other
key partners include Checkpoint Software Technologies Limited, Cisco Systems,
Inc., Inktomi Corporation, Raptor Systems, Inc. and Sun Microsystems, Inc. To
the extent that we are unable to obtain the technology necessary to meet
customers' needs from a third party, we may develop the technology ourselves.
As of September 30, 1999, we employed 45 persons in product development.
We incurred product development expenses of $444,000 in 1996, $1.6 million
in 1997, $3.5 million in 1998 and $5.6 million in the first nine months of
1999.
Competition
Our market is intensely competitive. There are few substantial barriers to
entry, and we expect to face additional competition from existing competitors
and new market entrants in the future. Many companies have announced recently
that they intend to begin providing and/or greatly expanding their service
offerings to be competitive with our services. The principal competitive
factors in this market include:
. Internet system engineering and other technical expertise;
. customer service;
. network capability, reliability, quality of service and scalability;
. the variety of services offered;
. access to network resources, including circuits, equipment and
interconnection capacity to other networks;
. broad geographic presence;
. price;
. the ability to maintain and expand distribution channels;
. brand name;
. the timing of introductions of new services;
. network security; and
. financial resources.
There can be no assurance that we will have the resources or expertise to
compete successfully in the future. Our current and potential competitors in
the market include:
. providers of server hosting services;
. national, foreign and regional ISPs;
. global, regional and local telecommunications companies and Regional
Bell Operating Companies;
43
<PAGE>
. IT outsourcing firms; and
. other technology services and products companies.
Many of our competitors have substantially greater resources, more
customers, longer operating histories, greater name recognition and more
established relationships in the industry. As a result, these competitors may
be able to develop and expand their network infrastructures and service
offerings more quickly, devote greater resources to the marketing and sale of
their products and adopt more aggressive pricing policies. In addition, these
competitors have entered and will likely continue to enter into business
relationships to provide additional services competitive with those we provide.
Some of our competitors may be able to provide customers with additional
benefits in connection with the Internet system and network management
solutions, including reduced communications costs, which could reduce the
overall costs of their services relative to ours. We may not be able to offset
the effects of any price reductions. In addition, we believe our market is
likely to encounter consolidation in the near future, which could result in
increased price and other competition.
Employees
As of September 30, 1999, Exodus had 1,315 employees, including 316
employees in sales and marketing, 45 employees in product development, 766
employees in customer service, professional services and network engineering
and 188 employees in finance and administration. We believe that our future
success will depend in part on our continued ability to attract, hire and
retain qualified personnel. The competition for personnel is intense, and there
can be no assurance that we will be able to identify, attract and retain
personnel in the future. None of our employees is represented by a labor union,
and management believes that our employee relations are good. See "Risk
Factors--We must manage growth effectively" and "Risk Factors--We depend on our
key personnel".
Properties
Our executive offices are located in Santa Clara, California and consist of
approximately 150,000 square feet that are leased pursuant to an agreement that
expires in 2008. We lease the facilities for our current Internet Data Centers
in the following metropolitan areas and specific cities, which cover an
aggregate of approximately 1,600,000 gross square feet and expire in the years
indicated below:
<TABLE>
<CAPTION>
Lease
Metropolitan Area City and State Expiration
- ----------------- ------------------ ----------
<S> <C> <C>
Silicon Valley.................................... Santa Clara, CA 2002
Santa Clara, CA 2008
Santa Clara, CA 2009
Santa Clara, CA 2009
New York.......................................... Jersey City, NJ 2007
Weehawken, NJ 2011
Seattle........................................... Seattle, WA 2007
Seattle, WA 2009
Los Angeles....................................... Irvine, CA 2007
El Segundo, CA 2009
Washington, D.C................................... Herndon, VA 2004
Sterling, VA 2009
Boston............................................ Waltham, MA 2011
Waltham, MA 2011
Chicago........................................... Oak Brook, IL 2010
London............................................ Park Royal, UK 2023
Austin............................................ Austin, TX 2011
Atlanta........................................... Lithia Springs, GA 2011
Tokyo............................................. Tokyo, Japan 2000
</TABLE>
44
<PAGE>
Most of our leases provide for a renewal option upon the expiration of the
initial term. We currently maintain sales offices in unutilized space in our
Internet Data Centers. We intend to expand domestically and internationally.
Legal Proceedings
We are not a party to any material legal proceedings.
45
<PAGE>
MANAGEMENT
Executive Officers and Directors
The following table sets forth information regarding our executive officers
and directors:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Chief Executive Officer, President and
Ellen M. Hancock............... 56 Director
Executive Vice President, Chief Marketing
Beverly Brown.................. 55 Officer
Executive Vice President, Finance and
R. Marshall Case............... 41 Chief Financial Officer
Herbert Dollahite.............. 48 Executive Vice President, Customer
Services and Support and Quality
James J. McInerney............. 47 Executive Vice President, Engineering
Sam S. Mohamad................. 40 Executive Vice President, Worldwide Sales
Executive Vice President, Professional
William R. Yeack............... 41 Services
K.B. Chandrasekhar............. 39 Chairman of the Board of Directors
Frederick W.W. Bolander(1)(2).. 38 Director
John R. Dougery(2)............. 59 Director
Mark Dubovoy(3)(4)............. 53 Director
Max D. Hopper(1)(4)............ 65 Director
Peter A. Howley(1)............. 59 Director
Daniel C. Lynch(3)............. 58 Director
Thadeus J. Mocarski(3)(4)...... 38 Director
Naomi O. Seligman(2)........... 66 Director
</TABLE>
- --------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
(3) Member of the Finance Committee
(4) Member of the Corporate Governance Committee
Each director will hold office until the next Annual Meeting of Stockholders
and until his successor is elected and qualified or until his earlier
resignation or removal. Each officer serves at the discretion of the Board of
Directors.
Ellen M. Hancock has served as our President since March 1998 and our Chief
Executive Officer since September 1998 and has been a director since April
1998. She also served as the acting Vice President, Marketing of Exodus from
July 1998 to October 1998. From July 1996 to July 1997, she served as Executive
Vice President for Research and Development and Chief Technology Officer of
Apple Computer, Inc. From September 1995 to May 1996, Mrs. Hancock served as an
Executive Vice President and Chief Operating Officer of National Semiconductor
Corporation. From 1966 to February 1995, she served in various staff,
managerial and executive positions at International Business Machines
Corporation, most recently as Senior Vice President and Group Executive. Mrs.
Hancock is also a director of Colgate-Palmolive Company and Aetna Inc. She
holds a B.A. degree in mathematics from The College of New Rochelle and an M.A.
degree in mathematics from Fordham University.
Beverly Brown has served as our Executive Vice President, Chief Marketing
Officer since October 1999. From June 1996 to October 1999, she served as
President and Chief Executive Officer of DataMan Software, Inc. From February
1994 to May 1996, she served as an Executive Vice President for Praxis
International, Inc., where she was responsible for sales, marketing, business
development and professional services. From December 1992 to January 1994, Ms.
Brown served as Vice President, Marketing for the INGRES business unit of The
ASK Group. Ms. Brown is also a director of SEEC, Inc. She holds a B.S. degree
in chemistry/biology from LadyCliff College.
46
<PAGE>
R. Marshall Case has served as our Executive Vice President, Finance and
Chief Financial Officer since January 2000. From February 1998 until January
2000, he served as Executive Vice President and Chief Financial Officer of
Auspex Systems, Inc. From September 1997 until February 1998, he served as Vice
President Finance and Administration of Viking Freight Inc., a division of FDX.
From November 1995 until September 1997, he served as Vice President Financial
Planning and Analysis of Amdahl Corporation. Mr. Case previously served as
Executive Vice President, Martin Marietta Overseas Corporation and held a
variety of increasingly responsible financial management positions while at
General Electric Corporation for 12 years. Mr. Case holds a B.S. in Accounting
from the State University of New York.
Herbert Dollahite has served as our Executive Vice President, Customer
Services and Support and Quality since November 1998, and served as our Vice
President, Quality from June 1998 to November 1998. From August 1994 to June
1998, he served as Senior Engineer/Scientist II, Senior Manager, Central
Quality, Director, Integration Quality, and Senior Director, Global Quality
Engineering of Apple Computer, Inc. Dr. Dollahite holds a B.S. degree in
Engineering from Cornell University, an M.B.A. degree from University of
Virginia and a Ph.D. degree in Computer Science from the University of Alabama-
Huntsville.
James J. McInerney has served as our Executive Vice President, Engineering
since February 1999 and served as our Vice President, Engineering from October
1998 to February 1999. From November 1995 to October 1998, he served as Vice
President of Software Engineering at Synopsys, Inc., a provider of software
tools for electronic design automation. From 1974 to October 1995, Mr.
McInerney served in various research, managerial and executive positions at
International Business Machines Corporation, most recently as Director,
Intelligent Communication Services. He holds B.S. and M.S. degrees in
mathematics from Polytechnic University in New York.
Sam S. Mohamad has served as our Executive Vice President, Worldwide Sales
since December 1998 and as our Vice President, Worldwide Sales from February
1997 to December 1998. From March 1996 to January 1997, he served as Vice
President of Sales and Marketing of Genuity, Inc., a provider of data center
products and services. From 1987 to February 1996, Mr. Mohamad held various
positions at Oracle Corporation, most recently as Vice President of Direct
Sales and Marketing.
William R. Yeack has served as our Executive Vice President, Professional
Services since August 1999. Mr. Yeack has served as General Manager, North
America and Corporate Vice President of Marketing for Synon, Inc. from 1996 to
August 1999. From 1994 to 1996, Mr. Yeack was President of Tandem Services
Company and Director of Tandem Computers. Mr. Yeack holds B.S.B.A. and M.B.A.
degrees from Ohio State University.
K.B. Chandrasekhar, a co-founder of Exodus, has served as our Chairman of
the Board of Directors since Exodus' incorporation in California in February
1995, as President from the incorporation until March 1998 and as Chief
Executive Officer from the incorporation until September 1998. He has been
Chief Executive Officer of VitalTone, Inc. since 1999. From 1992 to May 1995,
he served as President and a director of Fouress, Inc., a network software
design and development firm and Exodus' predecessor, which he co-founded. Mr.
Chandrasekhar holds a B.S. degree in physics from Madras University and a
B.Tech. degree in electronics and communications from the Madras Institute of
Technology.
Frederick W. W. Bolander has served as a director of Exodus since October
1996. He has been a Managing Director of Gabriel Venture Partners, a venture
capital firm he co-founded in April 1999. From October 1994 to December 1998 he
was associated with Apex Investment Partners, a venture capital firm, where he
held various capacities and retired as a general partner. From May 1993 to
September 1993, he was a consultant to the African Communications Group, a
venture capital and project management firm, and from September 1985 to
September 1992, Mr. Bolander held the position of Manager for AT&T Corporation.
Mr. Bolander is also a director of Concord Communications, Inc. Mr. Bolander
holds B.S. and M.S. degrees in electrical engineering from the University of
Michigan and an M.B.A. degree from Harvard University.
John R. Dougery has served as a director of Exodus since February 1996. He
has been President of Dougery Ventures, a venture capital firm, since January
1998. Prior to that time, he was a general partner of
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<PAGE>
Dougery & Wilder, a venture capital firm, from 1981 to December 1997. Mr.
Dougery is also a director of Printronix, Inc. Mr. Dougery holds a B.A. degree
in mathematics from the University of California, Berkeley and an M.B.A. degree
from Stanford University.
Mark Dubovoy has served as a director of Exodus since October 1996. He was a
founder and has served as a general partner of LeapFrog Ventures since November
1999. He also has served as a general partner of Information Technology
Ventures since September 1994. Prior to that time, he was a general partner of
Grace/Horn Ventures from 1991 to August 1994. Mr. Dubovoy holds a B.S. degree
in physics from the National University of Mexico and M.A. and Ph.D. degrees in
physics from the University of California, Berkeley.
Max D. Hopper has served as a director of Exodus since January 1998. Mr.
Hopper has been the Chief Executive Officer of Max D. Hopper Associates, Inc.,
an IS management consulting firm, since January 1995. From 1985 to January
1995, he served in various positions at American Airlines, a subsidiary of AMR
Corporation, most recently as Senior Vice President, Information Systems and
Chairman of the SABRE Group. Mr. Hopper is also a director of Gartner Group,
Inc., USData Corporation, Accrue Software, Inc., Metrocall, Inc., Payless
Cashways, Inc. and United Stationers, Inc. From April 1995 to January 2000, he
served as a director of VTEL Corporation. From October 1995 to January 2000, he
served as a director of Worldtalk Corporation. He holds a B.S. degree in
mathematics from the University of Houston.
Peter A. Howley has served as a director of Exodus since September 1996.
Since April 1999, Mr. Howley has served as the Chief Executive Officer of
IPWireless, Inc. From May 1994 to April 1999, Mr. Howley was a private
consultant. From 1985 until April 1994, he served as Chairman of the Board,
Chief Executive Officer and President of Centex Telemanagement, Inc., a
telecommunications management company, which was acquired. Mr. Howley is also a
director of FaxSAV, Inc. and WorldPort Communications, Inc. Mr. Howley holds a
B.I.E. degree and an M.B.A. degree from New York University.
Daniel C. Lynch has served as director of Exodus since January 1998. Mr.
Lynch has been the owner of Lynch Enterprises, a venture capital firm, since
August 1993. From April 1994 to August 1996, he was a director of UUNet
Technologies, Inc., an Internet service provider. From 1991 to August 1993, he
was the Chairman of the Board of Interop, a conference and trade show company,
which he founded and which is now a division of ZD Comdex Forums. Mr. Lynch is
a director of Cybercash, Inc., which he founded, and Covad Communications
Group. He holds a B.S. degree in mathematics from Loyola Marymount University
and an M.A. degree in mathematics from the University of California, Los
Angeles.
Thadeus J. Mocarski has served as a director of Exodus since June 1997. Mr.
Mocarski has been an officer of various entities affiliated with Fleet Equity
Partners since January 1994. Prior to joining Fleet Equity Partners, Mr.
Mocarski was an attorney with the law firm of Edwards & Angell from 1989 to
January 1994. Mr. Mocarski holds a B.A. degree in economics and government from
Colby College and a J.D. degree from the Washington College of Law.
Naomi O. Seligman has served as a director of Exodus since July 1999. Ms.
Seligman has been a senior partner of the Research Board since 1971. Ms.
Seligman holds a B.A. degree in economics from Vassar College and an M.B.A.
degree from the London School of Economics. Ms. Seligman is also a director of
the Dun & Bradstreet Corporation, Chemdex Corporation, Martha Stewart Living
Omnimedia, Inc., and Sun Microsystems, Inc.
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OTHER INDEBTEDNESS
The 11 1/4% Senior Notes
In July 1998 and July 1999, we issued an aggregate of $275.0 million of 11
1/4% Senior Notes pursuant to an indenture between us and Chase Manhattan Bank
and Trust Company, National Association, as trustee. The 11 1/4% Senior Notes
are unsecured obligations, and mature on July 1, 2008. Interest on the 11 1/4%
Senior Notes accrues at the rate of 11 1/4% per annum, payable semi-annually on
January 1 and July 1 of each year. We have placed in escrow enough cash to meet
the requirement of the first four interest payments due on the 11 1/4% Senior
Notes.
The 11 1/4% Senior Notes will be redeemable at our option, in whole or in
part, at any time or from time to time, on or after July 1, 2003 at the
redemption prices set forth in the 11 1/4% Senior Notes indenture. In addition,
at any time prior to July 1, 2001, we may redeem up to 35% of the aggregate
principal amount of the 11 1/4% Senior Notes with the net proceeds of one or
more sales of certain types of our stock at a redemption price of 111.25%, plus
accrued and unpaid interest, if any, to the redemption date; provided that at
least 65% of the original principal amount of the 11 1/4% Senior Notes
initially issued remain outstanding. Upon a Change of Control, as defined in
the 11 1/4% Senior Notes indenture, we would be required to make an offer to
purchase the 11 1/4% Senior Notes at a purchase price equal to 101% of the
principal amount, plus accrued and unpaid interest, if any. The definition of
Change of Control in the 11 1/4% Senior Note Indenture is substantially similar
to the definition of Change of Control in the indenture governing our 10 3/4%
Senior Notes.
The debt evidenced by the 11 1/4% Senior Notes ranks equally in right of
payment with all or our existing and future unsubordinated unsecured debt,
including the 10 3/4% Senior Notes, and senior in right of payment to all of
our existing and future subordinated debt, including the 4 3/4% Convertible
Subordinated Notes and the 5% Convertible Subordinated Notes.
The 11 1/4% Senior Notes indenture restricts, among other things, our
ability to incur additional debt and the use of proceeds of such additional
debt, pay dividends or make certain other restricted payments, incur certain
liens to secure debt, or engage in merger transactions. There are significant
"carve-outs" and exceptions to these covenants.
The 5% Convertible Subordinated Notes
In March 1999, we issued $250.0 million of 5% Convertible Subordinated Notes
due 2006 pursuant to an indenture between us and Chase Manhattan Bank and Trust
Company, National Association, as trustee. The 5% Convertible Subordinated
Notes are convertible into our common stock at a conversion rate of
87.5704 shares per $1,000 in principal amount of 5% Convertible Subordinated
Notes. The 5% Convertible Subordinated Notes are unsecured obligations, and
mature on March 15, 2006. Interest on the 5% Convertible Subordinated Notes
accrues at the rate of 5% per annum, payable semi-annually on March 15 and
September 15 of each year.
The 5% Convertible Subordinated Notes will be redeemable at our option, in
whole or in part, at any time or from time to time, on or after March 20, 2001,
at the redemption prices set forth in the 5% Convertible Subordinated Notes
indenture; provided, however, that the 5% Convertible Subordinated Notes will
not be redeemable at our option on or after March 20, 2001 and before January
20, 2003 unless the last reported bid price for the Common Stock equals or
exceeds 140% of the conversion price for at least 20 trading days within a
period of 30 consecutive trading days ending within five trading days of the
call for redemption. Upon a Change of Control, as defined in the 5% Convertible
Subordinated Notes indenture, we would be required to make an offer to purchase
the 5% Convertible Subordinated Notes at a purchase price equal to 100% of the
principal amount, plus accrued and unpaid interest, if any. The definition of
Change of Control in the 5% Convertible Subordinated Notes Indenture differs in
a number of respects from the definition of Change of Control in the indenture
governing our 10 3/4% Senior Notes.
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The debt evidenced by the 5% Convertible Subordinated Notes is subordinated
in right of payment to all of our existing and future senior indebtedness
including the 11 1/4% Senior Notes and the 10 3/4% Notes and ranks equally in
right of payment to all of our existing and future subordinated debt. The
indenture governing the 10 3/4% senior notes will provide that the 10 3/4%
senior notes are "Designated Senior Indebtedness" as defined in the 5%
Convertible Subordinated Notes Indenture. This designation provides certain
additional rights to the holders of the 10 3/4% Senior Notes.
The 4 3/4% Convertible Subordinated Notes
In December 1999, we issued $500.0 million of 4 3/4% Convertible
Subordinated Notes pursuant to an indenture between us and Chase Manhattan Bank
and Trust Company, National Association, as trustee. The 4 3/4% Convertible
Subordinated Notes are convertible into our common stock at a conversion rate
of 14.2034 shares per $1,000 in principal amount of 4 3/4% Convertible
Subordinated Notes. The 4 3/4% Convertible Subordinated Notes are unsecured
obligations, and mature on July 15, 2008. Interest on the 4 3/4% Convertible
Subordinated Notes accrues at the rate of 4 3/4% per annum, payable semi-
annually on January 15 and July 15 of each year, beginning July 15, 2000.
The 4 3/4% Convertible Subordinated Notes will be redeemable at our option,
in whole or in part, at any time or from time to time, on or after January 20,
2002, at the redemption prices set for in the 4 3/4% Convertible Subordinated
Notes indenture; provided, however, that the 4 3/4% Convertible Subordinated
Notes will not be redeemable at our option on or after January 20, 2002 and
before January 15, 2004 unless the last reported bid price for the common stock
equals or exceeds 140% of the conversion price for at least 20 trading days
within a period of 30 consecutive trading days ending within five trading days
of the call for redemption. Upon a Change of Control, as defined in the 4 3/4%
Convertible Subordinated Notes indenture, we would be required to make an offer
to purchase the 4 3/4% Convertible Subordinated Notes at a purchase price equal
to 100% of the principal amount, plus accrued and unpaid interest, if any. The
definition of Change of Control in the 4 3/4% Convertible Subordinated Notes
indenture differs in a number of respects from the definition of Change of
Control in the indenture governing the 10 3/4% Senior Notes.
The debt evidenced by the 4 3/4% Convertible Subordinated Notes is
subordinated in right of payment to all of our existing and future senior
indebtedness including the 11 1/4% Senior Notes and the 10 3/4% Senior Notes
and ranks equally in right of payment to all of our existing and future
subordinated indebtedness, including the 5% Convertible Subordinated Notes. The
indenture governing the 4 3/4% Convertible Subordinated Notes provides that the
10% Senior Notes are "Designated Senior Indebtedness" as defined in the 4 3/4%
Convertible Notes indenture. This designation provides certain additional
rights to the holders of the 10 3/4% Senior Notes.
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THE EXCHANGE OFFER
Terms of the Exchange Offer; Period for Tendering Old Notes
The old notes were sold by us on December 8, 1999 to Goldman, Sachs & Co.,
Donaldson Lufkin & Jenrette Securities Corporation, BancBoston Robertson
Stephens, Inc., PaineWebber Incorporated and Morgan Stanley & Co., Incorporated
(the "Purchasers") pursuant to a purchase agreement dated December 2, 1999
between us and the Purchasers. As set forth in this prospectus and in the
accompanying letters of transmittal, we will accept for exchange any and all
old notes that are properly tendered on or prior to the expiration date and not
withdrawn as permitted below. The term "expiration date" means 5:00 p.m., New
York City time (10:00 p.m., London time) on March , 2000; provided, however,
that if we extend the period of time for which the exchange offer is open, the
term "expiration date" means the latest time and date to which the exchange
offer is extended.
As of the date of this prospectus, $375.0 million aggregate principal amount
of the old dollar notes and (Euro)125.0 million aggregate principal amount of
the old euro notes are outstanding. This prospectus, together with the letters
of transmittal, is first being sent on or about the date set forth on the cover
page to all holders of old notes at the addresses set forth in the security
register maintained by the trustee or other applicable registrar. Our
obligation to accept old notes for exchange is subject to conditions as set
forth under "--Conditions to the Exchange Offer" below.
We expressly reserve the right, at any time or from time to time, to extend
the period of time during which the exchange offer is open, and thereby delay
acceptance for exchange of any old notes, by mailing written notice of an
extension to the holders of old notes as described below. During any extension,
all old notes previously tendered will remain subject to the exchange offer and
may be accepted for exchange by us. Any old notes not accepted for exchange for
any reason will be returned without expense to the tendering holder as promptly
as practicable after the expiration or termination of the exchange offer.
Old dollar notes tendered in the exchange offer must be $1,000 in principal
amount or any integral multiple of $1,000, and old euro notes tendered in the
exchange offer must be (Euro)1,000 in principal amount or any integral multiple
of (Euro)1,000.
We will mail written notice of any extension, amendment, non-acceptance or
termination to the holders of the old notes as promptly as practicable. This
notice will be mailed to the holders of record of the old notes no later than
9:00 a.m., New York City time, on the next business day after the previously
scheduled expiration date of other event giving rise to the notice requirement.
Registration Covenant; Exchange Offer
Under our registration rights agreement with the Purchasers, we have agreed
to file with the Commission the exchange offer registration statement on the
appropriate form under the securities Act with respect to the new notes. Upon
the effectiveness of the exchange offer registration statement, we will offer
to the holders of the old notes who are able to make required representations
the opportunity to exchange their old notes for new notes. Alternatively, we
will file with the Commission a shelf registration statement to cover resales
of transfer restricted securities (as defined below) by the holders of old
notes who satisfy specific conditions relating to the provision of information
in connection with the shelf registration statement if:
. we are not permitted to consummate the exchange offer because it is not
permitted by applicable law or Commission policy; or
. any holder of old notes notifies us prior to the 20th day following
consummation of the exchange offer that:
. it is prohibited by law or Commission policy from participating in
the exchange offer;
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. it may not resell the old notes acquired by it in the exchange offer
to the public without delivering a prospectus and the prospectus
contained in the exchange offer registration statement is not
appropriate or available for resales; or
. it is a broker-dealer and owns old notes acquired directly from us
or one of our affiliates.
We will use our best efforts to cause the applicable registration statement
to be declared effective as promptly as possible by the Commission.
"Transfer restricted securities" means each old note until the earliest of:
. the date on which the old note has been exchanged by a person other than
a broker-dealer for a new note in the exchange offer;
. following the exchange by a broker-dealer in the exchange offer of an
old note for a new note, the date on which the new note is sold to a
purchaser who received from the broker-dealer, on or prior to the date
of the sale, a copy of the prospectus contained in the exchange offer
registration statement;
. the date on which the old note has been effectively registered under the
Securities Act and disposed of in accordance with the shelf registration
statement; or
. the date on which the old note is distributed to the public pursuant to
Rule 144 under the Securities Act.
The registration rights agreement provides that:
. we will file and exchange offer registration statement with the
Commission on or prior to 60 days after December 8, 1999, which is the
date of the original issuance of the old notes;
. we will use our best efforts to have the exchange offer registration
statement declared effective by the Commission on or prior to 150 days
after December 8, 1999;
. unless the exchange offer would not be permitted by applicable law or
Commission policy , we will commence the exchange offer and use our best
efforts to issue, on or prior to 30 business days after the date on
which the exchange offer registration statement was declared effective
by the Commission, new notes in exchange for all old notes tendered in
the exchange offer; and
. if obligated to file the shelf registration statement, we will use our
best efforts to file the shelf registration statement with the
Commission on or prior to 45 days after the filing obligations arises,
but in no event less than 60 days after December 8, 1999, and to cause
the shelf registration to be declared effective by the Commission on or
prior to 90 days after this obligation arises, but in no event less than
150 days after December 8, 1999.
If a registration default (as defined below) occurs, we will pay liquidated
damages to each holder of transfer restricted securities, with respect to the
first 90-day period immediately following the occurrence of the first
registration default in and amount equal to $0.05 per week the registration
default continues per $1,000 principal amount of transfer restricted securities
held by the holder. The amount of the liquidated damages will increase by an
additional $0.05 per week that the registration default continues per
$1,000 principal amount of transfer restricted securities with respect to each
subsequent 90-day period until all registration defaults have been cured, up to
a maximum amount of liquidated damages for all registration defaults of $0.25
per week per $1,000 principal amount of transfer restricted securities. On each
interest payment date we will pay all accrued liquidated damages to the holders
of the old notes by wire transfer of immediately available funds or by federal
funds check and to holders of certificated securities by wire transfer to the
accounts specified by them or by mailing checks to their registered addresses
if no accounts have been specified. Following the cure of all registration
defaults, accrual of liquidated damages will cease.
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A "registration default" means the occurrence of one of the following
events:
. we fail to file any of the registration statements required by the
registration rights agreement on or before the date specified for the
filing;
. any of the registration statements is not declared effective by the
Commission on or prior to the date specified for the effectiveness;
. we fail to completed the exchange offer within 30 business days of the
date of effectiveness of the exchange offer registration statement; or
. the shelf registration statement or the exchange offer registration
statement is declared effective but thereafter ceases to be effective or
usable in connection with resales (except in specified circumstances) of
transfer restricted securities during the period specified in the
registration rights agreement.
This summary of the provisions of the registration rights agreement is not
complete and is subject to, and is qualified by reference to, all provisions of
the registration rights agreement. A copy of this agreement is filed as an
exhibit to the registration statement of which this prospectus is a part.
Interest on Exchange Notes
Each new note will bear interest from the most recent date to which interest
has been paid or duly provided for on the old note surrendered in exchange for
a new note, or, if no interest has been paid or duly provided for on the old
note, from December 8, 1999, the date of issuance of the old note. Holders of
the old notes whose old notes are accepted for exchange will not receive
accrued interest on the old notes for any period from and after the last
interest payment date to which interest has been paid or duly provided for on
the old notes prior to the original issue date of the new notes, or, if no
interest has been paid or duly provided for, will not receive any accrued
interest on the old notes. These holders will be deemed to have waived the
right to receive any interest on the old notes accrued from and after that
interest payment date, or, if no interest has been paid or fully provided for,
from and after December 8, 1999. Interest on the notes is payable semi-annually
in arrears on each June 15 and December 15.
Procedures for Tendering Old Notes
To tender in the exchange offer, a holder must complete, sign and date the
applicable letter of transmittal, or a facsimile of the applicable letter of
transmittal, have the signatures guaranteed if required by the applicable
letter of transmittal, and mail or otherwise deliver the applicable letter of
transmittal or a facsimile, together with the old notes and any other required
documents, to the applicable exchange agent. The applicable exchange agent must
receive these documents at the address set forth below prior to 5:00 p.m., New
York City time (10:00 p.m., London time) on the expiration date. Delivery of
the old notes may be made by book-entry transfer in accordance with the
procedures described below. Confirmation of book-entry transfers must be
received by the applicable exchange agent prior to the expiration date.
By executing a letter of transmittal, each holder will make to use the
representations set forth below in the fourth paragraph under the heading "--
Resale of New Notes."
The tender by a holder and the acceptance by us will constitute an agreement
between the holder and us in accordance with the terms subject to the
conditions set forth in this prospectus and in the applicable letter of
transmittal.
The method of delivery of old notes and the applicable letter of transmittal
and all other required documents to the applicable exchange agent is at the
election and risk of the holder. Instead of delivery by mail, it is recommended
that holders use an overnight or hand delivery service. In all cases,
sufficient time should be allowed to assure delivery to the applicable exchange
agent before the expiration date. No letter of transmittal or notes should be
sent to us. Holders may request their brokers, dealers, commercial banks, trust
companies or nominees to effect the above transactions for them.
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Any beneficial owner whose old notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to
tender should contact the registered holder promptly and instruct the
registered holder to tender on the beneficial owner's behalf.
Signatures on a letter of transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by an eligible institution (as defined below) unless
the old notes tendered:
. are signed by the registered holder, unless the holder has completed the
box entitled "special exchange instructions" or "special delivery
instructions" on the applicable letter of transmittal; or
. are tendered for the account of an eligible institution.
In the event that signatures on a letter of transmittal or a notice of
withdrawal, as the case may be, are required to be guaranteed, the guarantee
must be by a member firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc., a commercial bank or trust
company having an office or correspondent in the United States, or an "eligible
guarantor institution" within the meaning of Rule 17Ad-15 under the Exchange
Act (an "eligible institution").
If a letter of transmittal is signed by a person other than the registered
holder of any old notes listed on the letter of transmittal, the old notes must
be endorsed or accompanied by a properly completed bond power, signed by the
registered holder s the registered holder's name appears on the old notes, with
the signature guaranteed by an eligible institution.
If a letter of transmittal or any old notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or other acting in a fiduciary or representative capacity, the
persons should so indicate when signing. Unless waived by us, evidenced
satisfactory to us of their authority to so act must be submitted with the
letter of transmittal.
All questions as to the validity, form, eligibility, including time or
receipt, acceptance of tendered old notes and withdrawal of tendered old notes
will be determined by us in our sole discretion. This determination will be
final and binding. We reserve the absolute right to reject any and all old
notes that are not properly tendered or any old notes our acceptance of which
would, in the opinion of our counsel, be unlawful. We also reserve the right to
waive any defects, irregularities or conditions of tender as to particular old
notes. Our interpretation of the terms and conditions of the exchange offer,
including the instructions in the letters of transmittal, will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of old notes must be cured within the time period we
determine. Although we intend to notify holders of defects or irregularities
with respect to tenders of old notes, non of Exodus, the exchange agents or any
other person will incur any liability for failure to give this notification.
Tenders of old notes will not be deemed to have been made until defects or
irregularities have been cured or waived. Any old notes received by the
exchange agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the applicable
exchange agent to the tendering holders, unless otherwise provided in
applicable letter of transmittal, as soon as practicable following the
expiration date.
Book-Entry Delivery Procedures
Promptly after the date of this prospectus, the exchange agent for the old
dollar notes will establish accounts with respect to the old dollar notes at
DTC, and the exchange agent for the old euro notes will establish accounts with
respect to the old euro notes at each of Euroclear and Cedelbank (DTC,
Euroclear and Cedelbank are collectively referred to as the "book-entry
transfer facilities" and, individually as a "book-entry transfer facility") for
purposes of the exchange offer. Any financial institution that is a participant
in the applicable book-entry transfer facility's systems may make book-entry
delivery of the old notes by causing the applicable book-entry transfer
facility to transfer old notes into the applicable exchange agent's account at
the book-entry transfer facility in accordance with the book-entry transfer
facility's procedures for transfers. Timely book-entry delivery of old notes
pursuant to the exchange offer, however, requires receipt of a book-entry
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confirmation prior to the expiration date. In addition, to receive new notes
for tendered old notes, the applicable letter of transmittal, or a mutually
signed facsimile, together with any required signature guarantees and any other
required documents, or an agent's message in connection with a book-entry
transfer, must, in any case, be delivered or transmitted to and received by the
applicable exchange agent at its address set forth under "--Exchange Agent"
below prior to the expiration date. Alternatively, the guaranteed delivery
procedures described below must be complied with. Tender will not be considered
made until the documents are received by the applicable exchange agent.
Delivery of documents to any of the book-entry transfer facilities does not
constitute delivery to the exchange agent.
Tender of Existing Notes Held Through Book-Entry Transfer Facilities
The exchange agents and each of the book-entry transfer facilities have
confirmed that the exchange offer is eligible for each of the book-entry
transfer facility's Automated Tender Offer Program, or ATOP. Accordingly,
participants in the applicable book-entry transfer facility's ATOP may, in lieu
of physically completing and signing the applicable letter of transmittal and
delivering it to the applicable exchange agent, electronically transmit their
acceptance of the exchange offer by causing the book-entry transfer facility to
transfer old notes to the applicable exchange agent in accordance with the
book-entry transfer facility's ATOP procedures for transfer. The book-entry
transfer facility will then send an agent's message to the applicable exchange
agent.
The term "agent's message" means a message transmitted by a book-entry
transfer facility, received by exchange agent and forming party of the book-
entry confirmation, which states that:
. the book-entry transfer facility has received an expressed
acknowledgement from a participant in its ATOP that is tendering old
notes which are the subject of the book-entry conformation;
. the participant has received and agrees to be bound by the terms of the
applicable letter of transmittal or, in the case of an agent's message
relating to guaranteed delivery, the participant has received and agrees
to be bound by the applicable notice of guaranteed delivery; and
. we may enforce the agreement against the participant.
Guaranteed Delivery Procedure
Holders who wish to tender their old notes and (1) whose old notes are not
immediately available, (2) who cannot deliver their old notes, the applicable
letter of transmittal or any other required documents to the applicable
exchange agent or (3) who cannot complete the procedures for book-entry
transfer, prior to the expiration date, may effect a tender if:
. the tender is made through an eligible institution;
. prior to the expiration date, the applicable agent receives from the
eligible institution a properly completed and duly executed notice of
guaranteed delivery by facsimile transmission, mail or hand delivery;
. setting forth the name and address of the holder;
. setting forth the certificate number(s) of the old notes and the
principal amount of old notes tendered, stating that the tender is
being made; and
. guaranteeing that, within three New York Stock Exchange trading days
after the expiration date, the applicable letter of transmittal or
facsimile together with the certificate(s) representing the old
notes or a book-entry confirmation of the old notes into the
applicable exchange agent's account at the applicable book-entry
transfer facility and any other documents required by the applicable
letter of transmittal, will be deposited by the eligible institution
with the applicable exchange agent; and
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. a properly completed and executed letter of transmittal for facsimile,
as well as the certificate(s) representing all tendered old notes in
proper form for transfer or a book-entry confirmation transfer of the
old notes into the applicable exchange agent's account at the applicable
book-entry transfer facility and all other documents required by the
applicable letter of transmittal, are received by the applicable
exchange agent within New York Stock Exchange trading days after the
expiration date.
Upon request to the applicable exchange agent, a notice of guaranteed
delivery will be sent to holders who wish to tender their old notes according
to the guaranteed delivery procedures set forth above.
Withdrawals of Tenders
Except as otherwise provided in this prospectus, tenders of old notes may be
withdrawn at any time prior to 5:00 p.m., New York City time (10:00 p.m.,
London time), on the expiration date.
To withdraw a tender of old notes in the exchange offer, a written or
facsimile transmission notice of withdrawal must be received by the applicable
exchange agent at the address set forth below prior to 5:00 p.m., New York City
time (10:00 p.m., London time), on the expiration date. Any notice of
withdrawal must:
. specify the name of the person having deposited the old notes to be
withdrawn (the "depositor");
. identify the old notes to be withdrawn, including the certificates
number(s) and principal amount of the old notes, or, in the case of old
notes transferred by book-entry transfer, the name and number of the
account at the applicable book-entry transfer facility to be credited;
. be signed by the holder in the same manner as the original signature on
the letter of transmittal by which the old notes were tendered,
including any required signature guarantees, or be accompanied by
documents of transfer sufficient to have the trustee or other applicable
registrar register transfer of the old notes into the name of the person
withdrawing the tender; and
. specify the name in which any of the old notes are to be registered, if
different from that of the depositor.
All questions as to the validity, form and eligibility, including time or
receipt, of the notices will be determined by us. Our determination will be
final and binding on all parties. Any old notes so withdrawn will be deemed not
to have been validly tendered for purposes of the exchange offer and no new
notes will be issued in exchange unless the old notes so withdrawn are validly
retendered. Any old notes which have been tendered but which are not accepted
for exchange will be returned to their holder without cost to the holder as
soon as practicable after withdrawal, rejection of tender or termination of the
exchange offer. Properly withdrawn old notes may be retendered by following one
of the procedures described above under "--Procedures for Tendering Old Notes"
at any time prior to the expiration date.
Conditions to the Exchange Offer
Notwithstanding any other terms of the exchange offer, we will not be
required to accept for exchange, or exchange new notes for, any old notes, and
may terminate the exchange offer before the acceptance of the old notes if, in
our sole judgment, the exchange offer would violate any law, statute, rule or
regulation or an interpretation thereof of the Staff of the Commission. If we
determine in our sole discretion that this condition is not satisfied, we may:
. refuse to accept any old notes and return all tendered old notes to the
tendering holders;
. extend the exchange offer and retain all old notes tendered prior to the
expiration date, subject, however, to the rights of holders to withdraw
the old notes (see "--Withdrawals of Tender"); or
. waive the unsatisfied conditions with respect to the exchange offer and
accept all validly tendered old notes which have not been withdrawn. If
the waiver constitutes a material change to the exchange
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offer, we will promptly disclose the waiver by means of a prospectus
supplement that will be distributed to the registered holders, and we
will extend the exchange offer for a period of five to ten business
days, depending upon the significance of the waiver and the manner of
disclosure to the registered holders, if the exchange offer would
otherwise expire during that five to ten business-day period.
Exchange Agent
Chase Manhattan Bank & Trust Company, National Association has been
appointed as the exchange agent for the exchange offer of the old dollar
notes. Chase Manhattan Bank London has been appointed as the exchange agent
for the exchange offer of the euro notes. All executed letters of transmittal
should be directed to the applicable exchange agent at the address set forth
below. Questions and requests for assistance, requests for additional copies
of this prospectus or of the letter of transmittal and requests for notices of
guaranteed delivery should be directed to the applicable exchange agent,
addressed as follows:
If to the Chase Manhattan Bank & Trust Company, National Association:
By mail or by hand:
Chase Manhattan Bank & Trust Company, National Association, Exchange Agent
Suite 2725
101 California Street
San Francisco, California 94111
By Facsimile:
(415) 693-8850
Confirm Facsimile by Telephone:
(415) 954-9581
If to Chase Manhattan Bank London:
By mail or by hand:
Chase Manhattan Bank London
Trinity Tower
9 Thomas More Street
London, E1 9YT, UK
Delivery of a letter of transmittal to an address other than that for the
applicable exchange agent as set forth above or transmission of instructions
via facsimile other than as set forth above does not constitute a valid
delivery of a letter of transmittal.
Fees and Expenses
We will not make any payment to brokers, dealers or other soliciting
acceptances of the exchange offer.
Transfer Taxes
Holders who tender their old notes for exchange generally will not be
obligated to pay any transfer tax in connection with the exchange. However,
holders who instruct us to register new notes in the name of a person other
than the registered tendering holders, or request that old notes not tendered
or not accepted in the exchange offer be returned to a person other than the
registered tendering holder, will be responsible for the payment of any
applicable transfer tax.
Accounting Treatment
The new notes will be recorded at the same carrying value as the old notes.
This is the aggregate principal amount of the old notes, as reflected in our
accounting records on the date of exchange. Accordingly, no gain or loss for
accounting purposes will be recognized in connection with the exchange offer.
The expenses of the exchange offer will be amortized over the term of the new
notes.
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Appraisal Rights
Holders of old notes will not have dissenters' rights or appraisal rights in
connection with the exchange offer.
Resale of New Notes
The new notes are being offered to satisfy our obligations contained in the
registration rights agreement. We are making the exchange offer in reliance on
the position of the Staff of the Commission as set forth in the Exxon Capital
No-Action Letter, the Morgan Stanley No-Action Letter, the Shearman & Sterling
No-Action Letter, and other interpretive letters addressed to third parties in
other transactions. However, we have not sought our own interpretive letter
addressing these matters and there can be no assurance that the Staff would
make a similar determination with respect to the exchange offer as it has in
those interpretive letters to third parties. Based on these interpretations by
the Staff, and subject to the two immediately following sentences, we believe
that new notes issued pursuant to this exchange offer in exchange for old notes
may be offered for resale, resold and otherwise transferred by holders, other
than a holder who is a broker-dealer, without further compliance with the
registration and prospectus delivery requirements of the Securities Act,
provided that:
. the new notes are acquired in the ordinary course of the holder's
business; and
. the holder is not participating, and has no arrangement or understanding
with any person to participate, in a distribution within the meaning of
the Securities Act of the new notes.
However, any holder who:
. is an "affiliate" of us, within the meaning of Rule 405 under the
Securities Act;
. does not acquire new notes in the ordinary course of its business;
. intends to participate in the exchange offer for the purpose of
distributing new notes; or
. is a broker-dealer who purchased old notes directly from us,
will not be able to rely on the interpretations of the Staff set forth in the
above-mentioned interpretive letters; will not be permitted or entitled to
tender old notes in the exchange offer; and must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with
any sale or other transfer of old notes unless the sale is made pursuant to an
exemption from those requirements.
In addition, as described below, if any broker-dealer holds old notes
acquired for its own account as a result of market-making or other trading
activities and exchanges the old notes for new notes (a "participating broker-
dealer"), the participating broker-dealer may be deemed to be a statutory
"underwriter" within the meaning of the Securities Act and must deliver a
prospectus meeting the requirements of the Securities Act in connection with
any resales of new notes. See "Plan of Distribution."
Each holder who wishes to exchange old notes for new notes in the exchange
offer will be required to represent that:
. it is not an affiliate of us;
. any new notes to be received by it are being acquired in the ordinary
course of its business; and
. it has no arrangement or understanding with any person to participate in
a distribution, within the meaning of the Securities Act, of new notes.
Each broker-dealer that receives new notes for its own account pursuant to
the exchange offer must:
. acknowledge that it acquired the old notes for its own account as a
result of market-making activities or other trading activities, and not
directly from us, and
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. must agree that it will deliver a prospectus meeting the requirements of
the Securities Act in connection with any resale of new notes.
The letters of transmittal state that by so acknowledging and by delivering
a prospectus, a participating broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act. Based on the
position taken by the Staff in the interpretive letters referred to above, we
believe that participating broker-dealers may fulfill their prospectus delivery
requirements with respect to the new notes received upon exchange of old notes
with a prospectus meeting the requirements of the Securities Act, which may be
the prospectus prepared for an exchange offer so long as it contains a
description of the plan of distribution with respect to the resale of new
notes. Accordingly, this prospectus, as it may be amended or supplemented from
time to time, may be used by a participating broker-dealer during the period
referred to below in connection with the resales of new notes received in
exchange for old notes where the old notes were acquired by the participating
broker-dealer for its own account as a result of market-making or other trading
activities.
Subject to provisions set forth in the registration rights agreement, we
shall use our best efforts to:
. keep the exchange offer registration statement continuously effective,
supplemented and amended to the extent necessary to ensure that it is
available for sales of new notes by participating broker-dealers; and
. ensure that the exchange offer registration statement conforms with the
requirements of the Securities Act and the policies, rules and
regulations of the Commission as announced from time to time, for a
period ending upon the earlier of 180 days after the exchange offer has
been completed or at the time the participating broker-dealers no longer
own any transfer restricted securities. See "Plan of Distribution."
Any participating broker-dealer who is an affiliate of us may not rely on
the interpretive letters and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction.
Each participating broker-dealer who surrenders old notes pursuant to the
exchange offer will be deemed to have agreed, by execution of a letter of
transmittal, that, upon receipt of notice from us of the occurrence of any
event or the discovery of any fact which makes any statement contained or
incorporated by reference in this prospectus untrue in any material respect or
which causes this prospectus to omit to state a material fact necessary in
order to make the statements contained or incorporated by reference herein, in
light of the circumstances under which they were made, not misleading or of the
occurrence of other events specified in the registration rights agreement, the
participating broker-dealer will suspend the sale of new notes pursuant to this
prospectus until we have amended or supplemented this prospectus to correct the
misstatement or omission and have furnished copies of the amended or
supplemented prospectus to the participating broker-dealer or we have given
notice that the sale of the new notes may be resumed, as the case may be.
Consequences of Failure to Exchange Old Notes
Any old notes tendered and exchanged in the exchange offer will reduce the
aggregate principal amount of old notes outstanding. Following the consummation
of the exchange offer, holders who did not tender their old notes generally
will not have any further registration rights under the registration rights
agreement, and these old notes will continue to be subject to restrictions on
transfer. Accordingly, the liquidity of the market for the old notes could be
adversely affected. The old dollar notes are currently eligible for sale under
Rule 144A through the Portal Market and the old euro notes are in the process
of being listed on the Luxembourg Stock Exchange. Application is expected to be
made for listing the new euro notes on the Luxembourg Stock Exchange. We cannot
assure you that we will be successful in these listings or of when the listings
will be complete. Because we anticipate that most holders will elect to
exchange their old notes for new notes due to the absence of most restrictions
on the resale of new notes, anticipate that the liquidity of the market for any
old notes remaining outstanding after the exchange offer may be substantially
limited.
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As a result of the making of the exchange offer, we will have fulfilled our
obligations under the registration rights agreement, and holders who do not
tender their old notes generally will not have any further registration rights
or rights to receive liquidated damages specified in the registration rights
agreement for our failure to register the new notes.
The old notes that are not exchanged for new notes will remain restricted
securities. Accordingly, the old notes may be resold only:
. to Exodus or one of its subsidiaries;
. to a qualified institutional buyer;
. to an institutional accredited investor;
. to a party outside the United States under Regulation S under the
Securities Act;
. under an exemption from registration provided by Rule 144 under the
Securities Act; or
. under an effective registration statement.
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DESCRIPTION OF NOTES
General
The old notes were and the new notes will be issued under an indenture dated
December 1, 1999 between us and Chase Manhattan Bank and Trust Company,
National Association, as trustee. The term "notes" refers to the old notes and
the new notes. The statements under this caption relating to the notes and the
indenture are summaries and are not intended to be complete. In addition, they
are subject to, and are qualified by the actual provisions of the indenture.
The indenture is by its terms subject to and governed by the Trust Indenture
Act of 1939. If we make reference to particular provisions of the indenture or
to defined terms not defined in this prospectus, the provisions or defined
terms are incorporated by reference to this prospectus. You may obtain copies
of the indenture and the registration rights agreement referred to below are
available for review at the corporate office of the trustee or from us upon
request.
The notes are our senior unsecured obligations and:
. rank equally in right of payment with our existing and future senior
unsecured debt, including $275.0 million in principal amount of our 11
1/4% Senior Notes due 2008;
. are senior in right of payment to our existing and future subordinated
debt, including $250.0 million principal amount of our 5% Convertible
Subordinated Notes due March 15, 2006 and $500.0 million principal
amount of our 4 3/4% Convertible Subordinated Notes due July 15, 2008;
and
. are effectively subordinated to our secured indebtedness to the extent
of the value of the assets securing the indebtedness; and to any
liabilities of our subsidiaries.
Any right we have to receive assets of our subsidiaries upon their
liquidation or reorganization will be effectively subordinated to the claims of
that subsidiary's creditors, including trade creditors, except to the extent
that we are recognized as a creditor of the subsidiary, in which case our
claims would still be subordinate to any security in the assets of the
subsidiary and any debt of the subsidiary senior to that held by us. See "Risk
Factors--The notes are effectively subordinated to our secured indebtedness and
the liabilities of our subsidiaries."
Assuming that we had completed the offering of the old notes and $500.0
million principal amount of our 4 3/4% Convertible Subordinated Notes due July
15, 2008 as of September 30, 1999, we would have
. approximately $275.0 million of debt outstanding which ranks equally in
right of payment with the notes;
. approximately $750.0 million of debt outstanding which is subordinate in
right of payment to the notes; and
. approximately $79.1 million of outstanding secured debt and liabilities
of our subsidiaries, including trade payables, which effectively rank
senior to the notes.
The indenture limits our ability and the ability of our subsidiaries to
incur additional indebtedness. However, these limitations are subject to a
number of exceptions, and we and our subsidiaries may incur significant
additional indebtedness in the future, including indebtedness to which the
holders of the notes would be effectively subordinated.
Under various circumstances, we will be able to designate current or future
subsidiaries as Unrestricted Subsidiaries, which will not be subject to many of
the restrictive covenants discussed in the indenture.
The notes are not entitled to any security and are not entitled to the
benefit of any guarantees except under the circumstances described under "--
Covenants--Limitation on Guarantees of Issuer Debt by Restricted Subsidiaries."
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The euro notes and the dollar notes will generally be treated for purposes
of the indenture as a single series of securities ranking equally with each
other. Various actions taken on a "pro rata" basis under the indenture will be
taken in the manner described below.
The aggregate principal amount, or any portion thereof, of the notes, at any
date of determination, shall be the sum of (1) the U.S. Dollar Equivalent at
such date of determination, of the principal amount, or portion thereof, as the
case may be, of the euro notes and (2) the principal amount, or portion
thereof, as the case may be, of the dollar notes at such date of determination.
With respect to any matter requiring consent, waiver, approval or other action
of the holders of a specified percentage of the principal amount of the notes,
such percentage shall be calculated, on the relevant date of determination, by
dividing (a) the principal amount, as of such date, of notes the holders of
which have so consented by (b) the aggregate principal amount, as of such date,
of the notes then outstanding, in each case, as determined in accordance with
the preceding sentence.
Principal, Interest and Maturity
The notes will mature on December 15, 2009. The dollar notes will be limited
to $375.0 million (together with $100.0 million of Additional Notes) and the
euro notes will be limited to (Euro)125.0 million. However, we may issue an
additional $100.0 million of dollar notes and (Euro)100.0 million of euro notes
(above and beyond the $100.0 million of Additional Notes) under the indenture
under specific circumstances. Each note bears interest at 10 3/4% per annum
from December 8, 1999 or from the most recent interest payment date to which
interest has been paid, payable semiannually on June 15 and December 15 of each
year, commencing June 15, 2000. We will make each interest payment to the
person in whose name the note, or any predecessor note, is registered at the
close of business on the June 1 and December 1 immediately preceding the
interest payment date. Interest is computed on the basis of a 360-day year of
12 30-day months.
We have agreed to file and cause to become effective a registration
statement relating to an exchange offer for the old notes, or, in lieu thereof,
to file and cause to become effective a resale shelf registration for the old
notes. If the exchange offer or shelf registration statement is not filed or is
not declared effective, or if the exchange offer is not consummated, within the
time periods set forth in the registration rights agreement, special interest
will accrue and be payable on the old notes. See "Registration Covenant;
Exchange Offer" above.
Principal, premium, if any, interest and liquidated damages, if any, on the
dollar notes will be payable in U.S. dollars, and the dollar notes may be
presented for registration of transfer and exchange, at the office or agency of
the exchange agent maintained for that purpose in the Borough of Manhattan, The
City of New York. Principal, premium, if any, interest and liquidated damages,
if any, on the euro notes will be payable in euros, and the euro notes may be
presented for registration of transfer and exchange, at the office or agency of
the registrar or exchange agent maintained for that purpose in Luxembourg or
London, as the case may be. However, at our option, payment of interest on the
notes may be made by check mailed to the address of the person entitled thereto
as it appears in the Note Register.
You will not pay a service charge for any registration of transfer or
exchange of notes, but we may require payment of a sum sufficient to cover any
related tax or other governmental charge.
Issuance of Additional Notes
We will have the right to issue dollar denominated Additional Notes on or
prior to December 8, 2000, in an aggregate principal amount not to exceed
$100.0 million, upon written notice to the trustee.
Form, Denomination, Book-Entry Procedures and Transfer
The old notes were initially issued in the form of global notes. The global
notes and any notes issued in exchange thereof, including beneficial interests
in the restricted global notes, are subject to certain restrictions
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on transfer set forth therein and in the indenture. Euro notes sold to
qualified institutional buyers pursuant to Rule 144A of the Securities Act were
initially represented by one global note (the "Euro U.S. Global Note") and euro
notes sold outside the United States pursuant to Regulation S under the
Securities Act were initially represented by one global note (the "Euro
International Global Note" and, together with the Euro U.S. Global Note, the
"Euro Global Notes"). We deposited Euro International Global Notes with a
common depositary for Euroclear and Cedelbank, or its nominee and the Euro U.S.
Global Note with a depositary for Euroclear. Investors may hold their interests
in the Euro International Global Notes directly through Euroclear or Cedelbank
or indirectly through organizations which are participants in Euroclear or
Cedelbank and the Euro U.S. Global Note through Euroclear or indirectly through
organizations which are participants in Euroclear.
Dollar notes sold to qualified institutional buyers pursuant to Rule 144A of
the Securities Act were initially represented by one or more global notes (the
"Dollar U.S. Global Note") and dollar notes sold outside the United States
pursuant to Regulation S under the Securities Act were initially represented by
one or more global notes (the "Dollar International Global Note" and, together
with the Dollar U.S. Global Note, the "Dollar Global Notes"). The Dollar Global
Notes were deposited with the trustee as custodian for DTC (together with
Euroclear and Cedelbank, the "Depositaries") and registered in the name of Cede
& Co., as nominee of DTC. Prior to January 17, 2000, interests in the Dollar
International Global Notes could be held only through Euroclear and Cedelbank.
Investor may hold their interests in the Dollar International Global Notes
directly through Euroclear or Cedelbank, or indirectly through organizations
which are participants in such systems. Euroclear and Cedelbank hold interests
in the Dollar International Global Note in their respective names on the books
of DTC on behalf of their participants. Beginning January 17, 2000, ownership
interests in the Dollar International Global Notes could also be held through
organizations other than Cedelbank or Euroclear that are participants in DTC.
Dollar Book-Entry Interests will be shown on, and transfers thereof will be
effected only through, records maintained in book-entry form by DTC and its
participants.
Book-entry interests in the dollar notes are held by DTC (the "Dollar Book-
Entry Interests") and book-entry interests in the euro notes are held by
Euroclear or Cedelbank in the case of euro notes sold outside of the U.S. in
reliance on Regulation S and Euroclear in the case of euro notes sold within
the U.S. to qualified institutional buyers (the "Euro Book-Entry Interests"
and, collectively with the Dollar Book-Entry Interests, the "Book-Entry
Interests"). Book-Entry Interests are not held in definitive from. Instead,
DTC, Euroclear and/or Cedelbank credit on their respective book-entry
registration and transfer systems a participant's account with the interest
beneficially owned by such participant. The laws of some jurisdictions,
including some states of the United States, may require that purchasers of
securities take physical delivery of securities in definitive form. The
foregoing limitations may impair the ability to own, transfer or pledge Book-
Entry Interests. While the notes are in global form, holders of Book-Entry
Interests will not be considered the owners or "holders" of notes for any
purpose, including with respect to the giving of any directions, instructions
or approvals to the trustee under the indenture.
Owners of Book-Entry Interests may receive notes in definitive registered
form ("Definitive Registered Notes") in specified circumstances described in
the indenture.
In such an event, the registrars for the notes will issue notes in
definitive registered form ("Definitive Registered Notes"), registered in the
name or names and issued in any approved denominations, requested by or on
behalf of DTC, Euroclear and/or Cedelbank, as applicable (in accordance with
their respective customary procedures and based upon directions received from
participants reflecting the beneficial ownership of Book-Entry Interests) and
will bear the restrictive legend currently set forth on the Dollar Global Notes
and the Euro Global Notes, unless that legend is not required by the indenture
or applicable law. Principal of, premium, if any, and interest on any
Definitive Registered Notes will be payable at the corporate trust office or
agency of the relevant paying agent maintained in New York City, London or
Luxembourg for such purpose.
If Definitive Registered Notes are issued and these euro notes are listed on
the Luxembourg Stock Exchange, transfers of euro notes will have to be cleared
through a clearing system or a method approved by the rules and regulations of
the Luxembourg Stock Exchange in order to continue to be listed on the
Luxembourg Stock Exchange.
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To the extent permitted by law, we, the trustee and the registrars shall be
entitled to treat the registered holder of any note as the absolute owner
thereof.
Holders of the Book-Entry Interests may incur fees normally payable in
respect of the maintenance and operation of accounts in DTC, Euroclear and/or
Cedelbank.
Neither we, the trustee nor any registrar of notes, will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of Book-Entry Interests or for maintaining,
supervising or reviewing any records of DTC, Euroclear or Cedelbank relating to
the notes.
The global notes may be transferred only to a successor to the relevant
Depositary.
Book-Entry Interests in the notes will be subject to certain restrictions on
transfer and certification requirements.
All transfer of Book-Entry Interests between participants in DTC,
participants in Euroclear or participants in Cedelbank will be effected by DTC,
Euroclear or Cedelbank pursuant to customary procedures and subject to the
applicable rules and procedures established by DTC, Euroclear or Cedelbank and
their respective participants.
Subject to the foregoing, a Book-Entry Interest in one of the global notes
may be transferred to a person who takes delivery thereof in the form of a
Book-Entry Interest in another of the global notes of the same currency by
means of an instruction originated through DTC, Euroclear or Cedelbank, as
applicable. Any Book-Entry Interest that is so transferred will, upon transfer,
cease to be a Book-Entry Interest in the first-mentioned global note and become
a Book-Entry Interest in the other global note and will thereafter be subject
to all transfer restrictions, if any and other procedures applicable to Book-
Entry Interests in such other global note for as long as it remains such a
Book-Entry Interest. In connection with the transfer, appropriate adjustments
will be made to reflect a decrease in the principal amount at maturity of the
first-mentioned global note and a corresponding increase in the principal
amount at maturity of the other global note, as applicable. The indenture
contains limits on the ability of holders to transfer interests from Dollar
U.S. Global Notes to Dollar International Global Notes and from Euro U.S.
Global Notes to Euro International Global Notes.
Euro notes issued as Definitive Registered Notes may be transferred, upon
surrender for registration of transfer of such note at the office or agency
maintained for such purpose in New York City, London or Luxembourg, in whole or
in part, in denominations of (Euro)1,000 in principal amount or integral
multiples of (Euro)1,000 and dollar notes issued as Definitive Registered Notes
may be transferred, upon surrender for registration of transfer of such note at
the office or agency maintained for such purpose in New York City, in whole or
in part, in denominations of $1,000 in principal amount or integral multiples
of $1,000.
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Optional Redemption
Except as described below, the notes will not be redeemable at our option
prior to December 15, 2004.
The notes are subject to redemption, at our option, in whole or in part, at
any time on or after December 15, 2004 and prior to maturity, upon not less
than 30 nor more than 60 days' notice. The notice must be mailed to each
holder of notes to be redeemed at each holder's address appearing in the Note
Register. The dollar notes are redeemable in amounts of $1,000 or an integral
multiple of $1,000 and the euro notes are redeemable in amounts of (Euro)1,000
or an integral multiple of (Euro)1,000, as the case may be. Redemption would
be made at the following prices, expressed as percentages of the principal
amount if redeemed during the 12-month period beginning December 15 of the
years indicated below. Holders will also receive accrued and unpaid interest
and liquidated damages, if any, to but excluding the redemption date, subject
to the right of holders of record on the immediately preceding record date to
receive interest due on an interest payment date that is on or prior to the
redemption date.
<TABLE>
<CAPTION>
Redemption
Year Price
---- ----------
<S> <C>
2004.............................................................. 105.375%
2005.............................................................. 103.583%
2006.............................................................. 101.792%
2007 and thereafter............................................... 100.000%
</TABLE>
In addition, at any time prior to December 15, 2002, we may redeem up to
35% of the aggregate outstanding principal amount of the dollar notes and up
to 35% of the aggregate outstanding principal amount of the euro notes with
the Net Cash Proceeds of one or more sales of Capital Stock, other than
Disqualified Stock, at a redemption price equal to 110.75% of the aggregate
principal amount of the notes, plus accrued and unpaid interest and liquidated
damages, if any, to the date of redemption. However, at least 65% of the
original principal amount of the dollar notes and 65% of the original
principal amount of the euro notes must remain outstanding immediately
following the redemption. In order to effect the redemption, we must mail a
notice of redemption no later than 45 days after the related sale of Capital
Stock and must consummate the redemption within 60 days of the closing of the
sale of Capital Stock.
If less than all the notes are to be redeemed, selection of notes for
redemption will be made by the trustee, in compliance with the requirements of
the principal national securities exchange, if any, on which the notes are
listed, or, if the notes are not so listed, on a pro rata basis, by lot or in
a manner as it shall deem fair and appropriate. However, after the redemption
in part, all notes must be in amounts of $1,000 or integral multiples of
$1,000 or amounts of (Euro)1,000 or integral multiples of (Euro)1,000, as
applicable. Notices of redemption may not be conditional. If any note is to be
redeemed in part only, the notice of redemption that relates to the note must
state the portion of the principal amount of the note to be redeemed. A note
in principal amount equal to the unredeemed portion will be issued in the name
of the holder upon cancellation of the original note. Notes called for
redemption become due on the date fixed for redemption. On and after the
redemption date, interest ceases to accrue on notes or portions of them called
for redemption and, unless we default in the payment of the redemption price,
notes or portions of them called for redemption will no longer be deemed
outstanding.
To the extent that the euro notes may be listed on the Luxembourg Stock
Exchange and the rules of the Luxembourg Stock Exchange so require, we will,
once in each year in which there has been a partial redemption of any of the
euro notes, cause to be published in a leading daily newspaper of general
circulation in Luxembourg (which is expected to be the Luxembourger Wort) a
notice specifying the aggregate principal amount of euro notes outstanding and
a list of the euro notes drawn for redemption but not surrendered.
Sinking Fund
The notes are not entitled to the benefit of any sinking fund.
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Repurchase at the Option of Holders
Change of Control
If a Change of Control occurs at any time, then each holder of notes has the
right to require that we purchase the holder's notes at a purchase price in
cash, in an amount equal to 101% of the principal amount of the notes or
portion of the notes, plus accrued and unpaid interest and liquidated damages,
if any, to the date of purchase. The holders may require that we purchase their
notes in whole or in part in integral multiples of $1,000 or (Euro)1,000, as
the case may be. Any purchase would be made pursuant to the Offer to Purchase
and in accordance with the other procedures set forth in the indenture. Within
30 days following the Change of Control, we will mail an Offer to Purchase to
each holder describing the transaction or transactions that constitute the
Change of Control and offering to purchase notes on the date specified. We will
comply with the requirements of Rule 14e-1 under the Exchange Act and any other
securities laws and regulations to the extent these laws and regulations are
applicable in connection with the purchase of the notes under the Offer to
Purchase.
In the event a Change of Control occurs at a time when we are prohibited
from purchasing the notes, due to provisions of other debt agreements or
otherwise, we could seek the consent of our lenders to the purchase of notes or
could attempt to refinance the borrowings that contain this prohibition. If we
do not obtain a consent or repay borrowings, we will remain prohibited from
purchasing notes. In this case, our failure to purchase tendered notes would
constitute an Event of Default under the indenture, which could, in turn,
constitute a default under the terms of other debt agreements. See "Risk
Factors--We may not be able to effect repurchase of the notes upon a Change of
Control in accordance with the terms of the indenture."
The Change of Control provisions described above will be applicable whether
or not any other provisions of the indenture are applicable. Except as
described above with respect to a Change of Control, the indenture does not
contain provisions that permit the holders of the notes to require that we
repurchase or redeem the notes in the event of a takeover, recapitalization or
similar transaction.
We will not be required to make an Offer to Purchase upon a Change of
Control if a third party:
. makes the Offer to Purchase in the manner, at the times and otherwise in
compliance with the requirements set forth in the indenture applicable
to the Offer to Purchase; and
. purchases all notes validly tendered and not withdrawn under the Offer
to Purchase.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of our assets and the assets of our subsidiaries taken as a whole. There is no
precise established definition of the phrase "substantially all" under
applicable law. Accordingly, the ability of a holder of notes to require us to
repurchase the notes as a result of a sale, lease, transfer, conveyance or
other disposition of less than all of our assets and the assets of our
subsidiaries taken as a whole to another person or group may be uncertain.
Covenants
The indenture contains the following covenants:
Limitation on Debt
We will not, and will not permit any of our Restricted Subsidiaries to,
Incur any Debt, other than the notes and Debt existing on the original issuance
date of the notes; provided that we may Incur Debt if, after giving effect to
the Incurrence of Debt and the receipt and application of the proceeds, the
Consolidated Debt to EBITDA Ratio would be greater than zero and less than 6:1.
However, the following Debt may be Incurred, each item to be given
independent effect:
(1) Permitted Senior Bank Debt;
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(2) Debt owed:
. to us evidenced by a promissory note; or
. to any Restricted Subsidiary; provided that any event which results
in any Restricted Subsidiary ceasing to be a Restricted Subsidiary
or any subsequent transfer of Debt, other than to us or another
Restricted Subsidiary, is deemed, in each case, to constitute the
Incurrence of Debt not permitted by this clause (2);
(3) Debt or the Debt of any Restricted Subsidiary:
. in respect of performance, surety or appeal bonds or letters of
credit in the ordinary course of business;
. under Permitted Interest Rate or Currency Protection Agreements; or
. arising under, or arising from, agreements providing for
indemnification, adjustment of purchase price or similar
obligations, or from Guarantees or letters of credit, surety bonds
or performance bonds securing any of our obligations Incurred in
connection with the disposition of any business, assets or
Restricted Subsidiary other than Guarantees of Debt Incurred by any
person acquiring all or any portion of the business, assets or
Restricted Subsidiary for the purpose of financing an acquisition,
in a principal amount not to exceed the gross proceeds actually
received by us or any Restricted Subsidiary in connection with the
disposition;
(4) Debt which is exchanged for or the proceeds of which are used to
refinance or refund, or any extension or renewal of (each a
"refinancing"):
. the notes;
. Debt incurred pursuant to clauses (3), (5), (6), (7) and (9) of this
paragraph and this clause (4), in each case in an aggregate
principal amount not to exceed the principal amount of the Debt so
refinanced, together with any accrued interest and any premium and
other payment required to be made with respect to the Debt being
refinanced or refunded, and any fees, costs, expenses, underwriting
discounts or commissions and other payments paid or payable with
respect to the Debt incurred pursuant to this clause (4); provided,
however, that:
. Debt, the proceeds of which are used to refinance the notes, or
Debt which is equal with or subordinate in right of payment to
the notes, shall only be permitted if (x) in the case of any
refinancing of the notes or Debt which is equal to the notes, the
refinancing Debt is Incurred by us and made equal to the notes or
subordinated to the notes, and (y) in the case of any refinancing
of Debt which is subordinated to the notes, the refinancing Debt
is Incurred by us and is subordinated to the notes in a manner
that is at least as favorable to the holders as that of the Debt
refinanced;
. the refinancing Debt by its terms, or by the terms of any
agreement or instrument pursuant to which Debt is issued, does
not have a final maturity prior to the final maturity of the Debt
being refinanced and has an Average Life longer than the Average
Life of the Debt being refinanced; and
. in the case of any refinancing of Debt Incurred by us, the
refinancing of Debt may be Incurred only by us, and in the case
of any refinancing of Debt Incurred by a Restricted Subsidiary,
the refinancing of Debt may be Incurred only by the Restricted
Subsidiary or by us;
(5) Acquisition Debt or Acquisition Debt of any Restricted Subsidiary;
(6) the new notes issued in the exchange offer and Additional Notes issued
under the indenture;
(7) Debt not to exceed, at any time outstanding, two times the Net Cash
Proceeds received by us after the original issue date of the notes from
the issuance and sale of our Capital Stock, other than
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Disqualified Stock, to a person that is not our Subsidiary, to the
extent that Net Cash Proceeds have not been used pursuant to the third
clause of clause (4) of the first paragraph or clauses (3), (4) or (6)
of the second paragraph of the "Limitation on Restricted Payments"
covenant described below to make a Restricted Payment; provided that the
Debt does not have a final maturity prior to the final maturity of the
notes and has an Average Life longer than the Average Life of the notes;
(8) Existing Debt;
(9) Debt or the Debt of any Restricted Subsidiary Incurred to finance the
purchase or other acquisition of any property, inventory, asset or
business directly or indirectly, by us or any Restricted Subsidiary
used in, or to be used in, the System and Network Management Business;
(10) Subordinated Debt not to exceed $300.0 million in principal
outstanding at any time; provided that the calculation of the
principal amount of Subordinated Debt excludes the principal amount of
our 4 3/4% Convertible Subordinated Notes; and
(11) our other Debt or other Debt of any Restricted Subsidiary not to
exceed $50.0 million at any one time outstanding.
For purposes of determining compliance with this covenant, in the event
that an item of Debt meets the criteria of more than one of the types of Debt
described in the above clauses, or is permitted in part under the first
paragraph of this covenant and in part under one or more of the above clauses,
we, in our sole discretion, shall classify, and from time to time may
reclassify, the item of Debt.
For purposes of determining any particular amount of Debt under this
covenant, Guarantees, Liens or obligations with respect to letters of credit
supporting Debt otherwise included in the determination of the particular
amount will not be included.
Limitation on Our Guarantees of Our Debt by Restricted Subsidiaries
We may not permit any Restricted Subsidiary, directly or indirectly, to
Guarantee, assume or in any other manner become liable for the payment of any
of our Debt, other than our Debt:
. Incurred pursuant to clauses (1), (3), (5), (9) or (11) of the second
paragraph of "Limitation on Debt;" or
. refinanced pursuant to clause (4) of the second paragraph of "Limitation
on Debt" of Debt originally incurred under clause (3), (5) or (9) of the
second paragraph of "Limitation on Debt," that is equal with or
subordinate in right of payment to the notes unless:
. the Restricted Subsidiary simultaneously executes and delivers a
supplemental indenture providing for a Guarantee of payment of the
notes by the Restricted Subsidiary and, with respect to any Guarantee
of our Debt that is subordinate in right of payment to the notes, the
Guarantee shall be subordinated to the Restricted Subsidiary's
Guarantee with respect to the notes at least to the same extent as
the Debt is subordinated to the notes; and
. the Restricted Subsidiary waives, and will not in any manner
whatsoever claim or take the benefit or advantage of, any rights of
reimbursement, indemnity or subrogation or any other rights against
us or any other Restricted Subsidiary as a result of any payment by a
Restricted Subsidiary under its Guarantee until the notes have been
paid in full.
However, any Guarantee by a Restricted Subsidiary may provide by its terms
that it shall be automatically and unconditionally released and discharged
upon:
. any sale, exchange or transfer, to any person who is not one of our
Affiliates, of all of our Capital Stock and the Capital Stock of each
Restricted Subsidiary in, or all or substantially all of the assets of,
the Restricted Subsidiary, which sale, exchange or transfer is not
prohibited by the indenture; or
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. the release or discharge of the Guarantee which resulted in the creation
of the Restricted Subsidiary's Guarantee with respect to the notes,
except a discharge or release by or as a result of payment under a
Guarantee.
Limitation on Restricted Payments
We will not, and will not permit any Restricted Subsidiary directly or
indirectly to:
(1) declare or pay any dividend or make any distribution on or with respect
to its Capital Stock to persons other than us or any of our Restricted
Subsidiaries, other than:
. dividends or distributions payable solely in shares of its Capital
Stock, other than Disqualified Stock, or in options, warrants or
other rights to acquire shares of Capital Stock;
. pro rata dividends or distributions on common stock of Restricted
Subsidiaries held by minority stockholders; or
. dividends in respect of Disqualified Stock;
(2) purchase, redeem, retire or otherwise acquire for value any shares of
our Capital Stock or the Capital Stock of an Unrestricted Subsidiary
including options, warrants or other rights to acquire shares of
Capital Stock, held by any person, or any shares of Capital Stock of a
Restricted Subsidiary, including options, warrants or other rights to
acquire shares of Capital Stock, held by any person other than us or
one of our Wholly Owned Restricted Subsidiaries;
(3) make any voluntary or optional principal payment, or voluntary or
optional redemption, repurchase, defeasance, or other acquisition or
retirement for value, of our Debt that is subordinated in right of
payment to the notes; or
(4) make any Investment, other than a Permitted Investment, in any person
(the payments or any other actions described in clauses (1) through (4)
above being collectively "Restricted Payments") if, at the time of, and
after giving effect to, the proposed Restricted Payment:
. a Default or Event of Default shall have occurred and be continuing;
. we could not Incur at least $1.00 of Debt under the first paragraph
of the "Limitation on Debt" covenant; or
. the aggregate amount of all Restricted Payments, the amount, if
other than in cash, to be determined in good faith by the board of
directors, whose determination shall be conclusive and evidenced by
a board resolution, made after the date of original issuance of the
notes shall exceed the sum of:
. cumulative Consolidated EBITDA since the date of original
issuance of the notes through the last day of the last full
fiscal quarter ending immediately preceding the date of the
Restricted Payment for which quarterly or annual financial
statements are available; minus
. 1.5 times our cumulative Consolidated Interest Expense since the
date of original issuance of the notes through the last day of
the last full fiscal quarter ending immediately preceding the
date of the Restricted Payment for which quarterly or annual
financial statements are available, plus
. the aggregate Net Cash Proceeds received by us after the original
issuance date of the notes from the issuance and sale permitted
by the indenture of our Capital Stock, other than Disqualified
Stock, to a person who is not one of our Subsidiaries, including
an issuance or sale permitted by the indenture of our Debt for
cash subsequent to the original issuance date of the notes upon
the conversion of Debt into our Capital Stock, other than
Disqualified Stock, or from the issuance to a person who is not
one of our Subsidiaries of any options,
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warrants or other rights to acquire our Capital Stock, in each
case, exclusive of any Disqualified Stock or any options,
warrants or other rights that are redeemable at the option of the
holder, or are required to be redeemed, prior to the stated final
maturity date of the notes, in each case except to the extent Net
Cash Proceeds are used to Incur Debt pursuant to clause (7) of
the second paragraph under the "Limitation on Debt" covenant,
plus
. amount equal to the net reduction in Investments, other than
reductions in Permitted Investments, in any person resulting from
payments of interest on Debt, dividends, repayments of loans or
advances, or other transfers of assets, in each case to us or any
Restricted Subsidiary or from the Net Cash Proceeds from the sale
of any Investment except, in each case, to the extent any payment
or proceeds are included in the calculation of Consolidated
EBITDA, or from redesignations of Unrestricted Subsidiaries as
Restricted Subsidiaries, not to exceed, in each case, the amount
of Investments previously made by us or any Restricted Subsidiary
in a person or Unrestricted Subsidiary.
The provision above shall not be violated by reason of:
(1) the payment of any dividend within 60 days after the date of
declaration thereof if, at the date of declaration, the payment would
comply with the paragraph above;
(2) the redemption, repurchase, defeasance or other acquisition or
retirement for value of Debt that is subordinated in right of payment
to the notes including premium, if any, and accrued and unpaid
interest, with the proceeds of, Debt Incurred under clause (4) of the
second paragraph of the "Limitation on Debt" covenant;
(3) the repurchase, redemption or other acquisition of our Capital Stock or
the Capital Stock of one of our Subsidiaries, or options, warrants or
other rights to acquire the Capital Stock, in exchange for, including
upon exercise of a conversion right, or out of the proceeds of a
capital contribution or a substantially concurrent offering of, shares
of our Capital Stock, other than Disqualified Stock, or options,
warrants or other rights to acquire the Capital Stock;
(4) the making of any principal payment or the repurchase, redemption,
retirement, defeasance or other acquisition for value of our Debt which
is subordinated in right of payment to the notes in exchange for, or
out of the proceeds of, a capital contribution or a substantially
concurrent offering of, shares of the our Capital Stock, other than
Disqualified Stock, or options, warrants or other rights to acquire
Capital Stock;
(5) payments or distributions, to dissenting stockholders pursuant to
applicable law, pursuant to or in connection with a consolidation,
merger or transfer of assets that complies with the provisions of the
indenture applicable to mergers, consolidations and transfers of all or
substantially all of our property and assets, and payments of cash
instead of fractional shares;
(6) Investments in any person; provided that the aggregate amount of
Investments made pursuant to this clause (6) does not exceed the sum
of:
. $50.0 million, plus
. the amount of Net Cash Proceeds received by us after the original
issuance date of the notes from the sale of our Capital Stock, other
than Disqualified Stock, to a person who is not our Subsidiary,
except to the extent the Net Cash Proceeds are used to Incur Debt
pursuant to clause (7) of the second paragraph of the "Limitation on
Debt" covenant or to make Restricted Payments pursuant to the third
clause of clause (4) of the first paragraph, or clauses (3) or (4)
of this paragraph, of this "Limitation on Restricted Payments"
covenant, plus
. the net reduction in Investments made pursuant to this clause (6)
resulting from distributions on or repayments of the Investments or
from the Net Cash Proceeds from the sale of any the Investment,
except in each case to the extent any payment or proceeds is
included in the
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calculation of Consolidated EBITDA, or from a person becoming a
Restricted Subsidiary; provided that the net reduction in any
Investment shall not exceed the amount of the Investment;
(7) Investments acquired in exchange for our Capital Stock, other than
Disqualified Stock;
(8) the purchase, redemption or other acquisition or retirement of our
common stock or any option or other right to acquire shares of our
common stock:
. if the common stock, option or other right was issued pursuant to a
plan or arrangement approved by our board of directors, and the
purchase, redemption or other acquisition or retirement occurs in
accordance with the terms of a plan or arrangement, from our former
employees and the former employees of our Subsidiaries or their
estates or is from our employee and the price paid by us to the
employee is equal to the exercise or purchase price paid by the
employee; and
. from our employees or the employees of our Subsidiaries in an amount
not to exceed $5.0 million in any fiscal year; provided that amounts
not paid for any purchase, redemption or other acquisition or
retirement in any fiscal year may be accumulated and paid in any
subsequent fiscal year;
(9) additional Restricted Payments not to exceed $50.0 million in the
aggregate; or
(10) the acquisition of our Capital Stock by us in connection with the
cashless exercise of any options, warrants or similar rights issued by
us.
Each Restricted Payment permitted pursuant to the preceding paragraph,
other than the Restricted Payment referred to in clause (2) thereof and an
exchange of Capital Stock for Capital Stock or Debt referred to in clause (3)
or (4) thereof, and the Net Cash Proceeds from any issuance of Capital Stock
referred to in clauses (3), (4) and (6), shall be included in calculating
whether the conditions of the third clause of clause (4) of the first
paragraph of this "Limitation on Restricted Payments" covenant have been met
with respect to any subsequent Restricted Payments. In the event the proceeds
of an issuance of our Capital Stock are used for the redemption, repurchase or
other acquisition of the notes, or Debt that is equal with the notes, then the
Net Cash Proceeds of the issuance shall be included in the third clause of
clause (4) of the first paragraph of this "Limitation on Restricted Payments"
covenant only to the extent the proceeds are not used for redemption,
repurchase or other acquisition of Debt.
Limitation on Asset Sales
We will not, and will not permit any Restricted Subsidiary to, consummate
an Asset Sale unless:
. we or the Restricted Subsidiary, as the case may be, receive
consideration at the time of the Asset Sale at least equal to the fair
market value of the assets sold or otherwise disposed of, as evidenced
by a resolution of the board of directors; and
. at least 75% of the consideration received by us or the Restricted
Subsidiary, as the case may be, from the Asset Sale shall be cash or
other Qualified Consideration.
We or any Restricted Subsidiary may, within 365 days of the Asset Sale,
invest the Net Cash Proceeds:
. in property or assets used, or to be used, in the System and Network
Management Business, or in a company engaged primarily in the System and
Network Management Business, if and to the extent otherwise permitted
under the indenture; or
. to repay our Secured Debt or the Secured Debt of any Restricted
Subsidiary.
The amount of the Net Cash Proceeds not used or invested within 365 days of
the Asset Sale in the manner described in the foregoing clauses shall
constitute "Excess Proceeds."
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In the event that Excess Proceeds exceed $10.0 million, we shall make an
Offer to Purchase that amount of notes equal to the amount of Excess Proceeds
at a price equal to 100% of the principal amount of the notes to be purchased,
plus accrued and unpaid interest and liquidated damages, if any, to the date of
purchase and, to the extent required by the terms of the notes, our other Debt
that is equal with the notes or Debt of a Restricted Subsidiary. Each Offer to
Purchase shall be mailed within 30 days following the date that we shall become
obligated to purchase notes with any Excess Proceeds. Following the completion
of an Offer to Purchase, the amount of Excess Proceeds shall be deemed to be
reset at zero and, to the extent there are any remaining Excess Proceeds we may
use Excess Proceeds for any use which is not otherwise prohibited by the
indenture.
We will comply with the requirements of Rule 14e-1 under the Exchange Act
and any other securities laws and regulations to the extent the laws and
regulations are applicable in connection with the purchase of notes pursuant to
the Offer to Purchase.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries
We may not, and may not permit any Restricted Subsidiary to, directly or
indirectly, create or otherwise cause or suffer to exist or become effective
any encumbrance or restriction on the ability of any Restricted Subsidiary to:
. pay dividends, in cash or otherwise, or make any other distributions in
respect of its Capital Stock owned by us or any other Restricted
Subsidiary or pay any Debt or other obligation owed to us or any other
Restricted Subsidiary;
. make loans or advances to us or any other Restricted Subsidiary; or
. transfer any of its property or assets to us or any other Restricted
Subsidiary.
However, we may, and may permit any Restricted Subsidiary to, suffer to
exist any the encumbrance or restriction:
. pursuant to any agreement in effect on the date of original issuance of
the notes, and any amendments, extensions, refinancings, renewals or
replacements of agreements, provided that the amendments, encumbrances
and restrictions in any extensions, refinancings, renewals or
replacements are no less favorable in any material respect to the
holders, than those encumbrances or restrictions that are then in effect
and that are being extended, refinanced, renewed or replaced;
. existing under or by reason of applicable law;
. existing in connection with any Permitted Senior Bank Debt or any Debt
incurred pursuant to clause (5) of the second paragraph of "Limitations
on Debt;"
. pursuant to an agreement existing prior to the date on which the person
became a Restricted Subsidiary and not Incurred in anticipation of
becoming a Restricted Subsidiary, which encumbrance or restriction is
not applicable to any person, or the properties or assets of any person,
other than the person so acquired;
. pursuant to an agreement entered into in connection with Debt Incurred
under clause (4) of the second paragraph of the "Limitation on Debt"
covenant; provided, however, that the provisions contained in any
agreement related to an encumbrance or restriction are no more
restrictive in any material respect than the provisions contained in the
agreement the subject of the refinancing clause (4) of the second
paragraph of the "Limitation on Debt" covenant;
. restrictions contained in any agreement relating to a Lien of a
Restricted Subsidiary or us otherwise permitted under the indenture, but
only to the extent the restrictions restrict the transfer of the
property subject to the Lien;
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. customary nonassignment provisions entered into in the ordinary course
of business in leases, licenses and other contracts to the extent the
provisions restrict the transfer, sublicensing or any license or
subletting of any lease or the assignment of rights under any such
contract;
. any restriction with respect to a Restricted Subsidiary imposed pursuant
to an agreement which has been entered into for the sale or disposition
of all or substantially all of the Capital Stock or assets of the
Restricted Subsidiary; provided that consummation of the transaction
would not result in an Event of Default or an event that, with the
passing of time or the giving of notice or both, would constitute an
Event of Default, that the restriction terminates if the transaction is
closed or abandoned and that the closing or abandonment of the
transaction occurs within one year of the date the agreement was entered
into;
. any restriction imposed pursuant to contracts for the sale of assets
with respect to the transfer of the assets to be sold pursuant to the
contract;
. arising or agreed to in the ordinary course of business, not relating to
any Debt, and that do not, individually, or in the aggregate, detract
from the value of our property or assets or the property or assets of
any Restricted Subsidiary in any manner material to us or any Restricted
Subsidiary; or
. the encumbrance or restriction is contained in the terms of any
agreement pursuant to which the Debt was issued if:
. the encumbrance or restriction applies only in the event of a
payment default or a default with respect to a financial covenant
contained in the Debt or agreement,
. the encumbrance or restriction is not materially more
disadvantageous to the holders of the notes than is customary in
comparable financings, and
. we determine that any encumbrance or restriction will not materially
affect our ability to make principal or interest payments on the
notes.
Limitation on Liens
We may not, and may not permit any Restricted Subsidiary to, Incur or suffer
to exist any Lien, on or with respect to any property or assets now owned or
hereafter acquired to secure any Debt without making, or causing the Restricted
Subsidiary to make, effective provision for securing the notes:
. equally and ratably with Debt as to such property or assets for so long
as the Debt will be so secured or;
. in the event the Debt is our Debt which is subordinate in right of
payment to the notes, prior to this Debt as to such property or assets
for so long as this Debt will be so secured.
The foregoing restrictions shall not apply to:
. Liens in existence on the date of original issuance of the notes;
. Liens securing only the notes and any Lien in favor of the trustee for
the benefit of the holders arising under the provisions in the
indenture;
. Liens granted by a Restricted Subsidiary in favor of us or any
Restricted Subsidiary;
. Liens to secure Permitted Senior Bank Debt;
. Liens securing Purchase Money Secured Debt;
. Liens on property existing immediately prior to the time of its
acquisition, and not Incurred in anticipation of the financing of the
acquisition;
. Liens on property of a person existing at the time the person becomes a
Restricted Subsidiary and not incurred in anticipation of becoming a
Restricted Subsidiary;
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. any interest in or title of a lessor to any property subject to a
Capital Lease Obligation which is permitted under the indenture; or
. Liens to secure Debt Incurred pursuant to clause (4) of the second
paragraph of the "Limitation on Debt" covenant; provided that the Lien
does not extend to any property other than the property securing the
Debt being refinanced pursuant to clause (4) of the second paragraph of
the "Limitation on Debt" covenant.
Limitation on Issuance or Sale of Capital Stock of Restricted Subsidiaries
We will not sell, and will not permit any Restricted Subsidiary, directly or
indirectly, to issue or sell, any shares of Capital Stock of a Restricted
Subsidiary, including options, warrants or other rights to purchase shares of
Capital Stock, except:
. to us or a Wholly Owned Restricted Subsidiary;
. issuances of director's qualifying shares or sales to foreign nationals
of shares of Capital Stock of foreign Restricted Subsidiaries, to the
extent required by applicable law;
. if, immediately after giving effect to an issuance or sale, the
Restricted Subsidiary would no longer constitute a Restricted Subsidiary
and any Investment in any person remaining after giving effect to the
issuance or sale would have been permitted to be made under the
"Limitation on Restricted Payments" covenant if made on the date of the
issuance or sale; or
. issuances or sales of common stock of a Restricted Subsidiary.
Transactions with Affiliates and Related Persons
We may not, and may not permit any Restricted Subsidiary to, enter into any
transaction, or series of related transactions, not in the ordinary course of
business with our Affiliates or Related Persons, other than us or a Wholly
Owned Restricted Subsidiary, involving aggregate consideration in excess of
$5.0 million, including any Investment, either directly or indirectly, unless
the transaction is on terms no less favorable to us or the Restricted
Subsidiary than those that could be obtained in a comparable arm's-length
transaction with an entity that is not an Affiliate or Related Person and is in
our best interests or the best interests of the Restricted Subsidiary. For any
transaction, or series of related transactions, that involves less than or
equal to $10.0 million, our Chief Executive Officer, President or Chief
Operating Officer shall determine that the transaction satisfies the above
criteria and shall evidence a determination by an Officer's Certificate filed
with the trustee. For any transaction that involves in excess of $10.0 million:
. a majority of the disinterested members of the board of directors shall
determine that the transaction satisfies the above criteria; or
. we shall obtain a written opinion of a nationally recognized investment
banking or appraisal firm stating that the transaction is fair to us or
the Restricted Subsidiary.
The limitation above does not apply, and shall not apply, to:
. any transaction solely between us and any Restricted Subsidiary or
solely between any Restricted Subsidiaries;
. the payment of reasonable and customary regular fees to our directors
who are not our employees;
. any payments or other transactions pursuant to any tax-sharing agreement
between us and any other person with which we file a consolidated tax
return or with which we are part of a consolidated group for tax
purposes;
. licensing or sublicensing or the use of any intellectual property by us
or any Restricted Subsidiary to us or any Restricted Subsidiary;
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. any transaction entered into for the purpose of granting or altering
registration rights with respect to any of our Capital Stock;
. any Restricted Payments not prohibited by the "Limitation on Restricted
Payments" covenant; or
. compensation, severance and employee benefit arrangements with our or
any Restricted Subsidiary's officers, directors or employees, including
under any stock option or stock incentive plans, in the ordinary course
of business.
Limitation on Sale-Leaseback Transactions
We will not, and will not permit any Restricted Subsidiary to, enter into
any sale-leaseback transaction involving any of our assets or properties,
whether now owned or hereafter acquired, whereby we or a Restricted Subsidiary
sell or transfer the assets or properties and then or thereafter lease the
assets or properties or any part thereof or any other assets or properties that
we or the Restricted Subsidiary, as the case may be, intend to use for
substantially the same purpose or purposes as the assets or properties sold or
transferred.
The above restriction does not apply to any sale-leaseback transaction if:
. the lease is for a period, including renewal rights, of not in excess of
three years;
. the sale-leaseback transaction is consummated within 180 days after the
purchase of the assets subject to the transaction;
. the transaction is solely between us and any Wholly Owned Restricted
Subsidiary or solely between Wholly Owned Restricted Subsidiaries; or
. we or the Restricted Subsidiary, within 12 months after the sale or
transfer of any assets or properties is completed, apply an amount no
less than the Net Cash Proceeds received from the sale in accordance
with second paragraph of "--Limitation on Asset Sales."
Provision of Financial Information
Whether or not we are required to be subject to Section 13(a) or 15(d) of
the Exchange Act, we shall file with the Commission the annual reports,
quarterly reports and other documents which we would have been required to file
with the Commission pursuant to Section 13(a) or 15(d) or any successor
provision if we were so required. These documents must be filed with the
Commission on or prior to the respective dates (each a "Required Filing Date,"
collectively, the "Required Filing Dates") by which we would have been required
so to file the documents if we were so required. We shall also in any event:
. within 15 days of each Required Filing Date (1) transmit by mail to all
holders, as their names and addresses appear in the Note Register,
without cost to the holders, and (2) file with the trustee, copies of
the annual reports, quarterly reports and other documents which we file
with the Commission pursuant to Section 13(a) or 15(d) or any successor
provision or would have been required to file with the Commission
pursuant to Section 13(a) or 15(d) or any successor provisions if we
were required to be subject to these Sections; and
. if filing these documents by us with the Commission is not permitted
under the Exchange Act, promptly upon written request supply copies of
these documents to any prospective holder.
Unrestricted Subsidiaries
We may designate any of our Subsidiaries to be an "Unrestricted Subsidiary"
as provided below in which event the Subsidiary and each other person that is
then, or thereafter becomes, a Subsidiary of the Subsidiary will be deemed to
be an Unrestricted Subsidiary. "Unrestricted Subsidiary" means:
. any Subsidiary designated as such by the Board of Directors as set forth
below where (1) no default with respect to any Debt of the Subsidiary or
any Subsidiary of the Subsidiary, including any right
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which the holders thereof may have to take enforcement action against
the Subsidiary, would permit, upon notice, lapse of time or both, any
holder of any other Debt in a principal amount in excess of $10.0
million of us and our Subsidiaries, other than another Unrestricted
Subsidiary, to declare a default on the other Debt or cause the payment
thereof to be accelerated or payable prior to its final scheduled
maturity and (2) we could make a Restricted Payment in an amount equal
to the greater of the fair market value and book value of the Subsidiary
pursuant to "Limitation on Restricted Payments" and the amount is
thereafter treated as a Restricted Payment for the purpose of
calculating the aggregate amount available for Restricted Payments
thereunder; and
. any Subsidiary of an Unrestricted Subsidiary.
The board of directors may not designate a Subsidiary to be an Unrestricted
Subsidiary if the Subsidiary owns any Capital Stock of, or owns or holds any
Lien on any property of, any of our other Subsidiaries which is not a
Subsidiary of the Subsidiary to be so designated or otherwise an Unrestricted
Subsidiary. The board of directors may designate any Unrestricted Subsidiary a
Restricted Subsidiary and shall be deemed to have made this designation if at
that time the condition set forth in the item listed under in the definition
of "Unrestricted Subsidiary" shall cease to be true.
Mergers, Consolidations and Certain Sales of Assets
We may not, in a single transaction or a series of related transactions,
(1) consolidate or merge with or into any other person or permit any other
person to consolidate or merge with or into us or (2) directly or indirectly
transfer, sell, lease or otherwise dispose of all or substantially all of its
assets, unless:
. in a transaction in which we do not survive or in which we sell, lease
or otherwise dispose of all or substantially all of our assets, the
successor entity to us shall be organized and validly existing under the
laws of the United States of America, any State thereof or the District
of Columbia, and shall expressly assume, by a supplemental indenture
executed and delivered to the trustee in form satisfactory to the
trustee, all of our obligations under the indenture;
. immediately before and after giving effect to the transaction and
treating any Debt which becomes our obligation or an obligation of a
Restricted Subsidiary as a result of the transaction as having been
Incurred by us or the Restricted Subsidiary at the time of the
transaction, no Event of Default or event that with the passing of time
or the giving of notice, or both, would constitute an Event of Default
shall have occurred and be continuing;
. except in the case of any such consolidation or merger of us with or
into, or any such transfer, sale, lease or other disposition of assets
to, a Wholly Owned Restricted Subsidiary, immediately after giving
effect to the transaction, our Consolidated Net Worth, or the
Consolidated Net Worth of any other successor entity to us, is equal to
or greater than our immediately prior to the transaction; and
. except in the case of any consolidation or merger of us with or into, or
any such transfer, sale, lease or other disposition of assets to, a
Wholly Owned Restricted Subsidiary, immediately after giving effect to
the transaction and treating any Debt which becomes our obligation or
the obligation of a Restricted Subsidiary as a result of the transaction
as having been Incurred by us or the Restricted Subsidiary at the time
of the transaction, we, including any successor entity to us, could
Incur at least $1.00 of additional Debt pursuant to the provisions of
the indenture described in the first paragraph under "Limitation on
Debt" above.
Certain Definitions
Set forth below is a summary of certain of the defined terms used in the
indenture. Reference is made to the indenture for the full definition of all
such terms, as well as any other terms used in this prospectus for which no
definition is provided.
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"Acquisition Debt" means Debt of a person existing at the time the person
becomes a Restricted Subsidiary or assumed in connection with an Asset
Acquisition, and not Incurred in connection with, or in anticipation of, the
person becoming a Restricted Subsidiary or an Asset Acquisition.
"Affiliate" of any person means any other person directly or indirectly
controlling or controlled by or under direct or indirect common control with
the person. For the purposes of this definition, "control" when used with
respect to any person means the power to direct the management and policies of
the person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Asset Acquisition" means an acquisition by us or any of our Restricted
Subsidiaries of the property and assets of any person other than us or any of
our Restricted Subsidiaries that constitute substantially all of a division or
line of business of the person; provided that the property and assets acquired
are to be used in the System and Network Management Business.
"Asset Sale" by any person means any transfer, conveyance, sale, lease,
license or other disposition by such person or any of its Restricted
Subsidiaries, including a consolidation or merger or other sale of the
Restricted Subsidiary with, into or to another person in a transaction in which
the Restricted Subsidiary ceases to be a Restricted Subsidiary, (collectively,
a "transfer") of:
. shares of Capital Stock, other than directors' qualifying shares, or
other ownership interests of a Restricted Subsidiary of a person;
. all or substantially all of the assets of a person or any of its
Restricted Subsidiaries; or
. any other property, assets or rights, including intellectual property
rights, of a person or any of its Restricted Subsidiaries outside of the
ordinary course of business; provided that "Asset Sale" shall not
include:
. any transfer of all or substantially all of our assets in a
transaction that is made in compliance with the requirements of
provisions of the indenture described under "--Mergers,
Consolidations and Certain Sales of Assets,"
. any transfer by us to any Wholly Owned Restricted Subsidiary or by
any Wholly Owned Restricted Subsidiary to any other Wholly Owned
Subsidiary or to us in a manner that does not otherwise violate the
terms of the indenture,
. transfers made in compliance with the requirements of provisions of
the indenture described under "Limitation on Restricted Payments,"
. transfers constituting the granting of a Permitted Lien,
. exchanges of equipment used in the System and Network Management
Business for other equipment to be used in the System and Network
Management Business; provided any exchange for equipment with a fair
market value in excess of $2.0 million must be approved by our board
of directors, and
. transfers of assets, property or other rights, including
intellectual property rights, with a fair market value of less than
$2.0 million.
"Average Life" means, at any date of determination with respect to any debt
security, the quotient obtained by dividing (1) the sum of the products of (a)
the number of years from the date of determination to the dates of each
successive scheduled principal payment of the debt security and (b) the amount
of the principal payment, by (2) the sum of all of the principal payments.
"Capital Lease Obligation" of any person means the obligation to pay rent or
other payment amounts under a lease of, or other Debt arrangements conveying
the right to use, real or personal property of a person
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which is required to be classified and accounted for as a capital lease or a
liability on the face of a balance sheet of a person in accordance with GAAP.
The principal amount of the obligation shall be the capitalized amount thereof
that would appear on the face of a balance sheet of a person in accordance with
GAAP.
"Capital Stock" of any person means any and all shares, interests,
participations or other equivalents, however designated, of corporate stock or
other equity participations, including partnership interests, whether general
or limited, of such person.
"Cash Equivalents" means:
. securities issued or directly and fully guaranteed or insured by the
United States government or any agency or instrumentality thereof,
provided that the full faith and credit of the United States is pledged
in support thereof, having maturities of six months from the date of
acquisition;
. certificates of deposit with maturities of not more than six months or
less from the date of acquisition, bankers' acceptances with maturities
not exceeding six months and overnight bank deposits, in each case with
any domestic commercial bank having capital and surplus in excess of
$500.0 million and a Thompson Bank Watch Rating of "B" or better;
. repurchase obligations with a term of not more than seven days for
underlying securities of the types described in the first two clauses
above entered into with any financial institution meeting the
qualifications specified in the second clause above;
. commercial paper having the highest rating obtainable from Moody's
Investors Service, Inc. or Standard & Poor's Ratings Group and in each
case maturing within six months after the date of acquisition; and
. money market funds at least 95% of the assets of which constitute Cash
Equivalents of the kinds described in the foregoing clauses of this
definition.
"Change of Control" means the occurrence of one or more of the following
events:
. any sale, lease, exchange or other transfer, in one transaction or a
series of related transactions, of all or substantially all of the
assets of ours and our Subsidiaries, taken as a whole, to any person or
group of related persons, as defined in Section 13(d) of the Exchange
Act (a "Group");
. the approval by the holders of our Capital Stock of any plan or proposal
for our liquidation or dissolution, whether or not otherwise in
compliance with the provisions of the applicable indenture;
. any person or Group shall become the owner, directly or indirectly,
beneficially or of record, of shares representing more than 50% of the
aggregate ordinary voting power represented by our issued and
outstanding Voting Stock or any successor to all or substantially all of
its assets; or
. during any period of two consecutive years, individuals who at the
beginning of the period constituted our board of directors, together
with any new directors whose election to the board of directors or whose
nomination for election by our stockholders was approved by a vote of a
majority of the directors then still in office who were either directors
at the beginning of this period or whose election or nomination for
election was previously so approved, cease for any reason to constitute
a majority of the board of directors then in office.
"Common stock" of any person means Capital Stock of a person that does not
rank prior, as to the payment of dividends or as to the distribution of assets
upon any voluntary or involuntary liquidation, dissolution or winding up of
such person, to shares of Capital Stock of any other class of the person.
"Consolidated Debt to EBITDA Ratio" means the ratio of:
. the total consolidated Debt as of the date of calculation (the
"Determination Date") to
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. four times the Consolidated EBITDA for the latest fiscal quarter for
which financial information is available immediately preceding the
Determination Date (the "Measurement Period").
For purposes of calculating Consolidated EBITDA for the Measurement Period
immediately prior to the relevant Determination Date:
. any person that is a Restricted Subsidiary on the Determination Date, or
would become a Restricted Subsidiary on the Determination Date in
connection with the transaction that requires the determination of the
Consolidated EBITDA, will be deemed to have been a Restricted Subsidiary
at all times during the Measurement Period;
. any person that is not a Restricted Subsidiary on the Determination
Date, or would cease to be a Restricted Subsidiary on the Determination
Date in connection with the transaction that requires the determination
of the Consolidated EBITDA, will be deemed not to have been a Restricted
Subsidiary at any time during the Measurement Period; and
. if we or any Restricted Subsidiary shall have in any manner (1) acquired
through an acquisition or the commencement of activities constituting
the operating business or (2) disposed of by an Asset Sale or the
termination or discontinuance of activities constituting such operating
business any operating business during the Measurement Period or after
the end of the period and on or prior to the Determination Date, the
calculation will be made on a pro forma basis in accordance with GAAP as
if, in the case of an acquisition or the commencement of activities
constituting such operating business, all transactions had been
consummated prior to the first day of the Measurement Period, it being
understood that in calculating Consolidated EBITDA the exclusions set
forth in the definition of Consolidated Net Income shall apply to any
person acquired as if it were a Restricted Subsidiary.
"Consolidated EBITDA" means, with respect to any period, Consolidated Net
Income for the period increased, without duplication, to the extent deducted in
calculating the Consolidated Net Income, by:
. Consolidated Income Tax Expense for the period;
. Consolidated Interest Expense for the period without regard to the
proviso therein; and
. depreciation, amortization and any other non-cash items for the period,
less any non-cash items to the extent they increase Consolidated Net
Income, including the partial or entire reversal of reserves taken in
prior periods, for the period, for us and any Restricted Subsidiary,
including, without limitation, amortization of capitalized debt issuance
costs for the period,
all of the foregoing determined on a consolidated basis for us and our
Restricted Subsidiaries in accordance with GAAP; provided that, if any
Restricted Subsidiary is not a Wholly Owned Restricted Subsidiary, Consolidated
EBITDA shall be reduced, to the extent not otherwise reduced in accordance with
GAAP, by an amount equal to:
. the amount of Consolidated EBITDA attributable to such Restricted
Subsidiary, multiplied by
. the percentage ownership interest in a Restricted Subsidiary not owned
on the last day of a period by us or any of our Restricted Subsidiaries.
"Consolidated Income Tax Expense" for any period means the consolidated
provision for our income taxes and the income taxes of our Restricted
Subsidiaries for the period calculated on a consolidated basis in accordance
with GAAP.
"Consolidated Interest Expense" means for any period the consolidated
interest expense included in our consolidated income statement and the
consolidated income statement of our Restricted Subsidiaries, without deduction
of interest income, for a period calculated on a consolidated basis in
accordance with GAAP, including without limitation or duplication, or, to the
extent not so included, with the addition of:
. the amortization of Debt discounts;
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. any payments or fees with respect to letters of credit, bankers'
acceptances or similar facilities;
. fees, net of any amounts received, with respect to any Interest Rate or
Currency Protection Agreement;
. interest on Debt guaranteed by us and our Restricted Subsidiaries, to
the extent paid by us or any Restricted Subsidiary; and
. the portion of any Capital Lease Obligation allocable to interest
expense; provided that, if any Restricted Subsidiary is not a Wholly
Owned Restricted Subsidiary, Consolidated Interest Expense shall be
reduced, to the extent not otherwise reduced in accordance with GAAP, by
an amount equal to:
. the amount of Consolidated Interest Expense attributable to the
Restricted Subsidiary, multiplied by
. the percentage ownership interest in the Restricted Subsidiary not
owned on the last day of the period by us or any of our Restricted
Subsidiaries.
"Consolidated Net Income" for any period means our consolidated net income
or loss of and the consolidated net income of our Restricted Subsidiaries for a
period determined on a consolidated basis in accordance with GAAP; provided
that there shall be excluded therefrom:
. the net income or loss of any person acquired by us or any of our
Restricted Subsidiaries in a pooling-of-interests transaction for any
period prior to the date of the transaction;
. the net income or loss of any person that is not our Restricted
Subsidiary except to the extent of the amount of dividends or other
distributions actually paid to us or our Restricted Subsidiary by the
person during the period;
. gains or losses on Asset Sales by us or our Restricted Subsidiaries;
. all extraordinary gains and extraordinary losses;
. the cumulative effect of changes in accounting principles; and
. the tax effect of any of the items described in the foregoing clauses.
"Consolidated Net Worth" of any person means the consolidated stockholders'
equity of such person, determined on a consolidated basis in accordance with
GAAP, less amounts attributable to Disqualified Stock of such person; provided
that, with respect to us, adjustments following the date of the indenture to
our accounting books and records in accordance with Accounting Principles Board
Opinions Nos. 16 and 17, or successor opinions thereto, or otherwise resulting
from the acquisition of control of us by another person shall not be given
effect.
"Debt" means, without duplication, with respect to any person, whether
recourse is to all or a portion of the assets of the person and whether or not
contingent:
. every obligation of the person for money borrowed;
. every obligation of the person evidenced by bonds, debentures, notes or
other similar instruments, including obligations incurred in connection
with the acquisition of property, assets or businesses;
. every reimbursement obligation of the person with respect to letters of
credit, bankers' acceptances or similar facilities issued for the
account of the person, including reimbursement obligations with respect
thereto, but excluding obligations with respect to trade letters of
credit securing obligations entered into in the ordinary course of
business to the extent the letters of credit are not drawn upon or, if
drawn upon, to the extent the drawing is reimbursed no later than the
third business day following receipt by the person of a demand for
reimbursement;
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. every obligation of the person issued or assumed as the deferred
purchase price of property or services, including securities repurchase
agreements;
. every Capital Lease Obligation of the person;
. all Disqualified Stock issued by the person;
. if the person is a Restricted Subsidiary, all preferred stock issued by
the person;
. every obligation under Interest Rate or Currency Protection Agreements
of the person; and
. every obligation of the type referred to in the foregoing clauses of
another person and all dividends of another person the payment of which,
in either case, the person has Guaranteed or is responsible or liable,
directly or indirectly, as obligor, Guarantor or otherwise.
The "amount" or "principal amount" of Debt at any time of determination as
used herein represented by:
. any contingent Debt, shall be the maximum principal amount thereof;
. any Debt issued at a price that is less than the principal amount at
maturity thereof, shall be the amount of the liability in respect
thereof determined in accordance with GAAP;
. any Disqualified Stock, shall be the maximum fixed redemption or
repurchase price in respect thereof; and
. any preferred stock, shall be the maximum voluntary or involuntary
liquidation preference plus accrued and unpaid dividends in respect
thereof, in each case as of such time of determination.
In no event shall "Debt" include any trade payable or accrued expenses
arising in the ordinary course of business.
"Disqualified Stock" of any person means any Capital Stock of the person
that by its terms, or by the terms of any security into which it is
convertible or for which it is exchangeable, at the option of the holder
thereof, or otherwise matures or is required to be redeemed, pursuant to any
sinking fund obligation or otherwise, but other than as a result of the death
or disability of the holder thereof or the termination of the employment with
us of the holder thereof, or is convertible into or exchangeable for Debt or
is redeemable at the option of the holder thereof, in whole or in part, at any
time prior to the final maturity of the notes; provided, however, that any
Capital Stock which would not constitute Disqualified Stock but for provisions
thereof giving holders thereof the right to require us or a Restricted
Subsidiary to repurchase or redeem the Capital Stock upon the occurrence of an
"Asset Sale" or a "Change of Control" occurring prior to the final maturity
date of the notes shall not constitute Disqualified Stock if the provisions
applicable to the Capital Stock are no more favorable to the holders of the
stock than the corresponding provisions applicable to the notes contained in
the indenture and the provisions applicable to the Capital Stock specifically
provide that we and our Restricted Subsidiaries will not repurchase or redeem
any of the stock pursuant to the provisions prior to the repurchase of such
notes as are required to be repurchased pursuant to the indenture upon an
Asset Sale or a Change of Control.
"Existing Debt" shall mean our Debt and the Debt of our Restricted
Subsidiaries in existence on the original issue date of the notes and our 4
3/4% Convertible Subordinated Notes.
"GAAP" means generally accepted accounting principles in the United States
which are in effect on the date of original issuance of the notes,
consistently applied.
"Guarantee" by any person means any obligation, contingent or otherwise, of
the person guaranteeing, or having the economic effect of guaranteeing, any
Debt of any other person (the "primary obligor") in any manner, whether
directly or indirectly, and including, without limitation, any obligation of
the person to:
. purchase or pay or advance or supply funds for the purchase or payment
of the Debt or to purchase or to advance or supply funds for the
purchase of any security for the payment of the Debt;
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. purchase property, securities or services for the purpose of assuring
the holder of the Debt of the payment of the Debt; or
. maintain working capital, equity capital or other financial statement
condition or liquidity of the primary obligor so as to enable the
primary obligor to pay the Debt, and "Guaranteed," "Guaranteeing" and
"Guarantor" shall have meanings correlative to the foregoing; provided,
however, that the Guaranty by any person shall not include endorsements
by the person for collection or deposit, in either case, in the ordinary
course of business.
"Incur" means, with respect to any Debt or other obligation of any person,
to create, issue, incur, by conversion, exchange or otherwise, assume,
Guarantee or otherwise become liable in respect of the Debt or other obligation
including by acquisition of Restricted Subsidiaries or the recording, as
required pursuant to GAAP or otherwise, of any of the Debt or other obligation
on the balance sheet of the person, and "Incurrence," "Incurred," "Incurrable"
and "Incurring" shall have meanings correlative to the foregoing; provided,
however, that a change in GAAP that results in an obligation of the person that
exists at such time becoming Debt shall not be deemed an Incurrence of the
Debt.
"Interest Rate or Currency Protection Agreement" of any person means any
forward contract, futures contract, swap, option or other financial agreement
or arrangement, including, without limitation, caps, floors, collars and
similar agreements, relating to, or the value of which is dependent upon,
interest rates or currency exchange rates or indices.
"Internal Revenue Code" means the Internal Revenue Code of 1986 and any
successor thereto.
"Investment" by any person means any direct or indirect loan, advance or
other extension of credit or capital contribution, by means of transfers of
cash or other property to others or payments for property or services for the
account or use of others, or otherwise, to, or purchase or acquisition of
Capital Stock, bonds, notes, debentures or other securities or evidence of Debt
issued by, any other person, including any payment on a Guarantee of any
obligation of such other person.
"Lien" means, with respect to any property or assets, any mortgage or deed
of trust, pledge, hypothecation, assignment, deposit arrangement, security
interest, lien, charge, easement, other than any easement not materially
impairing usefulness or marketability, encumbrance, preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever on or with respect to such property or assets, including, without
limitation, any conditional sale or other title retention agreement having
substantially the same economic effect as any of the foregoing.
"Material Restricted Subsidiary" means, at any date of determination, any
Restricted Subsidiary that represents more than 10% of our total consolidated
assets at the end of the most recent fiscal quarter for which financial
information is available, or more than 10% of our consolidated net sales or
consolidated operating income for the most recent four quarters for which
financial information is available.
"Net Cash Proceeds" means:
. with respect to any Asset Sale by any person, cash or Cash Equivalents
received, including by way of sale or discounting of a note, installment
receivable or other receivable, but excluding any other consideration
received in the form of assumption of Debt or other obligations relating
to the properties or assets, therefrom by the person, net of:
. all legal, title and recording tax expenses, commissions and other
fees and expenses Incurred and all federal, state, foreign and local
taxes required to be accrued as a liability as a consequence of the
Asset Sale;
. all payments made by the person or its Restricted Subsidiaries on
any Debt which is secured by the assets in accordance with the terms
of any Lien upon or with respect to the assets or which
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must by the terms of such Lien, or in order to obtain a necessary
consent to the Asset Sale or by applicable law, be repaid out of the
proceeds from the Asset Sale;
. all distributions and other payments made to minority interest
holders in Restricted Subsidiaries of the person or joint ventures as
a result of the Asset Sale; and
. appropriate amounts to be provided by the person or any Restricted
Subsidiary thereof, as the case may be, as a reserve in accordance
with GAAP against any liabilities associated with such assets and
retained by the person or any Restricted Subsidiary thereof, as the
case may be, after the Asset Sale, including, without limitation,
liabilities under any indemnification obligations and severance and
other employee termination costs associated with the Asset Sale, in
each case as determined by the board of directors, in its reasonable
good faith judgment evidenced by a resolution of the board of
directors filed with the trustee; provided, however, that any
reduction in the reserve within 12 months following the consummation
of the Asset Sale will be treated for all purposes of the indenture
and the notes as a new Asset Sale at the time of the reduction with
Net Cash Proceeds equal to the amount of the reduction; and
. with respect to the issuance or sale of Capital Stock, or options,
warrants or rights to purchase Capital Stock, or debt securities or
Disqualified Stock that has been converted into or exchanged for Capital
Stock, the proceeds of the issuance or sale in the form of cash or Cash
Equivalents, including payments in respect of deferred payment
obligations, net of attorney's fees, accountant's fees and brokerage,
consultation, underwriting and other fees and expenses actually incurred
in connection with the issuance or sale, conversion or exchange and net
of any Consolidated Interest Expense attributable to any debt securities
paid to the holders thereof prior to the conversion or exchange and net
of taxes paid or payable as a result thereof.
"Note Register" shall mean the note registry maintained by the registrar.
"Offer to Purchase" means a written offer (the "offer") sent by us by first
class mail, postage prepaid, to each holder at his address appearing in the
Note Register on the date of the offer offering to purchase up to the principal
amount of notes specified in such offer at the purchase price specified in such
offer, as determined pursuant to the indenture. Unless otherwise required by
applicable law, the offer shall specify an expiration date (the "offer
expiration date") of the Offer to Purchase which shall be, subject to any
contrary requirements of applicable law, not less than 30 days or more than 60
days after the date of such offer and a settlement date (the "purchase date")
for purchase of notes within five business days after the offer expiration
date. We shall notify the trustee at least 15 business days, or such shorter
period as is acceptable to the trustee, prior to the mailing of the offer of
our obligation to make an offer to purchase, and the offer shall be mailed by
us or, at our request, by the trustee in the name and at our expense. The offer
shall contain information concerning our business and the business of our
Restricted Subsidiaries which we in good faith believe will enable such holders
to make an informed decision with respect to the Offer to Purchase, which at a
minimum will include:
. the most recent annual and quarterly financial statements and
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" contained in the documents required to be filed with the
trustee pursuant to the indenture, which requirements may be satisfied
by delivery of the documents together with the offer;
. a description of material developments in our business subsequent to the
date of the latest of such financial statements referred to in the
foregoing clause, including a description of the events requiring us to
make the Offer to Purchase;
. if applicable, appropriate pro forma financial information concerning
the Offer to Purchase and the events requiring us to make the Offer to
Purchase; and
. any other information required by applicable law to be included therein.
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The offer shall contain all instructions and materials necessary to enable
such holders to tender notes pursuant to the Offer to Purchase. The offer shall
also state:
. the section of the indenture pursuant to which the Offer to Purchase is
being made;
. the offer expiration date and the purchase date;
. the aggregate principal amount of the outstanding notes offered to be
purchased by us pursuant to the Offer to Purchase, including, if less
than 100%, the manner by which such has been determined pursuant to the
Section of the indenture requiring the Offer to Purchase (the "purchase
amount");
. the purchase price to be paid by us for each $1,000 aggregate principal
amount of notes accepted for payment, as specified pursuant to the
indenture (the "purchase price");
. that the holder may tender all or any portion of the notes registered in
the name of the holder and that any portion of a note tendered must be
tendered in an integral of $1,000 principal amount;
. the place or places where notes are to be surrendered for tender
pursuant to the Offer to Purchase;
. that interest on any notes not tendered or tendered but not purchased by
us pursuant to the Offer to Purchase will continue to accrue;
. that on the purchase date the purchase price will become due and payable
upon each note being accepted for payment pursuant to the Offer to
Purchase and that interest thereon shall cease to accrue on and after
the purchase date;
. that each holder electing to tender a note pursuant to the Offer to
Purchase will be required to surrender the note at the place or places
specified in the Offer prior to the close of business on the offer
expiration date, the note being, if we or the trustee so require, duly
endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to us and the trustee duly executed by, the holder thereof
or his attorney duly authorized in writing;
. that holders will be entitled to withdraw all or any portion of notes
tendered if we or their paying agent receive, not later than the close
of business on the offer expiration date, a telegram, telex, facsimile
transmission or letter setting forth the name of the holder, the
principal amount of the note the holder tendered, the certificate number
of the note the holder tendered and a statement that such holder is
withdrawing all or a portion of his tender;
. that (1) if notes in an aggregate principal amount less than or equal to
the purchase amount are duly tendered and not withdrawn pursuant to the
Offer to Purchase, we shall purchase all the notes and (2) if notes in
an aggregate principal amount in excess of the purchase amount are
tendered and not withdrawn pursuant to the Offer to Purchase, we shall
purchase notes having an aggregate principal amount equal to the
purchase amount on a pro rata basis, with adjustments as may be deemed
appropriate so that only notes in denominations of $1,000 or integral
multiples thereof shall be purchased; and
. that in the case of any holder whose note is purchased only in part, we
shall execute, and the trustee shall authenticate and deliver to the
holder of the note without service charge, a new note or notes of any
authorized denomination as requested by, the holder, in an aggregate
principal amount equal to and in exchange for the unpurchased portion of
the note so tendered.
Any Offer to Purchase shall be governed by and effected in accordance with
the offer for such Offer to Purchase.
"Permitted Interest Rate or Currency Protection Agreement" of any person
means any Interest Rate or Currency Protection Agreement entered into with one
or more financial institutions that is designed to protect the person against
fluctuations in interest rates or currency exchange rates with respect to Debt
Incurred and which shall have a notional amount no greater than the payments
due with respect to the Debt being hedged thereby and not for purposes of
speculation.
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"Permitted Investment" means:
. an Investment in us or a Wholly Owned Restricted Subsidiary or a person
which will, upon the making of the Investment, become a Wholly Owned
Restricted Subsidiary or be merged or consolidated with or into or
transfer or convey all or substantially all its assets to, us or a
Wholly Owned Restricted Subsidiary; provided that the person's primary
business or the assets to be transferred or conveyed are related,
ancillary or complementary to the System and Network Management
Business;
. Cash Equivalents;
. payroll, travel, relocation and similar advances to cover matters that
are expected at the time of the advances ultimately to be treated as
expenses in accordance with GAAP;
. stock, obligations or securities received (1) in satisfaction of
judgments or (2) in connection with the sale or disposition of a person,
assets or business;
. Investments in prepaid expenses, negotiable instruments held for
collection and lease, utility and worker's compensation, performance and
other similar deposits;
. Permitted Interest Rate or Currency Agreements;
. Strategic Investments;
. loans or advances to ours officer or employees or officers or employees
of any Restricted Subsidiary, other than loans or advances made pursuant
to the next clause below, that do not in the aggregate exceed $10.0
million at any time outstanding;
. accounts receivable in the ordinary course of business and Investments
obtained in exchange or settlement of accounts receivable for which we
have determined that collection is not likely; and
. loans or advances to persons who own Debt or Capital Stock, other than
any of our Affiliates or any Restricted Subsidiary, of any person if the
loans or advances are made as part of, or in connection with, a
transaction pursuant to which the person becomes our Restricted
Subsidiary or the Restricted Subsidiary of our Restricted Subsidiary or
substantially all of the assets of the person are acquired by us or any
Restricted Subsidiary, in an aggregate amount not to exceed 20% of the
total consideration paid in connection with such acquisition.
"Permitted Lien" means any Lien on ours assets or the assets of any
Restricted Subsidiary permitted under the "Limitation on Liens" covenant.
"Permitted Senior Bank Debt" means Debt Incurred by us or any Restricted
Subsidiary pursuant to one or more senior commercial term loan and/or revolving
credit facilities, including any letter of credit subfacility, entered into
principally with commercial banks and/or other financial institutions typically
party to commercial loan agreements, and any replacement, extension, renewal,
refinancing or refunding thereof; provided that the aggregate principal amount
of all Permitted Senior Bank Debt, at any one time outstanding, shall not
exceed $150.0 million plus 85% of our consolidated net accounts receivable.
"Preferred stock" of any person means Capital Stock of such person of any
class or classes, however designated, that ranks prior, as to the payment of
dividends or as to the distribution of assets upon any voluntary or involuntary
liquidation, dissolution or winding up of such person, to shares of Capital
Stock of any other class of such person.
"Purchase Money Secured Debt" of any person means Debt of the person secured
by a Lien on real or personal property of the person which Debt:
. constitutes all or a part of the purchase price or construction cost of
the property; or
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. is Incurred prior to, at the time of or within 180 days after the
acquisition or substantial completion of the property for the purpose of
financing all or any part of the purchase price or construction cost
thereof; provided, however, that:
. the Debt so incurred does not exceed 100% of the purchase price or
construction cost of the property and related expenses,
. the Lien does not extend to or cover any property other than the
item of property and any improvements on the item and proceeds
thereof,
. the purchase price or construction cost for the property is or
should be included in "addition to property, plant and equipment" in
accordance with GAAP, and
. the purchase or construction of the property is not part of any
acquisition of a person or business unit or line of business.
"Qualified Consideration" shall mean:
. cash;
. Cash Equivalents;
. assets that are used or useful in the System and Network Management
Business;
. any securities or other obligations that are converted into or exchanged
for cash or Cash Equivalents within six months after an Asset Sale; or
. our liabilities or the liabilities of a Restricted Subsidiary assumed by
the transferee, or its designee, such that we or the Restricted
Subsidiary have no further liability therefor, the amount of the
liability to be determined in accordance with GAAP.
"Related person" of any person means any other person directly or indirectly
owning:
. 5% or more of the outstanding common stock of the person or, in the case
of a person that is not a corporation, 5% or more of the equity interest
in the person; or
. 5% or more of the combined voting power of the Voting Stock of the
person.
"Restricted Subsidiary" means any of our Subsidiaries, whether existing on
or after the date of the indenture, unless the Subsidiary is an Unrestricted
Subsidiary.
"Secured Debt" means Permitted Senior Bank Debt, Purchase Money Secured Debt
and other Debt secured by a Permitted Lien.
"Strategic Investment" means an Investment in any person, other than our
Unrestricted Subsidiary, whose primary business is related, ancillary or
complementary to the System and Network Management Business, and the Investment
is determined by our board of directors to promote or significantly benefit our
businesses and the businesses of our Restricted Subsidiaries on the date of the
Investment.
"Subordinated Debt" means our Debt as to which the payment of principal of,
and premium, if any, and interest and other payment obligations in respect of
the Debt shall be subordinate to the prior payment in full of the notes to at
least the following extent:
. no payments of principal of or premium, if any, or interest on, or
otherwise due in respect of the Debt, may be permitted for so long as
any default in the payment of principal or premium, if any, or interest
on the notes exists;
. in the event that any other default that with the passing of time or the
giving of notice, or both, would constitute an Event of Default with
respect to the notes, upon notice by 25% or more in principal
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amount of the notes to the trustee, the trustee shall have the right to
give notice to us and the holders of the Debt, or trustees or agents
therefor, of a payment blockage, and thereafter no payments of principal
of or premium, if any, or interest on or otherwise due in respect of the
Debt may be made for a period of 179 days from the date of the notice;
and
. the Debt may not:
. provide for payments of principal of the Debt at its maturity or by
way of a sinking fund applicable thereto or by way of any mandatory
redemption, defeasance, retirement or repurchase thereof by us,
including any redemption, retirement or repurchase which is
contingent upon events or circumstances, but excluding any retirement
required by virtue of acceleration of the Debt upon an event of
default thereunder, in each case prior to the final maturity date of
the notes; or
. permit redemption or other retirement, including pursuant to an Offer
to Purchase made by us, of the other Debt at the option of the holder
thereof prior to the final maturity date of the notes, other than a
redemption or other retirement at the option of the holder of the
Debt, including pursuant to an Offer to Purchase made by us, which is
conditioned upon a change of control of us pursuant to provisions
substantially similar to those described under "Change of Control,"
and which shall provide that the Debt will not be repurchased
pursuant to these provisions prior to our repurchase of the notes
required to be repurchased by us pursuant to the provisions described
under "Change of Control;" provided, however, that any Debt which
would constitute Subordinated Debt but for provisions thereof giving
holders thereof the right to require us or a Restricted Subsidiary to
repurchase or redeem the Subordinated Debt upon the occurrence of an
Asset Sale occurring prior to the final maturity of the notes shall
constitute Subordinated Debt if the provisions applicable to the
Subordinated Debt are no more favorable to the holders of the Debt
than the provisions applicable to the notes contained in the covenant
described under "Limitation on Asset Sales" and the provisions
applicable to the Debt specifically provide that we and our
Restricted Subsidiaries will not repurchase or redeem any of the Debt
pursuant to these provisions prior to the repurchase of the notes as
are required to be repurchased pursuant to the covenant described
under "Limitation on Asset Sales."
"Subsidiary" of any person means:
. a corporation more than 50% of the combined voting power of the
outstanding Voting Stock of which is owned, directly or indirectly, by
the person or by one or more other Subsidiaries of the person or by the
person and one or more Restricted Subsidiaries thereof; or
. any other person, other than a corporation, in which the person, or one
or more other Subsidiaries of the person or the person and one or more
other Subsidiaries thereof, directly or indirectly, has the power to
direct the policies, management and affairs thereof.
"System and Network Management Business" means:
. server and other hardware hosting;
. connectivity, data networking, telecommunications or content for
computer or data networks or systems;
. management of computer or data networks or systems;
. technology services, equipment sales or leasing or software licensing
for computer or data networks or systems, including Internet Protocol
and any successor protocol(s) based networks; and
. businesses reasonably related, complementary or incidental thereto.
"U.S. Dollar Equivalent" means, as of the date of determination, the dollar
value at the noon buying rate in the City of New York for cable transfers in
euros as certified for customs purposes by the Federal Reserve Bank of New
York for the Business Day prior to such date of determination.
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"U.S. government securities" means securities that are direct obligations of
the United States of America, direct obligations of the Federal Home Loan
Mortgage Corporation, direct obligations of the Federal National Mortgage
Association, securities which the timely payment of whose principal and
interest is unconditionally guaranteed by the full faith and credit of the
United States of America, trust receipts or other evidence of a direct claim
upon the instruments described above and money market mutual funds that invest
solely in these securities.
"Voting Stock" of any person means Capital Stock of a person which
ordinarily has voting power for the election of directors, or persons
performing similar functions, at a person, whether at all times or only so long
as no senior class of securities has voting power by reason of any contingency.
"Wholly Owned Restricted Subsidiary" of any person means a Restricted
Subsidiary of a person all of the outstanding Capital Stock or other ownership
interests of which, other than directors' qualifying shares, shall at the time
be owned by the person or by one or more Wholly Owned Restricted Subsidiaries
of the person or by the person and one or more Wholly Owned Restricted
Subsidiaries of such person.
Events of Default
The following will be "Events of Default" under the indenture:
. failure to pay principal of or premium, if any, on any note when due
upon acceleration, optional or mandatory redemption, required repurchase
or otherwise;
. failure to pay interest on any note when due, and such default continues
for a period of 30 days;
. default in the payment of principal and interest on notes required to be
purchased pursuant to an Offer to Purchase as described under "Change of
Control" and "Asset Sales" when due and payable;
. failure to perform or comply with the provisions described under
"Merger, Consolidation and Certain Sales of Assets;"
. failure to perform any other of our covenants or agreements under the
indenture or the notes and such failure continues for 60 days after
written notice to us by the trustee or holders of at least 25% in
aggregate principal amount of outstanding notes;
. (1) any default by us or any Material Restricted Subsidiary in the
payment of the principal, premium, if any, or interest has occurred with
respect to amounts in excess of $10.0 million under any agreement,
indenture or instrument evidencing Debt when the same shall become due
and payable in full and the default shall have continued after any
applicable grace period and shall not have been cured or waived and, if
not already matured at its final maturity in accordance with its terms,
the holders of the Debt shall have the right to accelerate the Debt, or
(2) any event of default as defined in any of our agreements, indentures
or instruments or any agreements, indentures or instruments of any
Restricted Subsidiary evidencing Debt in excess of $10.0 million shall
have occurred and the Debt thereunder, if not already matured at its
final maturity in accordance with its terms, shall have been
accelerated;
. the rendering of a final judgment or judgments against us or any
Material Restricted Subsidiary in an amount in excess of $10.0 million
which remains undischarged or unstayed for a period of 60 days after the
date on which the right to appeal has expired; and
. events of bankruptcy, insolvency or reorganization affecting us or any
Material Restricted Subsidiary.
Subject to the provisions of the indenture relating to the duties of the
trustee in case an Event of Default shall occur and be continuing, the trustee
will be under no obligation to exercise any of its rights or powers under the
indenture at the request or direction of any of the holders, unless the holders
shall have offered to the
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trustee reasonable indemnity. Subject to provisions for the indemnification of
the trustee, the holders of a majority in aggregate principal amount of the
outstanding notes will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the trustee or exercising
any trust or power conferred on the trustee.
If an Event of Default, other than events of bankruptcy, insolvency or
reorganization affecting us or any Material Restricted Subsidiary, shall occur
and be continuing, either the trustee or the holders of at least 25% in
aggregate principal amount of the outstanding notes may accelerate the maturity
of all notes; provided, however, that after the acceleration, but before a
judgment or decree based on acceleration, the holders of a majority in
aggregate principal amount of outstanding notes may, under various
circumstances, rescind and annul the acceleration if all Events of Default,
other than the nonpayment of accelerated principal, have been cured or waived
as provided in the indenture. If an event of bankruptcy, insolvency or
reorganization affecting us or any Material Restricted Subsidiary occurs, the
principal of and any accrued interest on the notes then outstanding will ipso
facto become immediately due and payable without any declaration or other act
on the part of the trustee or any holder. For information as to waiver of
defaults, see "Modification and Waiver."
No holder of any note will have any right to institute any proceeding with
respect to the indenture or for any remedy thereunder, unless the holder shall
have previously given to the trustee written notice of a continuing Event of
Default and unless also the holders of at least 25% in aggregate principal
amount of the outstanding notes shall have made written request, and offered
reasonable indemnity, to the trustee to institute such proceeding as trustee,
and the trustee shall not have received from the holders of a majority in
aggregate principal amount of the outstanding notes a direction inconsistent
with the request and shall have failed to institute a proceeding within 60
days. However, these limitations do not apply to a suit instituted by a holder
of a note for enforcement of payment of the principal of and premium, if any,
or interest on such note on or after the respective due dates expressed in the
note.
We are required to furnish to the trustee annually a statement as to the
performance by us of our obligations under the indenture and as to any default
in such performance.
Satisfaction and Discharge of the Indenture
The indenture will cease to be of further effect as to all outstanding
notes, except as to:
. rights of registration of transfer and exchange and our right of
optional redemption;
. substitution of apparently mutilated, defaced, destroyed, lost or stolen
notes;
. rights of holders to receive payment of principal and interest on the
notes;
. rights, obligations and immunities of the trustee under the indenture;
and
. rights of the holders of the notes as beneficiaries of the indenture
with respect to any property deposited with the trustee payable to all
or any of them if:
. we will have paid or caused to be paid the principal of and interest
on the notes as and when they will have become due and payable; or
. all outstanding notes, except lost, stolen or destroyed notes which
have been replaced or paid, have been delivered to the trustee for
cancellation.
Defeasance
At our option, if applicable:
(1) we will be discharged from any and all obligations in respect of the
outstanding notes; or
(2) we may omit to comply with various restrictive covenants, and this
omission shall not be deemed to be an Event of Default under the
indenture and the notes,
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in either case (1) or (2) upon irrevocable deposit with the trustee, in trust,
of money and/or U.S. government obligations which will provide money in an
amount sufficient, in the opinion of a nationally recognized firm of
independent certified public accountants, to pay the principal of and premium,
if any, and each installment of interest if any, on the outstanding notes.
With respect to clause (2), the obligations under the indenture other than
with respect to these covenants and the Events of Default other than the Events
of Default relating to these covenants above shall remain in full force and
effect. A trust may only be established if, among other things:
. with respect to clause (1), we have received from, or there has been
published by, the Internal Revenue Service a ruling or there has been a
change in law, which in the opinion of counsel provides that holders of
the notes will not recognize gain or loss for U.S. federal income tax
purposes as a result of the deposit, defeasance and discharge and will
be subject to U.S. federal income tax on the same amount, in the same
manner and at the same times as would have been the case if the deposit,
defeasance and discharge had not occurred; or, with respect to clause
(2), we have delivered to the trustee an opinion of counsel to the
effect that the holders of the notes will not recognize gain or loss for
U.S. federal income tax purposes as a result of the deposit and
defeasance and will be subject to U.S. federal income tax on the same
amount, in the same manner and at the same times as would have been the
case if the deposit and defeasance had not occurred;
. the deposit, defeasance and discharge will not result in a breach or
violation of, or constitute a default under, any agreement or instrument
to which we or any Restricted Subsidiary are a party or by which we and
any Restricted Subsidiary are bound;
. no Event of Default or event that with the passing of time or the giving
of notice, or both, shall constitute an Event of Default, shall have
occurred and be continuing;
. we have delivered to the trustee an opinion of counsel to the effect
that the deposit shall not cause the trustee or the trust so created to
be subject to the Investment Company Act of 1940; and
. other customary conditions precedent are satisfied.
Modification and Waiver
Modifications and amendments of the indenture may be made by us and the
trustee with the consent of the holders of a majority in aggregate principal
amount of the outstanding notes; provided, however, that no modification or
amendment may, without the consent of the holder of each outstanding note
affected thereby:
. change the stated maturity of the principal of, or any installment of
interest on, any note;
. reduce the principal amount of, or premium or interest on, any note;
. change the place or currency of payment of principal of, or premium or
interest on, any note;
. impair the right to institute suit for the enforcement of any payment on
or with respect to any note;
. reduce the above-stated percentage of outstanding notes necessary to
modify or amend the indenture;
. reduce the percentage of aggregate principal amount of outstanding notes
necessary for waiver of compliance with provisions of the indenture or
for waiver of defaults;
. modify any provisions of the indenture relating to the modification and
amendment of the indenture or the waiver of past defaults or covenants,
except as otherwise specified; or
. following the mailing of any Offer to Purchase, modify any Offer to
Purchase for the notes required under the "Limitation on Asset Sales"
and the "Change of Control" covenants contained in the indenture in a
manner materially adverse to the holders thereof.
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However, without the consent of any holder, we and the trustee may amend or
supplement the indenture or the notes to cure any ambiguity, defect or
inconsistency; provided that this action does not adversely affect the
interests of the holders of the notes in any material respect, to provide for
the assumption of our obligations to holders of notes in the case of a merger
or consolidation, to secure the notes, to add to our covenants for the benefits
of the holders or to comply with requirements of the Commission in order to
effect or maintain the qualification of the indenture under the Trust Indenture
Act.
The holders of a majority in aggregate principal amount of the outstanding
notes, on behalf of all holders of notes, may waive compliance by us with
restrictive provisions of the indenture. Subject to rights of the trustee, as
provided in the indenture, the holders of a majority in aggregate principal
amount of the outstanding notes, on behalf of all holders of notes, may waive
any past default under the indenture, except a default in the payment of
principal, premium or interest or a default arising from failure to purchase
any note tendered pursuant to an Offer to Purchase.
Governing Law
The indenture and the old notes are, and the new notes will be, governed by
the laws of the State of New York.
The Trustee
The indenture provides that, except during the continuance of an Event of
Default, the trustee will perform only such duties as are specifically set
forth in the indenture. During the existence of an Event of Default, the
trustee will exercise such rights and powers vested in it under the indenture
and use the same degree of care and skill in its exercise as a prudent person
would exercise under the circumstances in the conduct of such persons own
affairs.
The indenture and provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the trustee, should it
become our creditor, to obtain payment of claims in certain cases or to realize
on certain property received by it in respect of any such claim as security or
otherwise. The trustee is permitted to engage in other transactions with us or
any Affiliate; provided, however, that if it acquires any conflicting interest,
as defined in the indenture or in the Trust Indenture Act, it must eliminate
the conflict or resign.
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MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of material U.S. federal income
considerations relevant to holders of the notes including material U.S. federal
income tax consequences of the exchange of old notes for new notes pursuant to
the exchange offer. This discussion is based upon the Internal Revenue Code of
1986, as amended (the "Code"), Treasury Regulations, Internal Revenue Service
("IRS") rulings and judicial decisions now in effect, all of which are subject
to change, possibly with retroactive effect, or different interpretations.
There can be no assurance that the IRS will not challenge one or more of the
tax consequences described herein, and we have not obtained, nor does it intend
to obtain, a ruling from the IRS with respect to the U.S. federal income tax,
state tax, local tax, foreign tax or other tax consequences of acquiring or
holding notes. This discussion does not purport to deal with all aspects of
U.S. federal income taxation that may be relevant to a particular holder in
light of the holder's circumstances (for example, persons subject to the
alternative minimum tax provisions of the Code). Also, it is not intended to be
wholly applicable to all categories of investors, some of which, such as
dealers in securities, banks, insurance companies, tax-exempt (employment,
charitable or other) organizations, and persons holding notes as part of a
hedging or conversion transaction or straddle or persons deemed to sell notes
under the constructive sale provisions of the Code, may be subject to special
rules. The discussion also does not discuss any aspect of state, local or
foreign law, or U.S. federal estate and gift tax law. This discussion is
limited to purchasers of notes who hold the notes as "capital assets" within
the meaning of Section 1221 of the Code.
All purchasers of the notes are advised to consult their own tax advisors
regarding the federal, state, local and foreign tax consequences of the
purchase, ownership and disposition of the notes.
U.S. Holders
As used herein, the term "U.S. Holder" means the beneficial owner of a note
that for United States federal income tax purposes is:
. a citizen or resident (as defined in Section 7701 (b) of the Code) of
the United States;
. a corporation, partnership or other entity formed under the laws of the
United States or any political subdivision thereof;
. an estate the income of which is subject to U.S. federal income taxation
regardless of its source; or
. a trust which is subject to the supervision of a court within the United
States and the control of a United States person as described in Section
7701(a)(30) of the Code.
. A "Non-U.S. Holder" is any holder other than a U.S. Holder.
Interest
Stated interest on the notes will generally be includable in a U.S. Holder's
gross income and taxable as ordinary income for U.S. federal income tax
purposes at the time it is paid or accrued in accordance with the U.S. Holder's
regular method of accounting.
Sale, Exchange or Redemption
Each U.S. Holder generally will recognize capital gain or loss upon the
sale, exchange, redemption or other disposition of the notes measured by the
difference, if any, between:
. the amount of cash and the fair market value of any property received,
except to the extent that such cash or other property is attributable to
the payment of accrued interest not previously included in income, which
amount will be taxable as ordinary income; and
. such holder's adjusted tax basis in the notes;
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Capital gain recognized by an individual U.S. Holder generally will be subject
to a maximum United States Federal income tax rate of:
. 39.6% if the U.S. Holder held the asset for not more than 12 months
before the disposition; or
. 20% if the U.S. Holder held the asset for more than 12 months before the
disposition.
A holder's initial tax basis in a note will be the amount paid therefor.
The exchange of the old notes for the new notes pursuant to the exchange
offer should not be treated as an "exchange" for federal income tax purposes
because the new notes should not differ materially in either kind or extent
from the old notes and because the exchange will occur by operation of the
terms of the old notes. A U.S. Holder's adjusted tax basis in the new notes
should be the same as such Holder's adjusted tax basis in the old notes. A U.S.
Holder's holding period for the new notes received pursuant to the exchange
offer should include its holding period for the old notes surrendered therefor.
Information Reporting and Backup Withholding
A U.S. Holder of notes may be subject to "backup withholding" at a rate of
31% with respect to "reportable payments," including interest payments, and,
under various circumstances, principal payments on the notes and proceeds from
the sale, exchange or redemption of the notes. These backup withholding rules
apply if the U.S. Holder, among other things:
. fails to furnish a social security number or other taxpayer
identification number ("TIN") certified under penalties of perjury
within a reasonable time after the request therefor;
. furnishes a TIN as to which the IRS provides notification that it is an
incorrect TIN;
. fails to report properly interest; or
. under various circumstances, fails to provide a certified statement,
signed under penalties of perjury, that the TIN furnished is correct and
that such U.S. Holder is not subject to backup withholding.
A U.S. Holder who does not provide us with its correct TIN also may be
subject to penalties imposed by the IRS. Any amount withheld from a payment to
a U.S. Holder under the backup withholding rules is creditable against the U.S.
Holder's federal income tax liability, provided that the required information
is furnished to the IRS. Backup withholding will not apply, however, with
respect to payments made to certain holders, including corporations and tax-
exempt organizations, provided their exemptions from backup withholding are
properly established.
We will report to the U.S. Holders of notes and to the IRS the amount of any
"reportable payments" for each calendar year and the amount of tax withheld, if
any, with respect to such payments.
US Holder of Euro Denominated Notes
In addition to the information described above regarding U.S. Holders, the
following applies to U.S. Holders of a Euro denominated note ("Euro Note").
Interest
The stated interest on the notes generally will be taxable to a U.S. Holder
as ordinary income at the time that it is paid or accrued, in accordance with
the Holder's method of accounting for federal income tax purposes.
Interest paid on a Euro Note will be includible in income by a U.S. Holder
in an amount equal to the U.S. Dollar value of the payment, regardless of
whether the payment is in fact converted to U.S. Dollars at that time.
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If such U.S. Holder uses the cash method of accounting for tax purposes, the
U.S. Dollar value of such payment is determined using the spot rate at the time
such payment is received. If a U.S. Holder uses the accrual method of
accounting for tax purposes, the U.S. Dollar value of such payment is
determined using the average exchange rate during the relevant accrual period
(or partial accrual period with respect to interest paid in a subsequent
taxable year) or, if elected, the spot rate (a) on the last day of the relevant
accrual period (or partial accrual period) or (b) on the payment date, if such
date is within five business days of the last day of the accrual period or
taxable year. Any differences in the exchange rate between the rate at which
interest on a Euro Note is included in income and the spot rate on the payment
(or disposition) date for interest will result in exchange gain or loss with
respect to the related amount of interest, and will generally be treated as
ordinary income or loss for U.S. federal income tax purposes. The U.S. Dollar
value of interest accrued or received, adjusted for any exchange gain or loss
with respect to the amount accrued, generally will be a U.S. Holder's tax basis
in the Euros received as interest on a Euro Note.
Sale, Exchange and Redemption of a Euro Note
The cost of a Euro Note to a U.S. Holder will be the U.S. Dollar value of
the Euro purchase price translated at the spot rate for the date of purchase
(or, in some cases, the settlement date). The conversion of U.S. Dollars into
Euros and the immediate use of those Euros to purchase a Euro Note generally
will not result in a taxable gain or loss for a U.S. Holder. A U.S. Holder will
have a tax basis in any Euro received on the sale, exchange or retirement of a
Euro Note equal to the U.S. Dollar value of the Euro on the date of receipt or
the Euro note is disposed of (or deemed disposed of).
Upon the sale, exchange, retirement or repayment of a Euro Note, a U.S.
Holder will also recognize exchange gain or loss to the extent that the rate of
exchange on the date of retirement or disposition differs from the rate of
exchange on the date the Euro Note was acquired, or deemed acquired. Exchange
gain or loss is recognized, however, only to the extent of total gain or loss
on the transaction. For purposes of determining the total gain or loss on the
transaction, a U.S. Holder's tax basis in a Euro Note will generally equal the
U.S. Dollar cost of the Euro Note. Exchange gain or loss recognized by a U.S.
Holder will generally be treated as ordinary income or loss.
Any gain recognized by a U.S. Holder on the sale, exchange or redemption of
a Euro Note generally will be treated as U.S. source income for U.S. foreign
tax credit purposes. Generally a loss recognized upon such a sale, exchange,
redemption or other disposition of a Euro Note will be allocated to U.S. source
income.
Non-U.S. Holders
The following discussion is limited to the U.S. federal income tax
consequences relevant to a Non-U.S. Holder. Non-U.S. Holders should consult
their own tax advisors concerning the state, local, foreign and other tax
consequences of the purchase, ownership and disposition of the notes.
For purposes of U.S. federal income tax on interest discussed below, a Non-
U.S. Holder (as defined above) includes a non-resident fiduciary of an estate
or trust. For purposes of the following discussion, interest and gain on the
sale, exchange or other disposition of a note will be considered to be "U.S.
trade or business income" if such income or gain is:
. effectively connected with the conduct of a trade or business within the
U.S. of such Non-U.S. Holder; or
. in the case of certain residents of certain countries which have an
income tax treaty in force with the U.S., attributable to a permanent
establishment or, in the case of an individual, a fixed base, in the
United States as such terms are defined in the applicable treaty.
94
<PAGE>
Stated Interest
Generally any interest paid to a Non-U.S. Holder of a note that is not U.S.
trade or business income will not be subject to U.S. federal income tax if the
interest qualifies as "portfolio interest." Generally interest on the notes
will qualify as portfolio interest if:
. the Non-U.S. Holder does not actually or constructively own 10% or more
of the total combined voting power of all classes of our stock entitled
to vote and is not a "controlled foreign corporation" with respect to
which we are a "related person" within the meaning of the appropriate
provisions of the Code;
. the Non-U.S. Holder, under penalty of perjury, certifies in general that
the Non-U.S. Holder is not a U.S. person and such certificate provides
the Non-U.S. Holder's name and address;
. the Non-U.S. Holder is not a bank receiving interest on an extension of
credit made pursuant to a loan agreement made in the ordinary course of
its trade or business; and
. the notes are in registered form.
The gross amount of payments of interest to a Non-U.S. Holder that do not
qualify for the portfolio interest exemption and that are not U.S. trade or
business income will be subject to U.S. federal income tax at the rate of 30%,
unless a U.S. income tax treaty applies to reduce or eliminate such tax.
Interest payments that are considered as U.S. trade or business income will be
taxed at regular U.S. income tax rates rather than the 30% gross rate. In the
case of a Non-U.S. Holder that is a corporation, such U.S. trade or business
income may also be subject to the branch profits tax (which is generally
imposed on a foreign corporation on the actual or deemed repatriation from the
United States of earnings and profits attributable to U.S. trade or business
income) at a 30% rate unless a U.S. income tax treaty applies to reduce or
eliminate such tax. To claim the benefit of a tax treaty or to claim exemption
from withholding because the income is U.S. trade or business income, the Non-
U.S. Holder must provide a properly executed IRS Form 1001 or IRS Form 4224 (or
such successor forms as the IRS designates), as applicable, prior to the
payment of interest. Under recently issued U.S. Treasury Regulations that will
generally be effective on and after January 1, 2001 (the "Withholding
Regulations"), the required Forms 1001 and 4224 will be replaced by a new Form
W-8. Under the Withholding Regulations, a Non-U.S. Holder may under certain
circumstances be required to obtain a U.S. taxpayer identification number and
make certain certifications to us. Special procedures are provided in the
Withholding Regulations for payments through qualified intermediaries.
Investors should consult their tax advisors regarding the effect, if any, of
the Withholding Regulations.
Sale, Exchange or Redemption of Notes
Except as described below and subject to the discussion concerning backup
withholding, any gain realized by a Non-U.S. Holder on the sale, exchange or
redemption of a note generally will not be subject to U.S. federal income tax,
unless:
. such gain is U.S. trade or business income; or
. the Non-U.S. Holder is subject to tax pursuant to the provisions of U.S.
tax law applicable to certain U.S. expatriates, including certain former
citizens or residents of the United States.
The exchange of the old notes for the new notes pursuant to the exchange
offer should not be treated as an "exchange" for federal income tax purposes
because the new notes should not differ materially in either kind or extent
from the old notes and because the exchange will occur by operation of the
terms of the old notes. A U.S. Holder's adjusted tax basis in the new notes
should be the same as such Holder's adjusted tax basis in the old notes. A U.S.
Holder's holding period for the new notes received pursuant to the exchange
offer should include its holding period for the old notes surrendered therefor.
95
<PAGE>
Information Reporting and Backup Withholding
We must report annually to the IRS and to each Non-U.S. Holder any interest
that is subject to withholding, or that is exempt from U.S. withholding tax
pursuant to a tax treaty, or interest that is exempt from U.S. tax under the
portfolio interest exception or because it is U.S. trade or business income.
Copies of these information returns may also be made available under the
provisions of a specific treaty or agreement to the tax authorities of the
country in which the Non-U.S. Holder resides. We may have to report to the IRS
payments of principal.
Generally, information reporting and backup withholding of United States
federal income tax at a rate of 31% may apply to payments made by us or our
agents to Non-U.S. Holders if the payee fails to make the appropriate
certification that the holder is a non-U.S. person or if we or our paying agent
have actual knowledge that the payee is a United States person.
The payment of the proceeds from the disposition of notes to or through a
United States office of a United States or foreign broker will be subject to
information reporting and backup withholding unless the owner provides
certification as to its Non-U.S. Holder status under penalty of perjury or
otherwise establishes an exemption, provided that the broker does not have
actual knowledge that the holder is a U.S. person or that the conditions of any
other exemption are not, in fact, satisfied. The proceeds of the disposition by
a Non-U.S. Holder of the notes to or through a foreign office of a broker will
generally not be subject to backup withholding. However, if such broker is a
U.S. person, a controlled foreign corporation for United States tax purposes,
or a foreign person 50% or more of whose gross income from all sources for
certain periods is effectively connected with a United States trade or
business, or, in addition, for periods after December 31, 2000, a foreign
partnership that at any time during its tax year either is engaged in the
conduct of a trade or business in the United States or has as partners one or
more United States persons that, in the aggregate hold more than 50% of the
income or capital interest in the partnership, such payments will be subject to
information reporting, but not backup withholding, unless such broker has
documentary evidence in its records that the holder is a Non-U.S. holder and
certain other conditions are met or the holder otherwise establishes an
exemption.
Any amounts withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be allowed as a refund or a credit against such Non-U.S.
Holder's U.S. federal income tax liability, provided that the requisite
procedures for claiming such refund or credit are followed.
The preceding discussion of material United States federal income tax
consequences is for general information only and is not tax advice.
Accordingly, each investor should consult its own tax advisers as to particular
U.S. federal, state, local, foreign and other tax consequences to it of
purchasing, holding and disposing of our notes, including the applicability and
effect of any state, local or foreign tax laws, and of any proposed changes in
applicable laws.
PLAN OF DISTRIBUTION
We will receive no proceeds in connection with the exchange offer.
Each broker-dealer that receives new notes for its own account in connection
with the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of new notes. This prospectus, as it may be amended
or supplemented from time to time, may be used by a broker-dealer in connection
with resales of new notes received in exchange for old notes where the old
notes were acquired as a result of market-making activities or other trading
activities. We have agreed that for a period ending upon the earlier of
(1) 180 days after the exchange offer has been completed and (2) the date on
which broker-dealers no longer own any Transfer Restricted Securities, we will
make available and provide promptly upon reasonable request this prospectus as
amended or supplemented, in a form meeting the requirements of the Securities
Act to any broker-dealer for use in connection with any resale.
New notes received by broker-dealers for their own account in the exchange
offer may be sold from time to time in one or more transactions in the over-
the-counter market, in negotiated transactions, through the
96
<PAGE>
writing of options on the new notes or a combination of these methods of
resale, at market prices prevailing at the time of resale, at prices related to
prevailing market prices or negotiated prices. Any resale may be made directly
to purchasers or through brokers or dealers who may receive compensation in the
form of commissions or concessions from any broker-dealer and/or the purchasers
of any new notes. Any broker-dealer that resells new notes that were received
by it for its own account in the exchange offer and any broker or dealer that
participates in a distribution of new notes may be deemed to be an
"underwriter" within the meaning of the Securities Act, and any profit on any
such resale of new notes and any commissions or concessions received by these
persons may be deemed to be underwriting compensation under the Securities Act.
The letter of transmittal states that by acknowledging that it will deliver,
and by delivering, a prospectus, a broker-dealer will not be deemed to admit
that it is an "underwriter" within the meaning of the Securities Act. We have
agreed to indemnify broker-dealers against various liabilities, including
liabilities under the Securities Act.
LEGAL MATTERS
The validity of the notes offered by this prospectus will be passed upon on
behalf of Exodus by Fenwick & West LLP, Palo Alto, California, and Winthrop,
Stimson, Putnam & Roberts, New York City, New York.
EXPERTS
Our consolidated financial statements and related schedule as of December
31, 1997 and 1998, and for each of the years in the three-year period ended
December 31, 1998 have been included in the registration statement in reliance
upon the report of KPMG LLP, independent auditors, appearing elsewhere in the
registration statement, and upon the authority of said firm as experts in
auditing and accounting.
Our supplemental consolidated financial statements and related schedule as
of December 31, 1997 and 1998, and for each of the years in the three-year
period ended December 31, 1998, have been included in the registration
statement in reliance upon the report of KPMG LLP, independent auditors,
appearing elsewhere in the registration statement, and upon the authority of
said firm as experts in auditing and accounting.
The consolidated financial statements of Cohesive Technology Solutions, Inc.
as of December 31, 1997 and 1998, and for each of the years in the three-year
period ended December 31, 1998, have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein, and have been
so included in reliance upon the report of such firm given upon their authority
as experts in auditing and accounting.
97
<PAGE>
AVAILABLE INFORMATION
We are currently subject to the informational requirements of the Exchange
Act, and file reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at:
Room 1024 Suite 1400 13th Floor
450 Fifth Street, N.W. Northwest Atrium Center Seven World Trade Center
Judiciary Plaza 500 West Madison Street New York, New York 10048
Washington, D.C. 20549 Chicago, Illinois 60661
Copies of material can be obtained at prescribed rates from the Public
Reference Section of the Commission at:
450 Fifth Street, N.W.
Judiciary Plaza
Washington, D.C. 20549
The Commission maintains a World Wide Web site that contains reports, proxy
and information statements and other information regarding registrants that
file electronically with the Commission. The address of the site is
http://www.sec.gov. Our common stock is quoted for trading on the Nasdaq
National Market and reports, proxy statements and other information concerning
us also may be inspected at the offices of the National Association of
Securities Dealers at:
9513 Key West Avenue
Rockville, Maryland 20850
98
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
EXODUS COMMUNICATIONS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Page
Supplemental Consolidated Financial Statements: ----
<S> <C>
Independent Auditors' Report.............................................. F-2
Supplemental Consolidated Balance Sheets.................................. F-3
Supplemental Consolidated Statements of Operations........................ F-4
Supplemental Consolidated Statements of Stockholders' (Deficit) Equity.... F-5
Supplemental Consolidated Statements of Cash Flows........................ F-7
Notes to Supplemental Consolidated Financial Statements................... F-8
<CAPTION>
Historical Consolidated Financial Statements:
<S> <C>
Independent Auditors' Report.............................................. F-28
Consolidated Balance Sheets............................................... F-29
Consolidated Statements of Operations..................................... F-30
Consolidated Statements of Stockholders' (Deficit) Equity................. F-31
Consolidated Statements of Cash Flows..................................... F-32
Notes to Consolidated Financial Statements................................ F-33
COHESIVE TECHNOLOGY SOLUTIONS, INC. AND SUBSIDIARIES
Independent Auditors' Report.............................................. F-52
Consolidated Balance Sheets............................................... F-53
Consolidated Statements of Operations..................................... F-54
Consolidated Statements of Stockholders' Equity........................... F-55
Consolidated Statements of Cash Flows..................................... F-56
Notes to Consolidated Financial Statements................................ F-57
Condensed Consolidated Balance Sheets..................................... F-67
Condensed Consolidated Statements of Operations........................... F-68
Condensed Consolidated Statements of Cash Flows........................... F-69
Notes to Unaudited Condensed Consolidated Financial Statements............ F-70
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
Unaudited Pro Forma Combined Condensed Financial Statements............... F-71
Unaudited Pro Forma Combined Condensed Statement of Operations............ F-72
Notes to Unaudited Pro Forma Combined Condensed Financial Statements...... F-74
FINANCIAL STATEMENT SCHEDULES
Supplemental Schedule II--Valuation and Qualifying Accounts............... S-1
Schedule II--Valuation and Qualifying Accounts............................ S-2
</TABLE>
F-1
<PAGE>
REPORT OF KPMG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Exodus Communications, Inc.:
We have audited the accompanying supplemental consolidated balance sheets of
Exodus Communications, Inc. and subsidiaries (the Company) as of December 31,
1997 and 1998, and the related supplemental consolidated statements of
operations, stockholders' (deficit) equity and cash flows for each of the years
in the three-year period ended December 31, 1998. In connection with our audits
of the supplemental consolidated financial statements, we have also audited the
supplemental financial statement schedule as listed in the index on page F-1.
These supplemental consolidated financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these supplemental consolidated financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
The supplemental consolidated financial statements and related supplemental
financial statement schedule give retroactive effect to the merger of the
Company and Service Metrics, Inc. on November 23, 1999, which has been
accounted for as a pooling of interests as described in Note 2 to the
supplemental consolidated financial statements. Generally accepted accounting
principles proscribe giving effect to a consummated business combination
accounted for by the pooling-of-interests method in financial statements that
do not include the date of consummation. These supplemental consolidated
financial statements do not extend through the date of consummation. However,
they will become the historical consolidated financial statements of the
Company after financial statements covering the date of consummation of the
business combination are issued.
In our opinion, the supplemental consolidated financial statements referred
to above present fairly, in all material respects, the financial position of
Exodus Communications, Inc. and subsidiaries as of December 31, 1997 and 1998,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1998, in conformity with generally
accepted accounting principles applicable after financial statements are issued
for a period which includes the date of consummation of the business
combination. Also, in our opinion, the related supplemental financial statement
schedule, when considered in relation to the supplemental consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
KPMG LLP
Mountain View, California
November 23, 1999, except as to Note
9,
which is as of December 14, 1999
F-2
<PAGE>
EXODUS COMMUNICATIONS, INC.
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
December 31,
------------------ September 30,
1997 1998 1999
-------- -------- -------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................... $ 10,270 $156,015 $ 171,971
Accounts receivable, net of allowance for
doubtful accounts of $691, $1,821, and
$5,251 as of December 31, 1997 and 1998, and
September 30, 1999, respectively............. 1,837 9,653 47,858
Prepaid expenses and other current assets..... 1,377 6,205 18,972
-------- -------- ---------
Total current assets........................ 13,484 171,873 238,801
Property and equipment, net.................... 25,170 68,572 245,392
Restricted cash equivalents and investments.... 1,753 45,614 35,444
Intangibles and other assets................... 566 12,739 165,188
-------- -------- ---------
$ 40,973 $298,798 $ 684,825
======== ======== =========
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED
STOCK AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Bank borrowings............................... $ 3,000 $ -- $ --
Current portion of equipment loans and line
of credit facilities......................... 3,777 14,367 7,722
Current portion of capital lease
obligations.................................. 1,143 5,223 14,817
Accounts payable.............................. 6,252 9,208 34,141
Accrued expenses.............................. 3,019 6,876 20,294
Accrued interest payable...................... -- 11,563 8,074
-------- -------- ---------
Total current liabilities................... 17,191 47,237 85,048
Equipment loans and line of credit facilities,
less current portion.......................... 12,693 15,695 9,600
Capital lease obligations, less current
portion....................................... 2,442 11,589 32,201
Convertible subordinated notes................. -- -- 250,000
Senior notes................................... -- 200,000 275,375
-------- -------- ---------
Total liabilities........................... 32,326 274,521 652,224
======== ======== =========
Redeemable convertible preferred stock and
warrants, $0.001 par value: 74,960,124, no
shares, and no shares authorized as of
December 31, 1997 and 1998, and September 30,
1999 respectively; 34,117,371, no shares, and
no shares issued and outstanding as of
December 31, 1997 and 1998, and September 30,
1999, respectively; aggregate liquidation
preference of $39,640 as of
December 31, 1997............................. 39,247 -- --
-------- -------- ---------
Commitments and contingencies
Stockholders' (deficit) equity:
Preferred stock, $0.001 par value: no shares,
5,000,000 shares and 5,000,000 shares
authorized as of December 31, 1997 and 1998,
and September 30, 1999 and no shares issued
or outstanding as of December 31, 1997 and
1998, and September 30, 1999................. -- -- --
Convertible preferred stock of Service
Metrics, Inc.; no shares, 1,553,158, and
2,585,777 shares issued and outstanding as
of December 31, 1997 and 1998, and September
30, 1999, respectively; aggregate
liquidation preference of $0, $6,000, and
$15,500 as of December 31, 1997 and 1998,
and September 30, 1999, respectively......... -- 5,961 15,437
Common stock, $0.001 par value: 53,281,579,
50,000,000, and 300,000,000 shares
authorized as of December 31, 1997 and 1998,
and September 30 1999, respectively;
16,538,024, 161,670,932, and
170,084,342 shares issued and outstanding as
of December 31, 1997 and 1998, and September
30, 1999, respectively....................... 17 162 170
Additional paid-in capital.................... 2,493 117,127 195,166
Notes receivable from stockholders............ (140) -- --
Deferred stock compensation................... (2,393) (1,080) (2,903)
Accumulated deficit........................... (30,577) (97,893) (175,269)
-------- -------- ---------
Total stockholders' (deficit) equity........ (30,600) 24,277 32,601
======== ======== =========
$ 40,973 $298,798 $ 684,825
======== ======== =========
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
F-3
<PAGE>
EXODUS COMMUNICATIONS, INC.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
--------------------------- ------------------
1996 1997 1998 1998 1999
------- -------- -------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Service revenues............ $ 2,454 $ 11,588 $ 49,815
Equipment revenues.......... 676 820 2,930
------- -------- --------
Total revenues............ 3,130 12,408 52,745 $ 31,638 $140,754
------- -------- -------- -------- --------
Costs and expenses:
Cost of service revenues.... 2,538 16,228 59,280
Cost of equipment revenues.. 452 640 2,298
------- -------- --------
Total cost of revenue..... 2,990 16,868 61,578 39,291 118,827
Marketing and sales......... 2,734 12,702 29,034 20,576 42,473
General and administrative.. 1,056 5,983 16,058 9,664 25,548
Product development......... 444 1,647 3,507 2,389 5,641
Amortization of
intangibles................ -- -- 141 -- 4,674
Restructuring costs......... -- -- -- -- 923
------- -------- -------- -------- --------
Total expenses............ 4,234 20,332 48,740 32,629 79,259
------- -------- -------- -------- --------
Total costs and expenses.. 7,224 37,200 110,318 71,920 198,086
------- -------- -------- -------- --------
Operating loss............ (4,094) (24,792) (57,573) (40,282) (57,332)
Interest income............... 68 193 7,157 4,028 10,561
Interest expense.............. (107) (699) (16,900) (9,138) (30,605)
------- -------- -------- -------- --------
Net loss.................. (4,133) (25,298) (67,316) (45,392) (77,376)
Cumulative dividends and
accretion on redeemable
convertible preferred stock.. -- (1,413) (2,014) (2,014) --
------- -------- -------- -------- --------
Net loss attributable to
common stockholders.......... $(4,133) $(26,711) $(69,330) $(47,406) $(77,376)
======= ======== ======== ======== ========
Basic and diluted net loss per
share........................ $ (0.27) $ (1.73) $ (0.55) $ (0.42) $ (0.47)
======= ======== ======== ======== ========
Shares used in computing basic
and diluted net loss per
share........................ 15,312 15,428 125,808 114,088 165,974
======= ======== ======== ======== ========
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
F-4
<PAGE>
EXODUS COMMUNICATIONS, INC.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
(in thousands)
<TABLE>
<CAPTION>
Convertible
Preferred
Stock of
Services Notes Total
Metrics, Inc. Common Stock Additional Receivable Deferred Stockholders'
------------- -------------- Paid-In from Stock Accumulated (Deficit)
Shares Amount Shares Amount Capital Stockholders Compensation Deficit Equity
------ ------ ------ ------ ---------- ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances as of December
31, 1995............... -- $ -- 14,568 $15 $ 186 $(195) $ -- $ (1,146) $ (1,140)
Issuance of common
stock.................. -- -- 1,072 1 31 -- -- -- 32
Issuance of common stock
in connection with
stock purchase plan and
exercise of stock
options................ -- -- 128 -- 4 (3) -- -- 1
Repurchase of common
stock.................. -- -- (200) -- (6) 6 -- -- --
Repayment of notes
receivable from
stockholders........... -- -- -- -- -- 6 -- -- 6
Net loss................ -- -- -- -- -- -- -- (4,133) (4,133)
----- ------ ------ --- ------ ----- ------- -------- --------
Balances as of December
31, 1996............... -- -- 15,568 16 215 (186) -- (5,279) (5,234)
Issuance of common stock
in connection with
exercise of stock
options and warrants... -- -- 1,378 1 221 -- -- -- 222
Repurchase of common
stock.................. -- -- (408) -- (12) 12 -- -- --
Repayment of notes
receivable from
stockholders........... -- -- -- -- -- 34 -- -- 34
Deferred stock
compensation related to
stock option grants.... -- -- -- -- 3,482 -- (3,482) -- --
Amortization of deferred
stock compensation..... -- -- -- -- -- -- 1,089 -- 1,089
Accrual of cumulative
dividends on Series C
and D redeemable
convertible preferred
stock.................. -- -- -- -- (750) -- -- -- (750)
Accretion on Series C
and D redeemable
convertible preferred
stock.................. -- -- -- -- (663) -- -- -- (663)
Net loss................ -- -- -- -- -- -- -- (25,298) (25,298)
----- ------ ------ --- ------ ----- ------- -------- --------
Balances as of December
31, 1997............... -- -- 16,538 17 2,493 (140) (2,393) (30,577) (30,600)
Issuance of common stock
in connection with
employee stock purchase
plan and exercise of
stock options and
warrants............... -- -- 6,703 7 2,286 -- -- -- 2,293
Issuance of common stock
in conjunction with
initial public
offering, net of
offering costs of
$7,062................. -- -- 41,000 41 69,777 -- -- -- 69,818
Issuance of common stock
to an officer for
cash................... -- -- 400 -- 450 -- -- -- 450
Issuance of common stock
and common stock
warrants............... -- -- -- -- 786 -- -- -- 786
Issuance of Service
Metrics, Inc.
convertible preferred
stock.................. 1,553 5,961 -- -- -- -- -- -- 5,961
Issuance of Service
Metrics, Inc. common
stock to founders...... -- -- 1,132 1 8 -- -- -- 9
Repayment of notes
receivable from
stockholders........... -- -- -- -- -- 140 -- -- 140
</TABLE>
(continued)
F-5
<PAGE>
EXODUS COMMUNICATIONS, INC.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY--
(Continued)
(in thousands)
<TABLE>
<CAPTION>
Convertible
Preferred
Stock of
Services Notes Total
Metrics, Inc. Common Stock Additional Receivable Deferred Stockholders'
-------------- -------------- Paid-In from Stock Accumulated (Deficit)
Shares Amount Shares Amount Capital Stockholders Compensation Deficit Equity
------ ------- ------- ------ ---------- ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Conversion of redeemable
convertible preferred
stock into common
stock.................. -- $ -- 95,898 $ 96 $ 43,341 $ -- $ -- $ -- $ 43,437
Amortization of deferred
stock compensation..... -- -- -- -- -- -- 1,313 -- 1,313
Accrual of cumulative
dividends on Series C
and D redeemable
convertible preferred
stock.................. -- -- -- -- (462) -- -- -- (462)
Accretion on Series C
and D redeemable
convertible preferred
stock.................. -- -- -- -- (1,552) -- -- -- (1,552)
Net loss................ -- -- -- -- -- -- -- (67,316) (67,316)
----- ------- ------- ---- -------- ----- ------- --------- --------
Balances as of December
31, 1998............... 1,553 5,961 161,671 162 117,127 -- (1,080) (97,893) 24,277
Issuance of common stock
in connection with
employee stock purchase
plan and exercise of
stock options and
warrants (unaudited)... -- -- 6,813 7 14,000 -- -- -- 14,007
Issuance of common stock
and assumption of
options in connection
with the acquisition of
Cohesive Technology
Solutions, Inc.
(unaudited)............ -- -- 1,600 1 61,261 -- -- -- 61,262
Issuance of Service
Metrics, Inc.
convertible preferred
stock (unaudited)...... 1,033 9,476 -- -- -- -- -- -- 9,476
Deferred stock
compensation related to
Service Metrics, Inc.
stock option grants
(unaudited)............ -- -- -- -- 2,778 -- (2,778) -- --
Amortization of deferred
stock compensation
(unaudited)............ -- -- -- -- -- -- 955 -- 955
Net loss (unaudited).... -- -- -- -- -- -- -- (77,376) (77,376)
----- ------- ------- ---- -------- ----- ------- --------- --------
Balances as of September
30, 1999 (unaudited)... 2,586 $15,437 170,084 $170 $195,166 $ -- $(2,903) $(175,269) $ 32,601
===== ======= ======= ==== ======== ===== ======= ========= ========
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
F-6
<PAGE>
EXODUS COMMUNICATIONS, INC.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
--------------------------- -------------------
1996 1997 1998 1998 1999
------- -------- -------- -------- ---------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss.................... $(4,133) $(25,298) $(67,316) $(45,392) $ (77,376)
Adjustments to reconcile net
loss to net cash used for
operating activities:
Depreciation and
amortization............. 461 3,429 13,024 8,575 28,383
Loss on disposal of
property and equipment... -- -- 464 248 --
Noncash common stock and
warrant expense.......... -- -- 786 786 --
Amortization of deferred
stock compensation....... -- 1,089 1,354 1,081 955
Amortization of debt
issuance costs........... -- -- 846 274 1,063
Interest accretion on
restricted cash
equivalents and
investments.............. -- -- (1,088) (580) (1,068)
Changes in operating
assets and liabilities:
Accounts receivable..... (265) (1,316) (8,306) (7,127) (28,272)
Prepaid expenses and
other assets........... (189) (748) (4,193) (3,970) (17,516)
Accounts payable........ 671 5,089 2,791 4,981 22,980
Accrued expenses........ 339 2,237 2,763 3,806 5,798
Accrued interest
payable................ -- -- 11,563 5,750 (3,489)
------- -------- -------- -------- ---------
Net cash used for
operating activities.. (3,116) (15,518) (47,312) (31,568) (68,542)
------- -------- -------- -------- ---------
Cash flows from investing
activities:
Capital expenditures........ (3,499) (22,489) (44,564) (26,680) (160,624)
Proceeds from sale of
property and equipment..... -- -- 245 -- --
Businesses acquired, net of
cash received.............. -- -- (5,654) -- (70,398)
Release of restricted cash
and investments............ -- -- -- -- 24,938
Increase in restricted cash
equivalents and
investments................ (378) (1,375) (42,773) (43,562) (13,413)
Other assets................ -- -- (11) (81) (15,637)
------- -------- -------- -------- ---------
Net cash used for
investing activities.. (3,877) (23,864) (92,757) (70,323) (235,134)
------- -------- -------- -------- ---------
Cash flows from financing
activities:
Proceeds from issuance of
redeemable convertible
preferred stock and
warrants................... 9,409 23,320 2,176 2,176 --
Proceeds from issuance of
Service Metrics, Inc.
convertible preferred
stock...................... -- -- 5,961 982 9,477
Proceeds from issuance of
common stock, net.......... 32 222 72,530 71,362 14,006
Proceeds from issuance of
bridge financing
convertible notes.......... -- 3,975 -- -- --
Repayment of notes
receivable from
stockholders............... 7 34 140 90 --
Bank borrowings, net........ (100) 3,000 (3,000) (3,000) --
Proceeds from sale-leaseback
transactions............... 552 932 4,035 4,190 776
Payments on capital leases
obligations................ (154) (720) (3,020) (1,689) (6,468)
Proceeds from equipment
loans and line of credit
facilities................. 1,296 16,480 18,611 18,611 --
Repayment of equipment loans
and line of credit
facilities................. (497) (1,306) (5,019) (3,468) (13,529)
Proceeds from convertible
subordinated notes, net.... -- -- -- -- 242,124
Proceeds from senior notes,
net of discounts and
offering costs............. -- -- 193,400 194,000 73,246
------- -------- -------- -------- ---------
Net cash provided by
financing activities.. 10,545 45,937 285,814 283,254 319,632
------- -------- -------- -------- ---------
Net increase in cash and cash
equivalents................. 3,552 6,555 145,745 181,363 15,956
Cash and cash equivalents at
beginning of period......... 163 3,715 10,270 10,270 156,015
------- -------- -------- -------- ---------
Cash and cash equivalents at
end of period............... $ 3,715 $ 10,270 $156,015 $191,633 $ 171,971
======= ======== ======== ======== =========
Supplemental disclosures of
cash flow information:
Cash paid--interest......... $ -- $ 699 $ 4,923 $ 2,923 $ 34,010
======= ======== ======== ======== =========
Noncash investing and
financing activities:
Assets recorded under
capital leases........... $ 27 $ 2,700 $ 12,001 $ 6,848 $ 35,897
======= ======== ======== ======== =========
Conversion of note payable
to stockholder to
preferred stock.......... $ 200 $ -- $ -- $ -- $ --
======= ======== ======== ======== =========
Cumulative dividends and
accretion on Series C and
D redeemable convertible
preferred stock.......... $ -- $ 1,413 $ 2,014 $ 2,014 $ --
======= ======== ======== ======== =========
Deferred compensation on
grants of stock options.. $ -- $ 3,482 $ -- $ -- $ 2,778
======= ======== ======== ======== =========
Warrants issued for
financing commitments.... $ -- $ 730 $ -- $ -- $ --
======= ======== ======== ======== =========
Conversion of bridge
financing convertible
notes to redeemable
convertible preferred
stock.................... $ -- $ 3,975 $ -- $ -- $ --
======= ======== ======== ======== =========
Conversion of redeemable
convertible preferred
stock to common stock.... $ -- $ -- $ 43,437 $ 43,437 $ --
======= ======== ======== ======== =========
Issuance of common stock
and assumption of options
in connection with the
acquisition of Cohesive
Technology Solutions,
Inc. .................... $ -- $ -- $ -- $ -- $ 61,262
======= ======== ======== ======== =========
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
F-7
<PAGE>
EXODUS COMMUNICATIONS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1997 and 1998 and September 30, 1998 and 1999
(Information as of September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 is unaudited)
(1) Summary of the Company and Significant Accounting Policies
The Company
Exodus Communications, Inc. ("Exodus" or "the Company") is a leading
provider of Internet system and network management solutions and technology
professional services for enterprises with mission-critical Internet
operations.
The accompanying supplemental consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Basis of Presentation
The supplemental consolidated financial statements have been prepared to
give retroactive effect to the merger with Service Metrics, Inc. ("SMI" or
"Service Metrics") on November 23, 1999. The consolidated financial statements
have been restated for all periods presented as if SMI and the Company had
always been combined. Generally accepted accounting principles proscribe giving
effect to a consummated business combination accounted for by the pooling-of-
interests method in financial statements that do not include the date of
consummation. These supplemental financial statements do not extend through the
date of consummation; however, they will become the historical consolidated
financial statements of the Company after financial statements covering the
date of consummation of the business combination are issued.
In recording the pooling-of-interests combination, the Company's
consolidated statement of operations for the year ended December 31, 1998 has
been combined with SMI's statement of operations for the period from May 19,
1998 ("inception") through December 31, 1998. The Company's consolidated
statements of operations for the nine-month periods ended September 30, 1998
and 1999 have been combined with SMI's statements of operations for the period
from inception through September 30, 1998, and the nine-month period ended
September 30, 1999, respectively. The consolidated balance sheets of the
Company as of December 31, 1998 and September 30, 1999, have been combined with
the balance sheets of Service Metrics as of the same dates.
Service Metrics, which was incorporated in May 1998, is a leading provider
of Internet monitoring applications and services that measure the consistency,
availability and performance of Web sites. SMI is based in Boulder, Colorado,
and had 79 employees as of November 1999.
In connection with the merger, the former shareholders and option holders of
SMI common stock received shares and options of Exodus common stock at the rate
of approximately 0.252 shares of Exodus common stock for each share of SMI
common stock. The Company issued a total of approximately 6,200,000 shares of
Exodus common stock in exchange for all outstanding shares of SMI common stock
and reserved approximately 760,000 shares of common stock for issuance upon the
exercise of SMI options the Company assumed pursuant to the merger agreement.
F-8
<PAGE>
EXODUS COMMUNICATIONS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998 and September 30, 1998 and 1999
(Information as of September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 is unaudited)
As SMI was incorporated in May 1998, supplemental results of operations for
the periods ended December 31, 1996 and 1997 are the same as Exodus' results of
operations. The results of operations previously reported by the separate
companies and the combined amounts presented in the supplemental consolidated
financial statements are summarized below.
<TABLE>
<CAPTION>
Nine Months Ended
Year September 30,
Ended ------------------
1998 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Net revenues:
Exodus....................................... $ 52,738 $ 31,638 $140,186
Service Metrics.............................. 7 -- 568
-------- -------- --------
Combined..................................... $ 52,745 $ 31,638 $140,754
======== ======== ========
Net loss:
Exodus....................................... $(66,442) $(45,057) $(71,880)
Service Metrics.............................. (874) (335) (5,496)
-------- -------- --------
Combined..................................... $(67,316) $(45,392) $(77,376)
======== ======== ========
</TABLE>
Use of Estimates
The preparation of supplemental 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 supplemental consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Revenue Recognition
The Company's revenues consist of (i) monthly fees from customer use of
Internet Data Center sites, network services, managed services, and
professional services and use of equipment and software provided by the
Company, (ii) revenues from sales of third-party equipment to customers and
(iii) fees for installation and certain professional services. Currently,
substantially all of the Company's revenue is derived from services. Revenues
(other than installation fees, equipment sales to customers and certain
professional services) are generally billed and recognized ratably over the
term of the contract, which is generally one year. Installation fees are
typically recognized at the time the installation occurs, and equipment
revenues are typically recognized when the equipment is delivered to the
customer or placed into service at an Internet Data Center. The Company sells
third-party equipment to its customers as an accommodation to facilitate their
purchase of services. One-time professional service fees are typically
recognized when services are rendered.
Cash Equivalents and Investments
Cash equivalents consist of highly liquid investments with original
maturities of 90 days or less. As of September 30, 1999, cash equivalents
consisted principally of money market funds at four financial institutions.
The Company classifies its investments as "held-to-maturity." As of
September 30, 1999, such investments consisted of U.S. Treasury Notes and are
recorded at amortized cost.
F-9
<PAGE>
EXODUS COMMUNICATIONS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998 and September 30, 1998 and 1999
(Information as of September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 is unaudited)
The components of restricted cash equivalents and investments are as follows
(in thousands):
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
U.S. treasury notes:
Due within one year........................... $10,733 $29,528
Due after one year through two years.......... 20,594 --
Money market funds.............................. 11,049 --
Cash collateral related to leases............... 3,238 5,916
------- -------
Total restricted cash equivalents and
investments.................................... $45,614 $35,444
======= =======
</TABLE>
See Notes 4 and 6 for additional information regarding restricted cash
equivalents and investments.
Financial Instruments and Concentration of Credit Risk
The carrying value of the Company's financial instruments, including cash
and cash equivalents, investments, accounts receivable, bank borrowings and
debt approximates fair market value. Financial instruments that potentially
expose the Company to a concentration of credit risk principally consist of
cash and cash equivalents, investments and accounts receivable.
The Company's customer base is primarily composed of businesses throughout
the United States. The Company performs ongoing credit evaluations of its
customers and maintains reserves for potential losses.
Property and Equipment
Property and equipment are stated at cost and depreciated on a straight-line
basis over their respective estimated useful lives, which are generally three
to five years. Equipment recorded under capital leases and leasehold
improvements are amortized using the straight-line method over the shorter of
the respective lease term or estimated useful life of the asset.
Software Development Costs
The Company capitalizes software development costs incurred to develop
certain of the Company's collaborative system management services that are
included in the Company's co-location services in accordance with Statement of
Financial Accounting Standards (SFAS) No. 86, Accounting for the Costs of
Computer Software to Be Sold, Leased, or Otherwise Marketed. Costs are
capitalized after technological feasibility is achieved; generally upon the
development of a working model. To date, software development costs
capitalizable under SFAS No. 86 have not been material.
Income Taxes
The Company uses the asset and liability method of accounting for income
taxes. Under this method, deferred tax assets and liabilities are determined
based on the difference between the
F-10
<PAGE>
EXODUS COMMUNICATIONS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998 and September 30, 1998 and 1999
(Information as of September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 is unaudited)
financial statement and tax bases of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary to reduce
deferred tax assets to the amounts expected to be recovered.
Stock-Based Compensation
The Company uses the intrinsic value-based method to account for all of its
employee stock-based compensation plans. Expense associated with stock-based
compensation is being amortized consistent with the method described in
Financial Accounting Standards Board (FASB) Interpretation No. 28 over the
vesting period of the individual options.
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company evaluates its long-lived assets, including goodwill and certain
identifiable intangibles, for impairment whenever events or changes in
circumstances indicate that the carrying amount of such assets or intangibles
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 exceed 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.
Unaudited Interim Financial Statements
The accompanying unaudited supplemental consolidated interim financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information. In the opinion of management, the
accompanying unaudited supplemental consolidated financial statements have been
prepared on the same basis as the audited supplemental consolidated financial
statements and include all adjustments, consisting only of normal recurring
adjustments, necessary for the fair presentation of the Company's financial
position as of September 30, 1999, and the results of its operations and its
cash flows for the nine-month periods ended September 30, 1998 and 1999.
Goodwill and Other Intangible Assets
Goodwill and other intangible assets are comprised primarily of amounts
recorded in business acquisitions and are included in intangibles and other
assets on the accompanying supplemental consolidated balance sheets. The
goodwill and other intangible amounts related to the acquisitions are being
amortized on a straight-line basis over periods generally ranging from 5 to 10
years (see Note 2).
F-11
<PAGE>
EXODUS COMMUNICATIONS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998 and September 30, 1998 and 1999
(Information as of September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 is unaudited)
Net Loss Per Share
Basic and diluted net loss per share has been computed by dividing the net
loss attributable to holders of common stock by the weighted-average number of
shares of common stock outstanding during the period. Diluted net loss per
share does not include the effect of the following common equivalent shares as
the effect of their inclusion is antidilutive during each period (in
thousands):
<TABLE>
<CAPTION>
Years Ended December Nine Months Ended
31, September 30,
---------------------- -----------------
1996 1997 1998 1998 1999
------- ------- ------ -------- --------
<S> <C> <C> <C> <C> <C>
Shares issuable under stock options... 2,336 13,672 38,594 26,810 51,940
Shares issuable pursuant to warrants
to purchase common stock and
redeemable convertible preferred
stock................................ 5,096 22,504 1,448 2,136 506
Shares of redeemable convertible
preferred stock and convertible
preferred stock of SMI on an "as if
converted" basis..................... 124,296 272,936 3,106 1,086 5,172
Shares of convertible subordinated
notes on an "as if converted" basis.. -- -- -- -- 21,892
</TABLE>
Comprehensive Loss
There are no differences between consolidated net loss and comprehensive
loss for any period presented.
Reclassifications
Certain prior period amounts have been reclassified to conform to the
current period presentation.
(2) Business Combinations
On October 2, 1998, the Company purchased substantially all of the assets,
including customer agreements, and assumed certain liabilities of Arca
Systems, Inc. ("Arca"), a wholly owned subsidiary of Cyberguard Corporation.
Arca, which has been in business for more than 10 years, is a provider of
advanced network and system security consulting services and designs and
develops security technology solutions for complex and sensitive information
systems. Arca operates as a wholly owned subsidiary of the Company. Total
consideration paid, including direct acquisition costs, aggregated
approximately $5,800,000. The acquisition was accounted for as a purchase and
the results of Arca have been included from the acquisition date. The excess
of the purchase price over the fair value of tangible net assets acquired
amounted to approximately $5,000,000 and was attributed primarily to workforce
in place ($2,500,000) and goodwill ($2,400,000). These amounts are generally
being amortized on a straight-line basis over 10 years.
On February 1, 1999, the Company purchased all of the capital stock of
American Information Systems, Inc ("AIS"). AIS provides co-location services
as well as professional services. Total
F-12
<PAGE>
EXODUS COMMUNICATIONS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998 and September 30, 1998 and 1999
(Information as of September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 is unaudited)
consideration paid, including direct acquisition costs, aggregated
approximately $20,500,000. The acquisition was accounted for as a purchase with
the results of AIS included from the acquisition date. The excess of the
purchase price over the fair value of tangible net assets acquired amounted to
approximately $18,700,000 and was attributed primarily to goodwill
($15,000,000), customer lists ($3,200,000) and assembled workforce ($500,000).
These amounts are being amortized on a straight-line basis over periods ranging
from 5 to 7 years.
On July 27, 1999, the Company completed its acquisition of Cohesive
Technology Solutions, Inc. ("Cohesive"). Cohesive offers a variety of services
including network design and development, Internet-based and application
development and information technology strategy and project management.
Pursuant to the terms of the Agreement and Plan of Reorganization, each share
of Cohesive common stock was converted into the right to receive 0.10488 shares
of Exodus common stock and $1.338 in cash; each share of Cohesive Series A
preferred stock was converted into the right to receive $122.337 in cash; each
share of Cohesive Series B preferred stock was converted into the right to
receive $115.965 in cash; each share of Cohesive Series C preferred stock was
converted into the right to receive $5.00 in cash; and each share of Cohesive
Series D preferred stock, which automatically converted into Cohesive common
stock immediately prior to the merger, was converted into the right to receive
0.10488 shares of Exodus common stock and approximately $6.655 in cash. In
addition, the Company assumed each issued and outstanding option to purchase
shares of Cohesive common stock which was converted into an option to purchase
Exodus common stock using an exchange ratio of 0.14604.
Pursuant to the exchange ratios applied in the acquisition, the Company
issued 1,600,796 shares of Exodus common stock and paid approximately
$50,000,000 in cash and assumed options to purchase a total of 408,712 shares
of Exodus common stock for a total purchase price of approximately
$112,000,000. Of the cash consideration, $10,000,000 was deposited in an escrow
account to secure and collateralize the indemnification obligations of Cohesive
stockholders to Exodus and certain affiliates of Exodus. The acquisition was
accounted for as a purchase with the results of Cohesive included from the
acquisition date. The excess of the purchase price over the fair value of
tangible net assets acquired amounted to approximately $107,900,000 and was
attributed primarily to goodwill ($69,300,000), customer lists ($32,300,000)
and workforce in place ($6,300,000). These amounts are being amortized on a
straight-line basis over periods ranging from 5 to 8 years.
The following summary, prepared on an unaudited pro forma basis, combines
the Company's supplemental consolidated results of operations with Arca's,
AIS', and Cohesive's results of operations, as if Arca, AIS, and Cohesive had
been acquired as of January 1, 1997 (in thousands, except per share data):
<TABLE>
<CAPTION>
Year Ended Nine Months Nine Months
December 31, Ended Ended
------------------ September 30, September 30,
1997 1998 1998 1999
-------- -------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues................... $ 41,004 $103,774 $ 69,208 $169,945
Net loss attributable to
holders of common stock... $(24,009) $(87,022) $(62,892) $(87,215)
Basic and diluted net loss
per share................. $ (1.41) $ (0.68) $ (0.54) $ (0.52)
Shares used in pro forma
per share calculation .... 17,028 127,408 115,688 167,188
</TABLE>
F-13
<PAGE>
EXODUS COMMUNICATIONS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998 and September 30, 1998 and 1999
(Information as of September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 is unaudited)
The pro forma results are not necessarily indicative of what would have
occurred if the acquisitions had been in effect for the periods presented. In
addition, they are not intended to be a projection of future results and do not
reflect any synergies that might be achieved from combined operations.
In November 1999, the Company agreed to acquire Global OnLine Japan Co.,
Ltd., an Internet solutions provider based in Tokyo. The transaction is
expected to close by the end of December 1999 and will be accounted for as a
purchase.
(3) Financial Statement Components
Property and Equipment
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------- September 30,
1997 1998 1999
------- ------- -------------
<S> <C> <C> <C>
Data centers and related equipment........... $16,316 $43,959 $150,239
Furniture, fixtures, computer equipment and
other....................................... 12,815 33,179 94,892
Construction in progress..................... -- 8,497 40,576
------- ------- --------
29,131 85,635 285,707
Less accumulated depreciation and
amortization................................ 3,961 17,063 40,315
------- ------- --------
$25,170 $68,572 $245,392
======= ======= ========
</TABLE>
Computer and other equipment and certain data center infrastructure are
recorded under capital leases that aggregated $4,492,000, $20,528,000, and
$56,425,000 as of December 31, 1997 and 1998, and September 30, 1999,
respectively. Accumulated amortization on the assets recorded under capital
leases aggregated $722,000, $4,452,000, and $12,621,000 as of December 31, 1997
and 1998, and September 30, 1999, respectively.
Accrued Expenses
Accrued expenses consisted of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
------------- September 30,
1997 1998 1999
------ ------ -------------
<S> <C> <C> <C>
Accrued payroll and related expenses............. $1,183 $2,956 $ 9,074
Other............................................ 1,836 3,920 11,220
------ ------ -------
$3,019 $6,876 $20,294
====== ====== =======
</TABLE>
F-14
<PAGE>
EXODUS COMMUNICATIONS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998 and September 30, 1998 and 1999
(Information as of September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 is unaudited)
(4) Bank Borrowings and Debt
A summary of equipment loans and line of credit facilities follows (in
thousands):
<TABLE>
<CAPTION>
December 31,
----------------- September 30,
1997 1998 1999
-------- -------- -------------
<S> <C> <C> <C>
$1,800,000 equipment line of credit facility;
effective interest rate of 16.4%; principal
and interest due April 2000 through September
2000; collateralized by equipment............ $ 1,393 $ 981 $ 583
$3,000,000 equipment line of credit facility--
April 1997; effective interest rate of 12.9%;
principal and interest due monthly through
July 2001; collateralized by equipment....... 2,756 2,080 1,448
$6,500,000 equipment line of credit facility;
effective interest rate of 15.9%; principal
and interest due monthly through July 2001;
collateralized by equipment.................. 6,312 4,842 3,523
$3,000,000 equipment line of credit facility--
August 1997; effective interest rate of
16.2%; principal and interest due monthly
through May 2001; collateralized by
equipment.................................... 2,787 2,192 1,617
$5,000,000 equipment line of credit facility;
effective interest rate of 16.2%; principal
and interest due monthly through September
2001; collateralized by equipment............ 3,044 3,084 2,322
$10,000,000 equipment line of credit facility;
effective interest rate of 13.8%; principal
and interest due monthly through August 2002;
collateralized by equipment.................. -- 8,883 7,329
$8,000,000 line of credit facility; interest
rate of 12.8%; principal and interest due
March 1999; collateralized by all of the
Company's assets............................. -- 8,000 --
Other......................................... 178 -- 500
-------- -------- -------
16,470 30,062 17,322
Less current portion.......................... 3,777 14,367 7,722
-------- -------- -------
Equipment loans and line of credit facilities,
less current portion......................... $ 12,693 $ 15,695 $ 9,600
======== ======== =======
</TABLE>
As of December 31, 1998, aggregate maturities for outstanding equipment
loans and line of credit facilities, for fiscal 1999, 2000, 2001 and 2002 were
$14,367,000, $7,342,000, $5,943,000 and $2,410,000, respectively.
On July 1, 1998, the Company issued $200,000,000 of 11% Senior Notes
("Original Senior Notes") due 2008 for aggregate net proceeds of approximately
$193,400,000 (net of discounts to the initial purchasers and offering
expenses). Interest is payable semiannually on January 1 and July 1 of each
year commencing January 1, 1999. As of December 31, 1998, restricted cash
equivalents and investments include approximately $42,400,000 deposited with an
escrow agent that will be used to pay the first four semiannual interest
payments when due. Interest payments of $11,250,000 were made in January and
July 1999. Subject to significant exceptions, the Original Senior Notes
indenture restricts, among other things, the Company's ability to incur
additional indebtedness and the use of proceeds therefrom, pay dividends, make
certain other restricted payments, incur certain liens to secure indebtedness
or engage in merger transactions.
F-15
<PAGE>
EXODUS COMMUNICATIONS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998 and September 30, 1998 and 1999
(Information as of September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 is unaudited)
On March 3, 1999, the Company issued $250,000,000 of 5% Convertible
Subordinated Notes due March 15, 2006 (the "Convertible Notes") for aggregate
net proceeds of approximately $242,100,000 (net of offering expenses). Proceeds
from the sale of the Convertible Notes may be used only for limited purposes.
Proceeds in the amount of $48,500,000 may be used for general corporate
purposes. The remaining $193,600,000 may be used only to finance the purchase
of assets or other businesses to be used in the Company's business.
The Convertible Notes are convertible into the Company's common stock at a
conversion rate of 87.5704 shares per $1,000 principal amount of Convertible
Notes, subject to adjustment in certain events and at each holder's option. The
Convertible Notes will not be subject to redemption prior to March 20, 2001,
and generally will be redeemable on or after that date at the option of the
Company, at the redemption prices set forth in the indenture to the Convertible
Notes ("Convertible Notes Indenture"), subject to certain provisions. In the
event of a Change in Control (as defined in the Convertible Notes Indenture),
each holder of the Convertible Notes has the right, subject to certain
conditions and restrictions, to require the Company to repurchase all or any
part of the holder's Convertible Notes at a repurchase price of 100% of the
principal amount, plus accrued interest of the Convertible Notes being
repurchased. Interest on the Convertible Notes is payable on March 15 and
September 15 of each year, commencing on September 15, 1999. Accordingly, the
Company made its first interest payment in the amount of approximately
$6,700,000 on September 15, 1999. The Convertible Notes are unsecured
obligations of the Company and are subordinated to all existing and future
Senior Indebtedness (as defined in the Convertible Notes Indenture) and
effectively subordinated to all indebtedness and other liabilities of the
Company's subsidiaries.
On June 22, 1999, the Company issued an additional $75,000,000 of Senior
Notes due 2008 ("Additional Senior Notes") at 100.50% plus accrued interest, if
any, from June 22, 1999, for aggregate net proceeds of approximately
$73,200,000 (net of offering expenses). The Company issued the Additional
Senior Notes under the indenture dated July 1, 1998 under which it previously
issued the Original Senior Notes discussed above. The Additional Senior Notes
will be subject to substantially the same terms and conditions as the Original
Senior Notes. Interest is payable semi-annually on January 1 and July 1 of each
year commencing July 1, 1999. Concurrent with the closing of the offering, the
Company deposited approximately $8,400,000 with an escrow agent that would be
sufficient to pay when due the first three interest payments. An interest
payment of approximately $211,000 was made on July 1, 1999 representing
interest from June 22, 1999 to July 1, 1999.
On July 22, 1999, the Company amended its revolving line of credit agreement
with a financial institution, increasing the total commitment amount from
$7,000,000 to $10,000,000. Pursuant to the terms of the new amendment, the line
of credit can be used for working capital requirements, foreign exchange
forward contracts, and letters of credit. The amount available for working
capital borrowings is limited to $4,000,000. In addition, total foreign
exchange contracts at any one time cannot exceed 10 times the amount of the
foreign exchange sublimit, which is a maximum of $1,000,000. The line of credit
will expire in July 2000 and is subject to certain covenants.
(5) Redeemable Convertible Preferred Stock and Stockholders' (Deficit) Equity
Redeemable Convertible Preferred Stock and Warrants
In February and March 1996, the Company issued 7,798,483 shares of Series A
redeemable convertible preferred stock at $0.413 per share. In October 1996,
the Company issued
F-16
<PAGE>
EXODUS COMMUNICATIONS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998 and September 30, 1998 and 1999
(Information as of September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 is unaudited)
7,738.095 shares of Series B redeemable convertible preferred stock at $0.84
per share. In March and June 1997, the Company received a total of
approximately $3,975,000 in cash in exchange for bridge financing convertible
promissory notes. In June 1997, the Company issued 15,789,868 shares of Series
C redeemable convertible preferred stock for $1.362 per share in exchange for
approximately $17,500,000 in cash and the conversion of the bridge financing
notes. In December 1997, the Company issued 2,631,579 shares of Series D
redeemable convertible preferred stock at $2.85 per share for aggregate cash
proceeds of $7,500,000.
In 1996, in connection with various financing arrangements, the Company
issued warrants to purchase an aggregate of 137,256 shares of the Company's
common stock at prices ranging from $0.30 to $0.34 per share. Also in 1996, in
connection with various lease agreements and other matters, the Company issued
warrants to purchase 329,167 shares of the Company's Series B1 redeemable
convertible preferred stock at $0.84 per share.
In March and June 1997, in connection with the bridge financing convertible
promissory notes discussed above, the Company issued warrants to purchase
198,697 shares of the Company's Series B redeemable convertible preferred stock
at $0.84 per share. In April 1997, in connection with the $3,000,000 equipment
line of credit, the Company issued warrants to purchase 196,429 shares of the
Company's Series B1 redeemable convertible preferred stock at $0.84 per share.
In June 1997, in connection with the issuance of the Company's Series C
redeemable convertible preferred stock, the Company issued warrants to purchase
1,579,011 shares of the Company's Series C redeemable convertible preferred
stock at $1.362 per share. In August and September 1997, in connection with the
$3,000,000 and the $6,500,000 equipment lines of credit, the Company issued
warrants to purchase a total of 271,598 shares of the Company's Series C1
redeemable convertible preferred stock at $1.362 per share. In December 1997,
in connection with the $8,000,000 line of credit facility and the $5,000,000
equipment line of credit, the Company issued warrants to purchase 247,826 and
125,000 shares, respectively, of the Company's Series D1 redeemable convertible
preferred stock at $2.85 per share.
In March 1998, in connection with a strategic alliance, the Company issued
warrants to purchase an aggregate of 480,000 shares of the Company's common
stock at a price of $1.88 per share.
The fair value of all warrant issuances, calculated using the Black-Scholes
option pricing model, with the following assumptions: dividends--none; expected
life--contractual term; risk-free interest rate of 5.7% to 6.7%; volatility of
60%, was not material except as follows:
. The 1,579,011 warrants issued in connection with the sale of the Series C
redeemable convertible preferred stock for which the fair value was
determined to be $1,200,000. This amount was recorded as a reduction in
the carrying value of the Series C redeemable convertible preferred stock
and recorded as the carrying value of the Series C warrants.
. The 247,826 and 125,000 warrants issued in connection with the $8,000,000
line of credit facility and $5,000,000 equipment line of credit,
respectively, for which the values were determined to be $530,000 and
$200,000, respectively. These amounts are being amortized on a straight-
line basis through the commitment periods of the credit facilities.
. The 480,000 warrants issued in connection with the strategic alliance for
which the value was determined to be $525,000. This amount was recorded
as marketing and sales expense in the accompanying supplemental
consolidated statement of operations for the year ended December 31,
1998.
F-17
<PAGE>
EXODUS COMMUNICATIONS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998 and September 30, 1998 and 1999
(Information as of September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 is unaudited)
Redeemable convertible preferred stock and related warrants issued and
outstanding as of December 31, 1997 was as follows:
<TABLE>
<CAPTION>
Redeemable Convertible
Preferred Stock Warrants
----------------------- ----------------------
Shares Issued and Carrying Issued and Carrying
Series Designated Outstanding Value Outstanding Value
------ ---------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
A................. 7,798,483 7,798,483 $ 3,168,000 -- $ --
A1................ 7,798,483 -- -- -- --
B................. 8,600,000 7,775,930 6,473,000 160,862 --
B1................ 8,600,000 65,524 55,000 466,072 --
C................. 17,850,000 15,845,855 20,333,000 1,523,024 1,242,000
C1................ 17,850,000 -- -- 271,598 --
D................. 3,231,579 2,631,579 7,246,000 -- --
D1................ 3,231,579 -- -- 372,826 730,000
---------- ---------- ----------- --------- ----------
74,960,124 34,117,371 $37,275,000 2,794,382 $1,972,000
========== ========== =========== ========= ==========
</TABLE>
As of December 31, 1997 and 1998, the Company has 149,304 and 1,448,680
warrants to purchase common stock outstanding, respectively.
Convertible Preferred Stock of Service Metrics, Inc.
In May 1998, SMI issued 540,936 shares of Series A convertible preferred
stock for approximately $1,000,000 in cash. In December 1998, SMI issued
1,012,222 shares of Series B convertible preferred stock for approximately
$5,000,000 in cash. In January 1999, SMI issued an additional 303,667 shares of
Series B convertible preferred stock for approximately $1,500,000 in cash. In
July 1999, SMI issued 728,953 shares of Series C convertible preferred stock
for approximately $8,000,000 in cash.
The Series A, B, and C convertible preferred stock ("SMI Preferred Stock")
was convertible, at the option of the holder, into common stock of SMI based on
formulas specified in the preferred stock agreements. The SMI Preferred Stock
would automatically convert into common stock upon the closing of an initial
public offering of SMI, where the net cash proceeds were at least $15,000,000
and the public offering price would be at least $2.50 per share. The holders of
the SMI Preferred Stock were entitled to receive dividends at the rate of $0.16
for Series A, $0.48 for Series B, and $1.10 for Series C, when and if declared
by the Board of Directors. These dividends were noncumulative. Holders of the
SMI preferred stock were entitled to vote upon any matter submitted to the
stockholders for a vote and have one vote for each full share of common stock
into which their SMI Preferred Stock would be converted at the date of the
vote. The SMI Preferred Stock had liquidation privileges generally equal to the
SMI Preferred Stock purchase price per share plus any declared but unpaid
dividends and was in preference to shares of common stock.
In connection with the merger between Exodus and SMI on November 23, 1999,
all of the SMI preferred shareholders converted their SMI Preferred Stock into
SMI common stock which was converted into Exodus Common Stock based on a
specified exchange ratio.
F-18
<PAGE>
EXODUS COMMUNICATIONS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998 and September 30, 1998 and 1999
(Information as of September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 is unaudited)
Initial Public Offering
On March 24, 1998, the Company completed its initial public offering ("IPO")
of 41,000,000 shares of its common stock. Net proceeds to the Company, after
deducting underwriting discounts and commissions and offering expenses,
aggregated approximately $69,800,000. At the closing of the IPO, all redeemable
convertible preferred stock was converted to common stock and all warrants to
purchase redeemable convertible preferred stock were converted to warrants to
purchase common stock on a one-for-three basis. In connection with the IPO,
certain warrant holders exercised their warrants to purchase redeemable
convertible preferred stock (which converted into common stock), which resulted
in additional proceeds of $1,842,000.
Stock Purchase and Stock Option Plans
During 1995, the Company adopted a Stock Purchase Plan under which 2,933,336
shares of common stock were authorized. Awards totaling 858,944 shares of
common stock were granted to individuals through 1996, at a price of $0.03 per
share, the estimated fair market value of the shares on the date of the award.
No awards were granted during the years ended December 31, 1997 and 1998.
Generally, the shares are subject to a 50-month vesting period. As of December
31, 1998, 34,408 shares remained unvested. Unvested shares are subject to
repurchase, at the Company's option, at the original purchase price upon a
participant's termination. Of the shares granted, 370,408 had been repurchased
by the Company as of December 31, 1998.
In January 1998, the Company adopted the 1998 Employee Stock Purchase Plan
(the "Purchase Plan") and reserved a total of 4,800,000 shares of the Company's
common stock for issuance thereunder. The Purchase Plan permits eligible
employees to purchase common stock through payroll deductions at a purchase
price of 85% of the lower of the fair market value of the common stock on the
first day of the offering period or on the last day of the purchase period.
During 1998, 436,528 shares were issued under the Purchase Plan at a weighted-
average purchase price of $1.67 per share.
In January 1997, the Company adopted the 1997 Equity Incentive Plan (the
"1997 Plan"), which served as the successor to the Company's 1995 Stock Option
Plan (the "1995 Plan"). Options granted under the 1995 Plan before its
termination continue to remain outstanding in accordance with their terms, but
no further options may be granted under the 1995 Plan. Options granted under
the 1995 Plan were granted with exercise prices not less than fair market value
at the date of grant as determined by the Board of Directors, generally vested
12% after 6 months from the date of grant and 2% per month thereafter, and
generally are exercisable for a term of 10 years after the date of grant. Under
the 1997 Plan, the Company reserved 17,600,000 shares of its common stock for
issuance to employees and consultants to be granted as either incentive or
nonqualified stock options. Options granted under the 1997 Plan generally vest
12% after 6 months from the date of grant and 2% per month thereafter and are
generally exercisable for a term of 10 years after the date of grant.
In January 1998, the Company adopted the 1998 Equity Incentive Plan (the
"1998 Plan"). On the effective date of the Company's IPO, the 1998 Plan became
effective as the successor to the 1997 Plan. The Company has reserved
12,000,000 shares of common stock for issuance under the 1998 Plan in addition
to the shares that remain from the 1997 Plan. The 1998 Plan permits the grant
of either incentive or nonqualified stock options. Options granted under the
1998 Plan will have a maximum term of 10 years and generally will vest over 50
months. The 1998 Plan will terminate in January 2008.
On June 2, 1999, the Company's stockholders approved an amendment to the
Company's 1998 Equity Incentive Plan to increase the number of shares of common
stock reserved for issuance thereunder by 8,000,000 shares, from 12,000,000
shares to 20,000,000 shares.
F-19
<PAGE>
EXODUS COMMUNICATIONS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998 and September 30, 1998 and 1999
(Information as of September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 is unaudited)
In January 1998, the Company adopted the 1998 Directors Stock Option Plan
(the "Directors Plan") and reserved a total of 1,600,000 shares of the
Company's common stock for issuance thereunder. Each nonemployee director who
is or becomes a member of the Board of Directors on or after the effective date
of the Company's IPO, with certain limited exceptions, will initially be
granted an option for 40,000 shares of the Company's common stock and,
thereafter, an option to purchase an additional 10,000 shares of the Company's
common stock annually. Initial options granted under the Directors Plan will
vest as to 33 1/3% of the shares on each annual anniversary of the date of
grant. Annual grants will vest 25% on each annual anniversary of the date of
grant. The exercise price of the options granted under the Directors Plan will
be at the fair market value of the Company's common stock on the date of grant.
In January 1998, the Company granted stock options to purchase 2,666,672
shares of common stock to an officer of the Company, of which half have an
exercise price of $1.13 per share and vest 100% after 3 years and half have an
exercise price of $2.25 per share and vest 100% after 5 years. The stock
options accelerate and become fully vested if the Company is acquired or sells
all or substantially all of its assets.
In March 1998, the Company granted a stock option to an officer of the
Company to purchase 5,775,848 shares of common stock with an exercise price of
$1.13 per share (fair market value on the date of grant) that vests as to 12%
of such shares in September 1998 and vests as to an additional 2% per month
thereafter.
In January 1999, the Company adopted the 1999 Stock Option Plan (the "1999
Plan"). Under the 1999 Plan, the Company has reserved 16,000,000 shares of
common stock for issuance to employees, consultants, and to be used for
acquisitions, to be granted as nonqualified stock options. Options granted
under the 1999 Plan generally will vest over 50 months and are generally
exercisable for a term of 10 years from the date of grant.
Service Metrics, Inc. Stock Option Plan
In July 1998, the SMI Board of Directors adopted the 1998 Stock Option Plan.
Under the Plan, officers, employees and certain other individuals could be
granted options and rights to purchase shares of common stock. Options granted
could be either incentive stock options or non-statutory stock options. SMI had
reserved 512,624 shares of common stock for issuance of stock options. As of
December 31, 1998, 359,841 shares were available for future grant. Depending on
the type of option, the exercise price could not be less than the fair market
value per common share on the date of grant or as determined by the Board of
Directors. Options were exercisable over periods determined by the Board of
Directors, not to exceed 10 years, and generally were to vest ratably over 4
years. In the event of the termination of the optionee's relationship with SMI,
vested options yet to be exercised would remain exercisable for such period of
time ending on the earlier of 3 months after termination or the expiration of
the term of the option, or as determined by the Board of Directors.
In connection with the merger between Exodus and SMI on November 23, 1999,
all of the SMI stock options were assumed by Exodus and converted into Exodus
stock options based on a specified exchange ratio.
Fair Value Disclosures
The Company uses the intrinsic value method in accounting for its employee
stock-based compensation plans. Accordingly, no compensation cost has been
recognized for any of its stock options because the exercise price of each
option equaled or exceeded the fair value of the underlying common stock as of
the grant date for
F-20
<PAGE>
EXODUS COMMUNICATIONS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998 and September 30, 1998 and 1999
(Information as of September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 is unaudited)
each stock option, except for stock options granted by the Company from March
1997 through December 1997 and stock options granted by SMI from January 1999
to September 1999. With respect to the stock options granted by the Company
from March to December 1997, the Company recorded deferred stock compensation
of $3,482,000 for the difference at the grant date between the exercise price
and the fair value of the common stock underlying the options. With respect to
the stock options granted by SMI from January 1999 to September 1999, SMI
recorded deferred stock compensation of $2,778,000. These amounts are being
amortized consistent with the method described in FASB Interpretation No. 28
over the vesting period of the individual options, generally 48 to 50 months.
Had compensation cost been determined in accordance with SFAS No. 123 for all
of the Company's and SMI's stock-based compensation plans, net loss
attributable to holders of common stock and net loss per share would have been
changed to the amounts indicated below (in thousands, except per share data):
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------
1996 1997 1998
------- -------- --------
<S> <C> <C> <C>
Net loss applicable to holders of common
stock:
As reported ............................... $(4,133) $(26,711) $(69,330)
Pro forma.................................. $(4,133) $(26,711) $(77,009)
Basic and diluted net loss per share:
As reported ............................... $ (0.27) $ (1.73) $ (0.55)
Pro forma ................................. $ (0.27) $ (1.73) $ (0.61)
</TABLE>
The fair value of each stock option is estimated on the date of grant using
the minimum value method prior to the IPO and the Black-Scholes option pricing
model after the IPO, with no expected dividends and the following weighted-
average assumptions:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Expected life............................... 2.55 years 2.59 years 3.09 years
Risk-free interest rate..................... 6.28% 5.81% 4.98%
Volatility ................................. -- -- 80.00%
</TABLE>
The fair value of purchase rights granted under the Purchase Plan is
estimated on the date of grant using the Black-Scholes option pricing model
with the following weighted-average assumptions for grants in 1998: no expected
dividends, expected volatility of 80%, risk-free interest rate of 5.26%, and
expected life of 1.33 years. The weighted-average fair value of purchase rights
granted under the Purchase Plan during 1998 was $1.25 per share.
F-21
<PAGE>
EXODUS COMMUNICATIONS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998 and September 30, 1998 and 1999
(Information as of September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 is unaudited)
A summary of the Company's stock option plans including SMI is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------------
1996 1997 1998
-------------------- --------------------- ---------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
--------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 1,000,664 $0.03 2,336,264 $0.03 13,674,288 $0.10
Granted................. 1,797,872 0.04 12,894,400 0.11 31,594,374 2.84
Forfeited............... (422,800) 0.03 (846,880) 0.08 (2,311,752) 1.03
Exercised............... (39,472) 0.03 (709,496) 0.04 (4,367,032) 0.33
--------- ---------- ----------
Outstanding at end of
year .................. 2,336,264 0.03 13,674,288 0.10 38,589,878 2.26
--------- ---------- ----------
Exercisable at end of
year................... 645,336 0.03 1,791,600 0.06 3,076,720 0.61
========= ========== ==========
Weighted-average fair
value of options
granted during the year
at market.............. 1,797,872 0.01 2,666,136 0.01 28,560,800 1.57
Weighted-average fair
value of options
granted during the year
at less than market.... -- -- 10,228,264 0.29 366,914 0.78
Weighted-average fair
value of options
granted during the year
at greater than
market ................ -- -- -- -- 2,666,672 0.53
</TABLE>
The following table summarizes information about stock options outstanding
as of December 31, 1998:
<TABLE>
<CAPTION>
Outstanding Exercisable
-------------------------------- -------------------
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Range of Number of Contractual Exercise Number of Exercise
Exercise Prices Shares Life Price Shares Price
- --------------- ---------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$0.03 to 0.10.............. 8,789,854 8.51 years $0.07 1,992,688 $0.06
$0.47 to 1.13.............. 9,360,616 9.13 1.04 826,136 0.91
$1.88 to 3.03.............. 9,929,680 9.64 2.67 82,544 2.48
$3.84 to 5.00.............. 10,509,728 9.84 4.75 175,352 4.50
---------- ---------
38,589,878 9.31 2.26 3,076,720 0.61
========== =========
</TABLE>
Stockholder Rights Plan
In January 1999, the Company adopted a Stockholder Rights Plan ("the Rights
Plan"). The Rights Plan is designed to protect the long-term value of the
Company for its stockholders during any future unsolicited acquisition
attempt. In connection with the Rights Plan, the Company declared a dividend
of one preferred share purchase right for each share of the Company's common
stock outstanding on February 11, 1999 ("Record Date") and further directed
the issuance of one such right with respect to each share of the Company's
common stock that is issued after the Record Date, except in certain
circumstances.
F-22
<PAGE>
EXODUS COMMUNICATIONS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998 and September 30, 1998 and 1999
(Information as of September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 is unaudited)
On June 2, 1999, stockholders approved an amendment to the Company's
Restated Certificate of Incorporation to increase the authorized number of
shares of common stock issuable by the Company from 100,000,000 to 300,000,000.
Stock Splits
On April 12, 1999 and August 12, 1999, the Company completed two-for-one
stock splits accomplished in the form of stock dividends. Share and per share
amounts in the accompanying supplemental consolidated financial statements
reflect both two-for-one stock splits retroactively.
(6)Commitments and Contingencies
Leases
The Company has entered into a number of operating leases for its
facilities. The leases expire from 1999 through 2010. As of December 31, 1998,
the Company had collateralized letters of credit aggregating $3,238,000 for
these leases. The related funds are included in restricted cash equivalents and
investments on the accompanying supplemental consolidated balance sheet. The
Company also leases certain data center infrastructure and equipment under
capital leases. Certain of these capital leases were entered into as sales-
leaseback transactions. No gain or loss was recorded in any such transaction
due to the short holding period from the time the assets were purchased until
the time of the sale-leaseback. Future minimum lease payments as of December
31, 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
Capital Operating
Year Ending December 31, Leases Leases
------------------------ ------- ---------
<S> <C> <C>
1999....................................................... $ 6,470 $ 9,206
2000....................................................... 6,720 9,892
2001....................................................... 6,009 9,964
2002....................................................... 676 9,508
2003....................................................... -- 9,271
Thereafter................................................. -- 43,994
------- -------
Total minimum lease payments............................... 19,875 $91,835
=======
Less amount representing imputed interest.................. 3,063
-------
Present value of minimum lease payments.................... 16,812
Less current portion....................................... 5,223
-------
Capital lease obligations, less current portion............ $11,589
=======
</TABLE>
The Company's rent expense was $248,000, $1,764,000, $5,583,000, $3,389,000
and $11,143,000 for the years ended December 31, 1996, 1997 and 1998, and the
nine months ended September 30, 1998 and 1999, respectively.
Telecommunications Agreements
In September 1997, the Company entered into an agreement to obtain
telecommunications services for a period of 60 months with a minimum commitment
of $230,000 per month. In January 1999, this original agreement was replaced
with a new agreement for a period of 60 months with a minimum commitment of
$1,000,000 per month.
F-23
<PAGE>
EXODUS COMMUNICATIONS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998 and September 30, 1998 and 1999
(Information as of September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 is unaudited)
In July 1998, the Company entered into an agreement to obtain
telecommunications services for a period of 36 months with a minimum commitment
of approximately $500,000 per month.
In August 1999 the Company entered into capacity purchase agreements. The
agreements provide for a total potential outlay of approximately $105,000,000
for fiber capacity and related maintenance covering approximately 25 years.
Royalty Agreement
In April 1997, the Company entered into an agreement with a software company
under which the Company licensed certain software for a royalty based on 1% of
the Company's gross revenues. Royalty expenses related to this agreement have
not been significant to date.
In March 1999, this agreement was replaced with a new agreement that
obligates the Company to make certain future payments for the use of the
software license. These payments are not expected to have a material effect on
the consolidated financial statements.
Contingencies
The Company is engaged in certain legal actions arising in the ordinary
course of business. The Company believes that it has adequate legal defenses
and that the ultimate outcome of these actions will not have a material effect
on the Company's consolidated financial position and results of operations.
(7) Income Taxes
The following table reconciles the expected corporate federal income tax
expense (benefit) (computed by multiplying the Company's loss before taxes by
34%) to the Company's actual income tax expense (benefit) (in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------
1996 1997 1998
------- ------- --------
<S> <C> <C> <C>
Expected income tax benefit..................... $(1,405) $(8,602) $(22,895)
Permanent differences........................... 2 15 81
Net operating loss not benefited................ 1,403 8,587 22,814
------- ------- --------
Actual income tax expense (benefit)........... $ -- $ -- $ --
======= ======= ========
</TABLE>
F-24
<PAGE>
EXODUS COMMUNICATIONS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998 and September 30, 1998 and 1999
(Information as of September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 is unaudited)
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities as of December 31, 1997 and
1998, are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards......................... $10,941 $35,137
Difference between book and tax depreciation............. -- 2,284
Reserves and accruals.................................... 195 1,234
Research and experimentation credit carryforwards........ 113 548
Deferred compensation.................................... 437 957
Other.................................................... 41 6
------- -------
Total gross deferred tax assets........................ 11,727 40,166
Less valuation allowance................................... 11,708 40,166
------- -------
19 --
Deferred tax liabilities:
Difference between book and tax depreciation............. (19) --
------- -------
Net deferred tax assets................................ $ -- $ --
======= =======
</TABLE>
As of December 31, 1998, the Company has a net operating loss carryforward
for federal and state purposes of $94,961,000 and $48,753,000, respectively.
The difference between the federal and state net operating loss carryforward is
due to the 50% limitation of net operating loss carryforwards for state
purposes. The federal net operating loss carryforward will expire from 2011
through 2018. The state net operating loss carryforward will expire from 2001
through 2003.
Gross deferred tax assets as of December 31, 1998 include approximately
$3,430,000 relating to the exercise of stock options, which will be credited to
equity when realized.
The net change in the valuation allowance was an increase of $9,654,000 and
$28,458,000 for the years ended December 31, 1997 and 1998, respectively.
Federal and state tax laws impose significant restrictions on the
utilization of net operating loss carryforwards in the event of a shift in the
ownership of the Company, which constitutes an "ownership change" as defined by
Internal Revenue Code, Section 382. The Company has not determined if an
ownership change, as defined, has occurred. The Company plans to compute exact
limitations upon realization of taxable earnings and associated utilization of
the net operating loss carryforwards.
(8) Segment Information
The Company operates a number of Internet Data Centers throughout the United
States and one in Europe. The Company establishes these Internet Data Centers
using a consistent investment and operating model. As a result, the expected
long-term economic characteristics and financial performance are similar. In
particular, each data center provides the same Internet related services to a
similar type of customer who may locate its servers in multiple Internet Data
Centers. As a result, the Company believes these Internet Data Centers
represent one reportable segment under the aggregation criteria of SFAS No.
131, Disclosures about Segments of an Enterprise and Related Information.
Internet Data Center operations primarily include services such as server
infrastructure support, Internet connectivity, and managed services.
F-25
<PAGE>
EXODUS COMMUNICATIONS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998 and September 30, 1998 and 1999
(Information as of September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 is unaudited)
With the acquisition of Cohesive on July 27, 1999, management began
reviewing financial information and business performance and allocating
resources based on both Internet Data Center operations and by professional
services, given Cohesive's expertise in networking, Internet-based applications
and technology solutions. As a result, the Company identified professional
services as an additional reportable segment. Professional services primarily
include services such as network design and development, Internet-based and
application development, and information technology strategy.
Financial information for the Company's reportable segments is presented
below:
<TABLE>
<CAPTION>
Nine Months Ended
Years Ended December 31, September 30,
--------------------------- ------------------
1996 1997 1998 1998 1999
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues:
Internet Data Centers........ $ 3,130 $ 12,408 $ 52,263 $ 31,423 $119,650
Professional services........ -- -- 482 215 21,104
------- -------- -------- -------- --------
Total revenues............. $ 3,130 $ 12,408 $ 52,745 $ 31,638 $140,754
======= ======== ======== ======== ========
Operating profit (loss):
Internet Data Centers........ $ * $ (1,243) $ (1,492) $ (3,204) $ 23,166
Professional services........ * -- (351) 17 1,880
Corporate areas.............. * (23,549) (55,730) (37,095) (82,378)
------- -------- -------- -------- --------
Total operating loss....... $(4,094) $(24,792) $(57,573) $(40,282) $(57,332)
======= ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
December 31,
---------------- September 30,
1997 1998 1999
------- -------- -------------
<S> <C> <C> <C>
Total assets:
Internet Data Centers.......................... $ * $ 52,725 $200,616
Professional services.......................... * 212 3,011
Corporate assets............................... * 245,861 481,198
------- -------- --------
Total assets................................. $40,973 $298,798 $684,825
======= ======== ========
</TABLE>
- --------
*Information is not available.
(9) Stock Split
On December 14, 1999, the Company completed a two-for-one stock split
accomplished in the form of a stock dividend. Share and per share amounts in
the accompanying supplemental consolidated financial statements reflect this
two-for-one stock split retroactively.
F-26
<PAGE>
REPORT OF KPMG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Exodus Communications, Inc.:
We have audited the accompanying consolidated balance sheets of Exodus
Communications, Inc. and subsidiaries (the Company) as of December 31, 1997 and
1998, and the related consolidated statements of operations, stockholders'
(deficit) equity, and cash flows for each of the years in the three-year period
ended December 31, 1998. In connection with our audits of the consolidated
financial statements, we have also audited the financial statement schedule as
listed in the index on page F-1. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Exodus
Communications, Inc. and subsidiaries as of December 31, 1997 and 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1998, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
KPMG LLP
Mountain View, California
January 26, 1999, except as to Note 9,
which is as of November 23, 1999, and
except as to Note 10, which is as of
December 14, 1999
F-27
<PAGE>
EXODUS COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
December 31,
------------------ September 30,
1997 1998 1999
-------- -------- -------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................... $ 10,270 $150,891 $ 164,215
Accounts receivable, net of allowance for
doubtful accounts of $691, $1,821, and
$5,240 as of December 31, 1997 and 1998,
and September 30, 1999, respectively....... 1,837 9,648 47,449
Prepaid expenses and other current assets... 1,377 6,203 18,235
-------- -------- ---------
Total current assets...................... 13,484 166,742 229,899
Property and equipment, net.................. 25,170 68,306 241,180
Restricted cash equivalents and investments.. 1,753 45,614 35,444
Intangibles and other assets................. 566 12,624 164,873
-------- -------- ---------
$ 40,973 $293,286 $ 671,396
======== ======== =========
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED
STOCK AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Bank borrowings............................. $ 3,000 $ -- $ --
Current portion of equipment loans and line
of credit facilities....................... 3,777 14,367 7,722
Current portion of capital lease
obligations................................ 1,143 5,140 14,131
Accounts payable............................ 6,252 9,208 32,897
Accrued expenses............................ 3,019 6,771 19,757
Accrued interest payable.................... -- 11,563 8,074
-------- -------- ---------
Total current liabilities................. 17,191 47,049 82,581
Equipment loans and line of credit
facilities, less current portion............ 12,693 15,695 9,600
Capital lease obligations, less current
portion..................................... 2,442 11,401 30,772
Convertible subordinated notes............... -- -- 250,000
Senior notes................................. -- 200,000 275,375
-------- -------- ---------
Total liabilities......................... 32,326 274,145 648,328
Redeemable convertible preferred stock and
warrants, $0.001 par value: 74,960,124, no
shares, and no shares authorized as of
December 31, 1997 and 1998, and September
30, 1999 respectively; 34,117,371, no
shares, and no shares issued and outstanding
as of December 31, 1997 and 1998, and
September 30, 1999, respectively; aggregate
liquidation preference of $39,640 as of
December 31, 1997 .......................... 39,247 -- --
-------- -------- ---------
Commitments and contingencies
Stockholders' (deficit) equity:
Preferred stock, $0.001 par value: no
shares, 5,000,000 shares and 5,000,000
shares authorized as of December 31, 1997
and 1998, and September 30, 1999,
respectively; and no shares issued or
outstanding as of December 31, 1997 and
1998, and September 30, 1999 .............. -- -- --
Common stock, $0.001 par value: 53,281,579,
50,000,000, and 300,000,000 shares
authorized as of December 31, 1997 and
1998, and September 30, 1999,
respectively; 16,538,024, 160,538,816, and
168,981,250 shares issued and outstanding
as of December 31, 1997 and 1998, and
September 30, 1999, respectively .......... 17 161 169
Additional paid-in capital................... 2,493 117,079 192,339
Notes receivable from stockholders........... (140) -- --
Deferred stock compensation.................. (2,393) (1,080) (541)
Accumulated deficit.......................... (30,577) (97,019) (168,899)
-------- -------- ---------
Total stockholders' (deficit) equity...... (30,600) 19,141 23,068
-------- -------- ---------
$ 40,973 $293,286 $ 671,396
======== ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-28
<PAGE>
EXODUS COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
--------------------------- ------------------
1996 1997 1998 1998 1999
------- -------- -------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Service revenues............ $ 2,454 $ 11,588 $ 49,808
Equipment revenues.......... 676 820 2,930
------- -------- -------- -------- --------
Total revenues............ 3,130 12,408 52,738 $ 31,638 $140,186
------- -------- -------- -------- --------
Costs and expenses:
Cost of service revenues.... 2,538 16,228 59,261
Cost of equipment revenues.. 452 640 2,298
------- -------- -------- -------- --------
Total cost of revenue..... 2,990 16,868 61,559 39,291 117,775
Marketing and sales......... 2,734 12,702 28,778 20,467 39,523
General and administrative.. 1,056 5,983 15,724 9,518 24,396
Product development......... 444 1,647 3,221 2,299 4,610
Amortization of
intangibles................ -- -- 141 -- 4,674
Restructuring costs......... -- -- -- -- 923
------- -------- -------- -------- --------
Total expenses............ 4,234 20,332 47,864 32,284 74,126
------- -------- -------- -------- --------
Total costs and expenses.. 7,224 37,200 109,423 71,575 191,901
------- -------- -------- -------- --------
Operating loss............ (4,094) (24,792) (56,685) (39,937) (51,715)
Interest income............... 68 193 7,137 4,016 10,353
Interest expense.............. (107) (699) (16,894) (9,136) (30,518)
------- -------- -------- -------- --------
Net loss.................. (4,133) (25,298) (66,442) (45,057) (71,880)
Cumulative dividends and
accretion on redeemable
convertible preferred stock.. -- (1,413) (2,014) (2,014) --
------- -------- -------- -------- --------
Net loss attributable to
common stockholders...... $(4,133) $(26,711) $(68,456) $(47,071) $(71,880)
======= ======== ======== ======== ========
Basic and diluted net loss per
share........................ $ (0.27) $ (1.73) $ (0.55) $ (0.41) $ (0.44)
======= ======== ======== ======== ========
Shares used in computing basic
and diluted net loss per
share ....................... 15,312 15,428 125,148 113,584 164,854
======= ======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-29
<PAGE>
EXODUS COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
(in thousands)
<TABLE>
<CAPTION>
Notes Total
Common Stock Additional Receivable Deferred Stockholders'
--------------- Paid-In from Stock Accumulated (Deficit)
Shares Amount Capital Stockholders Compensation Deficit Equity
------- ------ ---------- ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances as of December
31, 1995................ 14,568 $ 15 $ 186 $(195) $ -- $ (1,146) $ (1,140)
Issuance of common
stock................... 1,072 1 31 -- -- -- 32
Issuance of common stock
in connection with stock
purchase plan and
exercise of stock
options................. 128 -- 4 (3) -- -- 1
Repurchase of common
stock................... (200) -- (6) 6 -- -- --
Repayment of notes
receivable from
stockholders............ -- -- -- 6 -- -- 6
Net loss................ -- -- -- -- -- (4,133) (4,133)
------- ---- -------- ----- ------- --------- --------
Balances as of December
31, 1996................ 15,568 16 215 (186) -- (5,279) (5,234)
Issuance of common stock
in connection with
exercise of stock
options and warrants.... 1,378 1 221 -- -- -- 222
Repurchase of common
stock................... (408) -- (12) 12 -- -- --
Repayment of notes
receivable from
stockholders............ -- -- -- 34 -- -- 34
Deferred stock
compensation related to
stock option grants..... -- -- 3,482 -- (3,482) -- --
Amortization of deferred
stock compensation...... -- -- -- -- 1,089 -- 1,089
Accrual of cumulative
dividends on Series C
and D redeemable
convertible preferred
stock................... -- -- (750) -- -- -- (750)
Accretion on Series C
and D redeemable
convertible
preferred stock......... -- -- (663) -- -- -- (663)
Net loss................ -- -- -- -- -- (25,298) (25,298)
------- ---- -------- ----- ------- --------- --------
Balances as of December
31, 1997................ 16,538 17 2,493 (140) (2,393) (30,577) (30,600)
Issuance of common stock
in connection with
employee stock purchase
plan and exercise of
stock options and
warrants................ 6,703 7 2,246 -- -- -- 2,253
Issuance of common stock
in conjunction with
initial public offering,
net of offering costs of
$7,062.................. 41,000 41 69,777 -- -- -- 69,818
Issuance of common stock
to an officer for cash.. 400 -- 450 -- -- -- 450
Issuance of common stock
and common stock
warrants................ -- -- 786 -- -- -- 786
Repayment of notes
receivable from
stockholders............ -- -- -- 140 -- -- 140
Conversion of redeemable
convertible preferred
stock into common
stock................... 95,898 96 43,341 -- -- -- 43,437
Amortization of deferred
stock compensation...... -- -- -- -- 1,313 -- 1,313
Accrual of cumulative
dividends on Series C
and D redeemable
convertible preferred
stock................... -- -- (462) -- -- -- (462)
Accretion on Series C
and D redeemable
convertible
preferred stock......... -- -- (1,552) -- -- -- (1,552)
Net loss................ -- -- -- -- -- (66,442) (66,442)
------- ---- -------- ----- ------- --------- --------
Balances as of December
31, 1998................ 160,539 161 117,079 -- (1,080) (97,019) 19,141
Issuance of common stock
in connection with
employee stock purchase
plan and exercise of
stock options and
warrants (unaudited).... 6,842 7 13,999 -- -- -- 14,006
Issuance of common stock
and assumption of
options in connection
with the acquisition of
Cohesive Technology
Solutions, Inc.......... 1,600 1 61,261 -- -- -- 61,262
Amortization of deferred
stock compensation
(unaudited)............. -- -- -- -- 539 -- 539
Net loss (unaudited).... -- -- -- -- -- (71,880) (71,880)
------- ---- -------- ----- ------- --------- --------
Balances as of September
30, 1999 (unaudited).... 168,981 $169 $192,339 $ -- $ (541) $(168,899) $ 23,068
======= ==== ======== ===== ======= ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-30
<PAGE>
EXODUS COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
--------------------------- ------------------
1996 1997 1998 1998 1999
------- -------- -------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss.................... $(4,133) $(25,298) $(66,442) $(45,057) $(71,880)
Adjustments to reconcile net
loss to net cash used for
operating activities:
Depreciation and
amortization............. 461 3,429 12,997 8,568 28,045
Loss on disposal of
property and equipment... -- -- 464 248 --
Noncash common stock and
warrant expense.......... -- -- 786 786 --
Amortization of deferred
stock compensation....... -- 1,089 1,313 1,081 539
Amortization of debt
issuance costs........... -- -- 846 274 1,063
Interest accretion on
restricted cash
equivalents and
investments.............. -- -- (1,088) (580) (1,068)
Changes in operating
assets and liabilities:
Accounts receivable..... (265) (1,316) (8,301) (7,117) (27,865)
Prepaid expenses and
other assets........... (189) (748) (4,086) (3,970) (16,812)
Accounts payable........ 671 5,089 2,791 4,981 21,735
Accrued expenses........ 339 2,237 2,659 3,790 5,366
Accrued interest
payable................ -- -- 11,563 5,750 (3,489)
------- -------- -------- -------- --------
Net cash used for
operating activities.. (3,116) (15,518) (46,498) (31,246) (64,366)
------- -------- -------- -------- --------
Cash flows from investing
activities:
Capital expenditures........ (3,499) (22,489) (44,564) (26,523) (157,703)
Proceeds from sale of
property and equipment..... -- -- 245 -- --
Businesses acquired, net of
cash received.............. -- -- (5,654) -- (70,398)
Release of restricted cash
and investments............ -- -- -- -- 24,938
Increase in restricted cash
equivalents and
investments................ (378) (1,375) (42,773) (43,562) (13,413)
Other assets................ -- -- -- -- (15,405)
------- -------- -------- -------- --------
Net cash used for
investing activities.. (3,877) (23,864) (92,746) (70,085) (231,981)
------- -------- -------- -------- --------
Cash flows from financing
activities:
Proceeds from issuance of
redeemable convertible
preferred stock and
warrants................... 9,409 23,320 2,176 2,176 --
Proceeds from issuance of
common stock, net.......... 32 222 72,521 71,353 14,006
Proceeds from issuance of
bridge financing
convertible notes.......... -- 3,975 -- -- --
Repayment of notes
receivable from
stockholders............... 7 34 140 90 --
Bank borrowings, net........ (100) 3,000 (3,000) (3,000) --
Proceeds from sale-leaseback
transactions............... 552 932 4,035 4,035 --
Payments on capital leases
obligations................ (154) (720) (2,999) (1,689) (6,176)
Proceeds from equipment
loans and line of credit
facilities................. 1,296 16,480 18,611 18,611 --
Repayment of equipment loans
and line of credit
facilities................. (497) (1,306) (5,019) (3,468) (13,529)
Proceeds from convertible
subordinated notes, net.... -- -- -- -- 242,124
Proceeds from senior notes,
net of discounts and
offering costs............. -- -- 193,400 194,000 73,246
------- -------- -------- -------- --------
Net cash provided by
financing activities.. 10,545 45,937 279,865 282,108 309,671
------- -------- -------- -------- --------
Net increase in cash and cash
equivalents................. 3,552 6,555 140,621 180,777 13,324
Cash and cash equivalents at
beginning of period......... 163 3,715 10,270 10,270 150,891
------- -------- -------- -------- --------
Cash and cash equivalents at
end of period............... $ 3,715 $ 10,270 $150,891 $191,047 $164,215
======= ======== ======== ======== ========
Supplemental disclosures of
cash flow information:
Cash paid--interest......... $ -- $ 699 $ 4,917 $ 2,921 $ 33,910
======= ======== ======== ======== ========
Non cash investing and
financing activities:
Assets recorded under
capital leases............. $ 27 $ 2,700 $ 11,709 $ 6,691 $ 34,538
======= ======== ======== ======== ========
Conversion of note payable
to stockholder to preferred
stock...................... $ 200 $ -- $ -- $ -- $ --
======= ======== ======== ======== ========
Cumulative dividends and
accretion on Series C and D
redeemable convertible
preferred stock............ $ -- $ 1,413 $ 2,014 $ 2,014 $ --
======= ======== ======== ======== ========
Deferred compensation on
grants of stock options.... $ -- $ 3,482 $ -- $ -- $ --
======= ======== ======== ======== ========
Warrants issued for
financing commitments...... $ -- $ 730 $ -- $ -- $ --
======= ======== ======== ======== ========
Conversion of bridge
financing convertible notes
to redeemable convertible
preferred stock............ $ -- $ 3,975 $ -- $ -- $ --
======= ======== ======== ======== ========
Conversion of redeemable
convertible preferred stock
to common stock............ $ -- $ -- $ 43,437 $ 43,437 $ --
======= ======== ======== ======== ========
Issuance of common stock and
assumption of options in
connection with the
acquisition of Cohesive
Technology Solutions,
Inc. ...................... $ -- $ -- $ -- $ -- $ 61,262
======= ======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-31
<PAGE>
EXODUS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1997 and 1998 and September 30, 1998 and 1999
(Information as of September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 is unaudited)
(1) Summary of the Company and Significant Accounting Policies
The Company
Exodus Communications, Inc. ("Exodus" or "the Company") is a leading
provider of Internet system and network management solutions and technology
professional services for enterprises with mission-critical Internet
operations.
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned 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 those estimates.
Revenue Recognition
The Company's revenues consist of (i) monthly fees from customer use of
Internet Data Center sites, network services, managed services, and
professional services and use of equipment and software provided by the
Company, (ii) revenues from sales of third-party equipment to customers and
(iii) fees for installation and certain professional services. Currently,
substantially all of the Company's revenue is derived from services. Revenues
(other than installation fees, equipment sales to customers and certain
professional services) are generally billed and recognized ratably over the
term of the contract, which is generally one year. Installation fees are
typically recognized at the time the installation occurs, and equipment
revenues are typically recognized when the equipment is delivered to the
customer or placed into service at an Internet Data Center. The Company sells
third-party equipment to its customers as an accommodation to facilitate their
purchase of services. One-time professional service fees are typically
recognized when services are rendered.
Cash Equivalents and Investments
Cash equivalents consist of highly liquid investments with original
maturities of 90 days or less. As of September 30, 1999 cash equivalents
consisted principally of money market funds at three financial institutions.
The Company classifies its investments as "held-to-maturity." As of
September 30, 1999 such investments consisted of United States Treasury Notes
and are recorded at amortized cost.
F-32
<PAGE>
EXODUS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998 and September 30, 1998 and 1999
(Information as of September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 is unaudited)
The components of restricted cash equivalents and investments are as follows
(in thousands):
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
United States treasury notes:
Due within one year............................ $10,733 $29,528
Due after one year through two years........... 20,594 --
Money market funds............................... 11,049 --
Cash collateral related to leases................ 3,238 5,916
------- -------
Total restricted cash equivalents and
investments................................. $45,614 $35,444
======= =======
</TABLE>
See Notes 4 and 6 for additional information regarding restricted cash
equivalents and investments.
Financial Instruments and Concentration of Credit Risk
The carrying value of the Company's financial instruments, including cash
and cash equivalents, investments, accounts receivable, bank borrowings and
debt approximates fair market value. Financial instruments that potentially
expose the Company to a concentration of credit risk principally consist of
cash and cash equivalents, investments and accounts receivable.
The Company's customer base is primarily composed of businesses throughout
the United States. The Company performs ongoing credit evaluations of its
customers and maintains reserves for potential losses.
Property and Equipment
Property and equipment are stated at cost and depreciated on a straight-line
basis over their respective estimated useful lives, which are generally three
to five years. Equipment recorded under capital leases and leasehold
improvements are amortized using the straight-line method over the shorter of
the respective lease term or estimated useful life of the asset.
Software Development Costs
The Company capitalizes software development costs incurred to develop
certain of the Company's collaborative systems management services that are
included in the Company's co-location services in accordance with Statement of
Financial Accounting Standards (SFAS) No. 86, Accounting for the Costs of
Computer Software to Be Sold, Leased, or Otherwise Marketed. Costs are
capitalized after technological feasibility is achieved; generally upon the
development of a working model. To date, software development costs
capitalizable under SFAS No. 86 have not been material.
Income Taxes
The Company uses the asset and liability method of accounting for income
taxes. Under this method, deferred tax assets and liabilities are determined
based on the difference between the
F-33
<PAGE>
EXODUS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998 and September 30, 1998 and 1999
(Information as of September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 is unaudited)
financial statement and tax bases of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary to reduce
deferred tax assets to the amounts expected to be recovered.
Stock-Based Compensation
The Company uses the intrinsic value-based method to account for all of its
employee stock-based compensation plans. Expense associated with stock-based
compensation is being amortized consistent with the method described in
Financial Accounting Standards Board (FASB) Interpretation No. 28 over the
vesting period of the individual options.
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company evaluates its long-lived assets, including goodwill and certain
identifiable intangibles, for impairment whenever events or changes in
circumstances indicate that the carrying amount of such assets or intangibles
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 exceed 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.
Unaudited Interim Financial Statements
The accompanying unaudited consolidated interim financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information. In the opinion of management, the accompanying
unaudited consolidated financial statements have been prepared on the same
basis as the audited consolidated financial statements and include all
adjustments, consisting only of normal recurring adjustments, necessary for the
fair presentation of the Company's financial position as of September 30, 1999,
and the results of its operations and its cash flows for the nine-month periods
ended September 30, 1998 and 1999.
Goodwill and Other Intangible Assets
Goodwill and other intangible assets are comprised primarily of amounts
recorded in business acquisitions and are included in intangibles and other
assets on the accompanying consolidated balance sheets. The goodwill and other
intangible amounts related to the acquisitions are being amortized on a
straight-line basis over periods generally ranging from 5 to 10 years (see Note
2).
F-34
<PAGE>
EXODUS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998 and September 30, 1998 and 1999
(Information as of September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 is unaudited)
Net Loss Per Share
Basic and diluted net loss per share has been computed by dividing the net
loss attributable to common stockholders by the weighted-average number of
shares of common stock outstanding during the period. Diluted net loss per
share does not include the effect of the following common equivalent shares as
the effect of their inclusion is antidilutive during each period (in
thousands):
<TABLE>
<CAPTION>
Nine Months
Year Ended December Ended
31, September 30,
---------------------- -------------
1996 1997 1998 1998 1999
------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Shares issuable under stock options... 2,336 13,672 38,288 26,760 51,282
Shares issuable pursuant to warrants
to purchase common and redeemable
convertible preferred stock.......... 5,096 22,504 1,448 2,136 506
Shares of redeemable convertible
preferred stock on an "as if
converted" basis..................... 124,296 272,936 -- -- --
Shares of convertible subordinated
notes on an "as if converted" basis.. -- -- -- -- 21,892
</TABLE>
Comprehensive Loss
There are no differences between consolidated net loss and comprehensive
loss for any period presented.
Reclassifications
Certain prior period amounts have been reclassified to conform to the
current period presentation.
(2) Business Combinations
On October 2, 1998, the Company purchased substantially all of the assets,
including customer agreements, and assumed certain liabilities of Arca
Systems, Inc. ("Arca"), a wholly owned subsidiary of Cyberguard Corporation.
Arca, which has been in business for more than ten years, is a provider of
advanced network and system security consulting services and designs and
develops security technology solutions for complex and sensitive information
systems. Arca operates as a wholly owned subsidiary of the Company. Total
consideration paid, including direct acquisition costs, aggregated
approximately $5,800,000. The acquisition was accounted for as a purchase and
the results of Arca have been included from the acquisition date. The excess
of the purchase price over the fair value of tangible net assets acquired
amounted to approximately $5,000,000 and was attributed primarily to workforce
in place ($2,500,000) and goodwill ($2,400,000). These amounts are generally
being amortized on a straight-line basis over 10 years.
On February 1, 1999, the Company purchased all of the capital stock of
American Information Systems, Inc ("AIS"). AIS provides co-location services
as well as professional services. Total consideration paid, including direct
acquisition costs, aggregated approximately $20,500,000. The acquisition was
accounted for as a purchase with the results of AIS included from the
acquisition
F-35
<PAGE>
EXODUS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998 and September 30, 1998 and 1999
(Information as of September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 is unaudited)
date. The excess of the purchase price over the fair value of tangible net
assets acquired amounted to approximately $18,700,000 and was attributed
primarily to goodwill ($15,000,000), customer lists ($3,200,000) and assembled
workforce ($500,000). These amounts are being amortized on a straight-line
basis over periods ranging from 5 to 7 years.
On July 27, 1999, the Company completed its acquisition of Cohesive
Technology Solutions, Inc. ("Cohesive"). Cohesive offers a variety of services
including network design and development, Internet-based and application
development and information technology strategy and project management.
Pursuant to the terms of the Agreement and Plan of Reorganization, each share
of Cohesive common stock was converted into the right to receive 0.10488 shares
of Exodus common stock and $1.338 in cash; each share of Cohesive Series A
Preferred Stock was converted into the right to receive $122.337 in cash; each
share of Cohesive Series B Preferred Stock was converted into the right to
receive $115.965 in cash; each share of Cohesive Series C Preferred Stock was
converted into the right to receive $5.00 in cash; and each share of Cohesive
Series D Preferred stock, which automatically converted into Cohesive common
stock immediately prior to the merger, was converted into the right to receive
0.10488 shares of Exodus common stock and approximately $6.655 in cash. In
addition, the Company assumed each issued and outstanding option to purchase
shares of Cohesive common stock which was converted into an option to purchase
Exodus common stock using an exchange ratio of 0.14604.
Pursuant to the exchange ratios applied in the acquisition, the Company
issued 1,600,796 shares of Exodus common stock and paid approximately
$50,000,000 in cash and assumed options to purchase a total of 408,712 shares
of Exodus common stock for a total purchase price of approximately
$112,000,000. Of the cash consideration, $10,000,000 was deposited in an escrow
account to secure and collateralize the indemnification obligations of Cohesive
stockholders to Exodus and certain affiliates of Exodus. The acquisition was
accounted for as a purchase with the results of Cohesive included from the
acquisition date. The excess of the purchase price over the fair value of
tangible net assets acquired amounted to approximately $107,900,000 and was
attributed primarily to goodwill ($69,300,000), customer lists ($32,300,000)
and workforce in place ($6,300,000). These amounts are being amortized on a
straight-line basis over periods ranging from 5 to 8 years.
The following summary, prepared on an unaudited pro forma basis, combines
the Company's consolidated results of operations with Arca's, AIS', and
Cohesive's results of operations, as if Arca, AIS, and Cohesive had been
consummated as of January 1, 1997 (in thousands, except per share data):
<TABLE>
<CAPTION>
Year Ended Nine Months Nine Months
December 31, Ended Ended
------------------ September 30, September 30,
1997 1998 1998 1999
-------- -------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues................... $ 41,004 $103,767 $ 69,208 $169,377
Net loss attributable to
common stockholders....... $(24,009) $(86,148) $(62,557) $(81,719)
Basic and diluted net loss
per share................. $ (1.41) $ (0.68) $ (0.54) $ (0.49)
Shares used in pro forma
per share calculation..... 17,028 126,748 115,184 166,068
</TABLE>
The pro forma results are not necessarily indicative of what would have
occurred if the acquisitions had been in effect for the periods presented. In
addition, they are not intended to be a projection of future results and do not
reflect any synergies that might be achieved from combined operations.
F-36
<PAGE>
EXODUS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998 and September 30, 1998 and 1999
(Information as of September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 is unaudited)
(3) Financial Statement Components
Property and Equipment
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------- September 30,
1997 1998 1999
------- ------- -------------
<S> <C> <C> <C>
Data centers and related equipment........... $16,316 $43,959 $150,239
Furniture, fixtures, computer equipment and
other....................................... 12,815 32,887 90,319
Construction in progress..................... -- 8,497 40,576
------- ------- --------
29,131 85,343 281,134
Less accumulated depreciation and
amortization................................ 3,961 17,037 39,954
------- ------- --------
$25,170 $68,306 $241,180
======= ======= ========
</TABLE>
Computer equipment and certain data center infrastructure are recorded under
capital leases that aggregated $4,492,000, $20,236,000, and $54,774,000 as of
December 31, 1997 and 1998, and September 30, 1999, respectively. Accumulated
amortization on the assets recorded under capital leases aggregated $722,000,
$4,426,000, and $12,260,000 as of December 31, 1997 and 1998, and September 30,
1999, respectively.
Accrued Expenses
Accrued expenses consisted of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
------------- September 30,
1997 1998 1999
------ ------ -------------
<S> <C> <C> <C>
Accrued payroll and related expenses............. $1,183 $2,956 $ 8,940
Other............................................ 1,836 3,815 10,817
------ ------ -------
$3,019 $6,771 $19,757
====== ====== =======
</TABLE>
F-37
<PAGE>
EXODUS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998 and September 30, 1998 and 1999
(Information as of September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 is unaudited)
(4) Bank Borrowings and Debt
A summary of equipment loans and line of credit facilities follows (in
thousands):
<TABLE>
<CAPTION>
December 31,
--------------- September 30,
1997 1998 1999
------- ------- -------------
<S> <C> <C> <C>
$1,800,000 equipment line of credit facility;
effective interest rate of 16.4%; principal
and interest due April 2000 through
September 2000; collateralized by
equipment................................... $ 1,393 $ 981 $ 583
$3,000,000 equipment line of credit
facility--April 1997; effective interest
rate of 12.9%; principal and interest due
monthly through July 2001; collateralized by
equipment................................... 2,756 2,080 1,448
$6,500,000 equipment line of credit facility;
effective interest rate of 15.9%; principal
and interest due monthly through July 2001;
collateralized by equipment................. 6,312 4,842 3,523
$3,000,000 equipment line of credit
facility--August 1997; effective interest
rate of 16.2%; principal and interest due
monthly through May 2001; collateralized by
equipment................................... 2,787 2,192 1,617
$5,000,000 equipment line of credit facility;
effective interest rate of 16.2%; principal
and interest due monthly through September
2001; collateralized by equipment........... 3,044 3,084 2,322
$10,000,000 equipment line of credit
facility; effective interest rate of 13.8%;
principal and interest due monthly through
August 2002; collateralized by equipment.... -- 8,883 7,329
$8,000,000 line of credit facility; interest
rate of 12.8%; principal and interest due
March 1999; collateralized by all of the
Company's assets............................ -- 8,000 --
Other........................................ 178 -- 500
------- ------- ------
16,470 30,062 17,322
Less current portion......................... 3,777 14,367 7,722
------- ------- ------
Equipment loans and line of credit
facilities, less current portion............ $12,693 $15,695 $9,600
======= ======= ======
</TABLE>
As of December 31, 1998, aggregate maturities for outstanding equipment
loans and line of credit facilities, for fiscal 1999, 2000, 2001 and 2002 were
$14,367,000, $7,342,000, $5,943,000 and $2,410,000, respectively.
On July 1, 1998, the Company issued $200,000,000 of 11 1/4% Senior Notes
("Original Senior Notes") due 2008 for aggregate net proceeds of approximately
$193,400,000 (net of discounts to the initial purchasers and offering
expenses). Interest is payable semi annually on January 1 and July 1 of each
year commencing January 1, 1999. As of December 31, 1998 restricted cash
equivalents and investments include approximately $42,400,000 deposited with an
escrow agent that will be used to pay the first four semiannual interest
payments when due. Interest payments of $11,250,000 were made in January and
July 1999. Subject to significant exceptions, the Original Senior Notes
Indenture restricts, among other things, the Company's ability to incur
additional indebtedness and the use of proceeds therefrom, pay dividends, make
certain other restricted payments, incur certain liens to secure indebtedness
or engage in merger transactions.
F-38
<PAGE>
EXODUS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998 and September 30, 1998 and 1999
(Information as of September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 is unaudited)
On March 3, 1999, the Company issued $250,000,000 of 5% Convertible
Subordinated Notes due March 15, 2006 (the "Convertible Notes") for aggregate
net proceeds of approximately $242,100,000 (net of offering expenses). Proceeds
from the sale of the Convertible Notes may be used only for limited purposes.
Proceeds in the amount of $48,500,000 may be used for general corporate
purposes. The remaining $193,600,000 may be used only to finance the purchase
of assets or other businesses to be used in the Company's business.
The Convertible Notes are convertible into the Company's common stock at a
conversion rate of 87.5704 shares per $1,000 principal amount of Convertible
Notes, subject to adjustment in certain events and at each holder's option. The
Convertible Notes will not be subject to redemption prior to March 20, 2001,
and generally will be redeemable on or after that date at the option of the
Company, at the redemption prices set forth in the indenture to the Convertible
Notes ("Convertible Notes Indenture"), subject to certain provisions. In the
event of a Change in Control (as defined in the Convertible Notes Indenture),
each holder of the Convertible Notes has the right, subject to certain
conditions and restrictions, to require the Company to repurchase all or any
part of the holder's Convertible Notes at a repurchase price of 100% of the
principal amount, plus accrued interest of the Convertible Notes being
repurchased. Interest on the Convertible Notes is payable on March 15 and
September 15 of each year, commencing on September 15, 1999. Accordingly, the
Company made its first interest payment in the amount of approximately
$6,700,000 on September 15, 1999. The Convertible Notes are unsecured
obligations of the Company and are subordinated to all existing and future
Senior Indebtedness (as defined in the Convertible Notes Indenture) and
effectively subordinated to all indebtedness and other liabilities of the
Company's subsidiaries.
On June 22, 1999, the Company issued an additional $75,000,000 of Senior
Notes due 2008 ("Additional Senior Notes") at 100.50% plus accrued interest, if
any, from June 22, 1999, for aggregate net proceeds of approximately
$73,200,000 (net of offering expenses). The Company issued the Additional
Senior Notes under the Indenture dated July 1, 1998 under which it previously
issued the Original Senior Notes discussed above. The Additional Senior Notes
will be subject to substantially the same terms and conditions as the Original
Senior Notes. Interest is payable semi-annually on January 1 and July 1 of each
year commencing July 1, 1999. Concurrent with the closing of the offering, the
Company deposited approximately $8,400,000 with an escrow agent that would be
sufficient to pay when due the first three interest payments. An interest
payment of approximately $211,000 was made on July 1, 1999 representing
interest from June 22, 1999 to July 1, 1999.
On July 22, 1999, the Company amended its revolving line of credit agreement
with a financial institution, increasing the total commitment amount from
$7,000,000 to $10,000,000. Pursuant to the terms of the new amendment, the line
of credit can be used for working capital requirements, foreign exchange
forward contracts, and letters of credit. The amount available for working
capital borrowings is limited to $4,000,000. In addition, total foreign
exchange contracts at any one time cannot exceed ten times the amount of the
foreign exchange sublimit, which is a maximum of $1,000,000. The line of credit
will expire in July 2000 and is subject to certain covenants.
(5) Redeemable Convertible Preferred Stock and Stockholders' (Deficit) Equity
Redeemable Convertible Preferred Stock and Warrants
In February and March 1996, the Company issued 7,798,483 shares of Series A
redeemable convertible preferred stock at $0.413 per share. In October 1996,
the Company issued 7,738,095 shares of Series B
F-39
<PAGE>
EXODUS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998 and September 30, 1998 and 1999
(Information as of September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 is unaudited)
redeemable convertible preferred stock at $0.84 per share. In March and June
1997, the Company received a total of approximately $3,975,000 in cash in
exchange for bridge financing convertible promissory notes. In June 1997, the
Company issued 15,789,868 shares of Series C redeemable convertible preferred
stock for $1.362 per share in exchange for approximately $17,500,000 in cash
and the conversion of the bridge financing notes. In December 1997, the Company
issued 2,631,579 shares of Series D redeemable convertible preferred stock at
$2.85 per share for aggregate cash proceeds of $7,500,000.
In 1996, in connection with various financing arrangements, the Company
issued warrants to purchase an aggregate of 137,256 shares of the Company's
common stock at prices ranging from $0.30 to $0.34 per share. Also in 1996, in
connection with various lease agreements and other matters, the Company issued
warrants to purchase 329,167 shares of the Company's Series B1 redeemable
convertible preferred stock at $0.84 per share.
In March and June 1997, in connection with the bridge financing convertible
promissory notes discussed above, the Company issued warrants to purchase
198,697 shares of the Company's Series B redeemable convertible preferred stock
at $0.84 per share. In April 1997, in connection with the $3,000,000 equipment
line of credit, the Company issued warrants to purchase 196,429 shares of the
Company's Series B1 redeemable convertible preferred stock at $0.84 per share.
In June 1997, in connection with the issuance of the Company's Series C
redeemable convertible preferred stock, the Company issued warrants to purchase
1,579,011 shares of the Company's Series C redeemable convertible preferred
stock at $1.362 per share. In August and September 1997, in connection with the
$3,000,000 and the $6,500,000 equipment lines of credit, the Company issued
warrants to purchase a total of 271,598 shares of the Company's Series C1
redeemable convertible preferred stock at $1.362 per share. In December 1997,
in connection with the $8,000,000 line of credit facility and the $5,000,000
equipment line of credit, the Company issued warrants to purchase 247,826 and
125,000 shares, respectively, of the Company's Series D1 redeemable convertible
preferred stock at $2.85 per share.
In March 1998, in connection with a strategic alliance, the Company issued
warrants to purchase an aggregate of 480,000 shares of the Company's common
stock at a price of $1.88 per share.
The fair value of all warrant issuances, calculated using the Black-Scholes
option pricing model, with the following assumptions: dividends--none; expected
life--contractual term; risk-free interest rates of 5.7% to 6.7%; volatility--
60%, was not material except as follows:
. The 1,579,011 warrants issued in connection with the sale of the Series C
redeemable convertible preferred stock for which the fair value was
determined to be $1,200,000. This amount was recorded as a reduction in
the carrying value of the Series C redeemable convertible preferred stock
and recorded as the carrying value of the Series C warrants.
. The 247,826 and 125,000 warrants issued in connection with the $8,000,000
line of credit facility and $5,000,000 equipment line of credit,
respectively, for which the values were determined to be $530,000 and
$200,000, respectively. These amounts are being amortized on a straight-
line basis through the commitment periods of the credit facilities.
. The 480,000 warrants issued in connection with the strategic alliance for
which the value was determined to be $525,000. This amount was recorded
as marketing and sales expense in the accompanying consolidated statement
of operations for the year ended December 31, 1998.
F-40
<PAGE>
EXODUS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998 and September 30, 1998 and 1999
(Information as of September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 is unaudited)
Redeemable convertible preferred stock and related warrants issued and
outstanding as of December 31, 1997 was as follows:
<TABLE>
<CAPTION>
Redeemable convertible
preferred stock Warrants
----------------------- ----------------------
Shares Issued and Carrying Issued and Carrying
Series Designated Outstanding Value Outstanding Value
------ ---------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
A................. 7,798,483 7,798,483 $ 3,168,000 -- $ --
A1................ 7,798,483 -- -- -- --
B................. 8,600,000 7,775,930 6,473,000 160,862 --
B1................ 8,600,000 65,524 55,000 466,072 --
C................. 17,850,000 15,845,855 20,333,000 1,523,024 1,242,000
C1................ 17,850,000 -- -- 271,598 --
D................. 3,231,579 2,631,579 7,246,000 -- --
D1................ 3,231,579 -- -- 372,826 730,000
---------- ---------- ----------- --------- ----------
74,960,124 34,117,371 $37,275,000 2,794,382 $1,972,000
========== ========== =========== ========= ==========
</TABLE>
As of December 31, 1997 and 1998, the Company has 149,304 and 1,448,680
warrants to purchase common stock outstanding, respectively.
Initial Public Offering
On March 24, 1998, the Company completed its initial public offering ("IPO")
of 41,000,000 shares of its common stock. Net proceeds to the Company, after
deducting underwriting discounts and commissions and offering expenses,
aggregated approximately $69,800,000. At the closing of the IPO, all redeemable
convertible preferred stock was converted to common stock and all warrants to
purchase redeemable convertible preferred stock were converted to warrants to
purchase common stock on a one-for-three basis. In connection with the IPO,
certain warrant holders exercised their warrants to purchase redeemable
convertible preferred stock (which converted into common stock), which resulted
in additional proceeds of $1,842,000.
Stock Purchase and Stock Option Plans
During 1995, the Company adopted a Stock Purchase Plan under which 2,933,336
shares of common stock were authorized. Awards totaling 858,944 shares of
common stock were granted to individuals through 1996, at a price of $0.03 per
share, the estimated fair market value of the shares on the date of the award.
No awards were granted during the years ended December 31, 1997 and 1998.
Generally, the shares are subject to a 50-month vesting period. As of December
31, 1998, 34,408 shares remained unvested. Unvested shares are subject to
repurchase, at the Company's option, at the original purchase price upon a
participant's termination. Of the shares granted, 370,408 had been repurchased
by the Company as of December 31, 1998.
In January 1998, the Company adopted the 1998 Employee Stock Purchase Plan
(the "Purchase Plan") and reserved a total of 4,800,000 shares of the Company's
common stock for issuance thereunder. The Purchase Plan permits eligible
employees to purchase common stock through payroll deductions at a purchase
price of 85% of the lower of the fair market value of the common stock on the
first day of the offering period or on the last day of the purchase period.
During 1998, 436,528 shares were issued under the Purchase Plan at a weighted-
average purchase price of $1.67 per share.
F-41
<PAGE>
EXODUS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998 and September 30, 1998 and 1999
(Information as of September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 is unaudited)
In January 1997, the Company adopted the 1997 Equity Incentive Plan (the
"1997 Plan"), which served as the successor to the Company's 1995 Stock Option
Plan (the "1995 Plan"). Options granted under the 1995 Plan before its
termination continue to remain outstanding in accordance with their terms, but
no further options may be granted under the 1995 Plan. Options granted under
the 1995 Plan were granted with exercise prices not less than fair market value
at the date of grant as determined by the Board of Directors, generally vested
12% after 6 months from the date of grant and 2% per month thereafter, and
generally are exercisable for a term of 10 years after the date of grant. Under
the 1997 Plan, the Company reserved 17,600,000 shares of its common stock for
issuance to employees and consultants to be granted as either incentive or
nonqualified stock options. Options granted under the 1997 Plan generally vest
12% after 6 months from the date of grant and 2% per month thereafter and are
generally exercisable for a term of 10 years after the date of grant.
In January 1998, the Company adopted the 1998 Equity Incentive Plan (the
"1998 Plan"). On the effective date of the Company's IPO, the 1998 Plan became
effective as the successor to the 1997 Plan. The Company has reserved
12,000,000 shares of common stock for issuance under the 1998 Plan in addition
to the shares that remain from the 1997 Plan. The 1998 Plan permits the grant
of either incentive or nonqualified stock options. Options granted under the
1998 Plan will have a maximum term of 10 years and generally will vest over 50
months. The 1998 Plan will terminate in January 2008.
On June 2, 1999, the Company's stockholders approved an amendment to the
Company's 1998 Equity Incentive Plan to increase the number of shares of common
stock reserved for issuance thereunder by 8,000,000 shares, from 12,000,000
shares to 20,000,000 shares.
In January 1998, the Company adopted the 1998 Directors Stock Option Plan
(the "Directors Plan") and reserved a total of 1,600,000 shares of the
Company's common stock for issuance thereunder. Each nonemployee director who
is or becomes a member of the Board of Directors on or after the effective date
of the Company's IPO, with certain limited exceptions, will initially be
granted an option for 40,000 shares of the Company's common stock and,
thereafter, an option to purchase an additional 10,000 shares of the Company's
common stock annually. Initial options granted under the Directors Plan will
vest as to 33 1/3% of the shares on each annual anniversary of the date of
grant. Annual grants will vest 25% on each annual anniversary of the date of
grant. The exercise price of the options granted under the Directors Plan will
be at the fair market value of the Company's common stock on the date of grant.
In January 1998, the Company granted stock options to purchase 2,666,672
shares of common stock to an officer of the Company, of which half have an
exercise price of $1.13 per share and vest 100% after 3 years and half have an
exercise price of $2.25 per share and vest 100% after 5 years. The stock
options accelerate and become fully vested if the Company is acquired or sells
all or substantially all of its assets.
In March 1998, the Company granted a stock option to an officer of the
Company to purchase 5,775,848 shares of common stock with an exercise price of
$1.13 per share (fair market value on the date of grant) that vests as to 12%
of such shares in September 1998 and vests as to an additional 2% per month
thereafter.
In January 1999, the Company adopted the 1999 Stock Option Plan ("the 1999
Plan"). Under the 1999 Plan, the Company has reserved 16,000,000 shares of
common stock for issuance to employees, and consultants, and to be used for
acquisitions, to be granted as nonqualified stock options. Options granted
under the 1999 Plan generally will vest over 50 months and are generally
exercisable for a term of 10 years from the date of grant.
F-42
<PAGE>
EXODUS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998 and September 30, 1998 and 1999
(Information as of September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 is unaudited)
Fair Value Disclosures
The Company uses the intrinsic value method in accounting for its employee
stock-based compensation plans. Accordingly, no compensation cost has been
recognized for any of its stock options because the exercise price of each
option equaled or exceeded the fair value of the underlying common stock as of
the grant date for each stock option, except for stock options granted by the
Company from March 1997 through December 1997. With respect to the stock
options granted by the Company from March to December 1997, the Company
recorded deferred stock compensation of $3,482,000 for the difference at the
grant date between the exercise price and the fair value of the common stock
underlying the options. This amount is being amortized consistent with the
method described in FASB Interpretation No. 28 over the vesting period of the
individual options, generally 50 months. Had compensation cost been determined
in accordance with SFAS No. 123 for all of the Company's stock-based
compensation plans, net loss attributable to common stockholders and net loss
per share would have been changed to the amounts indicated below (in thousands,
except per share data):
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1996 1997 1998
------- -------- --------
<S> <C> <C> <C>
Net loss applicable to common stockholders:
As reported.................................. $(4,133) $(26,711) $(68,456)
Pro forma.................................... $(4,133) $(26,711) $(76,134)
Basic and diluted net loss per share:
As reported.................................. $ (0.27) $ (1.73) $ (0.55)
Pro forma.................................... $ (0.27) $ (1.73) $ (0.61)
</TABLE>
The fair value of each stock option is estimated on the date of grant using
the minimum value method prior to the IPO and the Black-Scholes option pricing
model after the IPO, with no expected dividends and the following weighted-
average assumptions:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Expected life............................... 2.55 years 2.59 years 3.09 years
Risk-free interest rate..................... 6.28% 5.81% 4.98%
Volatility.................................. -- -- 80.00%
</TABLE>
The fair value of purchase rights granted under the Purchase Plan is
estimated on the date of grant using the Black-Scholes option pricing model
with the following weighted-average assumptions for grants in 1998: no expected
dividends, expected volatility of 80%, risk-free interest rate of 5.26%, and
expected life of 1.33 years. The weighted-average fair value of purchase rights
granted under the Purchase Plan during 1998 was $1.25 per share.
F-43
<PAGE>
EXODUS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998 and September 30, 1998 and 1999
(Information as of September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 is unaudited)
A summary of the Company's stock option plans is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------
1996 1997 1998
-------------------- --------------------- ---------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
--------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 1,000,664 $0.03 2,336,264 $0.03 13,674,288 $0.10
Granted................. 1,797,872 0.04 12,894,400 0.11 31,288,808 2.86
Forfeited............... (422,800) 0.03 (846,880) 0.08 (2,311,752) 1.03
Exercised............... (39,472) 0.03 (709,496) 0.04 (4,367,032) 0.33
--------- ---------- ----------
Outstanding at end of
year................... 2,336,264 0.03 13,674,288 0.10 38,284,312 2.27
--------- ---------- ----------
Exercisable at end of
year................... 645,336 0.03 1,791,600 0.06 3,076,720 0.61
========= ========== ==========
Weighted average fair
value of options
granted during the year
at market.............. 1,797,872 0.01 2,666,136 0.01 28,560,800 1.57
Weighted average fair
value of options
granted during the year
at less than market.... -- -- 10,228,264 0.29 61,336 4.24
Weighted average fair
value of options
granted during the year
at greater than
market................. -- -- -- -- 2,666,672 0.53
</TABLE>
The following table summarizes information about stock options outstanding
as of December 31, 1998:
<TABLE>
<CAPTION>
Outstanding Exercisable
-------------------------------- -------------------
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Number of Contractual Exercise Number of Exercise
Range of Exercise Prices Shares Life Price Shares Price
------------------------ ---------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$0.03 to 0.10 8,484,288 8.47 years $0.07 1,992,688 $0.06
$0.47 to 1.13........... 9,360,616 9.13 1.04 826,136 0.91
$1.88 to 3.03........... 9,929,680 9.64 2.67 82,544 2.48
$3.84 to 5.00........... 10,509,728 9.84 4.75 175,352 4.50
---------- ---------
38,284,312 9.31 2.27 3,076,720 0.61
========== =========
</TABLE>
Stockholder Rights Plan
In January 1999, the Company adopted a Stockholder Rights Plan ("the Rights
Plan"). The Rights Plan is designed to protect the long-term value of the
Company for its stockholders during any future unsolicited acquisition
attempt. In connection with the Rights Plan, the Company declared a dividend
of one preferred share purchase right for each share of the Company's common
stock outstanding on February 11, 1999 ("Record Date") and further directed
the issuance of one such right with respect to each share of the Company's
common stock that is issued after the Record Date, except in certain
circumstances.
F-44
<PAGE>
EXODUS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998 and September 30, 1998 and 1999
(Information as of September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 is unaudited)
On June 2, 1999, stockholders approved an amendment to the Company's
Restated Certificate of Incorporation to increase the authorized number of
shares of Common Stock issuable by the Company from 100,000,000 to 300,000,000.
Stock Splits
On April 12, 1999 and August 12, 1999, the Company completed two-for-one
stock splits accomplished in the form of stock dividends. Share and per share
amounts in the accompanying consolidated financial statements reflect both two-
for-one stock splits retroactively.
(6)Commitments and Contingencies
Leases
The Company has entered into a number of operating leases for its
facilities. The leases expire from 1999 through 2010. As of December 31, 1998,
the Company had collateralized letters of credit aggregating $3,238,000 for
these leases. The related funds are included in restricted cash equivalents and
investments on the accompanying consolidated balance sheet. The Company also
leases certain data center infrastructure and equipment under capital leases.
Certain of these capital leases were entered into as sales-leaseback
transactions. No gain or loss was recorded in any such transaction due to the
short holding period from the time the assets were purchased until the time of
the sale-leaseback. Future minimum lease payments as of December 31, 1998 are
as follows (in thousands):
<TABLE>
<CAPTION>
Capital Operating
Year Ending December 31, Leases Leases
------------------------ ------- ---------
<S> <C> <C>
1999.................................................... $ 6,354 $ 9,065
2000.................................................... 6,604 9,726
2001.................................................... 5,920 9,803
2002.................................................... 676 9,325
2003.................................................... -- 9,176
Thereafter.............................................. -- 43,994
------- -------
Total minimum lease payments............................ 19,554 $91,089
=======
Less amount representing imputed interest............... 3,013
-------
Present value of minimum lease payments................. 16,541
Less current portion.................................... 5,140
-------
Capital lease obligations, less current portion......... $11,401
=======
</TABLE>
The Company's rent expense was $248,000, $1,764,000, $5,554,000, $3,376,000
and $11,007,000 for the years ended December 31, 1996, 1997 and 1998, and the
nine months ended September 30, 1998 and 1999, respectively.
F-45
<PAGE>
EXODUS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998 and September 30, 1998 and 1999
(Information as of September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 is unaudited)
Telecommunications Agreements
In September 1997, the Company entered into an agreement to obtain
telecommunications services for a period of 60 months with a minimum commitment
of $230,000 per month. In January 1999, this original agreement was replaced
with a new agreement for a period of 60 months with a minimum commitment of
$1,000,000 per month.
In July 1998, the Company entered into an agreement to obtain
telecommunications services for a period of 36 months with a minimum commitment
of approximately $500,000 per month.
In August 1999 the Company entered into capacity purchase agreements. The
agreements provide for a total potential outlay of approximately $105,000,000
for fiber capacity and related maintenance covering approximately 25 years.
Royalty Agreement
In April 1997, the Company entered into an agreement with a software company
under which the Company licensed certain software for a royalty based on 1% of
the Company's gross revenues. Royalty expenses related to this agreement have
not been significant to date.
In March 1999, this agreement was replaced with a new agreement that
obligates the Company to make certain future payments for the use of the
software license. These payments are not expected to have a material effect on
the consolidated financial statements.
Contingencies
The Company is engaged in certain legal actions arising in the ordinary
course of business. The Company believes that it has adequate legal defenses
and that the ultimate outcome of these actions will not have a material effect
on the Company's financial position and results of operations.
(7) Income Taxes
The following table reconciles the expected corporate federal income tax
expense (benefit) (computed by multiplying the Company's loss before taxes by
34%) to the Company's actual income tax expense (benefit) (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1996 1997 1998
------- ------- --------
<S> <C> <C> <C>
Expected income tax benefit..................... $(1,405) $(8,602) $(22,591)
Permanent differences........................... 2 15 81
Net operating loss not benefited................ 1,403 8,587 22,510
------- ------- --------
Actual income tax expense (benefit)............. $ -- $ -- $ --
======= ======= ========
</TABLE>
F-46
<PAGE>
EXODUS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998 and September 30, 1998 and 1999
(Information as of September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 is unaudited)
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities as of December 31, 1997 and
1998, are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards....................... $ 10,941 $ 34,807
Difference between book and tax depreciation........... -- 2,284
Reserves and accruals.................................. 195 1,234
Research and experimentation credit carryforwards...... 113 548
Deferred compensation.................................. 437 957
Other.................................................. 41 6
-------- --------
Total gross deferred tax assets...................... 11,727 39,836
Less valuation allowance............................... (11,708) (39,836)
-------- --------
19 --
Deferred tax liabilities:
Difference between book and tax depreciation........... (19) --
-------- --------
Net deferred tax assets.............................. $ -- $ --
======== ========
</TABLE>
As of December 31, 1998, the Company has a net operating loss carryforward
for federal and California purposes of $94,087,000 and $48,316,000,
respectively. The difference between the federal and California net operating
loss carryforward is due to the 50% limitation of net operating loss
carryforwards for California purposes. The federal net operating loss
carryforward will expire from 2011 through 2018. The California net operating
loss carryforward will expire from 2001 through 2003.
Gross deferred tax assets as of December 31, 1998 include approximately
$3,430,000 relating to the exercise of stock options, which will be credited to
equity when realized.
The net change in the valuation allowance was an increase of $9,654,000 and
$28,128,000 for the years ended December 31, 1997 and 1998, respectively.
Federal and California tax laws impose significant restrictions on the
utilization of net operating loss carryforwards in the event of a shift in the
ownership of the Company, which constitutes an "ownership change" as defined by
Internal Revenue Code, Section 382. The Company has not determined if an
ownership change, as defined, has occurred. The Company plans to compute exact
limitations upon realization of taxable earnings and associated utilization of
the net operating loss carryforwards.
(8) Segment Information
The Company operates a number of Internet Data Centers throughout the United
States and one in Europe. The Company establishes these Internet Data Centers
using a consistent investment and operating model. As a result, the expected
long term economic characteristics and financial performance are similar. In
particular, each data center provides the same Internet related services to a
similar type of customer who may locate its servers in multiple Internet Data
Centers. As a result, the Company believes these Internet Data Centers
represent one reportable segment under the aggregation criteria of Statement of
Financial Accounting Standards ("SFAS") No. 131, "Disclosures About Segments of
an Enterprise and Related Information." Internet Data Center operations
primarily include services such as server infrastructure support, Internet
connectivity, and managed services.
F-47
<PAGE>
EXODUS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998 and September 30, 1998 and 1999
(Information as of September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 is unaudited)
With the acquisition of Cohesive on July 27, 1999, Management began
reviewing financial information and business performance and allocating
resources based on both Internet Data Center operations and by professional
services, given Cohesive's expertise in networking, Internet-based applications
and technology solutions. As a result, the Company identified professional
services as an additional reportable segment. Professional services primarily
include services such as network design and development, Internet-based and
application development, and information technology strategy.
Financial information for the Company's reportable segments is presented
below:
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
--------------------------- ------------------
1996 1997 1998 1998 1999
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues:
Internet Data Centers.... $ 3,130 $ 12,408 $ 52,256 $ 31,423 $119,082
------- -------- -------- -------- --------
Professional services.... -- -- 482 215 21,104
------- -------- -------- -------- --------
Total revenues......... $ 3,130 $ 12,408 $ 52,738 $ 31,638 $140,186
======= ======== ======== ======== ========
Operating profit (loss):
Internet Data Centers.... * $ (1,243) $ (604) $ (2,859) $ 28,783
Professional services.... * -- (351) 17 1,880
Corporate areas.......... * (23,549) (55,730) (37,095) (82,378)
------- -------- -------- -------- --------
Total operating loss... $(4,094) $(24,792) $(56,685) $(39,937) $(51,715)
======= ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
December 31,
---------------- September 30,
1997 1998 1999
------- -------- -------------
<S> <C> <C> <C>
Total assets:
Internet Data Centers....................... * $ 52,459 $196,404
Professional services....................... * 212 3,011
Corporate assets............................ * 240,615 471,981
------- -------- --------
Total assets.............................. $40,973 $293,286 $671,396
======= ======== ========
</TABLE>
- --------
* Information is not available.
(9) Subsequent Events
On November 23, 1999, the Company closed a merger with Service Metrics, Inc.
("SMI") pursuant to which Service Metrics became its wholly owned subsidiary.
SMI, which was incorporated in May 1998, is a leading provider of Internet
monitoring applications and services that measure the consistency, availability
and performance of web sites. SMI is based in Boulder, Colorado and has
79 employees as of November 1999.
In connection with the merger, the former shareholders and option holders of
SMI common stock received shares and options of Exodus Common Stock at the rate
of approximately 0.252 shares of Exodus common stock for each share of SMI
common stock. The Company issued a total of approximately 6,200,000 shares of
Exodus Common Stock in exchange for all outstanding shares of SMI common stock
and reserved approximately 760,000 shares of Exodus Common Stock for issuance
upon the exercise of SMI options the Company assumed pursuant to the merger
agreement.
F-48
<PAGE>
EXODUS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998 and September 30, 1998 and 1999
(Information as of September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 is unaudited)
SMI's revenues for the period ended December 31, 1998 and the nine months
ended 1998 are not considered material. SMI's revenues for the nine months
ended 1999 were approximately $568,000. SMI's net losses for the period ended
December 31, 1998 and the nine months ended September 30, 1998 and 1999 were
approximately $874,000, $335,000, and $5,496,000, respectively.
In November 1999, the Company agreed to acquire Global Online Japan Co.,
Ltd., an Internet solutions provider based in Tokyo. The transaction is
expected to close by the end of December 1999 and will be accounted for as a
purchase.
(10) Stock Split
On December 14, 1999, the Company completed a two-for-one stock split
accomplished in the form of a stock dividend. Share and per share amounts in
the accompanying consolidated financial statements reflect this two-for-one
stock split retroactively.
F-49
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors of
Cohesive Technology Solutions, Inc.:
We have audited the accompanying consolidated balance sheets of Cohesive
Technology Solutions, Inc. (formerly Cohesive Network Systems, Inc.) and
subsidiaries as of December 31, 1997 and 1998, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1998. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Cohesive Technology Solutions,
Inc. and subsidiaries as of December 31, 1997 and 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1998 in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
April 8, 1999
(April 21, 1999 as to Note 10)
F-50
<PAGE>
COHESIVE TECHNOLOGY SOLUTIONS, INC. AND SUBSIDIARIES
(Formerly Cohesive Network Systems, Inc.)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-----------------------
1997 1998
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 3,217,000 $ 3,580,000
Restricted cash..................................... 5,130,000 --
Short-term investments.............................. 15,784,000 --
Accounts receivable, net of allowance for doubtful
accounts of $250,000 and $962,000 in 1997 and 1998,
respectively....................................... 4,038,000 7,561,000
Income tax receivable............................... -- 1,984,000
Other receivables................................... 109,000 --
Inventory........................................... 393,000 422,000
Prepaid expenses.................................... 294,000 758,000
----------- -----------
Total current assets............................... 28,965,000 14,305,000
Property and equipment, net........................... 1,241,000 2,748,000
Other assets.......................................... 108,000 60,000
Intangibles, net...................................... 5,816,000 26,454,000
----------- -----------
Total.............................................. $36,130,000 $43,567,000
=========== ===========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY
Current liabilities:
Revolving lines of credit........................... $ 515,000 $ 6,997,000
Accounts payable.................................... 1,058,000 2,316,000
Amounts due under acquisition agreements............ 3,815,000 6,896,000
Accrued payroll and related expenses................ 1,026,000 2,224,000
Other accrued liabilities........................... 495,000 1,047,000
Income taxes payable................................ 2,125,000 --
Deferred revenue.................................... 719,000 276,000
Deferred gain....................................... 1,050,000 --
Current portion of long-term obligations (Note 2)... -- 440,000
----------- -----------
Total current liabilities.......................... 10,803,000 20,196,000
Long-term obligations (Note 2)........................ -- 349,000
----------- -----------
Total liabilities.................................. 10,803,000 20,545,000
----------- -----------
Commitments and contingencies (Notes 3 and 9)......... -- --
Redeemable preferred stock:
Preferred stock, $1.00 par value; 196,800 shares
authorized: Series A, 120,000 shares designated;
shares outstanding: 60,570 in 1997 and 1998........ 6,743,000 7,166,000
Series B, 76,800 shares designated; shares
outstanding: 28,800 in 1997 and 1998............... 3,000,000 3,202,000
Convertible Series D preferred stock, $1.00 par
value, none in 1997, 900,000 shares authorized,
designated and outstanding in 1998................. -- 7,906,000
Total redeemable preferred stock................... 9,743,000 18,274,000
Stockholders' equity:
Convertible Series C preferred stock, $1.00 par
value, 800,000 shares authorized, designated and
outstanding in 1997 and 1998....................... 4,000,000 4,000,000
Common stock $0.01 par value per share; 21,000,000
shares authorized; shares outstanding: 13,519,919
in 1997 and 13,902,769 in 1998..................... 135,000 139,000
Additional paid-in capital.......................... 3,169,000 3,364,000
Retained earnings (accumulated deficit)............. 8,280,000 (2,755,000)
----------- -----------
Total stockholders' equity......................... 15,584,000 4,748,000
----------- -----------
Total liabilities, redeemable preferred stock and
stockholders' equity.............................. $36,130,000 $43,567,000
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-51
<PAGE>
COHESIVE TECHNOLOGY SOLUTIONS, INC. AND SUBSIDIARIES
(Formerly Cohesive Network Systems, Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------
1996 1997 1998
----------- ------------ ------------
<S> <C> <C> <C>
Revenues:
Service revenues.................... $ 3,494,000 $ 8,463,000 $ 26,328,000
Product revenues.................... 9,298,000 11,957,000 15,380,000
----------- ------------ ------------
Total revenues.................... 12,792,000 20,420,000 41,708,000
Costs of revenues:
Costs of service revenues........... 2,292,000 5,489,000 15,291,000
Costs of product revenues........... 6,693,000 9,577,000 13,033,000
----------- ------------ ------------
Total cost of revenues............ 8,985,000 15,066,000 28,324,000
----------- ------------ ------------
Gross profit...................... 3,807,000 5,354,000 13,384,000
----------- ------------ ------------
Operating expenses:
Sales and marketing................. 2,285,000 5,100,000 5,672,000
General and administrative.......... 4,229,000 6,528,000 10,219,000
Research and development............ 566,000 1,308,000 --
Amortization of intangibles......... 869,000 1,583,000 6,734,000
Acquisition related charges......... 964,000 1,917,000 4,463,000
----------- ------------ ------------
Total operating expenses............ 8,913,000 16,436,000 27,088,000
----------- ------------ ------------
Operating loss.................... (5,106,000) (11,082,000) (13,704,000)
----------- ------------ ------------
Other income (expense):
Gain on divestiture................. -- 37,966,000 --
Interest income, net................ 71,000 579,000 354,000
Other expense, net.................. -- -- (2,000)
----------- ------------ ------------
Total other income................ 71,000 38,545,000 352,000
----------- ------------ ------------
Income (loss) from continuing
operations before income taxes....... (5,035,000) 27,463,000 (13,352,000)
Provision for (benefit from) income
taxes................................ -- 11,450,000 (2,555,000)
----------- ------------ ------------
Income (loss) from continuing
operations........................... (5,035,000) 16,013,000 (10,797,000)
Loss from discontinued operations..... (135,000) (136,000) --
Gain on divestiture of discontinued
operations (Less income taxes of
$1,412,000 in 1997 and $380,000
in 1998)............................. -- 2,523,000 562,000
----------- ------------ ------------
Net income (loss)..................... (5,170,000) 18,400,000 (10,235,000)
Preferred dividends................... (639,000) (827,000) (625,000)
Accretion on preferred stock.......... -- -- (175,000)
----------- ------------ ------------
Net income (loss) applicable to common
stockholders......................... $(5,809,000) $ 17,573,000 $(11,035,000)
=========== ============ ============
</TABLE>
See notes to consolidated financial statements.
F-52
<PAGE>
COHESIVE TECHNOLOGY SOLUTIONS, INC. AND SUBSIDIARIES
(Formerly Cohesive Network Systems, Inc.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1996, 1997 and 1998
<TABLE>
<CAPTION>
Series C Convertible
Preferred Stock Common Stock Additional Retained
-------------------- -------------------- Paid In Earnings
Shares Amount Shares Amount Capital (Deficit) Total
-------------------- ---------- -------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, January 1,
1996................... -- $ -- 10,700,031 $107,000 $ 805,000 $ (3,484,000) $ (2,572,000)
Exercise of options..... 129,850 1,000 12,000 13,000
Preferred dividends..... (639,000) (639,000)
Net loss................ (5,170,000) (5,170,000)
-------- ----------- ---------- -------- ---------- ------------ ------------
Balances, December 31,
1996................... -- -- 10,829,881 108,000 817,000 (9,293,000) (8,368,000)
Exercise of options..... 770,038 8,000 135,000 143,000
Sale of common stock.... 1,920,000 19,000 1,901,000 1,920,000
Issuance of preferred
stock.................. 800,000 4,000,000 4,000,000
Compensatory stock
arrangements (Note 3).. 316,000 316,000
Preferred dividends..... (827,000) (827,000)
Net income.............. 18,400,000 18,400,000
-------- ----------- ---------- -------- ---------- ------------ ------------
Balances, December 31,
1997................... 800,000 4,000,000 13,519,919 135,000 3,169,000 8,280,000 15,584,000
Repurchase of common
stock.................. (250,000) (3,000) (747,000) (750,000)
Exercise of options..... 632,850 7,000 352,000 359,000
Compensatory stock
arrangements (Note 6).. 590,000 590,000
Accretion on preferred
stock.................. (175,000) (175,000)
Preferred dividends..... (625,000) (625,000)
Net loss................ (10,235,000) (10,235,000)
-------- ----------- ---------- -------- ---------- ------------ ------------
Balances, December 31,
1998................... 800,000 $ 4,000,000 13,902,769 $139,000 $3,364,000 $ (2,755,000) $ 4,748,000
======== =========== ========== ======== ========== ============ ============
</TABLE>
See notes to consolidated condensed financial statements.
F-53
<PAGE>
COHESIVE TECHNOLOGY SOLUTIONS, INC. AND SUBSIDIARIES
(Formerly Cohesive Network Systems, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------
1996 1997 1998
----------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................... $(5,170,000) $ 18,400,000 $(10,235,000)
Adjustments to reconcile net income
(loss) to net cash used by operating
activities:
Depreciation and amortization....... 1,033,000 1,893,000 7,034,000
Stock compensation expense.......... -- 281,000 590,000
Loss on disposal of property and
equipment.......................... -- 25,000 598,000
Interest income on restricted cash.. -- (80,000) (44,000)
Gain on divestiture................. -- (37,966,000) --
Results of discontinued operations
and gain on disposal............... 135,000 (2,387,000) (562,000)
Change in assets and liabilities, net
of effect of acquisitions and
divestitures:
Accounts receivable................. (692,000) (190,000) (1,317,000)
Other receivables................... (72,000) (64,000) 125,000
Inventory........................... (267,000) 311,000 (29,000)
Prepaid expenses.................... (166,000) (70,000) (449,000)
Other assets........................ (37,000) 17,000 105,000
Accounts payable.................... (43,000) (334,000) 942,000
Income taxes........................ 100,000 492,000 (4,341,000)
Amounts due under acquisition
agreements......................... 964,000 -- --
Accrued payroll and related
expenses........................... 467,000 424,000 586,000
Accrued liabilities................. 337,000 239,000 (2,159,000)
Other current liabilities........... 177,000 328,000 (452,000)
----------- ------------ ------------
Net cash used by continuing
operating activities............. (3,234,000) (18,681,000) (9,608,000)
Net cash used by discontinued
operations....................... (168,000) (72,000) --
----------- ------------ ------------
Net cash used by operating
activities....................... (3,402,000) (18,753,000) (9,608,000)
----------- ------------ ------------
Cash flows from investing activities:
Sale (purchase) of short-term
investments........................ -- (15,784,000) 15,784,000
Acquisitions, net of cash acquired.. (1,312,000) (4,507,000) (11,928,000)
Repayment of acquisition
obligations, net................... -- -- (3,556,000)
Purchases of property and
equipment.......................... (860,000) (745,000) (1,338,000)
Proceeds from divestitures.......... -- 34,210,000 4,124,000
Proceeds from sale of discontinued
operations......................... -- 4,830,000 942,000
Investing activities of discontinued
operations......................... (344,000) (260,000) --
----------- ------------ ------------
Net cash provided by (used by)
investing activities............. (2,516,000) 17,744,000 4,028,000
----------- ------------ ------------
Cash flows from financing activities:
Proceeds (repayments) on line of
credit, net........................ 110,000 (193,000) 6,482,000
Proceeds from issuance of common
stock.............................. 13,000 2,063,000 211,000
Proceeds from issuance of preferred
stock.............................. 4,420,000 6,880,000 --
Repurchase of common stock.......... -- -- (750,000)
Redemption of preferred stock....... -- (7,003,000) --
Financing activities of discontinued
operations......................... 512,000 226,000 --
----------- ------------ ------------
Net cash provided by financing
activities....................... 5,055,000 1,973,000 5,943,000
----------- ------------ ------------
Net increase (decrease) in cash and
cash equivalents.................... (863,000) 964,000 363,000
Cash and cash equivalents, beginning
of year............................. 3,116,000 2,253,000 3,217,000
----------- ------------ ------------
Cash and cash equivalents, end of
year................................ $ 2,253,000 $ 3,217,000 $ 3,580,000
=========== ============ ============
Non-cash investing and financing
activities:
Purchase of software under deferred
payment arrangement (Note 2)....... $ -- $ -- $ 769,000
Preferred stock issued in
acquisition (Note 3)............... -- -- 7,731,000
Tax benefit on stock option
exercises.......................... -- -- 148,000
Supplemental cash flow information:
Interest paid....................... $ -- $ 107,000 $ 96,000
Income taxes paid................... -- 10,862,000 1,787,000
</TABLE>
See notes to consolidated financial statements.
F-54
<PAGE>
COHESIVE TECHNOLOGY SOLUTIONS, INC. AND SUBSIDIARIES
(Formerly Cohesive Network Systems, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1996, 1997 and 1998
1. Business and Significant Accounting Policies
Business--The Company was incorporated in California in 1993 under the name
Global Internet Access Services, Inc. and reincorporated in Delaware in 1994,
subsequently changing its name to Cohesive Network Systems, Inc. During
September 1998, the Company merged with Business Technologies, Inc. and changed
its name to Cohesive Technology Solutions, Inc. Cohesive Technology Solutions,
Inc. and its wholly-owned subsidiaries (collectively, the "Company") are
primarily in the business of providing information technology related
consulting services to mid-tier customers and divisions of large corporations.
The Company has core competencies in the areas of business consulting,
application development and network integration.
The Company has incurred a net loss of $10,235,000 for the year ended
December 31, 1998. In addition, the Company has a negative working capital of
$5,891,000 and an accumulated deficit of $2,755,000 as of December 31, 1998.
Approximately $3 million of the Company's preferred stock is redeemable in
September 1999 while another $10.4 million is redeemable in January 2000. The
Company believes, to the extent existing resources and anticipated revenues are
insufficient to fund the Company's planned activities, that additional debt or
equity financing will be available from its majority stockholder. This
stockholder has indicated that to the extent that the Company is otherwise
unable to meets it obligation to repay its existing credit line at maturity in
December 1999, it will make an investment in debt or equity securities of the
Company in an amount sufficient to permit the Company to meet such obligation
up to a maximum of $15 million. In addition, the stockholder has agreed, to the
extent that the Company may not have capital legally available for the payment
of redemption amounts otherwise due in January 2000 in respect to preferred
stock held by the stockholder, to extend the redemption date of such preferred
stock until at least May 2000.
Consolidation--The consolidated financial statements include the accounts of
Cohesive Technology Solutions, Inc. and its wholly-owned subsidiaries. All
significant intercompany balances and transactions have been eliminated.
Use of Estimates--The preparation of 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 financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Concentrations of Credit Risk--Financial instruments that potentially
subject the Company to concentrations of credit risk consist of cash
equivalents and accounts receivable. The Company invests its excess cash in
money market accounts and highly liquid government securities. The Company's
accounts receivable are generally derived from sales to customers in the United
States which require information technology and networking services. The
Company maintains reserves for potential credit losses.
Fair Value of Financial Instruments--As of December 31, 1997 and 1998, the
carrying amounts of cash and cash equivalents, accounts receivable and
borrowings under the Company's credit agreements approximate their respective
fair values.
Cash and Cash Equivalents--Cash equivalents are short-term, highly liquid
cash investments with an original maturity of less than 90 days.
F-55
<PAGE>
COHESIVE TECHNOLOGY SOLUTIONS, INC. AND SUBSIDIARIES
(Formerly Cohesive Network Systems, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1996, 1997 and 1998
Restricted Cash--Restricted cash represents cash in escrow related to the
divestiture of the Company's software development group and Internet services
division.
Short-Term Investments--While the Company's practice is to hold securities
to maturity, the Company has classified all securities as available-for-sale
securities, as the sale of such securities may be required prior to maturity to
implement management strategies. The carrying value of securities is adjusted
to fair market value, with unrealized gains and losses, net of deferred taxes,
being excluded from earnings and reported as a separate component of
stockholders' equity. Cost is based on the specific identification method for
purposes of computing realized gains or losses. At December 31, 1997, the
difference between fair value and amortized cost was not significant.
Inventory--Inventory consists primarily of computer hardware held for resale
and spare parts, and is stated at the lower of cost or market. Cost is
determined using the first-in, first-out method.
Property and Equipment--Property and equipment are stated at cost.
Depreciation and amortization are computed using the straight-line method over
the estimated useful lives of the assets, which are generally two to five
years.
Intangibles--Intangibles resulting from the acquisition of technology
service businesses are estimated by management to be primarily associated with
the acquired workforce and technological know-how. As a result of the limited
operating history of the entities acquired, the rapid technological changes
occurring in the industry and the intense competition for qualified engineering
professionals, recorded intangibles are amortized on the straight-line basis
over the estimated periods of benefit, generally two to seven years. At
December 31, 1997 and 1998, accumulated amortization was $2,493,000 and
$9,227,000, respectively.
At each balance sheet date, the Company assesses the value of recorded
intangibles for possible impairment based upon a number of factors, including
turnover of the acquired workforce and the undiscounted value of expected
future operating cash flows in relation to its net investment in each
subsidiary. Since inception, the Company has not recorded any provisions for
possible impairment of intangible assets.
Revenue Recognition--Revenue from services is recognized upon performance.
Revenue from hardware and software sales is recognized upon shipment.
Stock-Based Compensation--The Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."
Income Taxes--Deferred tax liabilities are recognized for future taxable
amounts and deferred tax assets are recognized for future deductions net of a
valuation allowance to reduce net deferred tax assets to amounts that are more
likely than not to be realized.
Reclassifications--Certain prior year amounts have been reclassified to
conform to the current year presentation. Other than the reclassification of
redeemable preferred stock, these reclassifications had no effect on total
stockholders' equity or net income (loss). Redeemable preferred stock has been
reclassified from stockholders' equity to mezzanine equity to comply with SEC
reporting requirements.
F-56
<PAGE>
COHESIVE TECHNOLOGY SOLUTIONS, INC. AND SUBSIDIARIES
(Formerly Cohesive Network Systems, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1996, 1997 and 1998
Recently Issued Accounting Standards--In June 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards (SFAS) No.
130, "Reporting Comprehensive Income," which requires an enterprise to report,
by major components and as a single total, the change in its net assets during
the period from nonowner sources. The Company adopted SFAS No. 130 in 1998. The
Company's comprehensive income is the same as its net income (loss).
In 1998, the AICPA issued a Statement of Position (SOP 98-1), which requires
companies to capitalize the costs incurred to develop and install software for
internal use. The Company adopted SOP 98-1 in 1998. Adoption of this statement
did not impact the Company's financial position, results of operations or cash
flows.
2. Property and Equipment
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
----------------------
1997 1998
---------- ----------
<S> <C> <C>
Computer and office equipment........................ $1,595,000 $2,877,000
Software............................................. 135,000 968,000
Furniture and fixtures............................... 223,000 389,000
Vehicles............................................. 73,000 91,000
Leasehold improvements............................... 52,000 86,000
---------- ----------
2,078,000 4,411,000
Accumulated depreciation and amortization............ (837,000) (1,663,000)
---------- ----------
Property and equipment, net.......................... $1,241,000 $2,748,000
========== ==========
</TABLE>
During 1998, the Company spent approximately $789,000 to purchase, install
and implement new back office systems software. Of this amount, approximately
$440,000 and $349,000 is payable in 1999 and 2000, respectively.
3. Acquisitions and Divestitures
During the years ended December 31, 1996, 1997 and 1998, the Company made
the following acquisitions:
<TABLE>
<CAPTION>
Total
Acquisition Purchase
Company Date Price
------- ----------- -----------
<S> <C> <C>
Forte Computer Services, Inc........................ 4/2/96 $ 2,020,000
The Leftbank Operations, Inc........................ 4/10/97 1,300,000
R&D Networking, Inc................................. 8/28/97 3,600,000
Computer Lanscapes, Inc............................. 12/19/97 4,770,000
Napier Corporation.................................. 1/28/98 3,500,000
I. Consulting Corporation........................... 3/19/98 717,000
Integrated Office Solutions, Inc.................... 7/1/98 6,000,000
Business Technologies, Inc.......................... 9/18/98 16,731,000
-----------
Total............................................. $38,638,000
===========
</TABLE>
F-57
<PAGE>
COHESIVE TECHNOLOGY SOLUTIONS, INC. AND SUBSIDIARIES
(Formerly Cohesive Network Systems, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1996, 1997 and 1998
The total purchase prices above consist of (i) nonrefundable cash payments
due on closing of the acquisition (approximately $18.1 million), (ii) 900,000
shares of Convertible Redeemable Series D preferred stock issued to the former
shareholders of Business Technologies, Inc. (valued at $7.7 million) and
(iii) probable amounts to be paid in cash to the former owners of the acquired
companies upon the attainment of certain performance criteria (the "Cash
Earnouts") (approximately $12.8 million). Of the Cash Earnouts, $9.3 million
were allocated to original purchase price as the performance criteria were
considered probable of occurring as of the acquisition date. The remaining of
Cash Earnouts were contingent upon continued employment and were recorded as
Acquisition Related Charges during the employment periods. As of December 31,
1998, no additional amounts are contingent upon continued employment.
During 1996, 1997 and 1998, the Company recognized Acquisition Related
Charges comprised of the following:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------
1996 1997 1998
-------- ---------- ----------
<S> <C> <C> <C>
Signing and retention bonuses............... $ -- $ 500,000 $1,818,000
Cash earnouts contingent upon continued
employment................................. 964,000 1,417,000 1,696,000
Reorganization expenses (primarily severance
and relocation costs)...................... -- -- 949,000
-------- ---------- ----------
$964,000 $1,917,000 $4,463,000
======== ========== ==========
</TABLE>
As of December 31, 1998, accrued liabilities included $283,000 of unpaid
Acquisition Related Charges that will be paid in 1999.
The acquisitions have been accounted for in accordance with the purchase
method of accounting and the accompanying consolidated financial statements
reflect the purchase price allocated to assets acquired and liabilities assumed
based upon their fair values as of the acquisition date. The $34.5 million
excess of the cash purchase price over the fair value of the net identifiable
assets has been allocated to intangibles. The Company's results of operations
include those of the acquired companies from their respective dates of
acquisition.
On July 25, 1997, the Company sold a portion of its software development
group to an unrelated third party for $40 million. As of December 31, 1997, all
of the proceeds except $4 million were available for operations. The remaining
amount was placed in escrow. During 1998, this entire amount and the related
accrued interest of $124,000 were released from escrow. In connection with this
sale, the vesting of options held by employees of the software development
division were accelerated by one year. This resulted in the Company recognizing
$281,000 in stock compensation expense during fiscal 1997. The Company recorded
a gain of $38 million during 1997 related to this sale.
On November 26, 1997, the Company sold its Internet services division to an
unrelated third party for $6 million. As of December 31, 1997, all of the
proceeds except $1,050,000 were available for operations. The $1,050,000 amount
was placed in escrow at the time of the sale and was recorded as a deferred
gain at December 31, 1997. Of this amount, $942,000 was released to the Company
and recognized as a gain on divestiture during 1998. The remaining $108,000 was
released to the third party purchaser. In connection with
F-58
<PAGE>
COHESIVE TECHNOLOGY SOLUTIONS, INC. AND SUBSIDIARIES
(Formerly Cohesive Network Systems, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1996, 1997 and 1998
this sale, the vesting of options held by employees of the Internet services
division were accelerated by one year. This resulted in the Company recognizing
$35,000 in stock compensation expense during fiscal 1997. The Company recorded
gains of $3.9 million and $0.9 million during 1997 and 1998, respectively,
related to this sale.
The operating results of the Internet services division have been segregated
from continuing operations and reported as discontinued operations in the
accompanying statement of operations. Revenues for the discontinued operations
were $3,721,000 and $3,805,000 for 1996 and 1997, respectively.
4. Lines of Credit
The Company has a revolving line of credit from a bank that provides for
borrowings up to $15 million through December 31, 1999. Borrowings under the
line are secured by substantially all of the Company's assets and bear interest
at varying rates based upon the bank's prime or LIBOR rate on the date of
borrowing. In addition, the line of credit restricts the payment by the Company
of cash dividends or distributions on its common stock. The agreements require,
among other things, that the Company satisfy certain financial covenants. As of
December 31, 1998, the Company was in compliance with such covenants.
As of December 31, 1997, the Company had two revolving lines of credit from
banks, which provided for borrowings up to $1,000,000 each through June 2,
1998, and July 1, 1998. All outstanding amounts were fully paid during 1998 and
the lines of credit were not renewed.
5. Redeemable Preferred Stock
Preferred Stock
Holders of Series A and B preferred stock are entitled to annual dividends
at the rate of $7 per share when and if declared by the Board of Directors.
Such dividends for Series A and B preferred stock shall be cumulative and shall
accrue on each share of preferred stock from the date of original issuance of
such share. Dividends for Series A and B are payable in preference and priority
to convertible Series C and D preferred stock.
In the event of a liquidation, dissolution or winding up of the Company, the
Series A and B preferred stockholders are entitled to a liquidation preference
of $100 per share plus all accrued but unpaid dividends. Upon payment of the
liquidation preference (aggregating $10,368,000 at December 31, 1998), the
remaining proceeds will be allocated to the convertible Series C and Series D
preferred stockholders.
The Company may redeem Series A and B preferred stock at any time.
Redemption is mandatory (1) on January 31, 2000 or (2) in the event of the
closing of a firm underwritten offering meeting certain criteria, if earlier.
The redemption price shall be equal to $100 per share plus all accrued but
unpaid dividends.
The holders of Series A and B preferred stock are not entitled to vote on
any matter to be voted on by the stockholders of the Company, except
liquidation, dissolution, winding up, consolidation or merger of the Company,
or sale of all or substantially all of the Company's assets, requires approval
of two-thirds of the Series A and B preferred stock voting as a single class.
Series A and B preferred stock is not convertible into common stock.
F-59
<PAGE>
COHESIVE TECHNOLOGY SOLUTIONS, INC. AND SUBSIDIARIES
(Formerly Cohesive Network Systems, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1996, 1997 and 1998
Convertible Series D Preferred Stock
Holders of redeemable convertible Series D preferred stock have the right to
require redemption of the Series D shares at a price of $10 per share plus all
declared but unpaid dividends. As of September 18, 1999, 2000 and 2001, the
redemption rights will apply to 300,000, 600,000 and 900,000 Series D shares,
respectively. The redemption rights expire as to all shares that have not been
redeemed as of September 19, 2002. The carrying value of the Series D preferred
stock is being accreted to its redemption price over the redemption period.
In the event of a liquidation, dissolution or winding up of the Company,
Series D preferred stockholders are entitled to a liquidation preference of $10
per share plus any declared and unpaid dividends. Upon payment of the Series D
liquidation preference (aggregating $9 million at December 31, 1998), the
remaining proceeds will be allocated to the preferred Series C, preferred
Series D and common stockholders on an as converted basis.
Each share of Series D preferred stock is convertible into one share of
common stock at the option of the holder, subject to adjustment for certain
dilutive issuances. Conversion of the Series D preferred stock is mandatory in
the event of the closing of a firm underwritten public offering under the
Securities Act of 1993.
The holders of Series D preferred stock are entitled to one vote for each
share of common stock into which the preferred stock is convertible.
6. Stockholders' Equity
Convertible Series C Preferred Stock
Holders of convertible Series C preferred stock are entitled to
noncumulative annual dividends of $0.50 per share, when and if declared, and
are payable in preference to any dividends on Series D preferred stock or
common stock.
In the event of a liquidation, dissolution or winding up of the Company,
Series C preferred stockholders are entitled to a liquidation preference of $5
per share plus any declared and unpaid dividends. Upon payment of the
liquidation preference (aggregating $4,000,000 at December 31, 1998), the
remaining proceeds will be allocated to the Series D preferred stockholders.
Each share of Series C preferred stock is convertible into one share of
common stock at the option of the holder, subject to adjustment for certain
dilutive issuances. Conversion of the Series C preferred stock is mandatory in
the event of the closing of a firm underwritten public offering under the
Securities Act of 1933, at a price of at least $5 per share and at an aggregate
gross offering price of not less than $10,000,000, or upon the consent of the
stockholders holding a majority of the outstanding Series C preferred stock.
The holders of Series C preferred stock are entitled to one vote for each
share of common stock into which the preferred stock is convertible.
Stock Option Plans
The Company has stock option plans (the "Plans") under which officers,
employees, directors and consultants may be granted options to purchase shares
of the Company's common stock. At
F-60
<PAGE>
COHESIVE TECHNOLOGY SOLUTIONS, INC. AND SUBSIDIARIES
(Formerly Cohesive Network Systems, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1996, 1997 and 1998
December 31, 1998, 5,560,000 shares of the Company's common stock have been
reserved for issuance under the Plans. The Plans permit incentive and
nonqualified stock options to be granted at an exercise price not less than the
fair market value on the date of grant with terms of up to ten years. Options
generally vest over a four-year period.
A summary of option activity under the Plans is as follows:
<TABLE>
<CAPTION>
Weighted
Number of Average
Shares Exercise Price
--------- --------------
<S> <C> <C>
Balances, January 1, 1996 (192,675 shares
exercisable at a weighted average price of $0.10).. 1,523,100 $0.12
Granted........................................... 933,500 0.32
Exercised......................................... (129,850) 0.13
Canceled.......................................... (328,925) 0.17
---------
Outstanding, December 31, 1996 (405,750 shares
exercisable at a weighted average price of $0.10) 1,997,825 0.21
Granted........................................... 1,409,850 1.14
Exercised......................................... (770,038) 0.18
Canceled.......................................... (567,637) 0.49
---------
Outstanding, December 31, 1997 (294,625 shares
exercisable at a weighted average price of $0.20).. 2,070,000 0.77
Granted........................................... 2,769,333 2.58
Exercised......................................... (632,850) 0.34
Canceled.......................................... (668,595) 1.82
---------
Outstanding, December 31, 1998...................... 3,537,888 $2.07
=========
</TABLE>
Additional information regarding options outstanding as of December 31, 1998
is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------- --------------------
Weighted
Average
Remaining Weighted Weighted
Contractual Average Average
Number Life Exercise Number Exercise
Range of Exercise Prices Outstanding (Years) Price Exercisable Prices
- ------------------------ ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.10 - $0.11............ 237,500 6.6 $0.10 181,250 $0.10
0.35 - 1.00............ 502,950 7.8 0.55 205,550 0.48
1.75 - 2.00............ 1,242,923 9.0 1.90 136,125 1.77
3.00.................... 1,554,515 9.6 3.00 -- --
--------- -------
$0.10 - $3.00............ 3,537,888 8.9 $2.07 522,925 $0.69
========= =======
</TABLE>
At December 31, 1998, 714,443 shares were available for future grants under
the Plans.
During 1998, in connection with the resignation of certain officers and
employees, the Company accelerated the vesting of options to purchase 244,000
shares of the Company's common stock. The Company recorded an associated
$590,000 charge to compensation expense.
F-61
<PAGE>
COHESIVE TECHNOLOGY SOLUTIONS, INC. AND SUBSIDIARIES
(Formerly Cohesive Network Systems, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1996, 1997 and 1998
Additional Stock Plan Information
As discussed in Note 1, the Company accounts for its stock-based awards to
employees using the intrinsic value method in accordance with Accounting
Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to
Employees," and its related interpretations.
SFAS No. 123, "Accounting for Stock-Based Compensation," requires the
disclosure of pro forma net income (loss) had the Company adopted the fair
value method since the Company's inception. Under SFAS No. 123, the fair value
of stock-based awards to employees is calculated through the use of option
pricing models, even though such models were developed to estimate the fair
value of freely tradable, fully transferable options without vesting
restrictions, which significantly differ from the Company's stock option
awards. These models also require subjective assumptions, including future
stock price volatility and expected time to exercise, which greatly affect the
calculated values.
The Company's calculations were made using the minimum value method with the
following weighted average assumptions: expected life, one year following
vesting; risk free interest rate of 6%; and no dividends during the expected
term. The Company's calculations are based on a multiple award valuation
approach, and forfeitures are recognized as they occur. If the computed minimum
values of the Company's stock-based awards to employees had been amortized to
expense over the vesting period of the awards as specified under SFAS No. 123,
net income (loss) available to common stockholders would have been
$(5,226,000), $18,065,000 and $(10,562,000) in 1996, 1997 and 1998,
respectively. The estimated weighted-average minimum value per option as of the
grant date for the awards granted for the years ended December 31, 1996, 1997
and 1998 were $0.06, $0.24 and $0.47, respectively.
7. Income Taxes
The provision for (benefit from) income taxes on continuing operations
consists of:
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Current:
Federal.............................. $ -- $ 9,124,000 $(2,513,000)
State................................ -- 2,326,000 (42,000)
----------- ----------- -----------
Total current income taxes............. -- 11,450,000 (2,555,000)
Deferred:
Federal.............................. 1,322,000 746,000 786,000
State................................ 125,000 48,000 291,000
----------- ----------- -----------
Total deferred income taxes............ 1,447,000 794,000 1,077,000
Valuation allowance.................... (1,447,000) (794,000) (1,077,000)
----------- ----------- -----------
Provision for (benefit from) income
taxes................................. $ -- $11,450,000 $(2,555,000)
=========== =========== ===========
</TABLE>
F-62
<PAGE>
COHESIVE TECHNOLOGY SOLUTIONS, INC. AND SUBSIDIARIES
(Formerly Cohesive Network Systems, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1996, 1997 and 1998
Deferred income tax assets are comprised of:
<TABLE>
<CAPTION>
December 31,
------------------------
1997 1998
----------- -----------
<S> <C> <C>
Deductible intangibles................................ $ 833,000 $ 1,968,000
Net operating losses.................................. -- 139,000
Deferred gain......................................... 461,000 113,000
Other................................................. 150,000 301,000
----------- -----------
Total................................................. 1,444,000 2,521,000
Valuation allowance................................... (1,444,000) (2,521,000)
----------- -----------
Total net deferred income tax assets.................. $ -- $ --
=========== ===========
</TABLE>
The Company has net operating loss carryforwards of approximately $2.3
million for state income tax purposes, which will expire in 2003. The Company
has deferred tax assets of approximately $1,444,000 and $2,521,000 as of
December 31, 1997 and 1998, respectively, resulting primarily from basis
differences in intangibles and other items. However, because realization of
these benefits depends on the generation of future taxable income, which is
subject to uncertainty, the Company has placed a full valuation allowance
against the deferred tax assets.
The Tax Reform Act of 1986 and California Conformity Act of 1987 impose
substantial restrictions on the utilization of net operating losses in the
event of an "ownership change" as defined in the Internal Revenue Code. Any
such ownership change could significantly limit the Company's ability to
utilize its tax carryforwards.
8. Employee Benefit Plan
The Company has a qualified employee salary savings plan (401(k) plan). The
401(k) plan allows the Company to make discretionary contributions of a certain
percentage of employees' contributions to the 401(k) plan. The Company made no
contributions during 1996 and 1997 and the Company made a $12,000 contribution
during 1998.
9. Commitments and Contingencies
The Company leases its facilities under various operating leases that extend
through February 2003. Rental expense for the Company's facilities was
$356,000, $530,000 and $987,000, for 1996, 1997 and 1998, respectively.
Future minimum operating lease payments at December 31, 1998 are
approximately as follows:
<TABLE>
<CAPTION>
Fiscal Year
-----------
<S> <C>
1999........................................................... $ 802,000
2000........................................................... 595,000
2001........................................................... 428,000
2002........................................................... 67,000
2003........................................................... 10,000
----------
Total minimum lease payments................................... $1,902,000
==========
</TABLE>
F-63
<PAGE>
COHESIVE TECHNOLOGY SOLUTIONS, INC. AND SUBSIDIARIES
(Formerly Cohesive Network Systems, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1996, 1997 and 1998
The Company is party to various litigation arising in the normal course of
its operations. In the opinion of management, the ultimate liability for these
matters, if any, will not have a material adverse effect on the Company's
financial position or results of operations.
10. Subsequent Events
On April 21, 1999, the Company entered into a definitive agreement to be
acquired by Exodus Communications, Inc. (Exodus) for cash and common stock
valued at approximately $100 million. The acquisition is expected to close in
mid-1999, subject to regulatory review and approval. Upon closing of the
acquisition, the Company will exchange all outstanding preferred and common
stock for cash and shares of Exodus common stock at that date.
F-64
<PAGE>
COHESIVE TECHNOLOGY SOLUTIONS, INC. AND SUBSIDIARIES
(Formerly Cohesive Network Systems, Inc.)
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1998* 1999
------------ -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 3,580,000 $ 1,558,000
Accounts receivable, net of allowance for doubtful
accounts of $962,000 and $1,098,000, respectively.... 7,561,000 10,300,000
Income tax receivable................................. 1,984,000 1,953,000
Inventory............................................. 422,000 129,000
Prepaid expenses...................................... 758,000 568,000
----------- -----------
Total current assets................................ 14,305,000 14,508,000
Property and equipment, net............................. 2,748,000 2,790,000
Other assets............................................ 60,000 147,000
Intangibles, net........................................ 26,454,000 22,179,000
----------- -----------
Total assets........................................ $43,567,000 $39,624,000
=========== ===========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Revolving line of credit and current portion of long-
term obligations..................................... $ 7,437,000 $ 9,680,000
Accounts payable...................................... 2,316,000 3,006,000
Amounts due under acquisition agreements.............. 6,896,000 4,371,000
Accruals and other current liabilities................ 3,547,000 4,057,000
----------- -----------
Total current liabilities........................... 20,196,000 21,114,000
Long-term obligations................................... 349,000 141,000
----------- -----------
Total liabilities................................... 20,545,000 21,255,000
----------- -----------
Commitments and contingencies........................... -- --
Redeemable preferred stock.............................. 18,274,000 18,919,000
----------- -----------
Stockholders' equity:
Convertible preferred stock........................... 4,000,000 4,000,000
Common stock.......................................... 139,000 140,000
Additional paid-in capital............................ 3,364,000 3,448,000
Accumulated deficit................................... (2,755,000) (8,138,000)
----------- -----------
Total stockholders' equity (deficit)................ 4,748,000 (550,000)
----------- -----------
Total liabilities, redeemable preferred stock and
stockholders' equity (deficit)..................... $43,567,000 $39,624,000
=========== ===========
</TABLE>
- --------
* Derived from audited consolidated financial statements included elsewhere in
this registration statement.
See notes to consolidated condensed financial statements.
F-65
<PAGE>
COHESIVE TECHNOLOGY SOLUTIONS, INC. AND SUBSIDIARIES
(Formerly Cohesive Network Systems, Inc.)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended June
30,
------------------------
1998 1999
----------- -----------
(Unaudited)
<S> <C> <C>
Revenues:
Service revenues.................................. $10,762,000 $19,124,000
Product revenues.................................. 10,470,000 6,965,000
----------- -----------
Total revenues.................................. 21,232,000 26,089,000
Cost of revenues:
Costs of service revenues......................... 5,879,000 12,583,000
Costs of product revenues......................... 8,927,000 6,031,000
----------- -----------
Total cost of revenues.......................... 14,806,000 18,614,000
----------- -----------
Gross profit........................................ 6,426,000 7,475,000
----------- -----------
Operating expenses:
Sales and marketing............................... 2,712,000 3,064,000
General and administrative........................ 4,307,000 4,349,000
Amortization of intangibles....................... 2,710,000 4,300,000
Acquisition related charges....................... 2,425,000 --
----------- -----------
Total operating expenses........................ 12,154,000 11,713,000
----------- -----------
Operating loss...................................... (5,728,000) (4,238,000)
----------- -----------
Interest income (expense), net...................... 418,000 (495,000)
----------- -----------
Loss before income taxes............................ (5,310,000) (4,733,000)
Benefit from income taxes........................... 413,000 --
----------- -----------
Net loss............................................ (4,897,000) (4,733,000)
Dividends and accretion on redeemable preferred
stock.............................................. (311,000) (645,000)
----------- -----------
Net loss applicable to common stockholders.......... $(5,208,000) $(5,378,000)
=========== ===========
</TABLE>
See notes to consolidated condensed financial statements.
F-66
<PAGE>
COHESIVE TECHNOLOGY SOLUTIONS, INC. AND SUBSIDIARIES
(Formerly Cohesive Network Systems, Inc.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended June
30,
------------------------
1998 1999
----------- -----------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................ $(4,897,000) $(4,733,000)
Adjustments to reconcile net income to net cash used
by operating activities:
Loss on disposal of properties and equipment....... -- 52,000
Depreciation and amortization...................... 3,026,000 4,715,000
Stock compensation expense......................... -- 13,000
Interest income on restricted cash................. (40,000) --
Changes in assets and liabilities, net of effect of
acquisitions:
Accounts receivable............................... (1,992,000) (2,739,000)
Income taxes payable, net......................... (1,857,000) 31,000
Inventory......................................... 116,000 293,000
Prepaid expenses.................................. 7,000 190,000
Other assets...................................... 223,000 (87,000)
Accounts payables................................. 1,734,000 685,000
Amounts due under acquisition agreements.......... 2,138,000 (1,080,000)
Accruals and other current liabilities............ (2,522,000) 510,00
----------- -----------
Net cash used by operating activities............ (4,064,000) (2,150,000)
----------- -----------
Cash flows from investing activities:
Sales of short-term investments.................... 5,346,000 --
Acquisitions, net of cash received................. (1,538,000) --
Repayment of acquisition obligations............... (900,000) (1,470,000)
Purchase of property and equipment................. (975,000) (509,000)
Proceeds from divestitures......................... 2,000,000 --
----------- -----------
Net cash provided by (used for) investing
activities...................................... 3,933,000 (1,979,000)
----------- -----------
Cash flows from financing activities:
Proceeds from line of credit........................ -- 2,900,000
Repayment on line of credit......................... (503,000) (597,000)
Repayments of long-term obligations................. -- (268,000)
Issuance of common stock............................ 132,000 72,000
----------- -----------
Net cash (used for) provided by financing
activities...................................... (371,000) 2,107,000
----------- -----------
Net decrease in cash................................. (502,000) (2,022,000)
Cash and cash equivalents--beginning of period....... 3,217,000 3,580,000
----------- -----------
Cash and cash equivalents--end of period............. $ 2,715,000 $ 1,558,000
=========== ===========
</TABLE>
See notes to consolidated condensed financial statements.
F-67
<PAGE>
COHESIVE TECHNOLOGY SOLUTIONS, INC. AND SUBSIDIARIES
(Formerly Cohesive Network Systems, Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999
(1) Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared by Cohesive Technology Solutions, Inc. (the "Company") and do not
include all of the disclosures normally required by generally accepted
accounting principles. The unaudited financial information has been prepared in
accordance with the Company's customary accounting policies and practices. In
the opinion of management, all adjustments, consisting of normal recurring
adjustments considered necessary for a fair presentation of results of
operations for the periods, have been included. Results of operations for the
interim periods are not necessarily indicative of results for the full year.
(2) Inventory
Inventory consists primarily of computer hardware held for sale and spare
parts, and is stated at the lower of cost or market. Cost is determined using
the first-in, first-out method.
(3) Litigation
The Company is party to various litigation arising in the normal course of
its operations. In the opinion of management, the ultimate liability for these
matters, if any, will not have a material adverse effect on the Company's
financial position or results of operations.
(4) Subsequent Events
On July 27, 1999, the Company was acquired by Exodus Communications, Inc.
("Exodus") for a total purchase price valued at approximately $112,000,000. The
Company's shareholders received 1,600,796 shares of Exodus Common Stock and
approximately $50,000,000 in cash. In addition, option holders of Cohesive
common stock received a total of 408,712 shares of Exodus Common Stock in the
form of Exodus stock options.
F-68
<PAGE>
EXODUS COMMUNICATIONS, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements
are presented for illustrative purposes only and are not necessarily indicative
of the combined results of operations for future periods or the results of
operations that actually would have been realized had Exodus and Cohesive been
a combined company during the specified periods. The unaudited pro forma
combined condensed financial statements, including the related notes, are
qualified in their entirety by reference to, and should be read in conjunction
with, the supplemental consolidated financial statements and related notes
thereto of Exodus and the historical consolidated financial statements and
related notes thereto of Cohesive, included elsewhere in this registration
statement.
The following unaudited pro forma combined condensed financial statements
give effect to the merger between Exodus and Cohesive using the purchase method
of accounting. The pro forma combined condensed financial statements are based
on the audited and unaudited supplemental consolidated financial statements and
related notes of Exodus and the audited and unaudited historical consolidated
financial statements and related notes of Cohesive. The pro forma adjustments
are based on management's estimates of the value of the tangible and intangible
assets acquired. In addition, management is continuing to assess its
integration plans, which may result in further costs.
The pro forma combined condensed statements of operations assume the merger
took place as of January 1, 1998 and combine Exodus' audited supplemental
consolidated statement of operations for the year ended December 31, 1998 and
unaudited supplemental consolidated statement of operations for the nine months
ended September 30, 1999, with Cohesive's audited historical statement of
operations for the year ended December 31, 1998 and unaudited historical
statement of operations for the seven-month period ended July 27, 1999,
respectively.
A pro forma condensed balance sheet as of September 30, 1999 has not been
presented since the merger has already been reflected in such balance sheet.
F-69
<PAGE>
EXODUS COMMUNICATIONS, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31, 1998
-----------------------------------------------
Supplemental Historical Pro forma
------------ ---------- -----------------------
Exodus Cohesive Adjustments Combined
------------ ---------- ----------- --------
<S> <C> <C> <C> <C>
Revenues....................... $ 52,745 $ 41,708 $ $ 94,453
Costs and expenses:
Cost of revenues............. 61,578 28,324 89,902
Marketing and sales.......... 29,034 5,672 34,706
General and administrative... 16,058 10,219 26,277
Product development.......... 3,507 -- 3,507
Amortization of goodwill and
other intangible assets..... 141 6,734 (6,734)(a)
14,549 (a) 14,690
Acquisition related charges.. -- 4,463 4,463
-------- -------- -------- --------
Total costs and expenses... 110,318 55,412 7,815 173,545
-------- -------- -------- --------
Operating loss............. (57,573) (13,704) (7,815) (79,092)
Interest (expense) income ,
net........................... (9,743) 352 (2,510)(b) (11,901)
-------- -------- -------- --------
Loss from continuing
operations before taxes... (67,316) (13,352) (10,325) (90,993)
Income tax benefit............. -- 2,555 2,555
-------- -------- -------- --------
Loss from continuing
operations................ (67,316) (10,797) (10,325) (88,438)
Cumulative dividends and
accretion on redeemable
preferred stock............... (2,014) (800) 800 (c) (2,014)
-------- -------- -------- --------
Loss from continuing
operations attributable to
common stockholders....... $(69,330) $(11,597) $ (9,525) $(90,452)
======== ======== ======== ========
Basic and diluted loss per
share from continuing
operations.................... $ (0.55) $ (0.71)
======== ========
Shares used to compute basic
and diluted loss per share
from continuing operations.... 125,808 1,600 (d) 127,408
======== ======== ========
</TABLE>
See notes to unaudited pro forma combined condensed financial statements.
F-70
<PAGE>
EXODUS COMMUNICATIONS, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1999
----------------------------------------------
Supplemental Historical Pro forma
------------ ---------- ----------------------
Exodus Cohesive Adjustments Combined
------------ ---------- ----------- --------
<S> <C> <C> <C> <C>
Revenues....................... $140,754 $29,191 $ $169,945
Costs and expenses:
Cost of revenues............. 118,827 20,896 139,723
Marketing and sales.......... 42,473 3,594 46,067
General and administrative... 25,548 5,223 30,771
Product development.......... 5,641 -- 5,641
Amortization of goodwill and
other intangible assets..... 4,674 4,994 (4,994)(a)
8,486 (a) 13,160
Restructuring costs.......... 923 -- 923
-------- ------- ------- --------
Total costs and expenses... 198,086 34,707 3,492 236,285
-------- ------- ------- --------
Operating loss............. (57,332) (5,516) (3,492) (66,340)
Interest expense, net........ (20,044) (565) (1,464)(b) (22,073)
-------- ------- ------- --------
Loss from continuing
operations before taxes... (77,376) (6,081) (4,956) (88,413)
Income tax benefit........... -- 450 450
-------- ------- ------- --------
Loss from continuing
operations................ (77,376) (5,631) (4,956) (87,963)
Cumulative dividends and
accretion on redeemable
preferred stock............... -- (738) 738 (c) --
-------- ------- ------- --------
Loss from continuing
operations attributable to
common stockholders....... $(77,376) $(6,369) $(4,218) $(87,963)
======== ======= ======= ========
Basic and diluted loss per
share from continuing
operations.................... $ (0.47) $ (0.52)
======== ========
Shares used to compute basic
and diluted loss per share
from continuing operations.... 165,974 1,600 (d) 167,574
======== ======= ========
</TABLE>
See notes to unaudited pro forma combined condensed financial statements.
F-71
<PAGE>
EXODUS COMMUNICATIONS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
On July 27, 1999, Exodus acquired all of the outstanding capital stock of
Cohesive in exchange for approximately $50 million in cash and 1,600,796 shares
of Exodus common stock. In addition, Exodus issued options to purchase a total
of 408,712 shares of Exodus common stock in exchange for all issued and
outstanding Cohesive options.
Under purchase accounting, the total purchase price was allocated to
Cohesive's assets and liabilities based on their relative fair values. The
amounts and components of the purchase price along with the allocation of the
purchase price to assets acquired were as follows (in thousands):
<TABLE>
<S> <C>
Cash............................................................... $ 46,500
Common stock....................................................... 52,000
Fair value of Cohesive stock options assumed....................... 9,300
Transaction costs.................................................. 3,700
--------
Total purchase price............................................. $111,500
========
Book value of net tangible assets of Cohesive...................... $ 3,500
Workforce in place................................................. 6,300
Customer lists..................................................... 32,300
Goodwill........................................................... 69,400
--------
Net assets acquired.............................................. $111,500
========
</TABLE>
The pro forma combined condensed statements of operations give effect to the
merger as if it had occurred at January 1, 1998. Cohesive's historical
statement of operations data for the nine months ended September 30, 1999
reflects its operating activity for the period January 1, 1999 through July 27,
1999, as Exodus acquired Cohesive on July 27, 1999.
The following adjustments have been reflected in the unaudited pro forma
combined condensed statements of operations:
(a) Adjustment to remove the amortization of historical goodwill and
other intangible assets previously recorded by Cohesive and to record the
amortization of goodwill and intangible assets resulting from the
allocation of the Cohesive purchase price. The pro forma adjustment assumes
goodwill and other intangible assets will be amortized on a straight-line
basis over the following estimated lives:
<TABLE>
<S> <C>
Workforce in place................................................. 5 years
Customer lists..................................................... 7 years
Goodwill........................................................... 8 years
</TABLE>
(b) To eliminate interest income earned by Exodus on cash paid at the
date of the merger assuming a 5% interest rate which approximates the
Company's actual rate of return during the periods presented.
(c) To remove Cohesive's historical cumulative dividends and accretion
on redeemable preferred stock which are settled in cash at the date of the
merger.
(d) To reflect the shares issued as consideration for the merger.
F-72
<PAGE>
EXODUS COMMUNICATIONS, INC.
SUPPLEMENTAL SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Balance at Balance
Beginning at End of
Classification of Year Additions Deductions Year
- -------------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1996....... $-- $ 15 $ -- $ 15
Year ended December 31, 1997....... 15 742 (66) 691
Year ended December 31, 1998....... 691 1,410 (280) 1,821
</TABLE>
S-1
<PAGE>
EXODUS COMMUNICATIONS, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Balance at Balance
Beginning at End of
Classification of Year Additions Deductions Year
- -------------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1996....... $-- $ 15 $ -- $ 15
Year ended December 31, 1997....... 15 742 (66) 691
Year ended December 31, 1998....... 691 1,410 (280) 1,821
</TABLE>
S-2
<PAGE>
$375,000,000
and
(Euro)125,000,000
EXODUS COMMUNICATIONS, INC.
Exchange Offer For All Outstanding
10 3/4% Senior Notes Due 2009
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Officers and Directors
As permitted by Section 145 of the Delaware General Corporation Law, the
Registrant's Certificate of Incorporation includes a provision that eliminates
the personal liability of its directors to the Registrant or its stockholders
for monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith
or that involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the Delaware General Corporation Law or (iv) for any
transaction from which the director derived an improper personal benefit. In
addition, as permitted by Section 145 of the Delaware General Corporation Law,
the Bylaws of the Registrant provide that: (i) the Registrant is required to
indemnify its directors and executive officers to the fullest extent permitted
by the Delaware General Corporation Law; (ii) the Registrant may, in its
discretion, indemnify other officers, employees and agents as set forth in the
Delaware General Corporation Law; (iii) upon receipt of an undertaking to repay
such advances if indemnification is determined to be unavailable, the
Registrant is required to advance expenses, as incurred, to its directors and
executive officers to the fullest extent permitted by the Delaware General
Corporation Law in connection with a proceeding (except if a determination is
reasonably and promptly made by the Board of Directors by a majority vote of a
quorum consisting of directors who were not parties to the proceeding or, in
certain circumstances, by independent legal counsel in a written opinion that
the facts known to the decision-making party demonstrate clearly and
convincingly that such person acted in bad faith or in a manner that such
person did not believe to be in, or not opposed to, the best interests of the
corporation); (iv) the rights conferred in the Bylaws are not exclusive and the
Registrant is authorized to enter into indemnification agreements with its
directors, officers and employees and agents; (v) the Registrant may not
retroactively amend the Bylaw provisions relating to indemnity; and (vi) to the
fullest extent permitted by the Delaware General Corporation Law, a director or
executive officer will be deemed to have acted in good faith and in a manner he
or she reasonably believed to be in, or not opposed to, the best interests of
the Registrant and, with respect to any criminal action or proceeding, to have
had no reasonable cause to believe that his or her conduct was unlawful if his
or her action is based on the records or books of account of the corporation or
on information supplied to him or her by officers of the corporation in the
course of their duties or on the advice of legal counsel for the corporation or
on information or records given or reports made to the corporation by
independent certified public accountants or appraisers or other experts.
The Registrant's policy is to enter into indemnification agreements with
each of its directors and executive officers. The indemnification agreements
provide that directors and executive officers will be indemnified and held
harmless to the fullest possible extent permitted by law including against all
expenses (including attorneys' fees), judgments, fines and settlement amounts
paid or reasonably incurred by them in any action, suit or proceeding,
including any derivative action by or in the right of the Registrant, on
account of their services as directors, officers, employees or agents of the
Registrant or as directors, officers, employees or agents of any other company
or enterprise when they are serving in such capacities at the request of the
Registrant. The Registrant will not be obligated pursuant to the agreements to
indemnify or advance expenses to an indemnified party with respect to
proceedings or claims (i) initiated or brought voluntarily by the indemnified
party and not by way of defense, except with respect to a proceeding to
establish or enforce a right to indemnify under the indemnification agreements
or any other agreement or insurance policy or under the Registrant's
Certificate of Incorporation or Bylaws now or hereafter in effect relating to
indemnification, or authorized by the Board of Directors or as otherwise
required under Delaware statute or law, regardless of whether the indemnified
party is ultimately determined to be entitled to such indemnification, (ii) for
expenses and the payment of profits arising from the purchase and sale by the
indemnified paved and the relative fault of the Registrant and the director or
executive officer. No contribution is allowed to a person found guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act of 1933) from any person who was not found guilty of such
fraudulent misrepresentation.
II-1
<PAGE>
The indemnification agreement requires a director or executive officer to
reimburse the Registrant for all expenses advanced only to the extent it is
ultimately determined that the director or executive officer is not entitled,
under Delaware law, the Bylaws, the indemnification agreement or otherwise, to
be indemnified for such expenses. The form of indemnification agreement
provides that it is not exclusive of any rights a director or executive officer
may have under the Certificate of Incorporation, Bylaws, other agreements, any
majority-in-interest vote of the stockholders or vote of disinterested
directors, Delaware law or otherwise.
The indemnification provision in the Bylaws, and the form of indemnification
agreements entered into between the Registrant and its directors and executive
officers, may be sufficiently broad to permit indemnification of the
Registrant's executive officers and directors for liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act").
As authorized by the Registrant's Bylaws, the Registrant, with approval by
the Board, expects to purchase director and officer liability insurance.
In addition, Mr. Mocarski is indemnified in certain circumstances by Fleet
Financial Group, Inc.
See also the undertakings set out in response to Item 22.
Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:
<TABLE>
<CAPTION>
Document Exhibit Number
-------- --------------
<S> <C>
Registrant's Restated Certificate of Incorporation............... 3.01
Registrant's Bylaws.............................................. 3.03
Form of Indemnification Agreement................................ 10.08
</TABLE>
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
------- -------------
<C> <S>
2.01 Agreement and Plan of Merger between Fouress, Inc. and Registrant
dated April 26, 1995. (Incorporated by reference to Exhibit 2.01 from
the Registrant's Registration Statement on Form S-1 (file No. 333-
44469), as amended, declared effective by the Securities and Exchange
Commission on March 18, 1998 (the "Form S-1").
2.02 Form of Agreement and Plan of Merger by and between Registrant and
Exodus. (Incorporated by reference from Exhibit 2.02 to the Form S-1).
2.03 Agreement and Plan of Reorganization by and among Registrant, Cohesive
Technology Solutions, Inc. and Marley Acquisition Corp. dated April
22, 1999. (Incorporated by reference from Exhibit 2.03 to the
Registrant's Registration Statement on Form S-4 (File No. 333-79655)
declared effective by the SEC on June 28, 1999 (the "June 1999 Form S-
4")).
2.04 Amendment to Agreement and Plan of Reorganization by and among
Registrant, Cohesive Technology Solutions, Inc. and Marley Acquisition
Corp. dated May 28, 1999. (Incorporated by reference from Exhibit 2.04
to the June 1999 Form S-4).
3.01 Registrant's Restated Certificate of Incorporation. (Incorporated by
reference from Exhibit 4.01 to Registrant's Registration Statement on
Form S-8 (file no. 333-83179) filed with the SEC on July 19, 1999 (the
"July 1999 Form S-8")).
3.02 Certificate of Designations specifying the terms of the Series A
Junior Participating Preferred Stock of Registrant, as filed with the
Delaware Secretary of State on January 28, 1999. (Incorporated by
reference from Exhibit 3.02 to Registrant's Registration Statement on
Form 8-A filed with the Commission on January 29, 1999 (the "1999
Form 8-A")).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
------- -------------
<C> <S>
3.03 Registrant's Bylaws. (Incorporated by reference from Exhibit 3.06 to
the Form S-1).
4.01 Form of Specimen Certificate for Registrant's Common Stock.
(Incorporated by reference from Exhibit 4.01 to the Form S-1).
4.02 Form of 11 1/4% Senior Note due 2008 from 1998 Senior Note offering.
(Incorporated by reference from Exhibit 4.02 to Registrant's
Registration Statement on Form S-4 (file No. 333-62413) declared
effective by the SEC on November 9, 1998 (the "November 1998 Form S-
4")).
4.03 Indenture between Exodus Communications, Inc. as Issuer and Chase
Manhattan Bank and Trust Company, National Association, as Trustee
dated July 1, 1998 related to the Registrant's 11 1/4% Senior Notes
due 2008. (Incorporated by reference from Exhibit 10.30 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended June
30, 1998 (the "June 1998 Form 10 Q")).
4.04 Rights Agreement dated January 27, 1999 between Registrant and
BankBoston, N.A., as Rights Agent. (Incorporated by reference from
Exhibit 4.04 to the 1999 Form 8-A).
4.05 Form of Note for Registrant's 5% Convertible Subordinated Notes.
(Incorporated by reference from Exhibit 4.05 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1999
(the "March 1999 Form 10-Q").
4.06 Indenture between Registrant as Issuer and Chase Manhattan Bank and
Trust Company, National Association as Trustee dated March 1, 1999.
(Incorporated by reference from Exhibit 4.06 to the March 1999 Form
10-Q).
4.07 Supplemental Indenture dated June 22, 1999 amending Indenture between
Registrant and Chase Manhattan Bank and Trust Company, National
Association, as Trustee dated July 1, 1998. (Incorporated by reference
from Exhibit 10.66 to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1999 (the "June 1999 Form 10-Q")).
4.08 Form of 11 1/4% Senior Note from 1999 Senior Note offering.
(Incorporated by reference from Exhibit 10.67 to the June 1999 Form
10-Q).
4.09 Form of Note for Registrant's 4 3/4% Convertible Subordinated Notes
due July 15, 2008. (Incorporated by reference to Exhibit 4.04 to the
Registrant's Registration Statement on Form S-3 filed with the SEC on
February 1, 2000 (the "4 3/4% Notes Form S-3")).
4.10 Indenture between Registrant, as Issuer, and Chase Manhattan Bank and
Trust Company, National Association, as Trustee, dated December 1,
1999 related to the Registrant's 4 3/4% Convertible Subordinated Notes
due July 15, 2008. (Incorporated by reference to Exhibit 4.05 to the 4
3/4% Notes Form S-3).
4.11 Form of Note for Registrant's 10 3/4% Senior Dollar Notes due 2009.
4.12 Form of Note for Registrant's 10 3/4% Senior Euro Notes due 2009.
4.13 Indenture between Registrant, as Issuer, and Chase Manhattan Bank and
Trust Company, National Association, as trustee, dated December 1,
1999 related to the Registrant's 10 3/4% Senior Notes due 2009.
5.01 Opinion of Fenwick & West LLP regarding legality of the securities
being registered.
5.02 Opinion of Winthrop, Stimson, Putnam & Roberts regarding legality of
the securities being registered.
10.01 Amended and Restated Investors Rights Agreement, dated as of June 25,
1997 between the Registrant and certain investors, as amended December
15, 1997. (Incorporated by reference from Exhibit 10.01 to the Form S-
1).
10.02 Registrant's 1995 Stock Option Plan and related forms of agreements.
(Incorporated by reference from Exhibit 10.02 to the Form S-1).
10.03 Registrant's 1995 Stock Purchase Plan and related forms of agreements.
(Incorporated by reference from Exhibit 10.03 to the Form S-1).
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
------- -------------
<C> <S>
10.04 Registrant's 1997 Equity Incentive Plan and related forms of
agreements. (Incorporated by reference from Exhibit 10.04 to the Form
S-1).
10.05 Registrant's 1998 Equity Incentive Plan and related forms of
agreements, as amended June 2, 1999. (Incorporated by reference from
Exhibit 4.03 to the July 1999 Form S-8).
10.06 Registrant's 1998 Directors Stock Option Plan and related forms of
agreements. (Incorporated by reference from Exhibit 10.06 to the Form
S-1).
10.07 Registrant's 1998 Employee Stock Purchase Plan. (Incorporated by
reference from Exhibit 10.07 to the Form S-1).
10.08 Form of Indemnification Agreement entered into by Registrant with each
of its directors and executive officers, as amended. (Incorporated by
reference from Exhibit 10.08 to the Form S-1).
10.09 Facility Lease between Washcop Associates Limited Partnership and the
Registrant dated April 18, 1996. (Incorporated by reference from
Exhibit 10.09 to the Form S-1).
10.10 Facility Lease between Cal-Harbor II & III Urban Renewal Associates
and Registrant dated December 30, 1996, as amended April 29, 1997 and
January 27, 1998. (Incorporated by reference from Exhibit 10.10 to the
Form S-1).
10.11 Facility Lease between McCandless-San Tomas N. 2 and Registrant dated
April 18, 1997. (Incorporated by reference from Exhibit 10.11 to the
Form S-1).
10.12 Facility Lease between Sabey Corporation and Registrant dated April
24, 1997. (Incorporated by reference from Exhibit 10.12 to the Form S-
1).
10.13 Facility Lease between The Manufacturers Life Insurance Company and
Registrant dated June 27, 1997. (Incorporated by reference from
Exhibit 10.13 to the Form S-1).
10.14 Facility Lease between JBG/Spring Park Limited Partnership and
Registrant dated June 30, 1997. (Incorporated by reference from
Exhibit 10.14 to the Form S-1).
10.15 [Reserved.]
10.16 Software License and Marketing Agreement between Computer Associates
International, Inc. and the Registrant dated April 1997. (Incorporated
by reference from Exhibit 10.16 to the Form S-1).
10.17 Form of Executive Employment Policy to be entered into between the
Registrant and certain officers. (Incorporated by reference from
Exhibit 10.17 to the Form S-1).
10.18 Equipment Lease Line of Credit between Transamerica Business Credit
Corporation and Registrant dated August 28, 1997. (Incorporated by
reference from Exhibit 10.18 to the Form S-1).
10.19 Loan and Security Agreement between Silicon Valley Bank and Registrant
dated June 14, 1996, as amended on March 25, 1997, June 13, 1997,
November 24, 1997 and December 8, 1997. (Incorporated by reference
from Exhibit 10.19 to the Form S-1).
10.20 Loan and Security Agreement among MMC/GATX Partnership No. 1,
Transamerica Business Credit Corporation and Registrant dated December
31, 1997. (Incorporated by reference from Exhibit 10.20 to the Form S-
1).
10.21 Equipment Lease Line of Credit between Venture Lending & Leasing II,
Inc. and Registrant dated December 23, 1997. (Incorporated by
reference from Exhibit 10.21 to the Form S-1).
10.22 Equipment Lease Line of Credit Commitment ("Commitment Letter")
between Finova Technology Finance, Inc. ("Finova") and Registrant
dated December 17, 1997; Master Lease Agreement ("Master Lease")
between Finova and Registrant dated December 19, 1997; and
Modification to Commitment Letter and Master Lease between Finova and
Registrant dated February 6, 1998. (Incorporated by reference from
Exhibit 10.22 to the Form S-1).
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
------- -------------
<C> <S>
10.23 Sublease Agreement dated January 12, 1998 between Amdahl Corporation
and Registrant. (Incorporated by reference from Exhibit 10.23 to the
Form S-1).
10.24 Nonqualified Stock Option Agreements between Registrant and K.B.
Chandrasekhar dated January 27, 1998. (Incorporated by reference from
Exhibit 10.24 to the Form S-1).
10.25 Form of Nonqualified Stock Option Agreement between Registrant and
Ellen M. Hancock dated March 10, 1998. (Incorporated by reference from
Exhibit 10.25 to the Form S-1).
10.26 Form of Agreement used to sell stock to certain directors and an
officer of the Registrant. (Incorporated by reference from Exhibit
10.26 to the Form S-1).
10.27 Facility Lease between 600 Winter Street, L.L.C. and Registrant, dated
as of December 23, 1997. (Incorporated by reference from Exhibit 10.27
to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1998 (the "March 1998 Form 10-Q"). Certain exhibits to
this agreement have been omitted from this filing and will be
furnished supplementally to the Securities and Exchange Commission
upon request.
10.28 Amendment to Loan and Security Agreement between Silicon Valley Bank
and Registrant dated June 14, 1996. (Incorporated by reference from
Exhibit 10.28 to the March 1998 Form 10-Q).
10.29 First Amendment to Loan and Security Agreement, dated as of February
20, 1998, by and between the Registrant and MMC/GATX Partnership No. 1
and Transamerica Business Credit Corporation. (Incorporated by
reference from Exhibit 10.29 to the amendment on Form 10-Q/A amending
the March 1998 Form 10-Q).
10.30 Exchange and Registration Rights Agreement among Exodus
Communications, Inc., Goldman, Sachs & Co., Donaldson Lufkin &
Jenrette Securities Corporation, BT Alex. Brown Incorporated and
NationsBanc Montgomery Securities LLC dated July 1, 1998.
(Incorporated by reference from Exhibit 10.31 to the June 1998 Form
10-Q).
10.31 Escrow Agreement among Chase Manhattan Bank and Trust Company,
National Association, as escrow agent, Chase Manhattan Bank and Trust
Company, National Association, as trustee, and Exodus Communications,
Inc., dated July 1, 1998. (Incorporated by reference from Exhibit
10.32 to the June 1998 Form 10-Q).
10.32 Purchase Agreement among Exodus Communications, Inc., Goldman, Sachs &
Co., Donaldson Lufkin & Jenrette Securities Corporation, BT Alex.
Brown Incorporated and NationsBanc Montgomery Securities LLC, dated
June 26, 1998. (Incorporated by reference from Exhibit 10.33 to the
June 1998 Form 10-Q).
10.33 Form of Notice of Debt Offering and Waiver of Registration Rights
among the Company and certain holders of stock of the Company.
(Incorporated by reference from Exhibit 10.34 to the June 1998 Form
10-Q).
10.34 Amended and Restated Master Loan and Security Agreement between Exodus
Communications, Inc. and Transamerica Business Credit Corporation
dated June 30, 1998. (Incorporated by reference from Exhibit 10.35 to
the June 1998 Form 10-Q).
10.35 Agreement between Cisco Systems Capital Corporation and Exodus
Communications, Inc., dated June 1, 1998. (Incorporated by reference
from Exhibit 10.36 to the June 1998 Form 10-Q).
10.36* Qwest Communications Private Line Service Agreement Business Services,
between Qwest Communications Corporation and the Registrant, dated as
of July 17, 1998. (Incorporated by reference from Exhibit 10.37 to the
June 1998 Form 10-Q).
10.37 Consent and Second Amendment to the Second Amended and Restated
Investors' Rights Agreement. (Incorporated by reference from Exhibit
10.37 to the November 1998 Form S-4).
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
------- -------------
<C> <S>
10.38 Lease Agreement dated August 31, 1998 between Reynolds Metals
Development Company and Registrant. (Incorporated by reference from
Exhibit 10.38 to the November 1998 Form S-4).
10.39 Building Lease dated September 22, 1998 between Centerpoint Properties
Trust and Registrant. (Incorporated by reference from Exhibit 10.39 to
the November 1998 Form S-4).
10.40 Sublease Agreement dated September 4, 1998 between S3, Incorporated
and Registrant. (Incorporated by reference from Exhibit 10.40 to the
Form S-4).
10.41 Registrant's 1999 Stock Option Plan and related forms of agreements.
(Incorporated by reference to Exhibit 4.04 to Registrant's
Registration Statement on Form S-8 (File No. 333-72525), filed with
the SEC on February 17, 1999 (the "February 1999 Form S-8")).
10.42 Form of Non-Plan Stock Option Agreement for option granted to James J.
McInerney. (Incorporated by reference to Exhibit 4.06 to the February
1999 Form S-8).
10.43 Form of Non-Plan Stock Option Agreement for option granted to Susan R.
Farber. (Incorporated by reference from Exhibit 4.07 to the February
1999 Form S-8).
10.44 Offer Letter dated September 30, 1998 between Registrant and Susan
Farber. (Incorporated by reference from Exhibit 10.44 to Annual Report
on Form 10-K for the year ended December 31, 1998 (the "1998 Form 10-
K")).
10.45 Agreement for Lease dated December 24, 1998 among Helios (Park Royal)
Limited, Lloyds Bank PLC, Exodus Internet Limited, and Registrant.
Certain exhibits to this agreement have been omitted from this filing
and will be furnished supplementally to the Securities and Exchange
Commission upon request. (Incorporated by reference from Exhibit 10.45
to the 1998 Form 10-K).
10.46 First Amendment to Lease Agreement dated January 1999 between Washcop
Associated Limited Partnership and Registrant. (Incorporated by
reference from Exhibit 10.46 to the 1998 Form 10-K).
10.47 First Amendment of Lease dated December 4, 1998 between David A. Sabey
and Sandra L. Sabey and Registrant. (Incorporated by reference from
Exhibit 10.47 to the 1998 Form 10-K).
10.48* Worldcom Data Services (Revenue Plan) effective February 1, 1999
between Worldcom Technologies, Inc. and Registrant. (Incorporated by
reference from Exhibit 10.48 to the March 1999 Form 10-Q).
10.49 Building Lease dated January 29, 1999 between Registrant and G&I
Walsh. (Incorporated by reference from Exhibit 10.49 to the March 1999
Form 10-Q).
10.50 Building Lease dated January 29, 1999 between Registrant and Talus
Corporation. (Incorporated by reference from Exhibit 10.50 to the
March 1999 Form 10-Q).
10.51* Capacity Sales Agreement effective February 23, 1999 between MFS
Cableco (Bermuda) Limited and Registrant. (Incorporated by reference
from Exhibit 10.51 to the March 1999 Form 10-Q).
10.52 Building Lease dated March 26, 1999 between Registrant and Lincoln-
RECP CM-ES OPCO, LLC. (Incorporated by reference from Exhibit 10.52 to
the March 1999 Form 10-Q).
10.53 First Amendment to Lease Agreement dated April 4, 1999 between
Registrant and Amdahl Corporation. (Incorporated by reference from
Exhibit 10.53 to the March 1999 Form 10-Q).
10.54 Purchase Agreement dated February 25, 1999 among Registrant, Goldman,
Sachs & Co., BancBoston Robertson Stephens Inc., BT Alex. Brown
Incorporated, Donaldson, Lufkin & Jenrette Securities Corporation and
Hambrecht & Quist LLC. (Incorporated by reference from Exhibit 10.54
to the March 1999 Form 10-Q).
10.55 Registration Rights Agreement dated March 1, 1999 among Registrant,
Goldman, Sachs & Co., BancBoston Robertson Stephens Inc., BT Alex.
Brown Incorporated, Donaldson, Lufkin & Jenrette Securities
Corporation and Hambrecht & Quist LLC. (Incorporated by reference from
Exhibit 10.55 to the March 1999 Form 10-Q).
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
------- -------------
<C> <S>
10.56* Worldcom Capacity Access Service Agreement effective March 1, 1999
between Worldcom Technologies, Inc. and Registrant. (Incorporated by
reference from Exhibit 10.56 to the March 1999 Form 10-Q).
10.57 Agreement to lease dated June 18, 1999 and associated exhibits between
Helios Limited, Lloyds Bank PLC, Exodus Internet Limited and
Registrant. (Incorporated by reference from Exhibit 10.57 to the June
1999 Form 10-Q).
10.58 Building lease dated June 8, 1999 between Talus and Registrant.
(Incorporated by reference from Exhibit 10.58 to the June 1999 Form
10-Q).
10.59 Building lease dated June 4, 1999 between G&I Walsh and Registrant.
(Incorporated by reference from Exhibit 10.59 to the June 1999 Form
10-Q).
10.60 Building lease dated June 30, 1999 between Cameron Road Corporate
Park, Ltd. and Registrant. (Incorporated by reference from Exhibit
10.60 to the June 1999 Form 10-Q).
10.61 Building lease dated June 7, 1999 between 100 TCD Associates Limited
Partnership and TW Conroy 2 LLC and Registrant. (Incorporated by
reference from Exhibit 10.61 to the June 1999 Form 10-Q).
10.62 Building lease dated April 30, 1999 between Reynolds Metals
Development Company and Registrant. (Incorporated by reference from
Exhibit 10.62 to the June 1999 Form 10-Q).
10.63 Loan modification agreement dated May 6, 1999 between Silicon Valley
Bank and Registrant. (Incorporated by reference from Exhibit 10.63 to
the June 1999 Form 10-Q).
10.64 Purchase agreement dated June 17, 1999 between Goldman, Sachs & Co.
and Registrant. (Incorporated by reference from Exhibit 10.64 to the
June 1999 Form 10-Q).
10.65 Exchange and registration rights agreement dated June 22, 1999 among
Goldman, Sachs & Co. and Registrant. (Incorporated by reference from
Exhibit 10.65 to the June 1999 Form 10-Q).
10.66 [Reserved].
10.67 [Reserved].
10.68 Capacity Purchase Agreement between Exodus and Global Crossing USA,
Inc. dated August 27, 1999. (Incorporated by reference from Exhibit
10.68 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999 (the "September 1999 Form 10-Q")).
10.69 Service Metrics, Inc. 1998 Stock Option Plan. (Incorporated by
reference from Exhibit 4.06 to Registrant's Registration Statement on
Form S-8 (file no. 333-92745) filed with the SEC on December 14,
1999).
10.70 Purchase Agreement among the Registrant and Goldman Sachs & Co.,
Donaldson, Lufkin & Jenrette Securities Corporation and Morgan Stanley
& Co. Incorporated dated December 2, 1999 related to the Registrant's
4 3/4% Convertible Subordinated Notes due July 15, 2008. (Incorporated
by reference from Exhibit 4.06 to the 4 3/4% Notes Form S-3).
10.71 Registration Rights Agreement among the Registrant and Goldman Sachs &
Co., Donaldson, Lufkin & Jenrette Securities Corporation and Morgan
Stanley & Co. Incorporated dated December 1, 1999 related to the
Registrant's 4 3/4% Convertible Subordinated Notes due July 15, 2008.
(Incorporated by reference from Exhibit 4.07 to the 4 3/4% Notes Form
S-3).
10.72 Purchase Agreement among Registrant, Goldman, Sachs & Co., Donaldson,
Lufkin & Jenrette Securities Corporation, BancBoston Robertson
Stephens Inc., PaineWebber Incorporated and Morgan Stanley & Co.
Incorporated dated December 2, 1999 related to the Registrant's 10
3/4% Senior Notes due 2009.
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
------- -------------
<C> <S>
10.73 Exchange and Registration Rights Agreement among Registrant, Goldman,
Sachs & Co., Donaldson, Lufkin & Jenrette Securities Corporation,
BancBoston Robertson Stephens Inc., PaineWebber Incorporated and
Morgan Stanley & Co. Incorporated dated December 1, 1999 related to
the Registrant's 10 3/4% Senior Notes due 2009.
12.01 Statement regarding Computation of Ratios.
21.01 Subsidiaries of the Registrant.
23.01 Consent of Fenwick & West LLP (included in Exhibit 5.01).
23.02 Consent of Winthrop, Stimson, Putnam & Roberts (included in Exhibit
5.02).
23.03 Consent of KPMG LLP, independent auditors.
23.04 Consent of Deloitte & Touche, independent auditors.
24.01 Power of Attorney. (See page II-10).
25.01 Statement of Eligibility of Trustee.
27.01 Financial Data Schedule. (Incorporated by reference from the September
1999 Form 10-Q.)
99.01 Form of Letter of Transmittal for Dollar Notes.
99.02 Form of Letter of Transmittal for Euro Notes.
99.03 Form of Notice of Guaranteed Delivery for Dollar Notes.
99.04 Form of Notice of Guaranteed Delivery for Euro Notes.
</TABLE>
- --------
* Confidential treatment has been granted for certain portions of this
document pursuant to an application for confidential treatment sent to the
Securities and Exchange Commission. Such portions have been redacted and
marked with a triple asterisk. The non-redacted version of this document has
been sent to the Securities and Exchange Commission.
Item 22. Undertakings
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
II-8
<PAGE>
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(d) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(e) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in this registration
statement shall be deemed to be a new registration statement relating to the
securities offered herein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Santa Clara, State of
California, on the 31st day of January, 2000.
Exodus Communications, Inc.
By: /s/ Ellen M. Hancock
-----------------------------------
Ellen M. Hancock
Chief Executive Officer and
President
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Ellen M.
Hancock and Adam W. Wegner, jointly and severally, his or her true and lawful
attorneys-in-fact, each with the power of substitution, for him or her in any
and all capacities, to sign amendments to this Registration Statement on Form
S-4, and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that said attorneys-in-fact, or his or her
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Principal Executive Officer:
/s/ Ellen M. Hancock Chief Executive Officer, January 31 , 2000
____________________________________ President and Director
Ellen M. Hancock
Principal Financial Officer and
Principal Accounting Officer:
/s/ R. Marshall Case Executive Vice President, January 31, 2000
____________________________________ Finance and Chief Financial
R. Marshall Case Officer
Additional Directors:
/s/ K. B. Chandrasekhar Chairman of the Board of January 31, 2000
____________________________________ Directors
K. B. Chandrasekhar
/s/ Frederick W. W. Bolander Director January 31, 2000
____________________________________
Frederick W. W. Bolander
</TABLE>
II-10
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <S> <C>
/s/ Mark Dubovoy Director January 31, 2000
____________________________________
Mark Dubovoy
Director January , 2000
____________________________________
John R. Dougery
/s/ Max D. Hopper Director January 31, 2000
____________________________________
Max D. Hopper
____________________________________ Director January , 2000
Peter A. Howley
/s/ Daniel C. Lynch Director January 31, 2000
____________________________________
Daniel C. Lynch
/s/ Thadeus J. Mocarski Director January 31, 2000
____________________________________
Thadeus J. Mocarski
/s/ Naomi O. Seligman Director January 31, 2000
____________________________________
Naomi O. Seligman
</TABLE>
II-11
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
------- -------------
<C> <S>
2.01 Agreement and Plan of Merger between Fouress, Inc. and Registrant
dated April 26, 1995. (Incorporated by reference to Exhibit 2.01 from
the Registrant's Registration Statement on Form S-1 (file No. 333-
44469), as amended, declared effective by the Securities and Exchange
Commission on March 18, 1998 (the "Form S-1").
2.02 Form of Agreement and Plan of Merger by and between Registrant and
Exodus. (Incorporated by reference from Exhibit 2.02 to the Form S-1).
2.03 Agreement and Plan of Reorganization by and among Registrant, Cohesive
Technology Solutions, Inc. and Marley Acquisition Corp. dated April
22, 1999. (Incorporated by reference from Exhibit 2.03 to the
Registrant's Registration Statement on Form S-4 (File No. 333-79655)
declared effective by the SEC on June 28, 1999 (the "June 1999 Form S-
4")).
2.04 Amendment to Agreement and Plan of Reorganization by and among
Registrant, Cohesive Technology Solutions, Inc. and Marley Acquisition
Corp. dated May 28, 1999. (Incorporated by reference from Exhibit 2.04
to the June 1999 Form S-4).
3.01 Registrant's Restated Certificate of Incorporation. (Incorporated by
reference from Exhibit 4.01 to Registrant's Registration Statement on
Form S-8 (file no. 333-83179) filed with the SEC on July 19, 1999 (the
"July 1999 Form S-8")).
3.02 Certificate of Designations specifying the terms of the Series A
Junior Participating Preferred Stock of Registrant, as filed with the
Delaware Secretary of State on January 28, 1999. (Incorporated by
reference from Exhibit 3.02 to Registrant's Registration Statement on
Form 8-A filed with the Commission on January 29, 1999 (the "1999
Form 8-A")).
3.03 Registrant's Bylaws. (Incorporated by reference from Exhibit 3.06 to
the Form S-1).
4.01 Form of Specimen Certificate for Registrant's Common Stock.
(Incorporated by reference from Exhibit 4.01 to the Form S-1).
4.02 Form of 11 1/4% Senior Note due 2008 from 1998 Senior Note offering.
(Incorporated by reference from Exhibit 4.02 to Registrant's
Registration Statement on Form S-4 (file No. 333-62413) declared
effective by the SEC on November 9, 1998 (the "November 1998 Form S-
4")).
4.03 Indenture between Exodus Communications, Inc. as Issuer and Chase
Manhattan Bank and Trust Company, National Association, as Trustee
dated July 1, 1998 related to the Registrant's 11 1/4% Senior Notes
due 2008. (Incorporated by reference from Exhibit 10.30 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended June
30, 1998 (the "June 1998 Form 10 Q")).
4.04 Rights Agreement dated January 27, 1999 between Registrant and
BankBoston, N.A., as Rights Agent. (Incorporated by reference from
Exhibit 4.04 to the 1999 Form 8-A).
4.05 Form of Note for Registrant's 5% Convertible Subordinated Notes.
(Incorporated by reference from Exhibit 4.05 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1999
(the "March 1999 Form 10-Q").
4.06 Indenture between Registrant as Issuer and Chase Manhattan Bank and
Trust Company, National Association as Trustee dated March 1, 1999.
(Incorporated by reference from Exhibit 4.06 to the March 1999 Form
10-Q).
4.07 Supplemental Indenture dated June 22, 1999 amending Indenture between
Registrant and Chase Manhattan Bank and Trust Company, National
Association, as Trustee dated July 1, 1998. (Incorporated by reference
from Exhibit 10.66 to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1999 (the "June 1999 Form 10-Q")).
4.08 Form of 11 1/4% Senior Note from 1999 Senior Note offering.
(Incorporated by reference from Exhibit 10.67 to the June 1999 Form
10-Q).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
------- -------------
<C> <S>
4.09 Form of Note for Registrant's 4 3/4% Convertible Subordinated Notes
due July 15, 2008. (Incorporated by reference to Exhibit 4.04 to the
Registrant's Registration Statement on Form S-3 filed with the SEC on
February 1, 2000 (the "4 3/4% Notes Form S-3")).
4.10 Indenture between Registrant, as Issuer, and Chase Manhattan Bank and
Trust Company, National Association, as Trustee, dated December 1,
1999 related to the Registrant's 4 3/4% Convertible Subordinated Notes
due July 15, 2008. (Incorporated by reference to Exhibit 4.05 to the 4
3/4% Notes Form S-3).
4.11 Form of Note for Registrant's 10 3/4% Senior Dollar Notes due 2009.
4.12 Form of Note for Registrant's 10 3/4% Senior Euro Notes due 2009.
4.13 Indenture between Registrant, as Issuer, and Chase Manhattan Bank and
Trust Company, National Association, as trustee, dated December 1,
1999 related to the Registrant's 10 3/4% Senior Notes due 2009.
5.01 Opinion of Fenwick & West LLP regarding legality of the securities
being registered.
5.02 Opinion of Winthrop, Stimson, Putnam & Roberts regarding legality of
the securities being registered.
10.01 Amended and Restated Investors Rights Agreement, dated as of June 25,
1997 between the Registrant and certain investors, as amended December
15, 1997. (Incorporated by reference from Exhibit 10.01 to the Form S-
1).
10.02 Registrant's 1995 Stock Option Plan and related forms of agreements.
(Incorporated by reference from Exhibit 10.02 to the Form S-1).
10.03 Registrant's 1995 Stock Purchase Plan and related forms of agreements.
(Incorporated by reference from Exhibit 10.03 to the Form S-1).
10.04 Registrant's 1997 Equity Incentive Plan and related forms of
agreements. (Incorporated by reference from Exhibit 10.04 to the Form
S-1).
10.05 Registrant's 1998 Equity Incentive Plan and related forms of
agreements, as amended June 2, 1999. (Incorporated by reference from
Exhibit 4.03 to the July 1999 Form S-8).
10.06 Registrant's 1998 Directors Stock Option Plan and related forms of
agreements. (Incorporated by reference from Exhibit 10.06 to the Form
S-1).
10.07 Registrant's 1998 Employee Stock Purchase Plan. (Incorporated by
reference from Exhibit 10.07 to the Form S-1).
10.08 Form of Indemnification Agreement entered into by Registrant with each
of its directors and executive officers, as amended. (Incorporated by
reference from Exhibit 10.08 to the Form S-1).
10.09 Facility Lease between Washcop Associates Limited Partnership and the
Registrant dated April 18, 1996. (Incorporated by reference from
Exhibit 10.09 to the Form S-1).
10.10 Facility Lease between Cal-Harbor II & III Urban Renewal Associates
and Registrant dated December 30, 1996, as amended April 29, 1997 and
January 27, 1998. (Incorporated by reference from Exhibit 10.10 to the
Form S-1).
10.11 Facility Lease between McCandless-San Tomas N. 2 and Registrant dated
April 18, 1997. (Incorporated by reference from Exhibit 10.11 to the
Form S-1).
10.12 Facility Lease between Sabey Corporation and Registrant dated April
24, 1997. (Incorporated by reference from Exhibit 10.12 to the Form S-
1).
10.13 Facility Lease between The Manufacturers Life Insurance Company and
Registrant dated June 27, 1997. (Incorporated by reference from
Exhibit 10.13 to the Form S-1).
10.14 Facility Lease between JBG/Spring Park Limited Partnership and
Registrant dated June 30, 1997. (Incorporated by reference from
Exhibit 10.14 to the Form S-1).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
------- -------------
<C> <S>
10.15 [Reserved.]
10.16 Software License and Marketing Agreement between Computer Associates
International, Inc. and the Registrant dated April 1997. (Incorporated
by reference from Exhibit 10.16 to the Form S-1).
10.17 Form of Executive Employment Policy to be entered into between the
Registrant and certain officers. (Incorporated by reference from
Exhibit 10.17 to the Form S-1).
10.18 Equipment Lease Line of Credit between Transamerica Business Credit
Corporation and Registrant dated August 28, 1997. (Incorporated by
reference from Exhibit 10.18 to the Form S-1).
10.19 Loan and Security Agreement between Silicon Valley Bank and Registrant
dated June 14, 1996, as amended on March 25, 1997, June 13, 1997,
November 24, 1997 and December 8, 1997. (Incorporated by reference
from Exhibit 10.19 to the Form S-1).
10.20 Loan and Security Agreement among MMC/GATX Partnership No. 1,
Transamerica Business Credit Corporation and Registrant dated December
31, 1997. (Incorporated by reference from Exhibit 10.20 to the Form S-
1).
10.21 Equipment Lease Line of Credit between Venture Lending & Leasing II,
Inc. and Registrant dated December 23, 1997. (Incorporated by
reference from Exhibit 10.21 to the Form S-1).
10.22 Equipment Lease Line of Credit Commitment ("Commitment Letter")
between Finova Technology Finance, Inc. ("Finova") and Registrant
dated December 17, 1997; Master Lease Agreement ("Master Lease")
between Finova and Registrant dated December 19, 1997; and
Modification to Commitment Letter and Master Lease between Finova and
Registrant dated February 6, 1998. (Incorporated by reference from
Exhibit 10.22 to the Form S-1).
10.23 Sublease Agreement dated January 12, 1998 between Amdahl Corporation
and Registrant. (Incorporated by reference from Exhibit 10.23 to the
Form S-1).
10.24 Nonqualified Stock Option Agreements between Registrant and K.B.
Chandrasekhar dated January 27, 1998. (Incorporated by reference from
Exhibit 10.24 to the Form S-1).
10.25 Form of Nonqualified Stock Option Agreement between Registrant and
Ellen M. Hancock dated March 10, 1998. (Incorporated by reference from
Exhibit 10.25 to the Form S-1).
10.26 Form of Agreement used to sell stock to certain directors and an
officer of the Registrant. (Incorporated by reference from Exhibit
10.26 to the Form S-1).
10.27 Facility Lease between 600 Winter Street, L.L.C. and Registrant, dated
as of December 23, 1997. (Incorporated by reference from Exhibit 10.27
to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1998 (the "March 1998 Form 10-Q"). Certain exhibits to
this agreement have been omitted from this filing and will be
furnished supplementally to the Securities and Exchange Commission
upon request.
10.28 Amendment to Loan and Security Agreement between Silicon Valley Bank
and Registrant dated June 14, 1996. (Incorporated by reference from
Exhibit 10.28 to the March 1998 Form 10-Q).
10.29 First Amendment to Loan and Security Agreement, dated as of February
20, 1998, by and between the Registrant and MMC/GATX Partnership No. 1
and Transamerica Business Credit Corporation. (Incorporated by
reference from Exhibit 10.29 to the amendment on Form 10-Q/A amending
the March 1998 Form 10-Q).
10.30 Exchange and Registration Rights Agreement among Exodus
Communications, Inc., Goldman, Sachs & Co., Donaldson Lufkin &
Jenrette Securities Corporation, BT Alex. Brown Incorporated and
NationsBanc Montgomery Securities LLC dated July 1, 1998.
(Incorporated by reference from Exhibit 10.31 to the June 1998 Form
10-Q).
10.31 Escrow Agreement among Chase Manhattan Bank and Trust Company,
National Association, as escrow agent, Chase Manhattan Bank and Trust
Company, National Association, as trustee, and Exodus Communications,
Inc., dated July 1, 1998. (Incorporated by reference from Exhibit
10.32 to the June 1998 Form 10-Q).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
------- -------------
<C> <S>
10.32 Purchase Agreement among Exodus Communications, Inc., Goldman, Sachs &
Co., Donaldson Lufkin & Jenrette Securities Corporation, BT Alex.
Brown Incorporated and NationsBanc Montgomery Securities LLC, dated
June 26, 1998. (Incorporated by reference from Exhibit 10.33 to the
June 1998 Form 10-Q).
10.33 Form of Notice of Debt Offering and Waiver of Registration Rights
among the Company and certain holders of stock of the Company.
(Incorporated by reference from Exhibit 10.34 to the June 1998 Form
10-Q).
10.34 Amended and Restated Master Loan and Security Agreement between Exodus
Communications, Inc. and Transamerica Business Credit Corporation
dated June 30, 1998. (Incorporated by reference from Exhibit 10.35 to
the June 1998 Form 10-Q).
10.35 Agreement between Cisco Systems Capital Corporation and Exodus
Communications, Inc., dated June 1, 1998. (Incorporated by reference
from Exhibit 10.36 to the June 1998 Form 10-Q).
10.36* Qwest Communications Private Line Service Agreement Business Services,
between Qwest Communications Corporation and the Registrant, dated as
of July 17, 1998. (Incorporated by reference from Exhibit 10.37 to the
June 1998 Form 10-Q).
10.37 Consent and Second Amendment to the Second Amended and Restated
Investors' Rights Agreement. (Incorporated by reference from Exhibit
10.37 to the November 1998 Form S-4).
10.38 Lease Agreement dated August 31, 1998 between Reynolds Metals
Development Company and Registrant. (Incorporated by reference from
Exhibit 10.38 to the November 1998 Form S-4).
10.39 Building Lease dated September 22, 1998 between Centerpoint Properties
Trust and Registrant. (Incorporated by reference from Exhibit 10.39 to
the November 1998 Form S-4).
10.40 Sublease Agreement dated September 4, 1998 between S3, Incorporated
and Registrant. (Incorporated by reference from Exhibit 10.40 to the
Form S-4).
10.41 Registrant's 1999 Stock Option Plan and related forms of agreements.
(Incorporated by reference to Exhibit 4.04 to Registrant's
Registration Statement on Form S-8 (File No. 333-72525), filed with
the SEC on February 17, 1999 (the "February 1999 Form S-8")).
10.42 Form of Non-Plan Stock Option Agreement for option granted to James J.
McInerney. (Incorporated by reference to Exhibit 4.06 to the February
1999 Form S-8).
10.43 Form of Non-Plan Stock Option Agreement for option granted to Susan R.
Farber. (Incorporated by reference from Exhibit 4.07 to the February
1999 Form S-8).
10.44 Offer Letter dated September 30, 1998 between Registrant and Susan
Farber. (Incorporated by reference from Exhibit 10.44 to Annual Report
on Form 10-K for the year ended December 31, 1998 (the "1998 Form 10-
K")).
10.45 Agreement for Lease dated December 24, 1998 among Helios (Park Royal)
Limited, Lloyds Bank PLC, Exodus Internet Limited, and Registrant.
Certain exhibits to this agreement have been omitted from this filing
and will be furnished supplementally to the Securities and Exchange
Commission upon request. (Incorporated by reference from Exhibit 10.45
to the 1998 Form 10-K).
10.46 First Amendment to Lease Agreement dated January 1999 between Washcop
Associated Limited Partnership and Registrant. (Incorporated by
reference from Exhibit 10.46 to the 1998 Form 10-K).
10.47 First Amendment of Lease dated December 4, 1998 between David A. Sabey
and Sandra L. Sabey and Registrant. (Incorporated by reference from
Exhibit 10.47 to the 1998 Form 10-K).
10.48* Worldcom Data Services (Revenue Plan) effective February 1, 1999
between Worldcom Technologies, Inc. and Registrant. (Incorporated by
reference from Exhibit 10.48 to the March 1999 Form 10-Q).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
------- -------------
<C> <S>
10.49 Building Lease dated January 29, 1999 between Registrant and G&I
Walsh. (Incorporated by reference from Exhibit 10.49 to the March 1999
Form 10-Q).
10.50 Building Lease dated January 29, 1999 between Registrant and Talus
Corporation. (Incorporated by reference from Exhibit 10.50 to the
March 1999 Form 10-Q).
10.51* Capacity Sales Agreement effective February 23, 1999 between MFS
Cableco (Bermuda) Limited and Registrant. (Incorporated by reference
from Exhibit 10.51 to the March 1999 Form 10-Q).
10.52 Building Lease dated March 26, 1999 between Registrant and Lincoln-
RECP CM-ES OPCO, LLC. (Incorporated by reference from Exhibit 10.52 to
the March 1999 Form 10-Q).
10.53 First Amendment to Lease Agreement dated April 4, 1999 between
Registrant and Amdahl Corporation. (Incorporated by reference from
Exhibit 10.53 to the March 1999 Form 10-Q).
10.54 Purchase Agreement dated February 25, 1999 among Registrant, Goldman,
Sachs & Co., BancBoston Robertson Stephens Inc., BT Alex. Brown
Incorporated, Donaldson, Lufkin & Jenrette Securities Corporation and
Hambrecht & Quist LLC. (Incorporated by reference from Exhibit 10.54
to the March 1999 Form 10-Q).
10.55 Registration Rights Agreement dated March 1, 1999 among Registrant,
Goldman, Sachs & Co., BancBoston Robertson Stephens Inc., BT Alex.
Brown Incorporated, Donaldson, Lufkin & Jenrette Securities
Corporation and Hambrecht & Quist LLC. (Incorporated by reference from
Exhibit 10.55 to the March 1999 Form 10-Q).
10.56* Worldcom Capacity Access Service Agreement effective March 1, 1999
between Worldcom Technologies, Inc. and Registrant. (Incorporated by
reference from Exhibit 10.56 to the March 1999 Form 10-Q).
10.57 Agreement to lease dated June 18, 1999 and associated exhibits between
Helios Limited, Lloyds Bank PLC, Exodus Internet Limited and
Registrant. (Incorporated by reference from Exhibit 10.57 to the June
1999 Form 10-Q).
10.58 Building lease dated June 8, 1999 between Talus and Registrant.
(Incorporated by reference from Exhibit 10.58 to the June 1999 Form
10-Q).
10.59 Building lease dated June 4, 1999 between G&I Walsh and Registrant.
(Incorporated by reference from Exhibit 10.59 to the June 1999 Form
10-Q).
10.60 Building lease dated June 30, 1999 between Cameron Road Corporate
Park, Ltd. and Registrant. (Incorporated by reference from Exhibit
10.60 to the June 1999 Form 10-Q).
10.61 Building lease dated June 7, 1999 between 100 TCD Associates Limited
Partnership and TW Conroy 2 LLC and Registrant. (Incorporated by
reference from Exhibit 10.61 to the June 1999 Form 10-Q).
10.62 Building lease dated April 30, 1999 between Reynolds Metals
Development Company and Registrant. (Incorporated by reference from
Exhibit 10.62 to the June 1999 Form 10-Q).
10.63 Loan modification agreement dated May 6, 1999 between Silicon Valley
Bank and Registrant. (Incorporated by reference from Exhibit 10.63 to
the June 1999 Form 10-Q).
10.64 Purchase agreement dated June 17, 1999 between Goldman, Sachs & Co.
and Registrant. (Incorporated by reference from Exhibit 10.64 to the
June 1999 Form 10-Q).
10.65 Exchange and registration rights agreement dated June 22, 1999 among
Goldman, Sachs & Co. and Registrant. (Incorporated by reference from
Exhibit 10.65 to the June 1999 Form 10-Q).
10.66 [Reserved].
10.67 [Reserved].
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
------- -------------
<C> <S>
10.68 Capacity Purchase Agreement between Exodus and Global Crossing USA,
Inc. dated August 27, 1999. (Incorporated by reference from Exhibit
10.68 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999 (the "September 1999 Form 10-Q")).
10.69 Service Metrics, Inc. 1998 Stock Option Plan. (Incorporated by
reference from Exhibit 4.06 to Registrant's Registration Statement on
Form S-8 (file no. 333-92745) filed with the SEC on December 14,
1999).
10.70 Purchase Agreement among the Registrant and Goldman Sachs & Co.,
Donaldson, Lufkin & Jenrette Securities Corporation and Morgan Stanley
& Co. Incorporated dated December 2, 1999 related to the Registrant's
4 3/4% Convertible Subordinated Notes due July 15, 2008. (Incorporated
by reference from Exhibit 4.06 to the 4 3/4% Notes Form S-3).
10.71 Registration Rights Agreement among the Registrant and Goldman Sachs &
Co., Donaldson, Lufkin & Jenrette Securities Corporation and Morgan
Stanley & Co. Incorporated dated December 1, 1999 related to the
Registrant's 4 3/4% Convertible Subordinated Notes due July 15, 2008.
(Incorporated by reference from Exhibit 4.07 to the 4 3/4% Notes Form
S-3).
10.72 Purchase Agreement among Registrant, Goldman, Sachs & Co., Donaldson,
Lufkin & Jenrette Securities Corporation, BancBoston Robertson
Stephens Inc., PaineWebber Incorporated and Morgan Stanley & Co.
Incorporated dated December 2, 1999 related to the Registrant's 10
3/4% Senior Notes due 2009.
10.73 Exchange and Registration Rights Agreement among Registrant, Goldman,
Sachs & Co., Donaldson, Lufkin & Jenrette Securities Corporation,
BancBoston Robertson Stephens Inc., PaineWebber Incorporated and
Morgan Stanley & Co. Incorporated dated December 1, 1999 related to
the Registrant's 10 3/4% Senior Notes due 2009.
12.01 Statement regarding Computation of Ratios.
21.01 Subsidiaries of the Registrant.
23.01 Consent of Fenwick & West LLP (included in Exhibit 5.01).
23.02 Consent of Winthrop, Stimson, Putnam & Roberts (included in Exhibit
5.02).
23.03 Consent of KPMG LLP, independent auditors.
23.04 Consent of Deloitte & Touche, independent auditors.
24.01 Power of Attorney. (See page II-10).
25.01 Statement of Eligibility of Trustee.
27.01 Financial Data Schedule. (Incorporated by reference from the September
1999 Form 10-Q.)
99.01 Form of Letter of Transmittal for Dollar Notes.
99.02 Form of Letter of Transmittal for Euro Notes.
99.03 Form of Notice of Guaranteed Delivery for Dollar Notes.
99.04 Form of Notice of Guaranteed Delivery for Euro Notes.
</TABLE>
- --------
* Confidential treatment has been granted for certain portions of this
document pursuant to an application for confidential treatment sent to the
Securities and Exchange Commission. Such portions have been redacted and
marked with a triple asterisk. The non-redacted version of this document has
been sent to the Securities and Exchange Commission.
<PAGE>
EXHIBIT 4.11
[FACE OF SECURITY]
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933 (THE "SECURITIES ACT") AND MAY NOT BE OFFERED,
SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A)(1) TO A PERSON WHOM THE
TRANSFEROR REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE
MEANING OF RULE 144A UNDER THE SECURITIES ACT ACQUIRING FOR ITS OWN ACCOUNT OR
FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE TRANSACTION COMPLYING WITH RULE
903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (3) TO AN
INSTITUTIONAL ACCREDITED INVESTOR (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7)
OF REGULATION D UNDER THE SECURITIES ACT) IN A TRANSACTION EXEMPT FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, (4) PURSUANT TO AN EXEMPTION
FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF
AVAILABLE), OR (5) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND (B) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE
STATES OF THE UNITED STATES AND OTHER JURISDICTIONS.
THIS DOLLAR SECURITY IS A GLOBAL DOLLAR SECURITY WITHIN THE MEANING OF THE
INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY
OR A NOMINEE THEREOF. THIS SECURITY MAY NOT BE EXCHANGED IN WHOLE OR IN PART
FOR A SECURITY REGISTERED, AND NO TRANSFER OF THIS SECURITY IN WHOLE OR IN PART
MAY BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITARY OR A
NOMINEE THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
UNLESS THIS DOLLAR SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY DOLLAR
SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS
IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
<PAGE>
EXODUS COMMUNICATIONS, INC.
10 3/4% Senior Notes due 2009
CUSIP No. 302088 AF 6
ISIN No. US302088 AF 65
No. R1 $369,080,000
Exodus Communications, Inc., a corporation duly organized and existing
under the laws of Delaware (herein called the "Issuer", which term includes any
successor Person under the Indenture hereinafter referred to), for value
received, hereby promise to pay to Cede & Co., or registered assigns, the
principal sum of Three Hundred Sixty-Nine Million Eighty Thousand Dollars (such
amount the "principal amount" of this Dollar Security), or such other principal
amount (which, when taken together with the principal amounts of all other
Outstanding Dollar Securities, shall not exceed $475,000,000 in the aggregate at
any time ($575,000,000, including the Additional Securities)) as may be set
forth in the records of the Trustee as referred to in accordance with the
Indenture, on December 15, 2009 and to pay interest thereon from December 8,
1999 or from the most recent Interest Payment Date to which interest has been
paid or duly provided for, payable in arrears semi-annually on June 15 and
December 15 in each year, commencing June 15, 2000 at the rate of 10 3/4% per
annum, until the principal hereof is paid or made available for payment. The
interest so payable, and punctually paid or duly provided for, on any Interest
Payment Date will, as provided in such Indenture, be paid to the Person in whose
name this Dollar Security (or one or more Predecessor Securities) is registered
at the close of business on the Regular Record Date for such interest, which
shall be the June 1 or December 1 (whether or not a Business Day), as the case
may be, next preceding such Interest Payment Date. Any such interest not so
punctually paid or duly provided for will forthwith cease to be payable to the
Holder on the relevant Regular Record Date and may either be paid to the Person
in whose name this Dollar Security (or one or more Predecessor Securities) is
registered at the close of business on a Special Record Date for the payment of
such Defaulted Interest to be fixed by the Trustee in accordance with Section
308 of the Indenture, notice whereof shall be given to Holders of Dollar
Securities not less than 10 days prior to such Special Record Date, or be paid
at any time in any other lawful manner not inconsistent with the requirements of
any securities exchange on which the Dollar Securities may be listed, and upon
such notice as may be required by such exchange, all as more fully provided in
said Indenture. Interest on this Dollar Security shall be computed on the basis
set forth in the Indenture.
Payment of the principal of (and premium, if any) and any such interest on
this Dollar Security will be made at the office or agency of the Issuer in the
Borough of Manhattan, The City of New York, New York, maintained for such
purpose and at any other office or agency maintained by the Issuer for such
purpose, in such coin or currency of the United States of America as at the time
of payment is legal tender for payment of public and private debts; provided,
however, that at the option of the Issuer payment of interest may be made by
check mailed to the address of the Person entitled thereto as such address shall
appear in the Security Register; provided further that all
<PAGE>
payments of the principal (and premium, if any) and interest on Dollar
Securities, the Holders of which hold more than $5.0 million in principal amount
and have given wire transfer instructions to the Issuer or its agent at least 10
Business Days prior to the applicable payment date, will be required to be made
by wire transfer of immediately available funds to the accounts specified by
such Holders in such instructions.
Reference is hereby made to the further provisions of this Dollar Security
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Trustee or Authentication Agent referred to on the reverse hereof by manual
signature, this Dollar Security shall not be entitled to any benefit under the
Indenture or be valid or obligatory for any purpose.
<PAGE>
IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly
executed.
EXODUS COMMUNICATIONS, INC.
By:___________________________________
Name: Ellen M. Hancock
Title: Chief Executive Officer and President
Attest:_______________________________
Name: Adam W. Wegner
Title: Secretary
CERTIFICATE OF AUTHENTICATION
This is one of the Dollar Securities referred to in the within-mentioned
Indenture.
Dated: December 8, 1999
CHASE MANHATTAN BANK AND TRUST COMPANY,
National Association,
as Trustee
By:____________________________
Authorized Signatory
<PAGE>
[REVERSE OF SECURITY]
This Dollar Security is one of a duly authorized issue of Dollar Securities
of the Issuer designated as its Dollar Denominated 10 3/4% Senior Notes due 2009
(herein called the "Dollar Securities"), issued and to be issued under an
Indenture, dated as of December 1, 1999 (herein called the "Indenture", which
term shall have the meaning assigned to it in such instrument), among the Issuer
and Chase Manhattan Bank and Trust Company, National Association, as Trustee
(herein called the "Trustee", which term includes any successor trustee under
the Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights, limitations
of rights, duties and immunities thereunder of the Issuer, the Trustee and the
Holders of the Dollar Securities and of the terms upon which the Dollar
Securities are, and are to be, authenticated and delivered.
The Dollar Securities are subject to redemption, at the option of the
Issuer, in whole or in part, at any time on or after December 15, 2004 and prior
to maturity, upon not less than 30 nor more than 60 days' notice mailed to each
Holder of Dollar Securities to be redeemed at such Holder's address appearing in
the Security Register, in amounts of $1,000 or an integral multiple of $1,000,
at the following Redemption Prices (expressed as percentages of the principal
amount) plus accrued and unpaid interest and Liquidated Damages, if any, to but
excluding the Redemption Date (subject to the right of Holders of record on the
immediately preceding Record Date to receive interest due on an Interest Payment
Date that is on or prior to the Redemption Date), if redeemed during the 12-
month period beginning December 15 of the years indicated below:
Redemption
Year Price
- ---- -----
2004 105.375%
2005 103.583%
2006 101.792%
2007 and thereafter 100.000%
In addition, at any time prior to December 15, 2002, the Issuer may redeem
up to 35% of the aggregate Outstanding principal amount of the Dollar Securities
with the Net Cash Proceeds of one or more sales of Capital Stock (other than
Disqualified Stock) at a Redemption Price equal to 110.75% of the aggregate
principal amount thereof, plus accrued and unpaid interest thereon and
Liquidated Damages, if any, to the date of redemption; provided that at least
65% of the original principal amount of the Dollar Securities remains
Outstanding immediately following such redemption. In order to effect the
foregoing redemption, the Issuer must mail a notice of redemption no later than
45 days after the related sale of Capital Stock and must consummate such
redemption within 60 days of the closing of the sale of Capital Stock.
<PAGE>
The Dollar Securities do not have the benefit of any sinking fund
obligations.
In the event of redemption or purchase pursuant to an Offer to Purchase of
this Dollar Security in part only, a new Dollar Security or Dollar Securities
for the unredeemed or unpurchased portion hereof will be issued in the name of
the Holder hereof upon the cancellation hereof.
If an Event of Default shall occur and be continuing, there may be declared
due and payable the principal amount of (together with accrued and unpaid
interest on) the Dollar Securities, in the manner and with the effect provided
in the Indenture.
The Holder of this Dollar Security (and any Person that has a beneficial
interest in this Dollar Security) is entitled to the benefits of an Exchange and
Registration Rights Agreement, dated as of December 1, 1999, and as the same may
be amended from time to time (the "Exchange and Registration Rights Agreement"),
executed by the Issuer. The Exchange and Registration Rights Agreement provides
that Liquidated Damages will be payable by the Issuer on the Dollar Securities
for specified periods if the Issuer does not comply with certain of its
obligations thereunder. Issuer agrees to pay Liquidated Damages, if any,
accruing on this Dollar Security.
The Indenture provides that, subject to certain conditions, if (i) certain
Net Cash Proceeds are available to the Issuer as a result of an Asset Sale or
(ii) a Change of Control occurs, the Issuer shall be required to make an Offer
to Purchase for all or a specified portion of the Dollar Securities.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Holders of the Securities under the Indenture at
any time by the Issuer and the Trustee with the consent of the Holders of a
majority in aggregate principal amount of the Securities at the time
Outstanding. The Indenture also contains provisions permitting the Holders of
specified percentages in aggregate principal amount of the Securities at the
time Outstanding, on behalf of the Holders of all the Securities, to waive
compliance by the Issuer with certain provisions of the Indenture and certain
past defaults under the Indenture and its consequences. Any such consent or
waiver by the Holder of this Dollar Security shall be conclusive and binding
upon such Holder and upon all future Holders of this Dollar Security and of any
Dollar Security issued upon the registration of transfer hereof or in exchange
herefor or in lieu hereof, whether or not notation of such consent or waiver is
made upon this Dollar Security.
As provided in and subject to the provisions of the Indenture, the Holder
of this Dollar Security shall not have the right to institute any proceeding
with respect to the Indenture or for the appointment of a receiver or trustee or
for any other remedy thereunder, unless such Holder shall have previously given
the Trustee written notice of a continuing Event of Default with respect to the
Securities, the Holders of not less than 25% in principal amount of the
Securities at the time Outstanding shall have made written request to the
Trustee to institute proceedings in respect of such Event of Default as Trustee
and offered the Trustee reasonable indemnity and the Trustee shall not have
received from the Holders of a majority in principal amount of Securities at the
time Outstanding a direction inconsistent with such request and shall have
failed to institute any such
<PAGE>
proceeding for 60 days after receipt of such notice, request and offer of
indemnity. The foregoing shall not apply to certain suits described in the
Indenture, including any suit instituted by the Holder of this Dollar Security
for the enforcement of any payment of principal hereof or any premium or
interest hereon on or after the respective due dates expressed herein (or, in
the case of redemption, on or after the Redemption Date or, in the case of any
purchase of this Dollar Security required to be made pursuant to an Offer to
Purchase, on the Purchase Date).
No reference herein to the Indenture and no provision of this Dollar
Security or of the Indenture shall alter or impair the obligation of the Issuer,
which is absolute and unconditional, to pay the principal of (and premium, if
any) and interest on this Dollar Security at the times, place and rate, and in
the coin or currency, herein prescribed.
As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Dollar Security is registrable in the Security
Register, upon surrender of this Dollar Security for registration of transfer at
the office or agency of the Issuer in the Borough of Manhattan, The City of New
York, duly endorsed by, or accompanied by a written instrument of transfer in
form satisfactory to the Issuer and the Security Registrar duly executed by, the
Holder hereof or his attorney duly authorized in writing, and thereupon one or
more new Dollar Securities, of authorized denominations and for the same
aggregate principal amount, will be issued to the designated transferee or
transferees.
The Dollar Securities are issuable only in registered form without coupons
in denominations of $1,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, Dollar
Securities are exchangeable for a like aggregate principal amount of Dollar
Securities of a different authorized denomination, as requested by the Holder
surrendering the same.
No service charge shall be made for any such registration of transfer or
exchange, but the Issuer may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Dollar Security for registration of
transfer, the Issuer, the Trustee and any agent of the Issuer or the Trustee may
treat the Person in whose name this Dollar Security is registered as the owner
hereof for all purposes, whether or not this Dollar Security be overdue, and
neither the Issuer, the Trustee nor any such agent shall be affected by notice
to the contrary.
Interest on this Dollar Security shall be computed on the basis of a 360-
day year of twelve 30-day months.
All terms used in this Dollar Security which are defined in the Indenture
shall have the meanings assigned to them in the Indenture.
<PAGE>
The Indenture and this Dollar Security shall be governed by and construed
in accordance with the laws of the State of New York.
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Dollar Security purchased in its entirety
by the Issuer pursuant to Section 1015 or 1016 of the Indenture, check the box:
[_]
If you want to elect to have only a part of this Dollar Security purchased
by the Issuer pursuant to Section 1015 or 1016 of the Indenture, state the
amount:
$_____________
Dated: Your Signature:_______________________________________________________
(Sign exactly as name appears on the other side of this
Dollar Security)
Signature Guarantee:_____________________________________________
(Signature must be guaranteed by an eligible
Guarantor Institution (banks, stockbrokers,
savings and loan associations and credit
unions) with membership in an approved
signature medallion program pursuant to
Securities and Exchange Commission Rule 17Ad-
15.)
<PAGE>
EXHIBIT 4.12
[FACE OF SECURITY]
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933 (THE "SECURITIES ACT") AND MAY NOT BE OFFERED,
SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A)(1) TO A PERSON WHOM THE
TRANSFEROR REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE
MEANING OF RULE 144A UNDER THE SECURITIES ACT ACQUIRING FOR ITS OWN ACCOUNT OR
FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE TRANSACTION COMPLYING WITH RULE
903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (3) TO AN
INSTITUTIONAL ACCREDITED INVESTOR (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7)
OF REGULATION D UNDER THE SECURITIES ACT) IN A TRANSACTION EXEMPT FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, (4) PURSUANT TO AN EXEMPTION
FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF
AVAILABLE), OR (5) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND (B) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE
STATES OF THE UNITED STATES AND OTHER JURISDICTIONS.
THIS EURO SECURITY IS A GLOBAL EURO SECURITY WITHIN THE MEANING OF THE
INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY
OR A NOMINEE THEREOF. THIS EURO SECURITY MAY NOT BE EXCHANGED IN WHOLE OR IN
PART FOR A SECURITY REGISTERED, AND NO TRANSFER OF THIS SECURITY IN WHOLE OR IN
PART MAY BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITARY OR
A NOMINEE THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
INDENTURE.
UNLESS THIS EURO SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
MORGAN GUARANTY AND TRUST OF NEW YORK, BRUSSELS OFFICE, AS OPERATOR OF EUROCLEAR
("MORGAN"), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR
PAYMENT, AND ANY EURO SECURITY ISSUED IS REGISTERED IN THE NAME OF CHASE
NOMINEES LIMITED OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF MORGAN (AND ANY PAYMENT IS MADE TO CHASE MANHATTAN BANK LONDON
OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF
EUROCLEAR), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY
OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CHASE
NOMINEES LIMITED, OR OTHER NOMINEE OF EUROCLEAR, HAS AN INTEREST HEREIN.
<PAGE>
EXODUS COMMUNICATIONS, INC.
10 3/4% Senior Notes due 2009
ISIN No. XS0105280621
No. E1 Euro 53,500,000
Exodus Communications, Inc., a corporation duly organized and existing
under the laws of Delaware (herein called the "Issuer", which term includes any
successor Person under the Indenture hereinafter referred to), for value
received, hereby promise to pay to Chase Nominees Limited, or registered
assigns, the principal sum of Fifty Three Million Five Hundred Thousand Euros
(such amount the "principal amount" of this Euro Security), or such other
principal amount (which, when taken together with the principal amounts of all
other Outstanding Euro Securities, shall not exceed Euro 225,000,000 in the
aggregate at any time) as may be set forth in the records of the Trustee or
Authentication Agent as referred to in accordance with the Indenture, on
December 15, 2009 and to pay interest thereon from December 8, 1999 or from the
most recent Interest Payment Date to which interest has been paid or duly
provided for, payable in arrears semi-annually on June 15 and December 15 in
each year, commencing June 15, 2000 at the rate of 10 3/4% per annum, until the
principal hereof is paid or made available for payment. The interest so
payable, and punctually paid or duly provided for, on any Interest Payment Date
will, as provided in such Indenture, be paid to the Person in whose name this
Euro Security (or one or more Predecessor Securities) is registered at the close
of business on the Regular Record Date for such interest, which shall be the
June 1 or December 1 (whether or not a Business Day), as the case may be, next
preceding such Interest Payment Date. Any such interest not so punctually paid
or duly provided for will forthwith cease to be payable to the Holder on the
relevant Regular Record Date and may either be paid to the Person in whose name
this Euro Security (or one or more Predecessor Securities) is registered at the
close of business on a Special Record Date for the payment of such Defaulted
Interest to be fixed by the Trustee or Authentication Agent in accordance with
Section 308 of the Indenture, notice whereof shall be given to Holders of Euro
Securities not less than 10 days prior to such Special Record Date, or be paid
at any time in any other lawful manner not inconsistent with the requirements of
any securities exchange on which the Euro Securities may be listed, and upon
such notice as may be required by such exchange, all as more fully provided in
said Indenture. Interest on this Euro Security shall be computed on the basis
set forth in the Indenture.
Payment of the principal of (and premium, if any) and any such interest on
this Euro Security will be made at the office or agency of the Euro Paying
Agent, maintained for such purpose and at
<PAGE>
any other office or agency maintained by the Issuer for such purpose, in Euros;
provided, however, that at the option of the Issuer payment of interest may be
made by check mailed to the address of the Person entitled thereto as such
address shall appear in the Security Register; provided further that all
payments of the principal (and premium, if any) and interest on Euro Securities,
the Holders of which hold more than Euro 5.0 million in principal amount and
have given wire transfer instructions to the Issuer or its agent at least 10
Business Days prior to the applicable payment date, will be required to be made
by wire transfer of immediately available funds to the accounts specified by
such Holders in such instructions.
Reference is hereby made to the further provisions of this Euro Security
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Trustee or Authentication Agent referred to on the reverse hereof by manual
signature, this Euro Security shall not be entitled to any benefit under the
Indenture or be valid or obligatory for any purpose.
<PAGE>
IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly
executed.
EXODUS COMMUNICATIONS, INC.
By:___________________________________
Name: Ellen M. Hancock
Title: Chief Executive Officer and
President
Attest:_______________________________
Name: Adam W. Wegner
Title: Secretary
CERTIFICATE OF AUTHENTICATION
This is one of the Euro Securities referred to in the within-mentioned
Indenture.
Dated: December 8, 1999
Chase Manhattan Bank London,
as Authentication Agent
By:_____________________________
Authorized Signatory
<PAGE>
[REVERSE OF SECURITY]
This Euro Security is one of a duly authorized issue of Euro Securities of
the Issuer designated as its Euro Denominated 10 3/4% Senior Notes due 2009
(herein called the "Euro Securities"), issued and to be issued under an
Indenture, dated as of December 1, 1999 (herein called the "Indenture", which
term shall have the meaning assigned to it in such instrument), among the Issuer
and Chase Manhattan Bank and Trust Company, National Association, as Trustee
(herein called the "Trustee", which term includes any successor trustee under
the Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights, limitations
of rights, duties and immunities thereunder of the Issuer, the Trustee or
Authentication Agent and the Holders of the Euro Securities and of the terms
upon which the Euro Securities are, and are to be, authenticated and delivered.
The Euro Securities are subject to redemption, at the option of the Issuer,
in whole or in part, at any time on or after December 15, 2004 and prior to
maturity, upon not less than 30 nor more than 60 days' notice mailed to each
Holder of Euro Securities to be redeemed at such Holder's address appearing in
the Security Register, in amounts of Euro 1,000 or an integral multiple of Euro
1,000, at the following Redemption Prices (expressed as percentages of the
principal amount) plus accrued and unpaid interest and Liquidated Damages, if
any, to but excluding the Redemption Date (subject to the right of Holders of
record on the immediately preceding Record Date to receive interest due on an
Interest Payment Date that is on or prior to the Redemption Date), if redeemed
during the 12-month period beginning December 15 of the years indicated below:
Year Redemption
- ----
Price
-----
2004 105.375%
2005 103.583%
2006 101.792%
2007 and thereafter 100.000%
In addition, at any time prior to December 15, 2002, the Issuer may redeem
up to 35% of the aggregate Outstanding principal amount of the Euro Securities
with the Net Cash Proceeds of one or more sales of Capital Stock (other than
Disqualified Stock) at a Redemption Price equal to 110.75% of the aggregate
principal amount thereof, plus accrued and unpaid interest thereon and
Liquidated Damages, if any, to the date of redemption; provided that at least
65% of the original principal amount of the Euro Securities remains Outstanding
immediately following such redemption. In order to effect the foregoing
redemption, the Issuer must mail a notice of redemption no later than 45 days
after the related sale of Capital Stock and must consummate such redemption
within 60 days of the closing of the sale of Capital Stock.
<PAGE>
The Euro Securities do not have the benefit of any sinking fund
obligations.
In the event of redemption or purchase pursuant to an Offer to Purchase of
this Euro Security in part only, a new Euro Security or Euro Securities for the
unredeemed or unpurchased portion hereof will be issued in the name of the
Holder hereof upon the cancellation hereof.
If an Event of Default shall occur and be continuing, there may be declared
due and payable the principal amount of (together with accrued and unpaid
interest on) the Euro Securities, in the manner and with the effect provided in
the Indenture.
The Holder of this Euro Security (and any Person that has a beneficial
interest in this Euro Security) is entitled to the benefits of an Exchange and
Registration Rights Agreement, dated as of December 1, 1999, and as the same may
be amended from time to time (the "Exchange and Registration Rights Agreement"),
executed by the Issuer. The Exchange and Registration Rights Agreement provides
that Liquidated Damages will be payable by the Issuer on the Euro Securities for
specified periods if the Issuer does not comply with certain of its obligations
thereunder. Issuer agrees to pay Liquidated Damages, if any, accruing on this
Euro Security.
The Indenture provides that, subject to certain conditions, if (i) certain
Net Cash Proceeds are available to the Issuer as a result of an Asset Sale or
(ii) a Change of Control occurs, the Issuer shall be required to make an Offer
to Purchase for all or a specified portion of the Euro Securities.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Holders of the Securities under the Indenture at
any time by the Issuer and the Trustee or Authentication Agent with the consent
of the Holders of a majority in aggregate principal amount of the Securities at
the time Outstanding. The Indenture also contains provisions permitting the
Holders of specified percentages in aggregate principal amount of the Securities
at the time Outstanding, on behalf of the Holders of all the Securities, to
waive compliance by the Issuer with certain provisions of the Indenture and
certain past defaults under the Indenture and its consequences. Any such
consent or waiver by the Holder of this Euro Security shall be conclusive and
binding upon such Holder and upon all future Holders of this Euro Security and
of any Euro Security issued upon the registration of transfer hereof or in
exchange herefor or in lieu hereof, whether or not notation of such consent or
waiver is made upon this Euro Security.
As provided in and subject to the provisions of the Indenture, the Holder
of this Euro Security shall not have the right to institute any proceeding with
respect to the Indenture or for the appointment of a receiver or trustee or
authentication agent or for any other remedy thereunder, unless such Holder
shall have previously given the Trustee or Authentication Agent written notice
of a continuing Event of Default with respect to the Securities, the Holders of
not less than 25% in principal amount of the Securities at the time Outstanding
shall have made written request to the Trustee or Authentication Agent to
institute proceedings in respect of such Event of Default as Trustee or
Authentication Agent and offered the Trustee or Authentication Agent reasonable
indemnity and the Trustee or Authentication Agent shall not have received from
the Holders of a
<PAGE>
majority in principal amount of Securities at the time Outstanding a direction
inconsistent with such request and shall have failed to institute any such
proceeding for 60 days after receipt of such notice, request and offer of
indemnity. The foregoing shall not apply to certain suits described in the
Indenture, including any suit instituted by the Holder of this Euro Security for
the enforcement of any payment of principal hereof or any premium or interest
hereon on or after the respective due dates expressed herein (or, in the case of
redemption, on or after the Redemption Date or, in the case of any purchase of
this Euro Security required to be made pursuant to an Offer to Purchase, on the
Purchase Date).
No reference herein to the Indenture and no provision of this Euro Security
or of the Indenture shall alter or impair the obligation of the Issuer, which is
absolute and unconditional, to pay the principal of (and premium, if any) and
interest on this Euro Security at the times, place and rate, and in the coin or
currency, herein prescribed.
As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Euro Security is registrable in the Security
Register, upon surrender of this Euro Security for registration of transfer at
the office or agency of the Issuer in the Borough of Manhattan, The City of New
York, duly endorsed by, or accompanied by a written instrument of transfer in
form satisfactory to the Issuer and the Security Registrar duly executed by, the
Holder hereof or his attorney duly authorized in writing, and thereupon one or
more new Euro Securities, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or transferees.
The Euro Securities are issuable only in registered form without coupons in
denominations of Euro 1,000 and any integral multiple thereof. As provided in
the Indenture and subject to certain limitations therein set forth, Euro
Securities are exchangeable for a like aggregate principal amount of Euro
Securities of a different authorized denomination, as requested by the Holder
surrendering the same.
No service charge shall be made for any such registration of transfer or
exchange, but the Issuer may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Euro Security for registration of
transfer, the Issuer, the Trustee or Authentication Agent and any agent of the
Issuer or the Trustee or Authentication Agent may treat the Person in whose name
this Euro Security is registered as the owner hereof for all purposes, whether
or not this Euro Security be overdue, and neither the Issuer, the Trustee nor
Authentication Agent nor any such agent shall be affected by notice to the
contrary.
Interest on this Euro Security shall be computed on the basis of a 360-day
year of twelve 30-day months.
All terms used in this Euro Security which are defined in the Indenture
shall have the meanings assigned to them in the Indenture.
<PAGE>
The Indenture and this Euro Security shall be governed by and construed in
accordance with the laws of the State of New York.
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Euro Security purchased in its entirety
by the Issuer pursuant to Section 1015 or 1016 of the Indenture, check the box:
[_]
If you want to elect to have only a part of this Euro Security purchased by
the Issuer pursuant to Section 1015 or 1016 of the Indenture, state the amount:
Euro _____________
Dated: Your Signature:__________________________________________________
(Sign exactly as name appears on the other side of
this Euro Security)
Signature Guarantee:_____________________________________________
(Signature must be guaranteed by an eligible
Guarantor Institution (banks, stockbrokers,
savings and loan associations and credit unions)
with membership in an approved signature
medallion program pursuant to Securities and
Exchange Commission Rule 17Ad-15.)
<PAGE>
EXHIBIT 4.13
================================================================================
EXODUS COMMUNICATIONS, INC.
As Issuer
TO CHASE MANHATTAN BANK AND TRUST COMPANY,
NATIONAL ASSOCIATION
As Trustee
INDENTURE
Dated as of December 1, 1999
DOLLAR DENOMINATED 10 3/4% SENIOR NOTES DUE 2009
EURO DENOMINATED 10 3/4% SENIOR NOTES DUE 2009
================================================================================
<PAGE>
TABLE OF CONTENTS
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RECITALS OF THE ISSUER................................................................................................ 1
ARTICLE ONE Definitions and Other Provisions of General Application............................................. 1
SECTION 101. Definitions................................................................................... 1
SECTION 102. Compliance Certificates and Opinions.......................................................... 22
SECTION 103. Form of Documents Delivered to Trustee........................................................ 22
SECTION 104. Acts of Holders; Record Date.................................................................. 23
SECTION 105. Notices, Etc., to Trustee and Issuer.......................................................... 25
SECTION 106. Notice to Holders; Waiver..................................................................... 25
SECTION 107. Conflict with Trust Indenture Act............................................................. 26
SECTION 108. Effect of Headings and Table of Contents...................................................... 26
SECTION 109. Successors and Assigns........................................................................ 26
SECTION 110. Separability Clause........................................................................... 26
SECTION 111. Benefits of Indenture......................................................................... 26
SECTION 112. Governing Law................................................................................. 26
SECTION 113. Legal Holidays................................................................................ 26
ARTICLE TWO Security Forms...................................................................................... 26
SECTION 201. Forms Generally; Initial Forms of Rule 144A and Regulation S Securities....................... 27
SECTION 202. Form of Face of Security...................................................................... 27
SECTION 203. Form of Reverse of Security................................................................... 30
SECTION 204. Form of Trustee's Certificate of Authentication............................................... 35
ARTICLE THREE The Securities.................................................................................... 35
SECTION 301. Title and Terms............................................................................... 35
SECTION 302. Denominations................................................................................. 36
SECTION 303. Execution, Authentication, Delivery and Dating................................................ 36
SECTION 304. Temporary Securities.......................................................................... 37
SECTION 305. Global Securities............................................................................. 38
SECTION 306. Registration, Registration of Transfer and Exchange Generally; Restrictions on Transfer and
Exchange; Securities Act Legends.............................................................. 39
SECTION 307. Mutilated, Destroyed, Lost and Stolen Securities.............................................. 43
SECTION 308. Payment of Interest; Interest Rights Preserved................................................ 43
SECTION 309. Persons Deemed Owners......................................................................... 44
SECTION 310. Cancellation.................................................................................. 45
SECTION 311. CUSIP Numbers................................................................................. 45
SECTION 312. Computation of Interest....................................................................... 45
ARTICLE FOUR Satisfaction and Discharge.. ..................................................................... 45
SECTION 401. Satisfaction and Discharge of Indenture....................................................... 45
SECTION 402. Application of Trust Money.................................................................... 46
ARTICLE FIVE Remedies.......................................................................................... 47
SECTION 501. Events of Default............................................................................. 47
SECTION 502. Acceleration of Maturity; Rescission and Annulment............................................ 48
SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee............................... 49
SECTION 504. Trustee May File Proofs of Claim.............................................................. 50
SECTION 505. Trustee May Enforce Claims Without Possession of Securities................................... 50
SECTION 506. Application of Money Collected................................................................ 51
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SECTION 507. Limitation on Suits........................................................................... 51
SECTION 508. Unconditional Right of Holders to Receive Principal, Premium and Interest..................... 52
SECTION 509. Restoration of Rights and Remedies............................................................ 52
SECTION 510. Rights and Remedies Cumulative................................................................ 52
SECTION 511. Delay or Omission Not Waiver.................................................................. 52
SECTION 512. Control by Holders............................................................................ 52
SECTION 513. Waiver of Past Defaults....................................................................... 53
SECTION 514. Undertaking for Costs......................................................................... 53
SECTION 515. Waiver of Stay, or Extension Laws............................................................. 53
ARTICLE SIX The Trustee........................................................................................ 54
SECTION 601. Certain Duties and Responsibilities........................................................... 54
SECTION 602. Notice of Defaults............................................................................ 55
SECTION 603. Certain Rights of Trustee..................................................................... 55
SECTION 604. Not Responsible for Recitals or Issuance of Securities........................................ 56
SECTION 605. May Hold Securities........................................................................... 56
SECTION 606. Money Held in Trust........................................................................... 56
SECTION 607. Compensation and Reimbursement................................................................ 56
SECTION 608. Disqualification; Conflicting Interests....................................................... 57
SECTION 609. Corporate Trustee Required; Eligibility....................................................... 57
SECTION 610. Resignation and Removal; Appointment of Successor............................................. 58
SECTION 611. Acceptance of Appointment by Successor........................................................ 59
SECTION 612. Merger, Conversion, Consolidation or Succession to Business................................... 59
SECTION 613. Preferential Collection of Claims Against Issuer.............................................. 60
SECTION 614. Appointment of Authenticating Agent........................................................... 60
ARTICLE SEVEN Holders' Lists and Reports by Trustee and Issuer................................................. 61
SECTION 701. Issuer to Furnish Trustee Names and Addresses of Holders...................................... 61
SECTION 702. Preservation of Information; Communications to Holders........................................ 61
SECTION 703. Reports by Trustee............................................................................ 62
SECTION 704. Reports by the Issuer......................................................................... 62
ARTICLE EIGHT Consolidation, Merger, Conveyance, Transfer or Lease............................................. 63
SECTION 801. Issuer may Consolidate, Etc. Only on Certain Terms............................................ 63
SECTION 802. Successor Substituted......................................................................... 64
ARTICLE NINE Supplemental Indentures........................................................................... 64
SECTION 901. Supplemental Indentures Without Consent of Holders............................................ 64
SECTION 902. Supplemental Indentures with Consent of Holders............................................... 64
SECTION 903. Execution of Supplemental Indentures......................................................... 65
SECTION 904. Effect of Supplemental Indentures............................................................. 65
SECTION 905. Conformity with Trust Indenture Act........................................................... 65
SECTION 906. Reference in Securities to Supplemental Indentures............................................ 66
ARTICLE TEN Covenants.......................................................................................... 66
SECTION 1001. Payment of Principal, Premium and Interest................................................... 66
SECTION 1002. Maintenance of Office or Agency.............................................................. 66
SECTION 1003. Money for Security Payments to Be Held in Trust.............................................. 66
SECTION 1004. Existence.................................................................................... 67
SECTION 1005. Maintenance of Properties.................................................................... 68
SECTION 1006. Payment of Taxes and Other Claims............................................................ 68
SECTION 1007. Maintenance of Insurance..................................................................... 68
SECTION 1008. Limitation on Debt........................................................................... 68
SECTION 1009. Limitation on Sale-Leaseback Transactions..................................................... 70
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SECTION 1010. Limitation on Guarantees of Issuer Debt by Restricted Subsidiaries........................... 70
SECTION 1011. Limitation on Restricted Payments............................................................ 71
SECTION 1012. Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries...... 74
SECTION 1013. Limitation on Liens.......................................................................... 75
SECTION 1014. Limitation on Issuance of Capital Stock of Restricted Subsidiaries........................... 76
SECTION 1015. Asset Sales.................................................................................. 77
SECTION 1016. Change of Control............................................................................ 78
SECTION 1017. Transactions with Affiliates and Related Persons............................................. 79
SECTION 1018. Unrestricted Subsidiaries.................................................................... 79
SECTION 1019. Provision of Financial Information........................................................... 80
SECTION 1020. Statement by Officers as to Default; Compliance Certificates................................. 80
SECTION 1021. Waiver of Certain Covenants.................................................................. 81
ARTICLE ELEVEN Redemption of Securities......................................................................... 81
SECTION 1101. Right of Redemption.......................................................................... 81
SECTION 1102. Applicability of Article..................................................................... 81
SECTION 1103. Election to Redeem; Notice to Trustee........................................................ 81
SECTION 1104. Selection by Trustee of Securities to Be Redeemed............................................ 82
SECTION 1105. Notice of Redemption......................................................................... 82
SECTION 1106. Deposit of Redemption Price.................................................................. 83
SECTION 1107. Securities Payable on Redemption Date........................................................ 83
SECTION 1108. Securities Redeemed in Part.................................................................. 83
ARTICLE TWELVE Defeasance and Covenant Defeasance............................................................... 84
SECTION 1201. Issuer's Option to Effect Defeasance or Covenant Defeasance.................................. 84
SECTION 1202. Defeasance and Discharge..................................................................... 84
SECTION 1203. Covenant Defeasance.......................................................................... 84
SECTION 1204. Conditions to Defeasance or Covenant Defeasance.............................................. 85
SECTION 1205. Deposited Money and U.S. Government Obligations to Be Held in Trust; Other
Miscellaneous Provisions 86
SECTION 1206. Reinstatement................................................................................ 87
</TABLE>
-iii-
<PAGE>
TABLE OF CONTENTS
(continued)
Page
----
-iv-
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
ANNEX A - Form of Regulation S Certificate....................... A-1
ANNEX B - Form of Restricted Securities Certificate.............. B-1
ANNEX C - Form of Unrestricted Securities Certificate............ C-1
EXHIBIT A - Form of Exchange and Registration Rights Agreement
</TABLE>
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<PAGE>
Exodus Communications, Inc.
Reconciliation and tie between Trust Indenture Act
of 1939 and Indenture, dated as of December 1, 1999
Trust Indenture Indenture
Act Section Section
- ----------- -------
(S) 310(a)(1)............................................. 609
(a)(2)........................................... 609
(a)(3)........................................... Not Applicable
(a)(4)........................................... Not Applicable
(b).............................................. 608
................................................. 610
(S) 311(a)................................................ 613
(b).............................................. 613
(S) 312(a)................................................ 701
................................................. 702
(b).............................................. 702
(c).............................................. 702
(b).............................................. 703
(c).............................................. 703
(d).............................................. 703
(S) 314(a)................................................ 704
(a)(4)........................................... 1022
(b).............................................. 1302
(c)(1)........................................... 1022
(c)(2)........................................... 1020
(c)(3)........................................... Not Applicable
(d).............................................. 1303
(e).............................................. 1020
______________________
Note: This reconciliation and tie shall not, for any purpose, be deemed to be a
part of the Indenture.
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<PAGE>
Trust Indenture Indenture
Act Section Section
- ----------- -------
(S) 315(a).................................................. 601
(b)................................................ 602
(c)................................................ 601
(d)................................................ 601
(d)(1)............................................. 514
(e)................................................ 514
(S) 316(a).................................................. 502
(a)(1)(A).......................................... 512
(a)(1)(B).......................................... 513
(a)(2)............................................. Not Applicable
(b)................................................ 508
(S) 317(a)(1)............................................... 503
(a)(2)............................................. 504
(b)................................................ 1003
(S) 318(a).................................................. 107
___________________
Note: This reconciliation and tie shall not
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<PAGE>
INDENTURE, dated as of December 1, 1999, between Exodus Communications,
Inc., a corporation duly organized and existing under the laws of the State of
Delaware, having its principal executive offices at 2831 Mission College
Boulevard, Santa Clara, California 95054 (the "Issuer"), and Chase Manhattan
Bank and Trust Company, National Association, a national banking association, as
Trustee (herein called the "Trustee") having its principal executive offices at
101 California Street, Suite 2725, San Francisco, CA 94111.
RECITALS OF THE ISSUER
The Issuer has duly authorized the creation of an issue of its Dollar
Denominated 10 3/4 Senior Notes due 2009 (the "Dollar Securities") and the Euro
Denominated 10 3/4 Senior Notes due 2009 (the "Euro Securities" and together
with the Dollar Securities, the "Securities") of substantially the tenor and
amount hereinafter set forth, and to provide therefor the Issuer has duly
authorized the execution and delivery of this Indenture. The Securities may
consist of Original Securities, Additional Securities and/or Exchange
Securities, each as defined herein. The Original Securities, Additional
Securities and Exchange Securities, as well as Dollar Securities and Euro
Securities, shall rank pari passu with one another and shall together constitute
a single class and series of securities.
All things necessary to make the Securities, when executed by the Issuer
and authenticated and delivered hereunder and duly issued by the Issuer, the
valid obligations of the Issuer, and to make this Indenture a valid agreement of
the Issuer, in accordance with their and its terms, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Securities
by the Holders thereof, it is mutually covenanted and agreed, for the equal and
proportionate benefit of all Holders of the Securities, as follows:
ARTICLE ONE
Definitions and Other Provisions
of General Application
SECTION 101. Definitions. For all purposes of this Indenture, except as
-----------
otherwise expressly provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular;
(2) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
<PAGE>
(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles (whether or not such is indicated herein), and, except as
otherwise herein expressly provided, the term "generally accepted
accounting principles" with respect to any computation required or
permitted hereunder shall mean such accounting principles as are generally
accepted in the United States as consistently applied by the Issuer at the
Closing Date;
(4) unless otherwise specifically set forth herein, all calculations
or determinations of a Person shall be performed or made on a consolidated
basis in accordance with generally accepted accounting principles but shall
not include the accounts of Unrestricted Subsidiaries, except to the extent
of dividends and distributions actually paid to an Issuer or a Restricted
Subsidiary;
(5) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision;
(6) unless the context otherwise requires, any reference to a
"Clause," an "Article" or a "Section", or to an "Annex" or a "Schedule",
refers to a Clause, an Article or Section of, or to an Annex or a Schedule
attached to, this Indenture, as the case may be; and
(7) unless the context otherwise requires, any reference to a
statute, rule or regulation refers to the same (including any successor
statute, rule or regulation thereto) as it may be amended from time to
time.
Certain terms, used principally in Article Six, are defined in that
Article.
"Acquisition Debt" means Debt of a Person existing at the time such Person
becomes a Restricted Subsidiary or assumed in connection with an Asset
Acquisition, and not Incurred in connection with, or in anticipation of, such
Person becoming a Restricted Subsidiary or such Asset Acquisition.
"Additional Securities" means Dollar Securities issued by the Issuer after
the Closing Date subject to the terms and conditions of this Indenture in an
aggregate principal amount not to exceed $100.0 million and any Dollar
Securities of like terms and tenor issued in exchange therefor (including any
Successor Securities in respect thereof).
"Affiliate" of any Person means any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such Person. For the purposes of this definition, "control" when used with
respect to any Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of
<PAGE>
voting securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Agent Member" means any member of, or participant in, a Depositary.
"Applicable Procedures" means, with respect to any transfer or transaction
involving a Global Security or beneficial interest therein, the rules and
procedures of any Depositary for such Security, Euroclear and Cedelbank, in each
case to the extent applicable to such transaction and as in effect at the time
of such transfer or transaction.
"Asset Acquisition" means an acquisition by the Issuer or any of its
Restricted Subsidiaries of the property and assets of any Person other than the
Issuer or any of its Restricted Subsidiaries that constitute substantially all
of a division or line of business of such Person; provided that the property and
assets acquired are to be used in the System and Network Management Business.
"Asset Sale" by any Person means any transfer, conveyance, sale, lease,
license or other disposition by such Person or any of its Restricted
Subsidiaries (including a consolidation or merger or other sale of any such
Restricted Subsidiary with, into or to another Person in a transaction in which
such Restricted Subsidiary ceases to be a Restricted Subsidiary) (collectively a
"transfer") of (I) shares of Capital Stock (other than directors' qualifying
shares) or other ownership interests of a Restricted Subsidiary of such Person,
(II) all or substantially all of the assets of such Person or any of its
Restricted Subsidiaries, or (III) any other property, assets or rights
(including intellectual property rights) of such Person or any of its Restricted
Subsidiaries outside of the ordinary course of business; provided that "Asset
Sale" shall not include (A) any transfer of all or substantially all of the
assets of the Issuer in a transaction that is made in compliance with the
requirements of provisions of Article Eight of this Indenture (B) any transfer
by the Issuer to any Wholly Owned Restricted Subsidiary or by any Wholly Owned
Restricted Subsidiary to any other Wholly Owned Restricted Subsidiary or to the
Issuer in a manner that does not otherwise violate the terms of this Indenture,
(C) transfers made in compliance with the requirements of Section 1011, (D)
transfers constituting the granting of a Permitted Lien, (E) exchanges of
equipment used in the System and Network Management Business for other equipment
to be used in the System and Network Management Business; provided any such
exchange for equipment with a fair market value in excess of $2.0 million must
be approved by the Issuer's Board of Directors, and (F) transfers of assets,
property or other rights (including intellectual property rights) with a fair
market value of less than $2.0 million.
"Average Life" means, at any date of determination with respect to any debt
security, the quotient obtained by dividing (i) the sum of the products of (a)
the number of years from the date of determination to the dates of each
successive scheduled principal payment of such debt security and (b) the amount
of such principal payment, by (ii) the sum of all such principal payments.
"Authenticating Agent" means any Person authorized by the Trustee pursuant
to Section 614 to act on behalf of the Trustee to authenticate Securities.
-3-
<PAGE>
"Board of Directors" means either the board of directors of the Issuer or
any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the relevant Issuer to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in The City of New York, New
York and San Francisco, California are authorized or obligated by law or
executive order to close.
"Capital Lease Obligation" of any Person means the obligation to pay rent
or other payment amounts under a lease of (or other Debt arrangements conveying
the right to use) real or personal property of such Person which is required to
be classified and accounted for as a capital lease or a liability on the face of
a balance sheet of such Person in accordance with GAAP. The principal amount of
such obligation shall be the capitalized amount thereof that would appear on the
face of a balance sheet of such Person in accordance with GAAP.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of corporate stock or
other equity participations, including partnership interests, whether general or
limited, of such Person.
"Cash Equivalents" means (i) securities issued or directly and fully
guaranteed or insured by the United States government or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States is pledged in support thereof) having maturities of six months from the
date of acquisition, (ii) certificates of deposit with maturities of not more
than six months or less from the date of acquisition, bankers' acceptances with
maturities not exceeding six months and overnight bank deposits, in each case
with any domestic commercial bank having capital and surplus in excess of $500.0
million and a Thompson Bank Watch Rating of "B" or better, (iii) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clauses (i) and (ii) above entered into with any
financial institution meeting the qualifications specified in clause (ii) above,
(iv) commercial paper having the highest rating obtainable from Moody's
Investors Service, Inc. or Standard & Poor's Ratings Group and in each case
maturing within six months after the date of acquisition and (v) money market
funds at least 95% of the assets of which constitute Cash Equivalents of the
kinds described in clauses (i) through (iv) of this definition.
"Cedelbank" means Cedelbank, S.A. (or any successor securities clearing
agency).
"Change of Control" means the occurrence of one or more of the following
events: (i) any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all of the assets of the
Issuer and its Subsidiaries, taken as a whole, to any Person or group of related
Persons, as defined in Section 13(d) of the Exchange Act (a "Group"); (ii) the
-4-
<PAGE>
approval by the holders of capital stock of the Issuer of any plan or proposal
for the liquidation or dissolution of the Issuer (whether or not otherwise in
compliance with the provisions of the applicable Indenture); (iii) any Person or
Group shall become the owner, directly or indirectly, beneficially or of record,
of shares representing more than 50% of the aggregate ordinary voting power
represented by the issued and outstanding Voting Stock of the Issuer or any
successor to all or substantially all of its assets; or (iv) during any period
of two consecutive years, individuals who at the beginning of such period
constituted the Board of Directors of the Issuer (together with any new
directors whose election to the Board of Directors or whose nomination for
election by the stockholders of the Issuer was approved by a vote of a majority
of the directors then still in office who were either directors at the beginning
of such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors then in office.
"Closing Date" means December 8, 1999.
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act, or, if at any time after the
execution of this instrument such Commission is not existing and performing the
duties now assigned to it under the Trust Indenture Act, then the body
performing such duties at such time.
"Common Stock" of any Person means Capital Stock of such Person that does
not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding up
of such Person, to shares of Capital Stock of any other class of such Person.
"Consolidated Debt to EBITDA Ratio" means the ratio of (a) the total
consolidated Debt as of the date of calculation (the "Determination Date") to
(b) four times the Consolidated EBITDA for the latest fiscal quarter for which
financial information is available immediately preceding such Determination Date
(the "Measurement Period"). For purposes of calculating Consolidated EBITDA for
the Measurement Period immediately prior to the relevant Determination Date, (i)
any Person that is a Restricted Subsidiary on the Determination Date (or would
become a Restricted Subsidiary on such Determination Date in connection with the
transaction that requires the determination of such Consolidated EBITDA) will be
deemed to have been a Restricted Subsidiary at all times during such Measurement
Period, (ii) any Person that is not a Restricted Subsidiary on such
Determination Date (or would cease to be a Restricted Subsidiary on such
Determination Date in connection with the transaction that requires the
determination of such Consolidated EBITDA) will be deemed not to have been a
Restricted Subsidiary at any time during such Measurement Period, and (iii) if
the Issuer or any Restricted Subsidiary shall have in any manner (x) acquired
(through an acquisition or the commencement of activities constituting such
operating business) or (y) disposed of (by an Asset Sale or the termination or
discontinuance of activities constituting such operating business) any operating
business during such Measurement Period or after the end of such period and on
or prior to such Determination Date, such calculation will be made on a pro
forma basis in accordance with GAAP as if, in the case of an acquisition or the
commencement of activities constituting such
-5-
<PAGE>
operating business, all such transactions had been consummated prior to the
first day of such Measurement Period (it being understood that in calculating
Consolidated EBITDA the exclusions set forth in clauses (a) through (f) of the
definition of Consolidated Net Income shall apply to any Person acquired as if
it were a Restricted Subsidiary.
"Consolidated EBITDA" means, with respect to any period, Consolidated Net
Income for such period increased (without duplication), to the extent deducted
in calculating such Consolidated Net Income, by (a) Consolidated Income Tax
Expense for such period; (b) Consolidated Interest Expense for such period
without regard to the proviso therein; and (c) depreciation, amortization and
any other non-cash items for such period, less any non-cash items to the extent
they increase Consolidated Net Income (including the partial or entire reversal
of reserves taken in prior periods) for such period, of the Issuer and any
Restricted Subsidiary, including, without limitation, amortization of
capitalized debt issuance costs for such period, all of the foregoing determined
on a consolidated basis for the Issuer and its Restricted Subsidiaries in
accordance with GAAP; provided that, if any Restricted Subsidiary is not a
Wholly Owned Restricted Subsidiary, Consolidated EBITDA shall be reduced (to the
extent not otherwise reduced in accordance with GAAP) by an amount equal to (A)
the amount of Consolidated EBITDA attributable to such Restricted Subsidiary
multiplied by (B) the percentage ownership interest in such Restricted
Subsidiary not owned on the last day of such period by the Issuer or any of its
Restricted Subsidiaries.
"Consolidated Income Tax Expense" for any period means the consolidated
provision for income taxes of the Issuer and its Restricted Subsidiaries for
such period calculated on a consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" means for any period the consolidated
interest expense included in a consolidated income statement (without deduction
of interest income) of the Issuer and its Restricted Subsidiaries for such
period calculated on a consolidated basis in accordance with GAAP, including
without limitation or duplication (or, to the extent not so included, with the
addition of), (i) the amortization of Debt discounts; (ii) any payments or fees
with respect to letters of credit, bankers' acceptances or similar facilities;
(iii) fees (net of any amounts received) with respect to any Interest Rate or
Currency Protection Agreement; (iv) interest on Debt guaranteed by the Issuer
and its Restricted Subsidiaries, to the extent paid by the Issuer or any
Restricted Subsidiary; and (v) the portion of any Capital Lease Obligation
allocable to interest expense; provided that, if any Restricted Subsidiary is
not a Wholly Owned Restricted Subsidiary, Consolidated Interest Expense shall be
reduced (to the extent not otherwise reduced in accordance with GAAP) by an
amount equal to (A) the amount of Consolidated Interest Expense attributable to
such Restricted Subsidiary multiplied by (B) the percentage ownership interest
in such Restricted Subsidiary not owned on the last day of such period by the
Issuer or any of its Restricted Subsidiaries.
"Consolidated Net Income" for any period means the consolidated net income
(or loss) of the Issuer and its Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP; provided that there
shall be excluded therefrom (a) the net income (or loss)
-6-
<PAGE>
of any Person acquired by the Issuer or a Restricted Subsidiary of the Issuer in
a pooling-of-interests transaction for any period prior to the date of such
transaction, (b) the net income (or loss) of any Person that is not a Restricted
Subsidiary of the Issuer except to the extent of the amount of dividends or
other distributions actually paid to the Issuer or a Restricted Subsidiary of
the Issuer by such Person during such period, (c) gains or losses on Asset Sales
by the Issuer or its Restricted Subsidiaries, (d) all extraordinary gains and
extraordinary losses, (e) the cumulative effect of changes in accounting
principles and (f) the tax effect of any of the items described in clauses (a)
through (e) above.
"Consolidated Net Worth" of any Person means the consolidated stockholders'
equity of such Person, determined on a consolidated basis in accordance with
GAAP, less amounts attributable to Disqualified Stock of such Person; provided
that, with respect to the Issuer, adjustments following the date of this
Indenture to the accounting books and records of the Issuer in accordance with
Accounting Principles Board Opinions Nos. 16 and 17 (or successor opinions
thereto), or otherwise resulting from the acquisition of control of the Issuer
by another Person shall not be given effect.
"Corporate Agency Office" means the principal office of the Euro Agent at
which at any particular time its corporate depositary business shall be
administered, which is, at the date as of which this Indenture is dated, located
at 9 Thomas More Street, London E19YT, United Kingdom.
"Corporate Trust Office" means the principal office of the Trustee at which
at any particular time its corporate trust business shall be administered, which
is, at the date as of which this Indenture is dated, located at 101 California
Street, Suite 2725, San Francisco, CA 94111.
"corporation" means a corporation, association, company, joint-stock
company, limited liability company, partnership or business trust.
"Debt" means (without duplication), with respect to any Person, whether
recourse is to all or a portion of the assets of such Person and whether or not
contingent, (i) every obligation of such Person for money borrowed, (ii) every
obligation of such Person evidenced by bonds, debentures, notes or other similar
instruments, including obligations incurred in connection with the acquisition
of property, assets or businesses, (iii) every reimbursement obligation of such
Person with respect to letters of credit, bankers' acceptances or similar
facilities issued for the account of such Person (including reimbursement
obligations with respect thereto, but excluding obligations with respect to
trade letters of credit securing obligations entered into in the ordinary course
of business to the extent such letters of credit are not drawn upon or, if drawn
upon, to the extent such drawing is reimbursed no later than the third Business
Day following receipt by such Person of a demand for reimbursement), (iv) every
obligation of such Person issued or assumed as the deferred purchase price of
property or services (including securities repurchase agreements), (v) every
Capital Lease Obligation of such Person, (vi) all Disqualified Stock issued by
such Person, (vii) if such Person is a Restricted Subsidiary, all Preferred
Stock issued by such Person, (viii) every obligation under Interest Rate or
Currency Protection Agreements of such Person and (ix) every obligation of the
type referred to in clauses (I) through (ix) of another Person and all dividends
of another Person the
-7-
<PAGE>
payment of which, in either case, such Person has Guaranteed or is responsible
or liable, directly or indirectly, as obligor, Guarantor or otherwise. The
"amount" or "principal amount" of Debt at any time of determination as used
herein represented by (a) any contingent Debt, shall be the maximum principal
amount thereof, (b) any Debt issued at a price that is less than the principal
amount at maturity thereof, shall be the amount of the liability in respect
thereof determined in accordance with GAAP, (c) any Disqualified Stock, shall be
the maximum fixed redemption or repurchase price in respect thereof, and (d) any
Preferred Stock, shall be the maximum voluntary or involuntary liquidation
preference plus accrued and unpaid dividends in respect thereof, in each case as
of such time of determination. In no event shall "Debt" include any trade
payable or accrued expenses arising in the ordinary course of business.
"Default" has the meaning specified in Section 501.
"Defaulted Interest" has the meaning specified in Section 308.
"Depositary" means with respect to (i) the Dollar Securities, The
Depository Trust Company , (ii) the Regulation S Global Euro Securities,
Euroclear and Cedelbank, and (iii) the Restricted Global Euro Securities,
Euroclear, or, if any such entity shall cease to be a clearing agency registered
under the Exchange Act, any other clearing agency that is designated as the
successor Depositary in an Issuer Order delivered to the Trustee.
"Disqualified Stock" of any Person means any Capital Stock of such Person
that by its terms (or by the terms of any security into which it is convertible,
or for which it is exchangeable, at the option of the holder thereof) or
otherwise matures or is required to be redeemed (pursuant to any sinking fund
obligation or otherwise, but other than as a result of the death or disability
of the holder thereof or the termination of the employment with the Issuer of
the holder thereof) or is convertible into or exchangeable for Debt or is
redeemable at the option of the holder thereof, in whole or in part, at any time
prior to the final maturity of the Securities; provided, however, that any
Capital Stock which would not constitute Disqualified Stock but for provisions
thereof giving holders thereof the right to require the Issuer or a Restricted
Subsidiary to repurchase or redeem such Capital Stock upon the occurrence of an
"asset sale" or a "change of control" occurring prior to the final maturity date
of the Securities shall not constitute Disqualified Stock if such provisions
applicable to such Capital Stock are no more favorable to the holders of such
stock than the corresponding provisions applicable to the Securities contained
in this Indenture and such provisions applicable to such Capital Stock
specifically provide that the Issuer and its Restricted Subsidiaries will not
repurchase or redeem any such stock pursuant to such provisions prior to the
repurchase of such Securities as are required to be repurchased pursuant to this
Indenture upon an Asset Sale or a Change of Control.
"Distribution Compliance Period" means the period of 40 consecutive days
commencing on the later of (i) the date Securities are first offered to persons
other than distributors (as defined in Regulation S) in reliance on Regulation S
(the Issuer and Trustee being entitled to rely on written advice from the
Initial Purchasers with respect thereto) and (ii) the Closing Date.
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<PAGE>
"Dollars" and "$" means such coins or currency of the United States of
America which is legal tender for payment of public and private debts.
"DTC" means The Depository Trust Company, a New York corporation.
"Euro" means such coins or currency of the European Monetary Union.
"Euro Agent" means Chase Manhattan Bank London or such other Person
authorized to act as Euro Agent by the Issuer from time to time.
"Euroclear" means the Euroclear Clearance System (or any successor
securities clearing agency).
"Euro Paying Agent" means Chase Manhattan Bank London or such other Person
authorized to act as Euro Paying Agent by the Issuer from time to time.
"Event of Default" has the meaning specified in Section 501.
"Exchange Act" refers to the Securities Exchange Act of 1934 and any
successor act thereto.
"Exchange and Registration Rights Agreement" means (i) the Exchange and
Registration Rights Agreement, dated as of December 1, 1999, between the Issuer
and the Initial Purchasers, as such agreement may be amended from time to time,
the form of which is attached hereto as Exhibit A, and (ii) any other agreement
entered into by the Issuer in the future that provides for an Exchange Offer or
resale registration with respect to any Additional Securities.
"Exchange Offer" means an offer made by the Issuer pursuant to the Exchange
and Registration Rights Agreement or otherwise under an effective registration
statement under the Securities Act to Exchange Securities for Original
Securities or Additional Securities.
"Exchange Offer Registration Statement" means a registration statement of
the Issuer under the Securities Act registering Exchange Securities for
distribution pursuant to an Exchange Offer.
"Exchange Securities" means any Securities issued pursuant to an Exchange
Offer and their Successor Securities.
"Existing Debt" shall mean Debt of the Issuer and its Restricted
Subsidiaries in existence on the Closing Date and the New Convertible Notes, if
any.
"Expiration Date" has the meaning specified in Section 104.
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<PAGE>
"GAAP" means generally accepted accounting principles in the United States
which are in effect on the date of original issuance of the Securities,
consistently applied.
"Global Security" means either a Global Dollar Security or a Global Euro
Security.
"Global Dollar Security" means a Dollar Security that is registered in the
Security Register in the name of a Depositary or a nominee thereof.
"Global Euro Security" means a Euro Security that is registered in the
Security Register in the name of a Depositary or a nominee thereof.
"Guarantee" by any Person means any obligation, contingent or otherwise, of
such Person guaranteeing, or having the economic effect of guaranteeing, any
Debt of any other Person (the "primary obligor") in any manner, whether directly
or indirectly, and including, without limitation, any obligation of such Person,
(i) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Debt or to purchase (or to advance or supply funds for the purchase of)
any security for the payment of such Debt, (ii) to purchase property, securities
or services for the purpose of assuring the holder of such Debt of the payment
of such Debt, or (iii) to maintain working capital, equity capital or other
financial statement condition or liquidity of the primary obligor so as to
enable the primary obligor to pay such Debt (and "Guaranteed", "Guaranteeing"
and "Guarantor" shall have meanings correlative to the foregoing); provided,
however, that the Guaranty by any Person shall not include endorsements by such
Person for collection or deposit, in either case, in the ordinary course of
business.
"Holder" means a Person in whose name a Security is registered in the
Security Register.
"Incur" means, with respect to any Debt or other obligation of any Person,
to create, issue, incur (by conversion, exchange or otherwise), assume,
Guarantee or otherwise become liable in respect of such Debt or other obligation
including by acquisition of Restricted Subsidiaries or the recording, as
required pursuant to GAAP or otherwise, of any such Debt or other obligation on
the balance sheet of such Person (and "Incurrence", "Incurred", "Incurrable" and
"Incurring" shall have meanings correlative to the foregoing); provided,
however, that a change in GAAP that results in an obligation of such Person that
exists at such time becoming Debt shall not be deemed an Incurrence of such
Debt.
"Indenture" means this instrument as originally executed or as it may from
time to time be supplemented or amended by one or more indentures supplemental
hereto entered into pursuant to the applicable provisions hereof.
"Initial Purchasers" means Goldman, Sachs & Co., Donaldson, Lufkin &
Jenrette Securities Corporation, BancBoston Robertson Stephens Inc., PaineWebber
Incorporated and Morgan Stanley & Co. Incorporated as purchasers of the
Securities from the Issuer pursuant to the Purchase Agreement.
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"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Securities.
"Interest Rate or Currency Protection Agreement" of any Person means any
forward contract, futures contract, swap, option or other financial agreement or
arrangement (including, without limitation, caps, floors, collars and similar
agreements) relating to, or the value of which is dependent upon, interest rates
or currency exchange rates or indices.
"Internal Revenue Code" means the Internal Revenue Code of 1986 and any
successor thereto.
"Investment" by any Person means any direct or indirect loan, advance or
other extension of credit or capital contribution (by means of transfers of cash
or other property to others or payments for property or services for the account
or use of others, or otherwise) to, or purchase or acquisition of Capital Stock,
bonds, notes, debentures or other securities or evidence of Debt issued by, any
other Person, including any payment on a Guarantee of any obligation of such
other Person.
"Issuer" means the Persons named as the "Issuer" in the first paragraph of
this instrument until a successor Person or Persons shall have become such
pursuant to the applicable provisions of this Indenture and thereafter "Issuer"
shall mean such successor Person.
"Issuer Request" or "Issuer Order" means a written request or order signed
in the name of the Issuer by the Issuer's Chairman of the Board, its President
or a Vice President, and by its Treasurer, an Assistant Treasurer, its Secretary
or an Assistant Secretary, and delivered to the Trustee.
"Lien" means, with respect to any property or assets, any mortgage or deed
of trust, pledge, hypothecation, assignment, deposit arrangement, security
interest, lien, charge, easement (other than any easement not materially
impairing usefulness or marketability), encumbrance, preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever on or with respect to such property or assets (including, without
limitation, any conditional sale or other title retention agreement having
substantially the same economic effect as any of the foregoing).
"Liquidated Damages" has the meaning specified in the Exchange and
Registration Rights Agreement.
"Material Restricted Subsidiary" means, at any date of determination, any
Restricted Subsidiary that represents more than 10% of the Issuer's total
consolidated assets at the end of the most recent fiscal quarter for which
financial information is available, or more than 10% of the Issuer's
consolidated net sales or consolidated operating income for the most recent four
quarters for which financial information is available.
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"Maturity", when used with respect to any Security, means the date on which
the principal of such Security becomes due and payable as therein or herein
provided, whether at the Stated Maturity or by declaration of acceleration, call
for redemption or otherwise.
"Net Cash Proceeds" means (i) with respect to any Asset Sale by any Person,
cash or Cash Equivalents received (including by way of sale or discounting of a
note, installment receivable or other receivable, but excluding any other
consideration received in the form of assumption of Debt or other obligations
relating to such properties or assets) therefrom by such Person, net of (A) all
legal, title and recording tax expenses, commissions and other fees and expenses
Incurred and all federal, state, foreign and local taxes required to be accrued
as a liability as a consequence of such Asset Sale, (B) all payments made by
such Person or its Restricted Subsidiaries on any Debt which is secured by such
assets in accordance with the terms of any Lien upon or with respect to such
assets or which must by the terms of such Lien, or in order to obtain a
necessary consent to such Asset Sale or by applicable law, be repaid out of the
proceeds from such Asset Sale, (C) all distributions and other payments made to
minority interest holders in Restricted Subsidiaries of such Person or joint
ventures as a result of such Asset Sale and (D) appropriate amounts to be
provided by such Person or any Restricted Subsidiary thereof, as the case may
be, as a reserve in accordance with GAAP against any liabilities associated with
such assets and retained by such Person or any Restricted Subsidiary thereof, as
the case may be, after such Asset Sale, including, without limitation,
liabilities under any indemnification obligations and severance and other
employee termination costs associated with such Asset Sale, in each case as
determined by the Board of Directors, in its reasonable good faith judgment
evidenced by a resolution of the Board of Directors filed with the Trustee;
provided, however, that any reduction in such reserve within twelve months
following the consummation of such Asset Sale will be treated for all purposes
of this Indenture and the Securities as a new Asset Sale at the time of such
reduction with Net Cash Proceeds equal to the amount of such reduction, (ii)
with respect to the issuance or sale of Capital Stock, or options, warrants or
rights to purchase Capital Stock, or debt securities or Disqualified Stock that
has been converted into or exchanged for Capital Stock, the proceeds of such
issuance or sale in the form of cash or Cash Equivalents, including payments in
respect of deferred payment obligations, net of attorney's fees, accountant's
fees and brokerage, consultation, underwriting and other fees and expenses
actually incurred in connection with such issuance or sale, conversion or
exchange and net of any Consolidated Interest Expense attributable to any debt
securities paid to the holders thereof prior to the conversion or exchange and
net of taxes paid or payable as a result thereof.
"New Convertible Notes" shall mean the Issuer's 4 3/4% Convertible
Subordinated Notes due July 15, 2008 not to exceed $500.0 million in aggregate
principal amount.
"Noon Buying Rate" shall mean the noon buying rate in the City of New York
for cable transfers in Euros as certified for customs purposes by the Federal
Reserve Bank of New York.
"Notice of Default" has the meaning specified in Section 602.
"Offer" has the meaning specified in the definition of Offer to Purchase.
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"Offer Expiration Date" has the meaning specified in the definition of
Offer to Purchase.
"Offer to Purchase" means a written offer (the "Offer") sent by the Issuer
by first class mail, postage prepaid, to each Holder at his address appearing in
the Securities Register on the date of the Offer offering to purchase up to the
principal amount of Securities specified in such Offer at the purchase price
specified in such Offer (as determined pursuant to this Indenture). The Issuer
shall also issue a Press Release including all relevant information relating to
such Offer. Unless otherwise required by applicable law, the Offer shall
specify an expiration date (the "Offer Expiration Date") of the Offer to
Purchase which shall be, subject to any contrary requirements of applicable law,
not less than 30 days or more than 60 days after the date of such Offer and a
settlement date (the "Purchase Date") for purchase of Securities within five
Business Days after the Offer Expiration Date. The Issuer shall notify the
Trustee at least 15 Business Days (or such shorter period as is acceptable to
the Trustee) prior to the mailing of the Offer of the Issuer's obligation to
make an Offer to Purchase, and the Offer shall be mailed by the Issuer or, at
the Issuer's request, by the Trustee in the name and at the expense of the
Issuer. The Offer shall contain information concerning the business of the
Issuer and its Restricted Subsidiaries which the Issuer in good faith believes
will enable such Holders to make an informed decision with respect to the Offer
to Purchase (which at a minimum will include (i) the most recent annual and
quarterly financial statements and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contained in the documents
required to be filed with the Trustee pursuant to this Indenture (which
requirements may be satisfied by delivery of such documents together with the
Offer), (ii) a description of material developments in the Issuer's business
subsequent to the date of the latest of such financial statements referred to in
clause (i) (including a description of the events requiring the Issuer to make
the Offer to Purchase), (iii) if applicable, appropriate pro forma financial
information concerning the Offer to Purchase and the events requiring the Issuer
to make the Offer to Purchase and (iv) any other information required by
applicable law to be included therein. The Offer shall contain all instructions
and materials necessary to enable such Holders to tender Securities pursuant to
the Offer to Purchase. The Offer shall also state:
(1) the Section of this Indenture pursuant to which the Offer to Purchase
is being made;
(2) the Offer Expiration Date and the Purchase Date;
(3) the aggregate principal amount of the Outstanding Securities offered
to be purchased by the Issuer pursuant to the Offer to Purchase (including, if
less than 100%, the manner by which such has been determined pursuant to the
Section hereof requiring the Offer to Purchase) (the "Purchase Amount");
(4) the purchase price to be paid by the Issuer for each $1,000, or Euro
1,000, aggregate principal amount of Dollar Securities or Euro Securities, as
the case may be, accepted for payment (as specified pursuant to the Indenture)
(the "Purchase Price");
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(5) that the Holder may tender all or any portion of the Securities
registered in the name of such Holder and that any portion of a Security
tendered must be tendered in an integral of $1,000, or Euro 1,000, principal
amount, as applicable;
(6) the place or places where Securities are to be surrendered for tender
pursuant to the Offer to Purchase;
(7) that interest on any Securities not tendered or tendered but not
purchased by the Issuer pursuant to the Offer to Purchase will continue to
accrue;
(8) that on the Purchase Date the Purchase Price will become due and
payable upon each Security being accepted for payment pursuant to the Offer to
Purchase and that interest thereon shall cease to accrue on and after the
Purchase Date;
(9) that each Holder electing to tender a Security pursuant to the Offer to
Purchase will be required to surrender such Security at the place or places
specified in the Offer prior to the close of business on the Offer Expiration
Date (such Security being, if the Issuer or the Trustee so requires, duly
endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Issuer and the Trustee duly executed by, the Holder thereof
or his attorney duly authorized in writing);
(10) that Holders will be entitled to withdraw all or any portion of
Securities tendered if the Issuer (or their Paying Agent) receives, not later
than the close of business on the Offer Expiration Date, a telegram, telex,
facsimile transmission or letter setting forth the name of the Holder, the
principal amount of the Security the Holder tendered, the certificate number of
the Security the Holder tendered and a statement that such Holder is withdrawing
all or a portion of his tender;
(11) that (a) if Securities in an aggregate principal amount less than or
equal to the Purchase Amount are duly tendered and not withdrawn pursuant to the
Offer to Purchase, the Issuer shall purchase all such Securities and (b) if
Securities in an aggregate principal amount in excess of the Purchase Amount are
tendered and not withdrawn pursuant to the Offer to Purchase, the Issuer shall
purchase Securities having an aggregate principal amount equal to the Purchase
Amount on a pro rata basis (with such adjustments as may be deemed appropriate
so that only Securities in denominations of $1,000 or Euro 1,000, as the case
may be, or integral multiples thereof shall be purchased); and
(12) that in the case of any Holder whose Security is purchased only in
part, the Issuer shall execute, and the Trustee or Authentication Agent shall
authenticate and deliver to the Holder of such Security without service charge,
a new Security or Securities, of any authorized denomination as requested by
such Holder, in an aggregate principal amount equal to and in exchange for the
unpurchased portion of the Security so tendered.
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Any Offer to Purchase shall be governed by and effected in accordance with
the Offer for such Offer to Purchase.
"Officers' Certificate" means a certificate signed by the Chairman of the
Board, Chief Executive Officer, Chief Financial Officer, the President or a Vice
President, and by the Treasurer, an Assistant Treasurer, the Secretary or an
Assistant Secretary, of the Issuer and delivered to the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be counsel
for the Issuer, and who shall be acceptable to the Trustee.
"Original Securities" means the Securities issued on the Closing Date and
their Successor Securities.
"Outstanding", when used with respect to Securities, means, as of the date
of determination, all Securities theretofore authenticated and delivered under
this Indenture, except:
(1) Securities theretofore canceled by the Trustee or Authentication
Agent or delivered to the Trustee or Authentication Agent for cancellation;
(2) Securities for whose payment or redemption money in the necessary
amount has been theretofore deposited with the Trustee or any Paying Agent
(other than the Issuer) in trust or set aside and segregated in trust by
the Issuer (if the Issuer shall act as its own Paying Agent) for the
Holders of such Securities; provided that, if such Securities are to be
redeemed, notice of such redemption has been duly given pursuant to this
Indenture or provision therefor satisfactory to the Trustee has been made;
and
(3) Securities which have been paid pursuant to Section 307 or in
exchange for or in lieu of which other Securities have been authenticated
and delivered pursuant to this Indenture, other than any such Securities in
respect of which there shall have been presented to the Trustee proof
satisfactory to it that such Securities are held by a bona fide purchaser
in whose hands such Securities are valid obligations of the Issuer;
provided, however, that in determining whether the Holders of the
requisite principal amount of the Outstanding Securities have given any
request, demand, authorization, direction, notice, consent or waiver hereunder,
Securities owned by the Issuer or any other obligor upon the Securities or any
Affiliate of the Issuer or of such other obligor shall be disregarded and deemed
not to be Outstanding, except that, in determining whether the Trustee shall be
protected in relying upon any such request, demand, authorization, direction,
notice, consent or waiver, only Securities which the Trustee knows to be so
owned shall be so disregarded. Securities so owned which have been pledged in
good faith may be regarded as Outstanding if the pledgee establishes to the
satisfaction of the Trustee the pledgee's right so to act with respect to such
Securities and that the
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pledgee is not the Issuer or any other obligor upon the Securities or any
Affiliate of the Issuer or of such other obligor.
"pari passu", when used with respect to the ranking of any Debt of any
Person in relation to other Debt of such Person, means that each such Debt (a)
either (i) is not subordinated in right of payment to any other Debt of such
Person or (ii) is subordinate in right of payment to the same Debt of such
Person as is the other and is so subordinate to the same extent and (b) is not
subordinate in right of payment to the other or to any Debt of such Person as to
which the other is not so subordinate.
"Paying Agent" means any Person authorized by the Issuer to pay the
principal of (and premium, if any) or interest on any Securities on behalf of
the Issuer.
"Permitted Interest Rate or Currency Protection Agreement" of any Person
means any Interest Rate or Currency Protection Agreement entered into with one
or more financial institutions that is designed to protect such Person against
fluctuations in interest rates or currency exchange rates with respect to Debt
Incurred and which shall have a notional amount no greater than the payments due
with respect to the Debt being hedged thereby and not for purposes of
speculation.
"Permitted Investment" means (i) an Investment in the Issuer or a Wholly
Owned Restricted Subsidiary or a Person which will, upon the making of such
Investment, become a Wholly Owned Restricted Subsidiary or be merged or
consolidated with or into or transfer or convey all or substantially all its
assets to, the Issuer or a Wholly Owned Restricted Subsidiary; provided that
such Person's primary business or the assets to be transferred or conveyed are
related, ancillary or complementary to the System and Network Management
Business; (ii) Cash Equivalents; (iii) payroll, travel, relocation and similar
advances to cover matters that are expected at the time of such advances
ultimately to be treated as expenses in accordance with GAAP; (iv) stock,
obligations or securities received (x) in satisfaction of judgments or (y) in
connection with the sale or disposition of a Person, assets or business; (v)
Investments in prepaid expenses, negotiable instruments held for collection and
lease, utility and worker's compensation, performance and other similar
deposits; (vi) Permitted Interest Rate or Currency Agreements; (vii) Strategic
Investments; (viii) loans or advances to officers or employees of the Issuer or
any Restricted Subsidiary (other than loans or advances made pursuant to clause
(ix) below) that do not in the aggregate exceed $10.0 million at any time
outstanding; (ix) accounts receivable in the ordinary course of business (and
Investments obtained in exchange or settlement of accounts receivable for which
the Issuer has determined that collection is not likely); and (x) loans or
advances to Persons who own Debt or Capital Stock (other than any Affiliate of
the Issuer or any Restricted Subsidiary) of any Person if such loans or advances
are made as part of, or in connection with, a transaction pursuant to which such
Person becomes a Restricted Subsidiary of the Issuer or any other Restricted
Subsidiary or substantially all of the assets of such Person are acquired by the
Issuer or any Restricted Subsidiary, in an aggregate amount not to exceed 20% of
the total consideration paid in connection with such acquisition.
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"Permitted Lien" means any Lien on the assets of the Issuer or any
Restricted Subsidiary permitted under Section 1013.
"Permitted Senior Bank Debt" means Debt Incurred by Issuer or any
Restricted Subsidiary pursuant to one or more senior commercial term loan and/or
revolving credit facilities (including any letter of credit subfacility) entered
into principally with commercial banks and/or other financial institutions
typically party to commercial loan agreements, and any replacement, extension,
renewal, refinancing or refunding thereof; provided that the aggregate principal
amount of all Permitted Senior Bank Debt, at any one time outstanding, shall not
exceed $150.0 million plus 85% of the Issuer's consolidated net accounts
receivable.
"Person" means any individual, corporation, partnership, joint venture,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 307 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Security shall be deemed to evidence the
same debt as the mutilated, destroyed, lost or stolen Security.
"Preferred Stock" of any Person means Capital Stock of such Person of any
class or classes (however designated) that ranks prior, as to the payment of
dividends or as to the distribution of assets upon any voluntary or involuntary
liquidation, dissolution or winding up of such Person, to shares of Capital
Stock of any other class of such Person.
"Press Release" shall mean any press release issued by the Issuer and
disseminated through Dow Jones & Company, Inc., Reuters Business News Services,
Bloomberg Business News or other national business news service commonly used by
U.S. businesses in the same line of business as the Company for disseminating
information regarding corporate events.
"Public Equity Offering" means an underwritten primary public offering of
Common Stock of the Issuer pursuant to an effective registration statement under
the Securities Act.
"Purchase Agreement" means the Purchase Agreement, dated December 2, 1999,
between the Issuer and the Initial Purchasers, as such agreement may be amended
from time to time.
"Purchase Amount" has the meaning specified in the definition of Offer to
Purchase.
"Purchase Date" has the meaning specified in the definition of Offer to
Purchase.
"Purchase Money Secured Debt" of any Person means Debt of such Person
secured by a Lien on real or personal property of such Person which Debt (a)
constitutes all or a part of the purchase price or construction cost of such
property or (b) is Incurred prior to, at the time of or within 180
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days after the acquisition or substantial completion of such property for the
purpose of financing all or any part of the purchase price or construction cost
thereof; provided, however, that (w) the Debt so incurred does not exceed 100%
of the purchase price or construction cost of such property and related
expenses, (x) such Lien does not extend to or cover any property other than such
item of property and any improvements on such item and proceeds thereof, (y) the
purchase price or construction cost for such property is or should be included
in "addition to property, plant and equipment" in accordance with GAAP, and (z)
the purchase or construction of such property is not part of any acquisition of
a Person or business unit or line of business.
"Purchase Price" has the meaning specified in the definition of Offer to
Purchase.
"Qualified Consideration" shall mean: (i) cash; (ii) Cash Equivalents;
(iii) assets that are used or useful in the System and Network Management
Business; (iv) any securities or other obligations that are converted into or
exchanged for cash or Cash Equivalents within six months after the Asset Sale or
(v) liabilities of the Issuer or a Restricted Subsidiary assumed by the
transferee (or its designee) such that the Issuer or such Restricted Subsidiary
has no further liability therefor, the amount of the liability to be determined
in accordance with GAAP.
"Receivables" means receivables, chattel paper, instruments, documents or
intangibles evidencing or relating to the right to payment of money.
"Redemption Date", when used with respect to any Security to be redeemed,
means the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price", when used with respect to any Security to be redeemed,
means the price at which it is to be redeemed pursuant to this Indenture.
"Registered Securities" means the Exchange Securities and all other
Securities sold or otherwise disposed of pursuant to an effective registration
statement under the Securities Act, together with its respective Successor
Securities.
"Regular Record Date" for the interest payable on any Interest Payment Date
means the June 1 or December 1 (whether or not a Business Day), as the case may
be, next preceding such Interest Payment Date.
"Regulation S" means Regulation S under the Securities Act.
"Regulation S Certificate" means a certificate substantially in the form
set forth in Annex A.
"Regulation S Global Dollar Security" has the meaning specified in Section
201.
"Regulation S Global Euro Security" has the meaning specified in Section
201.
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"Regulation S Global Security" means either a Regulation S Global Dollar
Security or a Regulation S Global Euro Security.
"Regulation S Legend" means a legend substantially in the form of the
legend required in the form of Security set forth in Section 202 to be placed
upon Regulation S Securities.
"Regulation S Securities " means all Securities required pursuant to
Section 306(c) to bear a Regulation S Legend.
"Related Person" of any Person means any other Person directly or
indirectly owning (a) 5% or more of the outstanding Common Stock of such Person
(or, in the case of a Person that is not a corporation, 5% or more of the equity
interest in such Person) or (b) 5% or more of the combined voting power of the
Voting Stock of such Person.
"Required Filing Date" has the meaning specified in Section 1019.
"Resale Registration Statement" means a shelf registration statement under
the Securities Act filed by the Issuer, if required by, and meeting the
requirements of, the Exchange and Registration Rights Agreement, registering
Original Securities or Additional Securities for resale.
"Responsible Officer", when used with respect to the Trustee, means any
vice president, any assistant vice president, any assistant secretary, any
assistant treasurer, any trust officer or assistant trust officer, the
controller or any assistant controller or any other officer of the Trustee
customarily performing functions similar to those performed by any of the above
designated officers and also means, with respect to a particular corporate trust
matter, any other officer to whom such matter is referred because of his
knowledge of and familiarity with the particular subject.
"Restricted Global Dollar Security" has the meaning set forth in Section
201.
"Restricted Global Euro Security" has the meaning set forth in Section 201.
"Restricted Global Security" means either a Restricted Global Dollar
Security or a Restricted Global Euro Security.
"Restricted Payments" has the meaning specified in Section 1011.
"Restricted Securities" means all Securities required pursuant to Section
306(c) to bear a Restricted Securities Legend. Such term includes the
Restricted Global Securities.
"Restricted Securities Certificate" means a certificate substantially in
the form set forth in Annex B.
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"Restricted Securities Legend" means a legend substantially in the form of
the legend required in the form of Security set forth in Section 202 to be
placed upon a Restricted Security.
"Restricted Subsidiary" means any Subsidiary of the Issuer, whether
existing on or after the date of this Indenture, unless such Subsidiary is an
Unrestricted Subsidiary.
"Rule 144" means Rule 144 under the Securities Act.
"Rule 144A" means Rule 144A under the Securities Act.
"Rule 144A Securities" means either Rule 144A Dollar Securities or Rule
144A Euro Securities.
"Rule 144A Dollar Securities" means (i) in the case of the Original
Securities, the Dollar Securities purchased by the Initial Purchasers from the
Issuer pursuant to the Purchase Agreement, other than the Regulation S Dollar
Securities, and (ii) in the case of Additional Securities, any Additional
Securities purchased from the Issuer for resale pursuant to Rule 144A.
"Rule 144A Euro Securities" means the Euro Securities purchased by the
Initial Purchasers from the Issuer pursuant to the Purchase Agreement, other
than the Regulation S Euro Securities.
"Secured Debt" means Permitted Senior Bank Debt, Purchase Money Secured
Debt and other Debt secured by a Permitted Lien.
"Securities" has the meaning specified in the first paragraph of the
recitals to this instrument and includes the Exchange Securities and Additional
Securities.
"Securities Act" means the Securities Act of 1933, and any successor act
thereto.
"Securities Act Legend" means a Restricted Securities Legend or a
Regulation S Legend.
"Security Register" and "Security Registrar" have the respective meanings
specified in Section 306.
"Senior Loan Facility" means the loan facility expected to be provided
pursuant to a credit agreement to be entered into by and among the Issuer,
Goldman Sachs Credit Partners L. P., as arranger and syndication agent, certain
lenders from time to time party thereto, and the administrative agent party
thereto, and any credit agreements governing Debt Incurred to refund, replace or
refinance borrowings or commitments then outstanding under or permitted to be
Incurred or outstanding under such facility, and all promissory notes,
guaranties, letters of credit, security agreements, pledge agreements,
mortgages, deeds of trust and other instruments, documents or agreements
executed pursuant to such credit agreements, in each case as the same may be
amended, extended, renewed, supplemented, restated or otherwise modified from
time to time.
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"Special Record Date" for the payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 308.
"Stated Maturity", when used with respect to any Security or any
installment of interest thereon, means the date specified in such Security as
the fixed date on which the principal of such Security or such installment of
interest is due and payable.
"Strategic Investment" means an Investment in any Person (other than an
Unrestricted Subsidiary of the Issuer) whose primary business is related,
ancillary or complementary to the System and Network Management Business, and
such Investment is determined by the Board of Directors of the Issuer to promote
or significantly benefit the businesses of the Issuer and its Restricted
Subsidiaries on the date of such Investment.
"Subordinated Debt" means Debt of the Issuer as to which the payment of
principal of (and premium, if any) and interest and other payment obligations in
respect of such Debt shall be subordinate to the prior payment in full of the
Securities to at least the following extent: (i) no payments of principal of (or
premium, if any) or interest on, or otherwise due in respect of such Debt, may
be permitted for so long as any default in the payment of principal (or premium,
if any) or interest on the Securities exists; (ii) in the event that any other
default that with the passing of time or the giving of notice, or both, would
constitute an Event of Default with respect to the Securities, upon notice by
25% or more in principal amount of the Securities to the Trustee, the Trustee
shall have the right to give notice to the Issuer and the holders of such Debt
(or trustees or agents therefor) of a payment blockage, and thereafter no
payments of principal of (or premium, if any) or interest on or otherwise due in
respect of such Debt may be made for a period of 179 days from the date of such
notice; and (iii) such Debt may not (x) provide for payments of principal of
such Debt at the Maturity thereof or by way of a sinking fund applicable thereto
or by way of any mandatory redemption, defeasance, retirement or repurchase
thereof by the Issuer (including any redemption, retirement or repurchase which
is contingent upon events or circumstances, but excluding any retirement
required by virtue of acceleration of such Debt upon an event of default
thereunder), in each case prior to the final maturity date of the Securities or
(y) permit redemption or other retirement (including pursuant to an offer to
purchase made by the Issuer) of such other Debt at the option of the holder
thereof prior to the final maturity date of the Securities, other than a
redemption or other retirement at the option of the holder of such Debt
(including pursuant to an offer to purchase made by the Issuer) which is
conditioned upon a change of control of the Issuer pursuant to provisions
substantially similar to Section 1016 (and which shall provide that such Debt
will not be repurchased pursuant to such provisions prior to the Issuer's
repurchase of the Securities required to be repurchased by the Issuer pursuant
to Section 1016); provided, however, that any Debt which would constitute
Subordinated Debt but for provisions thereof giving holders thereof the right to
require the Issuer or a Restricted Subsidiary to repurchase or redeem such
Subordinated Debt upon the occurrence of an asset sale occurring prior to the
final maturity of the Securities shall constitute Subordinated Debt if such
provisions applicable to such Subordinated Debt are nor more favorable to the
holders of such Debt than the provisions applicable to the Securities contained
in Section 1015 and such provisions applicable to such Debt specifically provide
that the Issuer and its Restricted Subsidiaries will not repurchase or redeem
any such Debt pursuant to such provisions prior to the repurchase of such
Securities as are required to be repurchased pursuant to Section 1015
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and such provisions applicable to such Debt specifically provide that the Issuer
and its Restricted Subsidiaries will not repurchase or redeem any such Debt
pursuant to such provisions prior to the repurchase of such Securities as are
required to be repurchased pursuant to Section 1015.
"Subsidiary" of any Person means (i) a corporation more than 50% of the
combined voting power of the outstanding Voting Stock of which is owned,
directly or indirectly, by such Person or by one or more other Subsidiaries of
such Person or by such Person and one or more Restricted Subsidiaries thereof,
or (ii) any other Person (other than a corporation) in which such Person, or one
or more other Subsidiaries of such Person or such Person and one or more other
Subsidiaries thereof, directly or indirectly, has at least a majority ownership
and power to direct the policies, management and affairs thereof.
"Successor Security" of any particular Security means every Security issued
after, and evidencing all or a portion of the same debt as that evidenced by,
such particular Security; and, for the purpose of this definition, any Security
authenticated and delivered under Section 307 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Security shall be deemed to evidence the
same debt as the mutilated, destroyed, lost or stolen Security.
"System and Network Management Business" means (i) server and other
hardware hosting, (ii) connectivity, data networking, telecommunications or
content for computer or data networks or systems; (iii) management of computer
or data networks or systems; (iv) technology services, equipment sales or
leasing or software licensing for computer or data networks or systems
(including Internet Protocol and any successor protocol(s) based networks); and
(v) businesses reasonably related, complementary or incidental thereto.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at
the date as of which this instrument was executed, except as provided in Section
905; provided, however, that in the event the Trust Indenture Act of 1939 is
amended after such date, "Trust Indenture Act" means, to the extent required by
any such amendment, the Trust Indenture Act of 1939 as so amended.
"Trustee" means the Person named as the "Trustee" in the first paragraph of
this instrument until a successor Trustee shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Trustee" shall mean
such successor Trustee.
"Unregistered Security" means any Security that is not a Registered
Security.
"Unrestricted Securities Certificate" means a certificate substantially in
the form set forth in Annex C.
"Unrestricted Subsidiary" has the meaning set forth in Section 1018.
"U.S. Dollar Equivalent" means, with respect to any monetary amount in a
currency other than the Dollar, at or as of any time for the determination
thereof, the amount of Dollars obtained by
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converting such foreign currency involved in such computation into Dollars at
the most recently announced Noon Buying Rate.
"U.S. Government Securities" means securities that are direct obligations
of the United States of America, direct obligations of the Federal Home Loan
Mortgage Corporation, direct obligations of the Federal National Mortgage
Association, securities which the timely payment of whose principal and interest
is unconditionally guaranteed by the full faith and credit of the United States
of America, trust receipts or other evidence of a direct claim upon the
instruments described above and money market mutual funds that invest solely in
such securities.
"U.S. Person" means (i) any natural person resident in the United States,
(ii) any partnership or corporation organized or incorporated under the laws of
the United States, (iii) any estate of which an executor or administrator is a
U.S. Person (other than an estate governed by foreign law and of which at least
one executor or administrator is a non-U.S. Person who has sole or shared
investment discretion with respect to its assets), (iv) any trust of which any
trustee is a U.S. Person (other than a trust of which at least one trustee is a
non-U.S. Person who has sole or shared investment discretion with respect to its
assets and no beneficiary of the trust (and no settlor if the trust is
revocable) is a U.S. Person), (v) any agency or branch of a foreign entity
located in the United States, (vi) any non-discretionary or similar account
(other than an estate or trust) held by a dealer or other fiduciary for the
benefit or account of a U.S. Person, (vii) any discretionary or similar account
(other than an estate or trust) held by a dealer or other fiduciary organized,
incorporated or (if an individual) resident in the United States (other than
such an account held for the benefit or account of a non-U.S. Person) and (viii)
any partnership or corporation organized or incorporated under the laws of a
foreign jurisdiction and formed by a U.S. Person principally for the purpose of
investing in securities not registered under the Securities Act (unless it is
organized or incorporated, and owned, by accredited investors within the meaning
of Rule 501(a) under the Securities Act who are not natural persons, estates or
trusts); provided, however, that the term a "U.S. Person" does not include (A) a
branch or agency of a U.S. Person that is located and operating outside the
United States for valid business purposes as a locally regulated branch or
agency engaged in the banking or insurance business, (B) any employee benefit
plan established and administered in accordance with the law, customary
practices and documentation of a foreign country and (C) the international
organizations set forth in Section 902(k)(2) of Regulation S under the
Securities Act and any other similar international organizations, and its
agencies, affiliates and pension plans.
"Vice President", when used with respect to the Issuer, means any vice
president, whether or not designated by a number or a word or words added before
or after the title "vice president".
"Voting Stock" of any Person means Capital Stock of such Person which
ordinarily has voting power for the election of directors (or persons performing
similar functions) at such Person, whether at all times or only so long as no
senior class of securities has such voting power by reason of any contingency.
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"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person or by such Person and one or more Wholly Owned
Restricted Subsidiaries of such Person.
SECTION 102. Compliance Certificates and Opinions. Upon any application
------------------------------------
or request by the Issuer to the Trustee to take any action under any provision
of this Indenture, the Issuer shall furnish to the Trustee such certificates and
opinions as may be required under the Trust Indenture Act. Each such
certificate or opinion shall be given in the form of an Officers' Certificate,
if to be given by an officer of the Issuer, or an Opinion of Counsel, if to be
given by counsel, and shall comply with the requirements of the Trust Indenture
Act and any other requirement set forth in this Indenture.
Every certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture shall include (in form reasonably
satisfactory to the Trustee)
(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition
has been complied with (which, in the case of an Opinion of Counsel and if
permitted under the Trust Indenture Act, may be limited to reliance on an
Officers' Certificate as to matters of fact); and
(4) a statement as to whether, in the opinion of each such individual,
such condition or covenant has been complied with.
SECTION 103. Form of Documents Delivered to Trustee. In any case where
--------------------------------------
several matters are required to be certified by, or covered by an opinion of,
any specified Person, it is not necessary that all such matters be certified by,
or covered by the opinion of, only one such Person, or that they be so certified
or covered by only one document, but one such Person may certify or give an
opinion with respect to some matters and one or more other such eligible and
qualified Persons as to other matters, and any such Person may certify or give
an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Issuer may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
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erroneous. Any such certificate or opinion of counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Issuer stating the information
on which counsel is relying unless such counsel knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 104. Acts of Holders; Record Date. Any request, demand,
----------------------------
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be given or taken by Holders may be embodied in and evidenced
by one or more instruments of substantially similar tenor signed by such Holders
in person or by an agent duly appointed in writing; and, except as herein
otherwise expressly provided, such action shall become effective when such
instrument or instruments are delivered to the Trustee in accordance with
Section 105 hereof, and, where it is hereby expressly required, to the Issuer.
Such instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and (subject to Section 601) conclusive in favor of the Trustee and
the Issuer, if made in the manner provided in this Section.
The fact and date of the execution by any Person of any such instrument or
writing may be proved by the affidavit of a witness of such execution or by a
certificate of a notary public or other officer authorized by law to take
acknowledgments of deeds, certifying that the individual signing such instrument
or writing acknowledged to him the execution thereof. Where such execution is by
a signer acting in a capacity other than his individual capacity, such
certificate or affidavit shall also constitute sufficient proof of his
authority. The fact and date of the execution of any such instrument or writing,
or the authority of the Person executing the same, may also be proved in any
other manner which the Trustee deems sufficient.
The ownership of Securities shall be proved by the Security Register. Any
request, demand, authorization, direction, notice, consent, waiver or other Act
of the Holder of any Security shall bind every future Holder of the same
Security and the Holder of every Security issued upon the registration of
transfer thereof or in exchange therefor or in lieu thereof in respect of
anything done, omitted or suffered to be done by the Trustee or the Issuer in
reliance thereon, whether or not notation of such action is made upon such
Security.
The Issuer may set any day as a record date for the purpose of determining
the Holders of Outstanding Securities entitled to give, make or take any
request, demand, authorization, direction, notice, consent, waiver or other
action provided or permitted by this Indenture to be given, made or taken by
Holders of Securities, provided that the Issuer may not set a record date for,
and the provisions of this paragraph shall not apply with respect to, the giving
or making of any notice,
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declaration, request or direction referred to in the next paragraph. If not set
by the Issuer prior to the first solicitation of a Holder made by any Person in
respect of any such matter referred to in the foregoing sentence, the record
date for any such matter shall be the 30th day (or, if later, the date of the
most recent list of Holders required to be provided pursuant to Section 701)
prior to such first solicitation. If any record date is set pursuant to this
paragraph, the Holders of Outstanding Securities on such record date, and no
other Holders, shall be entitled to take the relevant action, whether or not
such Holders remain Holders after such record date; provided that no such action
shall be effective hereunder unless taken on or prior to the applicable
Expiration Date by Holders of the requisite principal amount of Outstanding
Securities on such record date. Nothing in this paragraph shall be construed to
prevent the Issuer from setting a new record date for any action for which a
record date has previously been set pursuant to this paragraph (whereupon the
record date previously set shall automatically and with no action by any Person
be cancelled and of no effect), and nothing in this paragraph shall be construed
to render ineffective any action taken by Holders of the requisite principal
amount of Outstanding Securities on the date such action is taken. Promptly
after any record date is set pursuant to this paragraph, the Issuer, at its own
expense, shall cause notice of such record date, the proposed action by Holders
and the applicable Expiration Date to be given to the Trustee in writing and to
each Holder of Securities in the manner set forth in Section 106.
The Trustee may set any day as a record date for the purpose of determining
the Holders of Outstanding Securities entitled to join in the giving or making
of (i) any Notice of Default, (ii) any declaration of acceleration referred to
in Section 502, (iii) any request to institute proceedings referred to in
Section 507(2) or (iv) any direction referred to in Section 512. If any record
date is set pursuant to this paragraph, the Holders of Outstanding Securities on
such record date, and no other Holders, shall be entitled to join in such
notice, declaration, request or direction, whether or not such Holders remain
Holders after such record date; provided that no such action shall be effective
hereunder unless taken on or prior to the applicable Expiration Date by Holders
of the requisite principal amount of Outstanding Securities on such record date.
Nothing in this paragraph shall be construed to prevent the Trustee from setting
a new record date for any action for which a record date has previously been set
pursuant to this paragraph (whereupon the record date previously set shall
automatically and with no action by any Person be cancelled and of no effect),
and nothing in this paragraph shall be construed to render ineffective any
action taken by Holders of the requisite principal amount of Outstanding
Securities on the date such action is taken. Promptly after any record date is
set pursuant to this paragraph, the Trustee, at the Issuer's expense, shall
cause notice of such record date, the proposed action by Holders and the
applicable Expiration Date to be given to the Issuer in writing and to each
Holder of Securities in the manner set forth in Section 106.
With respect to any record date set pursuant to this Section, the party
hereto which sets such record dates may designate any day as the "Expiration
Date" and from time to time may change the Expiration Date to any earlier or
later day; provided that no such change shall be effective unless notice of the
proposed new Expiration Date is given to the other party hereto in writing, and
to each Holder of Securities in the manner set forth in Section 106, on or prior
to the existing Expiration Date. If an Expiration Date is not designated with
respect to any record date set pursuant to this
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Section, the party hereto which set such record date shall be deemed to have
initially designated the 180th day after such record date as the Expiration Date
with respect thereto, subject to its right to change the Expiration Date as
provided in this paragraph. Notwithstanding the foregoing, no Expiration Date
shall be later than the 180th day after the applicable record date.
Without limiting the foregoing, a Holder entitled hereunder to take any
action hereunder with regard to any particular Security may do so with regard to
all or any part of the principal amount of such Security or by one or more duly
appointed agents each of which may do so pursuant to such appointment with
regard to all or any part of such principal amount.
SECTION 105. Notices, Etc., to Trustee and Issuer. Any request, demand,
------------------------------------
authorization, direction, notice, consent, waiver or Act of Holders or other
document provided or permitted by this Indenture to be made upon, given or
furnished to, or filed with,
(1) the Trustee by any Holder or by the Issuer shall be sufficient for
every purpose hereunder if made, given, furnished or filed in writing, to
or with the Trustee at its Corporate Trust Office, Attention: Corporate
Trust Administration, or
(2) the Issuer by the Trustee or by any Holder shall be sufficient for
every purpose hereunder (unless otherwise herein expressly provided) if in
writing and mailed, first-class postage prepaid, or delivered to the Issuer
addressed to it at the address of its principal office specified in the
first paragraph of this instrument, unless the Issuer shall notify the
Trustee in writing of any other address, in which case at such other
address.
SECTION 106. Notice to Holders; Waiver. Where this Indenture provides for
-------------------------
notice to Holders of any event, such notice shall be sufficiently given (unless
otherwise herein expressly provided) if in writing and mailed, first-class
postage prepaid, to each Holder affected by such event, at his address as it
appears in the Security Register, not later than the latest date (if any), and
not earlier than the earliest date (if any), prescribed for the giving of such
notice, with a copy to the Trustee at the same time mailed or delivered in
accordance with Section 105(1) hereof. In any case where notice to Holders is
given by mail, neither the failure to mail such notice, nor any defect in any
notice so mailed, to any particular Holder shall affect the sufficiency of such
notice with respect to other Holders. Where this Indenture provides for notice
in any manner, such notice may be waived in writing by the Person entitled to
receive such notice, either before or after the event, and such waiver shall be
the equivalent of such notice. Waivers of notice by Holders shall be filed with
the Trustee, but such filing shall not be a condition precedent to the validity
of any action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or by reason of
any other cause it shall be impracticable to give such notice by mail, then such
notification as shall be made with the approval of the Trustee shall constitute
a sufficient notification for every purpose hereunder.
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SECTION 107. Conflict with Trust Indenture Act. If any provision hereof
---------------------------------
limits, qualifies or conflicts with a provision of the Trust Indenture Act that
is required under such Act to be part of and govern this Indenture, the latter
provision shall control. If any provision of this Indenture modifies or
excludes any provision of the Trust Indenture Act that may be so modified or
excluded, the latter provision shall be deemed to apply to this Indenture as so
modified or to be excluded, as the case may be. Until such time as this
Indenture shall be qualified under the Trust Indenture Act, this Indenture, the
Issuer and the Trustee shall be deemed for all purposes hereof to be subject to
and governed by the Trust Indenture Act to the same extent as would be the case
if this Indenture were so qualified on the date hereof.
SECTION 108. Effect of Headings and Table of Contents. The Article and
----------------------------------------
Section headings herein and the Table of Contents are for convenience only and
shall not affect the construction hereof.
SECTION 109. Successors and Assigns. All covenants and agreements in this
----------------------
Indenture by the Issuer shall bind its respective successors and assigns,
whether so expressed or not.
SECTION 110. Separability Clause. In case any provision in this Indenture
-------------------
or in the Securities shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
SECTION 111. Benefits of Indenture. Nothing in this Indenture or in the
---------------------
Securities, express or implied, shall give to any Person, other than the parties
hereto and its successors hereunder and the Holders of Securities, any benefit
or any legal or equitable right, remedy or claim under this Indenture.
SECTION 112. Governing Law. THIS INDENTURE AND THE SECURITIES SHALL BE
-------------
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SECTION 113. Legal Holidays. In any case where any Interest Payment Date,
--------------
Redemption Date, Purchase Date or Stated Maturity of any Security shall not be a
Business Day, then (notwithstanding any other provision of this Indenture or of
the Securities) payment of interest or principal (and premium, if any) need not
be made on such date, but may be made on the next succeeding Business Day with
the same force and effect as if made on the Interest Payment Date, Redemption
Date or Purchase Date, or at the Stated Maturity, provided that no interest
shall accrue for the period from and after such Interest Payment Date,
Redemption Date or Purchase Date or Stated Maturity, as the case may be.
SECTION 114. Dollar Securities and Euro Securities; Relative Voting
------------------------------------------------------
Rights. The aggregate principal amount, or any portion thereof, of the
- -------
Securities, at any date of determination, shall be the sum of (1) the U.S.
Dollar Equivalent at such date of determination, of the principal amount, or
portion thereof, as the case may be, of the Euro Securities and (2) the
principal amount,
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or portion thereof, as the case may be, of the Dollar Securities, at such date
of determination. With respect to any matter requiring consent, waiver, approval
or other action of the holders of a specified percentage of the principal amount
of the Securities, such percentage shall be calculated, on the relevant date of
determination, by dividing (a) the principal amount, as of such date, of
Securities, the Holders of which have so consented by (b) the aggregate
principal amount, as of such date, of the Securities then outstanding, in each
case, as determined in accordance with the preceding sentence.
ARTICLE TWO
Security Forms
SECTION 201. Forms Generally; Initial Forms of Rule 144A Dollar Securities
-------------------------------------------------------------
and Regulation S Dollar Securities and Rule 144A Euro Securities and Regulation
- -------------------------------------------------------------------------------
S Euro Securities. The Securities and the certificates of authentication shall
- -----------------
be in substantially the forms set forth in this Article, with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture, and may have such letters, numbers or other marks
of identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange or as may,
consistently herewith, be determined by the officers executing such Securities,
as evidenced by its execution of the Securities.
The definitive Securities shall be printed, lithographed or engraved or
produced by any combination of these methods on steel engraved borders or may be
produced in any other manner provided that such manner is permitted by the rules
of any securities exchange on which the Securities may be listed, all as
determined by the officers executing such Securities, as evidenced by its
execution of such Securities.
Upon their original issuance, Rule 144A Dollar Securities shall be issued
in the form of one or more Global Dollar Securities registered in the name of
DTC, as Depositary, or its nominee and deposited with the Trustee, as custodian
for DTC, for credit by DTC to the respective accounts of beneficial owners of
the Securities represented thereby (or such other accounts as they may direct).
Such Global Dollar Securities, together with their Successor Securities which
are Global Dollar Securities other than the Regulation S Global Dollar Security,
are collectively herein called the "Restricted Global Dollar Security". Upon
their original issuance, Rule 144A Euro Securities shall be issued in the form
of one or more Global Euro Securities registered in the name of Chase Nominees
Limited as nominee of Euroclear, as Depositary for the Rule 144A Euro
Securities, or its nominee and deposited with the Euro Agent at its Corporate
Agency Office, as custodian for Euroclear, for credit by Euroclear to the
respective accounts of beneficial owners of the Securities represented thereby
(or such other accounts as they may direct). Such Global Euro Securities,
together with their Successor Securities which are Global Euro Securities other
than the Regulation S Global Euro Security, are collectively herein called the
"Restricted Global Euro Security" and together with the Restricted Global Dollar
Security, the "Restricted Global Security".
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Upon their original issuance, Regulation S Dollar Securities (herein called
"Regulation S Global Dollar Security") shall be issued in the form of a single
Global Dollar Security registered in the name of DTC, as Depositary, or its
nominee and deposited with the Trustee at its Corporate Trust Office, as
custodian for DTC, for credit to Morgan Guaranty Trust Company of New York,
Brussels Office, as operator of Euroclear and Cedelbank, in turn for credit to
the respective accounts of beneficial owners of the Dollar Securities
represented thereby (or such other accounts as such beneficial owners may
direct) in accordance with the rules thereof. Upon their original issuance,
Regulation S Euro Securities (herein called "Regulation S Global Euro Security"
and together with the Regulation S Global Dollar Security, the "Regulation S
Global Security") shall be issued in the form of a single Global Euro Security
registered in the name of Chase Nominees Limited, as nominee of the Depositary
for the Regulation S Euro Securities, or its nominee and deposited with the Euro
Agent at its Corporate Agency Office, as custodian for the Depositary for the
Regulation S Euro Securities, for credit to the respective accounts of
beneficial owners of the Euro Securities represented thereby (or such other
accounts as such beneficial owners may direct) in accordance with the rules
thereof.
Beneficial interests in the Regulation S Dollar Global Security and
Regulation S Euro Security may only be held through Euroclear and Cedelbank
until the expiration of the Distribution Compliance Period as provided in
Section 306(b)(4).
SECTION 202. Form of Face of Dollar Security. [IF THE DOLLAR SECURITY IS
-------------------------------
A RESTRICTED DOLLAR SECURITY, THEN INSERT -- THE SECURITIES EVIDENCED HEREBY
HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933 (THE
"SECURITIES ACT") AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED
EXCEPT (A)(1) TO A PERSON WHOM THE TRANSFEROR REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT
ACQUIRING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL
BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE
TRANSACTION COMPLYING WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE
SECURITIES ACT, (3) TO AN INSTITUTIONAL ACCREDITED INVESTOR (AS DEFINED IN RULE
501(A)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT) IN A
TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, (4)
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY
RULE 144 THEREUNDER (IF AVAILABLE), OR (5) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND (B) IN ACCORDANCE WITH ALL APPLICABLE
SECURITIES LAWS OF THE STATES OF THE UNITED STATES AND OTHER JURISDICTIONS.]
[IF THIS DOLLAR SECURITY IS A GLOBAL DOLLAR SECURITY, THEN INSERT -- THIS
DOLLAR SECURITY IS A GLOBAL DOLLAR SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A
NOMINEE THEREOF. THIS SECURITY MAY NOT BE EXCHANGED
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IN WHOLE OR IN PART FOR A SECURITY REGISTERED, AND NO TRANSFER OF THIS SECURITY
IN WHOLE OR IN PART MAY BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH
DEPOSITARY OR A NOMINEE THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED
IN THE INDENTURE.]
[IF THIS DOLLAR SECURITY IS A GLOBAL DOLLAR SECURITY AND THE DEPOSITORY
TRUST COMPANY IS TO BE THE DEPOSITARY THEREFOR, THEN INSERT -- UNLESS THIS
DOLLAR SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY DOLLAR SECURITY ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.]
[IF THIS DOLLAR SECURITY IS A REGULATION S DOLLAR SECURITY, THEN INSERT --
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933 (THE "SECURITIES ACT") AND MAY NOT BE OFFERED, SOLD OR
DELIVERED IN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, ANY U.S.
PERSON, UNLESS SUCH SECURITIES ARE REGISTERED UNDER THE SECURITIES ACT OR AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREOF IS AVAILABLE.]
EXODUS COMMUNICATIONS, INC.
10 3/4% Senior Notes due 2009
[If Restricted Dollar Security CUSIP No. [__________]
[If Regulation S Dollar Security -- ISIN No. [___________]
No. __________ $________
Exodus Communications, Inc., a corporation duly organized and existing
under the laws of Delaware (herein called the "Issuer", which term includes any
successor Person under the Indenture hereinafter referred to), for value
received, hereby promise to pay to __________________, or registered assigns,
the principal sum of _____________________ Dollars (such amount the
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"principal amount" of this Dollar Security) [IF THE DOLLAR SECURITY IS A GLOBAL
DOLLAR SECURITY, THEN INSERT -- , or such other principal amount (which, when
taken together with the principal amounts of all other Outstanding Dollar
Securities, shall not exceed $475,000,000 in the aggregate at any time
($575,000,000, including the Additional Securities)) as may be set forth in the
records of the Trustee as referred to in accordance with the Indenture,] on
December 15, 2009 and to pay interest thereon from December 8, 1999 or from the
most recent Interest Payment Date to which interest has been paid or duly
provided for, payable in arrears semi-annually on June 15 and December 15 in
each year, commencing June 15, 2000 at the rate of 10 3/4% per annum, until the
principal hereof is paid or made available for payment. The interest so payable,
and punctually paid or duly provided for, on any Interest Payment Date will, as
provided in such Indenture, be paid to the Person in whose name this Dollar
Security (or one or more Predecessor Securities) is registered at the close of
business on the Regular Record Date for such interest, which shall be the June 1
or December 1 (whether or not a Business Day), as the case may be, next
preceding such Interest Payment Date. Any such interest not so punctually paid
or duly provided for will forthwith cease to be payable to the Holder on the
relevant Regular Record Date and may either be paid to the Person in whose name
this Dollar Security (or one or more Predecessor Securities) is registered at
the close of business on a Special Record Date for the payment of such Defaulted
Interest to be fixed by the Trustee in accordance with Section 308 of the
Indenture, notice whereof shall be given to Holders of Dollar Securities not
less than 10 days prior to such Special Record Date, or be paid at any time in
any other lawful manner not inconsistent with the requirements of any securities
exchange on which the Dollar Securities may be listed, and upon such notice as
may be required by such exchange, all as more fully provided in said Indenture.
Interest on this Dollar Security shall be computed on the basis set forth in the
Indenture.
Payment of the principal of (and premium, if any) and any such interest on
this Dollar Security will be made at the office or agency of the Issuer in the
Borough of Manhattan, The City of New York, New York, maintained for such
purpose and at any other office or agency maintained by the Issuer for such
purpose, in such coin or currency of the United States of America as at the time
of payment is legal tender for payment of public and private debts; provided,
however, that at the option of the Issuer payment of interest may be made by
check mailed to the address of the Person entitled thereto as such address shall
appear in the Security Register; provided further that all payments of the
principal (and premium, if any) and interest on Dollar Securities, the Holders
of which hold more than $5.0 million in principal amount and have given wire
transfer instructions to the Issuer or its agent at least 10 Business Days prior
to the applicable payment date, will be required to be made by wire transfer of
immediately available funds to the accounts specified by such Holders in such
instructions.
Reference is hereby made to the further provisions of this Dollar Security
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
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<PAGE>
Unless the certificate of authentication hereon has been executed by the
Trustee or Authentication Agent referred to on the reverse hereof by manual
signature, this Dollar Security shall not be entitled to any benefit under the
Indenture or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly
executed.
EXODUS COMMUNICATIONS, INC.
By:_____________________________________
Name:
Title:
Attest:_________________________________
Name:
Title:
CERTIFICATE OF AUTHENTICATION
This is one of the Dollar Securities referred to in the within-mentioned
Indenture.
Dated: December 8, 1999
Chase Manhattan Bank and Trust Company,
National Association,
as Trustee
By:___________________________
Authorized Signatory
SECTION 203. Form of Reverse of Dollar Security. This Dollar Security is
----------------------------------
one of a duly authorized issue of Dollar Securities of the Issuer designated as
its Dollar Denominated 10 3/4% Senior Notes due 2009 (herein called the "Dollar
Securities"), issued and to be issued under an Indenture, dated as of December
1, 1999 (herein called the "Indenture", which term shall have the meaning
assigned to it in such instrument), among the Issuer and Chase Manhattan Bank
and Trust Company, National Association, as Trustee (herein called the
"Trustee", which term includes any successor trustee under the Indenture), to
which Indenture and all indentures supplemental thereto
-33-
<PAGE>
reference is hereby made for a statement of the respective rights, limitations
of rights, duties and immunities thereunder of the Issuer, the Trustee and the
Holders of the Dollar Securities and of the terms upon which the Dollar
Securities are, and are to be, authenticated and delivered.
The Dollar Securities are subject to redemption, at the option of the
Issuer, in whole or in part, at any time on or after December 15, 2004 and prior
to maturity, upon not less than 30 nor more than 60 days' notice mailed to each
Holder of Dollar Securities to be redeemed at such Holder's address appearing in
the Security Register, in amounts of $1,000 or an integral multiple of $1,000,
at the following Redemption Prices (expressed as percentages of the principal
amount) plus accrued and unpaid interest and Liquidated Damages, if any, to but
excluding the Redemption Date (subject to the right of Holders of record on the
immediately preceding Record Date to receive interest due on an Interest Payment
Date that is on or prior to the Redemption Date), if redeemed during the 12-
month period beginning December 15 of the years indicated below:
____ ____________
Year Redemption
Price
2004............................................................... 105.375%
2005............................................................... 103.583%
2006............................................................... 101.792%
2007 and thereafter................................................ 100.000%
In addition, at any time prior to December 15, 2002, the Issuer may redeem
up to 35% of the aggregate Outstanding principal amount of the Dollar Securities
with the Net Cash Proceeds of one or more sales of Capital Stock (other than
Disqualified Stock) at a Redemption Price equal to 110.75% of the aggregate
principal amount thereof, plus accrued and unpaid interest thereon and
Liquidated Damages, if any, to the date of redemption; provided that at least
65% of the original principal amount of the Dollar Securities remains
Outstanding immediately following such redemption. In order to effect the
foregoing redemption, the Issuer must mail a notice of redemption no later than
45 days after the related sale of Capital Stock and must consummate such
redemption within 60 days of the closing of the sale of Capital Stock.
The Dollar Securities do not have the benefit of any sinking fund
obligations.
In the event of redemption or purchase pursuant to an Offer to Purchase of
this Dollar Security in part only, a new Dollar Security or Dollar Securities
for the unredeemed or unpurchased portion hereof will be issued in the name of
the Holder hereof upon the cancellation hereof.
If an Event of Default shall occur and be continuing, there may be declared
due and payable the principal amount of (together with accrued and unpaid
interest on) the Dollar Securities, in the manner and with the effect provided
in the Indenture.
[IF DOLLAR SECURITY IS A RESTRICTED SECURITY, THEN INSERT -- The Holder of
this Dollar Security (and any Person that has a beneficial interest in this
Dollar Security) is
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<PAGE>
entitled to the benefits of an Exchange and Registration Rights Agreement, dated
as of December 1, 1999, and as the same may be amended from time to time (the
"Exchange and Registration Rights Agreement"), executed by the Issuer. The
Exchange and Registration Rights Agreement provides that Liquidated Damages will
be payable by the Issuer on the Dollar Securities for specified periods if the
Issuer does not comply with certain of its obligations thereunder. Issuer agrees
to pay Liquidated Damages, if any, accruing on this Dollar Security.]
The Indenture provides that, subject to certain conditions, if (i) certain
Net Cash Proceeds are available to the Issuer as a result of an Asset Sale or
(ii) a Change of Control occurs, the Issuer shall be required to make an Offer
to Purchase for all or a specified portion of the Dollar Securities.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Holders of the Securities under the Indenture at
any time by the Issuer and the Trustee with the consent of the Holders of a
majority in aggregate principal amount of the Securities at the time
Outstanding. The Indenture also contains provisions permitting the Holders of
specified percentages in aggregate principal amount of the Securities at the
time Outstanding, on behalf of the Holders of all the Securities, to waive
compliance by the Issuer with certain provisions of the Indenture and certain
past defaults under the Indenture and its consequences. Any such consent or
waiver by the Holder of this Dollar Security shall be conclusive and binding
upon such Holder and upon all future Holders of this Dollar Security and of any
Dollar Security issued upon the registration of transfer hereof or in exchange
herefor or in lieu hereof, whether or not notation of such consent or waiver is
made upon this Dollar Security.
As provided in and subject to the provisions of the Indenture, the Holder
of this Dollar Security shall not have the right to institute any proceeding
with respect to the Indenture or for the appointment of a receiver or trustee or
for any other remedy thereunder, unless such Holder shall have previously given
the Trustee written notice of a continuing Event of Default with respect to the
Securities, the Holders of not less than 25% in principal amount of the
Securities at the time Outstanding shall have made written request to the
Trustee to institute proceedings in respect of such Event of Default as Trustee
and offered the Trustee reasonable indemnity and the Trustee shall not have
received from the Holders of a majority in principal amount of Securities at the
time Outstanding a direction inconsistent with such request and shall have
failed to institute any such proceeding for 60 days after receipt of such
notice, request and offer of indemnity. The foregoing shall not apply to
certain suits described in the Indenture, including any suit instituted by the
Holder of this Dollar Security for the enforcement of any payment of principal
hereof or any premium or interest hereon on or after the respective due dates
expressed herein (or, in the case of redemption, on or after the Redemption Date
or, in the case of any purchase of this Dollar Security required to be made
pursuant to an Offer to Purchase, on the Purchase Date).
No reference herein to the Indenture and no provision of this Dollar
Security or of the Indenture shall alter or impair the obligation of the Issuer,
which is absolute and unconditional, to
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<PAGE>
pay the principal of (and premium, if any) and interest on this Dollar Security
at the times, place and rate, and in the coin or currency, herein prescribed.
As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Dollar Security is registrable in the Security
Register, upon surrender of this Dollar Security for registration of transfer at
the office or agency of the Issuer in the Borough of Manhattan, The City of New
York, duly endorsed by, or accompanied by a written instrument of transfer in
form satisfactory to the Issuer and the Security Registrar duly executed by, the
Holder hereof or his attorney duly authorized in writing, and thereupon one or
more new Dollar Securities, of authorized denominations and for the same
aggregate principal amount, will be issued to the designated transferee or
transferees.
The Dollar Securities are issuable only in registered form without coupons
in denominations of $1,000 and any integral multiple thereof. As provided in
the Indenture and subject to certain limitations therein set forth, Dollar
Securities are exchangeable for a like aggregate principal amount of Dollar
Securities of a different authorized denomination, as requested by the Holder
surrendering the same.
No service charge shall be made for any such registration of transfer or
exchange, but the Issuer may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Dollar Security for registration of
transfer, the Issuer, the Trustee and any agent of the Issuer or the Trustee may
treat the Person in whose name this Dollar Security is registered as the owner
hereof for all purposes, whether or not this Dollar Security be overdue, and
neither the Issuer, the Trustee nor any such agent shall be affected by notice
to the contrary.
Interest on this Dollar Security shall be computed on the basis of a 360-
day year of twelve 30-day months.
All terms used in this Dollar Security which are defined in the Indenture
shall have the meanings assigned to them in the Indenture.
The Indenture and this Dollar Security shall be governed by and construed
in accordance with the laws of the State of New York.
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Dollar Security purchased in its entirety
by the Issuer pursuant to Section 1015 or 1016 of the Indenture, check the box:
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<PAGE>
[_]
If you want to elect to have only a part of this Dollar Security purchased
by the Issuer pursuant to Section 1015 or 1016 of the Indenture, state the
amount:
$_____________
Dated: Your Signature:_________________________________________________________
(Sign exactly as name appears on the other side of this
Dollar Security)
Signature Guarantee:___________________________________________________
(Signature must be guaranteed by an eligible
Guarantor Institution (banks, stockbrokers, savings
and loan associations and credit unions) with
membership in an approved signature medallion
program pursuant to Securities and Exchange
Commission Rule 17Ad-15.)
SECTION 204. Form of Face of Euro Security. [IF THE EURO SECURITY IS A
-----------------------------
RESTRICTED EURO SECURITY, THEN INSERT -- THE SECURITIES EVIDENCED HEREBY HAVE
NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933 (THE
"SECURITIES ACT") AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED
EXCEPT (A)(1) TO A PERSON WHOM THE TRANSFEROR REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT
ACQUIRING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL
BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE
TRANSACTION COMPLYING WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE
SECURITIES ACT, (3) TO AN INSTITUTIONAL ACCREDITED INVESTOR (AS DEFINED IN RULE
501(A)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT) IN A
TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, (4)
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY
RULE 144 THEREUNDER (IF AVAILABLE), OR (5) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND (B) IN ACCORDANCE WITH ALL APPLICABLE
SECURITIES LAWS OF THE STATES OF THE UNITED STATES AND OTHER JURISDICTIONS.]
[IF THIS EURO SECURITY IS A GLOBAL EURO SECURITY, THEN INSERT -- THIS EURO
SECURITY IS A GLOBAL EURO SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A
NOMINEE THEREOF. THIS EURO SECURITY MAY NOT BE EXCHANGED IN WHOLE OR IN PART
FOR A SECURITY REGISTERED, AND NO TRANSFER OF THIS SECURITY IN WHOLE OR IN PART
MAY BE REGISTERED, IN THE
-37-
<PAGE>
NAME OF ANY PERSON OTHER THAN SUCH DEPOSITARY OR A NOMINEE THEREOF, EXCEPT IN
THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.]
[IF THIS EURO SECURITY IS A RESTRICTED GLOBAL EURO SECURITY AND EUROCLEAR
IS TO BE THE DEPOSITARY THEREFOR, THEN INSERT -- UNLESS THIS EURO SECURITY IS
PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF MORGAN GUARANTY AND TRUST OF NEW
YORK, BRUSSELS OFFICE, AS OPERATOR OF EUROCLEAR ("MORGAN"), TO THE ISSUER OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY EURO SECURITY
ISSUED IS REGISTERED IN THE NAME OF CHASE NOMINEES LIMITED OR IN SUCH OTHER NAME
AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF MORGAN (AND ANY PAYMENT IS
MADE TO CHASE MANHATTAN BANK LONDON OR TO SUCH OTHER ENTITY AS IS REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF EUROCLEAR), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE
REGISTERED OWNER HEREOF, CHASE NOMINEES LIMITED, OR OTHER NOMINEE OF EUROCLEAR,
HAS AN INTEREST HEREIN.]
[IF THIS EURO SECURITY IS A REGULATION S GLOBAL EURO SECURITY AND MORGAN
GUARANTY AND TRUST OF NEW YORK, BRUSSELS OFFICE, AS OPERATOR OF EUROCLEAR AND
CEDELBANK, IS TO BE THE DEPOSITARY THEREFOR, THEN INSERT -- UNLESS THIS EURO
SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF MORGAN GUARANTY AND
TRUST OF NEW YORK, BRUSSELS OFFICE, AS OPERATOR OF EUROCLEAR AND CEDELBANK
("MORGAN"), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR
PAYMENT, AND ANY EURO SECURITY ISSUED IS REGISTERED IN THE NAME OF CHASE
NOMINEES LIMITED OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF MORGAN (AND ANY PAYMENT IS MADE TO CHASE MANHATTAN BANK LONDON
OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF
EUROCLEAR AND CEDELBANK), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CHASE NOMINEES LIMITED, HAS AN INTEREST HEREIN.]
[IF THIS EURO SECURITY IS A REGULATION S EURO SECURITY, THEN INSERT -- THE
SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933 (THE "SECURITIES ACT") AND MAY NOT BE OFFERED, SOLD OR
DELIVERED IN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, ANY U.S.
PERSON, UNLESS SUCH SECURITIES ARE REGISTERED UNDER THE SECURITIES ACT OR AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREOF IS AVAILABLE.]
EXODUS COMMUNICATIONS, INC.
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<PAGE>
10 3/4% Senior Notes due 2009
[If Restricted Euro Security -- ISIN No. [_____ _____]
[If Regulation S Euro Security -- ISIN No. [___________]
No. __________ Euro________
Exodus Communications, Inc., a corporation duly organized and existing
under the laws of Delaware (herein called the "Issuer", which term includes any
successor Person under the Indenture hereinafter referred to), for value
received, hereby promise to pay to __________________, or registered assigns,
the principal sum of _____________________ Euros (such amount the "principal
amount" of this Euro Security) [IF THE EURO SECURITY IS A GLOBAL EURO SECURITY,
THEN INSERT -- , or such other principal amount (which, when taken together with
the principal amounts of all other Outstanding Euro Securities, shall not exceed
Euro 225,000,000 in the aggregate at any time) as may be set forth in the
records of the Trustee or Authentication Agent as referred to in accordance with
the Indenture,] on December 15, 2009 and to pay interest thereon from December
8, 1999 or from the most recent Interest Payment Date to which interest has been
paid or duly provided for, payable in arrears semi-annually on June 15 and
December 15 in each year, commencing June 15, 2000 at the rate of 10 3/4% per
annum, until the principal hereof is paid or made available for payment. The
interest so payable, and punctually paid or duly provided for, on any Interest
Payment Date will, as provided in such Indenture, be paid to the Person in whose
name this Euro Security (or one or more Predecessor Securities) is registered at
the close of business on the Regular Record Date for such interest, which shall
be the June 1 or December 1 (whether or not a Business Day), as the case may be,
next preceding such Interest Payment Date. Any such interest not so punctually
paid or duly provided for will forthwith cease to be payable to the Holder on
the relevant Regular Record Date and may either be paid to the Person in whose
name this Euro Security (or one or more Predecessor Securities) is registered at
the close of business on a Special Record Date for the payment of such Defaulted
Interest to be fixed by the Trustee or Authentication Agent in accordance with
Section 308 of the Indenture, notice whereof shall be given to Holders of Euro
Securities not less than 10 days prior to such Special Record Date, or be paid
at any time in any other lawful manner not inconsistent with the requirements of
any securities exchange on which the Euro Securities may be listed, and upon
such notice as may be required by such exchange, all as more fully provided in
said Indenture. Interest on this Euro Security shall be computed on the basis
set forth in the Indenture.
Payment of the principal of (and premium, if any) and any such interest on
this Euro Security will be made at the office or agency of the Euro Paying Agent
maintained for such purpose and at any other office or agency maintained by the
Issuer for such purpose, in Euros; provided, however, that at the option of the
Issuer payment of interest may be made by check mailed to the address of the
Person entitled thereto as such address shall appear in the Security Register;
provided further that
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<PAGE>
all payments of the principal (and premium, if any) and interest on Euro
Securities, the Holders of which hold more than Euro 5.0 million in principal
amount and have given wire transfer instructions to the Issuer or its agent at
least 10 Business Days prior to the applicable payment date, will be required to
be made by wire transfer of immediately available funds to the accounts
specified by such Holders in such instructions.
Reference is hereby made to the further provisions of this Euro Security
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Trustee or Authentication Agent referred to on the reverse hereof by manual
signature, this Euro Security shall not be entitled to any benefit under the
Indenture or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly
executed.
EXODUS COMMUNICATIONS, INC.
By:________________________________
Name:
Title:
Attest:____________________________
Name:
Title:
CERTIFICATE OF AUTHENTICATION
This is one of the Euro Securities referred to in the within-mentioned
Indenture.
Dated: December 8, 1999
Chase Manhattan Bank London,
as Authentication Agent
By:_____________________________________
Authorized Signatory
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<PAGE>
SECTION 205. Form of Reverse of Euro Security. This Euro Security is one
--------------------------------
of a duly authorized issue of Euro Securities of the Issuer designated as its
Euro Denominated 10 3/4% Senior Notes due 2009 (herein called the "Euro
Securities"), issued and to be issued under an Indenture, dated as of December
1, 1999 (herein called the "Indenture", which term shall have the meaning
assigned to it in such instrument), among the Issuer and Chase Manhattan Bank
and Trust Company, National Association, as Trustee (herein called the
"Trustee", which term includes any successor trustee under the Indenture), to
which Indenture and all indentures supplemental thereto reference is hereby made
for a statement of the respective rights, limitations of rights, duties and
immunities thereunder of the Issuer, the Trustee or Authentication Agent and the
Holders of the Euro Securities and of the terms upon which the Euro Securities
are, and are to be, authenticated and delivered.
The Euro Securities are subject to redemption, at the option of the Issuer,
in whole or in part, at any time on or after December 15, 2004 and prior to
maturity, upon not less than 30 nor more than 60 days' notice mailed to each
Holder of Euro Securities to be redeemed at such Holder's address appearing in
the Security Register, in amounts of Euro 1,000 or an integral multiple of Euro
1,000, at the following Redemption Prices (expressed as percentages of the
principal amount) plus accrued and unpaid interest and Liquidated Damages, if
any, to but excluding the Redemption Date (subject to the right of Holders of
record on the immediately preceding Record Date to receive interest due on an
Interest Payment Date that is on or prior to the Redemption Date), if redeemed
during the 12-month period beginning December 15 of the years indicated below:
____ ___________
Year Redemption
Price
2004............................................................... 105.375%
2005............................................................... 103.583%
2006............................................................... 101.792%
2007 and thereafter................................................ 100.000%
In addition, at any time prior to December 15, 2002, the Issuer may redeem
up to 35% of the aggregate Outstanding principal amount of the Euro Securities
with the Net Cash Proceeds of one or more sales of Capital Stock (other than
Disqualified Stock) at a Redemption Price equal to 110.75% of the aggregate
principal amount thereof, plus accrued and unpaid interest thereon and
Liquidated Damages, if any, to the date of redemption; provided that at least
65% of the original principal amount of the Euro Securities remains Outstanding
immediately following such redemption. In order to effect the foregoing
redemption, the Issuer must mail a notice of redemption no later than 45 days
after the related sale of Capital Stock and must consummate such redemption
within 60 days of the closing of the sale of Capital Stock.
The Euro Securities do not have the benefit of any sinking fund
obligations.
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<PAGE>
In the event of redemption or purchase pursuant to an Offer to Purchase of
this Euro Security in part only, a new Euro Security or Euro Securities for the
unredeemed or unpurchased portion hereof will be issued in the name of the
Holder hereof upon the cancellation hereof.
If an Event of Default shall occur and be continuing, there may be declared
due and payable the principal amount of (together with accrued and unpaid
interest on) the Euro Securities, in the manner and with the effect provided in
the Indenture.
[IF EURO SECURITY IS A RESTRICTED SECURITY, THEN INSERT -- The Holder of
this Euro Security (and any Person that has a beneficial interest in this Euro
Security) is entitled to the benefits of an Exchange and Registration Rights
Agreement, dated as of December 1, 1999, and as the same may be amended from
time to time (the "Exchange and Registration Rights Agreement"), executed by the
Issuer. The Exchange and Registration Rights Agreement provides that Liquidated
Damages will be payable by the Issuer on the Euro Securities for specified
periods if the Issuer does not comply with certain of its obligations
thereunder. Issuer agrees to pay Liquidated Damages, if any, accruing on this
Euro Security.]
The Indenture provides that, subject to certain conditions, if (i) certain
Net Cash Proceeds are available to the Issuer as a result of an Asset Sale or
(ii) a Change of Control occurs, the Issuer shall be required to make an Offer
to Purchase for all or a specified portion of the Euro Securities.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Holders of the Securities under the Indenture at
any time by the Issuer and the Trustee or Authentication Agent with the consent
of the Holders of a majority in aggregate principal amount of the Securities at
the time Outstanding. The Indenture also contains provisions permitting the
Holders of specified percentages in aggregate principal amount of the Securities
at the time Outstanding, on behalf of the Holders of all the Securities, to
waive compliance by the Issuer with certain provisions of the Indenture and
certain past defaults under the Indenture and its consequences. Any such
consent or waiver by the Holder of this Euro Security shall be conclusive and
binding upon such Holder and upon all future Holders of this Euro Security and
of any Euro Security issued upon the registration of transfer hereof or in
exchange herefor or in lieu hereof, whether or not notation of such consent or
waiver is made upon this Euro Security.
As provided in and subject to the provisions of the Indenture, the Holder
of this Euro Security shall not have the right to institute any proceeding with
respect to the Indenture or for the appointment of a receiver or trustee or
authentication agent or for any other remedy thereunder, unless such Holder
shall have previously given the Trustee or Authentication Agent written notice
of a continuing Event of Default with respect to the Securities, the Holders of
not less than 25% in principal amount of the Securities at the time Outstanding
shall have made written request to the Trustee or Authentication Agent to
institute proceedings in respect of such Event of Default as Trustee or
Authentication Agent and offered the Trustee or Authentication Agent reasonable
indemnity and the Trustee or Authentication Agent shall not have received from
the Holders of a
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<PAGE>
majority in principal amount of Securities at the time Outstanding a direction
inconsistent with such request and shall have failed to institute any such
proceeding for 60 days after receipt of such notice, request and offer of
indemnity. The foregoing shall not apply to certain suits described in the
Indenture, including any suit instituted by the Holder of this Euro Security for
the enforcement of any payment of principal hereof or any premium or interest
hereon on or after the respective due dates expressed herein (or, in the case of
redemption, on or after the Redemption Date or, in the case of any purchase of
this Euro Security required to be made pursuant to an Offer to Purchase, on the
Purchase Date).
No reference herein to the Indenture and no provision of this Euro Security
or of the Indenture shall alter or impair the obligation of the Issuer, which is
absolute and unconditional, to pay the principal of (and premium, if any) and
interest on this Euro Security at the times, place and rate, and in the coin or
currency, herein prescribed.
As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Euro Security is registrable in the Security
Register, upon surrender of this Euro Security for registration of transfer at
the office or agency of the Issuer in the Borough of Manhattan, The City of New
York, duly endorsed by, or accompanied by a written instrument of transfer in
form satisfactory to the Issuer and the Security Registrar duly executed by, the
Holder hereof or his attorney duly authorized in writing, and thereupon one or
more new Euro Securities, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or transferees.
The Euro Securities are issuable only in registered form without coupons in
denominations of Euro 1,000 and any integral multiple thereof. As provided in
the Indenture and subject to certain limitations therein set forth, Euro
Securities are exchangeable for a like aggregate principal amount of Euro
Securities of a different authorized denomination, as requested by the Holder
surrendering the same.
No service charge shall be made for any such registration of transfer or
exchange, but the Issuer may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Euro Security for registration of
transfer, the Issuer, the Trustee or Authentication Agent and any agent of the
Issuer or the Trustee or Authentication Agent may treat the Person in whose name
this Euro Security is registered as the owner hereof for all purposes, whether
or not this Euro Security be overdue, and neither the Issuer, the Trustee nor
Authentication Agent nor any such agent shall be affected by notice to the
contrary.
Interest on this Euro Security shall be computed on the basis of a 360-day
year of twelve 30-day months.
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<PAGE>
All terms used in this Euro Security which are defined in the Indenture
shall have the meanings assigned to them in the Indenture.
The Indenture and this Euro Security shall be governed by and construed in
accordance with the laws of the State of New York.
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Euro Security purchased in its entirety
by the Issuer pursuant to Section 1015 or 1016 of the Indenture, check the box:
[_]
If you want to elect to have only a part of this Euro Security purchased by
the Issuer pursuant to Section 1015 or 1016 of the Indenture, state the amount:
Euro _____________
Dated: Your Signature:_______________________________________________________
(Sign exactly as name appears on the other side of this
Euro Security)
Signature Guarantee:_____________________________________________
(Signature must be guaranteed by an eligible
Guarantor Institution (banks, stockbrokers,
savings and loan associations and credit
unions) with membership in an approved
signature medallion program pursuant to
Securities and Exchange Commission Rule 17Ad-
15.)
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<PAGE>
SECTION 206. Form of Certificate of Authentication. The Certificate of
-------------------------------------
Authentication for the Dollar Securities shall be in substantially the following
form:
This is one of the Securities referred to in the within-mentioned
Indenture.
Dated:
Chase Manhattan Bank and Trust Company,
National Association
as Trustee
By__________________________________
Authorized Signatory
The Certificate of Authentication for the Euro Securities shall be in
substantially the following form:
This is one of the Securities referred to in the within-mentioned
Indenture.
Dated:
Chase Manhattan Bank London
as Authentication Agent
By__________________________________
Authorized Signatory
ARTICLE THREE
The Securities
SECTION 301. Title and Terms. The aggregate principal amount of Dollar
---------------
Securities which may be authenticated and delivered under this Indenture is
limited to $375,000,000 ($475,000,000 including Additional Securities, which
amounts shall be increased to $475,000,000 ($575,000,000 including Additional
Securities) if the Issuer would be permitted, after giving pro forma effect to
the incurrence of such Debt, to incur $1.00 of additional Debt under the first
paragraph of Section 1008 hereof. The aggregrate principal amount of Euro
Securities which may be authenticated and delivered under this Indenture is
limited to Euro 125,000,000 which amount shall be increased to Euro 225,000,000
if the Issuer would be permitted, after giving pro forma effect to the
incurrence of
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<PAGE>
such Debt, to incur $1.00 of additional Debt under the first paragraph of
Section 1008 hereof, except for Securities authenticated and delivered upon
registration of transfer of, or in exchange for, or in lieu of, other Securities
pursuant to Section 304, 305, 306, 307, 906 or 1108 or in connection with an
Offer to Purchase pursuant to Section 1015 or 1016 (all Securities referred to
in this exception being deemed "Substitute Securites"). The Issuer may from time
to time issue Additional Securities, in each case pursuant to a Board Resolution
and subject to Section 303. The Issuer may issue Exchange Securities from time
to time pursuant to an Exchange Offer, in each case pursuant to a Board
Resolution and subject to Section 303, in authorized denominations in exchange
for a like principal amount of Original Securities or Additional Securities.
Upon any such exchange the Original Securities or Additional Securities, as the
case may be, shall be cancelled in accordance with Section 310 and shall no
longer be deemed Outstanding for any purpose.
The Dollar Securities (including Additional Securities) shall be known and
designated as the "Dollar Denominated 10 3/4% Senior Notes due 2009" of the
Issuer. The Euro Securities shall be known and designated as the "Euro
Denominated 10 3/4% Senior Notes due 2009" of the Issuer. Their final maturity
date shall be December 15, 2009 and they shall bear interest at the rate of 10
3/4% per annum, from December 8, 1999 or from the most recent Interest Payment
Date to which interest has been paid or duly provided for, as the case may be,
regardless of when issued, payable semi-annually in arrears on June 15 and
December 15, commencing June 15, 2000, until the principal thereof is paid or
made available for payment. Notwithstanding the foregoing, Liquidated Damages
shall be payable on the Dollar Securities and Euro Securities, respectively,
under the circumstances and in the manner specified in the Exchange and
Registration Rights Agreement. Accrued Liquidated Damages, if any, shall be
paid in cash in arrears semi-annually on June 15 and December 15 in each year.
Whenever in this Indenture there is mentioned, in any context, interest on, or
in respect of, any Security, such mention shall be deemed to include mention of
Liquidated Damages to the extent that, in such context, Liquidated Damages is,
was or would be accrued or payable in respect thereof and express mention of
Liquidated Damages in any provisions hereof shall not be construed as excluding
Liquidated Damages in those provisions hereof where such express mention is not
made.
The principal of (and premium, if any) and interest on the Dollar
Securities shall be payable at the office or agency of the Issuer in the Borough
of Manhattan, The City of New York maintained for such purpose and on the Euro
Securities shall be payable at the office or agency of the Euro Paying Agent in
London, England and at any other office or agency maintained by the Issuer for
such purpose; provided, however, that at the option of the Issuer payment of
interest may be made by check mailed to the address of the Person entitled
thereto as such address shall appear in the Security Register.
The Securities shall be subject to repurchase by the Issuer pursuant to an
Offer to Purchase as provided in Sections 1015 and 1016.
The Securities shall be redeemable as provided in Article Eleven.
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<PAGE>
The Securities shall be subject to defeasance and covenant defeasance as
provided in Article Twelve.
The Securities shall not have the benefit of any sinking fund obligation.
Unless the context otherwise requires, the Original Securities, the
Additional Securities and the Exchange Securities (as well as the Dollar
Securites and the Euro Securities) shall constitute one class and series of
securities for all purposes under this Indenture, including with respect to any
amendment, waiver, acceleration or other Act of Holders, redemption (other than
at the election of the Issuer as described in the third paragraph of the reverse
side of Form of Dollar Security and reverse side of Form of Euro Security) or
Offer to Purchase.
SECTION 302. Denominations. The Dollar Securities shall be issuable only
-------------
in registered form without coupons and only in denominations of $1,000 and any
integral multiples thereof. The Euro Securities shall be issuable only in
registered form without coupons and only in denominations of Euro 1,000 and any
integral multiples thereof.
SECTION 303. Execution, Authentication, Delivery and Dating. The
----------------------------------------------
Securities shall be executed on behalf of the Issuer by any two of the Chairman
of the Board, Chief Executive Officer, the President, any Vice President, the
Secretary, any Assistant Secretary, the Chief Financial Officer, the Treasurer
or any Assistant Treasurer. The signature of any of these officers on the
Securities may be manual or facsimile.
Securities bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of an Issuer shall bind the Issuer,
notwithstanding that such individuals or any of them have ceased to hold such
offices at the time of the authentication and delivery of such Securities or did
not hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery of this
Indenture, the Issuer may deliver Original Securities executed by the Issuer to
the Trustee or Authentication Agent for authentication, together with an Issuer
Order for the authentication and delivery of such Original Securities; and the
Trustee or Authentication Agent in accordance with the Issuer order shall
authenticate and make available for delivery such Original Securities as
provided in this Indenture and not otherwise.
At any time and from time to time after the execution and delivery of this
Indenture and on or prior to December 8, 2000, the Issuer may, pursuant to a
Board Resolution, deliver Additional Securities executed by the Issuer to the
Trustee or Authentication Agent for authentication, together with an Issuer
Order for the authentication and delivery of such Additional Securities, an
Officers' Certificate stating that the issuance of such Additional Securities
will not result in a breach or violation of any of the covenants contained in
this Indenture and that all conditions precedent to such issuance,
authentication and delivery of Additional Securities in this Indenture have been
fully complied with and satisfied, and the Trustee or Authentication Agent in
accordance with the Issuer
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<PAGE>
Order shall authenticate and deliver such Securities. Prior to authenticating
such Additional Securities, and accepting any additional responsibilities under
this Indenture in relation to such Securities, the Trustee and any
Authentication Agent shall be entitled to receive, if requested, and (subject to
Section 601) shall be fully protected in relying upon, an Opinion of Counsel
stating in substance that the issuance of such Additional Securities will not
result in a breach or violation of any of the covenants contained in this
Indenture and as to the due authorization, execution and delivery of the
Additional Securities, the enforceability of the Additional Securities, and the
duly incorporated status and good standing of the Issuer. If the Issuer issues
Securities on or after December 8, 1999 (other than Securities issued pursuant
to Section 304, 305, 306, 307, 906 or 1108) the Issuer shall deliver the same
documents as certificates that it is required to deliver in connection with the
issuance of Additional Securities.
At any time and from time to time after the execution and delivery of this
Indenture and after the effectiveness of a registration statement under the
Securities Act with respect to such Securities, the Issuer may deliver Exchange
Securities executed by the Issuer to the Trustee or Authentication Agent for
authentication, together with an Issuer Order for the authentication and
delivery of such Exchange Securities and a like principal amount of Original
Securities for cancellation in accordance with Section 310 of this Indenture,
and the Trustee or Authentication Agent in accordance with the Issuer Order
shall authenticate and make available for delivery such Securities. Prior to
authenticating such Exchange Securities, and accepting any additional
responsibilities under this Indenture in relation to such Securities, the
Trustee shall be entitled to receive, if requested, and (subject to Section 601)
shall be fully protected in relying upon, an Opinion of Counsel as to the due
authorization, execution and delivery of the Exchange Securities, the
enforceability of the Exchange Securities, and the duly incorporated status and
good standing of the Issuer.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein
executed by the Trustee or Authentication Agent by manual signature, and such
certificate upon any Security shall be conclusive evidence, and the only
evidence, that such Security has been duly authenticated and delivered
hereunder.
SECTION 304. Temporary Securities. Pending the preparation of definitive
--------------------
Securities, the Issuer may execute, and upon Issuer Order, the Trustee or
Authentication Agent shall authenticate and deliver, temporary Securities, which
Securities are printed, lithographed, typewritten, mimeographed or otherwise
produced, in any authorized denomination, substantially of the tenor of the
definitive Securities in lieu of which they are issued and with such appropriate
insertions, omissions, substitutions and other variations as the officers
executing such Securities may determine, as evidenced by their execution
thereof.
If temporary Securities are issued, the Issuer will cause definitive
Securities to be prepared without unreasonable delay. After the preparation of
definitive Securities, the temporary Securities
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<PAGE>
shall be exchangeable for definitive Securities upon surrender of the temporary
Securities at any office or agency of the Issuer designated pursuant to Section
1002, without charge to the Holder. Upon surrender for cancellation (which
cancellation shall be only by the Trustee) of any one or more temporary
Securities, the Issuer shall execute and the Trustee or Authentication Agent
shall authenticate and deliver in exchange therefor a like principal amount of
definitive Securities of authorized denominations. Until so exchanged, the
temporary Securities shall in all respects be entitled to the same rights and
benefits under this Indenture as definitive Securities.
SECTION 305. Global Securities. (a) Each Global Security authenticated
-----------------
under this Indenture shall be registered in the name of the Depositary
designated by the Issuer for such Global Security or a nominee thereof and
delivered to such Depositary or a nominee thereof or custodian therefor, and
each such Global Security shall constitute a single Security for all purposes of
this Indenture.
(b) Notwithstanding any other provision in this Indenture, no Global
Security may be exchanged in whole or in part for Securities registered, and no
transfer of a Global Security in whole or in part may be registered, in the name
of any Person other than the Depositary for such Global Security or a nominee
thereof unless (i) such Depositary (A) has notified the Issuer that it is
unwilling or unable to continue as Depositary for such Global Security or (B) is
principally located in the U.S. and has ceased to be a clearing agency
registered as such under the Exchange Act, and in either case the Issuer fails
to appoint a successor Depositary within 120 days of such notice, (ii) the
Issuer executes and delivers to the Trustee an Issuer Order stating that it
elects to cause the issuance of the Securities in certificated form and that all
Global Securities shall be exchanged in whole for Securities that are not Global
Securities (in which case such exchange shall be effected by the Trustee) or
(iii) there shall have occurred and be continuing an Event of Default with
respect to the Securities.
(c) If any Global Security is to be exchanged for other Securities or
cancelled in whole, it shall be surrendered by or on behalf of the Depositary or
its nominee to the Trustee, as Security Registrar, for exchange or cancellation
as provided in this Article Three. If any Global Security is to be exchanged
for other Securities or cancelled in part, or if another Security is to be
exchanged in whole or in part for a beneficial interest in any Global Security,
then either (i) such Global Security shall be so surrendered for exchange or
cancellation as provided in this Article Three or (ii) the principal amount
thereof shall be reduced or increased by an amount equal to the portion thereof
to be so exchanged or cancelled, or equal to the principal amount of such other
Security to be so exchanged for a beneficial interest therein, as the case may
be, by means of an appropriate adjustment made on the records of the Trustee, as
Security Registrar, whereupon the Trustee, in accordance with the Applicable
Procedures, shall instruct the Depositary or its authorized representative to
make a corresponding adjustment to its records. Upon any such surrender or
adjustment of a Global Security, the Trustee shall, subject to Section 306(b)
and as otherwise provided in this Article Three, authenticate and deliver any
Securities issuable in exchange for such Global Security (or any portion
thereof) to or upon the order of, and registered in such names as may be
directed by, the Depositary or its authorized representative. Upon the request
of the Trustee in
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<PAGE>
connection with the occurrence of any of the events specified in the preceding
paragraph, the Issuer shall promptly make available to the Trustee a reasonable
supply of Securities that are not in the form of Global Securities. The Trustee
shall be entitled to rely upon any order, direction or request of the Depositary
or its authorized representative which is given or made pursuant to this Article
Three if such order, direction or request is given or made in accordance with
the Applicable Procedures and in accordance with all applicable laws.
(d) Every Security authenticated and delivered upon registration of
transfer of, or in exchange for or in lieu of, a Global Security or any portion
thereof, whether pursuant to this Article Three or otherwise, shall be
authenticated and delivered in the form of, and shall be, a Global Security,
unless such Security is registered in the name of a Person other than the
Depositary for such Global Security or a nominee thereof.
(e) The Depositary or its nominee, as registered owner of a Global
Security, shall be the Holder of such Global Security for all purposes under
this Indenture and the Securities and owners of beneficial interests in a Global
Security shall hold such interests pursuant to the Applicable Procedures.
Accordingly, any such owner's beneficial interest in a Global Security will be
shown only on, and the transfer of such interest shall be effected only through,
records maintained by the Depositary or its nominee or its Agent Members.
SECTION 306. Registration, Registration of Transfer and Exchange
---------------------------------------------------
Generally; Restrictions on Transfer and Exchange; Securities Act Legends.
- ------------------------------------------------------------------------
(a) Registration, Registration of Transfer and Exchange Generally. The
-------------------------------------------------------------
Issuer shall cause to be kept at the Corporate Trust Office of the Trustee a
register (the register maintained in such office and in any other office or
agency of the Issuer designated pursuant to Section 1002 being herein sometimes
collectively referred to as the "Security Register") in which, subject to such
reasonable regulations as it may prescribe, the Issuer shall provide for the
registration of Securities and of transfers and exchanges of Securities. The
Trustee is hereby appointed "Security Registrar" for the purpose of registering
Securities and transfers and exchanges of Securities as herein provided. Such
Security Register shall distinguish between Original Securities, Additional
Securities and Exchange Securities and between Dollar Securities and Euro
Securities.
Subject to the other provisions of this Indenture regarding restrictions on
transfer, upon surrender for registration of transfer of any Security at an
office or agency of the Issuer designated pursuant to Section 1002 for such
purpose, the Issuer shall execute, and the Trustee or Authentication Agent shall
authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Securities of any authorized denominations, of a
like currency and aggregate principal amount and bearing such restrictive
legends as may be required by this Indenture.
At the option of the Holder, and subject to the other provisions of this
Section 306, Securities may be exchanged for other Securities of any authorized
denominations, of a like currency and
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<PAGE>
aggregate principal amount and bearing such restrictive legends as may be
required by this Indenture upon surrender of the Securities to be exchanged at
any such office or agency. Whenever any Securities are so surrendered for
exchange, the Issuer shall execute, and the Trustee or Authentication Agent
shall authenticate and make available for delivery, the Securities which the
Holder making the exchange is entitled to receive.
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Issuer, evidencing the same
debt, and (except for the differences between Original Securities and Exchange
Securities provided for herein) entitled to the same benefits under this
Indenture, as the Securities surrendered upon such registration of transfer or
exchange.
Every Security presented or surrendered for registration of transfer or for
exchange shall (if so required by the Issuer or the Security Registrar) be duly
endorsed, or be accompanied by a written instrument of transfer, in form
satisfactory to the Issuer and the Security Registrar, duly executed by the
Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of Securities, but the Issuer may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of Securities, other than
exchanges pursuant to Sections 304, 305, 306, 906, 1015, 1016 or 1108 not
involving any transfer.
The Issuer and the Trustee shall not be required (i) to issue, register the
transfer of, or exchange any Security during a period beginning at the opening
of business 15 days before the day of the mailing of a notice of redemption of
Securities selected for redemption under Section 1104 and ending at the close of
business on the day of such mailing, or (ii) to register the transfer of or
exchange any Security so selected for redemption, in whole or in part, except
the unredeemed portion of any Security being redeemed in part.
(b) Certain Transfers and Exchanges. Notwithstanding any other provision
-------------------------------
of this Indenture or the Securities, transfers and exchanges of Securities and
beneficial interests in a Global Security of the kinds specified in this Section
306(b) shall be made only in accordance with this Section 306(b). Transfers and
exchanges subject to this Section 306(b) shall also be subject to the other
provisions of this Indenture that are not inconsistent with this Section 306(b).
(1) Restricted Global Security to Regulation S Global Security. If
----------------------------------------------------------
the owner of a beneficial interest in the Restricted Global Security wishes at
any time to transfer such interest to a Person who is required or permitted to
acquire the same in the form of a beneficial interest in the Regulation S Global
Security, such transfer may be effected only in accordance with the provisions
of this clause (b)(1) subject to the Applicable Procedures; provided that no
transfers from a Restricted Global Security to a Regulation S Global Security
shall be permitted during the Distribution Compliance Period. Upon receipt by
the Trustee, as Security Registrar, of (A) an order given by the appropriate
Depositary or its authorized representative directing that a beneficial
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<PAGE>
interest in the appropriate Regulation S Global Security in a specified
principal amount be credited to a specified Agent Member's account and that a
beneficial interest in the Restricted Global Security in an equal principal
amount be debited from another specified Agent Member's account, and (B) a
Regulation S Certificate, satisfactory to the Trustee and duly executed by the
owner of such beneficial interest in the Restricted Global Security or his
attorney duly authorized in writing, then the Trustee, as Security Registrar but
subject to clause (b)(4) below, shall reduce the principal amount of the
appropriate Restricted Global Security and increase the principal amount of the
appropriate Regulation S Global Security by such specified principal amount as
provided in Section 305(c); provided that such transfers shall only occur
between or among Global Dollar Securities or between or among Global Euro
Securities.
(2) Regulation S Global Security to Restricted Global Security. If
----------------------------------------------------------
the owner of a beneficial interest in the Regulation S Global Security wishes at
any time to transfer such interest to a Person who is required or permitted to
acquire the same in the form of a beneficial interest in the Restricted Global
Security, such transfer may be effected only in accordance with this clause
(b)(2) and subject to the Applicable Procedures. Upon receipt by the Trustee, as
Security Registrar, of (A) an order given by the Depositary or its authorized
representative directing that a beneficial interest in the Restricted Global
Security in a specified principal amount be credited to a specified Agent
Member's account and that a beneficial interest in the Regulation S Global
Security in an equal principal amount be debited from another specified Agent
Member's account and (B) if such transfer is to occur during the Distribution
Compliance Period, a Restricted Securities Certificate, satisfactory to the
Trustee and duly executed by the owner of such beneficial interest in the
Regulation S Global Security or his attorney duly authorized in writing, then
the Trustee, as Security Registrar, shall reduce the principal amount of the
Regulation S Global Security and increase the principal amount of the Restricted
Global Security by such specified principal amount as provided in Section
305(c); provided that such transfers shall only occur between or among Global
Dollar Securities or between or among Global Euro Securities.
(3) Exchanges between Global Security and Non-Global Security. A
---------------------------------------------------------
beneficial interest in a Global Security may be exchanged for a Security that is
not a Global Security as provided in Section 305, provided that, if such
interest is a beneficial interest in a Restricted Global Security, then such
interest shall be exchanged for a Restricted Security (subject in each case to
Section 306(c)).
(4) Regulation S Global Dollar Security to be Held Through Euroclear
----------------------------------------------------------------
or Cedelbank during Distribution Compliance Period. The Issuer shall use its
- --------------------------------------------------
best efforts to cause the Depositary for the Regulation S Global Dollar Security
to ensure that beneficial interests in the Regulation S Global Dollar Security
may be held only in or through accounts maintained at the Depositary by
Euroclear or Cedelbank (or by Agent Members acting for the account thereof)
until the expiration of the Distribution Compliance Period, and no person shall
be entitled to effect any transfer or exchange that would result in any such
interest being held otherwise than in or through such an account until the
expiration of the Distribution Compliance Period; provided that this clause
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<PAGE>
(b)(4) shall not prohibit any transfer or exchange of such an interest in
accordance with clause (b)(2) above.
(5) Regulation S Global Euro Security to be Held Through Euroclear
--------------------------------------------------------------
during Distribution Compliance Period. The Issuer shall use its best efforts to
- -------------------------------------
cause the Depositary to ensure that beneficial interests in the Regulation S
Global Euro Security may be held only in or through accounts maintained by
Euroclear (or by Agent Members acting for the account thereof) until the
expiration of the Distribution Compliance Period, and no person shall be
entitled to effect any transfer or exchange that would result in any such
interest being held otherwise than in or through such an account until the
expiration of the Distribution Compliance Period; provided that this clause
(b)(5) shall not prohibit any transfer or exchange of such an interest in
accordance with clause (b)(2) above.
(c) Securities Act Legends. Rule 144A Securities and their respective
----------------------
Successor Securities shall bear a Restricted Securities Legend, and Regulation S
Securities and their Successor Securities shall bear a Regulation S Legend,
subject to the following:
(1) subject to the following clauses of this Section 306(c), a
Security or any portion thereof which is exchanged, upon transfer or otherwise,
for a Global Security or any portion thereof shall bear the Securities Act
Legend borne by such Global Security while represented thereby;
(2) subject to the following clauses of this Section 306(c), a new
Security which is not a Global Security and is issued in exchange for another
Security (including a Global Security) or any portion thereof, upon transfer or
otherwise, shall bear the Securities Act Legend borne by such other Security,
provided that, if such new Security is required pursuant to Section 306(b)(3) to
be issued in the form of a Restricted Security, it shall bear a Restricted
Securities Legend and, if such new Security is so required to be issued in the
form of a Regulation S Security, it shall bear a Regulation S Legend;
(3) Registered Securities shall not bear a Securities Act Legend;
(4) at any time after the Securities may be freely transferred without
registration under the Securities Act or without being subject to transfer
restrictions pursuant to the Securities Act, a new Security which does not bear
a Securities Act Legend may be issued in exchange for or in lieu of a Security
(other than a Global Security) or any portion thereof which bears such a legend
if the Trustee has received an Unrestricted Securities Certificate, satisfactory
to the Trustee and duly executed by the Holder of such legended Security or his
attorney duly authorized in writing, and after such date and receipt of such
certificate, the Trustee or Authentication Agent shall authenticate and make
available for delivery such a new Security in exchange for or in lieu of such
other Security as provided in this Article Three;
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(5) a new Security which does not bear a Securities Act Legend may be
issued in exchange for or in lieu of a Security (other than a Global Security)
or any portion thereof which bears such a legend if, in the Issuer's judgment,
placing such a legend upon such new Security is not necessary to ensure
compliance with the registration requirements of the Securities Act, and the
Trustee or Authentication Agent, at the direction of the Issuer, shall
authenticate and deliver such a new Security as provided in this Article Three
provided that, the Trustee, if it deems reasonably necessary or appropriate, may
request an Opinion of Counsel in connection with such direction; and
Notwithstanding the foregoing provisions of this Section 306(c), a
Successor Security of a Security that does not bear a particular form of
Securities Act Legend shall not bear such form of legend unless the Issuer has
reasonable cause to believe that such Successor Security is a "restricted
security" within the meaning of Rule 144, in which case the Trustee or
Authentication Agent, at the direction of the Issuer, shall authenticate and
make available for delivery a new Security bearing a Restricted Securities
Legend in exchange for such Successor Security as provided in this Article
Three.
Each Holder of a Security agrees to indemnify the Trustee and
Authentication Agent against any liability that may result from the transfer,
exchange or assignment of such Holder's Security in violation of any provision
of this Indenture and/or applicable United States federal or state securities
law.
The Trustee and the Authentication Agent shall have no obligation or duty
to monitor, determine or inquire as to compliance with any restrictions on
transfer imposed under this Indenture or under applicable law with respect to
any transfer of any interest in any Security (including any transfers between or
among Depositary participants or beneficial owners of interests in any Global
Security) other than to require delivery of such certificates and other
documentation or evidence as are expressly required by, and to do so if and when
expressly required by the terms of, this Indenture, and to examine the same to
determine substantial compliance as to form with the express requirements
hereof.
SECTION 307. Mutilated, Destroyed, Lost and Stolen Securities. If any
------------------------------------------------
mutilated Security is surrendered to the Trustee, the Issuer shall execute and
the Trustee or Authentication Agent shall authenticate and make available for
delivery in exchange therefor a new Security of like tenor, currency and
principal amount and bearing a number not contemporaneously outstanding.
If there shall be delivered to the Issuer and the Trustee (i) evidence to
its satisfaction of the destruction, loss or theft of any Security and (ii) such
security or indemnity as may be required by either of them to save each of them
and any agent of either of them completely harmless, then, in the absence of
notice to the Issuer or the Trustee that such Security has been acquired by a
bona fide purchaser, the Issuer shall execute and upon its written request the
Trustee or Authentication Agent shall authenticate and make available for
delivery, in lieu of any such destroyed, lost or stolen Security, a new Security
of like tenor, currency and principal amount and bearing a number not
contemporaneously outstanding.
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<PAGE>
In case any such mutilated, destroyed, lost or stolen Security has become
or is about to become due and payable, the Issuer in its discretion may, instead
of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Issuer and
the Trustee (without duplication) may require the payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in relation
thereto and any other expenses (including the fees and expenses of the Trustee
and reasonable attorneys' fees) connected therewith.
Every new Security issued pursuant to this Section in lieu of any
mutilated, destroyed, lost or stolen Security shall constitute an original
additional contractual obligation of the Issuer, whether or not the destroyed,
lost or stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities.
SECTION 308. Payment of Interest; Interest Rights Preserved. Interest on
----------------------------------------------
any Security which is payable, and is punctually paid or duly provided for, on
any Interest Payment Date shall be paid to the Person in whose name that
Security (or one or more Predecessor Securities) is registered at the close of
business on the Regular Record Date for such interest.
Any interest on any Security which is payable, but is not punctually paid
or duly provided for, on any Interest Payment Date (herein called "Defaulted
Interest") shall forthwith cease to be payable to the Holder on the relevant
Regular Record Date by virtue of having been such Holder on such date, and such
Defaulted Interest may be paid by the Issuer, at its election in each case, as
provided in clause (1) or (2) below:
(1) The Issuer may elect to make payment of any Defaulted Interest to the
Persons in whose names the Securities (or its respective Predecessor Securities)
are registered at the close of business on a Special Record Date for the payment
of such Defaulted Interest, which shall be fixed in the following manner: The
Issuer shall notify the Trustee in writing of the amount of Defaulted Interest
proposed to be paid on each Security and the date of the proposed payment, and
at the same time the Issuer shall deposit with the Trustee an amount of money
equal to the aggregate amount proposed to be paid in respect of such Defaulted
Interest or shall make arrangements satisfactory to the Trustee for such deposit
prior to the date of the proposed payment, such money when deposited to be held
in trust for the benefit of the Persons entitled to such Defaulted Interest as
in this clause provided. Thereupon the Trustee shall fix a Special Record Date
for the payment of such Defaulted Interest which shall be not more than 15 days
and not less than 10 days prior to the date of the proposed payment and not less
than 10 days after the receipt by the Trustee of the notice of the proposed
payment. The Trustee shall promptly notify the Issuer of such Special Record
Date and, in
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the name and at the sole expense of the Issuer, shall cause notice of the
proposed payment of such Defaulted Interest and the Special Record Date therefor
to be mailed, first-class postage prepaid, to each Holder at his address as it
appears in the Security Register, not less than 10 days prior to such Special
Record Date. Notice of the proposed payment of such Defaulted Interest and the
Special Record Date therefor having been so mailed, such Defaulted Interest
shall be paid to the Persons in whose names the Securities (or its respective
Predecessor Securities) are registered at the close of business on such Special
Record Date and shall no longer be payable pursuant to the following clause (2).
(2) The Issuer may make payment of any Defaulted Interest in any other
lawful manner not inconsistent with the requirements of any securities exchange
on which the Securities may be listed, and upon such notice as may be required
by such exchange, if, after written notice given by the Issuer to the Trustee of
the proposed payment pursuant to this clause, such manner of payment shall be
deemed practicable by the Trustee in its reasonable judgment.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Security.
SECTION 309. Persons Deemed Owners. Prior to due presentment of a
---------------------
Security for registration of transfer, the Issuer, the Trustee and any agent of
the Issuer or the Trustee may treat the Person in whose name such Security is
registered as the owner of such Security for the purpose of receiving payment of
principal of (and premium, if any) and (subject to Section 308) interest on such
Security and for all other purposes whatsoever, whether or not such Security be
overdue, and neither the Issuer, the Trustee nor any agent of the Issuer or the
Trustee shall be affected by notice to the contrary.
None of the Issuer, the Trustee or any agent of the Issuer or the Trustee
shall have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests of a
Security in global form, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests. Notwithstanding the
foregoing, with respect to any Security in global form, nothing herein shall
prevent the Issuer or the Trustee, or any agent of the Issuer or the Trustee,
from giving effect to any written certification, proxy or other authorization
furnished by any Depositary (or its nominee), as a Holder, with respect to such
Security in global form or impair, as between such Depositary and owners of
beneficial interests in such Security in global form, the operation of customary
practices governing the exercise of the rights of such Depositary (or its
nominee) as a Holder of such Security in global form.
SECTION 310. Cancellation. All Securities surrendered for payment,
------------
redemption, registration of transfer or exchange or pursuant to any Offer to
Purchase pursuant to Section 1015 or 1016 shall, if surrendered to any Person
other than the Trustee, be delivered to the Trustee and shall be promptly
canceled by it and only by it. The Issuer may at any time deliver to the Trustee
or
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<PAGE>
Authentication Agent, as the case may be, for cancellation any Securities
previously authenticated and delivered hereunder which the Issuer may have
acquired in any manner whatsoever, and all Securities so delivered shall be
promptly canceled by the Trustee. No Securities shall be authenticated in lieu
of or in exchange for any Securities canceled as provided in this Section,
except as expressly permitted by this Indenture. All canceled Securities held by
the Trustee shall be disposed of as directed by an Issuer order, provided, that
in no event shall the Trustee be required to destroy such canceled Securities.
SECTION 311. CUSIP, ISN Numbers. The Issuer in issuing the Securities may
------------------
use "CUSIP" of "ISN" numbers (if then generally in use), and, if so, the Trustee
shall use "CUSIP" or "ISN" numbers in notices as a convenience to Holders;
provided that any such notice may state that no representation is made as to the
correctness of such numbers either as printed on the Securities or as contained
in any notice and that reliance may be placed only on the other identification
numbers printed on the Securities, and any such redemption shall not be affected
by any defect in or omission of such numbers. The Issuer will promptly notify
the Trustee of any change in the "CUSIP" or "ISN" numbers.
SECTION 312. Computation of Interest. Interest on the Securities shall be
-----------------------
computed on the basis of a 360-day year of twelve 30-day months.
ARTICLE FOUR
Satisfaction and Discharge
SECTION 401. Satisfaction and Discharge of Indenture. This Indenture
---------------------------------------
shall cease to be of further effect (except as to any surviving rights of
registration of transfer or exchange of Securities herein expressly provided
for), and the Trustee, on written demand of and at the sole expense of the
Issuer, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture (including, but not limited to, Article Twelve
hereof), when
(1) either
(A) all Securities theretofore authenticated and delivered (other than
(i) Securities which have been destroyed, lost or stolen and which have been
replaced or paid as provided in Section 307 and (ii) Securities for whose
payment money has theretofore been deposited in trust or segregated and held in
trust by the Issuer and thereafter repaid to the Issuer or discharged from such
trust, as provided in Section 1003) have been delivered to the Trustee or
Authentication Agent, as the case may be, for cancellation; or
(B) all such Securities not theretofore delivered to the Trustee for
cancellation
(i) have become due and payable, or
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(ii) will become due and payable at its Stated Maturity within
one year, or
(iii) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice of redemption
by the Trustee in the name, and at the sole expense, of the Issuer,
and the Issuer, in the case of (i), (ii) or (iii) above, has irrevocably
deposited or caused to be deposited with the Trustee as trust funds in trust for
the purpose an amount in cash or U.S. Government Securities sufficient to pay
and discharge the entire indebtedness on such Securities not theretofore
delivered to the Trustee for cancellation, for principal (and premium, if any)
and interest to the date of such deposit (in the case of Securities which have
become due and payable) or to the Stated Maturity or Redemption Date, as the
case may be including, without limitation, the payment of all fees and expenses
of the Trustee, its agents and counsel;
(2) the Issuer has paid or caused to be paid all other sums payable
hereunder by the Issuer including, without limitation, the payment of all fees
and expenses of the Trustee, its agents and counsel; and
(3) the Issuer has delivered to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that all conditions precedent herein
provided for relating to the satisfaction and discharge of this Indenture have
been complied with.
Notwithstanding the satisfaction and discharge of this Indenture pursuant to
this Article Four, the obligations of the Issuer to the Trustee under Section
607 and, if money shall have been deposited with the Trustee pursuant to
subclause (B) of clause (i) of this Section, the obligations of the Trustee
under Section 402 and the last paragraph of Section 1003 shall survive.
SECTION 402. Application of Trust Money. Subject to the provisions of the
--------------------------
last paragraph of Section 1003, all money deposited with the Trustee pursuant to
Section 401 shall be held in trust and applied by it, in accordance with the
provisions of the Securities and this Indenture, to the payment, either directly
or through any Paying Agent (including the Issuer acting as its own Paying
Agent) as the Trustee may determine, to the Persons entitled thereto, of the
principal (and premium, if any) and interest for whose payment such money has
been deposited with the Trustee.
ARTICLE FIVE
Remedies
SECTION 501. Events of Default. "Event of Default", wherever used herein,
-----------------
means any one of the following events (whatever the reason for such Event of
Default and whether it shall be voluntary or involuntary or be effected by
operation of law or pursuant to any judgment, decree or
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order of any court or any order, rule or regulation of any administrative or
governmental body) (a "Default" as such term is used in this Indenture shall
mean the occurrence and continuation of an Event of Default):
(1) failure to pay principal of (or premium, if any, on) any Security when
due (upon acceleration, optional or mandatory redemption, required repurchase or
otherwise);
(2) failure to pay interest on any Security when due, and such default
continues for a period of 30 days;
(3) default in the payment of principal and interest on Securities required
to be purchased pursuant to an Offer to Purchase pursuant to Sections 1015 or
1016 when due and payable;
(4) failure to perform or comply with the provisions contained in Article
Eight;
(5) failure to perform any other covenant or agreement of the Issuer under
the Indenture or the Securities and such failure continues for 60 days after
written notice to the Issuer by the Trustee or Holders of at least 25% in
aggregate principal amount of outstanding Securities;
(6) (i) any default by the Issuer or any Material Restricted Subsidiary in
the payment of the principal, premium, if any, or interest has occurred with
respect to amounts in excess of $10.0 million under any agreement, indenture or
instrument evidencing Debt when the same shall become due and payable in full
and such default shall have continued after any applicable grace period and
shall not have been cured or waived and, if not already matured at its final
maturity in accordance with its terms, the holders of such Debt shall have the
right to accelerate such Debt, or (ii) any event of default as defined in any
agreement, indenture or instrument of the Issuer or any Restricted Subsidiary
evidencing Debt in excess of $10.0 million shall have occurred and the Debt
thereunder, if not already matured at its final maturity in accordance with its
terms, shall have been accelerated;
(7) the rendering of a final judgment or judgments against the Issuer or
any Material Restricted Subsidiary in an amount in excess of $10.0 million which
remains undischarged or unstayed for a period of 60 days after the date on which
the right to appeal has expired;
(8) the entry by a court having jurisdiction in the premises of (A) a
decree or order for relief in respect of the Issuer or any Material Restricted
Subsidiary in an involuntary case or proceeding under any applicable U.S.
Federal or State or other applicable bankruptcy, insolvency, reorganization or
other similar law or (B) a decree or order adjudging the Issuer or any Material
Restricted Subsidiary a bankrupt or insolvent, or approving as properly filed a
petition seeking reorganization, arrangement, adjustment or composition of or in
respect of the Issuer or any Material Restricted Subsidiary under any applicable
U.S. Federal or State, or other applicable law, or appointing a custodian,
receiver, liquidator, assignee, trustee, sequestrator or other similar official
of the Issuer or any Material Restricted Subsidiary or of any substantial part
of the property of the Issuer or any Material Restricted Subsidiary, or ordering
the winding up or liquidation of the affairs of the Issuer or any Material
Restricted Subsidiary, and the continuance of any such decree or order
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for relief or any such other decree or order unstayed and in effect for a period
of 60 consecutive days; or
(9) the commencement by the Issuer or any Material Restricted Subsidiary of
a voluntary case or proceeding under any applicable U.S. Federal or State, or
other applicable bankruptcy, insolvency, reorganization or other similar law or
of any other case or proceeding to be adjudicated a bankrupt or insolvent, or
the consent by the Issuer or any Material Restricted Subsidiary to the entry of
a decree or order for relief in respect of the Issuer or such Material
Restricted Subsidiary in an involuntary case or proceeding under any applicable
U.S. Federal or State, or other applicable bankruptcy, insolvency,
reorganization or other similar law or to the commencement of any bankruptcy or
insolvency case or proceeding against the Issuer or a Material Restricted
Subsidiary, or the filing by the Issuer or any Material Restricted Subsidiary of
a petition or answer or consent seeking reorganization or relief under any
applicable U.S. Federal or State, or other applicable law, or the consent by the
Issuer or any Material Restricted Subsidiary to the filing of such petition or
to the appointment of or taking possession by a custodian, receiver, liquidator,
assignee, trustee, sequestrator or similar official of the Issuer or any
Material Restricted Subsidiary or of substantially all of the property of the
Issuer or any Material Restricted Subsidiary, or the making by the Issuer or any
Material Restricted Subsidiary of an assignment for the benefit of creditors, or
the admission by the Issuer or any Material Restricted Subsidiary in writing of
its inability to pay its debts generally as they become due, or the taking of
corporate action by the Issuer or any Material Restricted Subsidiary in
furtherance of any such action.
SECTION 502. Acceleration of Maturity; Rescission and Annulment. If an
--------------------------------------------------
Event of Default (other than an Event of Default specified in Section 501(8) or
(9)) occurs and is continuing, then and in every such case the Trustee or the
Holders of not less than 25% in principal amount of the Outstanding Securities
may declare the Securities to be due and payable immediately, by a notice in
writing to the Issuer (and to the Trustee if given by Holders), and upon any
such declaration the principal and any accrued interest on all Outstanding
Securities shall become immediately due and payable. If an Event of Default
specified in Section 501(8) or (9) occurs, the principal of and any accrued
interest on the Securities then Outstanding shall ipso facto become immediately
due and payable without any declaration or other Act on the part of the Trustee
or any Holder.
At any time after such a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter in this Article provided, the Holders of a majority
in principal amount of the Outstanding Securities, by written notice to the
Issuer and the Trustee, may rescind and annul such declaration and its
consequences if
(1) the Issuer has paid or deposited with the Trustee a sum sufficient to
pay
(A) the principal of (and premium, if any, on) any Securities which
have become due otherwise than by such declaration of acceleration (including
any Securities required to have been purchased on the Purchase Date pursuant to
an Offer to Purchase made by the Issuer) and, to
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the extent that payment of such interest is lawful, any interest thereon at the
rate provided therefor in the Securities,
(B) to the extent that payment of such interest is lawful, interest
upon overdue interest at the rate provided therefor in the Securities, and
(C) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel; and
(2) all Events of Default, other than the non-payment of the principal of
(and premium, if any) or interest on, the Securities which have become due
solely by such declaration of acceleration, have been cured or waived as
provided in Section 513.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
SECTION 503. Collection of Indebtedness and Suits for Enforcement by
-------------------------------------------------------
Trustee. The Issuer covenants that if
- -------
(1) default is made in the payment of any interest on any Security when
such interest becomes due and payable and such default continues for a period of
30 days, or
(2) default is made in the payment of the principal of (or premium, if
any, on) any Security at the Maturity thereof or, with respect to any Security
required to have been purchased pursuant to an Offer to Purchase made by the
Issuer, at the Purchase Date thereof, the Issuer will, upon demand of the
Trustee, pay to it, for the benefit of the Holders of such Securities, the whole
amount then due and payable on such Securities for principal (and premium, if
any) and interest, and, to the extent that payment of such interest shall be
legally enforceable, interest on any overdue principal (and premium, if any) and
on any overdue interest, at the rate provided therefor in the Securities, and,
in addition thereto, such further amount as shall be sufficient to cover the
costs and expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel and
any amounts due the Trustee under Section 607 hereof.
If the Issuer fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Issuer or any other obligor upon the Securities and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the property of the Issuer or any other obligor upon the Securities, wherever
situated.
If an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the
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specific enforcement of any covenant or agreement in this Indenture or in aid of
the exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 504. Trustee May File Proofs of Claim. In case of any judicial
--------------------------------
proceeding relative to the Issuer or any other obligor upon the Securities, or
its property or its creditors, the Trustee shall be entitled and empowered, by
intervention in such proceeding or otherwise, to take any and all actions
authorized under the Trust Indenture Act in order to have claims of the Holders
and the Trustee allowed in any such proceeding. In particular, the Trustee
shall be authorized to collect, receive and distribute any moneys or other
property payable or deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Holder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the Holders, to
pay to the Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 607.
No provision of this Indenture shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.
SECTION 505. Trustee May Enforce Claims Without Possession of Securities.
-----------------------------------------------------------
All rights of action and claims under this Indenture or the Securities may be
prosecuted and enforced by the Trustee without the possession of any of the
Securities or the production thereof in any proceeding relating thereto, and any
such proceeding instituted by the Trustee shall be brought in its own name as
trustee of an express trust, and any recovery of judgment shall, after provision
for the payment of the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, and any amounts due the Trustee
under Section 607 hereof, be for the ratable benefit of the Holders of the
Securities in respect of which such judgment has been recovered.
SECTION 506. Application of Money Collected. Subject to Article Thirteen,
------------------------------
any money collected by the Trustee pursuant to this Article shall be applied in
the following order, at the date or dates fixed by the Trustee and, in case of
the distribution of such money on account of principal (or premium, if any) or
interest, upon presentation of the Securities and the notation thereon of the
payment if only partially paid and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts (including, without limitation, the
reasonable compensation, expenses, disbursements and advances due the Trustee,
its agents and counsel and any other amounts) due the Trustee under Section 607;
and
SECOND: To the payment of the amounts then due and unpaid for principal of
(and premium, if any) and interest on the Securities due the Holders in respect
of which or for the benefit of which such money has been collected, ratably,
without preference or priority of any kind,
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according to the amounts due and payable on such Securities for principal (and
premium, if any) and interest, respectively.
SECTION 507. Limitation on Suits. No Holder of any Security shall have
-------------------
any right to institute any proceeding, judicial or otherwise, with respect to
this Indenture, or for the appointment of a receiver or trustee, or for any
other remedy hereunder, unless
(1) such Holder has previously given written notice to the Trustee of a
continuing Event of Default;
(2) the Holders of not less than 25% in principal amount of the Outstanding
Securities shall have made written request to the Trustee to institute
proceedings or pursue remedies in respect of such Event of Default in its own
name as Trustee hereunder;
(3) such Holder or Holders have offered and provided to the Trustee
reasonable indemnity satisfactory to the Trustee against the costs, expenses and
liabilities to be incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request and
offer of indemnity has failed to institute any such proceeding or pursued any
remedies; and
(5) no direction which is inconsistent with such written request has been
given to the Trustee during such 60-day period by the Holders of a majority in
principal amount of the Outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
SECTION 508. Unconditional Right of Holders to Receive Principal, Premium
------------------------------------------------------------
and Interest. Notwithstanding any other provision in this Indenture, the Holder
- ------------
of any Security shall have the right, which is absolute and unconditional, to
receive payment of the principal of (and premium, if any) and (subject to
Section 308) interest on such Security on the respective Stated Maturities
expressed in such Security (or, in the case of redemption, on the Redemption
Date or in the case of an Offer to Purchase made by the Issuer and required to
be accepted as to such Security, on the Purchase Date) and to institute suit for
the enforcement of any such payment, and such rights shall not be impaired or
affected without the consent of such Holder.
SECTION 509. Restoration of Rights and Remedies. If the Trustee or any
----------------------------------
Holder has instituted any proceeding to enforce any right or remedy under this
Indenture and such proceeding has been discontinued or abandoned for any reason,
or has been determined adversely to the Trustee
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or to such Holder, then and in every such case, subject to any determination in
such proceeding, the Issuer, the Trustee and the Holders shall be restored
severally and respectively to their former positions hereunder and thereafter
all rights and remedies of the Trustee and the Holders shall continue as though
no such proceeding had been instituted.
SECTION 510. Rights and Remedies Cumulative. Except as otherwise provided
------------------------------
with respect to the replacement or payment of mutilated, destroyed, lost or
stolen Securities in the last paragraph of Section 307, no right or remedy
herein conferred upon or reserved to the Trustee or to the Holders is intended
to be exclusive of any other right or remedy, and every right and remedy shall,
to the extent permitted by law, be cumulative and in addition to every other
right and remedy given hereunder or now or hereafter existing at law or in
equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
SECTION 511. Delay or Omission Not Waiver. No delay or omission of the
----------------------------
Trustee or of any Holder of any Security to exercise any right or remedy
accruing upon any Event of Default shall impair any such right or remedy or
constitute a waiver of any such Event of Default or an acquiescence therein.
Every right and remedy given by this Article or by law to the Trustee or to the
Holders may be exercised from time to time, and as often as may be deemed
expedient, by the Trustee or by the Holders, as the case may be.
SECTION 512. Control by Holders. The Holders of a majority in principal
------------------
amount of the Outstanding Securities shall have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee or exercising any trust or power conferred on the Trustee, provided that
(1) the Trustee may refuse to follow any direction which
(i) conflicts with any rule of law or with this Indenture,
or
(ii) the Trustee, in its reasonable judgment, determines may be unduly
prejudicial to the rights of other Holders of Securities, or may expose the
Trustee to personal liability, or does not provide adequate indemnification
against any loss or expense resulting from the compliance therewith, and
(2) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction.
SECTION 513. Waiver of Past Defaults. The Holders of not less than a
-----------------------
majority in principal amount of the Outstanding Securities may on behalf of the
Holders of all the Securities, by written notice to the Trustee, waive any past
default hereunder and its consequences, except a default
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(1) in the payment of the principal of (or premium, if any) or interest on
any Security (including any Security which is required to have been purchased
pursuant to an Offer to Purchase which has been made by the Issuer), or
(2) in respect of a covenant or provision hereof which under Article Nine
cannot be modified or amended without the consent of the Holder of each
Outstanding Security affected.
Upon any such waiver, such default shall be cured and shall cease to exist,
and any Event of Default arising therefrom shall be deemed to have been cured,
for every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other default or impair any right consequent thereon.
SECTION 514. Undertaking for Costs. In any suit for the enforcement of
---------------------
any right or remedy under this Indenture, or in any suit against the Trustee for
any action taken, suffered or omitted by it as Trustee, a court may require any
party litigant in such suit to file an undertaking to pay the reasonable costs
of such suit, and may assess reasonable costs against any such party litigant,
in the manner and to the extent provided in the Trust Indenture Act; provided,
that this Section shall not be deemed to authorize any court to require such an
undertaking or to make such an assessment in any suit instituted by the Trustee
and provided, further that, subject to a court's discretion, this Section shall
not apply to a suit by the Trustee, and as provided in the Trust Indenture Act.
SECTION 515. Waiver of Stay, or Extension Laws. The Issuer covenants (to
---------------------------------
the extent that they may lawfully do so) that they will not at any time insist
upon, or plead, or in any manner whatsoever claim or take the benefit or
advantage of, any stay or extension law wherever enacted, now or at any time
hereafter in force, which may affect the covenants or the performance of this
Indenture; and the Issuer (to the extent that they may lawfully do so) hereby
expressly waives all benefit or advantage of any such law and covenants that
they will not hinder, delay or impede the execution of any power herein granted
to the Trustee, but will suffer and permit the execution of every such power as
though no such law had been enacted.
ARTICLE SIX
The Trustee
SECTION 601. Certain Duties and Responsibilities.
-----------------------------------
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture, and
use the same degree of care and skill in its exercise, as a prudent person would
exercise or use under the circumstances in the conduct of his own affairs.
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(b) Except during the continuance of an Event of Default:
(1) the duties of the Trustee shall be determined solely by the
express provisions of this Indenture and the Trustee need perform only those
duties that are specifically set forth in this Indenture and no others, and no
implied covenants or obligations shall be read into this Indenture against the
Trustee, and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of the
opinions expressed therein, upon certificates or opinions furnished to the
Trustee and conforming to the requirements of this Indenture. However, the
Trustee shall examine the certificates and opinions to determine whether or not
they conform to the requirements of this Indenture (but need not confirm or
investigate the accuracy of mathematical calculations or other facts stated
therein).
(c) The Trustee may not be relieved from liabilities for its own negligent
action, its own negligent failure to act, or its own willful misconduct, except
that:
(1) this paragraph does not limit the effect of paragraph (b) of this
Section;
(2) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts;
(3) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction received by
it pursuant to Section 512 hereof; and
(4) no provision of this Indenture shall require the Trustee to expend
or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder, or in the exercise of any of its
rights or powers, if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
(d) Whether or not therein expressly so provided, every provision of this
Indenture that in any way relates to the Trustee is subject to paragraphs (a),
(b), and (c) of this Section. All indemnifications and releases from liability
granted hereunder to the Trustee shall extend to its officers, directors,
employees, agents, successors and assigns and to it in its roles hereunder as
Paying Agent, Tender Agent, Authenticating Agent and Securities Registrar.
SECTION 602. Notice of Defaults. The Trustee shall give the Holders
------------------
notice of any default hereunder (a "Notice of Default") of which it has
knowledge as and to the extent provided by the Trust Indenture Act; provided,
however, that in the case of any default specified in Section 501(5), no such
notice to Holders shall be given until at least 30 days after the occurrence of
such default
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(without regard to any Notice of Default). For the purpose of this Section, the
term "default" means any event which is, or after notice or lapse of time or
both would become, an Event of Default.
Except in the case of an Event of Default in payment of principal of
(premium, if any) or interest on any Security, the Trustee may withhold notice
if and so long as a committee of its Responsible Officers in good faith
determines that withholding the notice is in the interests of the Holders.
SECTION 603. Certain Rights of Trustee. Subject to the provisions of
-------------------------
Section 601:
(a) the Trustee may conclusively rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
note, other evidence of indebtedness or other paper or document believed by it
to be genuine and to have been signed or presented by the proper party or
parties, without any independent investigation of any fact or matter therein;
(b) any request or direction of the Issuer mentioned herein shall be
sufficiently evidenced by an Issuer request or Issuer Order and any resolution
of the Board of Directors may be sufficiently evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the Trustee shall deem
it desirable that a matter be proved or established prior to taking, suffering
or omitting any action hereunder, the Trustee (unless other evidence be herein
specifically prescribed) may, in the absence of bad faith on its part, request
and rely upon an Officers' Certificate;
(d) the Trustee may consult with counsel of its selection and the advice of
such counsel or any Opinion of Counsel, shall be full and complete authorization
and protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the rights
or powers vested in it by this Indenture at the request or direction of any of
the Holders pursuant to this Indenture, unless such Holders shall have offered
to the Trustee reasonable security or indemnity satisfactory to the Trustee
against the costs, expenses and liabilities which might be incurred by it in
compliance with such request or direction;
(f) the Trustee shall not be bound to make any investigation into the facts
or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
note, other evidence of indebtedness or other paper or document, but the
Trustee, in its discretion, may make such further inquiry or investigation into
such facts or matters as it may see fit, and, if the Trustee shall determine to
make such further inquiry or investigation, it shall be entitled to examine the
books, records and premises of the Issuer, personally or by agent or attorney
upon reasonable advance notice to the Issuer;
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(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder;
(h) the Trustee shall not be liable for any action it takes, suffers to be
taken, or omits in good faith; and
(i) the Trustee shall not be deemed to have notice of any Default or Event
of Default unless a Responsible Officer of the Trustee has actual knowledge
thereof or unless written notice of any event which is in fact such a default is
received by the Trustee at the Corporate Trust Office of the Trustee, and such
notice references the Securities or this Indenture.
SECTION 604. Not Responsible for Recitals or Issuance of Securities. The
------------------------------------------------------
recitals contained herein and in the Securities, except the certificates of
authentication, shall be taken as the statements of the Issuer, and the Trustee
assumes no responsibility for its correctness. The Trustee makes no
representations as to the validity or sufficiency of this Indenture or of the
Securities. The Trustee shall not be accountable for the use or application by
the Issuer of Securities or the proceeds thereof.
SECTION 605. May Hold Securities; Act as Trustee under Other Indentures.
----------------------------------------------------------
The Trustee, any Authenticating Agent, any Paying Agent, any Security Registrar
or any other agent of the Issuer, in its individual or any other capacity, may
become the owner or pledgee of Securities and, subject to Sections 608 and 613,
may otherwise deal with the Issuer and any other obligor upon the Securities
with the same rights it would have if it were not Trustee, Authenticating Agent,
Paying Agent, Security Registrar or such other agent.
The Trustee is hereby authorized to act as trustee under that certain
indenture between the Issuer and the Trustee, dated as of July 1, 1998 (the
"1998 Senior Indenture"), that certain Indenture dated as of March 1, 1999 (the
"Old Subordinated Indenture"), and that certain Indenture dated as of the date
hereof relating to Convertible Subordinated Notes due July 15, 20008 (the "New
Subordinated Indenture" and collectively with the 1998 Senior Indenture and the
Old Subordinated Indenture, the "Prior Indentures") notwithstanding any
provisions of this Indenture or the Prior Indentures affecting the relative
rights of holders of securities issued under such indentures to payment thereon
and to security given to secure such payment. The Trustee may become and act as
trustee under other indentures under which other securities, or certificates of
interest or participation in other securities, of the Company are outstanding in
the same manner as if it were not Trustee hereunder. The Trustee is authorized
to resign from any of its appointments as Trustee hereunder, as trustee under
any of the Prior Indentures, or as trustee under any other indenture in the
event that the Trustee determines in good faith that its performance hereunder
or thereunder subjects the Trustee to a conflict of interest.
SECTION 606. Money Held in Trust. Money held by the Trustee in trust
-------------------
hereunder need not be segregated from other funds except to the extent required
by law. The Trustee shall be under
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no liability for interest on any money received by it hereunder except as
otherwise agreed in writing with the Issuer.
SECTION 607. Compensation and Reimbursement. The Issuer agrees
------------------------------
(1) to pay to the Trustee from time to time such reasonable compensation
for all services rendered by it hereunder as may be agreed in writing from time
to time (which compensation shall not be limited by any provision of law in
regard to the compensation of a trustee of an express trust);
(2) except as otherwise expressly provided herein, to reimburse the Trustee
upon its request for all reasonable expenses, disbursements and advances
incurred or made by the Trustee in accordance with any provision of this
Indenture (including the reasonable compensation and the compensation, expenses
and disbursements of its agents, accountants, experts and counsel), except any
such expense, disbursement or advance as may be attributable to its negligence
or bad faith; and
(3) to indemnify the Trustee and any predecessor Trustee and their agents
for, and to hold them harmless against, any loss, damage, claims, liability or
expense (including, without limitation, reasonable attorneys' fees and expenses
and taxes (other than taxes based upon, measured by or determined by the income
of such Person) incurred without negligence or bad faith on its part, arising
out of or in connection with the acceptance or administration of this trust,
including the costs and expenses of defending itself against any claim or
liability (not arising from negligence or bad faith) in connection with the
exercise or performance of any of its powers or duties hereunder.
The Trustee shall notify the Issuer promptly upon acquiring knowledge of
any claim for which it is entitled to be indemnified hereunder. Failure by the
Trustee to so notify the Issuer shall not relieve the Issuer of its obligations
hereunder unless the Issuer are prejudiced thereby. If the Issuer elect to
defend the claim, the Issuer shall be entitled to control the defense of such
claim and the Trustee shall cooperate in such defense. The Trustee may have
separate counsel, and the Issuer shall pay the reasonable fees and expenses of
such counsel until such time as the Issuer assumes the defense of such claim,
and thereafter, to the extent that in the Trustee's reasonable judgment its
interests conflict with or differ from those of the Issuer under such claim.
The Issuer need not pay for any settlement made without its consent, which
consent shall not be unreasonably withheld.
The Trustee shall have a lien prior to the Securities as to all property
and funds held by it hereunder for any amount owing it or any predecessor
Trustee pursuant to this Section 607, except with respect to funds held in trust
for the benefit of the Holders of particular Securities.
The obligations of the Issuer under this Section 607 shall survive the
resignation or removal of the Trustee and/or satisfaction and discharge of this
Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 501(9) or (10) hereof occurs, the expenses and the
compensation for the services (including
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the fees and expenses of its agents and counsel) are intended to constitute
expenses of administration under any applicable bankruptcy law.
SECTION 608. Disqualification; Conflicting Interests. If the Trustee has
---------------------------------------
or shall acquire a conflicting interest within the meaning of the Trust
Indenture Act, the Trustee shall either eliminate such interest within 90 days,
apply to the Commission for permission to continue, or resign, to the extent and
in the manner provided by, and subject to the provisions of, the Trust Indenture
Act and this Indenture.
SECTION 609. Corporate Trustee Required; Eligibility. There shall at all
---------------------------------------
times be a Trustee hereunder which shall be a Person that is eligible pursuant
to the Trust Indenture Act to act as such and has (or, in the case of a
corporation included in a bank holding company system, the related bank holding
company has) a combined capital and surplus of at least $50.0 million and its
Corporate Trust Office or agency in The Borough of Manhattan, City of New York.
If such Person or bank holding company publishes reports of condition at least
annually, pursuant to law or to the requirements of said supervising or
examining authority, then for the purposes of this Section, the combined capital
and surplus of such Person or bank holding company shall be deemed to be its
combined capital and surplus as set forth in its most recent report of condition
so published. If at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section, it shall resign immediately in
the manner and with the effect hereinafter specified in this Article.
SECTION 610. Resignation and Removal; Appointment of Successor.
-------------------------------------------------
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee under Section 611.
(b) The Trustee may resign at any time by giving written notice thereof to
the Issuer.
(c) The Trustee may be removed at any time by Act of the Holders of a
majority in principal amount of the Outstanding Securities, delivered to the
Trustee and to the Issuer.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 608 after written
request therefor by the Issuer or by any Holder who has been a bona fide Holder
of a Security for at least six months, or
(2) the Trustee shall cease to be eligible under Section 609 and shall
fail to resign after written request therefor by the Issuer or by any such
Holder, or
(3) the Trustee shall become incapable of acting or shall be adjudged
a bankrupt or insolvent or a receiver of the Trustee or of its property shall be
appointed or any public officer
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shall take charge or control of the Trustee or of its property or affairs for
the purpose of rehabilitation, conservation or liquidation, then, in any such
case, (i) the Issuer by Board Resolutions of the Issuer may remove the Trustee,
or (ii) subject to Section 514, any Holder who has been a bona fide Holder of a
Security for at least six months may, on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction for the removal
of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of acting,
or if a vacancy shall occur in the office of Trustee for any cause, the Issuer,
by Board Resolution of the Issuer, shall promptly appoint a successor Trustee.
If, within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee shall be appointed by Act of the
Holders of a majority in principal amount of the Outstanding Securities
delivered to the Issuer and the retiring Trustee, the successor Trustee so
appointed shall, forthwith upon its acceptance of such appointment, become the
successor Trustee and supersede the successor Trustee appointed by the Issuer.
If, within 30 days after the retiring Trustee resigns, no successor Trustee
shall have been so appointed by the Issuer or the Holders of a majority in
principal amount of the Outstanding Securities and accepted appointment in the
manner hereinafter provided, the retiring Trustee or any Holder who has been a
bona fide Holder of a Security for at least six months may, on behalf of himself
and all others similarly situated, petition any court of competent jurisdiction
for the appointment of a successor Trustee.
(f) The Issuer shall give notice of each resignation and each removal of
the Trustee and each appointment of a successor Trustee to all Holders in the
manner provided in Section 106. Each notice shall include the name of the
successor Trustee and the address of its Corporate Trust Office.
SECTION 611. Acceptance of Appointment by Successor. Every successor
--------------------------------------
Trustee appointed hereunder shall execute, acknowledge and deliver to the Issuer
and to the retiring Trustee a written instrument accepting such appointment, and
thereupon the resignation or removal of the retiring Trustee shall become
effective and such successor Trustee, without any further act, deed or
conveyance, shall become vested with all the rights, powers, trusts and duties
of the retiring Trustee; but, on request of the Issuer or the successor Trustee,
such retiring Trustee shall, upon payment of all sums owing to the retiring
Trustee hereunder and subject to the Lien provided for in Section 607 hereof,
execute and deliver an instrument transferring to such successor Trustee all the
rights, powers and trusts of the retiring Trustee and shall duly assign,
transfer and deliver to such successor Trustee all property and money held by
such retiring Trustee hereunder. Upon request of any such successor Trustee,
the Issuer shall execute any and all instruments for more fully and certainly
vesting in and confirming to such successor Trustee all such rights, powers and
trusts. Notwithstanding the replacement of the Trustee pursuant to this Section
611, the Issuer's obligations under Section 607 hereof shall continue for the
benefit of the retiring Trustee.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article.
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SECTION 612. Merger, Conversion, Consolidation or Succession to Business.
-----------------------------------------------------------
Any corporation into which the Trustee may be merged or converted or with which
it may be consolidated, or any corporation resulting from any merger, conversion
or consolidation to which the Trustee shall be a party, or any corporation
succeeding to all or substantially all the corporate trust business of the
Trustee, shall be the successor of the Trustee hereunder, provided such
corporation shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Securities shall have been authenticated,
but not delivered, by the Trustee then in office, any successor by merger,
conversion or consolidation to such authenticating Trustee, or any corporation
into which all or substantially all of its corporate trust business is
transferred, may adopt such authentication and deliver the Securities so
authenticated with the same effect as if such successor Trustee had itself
authenticated such Securities.
SECTION 613. Preferential Collection of Claims Against Issuer. If and
------------------------------------------------
when the Trustee shall be or become a creditor of the Issuer (or any other
obligor upon the Securities), the Trustee shall be subject to the provisions of
the Trust Indenture Act regarding the collection of claims against the Issuer(or
any such other obligor).
SECTION 614. Appointment of Authenticating Agent. The Trustee may appoint
-----------------------------------
an Authenticating Agent or Agents which shall be authorized to act on behalf of
the Trustee to authenticate Securities issued upon original issue and upon
exchange, registration of transfer, partial conversion or partial redemption or
pursuant to Section 307, and Securities so authenticated shall be entitled to
the benefits of this Indenture and shall be valid and obligatory for all
purposes as if authenticated by the Trustee hereunder. Wherever reference is
made in this Indenture to the authentication and delivery of Securities by the
Trustee or the Trustee's certificate of authentication, such reference shall be
deemed to include authentication and delivery on behalf of the Trustee by an
Authenticating Agent and a certificate of authentication executed on behalf of
the Trustee by an Authenticating Agent. Each Authenticating Agent shall be
reasonably acceptable to the Issuer. If such Authenticating Agent or bank
holding company publishes reports of condition at least annually, pursuant to
law or to the requirements of said supervising or examining authority, then for
the purposes of this Section, the combined capital and surplus of such
Authenticating Agent or bank holding company shall be deemed to be its combined
capital and surplus as set forth in its most recent report of condition so
published. If at any time an Authenticating Agent shall cease to be eligible in
accordance with the provisions of this Section, such Authenticating Agent shall
resign immediately in the manner and with the effect specified in this Section.
The Trustee hereby appoints the Euro Agent as Authentication Agent for
purposes of authenticating any Euro Securities.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency or
corporate trust business of an Authenticating Agent, shall continue to be an
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Authenticating Agent, provided such corporation shall be otherwise eligible
under this Section, without the execution or filing of any paper or any further
act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and to the Issuer. The Trustee may at any time terminate
the agency of an Authenticating Agent by giving written notice thereof to such
Authenticating Agent and to the Issuer. Upon receiving such a notice of
resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent which shall be reasonably acceptable to the Issuer and shall mail written
notice of such appointment by first-class mail, postage prepaid, to all Holders
as its names and addresses appear in the Security Register. Any successor
Authenticating Agent upon acceptance of its appointment hereunder shall become
vested with all the rights, powers and duties of its predecessor hereunder, with
like effect as if originally named as an Authenticating Agent. No successor
Authenticating Agent shall be appointed unless eligible under the provisions of
this Section.
The Trustee agrees to pay to each Authenticating Agent from time to time
reasonable compensation for its services under this Section, and the Trustee
shall be entitled to be reimbursed for such payments from the Issuer, subject to
the provisions of Section 607.
If an appointment is made pursuant to this Section, the Securities may have
endorsed thereon, in addition to the Trustee's certificate of authentication, an
alternative certificate of authentication in the following form:
This is one of the Securities described in the within-mentioned Indenture.
[NAME OF AUTHENTICATING AGENT]
By___________________________
Authorized Signatory
ARTICLE SEVEN
Holders' Lists and Reports by Trustee and Issuer
SECTION 701. Issuer to Furnish Trustee Names and Addresses of Holders.
--------------------------------------------------------
The Issuer will furnish or cause to be furnished to the Trustee
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(a) semi-annually, not more than 15 days after each June 1 and December 1,
commencing June 1, 2000, a list, in such form as the Trustee may reasonably
require, of the names and addresses of the Holders as of such Regular Record
Date, and
(b) at such other times as the Trustee may request in writing, within 30
days after the receipt by the Issuer of any such request, a list of similar form
and content as of a date not more than 15 days prior to the time such list is
furnished;
excluding from any such list names and addresses received by the Trustee in its
capacity as Security Registrar.
SECTION 702. Preservation of Information; Communications to Holders.
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(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 701 and the names and
addresses of Holders received by the Trustee in its capacity as Security
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 701 upon receipt of a new list so furnished.
(b) The rights of Holders to communicate with other Holders with respect to
its rights under this Indenture or under the Securities and the corresponding
rights and duties of the Trustee shall be provided by the Trust Indenture Act.
(c) Every Holder of Securities, by receiving and holding the same, agrees
with the Issuer and the Trustee that neither the Issuer nor the Trustee nor any
agent of either of them shall be held accountable by reason of any disclosure of
information as to the names and addresses of Holders made pursuant to the Trust
Indenture Act.
SECTION 703. Reports by Trustee.
------------------
(a) The Trustee shall mail or transmit to Holders such reports concerning
the Trustee and its actions under this Indenture as may be required pursuant to
the Trust Indenture Act at the times and in the manner provided pursuant
thereto.
(b) A copy of each such report shall, at the time of such mailing or
transmission to Holders, be filed by the Trustee with each stock exchange upon
which the Securities are listed, if any, with the Commission and with the
Issuer. The Issuer will notify the Trustee when the Securities are listed on any
stock exchange, or any delisting thereof.
SECTION 704. Reports by the Issuer. The Issuer shall file with the
---------------------
Trustee and the Commission, and mail or transmit to Holders, such information,
documents and other reports, and such summaries thereof, as may be required
pursuant to the Trust Indenture Act at the times and in the manner provided
pursuant to, the Trust Indenture Act; provided that any such information,
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documents or reports required to be filed with the Commission pursuant to
Section 13 or 15(d) of the Exchange Act shall be filed with the Trustee within
15 days after the same is so required to be filed with the Commission. Delivery
of such reports, information and documents to the Trustee is for informational
purposes only and the Trustee's receipt of such shall not constitute
constructive notice of any information contained therein or determinable from
information contained therein, including the Issuer's compliance with any of its
covenants hereunder (as to which the Trustee is entitled to rely exclusively on
Officers' Certificates and written notices delivered to the Trustee in
accordance with the terms of this Indenture).
ARTICLE EIGHT
Consolidation, Merger, Conveyance, Transfer or Lease
SECTION 801. Issuer may Consolidate, Etc. Only on Certain Terms. The
--------------------------------------------------
Issuer may not, in a single transaction or a series of related transactions, (i)
consolidate or merge with or into any other Person or permit any other Person to
consolidate or merge with or into the Issuer or (ii) directly or indirectly,
transfer, sell, lease or otherwise dispose of all or substantially all of its
assets, unless:
(1) in a transaction in which the Issuer does not survive or in which
the Issuer transfers, sells, leases or otherwise disposes of all or
substantially all of its assets, the successor entity to the Issuer (for
purposes of this Article Eight, a "Successor Entity"), shall be organized and
validly existing under the laws of the United States of America, any State
thereof, or the District of Columbia, and shall expressly assume by an indenture
supplemental hereto executed and delivered to the Trustee, in form satisfactory
to the Trustee, all of the Issuer's obligations under the Indenture;
(2) immediately before and after giving effect to such transaction and
treating any Debt which becomes an obligation of the Issuer or a Restricted
Subsidiary as a result of such transaction as having been Incurred by the Issuer
or such Restricted Subsidiary at the time of the transaction, no Event of
Default or event that with the passing of time or the giving of notice, or both,
would constitute an Event of Default shall have occurred and be continuing;
(3) except in the case of any such consolidation or merger of the
Issuer with or into, or any such transfer, sale, lease or other disposition of
assets to, a Wholly Owned Restricted Subsidiary, immediately after giving effect
to such transaction, the Consolidated Net Worth of the Issuer (or other
successor entity to the Issuer) is equal to or greater than that of the Issuer
immediately prior to the transaction;
(4) except in the case of any such consolidation or merger of the
Issuer with or into, or any such transfer, sale, lease or other disposition of
assets to, a Wholly Owned Restricted Subsidiary, immediately after giving effect
to such transaction and treating any Debt which becomes an obligation of the
Issuer or a Restricted Subsidiary as a result of such transaction as having been
Incurred by the Issuer or such Restricted Subsidiary at the time of the
transaction, the Issuer
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(including any successor entity to the Issuer) could Incur at least $1.00 of
additional Debt pursuant to the provisions of the Indenture described in the
first paragraph of Section 1008; and
(5) the Issuer has delivered to the Trustee an Officer's Certificate
and an Opinion of Counsel, each stating that such amalgamation, consolidation,
merger, conveyance, transfer, sale, lease or disposition and, if a supplemental
indenture is required in connection with such transaction, such supplemental
indenture, complies with this Article and that all conditions precedent herein
provided for relating to such transaction have been complied with, and, with
respect to such Officer's Certificate, setting forth the manner of determination
of the Consolidated Net Worth and the ability to Incur Debt in accordance with
clauses (3) and (4) of this Section 801, of the Issuer or, if applicable, of the
Successor Entity as required pursuant to the foregoing.
SECTION 802. Successor Substituted. Upon any consolidation of the Issuer
---------------------
with, or merger of the Issuer into, any other Person or any transfer,
conveyance, sale, lease or other disposition of all or substantially all of the
properties and assets of the Issuer as an entirety in accordance with Section
801, the Successor Entity shall succeed to, and be substituted for, and may
exercise every right and power of, the Issuer under this Indenture with the same
effect as if such successor Person had been named herein as the Issuer herein,
and thereafter, except in the case of a lease, the predecessor Person shall be
relieved of all obligations and covenants under this Indenture and the
Securities.
ARTICLE NINE
Supplemental Indentures
SECTION 901. Supplemental Indentures Without Consent of Holders. Without
--------------------------------------------------
the consent of any Holders, the Issuer, when authorized by a Board Resolution,
and the Trustee, at any time and from time to time, may enter into one or more
indentures supplemental hereto, in form satisfactory to the Trustee, for any of
the following purposes:
(1) to evidence the succession of another Person to an Issuer and the
assumption by any such successor of the covenants of the Issuer herein and in
the Securities; or
(2) to add to the covenants of the Issuer for the benefit of the Holders,
or to surrender any right or power herein conferred upon the Issuer; or
(3) to secure the Securities pursuant to the requirements of Section 1013
or otherwise; or
(4) to comply with any requirements of the Commission in order to effect
and maintain the qualification of this Indenture under the Trust Indenture Act;
or
(5) to cure any ambiguity, to correct or supplement any provision herein
which may be inconsistent with any other provision herein, or to make any other
provisions with respect to matters
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or questions arising under this Indenture which shall not be inconsistent with
the provisions of this Indenture, provided that such action pursuant to this
clause (5) shall not adversely affect the interests of the Holders in any
material respect;
(6) to evidence and provide for the acceptance and appointment hereunder of
a successor Trustee with respect to the Securities; or
(7) to comply with any of the requirements of the Luxembourg Stock Exchange
in connection with listing the Euro Securities thereon.
SECTION 902. Supplemental Indentures with Consent of Holders. With the
-----------------------------------------------
consent of the Holders of not less than a majority in principal amount of the
Outstanding Securities, by Act of said Holders delivered to the Issuer and the
Trustee, the Issuer, when authorized by Board Resolutions of the Issuer, and the
Trustee may enter into an indenture or indentures supplemental hereto for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of this Indenture or of modifying in any manner the rights of
the Holders under this Indenture; provided, however, that no such supplemental
indenture shall, without the consent of the Holder of each Outstanding Security
affected thereby,
(1) change the Stated Maturity of the principal of, or any installment of
interest on, any Security, or reduce the principal amount thereof or the rate of
interest thereon or any premium payable thereon, or change the place of payment
where, or the coin or currency in which, any Security or any premium or the
interest thereon is payable, or impair the right to institute suit for the
enforcement of any such payment on or after the Stated Maturity thereof (or, in
the case of redemption, on or after the Redemption Date or, in the case of an
Offer to Purchase which has been made, on or after the applicable Purchase
Date), or
(2) reduce the percentage in principal amount of the Outstanding
Securities, the consent of whose Holders is required for any such supplemental
indenture, or the consent of whose Holders is required for any waiver (of
compliance with certain provisions of this Indenture or certain defaults
hereunder and its consequences) provided for in this Indenture, or
(3) modify any of the provisions of this Section, Section 513 or Section
1021, except to increase any such percentage or to provide that certain other
provisions of this Indenture cannot be modified or waived without the consent of
the Holder of each Outstanding Security affected thereby, or
(4) following the mailing of an Offer with respect to an Offer to Purchase
pursuant to Section 1015 or 1016, modify the provisions of this Indenture with
respect to such Offer to Purchase in a manner adverse to such Holder.
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It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
SECTION 903. Execution of Supplemental Indentures. In executing, or
------------------------------------
accepting the additional trusts created by, any supplemental indenture permitted
by this Article or the modifications thereby of the trusts created by this
Indenture, the Trustee shall be entitled to receive, and (subject to Section
601) shall be fully protected in relying upon, an Opinion of Counsel stating
that the execution of such supplemental indenture is authorized or permitted by
this Indenture. The Trustee may, but shall not be obligated to, enter into any
such supplemental indenture which affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise.
SECTION 904. Effect of Supplemental Indentures. Upon the execution of any
---------------------------------
supplemental indenture under this Article, this Indenture shall be modified in
accordance therewith, and such supplemental indenture shall form a part of this
Indenture for all purposes; and every Holder of Securities theretofore or
thereafter authenticated and delivered hereunder shall be bound thereby.
SECTION 905. Conformity with Trust Indenture Act. Every supplemental
-----------------------------------
indenture executed pursuant to this Article shall conform to the requirements of
the Trust Indenture Act.
SECTION 906. Reference in Securities to Supplemental Indentures.
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Securities authenticated and delivered after the execution of any supplemental
indenture pursuant to this Article may, and shall if required by the Trustee,
bear a notation in form approved by the Trustee as to any matter provided for in
such supplemental indenture. If the Issuer shall so determine, new Securities so
modified as to conform, in the opinion of the Trustee and the Issuer, to any
such supplemental indenture may be prepared and executed by the Issuer and
authenticated and delivered by the Trustee or Authentication Agent in exchange
for Outstanding Securities.
ARTICLE TEN
Covenants
SECTION 1001. Payment of Principal, Premium and Interest. The Issuer will
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duly and punctually pay the principal of (and premium, if any) and interest on
the Securities in accordance with the terms of the Securities and this
Indenture.
SECTION 1002. Maintenance of Office or Agency. The Issuer will maintain
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in the Borough of Manhattan, The City of New York, an office or agency where
Securities may be presented or surrendered for payment, where Securities may be
surrendered for registration of transfer or exchange and where notices and
demands to or upon the Issuer in respect of the Securities and this Indenture
may be served. The Issuer will give prompt written notice to the Trustee of the
location, and any change in the location, of such office or agency. If at any
time the Issuer shall fail to
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maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the Corporate Trust Office of the Trustee, and the
Issuer hereby appoints the Trustee as its agent to receive all such
presentations, surrenders, notices and demands.
The Issuer may also from time to time designate one or more other offices
or agencies (in or outside the Borough of Manhattan, The City of New York) where
the Securities may be presented or surrendered for any or all such purposes and
may from time to time rescind such designations; provided, however, that no such
designation or rescission shall in any manner relieve the Issuer of its
obligation to maintain an office or agency in the Borough of Manhattan, The City
of New York, for such purposes. The Issuer will give prompt written notice to
the Trustee of any such designation or rescission and of any change in the
location of any such other office or agency.
SECTION 1003. Money for Security Payments to Be Held in Trust. If the
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Issuer shall at any time act as its own Paying Agent, it will, on or before each
due date of the principal of (and premium, if any) or interest on any of the
Securities, segregate and hold in trust for the benefit of the Persons entitled
thereto a sum sufficient to pay the principal (and premium, if any) or interest
so becoming due until such sums shall be paid to such Persons or otherwise
disposed of as herein provided and will promptly notify the Trustee of its
action or failure so to act.
Whenever the Issuer shall have one or more Paying Agents, it will, on or
before each due date of the principal of (and premium, if any) or interest on
any Securities, deposit with a Paying Agent a sum sufficient to pay the
principal (and premium, if any) or interest so becoming due, such sum to be held
as provided by the Trust Indenture Act, and (unless such Paying Agent is the
Trustee) the Issuer will promptly notify the Trustee of its action or failure so
to act.
The Issuer will cause each Paying Agent other than the Trustee to execute
and deliver to the Trustee an instrument in which such Paying Agent shall agree
with the Trustee, subject to the provisions of this Section, that such Paying
Agent will (i) comply with the provisions of the Trust Indenture Act applicable
to it as a Paying Agent (or, until such time as this Indenture shall be
qualified under the Trust Indenture Act, which would be applicable to it as
Paying Agent if this Indenture were so qualified) and (ii) in the event and
during the continuance of any default by the Issuer (or any other obligor upon
the Securities) in the making of any payment in respect of the Securities, upon
the written request of the Trustee, forthwith pay to the Trustee all sums held
in trust by such Paying Agent as such.
The Issuer may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, pay, or by Issuer
Order direct any Paying Agent to pay, to the Trustee all sums held in trust by
the Issuer or such Paying Agent, such sums to be held by the Trustee upon the
same trusts as those upon which such sums were held by the Issuer or such Paying
Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying
Agent shall be released from all further liability with respect to such money.
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Any money deposited with the Trustee or any Paying Agent, or then held by
the Issuer, in trust for the payment of the principal of (and premium, if any)
or interest on any Security and remaining unclaimed for two years after such
principal (and premium, if any) or interest has become due and payable shall be
paid to the Issuer on Issuer request, or (if then held by the Issuer) shall be
discharged from such trust; and the Holder of such Security shall thereafter, as
an unsecured general creditor, look only to the Issuer for payment thereof, and
all liability of the Trustee or such Paying Agent with respect to such trust
money, and all liability of the Issuer trustee thereof, shall thereupon cease;
provided, however, that the Trustee or such Paying Agent, before being required
to make any such repayment, may at the expense of the Issuer cause to be
published once, in a newspaper published in the English language, customarily
published on each Business Day and of general circulation in The City of New
York and Luxembourg, notice that such money remains unclaimed and that, after a
date specified therein, which shall not be less than 30 days from the date of
such publication, any unclaimed balance of such money then remaining will be
repaid to the Issuer.
SECTION 1004. Existence. Subject to Article Eight and Section 1015, the
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Issuer will do or cause to be done all things necessary to preserve and keep in
full force and effect its existence, rights (charter and statutory) and
franchises; provided, however, that Issuer shall not be required to preserve any
such right or franchise if the Issuer in good faith shall determine that the
preservation thereof is no longer desirable in the conduct of the business of
the Issuer and that the loss thereof is not disadvantageous in any material
respect to the Holders.
SECTION 1005. Maintenance of Properties. The Issuer will cause all
-------------------------
material properties used or useful in the conduct of its business or the
business of any Restricted Subsidiary of the Issuer to be maintained and kept in
good condition, repair and working order (reasonable wear and tear excepted) and
supplied with all necessary equipment and will cause to be made all necessary
repairs, renewals, replacements, betterments and improvements thereof, all as in
the judgment of the Issuer may be necessary so that the business carried on in
connection therewith may be properly conducted at all times; provided, however,
that nothing in this Section shall prevent an Issuer or any of its Restricted
Subsidiaries from discontinuing the operation or maintenance of any of such
properties if such discontinuance is, as determined by the Issuer or Restricted
Subsidiary in good faith, desirable in (or not adverse to) the conduct of its
business or the business of any Restricted Subsidiary and not adverse in any
material respect to the Holders.
SECTION 1006. Payment of Taxes and Other Claims. The Issuer will pay or
---------------------------------
discharge or cause to be paid or discharged, before the same shall become
delinquent, (1) all material taxes, assessments and governmental charges levied
or imposed upon the Issuer or any of its Restricted Subsidiaries or upon the
income, profits or property of the Issuer or any of its Restricted Subsidiaries,
and (2) all material lawful claims for labor, materials and supplies which, if
unpaid, might by law become a lien upon the property of the Issuer or any of its
Restricted Subsidiaries; provided, however, that the Issuer shall not be
required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith by appropriate negotiations or proceedings.
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SECTION 1007. Maintenance of Insurance. The Issuer shall, and the Issuer
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shall cause its Restricted Subsidiaries to, keep at all times all of its
properties which are of an insurable nature insured (which may include self-
insurance) against loss or damage with insurers believed by the Issuer to be
responsible to the extent that property of similar character is usually so
insured by corporations similarly situated and owning like properties in
accordance with good business practice.
SECTION 1008. Limitation on Debt. The Issuer will not, and will not
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permit any of its Restricted Subsidiaries to, Incur any Debt; provided that the
Issuer may Incur Debt if, after giving effect to the incurrence of such Debt and
the receipt and application of the proceeds therefrom, the Consolidated Debt to
EBITDA Ratio would be greater than zero and less than 6:1.
Notwithstanding the foregoing limitation, the following Debt may be
Incurred, each item to be given independent effect:
(1) Permitted Senior Bank Debt;
(2) Debt owed (A) to the Issuer evidenced by a promissory note, or
(B) to any Restricted Subsidiary; provided that any event which results in any
such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any
subsequent transfer of such Debt (other than to the Issuer or another Restricted
Subsidiary) shall be deemed, in each case, to constitute the Incurrence of such
Debt not permitted by this clause (2);
(3) Debt of the Issuer or any Restricted Subsidiary (A) in respect of
performance, surety or appeal bonds or letters of credit in the ordinary course
of business, (B) under Permitted Interest Rate or Currency Protection
Agreements, or (C) arising under, or arising from, agreements providing for
indemnification, adjustment of purchase price or similar obligations, or from
Guarantees or letters of credit, surety bonds or performance bonds securing any
obligations of the Issuer Incurred in connection with the disposition of any
business, assets (other than Guarantees of Debt Incurred by any Person acquiring
all or any portion of such business, assets or Restricted Subsidiary for the
purpose of financing such acquisition), in a principal amount not to exceed the
gross proceeds actually received by the Issuer or any Restricted Subsidiary in
connection with such disposition;
(4) Debt which is exchanged for or the proceeds of which are used to
refinance or refund, or any extension or renewal of (each a "refinancing"), (a)
the Securities, (b) Debt incurred pursuant to clauses (3), (5), (6), (8) and (9)
of this paragraph and this clause (4), in each case in an aggregate principal
amount not to exceed the principal amount of the Debt so refinanced (together
with any accrued interest and any premium and other payment required to be made
with respect to the Debt being refinanced or refunded, and any fees, costs,
expenses, underwriting discounts or commissions and other payments paid or
payable with respect to the Debt incurred pursuant to this clause (4));
provided, however, that (A) Debt, the proceeds of which are used to refinance
the Securities, or Debt which is pari passu with or subordinate in right of
payment to the Securities, shall only be permitted if (x) in the case of any
refinancing of the Securities or Debt which is pari passu to
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the Securities, the refinancing Debt is Incurred by the Issuer and made pari
passu to the Securities or subordinated to the Securities, and (y) in the case
of any refinancing of Debt which is subordinated to the Securities, the
refinancing Debt is Incurred by the Issuer and is subordinated to the Securities
in a manner that is at least as favorable to the Holders as that of the Debt
refinanced; (B) the refinancing Debt by its terms, or by the terms of any
agreement or instrument pursuant to which such Debt is issued, does not have a
final maturity prior to the final maturity of the Debt being refinanced and has
an Average Life longer than the Average Life of the Debt being refinanced; and
(C) in the case of any refinancing of Debt Incurred by the Issuer, the
refinancing of Debt may be Incurred only by the Issuer, and in the case of any
refinancing of Debt Incurred by a Restricted Subsidiary, the refinancing Debt
may be Incurred only by such Restricted Subsidiary or the Issuer;
(5) Acquisition Debt of the Issuer or any Restricted Subsidiary;
(6) Exchange Securities and Additional Securities;
(7) Debt of the Issuer not to exceed, at any time outstanding, two
times the Net Cash Proceeds received by the Issuer after the Closing Date from
the issuance and sale of its Capital Stock (other than Disqualified Stock) to a
Person that is not a Subsidiary of the Issuer, to the extent that such Net Cash
Proceeds have not been used pursuant to clause (C)(3) of the first paragraph or
clauses (iii), (iv) or (vii) of the second paragraph of Section 1011 to make a
Restricted Payment; provided that such Debt does not have a final maturity prior
to the final maturity of the Securities and has an Average Life longer than the
Average Life of the Securities;
(8) Existing Debt of the Issuer;
(9) Debt of the Issuer or any Restricted Subsidiary Incurred to
finance the purchase or other acquisition of any property, inventory, asset or
business directly or indirectly, by the Issuer or any Restricted Subsidiary used
in, or to be used in, the System and Network Management Business;
(10) Subordinated Debt of the Issuer not to exceed $300.0 million in
principal outstanding at any time; provided that the calculation of the
principal amount of such Subordinated Debt shall exclude the principal amount of
the New Convertible Notes; and
(11) other Debt of the Issuer or any Restricted Subsidiary not to
exceed $50.0 million at any one time outstanding.
For purposes of determining compliance with this Section 1008, in the event
that an item of Debt meets the criteria of more than one of the types of Debt
described in the above clauses, or is permitted in part under the first
paragraph of this Section 1008 and in part under one or more of the above
clauses, the Issuer, in its sole discretion, shall classify, and from time to
time may reclassify, such item of Debt.
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For purposes of determining any particular amount of Debt under Section
1008, Guarantees, Liens or obligations with respect to letters of credit
supporting Debt otherwise included in the determination of such particular
amount shall not be included.
SECTION 1009. Limitation on Sale-Leaseback Transactions. The Issuer will
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not, and will not permit any Restricted Subsidiary to, enter into any sale-
leaseback transaction involving any of its assets or properties, whether now
owned or hereafter acquired, whereby the Issuer or a Restricted Subsidiary sells
or transfers such assets or properties and then or thereafter leases such assets
or properties or any part thereof or any other assets or properties that the
Issuer or such Restricted Subsidiary, as the case may be, intends to use for
substantially the same purpose or purposes as the assets or properties sold or
transferred.
The foregoing restriction does not apply to any sale-leaseback transaction
if (i) the lease is for a period, including renewal rights, of not in excess of
three years; (ii) the sale-leaseback transaction is consummated within 180 days
after the purchase of the assets subject to such transaction; (iii) the
transaction is solely between the Issuer and any Wholly Owned Restricted
Subsidiary or solely between Wholly Owned Restricted Subsidiaries; or (iv) the
Issuer or such Restricted Subsidiary, within 12 months after the sale or
transfer of any assets or properties is completed, applies an amount no less
than the Net Cash Proceeds received from such sale in accordance with clause (A)
or (B) of the second paragraph of Section 1015(1).
SECTION 1010. Limitation on Guarantees of Issuer Debt by Restricted
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Subsidiaries. The Issuer may not permit any Restricted Subsidiary, directly or
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indirectly, to Guarantee, assume or in any other manner become liable for the
payment of any Debt of the Issuer (other than Debt of the Issuer Incurred
pursuant to clauses (1), (3), (5), (9) or (11) of the second paragraph of
Section 1008 or refinanced pursuant to clause (4) of the second paragraph of
Section 1008 of Debt originally incurred under clause (3), (5) or (9) of the
second paragraph of Section 1008) that is pari passu with or subordinate in
right of payment to the Securities unless: (i) (A) such Restricted Subsidiary
simultaneously executes and delivers a supplemental indenture providing for a
Guarantee of payment of the Securities by such Restricted Subsidiary; and (B)
with respect to any Guarantee of Debt of the Issuer that is subordinate in right
of payment to the Securities, such Guarantee shall be subordinated to such
Restricted Subsidiary's Guarantee with respect to the Securities at least to the
same extent as such Debt is subordinated to the Securities, and (ii) such
Restricted Subsidiary waives, and will not in any manner whatsoever claim or
take the benefit or advantage of, any rights of reimbursement, indemnity or
subrogation or any other rights against the Issuer or any other Restricted
Subsidiary as a result of any payment by such Restricted Subsidiary under its
Guarantee until the Securities have been paid in full.
Notwithstanding the foregoing, any Guarantee by a Restricted Subsidiary may
provide by its terms that it shall be automatically and unconditionally released
and discharged upon (i) any sale, exchange or transfer, to any Person not an
Affiliate of the Issuer, of all of the Issuers and each Restricted Subsidiary's
Capital Stock in, or all or substantially all of the assets of, such Restricted
Subsidiary (which sale, exchange or transfer is not prohibited by this
Indenture) or (ii) the release or
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discharge of the Guarantee which resulted in the creation of such Restricted
Subsidiary's Guarantee with respect to the Securities, except a discharge or
release by or as a result of payment under such Guarantee.
SECTION 1011. Limitation on Restricted Payments. The Issuer will not, and
---------------------------------
will not permit any Restricted Subsidiary directly or indirectly to:
(1) declare or pay any dividend or make any distribution on or with
respect to its Capital Stock to Persons other than the Issuer or any of its
Restricted Subsidiaries, (other than (x) dividends or distributions payable
solely in shares of its Capital Stock (other than Disqualified Stock), or in
options, warrants or other rights to acquire shares of such Capital Stock; (y)
pro rata dividends or distributions on Common Stock of Restricted Subsidiaries
held by minority stockholders; or (z) dividends in respect of Disqualified
Stock);
(2) purchase, redeem, retire or otherwise acquire for value any shares
of Capital Stock of (A) the Issuer or an Unrestricted Subsidiary (including
options, warrants or other rights to acquire such shares of Capital Stock) held
by any Person, or (B) a Restricted Subsidiary (including options, warrants or
other rights to acquire such shares of Capital Stock) held by any Person other
than the Issuer or a Wholly Owned Restricted Subsidiary of the Issuer;
(3) make any voluntary or optional principal payment, or voluntary or
optional redemption, repurchase, defeasance, or other acquisition or retirement
for value, of Debt of the Issuer that is subordinated in right of payment to the
Securities; or
(4) make any Investment, other than a Permitted Investment, in any
Person,
(such payments or any other actions described in clauses (1) through (4) above
being collectively "Restricted Payments") if, at the time of, and after giving
effect to, the proposed Restricted Payment:
(A) a Default or Event of Default shall have occurred and be
continuing;
(B) the Issuer could not Incur at least $1.00 of Debt under the
first paragraph of Section 1008; or
(C) the aggregate amount of all Restricted Payments (the amount,
if other than in cash, to be determined in good faith by the Board of Directors,
whose determination shall be conclusive and evidenced by a Board Resolution)
made after the Closing Date shall exceed the sum of: (1) cumulative Consolidated
EBITDA since the date of original issuance of the Securities through the last
day of the last full fiscal quarter ending immediately preceding the date of
such Restricted Payment for which quarterly or annual financial statements are
available; minus (2) 1.5 times cumulative Consolidated Interest Expense of the
Issuer since the date of original issuance of the Securities through the last
day of the last full fiscal quarter ending immediately preceding the date of
such Restricted Payment for which quarterly or annual financial statements are
available, plus (3) the
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aggregate Net Cash Proceeds received by the Issuer after the Closing Date from
the issuance and sale permitted by this Indenture of its Capital Stock (other
than Disqualified Stock) to a Person who is not a Subsidiary of the Issuer,
including an issuance or sale permitted by this Indenture of Debt of the Issuer
for cash subsequent to the Closing Date upon the conversion of such Debt into
Capital Stock (other than Disqualified Stock) of the Issuer, or from the
issuance to a Person who is not a Subsidiary of the Issuer of any options,
warrants or other rights to acquire Capital Stock of the Issuer (in each case,
exclusive of any Disqualified Stock or any options, warrants or other rights
that are redeemable at the option of the holder, or are required to be redeemed,
prior to the stated final maturity date of the Securities), in each case except
to the extent such Net Cash Proceeds are used to Incur Debt pursuant to clause
(vii) of the second paragraph of Section 1008, plus (4) an amount equal to the
net reduction in Investments (other than reductions in Permitted Investments) in
any Person resulting from payments of interest on Debt, dividends, repayments of
loans or advances, or other transfers of assets, in each case to the Issuer or
any Restricted Subsidiary or from the Net Cash Proceeds from the sale of any
such Investment (except, in each case, to the extent any such payment or
proceeds are included in the calculation of Consolidated EBITDA), or from
redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries, not to
exceed, in each case, the amount of Investments previously made by the Issuer or
any Restricted Subsidiary in such Person or Unrestricted Subsidiary.
The foregoing provision shall not be violated by reason of:
(i) the payment of any dividend within 60 days after the date of
declaration thereof if, at said date of declaration, such payment would comply
with the foregoing paragraph;
(ii) the redemption, repurchase, defeasance or other acquisition or
retirement for value of Debt that is subordinated in right of payment to the
Securities including premium, if any, and accrued and unpaid interest, with the
proceeds of, Debt Incurred under clause (ii) of the second paragraph of Section
1008.
(iii) the repurchase, redemption or other acquisition of Capital
Stock of the Issuer or a Subsidiary of the Issuer (or options, warrants or other
rights to acquire such Capital Stock) in exchange for (including upon exercise
of a conversion right), or out of the proceeds of a capital contribution or a
substantially concurrent offering of, shares of Capital Stock (other than
Disqualified Stock) of the Issuer (or options, warrants or other rights to
acquire such Capital Stock);
(iv) the making of any principal payment or the repurchase,
redemption, retirement, defeasance or other acquisition for value of Debt of the
Issuer which is subordinated in right of payment to the Securities in exchange
for, or out of the proceeds of, a capital contribution or a substantially
concurrent offering of, shares of the Capital Stock (other than Disqualified
Stock) of the Issuer (or options, warrants or other rights to acquire such
Capital Stock);
(v) payments or distributions, to dissenting stockholders pursuant
to applicable law, pursuant to or in connection with a consolidation, merger or
transfer of assets that complies with
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the provisions of this Indenture applicable to mergers, consolidations and
transfers of all or substantially all of the property and assets of the Issuer,
and payments of cash in lieu of fractional shares;
(vi) Investments in any Person; provided that the aggregate amount
of Investments made pursuant to this clause (vi) does not exceed the sum of (a)
$50.0 million, plus (b) the amount of Net Cash Proceeds received by the Issuer
after the Closing Date from the sale of its Capital Stock (other than
Disqualified Stock) to a Person who is not a Subsidiary of the Issuer, except to
the extent such Net Cash Proceeds are used to Incur Debt pursuant to clause (7)
of the second paragraph of Section 1008 or to make Restricted Payments pursuant
to clause (C)(3) of the first paragraph, or clauses (iii) or (iv) of this
paragraph, of this Section 1011, plus (c) the net reduction in Investments made
pursuant to this clause (vi) resulting from distributions on or repayments of
such Investments or from the Net Cash Proceeds from the sale of any such
Investment (except in each case to the extent any such payment or proceeds is
included in the calculation of Consolidated EBITDA) or from such Person becoming
a Restricted Subsidiary; provided that the net reduction in any Investment shall
not exceed the amount of such Investment;
(vii) Investments acquired in exchange for Capital Stock (other than
Disqualified Stock) of the Issuer;
(viii) the purchase, redemption or other acquisition or retirement of
Common Stock Of the Issuer or any option or other right to acquire shares of
Common Stock of the Issuer (I) if such Common Stock, option or other right was
issued pursuant to a plan or arrangement approved by the Issuer's Board of
Directors, and such purchase, redemption or other acquisition or retirement, (x)
occurs in accordance with the terms of such plan or arrangement, from former
employees of the Issuer and its Subsidiaries or their estates or (y) is from an
employee of the Issuer and the price paid by the Issuer to such employee is
equal to the exercise or purchase price paid by such employee and (II) from
employees of the Issuer or its Subsidiaries in an amount not to exceed $5.0
million in any fiscal year; provided that, in the case of clause (II), amounts
not paid for any such purchase, redemption or other acquisition or retirement in
any fiscal year may be accumulated and paid in any subsequent fiscal year;
(ix) additional Restricted Payments not to exceed $50.0 million in
the aggregate; or
(x) the acquisition of Capital Stock of the Issuer by the Issuer in
connection with the cashless exercise of any options, warrants or similar rights
issued by the Issuer.
Each Restricted Payment permitted pursuant to the preceding paragraph
(other than the Restricted Payment referred to in clause (2) thereof and an
exchange of Capital Stock for Capital Stock or Debt referred to in clause (3) or
(4) thereof), and the Net Cash Proceeds from any issuance of Capital Stock
referred to in clauses (iii), (iv) and (vi), shall be included in calculating
whether the conditions of clause (C) of the first paragraph of this Section 1011
have been met with respect to any subsequent Restricted Payments. In the event
the proceeds of an issuance of Capital Stock of the
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Issuer are used for the redemption, repurchase or other acquisition of the
Securities, or Debt that is pari passu with the Securities, then the Net Cash
Proceeds of such issuance shall be included in clause (C) of the first paragraph
of this Section 1011 only to the extent such proceeds are not used for such
redemption, repurchase or other acquisition of Debt.
SECTION 1012. Limitation on Dividend and Other Payment Restrictions
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Affecting Restricted Subsidiaries. The Issuer may not, and may not permit any
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Restricted Subsidiary to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary (i) to pay dividends (in cash or otherwise)
or make any other distributions in respect of its Capital Stock owned by the
Issuer or any other Restricted Subsidiary or pay any Debt or other obligation
owed to the Issuer or any other Restricted Subsidiary; (ii) to make loans or
advances to the Issuer or any other Restricted Subsidiary; or (iii) to transfer
any of its property or assets to the Issuer or any other Restricted Subsidiary.
Notwithstanding the foregoing, the Issuer may, and may permit any Restricted
Subsidiary to, suffer to exist any such encumbrance or restriction:
(1) pursuant to any agreement in effect on the date of original issuance of
the Securities, and any amendments, extensions, refinancings, renewals or
replacements of such agreements, provided that the amendments, encumbrances and
restrictions in any such extensions, refinancings, renewals or replacements are
no less favorable in any material respect to the Holders, than those
encumbrances or restrictions that are then in effect and that are being
extended, refinanced, renewed or replaced;
(2) existing under or by reason of applicable law;
(3) existing in connection with any Permitted Senior Bank Debt or any Debt
incurred pursuant to clause (5) of the second paragraph of Section 1008;
(4) pursuant to an agreement existing prior to the date on which such
Person became a Restricted Subsidiary and not Incurred in anticipation of
becoming a Restricted Subsidiary, which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person, other than
the Person so acquired;
(5) pursuant to an agreement entered into in connection with Debt Incurred
under clause (4) of the second paragraph of Section 1008; provided, however,
that the provisions contained in such agreement related to such encumbrance or
restriction are no more restrictive in any material respect than the provisions
contained in the agreement the subject of the refinancing such clause (4) of the
second paragraph of Section 1008;
(6) restrictions contained in any agreement relating to a Lien of a
Restricted Subsidiary or the Issuer otherwise permitted under this Indenture,
but only to the extent such restrictions restrict the transfer of the property
subject to such Lien;
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(7) customary nonassignment provisions entered into in the ordinary course
of business in leases, licenses and other contracts to the extent such
provisions restrict the transfer, sublicensing or any such license or subletting
of any such lease or the assignment of rights under any such contract;
(8) any restriction with respect to a Restricted Subsidiary imposed
pursuant to an agreement which has been entered into for the sale or disposition
of all or substantially all of the Capital Stock or assets of such Restricted
Subsidiary; provided that consummation of such transaction would not result in
an Event of Default or an event that, with the passing of time or the giving of
notice or both, would constitute an Event of Default, that such restriction
terminates if such transaction is closed or abandoned and that the closing or
abandonment of such transaction occurs within one year of the date such
agreement was entered into;
(9) any restriction imposed pursuant to contracts for the sale of assets
with respect to the transfer of the assets to be sold pursuant to such contract;
(10) arising or agreed to in the ordinary course of business, not relating
to any Debt, and that do not, individually, or in the aggregate, detract from
the value of property or assets of the Issuer or any Restricted Subsidiary in
any manner material to the Issuer or any Restricted Subsidiary; or
(11) such encumbrance or restriction is contained in the terms of any
agreement pursuant to which such Debt was issued if (A) the encumbrance or
restriction applies only in the event of a payment default or a default with
respect to a financial covenant contained in such Debt or agreement, (B) the
encumbrance or restriction is not materially more disadvantageous to the Holders
of the Securities than is customary in comparable financings, and (C) the Issuer
determines that any such encumbrance or restriction will not materially affect
the Issuer's ability to make principal or interest payments on the Securities.
SECTION 1013. Limitation on Liens. The Issuer may not, and may not permit
-------------------
any Restricted Subsidiary to, Incur or suffer to exist any Lien, on or with
respect to any property or assets now owned or hereafter acquired to secure any
Debt without making, or causing such Restricted Subsidiary to make, effective
provision for securing the Securities (x) equally and ratably with such Debt as
to such property or assets for so long as such Debt will be so secured or (y) in
the event such Debt is Debt of the Issuer which is subordinate in right of
payment to the Securities, prior to such Debt as to such property or assets for
so long as such Debt will be so secured.
The foregoing restrictions shall not apply to:
(1) Liens in existence on the date of original issuance of the
Securities;
(2) Liens securing only the Securities and any Lien in favor of the
Trustee for the benefit of Holders arising under the provisions in this
Indenture;
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(3) Liens granted by a Restricted Subsidiay in favor of the Issuer or
any Restricted Subsidiary;
(4) Liens to secure Permitted Senior Bank Debt;
(5) Liens securing Purchase Money Secured Debt;
(6) Liens on property existing immediately prior to the time of
acquisition thereof (and not Incurred in anticipation of the financing of such
acquisition);
(7) Liens on property of a Person existing at the time such Person
becomes a Restricted Subsidiary and not incurred in anticipation of becoming a
Restricted Subsidiary;
(8) any interest in or title of a lessor to any property subject to a
Capital Lease Obligation which is permitted under this Indenture; or
(9) Liens to secure Debt Incurred pursuant to clause (4) of the
second paragraph of Section 1008; provided that such Lien does not extend to any
property other than the property securing the Debt being refinanced pursuant to
clause (4) of the second paragraph of Section 1008.
SECTION 1014. Limitation on Issuance of Capital Stock of Restricted
-----------------------------------------------------
Subsidiaries. The Issuer will not sell, and will not permit any Restricted
- ------------
Subsidiary, directly or indirectly, to issue or sell, any shares of Capital
Stock of a Restricted Subsidiary (including options, warrants or other rights to
purchase shares of such Capital Stock) except (i) to the Issuer or a Wholly
Owned Restricted Subsidiary; (ii) issuances of director's qualifying shares or
sales to foreign nationals of shares of Capital Stock of foreign Restricted
Subsidiaries, to the extent required by applicable law; (iii) if, immediately
after giving effect to such issuance or sale, such Restricted Subsidiary would
no longer constitute a Restricted Subsidiary and any Investment in such Person
remaining after giving effect to such issuance or sale would have been permitted
under Section 1011 if made on the date of such issuance or sale; or (iv)
issuances or sales of Common Stock of a Restricted Subsidiary.
SECTION 1015. Asset Sales.
-----------
(1) The Issuer will not, and will not permit any Restricted Subsidiary to,
consummate an Asset Sale unless (i) the Issuer or the applicable Restricted
Subsidiary, as the case may be, receives consideration at the time of such Asset
Sale at least equal to the fair market value of the assets sold or otherwise
disposed of (as evidenced by a resolution of the Board of Directors), and (ii)
at least 75% of the consideration received by the Issuer or the Restricted
Subsidiary, as the case may be, from such Asset Sale shall be cash or other
Qualified Consideration.
The Issuer or any Restricted Subsidiary may, within 365 days of the Asset
Sale, invest the Net Cash Proceeds thereof (A) in property or assets used, or to
be used, in the System and Network Management Business, or in a company engaged
primarily in the System and Network Management
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Business (if and to the extent otherwise permitted under this Indenture), or (B)
to repay Secured Debt of the Issuer or any Restricted Subsidiary. The amount of
such Net Cash Proceeds not used or invested within 365 days of the Asset Sale in
the manner described in clauses (A) and (B) above shall constitute "Excess
Proceeds."
In the event that Excess Proceeds exceed $10.0 million, the Issuer shall
make an Offer to Purchase that amount of Securities equal to the amount of
Excess Proceeds at a price equal to 100% of the principal amount of the
Securities to be purchased, plus accrued and unpaid interest and Liquidated
Damages thereon, if any, to the date of purchase and, to the extent required by
the terms thereof, any other Debt of the Issuer that is pari passu with the
Securities or Debt of a Restricted Subsidiary. Each Offer to Purchase shall be
mailed within 30 days following the date that the Issuer shall become obligated
to purchase Securities with any Excess Proceeds. Following the completion of an
Offer to Purchase, the amount of Excess Proceeds shall be deemed to be reset at
zero and, to the extent there are any remaining Excess Proceeds the Issuer may
use such Excess Proceeds for any use which is not otherwise prohibited by this
Indenture.
The Issuer will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the purchase
of Securities pursuant to such Offer to Purchase.
(2) Not later than the date of the Offer with respect to an Offer to
Purchase pursuant to this Section 1015, the Issuer shall deliver to the Trustee
an Officers' Certificate as to (i) the Purchase Amount, (ii) the allocation of
the Net Cash Proceeds from the Asset Sale(s) pursuant to which such Offer is
being made, including, if amounts are invested in assets related to the business
of the Issuers, the actual assets acquired and a statement indicating the
relationship of such assets to the business of the Issuer and (iii) the
compliance of such allocation with the provisions of Section 1015(1).
The Issuer shall perform its obligations specified in the Offer for the
Offer to Purchase. On or prior to the Purchase Date, the Issuer shall (i)
accept for payment (on a pro rata basis, if necessary) Securities or portions
thereof tendered pursuant to the Offer, (ii) deposit with the paying agent (or,
if the Issuer is acting as its own paying agent, segregate and hold in trust as
provided in Section 1003) money sufficient to pay the purchase price of all
Securities or portions thereof so accepted and (iii) deliver or cause to be
delivered to the Trustee all Securities so accepted together with an Officers'
Certificate stating the Securities or portions thereof accepted for payment by
the Issuers. The Paying Agent (or the Issuers, if so acting) shall promptly
mail or deliver to Holders of Securities so accepted payment in an amount equal
to the purchase price, and the Trustee or Authentication Agent shall promptly
authenticate and mail or deliver to such Holders a new Security equal in
principal amount to any unpurchased portion of the Security surrendered. Any
Security not accepted for payment shall be promptly mailed or delivered by the
Issuer to the Holder thereof. The Issuer shall publicly announce the results of
the Offer on or as soon as practicable after the Purchase Date.
SECTION 1016. Change of Control.
-----------------
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(1) If a Change of Control shall occur at any time, then each Holder of
Securities shall have the right to require that the Issuer purchase such
Holder's Securities, in whole or in part in integral multiples of $1,000 or Euro
1,000, as the case may be, at a purchase price in cash, in an amount equal to
101% of the principal amount of such Securities or portion thereof, plus accrued
and unpaid interest and Liquidated Damages, if any, to the date of purchase,
pursuant to the Offer to Purchase and in accordance with the other procedures
set forth in this Indenture. Within 30 days following the Change of Control,
the Issuer will mail an Offer to Purchase to each Holder describing the
transaction or transactions that constitute the Change of Control and offering
to purchase Securities on the date specified in the Offer to Purchase. The
Issuer will comply with the requirements of Rule 14e-1 under the Exchange Act
and any other securities laws and regulations thereunder to the extent such laws
and regulations are applicable in connection with the purchase of the Securities
pursuant to the Offer to Purchase.
(2) The Issuer shall perform its obligations specified in the Offer to
Purchase and the Trustee shall perform its obligations arising hereunder in
connection therewith. Prior to the Purchase Date, the Issuer shall (i) accept
for payment Securities or portions thereof tendered pursuant to the Offer, (ii)
deposit with the Paying Agent (or, if the Issuer is acting as its own Paying
Agent, segregate and hold in trust as provided in Section 1003) money sufficient
to pay the purchase price of all Securities or portions thereof so accepted and
(iii) deliver or cause to be delivered to the Trustee all Securities so accepted
together with an Officers' Certificate stating the Securities or portions
thereof accepted for payment by the Issuer. The Paying Agent shall promptly
mail or deliver to Holders of Securities so accepted payment in an amount equal
to the purchase price, and the Trustee or Authentication Agent shall promptly
authenticate and mail or deliver to such Holders a new Security or Securities
equal in principal amount to any unpurchased portion of the Security surrendered
as requested by the Holder. Any Security not accepted for payment shall be
promptly mailed or delivered by the Issuer to the Holder thereof. The Issuer
shall publicly announce the results of the Offer on or as soon as practicable
after the Purchase Date.
(3) Notwithstanding the foregoing, the Issuer will not be required to make
an Offer to Purchase upon a Change of Control if a third party makes the Offer
to Purchase in the manner, at the times and otherwise in compliance with the
requirements set forth in this Section 1016 and this Indenture applicable to the
Offer to Purchase made by the Issuer and purchases all Securities validly
tendered and not withdrawn under such Offer to Purchase.
SECTION 1017. Transactions with Affiliates and Related Persons. The
------------------------------------------------
Issuer may not, and may not permit any Restricted Subsidiary to, enter into any
transaction (or series of related transactions) not in the ordinary course of
business with an Affiliate or Related Person of the Issuer (other than the
Issuer or a Wholly Owned Restricted Subsidiary) involving aggregate
consideration in excess of $5.0 million, including any Investment, either
directly or indirectly, unless such transaction is on terms no less favorable to
the Issuer or such Restricted Subsidiary than those that could be obtained in a
comparable arm's-length transaction with an entity that is not an Affiliate or
Related Person and is in the best interests of the Issuer or such Restricted
Subsidiary. For any
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transaction (or series of related transactions) that involves less than or equal
to $10.0 million, the Chief Executive Officer, President or Chief Operating
Officer of the Issuer shall determine that the transaction satisfies the above
criteria and shall evidence such a determination by an Officer's Certificate
filed with the Trustee. For any transaction that involves in excess of $10.0
million, (a) a majority of the disinterested members of the Board of Directors
shall determine that the transaction satisfies the above criteria or (b) the
Issuer shall obtain a written opinion of a nationally recognized investment
banking or appraisal firm stating that the transaction is fair to the Issuer or
such Restricted Subsidiary.
The foregoing limitation does not apply, and shall not apply, to (i) any
transaction solely between the Issuer and any Restricted Subsidiary or solely
between any Restricted Subsidiaries; (ii) the payment of reasonable and
customary regular fees to directors of the Issuer who are not employees of the
Issuer; (iii) any payments or other transactions pursuant to any tax-sharing
agreement between the Issuer and any other Person with which the Issuer files a
consolidated tax return or with which the Issuer is part of a consolidated group
for tax purposes; (iv) licensing or sublicensing or the use of any intellectual
property by the Issuer or any Restricted Subsidiary to the Issuer or any
Restricted Subsidiary; (v) any transaction entered into for the purpose of
granting or altering registration rights with respect to any Capital Stock of
the Issuer; (vi) any Restricted Payments not prohibited by Section 1011 or (vii)
compensation, severance and employee benefit arrangements with any officer,
director or employee of the Issuer or any Restricted Subsidiary, including under
any stock option or stock incentive plans, in the ordinary course of business.
SECTION 1018. Unrestricted Subsidiaries. The Issuer may designate any
-------------------------
Subsidiary of the Issuer to be an "Unrestricted Subsidiary" as provided below in
which event such Subsidiary and each other Person that is then, or thereafter
becomes, a Subsidiary of such Subsidiary will be deemed to be an Unrestricted
Subsidiary. "Unrestricted Subsidiary" means (1) any Subsidiary designated as
such by the Board of Directors as set forth below where (a) no default with
respect to any Debt of such Subsidiary or any Subsidiary of such Subsidiary
(including any right which the holders thereof may have to take enforcement
action against such Subsidiary) would permit (upon notice, lapse of time or
both) any holder of any other Debt in a principal amount in excess of $10.0
million of the Issuer and its Subsidiaries (other than another Unrestricted
Subsidiary) to declare a default on such other Debt or cause the payment thereof
to be accelerated or payable prior to its final scheduled maturity and (b) the
Issuer could make a Restricted Payment in an amount equal to the greater of the
fair market value and book value of such Subsidiary pursuant to Section 1011 and
such amount is thereafter treated as a Restricted Payment for the purpose of
calculating the aggregate amount available for Restricted Payments thereunder
and (2) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors
may not designate a Subsidiary to be an Unrestricted Subsidiary if such
Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property
of, any other Subsidiary of the Issuer which is not a Subsidiary of the
Subsidiary to be so designated or otherwise an Unrestricted Subsidiary. The
Board of Directors may designate any Unrestricted Subsidiary a Restricted
Subsidiary and shall be deemed to have made such designation if at such time the
condition set forth in clause (a) in the definition of "Unrestricted Subsidiary"
shall cease to be true.
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SECTION 1019. Provision of Financial Information. Whether or not the Issuer
----------------------------------
is required to be subject to Section 13(a) or 15(d) of the Exchange Act, the
Issuer shall file with the Commission the annual reports, quarterly reports and
other documents which the Issuer would have been required to file with the
Commission pursuant to such Section 13(a) or 15(d) or any successor provision
thereto if the Issuer were so required, such documents to be filed with the
Commission on or prior to the respective dates (each a "Required Filing Date,"
collectively, the "Required Filing Dates") by which the Issuer would have been
required so to file such documents if the Issuer were so required. The Issuer
shall also in any event (a) within 15 days of each Required Filing Date (i)
transmit by mail to all Holders, as their names and addresses appear in the
Security Register, without cost to such Holders, and (ii) file with the Trustee,
copies of the annual reports, quarterly reports and other documents which the
Issuer files with the Commission pursuant to such Section 13(a) or 15(d) or any
successor provision thereto or would have been required to file with the
Commission pursuant to such Section 13(a) or 15(d) or any successor provisions
thereto if the Issuer were required to be subject to such Sections and (b) if
filing such documents by the Issuer with the Commission is not permitted under
the Exchange Act, promptly upon written request supply copies of such documents
to any prospective Holder.
SECTION 1020. Statement by Officers as to Default; Compliance Certificates.
------------------------------------------------------------
(1) The Issuer will deliver to the Trustee, within 90 days after the end of
its fiscal year, which initially shall be December 31, and within 60 days after
the end of each fiscal quarter (other than the fourth fiscal quarter), of the
Issuer ending after the date hereof an Officers' Certificate, stating whether or
not to the best knowledge of the signers thereof the Issuer is in default in the
performance and observance of any of the terms, provisions and conditions of
Section 801 or Sections 1004 to 1018, inclusive, and if an Issuer shall be in
default, specifying all such defaults and the nature and status thereof of which
they may have knowledge.
(2) The Issuer shall deliver to the Trustee, as soon as possible and in any
event within 10 days after an Issuer becomes aware of the occurrence of an Event
of Default or an event which, with notice or the lapse of time or both, would
constitute an Event of Default, an Officers' Certificate setting forth the
details of such Event of Default or default, and the action which the Issuer
proposes to take with respect thereto.
(3) The Issuer shall deliver to the Trustee within 90 days after the end of
each fiscal year a written statement by the Issuer's independent public
accountants stating (A) that their audit examination has included a review of
the terms of this Indenture and the Securities as they relate to accounting
matters, and (B) whether, in connection with their audit examination, any event
which, with notice or the lapse of time or both, would constitute an Event of
Default under Section 1008 and Section 1011 has come to their attention and, if
such a default has come to their attention, specifying the nature and period of
the existence thereof.
SECTION 1021. Waiver of Certain Covenants. The Issuer may omit in any
---------------------------
particular instance to comply with any covenant or condition set forth in
Section 801 and Sections 1004 to
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1018, if before the time for such compliance the Holders of at least a majority
in principal amount of the Outstanding Securities shall, by Act of such Holders,
either waive such compliance in such instance or generally waive compliance with
such covenant or condition, but no such waiver shall extend to or affect such
covenant or condition except to the extent so expressly waived, and, until such
waiver shall become effective, the obligations of the Issuer and the duties of
the Trustee in respect of any such covenant or condition shall remain in full
force and effect; provided, however, with respect to an Offer to Purchase as to
which an Offer has been mailed, no such waiver may be made or shall be effective
against any Holder tendering Securities pursuant to such Offer, and the Issuer
may not omit to comply with the terms of such Offer as to such Holder.
ARTICLE ELEVEN
Redemption of Securities
SECTION 1101. Right of Redemption.
-------------------
(a) At any time prior to December 15, 2002, the Issuer may redeem up to 35%
of the aggregate Outstanding principal amount of the Dollar Securities and up to
35% of the aggregate Outstanding principal amount of the Euro Securities with
the Net Cash Proceeds of one or more sales of Capital Stock (other than
Disqualified Stock) at a Redemption Price equal to 110.75% of the aggregate
principal amount thereof, plus accrued and unpaid interest thereon and
Liquidated Damages, if any, to the date of redemption; provided that at least
65% of the original principal amount of the Dollar Securities and 65% of the
original principal amount of the Dollar Securities remains Outstanding
immediately following such redemption. In order to effect the foregoing
redemption, the Issuer must mail a notice of redemption no later than 45 days
after the related sale of Capital Stock and must consummate such redemption
within 60 days of the closing of the sale of Capital Stock.
(b) The Securities further may be redeemed at the election of the Issuer,
as a whole or from time to time in part, at any time on or after December 15,
2004, at the Redemption Prices specified in the form of Security hereinbefore
set forth together with accrued interest to the Redemption Date.
SECTION 1102. Applicability of Article. Redemption of Securities at the
------------------------
election of the Issuer, as permitted by any provision of this Indenture, shall
be made in accordance with such provision and this Article.
SECTION 1103. Election to Redeem; Notice to Trustee. The election of the
-------------------------------------
Issuer to redeem any Securities pursuant to Section 1101 shall be evidenced by a
Board Resolution of the Issuer. In case of any redemption at the election of
the Issuer of the Securities, the Issuer shall, at least 40 days prior to the
Redemption Date fixed by the Issuer (unless a shorter notice shall be
satisfactory to the Trustee), notify the Trustee in writing of such Redemption
Date and of the
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principal amount of Securities to be redeemed (except that in the case of a
redemption pursuant to Section 1101(a), notice shall be given by the Issuer to
the Trustee not less than 15 days prior to the Redemption Date). In the case of
any redemption pursuant to Section 1101(a), the Issuer shall also furnish the
Trustee an Officers' Certificate stating that the Issuer is entitled to effect
such redemption and setting forth a statement of facts showing that the
condition or conditions precedent to the right of the Issuer to redeem have
occurred or been satisfied.
SECTION 1104. Selection by Trustee of Securities to Be Redeemed. If less
-------------------------------------------------
than all the Securities are to be redeemed, the particular Securities to be
redeemed shall be selected not more than 60 days prior to the Redemption Date by
the Trustee, from the Outstanding Securities not previously called for
redemption, by such method as the Trustee shall deem fair and appropriate and
which may provide for the selection for redemption of portions (equal to $1,000
or Euro 1,000, as the case may be, or any integral multiple thereof) of the
principal amount of Securities of a denomination larger than $1,000 or Euro
1,000, as the case may be.
The Trustee shall promptly notify the Issuer and each Security Registrar in
writing of the Securities selected for redemption and, in the case of any
Securities selected for partial redemption, the principal amount thereof to be
redeemed.
For all purposes of this Indenture, unless the context otherwise requires,
all provisions relating to the redemption of Securities shall relate, in the
case of any Securities redeemed or to be redeemed only in part, to the portion
of the principal amount of such Securities which has been or is to be redeemed.
SECTION 1105. Notice of Redemption. Notice of redemption shall be given
--------------------
by first-class mail, postage prepaid, mailed not less than 30 nor more than 60
days prior to the Redemption Date by the Issuer, or at its request by the
Trustee (except that in the case of a redemption pursuant to Section 1101(a),
the Issuer shall give notice and such notice shall be given not less than 15 nor
more than 60 days prior to the Redemption Date), to each Holder of Securities to
be redeemed, (with a copy to the Trustee, delivered or mailed to the Corporate
Trust Office) at his address appearing in the Security Register. The Issuer
shall also issue a Press Release simultaneously with issuing such notice of
redemption and including all of the relevant information from such notice.
All notices of redemption shall include the CUSIP number (or ISIN number as
applicable) and shall state:
(1) the Redemption Date,
(2) the Redemption Price,
(3) whether the redemption is being made pursuant to Section 1101(a)
or (b) and, if being made pursuant to Section 1101(a), a brief statement setting
forth the Issuer's right to effect such redemption and the Issuer's basis
therefor,
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(4) if less than all the Outstanding Securities are to be redeemed,
the identification (and, in the case of partial redemption, the principal
amounts) of the particular Securities to be redeemed,
(5) that on the Redemption Date the Redemption Price will become due
and payable upon each such Security to be redeemed and that interest thereon
will cease to accrue on and after said date, and
(6) the place or places where such Securities are to be surrendered
for payment of the Redemption Price.
Notice of redemption of Securities to be redeemed at the election of the
Issuer shall be given by the Issuer or, at the Issuer's request, by the Trustee
in the name and at the sole expense of the Issuer.
SECTION 1106. Deposit of Redemption Price. On or prior to any Redemption
---------------------------
Date, the Issuer shall deposit with the Trustee or with a Paying Agent (or, if
the Issuer is acting as its own Paying Agent, segregate and hold in trust as
provided in Section 1003) an amount of money sufficient to pay the Redemption
Price of, and (except if the Redemption Date shall be an Interest Payment Date)
accrued interest on, all the Securities which are to be redeemed on that date.
SECTION 1107. Securities Payable on Redemption Date. Notice of redemption
-------------------------------------
having been given as aforesaid, the Securities so to be redeemed shall, on the
Redemption Date, become due and payable at the Redemption Price therein
specified, and from and any after such date (unless the Issuer shall default in
the payment of the Redemption Price and any accrued interest) such Securities
shall cease to bear interest. Upon surrender of any such Security for
redemption in accordance with said notice, such Security shall be paid by the
Issuer at the Redemption Price, together with any applicable accrued interest to
the Redemption Date; provided, however, that installments of interest whose
Stated Maturity is on or prior to the Redemption Date shall be payable to the
Holders of such Securities, or one or more Predecessor Securities, registered as
such at the close of business on the relevant Record Dates according to its
terms and the provisions of Section 308.
If any Security called for redemption shall not be so paid upon surrender
thereof for redemption, the principal (and premium, if any) shall, until paid,
bear interest from the Redemption Date at the rate provided by the Security.
SECTION 1108. Securities Redeemed in Part. Any Security which is to be
---------------------------
redeemed only in part shall be surrendered at an office or agency of the Issuer
designated for that purpose pursuant to Section 1002 (with, if the Issuer or the
Trustee so requires, due endorsement by, or a written instrument of transfer in
form satisfactory to the Issuer and the Trustee duly executed by, the Holder
thereof or his attorney duly authorized in writing), and the Issuer shall
execute, and the Trustee or Authentication Agent shall authenticate and deliver
to the Holder of such Security without service
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charge, a new Security or Securities, of any authorized denomination as
requested by such Holder, in aggregate principal amount equal to and in exchange
for the unredeemed portion of the principal of the Security so surrendered.
ARTICLE TWELVE
Defeasance and Covenant Defeasance
SECTION 1201. Issuer's Option to Effect Defeasance or Covenant Defeasance.
-----------------------------------------------------------
The Issuer may at its option by Board Resolution, at any time, elect to have
either Section 1202 or Section 1203 applied to the Outstanding Securities upon
compliance with the conditions set forth below in this Article Twelve.
SECTION 1202. Defeasance and Discharge. Upon the Issuer's exercise of the
------------------------
option provided in Section 1201 applicable to this Section, the Issuer shall be
deemed to have been discharged from its obligations with respect to the
Outstanding Securities on the date the conditions set forth below are satisfied
(hereinafter, "defeasance"). For this purpose, such defeasance means that the
Issuer shall be deemed to have paid and discharged the entire indebtedness
represented by the Outstanding Securities and to have satisfied all its other
obligations under such Securities and this Indenture insofar as such Securities
are concerned (and the Trustee, at the expense of the Issuer, shall execute
proper instruments acknowledging the same), except for the following which shall
survive until otherwise terminated or discharged hereunder: (A) the rights of
Holders of such Securities to receive, solely from the trust fund described in
Section 1204 and as more fully set forth in such Section, payments in respect of
the principal of (and premium, if any) and interest on such Securities when such
payments are due, (B) the Issuer's obligations with respect to such Securities
under Sections 304, 305, 306, 1002 and 1003, (C) the rights, powers, trusts,
duties and immunities of the Trustee hereunder and (D) this Article Twelve.
Subject to compliance with this Article Twelve, the Issuer may exercise its
option under this Section 1202 notwithstanding the prior exercise of its option
under Section 1203.
SECTION 1203. Covenant Defeasance. Upon the Issuer's exercise of the
-------------------
option provided in Section 1201 applicable to this Section, (i) the Issuer shall
be released from its obligations under Sections 1005 through 1018, inclusive,
and Clauses (3), (4) and (5) of Section 801 and (ii) the occurrence of an event
specified in Sections 501(3), 501(4) (with respect to Clauses (3), (4) or (5) of
Section 801), 501(5) (with respect to any of Sections 1005 through 1018,
inclusive), 501(6) and 501(7) shall not be deemed to be an Event of Default on
and after the date the conditions set forth below are satisfied (hereinafter,
"covenant defeasance"). For this purpose, such covenant defeasance means that
the Issuer may omit to comply with and shall have no liability in respect of any
term, condition or limitation set forth in any such Section or Clause, whether
directly or indirectly by reason of any reference elsewhere herein to any such
Section or Clause or by reason of any reference in any such Section or Clause to
any other provision herein or in any other document, but the remainder of this
Indenture and such Securities shall be unaffected thereby.
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SECTION 1204. Conditions to Defeasance or Covenant Defeasance. The
-----------------------------------------------
following shall be the conditions to application of either Section 1202 or
Section 1203 to the then Outstanding Securities:
(1) The Issuer shall irrevocably have deposited or caused to be deposited
with the Trustee (or another trustee satisfying the requirements of Section 609
who shall agree to comply with the provisions of this Article Twelve applicable
to it) as trust funds in trust for the purpose of making the following payments,
specifically pledged as security for, and dedicated solely to, the benefit of
the Holders of such Securities, (A) money in an amount, or (B) U.S. Government
Obligations which through the scheduled payment of principal and interest in
respect thereof in accordance with their terms will provide, not later than one
day before the due date of any payment, money in an amount, or (C) a combination
thereof, sufficient, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, to pay and discharge, and which shall be applied by
the Trustee (or other qualifying trustee) to pay and discharge, the principal
of, premium, if any, and each instalment of interest on the Securities on the
Stated Maturity of such principal or instalment of interest in accordance with
the terms of this Indenture and of such Securities. For this purpose, "U.S.
Government Obligations" means securities that are (x) direct obligations of the
United States of America for the payment of which its full faith and credit is
pledged or (y) obligations of a Person controlled or supervised by and acting as
an agency or instrumentality of the United States of America the payment of
which is unconditionally guaranteed as a full faith and credit obligation by the
United States of America, which, in either case, are not callable or redeemable
at the option of the issuer thereof, and shall also include a depository receipt
issued by a bank (as defined in Section 3(a)(2) of the Securities Act as
custodian with respect to any such U.S. Government Obligation or a specific
payment of principal of or interest on any such U.S. Government Obligation held
by such custodian for the account of the holder of such depository receipt,
provided that (except as required by law) such custodian is not authorized to
make any deduction from the amount payable to the holder of such depository
receipt from any amount received by the custodian in respect of the U.S.
Government Obligation or the specific payment of principal of or interest on the
U.S. Government Obligation evidenced by such depository receipt.
(2) In the case of an election under Section 1202, the Issuer shall have
delivered to the Trustee an Opinion of Counsel stating that (x) the Issuer has
received from, or there has been published by, the Internal Revenue Service a
ruling, or (y) since the date of this Indenture there has been a change in the
applicable Federal income tax law, in either case to the effect that, and based
thereon such opinion shall confirm that, the Holders of the Outstanding
Securities will not recognize gain or loss for Federal income tax purposes as a
result of such deposit, defeasance and discharge and will be subject to Federal
income tax on the same amount, in the same manner and at the same times as would
have been the case if such deposit, defeasance and discharge had not occurred.
(3) In the case of an election under Section 1203, the Issuer shall have
delivered to the Trustee an Opinion of Counsel to the effect that the Holders of
the Outstanding Securities will not recognize gain or loss for Federal income
tax purposes as a result of such deposit and covenant
-98-
<PAGE>
defeasance and will be subject to Federal income tax on the same amount, in the
same manner and at the same times as would have been the case if such deposit
and covenant defeasance had not occurred.
(4) The Issuer shall have delivered to the Trustee an Officer's Certificate
to the effect that the Securities, if then listed on any securities exchange,
will not be delisted as a result of such deposit.
(5) Such defeasance or covenant defeasance shall not cause the Trustee to
have a conflicting interest as defined in Section 608 and for purposes of the
Trust Indenture Act with respect to any securities of the Issuer.
(6) No Event of Default or event which with notice or lapse of time or both
would become an Event of Default shall have occurred and be continuing on the
date of such deposit or, insofar as subsections 501(9) and (10) are concerned,
at any time during the period ending on the 121st day after the date of such
deposit (it being understood that this condition shall not be deemed satisfied
until the expiration of such period).
(7) Such defeasance or covenant defeasance shall not result in a breach or
violation of, or constitute a default under, any other agreement or instrument
to which the Issuer or any Restricted Subsidiaries is a party or by which it is
bound.
(8) The Issuer shall have delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent provided
for relating to either the defeasance under Section 1202 or the covenant
defeasance under Section 1203 (as the case may be) have been complied with.
(9) Such defeasance or covenant defeasance shall not result in the trust
arising from such deposit constituting an investment company as defined in the
Investment Issuer Act of 1940, as amended, or such trust shall be qualified
under such act or exempt from regulation thereunder.
SECTION 1205. Deposited Money and U.S. Government Obligations to Be Held
----------------------------------------------------------
in Trust; Other Miscellaneous Provisions. Subject to the provisions of the last
- ----------------------------------------
paragraph of Section 1003, all money and U.S. Government Obligations (including
the proceeds thereof) deposited with the Trustee (or other qualifying trustee--
collectively, for purposes of this Section 1205, the "Trustee") pursuant to
Section 1204 in respect of the Securities shall be held in trust and applied by
the Trustee, in accordance with the provisions of such Securities and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Issuer acting as its own Paying Agent) as the Trustee may
determine, to the Holders of such Securities, of all sums due and to become due
thereon in respect of principal (and premium, if any) and interest, but such
money need not be segregated from other funds except to the extent required by
law.
-99-
<PAGE>
The Issuer shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the U.S. Government Obligations
deposited pursuant to Section 1204 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is for
the account of the Holders of the Outstanding Securities.
Anything in this Article Twelve to the contrary notwithstanding, the
Trustee shall deliver or pay to the Issuer from time to time upon Issuer Request
any money or U.S. Government Obligations held by it as provided in Section 1204
which, in the opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to the
Trustee, are in excess of the amount thereof which would then be required to be
deposited to effect an equivalent defeasance or covenant defeasance.
SECTION 1206. Reinstatement. If the Trustee or the Paying Agent is unable
-------------
to apply any money in accordance with Section 1202 or 1203 by reason of any
order or judgment of any court or governmental authority enjoining, restraining
or otherwise prohibiting such application, then the Issuer's obligations under
this Indenture and the Securities shall be revived and reinstated as though no
deposit had occurred pursuant to this Article Twelve until such time as the
Trustee or Paying Agent is permitted to apply all such money in accordance with
Section 1202 or 1203; provided, however, that if the Issuer makes any payment of
principal of (and premium, if any) or interest on any Security following the
reinstatement of its obligations, the Issuer shall be subrogated to the rights
of the Holders of such Securities to receive such payment from the money held by
the Trustee or the Paying Agent.
-100-
<PAGE>
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed as of the day and year first above written.
EXODUS COMMUNICATIONS, INC.
By /s/ Ellen M. Hancock
--------------------------------------
Name: Ellen M. Hancock
Title: President and CEO
CHASE MANHATTAN BANK AND TRUST
COMPANY, NATIONAL ASSOCIATION,
as Trustee
By /s/ Cecil Bobey
--------------------------------------
Name: Cecil Bobey
Title: Assistant Vice President
-101-
<PAGE>
ANNEX A -- Form of
Regulation S Certificate
REGULATION S CERTIFICATE
(For transfers pursuant to Section 306(b)(1) of the Indenture)
Chase Manhattan Bank and Trust Company,
National Association
101 California Street, Suite 2725
San Francisco, CA 94111
Attention: Corporate Trust Administration
Re: 10 3/4% Senior Notes due 2009 of
Exodus Communications, Inc. (the "Securities")
----------------------------------------------
Reference is made to the Indenture, dated as of December 1, 1999 (the
"Indenture"), between Exodus Communications, Inc. (the "Issuer") and Chase
Manhattan Bank and Trust Company, National Association, as Trustee. Terms used
herein and defined in the Indenture or in Regulation S or Rule 144 under the
U.S. Securities Act of 1933 (the "Securities Act") are used herein as so
defined.
This certificate relates to [U.S. $____________][Euro ____________]
principal amount of Securities, which are evidenced by the following
certificate(s) (the "Specified Securities"):
CUSIP [ISIN] No(s). ___________________________
CERTIFICATE No(s). _____________________
The person in whose name this certificate is executed below (the "Undersigned")
hereby certifies that either (i) it is the sole beneficial owner of the
Specified Securities or (ii) it is acting on behalf of all the beneficial owners
of the Specified Securities and is duly authorized by them to do so. Such
beneficial owner or owners are referred to herein collectively as the "Owner".
If the Specified Securities are represented by a Global Security, they are held
through the Depositary or an Agent Member in the name of the Undersigned, as or
on behalf of the Owner. If the Specified Securities are not represented by a
Global Security, they are registered in the name of the Under signed, as or on
behalf of the Owner.
The Owner has requested that the Specified Securities be transferred to a
person (the "Transferee") who will take delivery in the form of a Regulation S
Security or an interest therein. In connection with such transfer, the Owner
hereby certifies that, unless such transfer is being effected
<PAGE>
pursuant to an effective registration statement under the Securities Act, it is
being effected in accordance with Rule 904 or Rule 144 under the Securities Act
and with all applicable securities laws of the states of the United States and
other jurisdictions. Accordingly, the Owner hereby further certifies as follows:
(1) Rule 904 Transfers. If the transfer is being effected in accordance
------------------
with Rule 904:
(A) the Owner is not a distributor of the Securities, an affiliate of
the Issuer or any such distributor or a person acting on behalf of any of the
foregoing;
(B) the offer of the Specified Securities was not made to a person in
the United States;
(C) either:
(i) at the time the buy order was originated, the Transferee was
outside the United States or the Owner and any person acting on its behalf
reasonably believed that the Transferee was outside the United States, or
(ii) the transaction is being executed in, on or through the
facilities of the Eurobond market, as regulated by the Association of
International Bond Dealers, or another designated offshore securities market and
neither the Owner nor any person acting on its behalf knows that the transaction
has been prearranged with a buyer in the United States;
(D) no directed selling efforts in contravention of Rule 904(a)(2)
have been made in the United States by or on behalf of the Owner or any
affiliate thereof;
(E) if the Owner is a dealer in securities or has received a selling
concession, fee or other remuneration in respect of the Specified Securities,
and the transfer is to occur during the Distribution Compliance Period, then the
requirements of Rule 904(b)(1) have been satisfied; and
(F) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act.
(2) Rule 144 Transfers. If the transfer is being effected pursuant to
------------------
Rule 144:
(A) the transfer is occurring
(i) after a holding period of at least one year (computed in
accordance with paragraph (d) of Rule 144) has elapsed since the Specified
Securities were last acquired from an Issuer or from an affiliate of the Issuer,
whichever is later, and is being effected in accordance with the applicable
amount, manner of sale and notice requirements of Rule 144; or
A-2
<PAGE>
(i) after a holding period of at least two years has elapsed
since the Specified Securities were last acquired from the Issuer or from an
affiliate of the Issuer, whichever is later, and the Owner is not, and during
the preceding three months has not been, an affiliate of the Issuer; and
(B) the Specified Securities are being transferred in compliance with
any applicable "blue sky" securities laws of all applicable states of the United
States.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Issuer and the Initial Purchasers.
Dated:
(Print the name of the Undersigned, as such term is defined in
the second paragraph of this certificate.)
By:_____________________________________________ *
Name:
Title:
(If the Undersigned is a corporation, partnership or fiduciary, the title
of the person signing on behalf of the Undersigned must be stated.)
* Signature must be guaranteed by an eligible Guarantor Institution (banks,
stockbrokers, savings and loan associations and credit unions) with
membership in an approved signature medallion program pursuant to
Securities and Exchange Commission Rule 17Ad-15.
A-3
<PAGE>
ANNEX B -- Form of Restricted
Securities Certificate
RESTRICTED SECURITIES CERTIFICATE
(For transfers pursuant to Section 306(b)(2) of the Indenture)
Chase Manhattan Bank and Trust Company,
National Association
101 California Street, Suite 2725
San Francisco, California 94111
Attention: Corporate Trust Administration
Re: 10 3/4% Senior Notes due 2009
of Exodus Communications, Inc. (the "Securities")
-------------------------------------------------
Reference is made to the Indenture, dated as of December 1, 1999 (the
"Indenture"), between Exodus Communications, Inc. (the "Issuer") and Chase
Manhattan Bank and Trust Company, National Association, as Trustee. Terms used
herein and defined in the Indenture or in Rule 144A or Rule 144 under the U.S.
Securities Act of 1933 (the "Securities Act") are used herein as so defined.
This certificate relates to [U.S. $_____________][Euro_____________]
principal amount of Securities, which are evidenced by the following
certificate(s) (the "Specified Securities"):
CUSIP No(s). ___________________________
ISIN No(s), If any. ____________________
CERTIFICATE No(s). _____________________
The person in whose name this certificate is executed below (the "Undersigned")
hereby certifies that either (i) it is the sole beneficial owner of the
Specified Securities or (ii) it is acting on behalf of all the beneficial owners
of the Specified Securities and is duly authorized by them to do so. Such
beneficial owner or owners are referred to herein collectively as the "Owner".
If the Specified Securities are represented by a Global Security, they are held
through the Depositary or an Agent Member in the name of the Undersigned, as or
on behalf of the Owner. If the Specified Securities are not represented by a
Global Security, they are registered in the name of the Undersigned, as or on
behalf of the Owner.
The Owner has requested that the Specified Securities be transferred to a
person (the "Transferee") who will take delivery in the form of a Restricted
Security or an interest in a Restricted Global Security. In connection with
such transfer, the Owner hereby certifies that, unless such
<PAGE>
transfer is being effected pursuant to an effective registration statement under
the Securities Act, (i) the Owner is not a U.S. Person (as defined in the
Indenture) and (ii) such transfer is being effected in accordance with Rule 144A
or Rule 144 under the Securities Act and all applicable securities laws of the
states of the United States and other jurisdictions. Accordingly, the Owner
hereby further certifies as follows:
(1) Rule 144A Transfers. If the transfer is being effected in accordance
-------------------
with Rule 144A:
(A) the Specified Securities are being transferred to a person that
the Owner and any person acting on its behalf reasonably believe is a "qualified
institutional buyer" within the meaning of Rule 144A, acquiring for its own
account or for the account of a qualified institutional buyer; and
(B) the Owner and any person acting on its behalf have taken
reasonable steps to ensure that the Transferee is aware that the Owner may be
relying on Rule 144A in connection with the transfer; and
(C) the Specified Securities are being transferred in compliance with
any applicable "blue sky" securities laws of all applicable states of the United
States.
(2) Rule 144 Transfers. If the transfer is being effected pursuant to Rule
------------------
144:
(A) the transfer is occurring
(i) after a holding period of at least one year (computed in
accordance with paragraph (d) of Rule 144) has elapsed since the Specified
Securities were last acquired from an Issuer or from an affiliate of the Issuer,
whichever is later, and is being effected in accordance with the applicable
amount, manner of sale and notice requirements of Rule 144; or
(ii) after a holding period of at least two years has elapsed
since the Specified Securities were last acquired from an Issuer or from an
affiliate of the Issuer, whichever is later, and the Owner is not, and during
the preceding three months has not been, an affiliate of the Issuer; and
(B) the Specified Securities are being transferred in compliance with
any applicable "blue sky" securities laws of all applicable states of the United
States.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Issuer, and the Initial Purchasers.
B-2
<PAGE>
Dated: _______________________________________________________
(Print the name of the Undersigned, as such term is
defined in the second paragraph of this certificate.)
By:____________________________________________________*
Name:
Title:
(If the Undersigned is a corporation, partnership or
fiduciary, the title of the person signing on behalf of
the Undersigned must be stated.)
* Signature must be guaranteed by an eligible Guarantor Institution (banks,
stockbrokers, savings and loan associations and credit unions) with
membership in an approved signature medallion program pursuant to
Securities and Exchange Commission Rule 17Ad-15.
B-3
<PAGE>
ANNEX C -- Form of Unrestricted
Securities Certificate
UNRESTRICTED SECURITIES CERTIFICATE
(For removal of Securities Act Legends pursuant to Section 306(c) of the
Indenture)
Chase Manhattan Bank and Trust Company,
National Association
101 California Street, Suite 2725
San Francisco, California 94111
Attention: Corporate Trust Trustee Administration
Re: 10 3/4% Senior Notes due 2009
of Exodus Communications, Inc. (the "Securities")
-------------------------------------------------
Reference is made to the Indenture, dated as of December 1, 1999 (the
"Indenture"), between Exodus Communications, Inc. (the "Issuer") and Chase
Manhattan Bank and Trust Company, National Association, as Trustee. Terms used
herein and defined in the Indenture or in Rule 144 under the U.S. Securities Act
of 1933 (the "Securities Act") are used herein as so defined.
This certificate relates to [U.S. $_____________][Euro _____________]
principal amount of Securities, which are evidenced by the following
certificate(s) (the "Specified Securities"):
[CUSIP][ISIN] No(s). ___________________________
CERTIFICATE No(s). _____________________
The person in whose name this certificate is executed below (the "Undersigned")
hereby certifies that either (i) it is the sole beneficial owner of the
Specified Securities or (ii) it is acting on behalf of all the beneficial owners
of the Specified Securities and is duly authorized by them to do so. Such
beneficial owner or owners are referred to herein collectively as the "Owner".
If the Specified Securities are represented by a Global Security, they are held
through the Depositary or an Agent Member in the name of the Undersigned, as or
on behalf of the Owner. If the Specified Securities are not represented by a
Global Security, they are registered in the name of the Under signed, as or on
behalf of the Owner.
The Owner has requested that the Specified Securities be exchanged for
Securities bearing no Securities Act Legend pursuant to Section 306(c) of the
Indenture. In connection with such exchange, the Owner hereby certifies that
the exchange is occurring after a holding period of at least two years (computed
in accordance with paragraph (d) of Rule 144) has elapsed since the Specified
<PAGE>
Securities were last acquired from an Issuer or from an affiliate of the Issuer,
whichever is later, and the Owner is not, and during the preceding three months
has not been, an affiliate of the Issuer. The Owner also acknowledges that any
future transfers of the Specified Securities must comply with all applicable
securities laws of the states of the United States and other jurisdictions.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Issuer, and the Initial Purchasers.
Dated: _______________________________________________________
(Print the name of the Undersigned, as such term is
defined in the second paragraph of this certificate.)
By:___________________________________________________*
Name:
Title:
(If the Undersigned is a corporation, partnership or
fiduciary, the title of the person signing on behalf of
the Undersigned must be stated.)
* Signature must be guaranteed by an eligible Guarantor Institution (banks,
stockbrokers, savings and loan associations and credit unions) with
membership in an approved signature medallion program pursuant to
Securities and Exchange Commission Rule 17Ad-15.
-2-
<PAGE>
EXHIBIT 5.01
February 1, 2000
Exodus Communications, Inc.
2831 Mission College Blvd.
Santa Clara, CA 95054
Gentlemen/Ladies:
At your request, we have examined the Registration Statement on Form S-4
(the "Registration Statement") to be filed by you ("you" or the "Company") with
the Securities and Exchange Commission (the "Commission") on or about February
1, 2000 in connection with the proposed exchange by you of $375,000,000
aggregate principal amount of the Company's unsecured 10 3/4% Senior Notes due
2009 and 125,000,000 aggregate principal amount of the Company's unsecured 10
3/4% Senior Notes due 2009 to be issued pursuant to the Registration Statement
(the "New Notes") for $375,000,000 aggregate principal amount of your
outstanding unsecured 10 3/4% Senior Notes due 2009 and 125,000,000 aggregate
principal amount of the Company's unsecured 10 3/4% Senior Notes due 2009
issued on December 8, 1999 (the "Old Notes").
In rendering this opinion, we have examined the following:
(1) Your Annual Report on Form 10-K for the year ended December 31, 1998;
(2) Your Quarterly Reports on Form 10-Q, as amended, if applicable, for the
quarters ended March 31, 1999, June 30, 1999 and September 30, 1999;
(3) Your Current Reports on Form 8-K filed with the Commission on January
29, 1999, February 22, 1999, March 2, 1999, June 18, 1999, August 11,
1999, as amended October 12, 1999 and November 29, 1999, November 29,
1999 and December 3, 1999;
(4) the Registration Statement, together with the exhibits filed as a part
thereof;
(5) the Prospectus prepared in connection with the Registration Statement;
(6) the minutes of meetings and actions by written consent of the
stockholders and Board of Directors that are contained in your minute
books that are in our possession;
(7) a Management Certificate addressed to us and dated of even date
herewith executed by the Company containing certain factual and other
representations; and
(8) the opinion of Winthrop, Stimson, Putnam & Roberts (the "Winthrop
Opinion") of even date herewith with respect to matters governed by the
laws of the State of New York.
In our examination of documents for purposes of this opinion, we have
assumed, and express no opinion as to, the genuineness of all signatures on
original documents, the authenticity of all documents submitted to us as
originals, the conformity to originals of all documents submitted to us as
copies, the legal capacity of all persons executing the same, the lack of any
undisclosed termination, modification, waiver or amendment to any document
reviewed by us and the due authorization, execution and delivery of all
documents where due authorization, execution and delivery are prerequisites to
the effectiveness thereof.
As to matters of fact relevant to this opinion, we have relied solely upon
our examination of the documents referred to above. We have made no independent
investigation or other attempt to verify the accuracy of any of the information
referred to above or to determine the existence or non-existence of any other
factual matters; however, we are not aware of any facts that would cause us to
believe that the opinion expressed herein is not accurate.
<PAGE>
Exodus Communications, Inc.
February 1, 2000
Page 2
We are admitted to practice law in the State of California, and we express
no opinion herein with respect to the application or effect of the laws of any
jurisdiction other than the existing laws of the United States of America and
the State of California and the existing Delaware General Corporation Law which
includes the statutory provisions and all applicable provisions of the Delaware
Constitution and reported judicial decisions interpreting these laws. With
respect to the opinion in clause (ii) of the paragraph below, we have relied
solely on the Winthrop Opinion subject to the same limitations and exceptions
that apply to the Winthrop Opinion as stated therein.
Based upon the foregoing, and subject to the limitations, qualifications and
assumptions expressed below, we are of the opinion that, when executed by the
Company and authenticated by the Trustee in accordance with the terms of the
Indenture dated December 1, 1999 between the Company and Chase Manhattan Bank
and Trust Company, National Association (the "Indenture"), the Exchange and
Registration Rights Agreement dated December 1, 1999 among the Company and
Goldman, Sachs & Co., Donaldson, Lufkin & Jenrette Securities Corporation,
BancBoston Robertson Stephens Inc., PaineWebber Incorporated and Morgan Stanley
& Co. Incorporation (the "Exchange Agreement") and the letters of transmittal
(filed as exhibits to the Registration Statement) and delivered against
exchange therefor of the Old Notes pursuant to the exchange offer described in
the Registration Statement, the New Notes will be (i) validly issued and (ii)
will constitute valid and binding obligations of the Company.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to all references to us, if any, in the
Registration Statement, the Prospectus constituting a part thereof and any
amendments thereto.
This opinion speaks only as of its date and we assume no obligation to
update this opinion should circumstances change after the date hereof. This
opinion is intended solely for the purpose of the above exchange of the New
Notes for Old Notes and is not to be relied upon for any other purpose.
Very truly yours,
Fenwick & West LLP
/s/ Fenwick & West LLP
By: _________________________________
<PAGE>
Exhibit 5.02
February 1, 2000
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, California 94306
Re: Exodus Communications, Inc.
$375,000,000 aggregate principal amount of
10 3/4% Senior Notes due 2009 and
Euro 125,000,000 aggregate principal amount of
10 3/4% Senior Notes due 2009
Ladies and Gentlemen:
Exodus Communications, Inc., a Delaware corporation (the "Company"), is to
file with the Securities and Exchange Commission (the "Commission") a
registration statement on Form S-4 (the "Registration Statement") under the
Securities Act of 1933 (the "Securities Act") in connection with the Company's
offer to exchange (the "Exchange Offer") up to $375,000,000 aggregate principal
amount of its 10 3/4% Senior Notes due 2009 and Euro 125,000,000 aggregate
principal amount of its 10 3/4% Senior Notes due 2009 (collectively, the "New
Notes") for equal aggregate principal amounts of its outstanding US dollar- and
Euro-denominated 10 3/4% Senior Notes due 2009 (the "Old Notes"). The Old Notes
have been, and the New Notes will be, issued pursuant to a Trust Indenture
dated as of December 1, 1999 (the "Indenture") between the Company and The
Chase Manhattan Bank and Trust Company, National Association, as trustee (the
"Trustee").
In giving this opinion, we have reviewed copies of the Indenture, the Old
Notes, the form of the New Notes contained in the Indenture, the Exchange and
Registration Rights Agreement dated December 1, 1999 among the Company and
Goldman, Sachs & Co., Donaldson, Lufkin & Jenrette Securities Corporation,
BancBoston Robertson Stephens Inc., PaineWebber Incorporated and Morgan Stanley
& Co. Incorporated and such other documents and have made such other inquiries
and investigations of law as we have deemed necessary or appropriate as a basis
for the opinion hereinafter expressed. In such review, we have assumed the
genuineness of all signatures, the conformity to the original documents of all
documents submitted to us as certified or photostatic copies, the authenticity
of all such documents and all documents submitted to us as original documents
and the lack of any undisclosed termination, modification, waiver or amendment
to any document reviewed by us.
We are members of the bar of the State of New York, and do not express any
opinion herein as to matters governed by any law other than the law of the
State of New York and the General Corporation Law of the State of Delaware.
Based upon the foregoing and the assumption that the New Notes have been
duly authorized by the Company and subject to the qualifications set forth
herein, we are of the opinion that when the New Notes are duly executed and
delivered by the Company and authenticated by the Trustee in accordance with
the provisions of the Indenture and delivered in exchange for the Old Notes in
accordance with the Exchange Offer as described in the Registration Statement,
which shall have been declared effective by the Commission, the New Notes will
constitute valid and binding obligations of the Company, except as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or other laws affecting creditors' rights generally, by general
principles of equity (regardless of whether considered in a proceeding at law
or in equity), including, without limitation, the availability or
unavailability of equitable remedies, and by requirements of reasonableness,
good faith and fair dealing.
This opinion is delivered to you solely for your use in connection with the
Registration Statement and may not be used or relied upon by you for any other
purpose or by any other person without our prior written consent.
<PAGE>
We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the use of our name under the heading "Legal Matters" in the
prospectus included in the Registration Statement. In giving this consent, we
do not hereby admit that we are within the category of persons whose consent is
required under Section 7 of the Securities Act or the rules and regulations of
the Commission thereunder.
Very truly yours,
/s/ Winthrop, Stimson, Putnam &
Roberts
<PAGE>
EXHIBIT 10.72
EXODUS COMMUNICATIONS, INC.
$375,000,000 10 3/4% Senior Notes due 2009
$125,000,000 10 3/4% Senior Notes due 2009
____________
Purchase Agreement
------------------
December 2, 1999
Goldman, Sachs & Co.
Donaldson, Lufkin & Jenrette
Securities Corporation
BancBoston Robertson Stephens Inc.
PaineWebber Incorporated
Morgan Stanley & Co. Incorporated
c/o Goldman, Sachs & Co.
85 Broad Street,
New York, New York 10004
As representative of the
Several Purchasers Named
on Schedule I hereto
Ladies and Gentlemen:
Exodus Communications, Inc., a Delaware corporation (the "Company"),
proposes, subject to the terms and conditions stated herein, to issue and sell
to the Purchasers named in Schedule I hereto (the "Purchasers") an aggregate of
$375,000,000 principal amount of 10 3/4% Senior Notes due 2009 (the "Dollar
Securities") and $125,000,000 principal amount of 10 3/4% Senior Notes due 2009
(the "Euro Securities" and together with the Dollar Securities, the
"Securities").
1. The Company represents and warrants to, and agrees with, the
Purchasers that:
(a) A preliminary offering circular, dated November 24, 1999 (the
"Preliminary Offering Circular") and an offering circular, dated December
2, 1999 (the "Offering Circular") has been prepared in connection with the
offering of the Securities. Additionally, the Company has previously
prepared the following documents: the Company's Quarterly Reports on Form
10-Q for the quarters ended March 31, 1999,
<PAGE>
June 30, 1999 and September 30, 1999, the Company's Annual Report on Form
10-K for the year ended December 31, 1998, each of the Company's Current
Reports on Form 8-K, filed January 29, 1999, February 22, 1999, March 2,
1999, June 18, 1999, August 11, 1999, October 12, 1999 and November 29,
1999 and the amendment to the Company's registration statement on Form 8-A
filed November 29, 1999 (together the "Exchange Act Reports"). Any
reference (other than in Sections 7(a) hereof) to the Offering Circular
shall be deemed to refer to and include the Exchange Act Reports, and any
reference (other than in Section 7(a) hereof) to the Offering Circular as
amended or supplemented as of any specified date after the date hereof
shall be deemed to include (i) the Exchange Act Reports and all subsequent
documents filed with the United States Securities and Exchange Commission
(the "Commission") pursuant to Section 13(a), 13(c) or 15(d) of the United
States Securities Exchange Act of 1934, as amended (the "Exchange Act"),
after the date of the Offering Circular and prior to such specified date
and (ii) any Additional Issuer Information (as defined in Section 5(f))
furnished by the Company, prior to the completion of the distribution of
the Securities. The Exchange Act Reports, when they were filed with the
Commission, conformed in all material respects to the applicable
requirements of the Exchange Act and the applicable rules and regulations
of the Commission thereunder. The Preliminary Offering Circular, the
Offering Circular and the Exchange Act Reports did not, as of their
respective dates, contain an untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading;
provided, however, that this representation and warranty shall not apply to
any statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by a Purchaser through
Goldman, Sachs & Co. expressly for use therein. Since September 30, 1999,
the Company has not filed any documents with the Commission pursuant to
Section 13(a), 13(c) or 15(d) of the Exchange Act other than the Exchange
Act Reports;
(b) Neither the Company nor any of its subsidiaries has sustained
since the date of the latest audited financial statements included in the
Offering Circular any material loss or interference with its business from
fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action, order
or decree, otherwise than as set forth or contemplated in the Offering
Circular; and, otherwise than as set forth or contemplated in the Offering
Circular, since the respective dates as of which information is given in
the Offering Circular, there has not been any change in the capital stock
or long-term debt of the Company or any of its subsidiaries or any material
adverse change, or any development that is reasonably likely to result in a
material adverse change, in or affecting the general affairs, management,
financial position, stockholders' equity or results of operations of the
Company and its subsidiaries;
(c) The Company has no subsidiary that is a "Significant Subsidiary"
of the Company within the meaning of Regulation S-X under the Securities
Act of 1933, as amended (the "Securities Act"), other than Cohesive
Technology Solutions, Inc. ("Cohesive");
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(d) The Company and its subsidiaries own no real property. The
Company and its subsidiaries have good and marketable title to all personal
property owned by them, in each case free and clear of all liens,
encumbrances and defects except such as are described in the Offering
Circular or such as do not materially affect the value of such property and
do not interfere with the use made and proposed to be made of such property
by the Company and its subsidiaries; and any real property and buildings
held under lease by the Company and its subsidiaries are held by them under
valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of
such property and buildings by the Company and its subsidiaries;
(e) All of the issued shares of capital stock of the Company have
been duly and validly authorized and issued and are fully paid and non-
assessable;
(f) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of Delaware, with power and
authority (corporate and other) to own its properties and conduct its
business as described in the Offering Circular, and has been duly qualified
as a foreign corporation for the transaction of business and is in good
standing under the laws of each other jurisdiction where the failure to be
so qualified could be reasonably expected to have a material adverse effect
on the business, financial condition or results of operations of the
Company, and each subsidiary of the Company has been duly incorporated and
is validly existing as a corporation in good standing under the laws of its
jurisdiction of incorporation;
(g) The Securities have been duly authorized and, when issued and
delivered pursuant to this Agreement, will have been duly executed,
authenticated, issued and delivered and will constitute valid and legally
binding obligations of the Company entitled to the benefits provided by the
Indenture to be dated as of December 1, 1999 (the "Indenture") between the
Company and Chase Manhattan Bank and Trust Company, National Association,
as Trustee (the "Trustee"), under which they are to be issued, which will
be substantially in the form previously delivered to you; and the
Securities and the Indenture conform to the descriptions thereof in the
Offering Circular and are in substantially the form previously delivered to
you;
(h) The Indenture has been duly authorized and, when executed and
delivered by the Company and the Trustee, the Indenture will constitute a
valid and legally binding instrument, enforceable in accordance with its
terms, subject as to enforcement to bankruptcy, insolvency, reorganization
and other laws of general applicability relating to or affecting creditors'
rights and to general equity principles;
(i) That certain Exchange and Registration Rights Agreement among the
Company and the Purchasers to be dated as of December 1, 1999 (the
"Registration Rights Agreement") has been duly authorized and, when
executed and delivered by the
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Company, the Registration Rights Agreement will constitute a valid and
legally binding instrument, enforceable in accordance with its terms;
(j) None of the transactions contemplated by this Agreement
(including, without limitation, the use of the proceeds from the sale of
the Securities) will violate or result in a violation of Section 7 of the
Exchange Act, or any regulation promulgated thereunder, including, without
limitation, Regulations T, U, and X of the Board of Governors of the
Federal Reserve System;
(k) Prior to the date hereof, neither the Company nor any of its
affiliates (as such term is defined in Rule 144 promulgated under the
Securities Act of 1933, as amended (the "Securities Act")) has taken any
action which is designed to or which has constituted or which might have
reasonably been expected to cause or result in stabilization or
manipulation of the price of any security of the Company in connection with
the offering of the Securities;
(l) The issue and sale of the Securities and the compliance by the
Company with all of the provisions of the Securities, the Indenture, the
Registration Rights Agreement and this Agreement, and the consummation of
the transactions herein and therein contemplated will not conflict with or
result in a breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument to which the Company or any of
its subsidiaries is a party or by which the Company or any of its
subsidiaries is bound or to which any of the property or assets of the
Company or any of its subsidiaries is subject, nor will such action result
in any violation of the provisions of the Certificate of Incorporation or
By-laws of the Company or any statute or any order, rule or regulation of
any court or governmental agency or body having jurisdiction over the
Company or any of its subsidiaries or any of their properties; and no
consent, approval, authorization, order, registration or qualification of
or with any such court or governmental agency or body is required for the
issue and sale of the Securities or the consummation by the Company of the
transactions contemplated by this Agreement or the Indenture, except the
filing of a notice on Form D by the Company with the Commission pursuant to
Section 5(h) hereof and such consents, approvals, authorizations,
registrations or qualifications as may be required under state securities
or Blue Sky laws in connection with the purchase and distribution of the
Securities by the Purchasers;
(m) Neither the Company nor any of its subsidiaries is in violation
of its Certificate of Incorporation or Bylaws or in default in the
performance or observance of any material obligation, covenant or condition
contained in any indenture, mortgage, deed of trust, loan agreement, lease
or other agreement or instrument to which it is a party or by which it or
any of its properties may be bound;
(n) The statements set forth in the Offering Circular under the
captions "Description of Notes" insofar as they purport to constitute a
summary of the terms of the Securities,
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the Indenture and the Registration Rights Agreement and under the captions
"Certain United States Federal Income Tax Considerations" and
"Underwriting", insofar as they purport to describe the provisions of the
laws and documents referred to therein, are accurate, complete and fair;
(o) Other than as set forth in the Offering Circular, there are no
legal or governmental proceedings pending to which the Company or any of
its subsidiaries is a party or of which any property of the Company or any
of its subsidiaries is the subject which, if determined adversely to the
Company or any of its subsidiaries, would individually or in the aggregate
have a material adverse effect on the current or future financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries; and, to the Company's knowledge, no such proceedings are
threatened or contemplated by governmental authorities or threatened by
others;
(p) When the Securities are issued and delivered pursuant to this
Agreement, the Securities will not be of the same class (within the meaning
of Rule 144A under the Securities Act) as securities which are listed on a
national securities exchange registered under Section 6 of the Exchange Act
or quoted in a U.S. automated inter-dealer quotation system;
(q) The Company is subject to Section 13 or 15(d) of the Exchange
Act;
(r) The Company is not, and after giving effect to the offering and
sale of the Securities, will not be an "investment company", as such term
is defined in the United States Investment Company Act of 1940, as amended
(the "Investment Company Act");
(s) Neither the Company nor any or its subsidiaries, nor any person
acting on its or their behalf has offered or sold the Securities by means
of any general solicitation or general advertising within the meaning of
Rule 502(c) under the Securities Act or, with respect to Securities sold
outside the United States to persons who are not U.S. persons (as defined
in Rule 902 under the Securities Act), by means of any directed selling
efforts within the meaning of Rule 902 under the Securities Act and the
Company, any affiliate of the Company and any person acting on its or their
behalf has complied with and will implement the "offering restrictions"
within the meaning of such Rule 902, it being understood that the Company
makes no representations in this clause (s) as to the Purchasers;
(t) Within the six months prior to the date hereof, neither the
Company nor any other person acting on behalf of the Company has offered or
sold to any person any Securities, or any substantially similar securities
of the Company, other than Securities offered or sold to the Purchasers
hereunder. The Company will take reasonable precautions designed to insure
that any offer or sale, direct or indirect, in the United States or to any
U.S. person (as defined in Rule 902 under the Securities Act) of any
Securities or any substantially similar security issued by the Company,
within six months
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subsequent to the date on which the distribution of the Securities has been
completed (as notified to the Company by Goldman, Sachs & Co), is made
under restrictions and other circumstances reasonably designed not to
affect adversely the status of the offer and sale of the Securities in the
United States and to U.S. persons contemplated by this Agreement as
transactions exempt from the registration provisions of the Securities Act;
(u) Neither the Company nor any of its affiliates does business with
the government of Cuba or with any person or affiliate located in Cuba
within the meaning of Section 517.075, Florida Statutes;
(v) KPMG LLP, who have certified certain financial statements of the
Company and its subsidiaries are independent public accountants as required
by the Securities Act and the rules and regulations of the Commission
thereunder;
(w) The Company owns or possesses, or can acquire on reasonable
terms, adequate patents, patent rights, licenses, inventions, copyrights,
know-how (including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures),
trademarks, service marks, trade names or other intellectual property
(collectively, "Intellectual Property") necessary to carry on the business
now operated by it, and the Company has not received any notice of, and is
not otherwise aware of, any infringement of or conflict with asserted
rights of others with respect to any Intellectual Property or of any facts
or circumstances which would render invalid, or otherwise prevent or
materially inhibit the Company from utilizing, any Intellectual Property
necessary to carry on the business now conducted by the Company, and which
infringement or conflict (if the subject of any unfavorable decision,
ruling or finding), invalidity, prevention or inhibition, singly or in the
aggregate, is reasonably likely to result in a material adverse change in
the general affairs, management, financial position, stockholders' equity
or results of operations of the Company;
(x) Except as described in the Offering Circular and except as would
not, singly or in the aggregate, result in a material adverse change in or
affecting the general affairs, management, financial position,
stockholders' equity or results of operations of the Company, (A) the
Company is not in violation of any federal, state, local or foreign
statute, law, rule, regulation, ordinance, code, policy or rule of common
law or any judicial or administrative interpretation thereof, including any
judicial or administrative order, consent, decree or judgment, relating to
pollution or protection of human health, the environment (including,
without limitation, ambient air, surface water, groundwater, land surface
or subsurface strata) or wildlife, including, without limitation, laws and
regulations relating to the release or threatened release of chemicals,
pollutants, contaminants, wastes, toxic substances, hazardous substances,
petroleum or petroleum products (collectively "Hazardous Materials") or to
the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials (collectively,
"Environmental Laws"), (B) the Company has all permits, authorizations and
approvals required under any applicable Environmental Laws and is in
compliance with their
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requirements, (C) there are no pending or, to the best of the Company's
knowledge, threatened administrative, regulatory or judicial action, suits,
demands, demand letters, claims, liens, notices of noncompliance or
violation, investigation or proceedings relating to any Environmental Law
against the Company and (D) to the best of the Company's knowledge, there
are no events or circumstances that might reasonably be expected to form
the basis of an order for clean-up or remediation, or an action, suit or
proceeding by any private party or government body or agency, against or
affecting the Company relating to Hazardous Materials or any Environmental
Laws;
(y) The Company has reviewed its operations and that of its
subsidiaries and any third parties with which the Company or any of its
subsidiaries has a material relationship to evaluate the extent to which
the business or operations of the Company or any of its subsidiaries will
be affected by the Year 2000 Problem. Based on such review, the Company
has no reason to believe, and does not believe, that the Year 2000 Problem
will have a material adverse effect on the general affairs, management, the
current or future consolidated financial position, stockholders' equity or
results of operations of the Company and its subsidiaries or result in any
material loss or interference with the Company's business or operations.
The "Year 2000 Problem" as used herein means any significant risk that
computer hardware or software used in the receipt, transmission,
processing, manipulation, storage, retrieval, retransmission or other
utilization of data or in the operation of mechanical or electrical systems
of any kind will not, in the case of dates or time periods occurring after
December 31, 1999, function at least as effectively as in the case of dates
or time periods occurring prior to January 1, 2000;
(z) Neither the Company nor any of its affiliates nor any person
acting on its behalf (other than the Purchasers, as to whom the Company
makes no representation) has engaged or will engage in any directed selling
efforts within the meaning of Regulation S with respect to the Securities;
(aa) The Company and its affiliates and all persons acting on its
behalf (other than the Purchasers, as to whom the Company makes no
representation) have complied in all material respects with the offering
restrictions requirements of Regulation S in connection with the offering
of the Securities outside the United States and, in connection therewith,
the Offering Circular contains the disclosure required by Rule 902(h)(2)
under the Securities Act; and
(bb) The Company is a "reporting issuer," as defined in Rule 902(l)
under the Securities Act.
2. (a) Subject to the terms and conditions herein set forth, the Company
agrees to issue and sell to each of the Purchasers, and each of the Purchasers
agrees, severally and not jointly, to purchase from the Company, at a purchase
price of 97.25% of the principal amount
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thereof, plus accrued interest, if any, from December 8, 1999 to the Time of
Delivery hereunder, the principal amount of Securities set forth opposite the
name of such Purchaser in Schedule I hereto.
(b) The Company may offer and sell such dollar-denominated senior
notes in an aggregate principal amount not to exceed $100,000,000,
(the "Additional Securities") within one year of the Time of Delivery
and upon written notice to Goldman, Sachs & Co. of its intention to
issue such Additional Securities; provided, however, that the Company
-------- -------
shall have entered into a purchase agreement on substantially similar
terms and conditions as this Agreement and an Exchange and
Registration Rights Agreement on substantially similar terms and
conditions as the Registration Rights Agreement, in each case, with
Goldman, Sachs & Co. (or such other underwriter as the Company shall
choose in the event that Goldman, Sachs & Co. shall decline the
representation of the Company in such offering) and such other of the
Purchasers as the Company and Goldman, Sachs & Co. shall mutually
agree upon for the sale and issuance of the Additional Securities. The
purchase price for any such Additional Securities shall be equal to
the then current market price of the Dollar Securities less an initial
purchaser's discount equal to 2.75% of the principal amount of such
Additional Securities or such other percentage as shall be reasonably
acceptable to Goldman, Sachs & Co and the Company. Holders of
Additional Securities shall be entitled to receive an interest payment
equal to the holders of the Dollar Securities, on a percentage basis,
on all Interest Payment Dates (as defined in the Indenture) occurring
after the date of issuance of such Additional Securities.
3. Upon the authorization by Goldman, Sachs & Co. of the release of the
Securities, the several Purchasers propose to offer the Securities for sale upon
the terms and conditions set forth in this Agreement and the Offering Circular
and each Purchaser hereby represents and warrants to, and agrees with, the
Company that:
(a) It will offer and sell the Securities only to: (i) persons which
it reasonably believes are "qualified institutional buyers" ("QIBs") within
the meaning of Rule 144A under the Securities Act in transactions meeting
the requirements of Rule 144A or, (ii) upon the terms and conditions set
forth in Annex I to this Agreement;
(b) Upon request of the Company, it will notify the Company upon
completion of the distribution of the Securities;
(c) It is an Institutional Accredited Investor; and
(d) It has not offered and will not offer or sell the Securities by
any form of general solicitation or general advertising, including but not
limited to the methods described in Rule 502(c) under the Securities Act.
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4. (a) The Securities to be purchased by each Purchaser hereunder will
be represented by one or more definitive Securities in book-entry form which
will be deposited by or on behalf of the Company to Goldman, Sachs & Co. with
The Depository Trust Company ("DTC") or other appropriate depository for the
account of such purchaser, or its designated custodian. The Company will
deliver the Securities to Goldman, Sachs & Co. for the account of each Purchaser
against payment by or on behalf of such Purchaser of the purchase price therefor
by wire transfer, payable to the order of the Company in Federal (or other same
day) funds, by causing DTC or other appropriate depository to credit the
Securities to the account of Goldman, Sachs & Co. at DTC or other appropriate
depository. The Company will cause the certificates representing the Securities
to be made available to Goldman, Sachs & Co. for checking at least twenty-four
hours prior to the Time of Delivery (as defined below) at the office of DTC or
its designated custodian (the "Designated Office") or at another place
designated by Goldman, Sachs & Co. The time and date of such delivery and
payment shall be 9:30 a.m., New York City time, on December 8, 1999 or such
other time and date as Goldman, Sachs & Co. and the Company may agree upon in
writing. Such time and date are herein called the "Time of Delivery".
(b) The documents to be delivered at the Time of Delivery by or on
behalf of the parties hereto pursuant to Section 7 hereof, including the
cross-receipt for the Securities and any additional documents requested by
the Purchasers pursuant to Section 7(h) hereof, will be delivered at such
time and date at the offices of Fenwick & West LLP, Two Palo Alto Square,
Palo Alto, California 94306 (the "Closing Location"), and the Securities
will be delivered at the Designated Office, all at the Time of Delivery. A
meeting will be held at the Closing Location at 6:00 p.m., New York City
time, on the New York Business Day next preceding the Time of Delivery, at
which meeting the final drafts of the documents to be delivered pursuant to
the preceding sentence will be available for review by the parties hereto.
For the purposes of this Section 4, "New York Business Day" shall mean each
Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which
banking institutions in New York are generally authorized or obligated by
law or executive order to close.
5. The Company agrees with each of the Purchasers:
(a) To prepare the Offering Circular in a form approved by you; to
make no amendment or any supplement to the Offering Circular which shall be
disapproved by you promptly after reasonable notice thereof; and to furnish
you with copies thereof;
(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Securities for offering and sale under
the securities laws of such jurisdictions as you may request and to comply
with such laws so as to permit the continuance of sales and dealings
therein in such jurisdictions for as long as may be necessary to complete
the distribution of the Securities, provided that in connection therewith
the Company shall not be required to qualify as a foreign corporation or to
file a general consent to service of process in any jurisdiction;
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(c) To furnish the Purchasers with four copies of the Offering
Circular and each amendment or supplement thereto signed by an authorized
officer of the Company and with the independent accountants' report(s) in
the Offering Circular, and any amendment or supplement containing
amendments to the financial statements covered by such report(s), signed
by the accountants, and additional copies thereof in such quantities as you
may from time to time reasonably request, and if, at any time prior to the
expiration of nine months after the date of the Offering Circular, any
event shall have occurred as a result of which the Offering Circular as
then amended or supplemented would include an untrue statement of a
material fact or omit to state any material fact necessary in order to make
the statements therein, in the light of the circumstances under which they
were made when such Offering Circular is delivered, not misleading, or, if
for any other reason it shall be necessary or desirable during such same
period to amend or supplement the Offering Circular, to notify you and upon
your request to prepare and furnish without charge to each Purchaser and to
any dealer in securities as many copies as you may from time to time
reasonably request of an amended Offering Circular or a supplement to the
Offering Circular which will correct such statement or omission or effect
such compliance;
(d) During the period beginning from the date hereof and continuing
until the date six months after the Time of Delivery, not to offer, sell,
contract to sell or otherwise dispose of, except as provided hereunder any
securities of the Company that are substantially similar to the Securities
(other than Additional Securities);
(e) Not to be or become, at any time prior to the expiration of three
years after the Time of Delivery, an open-end investment company, unit
investment trust, closed-end investment company or face-amount certificate
company that is or is required to be registered under Section 8 of the
Investment Company Act;
(f) At any time when the Company is not subject to Section 13 or
15(d) of the Exchange Act, for the benefit of holders from time to time of
Securities, to furnish at its expense, upon request, to holders of
Securities and prospective purchasers of securities information (the
"Additional Issuer Information") satisfying the requirements of subsection
(d)(4)(i) of Rule 144A under the Securities Act;
(g) If requested by you, to use its best efforts to cause (i) the
Dollar Securities to be eligible for the PORTAL trading system of the
National Association of Securities Dealers, Inc. and (ii) the Euro
Securities to be eligible for listing on the Luxembourg Stock Exchange;
(h) To file with the Commission, not later than 15 days after the
Time of Delivery, five copies of a notice on Form D under the Securities
Act (one of which will be manually signed by a person duly authorized by
the Company); to otherwise comply with the requirements of Rule 503 under
the Securities Act; and to furnish promptly to you evidence of each such
required timely filing (including a copy thereof);
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(i) To furnish to the holders of the Securities as soon as practicable
after the end of each fiscal year an annual report (including a balance
sheet and statements of income, stockholders' equity and cash flows of the
Company and its consolidated subsidiaries certified by independent public
accountants) and, as soon as practicable after the end of each of the first
three quarters of each fiscal year (beginning with the fiscal quarter
ending after the date of the Offering Circular), consolidated summary
financial information of the Company and its subsidiaries for such quarter
in reasonable detail;
(j) During a period of five years from the date of the Offering Circular,
to furnish to you copies of all reports or other communications (financial or
other) furnished to stockholders of the Company, and to deliver to you (i) as
soon as they are available, copies of any reports and financial statements
furnished to or filed with the Commission or any securities exchange on which
the Securities or any class of securities of the Company is listed; and (ii)
such additional information concerning the business and financial condition of
the Company as you may from time to time reasonably request (such financial
statements to be on a consolidated basis to the extent the accounts of the
Company and its subsidiaries are consolidated in reports furnished to its
stockholders generally or to the Commission) provided that you agree to hold in
confidence any confidential or non-public information so provided;
(k) The Company agrees that, to the extent required under the Senior Notes
Indenture (as defined below), it will use the net proceeds of the sale of the
Securities to finance the purchase or other acquisition of any property,
inventory, asset or business directly or indirectly, by the Company or any
Restricted Subsidiary used in, or to be used in, the System and Network
Management Business or for such other purposes permitted by the Senior Notes
Indenture (as defined below). Neither the Company nor any of its Restricted
Subsidiaries has, as of the date hereof, incurred any Debt under Section
1008(11) of the Senior Notes Indenture. "Debt" has the meaning given thereto in
the Senior Notes Indenture. "Restricted Subsidiary" shall mean any subsidiary of
the Company that has not been designated an "Unrestricted Subsidiary" pursuant
to the Indenture dated as of July 1, 1998 between the Company and the Chase
Manhattan Bank and Trust Company, National Association, as trustee governing the
Company's 11 1/4% Senior Notes due 2008 (as amended or supplemented from time to
time, the "Senior Notes Indenture"). "System and Network Management Business"
means: (i) server and other hardware hosting; (ii) connectivity, data
networking, telecommunications or content for computer or data networks or
systems; (iii) management of computer or data networks or systems; (iv)
technology services, equipment sales or leasing or software licensing for
computer or data networks or systems (including Internet Protocol and any
successor protocol(s) based networks); and (v) businesses reasonably related,
complementary or incidental thereto;
(l) The Company and its affiliates and all persons acting on its behalf
(other than the Purchasers, as to whom the Company makes no representation) will
comply in all material respects with the offering restrictions requirements of
Regulation S in connection with the offering of the Securities outside the
United States.
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6. The Company covenants and agrees with the several Purchasers that the
Company will pay or cause to be paid the following: (i) the fees, disbursements
and expenses of the Company's counsel and accountants in connection with the
issue of the Securities and all other expenses in connection with the
preparation, printing and filing of the Preliminary Offering Circular and the
Offering Circular and any amendments and supplements thereto and the mailing and
delivering of copies thereof to the Purchasers and dealers; (ii) the cost of
printing or producing this Agreement, any Agreement among Purchasers, the
Indenture, the Blue Sky and Legal Investment Memoranda, closing documents
(including any compilations thereof) and any other documents in connection with
the offering, purchase, sale and delivery of the Securities; (iii) all expenses
in connection with the qualification of the Securities for offering and sale
under state securities laws as provided in Section 5(b) hereof, including the
fees and disbursements of counsel for the Purchasers in connection with such
qualification and in connection with the Blue Sky and legal investment surveys;
(iv) any fees charged by securities rating services for rating the Securities;
(v) the cost of preparing the Securities; (vi) the fees and expenses of the
Trustee and any agent of the Trustee and the fees and disbursements of counsel
for the Trustee in connection with the Indenture and the Securities; (vii) any
cost incurred in connection with the designation of the Dollar Securities for
trading in PORTAL and the listing of the Euro Securities on the Luxembourg Stock
Exchange; and (viii) all other costs and expenses incident to the performance of
its obligations hereunder which are not otherwise specifically provided for in
this Section. It is understood, however, that, except as provided in this
Section, and Sections 8 and 11 hereof, the Purchasers will pay all of their own
costs and expenses, including the fees of their counsel, transfer taxes on
resale of any of the Securities by them, and any advertising expenses connected
with any offers they may make.
7. The obligations of the Purchasers hereunder shall be subject, in their
discretion, to the condition that all representations and warranties and other
statements of the Company herein are, at and as of the Time of Delivery, true
and correct, the condition that the Company shall have performed all of its
obligations hereunder theretofore to be performed, and the following additional
conditions:
(a) Wilson Sonsini Goodrich & Rosati, Professional Corporation,
counsel for the Purchasers, shall have furnished to you such opinion or
opinions, dated the Time of Delivery, with respect to the matters covered
in paragraphs (i), (ii), (vi), (vii), (viii), (xii), (xiii), (xiv) and (xv)
of subsection (b) below as well as such other related matters as you may
reasonably request, and such counsel shall have received such papers and
information as they may reasonably request to enable them to pass upon such
matters;
(b) Fenwick & West LLP, counsel for the Company, (or such other
counsel as the Company shall deem appropriate and which shall be reasonably
acceptable to Goldman, Sachs & Co.) shall have furnished to you their
written opinion, dated the Time of Delivery, in form and substance
satisfactory to you, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware, with
12
<PAGE>
corporate power and corporate authority to own its properties and
conduct its business as described in the Offering Circular;
(ii) The Company had, as of the dates specified in the Offering
Circular, duly authorized capital stock as set forth under the caption
"Capitalization" in the Offering Circular, and all of the issued and
outstanding shares of capital stock of the Company described therein
have been duly and validly authorized and issued, are non-assessable
and to such counsel's knowledge, are fully paid;
(iii) The Company has been duly qualified as a foreign
corporation for the transaction of business and is in good standing
under the laws of each jurisdiction within the United States in which
it owns or leases properties or employs personnel, where the failure
to be so qualified would have a material adverse effect on the
business, financial condition or results of operations of the Company;
(iv) Each significant subsidiary of the Company has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation; and all of the
issued shares of capital stock of each such significant subsidiary
have been duly and validly authorized and issued, are fully paid and
non-assessable, and (except for directors' qualifying shares and
except as otherwise set forth in the Offering Circular) are owned
directly or indirectly by the Company, free and clear of all liens,
encumbrances, equities or claims (such counsel being entitled to rely
in respect of the opinion in this clause upon opinions of local
counsel and in respect of matters of fact upon certificates of
officers of the Company or its significant subsidiaries);
(v) To such counsel's knowledge and other than as set forth in
the Offering Circular, there are no legal or governmental proceedings
pending to which the Company or any of its significant subsidiaries is
a party or of which any property of the Company or any of its
significant subsidiaries is the subject which, if determined adversely
to the Company or any of its significant subsidiaries, would
individually or in the aggregate have a material adverse effect on the
current or future consolidated financial position, stockholders'
equity or results of operations of the Company and its significant
subsidiaries; and, to such counsel's knowledge, no such proceedings
are threatened by governmental authorities or threatened by others;
(vi) This Agreement has been duly authorized, executed and
delivered by the Company to you;
(vii) The Securities have been duly authorized, executed,
authenticated, issued and delivered and constitute valid and legally
binding obligations of the Company;
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<PAGE>
(viii) The Indenture and the Registration Rights Agreement have
been duly authorized, executed and delivered by the Company and
constitute valid and legally binding instruments, enforceable in
accordance with their respective terms, subject, as to enforcement, to
bankruptcy, insolvency, reorganization and other laws of general
applicability relating to or affecting creditors' rights and to
general equity principles;
(ix) The issue and sale of the Securities being delivered at
the Time of Delivery and the compliance by the Company with all of the
provisions of the Securities, the Indenture, this Agreement and the
Registration Rights Agreement and the consummation of the transactions
herein and therein contemplated were they to be completed on or prior
to the date of such opinion and assuming the absence of any applicable
cure period, waiting period or other similar provision, do not
conflict with or result in a breach or violation of any of the terms
or provisions of, or constitute a default under, any of the agreements
filed as exhibits to the Company's or any of its significant
subsidiaries' Annual Report filed on form 10-K for the year ended
December 31, 1998, or to any Exchange Act Report or any agreements
entered into by the Company or any of its significant subsidiaries
after September 30, 1999 that would be required to be filed as a
material agreement exhibit on Form 10-Q or any other Exchange Act
Report (in each case, a "Material Agreement") (provided that in
determining which documents would be required to be so filed, such
counsel may rely on an officer's certificate that specifies agreements
that the Company or any of its significant subsidiaries has entered
into since September 30, 1999) nor does such action result in any
violation of the provisions of the Certificate of Incorporation or
Bylaws of the Company or any of its significant subsidiaries or any
statute or any order, rule or regulation known to such counsel of any
court or governmental agency or body having jurisdiction over the
Company or any of its significant subsidiaries or any of their
properties;
(x) No consent, approval, authorization, order, registration
or qualification of or with any United States court or United States
governmental agency or United States body is required for the issue
and sale of the Securities or the consummation by the Company of the
transactions contemplated by this Agreement, the Indenture or the
Registration Rights Agreement, except (A) such consents, approvals,
authorizations, orders, registrations or qualifications as may be
required under state securities or Blue Sky laws in connection with
the purchase and distribution of the Securities by the Purchasers (as
to which such counsel renders no opinion) or (B) such consents,
approvals, authorizations, orders, registrations or qualifications as
are referenced in the Offering Circular;
(xi) Neither the Company nor any of its significant
subsidiaries is in violation of its Certificate of Incorporation or
Bylaws or, to such counsel's knowledge, in default in the performance
or observance of any material obligation, agreement, covenant or
condition contained in any Material Agreement;
14
<PAGE>
(xii) The statements set forth in the Offering Circular insofar
as they purport to constitute a summary of the terms of the
Securities, the Indenture and the Registration Rights Agreement, and
under the captions "Certain United States Federal Income Tax
Considerations" and "Underwriting," insofar as they purport to
describe the provisions of the laws and documents referred to therein,
are accurate and complete in all material respects;
(xiii) The Exchange Act Reports (other than the financial
statements and related notes and schedules (and financial data)
therein, as to which such counsel need express no opinion), when they
were filed with the Commission, complied as to form in all material
respects with the requirements of the Exchange Act, and the rules and
regulations of the Commission promulgated thereunder;
(xiv) No registration of the Securities under the Securities
Act, and no qualification of an indenture under the Trust Indenture
Act of 1939 with respect thereto, is required for the offer and sale
to, and initial resale of the Securities by, the Purchasers in the
manner contemplated by this Agreement; and
(xv) The Company is not an "investment company," as such term
is defined in the Investment Company Act.
In addition, such counsel shall state that, although they are not
passing upon and do not assume any responsibility for, nor have they
independently verified, the accuracy, completeness or fairness of the
statements contained in the Preliminary Offering Circular and the
Offering Circular, except for and to the extent of those referred to
in the opinion in subsection (xii) of this Section 7(b), they have
participated in certain conferences with officers and other employees
of the Company, representatives of the Company's independent certified
public accountants and representatives of the Purchasers with respect
to the preparation of the Preliminary Offering Circular and the
Offering Circular, and no facts have come to the attention of
attorneys devoting attention to the representation of the Company in
its preparation of the Preliminary Offering Circular and the Offering
Circular that have caused them to believe that, as of their respective
dates and as of the Time of Delivery, the Preliminary Offering
Circular and the Offering Circular or any further amendments thereto
made by the Company prior to such Time of Delivery (other than the
financial statements and related notes, related schedules and
financial data included therein, as to which such counsel need express
no opinion) contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Further,
such counsel shall state that, although they are not passing upon and
do not assume any responsibility for, nor have they independently
verified, the accuracy, completeness or fairness of the statements
contained in the Exchange Act Reports, they have participated in
certain conferences with officers and other
15
<PAGE>
employees of the Company, and representatives of the Company's
independent certified public accountants with respect to the
preparation of the respective Exchange Act Reports, and no facts have
come to the attention of attorneys devoting attention to the
representation of the Company in its preparation of the respective
Exchange Act Reports that have caused them to believe that as of the
dates on which the respective Exchange Act Reports were filed with the
Commission, the Exchange Act Reports (other than the financial
statements and related notes, related schedules and financial data
included therein, as to which such counsel need express no opinion)
contained an untrue statement of material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they
were made when such documents were so filed, not misleading.
(c) On the date of the Offering Circular prior to the execution of
this Agreement and also at the Time of Delivery, KPMG LLP shall have
furnished to you a letter or letters, dated the respective dates of
delivery thereof, in form and substance satisfactory to you, to the effect
set forth in Annex II hereto;
(d) (i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements
included in the Offering Circular any loss or interference with its
business from fire, explosion, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or court or governmental
action, order or decree, otherwise than as set forth or contemplated in the
Offering Circular, and (ii) since the respective dates as of which
information is given in the Offering Circular there shall not have been any
change in the capital stock or long-term debt of the Company or any of its
subsidiaries or any change, or any development involving a prospective
change, in or affecting the general affairs, management, financial
position, stockholders' equity or results of operations of the Company and
its subsidiaries, otherwise than as set forth or contemplated in the
Offering Circular, the effect of which, in any such case described in
Clause (i) or (ii), is in the judgment of the Purchasers so material and
adverse as to make it impracticable or inadvisable to proceed with the
public offering or the delivery of the Securities on the terms and in the
manner contemplated in this Agreement and in the Offering Circular;
(e) On or after the date hereof (i) no downgrading shall have
occurred in the rating accorded the Company's debt securities by any
"nationally recognized statistical rating organization", as that term is
defined by the Commission for purposes of Rule 436(g)(2) under the
Securities Act, and (ii) no such organization shall have publicly announced
that it has under surveillance or review, with possible negative
implications, its rating of any of the Company's debt securities;
(f) On or after the date hereof there shall not have occurred any of
the following: (i) a suspension or material limitation in trading in
securities generally on the New York Stock Exchange; or on NASDAQ; (ii) a
suspension or material limitation in
16
<PAGE>
trading in the Company's securities on NASDAQ; (iii) a general moratorium
on commercial banking activities declared by either Federal or New York or
California State authorities; (iv) the outbreak or escalation of
hostilities involving the United States or the declaration by the United
States of a national emergency or war, if the effect of any such event
specified in this Clause (iv) in the judgment of the Purchasers makes it
impracticable or inadvisable to proceed with the public offering or the
delivery of the Securities on the terms and in the manner contemplated in
the Offering Circular; or (v) the occurrence of any material adverse change
in the existing financial, political or economic conditions in the United
States or elsewhere which, in the judgment of the Purchasers, would
materially and adversely affect the financial markets or markets for the
Securities or other debt securities;
(g) The Dollar Securities have been designated for trading on PORTAL;
(h) The Company shall have furnished to you executed copies of the
Indenture and the Registration Rights Agreement; and
(i) The Company shall have furnished or caused to be furnished to you
at the Time of Delivery certificates of officers of the Company
satisfactory to you as to the accuracy of the representations and
warranties of the Company herein at and as of such Time of Delivery, as to
the performance by the Company of all of its obligations hereunder to be
performed at or prior to such Time of Delivery, as to the matters set forth
in subsection (d) of this Section and as to such other matters as you may
reasonably request.
8. (a) The Company will indemnify and hold harmless each Purchaser
against any losses, claims, damages or liabilities, joint or several, to which
such Purchaser may become subject, under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon an untrue statement or alleged untrue
statement of a material fact contained in the Preliminary Offering Circular or
the Offering Circular, or any amendment or supplement thereto, or arise out of
or are based upon the omission or alleged omission to state therein a material
fact necessary to make the statements therein not misleading, and will reimburse
each Purchaser for any legal or other expenses reasonably incurred by such
Purchaser in connection with investigating or defending any such action or claim
as such expenses are incurred; provided, however, that the Company shall not be
liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in the Preliminary Offering
Circular or the Offering Circular or any such amendment or supplement in
reliance upon and in conformity with written information furnished to the
Company by any Purchaser through Goldman, Sachs & Co. expressly for use therein.
(b) Each Purchaser will indemnify and hold harmless the Company
against any losses, claims, damages or liabilities to which the Company may
become subject, under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or
17
<PAGE>
actions in respect thereof) arise out of or are based upon an untrue
statement or alleged untrue statement of a material fact contained in the
Preliminary Offering Circular or the Offering Circular, or any amendment or
supplement thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact or necessary to make the
statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in the Preliminary Offering Circular
or the Offering Circular or any such amendment or supplement in reliance
upon and in conformity with written information furnished to the Company by
such Purchaser through Goldman, Sachs & Co. expressly for use therein; and
will reimburse the Company for any legal or other expenses reasonably
incurred by the Company in connection with investigating or defending any
such action or claim as such expenses are incurred.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made
against the indemnifying party under such subsection, notify the
indemnifying party in writing of the commencement thereof; but the omission
so to notify the indemnifying party shall not relieve it from any liability
which it may have to any indemnified party otherwise than under such
subsection. In case any such action shall be brought against any
indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof,
with counsel satisfactory to such indemnified party (who shall not, except
with the consent of the indemnified party, be counsel to the indemnifying
party), and, after notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof, the indemnifying
party shall not be liable to such indemnified party under such subsection
for any legal expenses of other counsel or any other expenses, in each case
subsequently incurred by such indemnified party, in connection with the
defense thereof other than reasonable costs of investigation. No
indemnifying party shall, without the written consent of the indemnified
party, effect the settlement or compromise of, or consent to the entry of
any judgment with respect to, any pending or threatened action or claim in
respect of which indemnification or contribution may be sought hereunder
(whether or not the indemnified party is an actual or potential party to
such action or claim) unless such settlement, compromise or judgment (i)
includes an unconditional release of the indemnified party from all
liability arising out of such action or claim and (ii) does not include a
statement as to, or an admission of, fault, culpability or a failure to
act, by or on behalf of any indemnified party.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or
liabilities (or actions
18
<PAGE>
in respect thereof) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the
Purchasers on the other from the offering of the Securities. If, however,
the allocation provided by the immediately preceding sentence is not
permitted by applicable law or if the indemnified party failed to give the
notice required under subsection (c) above, then each indemnifying party
shall contribute to such amount paid or payable by such indemnified party
in such proportion as is appropriate to reflect not only such relative
benefits but also the relative fault of the Company on the one hand and the
Purchasers on the other in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities (or actions
in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one
hand and the Purchasers on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company bear to the total underwriting discounts
and commissions received by the Purchasers, in each case as set forth in
the Offering Circular. The relative fault shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company on the one hand or the
Purchasers on the other and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or
omission. The Company and the Purchasers agree that it would not be just
and equitable if contribution pursuant to this subsection (d) were
determined by pro rata allocation (even if the Purchasers were treated as
one entity for such purpose) or by any other method of allocation which
does not take account of the equitable considerations referred to above in
this subsection (d). The amount paid or payable by an indemnified party as
a result of the losses, claims, damages or liabilities (or actions in
respect thereof) referred to above in this subsection (d) shall be deemed
to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this subsection (d), no
Purchaser shall be required to contribute any amount in excess of the
amount by which the total price at which the Securities underwritten by it
and distributed to investors were offered to investors exceeds the amount
of any damages which such Purchaser has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. The Purchasers' obligations in this subsection (d) to contribute
are several in proportion to their respective underwriting obligations and
not joint.
(e) The obligations of the Company under this Section 8 shall be in
addition to any liability which the Company may otherwise have and shall
extend, upon the same terms and conditions, to each person, if any, who
controls any Purchaser within the meaning of the Act; and the obligations
of the Purchasers under this Section 8 shall be in addition to any
liability which the respective Purchasers may otherwise have and shall
extend, upon the same terms and conditions, to each officer and director of
the Company and to each person, if any, who controls the Company within the
meaning of the Securities Act.
19
<PAGE>
9. (a) If any Purchaser shall default in its obligation to purchase the
Securities which it has agreed to purchase hereunder, you may in your discretion
arrange for you or another party or other parties to purchase such Securities on
the terms contained herein. If within thirty-six hours after such default by
any Purchaser you do not arrange for the purchase of such Securities, then the
Company shall be entitled to a further period of thirty-six hours within which
to procure another party or other parties satisfactory to you to purchase such
Securities on such terms. In the event that, within the respective prescribed
periods, you notify the Company that you have so arranged for the purchase of
such Securities, or the Company notifies you that it has so arranged for the
purchase of such Securities, you or the Company shall have the right to postpone
the Time of Delivery for a period of not more than seven days, in order to
effect whatever changes may thereby be made necessary in the Offering Circular,
or in any other documents or arrangements, and the Company agrees to prepare
promptly any amendments to the Offering Circular which in your opinion may
thereby be made necessary. The term "Purchaser" as used in this Agreement shall
include any person substituted under this Section with like effect as if such
person had originally been a party to this Agreement with respect to such
Securities.
(b) If, after giving effect to any arrangements for the purchase of
the Securities of a defaulting Purchaser or Purchasers by you and the
Company as provided in subsection (a) above, the aggregate principal amount
of such Securities which remains unpurchased does not exceed one-eleventh
of the aggregate principal amount of all the Securities, then the Company
shall have the right to require each non-defaulting Purchaser to purchase
the principal amount of Securities which such Purchaser agreed to purchase
hereunder and, in addition, to require each non-defaulting Purchaser to
purchase its pro rata share (based on the principal amount of Securities
which such Purchaser agreed to purchase hereunder) of the Securities of
such defaulting Purchaser or Purchasers for which such arrangements have
not been made; but nothing herein shall relieve a defaulting Purchaser from
liability for its default.
(c) If, after giving effect to any arrangements for the purchase of
the Securities of a defaulting Purchaser or Purchasers by you and the
Company as provided in subsection (a) above, the aggregate principal amount
of Securities which remains unpurchased exceeds one-eleventh of the
aggregate principal amount of all the Securities, or if the Company shall
not exercise the right described in subsection (b) above to require non-
defaulting Purchasers to purchase Securities of a defaulting Purchaser or
Purchasers, then this Agreement shall thereupon terminate, without
liability on the part of any non-defaulting Purchaser or the Company,
except for the expenses to be borne by the Company and the Purchasers as
provided in Section 6 hereof and the indemnity and contribution agreements
in Section 8 hereof; but nothing herein shall relieve a defaulting
Purchaser from liability for its default.
10. The respective indemnities, agreements, representations, warranties
and other statements of the Company and the several Purchasers, as set forth in
this Agreement or made by or on behalf of them, respectively, pursuant to this
Agreement, shall remain in full force and
20
<PAGE>
effect, regardless of any investigation (or any statement as to the results
thereof) made by or on behalf of any Purchaser or any controlling person of any
Purchaser, or the Company, or any officer or director or controlling person of
the Company, and shall survive delivery of and payment for the Securities.
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
the Company shall not then be under any liability to any Purchaser except as
provided in Sections 6 and 8 hereof; but, if for any other reason, the
Securities are not delivered by or on behalf of the Company as provided herein,
the Company will reimburse the Purchasers through you for all out-of-pocket
expenses approved in writing by you, including fees and disbursements of
counsel, reasonably incurred by the Purchasers in making preparations for the
purchase, sale and delivery of the Securities, but the Company shall then be
under no further liability to any Purchaser except as provided in Sections 6 and
8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Purchasers, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Purchaser made or given
by you jointly or by Goldman, Sachs & Co. on behalf of you as the
representatives.
13. All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Purchasers shall be delivered or sent by mail, telex or
facsimile transmission to you as the representatives in care of Goldman, Sachs &
Co., 32 Old Slip, 21st Floor, New York, New York 10004, Attention: Registration
Department; and if to the Company shall be delivered or sent by mail, telex or
facsimile transmission to the address of the Company set forth in the Offering
Circular, Attention: Secretary; provided, however, that any notice to a
Purchaser pursuant to Section 8(c) hereof shall be delivered or sent by mail,
telex or facsimile transmission to such Purchaser at its address set forth in
its Purchasers' Questionnaire, or telex constituting such Questionnaire, which
address will be supplied to the Company by you upon request. Any such
statements, requests, notices or agreements shall take effect upon receipt
thereof.
14. This Agreement shall be binding upon, and inure solely to the benefit
of, the Purchasers, the Company and, to the extent provided in Sections 8 and 10
hereof, the officers and directors of the Company and each person who controls
the Company or any Purchaser, and their respective heirs, executors,
administrators, successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. No purchaser of any of the
Securities from any Purchaser shall be deemed a successor or assign by reason
merely of such purchase.
15. In respect of any judgment or order given or made for any amount due
hereunder that is expressed and paid in a currency (the "judgment currency")
other than United States dollars, the Company will indemnify each Purchaser
against any loss incurred by such Purchaser as a result of any variation as
between (i) the rate of exchange at which the United States dollar amount is
converted into the judgment currency for the purpose of such judgment or order
and (ii) the rate of exchange at which a Purchaser is able to purchase United
States dollars with the
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<PAGE>
amount of judgment currency actually received by such Purchaser. The foregoing
indemnity shall constitute a separate and independent obligation of the Company
and shall continue in full force and effect notwithstanding any such judgment or
order as aforesaid. The term "rate of exchange" shall include any premiums and
costs of exchange payable in connection with the purchase of or conversion into
United States dollars.
16. Time shall be of the essence of this Agreement.
17. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York.
18. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such respective counterparts shall together constitute one and
the same instrument..
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<PAGE>
If the foregoing is in accordance with your understanding, please sign and
return to us ten (10) counterparts hereof, and upon the acceptance hereof by
you, on behalf of each of the Purchasers, this letter and such acceptance hereof
shall constitute a binding agreement between each of the Purchasers and the
Company. It is understood that your acceptance of this letter on behalf of each
of the Purchasers is pursuant to the authority set forth in a form of Agreement
among Purchasers, the form of which shall be submitted to the Company for
examination upon request, but without warranty on your part as to the authority
of the signers thereof.
Very truly yours,
EXODUS COMMUNICATIONS, INC.
By: /s/ Ellen M. Hancock
----------------------------------------
Name: Ellen M. Hancock
--------------------------------------
Title: President and Chief Executive Officer
-------------------------------------
Accepted as of the date hereof:
Goldman, Sachs & Co.
Donaldson, Lufkin & Jenrette
Securities Corporation
BancBoston Robertson Stephens Inc.
PaineWebber Incorporated
Morgan Stanley & Co. Incorporated
By: /s/ Goldman, Sachs & Co.
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
(Goldman, Sachs & Co.)
On behalf of each of the Purchasers
<PAGE>
SCHEDULE I
Principal
Amount of
Securities
to be
Purchaser Purchased
--------- ---------
Goldman, Sachs & Co. $187,500,000.00
Donaldson, Lufkin & Jenrette Securities Corporation $131,250,000.00
BancBoston Robertson Stephens Inc. $ 23,438,000.00
PaineWebber Incorporated $ 23,437,000.00
Morgan Stanley & Co. Incorporated $ 9,375,000.00
----------------
Total $375,000,000.00
===============
Principal
Amount of
Securities
to be
Purchaser Purchased
--------- ---------
Goldman, Sachs & Co. $ 62,500,000.00
Donaldson, Lufkin & Jenrette Securities Corporation $ 43,750,000.00
BancBoston Robertson Stephens Inc. $ 7,813,000.00
PaineWebber Incorporated $ 7,812,000.00
Morgan Stanley & Co. Incorporated $ 3,125,000.00
----------------
Total $125,000,000.00
===============
<PAGE>
ANNEX I
(1) The Securities have not been and will not be registered under the
Securities Act and may not be offered or sold within the United States or to, or
for the account or benefit of, U.S. persons except in accordance with Regulation
S under the Securities Act or pursuant to an exemption from the registration
requirements of the Securities Act. Each Purchaser represents that it has
offered and sold the Securities, and will offer and sell the Securities (i) as
part of their distribution at any time and (ii) otherwise until 40 days after
the later of the commencement of the offering and the Time of Delivery, only in
accordance with Rule 903 of Regulation S or Rule 144A under the Securities Act.
Accordingly, each Purchaser agrees that neither it, its affiliates nor any
persons acting on its or their behalf has engaged or will engage in any directed
selling efforts with respect to the Securities, and it and they have complied
and will comply with the offering restrictions requirement of Regulation S.
Each Purchaser agrees that, at or prior to confirmation of sale of Securities
(other than a sale pursuant to Rule 144A), it will have sent to each
distributor, dealer or person receiving a selling concession, fee or other
remuneration that purchases Securities from it during the distribution
compliance period a confirmation or notice to substantially the following
effect:
"The Securities covered hereby have not been registered under the U.S.
Securities Act of 1933 (the "Securities Act") and may not be offered and
sold within the United States or to, or for the account or benefit of, U.S.
persons (i) as part of their distribution at any time or (ii) otherwise
until 40 days after the later of the commencement of the offering and the
closing date, except in either case in accordance with Regulation S (or
Rule 144A if available) under the Securities Act. Terms used above have
the meaning given to them by Regulation S."
Terms used in this paragraph have the meanings given to them by Regulation S.
Each Purchaser further agrees that it has not entered and will not enter
into any contractual arrangement with respect to the distribution or delivery of
the Securities, except with its affiliates or with the prior written consent of
the Company.
(2) Notwithstanding the foregoing, Securities may be offered, sold and
delivered by the Purchasers in the United States and to U.S. persons pursuant to
Section 3(a)(i) of this Agreement without delivery of the written statement
required by paragraph (1) above.
(3) Each Purchaser further represents and agrees that (i) it has not
offered or sold and prior to the date six months after the date of issue of the
Securities will not offer or sell any Securities to persons in the United
Kingdom except to persons whose ordinary activities involve them in acquiring,
holding, managing or disposing of investments (as principal or agent) for the
purposes of their businesses or otherwise in circumstances which have not
resulted and will not result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulations 1995, (b) it
has complied, and will comply, with all applicable provisions
<PAGE>
of the Financial Services Act of 1986 of Great Britain with respect to anything
done by it in relation to the Securities in, from or otherwise involving the
United Kingdom, and (c) it has only issued or passed on and will only issue or
pass on in the United Kingdom any document received by it in connection with the
issuance of the Securities to a person who is of a kind described in Article
11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1996 of Great Britain or is a person to whom the document may
otherwise lawfully be issued or passed on.
(4) Each Purchaser agrees that it will not offer, sell or deliver any of
the Securities in any jurisdiction outside the United States except under
circumstances that will result in compliance with the applicable laws thereof,
and that it will take at its own expense whatever action is required to permit
its purchase and resale of the Securities in such jurisdictions. Each Purchaser
understands that no action has been taken to permit a public offering in any
jurisdiction outside the United States where action would be required for such
purpose. Each Purchaser agrees not to cause any advertisement of the Securities
to be published in any newspaper or periodical or posted in any public place and
not to issue any circular relating to the Securities, except in any such case
with Goldman, Sachs & Co.'s express written consent and then only at its own
risk and expense.
<PAGE>
ANNEX II
Pursuant to Section 7(d) of the Purchase Agreement, the accountants shall
furnish letters to the Purchasers to the effect that:
(i) They are independent certified public accountants with respect to
the Company and its subsidiaries within the meaning of Section 101 of the
AICPA Code of Professional Conduct;
(ii) In our opinion, the consolidated financial statements and
financial statement schedules audited by us and included in the Offering
Circular comply as to form in all material respects with the applicable
requirements of the Exchange Act and the related published rules and
regulations;
(iii) The unaudited selected financial information with respect to the
consolidated results of operations and financial position of the Company
for the four most recent fiscal years included in the Offering Circular
agrees with the corresponding amounts (after restatements where applicable)
in the audited consolidated financial statements for such four fiscal
years;
(iv) On the basis of limited procedures not constituting an audit in
accordance with generally accepted auditing standards, consisting of a
reading of the unaudited financial statements and other information
referred to below, a reading of the latest available interim financial
statements of the Company and its subsidiaries, inspection of the minute
books of the Company and its subsidiaries since the date of the latest
audited financial statements included in the Offering Circular, inquiries
of officials of the Company and its subsidiaries responsible for financial
and accounting matters and such other inquiries and procedures as may be
specified in such letter, nothing came to their attention that caused them
to believe that:
(A) the unaudited consolidated statements of income, consolidated
balance sheets and consolidated statements of cash flows included in
the Offering Circular are not in conformity with generally accepted
accounting principles applied on the basis substantially consistent
with the basis for the audited condensed consolidated statements of
income, consolidated balance sheets and consolidated statements of cash
flows included in the Offering Circular;
(B) any other unaudited income statement data and balance sheet
items included in the Offering Circular do not agree with the
corresponding items in the unaudited consolidated financial statements
from which such data and items were derived, and any such unaudited
data and items were not determined on a basis substantially consistent
with the basis for the corresponding amounts in the audited
consolidated financial statements included in the Offering Circular;
<PAGE>
(C) the unaudited financial statements which were not included in
the Offering Circular but from which were derived any unaudited
condensed financial statements referred to in Clause (A) and any
unaudited income statement data and balance sheet items included in
the Offering Circular and referred to in Clause (B) were not
determined on a basis substantially consistent with the basis for the
audited consolidated financial statements included in the Offering
Circular;
(D) any unaudited pro forma consolidated condensed financial
statements included in the Offering Circular do not comply as to form
in all material respects with the applicable accounting requirements
or the pro forma adjustments have not been properly applied to the
historical amounts in the compilation of those statements;
(E) as of a specified date not more than five days prior to the date
of such letter, there have been any changes in the consolidated
capital stock (other than issuances of capital stock upon exercise of
options and stock appreciation rights, upon earn-outs of performance
shares and upon conversions of convertible securities, in each case
which were outstanding on the date of the latest financial statements
included in the Offering Circular or any increase in the consolidated
long-term debt of the Company and its subsidiaries, or any decreases
in consolidated net current assets or stockholders' equity or other
items specified by the Purchasers, or any increases in any items
specified by the Purchasers, in each case as compared with amounts
shown in the latest balance sheet included in the Offering Circular
except in each case for changes, increases or decreases which the
Offering Circular discloses have occurred or may occur or which are
described in such letter; and
(F) for the period from the date of the latest financial statements
included in the Offering Circular to the specified date referred to in
Clause (E) there were any decreases in consolidated net revenues or
operating profit or the total or per share amounts of consolidated net
income or other items specified by the Purchasers, or any increases in
any items specified by the Purchasers, in each case as compared with
the comparable period of the preceding year and with any other period
of corresponding length specified by the Purchasers, except in each
case for decreases or increases which the Offering Circular discloses
have occurred or may occur or which are described in such letter; and
(v) In addition to the examination referred to in their report(s)
included in the Offering Circular and the limited procedures, inspection of
minute books, inquiries and other procedures referred to in paragraphs
(iii) and (iv) above, they have carried out certain specified procedures,
not constituting an audit in accordance with generally accepted auditing
standards, with respect to certain amounts, percentages and financial
information specified by the Purchasers, which are derived from the general
accounting records of the Company and its subsidiaries, which appear in the
Offering Circular, and
<PAGE>
have compared certain of such amounts, percentages and financial
information with the accounting records of the Company and its subsidiaries
and have found them to be in agreement.
<PAGE>
December __, 1999
Dear KPMG LLP:
Goldman, Sachs & Co., as representative of the Purchasers of 10 3/4% Senior
Notes due 2009 to be issued by Exodus Communications, Inc. (the "Company"), will
be reviewing certain information relating to the Company that will be included
(incorporated by reference) in the Offering Circular. This review process,
applied to the information relation to the issue, is (will be) substantially
consistent with the due diligence review process that we would perform if this
placement of securities were being registered pursuant to the Securities Act of
1933 (the Act). It is recognized however that what is "substantially
consistent" may vary from situation to situation and may not be the same as that
done in a registered offering of the same securities for the same issuer and
whether the procedures being, or to be, followed will be "substantially
consistent" will be determined by us on a case-by-case basis. We are
knowledgeable with respect to the due diligence review process that would be
performed if this placement of securities were being registered pursuant to the
Act. We hereby request that you deliver to us a "comfort" letter concerning the
financial statements of the issuer and certain statistical and other data
included in the offering document. We will contact you to identify the
procedures we wish you to follow and the form we wish the comfort letter to
take.
Very truly yours,
.........................................
(Goldman, Sachs & Co.)
<PAGE>
EXHIBIT 10.73
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT, dated as of December 1, 1999,
among Exodus Communications, Inc., a Delaware corporation (the "Company"),
Goldman, Sachs & Co., Donaldson, Lufkin & Jenrette Securities Corporation,
BancBoston Robertson Stephens Inc., PaineWebber Incorporated and Morgan Stanley
& Co. Incorporated (each an "Initial Purchaser" and, collectively, the "Initial
Purchasers") each of whom has agreed to purchase the Company's $375,000,000
principal amount of 10 3/4% Senior Notes due 2009 (the "Dollar Securities") and
Euro 125,000,000 principal amount of 10 3/4% Senior Notes due 2009 (the "Euro
Securities" and together with the Dollar Securities, the "Securities") pursuant
to the Purchase Agreement, dated December 2, 1999, by and among the Company and
Initial Purchasers (the "Purchase Agreement").
The Company proposes to issue and sell and the Initial Purchasers propose
to purchase the Securities upon the terms set forth in the Purchase Agreement.
As an inducement to the Initial Purchasers to enter into the Purchase Agreement
and in satisfaction of a condition to the obligations of the Initial Purchasers
thereunder, the Company agrees with the Initial Purchasers for the benefit of
holders (as defined herein) from time to time of the Transfer Restricted
Securities as follows:
1. Certain Definitions.
For purposes of this Exchange and Registration Rights Agreement, the
following terms shall have the following respective meanings:
"Act" shall mean the Securities Act of 1933, as amended.
"Affiliate" shall have the meaning ascribed thereto by Rule 144 of the
Act.
"Business Days" shall mean each Monday, Tuesday, Wednesday, Thursday
and Friday which is not a day on which banking institutions in the City of
New York, New York are authorized or obligated by law or executive order to
close.
"Broker-Dealer" shall mean any broker or dealer registered with the
Commission under the Exchange Act.
"Closing Date" shall mean December 8, 1999.
"Commission" shall mean the United States Securities and Exchange
Commission, or any other federal agency at the time administering the
Exchange Act or the Securities Act, whichever is the relevant statute for
the particular purpose.
"Effective Time" shall mean (i) with regard to the Exchange
Registration, the time and date as of which the Commission declares the
Exchange Offer Registration Statement
<PAGE>
effective or as of which the Exchange Offer Registration Statement
otherwise becomes effective and (ii) with regard to the Shelf Registration,
the time and date as of which the Commission declares the Shelf
Registration Statement effective or as of which the Shelf Registration
Statement otherwise becomes effective.
"Electing Holder" shall mean any holder of Transfer Restricted
Securities that has returned a completed and signed Notice and
Questionnaire to the Company in accordance with Section 3(d)(ii) or
3(d)(iii) hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, or any
successor thereto, as the same shall be amended from time to time.
"Exchange Offer" shall have the meaning assigned thereto in Section
2(a) hereof.
"Exchange Offer Registration Statement" shall have the meaning
assigned thereto in Section 2(a) hereof.
"Exchange Registration" shall have the meaning assigned thereto in
Section 3(c) hereof.
"Exchange Securities" shall have the meaning assigned thereto in
Section 2(a) hereof.
"holder" shall mean with respect to the Transfer Restricted
Securities, each of the Initial Purchasers and other persons who acquire
Transfer Restricted Securities from time to time (including any successors
or assigns), in each case for so long as such person owns any Transfer
Restricted Securities.
"Indenture" shall mean the Indenture, dated as of December 1, 1999,
between the Company and Chase Manhattan Bank and Trust Company, National
Association, as Trustee, as the same shall be amended from time to time.
"Liquidated Damages" shall have the meaning assigned thereto in
Section 2(c) hereof.
"Notice and Questionnaire" means a Notice of Registration Statement
and Selling Securityholder Questionnaire substantially in the form of
Exhibit A hereto.
---------
"person" shall mean a corporation, association, partnership,
organization, business, individual, government or political subdivision
thereof or governmental agency.
"Press Release" shall have the meaning given thereto in the Indenture.
"Prospectus" shall have the meaning ascribed to it in Section 2(a)(10)
of the Act.
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<PAGE>
"Registration Default" shall have the meaning assigned thereto in
Section 2(c) hereof.
"Registration Expenses" shall have the meaning assigned thereto in
Section 4 hereof.
"Resale Period" shall have the meaning assigned thereto in Section
2(a) hereof.
"Restricted Holder" shall mean (i) a holder that is an affiliate of
the Company within the meaning of Rule 405, (ii) a holder who acquires
Exchange Securities outside the ordinary course of such holder's business,
(iii) a holder who has arrangements or understandings with any person to
participate in the Exchange Offer for the purpose of a distribution within
the meaning of the Act of Exchange Securities and (iv) a holder that is a
Broker-Dealer, but only with respect to Exchange Securities received by
such Broker-Dealer pursuant to an Exchange Offer in exchange for Transfer
Restricted Securities acquired by the Broker-Dealer directly from the
Company.
"Rule 144," "Rule 405" and "Rule 415" shall mean, in each case, such
rule promulgated under the Act (or any successor provision), as the same
shall be amended from time to time.
"Securities" shall mean, collectively, the 10 3/4% Senior Notes due
2009 of the Company to be issued and sold to the Initial Purchasers, and
securities issued in exchange therefor or in lieu thereof pursuant to the
Indenture.
"Shelf Registration" shall have the meaning assigned thereto in
Section 2(b) hereof.
"Shelf Registration Statement" shall have the meaning assigned thereto
in Section 2(b) hereof.
"Transfer Restricted Securities" shall mean each Security until the
earliest of (i) the date on which such Security has been exchanged by a
person other than a Broker-Dealer for an Exchange Security in an Exchange
Offer, (ii) following the exchange by a Broker-Dealer in the Exchange Offer
of a Security for an Exchange Security, the date on which such Exchange
Security is sold to a purchaser who receives from such Broker-Dealer on or
prior to the date of such sale a copy of the Prospectus used in connection
with such Exchange Offer, (iii) the date on which such Security has been
effectively registered under the Act and disposed of in accordance with a
Shelf Registration Statement or (iv) the date on which such Security is
distributed to the public pursuant to Rule 144 under the Act.
"Trust Indenture Act" shall mean the Trust Indenture Act of 1939, or
any successor thereto, and the rules, regulations and forms promulgated
thereunder, all as the same shall be amended from time to time.
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<PAGE>
Unless the context otherwise requires, any reference herein to a "Section"
or "clause" refers to a Section or clause, as the case may be, of this Exchange
and Registration Rights Agreement, and the words "herein," "hereof" and
"hereunder" and other words of similar import refer to this Exchange and
Registration Rights Agreement as a whole and not to any particular Section or
other subdivision.
2. Registration Under the Securities Act.
(a) Except as set forth in Section 2(b) below, the Company agrees to file
with the Commission, as soon as practicable after the Closing Date, but no later
than 60 days after the Closing Date, a registration statement relating to an
offer to exchange (such registration statement, the "Exchange Offer Registration
Statement", and such offer, the "Exchange Offer") any and all of the Securities
for a like aggregate principal amount of debt securities issued by the Company,
which debt securities are substantially identical to the Securities (and are
entitled to the benefits of a trust indenture which is substantially identical
to the Indenture or is the Indenture and which has been qualified under the
Trust Indenture Act), except that they have been registered pursuant to an
effective registration statement under the Act and do not contain provisions for
liquidated damages contemplated in Section 2(c) below (such new debt securities
hereinafter called "Exchange Securities"). The Company agrees to use its best
efforts to cause the Exchange Offer Registration Statement to become effective
under the Act as soon as practicable, but no later than 150 days after the
Closing Date. The Exchange Offer will be registered under the Act on the
appropriate form and will comply with all applicable tender offer rules and
regulations under the Exchange Act. Unless the Exchange Offer would not be
permitted by applicable law or Commission policy, the Company further agrees to
use its best efforts (i) to complete the Exchange Offer promptly, but no later
than 30 Business Days after the Exchange Offer Registration Statement becomes
effective or is declared effective by the Commission, (ii) to hold the Exchange
Offer open for a period of not less than the minimum period required under
applicable federal and state securities laws, provided however, that in no event
shall such period be less than 20 Business Days after the mailing of notice to
holders of such Exchange Offer Registration Statement being declared effective,
and (iii) to issue Exchange Securities for all Transfer Restricted Securities
that have been properly tendered and not withdrawn on or prior to the expiration
of the Exchange Offer. The Exchange Offer will be deemed to have been
"completed" only if the debt securities received by holders other than
Restricted Holders in the Exchange Offer for Transfer Restricted Securities are,
upon receipt, transferable by each such holder without need for further
compliance with Section 5 of the Act and the Exchange Act (except for the
requirement to deliver a Prospectus included in the Exchange Offer Registration
Statement applicable to resales by Broker-Dealers of Exchange Securities
received by such Broker-Dealer pursuant to an Exchange Offer in exchange for
Transfer Restricted Securities other than those acquired by the Broker-Dealer
directly from the Company), and without material restrictions under the blue sky
or securities laws of a substantial majority of the States of the United States
of America. The Exchange Offer shall be deemed to have been completed upon the
earlier to occur of (i) the Company having exchanged the Exchange Securities for
all outstanding Transfer Restricted Securities pursuant to the Exchange Offer
and (ii) the Company having exchanged, pursuant to the Exchange Offer, Exchange
Securities for all Transfer Restricted Securities that have been properly
tendered and not withdrawn before the expiration of the Exchange Offer. If the
Company is notified prior to the completion of the Exchange Offer by a Broker-
Dealer that is a holder of Transfer
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<PAGE>
Restricted Securities (other than Transfer Restricted Securities received by the
Broker-Dealer directly from the Company), then the Company agrees (x) to include
in the Exchange Offer Registration Statement a Prospectus for use in connection
with any resales of Exchange Securities by a Broker-Dealer, other than resales
of Exchange Securities received by a Broker-Dealer pursuant to an Exchange Offer
in exchange for Transfer Restricted Securities acquired by the Broker-Dealer
directly from the Company, and (y) to keep such Exchange Offer Registration
Statement effective for a period (the "Resale Period") beginning when Exchange
Securities are first issued in the Exchange Offer and ending upon the earlier of
the expiration of the 180th day after the Exchange Offer has been completed or
such time as such Broker-Dealers no longer own any Transfer Restricted
Securities. With respect to such Exchange Offer Registration Statement, each
Broker-Dealer that holds Exchange Securities received in an Exchange Offer in
exchange for Transfer Restricted Securities not acquired by it directly from the
Company shall have the benefit of the rights of indemnification and contribution
set forth in Sections 6(a), (c), (d) and (e) hereof.
(b) If (i) the Company is not permitted to consummate the Exchange Offer
because the Exchange Offer is not permitted by applicable law or Commission
policy or (ii) any holder of Transfer Restricted Securities notifies the Company
prior to the 20th day following completion of the Exchange Offer that (A) it is
prohibited by law or Commission policy from participating in the Exchange Offer
or (B) that it may not resell in compliance with the Act or Commission policy
the Exchange Securities acquired by it in the Exchange Offer to the public
without delivering a Prospectus and the Prospectus contained in the Exchange
Offer Registration Statement is not appropriate or available for such resales or
(C) that it is a Broker-Dealer and owns Securities acquired directly from the
Company or an Affiliate, then in lieu of conducting the Exchange Offer for such
Transfer Restricted Securities contemplated by Section 2(a) the Company shall
use its best efforts to file with the Commission as soon as practicable, but no
later than 45 days after the date on which the Company determines that it is not
permitted to file the Exchange Offer Registration Statement pursuant to clause
(i) above or 45 days after the date on which the Company receives the notice
specified in clause (ii) above (but in either case, in no event less than 60
days after the Closing Date), a "shelf" registration statement providing for the
registration of, and the sale on a continuous or delayed basis by the holders
of, all of the Transfer Restricted Securities, pursuant to Rule 415 or any
similar rule that may be adopted by the Commission, which may be an amendment to
the Exchange Offer Registration Statement (such filing, the "Shelf Registration"
and such registration statement, the "Shelf Registration Statement"). The
Company agrees to use its best efforts (i) to cause the Shelf Registration
Statement to become or be declared effective by the Commission on or prior to 90
days after such obligation arises (but in no event less than 150 days after the
Closing Date) and to keep such Shelf Registration Statement continuously
effective in order to permit the Prospectus forming a part thereof to be usable
by holders for resales of Transfer Restricted Securities for a period ending on
the earlier of the second anniversary of the Effective Time or such time as
there are no longer any Transfer Restricted Securities outstanding, provided,
however, that no holder shall be entitled to be named as a selling
securityholder in the Shelf Registration Statement or to use the Prospectus
forming a part thereof for resales of Transfer Restricted Securities unless such
holder is an Electing Holder, and (ii) after the Effective Time of the Shelf
Registration Statement, promptly upon the request of any holder of Transfer
Restricted Securities that is not then an Electing Holder, to take any action
reasonably necessary to enable such holder to use the Prospectus forming a part
-5-
<PAGE>
thereof for resales of Transfer Restricted Securities, including, without
limitation, any action necessary to identify such holder as a selling
securityholder in the Shelf Registration Statement, provided, however, that
nothing in this Clause (ii) shall relieve any such holder of the obligation to
return a completed and signed Notice and Questionnaire to the Company in
accordance with Section 3(d)(iii) hereof. No holder of Securities shall be
entitled to Liquidated Damages pursuant to 2(c) hereof unless and until such
holder shall have provided all such information. The Company further agrees to
supplement or make amendments to the Shelf Registration Statement, as and when
required by the rules, regulations or instructions applicable to the
registration form used by the Company for such Shelf Registration Statement or
by the Act or rules and regulations thereunder for shelf registration, and the
Company agrees to furnish to each Electing Holder copies of any such supplement
or amendment prior to its being used or promptly following its filing with the
Commission.
(c) In the event that (i) the Company has not filed the Exchange Offer
Registration Statement or Shelf Registration Statement on or before the date on
which such registration statement is required to be filed pursuant to Section
2(a) or 2(b), respectively, or (ii) such Exchange Offer Registration Statement
or Shelf Registration Statement has not become effective or been declared
effective by the Commission on or before the date on which such registration
statement is required to become or be declared effective pursuant to Section
2(a) or 2(b), respectively, or (iii) the Exchange Offer has not been completed
within 30 Business Days after the initial effective date of the Exchange Offer
Registration Statement relating to the Exchange Offer (if the Exchange Offer is
then required to be made) or (iv) any Exchange Offer Registration Statement or
Shelf Registration Statement required by Section 2(a) or 2(b) hereof is filed
and declared effective, but shall thereafter cease to be effective or usable in
connection with resales of Transfer Restricted Securities during the periods
specified in Section 2(a) or 2(b), respectively, (except as specifically
permitted herein, including pursuant to Sections 3(c)(ii) and (iv) and 3(d)(iv)
and 3(e)) without being succeeded immediately by an additional registration
statement filed and declared effective (each such event referred to in clauses
(i) through (iv), a "Registration Default" and each period during which a
Registration Default has occurred and is continuing, a "Registration Default
Period"), then, the Company will pay liquidated damages to each holder of
Transfer Restricted Securities affected thereby (such liquidated damages, the
"Liquidated Damages"), with respect to the first 90-day period immediately
following the occurrence of the first Registration Default in an amount equal to
$0.05 per week such Registration Default continues per $1,000 principal amount
of Transfer Restricted Securities held by such holder. The amount of the
Liquidated Damages will increase by an additional $0.05 per week such
Registration Default continues per $1,000 principal amount of Transfer
Restricted Securities with respect to each subsequent 90-day period until all
Registration Defaults have been cured, up to a maximum amount of Liquidated
Damages for all Registration Defaults of $0.25 per week per $1,000 principal
amount of Transfer Restricted Securities. Notwithstanding the foregoing, the
Company shall in no event be required to pay Liquidated Damages for more than
one Registration Default at any time. All accrued Liquidated Damages will be
paid by the Company on each Interest Payment Date (as defined in the Indenture)
to each holder of any Transfer Restricted Securities by wire transfer of
immediately available funds or by federal funds check and to holders of Transfer
Restricted Securities by wire transfer to the accounts specified by them or by
mailing checks to their registered addresses if no such accounts have been
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<PAGE>
specified. Following the cure of all Registration Defaults, the accrual of
Liquidated Damages will cease. No other damages shall be available to holders of
Transfer Restricted Securities for any Registration Default.
(d) Any reference herein to a registration statement as of any time shall
be deemed to include any document incorporated, or deemed to be incorporated,
therein by reference as of such time and any reference herein to any post-
effective amendment to a registration statement as of any time shall be deemed
to include any document incorporated, or deemed to be incorporated, therein by
reference as of such time.
3. Registration Procedures.
If the Company files a registration statement pursuant to Section 2(a) or
Section 2(b), the following provisions shall apply:
(a) At or before the Effective Time of the Exchange Offer or the Shelf
Registration, as the case may be, the Company shall qualify the Indenture under
the Trust Indenture Act of 1939.
(b) In the event that such qualification would require the appointment of a
new trustee under the Indenture, the Company shall appoint a new trustee
thereunder pursuant to the applicable provisions of the Indenture.
(c) In connection with the Company's obligations with respect to the
registration of Exchange Securities as contemplated by Section 2(a) (the
"Exchange Registration"), if applicable, the Company shall, as soon as
practicable (or as otherwise specified):
(i) prepare and file with the Commission, as soon as practicable but
no later than 60 days after the Closing Date, an Exchange Offer
Registration Statement on any form which may be utilized by the Company and
which shall permit the Exchange Offer and, if applicable, resales of
Exchange Securities by Broker-Dealers during the Resale Period to be
effected as contemplated by Section 2(a), and use its best efforts to cause
such Exchange Offer Registration Statement to become effective as soon as
practicable thereafter, but no later than 150 days after the Closing Date;
(ii) as soon as practicable prepare and file with the Commission such
amendments and supplements to such Exchange Offer Registration Statement
and the Prospectus included therein as may be necessary to effect and
maintain the effectiveness of such Exchange Offer Registration Statement
for the periods and purposes contemplated in Section 2(a) hereof and as may
be required by the applicable rules and regulations of the Commission and
the instructions applicable to the form of such Exchange Offer Registration
Statement, and promptly provide each Broker-Dealer holding Exchange
Securities with such number of copies of the Prospectus included therein
(as then amended or supplemented), in conformity in all material respects
with the requirements of the Act and the Trust Indenture Act and the rules
and regulations of the Commission thereunder, as such Broker-Dealer
reasonably may
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<PAGE>
request prior to the expiration of the Resale Period, for use in connection
with resales of Exchange Securities; provided that upon the occurrence of
any event that would cause any such Exchange Offer Registration Statement
or the Prospectus contained therein (A) to contain a material misstatement
or omission or (B) not to be effective and usable for resale of Transfer
Restricted Securities, either of which occurs during the period that the
Company is required to maintain an effective and usable Exchange Offer
Registration Statement and Prospectus pursuant to this Agreement, the
Company shall file promptly an appropriate amendment or supplement to such
Registration Statement or Prospectus, (1) in the case of clause (A),
correcting any such misstatement or omission, and (2) in the case of
clauses (A) and (B) use its best efforts to cause any amendment to be
declared effective and such Exchange Offer Registration Statement and the
Prospectus to become usable for their intended purpose(s) as soon as
practicable thereafter; provided further notwithstanding anything to the
contrary set forth in this Agreement, during the 180 day period following
completion of the Exchange Offer, the Company's obligations to use its best
efforts to keep the Exchange-Offer Registration Statement continuously
effective, supplemented and amended shall be suspended in the event
continued effectiveness of the Exchange-Offer Registration Statement would,
with the advice of counsel to the Company, make it advisable for the
Company to disclose a material financing, acquisition or other corporate
transaction, and the Board of Directors shall have determined in good faith
that such disclosure is not in the best interests of the Company, but in no
event will any such suspension, individually or in the aggregate, exceed
sixty (60) days (such suspensions being referred to herein as an "Exchange
Suspension Period");
(iii) promptly notify in writing each Broker-Dealer that has requested
or received from the Company copies of the Prospectus included in such
Exchange Offer Registration Statement and issue a Press Release indicating
the same, (A) when such Exchange Offer Registration Statement or the
Prospectus included therein or any Prospectus amendment or supplement or
post-effective amendment has been filed, and, with respect to such Exchange
Offer Registration Statement or any post-effective amendment, when the same
has become effective, (B) of the issuance by the Commission of any stop
order suspending the effectiveness of such Exchange Offer Registration
Statement or the initiation or threatening of any proceedings for that
purpose, (C) of the receipt by the Company of any notification with respect
to the suspension of the qualification of the Exchange Securities for sale
in any jurisdiction or the initiation or threatening of any proceeding for
such purpose, or (D) at any time during the Resale Period when a Prospectus
is required to be delivered under the Act, that such Exchange Offer
Registration Statement, Prospectus, Prospectus amendment or supplement or
post-effective amendment does not conform in all material respects to the
applicable requirements of the Act and the Trust Indenture Act and the
rules and regulations of the Commission thereunder or contains an untrue
statement of a material fact or omits to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing. Each holder of
Transfer Restricted Securities agrees that upon receipt of any notice from
the Company pursuant to this Section 3(c)(iii)(D), such holder shall
forthwith discontinue the disposition of Transfer Restricted Securities
pursuant to the Exchange Offer Registration Statement applicable to such
Transfer
-8-
<PAGE>
Restricted Securities until such Broker-Dealer shall have received copies
of such amended or supplemented Prospectus, and if so directed by the
Company, such Broker-Dealer shall deliver to the Company (at the Company's
expense) all copies, other than permanent file copies, then in such Broker-
Dealer's possession of the Prospectus covering such Transfer Restricted
Securities at the time of receipt of such notice;
(iv) in the event that the Company would be required, pursuant to
Section 3(c)(iii)(D) above, to notify any Broker-Dealers holding Exchange
Securities, without unreasonable delay, subject to Section 3(c)(ii),
prepare and furnish to each such holder a reasonable number of copies of a
Prospectus supplemented or amended so that, as thereafter delivered to
purchasers of such Exchange Securities during the Resale Period, such
Prospectus shall conform in all material respects to the applicable
requirements of the Act and the Trust Indenture Act and the rules and
regulations of the Commission thereunder and shall not contain an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing;
(v) subject to the provisos in (ii) above, use its best efforts to
obtain the withdrawal of any order suspending the effectiveness of such
Exchange Offer Registration Statement or any post-effective amendment
thereto at the earliest practicable date;
(vi) use its best efforts to (A) register or qualify the Exchange
Securities under the securities laws or blue sky laws of such jurisdictions
as are contemplated by Section 2(a) no later than the commencement of the
Exchange Offer, (B) if applicable, keep such registrations or
qualifications in effect and comply with such laws so as to permit the
continuance of offers, sales and dealings therein in such jurisdictions
until the expiration of the Resale Period and (C) take any and all other
actions as may be reasonably necessary or advisable to enable each Broker-
Dealer holding Exchange Securities to consummate the disposition thereof in
such jurisdictions; provided, however, that the Company shall not be
required for any such purpose to (1) qualify as a foreign corporation in
any jurisdiction wherein it would not otherwise be required to qualify but
for the requirements of this Section 3(c)(vi), (2) consent to general
service of process in any such jurisdiction or (3) make any changes to its
certificate of incorporation or by-laws or any agreement between it and its
stockholders;
(vii) use its best efforts to obtain the consent or approval of each
governmental agency or authority, whether federal, state or local, which
may be required to effect the Exchange Registration, the Exchange Offer and
the offering and sale of Exchange Securities by Broker-Dealers during the
Resale Period;
(viii) provide a CUSIP number for all Exchange Securities, not later
than the applicable Effective Time;
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<PAGE>
(ix) comply with all applicable rules and regulations of the
Commission, and make generally available to its securityholders as soon as
practicable but no later than eighteen months after the effective date of
such Exchange Offer Registration Statement, an earning statement of the
Company and its subsidiaries complying with Section 11(a) of the Act
(including, at the option of the Company, Rule 158 thereunder).
(d) In connection with the Company's obligations with respect to the
registration of the Transfer Restricted Securities as contemplated by Section
2(b) pursuant to the Shelf Registration, if applicable, the Company shall, as
soon as practicable (or as otherwise specified):
(i) prepare and file with the Commission, as soon as practicable but
in any case within the time periods specified in Section 2(b), a Shelf
Registration Statement on any form which may be utilized by the Company and
which shall register all of the Transfer Restricted Securities for resale
by the holders thereof in accordance with such method or methods of
disposition as may be specified by such of the holders as, from time to
time, may be Electing Holders and use its best efforts to cause such Shelf
Registration Statement to become effective as soon as practicable but in
any case within the time periods specified in Section 2(b);
(ii) not less than 30 calendar days prior to the Effective Time of the
Shelf Registration Statement, mail the Notice and Questionnaire, in the
form of Exhibit A hereto, to the holders of Transfer Restricted Securities;
---------
no holder shall be entitled to be named as a selling securityholder in the
Shelf Registration Statement as of the Effective Time, and no holder shall
be entitled to use the Prospectus forming a part thereof for resales of
Transfer Restricted Securities at any time, unless such holder has returned
a completed and signed Notice and Questionnaire to the Company by the
deadline for response set forth therein; provided, however, holders of
Transfer Restricted Securities shall have at least 28 calendar days from
the date on which the Notice and Questionnaire is first mailed to such
holders to return a completed and signed Notice and Questionnaire to the
Company;
(iii) after the Effective Time of the Shelf Registration Statement,
upon the request of any holder of Transfer Restricted Securities that is
not then an Electing Holder, promptly send a Notice and Questionnaire to
such holder; provided that the Company shall not be required to take any
action to name such holder as a selling securityholder in the Shelf
Registration Statement or to enable such holder to use the Prospectus
forming a part thereof for resales of Transfer Restricted Securities until
such holder has returned a completed and signed Notice and Questionnaire to
the Company;
(iv) as soon as practicable prepare and file with the Commission such
amendments and supplements to such Shelf Registration Statement and the
Prospectus included therein, and take any other action, as may be necessary
to effect and maintain the effectiveness of such Shelf Registration
Statement for the period specified in Section 2(b) hereof and as may be
required by the applicable rules and regulations of the Commission and the
instructions applicable to the form of such Shelf Registration Statement,
and furnish to the Electing
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<PAGE>
Holders copies of any such supplement or amendment simultaneously with or
prior to its being used or filed with the Commission; provided that upon
the occurrence of any event that would cause any such Shelf Registration
Statement or the Prospectus contained therein (A) to contain a material
misstatement or omission or (B) not to be effective and usable for resale
of Transfer Restricted Securities, either of which occurs during the period
that the Company is required to maintain an effective and usable Shelf
Registration Statement and Prospectus pursuant to this Agreement, the
Company shall file promptly an appropriate amendment or supplement to such
Registration Statement or Prospectus, (1) in the case of clause (A),
correcting any such misstatement or omission, and (2) in the case of
clauses (A) and (B) use its best efforts to cause any amendment to be
declared effective and such Shelf Registration Statement and the related
Prospectus to become usable for their intended purpose(s) as soon as
practicable thereafter; provided further notwithstanding anything to the
contrary set forth in this Agreement, the Company's obligations to use its
best efforts to keep the Shelf Registration Statement continuously
effective, supplemented and amended shall be suspended in the event
continued effectiveness of the Shelf Registration Statement would, with the
advice of counsel to the Company, make it advisable for the Company to
disclose a material financing, acquisition or other corporate transaction,
and the Board of Directors shall have determined in good faith that such
disclosure is not in the best interests of the Company, but in no event
will any such suspension, individually or in the aggregate, exceed ninety
(90) days in any calendar year (such suspensions being referred to herein
as a "Shelf Suspension Period");
(v) comply with the provisions of the Act with respect to the
disposition of all of the Transfer Restricted Securities covered by such
Shelf Registration Statement in accordance with the intended methods of
disposition by the Electing Holders provided for in such Shelf Registration
Statement;
(vi) provide (A) the Electing Holders, (B) the underwriters (which
term, for purposes of this Exchange and Registration Rights Agreement,
shall include a person deemed to be an underwriter within the meaning of
Section 2(11) of the Act), if any, thereof, (C) any sales or placement
agent therefor, (D) counsel for any such underwriters or agents and (E) not
more than one counsel for all the Electing Holders the opportunity to
participate in the preparation of such Shelf Registration Statement, each
Prospectus included therein or filed with the Commission and each amendment
or supplement thereto;
(vii) for a reasonable period prior to the filing of such Shelf
Registration Statement, and throughout the period specified in Section
2(b), make available at reasonable times at the Company's principal place
of business or such other reasonable place for inspection by the persons
referred to in Section 3(d)(vi) who shall certify to the Company that they
have a current intention to sell the Transfer Restricted Securities
pursuant to the Shelf Registration such financial and other information and
books and records of the Company, and cause the officers, employees,
counsel and independent certified public accountants of the Company to
respond to such inquiries, as shall be reasonably necessary, in the
judgment of the respective counsel referred to in such Section, to conduct
a reasonable investigation within the meaning
-11-
<PAGE>
of Section 11 of the Act; provided, however, that each such party shall be
required to maintain in confidence and not to disclose to any other person
any information or records reasonably designated by the Company as being
confidential, until such time as (A) such information becomes a matter of
public record (whether by virtue of its inclusion in such registration
statement or otherwise), or (B) such person shall be required so to
disclose such information pursuant to a subpoena or order of any court or
other governmental agency or body having jurisdiction over the matter
(subject to the requirements of such order, and only after such person
shall have given the Company prompt prior written notice of such
requirement), or (C) after the Effective Time and after having requested,
in writing, that the Company include such information in such Shelf
Registration Statement or an amendment or supplement thereto, and such
request has not been accepted by the Company within 15 days of such
request, such information, in the reasonable judgment of such party
pursuant to advice of counsel, is required to be set forth in such Shelf
Registration Statement or the Prospectus included therein or in an
amendment to such Shelf Registration Statement or an amendment or
supplement to such Prospectus in order that such Shelf Registration
Statement, Prospectus, amendment or supplement, as the case may be,
complies with applicable requirements of the federal securities laws and
the rules and regulations of the Commission and does not contain an untrue
statement of a material fact or omit to state therein a material fact
required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing;
(viii) promptly notify in writing each of the Electing Holders, any
sales or placement agent therefor and any underwriter thereof (which
notification may be made through any managing underwriter that is a
representative of such underwriter for such purpose), (A) when such Shelf
Registration Statement or the Prospectus included therein or any Prospectus
amendment or supplement or post-effective amendment has been filed, and,
with respect to such Shelf Registration Statement or any post-effective
amendment, when the same has become effective, (B) of the issuance by the
Commission of any stop order suspending the effectiveness of such Shelf
Registration Statement or the initiation or threatening of any proceedings
for that purpose, (C) of the receipt by the Company of any notification
with respect to the suspension of the qualification of the Transfer
Restricted Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose, or (D) (I) if at any time
when a Prospectus is required to be delivered under the Act, such Shelf
Registration Statement, Prospectus, Prospectus amendment or supplement or
post-effective amendment does not conform in all material respects to the
applicable requirements of the Act and the Trust Indenture Act and the
rules and regulations of the Commission thereunder or contains an untrue
statement of a material fact or omits to state any material fact required
to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing; or (II) the
occurrence of a Shelf Suspension Period;
(ix) subject to the provisos in (iv) above, use its best efforts to
obtain the withdrawal of any order suspending the effectiveness of such
registration statement or any post-effective amendment thereto at the
earliest practicable date;
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<PAGE>
(x) if requested by any managing underwriter or underwriters, any
placement or sales agent or any Electing Holder, promptly incorporate in a
Prospectus supplement or post-effective amendment such information as is
required by the applicable rules and regulations of the Commission and as
such managing underwriter or underwriters, such agent or such Electing
Holder specifies should be included therein relating to the terms of the
sale of such Transfer Restricted Securities, including information with
respect to the principal amount of Transfer Restricted Securities being
sold by such Electing Holder or agent or to any underwriters, the name and
description of such Electing Holder, agent or underwriter, the offering
price of such Transfer Restricted Securities and any discount, commission
or other compensation payable in respect thereof, the purchase price being
paid therefor by such underwriters and with respect to any other terms of
the offering of the Transfer Restricted Securities to be sold by such
Electing Holder or agent or to such underwriters; and make all required
filings of such Prospectus supplement or post-effective amendment promptly
after notification of the matters to be incorporated in such Prospectus
supplement or post-effective amendment;
(xi) furnish to each Electing Holder, each placement or sales agent,
if any, therefor, each underwriter, if any, thereof and the respective
counsel referred to in Section 3(d)(vi) an executed copy (or, in the case
of an Electing Holder, a conformed copy) of such Shelf Registration
Statement, each such amendment and supplement thereto (in each case
including all exhibits thereto (in the case of an Electing Holder of
Transfer Restricted Securities, upon request) and documents incorporated by
reference therein) and such number of copies of such Shelf Registration
Statement (excluding exhibits thereto and documents incorporated by
reference therein unless specifically so requested by such Electing Holder,
agent or underwriter, as the case may be) and of the Prospectus included in
such Shelf Registration Statement (including each preliminary Prospectus
and any summary Prospectus), in conformity in all material respects with
the applicable requirements of the Act and the Trust Indenture Act and the
rules and regulations of the Commission thereunder, and such other
documents, as such Electing Holder, agent, if any, and underwriter, if any,
may reasonably request in order to facilitate the offering and disposition
of the Transfer Restricted Securities owned by such Electing Holder,
offered or sold by such agent or underwritten by such underwriter and to
permit such Electing Holder, agent and underwriter to satisfy the
Prospectus delivery requirements of the Act; and the Company hereby
consents, unless it has otherwise notified the Electing Holder under
Section 3(d)(iv) or (viii) hereof, to the use of such Prospectus (including
such preliminary and summary Prospectus) and any amendment or supplement
thereto by each such Electing Holder and by any such agent and underwriter,
in each case in the form most recently provided to such person by the
Company, in connection with the offering and sale of the Transfer
Restricted Securities covered by the Prospectus (including such preliminary
and summary Prospectus) or any supplement or amendment thereto;
(xii) use its best efforts to (A) register or qualify the Transfer
Restricted Securities to be included in such Shelf Registration Statement
under such securities laws or blue sky laws of such jurisdictions as any
Electing Holder and each placement or sales agent, if any,
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<PAGE>
therefor and underwriter, if any, thereof shall reasonably request, (B)
keep such registrations or qualifications in effect and comply with such
laws so as to permit the continuance of offers, sales and dealings therein
in such jurisdictions during the period the Shelf Registration is required
to remain effective under Section 2(b) above and for so long as may be
necessary to enable any such Electing Holder, agent or underwriter to
complete its distribution of Securities pursuant to such Shelf Registration
Statement and (C) take any and all other actions as may be reasonably
necessary or advisable to enable each such Electing Holder, agent, if any,
and underwriter, if any, to consummate the disposition in such
jurisdictions of such Transfer Restricted Securities; provided, however,
that the Company shall not be required for any such purpose to (1) qualify
as a foreign corporation in any jurisdiction wherein it would not otherwise
be required to qualify but for the requirements of this Section 3(d)(xii),
(2) consent to general service of process in any such jurisdiction or (3)
make any changes to its certificate of incorporation or by-laws or any
agreement between it and its stockholders;
(xiii) use its best efforts to obtain the consent or approval of each
governmental agency or authority, whether federal, state or local, which
may be required to effect the Shelf Registration or the offering or sale in
connection therewith or to enable the selling holder or holders to offer,
or to consummate the disposition of, their Transfer Restricted Securities;
(xiv) cooperate with the Electing Holders and the managing
underwriters, if any, to facilitate the timely preparation and delivery of
certificates representing Transfer Restricted Securities to be sold, which
certificates shall be printed, lithographed or engraved, or produced by any
combination of such methods, and which shall not bear any restrictive
legends; and, in the case of an underwritten offering, enable such Transfer
Restricted Securities to be in such denominations and registered in such
names as the managing underwriters may request at least two business days
prior to any sale of the Transfer Restricted Securities;
(xv) provide a CUSIP number for all Transfer Restricted Securities,
not later than the applicable Effective Time;
(xvi) enter into one or more underwriting agreements, engagement
letters, agency agreements, "best efforts" underwriting agreements or
similar agreements, as appropriate, including customary provisions relating
to indemnification and contribution, and take such other actions in
connection therewith as any Electing Holders aggregating at least 20% in
aggregate principal amount of the Transfer Restricted Securities at the
time outstanding shall reasonably request in order to expedite or
facilitate the disposition of such Transfer Restricted Securities;
(xvii) whether or not an agreement of the type referred to in Section
3(d)(xvi) hereof is entered into and whether or not any portion of the
offering contemplated by the Shelf Registration is an underwritten offering
or is made through a placement or sales agent or any
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<PAGE>
other entity, (A) make such representations and warranties to the Electing
Holders and the placement or sales agent, if any, therefor and the
underwriters, if any, thereof in form, substance and scope as are
customarily made in connection with an offering of debt securities pursuant
to any appropriate agreement or to a registration statement filed on the
form applicable to the Shelf Registration; (B) obtain an opinion of counsel
to the Company in customary form and covering such matters, of the type
customarily covered by such an opinion, as the managing underwriters, if
any, or as any Electing Holders of at least 20% in aggregate principal
amount of the Transfer Restricted Securities at the time outstanding may
reasonably request, addressed to such Electing Holder or Electing Holders
and the placement or sales agent, if any, therefor and the underwriters, if
any, thereof and dated the effective date of such Shelf Registration
Statement (and if such Shelf Registration Statement contemplates an
underwritten offering of a part or all of the Transfer Restricted
Securities, dated the date of the closing under the underwriting agreement
relating thereto) (it being agreed that the matters to be covered by such
opinion shall include the due incorporation and good standing of the
Company and its subsidiaries; the qualification of the Company and its
subsidiaries to transact business as foreign corporations; the due
authorization, execution and delivery by the Company of the relevant
agreement of the type referred to in Section 3(d)(xvi) hereof; the due
authorization, execution, authentication and issuance by the Company, and
the validity and enforceability, of the Securities; the absence of
knowledge of such counsel of material legal or governmental proceedings
involving the Company; the absence of governmental approvals required to be
obtained in connection with the Shelf Registration, the offering and sale
of the Transfer Restricted Securities, this Exchange and Registration
Rights Agreement or any agreement of the type referred to in Section
3(d)(xvi) hereof, except such approvals as are referenced in the Shelf
Registration Statement or as may be required under state securities or blue
sky laws; the material compliance as to form of such Shelf Registration
Statement and any documents incorporated by reference therein and of the
Indenture with the requirements of the Act and the Trust Indenture Act and
the rules and regulations of the Commission thereunder, respectively; and
the expression of the belief of such counsel as to the absence of any facts
having come to the attention of such counsel that have caused them to
believe that such Shelf Registration Statement and the Prospectus included
therein, as then amended or supplemented, as of the date of the opinion and
of the Shelf Registration Statement or most recent post-effective amendment
thereto, as the case may be, and from the documents incorporated by
reference therein as of the dates of such documents (in each case other
than the financial statements, related notes, related schedules and other
financial data contained therein) contained an untrue statement of a
material fact or omitted to state therein a material fact necessary to make
the statements therein in light of the circumstances under which they were
made, and in the case of the documents incorporated by reference, in the
light of the circumstances existing at the time that such documents were
filed with the Commission under the Exchange Act, not misleading); (C)
obtain a "comfort" letter or letters from the independent certified public
accountants of the Company addressed to the selling Electing Holders, the
placement or sales agent, if any, therefor or the underwriters, if any,
thereof, dated (i) the effective date of such Shelf Registration Statement
and (ii) the effective date of any Prospectus supplement to the Prospectus
included in such Shelf Registration Statement or post-effective amendment
to such Shelf Registration
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<PAGE>
Statement which includes unaudited or audited financial statements as of a
date or for a period subsequent to that of the latest such statements
included in such Prospectus (and, if such Shelf Registration Statement
contemplates an underwritten offering pursuant to any Prospectus supplement
to the Prospectus included in such Shelf Registration Statement or post-
effective amendment to such Shelf Registration Statement which includes
unaudited or audited financial statements as of a date or for a period
subsequent to that of the latest such statements included in such
Prospectus, dated the date of the closing under the underwriting agreement
relating thereto), such letter or letters to be in customary form and
covering such matters of the type customarily covered by letters of such
type; (D) deliver such documents and certificates, including officers'
certificates, as may be reasonably requested by any Electing Holders of at
least 20% in aggregate principal amount of the Transfer Restricted
Securities at the time outstanding or the placement or sales agent, if any,
therefor and the managing underwriters, if any, thereof to evidence the
accuracy of the representations and warranties made pursuant to clause (A)
above or those contained in Section 5(a) hereof and the compliance with or
satisfaction of any agreements or conditions contained in the underwriting
agreement or other agreement entered into by the Company; and (E) undertake
such obligations relating to expense reimbursement, indemnification and
contribution as are provided in Section 6 hereof;
(xviii) notify in writing each holder of Transfer Restricted
Securities of any proposal by the Company to amend or waive any provision
of this Exchange and Registration Rights Agreement pursuant to Section 9(h)
hereof and of any amendment or waiver effected pursuant thereto, each of
which notices shall contain the text of the amendment or waiver proposed or
effected, as the case may be;
(xix) in the event that any broker-dealer registered under the
Exchange Act shall underwrite any Transfer Restricted Securities or
participate as a member of an underwriting syndicate or selling group or
"assist in the distribution" (within the meaning of the Rules of Fair
Practice and the By-Laws of the National Association of Securities Dealers,
Inc. ("NASD") or any successor thereto, as amended from time to time)
thereof, whether as a holder of such Transfer Restricted Securities or as
an underwriter, a placement or sales agent or a broker or dealer in respect
thereof, or otherwise, assist such broker-dealer in complying with the
requirements of such Rules and By-Laws, including by (A) if such Rules or
By-Laws shall so require, engaging a "qualified independent underwriter"
(as defined in such Schedule (or any successor thereto)) to participate in
the preparation of the Shelf Registration Statement relating to such
Transfer Restricted Securities, to exercise usual standards of due
diligence in respect thereto and, if any portion of the offering
contemplated by such Shelf Registration Statement is an underwritten
offering or is made through a placement or sales agent, to recommend the
yield of such Transfer Restricted Securities, (B) indemnifying any such
qualified independent underwriter to the extent of the indemnification of
underwriters provided in Section 6 hereof (or to such other customary
extent as may be requested by such underwriter), and (C) providing such
information to such broker-dealer as may be required in order for such
broker-dealer to comply with the requirements of the Rules of Fair Practice
of the NASD; and
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<PAGE>
(xx) comply with all applicable rules and regulations of the
Commission, and make generally available to its securityholders as soon as
practicable but in any event not later than eighteen months after the
effective date of such Shelf Registration Statement, an earning statement
of the Company and its subsidiaries complying with Section 11(a) of the Act
(including, at the option of the Company, Rule 158 thereunder).
(e) In the event that the Company would be required, pursuant to Section
3(d)(viii)(D) above, to notify the Electing Holders, the placement or sales
agent, if any, therefor and the managing underwriters, if any, thereof, the
Company shall without unreasonable delay, subject to Section 3(d)(iv), prepare
and furnish to each of the Electing Holders, to each placement or sales agent,
if any, and to each such underwriter, if any, a reasonable number of copies of a
Prospectus supplemented or amended so that, as thereafter delivered to
purchasers of Transfer Restricted Securities, such Prospectus shall conform in
all material respects to the applicable requirements of the Act and the Trust
Indenture Act and the rules and regulations of the Commission thereunder and
shall not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing. Each
Electing Holder agrees that upon receipt of any notice from the Company pursuant
to Section 3(d)(viii)(D) hereof, such Electing Holder shall forthwith
discontinue the disposition of Transfer Restricted Securities pursuant to the
Shelf Registration Statement applicable to such Transfer Restricted Securities
until such Electing Holder shall have received copies of such amended or
supplemented Prospectus, and if so directed by the Company, such Electing Holder
shall deliver to the Company (at the Company's expense) all copies, other than
permanent file copies, then in such Electing Holder's possession of the
Prospectus covering such Transfer Restricted Securities at the time of receipt
of such notice.
(f) In the event of a Shelf Registration, in addition to the information
required to be provided by each Electing Holder in its Notice and Questionnaire,
the Company may require such Electing Holder to furnish to the Company such
additional information regarding such Electing Holder and such Electing Holder's
intended method of distribution of Transfer Restricted Securities as may be
required in order to comply with the Act. Each such Electing Holder agrees to
notify the Company as promptly as practicable of any inaccuracy or change in
information previously furnished by such Electing Holder to the Company or of
the occurrence of any event in either case as a result of which any Prospectus
relating to such Shelf Registration contains or would contain an untrue
statement of a material fact regarding such Electing Holder or such Electing
Holder's intended method of disposition of such Transfer Restricted Securities
or omits to state any material fact regarding such Electing Holder or such
Electing Holder's intended method of disposition of such Transfer Restricted
Securities required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing, and promptly
to furnish to the Company any additional information required to correct and
update any previously furnished information or required so that such Prospectus
shall not contain, with respect to such Electing Holder or the disposition of
such Transfer Restricted Securities, an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein not misleading in light of the circumstances then
existing.
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<PAGE>
(g) Until the expiration of two years after the Closing Date, the Company
will not resell, and will use its best efforts to prevent any of its Af filiates
from reselling, any of the Securities that have been reacquired by any of them
except pursuant to an effective registration statement under the Act.
(h) As a condition to its participation in the Exchange Offer pursuant to
the terms of this Agreement, each holder of Transfer Restricted Securities shall
furnish, upon the written request of the Company, prior to the completion of the
Exchange Offer, a written representation to the Company, (which may be contained
in the letter of transmittal contemplated by the Exchange Offer Registration
Statement) to the effect that (A) it is not an affiliate of the Company, (B) it
is not engaged in, and does not intend to engage in, and has no arrangement or
understanding with any person to participate in, a distribution of the Exchange
Securities to be issued in the Exchange Offer and (C) it is acquiring the
Exchange Securities in its ordinary course of business. Each Holder hereby
acknowledges and agrees that any Broker-Dealer and any such holder using the
Exchange Offer to participate in a distribution of the securities to be acquired
in the Exchange Offer (1) could not under Commission policy as in effect on the
date of this Agreement rely on the position of the Commission enunciated in
Morgan Stanley and Co., Inc. (available June 5, 1991) and Exxon Capital Holdings
Corporation (available May 13, 1988), as interpreted in the Commission's letter
to Shearman & Sterling dated July 2, 1993, and similar no-action letters, and
(2) must comply with the registration and prospectus delivery requirements of
the Act in connection with a secondary resale transaction and that such a
secondary resale transaction must be covered by an effective registration
statement (which may be the Exchange Offer Registration Statement) containing
the selling security holder information required by Item 507 or 508, as
applicable, of Regulation S-K if the resales are of Exchange Securities obtained
by such Holder in exchange for securities acquired by such holder directly from
the Company or an affiliate thereof.
4. Registration Expenses.
The Company agrees to bear and to pay or cause to be paid promptly all
expenses incident to the Company's performance of or compliance with this
Exchange and Registration Rights Agreement, including (a) all Commission and any
NASD registration, filing and review fees and expenses including fees and
disbursements of counsel for the placement or sales agent or underwriters in
connection with such NASD registration, filing and review, (b) all fees and
expenses in connection with the qualification of the Securities for offering and
sale under the State securities and blue sky laws referred to in Section
3(d)(xii) hereof and determination of their eligibility for investment under the
laws of such jurisdictions as any managing underwriters or the Electing Holders
may designate, including any fees and disbursements of counsel for the Electing
Holders (subject to the limitations of Clause (i) below) or underwriters in
connection with such qualification and determination, (c) all expenses relating
to the preparation, printing, production, distribution and reproduction of each
registration statement required to be filed hereunder, each Prospectus included
therein or prepared for distribution pursuant hereto, each amendment or
supplement to the foregoing, the expenses of preparing the Securities for
delivery and the expenses of printing or producing any underwriting agreements,
agreements among underwriters, selling agreements and blue sky or legal
investment memoranda and all other documents in connection with the offering,
sale or delivery of Securities to be disposed of (including certificates
representing the Securities), (d) messenger,
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<PAGE>
telephone and delivery expenses relating to the offering, sale or delivery of
Securities and the preparation of documents referred in clause (c) above, (e)
fees and expenses of the Trustee under the Indenture, any agent of the Trustee
and any counsel for the Trustee and of any collateral agent or custodian, (f)
internal expenses (including all salaries and expenses of the Company's officers
and employees performing legal or accounting duties), (g) fees, disbursements
and expenses of counsel and independent certified public accountants of the
Company (including the expenses of any opinions or "comfort" letters required by
or incident to such performance and compliance), (h) fees, disbursements and
expenses of any "qualified independent underwriter" engaged pursuant to Section
3(d)(xix) hereof, (i) fees, disbursements and expenses of one counsel for the
Electing Holders retained in connection with a Shelf Registration, as selected
by the Electing Holders of at least a majority in aggregate principal amount of
the Transfer Restricted Securities held by Electing Holders (which counsel shall
be reasonably satisfactory to the Company), (j) any fees charged by securities
rating services for rating the Securities, and (k) fees, expenses and
disbursements of any other persons, including special experts, retained by the
Company in connection with such registration (collectively, the "Registration
Expenses"). To the extent that any Registration Expenses are incurred, assumed
or paid by any holder of Transfer Restricted Securities or any placement or
sales agent therefor or underwriter thereof, the Company shall reimburse such
person for the full amount of the Registration Expenses so incurred, assumed or
paid promptly after receipt of a request therefor. Notwithstanding the
foregoing, the holders of the Transfer Restricted Securities being registered
shall pay all agency fees and commissions and underwriting discounts and
commissions attributable to the sale of such Transfer Restricted Securities and
the fees and disbursements of any counsel or other advisors or experts retained
by such holders (severally or jointly), other than the counsel and experts
specifically referred to above.
5. Representations and Warranties.
The Company represents and warrants to, and agrees with, each Initial
Purchaser and each of the holders from time to time of Transfer Restricted
Securities that:
(a) Each registration statement covering Transfer Restricted
Securities and each Prospectus (including any preliminary or summary
Prospectus) contained therein or furnished pursuant to Section 3(d) or
Section 3(c) hereof and any further amendments or supplements to any such
registration statement or Prospectus, when it becomes effective or is filed
with the Commission, as the case may be, and, in the case of an
underwritten offering of Transfer Restricted Securities, at the time of the
closing under the underwriting agreement relating thereto, will conform in
all material respects to the applicable requirements of the Act and the
Trust Indenture Act and the rules and regulations of the Commission
thereunder and will not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading; and at all times subsequent to
the Effective Time when a Prospectus would be required to be delivered
under the Act, other than from (i) such time as a notice has been given to
holders of Transfer Restricted Securities pursuant to Section 3(d)(viii)(D)
or Section 3(c)(iii)(D) hereof until (ii) such time as the Company
furnishes an amended or supplemented Prospectus pursuant to Section 3(e) or
Section 3(c)(iv) hereof, each such registration statement, and each
Prospectus (including any summary Prospectus) contained therein or
furnished pursuant to
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<PAGE>
Section 3(d) or Section 3(c) hereof, as then amended or supplemented, will
conform in all material respects to the applicable requirements of the Act
and the Trust Indenture Act and the rules and regulations of the Commission
thereunder and will not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the
circumstances then existing; provided, however, that this representation
and warranty shall not apply to any statements or omissions made in
reliance upon and in conformity with information furnished in writing to
the Company by a holder of Transfer Restricted Securities expressly for use
therein.
(b) Any documents incorporated by reference in any Prospectus
referred to in Section 5(a) hereof, when they become or became effective or
are or were filed with the Commission, as the case may be, will conform or
conformed in all material respects to the requirements of the Act or the
Exchange Act, as applicable, and none of such documents will at such time
contain or contained an untrue statement of a material fact or will omit or
omitted to state a material fact required to be stated therein or necessary
to make the statements therein not misleading; provided, however, that this
representation and warranty shall not apply to any statements or omissions
made in reliance upon and in conformity with information furnished in
writing to the Company by a holder of Transfer Restricted Securities
expressly for use therein.
(c) The compliance by the Company with all of the provisions of this
Exchange and Registration Rights Agreement and the consummation of the
transactions herein contemplated will not conflict with or result in a
breach of any of the terms or provisions of, or constitute a default under,
any material indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which the Company or any subsidiary of the
Company is a party or by which the Company or any subsidiary of the Company
is bound or to which any of the property or assets of the Company or any
subsidiary of the Company is subject, nor will such action result in any
violation of the provisions of the certificate of incorporation, as
amended, or the by-laws of the Company or any statute or any order, rule or
regulation of any court or governmental agency or body having jurisdiction
over the Company or any subsidiary of the Company or any of their
properties; and no consent, approval, authorization, order, registration or
qualification of or with any such court or governmental agency or body is
required for the consummation by the Company of the transactions
contemplated by this Exchange and Registration Rights Agreement, except the
registration under the Act of the Securities, qualification of the
Indenture under the Trust Indenture Act and such consents, approvals,
authorizations, registrations or qualifications as may be required under
State securities or blue sky laws in connection with the offering and
distribution of the Securities.
(d) This Exchange and Registration Rights Agreement has been duly
authorized, executed and delivered by the Company.
6. Indemnification.
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<PAGE>
(a) Indemnification by the Company. The Company shall indemnify and hold
harmless each of the holders of Transfer Restricted Securities included in an
Exchange Offer Registration Statement, each of the Electing Holders of Transfer
Restricted Securities included in a Shelf Registration Statement and each person
who participates as a placement or sales agent or as an underwriter in any
offering or sale of such Transfer Restricted Securities against any losses,
claims, damages or liabilities, joint or several, to which such holder, agent or
underwriter may become subject under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in any Exchange Offer Registration Statement or Shelf
Registration Statement, as the case may be, under which such Transfer Restricted
Securities were registered under the Act, or any preliminary, final or summary
Prospectus contained therein or furnished by the Company to any such holder,
Electing Holder, agent or underwriter, or any amendment or supplement thereto,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and the Company shall, and it hereby agrees
to, reimburse such holder, such Electing Holder, such agent and such underwriter
for any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such action or claim as such expenses are
incurred; provided, however, that the Company shall not be liable to any such
person in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in such registration statement,
or preliminary, final or summary Prospectus, or amendment or supplement thereto,
in reliance upon and in conformity with written information furnished to the
Company by such person expressly for use therein;
(b) Indemnification by the Holders and any Agents and Underwriters. The
Company may require, as a condition to including any Transfer Restricted
Securities in any registration statement filed pursuant to Section 2(b) hereof
and to entering into any underwriting agreement with respect thereto, that the
Company shall have received an undertaking reasonably satisfactory to it from
the Electing Holder of such Transfer Restricted Securities and from each
underwriter named in any such underwriting agreement, severally and not jointly,
to (i) indemnify and hold harmless the Company, and all other holders of
Transfer Restricted Securities, against any losses, claims, damages or
liabilities to which the Company or such other holders of Transfer Restricted
Securities may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in such registration statement, or any preliminary,
final or summary Prospectus contained therein or furnished by the Company to any
such Electing Holder, agent or underwriter, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in reliance upon and in conformity with written
information furnished to the Company by such Electing Holder or underwriter
expressly for use therein, and (ii) reimburse the Company for any legal or other
expenses reasonably incurred by the Company in connection with investigating or
defending any such action or claim as such expenses are incurred; provided,
however, that no such Electing Holder
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<PAGE>
shall be required to undertake liability to any person under this Section 6(b)
for any amounts in excess of the dollar amount of the proceeds to be received by
such Electing Holder from the sale of such Electing Holder's Transfer Restricted
Securities pursuant to such registration.
(c) Notices of Claims, Etc. Promptly after receipt by an indemnified
party under subsection (a) or (b) above of written notice of the commencement of
any action, such indemnified party shall, if a claim in respect thereof is to be
made against an indemnifying party pursuant to the indemnification provisions of
or contemplated by this Section 6, notify such indemnifying party in writing of
the commencement of such action; but the omission so to notify the indemnifying
party shall not relieve it from any liability which it may have to any
indemnified party other than under the indemnification provisions of or
contemplated by Section 6(a) or 6(b) hereof. In case any such action shall be
brought against any indemnified party and it shall notify an indemnifying party
of the commencement thereof, such indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof, with
counsel reasonably satisfactory to such indemnified party (who shall not, except
with the consent of the indemnified party, be counsel to the indemnifying
party), and, after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof, such indemnifying party shall
not be liable to such indemnified party for any legal expenses of other counsel
or any other expenses, in each case subsequently incurred by such indemnified
party, in connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party shall, without the written consent of the
indemnified party, effect the settlement or compromise of, or consent to the
entry of any judgment with respect to, any pending or threatened action or claim
in respect of which indemnification or contribution may be sought hereunder
(whether or not the indemnified party is an actual or potential party to such
action or claim) unless such settlement, compromise or judgment (i) includes an
unconditional release of the indemnified party from all liability arising out of
such action or claim and (ii) does not include a statement as to or an admission
of fault, culpability or a failure to act by or on behalf of any indemnified
party.
(d) Contribution. If for any reason the indemnification provisions
contemplated by Section 6(a) or Section 6(b) are unavailable to or insufficient
to hold harmless an indemnified party in respect of any losses, claims, damages
or liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative fault of the indemnifying party and the indemnified party in connection
with the statements or omissions which resulted in such losses, claims, damages
or liabilities (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative fault of such indemnifying party and
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by
such indemnifying party or by such indemnified party, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The parties hereto agree that it would not be just
and equitable if contributions pursuant to this Section 6(d) were determined by
pro rata allocation (even if the holders or any agents or underwriters or all of
them were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the
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<PAGE>
equitable considerations referred to in this Section 6(d). The amount paid or
payable by an indemnified party as a result of the losses, claims, damages, or
liabilities (or actions in respect thereof) referred to above shall be deemed to
include any legal or other fees or expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this Section 6(d), no holder shall
be required to contribute any amount in excess of the amount by which the dollar
amount of the proceeds received by such holder from the sale of any Transfer
Restricted Securities (after deducting any fees, discounts and commissions
applicable thereto) exceeds the amount of any damages which such holder has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission, and no underwriter shall be required
to contribute any amount in excess of the amount by which the total price at
which the Transfer Restricted Securities underwritten by it and distributed to
the public were offered to the public exceeds the amount of any damages which
such underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The holders' and any underwriters' obligations in
this Section 6(d) to contribute shall be several in proportion to the principal
amount of Transfer Restricted Securities registered or underwritten, as the case
may be, by them and not joint.
(e) The obligations of the Company under this Section 6 shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each officer, director and partner of
each holder, agent and underwriter and each person, if any, who controls any
holder, agent or underwriter within the meaning of the Act; and the obligations
of the holders and any agents or underwriters contemplated by this Section 6
shall be in addition to any liability which the respective holder, agent or
underwriter may otherwise have and shall extend, upon the same terms and
conditions, to each officer and director of the Company (including any person
who, with his consent, is named in any registration statement as about to become
a director of the Company) and to each person, if any, who controls the Company
within the meaning of the Act.
7. Underwritten Offerings.
(a) Selection of Underwriters. If any of the Transfer Restricted
Securities covered by the Shelf Registration are to be sold pursuant to an
underwritten offering, the managing underwriter or underwriters thereof shall be
designated by Electing Holders holding at least a majority in aggregate
principal amount of the Transfer Restricted Securities to be included in such
offering, provided that such designated managing underwriter or underwriters is
or are reasonably acceptable to the Company.
(b) Participation by Holders. Each holder of Transfer Restricted
Securities hereby agrees with each other such holder that no such holder may
participate in any underwritten offering hereunder unless such holder (i) agrees
to sell such holder's Transfer Restricted Securities on the basis provided in
any underwriting arrangements approved by the persons entitled hereunder to
approve such arrangements and (ii) completes and executes all questionnaires,
powers of attorney,
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<PAGE>
indemnities, underwriting agreements and other documents reasonably required
under the terms of such underwriting arrangements.
8. Rule 144.
The Company covenants to the holders of Transfer Restricted Securities that
to the extent it shall be required to do so under the Exchange Act, the Company
shall timely file the reports required to be filed by it under the Exchange Act
or the Act (including the reports under Section 13 and 15(d) of the Exchange Act
referred to in subparagraph (c)(1) of Rule 144 adopted by the Commission under
the Act) and the rules and regulations adopted by the Commission thereunder, and
shall take such further action as any holder of Transfer Restricted Securities
may reasonably request, all to the extent required from time to time to enable
such holder to sell Transfer Restricted Securities without registration under
the Act within the limitations of the exemption provided by Rule 144 under the
Act, as such Rule may be amended from time to time, or any similar or successor
rule or regulation hereafter adopted by the Commission. Upon the request of any
holder of Transfer Restricted Securities in connection with that holder's sale
pursuant to Rule 144, the Company shall deliver to such holder a written
statement as to whether it has complied with such requirements.
9. Miscellaneous.
(a) No Inconsistent Agreements. The Company represents, warrants,
covenants and agrees that it has not granted, and shall not grant, registration
rights with respect to Transfer Restricted Securities or any other securities
which would be inconsistent with the terms contained in this Exchange and
Registration Rights Agreement.
(b) Specific Performance. The parties hereto acknowledge that there would
be no adequate remedy at law if the Company fails to perform any of their
respective obligations hereunder and that the Initial Purchasers and the holders
from time to time of the Transfer Restricted Securities may be irreparably
harmed by any such failure, and accordingly agree that the Initial Purchasers
and such holders, in addition to any other remedy to which they may be entitled
at law or in equity, shall be entitled to compel specific performance of the
respective obligations of the Company under this Exchange and Registration
Rights Agreement in accordance with the terms and conditions of this Exchange
and Registration Rights Agreement, in any court of the United States or any
State thereof having jurisdiction.
(c) Notices. All notices, requests, claims, demands, waivers and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered by hand, if delivered personally or by courier, or
three days after being deposited in the mail (registered or certified mail,
postage prepaid, return receipt requested) as follows:
To the Company:
Exodus Communications, Inc.
2831 Mission College Blvd.
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<PAGE>
Santa Clara, California 95054
Attention: General Counsel
Phone: (408) 346-2200
Fax: (408) 346-2206
To the Initial Purchasers:
Goldman, Sachs & Co.
Donaldson, Lufkin & Jenrette Securities Corporation
BancBoston Robertson Stephens Inc.
PaineWebber Incorporated
Morgan Stanley & Co. Incorporated
c/o Goldman, Sachs & Co.
85 Broad Street
New York, NY 10004
Phone: (212) 902-1000
Fax: (212) 902-3000
To a holder:
to the address of such holder set forth in the security register
or other records of the Company, or to such other address as the
Company or any such holder may have furnished to the other in
writing in accordance herewith, except that notices of change of
address shall be effective only upon receipt.
(d) Parties in Interest. All the terms and provisions of this Exchange
and Registration Rights Agreement shall be binding upon, shall inure to the
benefit of and shall be enforceable by the parties hereto and the holders from
time to time of the Transfer Restricted Securities and the respective successors
and assigns of the parties hereto and such holders. In the event that any
transferee of any holder of Transfer Restricted Securities shall acquire
Transfer Restricted Securities, in any manner, whether by gift, bequest,
purchase, operation of law or otherwise, such transferee shall, without any
further writing or action of any kind, be deemed a beneficiary hereof for all
purposes and such Transfer Restricted Securities shall be held subject to all of
the terms of this Exchange and Registration Rights Agreement, and by taking and
holding such Transfer Restricted Securities such transferee shall be entitled to
receive the benefits of, and be conclusively deemed to have agreed to be bound
by all of the applicable terms and provisions of this Exchange and Registration
Rights Agreement. If the Company shall so request, any such successor, assign or
transferee shall agree in writing to acquire and hold the Transfer Restricted
Securities subject to all of the applicable terms hereof.
(e) Survival. The respective indemnities, agreements, representations,
warranties and each other provision set forth in this Exchange and Registration
Rights Agreement or made pursuant
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<PAGE>
hereto shall remain in full force and effect regardless of any investigation (or
statement as to the results thereof) made by or on behalf of any holder of
Transfer Restricted Securities, any director, officer or partner of such holder,
any agent or underwriter or any director, officer or partner thereof, or any
controlling person of any of the foregoing, and shall survive delivery of and
payment for the Transfer Restricted Securities pursuant to the Purchase
Agreement and the transfer and registration of Transfer Restricted Securities by
such holder and the consummation of an Exchange Offer.
(f) LAW GOVERNING. THIS EXCHANGE AND REGISTRATION RIGHTS AGREEMENT SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW
YORK.
(g) Headings. The descriptive headings of the several Sections and
paragraphs of this Exchange and Registration Rights Agreement are inserted for
convenience only, do not constitute a part of this Exchange and Registration
Rights Agreement and shall not affect in any way the meaning or interpretation
of this Exchange and Registration Rights Agreement.
(h) Entire Agreement; Amendments. This Exchange and Registration Rights
Agreement and the other writings referred to herein (including the Indenture and
the form of Securities) or delivered pursuant hereto which form a part hereof
contain the entire understanding of the parties with respect to its subject
matter. This Exchange and Registration Rights Agreement supersedes all prior
agreements and understandings between the parties with respect to its subject
matter. This Exchange and Registration Rights Agreement may be amended and the
observance of any term of this Exchange and Registration Rights Agreement may be
waived (either generally or in a particular instance and either retroactively or
prospectively) only by a written instrument duly executed by the Company and the
holders of at least a majority in aggregate principal amount of the Transfer
Restricted Securities at the time outstanding. Each holder of any Transfer
Restricted Securities at the time or thereafter outstanding shall be bound by
any amendment or waiver effected pursuant to this Section 9(h), whether or not
any notice, writing or marking indicating such amendment or waiver appears on
such Transfer Restricted Securities or is delivered to such holder.
(i) Counterparts. This agreement may be executed by the parties in
counterparts, each of which shall be deemed to be an original, but all such
respective counterparts shall together constitute one and the same instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
referred to above.
EXODUS COMMUNICATIONS, INC.
By: /s/ Ellen M. Hancock
---------------------------------------------
Name: Ellen M. Hancock
Title: President and CEO
INITIAL PURCHASERS
GOLDMAN, SACHS & CO.
DONALDSON, LUFKIN & JENRETTE SECURITIES
CORPORATION
BANCBOSTON ROBERTSON STEPHENS INC.
PAINEWEBBER INCORPORATED
MORGAN STANLEY & CO. INCORPORATED
GOLDMAN, SACHS & CO., on behalf of each of
the Initial Purchasers
By: /s/ Goldman, Sachs & Co.
---------------------------------------------
Name:
Title:
<PAGE>
Exhibit A
EXODUS COMMUNICATIONS, INC.
INSTRUCTION TO DTC PARTICIPANTS
-------------------------------
(Date of Mailing)
URGENT - IMMEDIATE ATTENTION REQUESTED
DEADLINE FOR RESPONSE: [DATE]/1/
--------------------------------
The Depository Trust Company ("DTC") has identified you as a DTC
Participant through which beneficial interests in the Exodus Communications,
Inc. (the "Company") $375,000,000 principal amount of 10 3/4% Senior Notes due
2009 (the "Dollar Securities") and 125,000,000 principal amount of 10 3/4%
Senior Notes due 2009 (the "Euro Securities" and together with the Dollar
Securities, the "Securities") are held.
The Company is in the process of registering the Securities under the
Securities Act of 1933 for resale by the beneficial owners thereof. In order to
have their Securities included in the registration statement, beneficial owners
must complete and return the enclosed Notice of Registration Statement and
Selling Securityholder Questionnaire.
It is important that beneficial owners of the Securities receive a
------------------------------------------------------------------
copy of the enclosed materials as soon as possible as their rights to have the
- --------------------------------------------------
Securities included in the registration statement depend upon their returning
the Notice and Questionnaire by [DEADLINE FOR RESPONSE]. Please forward a copy
---------------------
of the enclosed documents to each beneficial owner that holds interests in the
Securities through you. If you require more copies of the enclosed materials or
have any questions pertaining to this matter, please contact Exodus
Communications, Inc., 2831 Mission College Blvd., Santa Clara, CA 95054,
Attention: General Counsel, (408) 346-2200.
_______________
/1/ Not less than 28 calendar days from date of mailing.
-
-1-
<PAGE>
Exodus Communications, Inc.
Notice of Registration Statement
and
Selling Securityholder Questionnaire
------------------------------------
(Date)
Reference is hereby made to the Exchange and Registration Rights
Agreement (the "Exchange and Registration Rights Agreement") between Exodus
Communications, Inc. (the "Company") and the Initial Purchasers named therein.
Pursuant to the Exchange and Registration Rights Agreement, the Company has
filed with the United States Securities and Exchange Commission (the
"Commission") a registration statement on Form [___] (the "Shelf Registration
Statement") for the registration and resale under Rule 415 of the Securities Act
of 1933, as amended (the "Act"), of the Company's $375,000,000 principal amount
of 10 3/4% Senior Notes due 2009 (the "Dollar Securities") and 125,000,000
principal amount of 10 3/4% Senior Notes due 2009 (the "Euro Securities" and
together with the Dollar Securities, the "Securities"). A copy of the Exchange
and Registration Rights Agreement is attached hereto. All capitalized terms not
otherwise defined herein shall have the meanings ascribed thereto in the
Exchange and Registration Rights Agreement.
Each beneficial owner of Transfer Restricted Securities (as defined
below) is entitled to have the Transfer Restricted Securities beneficially owned
by it included in the Shelf Registration Statement. In order to have Transfer
Restricted Securities included in the Shelf Registration Statement, this Notice
of Registration Statement and Selling Securityholder Questionnaire ("Notice and
Questionnaire") must be completed, executed and delivered to the Company's
counsel at the address set forth herein for receipt ON OR BEFORE [DEADLINE FOR
--------------------------
RESPONSE]. Beneficial owners of Transfer Restricted Securities who do not
- ---------
complete, execute and return this Notice and Questionnaire by such date (i) will
not be named as selling securityholders in the Shelf Registration Statement and
(ii) may not use the Prospectus forming a part thereof for resales of Transfer
Restricted Securities.
Certain legal consequences arise from being named as a selling
securityholder in the Shelf Registration Statement and related Prospectus.
Accordingly, holders and beneficial owners of Transfer Restricted Securities are
advised to consult their own securities law counsel regarding the consequences
of being named or not being named as a selling securityholder in the Shelf
Registration Statement and related Prospectus.
The term "Transfer Restricted Securities" is defined in the Exchange
------------------------------
and Registration Rights Agreement.
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<PAGE>
ELECTION
The undersigned holder (the "Selling Securityholder") of Transfer
Restricted Securities hereby elects to include in the Shelf Registration
Statement the Transfer Restricted Securities beneficially owned by it and listed
below in Item (c). The undersigned, by signing and returning this Notice and
Questionnaire, agrees to be bound with respect to such Transfer Restricted
Securities by the terms and conditions of this Notice and Questionnaire and the
Exchange and Registration Rights Agreement, including, without limitation,
Section 6 of the Exchange and Registration Rights Agreement, as if the
undersigned Selling Securityholder were an original party thereto.
Upon any sale of Transfer Restricted Securities pursuant to the Shelf
Registration Statement, the Selling Securityholder will be required to deliver
to the Company and Trustee the Notice of Transfer set forth in Appendix A to the
Prospectus and as Exhibit B to the Exchange and Registration Rights Agreement.
The Selling Securityholder hereby provides the following information
to the Company and represents and warrants that such information is accurate and
complete:
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<PAGE>
QUESTIONNAIRE
(a) Full Legal Name of Selling Securityholder:
- --------------------------------------------------------------------------------
(i) Full Legal Name of Registered Holder (if not the same as in (a)
above) of Transfer Restricted Securities Listed in Item (c) below:
---------------------------------------------------------------------
(ii) Full Legal Name of DTC Participant (if applicable and if not the same
as (a) above) Through Which Transfer Restricted Securities Listed in
Item (c) below are Held:
---------------------------------------------------------------------
(b) Address for Notices to Selling Securityholder:
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Telephone: -----------------------------------
Fax: -----------------------------------
Contact Person: -----------------------------------
(c) Beneficial Ownership of Securities:
Except as set forth below in this Item (c), the undersigned does not
beneficially own any Securities.
(i) Principal amount of Transfer Restricted Securities beneficially
owned:_______________________
CUSIP No(s). of such Transfer Restricted Securities:_________________
(ii) Principal amount of Securities other than Transfer Restricted
Securities beneficially owned:_______________________________________
CUSIP No(s). of such other Securities:_______________________________
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<PAGE>
(iii) Principal amount of Transfer Restricted Securities which the
undersigned wishes to be included in the Shelf Registration
Statement:__________________________________________________________
CUSIP No(s). of such Transfer Restricted Securities to be included
in the Shelf Registration Statement:________________________________
(d) Beneficial Ownership of Other Securities of the Company:
Except as set forth below in this Item (d), the undersigned Selling
Securityholder is not the beneficial or registered owner of any other securities
of the Company, other than the Securities listed above in Item (c).
State any exceptions here:
(e) Relationships with the Company:
Except as set forth below, neither the Selling Securityholder nor any of
its affiliates, officers, directors or principal equity holders (5% or more) has
held any position or office or has had any other material relationship with the
Company (or its predecessors or affiliates) during the past three years.
State any exceptions here:
(f) Plan of Distribution:
Except as set forth below, the undersigned Selling Securityholder
intends to distribute the Transfer Restricted Securities listed above in Item
(c) only as follows (if at all): Such Transfer Restricted Securities may be
sold from time to time directly by the undersigned Selling Securityholder or,
alternatively, through underwriters, Broker-Dealers or agents. Such Transfer
Restricted Securities may be sold in one or more transactions at fixed prices,
at prevailing market prices at the time of sale, at varying prices determined at
the time of sale, or at negotiated prices. Such sales may be effected in
transactions (which may involve crosses or block transactions) (i) on any
national securities exchange or quotation service on which the Transfer
Restricted Securities may be listed or quoted at the time of sale, (ii) in the
over-the-counter market, (iii) in transactions otherwise than on such exchanges
or services or in the over-the-counter market, or (iv) through the writing of
options. In connection with sales of the Transfer Restricted Securities or
otherwise, the Selling Securityholder may enter into hedging transactions with
Broker-Dealers, which may in turn
-5-
<PAGE>
engage in short sales of the Transfer Restricted Securities in the course of
hedging the positions they assume. The Selling Securityholder may also sell
Transfer Restricted Securities short and deliver Transfer Restricted Securities
to close out such short positions, or loan or pledge Transfer Restricted
Securities to Broker-Dealers that in turn may sell such securities.
State any exceptions here:
By signing below, the Selling Securityholder acknowledges that it
understands its obligation to comply, and agrees that it will comply, with the
provisions of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and the rules and regulations thereunder, particularly Rule 10b-6.
In the event that the Selling Securityholder transfers all or any portion
of the Transfer Restricted Securities listed in Item (c) above after the date on
which such information is provided to the Company, the Selling Securityholder
agrees to notify the transferee(s) at the time of the transfer of its rights and
obligations under this Notice and Questionnaire and the Exchange and
Registration Rights Agreement.
By signing below, the Selling Securityholder consents to the disclosure of
the information contained herein in its answers to Items (a) through (f) above
and the inclusion of such information in the Shelf Registration Statement and
related Prospectus. The Selling Securityholder understands that such
information will be relied upon by the Company in connection with the
preparation of the Shelf Registration Statement and related Prospectus.
In accordance with the Selling Securityholder's obligation under Section
3(d) and (f) of the Exchange and Registration Rights Agreement to provide such
information as may be required by law for inclusion in the Shelf Registration
Statement, the Selling Securityholder agrees to notify the Company promptly of
any inaccuracies or changes in the information provided herein which may occur
subsequent to the date hereof at any time while the Shelf Registration Statement
remains in effect. All notices hereunder and pursuant to the Exchange and
-6-
<PAGE>
Registration Rights Agreement shall be made in writing, by hand-delivery, first-
class mail, or air courier guaranteeing overnight delivery as follows:
(i) To the Company:
Exodus Communications, Inc.
2831 Mission College Blvd.
Santa Clara, California 95054
Attention: General Counsel
(408) 346-2200.
(ii) With a copy to:
Fenwick & West, LLP
Two Palo Alto Square
Palo Alto, CA 94306
Attention: Eileen Duffy Robinett
(650) 494-0600
Once this Notice and Questionnaire is executed by the Selling
Securityholder and received by the Company's counsel, the terms of this Notice
and Questionnaire, and the representations and warranties contained herein,
shall be binding on, shall inure to the benefit of and shall be enforceable by
the respective successors, heirs, personal representatives, and assigns of the
Company and the Selling Securityholder (with respect to the Transfer Restricted
Securities beneficially owned by such Selling Securityholder and listed in Item
(c) above). This Agreement shall be governed in all respects by the laws of the
State of New York.
-7-
<PAGE>
IN WITNESS WHEREOF, the undersigned, by authority duly given, has caused
this Notice and Questionnaire to be executed and delivered either in person or
by its duly authorized agent.
Dated: ________________
---------------------------------------------
Selling Securityholder
(Print/type full legal name of beneficial
owner of Transfer Restricted Securities)
By:------------------------------------------
Name:
Title:
PLEASE RETURN THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE FOR RECEIPT ON
OR BEFORE [DEADLINE FOR RESPONSE] TO THE COMPANY'S COUNSEL AT:
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, CA 94306
Attention: Eileen Duffy Robinett
(650) 494-0600
-8-
<PAGE>
Exhibit B
NOTICE OF TRANSFER PURSUANT TO REGISTRATION STATEMENT
Chase Manhattan Bank and Trust Company,
National Association
Exodus Communications, Inc.
c/o Chase Manhattan Bank and Trust Company,
National Association
101 Barclay Street
Floor 21 West
New York, NY 10286
Attention: Trust Officer
Re: Exodus Communications, Inc. (the "Company")
$375,000,000 10 3/4% Senior Notes due 2009
Euro 125,000,000 10 3/4% Senior Notes due 2009
----------------------------------------------
Ladies and Gentlemen:
Please be advised that _____________________ has transferred
$___________ aggregate principal amount of the above-referenced Notes pursuant
to an effective Registration Statement on Form [___] (File No. 333-____) filed
by the Company.
We hereby certify that the prospectus delivery requirements, if any,
of the Securities Act of 1933, as amended, have been satisfied and that the
above-named beneficial owner of the Notes is named as a "Selling Holder" in the
Prospectus dated ___________, 199_ or in supplements thereto, and that the
aggregate principal amount of the Notes transferred are the Notes listed in such
Prospectus opposite such owner's name.
Dated:
Very truly yours,
________________________
(Name)
By:________________________
(Authorized Signature)
-1-
<PAGE>
EXHIBIT 12.01
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------------
1994 1995 1996 1997 1998
---------- ---------- --------- --------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C>
Fixed charges:
Interest expense, including amortization $ -- $ 36 $ 107 $ 699 $ 17,740
of debt expense
Assumed interest element included 6 17 50 353 1,111
in rent expense ---------- ----------- --------- ---------- ---------
Total fixed charges $ 6 $ 55 $ 157 $ 1,052 $ 18,851
Earnings (loss):
Net income (loss) $ 144 $ (1,311) $ (4,133) $ (25,298) $ (66,442)
Fixed charges per above 6 55 157 1,052 18,851
---------- ---------- ---------- ---------- ---------
Total earnings (loss) $ 150 $ (1,256) $ (3,976) $ (24,246) $ (47,591)
Ratio of earnings to fixed charges 26 X -- -- -- --
========== ========== ========== ========== =========
Deficiency of earnings available to cover
fixed charges $ -- $ (1,311) $ (4,133) $ (25,298) $ (66,442)
========== ========== ========== ========== =========
<CAPTION>
Nine months
ended September 30
----------------------------------------
1998 1999
--------------- ---------------
<S> <C> <C>
Fixed charges:
Interest expense, including amortization
of debt expense $ 9,139 $ 30,621
Assumed interest element included
in rent expense 3,392 11,147
--------------- ---------------
Total fixed charges 12,531 41,768
Earnings (loss):
Net income (loss) (45,392) (77,376)
Fixed charges per above 12,531 41,768
--------------- ---------------
Total earnings (loss) (32,861) (35,608)
Ratio of earnigs to fixed charges -- --
=============== ===============
Deficiency of earnings available to cover
fixed charges (45,392) (77,376)
=============== ===============
</TABLE>
<PAGE>
EXHIBIT 21.01
List of Registrant's Subsidiaries
<TABLE>
<CAPTION>
Percentage Owned
Name Jurisdiction by Exodus
- ---- ------------ ----------------
<S> <C> <C>
Arca Systems, Inc. Delaware 100%
American Information Illinois 100%
Systems, Inc.
Exodus Internet England 100%
Limited
Cohesive Technology Delaware 100%
Solutions, Inc.
Service Metrics, Delaware 100%
Inc.
Exodus Communications, Japan 85%
K.K. (formerly known
as Global OnLine Japan)
Exodus Communications, K.K. Japan 100%
(Minato-Ku)
</TABLE>
<PAGE>
Exhibit 23.03
Consent of KPMG LLP, Independent Auditors
The Board of Directors
Exodus Communications, Inc.:
We consent to the use in the registration statement on Form S-4 dated on or
about February 1, 2000, of our report dated January 26, 1999, except as to Note
9, which is as of November 23, 1999, and except as to Note 10, which is as of
December 14, 1999, relating to the consolidated balance sheets of Exodus
Communications, Inc. and subsidiaries as of December 31, 1997 and 1998, and the
related consolidated statements of operations, stockholders' (deficit) equity,
and cash flows for each of the years in the three-year period ended December
31, 1998, and the related financial statement schedule. We also consent to the
use in the registration statement of our report dated November 23, 1999, except
as to Note 9, which is as of December 14, 1999, relating to the supplemental
consolidated balance sheets of Exodus Communications, Inc. and subsidiaries as
of December 31, 1997 and 1998, and the related supplemental consolidated
statements of operations, stockholders' (deficit) equity, and cash flows for
each of the years in the three-year period ended December 31, 1998, and the
related supplemental financial statement schedule. We also consent to the
references to our firm under the headings "Summary Supplemental Consolidated
Financial Information", "Selected Supplemental Consolidated Financial Data",
and "Experts" in the registration statement.
KPMG LLP
Mountain View, California
January 28, 2000
<PAGE>
Exhibit 23.04
CONSENT OF DELOITTE & TOUCHE LLP, INDEPENDENT AUDITORS
We consent to the use in this Registration Statement of Exodus Communications,
Inc. on Form S-4 of our report dated April 8, 1999 (April 21, 1999 as to Note
10) relating to the consolidated financial statements of Cohesive Technology
Solutions, Inc. as of December 31, 1997 and 1998 and for each of the years in
the three-year period ended December 31, 1998, appearing elsewhere in this
Registration Statement, and to the reference to us under the heading "Experts"
in such Registration Statement.
/s/ DELOITTE & TOUCHE LLP
San Jose, California
January 28, 2000
<PAGE>
EXHIBIT 25
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
FORM T-1
Statement of Eligibility and Qualification Under the
Trust Indenture Act of 1939 of a Corporation
Designated to Act as Trustee
-----------------------
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT
TO SECTION 305(B)(2)____
-------------------------
CHASE MANHATTAN BANK AND TRUST COMPANY,
NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)
95-4655078
(I.R.S. Employer Identification No.)
Suite 2725
101 California Street, San Francisco, California
(Address of principal executive offices)
94111
(Zip Code)
------------------
EXODUS COMMUNICATIONS, INC.
(Exact name of Obligor as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
77-0403076
(I.R.S. Employer Identification No.)
2650 San Tomas Expressway
Santa Clara, California
(Address of principal executive offices)
95051
(Zip Code)
--------------------------------
10 3/4% Senior Notes Due December 15, 2009
(Title of Indenture securities)
<PAGE>
Item 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which it
is subject.
Comptroller of the Currency, Washington, D.C.
Board of Governors of the Federal Reserve System, Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
Item 2. Affiliations with Obligor.
If the Obligor is an affiliate of the trustee, describe each such
affiliation.
None.
Item 4. Trusteeships under Other Indentures
(a) Title of securities outstanding under each such other indenture.
$200,000,000 11 1/4% Senior Notes due 2008 issued under Indenture
dated as of July 1, 1998
$250,000,000 5% Convertible Subordinated Notes due March 15, 2006
issued under Indenture dated as of March 1, 1999
$75,000,000 11 1/4% Senior Notes due 2008 issued under Indenture
dated as of July 1, 1998
Item 16. List of Exhibits.
List below all exhibits filed as part of this statement of eligibility.
Exhibit 1. Articles of Association of the Trustee as Now in Effect (see
Exhibit 1 to Form T-1 filed in connection with Registration
Statement No. 333-41329 which is incorporated by reference).
Exhibit 2. Certificate of Authority of the Trustee to Commence Business
(see Exhibit 2 to Form T-1 filed in connection with
Registration Statement No. 333-41329, which is incorporated by
reference).
Exhibit 3. Authorization of the Trustee to Exercise Corporate Trust Powers
(contained in Exhibit 2).
Exhibit 4. Existing By-Laws of the Trustee (see Exhibit 4 to Form T-1
filed in connection with Registration Statement No. 333-41329,
which is incorporated by reference).
Exhibit 5. Not Applicable
Exhibit 6. The consent of the Trustee required by Section 321(b) of the
Act (see Exhibit 6 to Form T-1 filed in connection with
Registration Statement No. 333-41329, which is incorporated by
reference).
<PAGE>
Exhibit 7. A copy of the latest report of condition of the Trustee,
published pursuant to law or the requirements of its
supervising or examining authority.
Exhibit 8. Not Applicable
Exhibit 9. Not Applicable
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
Trustee, Chase Manhattan Bank and Trust Company, National Association, has duly
caused this statement of eligibility and qualification to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the City of San
Francisco, and State of California, on the 28th day of January 2000.
CHASE MANHATTAN BANK AND TRUST
COMPANY, NATIONAL ASSOCIATION
By /s/ Cecil D. Bobey
-------------------
Cecil D. Bobey
Assistant Vice President
<PAGE>
<TABLE>
<CAPTION>
Exhibit 7. Report of Condition of the Trustee.
- ---------------------------------------------------------------------------------------------------------
<S> <C>
Consolidated Report of Condition of Chase Manhattan Bank and Trust Company, N.A.
---------------------------------------------------------------------
(Legal Title)
Located at 1800 Century Park East, Ste. 400 Los Angeles, CA 94111
---------------------------------------------------------------------------------------------
(Street) (City) (State) (Zip)
as of close of business on September 30, 1999
-----------------------
=========================================================================================================
=========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
ASSETS DOLLAR AMOUNTS IN THOUSANDS
<S> <C> <C>
1. Cash and balances due from
a. Noninterest-bearing balances and currency and coin (1,2) 1,617
b. Interest bearing balances (3) 0
2. Securities
a. Held-to-maturity securities (from Schedule RC-B, column A) 0
b. Available-for-sale securities (from Schedule RC-B, column D) 1,224
3. Federal Funds sold (4) and securities purchased agreements to resell 67,240
4. Loans and lease financing receivables:
a. Loans and leases, net of unearned income (from Schedule RC-C) 197
b. LESS: Allowance for loan and lease losses 0
c. LESS: Allocated transfer risk reserve 0
d. Loans and leases, net of unearned income, allowance, and
reserve (item 4.a minus 4.b and 4.c) 197
5. Trading assets 0
6. Premises and fixed assets (including capitalized leases) 185
7. Other real estate owned (from Schedule RC-M) 0
8. Investments in unconsolidated subsidiaries and associated companies
(From Schedule RC-M) 0
9. Customers liability to this bank on acceptances outstanding 0
10. Intangible assets (from Schedule RC-M) 1,114
11. Other assets (from Schedule RC-F) 1,557
12a. TOTAL ASSETS 73,134
</TABLE>
(1) includes cash items in process of collection and unposted debits.
(2) The amount reported in this item must be greater than or equal to the sum
of Schedule RC-M, items 3.a and 3.b.
(3) includes time certificates of deposit not held for trading.
(4) Report "term federal funds sold" in Schedule RC, item 4.a "Loans and
leases, net of unearned income" and in Schedule RC-C, part 1.
4
<PAGE>
<TABLE>
LIABILITIES
<S> <C> <C>
13. Deposits:
a. In domestic offices (sum of totals of columns A and C from
Schedule RC-E) 42,542
(1) Noninterest-bearing 8,705
(2) Interest-bearing 33,837
b. In foreign offices, Edge and Agreement subsidiaries, and
IBF'
(1) Noninterest-bearing
(2) Interest-bearing
14. Federal funds purchased (2) and securities sold under agreements
to repurchase 0
15. a. Demand notes issued to the U.S. Treasury 0
b. Trading liabilities 0
16. Other borrowed money (includes mortgage indebtedness and
obligations under capitalized leases):
a. With a remaining maturity of one year or less 0
b. With a remaining maturity of more than one year through
three years 0
c. With a remaining maturity of more than three years 0
17. Not applicable
18. Bank's liability on acceptances executed and outstanding 0
19. Subordinated notes and Debentures (3) 0
20. Other liabilities (from Schedule RC-G) 4,869
21. Total liabilities (sum of items 13 through 20) 47,411
22. Not applicable
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus 0
24. Common stock-- 600
25. Surplus (exclude all surplus related to preferred stock) 12,590
26. a. Undivided profits and capital reserves 12,533
b. Net unrealized holding gains (losses) on available-for-sale 0
securities
27. Cumulative foreign currency translation adjustments
28. a. Total equity capital (sum of items 23 through 27) 25,723
29. Total liabilities, equity capital, and losses deferred
pursuant to 12 U.S.C. 1823 (j) (sum of items 21 and 28.c) 73,134
Memorandum
To be reported only with the March Report of Condition
1. Indicate in the box at the right the number of the statement
below that best describes The most comprehensive level of
auditing work performed for the bank by independent external
auditors as of any date during 1998 N/A
</TABLE>
5
<PAGE>
LETTER OF TRANSMITTAL
FOR DOLLAR-DENOMINATED NOTES OF
EXODUS COMMUNICATIONS, INC.
OFFER TO EXCHANGE ITS
NEW DOLLAR-DENOMINATED 10 3/4% SENIOR NOTES DUE 2009
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR ANY AND ALL OF ITS OUTSTANDING UNREGISTERED DOLLAR-DENOMINATED
10 3/4% SENIOR NOTES DUE 2009
PURSUANT TO THE PROSPECTUS DATED ______________ , 2000
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME (10:00 P.M. LONDON TIME) ON , 2000 (UNLESS EXTENDED BY
EXODUS COMMUNICATIONS, INC. IN ITS SOLE DISCRETION) (SUCH TIME AND SUCH
DATE, AND AS SUCH TIME AND DATE MAY BE EXTENDED, THE "EXPIRATION DATE").
If you desire to accept the Exchange Offer (as defined below), this Letter
of Transmittal should be completed, signed, and submitted to:
CHASE MANHATTAN BANK AND TRUST COMPANY, NATIONAL ASSOCIATION
U.S. Exchange Agent
BY MAIL, OVERNIGHT DELIVERY OR HAND:
Chase Manhattan Bank and Trust Company, National Association
101 California Street
Suite 2725
San Francisco, CA 94111
Attn: Cecil Bobey
(Exodus Communications Inc., 10 3/4% Senior Notes due 2009)
TO CONFIRM BY TELEPHONE OR FOR INFORMATION:
415-954-9581
FACSIMILE TRANSMISSIONS:
415-693-8850
(Originals of all documents sent by facsimile should be sent promptly by
hand, overnight courier or registered or certified mail.)
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE TO A
NUMBER OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS
LETTER OF TRANSMITTAL IS COMPLETED.
Capitalized terms used but not defined herein shall have the same meaning
given them in the Prospectus (as defined below).
This Letter of Transmittal is to be completed by holders of Old Notes (as
defined below) either if Old Notes are to be forwarded herewith or if tenders
of Old Notes are to be made by book-entry transfer to an account maintained by
Chase Manhattan Bank and Trust Company, National Association (the "U.S.
Exchange Agent") at The Depository Trust Company ("DTC") pursuant to the
procedures set forth in "The Exchange Offer--Procedures for Tendering Old
Notes" in the Prospectus.
Holders of Old Notes whose certificates (the "Certificates") for such Old
Notes are not immediately available or who cannot deliver their Certificates
and all other required documents to the U.S. Exchange Agent on or prior to the
Expiration Date or who cannot complete the procedures for book-entry transfer
on a timely basis, must tender their Old Notes according to the guaranteed
delivery procedures set forth in "The Exchange Offer-Procedures for Tendering
Old Notes" in the Prospectus. See Instruction 1 hereto. DELIVERY OF DOCUMENTS
TO DTC DOES NOT CONSTITUTE DELIVERY TO THE U.S. EXCHANGE AGENT.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to Exodus Communications, Inc., a Delaware
corporation (the "Company"), the aggregate principal amount of the Company's
dollar-denominated 10 3/4% Senior Notes due 2009 (the "Old Notes") described
in Box 1 below, in exchange for a like aggregate principal amount of the
Company's new dollar-denominated 10 3/4% Senior Notes due 2009 (the "New
Notes") which have been registered under the Securities Act of 1933, as
amended (the "Securities Act"), upon the terms and subject to the conditions
set forth in the Prospectus dated , 2000 (as the same may be amended or
supplemented from time to time, the "Prospectus"), receipt of which is
acknowledged, and in this Letter of Transmittal (which, together with the
Prospectus, constitutes the "Exchange Offer").
Subject to, and effective upon, the acceptance for exchange of all or any
portion of the Old Notes tendered herewith in accordance with the terms and
conditions of the Exchange Offer (including, if the Exchange Offer is extended
or amended, the terms and conditions of any such extension or amendment), the
undersigned hereby sells, assigns and transfers to or upon the order of the
Company all right, title and interest in and to such Old Notes as are being
tendered herewith. The undersigned hereby irrevocably constitutes and appoints
Chase Manhattan Bank and Trust Company, National Association as the U.S.
Exchange Agent (the "U.S. Exchange Agent") as its agent and attorney-in-fact
(with full knowledge that the U.S. Exchange Agent is also acting as agent of
the Company in connection with the Exchange Offer) with respect to the
tendered dollar-denominated Old Notes, with full power of substitution (such
power of attorney being deemed to be an irrevocable power coupled with an
interest), subject only to the right of withdrawal described in the
Prospectus, to (i) deliver Certificates for Old Notes to the Company together
with all accompanying evidences of transfer and authenticity to, or upon the
order of, the Company, upon receipt by the U.S. Exchange Agent, as the
undersigned's agent, of the New Notes to be issued in exchange for such Old
Notes, (ii) present Certificates for such Old Notes for transfer, and to
transfer the Old Notes on the books of the Company, and (iii) receive for the
account of the Company all benefits and otherwise exercise all rights of
beneficial ownership of such Old Notes, all in accordance with the terms and
conditions of the Exchange Offer.
THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT THE UNDERSIGNED HAS
FULL POWER AND AUTHORITY TO TENDER, EXCHANGE, SELL, ASSIGN AND TRANSFER THE
OLD NOTES TENDERED HEREBY AND THAT, WHEN THE SAME ARE ACCEPTED FOR EXCHANGE,
THE COMPANY WILL ACQUIRE GOOD, MARKETABLE AND UNENCUMBERED TITLE THERETO, FREE
AND CLEAR OF ALL LIENS, RESTRICTIONS, CHARGES AND ENCUMBRANCES, AND THAT THE
OLD NOTES TENDERED HEREBY ARE NOT SUBJECT TO ANY ADVERSE CLAIMS OR PROXIES.
THE UNDERSIGNED WILL, UPON REQUEST, EXECUTE AND DELIVER ANY ADDITIONAL
DOCUMENTS DEEMED BY THE COMPANY OR THE U.S. EXCHANGE AGENT TO BE NECESSARY OR
DESIRABLE TO COMPLETE THE EXCHANGE, ASSIGNMENT AND TRANSFER OF THE OLD NOTES
TENDERED HEREBY, AND THE UNDERSIGNED WILL COMPLY WITH ITS OBLIGATIONS UNDER
THE REGISTRATION RIGHTS AGREEMENT. THE UNDERSIGNED HAS READ AND AGREES TO ALL
OF THE TERMS OF THE EXCHANGE OFFER.
The name(s) and address(es) of the registered holder(s) of the Old Notes
tendered hereby should be printed in Box 1 below, if they are not already set
forth below, as they appear on the Certificates representing such Old Notes.
The Certificate number(s) and the Old Notes that the undersigned wishes to
tender should be indicated in the appropriate box below.
If any tendered Old Notes are not exchanged pursuant to the Exchange Offer
for any reason, or if Certificates are submitted for more Old Notes than are
tendered or accepted for exchange, Certificates for such nonexchanged or
nontendered Old Notes will be returned (or, in the case of Old Notes tendered
by book-entry transfer, such Old Notes will be credited to an account
maintained at DTC), without expense to the tendering holder, promptly
following the expiration or termination of the Exchange Offer.
The undersigned understands that tenders of Old Notes pursuant to any one
of the procedures described in "The Exchange Offer-Procedures for Tendering
Old Notes" in the Prospectus and in the instructions hereto will, upon the
Company's acceptance for exchange of such tendered Old Notes, constitute a
binding agreement between the undersigned and the Company upon the terms and
subject to the conditions of the Exchange Offer. The undersigned recognizes
that, under certain circumstances set forth in the Prospectus, the Company may
not be required to accept for exchange any of the Old Notes tendered hereby.
2
<PAGE>
Unless otherwise indicated herein in the box entitled "Special Exchange
Instructions" below (Box 7), the undersigned hereby directs that the New Notes
be issued in the name(s) of the undersigned or, in the case of a book-entry
transfer of Old Notes, that such New Notes be credited to the account
indicated below maintained at DTC. If applicable, substitute Certificates
representing Old Notes not exchanged or not accepted for exchange will be
issued to the undersigned or, in the case of a book-entry transfer of Old
Notes, will be credited to the account indicated below maintained at DTC.
Similarly, unless otherwise indicated under "Special Delivery Instructions"
(Box 8), please deliver New Notes to the undersigned at the address shown
below the undersigned's signature.
THE EXCHANGE OFFER IS NOT BEING MADE TO ANY BROKER-DEALER WHO PURCHASED OLD
NOTES DIRECTLY FROM THE COMPANY FOR RESALE PURSUANT TO RULE 144A UNDER THE
SECURITIES ACT OR ANY PERSON THAT IS AN "AFFILIATE" OF THE COMPANY WITHIN THE
MEANING OF RULE 405 UNDER THE SECURITIES ACT. THE UNDERSIGNED UNDERSTANDS AND
AGREES THAT THE COMPANY RESERVES THE RIGHT NOT TO ACCEPT TENDERED OLD NOTES
FROM ANY TENDERING HOLDER IF THE COMPANY DETERMINES, IN ITS REASONABLE
DISCRETION, THAT SUCH ACCEPTANCE COULD RESULT IN A VIOLATION OF APPLICABLE
SECURITIES LAWS.
BY TENDERING OLD NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL, THE
UNDERSIGNED HEREBY REPRESENTS AND AGREES THAT (i) THE UNDERSIGNED IS NOT AN
"AFFILIATE" OF THE COMPANY, (ii) ANY NEW NOTES TO BE RECEIVED BY THE
UNDERSIGNED ARE BEING ACQUIRED IN THE ORDINARY COURSE OF ITS BUSINESS, (iii)
THE UNDERSIGNED HAS NO ARRANGEMENT OR UNDERSTANDING WITH ANY PERSON TO
PARTICIPATE IN A DISTRIBUTION (WITHIN THE MEANING OF THE SECURITIES ACT) OF
NEW NOTES TO BE RECEIVED IN THE EXCHANGE OFFER, AND (iv) IF THE UNDERSIGNED IS
NOT A BROKER-DEALER, THE UNDERSIGNED IS NOT ENGAGED IN, AND DOES NOT INTEND TO
ENGAGE IN, A DISTRIBUTION (WITHIN THE MEANING OF THE SECURITIES ACT) OF SUCH
NEW NOTES. BY TENDERING OLD NOTES PURSUANT TO THE EXCHANGE OFFER AND EXECUTING
THIS LETTER OF TRANSMITTAL, A HOLDER OF OLD NOTES WHICH IS A BROKER-DEALER
ADDITIONALLY REPRESENTS AND AGREES, CONSISTENT WITH CERTAIN INTERPRETIVE
LETTERS ISSUED BY THE STAFF OF THE DIVISION OF CORPORATION FINANCE OF THE
SECURITIES AND EXCHANGE COMMISSION TO THIRD PARTIES, THAT SUCH OLD NOTES WERE
ACQUIRED BY SUCH BROKER-DEALER FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-
MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES (SUCH A BROKER-DEALER WHICH IS
TENDERING OLD NOTES IS HEREIN REFERRED TO AS A "PARTICIPATING BROKER-DEALER")
AND IT WILL DELIVER THE PROSPECTUS (AS AMENDED OR SUPPLEMENTED FROM TIME TO
TIME) MEETING THE REQUIREMENTS OF THE SECURITIES ACT IN CONNECTION WITH ANY
RESALE OF SUCH NEW NOTES (PROVIDED THAT, BY SO ACKNOWLEDGING AND BY DELIVERING
A PROSPECTUS, SUCH PARTICIPATING BROKER-DEALER WILL NOT BE DEEMED TO ADMIT
THAT IT IS AN "UNDERWRITER" WITHIN THE MEANING OF THE SECURITIES ACT).
THE COMPANY HAS AGREED THAT, SUBJECT TO THE PROVISIONS OF THE REGISTRATION
RIGHTS AGREEMENT, THE PROSPECTUS, AS IT MAY BE AMENDED OR SUPPLEMENTED FROM
TIME TO TIME, MAY BE USED BY A PARTICIPATING BROKER-DEALER IN CONNECTION WITH
RESALES OF NEW NOTES RECEIVED IN EXCHANGE FOR OLD NOTES, WHERE SUCH OLD NOTES
WERE ACQUIRED BY SUCH PARTICIPATING BROKER-DEALER FOR ITS OWN ACCOUNT AS A
RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES, FOR A PERIOD
ENDING 180 DAYS AFTER THE EXCHANGE OFFER HAS BEEN COMPLETED, OR IF EARLIER,
WHEN ALL SUCH PARTICIPATING BROKER-DEALERS NO LONGER OWN ANY TRANSFER
RESTRICTED SECURITIES. IN THAT REGARD, EACH PARTICIPATING BROKER-DEALER, BY
TENDERING SUCH OLD NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL, AGREES TO
NOTIFY THE COMPANY PRIOR TO USING THE PROSPECTUS IN CONNECTION WITH THE SALE
OF TRANSFER OF NEW NOTES AND ACKNOWLEDGES AND AGREES THAT, UPON RECEIPT OF
NOTICE FROM THE COMPANY OF THE OCCURRENCE OF ANY EVENT OR THE DISCOVERY OF ANY
FACT WHICH MAKES ANY STATEMENT CONTAINED OR INCORPORATED BY REFERENCE IN THE
PROSPECTUS UNTRUE IN ANY MATERIAL RESPECT OR WHICH CAUSES THE PROSPECTUS TO
OMIT TO STATE A MATERIAL FACT NECESSARY IN ORDER TO MAKE THE STATEMENTS
CONTAINED THEREIN, IN LIGHT OF THE CIRCUMSTANCES UNDER WHICH THEY WERE MADE,
NOT MISLEADING OR OF THE OCCURRENCE OF
3
<PAGE>
CERTAIN OTHER EVENTS SPECIFIED IN THE REGISTRATION RIGHTS AGREEMENT, SUCH
PARTICIPATING BROKER-DEALER WILL SUSPEND THE SALE OF NEW NOTES PURSUANT TO THE
PROSPECTUS UNTIL THE COMPANY HAS AMENDED OR SUPPLEMENTED THE PROSPECTUS TO
CORRECT SUCH MISSTATEMENT OR OMISSION AND HAS FURNISHED COPIES OF THE AMENDED
OR SUPPLEMENTED PROSPECTUS TO THE PARTICIPATING BROKER-DEALER OR THE COMPANY
HAS GIVEN NOTICE THAT THE SALE OF THE NEW NOTES MAY BE RESUMED, AS THE CASE
MAY BE.
EACH PARTICIPATING BROKER-DEALER SHOULD CHECK THE BOX HEREIN UNDER THE
CAPTION "PARTICIPATING BROKER-DEALER" (BOX 5 HEREOF) IN ORDER TO RECEIVE
ADDITIONAL COPIES OF THE PROSPECTUS, AND ANY AMENDMENTS AND SUPPLEMENTS
THERETO, FOR USE IN CONNECTION WITH RESALES OF THE NEW NOTES, AS WELL AS ANY
NOTICES FROM THE COMPANY TO SUSPEND AND RESUME USE OF THE PROSPECTUS. BY
TENDERING ITS OLD NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL, EACH
PARTICIPATING BROKER-DEALER AGREES TO USE ITS REASONABLE BEST EFFORTS TO
NOTIFY THE COMPANY OR THE U.S. EXCHANGE AGENT WHEN IT HAS SOLD ALL OF ITS NEW
NOTES. IF NO PARTICIPATING BROKER-DEALERS CHECK SUCH BOX, OR IF ALL
PARTICIPATING BROKER-DEALERS WHO HAVE CHECKED SUCH BOX SUBSEQUENTLY NOTIFY THE
COMPANY OR THE U.S. EXCHANGE AGENT THAT ALL THEIR NEW NOTES HAVE BEEN SOLD,
THE COMPANY WILL NOT BE REQUIRED TO MAINTAIN THE EFFECTIVENESS OF THE EXCHANGE
OFFER REGISTRATION STATEMENT OR TO UPDATE THE PROSPECTUS AND WILL NOT PROVIDE
ANY HOLDERS WITH ANY NOTICE TO SUSPEND OR RESUME USE OF THE PROSPECTUS.
Each New note will bear interest from the most recent date to which
interest has been paid or duly provided for on the Old Note surrendered in
exchange for such New Note or, if no such interest has been paid or duly
provided for on such Old Note, from December 8, 1999, the date of issuance of
the Old Notes. Holders of the Old Notes whose Old Notes are accepted for
exchange will not receive accrued interest on such Old Notes for any period
from and after the last Interest Payment Date to which interest has been paid
or duly provided for on such Old Notes prior to the original issue date of the
New Notes or, if no such interest has been paid or duly provided for, will not
receive any accrued interest on such Old Notes, and will be deemed to have
waived the right to receive any interest on such Old Notes accrued from and
after such Interest Payment Date or, if no such interest has been paid or duly
provided for, from and after December 8, 1999.
The undersigned understands that the delivery and surrender of the Old
Notes is not effective, and the risk of loss of the Old Notes does not pass to
the U.S. Exchange Agent, until receipt by the U.S. Exchange Agent of this
Letter of Transmittal, or a manually signed facsimile hereof, properly
completed and duly executed, with any required signature guarantees, together
with all accompanying evidences of authority and any other required documents
in form satisfactory to the Company. All questions as to form of all documents
and the validity (including time or receipt) and acceptance of tenders and
withdrawals of Old Notes will be determined by the Company, in its sole
discretion, which determination shall be final and binding.
All authority herein conferred or agreed to be conferred in this Letter of
Transmittal shall survive the death or incapacity of the undersigned and any
obligation of the undersigned hereunder shall be binding upon the heirs,
executors, administrators, personal representatives, trustees in bankruptcy,
legal representatives, successors and assigns of the undersigned. Except
pursuant to the withdrawal rights set forth in the Prospectus, this tender is
irrevocable.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE COMPLETING
THE BOXES BELOW AND FOLLOW THE INSTRUCTIONS BEGINNING ON PAGE 9 HEREOF.
THE EXCHANGE OFFER IS NOT BEING MADE TO (NOR WILL TENDERS OF OLD NOTES BE
ACCEPTED FROM OR ON BEHALF OF) HOLDERS IN ANY JURISDICTION IN WHICH THE MAKING
OR ACCEPTANCE OF THE EXCHANGE OFFER WOULD NOT BE IN COMPLIANCE WITH THE LAWS
OF SUCH JURISDICTION.
Your bank or broker can assist you in completing this form. The
instructions included with this Letter of Transmittal must be followed.
Questions and requests for assistance or for additional copies of the
Prospectus, this Letter of Transmittal and the Notice of Guaranteed Delivery
may be directed to the U.S. Exchange Agent, whose address and telephone number
appear on the front cover of this Letter of Transmittal. See Instruction 8
below.
4
<PAGE>
ALL TENDERING HOLDERS COMPLETE THIS BOX 1:
- --------------------------------------------------------------------------------
BOX 1
DESCRIPTION OF OLD NOTES TENDERED
(See Instructions 3 and 4 below)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
If Blank, Please Print Name(s) and Address(es)
of Registered Holder(s), Exactly as Name(s) Certificate Principal Amount
Appear(s) Number(s)* of Principal Amount of Old Notes
on Old Note Certificate(s): Old Notes* of Old Notes Tendered**
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total Principal Total Principal
Amount Amount Tendered
- -----------------------------------------------------------------------------------------------------
$ $
</TABLE>
- --------------------------------------------------------------------------------
* Need not be completed by book-entry holders.
** Old Notes may be tendered in whole or in part in denominations of $1,000
and integral multiples thereof. All Old Notes held shall be deemed
tendered unless a lesser number is specified in this column. See
Instruction 4.
BOX 2
BOOK-ENTRY TRANSFER
(See Instruction 1 below)
- --------------------------------------------------------------------------------
[_]CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE U.S. EXCHANGE AGENT WITH
DTC AND COMPLETE THE FOLLOWING:
Name of Tendering Institution ______________________________________________
DTC Account Number _________________________________________________________
Transaction Code Number ____________________________________________________
5
<PAGE>
BOX 3
NOTICE OF GUARANTEED DELIVERY
(See Instruction 1 below)
- --------------------------------------------------------------------------------
[_]CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY
IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE U.S. EXCHANGE AGENT AND
COMPLETE THE FOLLOWING:
Name of Registered Holder(s) _______________________________________________
Window Ticket Number (if any) ______________________________________________
Date of Execution of Notice of Guaranteed Delivery _________________________
Name of Institution which Guaranteed Delivery ______________________________
If Guaranteed Delivery is to be made By Book-Entry Transfer:
Name of Tendering Institution ______________________________________________
DTC Account Number _________________________________________________________
Transaction Code Number ____________________________________________________
BOX 4
RETURN OF NON-EXCHANGED OLD NOTES TENDERED BY BOOK-ENTRY TRANSFER
(See Instructions 4 and 6 below)
- --------------------------------------------------------------------------------
[_]CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED OLD
NOTES ARE TO BE RETURNED BY CREDITING THE DTC ACCOUNT NUMBER SET FORTH
ABOVE.
BOX 5
PARTICIPATING BROKER-DEALER
- --------------------------------------------------------------------------------
[_]CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE OLD NOTES FOR ITS
OWN ACCOUNT AS A RESULT OF MARKET-MAKING OR OTHER TRADING ACTIVITIES (A
"PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE TEN ADDITIONAL COPIES
OF THE PROSPECTUS AND TEN COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name: ______________________________________________________________________
Address: ___________________________________________________________________
6
<PAGE>
BOX 6
TENDERING HOLDER SIGNATURE
Holder(s) Sign Here ________________________________________________________
(See Instructions 2, 5 and 6 below)
(Please Complete Substitute Form W-9 in Box 9 Below)
(Note: Signature(s) Must Be Guaranteed If Required by Instruction 2)
Must be signed by registered holder(s) exactly as name(s) appear(s) on
Certificate(s) for the Old Notes hereby tendered or on a security position
listing, or by a person(s) authorized to become the registered holder(s) by
endorsements and documents transmitted herewith (including such opinions of
counsel, certifications and other information as may be required by the
Company or the Trustee for the Old Notes to comply with the restrictions on
transfer applicable to the Old Notes). If signature is by an attorney-in-
fact, executor, administrator, trustee, guardian, officer of a corporation
or another acting in a fiduciary capacity or representative capacity,
please set forth the signer's full title. See Instruction 5 below.
--------------------------------------
(Signature(s) of Holder(s))
Date __________________, 2000
Name(s) ____________________________________________________________________
(Please Print)
Address ____________________________________________________________________
(Include Zip Code)
Area Code and Telephone Number _____________________________________________
(Tax Identification or Social Security Number(s)) __________________________
GUARANTEE OF SIGNATURE(S)
(See Instructions 1, 2 and 5 below)
--------------------------------------
Authorized Signature
Name _______________________________________________________________________
(Please Print)
Date __________________, 2000
Capacity or Title __________________________________________________________
Name of Firm _______________________________________________________________
Address ____________________________________________________________________
(Include Zip Code)
Area Code and Telephone Number _____________________________________________
7
<PAGE>
BOX 7 BOX 8
SPECIAL DELIVERY INSTRUCTIONS
SPECIAL EXCHANGE INSTRUCTIONS (See Instructions 1, 5 and 6
(See Instructions 1, 5 and 6 below)
below)
To be completed ONLY if New
To be completed ONLY if the New Notes are to be sent to someone
Notes are to be issued in the other than the registered holder
name of someone other than the of the Old Notes whose name(s)
registered holder of the Old appear(s) above, or to such reg-
Notes whose name(s) appear(s) istered holder(s) at an address
above. other than that shown above.
Issue New Notes to: Mail New Notes to:
Name _____________________________ Name______________________________
(Please Print) (Please Print)
Address __________________________ Address __________________________
__________________________________ __________________________________
(Include Zip Code) (Include Zip Code)
__________________________________ __________________________________
(Tax Identification or Social (Tax Identification or Social
Security Number) Security Number)
BOX 9
SUBSTITUTE FORM W-9
TO BE COMPLETED BY ALL TENDERING SECURITYHOLDERS
(SEE INSTRUCTION 9 BELOW)
SIGN THIS SUBSTITUTE FORM W-9 IN ADDITION TO THE SIGNATURE(S) REQUIRED IN BOX 6
- --------------------------------------------------------------------------------
PAYER'S NAME: CHASE MANHATTAN BANK AND TRUST COMPANY, NATIONAL ASSOCIATION
- --------------------------------------------------------------------------------
Part I--Please provide your TIN
SUBSTITUTE (either your social security number ---------------
Form W-9 or employer identification number) TIN
in the box to the right and certify
by signing and dating below.
--------------------------------------------------------
Part II--Awaiting TIN
Department of the Treasury
Sign this form and the certification of awaiting
taxpayer identification number below.
Internal Revenue Service
Payer's Request
for Taxpayer Part III--EXEMPT
Identification See enclosed Guidelines or additional information and
Number (TIN) and SIGN THIS FORM.
Certification --------------------------------------------------------
(1) The number shown on this form is my correct
taxpayer identification number (or I am waiting
for a number to be issued to me); and
Certification--Under penalties of perjury, I certify
that:
(2) I am not subject to backup withholding because
(i) I am exempt from backup withholding, or (ii)
I have not been notified by the Internal Revenue
Service (IRS) that I am subject to backup with-
holding as a result of a failure to report all
interest or dividends, or (iii) the IRS has noti-
fied me that I am no longer subject to backup
withholding.
(3) Any other information provided on this form
is correct.
--------------------------------------------------------
Certification instructions--You must cross out item
(iii) in Part (2) above if you have been notified by
the IRS that you are subject to backup withholding
because of underreporting interest or dividends on
your tax return and you are no longer subject to
backup withholding.
Signature ________________________________ Date
8
<PAGE>
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE
IF YOU CHECKED THE BOX IN PART 2 OF THE SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification
number has not been issued to me, and either (1) I have mailed or delivered
an application to receive a taxpayer identification number to the
appropriate Internal Revenue Service Center or Social Security
Administration Office or (2) I intend to mail or deliver an application in
the near future. I understand that if I do not provide a taxpayer
identification number by the time of payment, 31% of all payments made to
me on account of the New Notes shall be retained until I provide a taxpayer
identification number to the U.S. Exchange Agent and that, if I do not
provide my taxpayer identification number within 60 days, such retained
amounts shall be remitted to the Internal Revenue Service as backup
withholding and 31% of all reportable payments made to me thereafter will
be withheld and remitted to the Internal Revenue Service until I provide a
taxpayer identification number.
Signature: _________________________________________________________________
Date: ______________________________________________________________________
NOTE: FAILURE TO COMPLETE AND RETURN THIS SUBSTITUTE FORM W-9 MAY RESULT IN
BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU. PLEASE REVIEW
THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER FOR ADDITIONAL INFORMATION.
INSTRUCTIONS TO LETTER OF TRANSMITTAL
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
General
Please do not send Certificates for Old Notes directly to the Company. Your
Old Note Certificates, together with your signed and completed Letter of
Transmittal and any required supporting documents should be mailed in the
enclosed addressed envelope, or otherwise delivered, to the U.S. Exchange
Agent, at either of the addresses indicated on the first page hereof. THE
METHOD OF DELIVERY OF CERTIFICATES, THIS LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING HOLDER AND
THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE U.S.
EXCHANGE AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT
REQUESTED, PROPERLY INSURED, OR OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN
ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED DELIVERY
PROCEDURES
This Letter of Transmittal is to be completed if either (a) Certificates
are to be forwarded herewith or (b) tenders are to be made pursuant to the
procedures for tender by book-entry transfer set forth in "The Exchange
Offer--Procedures for Tendering Old Notes" in the Prospectus. Certificates, or
timely confirmation of a book-entry transfer of such Old Notes into the U.S.
Exchange Agent's account at DTC, as well as this Letter of Transmittal (or
facsimile thereof), properly completed and duly executed, with any required
signature guarantees, and any other documents required by this Letter of
Transmittal, must be received by the U.S. Exchange Agent at its address set
forth herein on or prior to 5:00 p.m., New York City time (10:00 p.m., London
Time), on the Expiration Date. Old Notes may be tendered in whole or in part
in the principal amount of $1,000 and integral multiples of $1,000.
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver their Old Notes, this Letter
of Transmittal and all other required documents to the U.S. Exchange Agent on
or prior to the Expiration Date or (iii) who cannot complete the procedures
for delivery by book-entry transfer on a timely basis,
9
<PAGE>
may tender their Old Notes by properly completing and duly executing a Notice
of Guaranteed Delivery pursuant to the guaranteed delivery procedures set
forth in "The Exchange Offer--Procedures for Tendering Old Notes" in the
Prospectus and by completing Box 3 hereof. Pursuant to such procedures: (i)
such tender must be made by or through an Eligible Institution (as defined
below); (ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form made available by the Company, must be
received by the U.S. Exchange Agent on or prior to the Expiration Date; and
(iii) the Certificates (or a book-entry confirmation (as defined in the
Prospectus)) representing all tendered Old Notes, in proper form for transfer,
together with a Letter of Transmittal (or facsimile thereof), properly
completed and duly executed, with any required signature guarantees and any
other documents required by this Letter of Transmittal, must be received by
the U.S. Exchange Agent within three New York Stock Exchange trading days
after the date of execution of such Notice of Guaranteed Delivery, all as
provided in "The Exchange Offer--Procedures for Tendering Old Notes" in the
Prospectus.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted
by facsimile or mail to the U.S. Exchange Agent, and must include a guarantee
by an Eligible Institution in the form set forth in such Notice. For Old Notes
to be properly tendered pursuant to the guaranteed delivery procedure, the
U.S. Exchange Agent must receive a Notice of Guaranteed Delivery on or prior
to the Expiration Date. As used herein, "Eligible Institution" means a firm or
other entity identified in Rule 17Ad-15 under the Exchange Act as "an eligible
guarantor institution," including (as such terms are defined therein) (i) a
bank; (ii) a broker, dealer, municipal securities broker or dealer or
government securities broker or dealer; (iii) a credit union; (iv) a national
securities exchange, registered securities association or clearing agency; or
(v) a savings association, that is a participant in the Securities Transfer
Agents Medallion Program, the New York Stock Exchange Medallion Signature
Program or the Stock Exchange Medallion Program.
The Company will not accept any alternative, conditional or contingent
tenders. Each tendering holder, by execution of a Letter of Transmittal (or
facsimile thereof), waives any right to receive any notice of the acceptance
of such tender.
2. GUARANTEE OF SIGNATURES
No signature guarantee on this Letter of Transmittal is required if:
(i) this Letter of Transmittal is signed by the registered holder (which
term, for purposes of this document, shall include any participant in DTC
whose name appears on a security position listing as the owner of the Old
Notes) of Old Notes tendered herewith, unless such holder(s) has completed
either the box entitled "Special Exchange Instructions" (Box 7) or the box
entitled "Special Delivery Instructions" (Box 8) above, or
(ii) such Old Notes are tendered for the account of a firm that is an
Eligible Institution.
In all other cases, an Eligible Institution must guarantee the signature(s)
on this Letter of Transmittal (Box 6). See Instruction 5.
3. INADEQUATE SPACE
If the space provided in the box captioned "Description of Old Notes" is
inadequate, the Certificate number(s) and/or the principal amount of Old Notes
and any other required information should be listed on a separate signed
schedule which should be attached to this Letter of Transmittal.
4. PARTIAL TENDERS AND WITHDRAWAL RIGHTS
Tenders of Old Notes will be accepted only in the principal amount of
$1,000 and integral multiples thereof. If less than all the Old Notes
evidenced by any Certificate submitted are to be tendered, fill in the
principal amount of Old Notes which are to be tendered in Box 1 under the
column "Principal Amount of Old Notes Tendered". In such case, new
Certificate(s) for the remainder of the Old Notes that were evidenced by your
Old Notes Certificate(s) will only be sent to the holder of the Old Notes,
promptly after the Expiration Date. All Old Notes represented by Certificates
delivered to the U.S. Exchange Agent will be deemed to have been tendered
unless otherwise indicated.
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time on or prior to the Expiration Date. In order for a withdrawal to
be effective on or prior to that time, a written, telegraphic, telex or
facsimile transmission
10
<PAGE>
of such notice of withdrawal must be timely received by the U.S. Exchange
Agent at its address set forth above or in the Prospectus on or prior to the
Expiration Date. Any such notice of withdrawal must specify the name of the
person who tendered the Old Notes to be withdrawn, the aggregate principal
amount of Old Notes to be withdrawn, and (if Certificates for such Old Notes
have been tendered) the name of the registered holder of the Old Notes as set
forth on the Certificate for the Old Notes, if different from that of the
person who tendered such Old Notes. If Certificates for the Old Notes have
been delivered or otherwise identified to the U.S. Exchange Agent, then prior
to the physical release of such Certificates for the Old Notes, the tendering
holder must submit the serial numbers shown on the particular Certificates for
the Old Notes to be withdrawn and the signature on the notice of withdrawal
must be guaranteed by an Eligible Institution, except in the case of Old Notes
tendered for the account of an Eligible Institution. If Old Notes have been
tendered pursuant to the procedures for book-entry transfer set forth in "The
Exchange Offer--Procedures for Tendering Old Notes," the notice of withdrawal
must specify the name and number of the account at DTC to be credited with the
withdrawal of Old Notes, in which case a notice of withdrawal will be
effective if delivered to the U.S. Exchange Agent by written, telegraphic,
telex or facsimile transmission. Withdrawals of tenders of Old Notes may not
be rescinded. Old Notes properly withdrawn will not be deemed validly tendered
for purposes of the U.S. Exchange Offer, but may be retendered at any
subsequent time on or prior to the Expiration Date by following any of the
procedures described in the Prospectus under "The Exchange Offer--Procedures
for Tendering Old Notes."
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Company, in its
sole discretion, whose determination shall be final and binding on all
parties. Neither the Company, any affiliates or assigns of the Company, the
U.S. Exchange Agent nor any other person shall be under any duty to give any
notification of any irregularities in any notice of withdrawal or incur any
liability for failure to give such notification. Any Old Notes which have been
tendered but which are withdrawn will be returned to the holder thereof
without cost to such holder promptly after withdrawal.
5. SIGNATURES ON LETTER OF TRANSMITTAL, ASSIGNMENTS AND ENDORSEMENTS
If this Letter of Transmittal is signed by the registered holder(s) of the
Old Notes tendered hereby, the signature(s) must correspond exactly with the
name(s) as written on the face of the Certificate(s) without alteration,
enlargement or any change whatsoever.
If any of the Old Notes tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If any tendered Old Notes are registered in different name(s) on several
Certificates, it will be necessary to complete, sign and submit as many
separate Letters of Transmittal (or facsimiles thereof) as there are different
registrations of Certificates.
If this Letter of Transmittal or any Certificates or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity,
such persons should so indicate when signing and, unless waived by the
Company, must submit proper evidence satisfactory to the Company, in its sole
discretion, of such persons' authority to so act.
When this Letter of Transmittal is signed by the registered owner(s) of the
Old Notes listed and transmitted hereby, no endorsement(s) of Certificate(s)
or separate bond power(s) are required unless New Notes are to be issued in
the name of a person other than the registered holder(s). However, if New
Notes are to be issued in the name of a person other than the registered
holder(s), signature(s) on such Certificate(s) or bond power(s) must be
guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered owner(s) of the Old Notes listed, the certificates must be endorsed
or accompanied by appropriate bond powers, signed exactly as the name or names
of the registered owner(s) appear(s) on the Certificates, and also must be
accompanied by such opinions of counsel, certifications and other information
as the Company or the Trustee for the Old Notes may require in accordance with
the restrictions on transfer applicable to the Old Notes. Signatures on such
Certificates or bond powers must be guaranteed by an Eligible Institution.
11
<PAGE>
6. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS
If New Notes are to be issued in the name of a person other than the signer
of this Letter of Transmittal, or if New Notes are to be sent to someone other
than the signer of this Letter of Transmittal or to an address other than that
shown above, the appropriate boxes on this Letter of Transmittal should be
completed (Box 7 and 8). Certificates for Old Notes not exchanged will be
returned by mail or, if tendered by book-entry transfer, by crediting the
account indicated above maintained at DTC. See Instruction 4.
7. DETERMINATION OF VALIDITY
The Company will determine, in its sole discretion, all questions as to the
form of documents, validity, eligibility (including time of receipt) and
acceptance for exchange of any tender of Old Notes, which determination shall
be final and binding on all parties. The Company reserves the absolute right
to reject any and all tenders determined by it not to be in proper form or the
acceptance of which, or exchange for, may, in the view of counsel to the
Company, be unlawful. The Company also reserves the absolute right, subject to
applicable law, to waive any of the conditions of the Exchange Offer set forth
in the Prospectus under "The Exchange Offer--Conditions to the Exchange Offer"
or any conditions or irregularity in any tender of Old Notes of any particular
holder whether or not similar conditions or irregularities are waived in the
case of other holders.
The Company's interpretation of the terms and conditions of the Exchange
Offer (including this Letter of Transmittal and the instructions hereto) will
be final and binding. No tender of Old Notes will be deemed to have been
validly made until all irregularities with respect to such tender have been
cured or waived. Neither the Company, any affiliates or assigns of the
Company, the U.S. Exchange Agent, nor any other person shall be under any duty
to give notification of any irregularities in tenders or incur any liability
for failure to give such notification.
8. QUESTIONS, REQUESTS FOR ASSISTANCE AND ADDITIONAL COPIES
Questions and requests for assistance may be directed to the U.S. Exchange
Agent at its address and telephone number set forth on the front of this
Letter of Transmittal. Additional copies of the Prospectus, the Notice of
Guaranteed Delivery and the Letter of Transmittal may be obtained from the
U.S. Exchange Agent.
9. 31% BACKUP WITHHOLDING; SUBSTITUTE FORM W-9
For U.S. Federal income tax purposes, holders are required, unless an
exemption applies, to provide the U.S. Exchange Agent with such holder's
correct taxpayer identification number ("TIN") on Substitute Form W-9 of this
Letter of Transmittal (Box 9) and certify, under penalties of perjury, that
such number is correct and he or she is not subject to backup withholding. If
the U.S. Exchange Agent is not provided with the correct TIN, the Internal
Revenue Service (the "IRS") may subject the holder or other payee to a $50
penalty. In addition, payments to such holders or other payees with respect to
Old Notes exchanged pursuant to the Exchange Offer, or with respect to New
Notes following the Exchange Offer, may be subject to 31% backup withholding.
The box in Part 2 of the Substitute Form W-9 (Box 9) may be checked if the
tendering holder has not been issued a TIN and has applied for a TIN or
intends to apply for a TIN in the near future. If the box in Part 2 is
checked, the holder or other payee must also complete the Certificate of
Awaiting Taxpayer Identification Number below Substitute Form W-9 in order to
avoid backup withholding. Notwithstanding that the box in Part 2 is checked
and the Certificate of Awaiting Taxpayer Identification Number is completed,
the U.S. Exchange Agent will withhold 31% of all payments made prior to the
time a properly certified TIN is provided to the U.S. Exchange Agent.
The holder is required to give the U.S. Exchange Agent the TIN (i.e.,
social security number or employer identification number) of the registered
owner of the Old Notes or of the last transferee appearing on the transfers
attached to, or endorsed on, the Old Notes. If the Old Notes are registered in
more than one name or are not in the name of the actual owner, consult the
enclosed "Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9" for additional guidance on which number to report.
12
<PAGE>
Certain holders (including, among others, corporations, financial
institutions and certain foreign persons) may not be subject to these backup
withholding and reporting requirements. Such holders should nevertheless
complete the attached Substitute Form W-9 below and check the box in Part 3 of
Box 9 for "exempt", to avoid possible erroneous backup withholding. A foreign
person may qualify as an exempt recipient by submitting a properly completed
IRS Form W-8, signed under penalties of perjury, attesting to that holder's
exempt status. Please consult the enclosed "Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9" for additional guidance
on which holders are exempt from backup withholding.
Backup withholding is not an additional U.S. Federal income tax. Rather,
the U.S. Federal income tax liability of a person subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained.
10. LOST, DESTROYED OR STOLEN CERTIFICATES
If any Certificate(s) representing Old Notes have been lost, destroyed or
stolen, the holder should promptly notify the U.S. Exchange Agent. The holder
will then be instructed as to the steps that must be taken in order to replace
the Certificate(s). This Letter of Transmittal and related documents cannot be
processed until the procedures for replacing lost, destroyed or stolen
Certificate(s) have been followed.
11. SECURITY TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to
pay any transfer taxes in connection therewith. If, however, New Notes are to
be delivered to, or are to be issued in the name of, any person other than the
registered holder of the Old Notes tendered, or if a transfer tax is imposed
for any reason other than the exchange of Old Notes in connection with the
Exchange Offer, then the amount of any such transfer tax (whether imposed on
the registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted with the Letter of Transmittal, the amount of such
transfer taxes will be billed directly to such tendering holder.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE THEREOF) AND ALL OTHER
REQUIRED DOCUMENTS MUST BE RECEIVED BY THE U.S. EXCHANGE AGENT ON OR PRIOR TO
THE EXPIRATION DATE.
13
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
A. TIN--The Taxpayer Identification Number for most individuals is their
social security number. Refer to the following chart to determine the
appropriate number:
<TABLE>
- --------------------------------------------
<CAPTION>
Give the
For this type of SOCIAL SECURITY
account: number of--
- --------------------------------------------
<S> <C>
1. Individual The individual
2. Two or more The actual owner of
individuals (joint the account or, if
account) combined funds, the
first individual on
the account(1)
3. Custodian account of The minor(2)
a minor (Uniform
Gift to Minors Act)
4.a. The usual The grantor-
revocable savings trustee(1)
trust (grantor is
also trustee)
b. So-called trust The actual owner(1)
account that is not
a legal or valid
trust under State
law
5. Sole proprietorship The owner(3)
- --------------------------------------------
</TABLE>
<TABLE>
-
<CAPTION>
Give the EMPLOYER
For this type of IDENTIFICATION
account: number of--
-
<S> <C>
6. Sole proprietorship The owner(3)
7. A valid trust, Legal entity(4)
estate or pension
trust
8. Corporate The corporation
9. Association, club, The organization
religious,
charitable,
educational or
other tax-exempt
organization
10. Partnership The partnership
11. A broker or The broker or
registered nominee nominee
12. Account with the The public entity
Department of
Agriculture
-
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's name and social security
number.
(3) Show the individual's name. You may also enter your business name or
"doing business as" name. You may use either your Social Security number
or your employer identification number.
(4) List first and circle the name of the legal trust, estate, or pension
trust.
Note: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
B. EXEMPT PAYEES--The following lists exempt payees. If you are exempt, you
must nonetheless complete the form and provide your TIN in order to establish
that you are exempt. Check the box in Part 3 of the form, sign and date
the form.
For this purpose, Exempt Payees include: (1) A corporation; (2) An
organization exempt from tax under section 501(a), or an individual retirement
plan (IRA) or a custodial account under section 403(b)(7); (3) The United
States or any of its agencies or instrumentalities; (4) A state, the District
of Columbia, a possession of the United States, or any of their political
subdivisions or instrumentalities; (5) A foreign government or any of its
political subdivisions, agencies or instrumentalities; (6) An international
organization or any of its agencies or instrumentalities; (7) A foreign
central bank of issue; (8) A dealer in securities or commodities required to
register in the U.S. or a possession of the U.S.; (9) A real estate investment
trust; (10) An entity or person registered at all times during the tax year
under the Investment Company Act of 1940; (11) A common trust fund operated by
a bank under section 584(a); (12) A financial institution.
C. OBTAINING A NUMBER--If you do not have a taxpayer identification number
or you do not know your number, obtain Form SS-5, application for a Social
Security Number, or Form SS-4, Application for Employer Identification Number,
at the local office of the Social Security Administration or the Internal
Revenue Service and apply for a number.
D. PRIVACY ACT NOTICE--Section 6109 requires most recipients of dividend,
interest or other payments to give taxpayer identification numbers to payers
who must report the payments to the IRS. The IRS uses the numbers for
identification purposes. Payers must be given the numbers whether or not
payees are required to file tax returns. Payers must generally withhold 31% of
taxable interest, dividend, and certain other payments to a payee who does not
furnish a taxpayer identification number. Certain penalties may also apply.
14
<PAGE>
E. PENALTIES
(1) Penalty for Failure to Furnish Taxpayer Identification Number. If you
fail to furnish your taxpayer identification number to a payer, you are
subject to a penalty of $50 for each such failure unless your failure is due
to reasonable cause and not to willful neglect.
(2) Failure to Report Certain Dividend and Interest Payments. If you fail
to include any portion of an includible payment for interest, dividends, or
patronage dividends in gross income, such failure will be treated as being due
to negligence and will be subject to a penalty of 5% on any portion of an
under-payment attributable to that failure unless there is clear and
convincing evidence to the contrary.
(3) Civil Penalty for False Information with Respect to Withholding. If
you make a false statement with no reasonable basis which results in no
imposition of backup withholding, you are subject to a penalty of $500.
(4) Criminal Penalty for Falsifying Information. Falsifying certifications
or affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL
REVENUE SERVICE.
15
<PAGE>
LETTER OF TRANSMITTAL
FOR EURO-DENOMINATED NOTES OF
EXODUS COMMUNICATIONS, INC.
OFFER TO EXCHANGE ITS
NEW EURO-DENOMINATED 10 3/4% SENIOR NOTES DUE 2009
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR ANY AND ALL OF ITS OUTSTANDING UNREGISTERED EURO-DENOMINATED
10 3/4% SENIOR NOTES DUE 2009
PURSUANT TO THE PROSPECTUS DATED ______________ , 2000
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME (10:00 P.M. LONDON TIME) ON , 2000 (UNLESS EXTENDED BY
EXODUS COMMUNICATIONS, INC. IN ITS SOLE DISCRETION) (SUCH TIME AND SUCH
DATE, AND AS SUCH TIME AND DATE MAY BE EXTENDED, THE "EXPIRATION DATE").
If you desire to accept the Exchange Offer (as defined below), this Letter
of Transmittal should be completed, signed, and submitted to:
CHASE MANHATTAN BANK LONDON
Euro Exchange Agent
BY MAIL, OVERNIGHT DELIVERY OR HAND:
Chase Manhattan Bank London
[Address]
Attn: [ ]
(Exodus Communications Inc., 10 3/4% Senior Notes due 2009)
TO CONFIRM BY TELEPHONE OR FOR INFORMATION:
[Number]
FACSIMILE TRANSMISSIONS:
[Number]
(Originals of all documents sent by facsimile should be sent promptly by
hand, overnight courier or registered or certified mail.)
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE TO A
NUMBER OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS
LETTER OF TRANSMITTAL IS COMPLETED.
Capitalized terms used but not defined herein shall have the same meaning
given them in the Prospectus (as defined below).
This Letter of Transmittal is to be completed by holders of Old Notes (as
defined below) either if Old Notes are to be forwarded herewith or if tenders
of Old Notes are to be made by book-entry transfer to an account maintained by
Chase Manhattan Bank London (the "Euro Exchange Agent") at Euroclear or
Cedelbank, as applicable, pursuant to the procedures set forth in "The
Exchange Offer--Procedures for Tendering Old Notes" in the Prospectus.
Holders of Old Notes whose certificates (the "Certificates") for such Old
Notes are not immediately available or who cannot deliver their Certificates
and all other required documents to the Euro Exchange Agent on or prior to the
Expiration Date or who cannot complete the procedures for book-entry transfer
on a timely basis, must tender their Old Notes according to the guaranteed
delivery procedures set forth in "The Exchange Offer--Procedures for Tendering
Old Notes" in the Prospectus. See Instruction 1 hereto. DELIVERY OF DOCUMENTS
TO EUROCLEAR OR CEDELBANK DOES NOT CONSTITUTE DELIVERY TO THE EURO EXCHANGE
AGENT.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to Exodus Communications, Inc., a Delaware
corporation (the "Company"), the aggregate principal amount of the Company's
euro-denominated 10 3/4% Senior Notes due 2009 (the "Old Notes") described in
Box 1 below, in exchange for a like aggregate principal amount of the
Company's new euro-denominated 10 3/4% Senior Notes due 2009 (the "New Notes")
which have been registered under the Securities Act of 1933, as amended (the
"Securities Act"), upon the terms and subject to the conditions set forth in
the Prospectus dated , 2000 (as the same may be amended or supplemented
from time to time, the "Prospectus"), receipt of which is acknowledged, and in
this Letter of Transmittal (which, together with the Prospectus, constitutes
the "Exchange Offer").
Subject to, and effective upon, the acceptance for exchange of all or any
portion of the Old Notes tendered herewith in accordance with the terms and
conditions of the Exchange Offer (including, if the Exchange Offer is extended
or amended, the terms and conditions of any such extension or amendment), the
undersigned hereby sells, assigns and transfers to or upon the order of the
Company all right, title and interest in and to such Old Notes as are being
tendered herewith. The undersigned hereby irrevocably constitutes and appoints
Chase Manhattan Bank London as the Euro Exchange Agent (the "Euro Exchange
Agent") as its agent and attorney-in-fact (with full knowledge that the Euro
Exchange Agent is also acting as agent of the Company in connection with the
Exchange Offer) with respect to the tendered euro-denominated Old Notes, with
full power of substitution (such power of attorney being deemed to be an
irrevocable power coupled with an interest), subject only to the right of
withdrawal described in the Prospectus, to (i) deliver Certificates for Old
Notes to the Company together with all accompanying evidences of transfer and
authenticity to, or upon the order of, the Company, upon receipt by the Euro
Exchange Agent, as the undersigned's agent, of the New Notes to be issued in
exchange for such Old Notes, (ii) present Certificates for such Old Notes for
transfer, and to transfer the Old Notes on the books of the Company, and
(iii) receive for the account of the Company all benefits and otherwise
exercise all rights of beneficial ownership of such Old Notes, all in
accordance with the terms and conditions of the Exchange Offer.
THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT THE UNDERSIGNED HAS
FULL POWER AND AUTHORITY TO TENDER, EXCHANGE, SELL, ASSIGN AND TRANSFER THE
OLD NOTES TENDERED HEREBY AND THAT, WHEN THE SAME ARE ACCEPTED FOR EXCHANGE,
THE COMPANY WILL ACQUIRE GOOD, MARKETABLE AND UNENCUMBERED TITLE THERETO, FREE
AND CLEAR OF ALL LIENS, RESTRICTIONS, CHARGES AND ENCUMBRANCES, AND THAT THE
OLD NOTES TENDERED HEREBY ARE NOT SUBJECT TO ANY ADVERSE CLAIMS OR PROXIES.
THE UNDERSIGNED WILL, UPON REQUEST, EXECUTE AND DELIVER ANY ADDITIONAL
DOCUMENTS DEEMED BY THE COMPANY OR THE EURO EXCHANGE AGENT TO BE NECESSARY OR
DESIRABLE TO COMPLETE THE EXCHANGE, ASSIGNMENT AND TRANSFER OF THE OLD NOTES
TENDERED HEREBY, AND THE UNDERSIGNED WILL COMPLY WITH ITS OBLIGATIONS UNDER
THE REGISTRATION RIGHTS AGREEMENT. THE UNDERSIGNED HAS READ AND AGREES TO ALL
OF THE TERMS OF THE EXCHANGE OFFER.
The name(s) and address(es) of the registered holder(s) of the Old Notes
tendered hereby should be printed in Box 1 below, if they are not already set
forth below, as they appear on the Certificates representing such Old Notes.
The Certificate number(s) and the Old Notes that the undersigned wishes to
tender should be indicated in the appropriate box below.
If any tendered Old Notes are not exchanged pursuant to the Exchange Offer
for any reason, or if Certificates are submitted for more Old Notes than are
tendered or accepted for exchange, Certificates for such nonexchanged or
nontendered Old Notes will be returned (or, in the case of Old Notes tendered
by book-entry transfer, such Old Notes will be credited to an account
maintained at Euroclear or Cedelbank, as applicable), without expense to the
tendering holder, promptly following the expiration or termination of the
Exchange Offer.
The undersigned understands that tenders of Old Notes pursuant to any one
of the procedures described in "The Exchange Offer--Procedures for Tendering
Old Notes" in the Prospectus and in the instructions hereto will, upon the
Company's acceptance for exchange of such tendered Old Notes, constitute a
binding agreement between the undersigned and the Company upon the terms and
subject to the conditions of the Exchange Offer. The undersigned recognizes
that, under certain circumstances set forth in the Prospectus, the Company may
not be required to accept for exchange any of the Old Notes tendered hereby.
2
<PAGE>
Unless otherwise indicated herein in the box entitled "Special Exchange
Instructions" below (Box 7), the undersigned hereby directs that the New Notes
be issued in the name(s) of the undersigned or, in the case of a book-entry
transfer of Old Notes, that such New Notes be credited to the account
indicated below maintained at Euroclear or Cedelbank, as applicable. If
applicable, substitute Certificates representing Old Notes not exchanged or
not accepted for exchange will be issued to the undersigned or, in the case of
a book-entry transfer of Old Notes, will be credited to the account indicated
below maintained at Euroclear or Cedelbank, as applicable. Similarly, unless
otherwise indicated under "Special Delivery Instructions" (Box 8), please
deliver New Notes to the undersigned at the address shown below the
undersigned's signature.
THE EXCHANGE OFFER IS NOT BEING MADE TO ANY BROKER-DEALER WHO PURCHASED OLD
NOTES DIRECTLY FROM THE COMPANY FOR RESALE PURSUANT TO RULE 144A UNDER THE
SECURITIES ACT OR ANY PERSON THAT IS AN "AFFILIATE" OF THE COMPANY WITHIN THE
MEANING OF RULE 405 UNDER THE SECURITIES ACT. THE UNDERSIGNED UNDERSTANDS AND
AGREES THAT THE COMPANY RESERVES THE RIGHT NOT TO ACCEPT TENDERED OLD NOTES
FROM ANY TENDERING HOLDER IF THE COMPANY DETERMINES, IN ITS REASONABLE
DISCRETION, THAT SUCH ACCEPTANCE COULD RESULT IN A VIOLATION OF APPLICABLE
SECURITIES LAWS.
BY TENDERING OLD NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL, THE
UNDERSIGNED HEREBY REPRESENTS AND AGREES THAT (i) THE UNDERSIGNED IS NOT AN
"AFFILIATE" OF THE COMPANY, (ii) ANY NEW NOTES TO BE RECEIVED BY THE
UNDERSIGNED ARE BEING ACQUIRED IN THE ORDINARY COURSE OF ITS BUSINESS, (iii)
THE UNDERSIGNED HAS NO ARRANGEMENT OR UNDERSTANDING WITH ANY PERSON TO
PARTICIPATE IN A DISTRIBUTION (WITHIN THE MEANING OF THE SECURITIES ACT) OF
NEW NOTES TO BE RECEIVED IN THE EXCHANGE OFFER, AND (iv) IF THE UNDERSIGNED IS
NOT A BROKER-DEALER, THE UNDERSIGNED IS NOT ENGAGED IN, AND DOES NOT INTEND TO
ENGAGE IN, A DISTRIBUTION (WITHIN THE MEANING OF THE SECURITIES ACT) OF SUCH
NEW NOTES. BY TENDERING OLD NOTES PURSUANT TO THE EXCHANGE OFFER AND EXECUTING
THIS LETTER OF TRANSMITTAL, A HOLDER OF OLD NOTES WHICH IS A BROKER-DEALER
ADDITIONALLY REPRESENTS AND AGREES, CONSISTENT WITH CERTAIN INTERPRETIVE
LETTERS ISSUED BY THE STAFF OF THE DIVISION OF CORPORATION FINANCE OF THE
SECURITIES AND EXCHANGE COMMISSION TO THIRD PARTIES, THAT SUCH OLD NOTES WERE
ACQUIRED BY SUCH BROKER-DEALER FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-
MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES (SUCH A BROKER-DEALER WHICH IS
TENDERING OLD NOTES IS HEREIN REFERRED TO AS A "PARTICIPATING BROKER-DEALER")
AND IT WILL DELIVER THE PROSPECTUS (AS AMENDED OR SUPPLEMENTED FROM TIME TO
TIME) MEETING THE REQUIREMENTS OF THE SECURITIES ACT IN CONNECTION WITH ANY
RESALE OF SUCH NEW NOTES (PROVIDED THAT, BY SO ACKNOWLEDGING AND BY DELIVERING
A PROSPECTUS, SUCH PARTICIPATING BROKER-DEALER WILL NOT BE DEEMED TO ADMIT
THAT IT IS AN "UNDERWRITER" WITHIN THE MEANING OF THE SECURITIES ACT).
THE COMPANY HAS AGREED THAT, SUBJECT TO THE PROVISIONS OF THE REGISTRATION
RIGHTS AGREEMENT, THE PROSPECTUS, AS IT MAY BE AMENDED OR SUPPLEMENTED FROM
TIME TO TIME, MAY BE USED BY A PARTICIPATING BROKER-DEALER IN CONNECTION WITH
RESALES OF NEW NOTES RECEIVED IN EXCHANGE FOR OLD NOTES, WHERE SUCH OLD NOTES
WERE ACQUIRED BY SUCH PARTICIPATING BROKER-DEALER FOR ITS OWN ACCOUNT AS A
RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES, FOR A PERIOD
ENDING 180 DAYS AFTER THE EXCHANGE OFFER HAS BEEN COMPLETED, OR IF EARLIER,
WHEN ALL SUCH PARTICIPATING BROKER-DEALERS NO LONGER OWN ANY TRANSFER
RESTRICTED SECURITIES. IN THAT REGARD, EACH PARTICIPATING BROKER-DEALER, BY
TENDERING SUCH OLD NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL, AGREES TO
NOTIFY THE COMPANY PRIOR TO USING THE PROSPECTUS IN CONNECTION WITH THE SALE
OR TRANSFER OF NEW NOTES AND ACKNOWLEDGES AND AGREES THAT, UPON RECEIPT OF
NOTICE FROM THE COMPANY OF THE OCCURRENCE OF ANY EVENT OR THE DISCOVERY OF ANY
FACT WHICH MAKES ANY STATEMENT CONTAINED OR INCORPORATED BY REFERENCE IN THE
PROSPECTUS UNTRUE IN ANY MATERIAL RESPECT OR WHICH CAUSES THE PROSPECTUS TO
OMIT TO STATE A MATERIAL FACT NECESSARY IN ORDER TO MAKE THE STATEMENTS
CONTAINED THEREIN, IN LIGHT OF THE CIRCUMSTANCES UNDER WHICH THEY WERE MADE,
NOT MISLEADING OR OF THE OCCURRENCE OF
3
<PAGE>
CERTAIN OTHER EVENTS SPECIFIED IN THE REGISTRATION RIGHTS AGREEMENT, SUCH
PARTICIPATING BROKER- DEALER WILL SUSPEND THE SALE OF NEW NOTES PURSUANT TO
THE PROSPECTUS UNTIL THE COMPANY HAS AMENDED OR SUPPLEMENTED THE PROSPECTUS TO
CORRECT SUCH MISSTATEMENT OR OMISSION AND HAS FURNISHED COPIES OF THE AMENDED
OR SUPPLEMENTED PROSPECTUS TO THE PARTICIPATING BROKER-DEALER OR THE COMPANY
HAS GIVEN NOTICE THAT THE SALE OF THE NEW NOTES MAY BE RESUMED, AS THE CASE
MAY BE.
EACH PARTICIPATING BROKER-DEALER SHOULD CHECK THE BOX HEREIN UNDER THE
CAPTION "PARTICIPATING BROKER-DEALER" (BOX 5 HEREOF) IN ORDER TO RECEIVE
ADDITIONAL COPIES OF THE PROSPECTUS, AND ANY AMENDMENTS AND SUPPLEMENTS
THERETO, FOR USE IN CONNECTION WITH RESALES OF THE NEW NOTES, AS WELL AS ANY
NOTICES FROM THE COMPANY TO SUSPEND AND RESUME USE OF THE PROSPECTUS. BY
TENDERING ITS OLD NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL, EACH
PARTICIPATING BROKER-DEALER AGREES TO USE ITS REASONABLE BEST EFFORTS TO
NOTIFY THE COMPANY OR THE EURO EXCHANGE AGENT WHEN IT HAS SOLD ALL OF ITS NEW
NOTES. IF NO PARTICIPATING BROKER-DEALERS CHECK SUCH BOX, OR IF ALL
PARTICIPATING BROKER-DEALERS WHO HAVE CHECKED SUCH BOX SUBSEQUENTLY NOTIFY THE
COMPANY OR THE EURO EXCHANGE AGENT THAT ALL THEIR NEW NOTES HAVE BEEN SOLD,
THE COMPANY WILL NOT BE REQUIRED TO MAINTAIN THE EFFECTIVENESS OF THE EXCHANGE
OFFER REGISTRATION STATEMENT OR TO UPDATE THE PROSPECTUS AND WILL NOT PROVIDE
ANY HOLDERS WITH ANY NOTICES TO SUSPEND OR RESUME USE OF THE PROSPECTUS.
Each New note will bear interest from the most recent date to which
interest has been paid or duly provided for on the Old Note surrendered in
exchange for such New Note or, if no such interest has been paid or duly
provided for on such Old Note, from December 8, 1999, the date of issuance of
the Old Notes. Holders of the Old Notes whose Old Notes are accepted for
exchange will not receive accrued interest on such Old Notes for any period
from and after the last Interest Payment Date to which interest has been paid
or duly provided for on such Old Notes prior to the original issue date of the
New Notes or, if no such interest has been paid or duly provided for, will not
receive any accrued interest on such Old Notes, and will be deemed to have
waived the right to receive any interest on such Old Notes accrued from and
after such Interest Payment Date or, if no such interest has been paid or duly
provided for, from and after December 8, 1999.
The undersigned understands that the delivery and surrender of the Old
Notes is not effective, and the risk of loss of the Old Notes does not pass to
the Euro Exchange Agent, until receipt by the Euro Exchange Agent of this
Letter of Transmittal, or a manually signed facsimile hereof, properly
completed and duly executed, with any required signature guarantees, together
with all accompanying evidences of authority and any other required documents
in form satisfactory to the Company. All questions as to form of all documents
and the validity (including time of receipt) and acceptance of tenders and
withdrawals of Old Notes will be determined by the Company, in its sole
discretion, which determination shall be final and binding.
All authority herein conferred or agreed to be conferred in this Letter of
Transmittal shall survive the death or incapacity of the undersigned and any
obligation of the undersigned hereunder shall be binding upon the heirs,
executors, administrators, personal representatives, trustees in bankruptcy,
legal representatives, successors and assigns of the undersigned. Except
pursuant to the withdrawal rights set forth in the Prospectus, this tender is
irrevocable.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE COMPLETING
THE BOXES BELOW AND FOLLOW THE INSTRUCTIONS BEGINNING ON PAGE 9 HEREOF.
THE EXCHANGE OFFER IS NOT BEING MADE TO (NOR WILL TENDERS OF OLD NOTES BE
ACCEPTED FROM OR ON BEHALF OF) HOLDERS IN ANY JURISDICTION IN WHICH THE MAKING
OR ACCEPTANCE OF THE EXCHANGE OFFER WOULD NOT BE IN COMPLIANCE WITH THE LAWS
OF SUCH JURISDICTION.
Your bank or broker can assist you in completing this form. The
instructions included with this Letter of Transmittal must be followed.
Questions and requests for assistance or for additional copies of the
Prospectus, this Letter of Transmittal and the Notice of Guaranteed Delivery
may be directed to the Euro Exchange Agent, whose address and telephone number
appear on the front cover of this Letter of Transmittal. See Instruction 8
below.
4
<PAGE>
ALL TENDERING HOLDERS COMPLETE THIS BOX 1:
- --------------------------------------------------------------------------------
BOX 1
DESCRIPTION OF OLD NOTES TENDERED
(See Instructions 3 and 4 below)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
If Blank, Please Print Name(s) and Address(es)
of Registered Holder(s), Exactly as Name(s) Certificate Principal Amount
Appear(s) Number(s)* of Principal Amount of Old Notes
on Old Note Certificate(s): Old Notes* of Old Notes Tendered**
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total Principal Total Principal
Amount Amount Tendered
- -----------------------------------------------------------------------------------------------------
Euro Euro
</TABLE>
- --------------------------------------------------------------------------------
* Need not be completed by book-entry holders.
** Old Notes may be tendered in whole or in part in denominations of Euro
1,000 and integral multiples thereof. All Old Notes held shall be deemed
tendered unless a lesser number is specified in this column. See
Instruction 4.
BOX 2
BOOK-ENTRY TRANSFER
(See Instruction 1 below)
- --------------------------------------------------------------------------------
[_]CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EURO EXCHANGE AGENT WITH
EUROCLEAR OR CEDELBANK AND COMPLETE THE FOLLOWING:
Name of Tendering Institution ______________________________________________
Euroclear or Cedelbank Account Number ______________________________________
Transaction Code Number ____________________________________________________
5
<PAGE>
BOX 3
NOTICE OF GUARANTEED DELIVERY
(See Instruction 1 below)
- --------------------------------------------------------------------------------
[_]CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY
IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EURO EXCHANGE AGENT AND
COMPLETE THE FOLLOWING:
Name of Registered Holder(s) _______________________________________________
Window Ticket Number (if any) ______________________________________________
Date of Execution of Notice of Guaranteed Delivery _________________________
Name of Institution which Guaranteed Delivery ______________________________
If Guaranteed Delivery is to be made By Book-Entry Transfer:
Name of Tendering Institution ______________________________________________
Euroclear or Cedelbank Account Number ______________________________________
Transaction Code Number ____________________________________________________
BOX 4
RETURN OF NON-EXCHANGED OLD NOTES TENDERED BY BOOK-ENTRY TRANSFER
(See Instructions 4 and 6 below)
- --------------------------------------------------------------------------------
[_]CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED OLD
NOTES ARE TO BE RETURNED BY CREDITING THE EUROCLEAR OR CEDELBANK ACCOUNT
NUMBER SET FORTH ABOVE.
BOX 5
PARTICIPATING BROKER-DEALER
- --------------------------------------------------------------------------------
[_]CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE OLD NOTES FOR ITS
OWN ACCOUNT AS A RESULT OF MARKET-MAKING OR OTHER TRADING ACTIVITIES (A
"PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE TEN ADDITIONAL COPIES
OF THE PROSPECTUS AND TEN COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name: ______________________________________________________________________
Address: ___________________________________________________________________
6
<PAGE>
BOX 6
TENDERING HOLDER SIGNATURE
Holder(s) Sign Here ________________________________________________________
(See Instructions 2, 5 and 6 below)
(Please Complete Substitute Form W-9 in Box 9 Below)
(Note: Signature(s) Must Be Guaranteed If Required by Instruction 2)
Must be signed by registered holder(s) exactly as name(s) appear(s) on
Certificate(s) for the Old Notes hereby tendered or on a security position
listing, or by a person(s) authorized to become the registered holder(s) by
endorsements and documents transmitted herewith (including such opinions of
counsel, certifications and other information as may be required by the
Company or the Trustee for the Old Notes to comply with the restrictions on
transfer applicable to the Old Notes). If signature is by an attorney-in-
fact, executor, administrator, trustee, guardian, officer of a corporation
or another acting in a fiduciary capacity or representative capacity,
please set forth the signer's full title. See Instruction 5 below.
--------------------------------------
(Signature(s) of Holder(s))
Date __________________, 2000
Name(s) ____________________________________________________________________
(Please Print)
Address ____________________________________________________________________
(Include Zip Code)
Area Code and Telephone Number _____________________________________________
(Tax Identification or Social Security Number(s)) __________________________
GUARANTEE OF SIGNATURE(S)
(See Instructions 1, 2 and 5 below)
--------------------------------------
Authorized Signature
Name _______________________________________________________________________
(Please Print)
Date __________________, 2000
Capacity or Title __________________________________________________________
Name of Firm _______________________________________________________________
Address ____________________________________________________________________
(Include Zip Code)
Area Code and Telephone Number _____________________________________________
7
<PAGE>
BOX 7 BOX 8
SPECIAL DELIVERY INSTRUCTIONS
SPECIAL EXCHANGE INSTRUCTIONS (See Instructions 1, 5 and 6
(See Instructions 1, 5 and 6 below)
below)
To be completed ONLY if New
To be completed ONLY if the New Notes are to be sent to someone
Notes are to be issued in the other than the registered holder
name of someone other than the of the Old Notes whose name(s)
registered holder of the Old appear(s) above, or to such reg-
Notes whose name(s) appear(s) istered holder(s) at an address
above. other than that shown above.
Issue New Notes to: Mail New Notes to:
Name _____________________________ Name______________________________
(Please Print) (Please Print)
Address __________________________ Address __________________________
__________________________________ __________________________________
(Include Zip Code) (Include Zip Code)
__________________________________ __________________________________
(Tax Identification or Social (Tax Identification or Social
Security Number) Security Number)
BOX 9
SUBSTITUTE FORM W-9
TO BE COMPLETED BY ALL TENDERING SECURITYHOLDERS
(SEE INSTRUCTION 9 BELOW)
SIGN THIS SUBSTITUTE FORM W-9 IN ADDITION TO THE SIGNATURE(S) REQUIRED IN BOX 6
- --------------------------------------------------------------------------------
PAYER'S NAME: CHASE MANHATTAN BANK LONDON
- --------------------------------------------------------------------------------
Part I--Please provide your TIN
SUBSTITUTE (either your social security number ---------------
Form W-9 or employer identification number) TIN
in the box to the right and certify
by signing and dating below.
--------------------------------------------------------
Part II--Awaiting TIN [_]
Department of the Treasury
Sign this form and the certification of awaiting
taxpayer identification number below.
Internal Revenue Service
Payer's Request
for Taxpayer Part III--EXEMPT [_]
Identification See enclosed Guidelines or additional information and
Number (TIN) and SIGN THIS FORM.
Certification --------------------------------------------------------
(1) The number shown on this form is my correct
taxpayer identification number (or I am waiting
for a number to be issued to me); and
Certification--Under penalties of perjury, I certify
that:
(2) I am not subject to backup withholding because
(i) I am exempt from backup withholding, or (ii)
I have not been notified by the Internal Revenue
Service (IRS) that I am subject to backup with-
holding as a result of a failure to report all
interest or dividends, or (iii) the IRS has noti-
fied me that I am no longer subject to backup
withholding.
(3) Any other information provided on this form
is correct.
--------------------------------------------------------
Certification instructions--You must cross out item
(iii) in Part (2) above if you have been notified by
the IRS that you are subject to backup withholding
because of underreporting interest or dividends on
your tax return and you are no longer subject to
backup withholding.
Signature ________________________________ Date
8
<PAGE>
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE
IF YOU CHECKED THE BOX IN PART 2 OF THE SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification
number has not been issued to me, and either (1) I have mailed or delivered
an application to receive a taxpayer identification number to the
appropriate Internal Revenue Service Center or Social Security
Administration Office or (2) I intend to mail or deliver an application in
the near future. I understand that if I do not provide a taxpayer
identification number by the time of payment, 31% of all payments made to
me on account of the New Notes shall be retained until I provide a taxpayer
identification number to the U.S. Exchange Agent and that, if I do not
provide my taxpayer identification number within 60 days, such retained
amounts shall be remitted to the Internal Revenue Service as backup
withholding and 31% of all reportable payments made to me thereafter will
be withheld and remitted to the Internal Revenue Service until I provide a
taxpayer identification number.
Signature: _________________________________________________________________
Date: ______________________________________________________________________
NOTE: FAILURE TO COMPLETE AND RETURN THIS SUBSTITUTE FORM W-9 MAY RESULT IN
BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU. PLEASE REVIEW
THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER FOR ADDITIONAL INFORMATION.
INSTRUCTIONS TO LETTER OF TRANSMITTAL
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
General
Please do not send Certificates for Old Notes directly to the Company. Your
Old Note Certificates, together with your signed and completed Letter of
Transmittal and any required supporting documents should be mailed in the
enclosed addressed envelope, or otherwise delivered, to the Euro Exchange
Agent, at either of the addresses indicated on the first page hereof. THE
METHOD OF DELIVERY OF CERTIFICATES, THIS LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING HOLDER AND
THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EURO
EXCHANGE AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT
REQUESTED, PROPERLY INSURED, OR OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN
ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED DELIVERY
PROCEDURES
This Letter of Transmittal is to be completed if either (a) Certificates
are to be forwarded herewith or (b) tenders are to be made pursuant to the
procedures for tender by book-entry transfer set forth in "The Exchange
Offer--Procedures for Tendering Old Notes" in the Prospectus. Certificates, or
timely confirmation of a book-entry transfer of such Old Notes into the Euro
Exchange Agent's account at Euroclear or Cedelbank, as applicable, as well as
this Letter of Transmittal (or facsimile thereof), properly completed and duly
executed, with any required signature guarantees, and any other documents
required by this Letter of Transmittal, must be received by the Euro Exchange
Agent at its address set forth herein on or prior to 5:00 p.m., New York City
time (10:00 p.m., London time), on the Expiration Date. Old Notes may be
tendered in whole or in part in the principal amount of Euro 1,000 and
integral multiples of Euro 1,000.
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver their Old Notes, this Letter
of Transmittal and all other required documents to the Euro Exchange Agent on
or prior to the Expiration Date or (iii) who cannot complete the procedures
for delivery by book-entry transfer on a timely basis,
9
<PAGE>
may tender their Old Notes by properly completing and duly executing a Notice
of Guaranteed Delivery pursuant to the guaranteed delivery procedures set
forth in "The Exchange Offer--Procedures for Tendering Old Notes" in the
Prospectus and by completing Box 3 hereof. Pursuant to such procedures: (i)
such tender must be made by or through an Eligible Institution (as defined
below); (ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form made available by the Company, must be
received by the Euro Exchange Agent on or prior to the Expiration Date; and
(iii) the Certificates (or a book-entry confirmation (as defined in the
Prospectus)) representing all tendered Old Notes, in proper form for transfer,
together with a Letter of Transmittal (or facsimile thereof), properly
completed and duly executed, with any required signature guarantees and any
other documents required by this Letter of Transmittal, must be received by
the Euro Exchange Agent within three New York Stock Exchange trading days
after the date of execution of such Notice of Guaranteed Delivery, all as
provided in "The Exchange Offer--Procedures for Tendering Old Notes" in the
Prospectus.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted
by facsimile or mail to the Euro Exchange Agent, and must include a guarantee
by an Eligible Institution in the form set forth in such Notice. For Old Notes
to be properly tendered pursuant to the guaranteed delivery procedure, the
Euro Exchange Agent must receive a Notice of Guaranteed Delivery on or prior
to the Expiration Date. As used herein, "Eligible Institution" means a firm or
other entity that is a member of a registered national securities exchange or
of the National Association of Securities Dealers, Inc., a commercial bank or
trust company having an office or correspondent in the United States or is
identified in Rule 17Ad-15 under the Exchange Act as "an eligible guarantor
institution," including (as such terms are defined therein) (i) a bank; (ii) a
broker, dealer, municipal securities broker or dealer or government securities
broker or dealer; (iii) a credit union; (iv) a national securities exchange,
registered securities association or clearing agency; or (v) a savings
association, that is a participant in the Securities Transfer Agents Medallion
Program, the New York Stock Exchange Medallion Signature Program or the Stock
Exchange Medallion Program.
The Company will not accept any alternative, conditional or contingent
tenders. Each tendering holder, by execution of a Letter of Transmittal (or
facsimile thereof), waives any right to receive any notice of the acceptance
of such tender.
2. GUARANTEE OF SIGNATURES
No signature guarantee on this Letter of Transmittal is required if:
(i) this Letter of Transmittal is signed by the registered holder (which
term, for purposes of this document, shall include any participant in
Euroclear or Cedelbank whose name appears on a security position listing as
the owner of the Old Notes) of Old Notes tendered herewith, unless such
holder(s) has completed either the box entitled "Special Exchange
Instructions" (Box 7) or the box entitled "Special Delivery Instructions"
(Box 8) above, or
(ii) such Old Notes are tendered for the account of a firm that is an
Eligible Institution.
In all other cases, an Eligible Institution must guarantee the signature(s)
on this Letter of Transmittal (Box 6). See Instruction 5.
3. INADEQUATE SPACE
If the space provided in the box captioned "Description of Old Notes" is
inadequate, the Certificate number(s) and/or the principal amount of Old Notes
and any other required information should be listed on a separate signed
schedule which should be attached to this Letter of Transmittal.
4. PARTIAL TENDERS AND WITHDRAWAL RIGHTS
Tenders of Old Notes will be accepted only in the principal amount of Euro
1,000 and integral multiples thereof. If less than all the Old Notes evidenced
by any Certificate submitted are to be tendered, fill in the principal amount
of Old Notes which are to be tendered in Box 1 under the column "Principal
Amount of Old Notes Tendered". In such case, new Certificate(s) for the
remainder of the Old Notes that were evidenced by your Old Notes
Certificate(s) will only be sent to the holder of the Old Notes, promptly
after the Expiration Date. All Old Notes represented by Certificates delivered
to the Euro Exchange Agent will be deemed to have been tendered unless
otherwise indicated.
10
<PAGE>
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time on or prior to the Expiration Date. In order for a withdrawal to
be effective on or prior to that time, a written, telegraphic, telex or
facsimile transmission of such notice of withdrawal must be timely received by
the Euro Exchange Agent at its address set forth above or in the Prospectus on
or prior to the Expiration Date. Any such notice of withdrawal must specify
the name of the person who tendered the Old Notes to be withdrawn, the
aggregate principal amount of Old Notes to be withdrawn, and (if Certificates
for such Old Notes have been tendered) the name of the registered holder of
the Old Notes as set forth on the Certificate for the Old Notes, if different
from that of the person who tendered such Old Notes. If Certificates for the
Old Notes have been delivered or otherwise identified to the Euro Exchange
Agent, then prior to the physical release of such Certificates for the Old
Notes, the tendering holder must submit the serial numbers shown on the
particular Certificates for the Old Notes to be withdrawn and the signature on
the notice of withdrawal must be guaranteed by an Eligible Institution, except
in the case of Old Notes tendered for the account of an Eligible Institution.
If Old Notes have been tendered pursuant to the procedures for book-entry
transfer set forth in "The Exchange Offer--Procedures for Tendering Old
Notes," the notice of withdrawal must specify the name and number of the
account at Euroclear or Cedelbank, as applicable, to be credited with the
withdrawal of Old Notes, in which case a notice of withdrawal will be
effective if delivered to the Euro Exchange Agent by written, telegraphic,
telex or facsimile transmission. Withdrawals of tenders of Old Notes may not
be rescinded. Old Notes properly withdrawn will not be deemed validly tendered
for purposes of the Exchange Offer, but may be retendered at any subsequent
time on or prior to the Expiration Date by following any of the procedures
described in the Prospectus under "The Exchange Offer--Procedures for
Tendering Old Notes."
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Company, in its
sole discretion, whose determination shall be final and binding on all
parties. Neither the Company, any affiliates or assigns of the Company, the
Euro Exchange Agent nor any other person shall be under any duty to give any
notification of any irregularities in any notice of withdrawal or incur any
liability for failure to give such notification. Any Old Notes which have been
tendered but which are withdrawn will be returned to the holder thereof
without cost to such holder promptly after withdrawal.
5. SIGNATURES ON LETTER OF TRANSMITTAL, ASSIGNMENTS AND ENDORSEMENTS
If this Letter of Transmittal is signed by the registered holder(s) of the
Old Notes tendered hereby, the signature(s) must correspond exactly with the
name(s) as written on the face of the Certificate(s) without alteration,
enlargement or any change whatsoever.
If any of the Old Notes tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If any tendered Old Notes are registered in different name(s) on several
Certificates, it will be necessary to complete, sign and submit as many
separate Letters of Transmittal (or facsimiles thereof) as there are different
registrations of Certificates.
If this Letter of Transmittal or any Certificates or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity,
such persons should so indicate when signing and, unless waived by the
Company, must submit proper evidence satisfactory to the Company, in its sole
discretion, of such persons' authority to so act.
When this Letter of Transmittal is signed by the registered owner(s) of the
Old Notes listed and transmitted hereby, no endorsement(s) of Certificate(s)
or separate bond power(s) are required unless New Notes are to be issued in
the name of a person other than the registered holder(s). However, if New
Notes are to be issued in the name of a person other than the registered
holder(s), signature(s) on such Certificate(s) or bond power(s) must be
guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered owner(s) of the Old Notes listed, the certificates must be endorsed
or accompanied by appropriate bond powers, signed exactly as the name or names
of the registered owner(s) appear(s) on the Certificates, and also must be
accompanied by such opinions of counsel, certifications and other information
as the Company or the Trustee for the Old Notes may require in accordance with
the restrictions on
11
<PAGE>
transfer applicable to the Old Notes. Signatures on such Certificates or bond
powers must be guaranteed by an Eligible Institution.
6. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS
If New Notes are to be issued in the name of a person other than the signer
of this Letter of Transmittal, or if New Notes are to be sent to someone other
than the signer of this Letter of Transmittal or to an address other than that
shown above, the appropriate boxes on this Letter of Transmittal should be
completed (Box 7 and 8). Certificates for Old Notes not exchanged will be
returned by mail or, if tendered by book-entry transfer, by crediting the
account indicated above maintained at Euroclear or Cedelbank, as applicable.
See Instruction 4.
7. DETERMINATION OF VALIDITY
The Company will determine, in its sole discretion, all questions as to the
form of documents, validity, eligibility (including time of receipt) and
acceptance for exchange of any tender of Old Notes, which determination shall
be final and binding on all parties. The Company reserves the absolute right
to reject any and all tenders determined by it not to be in proper form or the
acceptance of which, or exchange for, may, in the view of counsel to the
Company, be unlawful. The Company also reserves the absolute right, subject to
applicable law, to waive any of the conditions of the Exchange Offer set forth
in the Prospectus under "The Exchange Offer--Conditions to the Exchange Offer"
or any conditions or irregularity in any tender of Old Notes of any particular
holder whether or not similar conditions or irregularities are waived in the
case of other holders.
The Company's interpretation of the terms and conditions of the Exchange
Offer (including this Letter of Transmittal and the instructions hereto) will
be final and binding. No tender of Old Notes will be deemed to have been
validly made until all irregularities with respect to such tender have been
cured or waived. Neither the Company, any affiliates or assigns of the
Company, the Euro Exchange Agent, nor any other person shall be under any duty
to give notification of any irregularities in tenders or incur any liability
for failure to give such notification.
8. QUESTIONS, REQUESTS FOR ASSISTANCE AND ADDITIONAL COPIES
Questions and requests for assistance may be directed to the Euro Exchange
Agent at its address and telephone number set forth on the front of this
Letter of Transmittal. Additional copies of the Prospectus, the Notice of
Guaranteed Delivery and the Letter of Transmittal may be obtained from the
Euro Exchange Agent.
9. 31% BACKUP WITHHOLDING; SUBSTITUTE FORM W-9
For U.S. Federal income tax purposes, holders are required, unless an
exemption applies, to provide the Euro Exchange Agent with such holder's
correct taxpayer identification number ("TIN") on Substitute Form W-9 of this
Letter of Transmittal (Box 9) and certify, under penalties of perjury, that
such number is correct and he or she is not subject to backup withholding. If
the Euro Exchange Agent is not provided with the correct TIN, the Internal
Revenue Service (the "IRS") may subject the holder or other payee to a $50
penalty. In addition, payments to such holders or other payees with respect to
Old Notes exchanged pursuant to the Exchange Offer, or with respect to New
Notes following the Exchange Offer, may be subject to 31% backup withholding.
The box in Part 2 of the Substitute Form W-9 (Box 9) may be checked if the
tendering holder has not been issued a TIN and has applied for a TIN or
intends to apply for a TIN in the near future. If the box in Part 2 is
checked, the holder or other payee must also complete the Certificate of
Awaiting Taxpayer Identification Number below Substitute Form W-9 in order to
avoid backup withholding. Notwithstanding that the box in Part 2 is checked
and the Certificate of Awaiting Taxpayer Identification Number is completed,
the Euro Exchange Agent will withhold 31% of all payments made prior to the
time a properly certified TIN is provided to the Euro Exchange Agent.
The holder is required to give the Euro Exchange Agent the TIN (i.e.,
social security number or employer identification number) of the registered
owner of the Old Notes or of the last transferee appearing on the transfers
attached to, or endorsed
12
<PAGE>
on, the Old Notes. If the Old Notes are registered in more than one name or
are not in the name of the actual owner, consult the enclosed "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9" for
additional guidance on which number to report.
Certain holders (including, among others, corporations, financial
institutions and certain foreign persons) may not be subject to these backup
withholding and reporting requirements. Such holders should nevertheless
complete the attached Substitute Form W-9 below and check the box in Part 3 of
Box 9 for "exempt", to avoid possible erroneous backup withholding. A foreign
person may qualify as an exempt recipient by submitting a properly completed
IRS Form W-8, signed under penalties of perjury, attesting to that holder's
exempt status. Please consult the enclosed "Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9" for additional guidance
on which holders are exempt from backup withholding.
Backup withholding is not an additional U.S. Federal income tax. Rather,
the U.S. Federal income tax liability of a person subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained.
10. LOST, DESTROYED OR STOLEN CERTIFICATES
If any Certificate(s) representing Old Notes have been lost, destroyed or
stolen, the holder should promptly notify the Euro Exchange Agent. The holder
will then be instructed as to the steps that must be taken in order to replace
the Certificate(s). This Letter of Transmittal and related documents cannot be
processed until the procedures for replacing lost, destroyed or stolen
Certificate(s) have been followed.
11. SECURITY TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to
pay any transfer taxes in connection therewith. If, however, New Notes are to
be delivered to, or are to be issued in the name of, any person other than the
registered holder of the Old Notes tendered, or if a transfer tax is imposed
for any reason other than the exchange of Old Notes in connection with the
Exchange Offer, then the amount of any such transfer tax (whether imposed on
the registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted with the Letter of Transmittal, the amount of such
transfer taxes will be billed directly to such tendering holder.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE THEREOF) AND ALL OTHER
REQUIRED DOCUMENTS MUST BE RECEIVED BY THE EURO EXCHANGE AGENT ON OR PRIOR TO
THE EXPIRATION DATE.
13
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
A. TIN--The Taxpayer Identification Number for most individuals is their
social security number. Refer to the following chart to determine the
appropriate number:
<TABLE>
- --------------------------------------------
<CAPTION>
Give the
For this type of SOCIAL SECURITY
account: number of--
- --------------------------------------------
<S> <C>
1. Individual The individual
2. Two or more The actual owner of
individuals (joint the account or, if
account) combined funds, the
first individual on
the account(1)
3. Custodian account of The minor(2)
a minor (Uniform
Gift to Minors Act)
4.a. The usual The grantor-
revocable savings trustee(1)
trust (grantor is
also trustee)
b. So-called trust The actual owner(1)
account that is not
a legal or valid
trust under State
law
5. Sole proprietorship The owner(3)
- --------------------------------------------
</TABLE>
<TABLE>
-
<CAPTION>
Give the EMPLOYER
For this type of IDENTIFICATION
account: number of--
-
<S> <C>
6. Sole proprietorship The owner(3)
7. A valid trust, Legal entity(4)
estate or pension
trust
8. Corporate The corporation
9. Association, club, The organization
religious,
charitable,
educational or
other tax-exempt
organization
10. Partnership The partnership
11. A broker or The broker or
registered nominee nominee
12. Account with the The public entity
Department of
Agriculture
-
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's name and social security
number.
(3) Show the individual's name. You may also enter your business name or
"doing business as" name. You may use either your Social Security number
or your employer identification number.
(4) List first and circle the name of the legal trust, estate, or pension
trust.
Note: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
B. EXEMPT PAYEES--The following lists exempt payees. If you are exempt, you
must nonetheless complete the form and provide your TIN in order to establish
that you are exempt. Check the box in Part 3 of the form, sign and date
the form.
For this purpose, Exempt Payees include: (1) A corporation; (2) An
organization exempt from tax under section 501(a), or an individual retirement
plan (IRA) or a custodial account under section 403(b)(7); (3) The United
States or any of its agencies or instrumentalities; (4) A state, the District
of Columbia, a possession of the United States, or any of their political
subdivisions or instrumentalities; (5) A foreign government or any of its
political subdivisions, agencies or instrumentalities; (6) An international
organization or any of its agencies or instrumentalities; (7) A foreign
central bank of issue; (8) A dealer in securities or commodities required to
register in the U.S. or a possession of the U.S.; (9) A real estate investment
trust; (10) An entity or person registered at all times during the tax year
under the Investment Company Act of 1940; (11) A common trust fund operated by
a bank under section 584(a); (12) A financial institution.
C. OBTAINING A NUMBER--If you do not have a taxpayer identification number
or you do not know your number, obtain Form SS-5, application for a Social
Security Number, or Form SS-4, Application for Employer Identification Number,
at the local office of the Social Security Administration or the Internal
Revenue Service and apply for a number.
D. PRIVACY ACT NOTICE--Section 6109 requires most recipients of dividend,
interest or other payments to give taxpayer identification numbers to payers
who must report the payments to the IRS. The IRS uses the numbers for
identification purposes. Payers must be given the numbers whether or not
payees are required to file tax returns. Payers must generally withhold 31% of
taxable interest, dividend, and certain other payments to a payee who does not
furnish a taxpayer identification number. Certain penalties may also apply.
14
<PAGE>
E. PENALTIES
(1) Penalty for Failure to Furnish Taxpayer Identification Number. If you
fail to furnish your taxpayer identification number to a payer, you are
subject to a penalty of $50 for each such failure unless your failure is due
to reasonable cause and not to willful neglect.
(2) Failure to Report Certain Dividend and Interest Payments. If you fail
to include any portion of an includible payment for interest, dividends, or
patronage dividends in gross income, such failure will be treated as being due
to negligence and will be subject to a penalty of 5% on any portion of an
under-payment attributable to that failure unless there is clear and
convincing evidence to the contrary.
(3) Civil Penalty for False Information with Respect to Withholding. If
you make a false statement with no reasonable basis which results in no
imposition of backup withholding, you are subject to a penalty of $500.
(4) Criminal Penalty for Falsifying Information. Falsifying certifications
or affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL
REVENUE SERVICE.
15
<PAGE>
EXHIBIT 99.3
NOTICE OF GUARANTEED DELIVERY
FOR TENDER OF DOLLAR-DENOMINATED
10 3/4% SENIOR NOTES DUE 2009 OF
EXODUS COMMUNICATIONS, INC.
This Notice of Guaranteed Delivery, or one substantially equivalent to this
form, must be used to accept the Exchange Offer (as Defined below) if (i)
certificates for the Company's (as defined below) dollar-denominated 10 3/4%
Senior Notes due 2009 (the "Old Notes") are not immediately available, (ii)
the Old Notes, the applicable Letter of Transmittal and all other required
documents cannot be delivered to Chase Manhattan Bank and Trust Company,
National Association (the "U.S. Exchange Agent") on or prior to the expiration
date (as defined in the Prospectus referred to below) or (iii) the procedures
for delivery by book-entry transfer cannot be completed on a timely basis.
This Notice of Guaranteed Delivery may be delivered by hand, overnight courier
or mail, or transmitted by facsimile transmission, to the U.S. Exchange Agent.
See "The Exchange Offer--Procedures for Tendering Old Notes" in the
Prospectus.
THE U.S. EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
CHASE MANHATTAN BANK AND TRUST COMPANY, NATIONAL ASSOCIATION
BY MAIL, OVERNIGHT DELIVERY OR HAND:
Chase Manhattan Bank and Trust Company, National Association
101 California Street, Suite 2725
San Francisco, CA 94111
Attn: Cecil Bobey
Trust Department
(Exodus Communications, Inc., 10 3/4% Senior Notes Due 2009)
TO CONFIRM BY TELEPHONE OR FOR INFORMATION:
415-954-9581
FACSIMILE TRANSMISSIONS:
415-693-8850
IN ADDITION, IN ORDER TO UTILIZE THE GUARANTEED DELIVERY PROCEDURE TO
TENDER OLD NOTES PURSUANT TO THE EXCHANGE OFFER, AN APPLICABLE COMPLETED,
SIGNED AND DATED LETTER OF TRANSMITTAL RELATING TO THE OLD NOTES (OR FACSIMILE
THEREOF) MUST ALSO BE RECEIVED BY THE U.S. EXCHANGE AGENT ON OR PRIOR TO THE
EXPIRATION DATE. CAPITALIZED TERMS NOT DEFINED HEREIN HAVE THE MEANINGS
ASSIGNED TO THEM IN THE PROSPECTUS.
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION OF THIS NOTICE OF GUARANTEED DELIVERY VIA
FACSIMILE TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A
VALID DELIVERY.
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE
SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE
GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH
SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE
SIGNATURE BOX ON THE LETTER OF TRANSMITTAL.
1
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to Exodus Communications, Inc., a Delaware
corporation (the "Company"), upon the terms and subject to the conditions set
forth in the prospectus dated , 2000 (as the same may be amended or
supplemented from time to time, the "Prospectus") and the related Letter of
Transmittal (which together constitute the "Exchange Offer"), receipt of which
is hereby acknowledged, the aggregate principal amount of Old Notes set forth
below pursuant to the guaranteed delivery procedures set forth in the
Prospectus under the caption "The Exchange Offer--Procedures for Tendering Old
Notes."
Description of Old Notes Tendered
- -------------------------------------------------------------------------------
Name(s), Address(es) and Area Code(s) and Telephone Number(s) of Registered
Holder(s):
Certificate Number(s) (if
available):
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Aggregate Principal Amount Tendered: $
- -------------------------------------------------------------------------------
Signature(s):
- -------------------------------------------------------------------------------
If Old Notes will be tendered by book-entry transfer, please provide the
following information:
Name of Tendering Institution: ______________________________________
DTC Account Number: _________________________________________________
Date: _______________________________________________________________
Transaction Code Number: ____________________________________________
THE GUARANTEE BELOW MUST BE COMPLETED
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm or other entity identified in Rule 17Ad-15 under
the Securities Exchange Act of 1934, as amended, as an "eligible guarantor
institution," including (as such terms are defined therein) (i) a bank; (ii) a
broker, dealer, municipal securities broker or dealer or government securities
broker or dealer; (iii) a credit union; (iv) a national securities exchange,
registered securities association or clearing agency; or (v) a savings
association that is a participant in the Securities Transfer Agents Medallion
Program, the New York Stock Exchange Medallion Signature Program or the Stock
Exchanges Medallion Program (each of the foregoing being referred to as an
"Eligible Institution"), hereby guarantees to deliver to the U.S. Exchange
Agent, at its address
2
<PAGE>
set forth above, either the Old Notes tendered hereby in proper form for
transfer, or confirmation of the book-entry transfer of such Old Notes to the
U.S. Exchange Agent's account at The Depository Trust Company ("DTC"),
pursuant to the procedures for book-entry transfer set forth in the
Prospectus, in either case together with one or more applicable properly
completed and duly executed Letter(s) of Transmittal (or facsimile thereof)
and any other required documents within three New York Stock Exchange trading
days after the date of execution of this Notice of Guaranteed Delivery.
The undersigned acknowledges that it must deliver the applicable Letter(s)
of Transmittal and the Old Notes tendered hereby to the U.S. Exchange Agent
within the time period set forth above and that failure to do so could result
in a financial loss to the undersigned.
Name of Firm: Authorized Signature:
- -------------------------------------------------------------------------------
Address: Name (Please Print):
----------------------------------
Capacity or Title:
- -------------------------------------------------------------------------------
Area Code and Telephone Number: Date:
- -------------------------------------------------------------------------------
NOTE: DO NOT SEND OLD NOTES WITH THIS NOTICE OF GUARANTEED DELIVERY. ACTUAL
SURRENDER OF OLD NOTES MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, AN
APPLICABLE PROPERLY COMPLETED AND DULY EXECUTED LETTER OF TRANSMITTAL AND ANY
OTHER REQUIRED DOCUMENTS.
No person has been authorized to give any information or to make any
representations in connection with this offering other than those contained in
the Prospectus and, if given or made, such other information or
representations must not be relied upon as having been authorized by the
Company. Neither the delivery of the Prospectus nor any exchange of Old Notes
for New Notes made hereunder shall, under any circumstances, create any
implication that there has been no change in the affairs of the Company since
the date hereof or that the information contained herein is correct as of any
time subsequent to its date. The Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any securities other than the
securities to which it relates. The Prospectus does not constitute an offer to
sell or the solicitation of an offer to buy such securities in any
circumstances in which such offer or solicitation is unlawful.
3
<PAGE>
EXHIBIT 99.4
NOTICE OF GUARANTEED DELIVERY
FOR TENDER OF EURO-DENOMINATED
10 3/4% SENIOR NOTES DUE 2009 OF
EXODUS COMMUNICATIONS, INC.
This Notice of Guaranteed Delivery, or one substantially equivalent to this
form, must be used to accept the Exchange Offer (as defined below) if (i)
certificates for the Company's (as defined below) euro-denominated 10 3/4%
Senior Notes due 2009 (the "Old Notes") are not immediately available, (ii)
the Old Notes, the applicable Letter of Transmittal and all other required
documents cannot be delivered to Chase Manhattan Bank London (the "Euro
Exchange Agent") on or prior to the Expiration Date (as defined in the
Prospectus referred to below) or (iii) the procedures for delivery by book-
entry transfer cannot be completed on a timely basis. This Notice of
Guaranteed Delivery may be delivered by hand, overnight courier or mail, or
transmitted by facsimile transmission, to the Euro Exchange Agent. see "The
Exchange Offer--Procedures for Tendering Old Notes" in the Prospectus.
THE EURO EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
CHASE MANHATTAN BANK LONDON
BY MAIL, OVERNIGHT DELIVERY OR HAND:
Chase Manhattan Bank London
[ADDRESS]
[OFFICER]
(Exodus Communications, Inc., 10 3/4% Senior Notes due 2009)
TO CONFIRM BY TELEPHONE OR FOR INFORMATION:
[NUMBER]
FACSIMILE TRANSMISSIONS:
[NUMBER]
IN ADDITION, IN ORDER TO UTILIZE THE GUARANTEED DELIVERY PROCEDURE TO
TENDER OLD NOTES PURSUANT TO THE EXCHANGE OFFER, AN APPLICABLE COMPLETED,
SIGNED AND DATED LETTER OF TRANSMITTAL RELATING TO THE OLD NOTES (OR FACSIMILE
THEREOF) MUST ALSO BE RECEIVED BY THE EXCHANGE AGENT ON OR PRIOR TO THE
EXPIRATION DATE. CAPITALIZED TERMS NOT DEFINED HEREIN HAVE THE MEANINGS
ASSIGNED TO THEM IN THE PROSPECTUS.
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION OF THIS NOTICE OF GUARANTEED DELIVERY VIA
FACSIMILE TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A
VALID DELIVERY.
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE
SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE
GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH
SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE
SIGNATURE BOX ON THE LETTER OF TRANSMITTAL.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to Exodus Communications, Inc., a Delaware
corporation (the "Company"), upon the terms and subject to the conditions set
forth in the prospectus dated , 2000 (as the same may be amended or
supplemented from time to time, the "Prospectus") and the related Letter of
Transmittal (which together constitute the "Exchange Offer"), receipt of which
is hereby acknowledged, the aggregate principal amount of Old Notes set forth
below pursuant to the guaranteed delivery procedures set forth in the
Prospectus under the caption "The Exchange Offer--Procedures for Tendering Old
Notes."
Description of Old Notes Tendered
- -------------------------------------------------------------------------------
Name(s), Address(es) and Area Code(s) and
Telephone Number(s) of Registered Holder(s): Certificate Number(s) (if
available):
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Aggregate Principal Amount Tendered: $
- -------------------------------------------------------------------------------
Signature(s):
- -------------------------------------------------------------------------------
If Old Notes will be tendered by book-entry transfer, please provide the
following information:
Name of Tendering Institution: ______________________________________
Euroclear or Cedelbank Account Number: ______________________________
Date: _______________________________________________________________
Transaction Code Number: ____________________________________________
THE GUARANTEE BELOW MUST BE COMPLETED
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm or other entity that is a member of a registered
national securities exchange or of the National Association of Securities
Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or is identified in Rule 17Ad-15 under the
Securities Exchange Act of 1934, as amended, as an "eligible guarantor
institution," including (as such terms are defined therein) (i) a bank; (ii) a
broker, dealer, municipal securities broker or dealer or government securities
broker or dealer; (iii) a credit union; (iv) a national securities exchange,
registered securities association or clearing agency; or (v) a savings
association that is a participant in the Securities Transfer Agents Medallion
Program, the New York Stock
<PAGE>
Exchange Medallion Signature Program or the Stock Exchanges Medallion Program
(each of the foregoing being referred to as an "Eligible Institution"), hereby
guarantees to deliver to the Euro Exchange Agent, at its address set forth
above, either the Old Notes tendered hereby in proper form for transfer, or
confirmation of the book-entry transfer of such Old Notes to the Euro Exchange
Agent's account at Euroclear or Cedelbank, pursuant to the procedures for
book-entry transfer set forth in the Prospectus, in either case together with
one or more applicable properly completed and duly executed Letter(s) of
Transmittal (or facsimile thereof) and any other required documents within
three New York Stock Exchange trading days after the date of execution of this
Notice of Guaranteed Delivery.
The undersigned acknowledges that it must deliver the applicable Letter(s)
of Transmittal and the Old Notes tendered hereby to the Euro Exchange Agent
within the time period set forth above and that failure to do so could result
in a financial loss to the undersigned.
Name of Firm: Authorized Signature:
- -------------------------------------------------------------------------------
Address: Name (Please Print):
----------------------------------
Capacity or Title:
- -------------------------------------------------------------------------------
Area Code and Telephone Number: Date:
- -------------------------------------------------------------------------------
NOTE: DO NOT SEND OLD NOTES WITH THIS NOTICE OF GUARANTEED DELIVERY. ACTUAL
SURRENDER OF OLD NOTES MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, AN
APPLICABLE PROPERLY COMPLETED AND DULY EXECUTED LETTER OF TRANSMITTAL AND ANY
OTHER REQUIRED DOCUMENTS.
No person has been authorized to give any information or to make any
representations in connection with this offering other than those contained in
the Prospectus and, if given or made, such other information or
representations must not be relied upon as having been authorized by the
Company. Neither the delivery of the Prospectus nor any exchange of Old Notes
for New Notes made hereunder shall, under any circumstances, create any
implication that there has been no change in the affairs of the Company since
the date hereof or that the information contained herein is correct as of any
time subsequent to its date. The Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any securities other than the
securities to which it relates. The Prospectus does not constitute an offer to
sell or the solicitation of an offer to buy such securities in any
circumstances in which such offer or solicitation is unlawful.
